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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29288
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GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0868496
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
ONE ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive
offices)
(212) 218-7910
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock $0.01 par value Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$10,917,000 approximately, based on the closing sales price on the Nasdaq
National Market on February 1, 2000. Shares of Common Stock held by each
executive officer, director, holders of greater than 10% of the outstanding
Common Stock of the Registrant and persons or entities known to the Registrant
to be affiliates of the foregoing have been excluded in that such persons may be
deemed to be affiliates. This assumption regarding affiliate status is not
necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock:
4,862,704 shares as of February 1, 2000.
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PART I
ITEM 1. BUSINESS
Griffin Land & Nurseries, Inc. ("Griffin") and its subsidiaries comprise
principally a landscape nursery and real estate business. At the end of its 1999
fiscal year Griffin engaged in two principal lines of business: (1) the
landscape nursery products business, comprised of (x) the growing of
containerized landscape nursery products for sale principally to garden center
operators and landscape nursery mass merchandisers, and (y) the ownership and
operation of wholesale sales and service centers whose principal customers are
landscape contractors; and (2) the real estate business, comprised of (x) the
ownership, construction and management of commercial and industrial properties
and (y) the development of residential subdivisions on real estate owned by
Griffin in Connecticut and Massachusetts. Griffin also owns an approximately 35%
interest (33% fully diluted) in Centaur Communications, Ltd. ("Centaur"), a
United Kingdom magazine and information services publisher, and has a lesser
interest in Linguaphone Group plc ("Linguaphone"), a designer and distributor of
language teaching materials based in the United Kingdom, which was accounted for
under the cost method of accounting for investments for most of 1999 but which
was reflected on an equity basis in prior periods.
LANDSCAPE NURSERY BUSINESS
The landscape nursery operations of Griffin are operated by its wholly-owned
subsidiary, Imperial Nurseries, Inc. ("Imperial"). Imperial is a grower,
distributor and, to a much lesser extent, broker of wholesale landscape nursery
stock. The landscape nursery industry is extremely fragmented. Imperial believes
that its volume places it among the twenty largest landscape nursery companies
in the country.
Imperial's container growing operations are located on property owned by
Griffin in Connecticut (400 acres) and in northern Florida (350 acres). Both the
Connecticut and Florida growing operations are currently being expanded on
adjacent lands owned by Griffin. The Florida farm is also improving its shipping
docks and customer service facilities. The majority of Imperial's inventories
are container-grown plants on those two farms. The largest portion of Imperial's
container-grown product consists of broadleaf evergreens, including azaleas and
rhododendron. Other major product categories include juniper and deciduous
shrubs. Container-grown product is held principally from one to five years prior
to its sale by Imperial. Imperial has substantially increased its production of
perennials which have a much shorter growing cycle than most of Imperial's other
products. During 1997, Imperial determined to terminate its own growing of
field-grown product and recorded a loss accrual estimated to be sufficient to
absorb the costs of terminating these operations. The termination of field
operations was substantially completed during 1999 within the loss accrual.
Imperial contracts with a grower in the Mid-Atlantic states to produce
field-grown product for Imperial. The agreement provides for Imperial to
purchase such product over a five year period and is part of a program intended
to replace Imperial's previous investment in field-grown plants and to shorten
its product growing cycles.
Imperial is also reviewing a variety of approaches to increase its return on
assets in its growing operations including changes in the relative quantities of
some products currently grown and proposed to be grown and also possible changes
in the potting and growing cycles for some of its containerized production. Some
of these programs are also directed at developing faster growing products and
improved soil mixes. Imperial is also considering some other products and
product sizes for both sales in its existing markets and expanding the market
area served by the Florida farm. Any such changes, if successful, taking into
account the growing cycles of the related plants, will take a substantial period
to be reflected in results of operations to any material extent.
The growing operations serve a market comprised principally of retail chain
store garden departments, retail nurseries and garden centers, wholesale
nurseries, distributors, and to a lesser extent, landscapers as direct
customers. Imperial-grown products are also distributed through its own
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wholesale horticultural sales and service centers whose main customers are
landscapers. Imperial's major markets are in the Northeast, Mid-Atlantic, the
northern portion of the Southeast and the Midwest. Nursery sales are extremely
seasonal, peaking in spring, and are strongly affected by commercial and
residential building activity and are materially affected by weather conditions,
particularly in the spring planting season.
Imperial operates seven wholesale horticultural sales and service centers,
which sell a wide range of plant material, including a large portion purchased
from growers other than Imperial, and horticultural tools and products to the
trade. The largest portion of the sales of these centers is to professional
landscapers. The centers, all of which are owned by Imperial, are located in
Windsor, Connecticut; Aston and Pittsburgh, Pennsylvania; Columbus and
Cincinnati, Ohio; White Marsh, Maryland; and Manassas, Virginia. The Cincinnati
center was expanded in 1999 with the purchase of contiguous land. During 1999,
results from these centers improved substantially. The centers have become the
principal contributor to the operating results of Imperial. A site for a new
center has been contracted for, subject to local approvals, in Somerset, New
Jersey. Other sites for additional centers will also be considered for expansion
in other areas.
Imperial's sales are made to a large variety of customers, none of whom
represented more than 4% of annual sales in fiscal 1999, fiscal 1998 and fiscal
1997.
Containerized growing and shipping capacity has been increased to meet the
potential volume and quality needs of Imperial's customers and to capitalize on
expected growth in the Mid-Atlantic and Midwest markets. Imperial has also added
to its sales coverage in these areas with additional sales personnel at the
farms and an additional salesperson added in 1998 in the marketplace. In coming
years a larger part of Imperial's shipping will probably be made on trucks
outfitted with shelves, which may increase shipping expenses.
REAL ESTATE BUSINESS
Griffin is directly engaged in the real estate development business on
portions of its land in Connecticut. Griffin develops portions of its properties
for commercial, residential and industrial use. The headquarters for this
operation is in Bloomfield, Connecticut.
During the last several years, the real estate market in the Hartford area,
particularly that in the northwest quadrant where the majority of Griffin's
acreage is located, has been depressed by a number of factors, including the
decline of employment in the defense and insurance industries. The office
portion of this market has been particularly weak. There can be no assurance
that the condition of the real estate market in this region will improve in the
near future. Despite the decline in the insurance and defense industries, the
unemployment rate in the area is quite low. The development of Griffin's land is
also affected by land planning issues, particularly in the town of Simsbury,
Connecticut. In November 1999, Griffin filed plans for the creation of a
residential community of 640 homes on a 363 acre site in Simsbury. One quarter
of these homes would be deed restricted affordable housing under Connecticut
statutes. The plan is subject to review and public hearings, conducted by the
appropriate town commissions, including the planning, zoning, and conservation
commissions, which are expected to continue well into the 2000 second quarter.
The public hearings are focusing on the density of the proposed development, as
well as sewer, wetlands and pollution issues arising from prior use of the land
in farming, as a result of which certain pesticides remain in the upper portion
of the soil. See--"Regulation: Environmental Matters." Griffin believes that its
development plan for this site includes an appropriate method (which has
received support from the Connecticut Department of Environmental Protection)
for remediating the soils. The outcome of these hearings and the commissions'
decisions, and any potential subsequent litigation, cannot be predicted except
that some commission objections are anticipated. Griffin anticipates that
obtaining subdivision approvals in many
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of the towns where it holds land to be an extended process. During 1999 one
parcel of land in Suffield, Connecticut, which was in the process of
subdivision, was sold at a substantial profit.
A significant amount of Griffin's current commercial and industrial
development efforts are focused on a 600 acre tract owned by Griffin near
Bradley International Airport and Interstate 91 known as the New England
Tradeport. To date, approximately 340,000 square feet of warehouse and light
manufacturing space have been completed, which is approximately 70% occupied or
committed, and a bottling and distribution plant has been built by the Pepsi
Bottling Group ("Pepsi") on land sold to Pepsi by Griffin. The completed and
leased space includes approximately 98,000 square feet completed and leased in
1998. The only currently vacant space is a warehouse of approximately 100,000
square feet that was built in 1999 on speculation, no part of which is yet
leased. Griffin is considering an additional building for this park. A state
traffic control certificate for the future development of 1.2 million square
feet has been obtained for the New England Tradeport. Griffin intends to
continue to direct its primary efforts toward the construction and leasing of
light industrial and warehouse facilities at the New England Tradeport.
Development at the New England Tradeport may require investment in off-site
infrastructure on behalf of Windsor, Connecticut, and may require improvement of
some state or town roads.
Griffin's most substantial development is the combination of Griffin Center
in Windsor, Connecticut, and Griffin Center South in Bloomfield, Connecticut.
Together these master planned developments comprise approximately 600 acres,
half of which have been developed with nearly 1,750,000 square feet of office
and industrial space. Griffin Center currently includes ten corporate office
buildings built by Griffin. Griffin currently maintains only a 30% interest in
two office buildings in the Griffin Center office complex, which have an
aggregate of 160,000 square feet. In Griffin Center South, a 130-acre tract with
fifteen buildings of industrial and research and development space, Griffin has
retained for rental nine buildings, which are now fully rented. These buildings
have an aggregate of approximately 175,000 square feet. Griffin is discussing
additional building for this park and is also considering similar research and
development space which might be constructed in a portion of Griffin Center.
Two additional Griffin parcels appropriate for office or industrial
developments are available for development, including 28 acres in the Day Hill
Technology Center in Windsor and 100 acres in the South Windsor Technology
Center. State traffic certificates have been obtained for these parcels for
500,000 square feet and 200,000 square feet of development, respectively.
In 1988, a subsidiary of Griffin began infrastructure work at Walden Woods,
a 153-acre site in Windsor, Connecticut, which was originally planned to contain
more than 365 residential units. Prior to 1992 Griffin had built and sold 45
homes before discontinuing its home building operations at Walden Woods. Since
then, two third-party home builders have completed an additional 64 homes. In
1999, Griffin entered into an agreement with a home builder to allow that
builder to purchase and complete homes on 24 lots. Griffin is evaluating other
of its lands for residential development over a period of years.
In addition, approximately 500 acres in Connecticut are leased for tobacco
growing to General Cigar Co., Inc., at annual rentals approximating the land's
annual carrying cost. The lease for these properties, which extends for
10 years, may be terminated as to 100 acres annually, on one year's prior
notice.
EQUITY INVESTMENTS
CENTAUR
Griffin owns approximately 35% (33% fully diluted) of the outstanding common
stock of Centaur, a privately-held publisher of business magazines in the United
Kingdom and a compiler and supplier of
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computerized financial information through a subsidiary, Perfect
Information, Ltd. As a result of a repurchase of common stock by Centaur and an
additional investment by Griffin in 1998, Griffin's interest in Centaur was
increased. The agreements relating to that transaction provide for an offering
of Centaur stock or sale of Centaur in three to four years; but, if
circumstances are favorable, such an offering could occur earlier.
LINGUAPHONE
Griffin received in 1997 from Centaur a 25% interest in Linguaphone.
Griffin's 1998 results included an equity loss from Linguaphone of approximately
$1.1 million. In early 1999, a recapitalization of Linguaphone resulted in
Griffin's interest being reduced to approximately 14% (11% fully diluted).
Accordingly, Griffin now accounts for Linguaphone under the cost method of
accounting for investments.
FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS
See Note 2 to the Consolidated Financial Statements of Griffin included
elsewhere herein for certain financial information regarding the landscape
nursery business and the real estate business.
EMPLOYEES
Griffin employs 356 persons on a full-time basis, including 12 in its real
estate business and 340 in its landscape nursery business. At present, none of
these employees are represented by a union. Griffin believes that its relations
with its employees are satisfactory.
COMPETITION
The nursery business is competitive, and Imperial competes against a number
of other companies, including national, local and regional nursery businesses.
Some of Imperial's competitors in the nursery industry are larger than Imperial.
Numerous real estate developers operate in the portion of Connecticut and
Massachusetts in which Griffin's holdings are concentrated. Some of such
businesses may have greater financial resources than Griffin.
REGULATION: ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with contamination. The cost of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure properly to remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. In connection with the ownership (direct or indirect), operation,
management and development of real properties, Griffin may be considered an
owner or operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property. In Simsbury,
Connecticut, the value of Griffin's land is affected by the presence of
chlordane on a portion of the land which is intended for residential use.
Although Griffin believes its proposed method of reducing chlordane
contamination to levels below those that would impede residential development of
such properties is appropriate and feasible, the acceptance of the method by any
town commission has not yet been obtained. In the event that Griffin is unable
adequately to remediate this property, its ability to develop such property for
its intended purposes would be materially affected.
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Griffin periodically reviews its properties for the purpose of evaluating
such properties' compliance with applicable state and federal environmental
laws. Griffin does not anticipate experiencing, in the immediate future,
material expense in complying with such laws.
ITEM 2. PROPERTIES
LAND HOLDINGS
Griffin is a major landholder in the State of Connecticut and also owns land
in Massachusetts. In addition, Griffin owns approximately 1,000 acres in
Florida, most of which is used for Imperial Nurseries' growing operations or is
contiguous to such operations, and also owns sites for Imperial Nurseries' seven
sales and service centers. Each such center typically has a warehouse/office
facility and 10-15 acres of nursery stock.
The book value of undeveloped land holdings and capitalized development
expenditures, owned by Griffin, principally in the Hartford, Connecticut area,
is approximately $12,000,000. Griffin believes the fair market value of such
land is substantially in excess of its book value, including land improvements.
A listing of the locations of Griffin's commercial and nursery real estate,
a portion of which, principally in Bloomfield, East Granby and Windsor, has been
developed, is as follows:
COMMERCIAL REAL ESTATE
LOCATION OF PROPERTY LAND AREA (ACRES)
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CONNECTICUT
Bloomfield................................................ 376
East Granby............................................... 174
East Windsor.............................................. 115
Granby.................................................... 95
Simsbury.................................................. 876
South Windsor............................................. 103
Suffield.................................................. 380
Windsor................................................... 1,216
MASSACHUSETTS
Southwick................................................. 432
FLORIDA
Hillsborough County....................................... 9
Leon County............................................... 6
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NURSERY REAL ESTATE
LOCATION OF PROPERTY LAND AREA (ACRES)
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FLORIDA
Quincy.................................................... 1,046
CONNECTICUT
East Granby............................................... 393
Granby.................................................... 267
Windsor................................................... 52
PENNSYLVANIA
Aston..................................................... 16
Pittsburgh................................................ 10
VIRGINIA
Manassas.................................................. 16
OHIO
Columbus.................................................. 12
Cincinnati................................................ 16
MARYLAND
White Marsh............................................... 20
Griffin also leases approximately 2,100 square feet in New York City for its
Executive Offices.
ITEM 3. LEGAL PROCEEDINGS
As discussed in Item 1, certain parts of Griffin's land in Simsbury,
Connecticut, are affected by the presence of chlordane. Although the various
federal, state and local agencies may have an interest in the matter, there are
no proceedings known by Griffin to be contemplated by any of these agencies in
connection with possible chlordane exceedences on such land.
The Company is involved, as a defendant, in various litigation matters
arising in the ordinary course of business. In the opinion of management, based
on the advice of legal counsel, the ultimate liability, if any, with respect to
these matters will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The following are the high and low prices of common shares of Griffin
Land & Nurseries, Inc. as traded on the OTC Bulletin Board through April 28,
1998 and on the Nasdaq National Market subsequent to April 28, 1998:
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
---------------------- --------------------- --------------------- ----------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
---------- --------- --------- --------- --------- --------- --------- ----------
1999....................... 13 3/4 9 3/4 13 1/4 8 12 1/2 10 5/8 11 7/8 10 1/2
1998....................... 15 7/16 12 1/2 19 12 1/2 18 1/2 11 15 11 1/16
On February 1, 2000, the number of record holders of common stock of Griffin
was approximately 612, which does not include beneficial owners whose shares are
held of record in the names of brokers or nominees. The closing market price as
quoted on the Nasdaq National Market on such date was $10.375 per share. The
information appearing in Notes 7 and 11 to the Consolidated Financial Statements
is hereby incorporated by reference.
DIVIDEND POLICY
Griffin's current policy is to retain any earnings to finance the operations
and expansion of its businesses.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected statement of operations data for
fiscal years 1995 through 1999 and balance sheet data as of the end of each
fiscal year.
1999 1998 1997 1996 1995
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(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales & other revenue................. $ 62,944 $ 51,231 $ 46,288 $ 46,531 $ 41,756
Operating profit (loss)................... 3,130 74 (3,236) (1,245) 810
Income (loss) from continuing
operations.............................. 2,476 121 (2,136) (4,063) (4,265)
Net income (loss) (a)..................... 2,476 121 (2,136) (4,606) (580)
Basic net income (loss) per share (b)..... 0.51 0.03 (0.45)
Diluted net income (loss) per share (b)... 0.48 0.01 (0.45)
BALANCE SHEET DATA:
Total assets.............................. 113,371 104,916 103,736 101,775 165,655
Working capital........................... 36,337 33,304 41,130 36,698 23,069
Long-term debt (c)........................ 8,860 2,666 2,830 38,846 72,737
Stockholders' equity/Culbro Investment
(d)..................................... 93,756 91,186 90,523 47,449 61,299
(a) The Selected Financial Data presented above reflects CMS Gilbreth
Packaging Systems, Inc., as a discontinued operation in 1995 and 1996. This
business was sold in 1996.
(b) Griffin was a consolidated subsidiary of Culbro Corporation ("Culbro")
through July 3, 1997. Accordingly, the per share results for 1997 presented
above are on a pro forma basis because the Griffin common stock was not
outstanding the entire period.
(c) Culbro's general long-term debt was included on Griffin's historical
balance sheet through February 27, 1997, when such debt was assumed by Griffin's
former affiliate, General Cigar Holdings, Inc., in connection with the
distribution of Griffin's common stock to Culbro's shareholders.
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(d) Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro.
Accordingly, the retained earnings and intercompany balances with its former
parent are reflected in Culbro Investment prior to July 3, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The consolidated financial statements of Griffin include the accounts of
Griffin's subsidiary in the landscape nursery business, Imperial, and Griffin's
Connecticut and Massachusetts based real estate business ("Griffin Land").
Griffin also has an equity investment in Centaur, a magazine publishing
business, based in the United Kingdom. On February 27, 1997, Culbro, Griffin,
then a wholly-owned subsidiary of Culbro, and General Cigar Holdings, Inc. ("GC
Holdings"), also a wholly-owned subsidiary of Culbro at that time, entered into
a Distribution Agreement (the "Distribution Agreement") which provided for a
tax-free distribution (the "Distribution") of Griffin's common stock to the
existing shareholders of Culbro. The Distribution of the Griffin common stock to
Culbro shareholders was completed on July 3, 1997. Subsequent to the
Distribution, Griffin has operated as an independent stand-alone entity. Prior
to March 18, 1997, Griffin was known as Culbro Land Resources, Inc.
The financial statements of Griffin reflect the results of the operations of
Griffin's businesses and investments. Griffin's 1997 results include an
allocation to Griffin from Culbro for corporate overhead of $1.0 million prior
to the Distribution in July of that year. This allocation, which may not
necessarily reflect the additional expenses Griffin would have incurred had it
operated as a separate stand-alone entity prior to the Distribution, is deemed
reasonable by Griffin management. Griffin's results of operations in 1997 also
include interest expense of $0.7 million on Culbro general corporate debt. The
Culbro debt was included in Griffin's financial statements through the 1997
first quarter, when that debt was assumed by GC Holdings pursuant to the
Distribution Agreement. Such interest expense has not been part of Griffin's
results of operations subsequent to the Distribution. Accordingly, there is no
allocation of expenses from Culbro to Griffin reflected in Griffin's results
subsequent to fiscal 1997.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
In fiscal 1999, Griffin's net sales increased $11.7 million, or 23%, to
$62.9 million from $51.2 million in fiscal 1998. Net sales increased at both
Imperial and Griffin Land. Imperial's net sales increased $9.4 million, or 19%,
to $57.6 million in fiscal 1999 from $48.2 million in fiscal 1998. The increased
sales at Imperial reflect higher volume at its wholesale sales and service
centers, which benefitted from favorable weather conditions in their markets
throughout most of the year. Sales of containerized plants from Imperial's farm
operations increased in fiscal 1999 as compared to fiscal 1998, more than
offsetting the lower sales of field-grown product in fiscal 1999 as compared to
fiscal 1998. The decrease in net sales of field-grown product in fiscal 1999
reflects the decision to discontinue a field-grown program. Net sales and other
revenue at Griffin Land increased to $5.4 million in fiscal 1999 from
$3.1 million in fiscal 1998. The revenue increase at Griffin Land principally
reflected a land sale of $1.0 million in fiscal 1999 (there were no land sales
in fiscal 1998) and an increase in rental revenue from its commercial
properties, including the approximately 98,000 square foot warehouse built and
partially leased in fiscal 1998 that became fully leased at the beginning of
fiscal 1999. Rental revenue from Griffin Land's commercial properties increased
to $3.6 million in fiscal 1999 from $2.6 million in fiscal 1998. Occupancy at
Griffin Land's properties (excluding an approximately 100,000 square foot
warehouse facility completed in fiscal 1999 and currently not occupied) was 96%
as of the
9
end of fiscal 1999 (including full occupancy in its Griffin Center South
commercial development) as compared to 91% at the end of fiscal 1998.
Griffin's consolidated operating profit (before interest) increased to
$3.1 million in fiscal 1999 from $0.1 million in fiscal 1998. Operating profit
at Imperial increased to $3.9 million in fiscal 1999 from $2.3 million in fiscal
1998. The increased operating profit at Imperial principally reflects the sales
volume increase, which generated gross profit in 1999 of $17.0 million versus
$13.9 million in fiscal 1998. Imperial's overall gross margins on sales
increased to 29.5% in fiscal 1999 from 28.8% in fiscal 1998. Imperial's
operating expenses increased to $13.1 million in fiscal 1999 from $11.6 million
in fiscal 1998. The increased operating expenses were incurred principally to
service the additional volume at its wholesale sales and service centers.
Imperial's operating expenses were 22.7% of net sales in fiscal 1999 as compared
to 24.1% of net sales in fiscal 1998.
Total operating profit at Griffin Land was $0.8 million in fiscal 1999 as
compared to a total operating loss of $0.3 million incurred in fiscal 1998. The
improved operating results principally reflect the profit on the land sale in
fiscal 1999 and higher rental revenue, partially offset by higher operating
expenses. Griffin Land's rental properties generated an operating profit, before
depreciation, of $2.9 million in fiscal 1999 as compared to $2.1 million in
fiscal 1998. The increase reflects the higher occupancy rate in fiscal 1999 and
an increase in the amount of space being leased.
Interest expense at Griffin increased to $0.6 million in fiscal 1999 from
$0.2 million in fiscal 1998. The higher interest expense reflects the increased
debt in fiscal 1999, including an $8.2 million nonrecourse mortgage entered into
by Griffin Land. Interest income was $0.1 million in fiscal 1999 as compared to
$0.3 million in fiscal 1998. The lower interest income in the current year
reflects the lower cash on hand throughout fiscal 1999 as compared to the prior
year.
Equity income from Griffin's investee, Centaur, was $0.9 million in fiscal
1999 as compared to $1.1 million in fiscal 1998. The lower results from Centaur
reflect higher interest expense in fiscal 1999 due to having outstanding loans
for the entire year as compared to a partial year in fiscal 1998, and lower
operating profit. As a result of transactions in the third quarter of fiscal
1998, Griffin's equity ownership of Centaur was 35% throughout the entire fiscal
1999 as compared to only part of fiscal 1998. In early fiscal 1999, Griffin's
ownership interest in Linguaphone Group plc ("Linguaphone") was reduced and is
now accounted for under the cost method of accounting for investments.
Accordingly, Griffin did not recognize equity results of Linguaphone throughout
most of fiscal 1999. Griffin's results in fiscal 1998 included an equity loss of
$1.1 million from Linguaphone.
FISCAL 1998 COMPARED TO FISCAL 1997
In fiscal 1998, Griffin's net sales increased $4.9 million, or 11%, to
$51.2 million from $46.3 million in fiscal 1997. The net sales increase was due
to net sales at Imperial, which were $48.2 million in fiscal 1998 as compared to
$42.6 million in fiscal 1997. The $5.6 million (13%) net sales increase at
Imperial principally reflected increased volume and higher prices at the
wholesale sales and service centers, which accounted for substantially all of
Imperial's net sales increase.
Net sales in Griffin's real estate business, Griffin Land, decreased from
$3.7 million in fiscal 1997 to $3.1 million in fiscal 1998. Net sales in fiscal
1997 included $0.7 million from sales of remaining residential lots from
developments started in earlier years. There were no land sales in fiscal 1998.
Excluding the residential lot sales, net sales at Griffin Land increased
slightly in fiscal 1998 as compared to fiscal 1997. Rental revenue from Griffin
Land's buildings increased to $2.6 million in fiscal 1998 from $2.1 million in
fiscal 1997. The higher rental revenue principally reflected increased occupancy
as the result of new leases. Occupancy in Griffin Land's properties, excluding
the new warehouse constructed in 1998, increased from 80% at the end of fiscal
1997 to 91% at the end of fiscal 1998. Including new leases that became
effective subsequent to the end of fiscal 1998, Griffin
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Land's occupancy rate in its properties was approximately 95%, including full
occupancy in its Griffin Center South development.
Griffin's consolidated operating profit (before interest) was $0.1 million
in fiscal 1998 as compared to an operating loss of $3.2 million in fiscal 1997.
The increased operating results principally reflected the effect of the
$3.3 million charge incurred in fiscal 1997 by Imperial to reserve for certain
plant inventories. Operating profit at Imperial increased to $2.3 million in
fiscal 1998 as compared to $1.9 million (excluding the effect of the inventory
charge) in fiscal 1997. Imperial's overall gross profit margins decreased
slightly to 28.8% in fiscal 1998 from 29.4% in fiscal 1997, again excluding the
effect of the inventory charge in 1997. The operating profit increase at
Imperial reflects the effect of higher net sales in fiscal 1998, partially
offset by higher operating expenses. As a percentage of net sales, operating
expenses were 24.1% in fiscal 1998 as compared to 25.0% in fiscal 1997. The
operating expense increase principally reflected higher selling expenses related
to the increased volume at Imperial's wholesale sales and service centers.
Griffin Land incurred a total operating loss of $0.3 million in fiscal 1998
versus a total operating loss of $0.2 million in fiscal 1997. Operating results
in fiscal 1998 include the settlement of a litigation initiated by Griffin Land
for reimbursement of certain costs to repair two commercial buildings owned by
Griffin Land. Proceeds from the settlement in excess of repair costs were
approximately $0.2 million and are reflected as a reduction of Griffin Land's
operating expenses. Excluding the effect of the benefit from the litigation
settlement in fiscal 1998, operating results at Griffin Land decreased by
$0.3 million, principally reflecting the effect of the residential land sales in
fiscal 1997. Griffin Land's rental properties generated an operating profit,
before depreciation, of $2.1 million in fiscal 1998 versus $1.8 million in
fiscal 1997, reflecting the higher occupancy noted above and corresponding
increase in rental revenue.
The decrease in Griffin's interest expense principally reflects the
inclusion in the 1997 first quarter of interest expense of $0.7 million related
to Culbro's general corporate debt that was assumed by GC Holdings at the end of
the 1997 first quarter. The higher income tax rate principally reflects the
effect of state and local taxes.
Income from Griffin's equity investments was lower in 1998 as a result of
losses at Linguaphone which more than offset increased profit at Centaur.
Centaur's 1998 results included one-time expenses aggregating approximately
$1.1 million before taxes (approximately $0.3 million allocable to Griffin's
interest) relating to the restructuring of Centaur's ownership. Additionally,
increased operating profit of Centaur's magazine publishing operations was
partially offset by operating losses incurred by Centaur's subsidiary, Perfect
Information, Ltd., which operates a database service that provides financial
information to its customers. During 1998, Griffin's common equity ownership of
Centaur increased to approximately 35% (33% fully diluted) as a result of
Griffin's purchase of Centaur common stock and Centaur's repurchase of common
stock from other Centaur stockholders. See Note 9 of the consolidated financial
statements included in Item 8. The equity loss for Linguaphone includes foreign
currency exchange losses incurred by Linguaphone for which Griffin's allocable
share was approximately $0.5 million in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $0.9 million in fiscal 1999 as
compared to $0.6 million in fiscal 1998. The increase in cash provided reflects
Griffin's higher net income and an income tax refund of $0.9 million received in
the current year, partially offset by higher inventories at Imperial and an
increase in Imperial's accounts receivable in the current year. Net cash used in
investing activities declined to $6.6 million in fiscal 1999 from $9.8 million
in fiscal 1998. The decrease reflects the effect of the $3.0 million additional
investment in Centaur in fiscal 1998. In fiscal 1999, lower spending on real
estate investments principally offset increased capital expenditures for
property
11
and equipment at Imperial. The additional capital spending at Imperial in the
current year principally reflects the acquisition of land adjacent to Imperial's
Cincinnati wholesale sales and service center to expand that operation and the
start of several capital projects to expand and improve Imperial's containerized
plant production facilities in Florida and Connecticut.
Net cash provided by financing activities was $5.6 million in fiscal 1999 as
compared to net cash used in financing activities of $0.2 million in fiscal
1998. In fiscal 1999, Griffin entered into an $8.2 million nonrecourse mortgage
on several of its buildings in the New England Tradeport. Proceeds were used to
reduce the amount then outstanding under the Imperial Credit Agreement and to
repay an existing mortgage on certain of those properties. The new warehouse
completed in 1999 is not mortgaged. Also in fiscal 1999, Griffin entered into a
$20 million revolving credit line (the "Griffin Credit Agreement") to replace
the $10 million revolving credit facility with Imperial. The Griffin Credit
Agreement is an unsecured facility that terminates in May 2001 and will provide
financing for working capital requirements of Griffin's landscape nursery and
real estate businesses.
In the 1999 third quarter, Imperial started several capital projects to
improve and expand its containerized plant production facilities in Florida and
Connecticut. These projects are expected to be completed in fiscal 2000 at an
estimated cost of approximately $3.5 million. Additionally, Imperial entered
into an agreement to purchase land in central New Jersey for a new wholesale
sales and service center. Completion of the land purchase is contingent upon
receiving all required regulatory approvals to operate a wholesale sales and
service center on that site. If such approval is received, expenditures for the
land acquisition and required site work are projected to be approximately
$2.5 million in fiscal 2000. Based on the future space requirements of certain
of its tenants, Griffin Land may undertake construction of new buildings in
fiscal 2000 to provide additional space, as needed. A portion of any new
construction may be built on speculation.
Management believes that in the near term, based on the current level of
operations and anticipated growth, its cash on hand, cash flow from operations
and borrowings under the Griffin Credit Agreement will be sufficient to finance
the working capital requirements and expected capital expenditures of its
landscape nursery business and fund development of its real estate assets. Over
the intermediate and long term, selective mortgage placements or additional bank
credit facilities may also be required to fund capital projects.
YEAR 2000
In the 1999 fourth quarter, Griffin completed all necessary remediation
steps to ensure all its systems are year 2000 ("Y2K") compliant. Subsequent to
January 1, 2000, Griffin has not encountered any problems with its computer
systems as a result of the Y2K issue. Costs attributed to modifying Griffin's
systems to be Y2K compliant were less than $0.1 million in the aggregate.
Prior to December 31, 1999, Griffin initiated a company-wide review of major
customers, vendors and other third parties to determine the extent, if any, to
which Griffin would be vulnerable to those third parties' failure to remedy
their own Y2K issues. Those third parties contacted indicated that they had Y2K
readiness programs in place or that they were Y2K compliant before December 31,
1999. Subsequent to January 1, 2000, Griffin has not encountered any Y2K
problems from any of its critical business partners. We will continue to monitor
our critical business partners for Y2K issues.
Griffin believes that its efforts to address the Y2K issue have been
successful. However, failure of critical third parties adequately to address
their respective Y2K issues could have a material adverse effect on Griffin's
business, financial condition and results of operations. Therefore, Griffin's
program for Y2K compliance included the development of contingency plans for
continuing operations in the event such problems arise. However, there can be no
assurance that such contingency plans will be adequate to handle all problems
which may arise.
12
FORWARD-LOOKING INFORMATION
The above information in Management's Discussion and Analysis of Financial
Condition and Results of Operations includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although Griffin believes that its plans, intentions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions or expectations will be achieved,
particularly with respect to the opening of an additional sales and service
center, the leasing of its warehouse constructed in 1999 and possible
construction of additional facilities in the real estate business. The
forward-looking information disclosed herein is based on assumptions and
estimates that, while considered reasonable by Griffin as of the date hereof,
are inherently subject to significant business, economic, competitive and
regulatory uncertainties and contingencies, many of which are beyond the control
of Griffin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates, foreign exchange rates and equity prices. Changes in these factors could
cause fluctuations in earnings and cash flows.
For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not earnings or cash flows. Griffin
does not have an obligation to prepay any fixed rate debt prior to maturity, and
therefore, interest rate risk and changes in the fair market value of fixed rate
debt should not have a significant impact on earnings or cash flows until such
debt is refinanced, if necessary. For variable rate debt, changes in interest
rates generally do not impact the fair market value of the debt instrument, but
do affect future earnings and cash flows. Griffin did not have any variable rate
debt outstanding at November 27, 1999, but is expected to have such debt
outstanding in the future.
Griffin is exposed to market risks from fluctuations in interest rates and
the effects of those fluctuations on market values of Griffin's cash equivalent
short-term investments. These investments generally consist of overnight
investments that are not significantly exposed to interest rate risk, except to
the extent that changes in interest rates will ultimately affect the amount of
interest income earned and cash flow from these investments.
Griffin does not currently have any derivative financial instruments in
place to manage interest costs, but that does not mean that Griffin will not use
them as a means to manage interest rate risk in the future.
Griffin does not use foreign currency exchange forward contracts or
commodity contracts and does not have foreign currency exposure in its
operations. Griffin does have investments in companies based in the United
Kingdom, and changes in foreign exchange rates could affect the results of
equity investments in Griffin's financial statements, and the ultimate
liquidation of those investments and conversion of proceeds into United States
currency.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED,
---------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
--------- --------- ---------
Net sales and other revenue................................. $62,944 $51,231 $46,288
Costs and expenses:
Cost of goods sold.......................................... 43,321 36,218 35,767
Selling, general and administrative expenses................ 16,493 14,939 13,757
------- ------- -------
Operating profit (loss)..................................... 3,130 74 (3,236)
Interest expense............................................ 626 185 1,002
Interest income............................................. 81 298 266
------- ------- -------
Income (loss) before income tax provision (benefit)......... 2,585 187 (3,972)
Income tax provision (benefit).............................. 962 101 (1,470)
------- ------- -------
Income (loss) before equity investments..................... 1,623 86 (2,502)
------- ------- -------
Income (loss) from equity investments:
Investment in Centaur Communications, Ltd................. 865 1,088 426
Investment in Linguaphone Group plc....................... (12) (1,053) (60)
------- ------- -------
Income from equity investments.............................. 853 35 366
------- ------- -------
Net income (loss)........................................... $ 2,476 $ 121 $(2,136)
======= ======= =======
Basic net income (loss) per common share.................... $ 0.51 $ 0.03 $ (0.45)(a)
======= ======= =======
Diluted net income (loss) per common share.................. $ 0.48 $ 0.01 $ (0.45)(a)
======= ======= =======
(a) 1997 per share results are pro forma. See Note 7.
See Notes to Consolidated Financial Statements.
14
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOV. 27, NOV. 28,
1999 1998
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 2,003 $ 2,059
Accounts receivable, less allowance of $564 and $490........ 5,966 4,654
Inventories................................................. 29,196 26,746
Deferred income taxes....................................... 2,566 3,220
Other current assets........................................ 2,338 2,625
-------- --------
TOTAL CURRENT ASSETS........................................ 42,069 39,304
Real estate held for sale or lease, net..................... 33,766 31,519
Investment in Centaur Communications, Ltd................... 17,018 16,153
Property and equipment, net................................. 14,359 12,635
Other assets................................................ 6,159 5,305
-------- --------
TOTAL ASSETS................................................ $113,371 $104,916
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... $ 5,412 $ 5,586
Long-term debt due within one year.......................... 320 322
Income tax payable.......................................... -- 92
-------- --------
TOTAL CURRENT LIABILITIES................................... 5,732 6,000
Long-term debt.............................................. 8,860 2,666
Deferred income taxes....................................... 1,401 1,097
Other noncurrent liabilities................................ 3,622 3,967
-------- --------
TOTAL LIABILITIES........................................... 19,615 13,730
-------- --------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 12)................. -- --
Common stock, par value $0.01 per share, 10,000,000 shares
authorized, 4,862,704 shares issued and outstanding....... 49 48
Additional paid in capital.................................. 93,584 93,491
Retained earnings (deficit)................................. 123 (2,353)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 93,756 91,186
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $113,371 $104,916
======== ========
See Notes to Consolidated Financial Statements.
15
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SHARES OF ADDITIONAL RETAINED
COMMON COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
--------- -------- ---------- --------- --------
Reclassification of Culbro Investment account
on July 3, 1997.................................. 4,559,109 $ 46 $91,722 $ -- $91,768
Exercise of stock options, including $821 income
tax benefit...................................... 184,481 1 1,228 -- 1,229
Net loss subsequent to Distribution................ -- -- (2,474) (2,474)
--------- ---- ------- ------- -------
Balance at November 27, 1997....................... 4,743,590 47 92,950 (2,474) 90,523
Exercise of stock options, including $451 income
tax benefit...................................... 99,114 1 541 -- 542
Net income......................................... -- -- 121 121
--------- ---- ------- ------- -------
Balance at November 28, 1998....................... 4,842,704 48 93,491 (2,353) 91,186
Exercise of stock options, including $85 income tax
benefit.......................................... 20,000 1 93 -- 94
Net income......................................... -- -- 2,476 2,476
--------- ---- ------- ------- -------
Balance at November 27, 1999....................... 4,862,704 $ 49 $93,584 $ 123 $93,756
========= ==== ======= ======= =======
See Notes to Consolidated Financial Statements.
16
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 2,476 $ 121 $(2,136)
Adjustments to reconcile net income (loss) to net cash
provided by
(used in) operating activities:
Depreciation and amortization............................. 2,204 2,004 1,921
Income from equity investments............................ (853) (35) (366)
Deferred income taxes..................................... 895 186 (1,085)
Changes in assets and liabilities which increased
(decreased) cash:
Accounts receivable....................................... (1,386) (147) (829)
Inventories............................................... (2,450) (1,403) 2,187
Income tax refund received................................ 926 -- --
Increase in inventory deposits............................ (225) (188) (108)
Accounts payable and accrued liabilities.................. (174) 606 (579)
Other, net................................................ (483) (557) 33
------- ------- -------
Net cash provided by (used in) operating activities......... 930 587 (962)
------- ------- -------
INVESTING ACTIVITIES:
Additions to real estate held for sale or lease............. (3,416) (6,182) (953)
Additions to property and equipment......................... (2,822) (1,164) (936)
Additional investment in Centaur Communications, Ltd........ -- (2,968) --
Other, net.................................................. (377) 500 --
------- ------- -------
Net cash used in investing activities....................... (6,615) (9,814) (1,889)
------- ------- -------
FINANCING ACTIVITIES:
Increase in debt............................................ 8,173 -- 7,422
Payments of debt............................................ (2,220) (324) (271)
Other, net.................................................. (324) 91 (152)
------- ------- -------
Net cash provided by (used in) financing activities......... 5,629 (233) 6,999
------- ------- -------
Net (decrease) increase in cash and cash equivalents........ (56) (9,460) 4,148
Cash and cash equivalents at beginning of year.............. 2,059 11,519 7,371
------- ------- -------
Cash and cash equivalents at end of year.................... $ 2,003 $ 2,059 $11,519
======= ======= =======
See Notes to Consolidated Financial Statements.
17
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Griffin Land &
Nurseries, Inc. ("Griffin") include the accounts of Griffin's real estate
division ("Griffin Land") and Griffin's wholly-owned subsidiary, Imperial
Nurseries, Inc. ("Imperial"). On February 27, 1997, Culbro Corporation
("Culbro"), Griffin, then a wholly-owned subsidiary of Culbro, and General Cigar
Holdings, Inc. ("GC Holdings"), also a wholly-owned subsidiary of Culbro at that
time, entered into a Distribution Agreement (the "Distribution Agreement") which
provided for a tax-free distribution (the "Distribution") of Griffin's common
stock to the existing shareholders of Culbro. The Distribution of the Griffin
common stock to Culbro shareholders was completed on July 3, 1997. Griffin has
operated as an independent stand-alone entity subsequent to the Distribution.
All intercompany transactions have been eliminated. Prior to March 18, 1997,
Griffin was known as Culbro Land Resources, Inc.
Griffin accounts for its investments in Centaur Communications, Ltd.
("Centaur") and real estate joint ventures under the equity method. Results of
real estate joint ventures are included in operating profit. As a result of the
recapitalization in fiscal 1999 of Linguaphone Group plc ("Linguaphone"),
Griffin's common equity ownership was reduced and Griffin now accounts for its
investment in Linguaphone under the cost method of accounting for investments.
BUSINESS SEGMENTS
Griffin is engaged in the landscape nursery and real estate businesses.
Imperial, Griffin's subsidiary in the landscape nursery segment, is engaged in
growing plants which are sold principally to garden centers, wholesalers and
merchandisers, and operating sales and service centers which sell principally to
landscapers. Griffin's real estate segment, Griffin Land, builds and manages
commercial and industrial properties and develops residential subdivisions on
its land in Connecticut and Massachusetts.
FISCAL YEAR
Griffin's fiscal year ends on the Saturday nearest November 30. Fiscal years
1999, 1998, and 1997 each contained 52 weeks and ended November 27, 1999,
November 28, 1998 and November 29, 1997, respectively.
INVENTORIES
Griffin's inventories are stated at the lower of cost (using the average
cost method) or market. Nursery stock includes certain inventories which will
not be sold or used within one year. It is industry practice to include such
inventories in current assets.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is determined on a
straight-line basis over the estimated useful asset lives for financial
reporting purposes and principally on accelerated methods for tax purposes.
18
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease is carried at depreciated cost, net of
impairment write-downs, if any. Interest is capitalized during the construction
period of major facilities. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's useful life.
Depreciation is determined on a straight-line basis over the estimated useful
asset lives for financial reporting purposes and principally on accelerated
methods for tax purposes.
REVENUE AND GAIN RECOGNITION
In the landscape nursery business, sales and the related cost of sales are
recognized upon shipment of products. Sales returns are not material. In the
real estate business, gains on real estate sales are recognized in accordance
with SFAS No. 66, "Accounting for Sales of Real Estate", based upon the specific
terms of the sale.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts included in the financial statements for accounts receivable,
accounts payable and accrued liabilities reflect their fair values because of
the short-term maturity of these instruments. The fair values of Griffin's other
financial instruments are discussed in Note 5.
STOCK OPTIONS
Griffin accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". The pro forma
effect on earnings and earnings per share using the fair value method of
accounting for stock-based compensation is disclosed in Note 7.
EARNINGS PER SHARE
In the 1998 first quarter, Griffin adopted SFAS No. 128, "Earnings Per
Share". The new standard requires direct presentation of net income per common
share and net income per common share assuming dilution on the face of the
statement of operations.
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro.
Accordingly, per share results for 1997 are presented on a pro forma basis.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates.
19
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. INDUSTRY SEGMENT INFORMATION
Griffin's reportable segments are defined by their products and services,
and are comprised of the landscape nursery and real estate segments (see
Note 1). Griffin has no operations outside the United States. Griffin's export
sales and transactions between segments are not material.
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
NET SALES AND OTHER REVENUE -------- -------- --------
Landscape nursery........................................... $ 57,570 $ 48,180 $ 42,618
Real estate................................................. 5,374 3,051 3,670
-------- -------- --------
$ 62,944 $ 51,231 $ 46,288
======== ======== ========
OPERATING PROFIT (LOSS)
Landscape nursery(a)........................................ $ 3,938 $ 2,277 $ (1,433)
Real estate................................................. 798 (320) (202)
-------- -------- --------
Industry segment totals..................................... 4,736 1,957 (1,635)
General corporate expense................................... 1,606 1,883 1,601
Interest expense (income), net.............................. 545 (113) 736
-------- -------- --------
Income (loss) before income tax provision (benefit)......... $ 2,585 $ 187 $ (3,972)
======== ======== ========
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
IDENTIFIABLE ASSETS -------- -------- --------
Landscape nursery. $ 52,564 $ 46,881 $ 46,558
Real estate................................................. 38,248 35,480 31,320
-------- -------- --------
Industry segment totals..................................... 90,812 82,361 77,878
General corporate........................................... 22,559 22,555 25,858
-------- -------- --------
$113,371 $104,916 $103,736
======== ======== ========
(A) RESULTS IN THE LANDSCAPE NURSERY SEGMENT IN 1997 INCLUDE A CHARGE OF
$3.3 MILLION RELATING TO CERTAIN PLANT INVENTORIES. APPROXIMATELY 75% OF THE
CHARGE RELATES TO FIELD-GROWN PLANT INVENTORIES IN WHICH IT WAS ESTIMATED AT
THAT TIME THAT THE CARRYING COST WOULD NOT BE RECOVERED AS A RESULT OF
HORTICULTURAL PROBLEMS AND MARKET CONDITIONS. AS OF NOVEMBER 27, 1999,
IMPERIAL HAS SUBSTANTIALLY COMPLETED THE PHASEOUT OF ITS FIELD-GROWN
PROGRAM. THE REMAINING PORTION OF THE CHARGE RELATES PRINCIPALLY TO CERTAIN
CONTAINER GROWN PLANT INVENTORIES WHICH DID NOT MATURE PROPERLY.
DEPRECIATION AND
CAPITAL EXPENDITURES AMORTIZATION
------------------------------ ------------------------------
FOR THE FISCAL YEARS ENDED, FOR THE FISCAL YEARS ENDED,
------------------------------ ------------------------------
NOV. 27, NOV. 28, NOV. 29, NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
Landscape nursery........................... $2,795 $1,144 $ 861 $1,268 $1,212 $1,145
Real estate................................. 3,443 6,188 957 920 775 772
------ ------ ------ ------ ------ ------
Industry segment totals..................... 6,238 7,332 1,818 2,188 1,987 1,917
General corporate........................... -- 14 71 16 17 4
------ ------ ------ ------ ------ ------
$6,238 $7,346 $1,889 $2,204 $2,004 $1,921
====== ====== ====== ====== ====== ======
See Note 9 for information on Griffin's equity investment in Centaur.
20
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. RELATED PARTY TRANSACTIONS
Prior to the Distribution in 1997 (see Note 1), Griffin, as lessor, and
General Cigar Co., Inc. ("General Cigar"), as lessee, entered into a lease for
certain agricultural land in Connecticut and Massachusetts (the "Agricultural
Lease"). At the time the Agricultural Lease was consummated, both Griffin and
General Cigar were wholly-owned subsidiaries of Culbro. The Agricultural Lease
is for approximately 500 acres of arable land held by Griffin for possible
development in the long term, but which is being used by General Cigar for
growing Connecticut Shade wrapper tobacco. General Cigar's use of the land is
limited to the cultivation of cigar wrapper tobacco. The Agricultural Lease has
an initial term of ten years and provides for the extension of the lease for
additional periods thereafter. In addition, at Griffin's option, the
Agricultural Lease may be terminated with respect to 100 acres of such land
annually upon one year's prior notice. The annual rent payable by General Cigar
under the Agricultural Lease is approximately equal to the annual aggregate
amount of all taxes and other assessments payable by Griffin attributable to the
land leased. In fiscal 1999 and fiscal 1998, General Cigar made rental payments
of $108 and $80, respectively, to Griffin with respect to the Agricultural
Lease.
Also prior to the Distribution in 1997, Griffin entered into a Services
Agreement (the "Services Agreement") with Culbro. Pursuant to the Services
Agreement, Culbro, and its successor GC Holdings, provided Griffin, for a period
of one year after the Distribution, with certain administrative services,
including internal audit, tax preparation, legal and transportation services.
The Services Agreement was terminated with respect to all services provided by
GC Holdings as of July 1998, except for certain transportation services, with
respect to which the Services Agreement was amended and extended through
June 1999. In fiscal 1999 and fiscal 1998, Griffin incurred expenses of $150 and
$400, respectively, under the Services Agreement. As of November 27, 1999 and
November 28, 1998 amounts due GC Holdings from Griffin with respect to the
Services Agreement were $171 and $59, respectively.
In late 1997, subsequent to the Distribution, Griffin, as lessor, and
General Cigar, as lessee, entered into a lease for approximately 40,000 square
feet of office space in the Griffin Center South office complex in Bloomfield,
Connecticut (the "Commercial Lease"). The Commercial Lease has an initial term
of ten years and provides for the extension of the lease for additional annual
periods thereafter. Griffin's rental revenue from the Commercial Lease in fiscal
1999 and fiscal 1998 was $464 and $437, respectively. Management believes the
rent payable by General Cigar to Griffin under the Commercial Lease is at market
rates.
4. INCOME TAXES
Griffin's income tax provisions and deferred tax assets and liabilities in
the accompanying financial statements have been calculated in accordance with
SFAS No. 109 "Accounting for Income Taxes". For all periods prior to the
Distribution (see Note 1), Griffin's results of operations were included in
Culbro's consolidated U.S. federal income tax returns, and all tax liabilities
were paid by Culbro.
21
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. INCOME TAXES (CONTINUED)
Subsequent to the Distribution, Griffin has filed separate tax returns from its
former parent company. The income tax provision (benefit) for fiscal 1999,
fiscal 1998 and fiscal 1997 is summarized as follows:
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Current federal.................................... $ 76 $(246) $ (680)
Current state and local............................ 76 170 (208)
Deferred, principally federal...................... 810 177 (582)
---- ----- -------
Total income tax provision (benefit)............... $962 $ 101 $(1,470)
==== ===== =======
The reasons for the difference between the United States statutory income
tax rate and the effective rates are shown in the following table:
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Tax provision (benefit) at statutory rates......... $879 $ 64 $(1,350)
State and local taxes.............................. 141 111 (137)
Other.............................................. (58) (74) 17
---- ---- -------
Total income tax provision (benefit)............... $962 $101 $(1,470)
==== ==== =======
The significant components of Griffin's deferred tax asset-current and net
deferred tax liability-long term are as follows:
NOV. 27, NOV. 28,
1999 1998
-------- --------
Inventory................................... $1,905 $2,532
Other....................................... 661 688
------ ------
Deferred tax asset.......................... $2,566 $3,220
====== ======
NOV. 27, NOV. 28,
1999 1998
-------- --------
Depreciation.............................. $ 2,332 $ 2,256
NOL carryover............................. (1,286) (1,568)
Other..................................... 355 409
------- -------
Net deferred tax liability................ $ 1,401 $ 1,097
======= =======
As of November 27, 1999, Griffin has available for income tax purposes
approximately $2.9 million in federal net operating loss carryforwards which may
be used to offset future taxable income. These loss carryforwards begin to
expire in fiscal year 2012.
22
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. INCOME TAXES (CONTINUED)
In connection with the Distribution, Culbro and Griffin entered into a Tax
Sharing Agreement which provided, among other things, for the allocation between
Culbro and Griffin of federal, state, local and foreign tax liabilities for all
periods through the Distribution. With respect to the consolidated tax returns
filed by Culbro, the Tax Sharing Agreement provides that Griffin will be liable
for any amounts that it would have been required to pay with respect to
deficiencies assessed, if any, generally as if it had filed separate tax
returns.
5. LONG-TERM DEBT
Long-term debt includes:
NOV. 27, NOV. 28,
1999 1998
-------- --------
Mortgages................................... $8,704 $2,495
Capital leases.............................. 476 493
Credit Agreement............................ -- --
------ ------
Total....................................... 9,180 2,988
Less: due within one year................... 320 322
------ ------
Total long-term debt........................ $8,860 $2,666
====== ======
The annual principal payment requirements under the terms of the mortgages
for the years 2000 through 2004 are $112, $123, $136, $149 and $162,
respectively.
On June 24, 1999, Griffin entered into a nonrecourse mortgage of
$8.2 million on several of its buildings in the New England Tradeport. The
mortgage has an interest rate of 8.54% and a ten year term, with payments based
on a thirty year amortization schedule. Proceeds were used to reduce amounts
then outstanding under the Imperial Nurseries, Inc., Credit Agreement (the
"Imperial Credit Agreement") and to repay an existing mortgage on certain of
those buildings. The existing mortgage had a balance of $1.9 million at the time
of repayment and an interest rate of 8.63%. The book value of buildings under
mortgage was $7.5 million at November 27, 1999.
On August 3, 1999, Griffin completed a new $20 million revolving Credit
Agreement (the "Griffin Credit Agreement") to replace the $10 million Imperial
Credit Agreement. The Griffin Credit Agreement is an unsecured facility with the
same lender as the Imperial Credit Agreement and terminates in May 2001.
Borrowings under the Griffin Credit Agreement may be, at Griffin's option, on an
overnight basis or for periods of one, two, three or six months. Overnight
borrowings bear interest at the lender's prime rate plus 1/4% per annum.
Borrowings of one month and longer bear interest at the London Interbank
Offerred Rate ("LIBOR") plus 1 3/4% per annum. There are no compensating balance
agreements, and Griffin will pay a commitment fee of 1/4 of 1% per annum on
unused borrowing capacity. Borrowings under the Griffin Credit Agreement will be
used principally to finance working capital requirements at Griffin's landscape
nursery and real estate businesses. The Griffin Credit Agreement includes
financial covenants with respect to Griffin's debt service coverage (as
defined), net worth, operating profit and capital expenditures. There were no
borrowings under the Griffin Credit Agreement in 1999.
23
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
Management believes that the amounts reflected on the balance sheet for its
mortgages reflect their current fair values based on market interest rates for
comparable risks, maturities and collateral.
Future minimum lease payments under capital leases for transportation
equipment and the present value of such payments as of November 27, 1999 were:
2000........................................................ $232
2001........................................................ 157
2002........................................................ 100
2003........................................................ 35
2004........................................................ 5
----
Total minimum lease payments................................ 529
Less: amounts representing interest......................... 53
----
Present value of minimum lease payments (a)................. $476
====
(A) INCLUDES CURRENT PORTION OF $208 AT NOVEMBER 27, 1999.
At November 27, 1999 and November 28, 1998, machinery and equipment included
capital leases amounting to $476 and $493, respectively, which is net of
accumulated amortization of $1,797 and $1,634, respectively, at November 27,
1999 and November 28, 1998. Amortization expense relating to capital leases in
fiscal 1999, fiscal 1998 and fiscal 1997 was $250, $228, and $202, respectively.
6. RETIREMENT BENEFITS
SAVINGS PLAN
Griffin maintains the Griffin Land & Nurseries, Inc. 401(k) Savings Plan
(the "Griffin Savings Plan") for its employees, a defined contribution plan
whereby Griffin matches 60% of each employee's contribution, up to a maximum of
5% of base salary. Griffin's contributions to the Griffin Savings Plan and,
prior to the Distribution, to the Culbro Corporation 401(k) Savings Plan (the
"Culbro Savings Plan") in fiscal 1999, fiscal 1998 and fiscal 1997 were $236,
$230 and $116, respectively. The matching percentage by Griffin of each
employee's contribution is greater under the Griffin Savings Plan as compared to
the Culbro Savings Plan.
DEFERRED COMPENSATION PLAN
In fiscal 1999, Griffin adopted a non-qualified deferred compensation plan
(the "Deferred Compensation Plan") for selected employees who, due to Internal
Revenue Service guidelines, cannot take full advantage of the Griffin Savings
Plan. Contributions to the Deferred Compensation Plan started in fiscal 2000.
Accordingly, there was no liability under the Deferred Compensation Plan at
November 27, 1999. It is anticipated that the Deferred Compensation Plan will be
unfunded, with benefits to be paid from Griffin's general assets.
24
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. RETIREMENT BENEFITS (CONTINUED)
POSTRETIREMENT BENEFITS
Griffin maintains a postretirement benefits program which provides
principally health and life insurance benefits to certain of its retired
employees. In accordance with the Distribution Agreement (see Note 1), the
liabilities for Griffin employees who had retired prior to the Distribution and
the liabilities for employees related to businesses no longer a part of Griffin
were assumed in fiscal 1997 by GC Holdings. The liability for postretirement
benefits for certain of Griffin's active employees at the time of the
Distribution remains with Griffin and is included in other noncurrent
liabilities on the consolidated balance sheet.
The components for Griffin's postretirement benefits expense is as follows:
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Service cost-benefits earned during the year........ $23 $18 $26
Interest on accumulated postretirement benefit
obligation........................................ 28 22 16
--- --- ---
Total expense....................................... $51 $40 $42
=== === ===
Griffin's liability for postretirement benefits, as determined by the Plan's
actuaries, is shown below. None of these liabilities were funded at
November 27, 1999 and November 28, 1998.
NOV. 27, NOV. 28,
1999 1998
-------- --------
Retirees.................................... $ -- $ --
Fully eligible active participants.......... 105 98
Other active participants................... 288 272
Unrecognized net gain from experience
differences and assumption changes........ (28) (56)
---- ----
Liability for postretirement benefits....... $365 $314
==== ====
Discount rates of 8.00% and 7.15% were used to compute the accumulated
postretirement benefit obligations at November 27, 1999 and November 28, 1998,
respectively. Because Griffin's obligation for retiree medical benefits is
fixed, any increase in the medical cost trend would have no effect on the
accumulated postretirement benefit obligation, service cost or interest cost.
25
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCKHOLDERS' EQUITY
PER SHARE RESULTS
Basic and diluted per share results were based on the information below. Per
share results for 1997 are pro forma because Griffin was a wholly-owned
subsidiary of Culbro during a portion of that year.
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Net income (loss) as reported for computation of basic per
share results............................................. $2,476 $121 $(2,136)
Adjustment to net income (loss) for assumed exercise of
options of equity investee (Centaur)...................... (104) (91) (12)
------ ---- -------
Adjusted net income (loss) for computation of diluted per
share results............................................. $2,372 $ 30 $(2,148)
====== ==== =======
FOR THE FISCAL YEARS ENDED,
-----------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
--------- --------- -----------
(PRO FORMA)
Weighted average shares outstanding for computation of basic
per share results......................................... 4,847,000 4,776,000 4,730,000
Incremental shares from assumed exercise of Griffin stock
options................................................... 77,000 164,000 --
--------- --------- ---------
Adjusted weighted average shares for computation of diluted
per share results......................................... 4,924,000 4,940,000 4,730,000
========= ========= =========
GRIFFIN STOCK OPTION PLAN
The Griffin Land & Nurseries, Inc., 1997 Stock Option Plan (the "Griffin
Stock Option Plan"), adopted in 1997 and subsequently amended in 1999, makes
available a total of 1,000,000 options to purchase shares of Griffin common
stock. Options granted under the Griffin Stock Option Plan may be either
incentive stock options or non-qualified stock options. Incentive stock options
issued under the Griffin Stock Option Plan will satisfy certain Internal Revenue
Code requirements applicable thereto. At the time of the Distribution (see
Note 1), there were 438,202 Culbro stock options outstanding under various
Culbro stock option plans and an employment agreement with an officer of Culbro.
Upon completion of the Distribution in 1997, Culbro converted all employee stock
options then outstanding under Culbro's stock option plans into options to
purchase shares of common stock of Griffin, par value $0.01 per share, and
options to purchase shares of common stock of Culbro. The number of outstanding
options and exercise prices were adjusted to preserve the value of the Culbro
options. A portion of the options outstanding under the Culbro plans were able
to be exercised as incentive stock options, which under current tax laws will
not provide any tax deductions to Griffin. All Culbro options held by Culbro
employees who did not become employees of Griffin were vested as of the
Distribution date. None of the options outstanding at November 27, 1999 may be
exercised as stock appreciation rights.
26
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The Griffin Stock Option Plan is administered by the Compensation Committee
of the Board of Directors of Griffin. A summary of the activity under the
Griffin Stock Option Plan is as follows:
NUMBER OF WEIGHTED AVG.
OPTIONS EXERCISE PRICE
--------- --------------
Culbro options converted to Griffin options at time
of Distribution.................................... 438,202 $ 3.01
Granted in 1997...................................... 231,000 14.68
Exercised in 1997.................................... (184,481) 2.21
-------- ------
Outstanding at November 29, 1997..................... 484,721 8.86
Granted in 1998...................................... 4,000 17.00
Exercised in 1998.................................... (99,114) 0.92
Cancelled in 1998.................................... (20,000) 14.68
-------- ------
Outstanding at November 28, 1998..................... 369,607 10.66
Granted in 1999...................................... 252,100 13.25
Exercised in 1999.................................... (20,000) 0.92
-------- ------
Outstanding at November 27, 1999..................... 601,707 $12.16
======== ======
Number of option holders at November 27, 1999........ 39
========
WEIGHTED AVG.
REMAINING
OUTSTANDING AT WEIGHTED AVG. CONTRACTUAL LIFE
RANGE OF EXERCISE PRICES NOV. 27, 1999 EXERCISE PRICE (IN YEARS)
- ------------------------ -------------- -------------- ----------------
Under $3.00......................... 34,435 $ 1.75 4.4
$3.00-$9.00 100,172 7.52 6.3
Over $13.00......................... 467,100 13.92 8.4
-------
601,707
=======
Options granted by Griffin in 1997, 1998 and 1999 vest in equal installments
on the third, fourth and fifth anniversaries from the date of grant. At
November 27, 1999, 140,607 options outstanding under the Griffin Stock Option
Plan were vested with a weighted average price of $6.39 per share.
STOCK-BASED COMPENSATION
Griffin accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and has adopted the
disclosure provisions of SFAS No. 123 which require disclosing the pro forma
effect on earnings and earnings per share of the fair value method of
27
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCKHOLDERS' EQUITY (CONTINUED)
accounting for stock-based compensation. Griffin's results would have been the
following pro forma amounts under the method prescribed by SFAS No. 123.
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Net income (loss), as reported.............................. $2,476 $ 121 $(2,136)
Net income (loss), pro forma................................ $2,131 $ (59) $(2,228)
Basic net income (loss) per common share, as reported....... $ 0.51 $ 0.03 $ (0.45)
Basic net income (loss) per common share, pro forma......... $ 0.44 $(0.01) $ (0.47)
Diluted net income (loss) per common share, as reported..... $ 0.48 $ 0.01 $ (0.45)
Diluted net income (loss) per common share, pro forma....... $ 0.41 $(0.03) $ (0.47)
The weighted average fair value of each option granted during fiscal 1999,
fiscal 1998 and fiscal 1997 was $5.17, $5.57 and $6.10, respectively, estimated
as of the date of grant using the Black-Scholes option-pricing model. The
following weighted average assumptions were used in the model to calculate the
fair value of each option: expected volatility of approximately 35% in all
years; risk free interest rates in fiscal 1999, fiscal 1998 and fiscal 1997 of
4.91%, 5.45% and 6.15%, respectively; expected option term of 5 years; and no
dividend yield for all options issued.
8. OPERATING LEASES
Future minimum rental payments for the next five years under noncancelable
leases as of November 27, 1999 were:
2000........................................................ $ 422
2001........................................................ 304
2002........................................................ 229
2003........................................................ 145
2004........................................................ 77
------
Total minimum lease payments................................ $1,177
======
Total rental expense for all operating leases in fiscal 1999, fiscal 1998
and fiscal 1997 was $518, $484 and $366, respectively.
28
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. OPERATING LEASES (CONTINUED)
As lessor, Griffin Land's real estate activities include the leasing of
office and industrial space in Connecticut. Future minimum rentals to be
received under noncancelable leases as of November 27, 1999 were:
2000........................................................ $ 3,414
2001........................................................ 3,348
2002........................................................ 2,850
2003........................................................ 2,505
2004........................................................ 1,843
Later years................................................. 2,401
-------
Total minimum rental revenue................................ $16,361
=======
Total rental revenue from all leases in fiscal 1999, fiscal 1998 and fiscal
1997 was $3,247, $2,287 and $1,851, respectively.
9. EQUITY INVESTMENTS
INVESTMENT IN CENTAUR
On August 4, 1998, Griffin purchased 500,000 shares of Centaur common stock
from another stockholder of Centaur for approximately $2.9 million. Griffin's
purchase was in connection with transactions whereby the stockholder who sold
the Centaur common stock to Griffin also sold its remaining Centaur common stock
to a third party, and Centaur purchased approximately 4.8 million shares of its
common stock from certain of its other stockholders at the same per share price
paid by Griffin. As a result of these transactions, Griffin now holds
approximately 5.4 million shares of the 15.2 million shares of Centaur common
stock outstanding after these transactions.
Substantially all of the book value of Griffin's investment in Centaur
represents the excess of the cost of Griffin's investment over the book value of
its equity in Centaur (representing the value of publishing rights and goodwill)
and is being amortized on a straight-line basis over 30 to 40 years, which
commenced in 1985.
Centaur reports on a June 30 fiscal year. The unaudited summarized financial
data presented below was derived from Centaur's audited consolidated financial
statements, adjusted to report on a fiscal year consistent with Griffin.
Centaur's consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United Kingdom. Griffin's equity
income reflects adjustments necessary to present Centaur's results in accordance
with generally
29
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. EQUITY INVESTMENTS (CONTINUED)
accepted accounting principles in the United States. Such adjustments include an
expense in fiscal 1997 for stock option compensation of which Griffin's
allocable share was $0.6 million.
TWELVE MONTHS ENDED,
------------------------------
NOV. 27, NOV. 28, NOV. 29,
1999 1998 1997
-------- -------- --------
Net sales................................................... $97,132 $73,324 $85,713
Costs and expenses.......................................... 87,925 63,068 79,981
------- ------- -------
Operating profit............................................ 9,207 10,256 5,732
Nonoperating expense (income), principally interest......... 2,638 1,322 (33)
------- ------- -------
Pretax income............................................... 6,569 8,934 5,765
Income taxes................................................ 2,520 3,634 3,217
------- ------- -------
Net income.................................................. $ 4,049 $ 5,300 $ 2,548
======= ======= =======
NOV. 27, NOV. 28,
1999 1998
-------- --------
Current assets.............................................. $35,957 $20,637
Intangible assets........................................... 25,002 8,752
Other noncurrent assets..................................... 11,018 8,074
------- -------
Total assets................................................ $71,977 $37,463
======= =======
Current liabilities......................................... $29,219 $21,897
Debt........................................................ 42,859 19,800
Noncurrent liabilities...................................... 3,530 3,493
------- -------
Total liabilities........................................... 75,608 45,190
Accumulated deficit......................................... (3,631) (7,727)
------- -------
Total liabilities and accumulated deficit................... $71,977 $37,463
======= =======
REAL ESTATE JOINT VENTURES
Included in other assets at November 27, 1999, and November 28, 1998, is
$3,110 and $3,128, respectively, for Griffin's 30% interest in a real estate
joint venture that owns commercial properties in Connecticut. Results of this
investment in fiscal 1999, fiscal 1998 and fiscal 1997 were $116, $106 and $27,
respectively, and are included in operating profit.
30
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
INVENTORIES
Inventories consist of:
NOV. 27, NOV. 28,
1999 1998
-------- --------
Nursery stock............................................. $26,728 $24,329
Finished goods............................................ 1,481 1,420
Materials and supplies.................................... 987 997
------- -------
$29,196 $26,746
======= =======
PROPERTY AND EQUIPMENT
Property and equipment consist of:
ESTIMATED USEFUL NOV. 27, NOV. 28,
LIVES 1999 1998
---------------- -------- --------
Land and improvements..................... $ 7,402 $ 6,336
Buildings................................. 10 to 40 years 4,198 3,871
Machinery and equipment................... 3 to 20 years 14,560 13,297
-------- --------
26,160 23,504
Accumulated depreciation.................. (11,801) (10,869)
-------- --------
$ 14,359 $ 12,635
======== ========
Total depreciation expense related to property and equipment in fiscal 1999,
fiscal 1998 and fiscal 1997 was $1,323, $1,265 and $1,210, respectively.
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease consists of:
ESTIMATED USEFUL NOV. 27, NOV. 28,
LIVES 1999 1998
---------------- -------- --------
Land....................................... $ 4,723 $ 4,761
Land improvements.......................... 15 years 13,488 12,716
Buildings.................................. 40 years 23,836 21,498
------- -------
42,047 38,975
Accumulated depreciation................... (8,281) (7,456)
------- -------
$33,766 $31,519
======= =======
Griffin capitalized interest in fiscal 1999 and fiscal 1998 of $103 and
$111, respectively. There was no interest capitalized in fiscal 1997. Total
depreciation expense related to real estate held for sale or lease in fiscal
1999, fiscal 1998 and fiscal 1997 was $869, $739 and $711, respectively.
31
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
ACCOUNTS PAYBLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
NOV. 27, NOV. 28,
1999 1998
-------- --------
Trade payables.............................................. $2,741 $3,685
Accrued salaries, wages and other compensation.............. 1,381 781
Other accrued liabilities................................... 1,290 1,120
------ ------
$5,412 $5,586
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Griffin incurred capital lease obligations in fiscal 1999, fiscal 1998 and
fiscal 1997 of $239, $238 and $202, respectively.
In fiscal 1999 Griffin received a tax refund, net of income tax payments, of
$654. In fiscal 1998 tax payments were $132. Interest payments, net of
capitalized interest, were $626, $152 and $1,007 in fiscal 1999, fiscal 1998 and
fiscal 1997, respectively, including interest payments of $730 in fiscal 1997
under Culbro's general corporate debt facilities that were transferred to GC
Holdings pursuant to the Distribution Agreement (see Note 1). Prior to the
Distribution in 1997, interest and tax payments were made by Culbro on behalf of
Griffin. Griffin was included in Culbro's consolidated federal income tax
returns through the Distribution (see Note 4). Accordingly, tax and interest
payments made by Culbro through the Distribution are included in other financing
activities on the consolidated statement of cash flows for fiscal 1997.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data are presented below:
1999 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- ------------- -------- -------- -------- -------- --------
Net sales and other revenue.................... $ 5,165 $27,293 $14,409 $16,077 $62,944
Gross profit................................... 1,597 8,316 5,171 4,539 19,623
Net income (loss).............................. (1,506) 2,941 309 732 2,476
Basic net income (loss) per share.............. (0.31) 0.61 0.06 0.15 0.51
Diluted net income (loss) per share............ (0.31) 0.59 0.06 0.14 0.48
1998 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- ------------- -------- -------- -------- -------- --------
Net sales and other revenue.................... $ 3,514 $23,707 $11,019 $12,991 $51,231
Gross profit................................... 1,019 6,907 3,595 3,492 15,013
Net income (loss).............................. (1,430) 2,438 (726) (161) 121
Pro forma basic net income (loss) per share.... (0.30) 0.51 (0.15) (0.03) 0.03
Pro forma diluted net income (loss) per
share........................................ (0.30) 0.48 (0.15) (0.04) 0.01
32
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES
Imperial has entered into contract growing agreements with suppliers of
field-grown plants. In accordance with these agreements, Imperial has agreed to
purchase inventory as it becomes available with an aggregate purchase price of
approximately $3.6 million over the next four years.
In 1999, Imperial entered into an agreement to purchase land for a new
wholesale sales and service center. Completion of the land purchase is
contingent upon receiving all required regulatory approvals to operate a sales
and service center on that site. If such approval is received, expenditures for
the land acquisition and required site work are expected to be approximately
$2.5 million in fiscal 2000.
The Company is involved, as a defendant, in various litigation matters
arising in the ordinary course of business. In the opinion of management, based
on the advice of legal counsel, the ultimate liability, if any, with respect to
these matters will not be material.
33
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Griffin Land & Nurseries, Inc.
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Griffin Land & Nurseries, Inc. and
its subsidiaries at November 27, 1999 and November 28, 1998, and the results of
their operations and their cash flows for the fiscal years ended November 27,
1999, November 28, 1998 and November 29, 1997, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the management of Griffin Land & Nurseries, Inc.; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the fiscal 1999 and fiscal 1998 financial
statements of Centaur Communications, Ltd., an investment which is carried at
equity in the consolidated financial statements (see Note 9) and represents
approximately 15% and 15.4%, respectively, of consolidated assets. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Centaur
Communications, Ltd. included in the consolidated financial statements for the
years ended November 27, 1999, November 28, 1998 and November 29, 1997, is based
on the report of the other auditors. We conducted our audits of these
consolidated financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 9, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-30639) of Griffin Land & Nurseries, Inc. of our
report dated February 9, 2000 which appears above in this Form 10-K of Griffin
Land & Nurseries, Inc. for the fiscal year ended November 27, 1999. We also
consent to the incorporation by reference of our report on the financial
statement schedules, which appears in Exhibit 23.2 of this Form 10-K of Griffin
Land & Nurseries, Inc. for the fiscal year ended November 27, 1999.
/s/ PricewaterhouseCoopers LLP
February 9, 2000
34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
The following table sets forth the information called for in this Item 10:
NAME AGE POSITION
- ---- -------- ---------------------------------------------------------
Edgar M. Cullman.................. 82 Chairman of the Board and Director
Frederick M. Danziger............. 59 President, Chief Executive Officer and Director
Anthony J. Galici................. 42 Vice President, Chief Financial Officer and Secretary
John L. Ernst..................... 59 Director
Winston J. Churchill, Jr.......... 59 Director
David F. Stein.................... 59 Director
Martha Collier.................... 43 Senior Vice President of Marketing and Leasing of the
Griffin Land Division
Gregory M. Schaan................. 42 President and Chief Executive Officer of Imperial
Nurseries, Inc.
EDGAR M. CULLMAN has been the Chairman of the Board of Griffin since
April 1997. He has been Chairman of the Board of General Cigar Holdings, Inc.
("GC Holdings"), since December 1996. From 1962 to 1996 he served as Chief
Executive Officer of Culbro Corporation ("Culbro"). Mr. Cullman served as a
Director of Culbro from 1961 until 1997 and has been Chairman of Culbro since
1975. He also is a Director of Centaur Communications, Ltd., and Bloomingdale
Properties, Inc. ("Bloomingdale Properties"). Edgar M. Cullman is the uncle of
John L. Ernst and the father-in-law of Frederick M. Danziger.
FREDERICK M. DANZIGER has been a Director and the President and Chief
Executive Officer of Griffin since April 1997, and was a director of Culbro from
1975 until 1997. He was previously involved in the real estate operations of
Griffin in the early 1980's. Mr. Danziger was Of Counsel to the law firm of
Latham & Watkins from 1995 until 1997. From 1974 until 1995, Mr. Danziger was a
Member of the law firm of Mudge Rose Guthrie Alexander & Ferdon. Mr. Danziger
also is a director of Monro Muffler/Brake, Inc., Bloomingdale Properties, The
Technology Group Inc., Centaur Communications, Ltd., and Linguaphone Group plc,
and is a general partner of Ryan Instruments, L.P.
ANTHONY J. GALICI has been the Vice President, Chief Financial Officer and
Secretary of Griffin since April 1997. Mr. Galici was Vice President-Assistant
Controller of Culbro from 1995 until 1997. Prior to 1995, he was Assistant
Controller of Culbro.
JOHN L. ERNST is a Director of Griffin and GC Holdings. He has been a
Director of Griffin since April 1997 and a director of GC Holdings since
December 1996. Mr. Ernst also was a Director of Culbro from 1983 until 1997. He
is the Chairman of the Board and President of Bloomingdale Properties, an
investment and real estate company. Mr. Ernst also is a director of the Doral
Financial Corporation.
WINSTON J. CHURCHILL, JR. has been a Director of Griffin since April 1997.
Mr. Churchill is also a member of the board of Cinemaster Luxury Theatres, Inc.,
Amkor Technology, Inc., and Freedom Securities. He is a managing general partner
of SCP Private Equity Partners, L.P., a private equity fund sponsored by
Safeguard Scientifics, Inc., and is Chairman of Churchill Investment
Partners, Inc., and CIP Capital, Inc.
35
DAVID F. STEIN has been a Director of Griffin since November 1997.
Mr. Stein is Vice Chairman of J&W Seligman & Co., Inc., an asset management
firm, and a member of the board of Seligman Data Corp. He has been Vice Chairman
since 1996. Mr. Stein was Managing Director of J&W Seligman & Co., Inc., from
1990 until 1996.
MARTHA COLLIER has been the Senior Vice President of Marketing and Leasing
of the Griffin Land division of Griffin since 1997. From 1995 until 1997 she was
a Vice President of Griffin Land and from 1989 until 1995 she was Controller of
Griffin Land.
GREGORY M. SCHAAN has been the President and Chief Executive Officer of
Imperial Nurseries, Inc. ("Imperial") since October 1999. From 1997 until 1999
he was Senior Vice President of Sales and Marketing of Imperial. From 1992 until
1997 he was Vice President of Sales and Marketing of Imperial.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
Mr. Danziger, Griffin's President and Chief Executive Officer, and Mr. Galici,
Griffin's Vice President, Chief Financial Officer and Secretary (the "Named
Executive Officers"), as well as the total compensation paid by Griffin during
1999, 1998 and 1997 to the Named Executive Officers. Mr. Danziger and
Mr. Galici were not employed by Griffin prior to 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------------------ OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- --------------------------- -------- -------- -------- --------------- ------------
Frederick M. Danziger.................. 1999 $345,205 $93,650 $ 3,178 150,000
President and Chief Executive Officer 1998 300,000 -- 5,112 --
1997 126,213 -- 692 150,000
Anthony J. Galici...................... 1999 171,726 33,800 4,117 15,000
Vice President, Chief Financial
Officer 1998 162,558 3,000 60,511(2) --
and Secretary 1997 71,250 -- 1,688 15,000
(1) Amounts shown under Other Annual Compensation include matching contributions
made by Griffin under its Savings Plan and other miscellaneous cash
benefits, but do not include funding for or receipt of retirement plan
benefits. No Executive Officer who would otherwise have been includable in
such table resigned or terminated employment during 1999.
(2) Includes $56,097 for reimbursement of relocation costs.
There were no stock options exercised by the Named Executive Officers in
1999. The following table presents the value of unexercised options held by the
Named Executive Officers at November 27, 1999.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
Frederick M. Danziger.......................... -- 300,000 $ -- $ --
Anthony J. Galici.............................. 7,641 30,000 67,288 --
36
(1) The amounts presented herein have been calculated based upon the difference
between the fair market value of $10.938 per share (the average of the high
and low prices of Griffin's Common Stock on November 26, 1999) and the
exercise price of each stock option.
COMPENSATION OF DIRECTORS
Members of the Board of Directors who are not employees of Griffin received
$10,000 per year and $500 for each Board and Committee meeting attended in 1999.
The 1997 Stock Option Plan, as amended, provides that non-employee Directors who
are not members of the Cullman & Ernst Group receive annually options
exercisable for 2,000 shares of Common Stock at an exercise price that is the
market price at the time of grant. In 1999 Griffin granted Mr. Churchill and
Mr. Stein each options exercisable for 2,000 shares of Common Stock, and expects
to grant additional options to Messrs. Churchill and Stein in 2000 consistent
with the 1997 Stock Option Plan, as amended.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Griffin's officers and directors, and persons who own
more than ten percent of its Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such persons
are required by regulation to furnish Griffin with copies of all Section 16(a)
forms they file. Based upon its involvement in the preparation of certain of
such forms and a review of the copies of other such forms received by it,
Griffin believes that with respect to 1999, all such Section 16(a) filing
requirements were satisfied.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Cullman, Danziger, and Ernst are members of the Board of Directors
of Bloomingdale Properties, of which Mr. Ernst is Chairman and President and
other members of the Cullman & Ernst Group are associated. Mr. Danziger also
serves as trustee of the retirement plan for Bloomingdale Properties.
37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table lists the number of shares and options to purchase
shares of Common Stock of Griffin beneficially owned or held by (i) each person
known by Griffin to beneficially own more than 5% of the outstanding shares of
Common Stock, (ii) the nominees for election as directors (who are all current
directors), (iii) the Named Executive Officers (as defined in Item 11) and
(iv) all directors and officers of Griffin, collectively. Unless otherwise
indicated, information is provided as of November 27, 1999.
NAME AND ADDRESS(1) SHARES BENEFICIALLY OWNED(2) PERCENT OF TOTAL
- ------------------- ---------------------------- ----------------
Edgar M. Cullman (3)................................... 977,342 20.1
Edgar M. Cullman, Jr. (3).............................. 870,072 17.9
Louise B. Cullman (3).................................. 847,175 17.4
Susan R. Cullman (3)................................... 758,607 15.6
Frederick M. Danziger (3).............................. 226,320 4.7
Lucy C. Danziger (3)................................... 1,043,992 21.5
John L. Ernst (3)...................................... 421,250 8.7
Winston J. Churchill, Jr............................... 30,000 *
David F. Stein......................................... 35,000 *
Anthony J. Galici...................................... 7,641 *
B. Bros. Realty Limited Partnership (4)................ 233,792 4.8
Gabelli Funds, Inc. (5)................................ 1,416,937 29.1
All directors and officers collectively, consisting of
6 persons (6)........................................ 1,432,432 29.5
* Less than 1%
(1) Unless otherwise indicated, the address of each person named in the table is
641 Lexington Avenue, New York, New York 10022.
(2) This information reflects the definition of beneficial ownership adopted by
the Securities and Exchange Commission (the "Commission"). Beneficial
ownership reflects sole investment and voting power, except as reflected in
footnote 3. Where more than one person shares investment and voting power in
the same shares, such shares may be shown more than once. Such shares are
reflected only once, however, in the total for all directors and officers.
Includes options exercisable within 60 days granted to Directors pursuant to
the 1997 Stock Option Plan. Excluded are shares held by charitable
foundations and trusts of which members of the Cullman and Ernst families,
including persons referred to in this footnote 2, are officers and
directors. As of November 27, 1999, a group (the "Cullman and Ernst Group")
consisting of Messrs. Cullman, direct members of their families and trusts
for their benefit; Mr. Ernst, his sister and direct members of their
families and trusts for their benefit; a partnership in which members of the
Cullman and Ernst families hold substantial direct and indirect interests;
and charitable foundations and trusts of which members of the Cullman and
Ernst families are directors or trustees, owned an aggregate of
approximately 2,327,295 shares of Common Stock (approximately 47.86% of the
outstanding shares of Common Stock). Among others, Messrs. Cullman,
Mr. Ernst and Mr. Danziger (who is a member of the Cullman & Ernst Group)
hold investment and voting power or shared investment and voting power over
such shares. Certain of such shares are pledged as security for loans
payable under standard pledge arrangements. A form filed with the Commission
on behalf of the Cullman & Ernst Group states that there is no formal
agreement governing the group's holding and voting of such shares but that
there is an informal understanding that the persons and entities included in
the group will hold and vote together with shares owned by each of them in
each case subject to any applicable fiduciary responsibilities. Louise B.
Cullman is the wife of Edgar M. Cullman; Edgar M. Cullman, Jr. is the son of
Edgar M. Cullman and Louise B. Cullman; Susan R.
38
Cullman and Lucy C. Danziger are the daughers of Edgar M. Cullman and Louise
B. Cullman; and Lucy C. Danziger is the wife of Frederick M. Danziger.
(3) Included within the shares shown as beneficially owned by Edgar M. Cullman
are 866,204 shares in which he holds shared investment and/or voting power;
included within the shares shown as beneficially owned by Mr. Ernst are
411,321 shares in which he holds shared investment and/or voting power; and
included within the shares shown as beneficially owned by Frederick M.
Danziger are 209,778 shares in which he holds shared investment and/or
voting power. Included within the shares shown as beneficially owned by
Edgar M. Cullman, Jr. are 733,918 shares in which he holds shared investment
and/or voting power; included with the shares owned by Louise B. Cullman are
743,765 shares in which she holds shared investment and/or voting power;
included within the shares shown as beneficially owned by Susan R. Cullman
are 670,842 shares in which she holds shared investment and/or voting power;
and included within the shares shown as beneficially owned by Lucy C.
Danziger are 962,150 shares in which she holds shared investment and/or
voting power. Excluded in each case are shares held by charitable
foundations and trusts in which such persons or their families or trusts for
their benefit are officers and directors. Messrs. Cullman, Danziger and
Ernst disclaim beneficial interest in all shares over which there is shared
investment and/or voting power and in all excluded shares.
(4) The address of B. Bros. Realty Limited Partnership ("B. Bros.") is 641
Lexington Avenue, New York, New York 10022. Lucy C. Danziger and John L.
Ernst are the general partners of B. Bros.
(5) The address of such person is Gabelli Funds, Inc., One Corporate Center,
Rye, New York 10580. A form filed with the Securities and Exchange
Commission in July 1997 by Gabelli Funds, Inc., as subsequently amended,
indicates that the securities have been acquired by Gabelli Funds, Inc., and
its wholly-owned subsidiaries on behalf of their investment advisory
clients. Griffin has been informed that no individual client of Gabelli
Funds, Inc., has ownership of more than 5% of Griffin's outstanding Common
Stock.
(6) Excluding shares held by certain charitable foundations, the officers and/or
directors of which include certain officers and directors of Griffin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information of stockholders, attention is called to the following
transactions between Griffin and other parties in which the persons mentioned
below might have had a direct or indirect interest.
Messrs. Cullman, Danziger and Ernst are members of the Board of Directors of
Bloomingdale Properties, of which Mr. Ernst is Chairman and President and other
members of the Cullman & Ernst Group are associated. Real estate management and
advisory services have been provided to Griffin by John Fletcher, an employee of
Bloomingdale Properties, for which Mr. Fletcher receives compensation at a rate
of approximately $50,000 per year.
Edgar M. Cullman, the Chairman of Griffin, is also the Chairman of GC
Holdings, the successor to Culbro. In addition, certain members of the
Cullman & Ernst Group who may be deemed to beneficially own more than five
percent of Griffin's Common Stock (see Item 12) also may be deemed to
beneficially own more than five percent of the Class B Common Stock of GC
Holdings. Prior to the Distribution in 1997, Griffin, as lessor, and General
Cigar Co., Inc. ("General Cigar"), a wholly-owned subsidiary of GC Holdings, as
lessee, entered into a lease for certain agricultural land in Connecticut and
Massachusetts (the "Agricultural Lease"). The Agricultural Lease is for
approximately 500 acres of arable land held by Griffin for possible development
in the long term, but which is being used by General Cigar for growing
Connecticut Shade wrapper tobacco. General Cigar's use of the land is limited to
the cultivation of cigar wrapper tobacco. The Agricultural Lease has an initial
term of ten
39
years and provides for the extension of the lease for additional periods
thereafter. In addition, at Griffin's option, the Agricultural Lease may be
terminated with respect to 100 acres of such land annually upon one year's prior
notice. In fiscal 1999 and fiscal 1998, General Cigar made rental payments of
$108,000 and $80,000, respectively, to Griffin with respect to the Agricultural
Lease.
Also prior to the Distribution in 1997, Griffin entered into a Services
Agreement (the "Services Agreement") with Culbro. Pursuant to the Services
Agreement, Culbro, and its successor GC Holdings, provided Griffin, for a period
of one year after the Distribution, with certain administrative services,
including internal audit, tax preparation, legal and transportation services.
The Services Agreement was terminated with respect to all services provided by
GC Holdings as of July 1998, except for certain transportation services, with
respect to which the Services Agreement was amended and extended through
June 1999. In fiscal 1999 and fiscal 1998, Griffin incurred expenses of $150,000
and $400,000, respectively, under the Services Agreement.
In late 1997, Griffin, as lessor, and General Cigar, as lessee, entered into
a lease for approximately 40,000 square feet of office space in the Griffin
Center South office complex in Bloomfield, Connecticut (the "Commercial Lease").
The Commercial Lease has an initital term of ten years and provides for the
extension of the lease for additional annual periods thereafter. Griffin's
rental revenue from the Commercial Lease in fiscal 1999 and fiscal 1998 was
$464,000 and $437,000, respectively. Management believes the rent payable by
General Cigar to Griffin under the Commercial Lease is at market rates.
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements--see also Item 8
(2) Financial Statement Schedules and Financial Statements of Equity
Investee.
The following financial statement schedules and financial statements of
Griffin's equity investee should be read in conjunction with the financial
statements in such 1999 Annual Report to Shareholders. Schedules not included
with this additional financial data have been omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
FINANCIAL STATEMENT SCHEDULES
II--Valuation and Qualifying Accounts and Reserves S-1
III--Real Estate and Accumulated Depreciation S-2/S-3
FINANCIAL STATEMENTS OF EQUITY INVESTEE
Centaur Communications, Ltd. financial statements for
the year ended June 30, 1999 F-1
(b) There were no reports on Form 8K filed by Griffin in the 1999 fourth
quarter.
(c) Exhibits
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
2.1 Form of Distribution Agreement among Culbro Corporation,
Griffin Land & Nurseries, Inc. and General Cigar
Holdings, Inc. (incorporated by reference to the
Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
3.1 Form of Amended and Restated Certificate of Incorporation of
Griffin Land & Nurseries, Inc. (incorporated by reference
to the Form 10 of Griffin Land & Nurseries, Inc., filed
April 8, 1997, as amended)
3.2 Form of Bylaws of Griffin Land & Nurseries, Inc.
(incorporated by reference to the Form 10 of Griffin
Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.1 Form of Tax Sharing Agreement among Culbro Corporation,
Griffin Land & Nurseries, Inc., and General Cigar
Holdings, Inc. (incorporated by reference to the
Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
10.2 Form of Benefits and Employment Matters Allocation Agreement
among Culbro Corporation, Griffin Land & Nurseries, Inc. and
General Cigar Holdings, Inc. (incorporated by reference to
the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, amended)
10.3 Form of Services Agreement among Culbro Corporation, Griffin
Land & Nurseries, Inc., and General Cigar Holdings, Inc.
(incorporated by reference to the Registration Statement on
Form S-1 of General Cigar Holdings, Inc., filed
December 24, 1996, as amended)
10.4 Form of Agricultural Lease between Griffin Land &
Nurseries, Inc. and General Cigar Holdings, Inc.
(incorporated by reference to the Registration Statement on
Form S-1 of General Cigar Holdings, Inc., filed
December 24, 1996, as amended)
10.5 Employment Agreement between Culbro Corporation and Jay M.
Green, dated as of April 8, 1994, and as amended on
January 11, 1997 (incorporated by reference to the
Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
41
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
10.6 Form of 1997 Stock Option Plan of Griffin Land &
Nurseries, Inc. (incorporated by reference to the Form 10 of
Griffin Land & Nurseries, Inc., filed April 8, 1997, as
amended)
10.7 Form of 401 (k) Plan of Griffin Land & Nurseries, Inc.
(incorporated by reference to the Form 10 of Griffin Land &
Nurseries, Inc., filed April 8, 1997, as amended)
10.8 1996 Stock Plan of Culbro Corporation dated as of March 15,
1996 (incorporated by reference to the definitive proxy
statement of Culbro Corporation, dated March 15, 1996, for
its Annual Meeting of Shareholders held on April 11, 1996)
10.9 1992 Stock Plan of Culbro Corporation, dated December 10,
1993 (incorporated by reference to the definitive proxy
statement of Culbro Corporation, dated March 31, 1993, for
its Annual Meeting of Shareholders held on April 8, 1993)
10.10 Stock Option Plan for Non-employee Directors of Culbro
Corporation, dated December 10, 1993 (incorporated by
reference to the definitive proxy statement of Culbro
Corporation, dated March 3, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993)
10.11 1991 Employees Incentive Stock Option Plan of Culbro
Corporation, dated as of January 31, 1991 and as amended on
February 12, 1995 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated
April 9, 1991, for its Annual Meeting of Shareholders held
on May 9, 1993)
10.12 Annual Incentive Compensation Plan of Culbro Corporation,
dated as of December 7, 1995 (incorporated by reference to
the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
10.13 Annual Incentive Compensation Plan of General Cigar
Co., Inc., dated as of December 7, 1995 (incorporated by
reference to the Registration Statement on Form S-1 of
General Cigar Holdings, Inc., filed December 24, 1996, as
amended)
10.14 Long-Term Performance Plan of Culbro Corporation for the
three-year period 1995-1997 (incorporated by reference to
the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
10.15 Deferred Incentive Compensation Plan of Culbro Corporation,
dated as of December 13, 1982, and as amended on
February 12, 1985 (incorporated by reference to the
Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
10.16 Revolving Credit Agreement and Guaranty dated May 6, 1998
(incorporated by reference to Form 10Q dated May 30, 1998,
filed July 10, 1998)
10.17 Loan Agreement dated June 24, 1999 (incorporated by
reference to Form 10Q dated August 28, 1999, filed
October 8, 1999)
10.18 Revolving Credit Agreement dated August 3, 1999
(incorporated by reference to Form 10Q dated August 28,
1999, filed October 8, 1999)
21 Subsidiaries of Griffin Land & Nurseries, Inc. (incorporated
by reference to the Form 10 of Griffin Land &
Nurseries, Inc., filed April 8, 1997, as amended)
23.1 Consent of PricewaterhouseCoopers LLP (included with the
report accompanying Item 8 of this Form 10K)
23.2 Report of Independent Accountants on Financial Statement
Schedules
27 Financial Data Schedule
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GRIFFIN LAND & NURSERIES, INC.
By: /s/ FREDERICK M. DANZIGER
-----------------------------------------
Frederick M. Danziger
CHIEF EXECUTIVE OFFICER
By: /s/ ANTHONY J. GALICI
-----------------------------------------
Anthony J. Galici
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons on behalf of the
Corporation and in the capacities indicated as of February 24, 2000.
NAME TITLE
---- -----
/s/ WINSTON J. CHURCHILL, JR.
- -------------------------------------------- Director
Winston J. Churchill, Jr.
/s/ EDGAR M. CULLMAN
- -------------------------------------------- Chairman of the Board and Director
Edgar M. Cullman
/s/ FREDERICK M. DANZIGER
- -------------------------------------------- President, Director and Chief Executive
Frederick M. Danziger Officer
/s/ JOHN L. ERNST
- -------------------------------------------- Director
John L. Ernst
/s/ ANTHONY J. GALICI
- -------------------------------------------- Vice President, Chief Financial Officer and
Anthony J. Galici Secretary
/s/ DAVID F. STEIN
- -------------------------------------------- Director
David F. Stein
43
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- ----------- ---------- ---------- ---------- ---------- ----------
FOR FISCAL YEAR ENDED NOVEMBER 27, 1999
Reserves:
Uncollectible accounts-trade $ 490 120 6 52 (1) $ 564
------ ------ ------ ------ ------
Inventories $2,822 146 3 2,370 (2) $ 601
------ ------ ------ ------ ------
FOR FISCAL YEAR ENDED NOVEMBER 28, 1998
Reserves:
Uncollectible accounts-trade $ 456 111 4 81 (1) $ 490
------ ------ ------ ------ ------
Inventories $3,519 -- -- 697 (2) $2,822
------ ------ ------ ------ ------
FOR FISCAL YEAR ENDED NOVEMBER 29, 1997
Reserves:
Uncollectible accounts-trade $ 302 163 35 44 (1) $ 456
------ ------ ------ ------ ------
Inventories $ 965 3,300 -- 746 (2) $3,519
------ ------ ------ ------ ------
Notes:
(1) Accounts receivable written off.
(2) Inventories disposed.
S-1
Schedule III - Real Estate and Accumulated Depreciation
(dollars in thousands)
Initial Cost Cost Capitalized Gross Amount
------------------- Subsequent at November 27, 1999
Bldg. & to Acquisition ---------------------------------
Description Encumbrances Land Improve. Improvements Land Bldg. & Improve. Total
- ----------- ------------ ---- -------- ------------ ---- ---------------- -----
Land $ - $4,495 $ - $7,443 $4,495 $7,443 $11,938
Restaurant
Bloomfield, CT - - - 1,370 - 1,370 1,370
Residential
Development
Windsor, CT - 110 - 3,634 110 3,634 $3,744
Office Building
Bloomfield, CT 550 47 - 2,732 47 2,732 2,779
Office Building
Bloomfield, CT - 3 - 1,816 3 1,816 1,819
Office Building
Bloomfield, CT - 1 - 1,586 1 1,586 1,587
Office Building
Bloomfield, CT - 1 - 1,507 1 1,507 1,508
Office Building
Bloomfield, CT - - - 669 - 669 669
Office Building
Bloomfield, CT - 5 - 3,438 5 3,438 3,443
Industrial Buildings
East Granby, CT 8,154 29 - 3,680 29 3,680 3,709
Industrial Building
East Granby, CT (a) 13 1,722 227 13 1,949 1,962
Industrial Building
Windsor, CT (a) 9 - 3,921 9 3,921 3,930
Industrial Building
Windsor, CT - 10 - 3,579 10 3,579 3,589
--------------------------------------------------------------------------------------------
$8,704 $4,723 $1,722 $35,602 $4,723 $37,324 $42,047
============================================================================================
Date of Date of
Description Accum. Dep. Construction Acquisition Depr. Life
- ----------- ----------- ------------ ----------- ----------
Land $ (565)
Restaurant
Bloomfield, CT (657) 1983 40 yrs.
Residential
Development
Windsor, CT -
Office Building
Bloomfield, CT (1,470) 1977 40 yrs.
Office Building
Bloomfield, CT (704) 1985 40 yrs.
Office Building
Bloomfield, CT (471) 1988 40 yrs.
Office Building
Bloomfield, CT (471) 1989 40 yrs.
Office Building
Bloomfield, CT (223) 1988 40 yrs.
Office Building
Bloomfield, CT (722) 1991 40 yrs.
Industrial Buildings
East Granby, CT (2,051) 1978 40 yrs.
Industrial Building
East Granby, CT (747) 1989 40 yrs.
Industrial Building
Windsor, CT (151) 1998 40 yrs.
Industrial Building
Windsor, CT (49) 1999 40 yrs.
---------
$(8,281)
=========
(a) Properties are included in mortgage of $8,154 shown above.
S-2
SCHEDULE III-REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED NOVEMBER 27, 1999
COST RESERVE
---- -------
Balance at beginning of year $ 38,975 $ (7,456)
Changes during the year:
Improvements 3,416 -
Additions to reserve charged to costs and expense - (825)
Cost of sales (344) -
-------- --------
Balance at end of year $ 42,047 $ (8,281)
======== ========
FISCAL YEAR ENDED NOVEMBER 28, 1998
COST RESERVE
---- -------
RESERVE
Balance at beginning of year $ 33,213 $ (6,784)
Changes during the year:
Improvements 6,182 -
Additions to reserve charged to costs and expense (739)
Other (420) 67
-------- --------
Balance at end of year $ 38,975 $ (7,456)
======== ========
FISCAL YEAR ENDED NOVEMBER 29, 1997
COST RESERVE
---- -------
RESERVE
Balance at beginning of year $ 32,768 $ (6,071)
Changes during the year:
Improvements 953 -
Additions to reserve charged to costs and expense - (713)
Cost of sales (508) -
-------- --------
Balance at end of year $ 33,213 $ (6,784)
======== ========
S-3
CENTAUR COMMUNICATIONS LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
JUNE 30, 1999
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of CENTAUR COMMUNICATIONS LIMITED
Dear Sirs,
CENTAUR COMMUNICATIONS LIMITED ("THE COMPANY") AND ITS SUBSIDIARIES ("THE
GROUP")
We have audited the accompanying consolidated balance sheet of Centaur
Communications Limited and its subsidiaries as at June 30, 1999 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the year ended June 30, 1999.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those financial statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with auditing standards generally accepted
in the United Kingdom and the United States.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Group for the year ended June 30, 1999 and have been properly
prepared in accordance with the Companies Act 1985.
United Kingdom accounting standards vary in certain important respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of consolidated net profit
for the year ended June 30, 1999 and the determination of consolidated
shareholders' equity and consolidated financial position as at June 30, 1999 to
the extent summarised in note 30 to the consolidated financial statements.
/s/ GRANT THORNTON
- ------------------
GRANT THORNTON
CHARTERED ACCOUNTANTS
LONDON
17 FEBRUARY 1999 (EXCEPT FOR NOTES 30 AND 31 AS TO WHICH DATE IS 10 FEBRUARY
1999)
F-2
PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and under the historical cost convention. The principal
accounting policies are described below. The policies have remained unchanged
from the previous year, apart from those relating to intangible assets and
subscription income (see note 3).
BASIS OF CONSOLIDATION
The group financial statements consolidate those of the company and of its
subsidiary undertakings (see note 12) drawn up to 30 June 1999. Profits or
losses on intra-group transactions are eliminated in full. On acquisition of a
subsidiary, all of the subsidiary's assets and liabilities which exist at the
date of acquisition are recorded at their fair values reflecting their condition
at that date, and the results of the subsidiary acquired are included from the
date of acquisition.
As a matter of accounting policy, goodwill arising on consolidation first
accounted for in accounting periods before 23 December 1998, the implementation
date of Financial Reporting Standard No.10 (FRS10) "Goodwill and Intangible
Assets", was written off to goodwill reserves immediately on acquisition. Such
goodwill will be charged to the profit and loss account on the subsequent
disposal of the business to which it relates. The goodwill reserve has been
transferred into the profit and loss reserve by way of a prior year adjustment
in accordance with FRS10 (see note 20).
INVESTMENTS
Investments are included at cost less amounts written off.
INTANGIBLE ASSETS AND GOODWILL
Intangible assets comprise magazine publishing rights, computer databases,
customer lists, brand names and other intangible assets and are stated at cost.
When such assets are acquired through the acquisition of businesses they are
stated at fair value at acquisition which normally represents the excess of
purchase price over net tangible assets of the business acquired and are
therefore similar in nature to goodwill.
Intangible fixed assets are amortised through the company's profit and loss
account over a maximum of 20 years, in accordance with FRS10. In prior years,
the intangible assets were capitalised and reviewed annually for permanent
impairment in value.
TURNOVER
Turnover represents sales of publications, subscriptions, advertising space and
other revenue, exclusive of value added tax.
F-3
PRINCIPAL ACCOUNTING POLICIES
SUBSCRIPTION INCOME
The policy for recognition of subscription income has been reviewed by the
directors during the year. A revised policy has been adopted in order to present
a more accurate reflection of the provision of services to customers and a more
appropriate matching of income and costs associated with subscriptions. Costs
are expensed as incurred and a proportion of income, appropriate to the relevant
product, is taken to profit and loss account on receipt. The balance is deferred
and amortised over the period of the subscription.
In previous years, magazine income was deferred and amortised over the period of
the subscription, except that for controlled circulation titles, where
subscription income is incidental, the income was taken to profit on receipt.
NEW PRODUCT DEVELOPMENT
BUSINESS INFORMATION PUBLISHING
The trading results of new products which are in the course of development often
include substantial launch and other promotional expenditure. These costs are
written off in the profit and loss account in the period in which they are
incurred. The results of new products in the course of development are shown
separately in the profit and loss account until such time as they become
established. A product is regarded as established after the commencement of
trading at a profit.
DEPRECIATION
Depreciation of tangible assets is provided on a straight line basis at the
following annual rates, based on the estimated useful lives of the assets:
Leasehold improvements - 5% or the length of the lease if shorter
Fixtures and fittings - 10%
Computer equipment - 20%
Motor vehicles - 25%
DEFERRED TAXATION
Deferred taxation is provided on timing differences using the liability method,
except where it can be demonstrated with reasonable probability that the timing
differences will not reverse in the foreseeable future. Timing differences arise
on items of income and expenditure which are recognised for tax purposes in
different periods from those in which they are recognised in the profit and loss
account.
STOCK AND WORK-IN-PROGRESS
Stocks are stated at the lower of cost and net realisable value after making
provisions for any obsolete or slow moving items. The work-in-progress consists
of cost relating to publications, exhibitions and conferences, the income of
which has yet to be dealt with in the profit and loss account.
OPERATING LEASES
Rentals payable under operating leases are charged to the profit and loss
account over the term of the lease.
F-4
PRINCIPAL ACCOUNTING POLICIES
CONTRIBUTION TO PENSION FUND
DEFINED CONTRIBUTION SCHEME
The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
F-5
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended JUNE 30, 1999
NOTE 1999 1998
Established New product
activities development Total Total
L'000 L'000 L'000 L'000
(As restated)
TURNOVER 1 47,994 4,228 52,222 47,707
- ---------------------------------------------------------------------------------------------------
- -excluding Linguaphone 47,994 4,228 52,222 45,179
- ---------------------------------------------------------------------------------------------------
Cost of sales (25,617) (5,150) (30,767) (25,996)
------ ----- ------ ------
GROSS PROFIT/(LOSS) 22,377 (922) 21,455 21,711
Distribution costs (3,276) (130) (3,406) (3,844)
Administrative expenses (11,430) (1,202) (12,632) (11,778)
------ ----- ------ ------
OPERATING PROFIT/(LOSS) 7,671 (2,254) 5,417 6,089
- ---------------------------------------------------------------------------------------------------
- -excluding Linguaphone- 7,671 (2,254) 5,417 5,749
- ---------------------------------------------------------------------------------------------------
Publishing rights written off - (75)
Professional fees relating to
demerger of Linguaphone Group
and restructuring - (668)
Interest receivable and
similar income 6 149 506
Interest payable and
similar charges 7 (1,308) (298)
------ --------
PROFIT ON ORDINARY 1,2
ACTIVITIES BEFORE TAXATION 4,258 5,554
Taxation on ordinary activities 8 (1,647) (2,390)
------ --------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION 2,611 3,164
Minority interests - equity (87) (22)
------ --------
PROFIT FOR THE YEAR ATTRIBUTABLE 2,524 3,142
TO SHAREHOLDERS
Dividends 12 - (17,304)
------ --------
RETAINED PROFIT/(LOSS) 20 2,524 (14,162)
FOR THE YEAR
====== ========
- ------------
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-6
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999
NOTE 1999 1998
L'000 L'000 L'000 L'000
(As restated) (As restated)
FIXED ASSETS
Intangible assets 9 14,074 4,131
Tangible assets 10 6,138 4,601
Investments 11 404 180
------ -----
20,616 8,912
CURRENT ASSETS
Stocks 13 479 458
Debtors 14 15,765 11,321
Cash at bank and in hand 734 5,137
------ --------
16,978 16,916
CREDITORS: AMOUNTS FALLING 15 (16,107) (13,043)
DUE WITHIN ONE YEAR ------ --------
NET CURRENT ASSETS 871 3,873
-------- -------
TOTAL ASSETS LESS
CURRENT LIABILITIES 21,487 12,785
CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR 16 (23,200) -
PROVISION FOR LIABILITIES
AND CHARGES
Deferred taxation 18 (829) (628)
-------- -------
(2,542) 12,157
======== =======
CAPITAL AND RESERVES
Called up share capital 19 1,531 2,007
Share premium account 19 13,364 13,278
Capital redemption reserve 19 483 -
Profit and loss account 20 (18,007) (3,150)
-------- -------
SHAREHOLDERS' FUNDS - equity (2,629) 12,135
Minority interests - equity 87 22
-------- -------
(2,542) 12,157
======== =======
The financial statements were approved by the Board of Directors on
10 February 2000.
G T D Wilmot - Director
- ------------
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-7
COMPANY BALANCE SHEET AT JUNE 30, 1999
NOTE 1999 1998
L'000 L'000 L'000 L'000
(AS (AS
RESTATED) RESTATED)
FIXED ASSETS
Intangible assets 9 577 633
Tangible assets 10 77 90
Investments 11 4,283 391
------ ------
4,937 1,114
CURRENT ASSETS
Debtors 14 66,258 62,407
Cash at bank and in hand 923 4,710
------ ------
67,181 67,117
CREDITORS: AMOUNT FALLING DUE
WITHIN ONE YEAR 15 (18,759) (20,963)
-------- --------
NET CURRENT ASSETS 48,422 46,154
------ ------
TOTAL ASSETS LESS
CURRENT LIABILITIES 53,359 47,268
CREDITORS: AMOUNT FALLING
DUE AFTER MORE THAN ONE YEAR 16 (23,200) -
PROVISION FOR LIABILITIES
AND CHARGES
Provision for losses in subsidiaries (6,218) (6,218)
Deferred taxation 18 (1,255) (1,283)
------ ------
22,686 39,767
====== ======
CAPITAL AND RESERVES
Called up share capital 19 1,531 2,007
Share premium account 19 13,364 13,278
Capital redemption reserve 19 483 -
Profit and loss account 20 7,308 24,482
------ ------
SHAREHOLDERS' FUNDS 22,686 39,767
====== ======
The financial statements were approved by the Board of Directors on 10 February
2000.
G.T.D. Wilmot Director
- ------------
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-8
CONSOLIDATED CASH FLOW STATEMENT
For the year ended JUNE 30, 1999
NOTE 1999 1998
L'000 L'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 26 4,947 6,682
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 27 (1,159) 208
TAXATION (2,628) (947)
CAPITAL EXPENDITURE 27 (3,248) (2,897)
------- ------
(2,088) 3,046
ACQUISITIONS AND DISPOSALS 27 (9,527) (681)
------- ------
(11,615) 2,365
FINANCING 27 7,212 715
(DECREASE)/INCREASE IN CASH 28,29 (4,403) 3,080
======= ======
- ------------
The accompanying accounting policies and notes form an integral part of these
financial statements.
F-9
OTHER PRIMARY STATEMENTS
For the year ended JUNE 30, 1999
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1999 1998
L'000 L'000
(AS RESTATED)
Profit for the year attributable to shareholders 2,524 3,142
Exchange adjustments - 74
-------- -------
Total recognised gains and losses relating to the year 2,524 3,216
=======
Prior year adjustment - net (see note 3) (2,366)
--------
Total gains and losses recognised since last financial statements 158
========
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
1999 1998
L'000 L'000
Total recognised gains relating to the year 2,524 3,216
Demerger dividend re Linguaphone Group - (17,304)
Movement on goodwill reserve on demerger of Linguaphone Group - 162
Movement in currency translation reserve on demerger of the
Linguaphone Group - 39
Repurchase of own shares (17,381) -
New share capital issued 93 115
Goodwill written off directly to goodwill reserve - (83)
-------- --------
Net decrease in shareholders' funds (14,764) (13,855)
Opening shareholders' funds (originally L28,038,000 in 1998
and L14,501,000 in 1999 before deducting net prior year
adjustment of L2,048,000 and L318,000 respectively) 12,135 25,990
-------- --------
Closing shareholders' funds (2,629) 12,135
======== ========
F-10
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
1. SEGMENTAL REPORTING
ANALYSIS BY BUSINESS SEGMENT
ELECTRONIC
MAGAZINE INFORMATION LINGUAPHONE
PUBLISHING PROVIDING GROUP TOTAL
L'000 L'000 L'000 L'000
1999
Turnover 47,881 4,341 - 52,222
Cost of sales (26,445) (4,322) - (30,767)
Distribution costs (3,383) (23) - (3,406)
Administrative expenses (11,608) (1,024) - (12,632)
-------- ------- -------- --------
Operating profit/(loss) 6,445 (1,028) - 5,417
======== ======= ========
Unallocated net interest (1,159)
--------
Profit before taxation 4,258
========
Net operating assets by segment 20,505 1,453 - 21,958
======== ======= ========
Unallocated interest bearing net liabilities (24,500)
--------
(2,542)
========
1998
Turnover (as restated) 43,747 1,432 2,528 47,707
Cost of sales (23,754) (1,924) (318) (25,996)
Distribution costs (3,078) - (766) (3,844)
Administrative expenses (10,085) (589) (1,104) (11,778)
-------- ------- -------- --------
Operating profit/(loss) 6,830 (1,081) 340 6,089
Professional fees relating to demerger (75)
of Linguaphone Group and restructuring (668)
Unallocated net interest 208
--------
Profit before taxation 5,554
========
Net operating assets by segment 11,316 841 - 12,157
======== ======= ======== ========
F-11
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
SEGMENTAL REPORTING (CONTINUED)
ANALYSIS BY GEOGRAPHICAL SEGMENT
Substantially all the operations are within the United Kingdom.
The net assets are all located in the United Kingdom.
2. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
The profit on ordinary activities before taxation is stated after
charging/(crediting):
1999 1998
L'000 L'000
Leasehold property rents 1,093 888
Hire of equipment 134 112
Depreciation of owned assets 1,832 1425
Amortisation of intangible assets 470 308
Auditors' remuneration
- - audit 53 45
- - non audit services 74 52
Profit on disposal of tangible fixed assets (35) (33)
====== ======
3. PRIOR YEAR ADJUSTMENTS
(i) Intangible fixed assets
Intangible fixed assets are amortised through the profit and loss
account over a maximum period of 20 years, following adoption of FRS
No. 10. The comparative figures have been adjusted to reflect the
effect on prior years of this policy. In prior years intangible assets
were capitalised and reviewed annually for permanent impairment in
value.
The effect of the adoption of FRS 10 is to reduce the reported profit
for the year to 30 June 1999 by L470,000, for the year to 30 June 1998
by L308,000 and the brought forward reserves at 1 July 1997 by
L2,302,000.
(ii) Subscription Income
The policy for recognition of subscription income has been reviewed by
the directors during the year. A revised policy has been adopted in
order to present a more accurate reflection of the provision of
services to customers and a more appropriate matching of income and
costs associated with subscriptions. Costs are expensed as incurred and
a proportion of income, appropriate to the relevant product, is taken
to profit and loss account on receipt. The balance is deferred and
amortised over the period of the subscription.
The effect of this change in accounting policy is to increase reported
profit for the year to 30 June 1999 by L11,000, the year ended 30 June
1998 is decreased by L10,000 and the brought forward reserves at 1 July
1997 have been increased by L254,000 after taxation.
F-12
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
4. STAFF COSTS AND NUMBER
Staff costs, including directors emoluments, were as follows:
1999 1998
L'000 L'000
Wages and salaries 15,710 13,492
Social security costs 1,546 1,303
Other pension costs 273 237
------ ------
17,529 15,032
====== ======
The average number of persons employed by the group, including the directors,
was as follows:
1999 1998
Number Number
Magazine publishing 652 525
Language course publishing -- 14
-- --
--- ---
652 539
=== ===
5. DIRECTORS' EMOLUMENTS
Remuneration in respect of directors was as follows:
1999 1998
L'000 L'000
Emoluments 649 507
Pension contributions to money purchase schemes 55 57
--- ---
704 564
=== ===
During the year 3 directors (1998: 2 directors) participated in money purchase
pension schemes.
Options have been granted to certain directors to subscribe for ordinary shares
of 10p each in Centaur Communications Limited. Full details of the outstanding
options are disclosed in the directors' report.
The amounts set out above include remuneration in respect of the highest paid
director as follows:
1999 1998
L'000 L'000
Emoluments 326 240
Pension contributions to money purchase pension scheme 39 37
--- ---
365 277
=== ===
F-13
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
6. INTEREST RECEIVABLE AND SIMILAR INCOME
1999 1998
L'000 L'000
Interest on bank deposits 139 491
Other interest receivable 10 15
--- ---
149 506
=== ===
7. INTEREST PAYABLE AND SIMILAR CHARGES
1999 1998
L'000 L'000
Bank loans and overdrafts 1,308 298
===== =====
8. TAXATION
The charge for taxation comprises:
1999 1998
L'000 L'000
UK Corporation tax at 31% (1998: 31%) 1,548 2,346
Adjustments in respect of prior year (103) 24
Deferred taxation
- - current year 84 20
- - prior year 117 --
----- -----
1,647 2,390
===== =====
The effective rates of taxation are affected by the non allowance of
amortisation. The 1998 effective rate is further affected by the non allowance
of the demerger and other capital expenses.
F-14
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
9. INTANGIBLE ASSETS
Group Company
L'000 L'000
(As restated) (As restated)
COST
At 1 July 1998 7,260 1,202
Acquired during the year 10,413 --
------ -----
At 30 June 1999 17,673 1,202
------ -----
AMOUNTS WRITTEN OFF
At 1 July 1998 (including effect of prior year adjustment) 3,129 569
Amounts written off during the year 470 56
------ -----
At 30 June 1999 3,599 625
------ -----
NET BOOK VALUE
At 30 June 1999 14,074 577
====== ===
At 30 June 1998 4,131 633
===== ===
Acquisitions included above relate to the following: L'000
The Engineering Publications (see note 22(i)) 10,217
Money Marketing Product Database 4
Consultancy Europe Associates Limited (see note 22(ii)) 31
Consultancy Europe Associates database 79
Perfect Information (see note 22(iii)) 82
------
10,413
======
F-15
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
10. TANGIBLE ASSETS
LEASEHOLD FIXTURES AND COMPUTER MOTOR
IMPROVEMENTS FITTINGS EQUIPMENT VEHICLES TOTAL
GROUP L'000 L'000 L'000 L'000 L'000
COST
At 1 July 1998 554 2,154 6,915 613 10,236
Additions 105 402 2,556 180 3,243
Acquisitions -- 48 40 131 219
Disposals -- (14) (135) (144) (293)
--- ----- ----- --- ------
At 30 June 1999 659 2,590 9,376 780 13,405
--- ----- ----- --- ------
DEPRECIATION
At 1 July 1998 267 1,350 3,594 424 5,635
Charge for year 92 167 1,450 123 1,832
Acquisitions -- 30 20 -- 50
Disposals -- (10) (111) (129) (250)
--- ----- ----- --- ------
At 30 June 1999 359 1,537 4,953 418 7,267
--- ----- ----- --- ------
NET BOOK VALUE
At 30 June 1999 300 1,053 4,423 362 6,138
=== ===== ===== === ======
At 30 June 1998 287 804 3,321 189 4,601
=== ===== ===== === ======
COMPANY
COST
At 1 July 1998 and at
30 June 1999 193 314 12 18 537
--- ----- ----- --- ------
DEPRECIATION
At 1 July 1998 112 305 12 18 447
Charge for year 10 3 -- -- 13
--- ----- ----- --- ------
At 30 June 1999 122 308 12 18 460
--- ----- ----- --- ------
NET BOOK VALUE
At 30 June 1999 71 6 -- -- 77
=== ===== ===== === ======
At 30 June 1998 81 9 - - 90
=== ===== ===== === ======
F-16
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
11. INVESTMENTS
1999 1998
Group Company Group Company
Notes L'000 L'000 L'000 L'000
Investments in subsidiary
undertakings 12 -- 4,103 -- 211
Trade investments 404 180 180 180
--- ---- --- ---
404 4,283 180 391
=== ===== === ===
In the opinion of the directors the value of the group's and the company's
investments is not less than the amount at which they are stated in the balance
sheet. The movement in trade investments represents an addition at cost.
12. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
THE COMPANY L'000
COST
At 1 July 1998 3,341
Additions 3,892
-----
At 30 June 1999 7,233
-----
PROVISIONS
At 1 July 1998 3,130
Charge for the year -
-----
At 30 June 1999 3,130
-----
NET BOOK VALUE
At 30 June 1999 4,103
=====
At 30 June 1998 211
===
On 3 September 1997 the members ratified a de-merger of the Linguaphone group of
companies. This transaction was effected by a dividend in specie of L17,304,000
with the existing members receiving two shares in Linguaphone Group Plc for
every share held in Centaur Communications Limited.
The 1998 consolidated profit and loss account includes the results of the
Linguaphone group for the period ended 3 September 1997. The results are shown
in note 1.
F-17
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
INVESTMENTS IN SUBSIDIARY UNDERTAKINGS (CONTINUED)
PRINCIPAL SUBSIDIARY UNDERTAKINGS AT 30 JUNE 1999
HOLDING OF
ORDINARY
COUNTRY OF SHARES
REGISTRATION BY BY
INCORPORATION/ PARENT GROUP
SUBSIDIARY AND OPERATION % % ACTIVITY
Chiron Communications Limited England and Wales 100 100 Magazine
publishing
Hali Publications Limited England and Wales 69.6 100 Magazine
publishing
Ascent Publishing Limited England and Wales 100 100 Magazine
organiser
publishing
IFA Events Limited England and Wales 51 51 Exhibitions
Your Business Magazine Limited England and Wales 100 100 Investment
company
Mayfield Publishing Limited England and Wales 100 100 Investment
company
Perfect Information Limited England and Wales 99.78 99.78 Electronic
information
providing
Consultancy Europe Associates England and Wales 100 100 Legal
Limited information
services
13. STOCKS
1999 1998
GROUP COMPANY GROUP COMPANY
L'000 L'000 L'000 L'000
Consumables 124 -- 77 --
Work-in-progress 323 -- 258 --
Finished goods 32 -- 123 --
--- --- --- ---
479 -- 458 --
=== === === ===
There is no significant difference between the replacement cost of the stock and
its balance sheet value.
F-18
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
14. DEBTORS
1999 1998
Group Company Group Company
L'000 L'000 L'000 L'000
Trade debtors 13,915 -- 10,330 --
Other debtors 305 1,692 463 44
Prepayments and deferred charges 1,545 827 528 --
Amounts owed by group undertakings -- 63,739 -- 62,363
------ ------ ------ ------
15,765 66,258 11,321 62,407
====== ====== ====== ======
15. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1999 1998
Group Company Group Company
(As restated)
L'000 L'000 L'000 L'000
Bank loan 1,300 1,300 -- --
Trade creditors 586 -- 1,642 --
Other creditors 1,004 20 78 4
Accruals and deferred income 11,235 2,044 6,983 657
Corporation tax 1,871 20 3,054 111
Social security and other taxes 111 15 1,286 15
Amounts owed to group undertakings -- 15,360 -- 20,176
------ ------ ------ ------
16,107 18,759 13,043 20,963
====== ====== ====== ======
F-19
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
16. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1999 1998
Group Company Group Company
L'000 L'000 L'000 L'000
Term loan 11,700 11,700 -- --
Revolving credit facility 11,500 11,500 -- --
------ ------ ----- -----
23,200 23,200 -- --
====== ====== ===== =====
The Term Loan was granted on 4 August 1998 and is guaranteed by the company's
subsidiaries, Chiron Communications Limited, Ascent Publishing Limited, Hali
Publications Limited and Your Business Magazine Limited. It is repayable in
quarterly installments commencing 30 September 1999 and ending 30 June 2005. The
interest rate is calculated by reference to formula and approximated to 7.1% per
annum in 1999.
The Revolving Credit Facility was granted on 4 August 1998 and is guaranteed by
the company's subsidiaries, Chiron Communications Limited, Ascent Publishing
Limited, Hali Publications Limited and Your Business Magazine. The maximum
facility allowed is L17,000,000 reducing quarterly from 30 September 1999 to
zero at 30 June 2005. The interest rate is calculated by reference to formula
and approximated to 6.9% per annum in 1999.
17. BORROWINGS
1999 1998
Group Company Group Company
L'000 L'000 L'000 L'000
Due within 1 year:
Term loan 1,300 1,300 - --
Revolving credit -- -- - --
After 1 year and within 2 years:
Term loan 1,950 1,950 - --
Revolving credit -- -- - --
After 2 years and within 5 years:
Term loan 7,150 7,150 - --
Revolving credit 8,100 8,100 - --
After 5 years:
Term loan 2,600 2,600 - --
Revolving credit 3,400 3,400 - --
------ ------ ----- -----
24,500 24,500 - --
======= ====== ===== =====
F-20
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
18. PROVISIONS FOR LIABILITIES AND CHARGES
GROUP COMPANY
L'000 L'000
DEFERRED TAX
At 1 July 1998 628 1,283
Charge/(released) for the year 201 (28)
--- -----
At 30 June 1999 829 1,255
=== =====
The provision for deferred tax comprises the following amounts:
1999 1998
Group Company Group Company
L'000 L'000 L'000 L'000
Accelerated capital allowances 176 14 85 15
Other timing differences 653 1,241 543 1,268
--- ----- --- -----
829 1,255 628 1,283
=== ===== === =====
Unprovided deferred tax in respect of accelerated capital allowances for the
group and the company is Lnil (1998: Lnil).
Unprovided deferred tax in respect of other timing differences for the group and
the company is L357,000 (1998: L357,000).
F-21
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
19. SHARE CAPITAL AND SHARE PREMIUM AND CAPITAL REDEMPTION RESERVES
1999 1998
L'000 L'000
AUTHORISED
50,000,000 Ordinary shares of 10p each 5,000 5,000
===== =====
ALLOTTED AND FULLY PAID
15,309,257 Ordinary shares of 10p each (1998: 20,068,312) 1,531 2,007
===== =====
ALLOTMENTS DURING THE YEAR
On 3 August 1998 certain employees exercised their options to subscribe for
54,949 ordinary shares of 10p each at a price of L1 per share and 14,000
ordinary shares of 10p each at a price of L2.75 per share.
On 4 August 1998 the company purchased 4,828,004 of its own ordinary shares of
10p each at a price of L3.60 per share.
As at 30 June 1999 options have been granted and agreed to be granted to certain
directors and employees to subscribe for a total of 1,902,396 ordinary shares of
10p each at varying times and prices up to August 2006. The directors' options
are disclosed in the directors' report.
Share Share Capital
capital premium redemption
L'000 L'000 L'000
1 July 1998 2,007 13,278 --
Re-purchase of own shares (483) -- 483
Shares issued 7 86 --
------ ------ ----
1,531 13,364 483
====== ====== ====
20. PROFIT AND LOSS ACCOUNTS
Group Group Company
Goodwill Profit & loss Profit & loss
Reserve account account
L'000 L'000 L'000
1 July 1998 (98) (686) 24,970
Prior year adjustment 98 (2,464) (488)
------ --------- ---------
Restated at 1 July 1998 -- (3,150) 24,482
Retained profit for the year -- 2,524 207
Re-purchase of own shares -- (17,381) (17,381)
------ --------- ---------
-- (18,007) 7,308
====== ========= =========
The company has taken advantage of section 230 of the Companies Act 1985 and has
not included its own profit and loss account in these financial statements. The
group profit for the year includes L207,000 (1998: L28,198,000) which is dealt
with in the financial statements of the company.
F-22
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
21. CAPITAL COMMITMENTS
The capital commitments at the year end were as follows:
1999 1998
L'000 L'000
Contracted but not provided for in the financial statements 43 109
===== =====
22. ACQUISITIONS
(i) Engineering Portfolio
On 31 March 1999 the company acquired publishing rights and assets and
liabilities from United News and Media Group Limited of its Engineering
Portfolio for a consideration of L9,961,000 in cash. Goodwill arising on the
acquisition has been capitalised and is being amortised over its estimated
useful economic life of 20 years. The purchase of the Engineering Portfolio has
been accounted for by the acquisition method of accounting.
The assets and liabilities of the Engineering Portfolio acquired were as
follows:
Book Value Accounting Other Fair Value
policy adjustment
adjustment (i) (ii)
L'000 L'000 L'000 L'000
Tangible fixed assets 169 -- -- 169
Debtors 598 -- (220) 378
------ ---- ------- ------
Total assets 767 -- (220) 547
Accruals and deferred income (926) 123 -- (803)
------ ---- ------- ------
(159) 123 (220) (256)
======= ===== =======
Purchased goodwill capitalised 10,217
------
9,961
=====
Satisfied by:
Cash 9,414
Deferred consideration 427
Costs of acquisition 120
------
9,961
=====
Fair value adjustments were made for:
(i) Bringing subscription income into line with group accounting policy.
(ii) Liability due to onerous contract.
Information in relation to periods prior to acquisition is not available in
the form required by FRS 6. The results and cash flows arising from the
assets acquired since acquisition are not considered to be material.
F-23
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
ACQUISITIONS (CONTINUED)
(ii) CONSULTANCY EUROPE ASSOCIATES LIMITED
On 16 October 1998, the company acquired 100% of the shares in Consultancy
Europe Associates Limited for consideration of L60,000 in cash. Goodwill arising
on acquisition, amounting to L31,000, has been capitalised. The purchase of
Consultancy Europe Associates Limited has been accounted for by the acquisition
method of accounting.
(iii) PERFECT INFORMATION
On 3 August 1998, the company acquired an additional 3,750,000 ordinary 1p
shares in Perfect Information Limited being 12.28% of its nominal share capital
for a consideration of L3,832,000. Goodwill arising on the acquisition of these
shares, amounting to L82,000, has been capitalised. The purchase of Perfect
Information Limited has been accounted for by the acquisition method of
accounting.
The consideration was satisfied by offsetting the intercompany loan of
L3,750,000 and by a cash payment of L82,000.
23. OPERATING LEASE COMMITMENTS
The operating lease rentals which are payable within one year of the balance
sheet date are as follows:
LAND AND LAND AND EQUIPMENT EQUIPMENT
BUILDINGS BUILDINGS
1999 1998 1999 1998
L'000 L'000 L'000 L'000
Leases expiring
- - within one year 525 8 3 --
- - within two to five years 142 26 230 54
- - after five years 1,092 1,597 31 10
------ ------ ----- ----
1,759 1,631 264 64
====== ====== ===== =====
24. PENSION SCHEMES
The group contributes to individual and collective money purchase pension
schemes in respect of directors and employees once they have completed the
requisite period of service. The charge for the year in respect of these pension
schemes is shown in note 4.
25. CONTINGENT LIABILITIES
GUARANTEES
The company has joined with its subsidiaries in granting a cross guarantee in
favour of its bankers. The guarantee is secured by fixed and floating charges
over the company's assets.
F-24
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
26. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
1999 1998
L'000 L'000
Operating profit 5,417 6,089
Depreciation charges 1,832 1,425
Amortisation 470 308
Profit on disposal of tangible fixed assets (35) (33)
Increase in stocks (21) (77)
Increase in debtors (4,292) (2,645)
Increase in creditors 1,576 1,615
------- -------
4,947 6,682
======= =======
27. ANALYSIS OF CASH FLOWS FOR HEADINGS NETTED IN THE CASH FLOW STATEMENT
1999 1998
L'000 L'000
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received 149 506
Interest paid (1,308) (298)
-------- ------
NET CASH (OUTFLOW)/INFLOW FOR INTEREST (1,159) 208
-------- ------
CAPITAL EXPENDITURE
Purchase of intangible fixed assets (83) (699)
Sale of trade investments -- 120
Purchase of tangible fixed assets (3,243) (2,369)
Sale of tangible fixed assets 78 51
-------- ------
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE (3,248) (2,897)
-------- ------
ACQUISITIONS AND DISPOSALS
Purchase of/increase in interest in subsidiary undertakings (113) (13)
Purchase of unincorporated businesses (9,414) --
Demerger expenses -- (668)
-------- ------
NET CASH OUTFLOW FOR ACQUISITIONS AND DISPOSALS (9,527) (681)
-------- ------
FINANCING
Issue of shares 93 115
Bank borrowings 24,500 600
Purchase of own shares (17,381) --
-------- ------
NET CASH INFLOW FROM FINANCING 7,212 715
-------- ------
F-25
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
28. ANALYSIS OF NET FUNDS
At At
1 July Cash 30 June
1998 flow 1999
L'000 L'000 L'000
Cash in hand and at bank 5,137 (4,403) 734
Overdrafts -- -- --
------ -------- --------
5,137 (4,403) 734
------ -------- --------
Debt due within one year -- (1,300) (1,300)
Debt due after one year -- (23,200) (23,200)
------ -------- --------
5,137 (28,903) (23,766)
====== ======== ========
29. RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
1999 1998
L'000 L'000
(DECREASE)/INCREASE IN CASH IN THE YEAR (4,403) 3,080
Cash inflow from changes in debt (24,500) (600)
-------- -------
Change in net debt resulting from cash flows (28,903) 2,480
Demerger of Linguaphone -- 3,064
-------- -------
MOVEMENT IN NET DEBT IN THE YEAR (28,903) 5,544
Net funds at 1 July 1998 5,137 (407)
-------- -------
Net debt at 30 June 1999 (23,766) 5,137
======== =======
F-26
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
30. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The accompanying financial statements have been prepared in accordance with UK
GAAP, which differs in certain material respect from US GAAP. Such differences
involve methods for measuring the amounts shown in the financial statements, as
well as additional disclosures required by US GAAP.
The effect on the company's retained (loss)/profit and shareholders' equity of
applying the significant differences between UK GAAP and US GAAP is summarised
in the reconciliation statements set out below:
1999 1998
(AS RESTATED)
L'000 L'000
(a) Reconciliation of profit and loss accounts:
Net profit/(loss) per UK GAAP: 2,524 (14,162)
Amortisation expenses (1) 157 82
De-merger dividend (2) - 17,304
Remuneration element of stock options (5) - (1,490)
Effect of change in accounting policy (6) (11) 10
--- --
Net income in accordance with US GAAP 2,670 1,744
==== ====
Earnings per share in accordance with US GAAP (in pence):
Basic 0.17 0.09
Diluted 0.16 0.08
Average number of shares outstanding (in thousands):
Basic 15,705 20,072
Diluted 17,068 21,180
Diluted earnings per share include the dilutive effects of share options. The
incremental dilutive effect of share options was 1,363,000 and 1,108,000 for the
years ended June 30, 1999 and 1998 respectively.
1999 1998
L'000 L'000
(b) Reconciliation of Shareholders' Equity:
Shareholders' funds per UK GAAP: (2,629) 12,135
Amortisation expense (1) 1,174 1,016
Remuneration element of stock options (5) (1,490) (1,490)
Reinstatement of goodwill written off (3) 83 83
Effect on change in accounting policy (6) (234) (222)
---- ----
(3,096) 11,522
======= =======
F-27
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
30. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
(CONTINUED)
1999 1998 1998
L'000 L'000 L'000
(c) Changes in Shareholders' Equity on a US GAAP basis:
Shareholders' equity at beginning of year - 11,522 23,498
Net profit 2,670 1,744
Demerger dividend (2) - UK GAAP (17,304)
Cumulative US GAAP adjustments in respect of Linguaphone 3,185
Exchange and goodwill adjustments in respect of Linguaphone 201
--------
Value of demerger dividend - US GAAP (2) - (13,918)
------- -------
Reinstatement of goodwill written off - 83
Issue of share capital 93 115
Share buy in (8) (17,381) -
------ ------
(3,096) 11,522
======= ======
(1) In compliance with UK GAAP intangible assets, representing publishing
rights, are now being amortised over a maximum period of 20 years,
following the adoption of FRS 10. The comparative figures have been
adjusted to reflect the effect on prior years of this policy. In prior
years intangible assets were capitalised and reviewed annually for
permanent impairment in value. In accordance with US GAAP these assets
are amortised over the estimated economic life of the asset. These
assets are being amortised over 30 years.
(2) The Linguaphone Group of companies was de-merged from Centaur
Communications Limited on September 3, 1998. This resulted in a
distribution in specie of shares in Linguaphone Group Plc being
allocated to the existing shareholders of Centaur Communications
Limited.
In compliance with UK GAAP, the group has reflected this dividend in
the profit and loss account. Under US GAAP this dividend is reflected
through shareholders' equity.
(3) In compliance with UK GAAP, the group had previously written off
certain goodwill to shareholders' equity. Under US GAAP, the goodwill
was reinstated and is being amortised over 30 years.
(4) In compliance with UK GAAP, the deferred tax effects of timing
differences existing at the balance sheet date are calculated under
the liability method (using tax rates likely to apply in the future
when the timing differences will reverse). However, the company is not
required to record the full liability, and may elect to utilise the
partial provision approach. Under the partial provision approach, the
amount of deferred tax to be provided is the liability that is
expected to arise in the future based on a projection of the extent to
which the cumulative timing differences existing at the balance sheet
date are expected to reverse. Under US GAAP deferred taxes are
provided for on a full liability basis. Under the full liability
method, deferred tax assets and liabilities are recognised between the
financial and tax bases of assets and liabilities and for tax loss
carry forwards at the statutory rate of each reporting date.
A valuation allowance is established when it is more likely
than not that some portion or all of the deferred tax assets will
not be realised.
F-28
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
There is a deferred tax liability of L357,000 relating to the
settlement of intra group indebtedness and the interest
thereon. For US GAAP purposes this amount could be shown as a
deferred liability if expected to crystallise in future
periods. As it is not expected to crystallise, a valuation
allowance has been set up to offset this amount.
A subsidiary company of Centaur Communications Limited,
Perfect Information Limited, has incurred significant losses
which, up to April 1998, under UK tax law are carried forward
indefinitely to be offset against taxable profits arising in
the same trade. The company has not made a profit in the
recent past and it is not anticipated that these losses will be
utilised in the foreseeable future. As such a deferred tax
asset has not been introduced to the balance sheet.
Losses incurred since April 1998 are available for offset
against profits arising in other subsidiary companies of Centaur
Communications Limited.
(5) In compliance with UK GAAP, remuneration expense relating to
share options is not allowable for corporate tax purposes,
thus has not been reflected in the profit and loss account. In
compliance with US GAAP, the compensatory expense related to
the stock options is recognised as an expense in the period
when granted in accordance with SFAS 123.
(6) The group has changed its accounting policy in respect of
recognition of subscription income as explained in note 3. The
financial effect of this change is erradicated in accordance
with US GAAP. Subscription income is deferred and
amortised over the period of the subscription in accordance
with US GAAP.
(7) CASH FLOW INFORMATION
In compliance with UK GAAP, the Cash Flow Statement is
presented in accordance with UK Financial Reporting Standard
No. 1, as revised (FRS1). The Statement prepared under FRS1
presents substantially the same information as that required
under US GAAP as interpreted by SFAS No. 95. In compliance
with UK GAAP, cash comprises cash in hand and at bank
(including overnight deposits), net of bank overdrafts. In
compliance with US GAAP, cash and cash equivalents include
cash and short-term investments with original maturities of
three months or less.
In compliance with UK GAAP, cash flows are presented for
operating activities; returns on investments and servicing of
finance; taxation; capital expenditure; acquisitions and
disposals; equity dividends paid; management of liquid
resources and financing. US GAAP requires the classification
of cash flows as resulting from operating, investing and
financing activities.
Cash flows in accordance with US GAAP in respect of interest
received, interest paid, investment income and taxation would
be included within operating activities. Capital expenditure
and financial investment and cash flows from disposals would
be included within investing activities under US GAAP.
Dividends paid by subsidiary undertakings, minority interests,
equity dividends paid, management of liquid resources and
returns on investments and servicing of finance would be
included within financing activities under US GAAP.
F-29
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
A summary of the Company's operating, investing and financing
activities classified in accordance with US GAAP, is presented
below. For purposes of this summary, cash and cash equivalents
consist of cash at bank and in hand.
1999 1998
L'000 L'000
Cash provided by operating activities 2,319 5,735
Cash used in investing activities (13,934) (3,370)
Cash used in financing activities 7,212 953
---- ---
Net increase in cash and cash equivalents (4,403) 3,318
Linguaphone de-merger - (125)
Cash and cash equivalents under US GAAP at the beginning of the year 5,137 1,944
---- ----
Cash and cash equivalents under US GAAP at the end of the year 734 5,137
===== =====
(8) SHARE BUY-IN
In accordance with UK GAAP, a capital redemption equivalent to
the nominal value of the shares bought in is established.
Under US GAAP such a reserve would not be established, total
shareholders equity would not be affected however.
31. ADDITIONAL DISCLOSURE RELATING TO US GAAP
(i) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Centaur Communications Limited is a holding company which also
provides management services to the group. The principal
activity of the group is the creation and dissemination of
business and professional information through publications,
the internet and on-line.
MANAGEMENT ESTIMATES
In preparing the summary of differences between UK and US
GAAP, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of cash and cash equivalents, trade debtors,
trade creditors are approximately equivalent to their carrying
values due to the short maturity of these assets and
liabilities.
F-30
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
(ii) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued
Statement No. 130 "Reporting Comprehensive Insurance" ("SFAS
130"). SFAS 130 is effective for fiscal years beginning after
December 15, 1998. The company has considered the effects of
this statement and does not believe it has any comprehensive
income as defined by this statement.
In May 1998 the Financial Accounting Standards Board issued
Statement No. 131 "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS 131"), SFAS 131 is effective
for fiscal years beginning after December 15, 1998. The
company believes that the effect of adoption of SFAS 131 will
not be material.
In June 1999, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"). The new standard required
companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives will
be reported in the statement of operations or as a deferred
item, depending on the use of derivatives and whether they
qualify for hedge accounting. The key criterion for hedge
accounting is that the derivative must be highly effective in
achieving offsetting changes in fair value or cash flows of
the hedged items during the term of the hedge. The company has
not yet determined the impact, if any, that the adoption of
SFAS 133 will have on the consolidated financial statements.
(iii) STOCK COMPENSATION PLAN
At June 30, 1999 the Group had a Stock Option Plan for all
employees. All share options vest over a maximum ten year
period. The fair value of each option grant is estimated on
the grant date using the minimum value pricing model with the
following weighted-average assumptions used for grants in
fiscal year 1999; risk free interest rate 6.5%; and expected
life 7 years.
Option pricing models require the input of highly subjective
assumptions. Also, the Company's employee stock options have
characteristics significantly different from those of traded
options including long-vesting schedules, and changes in the
subjective input assumptions can materially affect the fair
value estimate. Management believe the best input assumptions
available were used to value the options and the resulting
option values are reasonable.
F-31
NOTES TO THE FINANCIAL STATEMENTS
For the year ended JUNE 30, 1999
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) (CONTINUED)
(iii) STOCK COMPENSATION PLAN (CONTINUED)
A summary of the status of the Group's stock option plan at
June 30, 1999, and changes during the year is presented below:
1999 1999
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
000 L
Outstanding at beginning of year 1,821 1
Granted 150 2.73
Exercised (69) 1
Outstanding at end of year 1,902 1
Options exercisable at year end 1,902 1
==== ====
Weighted-average fair value of options granted during the year 2.73
====
The following table summarises information concerning options outstanding at
June 30, 1999
WEIGHTED
AVERAGE
REMAINING WEIGHTED
CONTRACTUAL AVERAGE
RANGE OF EXERCISE PRICE NUMBER LIFE EXERCISE
OUTSTANDING (YEARS) PRICE
000 L
L1.00 - L3.60 1,902 6.5 1
F-32