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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 2, 2000
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 (I.R.S. Employer
incorporation or organization) Identification No.)
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:
$13,648,063 approximately, based on the closing sales price on the Nasdaq
National Market on February 1, 2001. 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, 2001.
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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 2000
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 (the "SSCs") 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. On January 26, 2001 the
portion of the landscape nursery products business which related to the
operation of the SSCs was sold to Shemin Nurseries, Inc. ("Shemin"). Griffin
also owns an approximately 35% interest (32% 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.
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. On January 26, 2001, Imperial completed the sale of its SSCs,
which provided most of the operating profit of the landscape nursery business.
As a result of the sale, the central overhead of Imperial, which could be
reduced only in part, will now be borne entirely by the growing operation.
Therefore, a substantially break-even operation for 2001 is anticipated for the
growing operation.
Imperial's container growing operations are located on land owned by Griffin
in Connecticut (approximately 425 acres currently used) and in northern Florida
(approximately 350 acres currently used). Both the Connecticut and Florida
growing operations are currently being expanded on adjacent lands owned by
Griffin or in the case of a small piece of land, under contract to be purchased.
If all current plans are implemented, the Florida farm will use approximately
490 acres and the Connecticut farm approximately 455 acres each by the end of
2003. At that time, substantially all of the contiguous lands suitable for the
container-growing operations in Connecticut and northern Florida will be in use.
The Florida farm has also improved and expanded its shipping docks and customer
service facilities and is improving its irrigation and water recycling
operations. The majority of Imperial's inventories are container-grown plants on
these 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. During 2000, a
decision was made to materially reduce the number of azalea and juniper to be
grown and to increase the number of larger plants of several varieties including
leyland cypress, some varieties of deciduous shrubs, crepe myrtle and shade
trees. Container-grown product is held principally from one to five years prior
to its sale by Imperial. Over the past three years Imperial substantially
increased its production and sales of perennials which have a much shorter
growing cycle than most of the rest of Imperial's products. During 1997,
Imperial decided to terminate its growing of field-grown product and recorded a
loss accrual estimated to be sufficient to absorb the cost of terminating that
operation. The termination of the field-grown operation was fully completed in
2000 within the loss accrual.
Imperial is 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
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to be grown and also possible changes in the potting and growing cycle for some
of its containerized production. Some of these programs are also directed at
developing faster growing products and improved soil mixes. A substantial
portion of the products which are part of the expanded Florida production will
be of larger sizes requiring an extended growing cycle. 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 were also distributed through its own SSCs
whose main customers are landscapers. Shemin, the purchaser of Imperial's SSCs,
has a contract to purchase some Imperial grown product for each of the next 3
years. 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's sales are made to a large variety of customers, none of whom
represented more than 4% of annual sales in fiscal 2000, fiscal 1999 or fiscal
1998.
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. In coming years a
larger part of Imperial's shipping will probably be made on trucks outfitted
with shelves, which may increase shipping expenses. Over the year, substantial
additional sales support has been provided to the farming operation, and in
future years additional sales support may be required to be provided to retail
chain store customers.
During 2000, Imperial operated seven SSCs which sold 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 the SSCs is to professional landscapers. The SSCs, all of which were
owned by Imperial, were located in Windsor, Connecticut; Aston and Pittsburgh,
Pennsylvania; Columbus and Cincinnati, Ohio; White Marsh, Maryland; and
Manassas, Virginia. During 2000, results from these centers were improved from
the prior year. The SSCs had become the principal contributor to the operating
profit of Imperial. In early 2001 the SSCs were sold for cash and stock in
Shemin Acquisition Corporation ("Acquisition"). Imperial is expected to report
an after tax profit of approximately $6.0 million on this transaction.
Imperial's stock ownership interest in Acquisition will be treated as an
investment. See Note 2 to the consolidated financial statements included in
Item 8.
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. In future years Griffin may seek
to develop properties on land which it does not own at this time. The
headquarters for this operation is in Bloomfield, Connecticut.
For 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, was depressed by a number of factors, including the decline of
employment in the defense and insurance industries. In 2000, there was some
recovery in the market including some recovery in the office portion of this
market, which had been particularly weak. There can be no assurance that the
condition of the real estate market in this region will continue to 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
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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. After the conclusion of the
original hearings in this matter Griffin reduced the number of proposed homes to
371. One quarter of these homes would be deed restricted affordable housing
under Connecticut statutes. The public hearings focused on the density of the
proposed development, as well as sewer, wetlands and soil contamination issues
arising from prior use of the land for farming, as a result of which certain
pesticides remain in the upper portion of the soil. The local commissions
rejected the plan which is now before the Connecticut courts in a number of
separate but related actions. 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) of remediating the soils. The outcome of the pending litigation
cannot be predicted. Griffin anticipates that obtaining subdivision approvals in
many of the towns where it holds land appropriate for residential subdivision
will 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 almost 100% occupied or
committed to be occupied, and a bottling and distribution plant has been built
by the Pepsi Bottling Group ("Pepsi") on land sold to Pepsi by Griffin. The only
currently vacant space is a warehouse of approximately 100,000 square feet that
was built in 1999 on speculation and is now having its interiors completed. That
space is to be occupied in Griffin's second fiscal quarter of 2001. Griffin is
planning an additional building for this park to be built starting in the 2001
second quarter. 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 construction
and leasing of light industrial and warehouse facilities at the New England
Tradeport. Future development at the New England Tradeport may require
investment in off-site infrastructure on behalf of Windsor, Connecticut and
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,
approximately 60% of which have been developed with nearly 1,950,000 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 which have an aggregate of 160,000 square feet
in the Griffin Center office complex. Griffin is currently completing the shell
of a light manufacturing building of 165,000 square feet for JDS
Uniphase Corporation ("JDS"). The agreement which provides for the development
of the building that will be leased to JDS also provides JDS options to have
Griffin develop two additional buildings of approximately 150,000 square feet
each to be leased to JDS. Under the agreement JDS pays for its interior
improvements, which are material to the total cost of the building. In Griffin
Center South, a 130-acre tract with sixteen 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 180,000
square feet. Griffin is currently completing an additional 40,000 square foot
building in Griffin Center South, which is partially leased and the balance
verbally committed to be leased. Griffin is considering an additional building
for this park and is alternatively considering similar research and development
space which might be constructed in a portion of Griffin Center in Windsor.
Two additional Griffin parcels appropriate for office or industrial uses 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.
4
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 435 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. In 2000, Griffin entered into
an agreement with a developer for the sale of the balance of the development
rights at Walden Woods. Completion of this transaction, which is subject to site
plan and other approvals by the town, would result in a small gain to Griffin.
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 7 years,
may be terminated as to 100 acres annually, on one year's prior notice.
INVESTMENTS
CENTAUR COMMUNICATIONS, LTD.
Griffin owns approximately 35% (32% 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 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 four
to five years from that date; but, if circumstances are favorable, such an
offering or sale could occur earlier. Currently, discussions relating to a
possible public offering or sale of Centaur are underway. If such discussions
lead to a transaction at currently discussed prices, Griffin would have a
material gain on its investment.
LINGUAPHONE GROUP, PLC
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).
Further transactions by Linguaphone have reduced Griffin's ownership interest to
approximately 8%. Accordingly, Griffin now accounts for Linguaphone under the
cost method of accounting for investments.
SHEMIN ACQUISITION CORPORATION
In connection with Imperial's sale of the SSCs, Imperial now holds
approximately 13.8% of the outstanding common stock of Shemin Acquisition
Corporation, a privately held company that is the parent company of Shemin
Nurseries, Inc. Imperial will account for its investment in Acquisition under
the cost method of accounting for investments.
FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS
See Note 3 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
As of December 2, 2000 and prior to the sale of the SSCs by Imperial,
Griffin employed 358 persons on a full-time basis, including 16 in its real
estate business and 338 in its landscape nursery
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business. As a result of the sale of the SSCs, the number of full-time employees
in the landscape nursery business was reduced to 213 persons. At present, none
of Griffin's 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, regional and local 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.
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
northern Florida, most of which is used for Imperial's growing operations or is
contiguous to such operations. Through January 26, 2001 Griffin owned the sites
for Imperial's SSCs. Each such center typically has a warehouse/office facility
and 10-15 acres of nursery stock. On January 26, 2001, Imperial completed the
sale of all of the assets of its SSCs to Shemin Nurseries, Inc.
The book value of undeveloped land holdings 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.
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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............................................... 172
East Windsor.............................................. 115
Granby.................................................... 95
Simsbury.................................................. 876
South Windsor............................................. 103
Suffield.................................................. 380
Windsor................................................... 1,222
MASSACHUSETTS
Southwick................................................. 432
FLORIDA
Hillsborough County....................................... 9
Leon County............................................... 6
NURSERY REAL ESTATE
LOCATION OF PROPERTY LAND AREA (ACRES)
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FLORIDA
Quincy.................................................... 1,046
CONNECTICUT
East Granby............................................... 393
Granby.................................................... 267
Windsor (a)............................................... 45
PENNSYLVANIA
Aston (a)................................................. 16
Pittsburgh (a)............................................ 10
VIRGINIA
Manassas (a).............................................. 16
OHIO
Columbus (a).............................................. 12
Cincinnati (a)............................................ 16
MARYLAND
White Marsh (a)........................................... 20
Griffin also leases approximately 2,100 square feet in New York City for its
Executive Offices.
(a) These locations were sold to Shemin Nurseries, Inc. on January 26, 2001
as part of the sale of Imperial's SSCs.
ITEM 3. LEGAL PROCEEDINGS
As discussed in Item 1, certain parts of Griffin's property 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
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in connection with possible chlordane exceedences on such land. Various aspects
of Griffin's plans for its proposed residential development in Simsbury are the
subjects of proceedings brought by Griffin seeking court approval of its
development plans.
Griffin 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
Griffin's common stock is listed on the Nasdaq National Market under the
symbol GRIF. The following are the high and low prices of the common stock as
traded on the Nasdaq National Market:
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------------------- ------------------- ------------------- -------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- -------- -------- --------
2000................................... $12.38 $9.75 $13.75 $10.00 $13.00 $11.00 $15.00 $11.38
1999................................... $13.75 $9.75 $13.25 $ 8.00 $12.50 $10.63 $11.88 $10.50
On February 1, 2001, the number of record holders of common stock of Griffin
was approximately 572, 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 $12.94 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 operation
and expansion of its businesses.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected statement of operations data for
fiscal years 1996 through 2000 and balance sheet data as of the end of each
fiscal year.
2000 1999(A) 1998(A) 1997 1996(B)
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales & other revenue................. $ 71,739 $ 62,944 $ 51,231 $ 46,288 $ 46,531
Operating profit (loss)................... 3,812 3,130 74 (3,236) (1,245)
Income (loss) before equity investments... 1,670 1,623 86 (2,502) (4,366)
Income (loss) from continuing
operations.............................. 1,634 2,176 (65) (2,136) (4,063)
Net income (loss)......................... 1,634 2,176 (65) (2,136) (4,606)
Basic net income (loss) per share (c)..... 0.34 0.45 (0.01) (0.45)
Diluted net income (loss) per
share (c)............................... 0.33 0.42 (0.03) (0.45)
BALANCE SHEET DATA:
Total assets.............................. 126,656 112,885 104,730 103,736 101,775
Working capital........................... 29,193 36,337 33,304 41,130 36,698
Long-term debt (d)........................ 9,008 8,860 2,666 2,830 38,846
Stockholders' equity/Culbro
Investment (c).......................... 95,090 93,270 91,000 90,523 47,449
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(a) The financial data for fiscal 1999 and fiscal 1998 has been restated as
described in Item 7 and in Note 13 to the consolidated financial statements
included in Item 8. The restated amounts were reported in Form 10-K/A for
fiscal 1999 as filed on October 4, 2000.
(b) The Selected Financial Data presented above reflects CMS Gilbreth Packaging
Systems, Inc. as a discontinued operation in 1996, the year in which this
business was sold.
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(c) Griffin was a wholly-owned subsidiary of Culbro Corporation ("Culbro")
through July 3, 1997. Accordingly, the retained earnings and intercompany
balances with its former parent are reflected in Culbro Investment prior to
July 3, 1997 and the per share results for 1997 presented herein are on a
pro forma basis because the Griffin common stock was not outstanding for
that entire year.
(d) 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.
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 Communications, Ltd.
("Centaur"), a magazine publishing business, based in the United Kingdom. On
January 26, 2001, Imperial completed the sale of its wholesale sales and service
centers (the "SSCs") to Shemin Nurseries, Inc. and its parent company, Shemin
Acquisition Corporation. Most of the operating profit of Imperial over the past
three fiscal years is attributable to the SSCs. Imperial will continue in the
landscape nursery business with its container growing operations in Connecticut
and northern Florida. Imperial is currently expanding both of these operations.
Griffin's statement of operations for fiscal 2000, fiscal 1999 and fiscal 1998
and the balance sheets as of December 2, 2000 and November 27, 1999 include the
financial position and results of operations of the SSCs.
The consolidated financial statements of Griffin for the fiscal years ended
November 27, 1999 and November 28, 1998 have been restated to adjust the amounts
previously reported for equity income from Griffin's 35% investment in Centaur.
Restatement was required to adjust the timing of the recognition of subscription
revenue of Centaur to comply with generally accepted accounting principles in
the United States. See Note 13 to Griffin's consolidated financial statements in
Item 8.
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
In fiscal 2000, Griffin's net sales and other revenue increased
$8.8 million, or 14%, to $71.7 million from $62.9 million in fiscal 1999. Net
sales and other revenue increased at both Imperial and Griffin Land. At
Imperial, net sales increased $8.3 million, or 14.5%, in fiscal 2000 to
$65.9 million from $57.6 million in fiscal 1999. The higher net sales and other
revenue at Imperial reflected principally increased volume from the SSCs, which
accounted for $5.5 million of the sales increase at Imperial. The balance of the
sales increase at Imperial reflected increased sales volume of container-grown
plants from Imperial's farming operations in Connecticut and northern Florida.
At Griffin Land, net sales and other revenue increased to $5.8 million in fiscal
2000 from $5.4 million in fiscal 1999. The increase of $0.4 million principally
reflects an increase in rental revenue from Griffin Land's commercial
properties. Rental revenue from Griffin Land's commercial properties was
$4.0 million in fiscal 2000 as compared to $3.6 million in fiscal 1999. At the
end of fiscal 2000, Griffin Land's occupancy rate on the buildings it owns, not
including the joint venture office buildings in which Griffin Land has a 30%
interest, was 96% (including a lease commitment on an approximately 100,000
square foot warehouse to be occupied in the 2001 second quarter).
Griffin's consolidated operating profit (before interest) was $3.8 million
in fiscal 2000 as compared to $3.1 million in fiscal 1999. Operating profit at
Imperial increased to $5.3 million in fiscal 2000 from
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$3.9 million in fiscal 1999. The increased operating profit reflects the sales
volume increase at Imperial which generated a $2.4 million increase in gross
profit. Imperial's gross profit was $19.4 million in fiscal 2000 as compared to
$17.0 million in fiscal 1999. Imperial's gross margin on sales in fiscal 2000
was 29.5%, which was unchanged from fiscal 1999. Operating expenses at Imperial
were $14.1 million in fiscal 2000 versus $13.1 million in fiscal 1999. The
higher expenses reflected the support required to meet the additional sales
volume. As a percentage of net sales, operating expenses at Imperial were 21.4%
of net sales in fiscal 2000 as compared to 22.7% of net sales in fiscal 1999.
Total operating profit at Griffin Land was $0.2 million in fiscal 2000 as
compared to $0.8 million in fiscal 1999. The lower operating profit in fiscal
2000 as compared to fiscal 1999 reflects a $0.9 million profit on a sale of
undeveloped land in fiscal 1999. There were no comparable land sales in fiscal
2000. Excluding the effect of that 1999 land sale, operating results at Griffin
Land increased approximately $0.3 million in fiscal 2000 as compared to fiscal
1999. This increase reflected higher operating profit from Griffin's rental
properties, partially offset by higher operating expenses. Operating profit,
before depreciation, from Griffin Land's rental properties was $3.3 million in
fiscal 2000 as compared to $2.9 million in fiscal 1999.
Interest expense at Griffin increased to $1.1 million in fiscal 2000 from
$0.6 million in fiscal 1999. The higher interest expense reflects higher
borrowing levels under Griffin's revolving credit facilities in fiscal 2000 as
compared to fiscal 1999 and interest expense on a mortgage that was in place the
entire year in fiscal 2000 versus a partial year in fiscal 1999.
Griffin's equity investment in Centaur reflected an equity loss of less than
$0.1 million in fiscal 2000 as compared to equity income of $0.6 million in
fiscal 1999. The equity loss in fiscal 2000 reflects lower Centaur results,
impacted by the length and timing of subscription renewals and the periods over
which subscription revenues are recognized. Additionally, Griffin's 2000 equity
results reflect Centaur's results for the ten months ended September 2000 due to
the unavailability of Centaur information, as compared to fiscal 1999 which
included Centaur's results through November of that year. As a result, Centaur's
October and November 2000 results, which historically have been profitable
months due to the seasonality of Centaur's business, will be included in
Griffin's equity income in the first quarter of fiscal 2001. Had Griffin's 1999
equity results from Centaur reflected a period consistent with the ten month
period included in Griffin's fiscal 2000 results, Griffin's equity income in
fiscal 1999 would have been lower by approximately $0.3 million.
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 container-grown 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 not occupied) was 96% as of the
end of fiscal 1999 (including full occupancy in its Griffin Center South
commercial development) as compared
11
to 91% at the end of fiscal 1998, not including the joint venture office
buildings in which Griffin Land has a 30% interest.
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 margin 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 fiscal 1999 reflects
the lower cash on hand throughout fiscal 1999 as compared to fiscal 1998.
Equity income from Griffin's investee, Centaur was $0.6 million in fiscal
1999 as compared to $0.9 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.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5.1 million in fiscal 2000 as
compared to $0.9 million in fiscal 1999. The increase in net cash provided by
operating activities principally reflects higher accounts payable at the end of
fiscal 2000, due principally to timing of payments, and accounts receivable at
the end of fiscal 2000 being substantially the same as accounts receivable at
the end of fiscal 1999. Additionally, higher depreciation and amortization
expense in fiscal 2000 as compared to fiscal 1999 and other changes more than
offset unfavorable changes in other current assets.
Net cash used in investing activities increased to $12.8 million in fiscal
2000 from $6.6 million in fiscal 1999. The increase in net cash used for
investing activities reflects $9.1 million of additions in fiscal 2000 to
Griffin Land's real estate assets as compared to $3.4 million of additions in
fiscal 1999. In fiscal 2000, additions to Griffin Land's real estate assets
include the construction of the shell of a 165,000 square foot commercial
building in Windsor, Connecticut after entering into a long-term lease with JDS
Uniphase Corporation ("JDS"). The estimated cost of the shell of this new
building is expected to be in excess of $7.4 million, a substantial portion of
which was expended in fiscal 2000. The agreement with JDS provides JDS options
to have Griffin Land construct two additional buildings of approximately 150,000
square feet each on land adjacent to the current building that is under
12
construction. Also in fiscal 2000, Griffin Land started construction on a 40,000
square foot building in Bloomfield, Connecticut that will be completed in the
first half of fiscal 2001. This building is partially leased with the balance
verbally committed to be occupied. The expected cost of this building, including
building improvements being paid by Griffin Land, is expected to be
approximately $3.3 million, with a substantial portion expended in fiscal 2000.
In addition to the construction of these two new buildings, investment in real
estate assets in fiscal 2000 included expenditures for development of a proposed
residential subdivision on certain of Griffin Land's undeveloped land.
Additions to property and equipment in fiscal 2000 increased to
$3.7 million from $2.8 million in fiscal 1999. This increase reflects several
capital projects for Imperial to improve and expand Imperial's containerized
plant growing facilities in northern Florida and Connecticut. The current phase
of expansion projects at Imperial is expected to be completed over the next
twelve months at a projected total cost of approximately $6.7 million, of which
approximately $3.2 million had been expended through November 2000. Additional
measures to increase Imperial's capacity for production of container-grown
plants are being examined.
Net cash provided by financing activities was $6.9 million in fiscal 2000 as
compared to net cash provided by financing activities of $5.6 million in fiscal
1999. The increase in debt in fiscal 2000 reflects borrowings under the Griffin
Revolving Credit Agreement (the "Griffin Credit Agreement") whereas the increase
in debt in fiscal 1999 reflects proceeds from 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.
In fiscal 2000, Griffin financed its seasonal working capital requirements
and its investment in real estate assets at Griffin Land and capital
expenditures at Imperial with borrowings under the Griffin Credit Agreement and
cash generated from operations. Borrowings under the Griffin Credit Agreement
peaked at $11.0 million during fiscal 2000 and ended the year at $7.3 million.
On January 26, 2001 Imperial completed the sale of the SSCs, which generated net
cash proceeds (after expenses) of approximately $18.7 million, subject to
adjustment based on determination of the actual working capital on the closing
date. The cash generated from the sale was used to repay the entire amount then
outstanding ($11.2 million) under the Griffin Credit Agreement. The balance is
being held for general corporate purposes. The Griffin Credit Agreement expires
on May 31, 2001 and management intends to obtain a successor credit agreement
with the lender.
On October 25, 2000 Griffin received a commitment from a lender for a
nonrecourse mortgage of up to $6.4 million on the 165,000 square foot building
that is currently under construction and is leased to JDS. The mortgage loan
will bear interest at 8.125% and will have a term of fifteen years, with
payments based on a twenty year amortization period. Closing on the loan will
take place upon completion of the building, as defined in the commitment letter.
The mortgage proceeds are expected to be received in Griffin's 2001 second
quarter.
In fiscal 2001, Griffin Land will complete the two buildings under
construction at the end of fiscal 2000 and anticipates additional construction
activity that may include a new warehouse facility in the New England Tradeport,
an additional building to be located in either Griffin Center in Windsor,
Connecticut or Griffin Center South in Bloomfield, Connecticut and an additional
building in Griffin Center to be leased to JDS, if JDS exercises its option for
Griffin to construct a second building for it in Griffin Center. Additionally,
Griffin Land intends to proceed with its proposed residential subdivision if
regulatory approval is obtained (this matter is currently in litigation) and
Griffin Land will examine certain of its other land holdings for potential
residential subdivisions.
Management believes that in the near term, based on the current level of
operations and anticipated growth, the cash generated from the sale of
Imperial's SSCs, the expected mortgage proceeds to be received in fiscal 2001
and borrowings under the Griffin Credit Agreement and a
13
successor 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.
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 improvements and expansion of Imperial's farm
operations and the ability of Imperial's farm operations to achieve break-even
results in fiscal 2001, construction of additional facilities in the real estate
business, obtaining a successor credit agreement to its current credit agreement
and approval of proposed residential subdivisions. The projected 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 had $7.3 million of variable
rate debt outstanding at December 2, 2000. Griffin's variable rate debt was
repaid in January 2001 from the proceeds received from the sale of Imperial's
SSCs.
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 operations.
Griffin does have investments in companies based in the United Kingdom, and
changes in foreign currency exchange rates could affect the results of equity
investments in Griffin's statement of operations, and the ultimate liquidation
of those investments and conversion of proceeds into United States currency is
subject to future foreign currency exchange rates.
14
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,
DEC. 2, 1999 1998
2000 (NOTE 13) (NOTE 13)
-------- --------- ---------
Net sales and other revenue................................. $71,739 $62,944 $51,231
Costs and expenses:
Cost of goods sold.......................................... 49,774 43,321 36,218
Selling, general and administrative expenses................ 18,153 16,493 14,939
------- ------- -------
Operating profit............................................ 3,812 3,130 74
Interest expense............................................ 1,141 626 185
Interest income............................................. 43 81 298
------- ------- -------
Income before income tax provision.......................... 2,714 2,585 187
Income tax provision........................................ 1,044 962 101
------- ------- -------
Income before equity investments............................ 1,670 1,623 86
------- ------- -------
(Loss) income from equity investments:
Investment in Centaur Communications, Ltd................. (36) 565 902
Investment in Linguaphone Group plc....................... -- (12) (1,053)
------- ------- -------
(Loss) income from equity investments....................... (36) 553 (151)
------- ------- -------
Net income (loss)........................................... $ 1,634 $ 2,176 $ (65)
======= ======= =======
Basic net income (loss) per common share.................... $ 0.34 $ 0.45 $ (0.01)
======= ======= =======
Diluted net income (loss) per common share.................. $ 0.33 $ 0.42 $ (0.03)
======= ======= =======
See Notes to Consolidated Financial Statements.
15
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOV. 27,
DEC. 2, 1999
2000 (NOTE 13)
-------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $ 1,126 $ 2,003
Accounts receivable, less allowance of $580 and $564........ 5,920 5,966
Inventories................................................. 31,869 29,196
Deferred income taxes....................................... 2,967 2,566
Other current assets........................................ 3,346 2,338
-------- --------
TOTAL CURRENT ASSETS........................................ 45,228 42,069
Real estate held for sale or lease, net..................... 41,221 33,766
Property and equipment, net................................. 17,069 14,359
Investment in Centaur Communications, Ltd................... 16,682 16,532
Other assets................................................ 6,456 6,159
-------- --------
TOTAL ASSETS................................................ $126,656 $112,885
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... $ 8,341 $ 5,412
Long-term debt due within one year.......................... 7,694 320
-------- --------
TOTAL CURRENT LIABILITIES................................... 16,035 5,732
Long-term debt.............................................. 9,008 8,860
Deferred income taxes....................................... 2,729 1,401
Other noncurrent liabilities................................ 3,794 3,622
-------- --------
TOTAL LIABILITIES........................................... 31,566 19,615
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
Common stock, par value $0.01 per share, authorized
10,000,000 shares,
issued and outstanding 4,862,704 shares................... 49 49
Additional paid in capital.................................. 93,584 93,584
Retained earnings (deficit)................................. 1,271 (363)
Accumulated other comprehensive income...................... 186 --
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 95,090 93,270
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $126,656 $112,885
======== ========
See Notes to Consolidated Financial Statements.
16
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
RETAINED ACCUMULATED
SHARES OF ADDITIONAL EARNINGS OTHER
COMMON COMMON PAID-IN (DEFICIT) COMPREHENSIVE TOTAL
STOCK STOCK CAPITAL (NOTE 13) INCOME (NOTE 13)
--------- -------- ---------- --------- ------------- ---------
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 loss.............................. -- -- -- (65) -- (65)
--------- --- ------- ------- ---- -------
Balance at November 28, 1998.......... 4,842,704 48 93,491 (2,539) -- 91,000
Exercise of stock options, including
$85 income tax benefit.............. 20,000 1 93 -- -- 94
Net income............................ -- -- -- 2,176 -- 2,176
--------- --- ------- ------- ---- -------
Balance at November 27, 1999.......... 4,862,704 49 93,584 (363) -- 93,270
Other comprehensive income............ -- -- -- -- 186 186
Net income............................ -- -- -- 1,634 -- 1,634
--------- --- ------- ------- ---- -------
Balance at December 2, 2000........... 4,862,704 $49 $93,584 $ 1,271 $186 $95,090
========= === ======= ======= ==== =======
See Notes to Consolidated Financial Statements.
17
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED,
--------------------------------
NOV. 27, NOV. 28,
DEC. 2, 1999 1998
2000 (NOTE 13) (NOTE 13)
-------- --------- ---------
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 1,634 $ 2,176 $ (65)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 2,533 2,204 2,004
Loss (income) from equity investments..................... 36 (553) 151
Deferred income taxes..................................... 927 895 186
Changes in assets and liabilities which increased
(decreased) cash:
Accounts receivable....................................... 30 (1,386) (147)
Inventories............................................... (2,673) (2,450) (1,403)
Income tax refund received................................ -- 926 --
Other current assets...................................... (1,008) (639) (518)
Accounts payable and accrued liabilities.................. 2,929 (174) 606
Other, net................................................ 667 (69) (227)
-------- ------- -------
Net cash provided by operating activities................... 5,075 930 587
-------- ------- -------
INVESTING ACTIVITIES:
Additions to real estate held for sale or lease............. (9,108) (3,416) (6,182)
Additions to property and equipment......................... (3,715) (2,822) (1,164)
Additional investment in Centaur Communications, Ltd........ -- -- (2,968)
Other, net.................................................. -- (377) 500
-------- ------- -------
Net cash used in investing activities....................... (12,823) (6,615) (9,814)
-------- ------- -------
FINANCING ACTIVITIES:
Increase in debt............................................ 7,300 8,173 --
Payments of debt............................................ (429) (2,220) (324)
Other, net.................................................. -- (324) 91
-------- ------- -------
Net cash provided by (used in) financing activities......... 6,871 5,629 (233)
-------- ------- -------
Net decrease in cash and cash equivalents................... (877) (56) (9,460)
Cash and cash equivalents at beginning of year.............. 2,003 2,059 11,519
-------- ------- -------
Cash and cash equivalents at end of year.................... $ 1,126 $ 2,003 $ 2,059
======== ======= =======
See Notes to Consolidated Financial Statements.
18
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"). All intercompany transactions have been
eliminated.
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 of Linguaphone Group plc ("Linguaphone") in fiscal 1999,
Griffin's common equity ownership was reduced and Griffin now accounts for its
investment in Linguaphone under the cost method of accounting for investments.
The consolidated financial statements of Griffin for fiscal 1999 and 1998
have been restated to adjust the amounts previously reported as income from
equity investment (see Note 13).
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. On January 26, 2001, Imperial completed the sale of its wholesale
sales and service centers (see Note 2). Imperial will continue in the landscape
nursery business with its growing operations in Connecticut and northern
Florida.
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 2000
ended December 2, 2000 and contained 53 weeks. Fiscal years 1999 and 1998 each
contained 52 weeks and ended November 27, 1999 and November 28, 1998,
respectively. The effect of an additional week in fiscal 2000 as compared to
fiscal 1999 and 1998 was not material to Griffin's results of operations or cash
flows.
INVENTORIES
Griffin's inventories are stated at the lower of cost or market using the
average cost method. 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.
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease is carried at cost. Interest is
capitalized during the construction period of major facilities. The capitalized
interest is recorded as part of the asset to which it relates
19
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Repair and maintenance costs are expensed as incurred.
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
accompanying financial statements, amounts billed to customers for shipping and
handling and the related costs are included in selling, general and
administrative expenses. In accordance with Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"), which Griffin
will adopt in fiscal 2001, all amounts billed to customers will be included in
net sales and the costs of shipping and handling will be included in cost of
sales. Had Griffin adopted SAB No. 101 in fiscal 2000, net sales would have
increased by $2,635, cost of sales would have increased by $2,415 and selling,
general and administrative expense would have increased by $220. There is no
effect on operating profit or net income.
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 on 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
Basic net income per common share is calculated by dividing net income by
the average number of common shares outstanding during the year. Diluted net
income per common share is calculated by adjusting outstanding shares, assuming
conversion of all potentially dilutive stock options.
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.
20
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUBSEQUENT EVENT
On January 26, 2001, Imperial completed the sale of all of the assets of its
seven wholesale sales and service centers (the "SSCs") to Shemin
Nurseries, Inc. ("Shemin"). Shemin also assumed certain liabilities related to
the SSCs. The SSCs sell a wide variety of plant material and horticultural tools
and products to the landscape trade, and are located in Windsor, Connecticut;
Aston and Pittsburgh, Pennsylvania; Columbus and Cincinnati, Ohio; White Marsh,
Maryland; and Manassas, Virginia. A portion of the products sold by the SSCs are
grown by Imperial's farming operations. The agreement to sell the SSCs includes
a three year supply agreement pursuant to which Shemin is obligated to purchase
Imperial grown product for the SSCs. The SSCs have been the principal
contributor to the operating profit of Imperial over the past three fiscal
years.
The consideration received by Imperial on the sale of the SSCs included cash
of approximately $18.7 million after estimated expenses, subject to adjustment
based on actual working capital at the time of closing. Cash of $11.2 million
from the sale was used to repay all of the amounts outstanding under Griffin's
Revolving Credit Agreement. The remaining cash will be held for general
corporate purposes. In addition to the cash payment, Imperial received 20,570
shares of common stock (representing approximately 13.8% of the outstanding
common stock) of Shemin Acquisition Corporation ("Acquisition"), the parent
company of Shemin. Imperial will account for its investment in Acquisition under
the cost method of accounting for investments. The after tax gain on the sale of
the SSCs is estimated to be approximately $6.0 million and will be reported in
Griffin's 2001 first quarter. Imperial will continue in the landscape nursery
business with its container growing operations in Connecticut and northern
Florida.
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the fiscal year ended December 2, 2000 includes pro forma
adjustments to reflect the sale of the SSCs as if it had taken place at the
beginning of the fiscal year. Such adjustments include the elimination of sales,
cost of sales and direct operating expenses of the SSCs, the elimination of
salaries and benefits of employees terminated as a result of the sale of the
SSCs, the inclusion of sales from Imperial's growing operations to the SSCs
acquired by Shemin, the effect of the net cash proceeds on Griffin's interest
expense and interest income, and adjustment to Griffin's income tax provision.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet includes
pro forma adjustments to reflect the sale of the SSCs as if it had taken place
on the balance sheet date. Such adjustments include the elimination of the
assets that were sold and the liabilities that were assumed by Shemin, the
repayment of debt under Griffin's Revolving Credit Agreement, an increase in
cash from the remaining proceeds from the sale after the debt repayment and
Griffin's investment in Acquisition.
In the opinion of management, all adjustments necessary to fairly present
this pro forma information have been made. The pro forma information does not
purport to be indicative of the results that would have been reported had this
transaction actually occurred on the dates specified, nor is it indicative of
Griffin's future results.
21
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUBSEQUENT EVENT (CONTINUED)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FISCAL YEAR
ENDED
DEC. 2,
2000
-----------
Net sales and other revenue............................... $26,206
Costs and expenses:
Cost of goods sold........................................ 19,165
Selling, general and administrative expenses.............. 8,818
-------
Operating loss............................................ (1,777)
Interest expense, net..................................... 175
-------
Loss before income tax benefit............................ (1,952)
Income tax benefit........................................ (766)
-------
Loss before equity investment............................. (1,186)
Loss from equity investment............................... (36)
-------
Net loss.................................................. $(1,222)
=======
Basic net loss per share.................................. $ (0.25)
=======
Diluted net loss per share................................ $ (0.26)
=======
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DEC. 2,
2000
--------
Cash and cash equivalents................................. $ 14,115
Inventories............................................... 27,219
Other current assets...................................... 6,493
--------
Total current assets...................................... 47,827
Real estate held for sale or lease, net................... 41,221
Investment in Centaur Communications, Ltd................. 16,682
Property and equipment, net............................... 9,482
Other assets.............................................. 10,764
--------
Total assets.............................................. $125,976
========
Current liabilities....................................... $ 10,314
Long-term debt............................................ 8,798
Other noncurrent liabilities.............................. 6,185
--------
Total liabilities......................................... 25,297
Commitments and contingencies............................. --
Stockholders' equity...................................... 100,679
--------
Total liabilities and stockholders' equity................ $125,976
========
22
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. 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. Management
operates and receives reporting based upon these segments. Griffin has no
operations outside the United States. Griffin's export sales and transactions
between segments are not material.
FOR THE FISCAL YEARS ENDED,
--------------------------------
DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998
-------- --------- ---------
NET SALES AND OTHER REVENUE
Landscape nursery........................................... $ 65,928 $ 57,570 $ 48,180
Real estate................................................. 5,811 5,374 3,051
-------- -------- --------
$ 71,739 $ 62,944 $ 51,231
======== ======== ========
OPERATING PROFIT (LOSS)
Landscape nursery........................................... $ 5,303 $ 3,938 $ 2,277
Real estate................................................. 151 798 (320)
-------- -------- --------
Industry segment totals..................................... 5,454 4,736 1,957
General corporate expense................................... 1,642 1,606 1,883
Interest expense (income), net.............................. 1,098 545 (113)
-------- -------- --------
Income before income tax provision.......................... $ 2,714 $ 2,585 $ 187
======== ======== ========
IDENTIFIABLE ASSETS
Landscape nursery........................................... $ 56,336 $ 52,564 $ 46,881
Real estate................................................. 46,814 38,248 35,480
-------- -------- --------
Industry segment totals..................................... 103,150 90,812 82,361
General corporate........................................... 23,506 22,073 22,369
-------- -------- --------
$126,656 $112,885 $104,730
======== ======== ========
DEPRECIATION AND
CAPITAL EXPENDITURES AMORTIZATION
-------------------------------- --------------------------------
FOR THE FISCAL YEARS ENDED, FOR THE FISCAL YEARS ENDED,
-------------------------------- --------------------------------
DEC, 2, NOV. 27, NOV. 28, DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998 2000 1999 1998
-------- --------- --------- -------- --------- ---------
Landscape nursery.............................. $ 3,618 $2,795 $1,144 $1,463 $1,268 $1,212
Real estate.................................... 9,205 3,443 6,188 1,056 920 775
------- ------ ------ ------ ------ ------
Industry segment totals........................ 12,823 6,238 7,332 2,519 2,188 1,987
General corporate.............................. -- -- 14 14 16 17
------- ------ ------ ------ ------ ------
$12,823 $6,238 $7,346 $2,533 $2,204 $2,004
======= ====== ====== ====== ====== ======
See Note 2 regarding the sale of the SSCs and Note 9 for information on
Griffin's equity investment in Centaur.
23
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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". The income tax provision for fiscal
2000, fiscal 1999 and fiscal 1998 are summarized as follows:
FOR THE FISCAL YEARS ENDED,
--------------------------------
DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998
-------- --------- ---------
Current federal..................................... $ 8 $ 76 $(246)
Current state and local............................. 110 76 170
Deferred, principally federal....................... 926 810 177
------ ---- -----
Total income tax provision.......................... $1,044 $962 $ 101
====== ==== =====
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,
--------------------------------
DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998
-------- --------- ---------
Tax provision at statutory rates.................... $ 923 $879 $ 64
State and local taxes............................... 187 141 111
Other............................................... (66) (58) (74)
------ ---- ----
Total income tax provision.......................... $1,044 $962 $101
====== ==== ====
The significant components of Griffin's deferred tax asset and liability are
as follows:
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Inventory................................................... $1,398 $1,905
NOL carryover............................................... 876 --
Other....................................................... 693 661
------ ------
Deferred tax asset.......................................... $2,967 $2,566
====== ======
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Depreciation................................................ $2,361 $2,332
NOL carryover............................................... -- (1,286)
Other....................................................... 368 355
------ ------
Deferred tax liability...................................... $2,729 $1,401
====== ======
As of December 2, 2000, Griffin has available for income tax purposes
approximately $1.5 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 but are classified as current because they are
expected to be utilized in fiscal 2001 as a result of the sale of the SSCs by
Imperial (see Note 2).
24
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. INCOME TAXES (CONTINUED)
In 1997, Griffin entered into a Tax Sharing Agreement with its parent
company at that time, Culbro Corporation ("Culbro"), which provided, among other
things, for the allocation between Culbro and Griffin of federal, state, local
and foreign tax liabilities for all periods that Griffin was a wholly-owned
subsidiary of Culbro. 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 any deficiencies
assessed through the date that the common stock of Griffin was distributed to
Culbro shareholders, generally as if Griffin had filed separate tax returns.
5. LONG-TERM DEBT
Long-term debt includes:
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Mortgages................................................... $8,590 $8,704
Griffin Credit Agreement.................................... 7,300 --
Capital leases.............................................. 812 476
------ ------
Total....................................................... 16,702 9,180
Less: due within one year................................... 7,694 320
------ ------
Total long-term debt........................................ $9,008 $8,860
====== ======
The amount outstanding under the Griffin Land & Nurseries, Inc. Credit
Agreement (the "Griffin Credit Agreement") is classified as due within one year
because the Griffin Credit Agreement terminates on May 31, 2001.
The annual principal payment requirements under the terms of the mortgages
for the years 2001 through 2005 are $123, $136, $149, $162 and $180,
respectively. The book value of buildings under mortgage was $8.0 million at
December 2, 2000.
On August 3, 1999 Griffin entered into the Griffin Credit Agreement to
replace the $10 million Imperial Credit Agreement. The Griffin Credit Agreement
is an unsecured facility that provides financing up to $20 million. 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 Offered Rate ("LIBOR") plus
1 3/4% per annum. There are no compensating balance agreements, and Griffin pays
a commitment fee of 1/4 of 1% per annum on unused borrowing capacity. Borrowings
under the Griffin Credit Agreement are being 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.
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
25
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
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%.
On October 25, 2000, Griffin received a commitment from a lender for a
nonrecourse mortgage of up to $6.4 million on a building currently under
construction by Griffin Land. The mortgage will bear interest at 8.125% and will
have a term of fifteen years with payments based on a twenty year amortization
period. Closing on this mortgage is dependant upon completion of the building,
as defined in the commitment. Griffin expects to close on this mortgage in the
2001 second quarter.
Management believes that the amounts reflected on the balance sheet for its
mortgages reflect their current market 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 December 2, 2000 were:
2001........................................................ $325
2002........................................................ 266
2003........................................................ 197
2004........................................................ 120
2005........................................................ 32
----
Total minimum lease payments................................ 940
Less: amounts representing interest......................... 128
----
Present value of minimum lease payments (a)................. $812
====
- ------------------------
(a) Includes current portion of $271 at December 2, 2000.
At December 2, 2000 and November 27, 1999, machinery and equipment included
capital leases amounting to $812 and $476, respectively, which is net of
accumulated amortization of $2,110 and $1,797, respectively, at December 2, 2000
and November 27, 1999. Amortization expense relating to capital leases in fiscal
2000, fiscal 1999 and fiscal 1998 was $295, $250, and $228, 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 in fiscal
2000, fiscal 1999 and fiscal 1998 were $251, $236 and $230, respectively.
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
26
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. RETIREMENT BENEFITS (CONTINUED)
started in fiscal 2000. At December 2, 2000 Griffin's liability under the
Deferred Compensation Plan was $102. The related expense was $19 in fiscal 2000.
The Deferred Compensation Plan is unfunded, with benefits to be paid from
Griffin's general assets.
POSTRETIREMENT BENEFITS
Griffin maintains a postretirement benefits program which provides
principally health and life insurance benefits to certain of its employees. The
liability for postretirement benefits is included in other noncurrent
liabilities on the consolidated balance sheet. 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. The components of Griffin's postretirement benefits
expense is as follows:
FOR THE FISCAL YEARS ENDED,
--------------------------------
DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998
-------- --------- ---------
Service cost-benefits earned during the year......... $21 $23 $18
Interest on accumulated postretirement benefit
obligation......................................... 29 28 22
--- --- ---
Total expense........................................ $50 $51 $40
=== === ===
Griffin's liability for postretirement benefits, as determined by the Plan's
actuaries, is shown below. None of these liabilities were funded at December 2,
2000 and November 27, 1999.
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Retirees.................................................... $ -- $ --
Fully eligible active participants.......................... 104 105
Other active participants................................... 317 288
Unrecognized net gain from experience differences and
assumption changes........................................ 4 (28)
---- ----
Liability for postretirement benefits....................... $425 $365
==== ====
Discount rates of 7.75% and 8.00% were used to compute the accumulated
postretirement benefit obligations at December 2, 2000 and November 27, 1999,
respectively.
27
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:
FOR THE FISCAL YEARS ENDED,
--------------------------------
NOV. 27, NOV. 28,
DEC. 2, 1999 1998
2000 (NOTE 13) (NOTE 13)
-------- --------- ---------
Net income (loss) as reported for computation of
basic per share results....................... $1,634 $2,176 $ (65)
Adjustment to net income (loss) for assumed
exercise of options of equity investee
(Centaur)..................................... (31) (104) (91)
------ ------ -----
Adjusted net income (loss) for computation of
diluted per share results..................... $1,603 $2,072 $(156)
====== ====== =====
FOR THE FISCAL YEARS ENDED,
---------------------------------
DEC. 2, NOV. 27, NOV. 28,
2000 1999 1998
--------- --------- ---------
Weighted average shares outstanding for
computation of basic per share results.... 4,863,000 4,847,000 4,776,000
Incremental shares from assumed exercise of
Griffin stock options..................... 67,000 77,000 --
--------- --------- ---------
Adjusted weighted average shares for
computation of diluted per share
results................................... 4,930,000 4,924,000 4,776,000
========= ========= =========
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 issued at market value on
the date approved by the board of directors of Griffin. None of the options
outstanding at December 2, 2000 may be exercised as stock appreciation rights.
28
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.
SHARES EXERCISE PRICE
--------- --------------
Outstanding at November 29, 1997..................... 484,721 $ 8.86
Options granted by Griffin 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
Options granted by Griffin in 1999................... 252,100 13.25
Exercised in 1999.................................... (20,000) 0.92
------- ------
Outstanding at November 27, 1999..................... 601,707 12.16
Options granted by Griffin in 2000................... 27,000 11.34
Cancelled in 2000.................................... (900) 13.25
------- ------
Outstanding at December 2, 2000...................... 627,807 $12.12
======= ======
Number of option holders at December 2, 2000......... 37
=======
WEIGHTED AVG.
REMAINING
OUTSTANDING AT WEIGHTED AVG. CONTRACTUAL LIFE
RANGE OF EXERCISE PRICES DEC. 2, 2000 EXERCISE PRICE (IN YEARS)
- ------------------------ -------------- -------------- ----------------
Under $3.00......................... 34,435 $ 1.75 3.4
$3.00-$9.00......................... 100,172 7.52 5.2
Over $9.00.......................... 493,200 13.78 7.5
-----------
627,807
===========
Of the options issued in fiscal 2000, 20,000 options vest in equal
installments on the third, fourth and fifth anniversaries from the date of
grant, 4,000 options vest on the second anniversary from the date of grant and
3,000 vested immediately. Of the options granted by Griffin in fiscal 1999,
248,100 options vest in equal installments on the third, fourth and fifth
anniversaries from the date of grant and 4,000 options vest on the second
anniversary from the date of grant. The 4,000 options issued in fiscal 1998 vest
on the second anniversary from the date of grant. At December 2, 2000, 215,937
options outstanding under the Griffin Stock Option Plan were vested with a
weighted average price of $9.28 per share.
On December 19, 2000, Griffin's Board of Directors authorized the issuance
of an additional 40,300 options under the Griffin Stock Option Plan. These
options vest in equal installments on the third, fourth and fifth anniversaries
from the date of grant. As a result of the sale of the SSCs in January 2001,
9,100 stock options that were outstanding at December 2, 2000 were cancelled.
29
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. STOCKHOLDERS' EQUITY (CONTINUED)
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 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,
DEC. 2, 1999 1998
2000 (NOTE 13) (NOTE 13)
-------- --------- ---------
Net income (loss) as reported........................ $1,634 $2,176 $ (65)
Net income (loss), pro forma (under SFAS No. 123).... 1,246 $1,831 $ (245)
Basic net income (loss) per common share, as
reported........................................... $ 0.34 $ 0.45 $(0.01)
Basic net income (loss) per common share, pro forma
(under SFAS No. 123)............................... $ 0.26 $ 0.38 $(0.05)
Diluted net income (loss) per common share, as
reported........................................... $ 0.33 $ 0.42 $(0.03)
Diluted net income (loss) per common share, pro forma
(under SFAS No. 123)............................... $ 0.25 $ 0.35 $(0.07)
The weighted average fair value of each option granted during fiscal 2000,
fiscal 1999 and fiscal 1998, were $5.20, $5.17 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 2000, fiscal 1999 and fiscal 1998 of
5.15%, 4.91% and 5.45%, 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 December 2, 2000 were:
2001........................................................ $286
2002........................................................ 215
2003........................................................ 116
2004........................................................ 14
2005........................................................ --
----
Total minimum lease payments................................ $631
====
Total rental expense for all operating leases in fiscal 2000, fiscal 1999
and fiscal 1998 was $408, $518 and $484, respectively. As a result of the sale
of the SSCs in January 2001, the future minimum rental payments under
noncancelable leases was reduced by $436.
30
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 December 2, 2000 were:
2001........................................................ $ 5,438
2002........................................................ 5,955
2003........................................................ 5,751
2004........................................................ 5,000
2005........................................................ 3,918
Later years................................................. 15,713
-------
Total minimum rental revenue................................ $41,775
=======
Total rental revenue from all leases in fiscal 2000, fiscal 1999 and fiscal
1998 and was $3,629, $3,247 and $2,287, 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, or approximately 35%.
Substantially all 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 which 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 accepted
accounting principles in the United States of America. Griffin's equity results
from Centaur in fiscal 2000 reflected Centaur's results for the ten months
through September 2000. Equity results from Centaur in prior fiscal years
reflected Centaur's results for the twelve months ended in November of
31
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. EQUITY INVESTMENTS (CONTINUED)
those years. The results in fiscal 2000 reflect a change by Griffin to report
Centaur's results on Centaur's quarterly reporting schedule.
TWELVE MONTHS
TEN ENDED,
MONTHS ---------------------
ENDED NOV. 27, NOV. 28,
SEPT. 30, 1999 1998
2000 (NOTE 13) (NOTE 13)
--------- --------- ---------
Net sales........................................ $89,120 $95,911 $72,315
Costs and expenses............................... 85,087 87,925 63,068
------- ------- -------
Operating profit................................. 4,033 7,986 9,247
Nonoperating expense, principally interest....... 1,885 2,638 1,322
------- ------- -------
Pretax income.................................... 2,148 5,348 7,925
Income taxes..................................... 1,077 2,141 3,322
------- ------- -------
Net income....................................... $ 1,071 $ 3,207 $ 4,603
======= ======= =======
NOV. 27,
SEPT. 30, 1999
2000 (NOTE 13)
--------- ---------
Current assets............................................ $30,980 $35,957
Intangible assets......................................... 20,994 25,002
Other noncurrent assets................................... 10,845 11,018
------- -------
Total assets.............................................. $62,819 $71,977
======= =======
Current liabilities....................................... $30,108 $31,273
Debt...................................................... 33,320 42,859
Noncurrent liabilities.................................... 3,419 3,530
------- -------
Total liabilities......................................... 66,847 77,662
Accumulated deficit....................................... (4,028) (5,685)
------- -------
Total liabilities and accumulated deficit................. $62,819 $71,977
======= =======
REAL ESTATE JOINT VENTURES
Included in other assets at December 2, 2000 and November 27, 1999, is
$3,285 and $3,110, respectively, for Griffin's 30% interest in a real estate
joint venture that owns commercial properties in Connecticut. Results of this
investment are included in operating profit.
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
RELATED PARTY TRANSACTIONS
Prior to the July 3, 1997 distribution of the common stock of Griffin to
Culbro shareholders (the "Distribution"), Griffin was a wholly-owned subsidiary
of Culbro. Prior to the Distribution, Griffin, as lessor, and General Cigar
Co., Inc. ("General Cigar"), as lessee, entered into a lease for certain
32
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
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 rent payable by General Cigar under the Agricultural Lease is
approximately equal to the aggregate amount of all taxes and other assessments
payable by Griffin attributable to the land leased. In fiscal 2000, fiscal 1999
and fiscal 1998, General Cigar made rental payments of $148, $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 General Cigar Holdings, Inc. ("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 November 2000. In fiscal 2000, fiscal 1999 and
fiscal 1998, Griffin paid $141, $150 and $400, respectively, to GC Holdings
under the Services Agreement. As of December 2, 2000 and November 27, 1999
amounts due GC Holdings from Griffin with respect to the Services Agreement were
$119 and $171, respectively.
In 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. Under the Commercial Lease, General Cigar made rental
payments to Griffin in fiscal 2000, fiscal 1999 and fiscal 1998 of $511, $464
and $437, respectively. Management believes the rent payable by General Cigar to
Griffin under the Commercial Lease is at market rates.
COMPREHENSIVE INCOME
The statement of stockholders' equity for the year ended December 2, 2000
includes other comprehensive income of $186, net of related taxes, relating to
the effect of a translation adjustment on Griffin's equity investment in
Centaur. There was no other comprehensive income prior to fiscal 2000.
33
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
INVENTORIES
Inventories consist of:
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Nursery stock............................................. $29,488 $26,728
Finished goods............................................ 1,574 1,481
Materials and supplies.................................... 807 987
------- -------
$31,869 $29,196
======= =======
PROPERTY AND EQUIPMENT
Property and equipment consist of:
ESTIMATED USEFUL DEC. 2, NOV. 27,
LIVES 2000 1999
---------------- -------- ---------
Land and improvements..................... $ 7,904 $ 7,402
Buildings................................. 10 to 40 years 5,145 4,198
Machinery and equipment................... 3 to 20 years 16,985 14,560
-------- --------
30,034 26,160
Accumulated depreciation.................. (12,965) (11,801)
-------- --------
$ 17,069 $ 14,359
======== ========
Total depreciation expense related to property and equipment in fiscal 2000,
fiscal 1999 and fiscal 1998 was $1,526, $1,323 and $1,265, respectively.
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease consists of:
ESTIMATED USEFUL DEC. 2, NOV. 27,
LIVES 2000 1999
---------------- -------- ---------
Land....................................... $ 4,686 $ 4,723
Land improvements.......................... 15 years 3,753 3,461
Buildings.................................. 40 years 30,919 23,836
Development costs.......................... 11,081 10,027
------- -------
50,439 42,047
Accumulated depreciation................... (9,218) (8,281)
------- -------
$41,221 $33,766
======= =======
Griffin capitalized interest in fiscal 2000, fiscal 1999 and fiscal 1998 of
$91, $103 and $111, respectively. Total depreciation expense related to real
estate held for sale or lease in fiscal 2000, fiscal 1999 and fiscal 1998 was
$937, $869 and $739, respectively.
34
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
DEC. 2, NOV. 27,
2000 1999
-------- ---------
Trade payables.............................................. $3,463 $2,741
Accrued salaries, wages and other compensation.............. 1,672 1,381
Other accrued liabilities................................... 3,206 1,290
------ ------
$8,341 $5,412
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Griffin incurred capital lease obligations in fiscal 2000, fiscal 1999 and
fiscal 1998 of $576, $239 and $238, respectively.
In fiscal 2000 and fiscal 1998, Griffin made income tax payments of $141 and
$132, respectively. In fiscal 1999 Griffin received an income tax refund, net of
income tax payments, of $654. Interest payments, net of capitalized interest,
were $1,086, $626 and $152 in fiscal 2000, fiscal 1999 and fiscal 1998,
respectively.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The summarized quarterly financial data for fiscal 1999 and the first
quarter of fiscal 2000 presented below have been restated from amounts
originally filed in Reports on Form 10-Q as a result of changes to amounts
reported as equity income from Centaur. See Note 13.
2000 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- ------------- -------- -------- -------- -------- --------
Net sales and other revenue......... $5,462 $31,877 $16,767 $17,633 $71,739
Gross profit........................ 1,799 9,434 5,194 5,538 21,965
Net income (loss)................... (1,704) 3,217 528 (407) 1,634
Basic net income (loss) per share... (0.35) 0.66 0.11 (0.08) 0.34
Diluted net income (loss) per
share............................. (0.35) 0.65 0.10 (0.08) 0.33
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)................... (1,548) 2,879 229 616 2,176
Basic net income (loss) per share... (0.32) 0.59 0.05 0.13 0.45
Diluted net income (loss) per
share............................. (0.32) 0.58 0.05 0.11 0.42
12. COMMITMENTS AND CONTINGENCIES
Imperial has entered into contract growing agreements with suppliers of
field-grown plants. In accordance with these agreements, Imperial agreed to
purchase inventory as it becomes available with
35
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
an aggregate purchase price of approximately $4.0 million over the next three
years. As part of the sale of the SSCs by Imperial, these commitments to
purchase inventory were assumed by Shemin.
On October 25, 2000, Griffin received a commitment from a lender for a
nonrecourse mortgage of up to $6.4 million on a building currently under
construction. The mortgage is expected to close in the 2001 second quarter (see
Note 5).
Griffin 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 to financial position, results of operations or
cash flows.
13. RESTATEMENT
The consolidated financial statements of Griffin for the fiscal years ended
November 27, 1999 and November 28, 1998 have been restated to adjust the amounts
reported for equity income from Centaur. The restatement was required to adjust
the timing of subscription revenue of Centaur to comply with generally accepted
accounting principles in the United States of America. The restated amounts were
included in Griffin's Report on Form 10-K/A for the fiscal year ended
November 27, 1999 and in Griffin's Report on Form 10-K/A for the fiscal year
ended November 28, 1998. These reports were filed on October 4, 2000. The
following summarizes the changes to the originally reported financial
statements:
FOR THE FISCAL YEARS ENDED,
-----------------------------------------
NOVEMBER 27, 1999 NOVEMBER 28, 1998
------------------- -------------------
AS AS AS AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
Income before equity investments....................... $ 1,623 $ 1,623 $ 86 $ 86
Income (loss) from equity investments.................. 853 553 35 (151)
-------- -------- ----- ------
Net income (loss)...................................... $ 2,476 $ 2,176 $ 121 $ (65)
======== ======== ===== ======
Basic net income (loss) per share...................... $ 0.51 $ 0.45 $0.03 $(0.01)
======== ======== ===== ======
Diluted net income (loss) per share.................... $ 0.48 $ 0.42 $0.01 $(0.03)
======== ======== ===== ======
NOVEMBER 27, 1999
-------------------
AS AS
REPORTED RESTATED
-------- --------
Total assets........................................... $113,371 $112,885
======== ========
Stockholders' equity................................... $ 93,756 $ 93,270
======== ========
36
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 and stockholders' equity and of cash flows present fairly, after
the restatement referred to in Note 13, in all material respects, the financial
position of Griffin Land & Nurseries, Inc. and its subsidiaries at December 2,
2000 and November 27, 1999, and the results of their operations and their cash
flows for the years ended December 2, 2000, November 27, 1999 and November 28,
1998, in conformity with accounting principles generally accepted in the United
States of America. 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 1998 financial statements of Centaur Communications, Ltd., an
investment which is carried at equity in the consolidated financial statements
(see Notes 9 and 13) and represented approximately 15.2% 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 year ended November 28, 1998, is based on the report of the other
auditors. We conducted our audits of those consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America, 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 our
opinion.
As discussed in Note 9 to the consolidated financial statements, the
Company's equity results from Centaur Communications, Ltd. in fiscal 2000
reflect Centaur's results for the ten months ended September 30, 2000.
/s/ PRICEWATERHOUSECOOPERS LLP
February 27, 2001
Hartford, Connecticut
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 27, 2001 which appears above in this Form 10-K of Griffin
Land & Nurseries, Inc. for the fiscal year ended December 2, 2000. 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 December 2, 2000.
/s/ PRICEWATERHOUSECOOPERS LLP
February 27, 2001
Hartford, Connecticut
37
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.................. 83 Chairman of the Board and Director
Frederick M. Danziger............. 60 President, Chief Executive Officer
and Director
Anthony J. Galici................. 43 Vice President, Chief Financial
Officer and Secretary
John L. Ernst..................... 60 Director
Winston J. Churchill, Jr.......... 60 Director
Thomas C. Israel.................. 56 Director
David F. Stein.................... 60 Director
Martha Collier.................... 44 Senior Vice President of Marketing
and Leasing of the Griffin Land
Division
Gregory M. Schaan................. 43 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., since
December 1996. From 1962 to 1996 he served as Chief Executive Officer of Culbro.
Mr. Cullman served as a Director of Culbro from 1961 until 1997 and was Chairman
of Culbro from 1975 until 1997. He also is a Director of Centaur Communications,
Ltd., and Bloomingdale Properties, Inc. Mr. 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, Inc.,
The Technology Group Inc., and Centaur Communications, Ltd.
ANTHONY J. GALICI has been the Vice President, Chief Financial Officer and
Secretary of Griffin since April 1997. Mr. Galici was Vice President and
Assistant Controller of Culbro from January 1996 until March 1997. Prior to
January 1995, he was Assistant Controller of Culbro.
JOHN L. ERNST has been a Director of Griffin since April 1997 and was a
Director of GC Holdings, Inc. from December 1996 through May 2000. Mr. Ernst
also was a Director of Culbro from 1983 until 1997. He is the Chairman of the
Board and President of Bloomingdale Properties, Inc., 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 Amkor Technology, Inc. and
Freedom Securities Corporation. He is a general partner of SCP Private Equities
Management, Inc., and is Chairman of Churchill Investment Partners, Inc. and CIP
Capital Management, Inc.
38
THOMAS C. ISRAEL has been a Director of Griffin since July 2000. Mr. Israel
is Chairman of A.C. Israel Enterprises, Inc., an investment company, as well as
a Director of Glenayre Technologies, Inc.
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
2000, 1999 and 1998 to the Named Executive Officers.
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........................ 2000 $386,538 $111,000 $12,138 --
President and Chief Executive Officer 1999 345,205 93,650 3,178 150,000
1998 300,000 -- 5,112 --
Anthony J. Galici............................ 2000 $180,577 $ 48,000 $ 5,923 10,000
Vice President, Chief Financial Officer 1999 171,726 33,800 4,117 15,000
and Secretary 1998 162,558 3,000 60,511(2) --
- ------------------------
(1) Amounts shown under Other Annual Compensation include matching contributions
made by Griffin under its 401(k) Savings Plan and its Deferred Compensation
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 2000, 1999 and 1998.
(2) Includes $56,097 for reimbursement of relocation costs.
39
There were no stock options exercised by the Named Executive Officers in
2000, 1999 and 1998. The following table presents the value of unexercised
options held by the Named Executive Officers at December 2, 2000.
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.......................... 50,000 250,000 $ -- $ --
Anthony J. Galici.............................. 12,640 35,001 84,958 20,310
- ------------------------
(1) The amounts presented in this column have been calculated based upon the
difference between the fair market value of $13.25 per share (the average of
the high and low prices of Griffin's Common Stock on December 1, 2000) 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 prior to
November 20, 2000 and $750 for each Board and Committee meeting attended
subsequent to November 20, 2000. Effective January 1, 2001, members of the Board
of Directors who are not employees of Griffin will receive $15,000 per year. 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 2000, Griffin granted Mr. Churchill and Mr. Stein each
options exercisable for 2,000 shares of Common Stock and granted Mr. Israel
options exercisable for 3,000 shares of Common Stock, and expects to grant
additional options to Messrs. Churchill, Israel and Stein in 2001 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 2000, 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.
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
40
officers of Griffin, collectively. Unless otherwise indicated, information is
provided as of December 2, 2000.
NAME AND ADDRESS(1) SHARES BENEFICIALLY OWNED(2) PERCENT OF TOTAL
- ------------------- ---------------------------- ----------------
Edgar M. Cullman(3).................... 977,342 19.2
Edgar M. Cullman, Jr.(3)............... 963,038 19.0
Louise B. Cullman(3)................... 847,175 16.7
Susan R. Cullman(3).................... 758,607 14.9
Frederick M. Danziger(3)............... 276,320 5.4
Lucy C. Danziger(3).................... 1,043,992 20.6
John L. Ernst(3)....................... 421,250 8.3
Winston J. Churchill, Jr............... 45,000 *
Thomas C. Israel....................... 15,000 *
David F. Stein......................... 40,000 *
Anthony J. Galici...................... 13,913 *
B. Bros. Realty Limited
Partnership(4)....................... 233,792 4.6
Gabelli Funds, Inc.(5)................. 1,399,255 27.6
All directors and officers
collectively,
consisting of 7 persons(6)........... 1,500,231 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 and
Officers 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 December 2, 2000, 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, Edgar M. Cullman, Edgar
M. Cullman, Jr., 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. Cullman and Lucy C. Danziger are the daughters of Edgar M. Cullman and
Louise B. Cullman; and Lucy C. Danziger is the wife of Frederick M.
Danziger.
41
(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, Inc. ("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 General
Cigar Holdings, Inc. ("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 Common Stock of GC
Holdings. Prior to the distribution of the common stock of Griffin to Culbro
stockholders in 1997 (the "Distribution"), 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 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
42
annually upon one year's prior notice. In fiscal 2000, fiscal 1999 and fiscal
1998, General Cigar made rental payments of $148,000, $108,000 and $80,000,
respectively, to Griffin with respect to the Agricultural Lease.
Also 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 2000,
fiscal 1999 and fiscal 1998, Griffin paid $141,000, $150,000 and $400,000,
respectively, to GC Holdings 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. In fiscal 2000,
fiscal 1999 and fiscal 1998 General Cigar made rental payments to Griffin of
$511,000, $464,000 and $437,000, respectively, under the Commercial Lease.
Management believes the rent payable by General Cigar to Griffin under the
Commercial Lease is at market rates.
43
PART IV
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
(a) (1) Financial Statements--see also Item 8
(2) Financial Statement Schedules and Financial Statements of Equity
Investee
The following financial statements of Griffin's equity investee and
additional financial data should be read in conjunction with the financial
statements in such 2000 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.
SCHEDULES
- ---------
II -- Valuation and Qualifying Accounts....................... S-1
III -- Real Estate and Accumulated Depreciation................ S-2/S-3
FINANCIAL STATEMENTS
- -----------------------------------------------------------------
Centaur Communications, Ltd. financial statements for the year
ended June 30, 2000.............................................. F-1
(b) On October 30, 2000 Griffin filed a Form 8-K dated October 25, 2000 to
report the signing of a letter of intent to sell the sales and service
centers of Imperial.
(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)
2.2 Asset Purchase Agreement among Shemin Nurseries, Inc.,
Shemin Acquisition Corporation and Imperial Nurseries, Inc.
dated January 5, 2001 (incorporated by reference to the
Form 8-K of Griffin Land & Nurseries, Inc. dated
January 26, 2001 filed February 12, 2001)
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, as amended)
10.33 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
44
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
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 (incorported 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, 1991)
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 10-Q dated May 30, 1998
filed July 10, 1998)
10.17 Loan Agreement dated June 24, 1999 (incorporated by
reference to Form 10-Q dated August 28, 1999 filed
October 8, 1999)
10.18 Revolving Credit Agreement dated August 3, 1999
(incorporated by reference to Form 10-Q 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 10-K)
23.2 Report of Independent Accountants on Financial Statement
Schedules
27 Financial Data Schedule
45
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 March 2, 2001.
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/ THOMAS C. ISRAEL
------------------------------------------- Director
Thomas C. Israel
/s/ DAVID F. STEIN
------------------------------------------- Director
David F. Stein
46
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 DECEMBER 2, 2000
Allowances:
Uncollectible accounts--trade............ $ 564 72 14 70(1) $ 580
------ --- ---------- ----- ------
Inventories.............................. $ 601 227 -- 693(2) $ 135
====== === ========== ===== ======
FOR FISCAL YEAR ENDED NOVEMBER 27, 1999
Allowances:
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
Allowances:
Uncollectible accounts--trade............ $ 456 111 4 81(1) $ 490
------ --- ---------- ----- ------
Inventories.............................. $3,519 -- -- 697(2) $2,822
====== === ========== ===== ======
- ------------------------
Notes:
(1) Accounts receivable written off.
(2) Inventories disposed.
S-1
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
COST CAPITALIZED
INITIAL COST SUBSEQUENT
------------------------- TO ACQUISITION
DESCRIPTION ENCUMBRANCES LAND BLDG. & IMPROVE. IMPROVEMENTS
- ----------- ------------ ------ ----------------- ----------------
Land............................ $ -- $4,495 $ -- $ 8,946
Restaurant
Bloomfield, CT................ -- -- -- 1,383
Residential Development
Windsor, CT................... -- 73 -- 3,203
Office Building
Bloomfield, CT................ 487 47 -- 3,084
Office Building
Bloomfield, CT................ -- 3 -- 1,838
Office Building
Bloomfield, CT................ -- 1 -- 1,792
Office Building
Bloomfield, CT................ -- 1 -- 1,514
Office Building
Bloomfield, CT................ -- -- -- 671
Office Buildings
Bloomfield, CT................ -- 5 -- 3,441
Industrial Buildings
East Granby, CT............... 8,103 29 -- 3,847
Industrial Building
East Granby, CT............... (a) 13 1,722 232
Industrial Building
Windsor, CT................... (a) 9 -- 3,923
Industrial Building
Windsor, CT................... -- 10 -- 3,585
Construction in Progress........ -- -- -- 6,572
------ ------ ------ -------
$8,590 $4,686 $1,722 $44,031
====== ====== ====== =======
GROSS AMOUNT
AT DECEMBER 2, 2000
---------------------------------- DATE OF DATE OF
DESCRIPTION LAND BLDG. & IMPROVE. TOTAL ACCUM. DEP. CONSTRUCTION ACQUISITION DEPR. LIFE
- ----------- ------ ----------------- ------- ----------- ------------ ----------- ----------
Land............................ $4,495 $ 8,946 $13,441 $ (632)
Restaurant
Bloomfield, CT................ -- 1,383 1,383 (704) 1983 40 yrs.
Residential Development
Windsor, CT................... 73 3,203 $ 3,276 --
Office Building
Bloomfield, CT................ 47 3,084 3,131 (1,606) 1977 40 yrs.
Office Building
Bloomfield, CT................ 3 1,838 1,841 (755) 1985 40 yrs.
Office Building
Bloomfield, CT................ 1 1,792 1,793 (534) 1988 40 yrs.
Office Building
Bloomfield, CT................ 1 1,514 1,515 (519) 1989 40 yrs.
Office Building
Bloomfield, CT................ -- 671 671 (242) 1988 40 yrs.
Office Buildings
Bloomfield, CT................ 5 3,441 3,446 (833) 1991 40 yrs.
Industrial Buildings
East Granby, CT............... 29 3,847 3,876 (2,183) 1978 40 yrs.
Industrial Building
East Granby, CT............... 13 1,954 1,967 (806) 1989 40 yrs.
Industrial Building
Windsor, CT................... 9 3,923 3,932 (257) 1998 40 yrs.
Industrial Building
Windsor, CT................... 10 3,585 3,595 (147) 1999 40 yrs.
Construction in Progress........ -- 6,572 6,572 --
------ ------- ------- -------
$4,686 $45,753 $50,439 $(9,218)
====== ======= ======= =======
- ------------------------------
(a) Properties are included in mortgage of $8,103 shown above.
S-2
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 2, 2000
COST RESERVE
-------- --------
Balance at beginning of year................................ $42,047 $(8,281)
Changes during the year:
Improvements................................................ 9,108 --
Additions to reserve charged to costs and expense........... -- (937)
Cost of sales............................................... (716) --
------- -------
Balance at end of year...................................... $50,439 $(9,218)
======= =======
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
-------- --------
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)
======= =======
S-3
CENTAUR COMMUNICATIONS
LIMITED
(REGISTERED NUMBER 1595235)
ANNUAL REPORT
FOR THE YEAR ENDED 30 JUNE 2000
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF CENTAUR COMMUNICATIONS LIMITED
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in financial position (cash flows)
and of changes in capital stock, reserves not available for distribution and
unappropriated earnings (shareholders' equity) present fairly, in all material
respects, the financial position of Centaur Communications Limited and its
subsidiaries at 30 June 2000 and 1999, and the results of their operations and
their cash flows for each of the years ended 30 June 2000 and 1999, in
conformity with accounting principles generally accepted in the United
Kingdom. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these 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 provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in sterling for each of the years ended 30
June 2000 and 1999 and the determination of consolidated stockholders' equity
and consolidated financial position also expressed in sterling at 30 June 2000
and 1999 to the extent summarised in note 26 to the consolidated financial
statements.
PRICEWATERHOUSECOOPERS
Chartered Accountants and Registered Auditors
London
1 February 2001,
except for the information
presented in note 26 for
which the date is 27 February 2001
F-2
CENTAUR COMMUNICATIONS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR
ENDED 30 JUNE 2000
ESTABLISHED NEW 2000 1999
NOTE ACTIVITIES PRODUCTS TOTAL (RESTATED)
-------------------------------------
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
TURNOVER 2 58,196 9,900 68,096 51,442
Cost of sales (30,544) (9,679) (40,223) (30,767)
-----------------------------------------------------------------------------------
Gross profit 27,652 221 27,873 20,675
Distribution costs (3,406) (1,164) (4,570) (3,406)
Administrative expenses (13,589) (4,393) (17,982) (13,460)
- ------------------------------------------------------------------------------------
Adjusted EBITDA 2 13,545 (4,153) 9,392 6,456
Depreciation of tangible (2,137) (654) (2,791) (1,861)
fixed assets
Amortisation of goodwill (300) (529) (829) (441)
Costs of long term executive
incentive schemes (451) - (451) (345)
- ------------------------------------------------------------------------------------
OPERATING PROFIT/(LOSS) 10,657 (5,336) 5,321 3,809
Profit on sale of 10 629 -
investment
Interest receivable and 5 93 149
similar income
Interest payable and 6 (2,109) (1,308)
similar charges
-----------------------------------------------------------------------------------
PROFIT ON ORDINARY
ACTIVITIES BEFORE TAXATION 3 3,934 2,650
Tax on profit on ordinary 7 (1,363) (1,206)
activities
-----------------------------------------------------------------------------------
PROFIT ON ORDINARY
ACTIVITIES AFTER TAXATION 2,571 1,444
-----------------------------------------------------------------------------------
Equity minority interests (120) (87)
-----------------------------------------------------------------------------------
RETAINED PROFIT FOR THE 18 2,451 1,357
FINANCIAL YEAR
===================================================================================
All turnover and profit arises from continuing operations.
Adjusted EBITDA is calculated as operating profit excluding depreciation,
amortisation and the effects of long term executive incentive schemes.
A product is regarded as new until the earlier of 3 years from date of launch or
acquisition and the end of a 3-month consecutive period of positive adjusted
EBITDA (as defined above) for that product.
The accounting policies on pages 12 and 13 and notes on pages 14 to 31 form an
integral part of these financial statements
F-3
CENTAUR COMMUNICATIONS LIMITED
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2000
1999
NOTE 2000 (RESTATED)
------------------------ ------------------------
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
FIXED ASSETS
Intangible fixed assets 8 12,744 13,505
Tangible fixed assets 9 6,728 6,707
Investments 10 359 404
- ----------------------------------------------------------------------------------
19,831 20,616
CURRENT ASSETS
Stocks 11 463 479
Debtors 12 20,436 15,504
Cash at bank and in hand 1,136 734
- ----------------------------------------------------------------------------------
22,035 16,717
CREDITORS: AMOUNTS
FALLING DUE WITHIN ONE
YEAR 13 (21,542) (18,465)
- ----------------------------------------------------------------------------------
NET CURRENT
ASSETS/(LIABILITIES) 493 (1,748)
- ----------------------------------------------------------------------------------
TOTAL ASSETS LESS
CURRENT LIABILITIES 20,324 18,868
CREDITORS: AMOUNTS
FALLING DUE AFTER MORE
THAN ONE YEAR 14 (21,532) (22,939)
PROVISIONS FOR
LIABILITIES AND CHARGES 16 (1,420) (1,070)
- ----------------------------------------------------------------------------------
(2,628) (5,141)
==================================================================================
CAPITAL AND RESERVES
Called up share capital 17 1,532 1,531
Share premium account 17 13,378 13,364
Capital redemption reserve 17 483 483
Profit and loss account 18 (18,155) (20,606)
- ----------------------------------------------------------------------------------
Equity shareholders' funds (2,762) (5,228)
Equity minority interests 134 87
- ----------------------------------------------------------------------------------
(2,628) (5,141)
==================================================================================
The financial statements were approved by the Board of Directors on 1 February
2001, except for the information presented in note 26 which was approved on
27 February 2001, and were signed on its behalf by:
GTD Wilmot
DIRECTOR
The accounting policies on pages 12 and 13 and notes on pages 14 to 31 form an
integral part of these financial statements.
F-4
CENTAUR COMMUNICATIONS LIMITED
COMPANY BALANCE SHEET AT 30 JUNE 2000
1999
NOTE 2000 (RESTATED)
------------------------ ------------------------
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
FIXED ASSETS
Intangible assets 8 521 577
Tangible assets 9 65 77
Investments 10 4,291 4,336
- ----------------------------------------------------------------------------------
4,877 4,990
CURRENT ASSETS
Debtors 12 59,049 58,079
Cash at bank and in hand 200 923
- ----------------------------------------------------------------------------------
59,249 59,002
CREDITORS: AMOUNTS
FALLING DUE WITHIN ONE
YEAR 13 (17,702) (17,112)
- ----------------------------------------------------------------------------------
NET CURRENT ASSETS 41,547 41,890
- ----------------------------------------------------------------------------------
TOTAL ASSETS LESS
CURRENT LIABILITIES 46,424 46,880
CREDITORS: AMOUNTS
FALLING DUE AFTER MORE
THAN ONE YEAR 14 (21,532) (22,939)
PROVISIONS FOR
LIABILITIES AND CHARGES 16 (1,254) (1,255)
- ----------------------------------------------------------------------------------
23,638 22,686
==================================================================================
CAPITAL AND RESERVES
Called up share capital 17 1,532 1,531
Share premium account 17 13,378 13,364
Capital redemption reserve 17 483 483
Profit and loss account 18 8,245 7,308
- ----------------------------------------------------------------------------------
EQUITY SHAREHOLDERS' FUNDS 23,638 22,686
==================================================================================
The financial statements were approved by the Board of Directors on 1 February
2001, except for the information presented in note 26 which was approved on
27 February 2001, and were signed on its behalf by:
GTD Wilmot
DIRECTOR
The accounting policies on pages 12 and 13 and notes on pages 14 to 31 form an
integral part of these financial statements.
F-5
CENTAUR COMMUNICATIONS LIMITED
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2000
1999
NOTE 2000 (RESTATED)
(POUND)'000 (POUND)'000
NET CASH INFLOW FROM OPERATING 23 7,511 5,247
ACTIVITIES
- ----------------------------------------------------------------------------------
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 93 149
Interest paid (2,150) (1,308)
Dividends paid to minority interests (73) -
- ----------------------------------------------------------------------------------
Net cash outflow from returns on
investments and servicing of finance (2,130) (1,159)
TAXATION (2,020) (2,628)
- ----------------------------------------------------------------------------------
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Purchase of intangible fixed assets (86) (83)
Purchase of tangible fixed assets (2,854) (3,243)
Sale of tangible fixed assets 92 78
Sale of trade investments 674 -
- ----------------------------------------------------------------------------------
Net cash outflow for capital
expenditure and financial investment (2,174) (3,248)
ACQUISITIONS AND DISPOSALS
Purchase of/increase in interests in
subsidiary undertakings (net of
cash/including overdrafts acquired) - (113)
Purchase of unincorporated businesses - (9,414)
- ----------------------------------------------------------------------------------
Net cash outflow for acquisitions
and disposals - (9,527)
- ----------------------------------------------------------------------------------
Net cash inflow/(outflow) before financing 1,187 (11,315)
FINANCING
Issue of ordinary share capital 15 93
Proceeds from bank and other borrowings 1,500 24,500
Issue costs of bank and other borrowings - (300)
Repayment of bank and other borrowings (2,300) -
Purchase of own shares - (17,381)
- ----------------------------------------------------------------------------------
Net cash (outflow)/inflow from financing (785) 6,912
- ----------------------------------------------------------------------------------
Increase/(decrease) in cash 24,25 402 (4,403)
==================================================================================
The accounting policies on pages 12 and 13 and notes on pages 14 to 31 form an
integral part of these financial statements.
F-6
STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
Profit for the financial year 2,451 1,357
- ----------------------------------------------------------------------------------
Total recognised gains relating to the
financial year 2,451 1,357
----------
Prior year adjustments (note 1) (2,599)
- ------------------------------------------------------------
Total losses recognised since last financial
statements (148)
- ------------------------------------------------------------
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
Total recognised gains relating to the
financial year 2,451 1,357
Repurchase of own shares - (17,381)
New share capital issued 15 93
Remuneration element of share options (note 1) - 130
- ----------------------------------------------------------------------------------
Net increase/(decrease) in shareholders' funds 2,466 (15,801)
Opening shareholders' funds (originally
(pound)12,135,000 at 1 July 1998 and
(pound)(2,629,000) at 1 July 1999 before
deducting prior year adjustments of
(pound)1,562,000 and(pound)2,599,000
respectively as explained in note 1) (5,228) 10,573
- ----------------------------------------------------------------------------------
Closing shareholders' funds (2,762) (5,228)
- ----------------------------------------------------------------------------------
The accounting policies on pages 12 and 13 and notes on pages 14 to 31 form an
integral part of these financial statements.
F-7
CENTAUR COMMUNICATIONS LIMITED
PRINCIPAL ACCOUNTING POLICIES
a) BASIS OF PREPARATION
The financial statements have been prepared under the historical cost
convention in accordance with applicable accounting standards in the
United Kingdom. Certain accounting policies have been changed during the
year. More information is given in note 1.
b) BASIS OF CONSOLIDATION
The financial statements incorporate that of the Company and of its
subsidiary undertakings, and have been consolidated using the acquisition
method of accounting. Profits or losses on intra-Group transactions are
eliminated in full. The results of subsidiaries or unincorporated
businesses acquired or disposed of are included from the date of
acquisition or up to the date of disposal.
c) TURNOVER
Turnover represents sales of advertising space, subscriptions and
individual publications and revenue from exhibitions and conferences,
exclusive of value added tax.
Sales of advertising space are recognised in the period in which
publication occurs. Sales of publications are recognised in the period in
which the sale is made. Revenue received in advance for exhibitions and
conferences is deferred and recognised in the period in which the event
takes place.
Subscription revenue is deferred and recognised in the profit and loss
account on a straight-line basis over the subscription period.
d) INVESTMENTS
Investments are recorded at cost less provisions for impairment in value.
e) GOODWILL
Goodwill purchased or arising on consolidation has been capitalised and is
amortised over its estimated useful economic life of 20 years, which is
the period over which the directors estimate that the values of the
underlying businesses acquired are expected to exceed the value of the
underlying assets.
f) TANGIBLE FIXED ASSETS
Tangible fixed assets are stated at cost less accumulated depreciation.
Depreciation of tangible assets is provided on a straight-line basis over
the following estimated useful lives of the assets:
Leasehold improvements - 20 years or the length of the lease if shorter
Fixtures and fittings - 10 years
Computer equipment - 3 - 5 years (except costs of developing
computer databases - 10 years)
Motor vehicles - 4 years
F-8
CENTAUR COMMUNICATIONS LIMITED
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
g) TAXATION INCLUDING DEFERRED TAX
Deferred taxation is calculated using the liability method. Taxation
deferred or accelerated by reason of short-term or other timing
differences is accounted for to the extent that it is probable that a
liability or asset will crystallise in the future.
h) STOCKS
Stocks are stated at the lower of cost and net realisable value. For raw
materials cost is the purchase price. Work in progress comprises costs
incurred relating to publications, exhibitions and conferences prior to
the publication date or the date of the event. For goods for resale cost
is the purchase price, or, in the case of publications, the direct cost of
production.
i) OPERATING LEASES
Rentals payable under operating leases are charged to the profit and loss
account on a straight-line basis over the term of the lease.
j) PENSIONS
Pension costs charged to the profit and loss account represent the amount
of contributions payable to the Company's defined contribution scheme in
respect of the accounting period.
F-9
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 CHANGES IN ACCOUNTING POLICY AND IN PRESENTATION
a) Comparative figures have been restated as a result of the following
changes in accounting policy:
i) Subscription revenue
Revenue received in advance from subscriptions to publications and
on-line services is deferred and recognised in the profit and loss
account on a straight-line basis over the subscription period.
Previously, a proportion of the revenue was taken directly to the
profit and loss account on receipt, with the balance being deferred
and recognised on a straight-line basis over the subscription
period. The new policy was adopted to recognise current trends in UK
accounting and industry practice.
ii) Long term executive incentive schemes
Provision is made for amounts that are likely to become payable
under certain profit-related executive incentive schemes, on the
basis of measured performance to date and forecast future
performance. Previously no provision was made.
iii) Property lease incentives
The financial benefit of property lease incentives, such as
rent-free periods and contributions towards relocation and
fitting-out expenses, is deferred and recognised in the profit and
loss account on a straight line basis over the period to the date of
the first rent review. Previously, the financial benefit of certain
incentives was recognised at the inception of the lease.
iv) Remuneration element of share options
In accordance with Urgent Issues Task Force ("UITF") Abstract 17
"Employee share schemes", the fair value of share options at the
date of grant, less any consideration to be received from the
employee, is charged to the profit and loss account over the
performance period to which the grant relates. An equal amount is
credited directly to reserves in the same period. Previously no
charge was made.
IMPACT ON THE YEAR ENDED 30 JUNE 1999
The impact of the above changes in accounting policy on the comparative figures
for the year ended 30 June 1999 is shown below:
----------------------------------------
PROFIT AND PROFIT
LOSS RESERVES OPERATING AFTER
AT 1 JULY 1998 PROFIT TAXATION
(POUND)'000 (POUND)'000 (POUND)'000
As previously reported (3,150) 5,417 2,611
--------------------------------------------------------------------------
Subscription revenue (1,562) (780) (548)
Long term executive incentive schemes - (345) (242)
Property lease incentives - (353) (247)
Remuneration element of share options - (130) (130)
--------------------------------------------------------------------------
Total impact of changes in
accounting policy (1,562) (1,608) (1,167)
--------------------------------------------------------------------------
AS RESTATED (4,712) 3,809 1,444
--------------------------------------------------------------------------
F-10
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1 CHANGES IN ACCOUNTING POLICY AND IN PRESENTATION (CONTINUED)
IMPACT ON THE YEAR ENDED 30 JUNE 2000
The profit on ordinary activities after taxation for the year ended 30
June 2000 has been reduced by (pound)1,306,000 and (pound)316,000
respectively following the changes in policy for subscription revenue and
long term executive incentive schemes, and increased by (pound)50,000
following the change in policy for property lease incentives. There has
been no impact arising from the change in respect of share option schemes.
b) The following changes have been made to comparative figures in order to
give a fairer presentation of the financial statements.
i) Computer databases with a net book amount at 30 June 1999 of
(pound)569,000 have been classified as tangible fixed assets within
computer equipment. Previously they were reported within intangible
assets.
ii) Issue costs of(pound)300,000 associated with the term loan
of(pound)13,000,000 have been deducted from the principal amount of
the loan, reported within bank and other borrowings. Previously the
issue costs were reported within prepayments and accrued income. The
issue costs are being amortised and charged to the profit and loss
account at a constant rate on the carrying amount of the debt.
iii) A reduction of (pound)443,000 has been made to intangible fixed
assets cost and accumulated amortisation at 1 July 1999 to eliminate
various assets that were fully written down at that date and no
longer in use.
iv) Certain other items in the Company balance sheet within investments,
debtors, accruals and deferred income, and provisions for
liabilities and charges have been reclassified.
F-11
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
2 SEGMENTAL REPORTING
The Group is involved in the single activity of the creation and
dissemination of business and professional information. There is therefore
no segmental reporting required. However, set out below are analyses of
turnover and adjusted EBITDA of the Group by the communities it serves, by
source of revenue, and by established activities and new products.
ANALYSIS BY COMMUNITY
TURNOVER ADJUSTED EBITDA
------------------------ -------------------------
1999 1999
2000 (RESTATED) 2000 (RESTATED)
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Marketing, creative and
new media 28,288 22,677 8,620 5,899
Legal and financial 21,869 16,679 2,575 1,002
Engineering and construction 12,094 6,753 (2,294) (75)
Other 5,845 5,333 491 (370)
- ---------------------------------------------------------------------------
68,096 51,442 9,392 6,456
- ---------------------------------------------------------------------------
ANALYSIS BY SOURCE OF REVENUE
TURNOVER ADJUSTED EBITDA
------------------------ -------------------------
1999 1999
2000 (RESTATED) 2000 (RESTATED)
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Printed products 51,728 39,810 10,606 6,973
Electronic products 5,877 3,612 (2,812) (1,517)
Exhibitions and conferences 9,645 7,256 1,235 913
Other 846 764 363 87
- ---------------------------------------------------------------------------
68,096 51,442 9,392 6,456
- ---------------------------------------------------------------------------
ANALYSIS BY ESTABLISHED ACTIVITIES AND NEW PRODUCTS
TURNOVER ADJUSTED EBITDA
------------------------ -------------------------
1999 1999
2000 (RESTATED) 2000 (RESTATED)
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Established activities 58,196 47,405 13,545 7,545
New products 9,900 4,037 (4,153) (1,089)
- ---------------------------------------------------------------------------
68,096 51,442 9,392 6,456
- ---------------------------------------------------------------------------
A product is regarded as new until the earlier of 3 years from date of launch or
acquisition and the end of a 3-month consecutive period of positive adjusted
EBITDA for that product.
Substantially all net assets are located and all turnover and adjusted EBITDA
are generated in the United Kingdom.
F-12
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit on ordinary activities before taxation is stated after
charging/(crediting):
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
Staff costs (note 4) 22,889 18,004
Leasehold property rentals 2,058 1,093
Hire of equipment 114 134
Depreciation of tangible fixed assets 2,791 1,861
Amortisation of goodwill 829 441
Auditors' remuneration:
- audit services 89 53
- non-audit services 41 74
Loss/(profit) on disposal of tangible fixed
assets 1 (35)
- ---------------------------------------------------------------------------
4 EMPLOYEES AND DIRECTORS
STAFF COSTS
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
Wages and salaries 20,354 15,710
Social security costs 1,840 1,546
Other pension costs 244 273
Amounts payable under executive incentives
schemes (note 1) 451 345
Remuneration element of share options (note 1) - 130
- ---------------------------------------------------------------------------
22,889 18,004
- ---------------------------------------------------------------------------
The average monthly number of persons employed during the year, including
executive directors, was 750 (1999: 652).
DIRECTORS' EMOLUMENTS
2000 1999
(POUND)'000 (POUND)'000
Aggregate emoluments 560 649
Pension contributions to money purchase schemes 64 55
- ---------------------------------------------------------------------------
624 704
- ---------------------------------------------------------------------------
During the year 2 directors (1999: 3 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 are disclosed in the
directors' report.
F-13
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4 EMPLOYEES AND DIRECTORS (CONTINUED)
HIGHEST PAID DIRECTOR
2000 1999
(POUND)'000 (POUND)'000
Aggregate emoluments 300 326
Pension contributions to money purchase scheme 42 39
- ---------------------------------------------------------------------------
342 365
- ---------------------------------------------------------------------------
5 INTEREST RECEIVABLE AND SIMILAR INCOME
2000 1999
(POUND)'000 (POUND)'000
Interest on bank deposits 93 139
Other interest receivable - 10
- ---------------------------------------------------------------------------
93 149
- ---------------------------------------------------------------------------
6 INTEREST PAYABLE AND SIMILAR CHARGES
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
Interest on bank loans and overdrafts 2,066 1,269
Amortisation of borrowings issue costs (note 15) 43 39
- ---------------------------------------------------------------------------
2,109 1,308
- ---------------------------------------------------------------------------
F-14
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
7 TAX ON PROFIT ON ORDINARY ACTIVITIES
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
UK corporation tax at 30% (1999: 31%):
- current year 1,464 1,211
- adjustments in respect of prior years - (102)
Deferred taxation:
- current year (101) (20)
- adjustments in respect of prior years - 117
- ---------------------------------------------------------------------------
1,363 1,206
- ---------------------------------------------------------------------------
The effective rate of taxation in 2000 is affected by the non-allowance of
amortisation, the profit on disposal of a trade investment, and other minor
permanent differences. The 1999 effective rate is affected by the non-allowance
of amortisation.
8 INTANGIBLE FIXED ASSETS
GOODWILL
-------------------------
GROUP COMPANY
(POUND)'000 (POUND)'000
COST
At 1 July 1999 - as previously reported 17,673 1,202
Prior year adjustment - reclassification (note 1) (659) -
Prior year adjustment - elimination (note 1) (443) -
- ---------------------------------------------------------------------------
At 1 July 1999 - as restated 16,571 1,202
Additions 68 -
- ---------------------------------------------------------------------------
At 30 June 2000 16,639 1,202
===========================================================================
AMORTISATION
At 1 July 1999 - as previously reported 3,599 625
Prior year adjustment - reclassification (note 1) (90) -
Prior year adjustment - elimination (note 1) (443) -
- ---------------------------------------------------------------------------
At 1 July 1999 - as restated 3,066 625
Charge for the year 829 56
- ---------------------------------------------------------------------------
At 30 June 2000 3,895 681
- ---------------------------------------------------------------------------
NET BOOK AMOUNT
AT 30 JUNE 2000 12,744 521
===========================================================================
At 30 June 1999 - as restated 13,505 577
===========================================================================
F-15
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
9 TANGIBLE FIXED ASSETS
FIXTURES
LEASEHOLD AND COMPUTER MOTOR
IMPROVEMENTS FITTINGS EQUIPMENT VEHICLES TOTAL
GROUP (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
COST
At 1 July 1999 - as
previously reported 659 2,590 9,376 780 13,405
Prior year adjustment -
reclassification (note 1) - - 659 - 659
------------------------------------------------------------------------------------------
At 1 July 1999 - as
restated 659 2,590 10,035 780 14,064
Additions 230 442 2,101 132 2,905
Disposals (220) (860) (2,409) (264) (3,753)
------------------------------------------------------------------------------------------
At 30 June 2000 669 2,172 9,727 648 13,216
------------------------------------------------------------------------------------------
DEPRECIATION
At 1 July 1999 359 1,537 4,953 418 7,267
Prior year adjustment -
reclassification (note 1) - - 90 - 90
------------------------------------------------------------------------------------------
At 1 July 1999 - as
restated 359 1,537 5,043 418 7,357
Charge for the year 55 287 2,311 138 2,791
Disposals (193) (860) (2,409) (198) (3,660)
------------------------------------------------------------------------------------------
At 30 June 2000 221 964 4,945 358 6,488
------------------------------------------------------------------------------------------
NET BOOK AMOUNT
AT 30 JUNE 2000 448 1,208 4,782 290 6,728
==========================================================================================
At 30 June 1999 -
as restated 300 1,053 4,992 362 6,707
==========================================================================================
COMPANY
COST
At 1 July 1999 and
30 June 2000 193 314 12 18 537
------------------------------------------------------------------------------------------
DEPRECIATION
At 1 July 1999 122 308 12 18 460
Charge for the year 10 2 - - 12
------------------------------------------------------------------------------------------
At 30 June 2000 132 310 12 18 472
------------------------------------------------------------------------------------------
NET BOOK AMOUNT
AT 30 JUNE 2000 61 4 - - 65
==========================================================================================
At 30 June 1999 71 6 - - 77
==========================================================================================
F-16
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10 INVESTMENTS
INVESTMENTS
IN SUBSIDIARY UNLISTED TRADE
UNDERTAKINGS INVESTMENTS TOTAL
(POUND)'000 (POUND)'000 (POUND)'000
GROUP
COST AND NET BOOK AMOUNT
At 1 July 1999 - 404 404
Additions - - -
Disposals - (45) (45)
--------------------------------------------------------------------------------
AT 30 JUNE 2000 - 359 359
--------------------------------------------------------------------------------
COMPANY
COST
At 1 July 1999 - as previously 7,233 180 7,413
reported
Prior year adjustment - 53 - 53
reclassification (note 1)
--------------------------------------------------------------------------------
At 1 July 1999 - as restated 7,286 180 7,466
Disposals - (45) (45)
--------------------------------------------------------------------------------
At 30 June 2000 7,286 135 7,421
--------------------------------------------------------------------------------
PROVISIONS
At 1 July 1999 and 30 June 2000 (3,130) - (3,130)
--------------------------------------------------------------------------------
NET BOOK AMOUNT
AT 30 JUNE 2000 4,156 135 4,291
--------------------------------------------------------------------------------
At 30 June 1999 - as restated 4,156 180 4,336
--------------------------------------------------------------------------------
In the opinion of the Directors, the value of the Group's investments is not
less than their carrying amount.
During the year, the Company disposed of a trade investment for proceeds of
(pound)674,000 and realised a profit of (pound)629,000.
F-17
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
10 INVESTMENTS (CONTINUED)
PRINCIPAL SUBSIDIARY UNDERTAKINGS AT 30 JUNE 2000
HOLDING OF ORDINARY SHARES
GROUP COMPANY
NAME % % PRINCIPAL ACTIVITY
Chiron Communications Limited 100 100 Magazine publishing
Hali Publications Limited 100 69.6 Magazine publishing
Ascent Publishing Limited 100 100 Magazine publishing
IFA Events Limited 51 51 Exhibitions
Your Business Magazine Limited 100 100 Holding company
Perfect Information Limited 99.78 99.78 Financial information
services
Consultancy Europe 100 100 Legal information
Associates Limited services
In addition to the holdings above, the Company holds 100% of the issue
preference share capital of Hali Publications Limited.
All the above subsidiary undertakings are incorporated in England and Wales. A
full list of subsidiary undertakings will be included with the Company's next
annual return.
11 STOCKS
2000 1999
----------------------- -----------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Raw materials 158 - 124 -
Work in progress 299 - 323 -
Goods for resale 6 - 32 -
- ---------------------------------------------------------------------------
463 - 479 -
- ---------------------------------------------------------------------------
F-18
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
12 DEBTORS
1999
2000 (RESTATED)
----------------------- -----------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Trade debtors 19,289 - 13,915 -
Amounts owed by Group
undertakings - 58,980 - 57,468
Other debtors 439 69 305 45
Prepayments and accrued
income 708 - 1,284 566
- ---------------------------------------------------------------------------
20,436 59,049 15,504 58,079
- ---------------------------------------------------------------------------
13 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
1999
2000 (RESTATED)
----------------------- -----------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Bank and other
borrowings (note 15) 1,950 1,950 1,300 1,300
Amounts owed to Group
undertakings - 15,360 - 15,360
Trade creditors 1,763 - 586 -
Corporation tax 343 8 899 20
Social security and
other taxes 2,710 - 111 15
Other creditors 170 76 577 20
Accruals and deferred
income 14,606 308 14,565 397
Deferred consideration
for acquisitions - - 427 -
- ---------------------------------------------------------------------------
21,542 17,702 18,465 17,112
- ---------------------------------------------------------------------------
14 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2000 1999
----------------------- -----------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Bank and other
borrowings (note 15) 21,532 21,532 22,939 22,939
- ---------------------------------------------------------------------------
F-19
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
15 BANK AND OTHER BORROWINGS
1999
2000 (RESTATED)
GROUP AND COMPANY (POUND)'000 (POUND)'000
Revolving credit facility 13,000 11,500
Term loan 10,700 13,000
Issue costs of term loan (300) (300)
--------------------------------------------------------------------------
23,400 24,200
Amortisation of issue costs 82 39
--------------------------------------------------------------------------
23,482 24,239
--------------------------------------------------------------------------
The principal amounts of these borrowings are repayable as follows:
Within 1 year:
Term loan 1,950 1,300
--------------------------------------------------------------------------
Between 1 and 2 years:
Term loan 1,950 1,950
--------------------------------------------------------------------------
Between 2 and 5 years:
Revolving credit facility 13,000 8,100
Term loan 6,800 7,150
--------------------------------------------------------------------------
19,800 15,250
--------------------------------------------------------------------------
After more than 5 years:
Revolving credit facility - 3,400
Term loan - 2,600
--------------------------------------------------------------------------
- 6,000
--------------------------------------------------------------------------
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 a formula and approximated to 7.1%
per annum in 1999 and 7.2% per annum in 2000.
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 Limited. The
maximum facility allowed is (pound)17,000,000 reducing quarterly from 30
September 1999 to zero at 30 June 2005. The interest rate is calculated by
reference to a formula and approximated to 6.9% per annum in 1999 and 7.2% per
annum in 2000.
Both the above cross guarantees are secured by fixed and floating charges over
the Company's assets.
On 5 August 1999 the Company entered into an interest rate swap arrangement,
under which the variable rate applying to a principal amount of
(pound)11,833,000 of the Term Loan is swapped to a fixed rate of 6.98% until 30
June 2002.
F-20
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
16 PROVISIONS FOR LIABILITIES AND CHARGES
LONG TERM
EXECUTIVE INCENTIVE
DEFERRED TAX SCHEMES TOTAL
------------------------ ------------------------ ------------------------
GROUP COMPANY GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
At 1 July 1999 - as restated 725 1,255 345 - 1,070 1,255
(Credit)/charge for the year (101) (1) 451 - 350 (1)
- -------------------------------------------------------------------------------------------------------------
AT 30 JUNE 2000 624 1,254 796 - 1,420 1,254
- -------------------------------------------------------------------------------------------------------------
The provision for deferred tax comprises the following amounts:
1999
2000 (RESTATED)
------------------------ ------------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Accelerated capital allowances 96 13 176 14
Other timing differences 528 1,241 549 1,241
- -----------------------------------------------------------------------------------
624 1,254 725 1,255
- -----------------------------------------------------------------------------------
Unprovided deferred tax liabilities comprise the following amounts:
2000 1999
------------------------ ------------------------
GROUP COMPANY GROUP COMPANY
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Accelerated capital allowances - - - -
Other timing differences 357 357 357 357
- -----------------------------------------------------------------------------------
357 357 357 357
- -----------------------------------------------------------------------------------
Provision is made for amounts that are likely to become payable under certain
profit-related executive incentive schemes. Under the schemes a single payment
will be made to the individuals concerned based on the performance of the
relevant business segment over a rolling 3-year period. The individuals have the
option at the end of a financial year to receive the payment on the basis of the
most recent 3 years' results, or to carry forward the scheme.
F-21
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
17 CALLED UP SHARE CAPITAL, SHARE PREMIUM ACCOUNT AND CAPITAL REDEMPTION
RESERVE
SHARE CAPITAL
CALLED UP PREMIUM REDEMPTION
SHARE CAPITAL ACCOUNT RESERVE
(POUND)'000 (POUND)'000 (POUND)'000
At 1 July 1999 1,531 13,364 483
Shares issued during the year 1 14 -
- -----------------------------------------------------------------------------
AT 30 JUNE 2000 1,532 13,378 483
- -----------------------------------------------------------------------------
CALLED UP SHARE CAPITAL
2000 1999
(POUND)'000 (POUND)'000
AUTHORISED
50,000,000 Ordinary shares of 10p each 5,000 5,000
- -----------------------------------------------------------------------------
ALLOTTED AND FULLY PAID
15,324,257 Ordinary shares of 10p each (1999:
15,309,257) 1,532 1,531
- -----------------------------------------------------------------------------
During the year employees of the Group exercised their options over ordinary
shares in the Company at a price of (pound)1.00 per share as follows:
NUMBER OF
DATE OF EXERCISE SHARES
22 November 1999 12,000
2 March 2000 3,000
- -----------------------------------------------------------------------------
15,000
- -----------------------------------------------------------------------------
As at 30 June 2000 options have been granted and agreed to be granted to certain
directors and employees to subscribe for a total of 1,881,396 ordinary shares of
10p each at varying times and prices up to August 2006. The directors' options
are disclosed in the directors' report.
F-22
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
18 PROFIT AND LOSS ACCOUNT
GROUP COMPANY
(POUND)'000 (POUND)'000
At 1 July 1999 - as previously reported (18,007) 7,308
Prior year adjustment (note 1) (2,599) -
- ---------------------------------------------------------------------------------------
At 1 July 1999 - as restated (20,606) 7,308
Retained profit for the financial year 2,451 937
- ---------------------------------------------------------------------------------------
AT 30 JUNE 2000 (18,155) 8,245
- ---------------------------------------------------------------------------------------
At 30 June 2000, (pound)98,000 of goodwill remained eliminated directly against
the profit and loss account reserve. This will be charged to the profit and loss
account in the period in which disposal of the related business is made.
Of the Company's profit and loss account at 30 June 2000, (pound)1,014,000 is
regarded as being available for distribution. In addition, a further
(pound)2,078,000 may become available for distribution if dividends are declared
and paid up to the Company by subsidiaries.
The Company has taken advantage of the exemption available under section 230 of
the Companies Act 1985 and has not presented its own profit and loss account in
these financial statements. Of the Group profit for the financial year,
(pound)937,000 (1999 as restated: (pound)77,000) is dealt with in the financial
statements of the Company.
19 CAPITAL COMMITMENTS
2000 1999
(POUND)'000 (POUND)'000
Contracted but not provided for in the financial statements - 43
- -------------------------------------------------------------------------------------------
20 OPERATING LEASE COMMITMENTS
The operating lease rentals which are payable within one year of the balance
sheet date are as follows:
LAND AND BUILDINGS EQUIPMENT
------------------------ ------------------------
2000 1999 2000 1999
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Leases expiring:
- within 1 year - 525 13 3
- between 2 and 5 years 17 142 101 230
- after 5 years 2,134 1,092 - 31
- -----------------------------------------------------------------------------
2,151 1,759 114 264
- -----------------------------------------------------------------------------
F-23
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
21 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.
22 CONTINGENT LIABILITIES
The Company, together with its subsidiary undertakings, has granted a cross
guarantee in favour of its bankers in respect of the bank borrowings of the
Group. The guarantee is secured by fixed and floating charges over the Group's
assets.
23 NET CASH INFLOW FROM OPERATING ACTIVITIES
Reconciliation of operating profit to net cash 1999
inflow from operating activities: 2000 (RESTATED)
(POUND)'000 (POUND)'000
Operating profit 5,321 3,809
Depreciation of tangible fixed assets 2,791 1,861
Amortisation of goodwill 829 441
Loss/(profit) on disposal of tangible fixed assets 1 (35)
Remuneration element of share options (note 1) - 130
Decrease/(increase) in stocks 16 (21)
Increase in debtors (4,932) (3,992)
Increase in creditors 3,034 2,709
Increase in provisions 451 345
- ---------------------------------------------------------------------------------------
Net cash inflow from operating activities 7,511 5,247
- ---------------------------------------------------------------------------------------
24 ANALYSIS OF MOVEMENT IN NET DEBT
AT 1 JULY OTHER NON- AT 30 JUNE
1999 CASH FLOW CASH CHANGES 2000
(POUND)'000 (POUND)'000 (POUND)'000 (POUND)'000
Cash at bank and in hand 734 402 - 1,136
- ------------------------------------------------------------------------------
Debt due within 1 year
(before issue costs) (1,300) 1,300 (1,950) (1,950)
Debt due after 1 year
(before issue costs) (23,200) (500) 1,950 (21,750)
- ------------------------------------------------------------------------------
(24,500) 800 - (23,700)
- ------------------------------------------------------------------------------
(23,766) 1,202 - (22,564)
- ------------------------------------------------------------------------------
F-24
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
25 RECONCILIATION OF NET CASH FLOWS TO MOVEMENTS IN NET DEBT
2000 1999
(POUND)'000 (POUND)'000
INCREASE/(DECREASE) IN CASH IN THE YEAR 402 (4,403)
Cash outflow/(inflow) from changes in debt 800 (24,500)
- --------------------------------------------------------------------------------------
Change in net debt resulting from cash flows 1,202 (28,903)
- --------------------------------------------------------------------------------------
MOVEMENT IN NET DEBT IN THE YEAR 1,202 (28,903)
Net debt at 1 July 1999 (before issue costs) (23,766) 5,137
- --------------------------------------------------------------------------------------
Net debt at 30 June 2000 (before issue costs) (22,564) (23,766)
- --------------------------------------------------------------------------------------
26 RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
STATES ("US GAAP")
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in the United Kingdom ("UK GAAP"),
which differs in certain significant respects from US GAAP. Such differences
include methods for measuring the amounts shown in the financial statements, as
well as additional disclosures required by US GAAP.
The effect on the consolidated net income and shareholders' equity of applying
the significant differences between UK GAAP and US GAAP is summarised in the
reconciliation statements below:
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
(A) RECONCILIATION OF NET INCOME
Net income in accordance with UK GAAP 2,451 1,357
Amortisation of goodwill (1) 276 147
- --------------------------------------------------------------------------------------
Net income in accordance with US GAAP 2,727 1,504
- --------------------------------------------------------------------------------------
(B) RECONCILIATION OF SHAREHOLDERS' EQUITY
Shareholders' equity in accordance with UK GAAP (2,762) (5,228)
Amortisation of goodwill (1) 1,273 997
Reinstatement of goodwill written off (2) 98 98
Remuneration element of equity share options (3) (1,499) (1,509)
- --------------------------------------------------------------------------------------
(2,890) (5,642)
- --------------------------------------------------------------------------------------
F-25
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26 RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
STATES ("US GAAP")(CONTINUED)
1999
2000 (RESTATED)
(POUND)'000 (POUND)'000
(C) CHANGES IN US GAAP SHAREHOLDERS' EQUITY
Shareholders' equity at the beginning of the year (5,642) 10,031
Net income 2,727 1,504
Exercise or lapse of equity share options (3) 10 111
Issue of share capital 15 93
Repurchase of own equity shares (4) - (17,381)
- ---------------------------------------------------------------------------------------
(2,890) (5,642)
- ---------------------------------------------------------------------------------------
(1) Under UK GAAP, goodwill is being amortised over a maximum period of 20
years, following the adoption of FRS 10. In accordance with US GAAP
goodwill is amortised over an estimated economic life of 30 years.
(2) Under UK GAAP, the group has previously written off goodwill of
(pound)98,000 directly to shareholders' equity. Under US GAAP, the goodwill
is reinstated and is being amortised over 30 years.
(3) Under UK GAAP, the remuneration element of stock options is charged against
net income in the period between the options being granted and the date of
vesting, with an equal amount credited directly to shareholders' equity.
Under US GAAP, an available alternative method is to charge net income and
credit a liability account, with the balance on the liability account being
subsequently transferred to shareholders' equity as the options are
exercised or lapse.
The Group has adopted this available alternative method and accordingly a
GAAP difference arises in shareholders' equity.
(4) Under UK GAAP, on the repurchase and subsequent cancellation of own equity
shares, the amount paid for the equity shares is charged to reserves within
shareholders' equity, and the nominal value of the equity shares is
transferred to a capital redemption reserve. Under US GAAP the amount paid
for the equity shares would be debited to a "treasury stock" account within
shareholders' equity. On subsequent cancellation, this debit to treasury
stock would be reversed, and the amount paid for the repurchase of the
equity shares (less their nominal value) would be charged against either
retained earnings or an "additional paid-in capital" account within
shareholders' equity. There is thus no net difference arising in
shareholders' equity between the two methods.
(5) Under 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 Group is not required to record the full liability,
and may elect to use 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
F-26
CENTAUR COMMUNICATIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
26 RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED
STATES ("US GAAP") (CONTINUED)
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.
A subsidiary undertaking of Centaur Communications Limited, Perfect
Information Limited, incurred tax losses up to April 1998 of
(pound)3,169,000, which under UK tax law are carried forward indefinitely
to be offset against taxable profits arising from the same trade. The
company has not made a taxable profit in the recent past and it is
currently uncertain as to when or if the losses may be utilised in the
future. Accordingly under US GAAP a full valuation allowance has been set
against the related deferred tax asset. Tax losses incurred since April
1998 have been available and used for offset against profits arising
elsewhere in the Group.
F-27