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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the 13 Weeks Ended Commission File No.
March 1, 2003 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 April 8, 2003: 4,876,916
GRIFFIN LAND & NURSERIES, INC.
Form 10-Q
PART I - FINANCIAL INFORMATION
Consolidated Statement of Operations
13 Weeks Ended March 1, 2003 and March 2, 2002 3
Consolidated Balance Sheet
March 1, 2003 and November 30, 2002 4
Consolidated Statement of Stockholders' Equity
13 Weeks Ended March 1, 2003 and March 2, 2002 5
Consolidated Statement of Cash Flows
13 Weeks Ended March 1, 2003 and March 2, 2002 6
Notes to Consolidated Financial Statements 7-14
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-18
Quantitative and Qualitative Disclosures About Market Risk 18
Controls and Procedures 19
PART II - OTHER INFORMATION 19
SIGNATURES 20
CERTIFICATIONS 21-22
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,
------------------------
March 1, March 2,
2003 2002
-------- ---------
Net sales and other revenue. . . . . . . . . $ 3,101 $ 2,599
Cost of goods sold . . . . . . . . . . . . . 2,262 1,856
Selling, general and administrative expenses 2,329 1,914
--------- ---------
Operating loss . . . . . . . . . . . . . . . (1,490) (1,171)
Interest expense . . . . . . . . . . . . . . (624) (359)
Interest income. . . . . . . . . . . . . . . 8 7
--------- ---------
Loss before income tax benefit . . . . . . . (2,106) (1,523)
Income tax benefit . . . . . . . . . . . . . (744) (487)
--------- ---------
Loss before equity investment. . . . . . . . (1,362) (1,036)
Loss from equity investment. . . . . . . . . (290) (429)
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . $ (1,652) $ (1,465)
========= =========
Basic net loss per common share. . . . . . . $ (0.34) $ (0.30)
========= =========
Diluted net loss per common share. . . . . . $ (0.34) $ (0.30)
========= =========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc
Consolidated Balance Sheet
(dollars in thousands, except per share data)
March 1, Nov. 30,
2003 2002
----------- ----------
ASSETS (unaudited)
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 244 $ 24
Accounts receivable, less allowance of $151 and $129 . . . 581 1,999
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 35,947 31,164
Deferred income taxes. . . . . . . . . . . . . . . . . . . 2,144 2,110
Other current assets . . . . . . . . . . . . . . . . . . . 4,549 3,473
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . 43,465 38,770
Real estate held for sale or lease, net. . . . . . . . . . 61,815 50,546
Investment in Centaur Communications, Ltd. . . . . . . . . 20,058 20,279
Property and equipment, net. . . . . . . . . . . . . . . . 12,484 12,514
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,571 10,847
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 144,393 $ 132,956
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities . . . . . . . . . $ 4,615 $ 3,939
Long-term debt due within one year . . . . . . . . . . . . 690 540
----------- ------------
Total current liabilities. . . . . . . . . . . . . . . . . 5,305 4,479
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 38,100 26,007
Deferred income taxes. . . . . . . . . . . . . . . . . . . 1,906 1,906
Other noncurrent liabilities . . . . . . . . . . . . . . . 1,195 1,094
----------- ------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 46,506 33,486
----------- ------------
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 93,588
Retained earnings. . . . . . . . . . . . . . . . . . . . . 4,309 5,961
Accumulated other comprehensive loss . . . . . . . . . . . (59) (128)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . 97,887 99,470
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . $ 144,393 $ 132,956
=========== ===========
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 (Loss) Total
--------- --------- ---------- --------- ------------- ----------
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 loss . . . . . . . . . . - - - (1,465) - (1,465)
---------- -------- ---------- --------- ------------- ----------
Balance at March 2, 2002 . . 4,864,916 $ 49 $ 93,588 $ 1,571 $ 247 $ 95,455
========== ======== ========== ========= ============= ==========
Balance at November 30, 2002 4,864,916 $ 49 $ 93,588 $ 5,961 $ (128) $ 99,470
Net loss . . . . . . . . . . - - - (1,652) - (1,652)
Other comprehensive income . - - - - 69 69
---------- -------- ---------- --------- ------------- ----------
Balance at March 1, 2003 . . 4,864,916 $ 49 $ 93,588 $ 4,309 $ (59) $ 97,887
========== ======== ========== ========= ============= ==========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Consolidated Statement of Cash Flows
(dollars in thousands)
(unaudited)
For the 13 Weeks Ended,
-----------------------
March 1, March 2,
2003 2002
Operating activities: --------- ---------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . .$ (1,652) $ (1,465)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization. . . . . . . . . . . . . 1,072 787
Loss from equity investment. . . . . . . . . . . . . . 290 429
Deferred income taxes. . . . . . . . . . . . . . . . . (34) (487)
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . 1,396 1,162
Inventories. . . . . . . . . . . . . . . . . . . . . . (4,783) (4,431)
Other current assets . . . . . . . . . . . . . . . . . (1,076) 55
Accounts payable and accrued liabilities . . . . . . . 676 (644)
Other, net . . . . . . . . . . . . . . . . . . . . . . 170 (115)
--------- ---------
Net cash used in operating activities . . . . . . . . . . (3,941) (4,709)
--------- ---------
Investing activities:
Additions to real estate held for sale or lease . . . . . (7,834) (299)
Additions to property and equipment . . . . . . . . . . . (248) (453)
--------- ---------
Net cash used in investing activities . . . . . . . . . . (8,082) (752)
--------- ---------
Financing activities:
Increase in debt. . . . . . . . . . . . . . . . . . . . . 12,400 6,000
Payments of debt. . . . . . . . . . . . . . . . . . . . . (157) (539)
--------- ---------
Net cash provided by financing activities . . . . . . . . 12,243 5,461
--------- ---------
Net increase in cash and cash equivalents . . . . . . . . 220 -
Cash and cash equivalents at beginning of period. . . . . 24 23
--------- ---------
Cash and cash equivalents at end of period. . . . . . . .$ 244 $ 23
========= =========
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 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
2002 Financial Statements included in the Report on Form 10-K as filed with the
Securities and Exchange Commission on February 28, 2003, 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.
At the beginning of fiscal 2003, Griffin adopted SFAS No. 142 "Goodwill and
Other Intangible Assets." Under the provisions of SFAS No. 142, goodwill is no
longer amortized, but is subject to a periodic test for impairment based upon
fair values. Accordingly, there is no amortization of goodwill included in
Griffin's results from its equity investment in Centaur Communications, Ltd.
("Centaur") for the thirteen weeks ended March 1, 2003. Griffin did not incur a
charge for impairment upon the adoption of SFAS No. 142. Griffin's results from
its equity investment in Centaur for the thirteen weeks ended March 2, 2002
would have increased approximately $0.1 million from the elimination of goodwill
amortization.
The results of operations for the thirteen weeks ended March 1, 2003 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 the 2003 first quarter, SFAS No. 143 "Accounting For Asset Retirement
Obligations," SFAS No. 144 "Accounting For the Impairment or Disposal of
Long-Lived Assets," SFAS No. 145 "Recission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical Corrections" and SFAS No. 146
"Accounting For Costs Associated with Exit or Disposal Activities" became
effective for Griffin. There was no impact on Griffin's financial statements at
this time from these new standards.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (an interpretation of FASB Statement No. 5,
Accounting for Contingencies)", ("Fin No. 45"). Fin No. 45 requires guarantors
to recognize a liability for the fair value of an obligation it assumes under a
guarantee and requires certain disclosures related to guarantees. The provisions
for initial recognition and measurement of guarantees under Fin No. 45 apply on
a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements of Fin No. 45 are effective for Griffin in the 2003
first quarter. The adoption of Fin No. 45 did not have an impact on Griffin's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123."
This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation",
to provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation, and
requires enhanced disclosure of information on stock-based compensation in
annual and interim financial statements. SFAS No. 148 is effective for Griffin
in the first quarter of fiscal 2003. Management has not changed its method of
accounting for stock-based compensation, but has included the required enhanced
disclosure in Note 6.
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 13 Weeks Ended,
-----------------------
March 1, March 2,
2003 2002
Net sales and other revenue ---------- ----------
Landscape nursery product sales . . . . . $ 274 $ 730
Real estate sales and rental revenue. . . 2,827 1,869
---------- ----------
$ 3,101 $ 2,599
========== ==========
Operating (loss) profit
Landscape nursery . . . . . . . . . . . . $ (1,236) $ (960)
Real estate . . . . . . . . . . . . . . . 199 218
---------- ----------
Industry segment totals . . . . . . . . . (1,037) (742)
General corporate expense . . . . . . . . (453) (429)
Interest expense, net . . . . . . . . . . (616) (352)
---------- ----------
Loss before income tax benefit. . . . . . $ (2,106) $ (1,523)
========== ==========
March 1, March 2,
2003 2002
Identifiable assets ---------- ----------
Landscape nursery. . . . . . . . . . . . $ 47,696 $ 50,306
Real estate. . . . . . . . . . . . . . . 65,941 58,431
---------- ----------
Industry segment totals. . . . . . . . . 113,637 108,737
General corporate (consists primarily of investments). . 30,756 24,219
---------- ----------
$ 144,393 $ 132,956
========== ==========
See Note 4 for information on Griffin's equity investment in Centaur.
4. Equity Investment
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 were derived from consolidated financial
information of Centaur for the three month periods ended February 28, 2003 and
February 28, 2002. Griffin's equity loss from Centaur for the thirteen weeks
ended March 1, 2003 includes $92 for amortization of publishing rights.
Griffin's equity loss from Centaur for the thirteen weeks ended March 2, 2002
includes $144 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 loss from Centaur also reflects adjustments
necessary to present Centaur's results for the three month periods in accordance
with generally accepted accounting principles in the United States of America.
Three Months Ended,
--------------------
Feb. 28, Feb. 28,
2003 2002
--------- ---------
Net sales. . . . . . . . . . . . . . . . . . $ 21,104 $ 17,253
Costs and expenses . . . . . . . . . . . . . 21,539 17,561
--------- ---------
Operating loss . . . . . . . . . . . . . . . (435) (308)
Nonoperating expenses. . . . . . . . . . . . (307) (621)
--------- ---------
Pretax loss. . . . . . . . . . . . . . . . . (742) (929)
Income tax benefit . . . . . . . . . . . . . (176) (241)
--------- ---------
Loss from continuing operations. . . . . . . (566) (688)
Loss from discontinued operation, net of tax - (118)
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . $ (566) $ (806)
========= =========
As of
--------------------
Feb. 28, Nov. 30,
2003 2002
--------- ---------
Current assets . . . . . . . . . . . . . . $ 20,796 $ 19,895
Intangible assets. . . . . . . . . . . . . 6,052 5,955
Other noncurrent assets. . . . . . . . . . 10,716 11,380
--------- ---------
Total assets . . . . . . . . . . . . . . . $ 37,564 $ 37,230
========= =========
Current liabilities. . . . . . . . . . . . $ 24,431 $ 23,893
Other noncurrent liabilities . . . . . . . 3,003 2,710
--------- ---------
Total liabilities. . . . . . . . . . . . . 27,434 26,603
Stockholders' equity . . . . . . . . . . . 10,130 10,627
--------- ---------
Total liabilities and stockholders' equity $ 37,564 $ 37,230
========= =========
5. Long-Term Debt
Long-term debt includes:
Feb. 28, Nov. 30,
2003 2002
Nonrecourse mortgages: --------- ---------
8.54% due July 1, 2009. . $ 7,963 $ 7,983
6.08% due January 1, 2013 9,737 -
8.13% due April 1, 2016 . 6,135 6,172
7.0% due October 1, 2017. 7,627 7,656
--------- ---------
Total nonrecourse mortgages . 31,462 21,811
Credit Agreement. . . . . . . 6,900 4,250
Capital leases. . . . . . . . 428 486
--------- ---------
Total . . . . . . . . . . . . 38,790 26,547
Less: due within one year . . 690 540
--------- ---------
Total long-term debt. . . . . $ 38,100 $ 26,007
========= =========
On December 17, 2002 Griffin completed a $9.75 million nonrecourse mortgage
of two office buildings. Proceeds of the mortgage were used to finance Griffin's
$8.8 million acquisition, completed on December 6, 2002, of a 70% interest in
those buildings. Griffin previously held the remaining 30% interest in those
buildings. The mortgage has a 6.08% rate and a term of ten years, with payments
based on a twenty-five year amortization period.
On February 8, 2002, Griffin entered into a revolving credit agreement (the
"2002 Credit Agreement") with Fleet National Bank ("Fleet"). The amount
outstanding under the 2002 Credit Agreement at March 1, 2003 had a weighted
average interest rate of 3.9%. The 2002 Credit Agreement is collateralized 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.
As of November 30, 2002 and March 1, 2003, Griffin was in default under the
fixed charge coverage ratio of the 2002 Credit Agreement. The 2002 Credit
Agreement was amended on January 31, 2003 to adjust the fixed charge coverage
ratio, and after giving effect to the amendment, Griffin is no longer in
default.
At March 1, 2003 and November 30, 2002, the fair values of Griffin's
mortgages were $33.6 million and $23.9 million, respectively. Fair value is
based on the present value of future cash flows discounted at estimated
borrowing rates for comparable risks, maturities and collateral. Management
believes that because of variable interest rates, the amounts included on
Griffin's balance sheet for the 2002 Credit Agreement at March 1, 2003 and
November 30, 2002 reflect their fair values.
On March 17, 2003 Griffin entered into a preliminary agreement with Fleet
providing for an increase of the commitment amount under the 2002 Credit
Agreement from $14.1 million to $21.0 million. The additional commitment amount
will be collateralized by certain of Griffin Land's real estate holdings.
6. 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 November 30, 2002 656,078 $ 12.37
Granted. . . . . . . . . . . . . 6,000 14.35
Cancelled. . . . . . . . . . . . (700) 13.07
----------- --------------
Outstanding at March 1, 2003 . . 661,378 $ 12.38
========= ==============
Number of option holders at March 1,2003 28
====
Weighted Ave.
Remaining
Outstanding at Weighted Ave. Contractual Life
Range of Exercise Prices Mar. 1, 2003 Exercise Price (in years)
- ------------------------ --------------- -------------- ----------------
Under $3.00 . . . . . . . 32,223 $ 1.75 1.2
$3.00-$11.00 100,172 7.52 3.0
Over $11.00. . . . . . . 528,983 13.95 5.8
---------------
661,378
===============
At March 1, 2003, 412,663 options outstanding under the Griffin Stock
Option Plan were exerciseable with a weighted average price of $11.64 per share.
Subsequent to March 1, 2003, 12,000 options with an average exercise price of
$1.69 per share were exercised.
Griffin accounts for stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted SFAS
No. 123 which requires disclosure of the pro forma effect on earnings and
earnings per share of the fair value method of accounting for stock-based
compensation and SFAS No. 148 which prescribes a method of disclosure. Griffin's
results would have been the following pro forma amounts under the method
prescribed by SFAS No. 123.
For the 13 Weeks Ended,
------------------------
March 1, March 2,
2003 2002
--------- ---------
Net loss, as reported. . . . . . . . . . . . . . . . . . . . . . . . $ (1,652) $ (1,465)
Total stock based employee compensation expense determined
under fair value based method for all awards, net of tax effects. (65) (97)
--------- ---------
Net loss, pro forma (under SFAS No. 123) . . . . . . . . . . . . . . $ (1,717) $ (1,562)
========= =========
Adjusted net loss for computation of diluted per share
results, proforma (SFAS No. 123). . . . . . . . . . . . . . . . . $ (1,717) $ (1,562)
========= =========
Basic net loss per common share, as reported . . . . . . . . . . . . $ (0.34) $ (0.30)
Basic net loss per common share, pro forma
(under SFAS No. 123) . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (0.32)
Diluted net loss per common share, as reported . . . . . . . . . . . $ (0.34) $ (0.30)
Diluted net loss per common share, pro forma
(under SFAS No. 123) . . . . . . . . . . . . . . . . . . . . . $ (0.35) $ (0.32)
The weighted average fair value of each option granted during the thirteen
weeks ended March 1, 2003 was $6.38, estimated as of the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used in the
model to calculate the fair value of each option: expected volatility of
approximately 47%; risk free interest rate of 3.03%; expected option term of 5
years and no dividend yield for all options issued. There were no options
granted in the thirteen weeks ended March 2, 2002.
7. Per Share Results
Basic and diluted per share results were based on the following:
For the 13 Weeks Ended,
-----------------------
March 1, March 2,
2003 2002
--------- ---------
Net loss as reported for computation of basic and diluted
per share results . . . . . . . . . . . . . . . . . . . . $ (1,652) $ (1,465)
========= =========
Weighted average shares outstanding for computation of basic
and diluted per share results . . . . . . . . . . . . . . 4,865,000 4,863,000
========= ==========
8. Supplemental Financial Statement Information
Other Comprehensive Income
The Statement of Stockholders' Equity for the thirteen weeks ended March 1,
2003 includes other comprehensive income of $69, reflecting translation
adjustments related to Griffin's equity investment in Centaur.
Inventories
Inventories consist of:
March 1, March 2,
2003 2002
--------- --------
Nursery stock. . . . . $ 34,181 $ 29,960
Materials and supplies 1,766 1,204
--------- --------
$ 35,947 $ 31,164
========= ========
Property and Equipment
Property and equipment consist of:
Estimated March 1, Nov. 30,
Useful Lives 2003 2002
---------------- ---------- ----------
Land and improvements. . $ 5,137 $ 5,075
Buildings. . . . . . . . 10 to 40 years 2,975 2,964
Machinery and equipment 3 to 20 years 14,964 14,789
---------- ----------
23,076 22,828
Accumulated depreciation (10,592) (10,314)
---------- ----------
$ 12,484 $ 12,514
========== ==========
Griffin incurred no capital lease obligations during the thirteen weeks
ended March 1, 2003. Griffin incurred capital lease obligations of $39 in the
thirteen weeks ended March 2, 2002.
Real Estate Held for Sale or Lease
Real estate held for sale or lease consists of:
March 1, 2003
---------------------------------
Estimated Held for Held for
Useful Lives Sale Lease Total
------------ ---------- ---------- ----------
Land . . . . . . . . . . $ 1,330 $ 4,101 $ 5,431
Land improvements. . . . 15 years - 4,378 4,378
Buildings. . . . . . . . 40 years - 53,503 53,503
Development costs. . . . 6,424 5,002 11,426
---------- ---------- ----------
7,754 66,984 74,738
Accumulated depreciation - (12,923) (12,923)
---------- ---------- ----------
$ 7,754 $ 54,061 $ 61,815
========== ========== ==========
November 30, 2002
---------------------------------
Estimated Held for Held for
Useful Lives Sale Lease Total
------------ ---------- ---------- ----------
Land . . . . . . . . . . $ 1,330 $ 3,097 $ 4,427
Land improvements. . . . 15 years - 3,978 3,978
Buildings. . . . . . . . 40 years - 40,482 40,482
Development costs. . . . 6,374 7,540 13,914
---------- ---------- ----------
7,704 55,097 62,801
Accumulated depreciation - (12,255) (12,255)
---------- ---------- ----------
$ 7,704 $ 42,842 $ 50,546
========== ========== ==========
Real Estate Joint Venture
At November 30, 2002, included in other assets was $3,103 for Griffin's 30%
interest in a real estate joint venture that owned two office buildings in
Griffin Center in Windsor, Connecticut. On December 6, 2002, Griffin acquired
the remaining 70% interest in the joint venture for $8.8 million, which is
reflected in real estate held for lease at March 1, 2003. Subsequent to the
acquisition, Griffin's investment in the joint venture was reclassified,
principally into real estate held for lease.
Supplemental Cash Flow Information
In the thirteen weeks ended March 1, 2003, a deposit of $1,000, made prior
to November 30, 2002, was applied to the purchase of the remaining 70% interest
in a real estate joint venture.
9. Commitments and Contingencies
As of March 1, 2003, Griffin had committed purchase obligations of $4.3
million, including materials and services related to construction by Griffin
Land of a new approximately 115,000 square foot industrial/warehouse facility
being built on speculation.
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 - 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 privately held magazine publishing business
based in the United Kingdom.
Results of Operations
Thirteen Weeks Ended March 1, 2003 Compared to the Thirteen Weeks Ended
March 2, 2002
Net sales and other revenue increased from $2.6 million in the thirteen
weeks ended March 2, 2002 (the "2002 first quarter") to $3.1 million in the
thirteen weeks ended March 1, 2003 (the "2003 first quarter"). The increase of
$0.5 million in net sales and other revenue reflects an increase of $0.9 million
in net sales and other revenue at Griffin Land partially offset by a decrease of
$0.4 million in net sales and other revenue at Imperial.
Net sales and other revenue at Griffin Land increased from $1.9 million in
the 2002 first quarter to $2.8 million in the 2003 first quarter, reflecting an
increase of $1.0 million in revenue from Griffin Land's leasing operations,
partially offset by a decrease of $0.1 million of revenue from land sales. The
increase in revenue from leasing operations was due to (a) $0.6 million of
rental revenue from the two office buildings that Griffin acquired in December
2002; (b) $0.2 million from increased rental rates and billings to tenants for
additional services, principally snow removal; (c) $0.1 million from leasing
space that was vacant in the 2002 first quarter; and (d) $0.1 million for
leasing space that was completed subsequent to the 2002 first quarter. At March
1, 2003, Griffin Land had 1,013,000 square feet of office and industrial space
available for lease, with 885,000 square feet (87%) leased. At March 2, 2002
Griffin Land owned 803,000 square feet of office and industrial space and had a
30% interest in 160,000 square feet of office space, aggregating 963,000 square
feet of office and industrial space available for lease, with 826,000 square
feet (86%) leased. The increase in the total amount of square feet available
reflects the completion of the shell of a 50,000 square foot single story office
building in Griffin Center that is not yet leased.
Net sales and other revenue at Imperial decreased from $0.7 million in the
2002 first quarter to $0.3 million in the 2003 first quarter. Imperial's
landscape nursery business is highly seasonal, with sales peaking in the spring.
Sales in the winter months that comprise the first quarter (December through
February) are not significant when compared to the full year's sales and are
highly dependent on relatively mild winter weather. The weather in Imperial's
markets in the 2003 first quarter was unfavorable as compared to the 2002 first
quarter, resulting in lower net sales in the 2003 first quarter. Imperial's
markets continued to experience unfavorable weather conditions in early March,
which has delayed customers taking shipments of product from Imperial.
Griffin incurred an operating loss of $1.5 million in the 2003 first
quarter as compared to an operating loss of $1.2 million in the 2002 first
quarter. The higher operating loss principally reflects lower operating results
at Imperial, which incurred an operating loss of $1.2 million in the 2003 first
quarter as compared to a $1.0 million operating loss in the 2002 first quarter.
Griffin Land's results reflected an operating profit of $0.2 million in
both the 2003 and 2002 first quarters. The $1.0 million increase in revenue from
leasing operations in the 2003 first quarter was offset by a $0.6 million
increase in expenses (excluding depreciation) of Griffin Land's properties, an
increase of $0.2 million in operating expenses and an increase of $0.2 million
in depreciation expense. The increase in operating expenses principally reflects
higher marketing costs. The higher depreciation expense reflects the increased
amount of space, including the 160,000 square feet of office space acquired in
the 2003 first quarter, owned by Griffin Land in the 2003 first quarter as
compared to the 2002 first quarter. Profit, before depreciation, from Griffin
Land's commercial properties was $1.6 million in the 2003 first quarter as
compared to $1.2 million in the 2002 first quarter.
The higher operating loss at Imperial principally reflects an increase in
operating expenses and lower gross profit as a result of the decrease in net
sales. The higher operating expenses reflect additional marketing costs of $0.1
million, due principally to promoting products to be sold under the new
"Novalis" trade name.
Griffin's interest expense increased from $0.4 million in the 2002 first
quarter to $0.6 million in the 2003 first quarter. The increase reflects the
overall higher amount of borrowings outstanding in the 2003 first quarter as
compared to the 2002 first quarter, including the $9.75 million nonrecourse
mortgage completed in the 2003 first quarter to finance the acquisition of the
70% interest in two Griffin Center office buildings. Griffin's average amount of
debt outstanding in the 2003 first quarter was $34.6 million as compared to
$18.9 million in the 2002 first quarter.
Griffin's equity loss from Centaur was $0.3 million in the 2003 first
quarter as compared to an equity loss of $0.4 million in the 2002 first quarter.
The lower equity loss reflects a reduction of Centaur's interest expense as a
result of Centaur reducing its debt with the proceeds from the sale of its
Lawtel operation in the 2002 third quarter and the effect of discontinuing the
amortization of goodwill in the 2003 first quarter as a result of the adoption
of SFAS No. 142 (see Note 1). The three months that comprise Griffin's first
quarter are generally not strong months for Centaur due to the seasonality of
its business.
Liquidity and Capital Resources
In the 2003 first quarter, cash used in operating activities was $3.9
million as compared to $4.7 million of cash used in operating activities in the
2002 first quarter. The higher net loss in the 2003 first quarter, as compared
to the 2002 first quarter, was more than offset by the effect of higher
depreciation in the 2003 first quarter, favorable changes in deferred income
taxes in the 2003 first quarter as compared to the 2002 first quarter, and less
cash used for working capital items. The higher depreciation was due to the
increase in Griffin Land's real estate holdings, including the acquisition of
two office buildings (see below).
Cash used in investing activities of $8.1 million in the 2003 first quarter
includes $7.8 million for additions to real estate held for sale or lease and
$0.3 million for additions to property and equipment. The additions to Griffin
Land's real estate assets principally reflects the acquisition of the remaining
70% interest in two office buildings aggregating approximately 160,000 square
feet in which Griffin Land held a 30% interest. A deposit of $1.0 million, made
prior to the end of fiscal 2002, was applied against the purchase price. The
$0.3 million of additions to property and equipment in the 2003 first quarter
principally reflects the completion of the expansion that has been ongoing
during the past three years of Imperial's northern Florida growing operation.
Imperial's capital expenditures, which have averaged $3.0 million over the past
three fiscal years due principally to the expansion of its facilities, are
expected to be less than $1.0 million in fiscal 2003.
Net cash provided by financing activities of $12.2 million in the 2003
first quarter includes the completion of a $9.75 million nonrecourse mortgage on
the two office buildings that Griffin Land acquired in December 2002.
Additionally, borrowings under Griffin's revolving credit agreement (the "2002
Credit Agreement") with Fleet Bank increased by $2.7 million from $4.2 million
at November 30, 2002 to $6.9 million at March 1, 2003. Borrowings were used to
finance working capital requirements of Griffin's businesses, particularly
Imperial, which, because of the highly seasonal nature of its business, uses
more cash in the first half of the year.
In the 2003 first quarter, Griffin Land started site work for construction
of the shell of an approximately 115,000 square foot facility in the New England
Tradeport. This facility is being built on speculation and is expected to
require approximately $4.0 million in fiscal 2003. Additional investment will be
required to complete the interior of this new building and the interior of the
50,000 square foot office building in Griffin Center that was completed at the
end of fiscal 2002. The buildout of the interiors of these buildings will be
started when leases are obtained. Improvements to be made through the balance of
fiscal 2003 to the infrastructures at Griffin Center and the New England
Tradeport are expected to be approximately $0.7 million. Griffin Land is also
continuing to seek approvals for its proposed residential developments in
Simsbury and Suffield, Connecticut and will continue to seek completion of the
sale of the remaining development rights of its Walden Woods residential
development in Windsor, Connecticut.
On March 17, 2003 Griffin entered into a preliminary agreement with Fleet
providing for an increase of the commitment under the 2002 Credit Agreement from
$14.1 million to $21.0 million. The additional commitment amount will be
collateralized by certain of Griffin Land's real estate holdings.
Griffin's payments (including principal and interest) under contractual
obligations as of March 1, 2003 are as follows:
Due Within Due From Due From Due in More
Total One Year 1-3 Years 3-5 Years Than 5 Years
------ ---------- ---------- --------- ------------
(in millions)
Mortgages. . . . . . . . . . $ 52.6 $ 2.1 $ 5.6 $ 5.6 $ 39.3
2002 Credit Agreement (a). . 6.9 0.0 6.9 0.0 0.0
Capital Lease Obligations. . 0.5 0.2 0.3 0.0 0.0
Operating Lease Obligations. 1.0 0.2 0.4 0.3 0.1
Purchase Obligations (b) . . 4.3 4.0 0.1 0.1 0.1
Other. . . . . . . . . . . . 0.8 0.0 0.0 0.0 0.8
------ ---------- ---------- --------- ------------
$ 66.1 $ 6.5 $ 13.3 $ 6.0 $ 40.3
====== ========== ========== ========= ============
(a) Reflects the amount outstanding for the 2002 Credit Agreement as of
March 1, 2003. Due to the variable interest rate on this debt,
interest for future periods is not included above.
(b) Includes commitments made as of March 1, 2003 for the purchase of
services and materials for the planned construction in fiscal 2003 of
an approximately 115,000 square foot building.
Management believes that in the near term, based on the current level of
operations and anticipated growth, borrowings available under the 2002 Credit
Agreement, as amended, 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, construction
financing 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 expansion and improved return on assets of
Imperial's operations, construction and leasing of additional facilities in the
real estate business, completion of the sale of the development rights of Walden
Woods, approval of other proposed residential subdivisions and obtaining
additional financing to fund future capital projects. 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 mortgage 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 $6.9
million of variable rate debt outstanding at March 1, 2003.
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 equity investments in privately owned companies based in the
United Kingdom. Changes in foreign currency exchange rates could affect the
results of an equity investment in Griffin's financial statements. The companies
have historically reinvested their earnings for future growth. The ultimate
liquidation of those investments and conversion of proceeds into United States
currency is subject to future foreign currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this quarterly report,
Griffin carried out an evaluation, under the supervision and with the
participation of Griffin management, including Griffin's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
Griffin's disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that these disclosure controls and procedures
are effective. There were no significant changes in Griffin's internal controls
or in other factors that could significantly affect these controls subsequent to
the date Griffin completed its evaluation.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On December 27, 2002, the Superior Court of the State of Connecticut ruled
that Simsbury's Planning and Zoning Commissions improperly denied Griffin's
residential applications and ordered the commissions to reverse their decisions
and approve Griffin Land's proposed zone change and proposed site plan. The town
has received permission from the Appellate Court to appeal these decisions.
Items 2 - 5 not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) (1) On December 6, 2002, Griffin filed Form 8-K to announce completion
of the acquisition of the 70% interest in two office
buildings in which griffin had previously held a 30% interest.
(2) On December 17, 2002, Griffin filed Form 8-K to announce
completion of a nonrecourse mortgage loan.
(3) On February 14, 2003, Griffin filed Form 8-K to announce its 2002
fourth quarter and full year results of operations.
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: April 14, 2003 Frederick M. Danziger
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ Anthony J. Galici
------------------------------------------------------
Date: April 14, 2003 Anthony J. Galici
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND SECRETARY
CERTIFICATIONS
Certification requirements set forth in Section 302 (a) of the Sarbanes-Oxley
Act.
I, Frederick M. Danziger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Griffin Land &
Nurseries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 14, 2003 /S/ Frederick M. Danziger
----------------------------
Frederick M. Danziger
President and Chief Executive Officer
I, Anthony J. Galici, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Griffin Land &
Nurseries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weakness in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: April 14, 2003 /S/ Anthony J. Galici
-----------------------
Anthony J. Galici
Vice President, Chief Financial Officer and
Secretary