<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 September 30, 2001

          ( ) 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
                                     0-24439

                            HINES HORTICULTURE, INC.
             (Exact name of registrant as specified in its charter)


         Delaware                                                33-0803204
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)

                               12621 Jeffrey Road
                            Irvine, California 92620
               (Address of principal executive offices) (Zip Code)

                                 (949) 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 October 31, 2001 there were 22,072,549 shares of Common Stock, par value
$0.01 per share, outstanding.
================================================================================


<PAGE>


                            HINES HORTICULTURE, INC.


                                      INDEX

                          PART I. FINANCIAL INFORMATION


Item 1.   Financial Statements                                         Page No.
                                                                       --------

          Consolidated Balance Sheets as of
          September 30, 2001 and December 31, 2000                        1

          Consolidated Statements of Operations for the Three
          Months and Nine months ended September 30, 2001
          and 2000                                                        2

          Consolidated Statements of Cash Flows for the
          Nine months ended September 30, 2001 and 2000                   3

          Notes to the Consolidated Financial Statements                  4

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                            16

Item 3.   Quantitative and Qualitative Disclosures About Market Risk     26



                           PART II. OTHER INFORMATION


Item 6.   Exhibits and Reports on Form 8-K                               27

          Signatures                                                     28



Note: Items 1, 2, 3, 4, and 5 of Part II are omitted because they are not
      applicable.
<PAGE>
<TABLE>

                            HINES HORTICULTURE, INC.
                           CONSOLIDATED BALANCE SHEETS
                    September 30, 2001 and December 31, 2000
                    (Dollars in thousands, except share data)
<CAPTION>

ASSETS                                                     September 30, December 31
                                                               2001         2000
                                                            ----------   ----------
                                                           (Unaudited)
<S>                                                         <C>          <C>
CURRENT ASSETS:
       Cash                                                 $       -    $       -
       Accounts receivable, net of allowance for
          doubtful accounts of $2,089 and $2,204               57,960       49,102
       Inventories                                            168,122      168,575
       Prepaid expenses and other current assets                7,048        5,542
                                                            ----------   ----------
                  Total current assets                        233,130      223,219

FIXED ASSETS, net of accumulated depreciation
   and depletion of $56,979 and $49,273                       215,995      208,719

DEFERRED FINANCING EXPENSES, net of
   accumulated amortization of $5,914 and $3,503                9,264       12,085

GOODWILL, net of accumulated amortization
   of $10,660 and $7,474                                      140,683      143,950
                                                            ----------   ----------
                                                            $ 599,072    $ 587,973
                                                            ==========   ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

CURRENT LIABILITIES:
       Accounts payable                                     $  20,504    $  13,665
       Accrued liabilities                                      8,390       15,976
       Accrued payroll and benefits                            11,860        9,350
       Accrued interest                                         3,540        1,732
       Long-term debt, current portion                         47,601       26,513
       Borrowings on revolving credit facility                 77,250       79,500
       Deferred income taxes                                   68,840       61,585
                                                            ----------   ----------
                  Total current liabilities                   237,985      208,321

LONG-TERM DEBT                                                249,706      288,907
                                                            ----------   ----------

INTEREST RATE SWAP AGREEMENT                                    8,038            -
                                                            ----------   ----------

DEFERRED INCOME TAXES                                           4,028        3,338
                                                            ----------   ----------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
       Common Stock
          Authorized - 60,000,000 shares, $.01 par value;
          Issued and outstanding - 22,072,549 shares
          at September 30, 2001 and December 31, 2000             221          221
       Additional paid-in capital                             128,781      128,781
       Notes receivable from stock sales                            -          (30)
       Deficit                                                (21,459)     (36,707)
       Accumulated other comprehensive loss                    (8,228)      (4,858)
                                                            ----------   ----------

                  Total shareholders' equity                   99,315       87,407
                                                            ----------   ----------

                                                            $ 599,072    $ 587,973
                                                            ==========   ==========

The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>

                                       1

<PAGE>
<TABLE>
                                                     HINES HORTICULTURE, INC.
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                  Three Months and Nine Months Ended September 30, 2001 and 2000
                                             (Dollars in thousands, except share data)
                                                            (Unaudited)
<CAPTION>

                                                  Three Months Ended September 30,  Nine Months Ended September 30,
                                                      2001            2000              2001             2000
                                                  -------------   -------------     -------------   -------------
<S>                                               <C>             <C>               <C>             <C>
Sales, net                                        $     64,705    $     66,408      $    370,232    $    353,420
Cost of goods sold                                      32,743          31,985           179,477         167,646
                                                  -------------   -------------     -------------   -------------
    Gross profit                                        31,962          34,423           190,755         185,774
                                                  -------------   -------------     -------------   -------------

Selling and distribution expenses                       24,664          23,004           104,239          96,977
General and administrative expenses                      9,048           8,839            29,609          29,734
Amortization of goodwill                                 1,081           1,053             3,194           2,764
Gain on receipt of insurance claims proceeds            (3,000)              -           (10,500)              -
Other operating expenses                                   633             116             1,293             344
                                                  -------------   -------------     -------------   -------------
    Total operating expenses                            32,426          33,012           127,835         129,819
                                                  -------------   -------------     -------------   -------------

    Operating (loss) income                               (464)          1,411            62,920          55,955
                                                  -------------   -------------     -------------   -------------

Other expenses
   Interest                                              8,766           9,178            28,846          26,104
   Interest rate swap agreement expense                  3,278               -             4,798               -
   Amortization of deferred financing expenses           1,139             376             3,416             999
                                                  -------------   -------------     -------------   -------------
                                                        13,183           9,554            37,060          27,103
                                                  -------------   -------------     -------------   -------------

(Loss) income before provision for income taxes        (13,647)         (8,143)           25,860          28,852

Income tax (benefit) provision                          (5,621)         (3,049)           10,612           8,524
                                                  -------------   -------------     -------------   -------------

Net (loss) income                                 ($     8,026)   ($     5,094)     $     15,248    $     20,328
                                                  =============   =============     =============   =============

Basic and diluted earnings per share:

    Net income (loss) per common share            ($      0.36)   ($      0.23)     $       0.69    $       0.92
                                                  =============   =============     =============   =============

Weighted average shares outstanding--Basic          22,072,549      22,072,549        22,072,549      22,072,549
                                                  =============   =============     =============   =============
Weighted average shares outstanding--Diluted        22,072,549      22,072,549        22,093,843      22,072,549
                                                  =============   =============     =============   =============


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                2
<PAGE>
<TABLE>

                                      HINES HORTICULTURE, INC.
                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            Nine Months Ended September 30, 2001 and 2000
                                       (Dollars in thousands)
                                             (Unaudited)
<CAPTION>

                                                                             2001         2000
                                                                          ----------   ----------
<S>                                                                       <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                             $  15,248    $  20,328
   Adjustments to reconcile net income to
   net cash provided by operating activities -
        Depreciation, depletion and amortization                             13,545       12,206
        Amortization of deferred financing costs                              3,416          999
        Interest rate swap agreement expense                                  4,798            -
        Loss (gain) on sale of fixed assets                                      91          (92)
        Gain on proceeds from insurance claims                               (3,000)           -
        Deferred income taxes                                                 9,329        7,861
                                                                          ----------   ----------
                                                                             43,427       41,302

Change in working capital accounts, net of acquisitions:
   Accounts receivable                                                       (8,858)     (15,144)
   Inventories                                                                  453        4,579
   Prepaid expenses and other current assets                                 (1,506)        (347)
   Accounts payable and accrued liabilities                                  11,919       (1,090)
                                                                          ----------   ----------
       Net cash provided by operating activities                             45,435       29,300
                                                                          ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Purchase of fixed assets                                                 (15,487)     (31,582)
   Proceeds from sale of fixed assets                                            95          436
   Purchase of fixed assets with insurance claims proceeds                   (5,170)           -
   Proceeds from insurance claims                                             3,000            -
   Acquisitions, net of cash                                                 (8,311)    (112,034)
                                                                          ----------   ----------
       Net cash used in investing activities                                (25,873)    (143,180)
                                                                          ----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES
   Borrowings on revolving line of credit                                   107,700      128,130
   Repayments on revolving line of credit                                  (109,950)    (127,030)
   Proceeds from the issuance of long-term debt                                   -      121,216
   Repayments of long-term debt                                             (18,708)      (5,050)
   Deferred financing costs                                                       -       (3,743)
   Proceeds from stock sales notes receivable                                    30          143
                                                                          ----------   ----------
       Net cash (used in) provided by financing activities                  (20,928)     113,666
                                                                          ----------   ----------

Effect of exchange rate changes on cash and cash equivalents                  1,366          214
                                                                          ----------   ----------

NET DECREASE IN CASH                                                              -            -

CASH, beginning of period                                                         -            -
                                                                          ----------   ----------

CASH, end of period                                                       $       -    $       -
                                                                          ==========   ==========

Supplemental disclosure of cash flow information:
   Cash paid for interest, net of capitalized interest of $613 and $875   $  27,038    $  23,900
   Cash paid for income taxes                                             $     503    $     747

The accompanying notes are an integral part of these consolidated financial statements.

                                                 3
</TABLE>

<PAGE>

                            HINES HORTICULTURE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (DOLLARS IN THOUSANDS)
                                   (UNAUDITED)

1.       Description of Business:
         ------------------------

                  Hines Horticulture, Inc. ("Hines" or the "Company"), a
         Delaware corporation, produces and distributes horticultural products
         through three operating divisions: (i) its Nursery division, (ii) its
         Color division and (iii) its Growing Media division. The Nursery
         division and Color division make up the green goods business. The green
         goods business is conducted through Hines Nurseries, Inc. ("Hines
         Nurseries"), a wholly owned subsidiary of Hines, and the business of
         the Growing Media division is conducted through Sun Gro Horticulture,
         Inc. ("Sun Gro-U.S."), a wholly owned subsidiary of Hines Nurseries,
         Sun Gro-U.S.'s wholly owned subsidiary, Sun Gro Horticulture Canada
         Ltd. ("Sun Gro-Canada"), and Sun Gro Canada's direct and indirect
         Canadian subsidiaries. Unless otherwise specified, references to
         "Hines" or the "Company" refer to Hines Horticulture, Inc. and its
         subsidiaries.

                  Hines Nurseries is a leading national supplier of ornamental
         shrubs, color plants and container-grown plants with commercial nursery
         facilities located in Arizona, California, Florida, Georgia, New York,
         Oregon, Pennsylvania, South Carolina and Texas. Hines Nurseries markets
         its products to retail and commercial customers throughout the United
         States.

                  Sun Gro produces and markets sphagnum peat moss and peat and
         bark-based growing media horticulture products for both professional
         and retail customers. Sun Gro markets its products in North America and
         various international markets with 14 production 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 (consisting of only
         normal recurring 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.



                                       4
<PAGE>


         Accordingly, footnote and other disclosures, which would substantially
         duplicate the disclosures contained in the Form 10-K, filed on March
         27, 2001 by Hines Horticulture, Inc. under the Securities Exchange Act
         of 1934, as amended (the "Exchange Act"), have been omitted. The
         financial information herein is not necessarily representative of a
         full year's operations.

3.       Earnings Per Share:
         -------------------

                  Earnings per share are calculated in accordance with SFAS No.
         128, "Earnings per Share", which requires the Company to report both
         basic earnings per share, based on the weighted-average number of
         common shares outstanding, and diluted earnings per share, based on the
         weighted-average number of common shares outstanding adjusted to
         include the potentially dilutive effect of outstanding stock options
         and warrants. For the three months ended September 30, 2001, the
         incremental shares related to the 440,000 warrants outstanding were not
         included in the computation of diluted earnings per share because their
         effect would be anti-dilutive. For the nine months ended September 30,
         2001, the incremental shares related to the 440,000 warrants
         outstanding did not result in a difference between basic and diluted
         earnings per share. There were no warrants at September 30, 2000.
         Additionally, for the three and nine months ended September 30, 2001
         and 2000, shares related to 2,786,000 and 2,889,000 options,
         respectively, were excluded from the computation of diluted earnings
         per share because they would have been anti-dilutive.

4.       Adoption Of Accounting Pronouncement:
         -------------------------------------

                  In July 2001, the Financial Accounting Standards Board issued
         Statements on Financial Accounting Standards ("SFAS") No. 141 (Business
         Combinations) and 142 (Goodwill and Other Intangible Assets). SFAS No.
         141, among other things, eliminates the use of the pooling of interests
         method of accounting for business combinations. Under the provisions of
         SFAS No. 142 goodwill will no longer be amortized, but will be subject
         to a periodic test for impairment based upon fair values. During the
         year ended December 31, 2000 and for the nine months ended September
         30, 2001, the Company reported goodwill amortization of $3,801 and
         $3,194, respectively. SFAS No. 141 is effective for all business
         combinations initiated after June 30, 2001. SFAS No. 142 will be
         effective for the Company beginning January 1, 2002. Given the recent
         issuance of these standards, the Company has not yet determined the
         impact of adoption on the financial statements.

                  Effective January 1, 2001, Hines adopted the provisions of
         Statement of Financial Accounting Standards No. 133, "Accounting for
         Derivative Instruments and Hedging Activities" ("SFAS No. 133"), as
         amended. SFAS No. 133 requires companies to record derivatives on the
         balance sheet as assets and liabilities, measured at fair value.

                                       5
<PAGE>

                  The accounting for the gain or loss due to changes in fair
         value of the derivative instrument depends on whether the derivative
         qualifies as a hedge. If the derivative instrument does not qualify as
         a hedge, the gains or losses are reported in earnings when they occur.
         If the derivative instrument qualifies as a hedge, the accounting
         varies based upon the type of risk being hedged.

                  As of January 1, 2001, the Company held an interest rate cap
         and swap agreement designed to convert the variable rate interest
         payments on certain debt to fixed rate interest rate payments. This
         agreement had previously been designated as a cash flow hedging
         relationship but did not qualify as a hedge under SFAS No. 133.
         Adopting the provisions of SFAS No. 133 on January 1, 2001 resulted in
         a cumulative after-tax charge to Accumulated Other Comprehensive Income
         as of January 1, 2001 of $2,334, representing the fair value of the
         interest rate agreement, net of tax. This amount is being amortized as
         interest rate agreement expense over the term of the debt.

                  For the three months ended September 30, 2001, the Company
         recognized a pre-tax loss of $3,278 and for the nine months ended
         September 30, 2001, the Company recognized a pre-tax loss of $4,798
         reported as Interest rate swap agreement expense in the Consolidated
         Statement of Operations related to the change in the fair value of the
         interest rate agreement.

5.       Recent Accounting Pronouncements:
         ---------------------------------

                  In August 2001, Financial Accounting Standards Board ("FASB")
         issued SFAS No. 143 (Accounting for Asset Retirement Obligations). SFAS
         No. 143 addresses financial accounting and reporting for obligations
         associated with the retirement of tangible long-lived assets and the
         associated asset retirement costs. It would be effective for the
         Company beginning with its 2003 financial statements.

                  In October 2001, the FASB issued SFAS No. 144 (Accounting for
         the Impairment or Disposal of Long-Lived Assets). SFAS No. 144
         addresses financial accounting and reporting for the impairment or
         disposal of long-lived assets and supercedes SFAS No. 121 (Accounting
         for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
         Disposed Of), and the accounting and reporting provisions of Accounting
         Principles Board ("APB") Opinion No. 30 (Reporting the Results of
         Operations--Reporting the Effects of Disposal of a Segment of a
         Business, and Extraordinary, Unusual and Infrequently Occurring Events
         and Transactions), for the disposal of a segment of a business.
         Management is currently evaluating the impact of these new statements
         on the Company's financial statements.

                                       6
<PAGE>

6.       Shipping and Handling Fees and Costs:
         -------------------------------------

                  In September 2000, the Emerging Issues Task Force ("EITF")
         reached a final consensus on Issue No. 00-10, "Accounting for Shipping
         and Handling Fees and Costs" ("EITF 00-10"). EITF 00-10 addresses the
         income statement classification of amounts charged to customers for
         shipping and handling, as well as costs related to shipping and
         handling. The EITF concluded that amounts billed to a customer in a
         sale transaction related to shipping and handling should be classified
         as revenue. The Company adopted EITF 00-10 in the fourth quarter of
         2000. Prior to adopting EITF 00-10, the Company classified certain
         shipping and handling fees as an offset to selling and distribution
         expenses. Shipping and handling fees reclassified to revenues totaled
         $3,010 for the three months ended September 30, 2000 and $21,920 for
         the nine months ended September 30, 2000.

7.       Gain On Receipt Of Insurance Claims Proceeds:
         ---------------------------------------------

                  On November 4, 2000, the Company's Seba Beach growing media
         production facility located in Alberta, Canada was substantially
         destroyed by fire. The facility and its operations are covered by
         replacement and business interruption insurance.

                  The Company recorded a gain of $3,000 for the three months
         ended September 30, 2001 and $10,500 for the nine months ended
         September 30, 2001 representing insurance proceeds received to cover
         business interruption expenses related to the fire.


8.      Inventories:
        ------------

        Inventories consisted of the following:

                                               September 30,       December 31,
                                                   2001                2000
                                               -------------       -------------

       Nursery stock                           $    146,457        $    146,924
       Finished goods                                 7,409               8,213
       Materials and supplies                        14,256              13,438
                                               -------------       -------------
                                               $    168,122        $    168,575
                                               =============       =============






                                       7
<PAGE>

9.      Comprehensive Income:
        ---------------------

                  Comprehensive income includes all changes in equity during a
       period except those resulting from investments by and distributions to
       the Company's stockholders. The Company's comprehensive income is
       composed of cumulative foreign currency translation adjustments. The
       components of comprehensive income during the three and nine months ended
       September 30, 2001 and 2000, were as follows:
<TABLE>
<CAPTION>
                                                Three Months Ended     Nine Months Ended
                                                   September 30,           September 30,
                                              ---------------------   ---------------------
                                                2001        2000        2001         2000
                                              ---------   ---------   ---------   ---------
<S>                                           <C>         <C>         <C>         <C>
       Net (loss) income                      ($ 8,026)   ($ 5,094)   $ 15,248    $ 20,328

       Cumulative foreign currency
           translation adjustments              (1,239)       (133)     (1,455)       (445)
       Cumulative effect of adoption of
           FASB 133                                 --          --      (2,334)         --
       Gain on derivatives reclassified
           to earnings                             140          --         419          --
                                              ---------   ---------   ---------   ---------
       Comprehensive (loss) income            ($ 9,125)   ($ 5,227)   $ 11,878    $ 19,883
</TABLE>

10.      Acquisitions:
         -------------

                  The following acquisitions have been accounted for under the
         purchase method for accounting purposes. The consolidated financial
         statements include the operating results of each acquisition from the
         date of acquisition.

                  On January 14, 2000, the Company completed its acquisition of
         certain assets (primarily land and buildings) and all of the
         outstanding capital stock of Willow Creek Greenhouses, Inc. ("Willow
         Creek"), a producer of quality annual bedding plants and holiday
         plants. The total acquisition price was approximately $18,800, which
         resulted in goodwill of approximately $9,700.

                  In accordance with the terms of the purchase agreement, and as
         a result of Willow Creek achieving certain operating results relating
         to the year ended December 31, 2000, the Company made an additional
         purchase price payment of $811 in fiscal 2001. At December 31, 2000,
         the Company recorded this amount as goodwill.

                  In addition, contingent upon Willow Creek achieving certain
         operating results for the year ending December 31, 2001, the Company
         may be required to make additional purchase price payments of up to
         $665 in fiscal 2002.

                                       8
<PAGE>

                  On March 3, 2000, the Company completed its acquisition of (i)
         substantially all of the assets and certain liabilities of Lovell
         Farms, Inc. and Botanical Farms, Inc.; (ii) the capital stock of
         Enviro-Safe Laboratories, Inc. and (iii) the partnership interest of
         Lovell Properties (collectively referred to as "Lovell").

                  Lovell is a producer of quality annual bedding and holiday
         plants. The total acquisition price was approximately $92,000, which
         resulted in goodwill of approximately $72,200. In accordance with the
         terms of the purchase agreement, and as a result of Lovell achieving
         certain operating results relating to the year ended December 31, 2000,
         the Company made an additional purchase price payment of $7,500 in
         fiscal 2001.

                  At December 31, 2000, the Company recorded this amount as
         goodwill. In addition, contingent upon Lovell achieving certain
         operating results for the year ending December 31, 2001, the Company
         may be required to make additional purchase price payments of up to
         $5,000 in fiscal 2002.

PRO FORMA OPERATING DATA

                  The following summary of condensed unaudited pro forma results
         of operations for the nine months ended September 30, 2000 gives effect
         to the acquisitions of Willow Creek and Lovell as if they had occurred
         on January 1, 2000 (in thousands, except per share data):

                                                                       2000
                                                                   ------------
        Sales, net                                                   $360,583
        Net income                                                    $20,278
        Basic and diluted earnings per share:                           $0.92

11.     Segment Information and Guarantor/Non-Guarantor Disclosures:
        ------------------------------------------------------------

                  The Senior Subordinated Notes issued by Hines Nurseries (the
         issuer) have been guaranteed by Hines (the parent guarantor) and by Sun
         Gro-U.S. (the subsidiary guarantor). The issuer and the subsidiary
         guarantor are 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 Nurseries and Sun
         Gro-U.S. are not presented, and Hines Nurseries and Sun Gro-U.S. are
         not filing separate reports under the Exchange Act because management
         believes that they would not be material to investors. The Senior
         Subordinated Notes are not guaranteed by Sun Gro-Canada or its present
         or future subsidiaries.

                  The following information provides the required disclosures
         with respect to the Company's segments pursuant to Statement of
         Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
         Segments of an Enterprise and Related Information." The Company
         operates in two segments: 1) the nursery segment and 2) the growing
         media segment.

                  The following consolidating information shows (a) Hines on a
         parent company basis only as the parent guarantor (carrying its
         investment in its subsidiary under the equity method), (b) Hines
         Nurseries 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 Sun Gro-Canada under the equity method),
         (d) Sun Gro-Canada and its direct and indirect subsidiaries, as
         subsidiary non-guarantors, (e) eliminations necessary to arrive at the
         information for the parent guarantor and its direct and indirect
         subsidiaries on a consolidated basis and (f) the parent guarantor on a
         consolidated basis, as follows:

         o        Consolidating balance sheets as of September 30, 2001
                  (unaudited) and December 31, 2000;

         o        Consolidating statements of operations for the three months
                  and nine months ended September 30, 2001 and 2000 (unaudited);
                  and

         o        Consolidating statements of cash flows for the nine months
                  ended September 30, 2001 and 2000 (unaudited).



                                        9
<PAGE>
<TABLE>
Guarantor / Non-guarantor Disclosures

   Consolidating Balance Sheet
   As of September 30, 2001
   (Dollars in thousands)

<CAPTION>
                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
<S>                                <C>            <C>          <C>         <C>           <C>        <C>             <C>
          ASSETS
          ------
Current assets:
    Cash                              $      -    $      -      $     -        $     -    $      -    $        -      $      -
    Accounts receivable, net                 -      36,020       19,468          2,472      21,940             -        57,960
    Inventories                              -     152,739        6,834          8,549      15,383             -       168,122
    Prepaid expenses and
       other current assets                  -       3,781        1,803          1,464       3,267             -         7,048
    Deferred income taxes                  205         122        1,238            583       1,821        (2,148)            -
                                  ---------------------------------------------------------------------------------------------
            Total current assets      $    205    $192,662      $29,343        $13,068    $ 42,411       ($2,148)     $233,130
                                  ---------------------------------------------------------------------------------------------

Fixed assets, net                            -     150,269       10,772         54,954      65,726             -       215,995
Deferred financing expenses, net           387       8,877            -              -           -             -         9,264
Goodwill, net                                -     121,405       18,657            621      19,278             -       140,683
Deferred income taxes                        -      20,828            -              -           -       (20,828)            -
Investments in subsidiaries            107,632      11,281            -              -           -      (118,913)            -
                                  ---------------------------------------------------------------------------------------------
                                      $108,224    $505,322      $58,772        $68,643    $127,415     ($141,889)     $599,072
                                  =============================================================================================

    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
Current liabilities:
    Accounts payable                  $      -    $ 14,194      $ 1,517        $ 4,793    $  6,310    $        -      $ 20,504
    Accrued liabilities                      -       7,688          333            369         702             -         8,390
    Accrued payroll and benefits             -       9,772        1,232            856       2,088             -        11,860
    Accrued interest                         -       3,540            -              -           -             -         3,540
    Long-term debt, current portion          -      31,760        9,046          6,795      15,841             -        47,601
    Revolving line of credit                 -      77,250            -              -           -             -        77,250
    Deferred income taxes                    -      70,988            -              -           -        (2,148)       68,840
    Intercompany accounts                8,909     (55,086)      28,395         17,782      46,177             -             -
                                  ---------------------------------------------------------------------------------------------
            Total current liabilities    8,909     160,106       40,523         30,595      71,118        (2,148)      237,985
                                  ---------------------------------------------------------------------------------------------

Long-term debt                               -     225,831       16,959          6,916      23,875             -       249,706
Derivative liability                         -       8,038            -              -           -             -         8,038
Deferred income taxes                        -       9,974         (195)        15,077      14,882       (20,828)        4,028
Shareholders' equity:
    Common stock                           221      17,971       11,414          4,500      15,914       (33,885)          221
    Additional paid in capital         128,781      21,362        4,112          1,777       5,889       (27,251)      128,781
    Retained earnings (deficit)        (21,459)     63,955       (7,728)         9,778       2,050       (66,005)      (21,459)
    Accumulated other comprehensive
       loss                             (8,228)     (1,915)      (6,313)             -      (6,313)        8,228        (8,228)
                                  ---------------------------------------------------------------------------------------------
            Total shareholders' equity  99,315     101,373        1,485         16,055      17,540      (118,913)       99,315
                                  ---------------------------------------------------------------------------------------------
                                      $108,224    $505,322      $58,772        $68,643    $127,415     ($141,889)     $599,072
                                  =============================================================================================



                                                                10
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)

   Consolidating Balance Sheet
   As of December 31, 2000
   (Dollars in thousands)


                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
          ASSETS
          ------
Current assets:
    Cash                              $      -    $      -      $     -        $     -    $      -    $        -      $      -
    Accounts receivable, net                 -      26,754       19,681          2,667      22,348             -        49,102
    Inventories                              -     153,125        7,881          7,569      15,450             -       168,575
    Prepaid expenses and other
       current assets                        -       1,880        2,060          1,602       3,662             -         5,542
    Deferred income taxes                    -         122        1,239            608       1,847        (1,969)            -
                                  ---------------------------------------------------------------------------------------------
            Total current assets      $      -    $181,881      $30,861        $12,446     $43,307       ($1,969)     $223,219
                                  ---------------------------------------------------------------------------------------------

Fixed assets, net                            -     141,210       12,819         54,690      67,509             -       208,719
Deferred financing expenses, net           797      11,288            -              -           -             -        12,085
Goodwill, net                                -     124,196       19,082            672      19,754             -       143,950
Deferred income taxes                       37      20,828            -          1,538       1,538       (22,403)            -
Investments in subsidiaries             94,057       9,211        7,283              -       7,283      (110,551)            -
                                  ---------------------------------------------------------------------------------------------
                                       $94,891    $488,614      $70,045        $69,346    $139,391     ($134,923)     $587,973
                                  =============================================================================================

    LIABILITIES AND SHAREHOLDERS' EQUITY
    ------------------------------------
Current liabilities:
    Accounts payable                   $     -      $8,919       $1,836        $ 2,910      $4,746      $      -       $13,665
    Accrued liabilities                      -      13,151        2,294            531       2,825             -        15,976
    Accrued payroll and benefits             -       7,339          916          1,095       2,011             -         9,350
    Accrued interest                         -       1,732            -              -           -             -         1,732
    Long-term debt, current portion          -      18,196        3,769          4,548       8,317             -        26,513
    Revolving line of credit                 -      79,500            -              -           -             -        79,500
    Deferred income taxes                    -      63,554            -              -           -        (1,969)       61,585
    Intercompany accounts                7,484     (54,698)      27,738         19,476      47,214             -             -
                                  ---------------------------------------------------------------------------------------------
            Total current liabilities    7,484     137,693       36,553         28,560      65,113        (1,969)      208,321
                                  ---------------------------------------------------------------------------------------------

Long-term debt                               -     251,823       24,875         12,209      37,084             -       288,907
Deferred income taxes                        -      11,300       (2,353)        16,794      14,441       (22,403)        3,338
Shareholders' equity:
    Common stock                           221      17,971       11,414          4,500      15,914       (33,885)          221
    Additional paid in capital         128,781      21,362        5,889          1,778       7,667       (29,029)      128,781
    Notes receivable from stock
       sales                               (30)          -            -              -           -             -           (30)
    Retained earnings (deficit)        (36,707)     48,465       (1,475)         5,505       4,030       (52,495)      (36,707)
    Accumulated other comprehensive
       loss                             (4,858)          -       (4,858)             -      (4,858)        4,858        (4,858)
                                  ---------------------------------------------------------------------------------------------
            Total shareholders' equity  87,407      87,798       10,970         11,783      22,753      (110,551)       87,407
                                  ---------------------------------------------------------------------------------------------

                                       $94,891    $488,614      $70,045        $69,346    $139,391     ($134,923)     $587,973
                                  =============================================================================================


                                                           11

<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)

   Consolidating Statement of Operations
   For the Nine Month Period Ended September 30, 2001
   (Dollars in thousands)


                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
    Sales, net                        $      -    $ 284,961     $78,709        $24,774    $103,483      ($18,212)     $370,232
    Cost of goods sold                       -      134,394      45,136         18,159      63,295       (18,212)      179,477
                                  ---------------------------------------------------------------------------------------------
        Gross Profit                         -      150,567      33,573          6,615      40,188             -       190,755
    Operating expenses                       -      101,687      28,418         (2,270)     26,148             -       127,835
                                  ---------------------------------------------------------------------------------------------
        Operating income                     -       48,880       5,155          8,885      14,040             -        62,920
                                  ---------------------------------------------------------------------------------------------
    Other expenses:
       Interest                            410       25,742       1,959          1,145       3,104             -        29,256
       Interest - intercompany               -       (2,821)      2,056            765       2,821             -             -
       Interest rate swap agreement
          expense                            -        4,798           -              -           -             -         4,798
       Amortization of deferred
          financing expenses, other    (15,490)      (1,762)          -              -           -        20,258         3,006
                                  ---------------------------------------------------------------------------------------------
                                       (15,080)      25,957       4,015          1,910       5,925        20,258        37,060
                                  ---------------------------------------------------------------------------------------------

    Income before provision for
          (benefit from) income taxes   15,080       22,923       1,140          6,975       8,115      (20,258)        25,860
    Income tax provision (benefit)        (168)       7,433       2,158          1,189       3,347            -         10,612
                                  ---------------------------------------------------------------------------------------------
    Net income (loss)                  $15,248      $15,490     ($1,018)        $5,786      $4,768     ($20,258)       $15,248



Guarantor / Non-guarantor Disclosures - (Continued)

   Consolidating Statement of Operations
   For the Three Month Period Ended September 30, 2001
   (Dollars in thousands)


                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
    Sales, net                        $      -    $  43,023     $20,148        $ 4,587    $ 24,735       ($3,053)     $ 64,705
    Cost of goods sold                       -       22,386      10,675          2,735      13,410        (3,053)       32,743
                                  ---------------------------------------------------------------------------------------------
        Gross Profit                         -       20,637       9,473          1,852      11,325             -        31,962
    Operating expenses                       -       24,201       8,634           (409)      8,225             -        32,426
                                  ---------------------------------------------------------------------------------------------
        Operating income                     -       (3,564)        839          2,261       3,100             -          (464)
                                  ---------------------------------------------------------------------------------------------
    Other expenses:
       Interest                            410        7,908         448            410         858             -         9,176
       Interest - intercompany               -         (757)        641            116         757             -             -
       Interest rate swap agreement
          expense                            -        3,278           -              -           -             -         3,278
       Amortization of deferred
          financing expenses, other      7,672           83           -              -           -        (7,026)          729
                                  ---------------------------------------------------------------------------------------------
                                         8,082       10,512       1,089            526       1,615        (7,026)       13,183
                                  ---------------------------------------------------------------------------------------------

    Income (loss) before provision
          for (benefit from)
          income taxes                  (8,082)     (14,076)       (250)         1,735       1,485         7,026       (13,647)
    Income tax provision (benefit)         (56)      (6,131)      1,572         (1,006)        566             -        (5,621)
                                  ---------------------------------------------------------------------------------------------
    Net income (loss)                  ($8,026)     ($7,945)    ($1,822)        $2,741        $919        $7,026       ($8,026)



                                                           12
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)

   Consolidating Statement of Operations
   For the Nine Month Period Ended September 30, 2000
   (Dollars in thousands)


                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
    Sales, net                        $      -     $260,912     $79,275        $30,164    $109,439      ($16,931)     $353,420
    Cost of goods sold                       -      121,152      47,048         16,377      63,425       (16,931)      167,646
                                  ---------------------------------------------------------------------------------------------
        Gross Profit                         -      139,760      32,227         13,787      46,014             -       185,774
    Operating expenses                       -       91,813      29,957          8,049      38,006             -       129,819
                                  ---------------------------------------------------------------------------------------------
        Operating income                     -       47,947       2,270          5,738       8,008             -        55,955
                                  ---------------------------------------------------------------------------------------------
    Other expenses:
       Interest                            (10)      22,445       2,579          1,235       3,814             -        26,249
       Interest - intercompany               -       (2,951)      1,792          1,014       2,806             -          (145)
       Amortization of deferred
          financing expenses, other    (20,322)      (2,537)          -              -           -        23,858           999
                                  ---------------------------------------------------------------------------------------------
                                       (20,332)      16,957       4,371          2,249       6,620        23,858        27,103
                                  ---------------------------------------------------------------------------------------------

    Income before provision for
          (benefit from) income taxes   20,332       30,990      (2,101)         3,489       1,388       (23,858)       28,852
    Income tax provision (benefit)           4       10,668      (3,464)         1,316      (2,148)            -         8,524
                                  ---------------------------------------------------------------------------------------------
    Net income                         $20,328      $20,322      $1,363         $2,173      $3,536      ($23,858)      $20,328


Guarantor / Non-guarantor Disclosures - (Continued)

    Consolidating Statement of Operations
    For the Three Month Period Ended September 30, 2000
    (Dollars in thousands)

                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
    Sales, net                        $      -    $  42,868     $19,717         $7,985     $27,702       ($4,162)     $ 66,408
    Cost of goods sold                       -       20,949      10,876          4,322      15,198        (4,162)       31,985
                                  ---------------------------------------------------------------------------------------------
        Gross Profit                         -       21,919       8,841          3,663      12,504             -        34,423
    Operating expenses                       -       22,022       8,771          2,219      10,990             -        33,012
                                  ---------------------------------------------------------------------------------------------
        Operating income                     -         (103)         70          1,444       1,514             -         1,411
                                  ---------------------------------------------------------------------------------------------
    Other expenses:
       Interest                              -        7,907         941            475       1,416             -         9,323
       Interest - intercompany               -       (1,014)        544            325         869             -          (145)
       Amortization of deferred
          financing expenses, other      5,094          280           -              -           -        (4,998)          376
                                  ---------------------------------------------------------------------------------------------
                                         5,094        7,173       1,485            800       2,285        (4,998)        9,554
                                  ---------------------------------------------------------------------------------------------

    Income before provision for
          (benefit from) income taxes   (5,094)      (7,276)     (1,415)           644        (771)        4,998        (8,143)
    Income tax provision (benefit)           -       (2,182)       (819)           (48)       (867)            -        (3,049)
                                  ---------------------------------------------------------------------------------------------
    Net income (loss)                  ($5,094)     ($5,094)      ($596)          $692         $96        $4,998       ($5,094)



                                                                13
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)

    Consolidating Statement of Cash Flows
    For the Nine Months Ended September 30, 2001
    (Dollars in thousands)

                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
Cash provided by operating activities $      -    $  36,849     $ 4,430         $4,156     $ 8,586   $         -      $ 45,435
                                  ---------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Purchase of fixed assets, net            -      (15,575)        418           (330)         88             -       (15,487)
    Proceeds from sales of fixed assets      -            -          71             24          95             -            95
    Purchase of fixed assets with
          insurance claims proceeds          -            -           -         (5,170)     (5,170)            -        (5,170)
    Proceeds from insurance claims           -            -           -          3,000       3,000             -         3,000
    Acquisitions, net of cash                -       (8,311)          -              -           -             -        (8,311)
                                  ---------------------------------------------------------------------------------------------
        Net cash (used in) provided by
           investing activities              -      (23,886)        489         (2,476)     (1,987)            -       (25,873)
                                  ---------------------------------------------------------------------------------------------

Cash flows from financing activities:
    Borrowings on revolving line of credit   -      107,700           -              -           -             -       107,700
    Repayments on revolving line of credit   -     (109,950)          -              -           -             -      (109,950)
    Intercompany (repayments) advances     (30)       1,067      (1,037)             -      (1,037)            -             -
    Repayments of long-term debt             -      (13,023)     (2,639)        (3,046)     (5,685)            -       (18,708)
    Dividends received (paid)                -        1,243      (1,243)             -      (1,243)            -             -
    Repayments of notes receivables
          from stock sales                  30            -           -              -           -             -            30
                                  ---------------------------------------------------------------------------------------------
        Net cash used in
          financing activities               -      (12,963)     (4,919)        (3,046)     (7,965)            -       (20,928)
                                  ---------------------------------------------------------------------------------------------

Effect of exchange rate changes on
     cash and cash equivalents               -            -           -          1,366       1,366               -       1,366
                                  ---------------------------------------------------------------------------------------------

Net increase in cash                         -            -           -              -           -               -           -
Cash, beginning of year                      -            -           -              -           -               -           -
                                  --------------------------------------------------------------------------------------------
Cash, end of period                  $       -    $       -     $     -      $       -    $      -       $       -     $     -
                                  =============================================================================================



                                                                14
<PAGE>
Guarantor / Non-guarantor Disclosures - (Continued)

    Consolidating Statement of Cash Flows
    For the Nine Months Ended September 30, 2000
    (Dollars in thousands)

                                  --------------------------------------------------------------------------------------------
                                                 Nursery
                                                 Segment            Growing Media Segment
                                  --------------------------------------------------------------------------------------------
                                                                            Sun Gro
                                     Hines                    Sun Gro       Canada
                                  Horticulture     Hines       U.S.       (Subsidiary
                                    (Parent      Nurseries  (Subsidiary      Non-         Sun Gro                 Consolidated
                                   Guarantor)    (Issuer)   Guarantor)    Guarantors)    Sub-total  Eliminations     Total
                                  ---------------------------------------------------------------------------------------------
Cash provided by (used in)
     operating activities             $     10    $  26,250    $ (2,407)    $    5,447     $ 3,040   $         -      $ 29,300
                                  ---------------------------------------------------------------------------------------------

Cash flows from investing activities:
    Purchase of fixed assets, net            -      (24,824)     (1,702)        (5,056)     (6,758)            -       (31,582)
    Proceeds from sales of fixed assets      -            -           -            436         436             -           436
    Acquisitions, net of cash                -     (112,034)          -              -           -             -      (112,034)
                                  ---------------------------------------------------------------------------------------------
        Net cash used in investing
          activities                         -     (136,858)     (1,702)        (4,620)     (6,322)            -      (143,180)
                                  ---------------------------------------------------------------------------------------------

Cash flows from financing activities:
    Borrowings on revolving line of credit   -      128,130           -              -           -             -       128,130
    Repayments on revolving line of credit   -     (127,030)          -              -           -             -      (127,030)
    Intercompany (repayments) advances    (153)      (7,072)      7,225              -       7,225             -             -
    Proceeds from the issuance of
          long-term debt                     -      121,216           -              -           -             -       121,216
    Repayments of long-term debt             -       (4,009)          -         (1,041)     (1,041)            -        (5,050)
    Deferred financing costs                 -       (3,743)          -              -           -             -        (3,743)
    Dividends received (paid)                -        3,116      (3,116)             -      (3,116)            -             -
    Repayments of notes receivables
          from stock sales                 143            -           -              -           -             -           143
                                  ---------------------------------------------------------------------------------------------
        Net cash (used in) provided
          by financing activities          (10)     110,608       4,109         (1,041)      3,068             -       113,666
                                  ---------------------------------------------------------------------------------------------

Effect of exchange rate changes on
     cash and cash equivalents               -           -            -            214          214            -           214
                                  ---------------------------------------------------------------------------------------------

Net increase in cash                         -           -            -              -            -            -             -
Cash, beginning of year                      -           -            -              -            -            -             -
                                  ---------------------------------------------------------------------------------------------
Cash, end of period                  $       -    $      -    $       -       $      -       $    -        $   -      $      -
                                  =============================================================================================




                                                           15
</TABLE>
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

         CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
         PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

                  This report contains forward-looking statements. Hines desires
         to take advantage of the safe harbor provisions of the Private
         Securities Litigation Reform Act of 1995 and is including this
         statement for the express purpose of availing itself of the protections
         of the safe harbor with respect to all forward-looking statements.
         Several important factors, in addition to the specific factors
         discussed in connection with such forward-looking statements
         individually, could affect the future results of the Company and could
         cause those results to differ materially from those expressed in the
         forward-looking statements contained herein.

                  The Company's estimated or anticipated future results,
         products and service performance or other non-historical facts are
         forward-looking and reflect Hines' current perspective of existing
         trends and information. These statements involve risks and
         uncertainties that cannot be predicted or quantified and, consequently,
         actual results may differ materially from those expressed or implied by
         such forward-looking statements. Such risks and uncertainties include,
         among others, the continued ability of Hines to access water, the
         impact of growing conditions, risks associated with customer
         concentration, future acquisitions and the ability to integrate such
         acquisitions in a timely and cost effective manner, the ability to
         manage growth, the impact of competition, the ability to obtain future
         financing or to satisfy payment obligations under existing financing,
         limitations of Hines' substantial leverage and debt restrictions,
         government regulations and other risks and uncertainties described from
         time to time in Hines' Securities and Exchange Commission filings.

                  Therefore, the Company wishes to caution each reader of this
         report to consider carefully these factors as well as the specific
         factors discussed with each forward-looking statement in this report
         and disclosed in the Company's filings with the Securities and Exchange
         Commission as such factors, in some cases, have affected, and in the
         future (together with other factors) could affect, the ability of the
         Company to implement its business strategy and may cause actual results
         to differ materially from those contemplated by the statements
         expressed herein.




                                       16
<PAGE>


         OVERVIEW

                  GENERAL. Hines is one of the largest commercial nursery
         operations in North America, producing one of the broadest assortments
         of container-grown plants in the industry. 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. The Company is also the largest North American producer and
         marketer of sphagnum peat moss and professional bark-based growing
         mixes. The Company sells its growing media products primarily to
         professional customers, including greenhouse growers, nursery growers
         and golf course developers. The Company believes that sales of its
         nursery and growing media products have been positively affected by
         societal and demographic trends, such as greater levels of
         homeownership, the aging of the American population and the increasing
         popularity of gardening. Recent trends in the retail distribution
         channel, such as the expansion of large "big box" retailers and their
         growing emphasis on the lawn and garden category, have increased
         consumer exposure to lawn and garden products. Management believes
         these trends have favorably impacted the Company and provide excellent
         opportunities for improved operating performance.

                   SEASONALITY. The Company's green goods business, like that of
         its competitors, is highly seasonal. In 2000, approximately 72% of
         Hines Nurseries' net sales and approximately 101% of Hines Nurseries'
         operating income occurred in the first half of the year. Approximately
         54% of Hines Nurseries' net sales and approximately 88% of Hines
         Nurseries' operating income occurred in the second quarter of 2000. The
         Company has experienced and expects to continue to experience
         significant seasonality in net sales, operating income and net income.
         This quarterly variability is primarily the result of the consumer
         gardening cycle, which is closely aligned to seasonal weather patterns,
         particularly weekend weather during the peak growing season, as well as
         other factors. Sun Gro's sales, because they are more heavily weighted
         towards the professional markets, typically do not experience the large
         seasonal variances present in the retail market, and are only slightly
         weighted towards the first half of the year.

                  ACQUISITIONS. The Company has completed a number of recent
         acquisitions to expand and diversify its operations. In the three years
         ended December 31, 2000, the Company completed six acquisitions, all of
         which have been accounted for under the purchase method. Accordingly,
         the purchase prices were allocated to certain assets and liabilities
         based on their respective fair market values. The excess of the
         purchase price over the estimated fair market value of the net assets
         acquired relating to each transaction was accounted for as goodwill.
         Amounts allocated to goodwill are being amortized on a straight-line
         basis over an estimated life of thirty-five years.

                  The funds used for the acquisitions were provided by the
         Company's existing acquisition facility. The consolidated financial
         statements include the operating results of each acquisition from the
         date of acquisition. These acquisitions have and will continue to
         affect the period-to-period comparability of the operating results
         discussed below. The Company has historically pursued strategic
         acquisitions from time to time that increase its production capacity,
         broaden or complement its existing product lines, expand its geographic
         presence or offer operating synergies.

                                       17
<PAGE>

                  While the Company continues to believe that the highly
         fragmented nature of the nursery industry presents it with a number of
         opportunities to make such acquisitions, management's current priority
         is to increase its operating cash flows and financial flexibility.
         Accordingly, the Company is not currently in discussions to consummate
         any further acquisitions, although it may later decide to do so.

                  TAX MATTERS. The Company derives significant benefits (for its
         nursery operations) under the U.S. federal tax code by qualifying to
         use the cash method of accounting for federal income tax purposes.
         Under the cash method, sales are included in taxable income when
         payments are received and expenses are deducted as they are paid. The
         primary benefit the Company receives is the ability to deduct the cost
         of inventory as it is incurred. As a result of the Company's ability to
         deduct its growing costs under the farming exception, the Company has
         generally not been required to pay cash income taxes and has generated
         net operating losses for federal income tax purposes. In 2000, the
         Company has generated a taxable loss for federal income tax purposes.
         During the same period, the Company has continued to show a tax
         provision relating to the recording of deferred taxes. At December 31,
         2000, the Company had approximately $50.7 million in net operating loss
         carry forwards for federal income tax reporting purposes.

         RESULTS OF OPERATIONS

         THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
         SEPTEMBER 30, 2000

                  NET SALES. Net sales of $64.7 million for the three months
         ended September 30, 2001 decreased $1.7 million, or 2.6%, from net
         sales of $66.4 million for the comparable period in 2000 primarily due
         to lower sales from the Company's growing media business as discussed
         below.

                  Sales from the Company's green goods business increased
         slightly with the Color Division showing the strongest performance for
         the quarter with sales increases registered throughout the country.
         Despite this period of economic weakness, the business overall
         demonstrated its economic resilience in light of a slowing economy by
         virtue of a product line which is characterized by relatively
         inexpensive, impulse purchase items.

                  The Nursery Division, characterized by longer-term, landscape
         plantings was also challenged by economic uncertainties, but
         nevertheless registered strong performances in its western markets. The
         Company continues to see the significant payback from last year's sales
         force reorganization as existing product lines are successfully
         introduced to new geographic locations.

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<PAGE>

                  Net sales of the Company's growing media business decreased by
         7.4% from the comparable period in 2000. The Company continues to
         operate without the use of its Seba Beach plant, which accounts for
         approximately 14% of its growing media production capacity. Its
         performance for the quarter was very much in line with the first half
         of the year, with sales off about 7% from a year ago. The Company
         reported that it is very close to completing the rebuild of its Seba
         Beach plant, which was destroyed by fire in late 2000. Having made
         significant progress with regard to rebuilding its Seba Beach facility,
         the Company's current expectation is that its peat and professional mix
         lines will be operational by mid to late November.

                  GROSS PROFIT. Gross profit of $32.0 million for the three
         months ended September 30, 2001 decreased $2.5 million, or 7.1%, from
         gross profit of $34.4 million for the comparable period in 2000. The
         decrease was primarily attributable to a decrease in sales volumes for
         the quarter.

                  As a percent of sales, gross margin decreased from 51.8% to
         49.4% of net sales primarily due to the impact of the Seba Beach
         facility fire, which accounted for $0.7 million of additional costs.
         Excluding these additional costs, the gross margins would have
         decreased from 51.8% to 50.5%, primarily due to the changes in product
         mix and the scrapping of unsold green goods products.

                  OPERATING EXPENSES. Operating expenses of $32.4 million for
         the three months ended September 30, 2001 decreased $0.6 million, from
         $33.0 million for the comparable period in 2000. Included in operating
         expenses is a gain of $2.1 million representing insurance proceeds
         received during the quarter, net of incremental operating costs
         relating to the Seba Beach facility fire. Excluding this gain,
         operating expenses as a percentage of net sales increased from 49.7% to
         53.4% for the three months ended, September 30, 2001, primarily due to
         increased distribution expenses in expanded market geographies and a
         lower sales volume.

                  OPERATING INCOME. Operating loss of $0.5 million for the three
         months ended September 30, 2001 decreased $1.9 million, from an
         operating income of $1.4 million for the comparable period in 2000.
         Excluding the $1.4 million positive impact of the receipt of the Seba
         Beach insurance proceeds, net of the incremental costs, operating loss
         of $1.9 million decreased $3.3 million from an operating income of $1.4
         million for the comparable period in 2000 due to decrease in net sales
         by 2.6% and an increase in operating expense by 4.7% compared to the
         prior period.

                  INTEREST EXPENSE. Interest and financing expenses of $13.2
         million for the three months ended September 30, 2001 increased by $3.6
         million from $9.6 million for the comparable period in 2000. Excluding
         the non-cash $3.3 million charge with respect to the Company's interest
         rate swap agreement resulting from the adoption of FAS 133, interest
         and financing expenses were $9.9 million for the three months ended
         September 30, 2001 compared to $9.6 million for the comparable period
         in 2000. The increase was primarily attributable to the amortization of
         bond premium and warrants issued in November of 2000.

                                       19
<PAGE>

                  PROVISION FOR INCOME TAXES. The Company's effective income tax
         rate was 41.2% and 37.4% for the three months ended September 30, 2001
         and 2000, respectively. The increase in the effective income tax rate
         was mainly due to the release of tax reserves, for the period ending
         June 30, 2000, that management determined were no longer necessary,
         thus returning to a more normalized tax rate.

                  NET INCOME. Net loss of $8.0 million for the three months
         ended September 30, 2001 increased $2.9 million from net loss of $5.1
         million for the comparable period in 2000. The increase was primarily
         due to the impact of the non cash $3.3 million charge with respect to
         FAS 133, the Company's return to a normalized tax rate of 41.2% versus
         a rate of 37.4% last year, the impact of the Seba Beach insurance
         proceeds, the lower gross margins, and the lower sales volumes all
         mentioned above.

         NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED
         SEPTEMBER 30, 2000

                  NET SALES. Net sales of $370.2 million for the nine months
         ended September 30, 2001 increased $16.8 million, or 4.8%, from net
         sales of $353.4 million for the comparable period in 2000 primarily due
         to increased sales from the Company's green goods business as discussed
         below.

                  Sales from the Company's green goods business increased by
         more than 9% as both the nursery and color divisions had strong
         performances. The strong early sales performance this year proved to be
         a significant competitive advantage in a challenging retail environment
         for the lawn and garden industry. During this period, the effects of
         the soft economy and increasingly aggressive inventory management
         programs by customers were exacerbated by unfavorable weather
         conditions in May and June.

                  Despite these challenges, both the nursery and color divisions
         posted solid sales results with outstanding results in their southern
         sunbelt markets. The sales force reorganization implemented during
         2000, along with its strong New Products Program, has enabled Hines to
         bring about resurgence in sales growth to independent garden centers.
         This performance complements consistently high growth rates in sales to
         mass retail customers, which have been supported by the Company's
         extremely successful store service programs.

                  Net sales of the Company's growing media business decreased by
         7.1% from the comparable period in 2000. The growing media business has
         been subject to the same economic and weather-related market phenomena
         as the green goods businesses. For the growing media division, the
         impact of more aggressive inventory management practices has become
         increasingly evident among professional growers and in the Company's
         retail oriented businesses such as co-packing.

                                       20
<PAGE>

                  In addition, the Company continues to operate without the use
         of its Seba Beach plant, which accounts for approximately 14% of its
         growing media production capacity. Seba Beach is being rebuilt after
         having been destroyed by fire in late 2000. The Company continued to
         work diligently to fill product orders from other plant locations while
         the rebuilding is underway. Internally, in addition to its focus on
         rebuilding the Seba Beach production facility, the business is working
         to increase gross margins in its major growing media lines. To meet
         these margin objectives, it has continued to emphasize higher margin
         professional lines and exercise increased discipline in pricing
         decisions on retail products. Growers continue to take advantage of
         labor and equipment cost savings by switching to the Company's
         value-added mixes.

                  GROSS PROFIT. Gross profit of $190.8 million for the nine
         months ended September 30, 2001 increased $5.0 million, or 2.7%, from
         gross profit of $185.8 million for the comparable period in 2000. The
         increase was primarily attributable to higher sales at the Company's
         green goods business as discussed above.

                  As a percent of sales, gross margin decreased from 52.6% to
         51.5% of net sales primarily due to the impact of the Seba Beach
         facility fire, which accounted for $4.5 million of additional costs.
         Excluding these additional costs, the gross margins would have
         increased by 0.1% from 52.6% to 52.7% primarily due to product mix and
         pricing increases in the green goods business and production
         improvements in the growing media business.

                  OPERATING EXPENSES. Operating expenses of $127.8 million for
         the nine months ended September 30, 2001 decreased $2.0 million, or
         1.5%, from $129.8 million for the comparable period in 2000. Included
         in operating expenses are $1.1 million of incremental costs relating to
         the Seba Beach facility fire and a gain of $10.5 million representing
         insurance proceeds received during the nine months ended September 30,
         2001.

                  Excluding these incremental costs and gain, operating expenses
         as a percentage of net sales increased from 36.7% to 37.1% in first
         nine months of 2001, primarily attributable to higher selling and
         distribution expenses. Included in the prior year's general and
         administrative expenses was the reduction of the carrying value of the
         Company's investment in NeoInformatics, Inc. in the amount of $0.8
         million.

                  OPERATING INCOME. Operating income of $62.9 million for the
         nine months ended September 30, 2001 increased $6.9 million, or 12.3%,
         from $56.0 million for the comparable period in 2000.

                  Excluding the $4.9 million positive impact of the receipt of
         the Seba Beach insurance proceeds, net of the incremental costs,
         operating income of $58.0 million increased $2.0 million, or 3.6% from
         $56.0 million for the comparable period in 2000. Excluding this $4.9
         million positive impact, as a percentage of net sales, operating income
         decreased 0.1% to 15.7% from 15.8%, due primarily to higher selling and
         distribution expenses as discussed above.

                                       21
<PAGE>

                  INTEREST EXPENSE. Interest and financing expenses of $37.1
         million for the nine months ended September 30, 2001 increased $10.0
         million, or 36.9 %, from $27.1 million for the comparable period in
         2000. Excluding the non-cash $4.8 million charge with respect to the
         Company's interest rate swap agreement resulting from the adoption of
         SFAS 133, interest and financing expenses were $32.3 million for the
         nine months ended September 30, 2001 compared to $27.1 million for the
         comparable period in 2000. The increase was primarily attributable to
         increased borrowing levels due to the acquisitions made in early fiscal
         2000 and increased borrowing rates.

                  PROVISION FOR INCOME TAXES. The Company's effective income tax
         rate was 41.0% and 29.5% for the nine months ended September 30, 2001
         and 2000, respectively. The increase in the effective income tax rate
         was mainly due to the prior year's release of tax reserves management
         determined were no longer necessary thus returning the Company to a
         more normalized tax rate.

                  NET INCOME. Net income of $15.2 million for the nine months
         ended September 30, 2001 decreased $5.1 million from a net income of
         $20.3 million for the comparable period in 2000. The decrease was
         primarily due to the higher interest and financing expenses, the
         non-cash charge of $4.8 million representing the impact of adopting FAS
         133 and the return to a normalized tax rate of 41.0% versus 29.5% a
         year ago as discussed above.


         Liquidity and Capital Resources
         -------------------------------

                  The Company has historically satisfied its working capital
         requirements through operating cash flow. Due to the highly seasonal
         nature of its nursery operations, the Company historically borrows
         under its revolving credit facilities to fund peak needs.

                  In 1998, the Company entered into a senior credit facility
         (the "Senior Credit Facility") which provided for a $50.0 million term
         loan and a $200.0 million revolving credit facility, comprised of a
         $100.0 million working capital facility and a $100.0 million
         acquisition facility. The Senior Credit Facility has a five-year term.
         The revolving credit facility and all other obligations under the
         Senior Credit Facility are collateralized by substantially all of the
         assets and common stock of Hines Nurseries and Sun Gro-U.S., as well as
         a pledge of 65% of the common stock of Sun Gro-Canada.

                  In connection with the Lovell acquisition on March 3, 2000,
         the Company entered into an amendment to its existing senior credit
         facility (the "Amended Senior Credit Facility") to provide for a new
         $100.0 million term loan and a $15.0 million increase in the Company's
         existing working capital revolving credit facility.

                                       22
<PAGE>

                  The term loan and revolving credit facility interest rate is a
         percentage spread over the U.S. prime rate and the Eurodollar rate,
         depending upon the Company's quarterly leverage and interest rate
         coverage ratios as defined in the Amended Senior Credit Facility. The
         Lovell acquisition was financed with proceeds from the Amended Senior
         Credit Facility.

                  Effective November 28, 2000, the Company's Amended Senior
         Credit Facility was amended to (i) provide the Company with additional
         revolving loan commitments in the amount of $30.0 million guaranteed by
         its majority shareholder, MDCP, which can only be borrowed and can only
         be outstanding between March 15 and June 15 of 2001 and 2002, (ii)
         increase the interest rate on all loans by 1/4% to 1/2%, (iii) reset
         the financial covenants that establish minimum interest coverage ratios
         and net worth levels, and maximum leverage ratios and capital
         expenditure amounts, (iv) add a minimum EBITDA covenant, (v) amend the
         clean down requirement for working capital revolving loans and (vi)
         provide for additional restrictions on the Company's ability to make
         acquisitions and reinvest proceeds from asset sales. In consideration
         for its guarantee on the additional revolving loan commitments, MDCP
         received a fee of $600,000 and warrants to purchase 440,000 shares of
         the common stock of Hines. These warrants are exercisable at any time
         prior to December 31, 2005 at an exercise price of $3.50. All other
         significant terms and conditions of the Amended Senior Credit Facility
         remain unchanged.

                  If MDCP is required to make any payment with respect to its
         guaranty of new revolver, the Company would be required to issue to
         MDCP an additional warrant to purchase a number of shares of the
         Company's common stock equal to the amount of such payment divided by
         the then current market price of the Company's common stock.

                  In October 1995, Hines Nurseries issued $120.0 million in
         aggregate principal amount of 11 3/4% senior subordinated notes due
         2005 (the "Senior Subordinated Notes") to refinance certain
         indebtedness incurred in connection with the acquisition of Hines by
         MDCP and certain members of management. As of June 30, 2001, $78.0
         million in aggregate principal amount remains outstanding. The
         indenture pursuant to which the Senior Subordinated Notes were issued
         imposes a number of restrictions on Hines Nurseries and Sun Gro-U.S.
         The indenture limits, among other things, their ability to incur
         additional indebtedness, to make certain restricted payments (including
         dividends to Hines), 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 Senior Credit
         Facility, causing all amounts owing thereunder to become immediately
         due and payable. The Senior Credit Facility imposes a number of similar
         and certain additional restrictions (including financial covenants) on
         Hines Nurseries and Sun Gro-U.S. and its subsidiaries.

                                       23
<PAGE>

                  Effective November 28, 2000, Hines Nurseries also received the
         approval of its noteholders to amend the Indenture governing the Senior
         Subordinated Notes for the purpose of amending the definition of
         "Permitted Indebtedness" within the Indenture to include (i) all
         indebtedness that may be incurred under the Amended Senior Credit
         Facility in an aggregate principal amount to not exceed $365.0 million
         (less the amount of all mandatory principal repayments and required
         permanent reductions made thereunder) plus(ii) up to an additional
         $35.0 million in indebtedness under the additional revolving loan
         commitments, provided that such borrowings may only be borrowed and may
         only be outstanding between March 15 and June 15 of 2001 and 2002. In
         consideration for the amendment, Hines Nurseries agreed to (i) pay a
         fee of $35 per $1,000 of the principal amount of Notes, (ii) increase
         the interest rate thereon from 11 3/4% to 12 3/4% per annum, (iii)
         increase the optional redemption price to 106.00% of the principal
         amount thereof, (iv) increase the purchase price upon a change of
         control from 101.00% to 105.00% of the principal amount thereof and add
         to the events that constitute a change of control and (v) pay a premium
         at maturity equal to 5.00% of the principal amount to be repaid. All
         other terms of the Notes remain unchanged.

                  Net cash provided by operating activities for the nine months
         ended September 30, 2001 of $45.4 million improved by $16.1 million
         from the comparable period in 2000. The higher cash level generated was
         primarily due to the lower levels of accounts receivable and the higher
         levels of accounts payable and accrued liabilities.

                  The seasonal nature of the Company's operations results in a
         significant increase in certain components of working capital
         (primarily accounts receivable and inventory) during the growing and
         selling cycles. As a result, operating activities during the first and
         fourth quarters of the year use significant amounts of cash and, in
         contrast, the operating activities for the second and third quarters
         generate substantial cash as the Company ships inventory and collects
         accounts receivable.

                  Net cash used in investing activities during the nine months
         ended September 30, 2001 decreased $117.3 million to $25.9 million from
         $143.2 million for the comparable period in 2000. The decrease was
         primarily due to the Company's prior year's acquisitions of Willow
         Creek and Lovell and lower capital expenditures this year.

                  Net cash provided by (used in) financing activities during the
         nine months ended September 30, 2001 decreased $134.6 million to net
         cash used of $20.9 million from net cash provided of $113.7 million for
         the comparable period in 2000. The decrease was directly related to the
         prior year's advances under the acquisition facility to finance the
         acquisitions completed in the prior year and to lower borrowings under
         the Company's revolving line of credit.

                  The Company typically draws under its revolving credit
         facilities in the first and fourth quarters to fund its seasonal
         inventory buildup of green goods products and seasonal operating
         expenses. Approximately 75% of the sales of Hines Nurseries occur in
         the first half of the year, generally allowing the Company to reduce
         borrowings under its revolving credit facilities in the second and
         third quarters. Working capital requirements for the Company's growing
         media operations are less seasonal in nature, with slight inventory
         buildups generally occurring in the third and fourth quarters.

                                       24
<PAGE>

                  On October 31, 2001, the Company had unused borrowing capacity
         of $33.0 million and $30.0 million under its working capital revolver
         and the additional $30.0 million revolving loan commitment,
         respectively, within the Amended Senior Credit Facility.

                  As a result of the Company's ability to deduct its growing
         costs under the farming exception, the Company has generally not been
         required to pay cash income taxes in recent years and has generated net
         operating losses for federal income tax purposes.

                  Even with the benefits of the farming exception, the Company
         may nonetheless be required to pay cash income taxes in future years
         after use, loss or expiration of its tax net operating loss
         carryforwards.

                  Such cash income taxes could also result from increased
         taxable income due to, among other reasons: (i) any slowdown in, or
         elimination of, future growth in the Company's inventory of growing
         plants or (ii) limits on the Company's ability to use net operating
         loss carryforwards to offset all of its tax liability under the
         alternative minimum tax system.

                  The Company's capital expenditures were approximately $17.7
         (net of the Seba Beach facility insurance proceeds totaling $3.0
         million) million for the nine months ended September 30, 2001. The
         capital expenditures for the green goods business ($15.6 million)
         related primarily to the purchase of land at our Fallbrook site, which
         the Company had been obligated to acquire as part of that acquisition
         completed in 1996, the completion of acreage expansion plans, which the
         Company began in late 2000, at its South Carolina and Miami facilities,
         the continued implementation of the ERP information system, which will
         standardize systems and processes throughout the Company, and the
         purchase of nursery-related structures, vehicles, machinery and
         equipment. The capital expenditures for the growing media business
         ($2.1 million) related primarily to peat bog development and the
         purchase of peat bog harvesting and processing equipment. The Company's
         capital expenditures for 2001 are expected to be approximately $19.0
         million.

                  Principal repayments due under the Company's various
         borrowings agreements total $26.5 million in 2001, $64.3 million in
         2002, $49.4 million in 2003 and $175.3 million thereafter. Management
         believes that cash generated by operations and borrowings available
         under the Amended Senior Credit Facility will be sufficient to meet the
         Company's anticipated working capital, capital expenditures and debt
         service requirements through 2001.

                                       25
<PAGE>

                  Management is currently evaluating a series of financial
         alternatives to facilitate the refinancing or repayments of amounts due
         in 2002 under the Amended Senior Credit Facility. These alternatives
         include a number of financing options to restructure its portfolio of
         outstanding debt as well as exploring strategic and financial
         alternatives for Sun Gro, (its growing media subsidiary), including its
         sale. Management believes at this time that the Company will be able to
         successfully refinance or repay amounts due under the Amended Senior
         Credit Facility in accordance with its terms; however, there is no
         assurance that the Company will be able to do so.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

                  As part of its ongoing business, the Company is exposed to
         certain market risks, including fluctuations in interest rates, foreign
         exchange rates, commodity prices and its common stock price. The
         Company does not enter into transactions designed to mitigate its
         market risks for trading or speculative purposes.

                  In May 2000, the Company entered into an interest rate swap
         and cap agreement "interest rate agreement" to hedge $75.0 million of
         its loan facility. The interest rate agreement effectively changes the
         Company's exposure on its variable rate interest payments to fixed rate
         interest payments of 7.13% based on the 3-month LIBOR rate in effect at
         the beginning of each quarterly period, with a maximum rate of 8%. The
         interest rate agreement matures in February 2005. At September 30,
         2001, the estimated fair value of the interest rate agreement was $8.0
         million.

                  The Company also manages its interest rate risk by balancing
         the amount of its fixed and variable long-term debt. For fixed-rate
         debt, interest rate changes affect the fair market value of such debt
         but do not impact earnings or cash flows. Conversely, for variable rate
         debt, interest rate changes generally do not affect the fair market
         value of such debt but do impact future earnings and cash flows,
         assuming other factors are held constant.




                                       26
<PAGE>



                           PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

                  None

Items 1, 2, 3, 4, and 5 are not applicable and have been omitted.


















                                       27


<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 HORTICULTURE, INC.
                                              (Registrant)



                                              By: /s/ Claudia M. Pieropan
                                                  --------------------------
                                                  Claudia M. Pieropan
                                                  CHIEF FINANCIAL OFFICER
                                                  (Principal financial officer
                                                  and duly authorized officer)



Date: November 9, 2001





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