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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
Quarterly Report
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the 13 Weeks Ended Commission File No
June 1, 2002 0-29288
GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0868496
(state or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
One Rockefeller Plaza, New York, New York 10020
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number including Area Code (212) 218-7910
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 No
Number of shares of Common Stock outstanding at July 5, 2002: 4,864,916
GRIFFIN LAND & NURSERIES, INC.
Form 10Q
PART I FINANCIAL INFORMATION Page
Consolidated Statement of Operations
13 and 26 Weeks Ended June 1, 2002 and June 2, 2001 3
Consolidated Balance Sheet
June 1, 2002 and December 1, 2001 4
Consolidated Statement of Stockholders' Equity
26 Weeks Ended June 1, 2002 and June 2, 2001 5
Consolidated Statement of Cash Flows
26 Weeks Ended June 1, 2002 and June 2, 2001 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION 21
SIGNATURES 22
PART I
Item 1. Financial Statements
Griffin Land & Nurseries, Inc.
Consolidated Statement of Operations
(dollars in thousands, except per share data)
(unaudited)
For the 13 Weeks Ended, For the 26 Weeks Ended,
----------------------- -----------------------
June 1, June 2, June 1, June 2,
2002 2001 2002 2001
-------- -------- -------- --------
Net sales and other revenue $ 19,903 $ 16,808 $ 22,502 $ 20,755
Cost of goods sold 15,821 13,305 17,677 16,231
Selling, general and administrative expenses 2,246 2,524 4,160 5,966
-------- -------- -------- --------
Operating profit (loss) 1,836 979 665 (1,442)
Gain on sale of Sales and Service Centers - - - 9,469
Interest expense (425) (196) (784) (332)
Interest income 6 50 13 101
-------- -------- -------- -------
Income (loss) before income tax provision (benefit) 1,417 833 (106) 7,796
Income tax provision (benefit) 454 329 (33) 3,079
-------- -------- -------- --------
Income (loss) before equity investment 963 504 (73) 4,717
Income from equity investment 666 215 237 71
-------- -------- -------- --------
Net income $ 1,629 $ 719 $ 164 $ 4,788
======== ======== ======== ========
Basic net income per common share $ 0.33 $ 0.15 $ 0.03 $ 0.98
======== ======== ======== ========
Diluted net income per common share $ 0.32 $ 0.14 $ 0.03 $ 0.96
======== ======== ======== ========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc
Consolidated Balance Sheet
(dollars in thousands, except per share data)
(unaudited)
June 1, Dec. 1,
2002 2001
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 24 $ 23
Accounts receivable, less allowance of $211 and $132 11,924 2,437
Inventories 29,211 30,449
Deferred income taxes 1,908 1,788
Other current assets 1,629 2,667
--------- ---------
Total current assets 44,696 37,364
Real estate held for sale or lease, net 48,963 49,242
Investment in Centaur Communications, Ltd. 17,249 17,012
Property and equipment, net 12,018 11,418
Other assets 9,788 9,139
--------- ---------
Total assets $ 132,714 $ 124,175
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 4,965 $ 5,761
Long-term debt due within one year 429 508
--------- ---------
Total current liabilities 5,394 6,269
Long-term debt 24,999 15,940
Deferred income taxes 1,544 1,457
Other noncurrent liabilities 3,693 3,593
--------- ---------
Total liabilities 35,630 27,259
--------- ---------
Commitments and contingencies
Common stock, par value $0.01 per share, 10,000,000 shares
authorized, 4,864,916 shares issued and outstanding 49 49
Additional paid-in capital 93,588 93,584
Retained earnings 3,200 3,036
Accumulated other comprehensive income 247 247
--------- ---------
Total stockholders' equity 97,084 96,916
--------- ---------
Total liabilities and stockholders' equity $ 132,714 $ 124,175
========= =========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Consolidated Statement of Stockholders' Equity
(dollars in thousands)
(unaudited)
Accumulated
Shares of Additional Other
Common Common Paid-in Retained Comprehensive
Stock Stock Capital Earnings Income Total
----------- ----------- -------- --------- -------------- ---------
Balance at December 2, 2000 4,862,704 $ 49 $ 93,584 $ 1,899 $ 186 $ 95,718
Net income - - - 4,788 - 4,788
Other comprehensive income - - - - 61 61
----------- ----------- -------- --------- -------------- ---------
Balance at June 2, 2001 4,862,704 $ 49 $ 93,584 $ 6,687 $ 247 $ 100,567
=========== =========== ======== ========= ============== =========
Balance at December 1, 2001 4,862,704 $ 49 $ 93,584 $ 3,036 $ 247 $ 96,916
Exercise of employee stock
options 2,212 - 4 - - 4
Net income - - - 164 - 164
----------- ----------- -------- --------- -------------- ---------
Balance at June 1, 2002 4,864,916 $ 49 $ 93,588 $ 3,200 $ 247 $ 97,084
=========== =========== ======== ========= ============== =========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Consolidated Statement of Cash Flows
(dollars in thousands)
(unaudited)
For the 26 Weeks Ended,
------------------------
June 1, June 2,
Operating activities: 2002 2001
------- --------
Net income $ 164 $ 4,788
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,609 1,337
Gain on sale of Sales and Service Centers - (9,469)
Income from equity investment (237) (71)
Changes in assets and liabilities:
Accounts receivable (9,630) (5,199)
Inventories 1,238 (154)
Other current assets 819 378
Accounts payable and accrued liabilities (796) (2,594)
Income taxes payable - 1,655
Other, net 121 (152)
------- --------
Net cash used in operating activities (6,712) (9,481)
------- --------
Investing activities:
Additions to property and equipment (1,308) (1,482)
Additions to real estate held for sale or lease (755) (6,670)
Proceeds from sale of Sales and Service Centers - 18,390
Additional investment in Linguaphone (145) -
------- --------
Net cash (used in) provided by investing activities (2,208) 10,238
------- --------
Financing activities:
Increase in debt 9,575 11,075
Payments of debt (654) (12,199)
------- --------
Net cash provided by (used in) financing activities 8,921 (1,124)
------- --------
Net increase (decrease) in cash and cash equivalents 1 (367)
Cash and cash equivalents at beginning of period 23 1,126
------- --------
Cash and cash equivalents at end of period $ 24 $ 759
======= ========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
1. Basis of Presentation
The unaudited 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"), and have been prepared in conformity with the
standards of accounting measurement set forth in Accounting Principles Board
Opinion No. 28 and any amendments thereto adopted by the Financial Accounting
Standards Board ("FASB"). Also, the accompanying financial statements have been
prepared in accordance with the accounting policies stated in Griffin's audited
2001 Financial Statements included in the Report on Form 10-K as filed with the
Securities and Exchange Commission on March 1, 2002, and should be read in
conjunction with the Notes to Financial Statements appearing in that report. All
adjustments, comprising only normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of results for the
interim periods have been reflected.
In Griffin's Form 10-K for the fiscal year ended December 1, 2001, Griffin
reported that it had restated its equity share in Centaur's results for the
thirteen and twenty-six weeks ended June 2, 2001. The effect of the restatement
was to decrease Griffin's equity results from Centaur and net income for the
thirteen and twenty-six weeks ended June 2, 2001 by $33 and $330, respectively.
There was no change to basic and diluted net income per share for the thirteen
weeks ended June 2, 2001. Basic and diluted net income per share for the
twenty-six weeks ended June 2, 2001 were decreased by $0.07 and $0.06,
respectively. The restated results for the thirteen and twenty-six weeks ended
June 2, 2001 are reflected herein.
The results of operations for the twenty-six weeks ended June 1, 2002, are
not necessarily indicative of the results to be expected for the full year.
Certain amounts from the prior year have been reclassified to conform to
the current presentation.
2. Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible
Assets." Under the provisions of SFAS No. 142, goodwill will no longer be
amortized, but will be subject to a periodic test for impairment based upon fair
values. Griffin's results from its equity investment in Centaur Communications,
Ltd. ("Centaur") for the twenty-six weeks ended June 1, 2002 and the twenty-six
weeks ended June 2, 2001 would have increased approximately $0.3 million due to
the elimination of goodwill amortization. SFAS No. 142 will be effective for
Griffin in fiscal 2003.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." This new pronouncement addresses accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 will be effective for Griffin
in fiscal 2003. At this time, management believes that this new standard will
not have an impact on Griffin's financial statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This new pronouncement retains the
requirements of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" to recognize an impairment loss
only if the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flow and measures an impairment loss as the difference between
the carrying amount and fair value of the asset. This pronouncement also
addresses the accounting for long-lived assets to be disposed of other than by
sale and long-lived assets to be disposed of by sale. SFAS No. 144 will be
effective for Griffin in fiscal 2003. Management is currently assessing the
impact, if any, of this new standard.
3. Sale of Sales and Service Centers
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 sold a wide variety of plant material and horticultural tools and
products to the landscape trade. A portion of the products sold by the SSCs were
grown by Imperial's farming operations. Imperial's only continuing involvement
in Shemin is an approximately 13.8% ownership interest in Shemin's parent
company (see below) and a three year supply agreement pursuant to which Shemin
is obligated to purchase Imperial grown product for the SSCs. The net book value
of the assets sold and liabilities assumed by Shemin was $13.5 million. Prior to
the sale of the SSCs in fiscal 2001, the net sales of the SSCs were $1.9 million
and the SSCs incurred an operating loss, before Imperial's central overhead
expenses, of $0.8 million through the date of the sale. Imperial continues in
the landscape nursery business with its container growing operations in
Connecticut and northern Florida.
The consideration received by Imperial on the sale of the SSCs included
cash of approximately $18.4 million after expenses. Cash of $11.2 million from
the sale was used to repay all of the amount then outstanding under Griffin's
revolving credit agreement. The remaining cash was used for general corporate
purposes. In addition to the cash payment, Griffin 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.
The common stock of Acquisition is valued at $6.1 million and is included in
other assets on the accompanying balance sheet. As a result of Griffin retaining
a common equity ownership interest in Acquisition, $1.5 million of the gain from
the sale of the SSCs has been deferred, and is offset against the investment in
Acquisition on Griffin's balance sheet. Imperial accounts for its investment in
Acquisition under the cost method of accounting for investments.
The sale of the SSCs reflected the disposition of the following assets and
liabilities by Imperial:
Accounts receivable $ 1,407
Inventories 4,453
Other current assets 1,037
Fixed assets, net 7,393
Other assets 161
--------
14,451
Accounts payable and
accrued liabilities (719)
Capital leases (271)
--------
Net assets disposed $ 13,461
========
The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the twenty-six weeks ended June 2, 2001 include pro forma
adjustments to reflect the sale of the SSCs as if it had taken place at the
beginning of fiscal year 2001. 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.
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 date specified, nor is it indicative of
Griffin's future results.
Pro Forma Condensed Consolidated Statement of Operations (Unaudited)
For the 26
Weeks Ended
June 2, 2001
------------
Net sales and other revenue $ 18,872
Cost of goods sold 14,800
Selling, general and administrative expenses 4,652
--------
Operating loss (580)
Gain on sale of Sales and Service Centers 9,469
Interest expense, net (71)
--------
Income before income tax provision 8,818
Income tax provision 3,483
--------
Income before equity investment 5,335
Income from equity investment 71
--------
Net income $ 5,406
========
Basic net income per share $ 1.11
========
Diluted net income per share $ 1.08
========
4. 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 13 Weeks Ended, For the 26 Weeks Ended,
------------------------- -------------------------
June 1, June 2, June 1, June 2,
Net sales and other revenue 2002 2001 2002 2001
--------- --------- --------- ---------
Landscape nursery product sales $ 17,463 $ 14,658 $ 18,193 $ 17,064
Real estate sales and rental revenue 2,440 2,150 4,309 3,691
--------- --------- --------- ---------
$ 19,903 $ 16,808 $ 22,502 $ 20,755
========= ========= ========= =========
Operating profit (loss)
Landscape nursery $ 1,787 $ 1,143 $ 827 $ (742)
Real estate 434 199 652 48
--------- --------- --------- ---------
Industry segment totals 2,221 1,342 1,479 (694)
Gain on sale of Sales and Service Centers - - - 9,469
General corporate expense (385) (363) (814) (748)
Interest expense, net (419) (146) (771) (231)
--------- --------- --------- ---------
Income (loss) before income taxes $ 1,417 $ 833 $ (106) $ 7,796
========= ========= ========= =========
June 1, Dec. 1,
2002 2001
Identifiable assets --------- ---------
Landscape nursery $ 57,384 $ 48,908
Real estate 55,231 55,746
--------- ---------
Industry segment totals 112,615 104,654
General corporate (consists primarily of investments) 20,099 19,521
--------- ---------
$ 132,714 $ 124,175
========= =========
5. Equity Investment in Centaur
Griffin accounts for its approximately 35% ownership of the outstanding
common stock of Centaur under the equity method of accounting for investments.
Centaur reports on a June 30 fiscal year. The unaudited summarized financial
data of Centaur presented below was derived from consolidated financial
information of Centaur for the six month periods ended May 31, 2002 and May 31,
2001. Griffin's equity income from Centaur for each of the twenty-six weeks
ended June 1, 2002 and June 2, 2001 includes $288 for amortization of the excess
cost of Griffin's investment over the book value of its equity in Centaur
(representing publishing rights and goodwill). Griffin's equity income from
Centaur also reflects adjustments necessary to present Centaur's results for the
six month periods in accordance with generally accepted accounting principles in
the United States of America.
In Griffin's Form 10-K for the fiscal year ended December 1, 2001, Griffin
reported that it had restated its equity share in Centaur's results for the
thirteen and twenty-six weeks ended June 2, 2001. The effect of the restatement
was to decrease Griffin's equity income from Centaur and net income for the
thirteen and twenty-six weeks ended June 2, 2001 by $33 and $330, respectively.
The restated results are reflected herein.
Six Months Ended,
-------------------
May 31, May 31,
2002 2001
-------- --------
Net sales $ 47,706 $ 50,935
Costs and expenses 44,841 45,864
-------- --------
Operating profit 2,865 5,071
Nonoperating expenses 1,072 3,525
-------- --------
Pretax income 1,793 1,546
Income tax provision 310 532
-------- --------
Net income $ 1,483 $ 1,014
======== ========
As of,
------------------
May 31, Nov. 30,
2002 2001
------- ---------
Current assets $ 20,510 $ 23,701
Intangible assets 18,537 19,157
Other noncurrent assets 12,067 11,691
-------- --------
Total assets $ 51,114 $ 54,549
======== ========
Current liabilities $ 24,874 $ 31,864
Debt 22,720 20,803
Other noncurrent liabilities 3,195 3,135
-------- --------
Total liabilities 50,789 55,802
Retained earnings (deficit) 325 (1,253)
-------- --------
Total liabilities and retained earnings (deficit) $ 51,114 $ 54,549
======== ========
6. Long-Term Debt
Long-term debt includes:
June 1, Dec. 1,
2002 2001
------- -------
Mortgages $ 14,258 $ 14,779
Credit Agreement 10,575 -
Bridge Loan - 1,000
Capital leases 595 669
-------- --------
Total 25,428 16,448
Less: due within one year 429 508
-------- --------
Total long-term debt $ 24,999 $ 15,940
======== ========
On February 8, 2002, Griffin entered into a $19.4 million revolving credit
agreement (the "2002 Credit Agreement") with Fleet National Bank ("Fleet"). The
initial borrowings under the 2002 Credit Agreement were used to repay the amount
then outstanding ($4.5 million) under Griffin's bridge loan, to repay a mortgage
of $0.4 million on one of Griffin's commercial buildings and for certain
expenses related to the 2002 Credit Agreement. The 2002 Credit Agreement is
being used to finance working capital requirements at Griffin's landscape
nursery and real estate businesses and for investment in Griffin's real estate
assets. Borrowings under the 2002 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 Fleet's prime rate plus a margin of 0.5%
per annum. Borrowings of one month and longer bear interest at the London
Interbank Offered Rate ("LIBOR") plus a margin of 2.5% per annum. The margins
can be reduced if Griffin achieves certain debt service coverage ratios (as
defined). At June 1, 2002, the amount outstanding under the 2002 Credit
Agreement had a weighted average interest rate of 4.43%. There are no
compensating balance requirements and Griffin pays a commitment fee of 0.25% per
annum on unused borrowing capacity. The 2002 Credit Agreement is secured by
certain of Griffin's real estate assets and includes financial covenants with
respect to Griffin's fixed charge coverage (as defined), net worth and leverage.
On June 26, 2002, Griffin entered into a commitment with a lender for a
mortgage of two of Griffin's commercial properties. The commitment reflects a
$7.7 million mortgage with an interest rate of 7% and a term of fifteen years,
with payments based on a twenty-five year amortization schedule. The closing of
this transaction is expected to take place in the third quarter and is subject
to completion of a definitive mortgage agreement. One of the properties to be
included in this proposed mortgage is currently included as collateral under the
2002 Credit Agreement. As a result of obtaining permanent financing on that
building under this proposed mortgage, the 2002 Credit Agreement will be reduced
to $14.1 million.
7. Stock Options
Activity under the Griffin Land & Nurseries, Inc. 1997 Stock Option Plan
(the "Griffin Stock Option Plan") is summarized as follows:
Number of Weighted Avg.
Shares Exercise Price
---------- --------------
Outstanding at December 1, 2001 629,307 $ 12.18
Exercised after December 1, 2001 (2,212) 1.79
Issued after December 1, 2001 32,983 15.26
------- -------
Outstanding at June 1, 2002 660,078 $ 12.37
======= =======
Number of option holders at June 1, 2002 29
====
Weighted Avg.
Remaining
Outstanding at Weighted Avg. Contractual Life
Range of Exercise Prices June 1, 2002 Exercise Price (in years)
- -------------------------------- -------------- --------------- ----------------
Under $3.00 32,223 $ 1.75 2.0
$3.00-$11.00 100,172 7.52 3.7
Over $11.00 527,683 13.94 6.5
-------
660,078
=======
At June 1, 2002, there were vested options exercisable for 350,728 shares
outstanding under the Griffin Stock Option Plan with a weighted average price of
$11.10 per share.
8. Per Share Results
Basic and diluted per share results were based on the following:
For the 13 Weeks Ended, For the 26 Weeks Ended,
----------------------- -----------------------
June 1, June 2, June 1, June 2,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income as reported for computation of basic $ 1,629 $ 719 $ 164 $ 4,788
per share results
Adjustment to net income for assumed exercise
of options of equity investee (Centaur) (56) (27) (36) (24)
---------- ---------- ---------- ----------
Net income as reported for computation of diluted
per share results $ 1,573 $ 692 $ 128 $ 4,764
========== ========== ========== ==========
Weighted average shares outstanding for computation
of basic per share results 4,865,000 4,863,000 4,864,000 4,863,000
Incremental shares from assumed exercise of Griffin
stock options 126,000 171,000 110,000 109,000
---------- ---------- ---------- ----------
Adjusted weighted average shares for computation of
diluted per share results 4,991,000 5,034,000 4,974,000 4,972,000
========== ========== ========== ==========
9. Supplemental Financial Statement Information
Inventories
Inventories consist of:
June 1, Dec. 1,
2002 2001
-------- --------
Nursery stock $ 27,193 $ 29,514
Materials and supplies 2,018 935
-------- --------
$ 29,211 $ 30,449
======== ========
Property and Equipment
Property and equipment consists of:
Estimated June 1, Dec. 1,
Useful Lives 2002 2001
-------------- --------- --------
Land and improvements $ 4,425 $ 4,175
Buildings 10 to 40 years 2,967 2,960
Machinery and equipment 3 to 20 years 15,498 15,093
-------- --------
22,890 22,228
Accumulated depreciation (10,872) (10,810)
-------- --------
$ 12,018 $ 11,418
======== ========
Griffin incurred capital lease obligations of $59 and $350, respectively,
in the twenty-six weeks ended June 1, 2002 and June 2, 2001.
Real Estate Held for Sale or Lease
Real estate held for sale or lease consists of:
June 1, 2002
-------------------------------
Estimated Held for Held for
Useful Lives Sale Lease Total
------------- ---------- ---------- -------
Land $ 1,332 $ 3,097 $ 4,429
Land improvements 15 years - 3,978 3,978
Buildings 40 years - 41,070 41,070
Development costs 5,973 4,893 10,866
-------- -------- --------
7,305 53,038 60,343
Accumulated depreciation - (11,380) (11,380)
-------- -------- --------
$ 7,305 $ 41,658 $ 48,963
======== ======== ========
December 1, 2001
-------------------------------
Estimated Held for Held for
Useful Lives Sale Lease Total
------------- ---------- ---------- -------
Land $ 1,342 $ 3,097 $ 4,439
Land improvements 15 years - 3,948 3,948
Buildings 40 years - 40,613 40,613
Development costs 5,991 4,744 10,735
-------- -------- --------
7,333 52,402 59,735
Accumulated depreciation - (10,493) (10,493)
-------- -------- --------
$ 7,333 $ 41,909 $ 49,242
======== ======== ========
Related Party Transaction
In the thirteen weeks ended June 1, 2002, Griffin Land completed a land
sale to an officer of Imperial. Management believes that the sale price of
approximately $90 was at fair market value. Proceeds to Griffin Land were in
the form of a note which bears interest at 6% and matures in 2009. The note
receivable is included in other assets. The gain on the sale is being
recognized under the installment method.
Income Taxes
Griffin's effective rate for the income tax benefit in the twenty-six weeks
ended June 1, 2002 is approximately 31%, reflecting a 34% benefit at the federal
statutory rate partially offset by the effect of state and local taxes.
10. Contingencies
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 counsel, the ultimate liability, if any, with respect to these matters
will not be material to Griffin's financial position, results of operations or
cash flows.
Item 2
Griffin Land & Nurseries, Inc.
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 Nurseries, Inc.
("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. Imperial has continued in
the landscape nursery business with its container growing operations in
Connecticut and northern Florida. Griffin's statement of operations for the
twenty-six weeks ended June 2, 2001 includes the results of the SSCs through the
sale.
In Griffin's Form 10-K for the fiscal year ended December 1, 2001, Griffin
reported that it had restated its equity share in Centaur's income for the
thirteen and twenty-six weeks ended June 2, 2001. The effect of the restatement
for the thirteen weeks ended June 2, 2001 was to decrease Griffin's equity
income from Centaur and net income by $33,000 with no change in basic and
diluted net income per share. The effect of the restatement for the twenty-six
weeks ended June 2, 2001 was to decrease Griffin's equity income from Centaur
and net income by $330,000, and decrease basic and diluted net income per share
by $0.07 and $0.06, respectively. The restated results for the thirteen and
twenty-six weeks ended June 2, 2001 are reflected herein.
Results of Operations
Thirteen Weeks Ended June 1, 2002 Compared to the Thirteen Weeks Ended June
1, 2001
Griffin's net sales and other revenue increased by $3.1 million from $16.8
million in the thirteen weeks ended June 2, 2001 (the "2001 second quarter") to
$19.9 million in the thirteen weeks ended June 1, 2002 (the "2002 second
quarter"). The higher net sales and other revenue principally reflects an
increase in net sales and other revenue at Imperial from $14.7 million in the
2001 second quarter to $17.5 million in the 2002 second quarter. The increase of
$2.8 million in net sales and other revenue at Imperial principally reflects an
increase in the number of larger plants being sold, thereby generating a higher
average unit selling price in the 2002 second quarter as compared to the 2001
second quarter. Sales unit volume was substantially unchanged in the 2002 second
quarter as compared to the 2001 second quarter. The increase in the number of
larger sized plants sold reflects changes in Imperial's product mix, intended to
improve Imperial's return on assets, that have been made over the past several
years. These changes included changes in the relative quantities of products
being grown and increasing the number of larger plants being grown, particularly
in Imperial's northern Florida facility. Management believes that the sales
growth in the 2002 second quarter at Imperial was hampered by unfavorable
weather conditions this Spring in some of Imperial's markets, including drought
conditions in the Mid-Atlantic area and excessive rain and cold in the Midwest.
Net sales and other revenue at Griffin Land increased by $0.3 million from
$2.1 million in the 2001 second quarter to $2.4 million in the 2002 second
quarter. This increase reflects higher revenue from Griffin Land's leasing
operations. The increased revenue from leasing operations reflects rental
revenue received for the entire 2002 second quarter from leases that started
during the 2001 second quarter, therefore, revenue for an entire quarter was
received in 2002 as compared to a partial quarter in the 2001 second quarter.
Griffin's operating profit increased from $1.0 million in the 2001 second
quarter to $1.8 million in the 2002 second quarter. The higher operating profit
principally reflects an increase in Imperial's operating profit from $1.1
million in the 2001 second quarter to $1.8 million in the 2002 second quarter.
The increase in Imperial's operating profit reflects an increase of $0.6 million
in gross profit from $2.5 million in the 2001 second quarter to $3.1 million in
the 2002 second quarter, reflecting the higher net sales and an increase in
gross margins on sales from 16.8% in the 2001 second quarter to 17.8% in the
2002 second quarter. The gross margin improvement is attributed to overall lower
production costs reflecting the benefit of leveraging certain overhead costs as
a result of increasing the number of units and the average size of units being
grown for sales in future periods. The increase in Imperial's operating profit
would have been larger than that reported for the 2002 second quarter, however,
Imperial's results were negatively effected by a charge of $0.4 million for
inventory losses due principally to disease issues in propagation and the
development of some of the plants of certain varieties. Selling, general and
administrative expenses at Imperial were $1.3 million in both the 2002 and 2001
second quarters, but as a percentage of net sales they were 7.6% in the 2002
second quarter as compared to 9.0% in the 2001 second quarter.
Operating profit at Griffin Land increased from $0.2 million in the 2001
second quarter to $0.4 million in the 2002 second quarter. The higher operating
profit is due principally to higher profit on land sales in the 2002 second
quarter as compared to the 2001 second quarter and higher profit from leasing
operations. Operating profit, before depreciation, from Griffin Land's
commercial properties was $1.3 million in the 2002 second quarter as compared to
$1.1 million in the 2001 second quarter. Higher profit from land sales in the
2002 second quarter reflected parcels sold in the 2002 second quarter having a
lower cost basis then those land parcels sold in the 2001 second quarter. The
higher profit from leasing operations and property sales was partially offset by
higher depreciation expense reflecting a full quarter of depreciation expense in
the current year on buildings placed in service in the 2001 second quarter as
compared to depreciation expense for a partial period in the 2001 second
quarter. Selling, general and administrative expenses at Griffin Land were $0.5
million in both the 2002 and 2001 second quarters.
Griffin's interest expense increased from $0.2 million in the 2001 second
quarter to $0.4 million in the 2002 second quarter. The increase reflects the
higher debt in the current year's quarter and the capitalization of $0.1 million
of interest in the 2001 second quarter. The higher amount of debt currently
outstanding principally reflects Griffin's borrowings over the past year to fund
development of Griffin Land's real estate assets and finance Imperial's capital
expenditures.
Griffin's equity income from Centaur increased from $0.2 million in the
2001 second quarter to $0.7 million in the 2002 second quarter. The higher
equity income reflects the inclusion in the 2001 second quarter of expenses
related to a proposed stock offering or sale that did not take place. Griffin's
allocable share of those expenses was $0.6 million in the 2001 second quarter.
Excluding the effect of those one-time charges, Griffin's equity income reflects
lower operating results at Centaur which has been negatively impacted by the
slowdown in the British economy. As a result, advertising revenue in Centaur's
publishing business has declined from the previous year.
Twenty-Six Weeks Ended June 1, 2002 Compared to the Twenty-Six Weeks Ended
June 2, 2001
Griffin's net sales and other revenue increased by $1.7 million from $20.8
million in the twenty-six weeks ended June 2, 2001 (the "2001 six month period")
to $22.5 million in the twenty-six weeks ended June 1, 2002 (the "2002 six month
period"). The higher net sales and other revenue principally reflects an
increase in net sales and other revenue at Imperial from $17.1 million in the
2001 six month period to $18.2 million in the 2002 six month period. Imperial's
net sales in the 2001 six month period included $1.9 million of net sales and
other revenue of the SSCs prior to their sale in the 2001 first quarter.
Excluding the effect of the net sales and other revenue from the SSCs,
Imperial's net sales and other revenue increased $3.0 million, or 20%, in the
2002 six month period as compared to the 2001 six month period. This increase
was due to the sale of larger plants as a result of changes in Imperial's
product mix as noted above in the discussion of Griffin's second quarter
results. Management believes that the sales growth at Imperial was hampered by
unfavorable weather conditions this Spring in some of Imperial's markets,
including drought conditions in the Mid-Atlantic area and excessive rain and
cold in the Midwest.
Net sales and other revenue at Griffin Land increased from $3.7 million in
the 2001 six month period to $4.3 million in the 2002 six month period. The
higher net sales and other revenue in the 2002 six month period at Griffin Land
reflects higher rental revenue from Griffin Land's buildings, reflecting both
leases on new buildings and new leases on previously vacant spaces in existing
buildings that came on line in the 2001 second quarter, and therefore, were
included in only part of the 2001 six month period as compared to being included
in the entire 2002 six month period. Currently, including the joint venture in
which Griffin has a 30% share, Griffin has 963,000 square feet for lease with
occupancy of 90%.
Griffin's operating results increased from an operating loss of $1.4
million in the 2001 six month period, which included an operating loss of $0.8
million from Imperial's SSCs prior to their sale, to an operating profit of $0.7
million in the 2002 six month period. Excluding the effect of the operating
loss incurred by the SSCs in the 2001 six month period, Griffin's operating
results increased by $1.3 million in the 2002 six month period as compared to
the 2001 six month period. The higher operating results reflect increased
operating profit at both Imperial and Griffin Land.
Operating results at Imperial increased from an operating profit of $0.1
million in the 2001 six month period (excluding the operating loss of $0.8
million from the SSCs prior to their sale) to an operating profit of $0.8
million in the 2002 six month period. The increase in Imperial's operating
results reflects an increase in gross profit from $2.5 million in the 2001 six
month period (excluding gross profit from the SSCs prior to their sale) to $3.2
million in the 2002 six month period. The higher gross profit reflects the
increase in net sales and the effect of higher gross margins on sales, which
increased from 16.4% in the 2001 six month period to 17.5% in the 2002 six month
period. The factors that increased the gross profit and gross margins in the
2002 six month period are the same as those for the 2002 second quarter results
described above. Selling, general and administrative expenses at Imperial were
$2.4 million in both the 2002 and 2001 six month periods (excluding the selling,
general and administrative expenses of the SSCs in the 2001 six month period),
but as a percentage of net sales they were 13.0% in the 2002 six month period as
compared to 16.1% in the 2001 six month period.
Operating results at Griffin Land increased from substantially break even
results in the 2001 six month period to an operating profit of $0.7 million in
the 2002 six month period. The increase in operating profit reflects both
increased profit from Griffin Land's rental properties and increased profit from
land sales. Operating profit, before depreciation, from Griffin Land's leasing
activities increased from $1.9 million in the 2001 six month period to $2.5
million in the 2002 six month period, reflecting the increase in rental revenue
for the 2002 six month period. Profit from land sales increased by $0.1 million
in the 2002 six month period as compared to the 2001 six month period. Although
revenue from property sales was lower in the 2002 six month period as compared
to the 2001 six month period, the land sold in the current year had a lower cost
basis and therefore generated higher profit. Griffin Land's selling, general and
administrative expenses in the 2002 six month period were $0.9 million as
compared to $1.1 million in the 2001 six month period. The lower expenses
reflected inclusion of severance expenses in the 2001 six month period and
temporary lower headcount for part of the 2002 six month period. The lower
selling, general and administrative expenses were more than offset by an
increase of $0.3 million in depreciation expense in the 2002 six month period
due to depreciation on buildings in service for part of the 2001 six month
period being in service for the entire 2002 six month period.
Griffin's interest expense increased from $0.3 million in the 2001 six
month period to $0.8 million in the 2002 six month period. The higher interest
expense reflects Griffin's higher debt in the 2002 six month period as compared
to the prior year's six month period and $0.3 million of interest capitalized in
the 2001 six month period as compared to a minimal amount of interest
capitalized in the 2002 six month period. The higher debt in the current year
reflects borrowing by Griffin to fund development of its real estate assets and
capital expenditures to expand Imperial's operations.
Griffin's equity income from Centaur increased from $0.1 million in the
2001 six month period to $0.2 million in the 2002 six month period. The
increase reflects the effect of one time expenses, of which Griffin's allocable
share was $0.6 million, incurred by Centaur in the 2001 six month period,
substantially offset by lower results from Centaur's operations in the current
year. The lower results at Centaur reflect the weakened British economy.
Liquidity and Capital Resources
In the 2002 six month period, cash used in operating activities was $6.7
million as compared to $9.5 million used in operating activities in the 2001 six
month period. The lower use of cash in the current year principally reflects
the higher operating profit at Griffin's businesses in the current year.
In the 2002 six month period, cash used in investing activities was $2.2
million as compared to cash of $10.2 million provided by investing activities in
the 2001 six month period, which included net proceeds of $18.4 million from the
sale of Imperial's SSCs in that period. Additions to Griffin Land's real estate
assets were $0.8 million in the 2002 six month period as compared to $6.7
million in the 2001 six month period. The higher amount of additions to real
estate assets in the 2001 six month period reflects construction of a 165,000
square foot building in Griffin Center in Windsor, Connecticut and a 40,000
square foot building in Griffin Center South in Bloomfield, Connecticut, in that
period. Both of these buildings were completed in the 2001 six month period and
are now leased. In the 2002 six month period, cash used for additions to
Griffin Land's real estate assets included the build out of the interior of its
new 57,000 square foot building in the New England Tradeport in Windsor,
Connecticut. The shell of that building was built on speculation in the second
half of last year. The tenant work for that building, started as a result of
entering into a lease for the entirety of that building, is expected to be
completed in the 2002 third quarter. Griffin anticipates additional new
construction in the New England Tradeport to start in the latter part of this
year. This new construction will also be done on speculation. Capital
expenditures of $1.3 million in the 2002 six month period and $1.5 million in
the 2001 six month period were principally for the ongoing expansion of
Imperial's farming operation in northern Florida.
In the 2002 six month period, cash provided by financing activities was
$8.9 million as compared to cash of $1.1 million used in financing activities in
the 2001 six month period. The cash used in financing activities in the 2001
six month period reflected the repayment of debt from the proceeds generated
from the sale of the SSCs in that period. Cash provided by financing activities
in the 2002 six month period principally reflects borrowings made under
Griffin's $19.4 million revolving credit agreement (the "2002 Credit Agreement")
with Fleet National Bank ("Fleet") which was completed on February 8, 2002. The
2002 Credit Agreement has a three year term and is collateralized by certain of
Griffin's real estate assets. The initial borrowing under the 2002 Credit
Agreement was used to repay the amount then outstanding under Griffin's bridge
loan, to repay a mortgage on one of Griffin's commercial buildings and for
certain expenses related to the 2002 Credit Agreement. Subsequent borrowings
were used to finance Griffin's seasonal working capital requirements,
particularly those at Imperial. There was $10.6 million outstanding on the 2002
Credit Agreement at the end of the 2002 six month period.
In the 2002 six month period, Griffin started construction on the shell of
a 50,000 square foot office building in Griffin Center. This building is being
built on speculation with most of the expenditures, estimated to be
approximately $3.2 million, to be incurred in the second half of this year.
On June 26, 2002, Griffin received a commitment from a lender for a
mortgage on two of its commercial buildings. The commitment reflects a mortgage
of $7.7 million at an interest rate of 7% and a fifteen year term with payments
based on a twenty-five year amortization period. The closing of this transaction
is expected to take place in the third quarter and is subject to completing a
definitive mortgage agreement with the lender. One of the properties to be
included in this mortgage is currently included as collateral under the 2002
Credit Agreement. As a result of obtaining the permanent financing on this
building under the proposed mortgage, the 2002 Credit Agreement will be reduced
to $14.1 million.
In the 2002 six month period, Griffin received an unfavorable court ruling
on one of its suits related to its proposed residential development in Simsbury,
Connecticut. The ruling upheld the denial by one of Simsbury's land use
commissions of Griffin's application for a wetlands activity permit in
connection with its proposed residential development in Simsbury. Griffin is
appealing that decision and is proceeding with the other litigation related to
its development plans in Simsbury. Griffin Land also has an agreement for the
sale of the remaining development rights at its Walden Woods residential
development in Windsor, Connecticut. The completion of that sale is subject to
the purchaser receiving approval from the town's commissions for their
development plans and, based on such plans, proceeds from that sale are expected
to be approximately $3.0 million. Approvals from the town's commission on
wetlands was recently obtained, but a suit was filed challenging that approval.
Completion of this transaction is not expected to take place this year. Griffin
intends to proceed with its other residential development plans on other of its
lands that are also appropriate for that use.
Management believes that in the near term, based on the current level of
operations and anticipated growth, borrowings under the 2002 Credit Agreement,
its anticipated mortgage placement and cash generated from operations will be
sufficient to finance Griffin's working capital requirements, expected capital
expenditures of the landscape nursery business and development of its real
estate assets. Over the intermediate and long term, additional mortgage
placements or additional bank credit facilities are expected to 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, construction of additional facilities in the real estate business,
completion of the sale of the development rights of Walden Woods 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 3. 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 $10.6 million of variable
rate debt outstanding at June 1, 2002.
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 an equity
investment in Griffin's financial statements, and the ultimate liquidation of
those investments and conversion of proceeds into United States currency is
subject to future foreign currency exchange rates.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On March 27, 2002, the Superior Court of the Judicial District of Hartford
(the "Court") dismissed Griffin's appeal of the decision by the Conservation
Commission/Inland Wetlands and Watercourses Agency of Simsbury, Connecticut (the
"Commission") to deny Griffin's application for a wetlands activity permit in
connection with a proposed residential development in Simsbury. This appeal by
Griffin of the Commission's denial of its application is one of several
separate, but related, actions brought by Griffin to appeal the denials of
Griffin's proposed residential development issued by Simsbury's land use
commissions. The Connecticut Apellate Court has granted Griffin permission to
appeal the Superior Court's ruling, and Griffin intends to continue with its
other suits related to its proposed residential development in Simsbury.
Items 2 and 3 are not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Stockholders: May 14, 2002
(b) The following were elected as Directors at the Annual Meeting:
(c)(i) 1) Mr. Winston J. Churchill, Jr. was elected a Director for
2002 with 4,434,872 votes in favor, 7,454 withheld, and
422,590 not voting.
2) Mr. Edgar M. Cullman was elected a Director for 2002 with
4,431,807 votes in favor, 10,519 withheld, and 422,590 not
voting.
3) Mr. Frederick M. Danziger was elected a Director for 2002
with 4,248,252 votes in favor, 194,074 withheld, and
422,590 not voting.
4) Mr. John L. Ernst was elected a Director for 2002 with
4,439,098 votes in favor, 3,228 withheld, and 422,590 not
voting.
5) Mr. Thomas C. Israel was elected a Director for 2002 with
4,434,872 votes in favor, 7,454 withheld, and 422,590 not
voting.
6) Mr. David F. Stein was elected a Director for 2002 with
4,434,682 votes in favor, 7,644 withheld, and 422,590 not
voting.
(ii) The authorization of the selection of PricewaterhouseCoopers
LLP as independent accountants for 2002 was approved with
4,434,814 votes in favor, 6,239 opposed, and 423,863 not voting.
Item 5 is not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) There were no reports filed on Form 8-K by the Registrant
during the 2002 second quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIFFIN LAND & NURSERIES, INC.
/s/ Frederick M. Danziger
------------------------------
Date: July 15, 2002 Frederick M. Danziger
President and Chief Executive Officer
/s/ Anthony J. Galici
---------------------
Date: July 15, 2002 Anthony J. Galici
Vice President, Chief Financial Officer
and Secretary