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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.
May 31, 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 July 8, 2003: 4,876,916
GRIFFIN LAND & NURSERIES, INC.
Form 10-Q
PART I - FINANCIAL INFORMATION
Consolidated Statement of Operations
13 and 26 Weeks Ended May 31, 2003 and June 1, 2002 3
Consolidated Balance Sheet
May 31, 2003 and November 30, 2002 4
Consolidated Statement of Stockholders' Equity
26 Weeks Ended May 31, 2003 and June 1, 2002 5
Consolidated Statement of Cash Flows
26 Weeks Ended May 31, 2003 and June 1, 2002 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of 16
Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk 21
Controls and Procedures 22
PART II - OTHER INFORMATION 22
SIGNATURES 24
CERTIFICATIONS 25
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,
----------------------- -----------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales and other revenue . . . . . . . . . . . . $ 21,863 $ 19,903 $ 24,964 $ 22,502
Cost of goods sold. . . . . . . . . . . . . . . . . 17,812 15,821 20,074 17,677
Selling, general and administrative expenses. . . . 2,216 2,246 4,545 4,160
---------- ---------- ---------- ----------
Operating profit. . . . . . . . . . . . . . . . . . 1,835 1,836 345 665
Interest expense. . . . . . . . . . . . . . . . . . (687) (425) (1,311) (784)
Interest income . . . . . . . . . . . . . . . . . . 9 6 17 13
---------- ---------- ---------- ----------
Income (loss) before income tax provision (benefit) 1,157 1,417 (949) (106)
Income tax provision (benefit). . . . . . . . . . . 403 454 (341) (33)
---------- ---------- ---------- ----------
Income (loss) before equity investment. . . . . . . 754 963 (608) (73)
(Loss) income from equity investment. . . . . . . . (268) 666 (558) 237
---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . $ 486 $ 1,629 $ (1,166) $ 164
========== ========== ========== ==========
Basic net income (loss) per common share. . . . . . $ 0.10 $ 0.33 $ (0.24) $ 0.03
========== ========== ========== ==========
Diluted net income (loss) per common share. . . . . $ 0.10 $ 0.32 $ (0.24) $ 0.03
========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Consolidated Balance Sheet
(dollars in thousands, except per share data)
May 31, Nov. 30,
2003 2002
----------- ------------
ASSETS (unaudited)
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21 $ 24
Accounts receivable, less allowance of $227 and $129 . . . 13,735 1,999
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 29,344 31,164
Deferred income taxes. . . . . . . . . . . . . . . . . . . 2,536 2,110
Other current assets . . . . . . . . . . . . . . . . . . . 3,276 3,473
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . 48,912 38,770
Real estate held for sale or lease, net. . . . . . . . . . 62,756 50,546
Investment in Centaur Communications, Ltd. . . . . . . . . 19,961 20,279
Property and equipment, net. . . . . . . . . . . . . . . . 12,471 12,514
Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,597 10,847
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 150,697 $ 132,956
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities . . . . . . . . . $ 4,914 $ 3,939
Long-term debt due within one year . . . . . . . . . . . . 713 540
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . 5,627 4,479
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 43,320 26,007
Deferred income taxes. . . . . . . . . . . . . . . . . . . 1,906 1,906
Other noncurrent liabilities . . . . . . . . . . . . . . . 1,280 1,094
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 52,133 33,486
----------- -----------
Commitments and contingencies
Common stock, par value $0.01 per share, 10,000,000 shares
authorized, 4,876,916 and 4,864,916 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . 49 49
Additional paid-in capital . . . . . . . . . . . . . . . . 93,608 93,588
Retained earnings. . . . . . . . . . . . . . . . . . . . . 4,795 5,961
Accumulated other comprehensive income (loss). . . . . . . 112 (128)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . 98,564 99,470
----------- -----------
Total liabilities and stockholders' equity . . . . . . . . $ 150,697 $ 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 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
========= ====== ========== ========= ============= ==========
Balance at November 30, 2002 4,864,916 $ 49 $ 93,588 $ 5,961 $ (128) $ 99,470
Exercise of stock options. . 12,000 - 20 - - 20
Net loss . . . . . . . . . . - - - (1,166) - (1,166)
Other comprehensive income . - - - - 240 240
--------- ------ ---------- --------- ------------- ----------
Balance at May 31, 2003. . . 4,876,916 $ 49 $ 93,608 $ 4,795 $ 112 $ 98,564
========= ====== ========== ========= ============= ==========
See Notes to Consolidated Financial Statements.
Griffin Land & Nurseries, Inc.
Consolidated Statement of Cash Flows
(dollars in thousands)
(unaudited)
For the 26 Weeks Ended,
-----------------------
May 31, June 1,
2003 2002
----------- --------
Operating activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . $ (1,166) $ 164
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 2,052 1,609
Loss (income) from equity investment . . . . . . . . . . . 558 (237)
Deferred income taxes. . . . . . . . . . . . . . . . . . . (426) -
Changes in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . (11,834) (9,630)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . 1,820 1,238
Other current assets . . . . . . . . . . . . . . . . . . . 197 819
Accounts payable and accrued liabilities . . . . . . . . . 975 (796)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 277 121
----------- --------
Net cash used in operating activities . . . . . . . . . . . . (7,547) (6,712)
----------- --------
Investing activities:
Additions to real estate held for sale or lease . . . . . . . (9,395) (755)
Additions to property and equipment . . . . . . . . . . . . . (444) (1,308)
Additional investment in Linguaphone. . . . . . . . . . . . . - (145)
----------- --------
Net cash used in investing activities . . . . . . . . . . . . (9,839) (2,208)
----------- --------
Financing activities:
Increase in debt. . . . . . . . . . . . . . . . . . . . . . . 17,750 9,575
Payments of debt. . . . . . . . . . . . . . . . . . . . . . . (340) (654)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27) -
----------- --------
Net cash provided by financing activities . . . . . . . . . . 17,383 8,921
----------- --------
Net (decrease) increase in cash and cash equivalents. . . . . (3) 1
Cash and cash equivalents at beginning of period. . . . . . . 24 23
----------- --------
Cash and cash equivalents at end of period. . . . . . . . . . $ 21 $ 24
=========== ========
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 and twenty-six weeks ended May 31, 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 twenty-six weeks
ended June 1, 2002 would have increased approximately $0.3 million from the
elimination of goodwill amortization.
The results of operations for the thirteen and twenty-six weeks ended May
31, 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
from these new standards at this time.
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 were 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 was 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.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities (an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements)," ("Fin No. 46"). Fin No. 46
requires existing unconsolidated variable interest entities to be included in
the consolidated financial statements of a business enterprise if the primary
beneficiaries of the variable interest entities do not effectively disperse risk
among all parties involved. The requirements of Fin No. 46 were effective for
Griffin in the 2003 first quarter. The adoption of Fin No. 46 did not have an
impact on Griffin's financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for
derivative contracts entered into or modified after June 30, 2003. Griffin does
not currently have any derivative instruments and management believes, at this
time, that this new standard will not have an impact on Griffin's financial
statements.
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This new
standard requires an issuer to classify certain financial instruments as
liabilities or, in some instances, assets. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003. At this
time, management believes that this new standard will not have an impact on
Griffin's financial statements.
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.
Griffin's industry segment information is as follows:
For the 13 Weeks Ended, For the 26 Weeks Ended,
------------------------ -----------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales and other revenue
Landscape nursery product sales . . . . . . . . . . . $ 19,042 $ 17,463 $ 19,316 $ 18,193
Real estate sales and rental revenue. . . . . . . . . 2,821 2,440 5,648 4,309
---------- ---------- ---------- ----------
$ 21,863 $ 19,903 $ 24,964 $ 22,502
========== ========== ========== ==========
Operating profit
Landscape nursery . . . . . . . . . . . . . . . . . . $ 1,792 $ 1,787 $ 556 $ 827
Real estate . . . . . . . . . . . . . . . . . . . . . 442 434 641 652
---------- ---------- ---------- ----------
Industry segment totals . . . . . . . . . . . . . . . 2,234 2,221 1,197 1,479
General corporate expense . . . . . . . . . . . . . . (399) (385) (852) (814)
Interest expense, net . . . . . . . . . . . . . . . . (678) (419) (1,294) (771)
---------- ---------- ---------- ----------
Income (loss) before income taxes . . . . . . . . . . $ 1,157 $ 1,417 $ (949) $ (106)
========== ========== ========== ==========
May 31, Nov. 30,
2003 2002
---------- ----------
Identifiable assets
Landscape nursery . . . . . . . . . . . . . . . . . . $ 54,085 $ 50,306
Real estate . . . . . . . . . . . . . . . . . . . . . 66,377 58,431
---------- ----------
Industry segment totals . . . . . . . . . . . . . . . 120,462 108,737
General corporate (consists primarily of investments) 30,235 24,219
---------- ----------
$ 150,697 $ 132,956
========== ==========
See Note 4 for information on Griffin's equity investment in Centaur, a
corporate investee not associated with either business segment.
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 six month periods ended May 31, 2003 and May 31,
2002. Griffin's equity income from Centaur for the twenty-six weeks ended May
31, 2002 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 loss from Centaur for the twenty-six
weeks ended May 31, 2003 includes $184 for amortization of publishing rights.
Griffin's equity loss 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.
Six Months Ended,
----------------------
May 31, May 31,
2003 2002
---------- ----------
Net sales. . . . . . . . . . . . . . . . . . $ 47,055 $ 43,757
Costs and expenses . . . . . . . . . . . . . 47,953 40,808
---------- ----------
Operating (loss) income. . . . . . . . . . . (898) 2,949
Nonoperating expenses. . . . . . . . . . . . (373) (1,072)
---------- ----------
Pretax (loss) income . . . . . . . . . . . . (1,271) 1,877
Income tax (benefit) provision . . . . . . . (204) 335
---------- ----------
(Loss) income from continuing operations . . (1,067) 1,542
Loss from discontinued operation, net of tax - (58)
---------- ----------
Net (loss) income. . . . . . . . . . . . . . $ (1,067) $ 1,484
========== ==========
As of
---------------------
May 31, Nov. 30,
2003 2002
---------- ----------
Current assets . . . . . . . . . . . . . . $ 24,305 $ 19,895
Intangible assets. . . . . . . . . . . . . 6,381 5,955
Other noncurrent assets. . . . . . . . . . 11,401 11,380
---------- ----------
Total assets . . . . . . . . . . . . . . . $ 42,087 $ 37,230
========= ===========
Current liabilities. . . . . . . . . . . . $ 27,226 $ 23,893
Other noncurrent liabilities . . . . . . . 4,743 2,710
---------- ----------
Total liabilities. . . . . . . . . . . . . 31,969 26,603
Stockholders' equity . . . . . . . . . . . 10,118 10,627
---------- ----------
Total liabilities and stockholders' equity $ 42,087 $ 37,230
========== ==========
5. Long-Term Debt
Long-term debt includes:
May 31, Nov. 30,
2003 2002
---------- ----------
Nonrecourse mortgages:
8.54% due July 1, 2009. . $ 7,948 $ 7,983
6.08% due January 1, 2013 9,692 -
8.13% due April 1, 2016 . 6,097 6,172
7.0% due October 1, 2017. 7,598 7,656
---------- ----------
Total nonrecourse mortgages . $ 31,335 $ 21,811
2002 Credit Agreement . . . . 12,250 4,250
Capital leases. . . . . . . . 448 486
---------- ----------
Total . . . . . . . . . . . . 44,033 26,547
Less: due within one year . . 713 540
---------- ----------
Total long-term debt. . . . . $ 43,320 $ 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 May 31, 2003 had a weighted
average interest rate of 3.86%. On May 22, 2003, the 2002 Credit Agreement was
amended to provide for an increase of the commitment amount from $14.1 million
to $20.5 million. 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.
At May 31, 2003 and November 30, 2002, the fair values of Griffin's
mortgages were $34.2 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 May 31, 2003 and
November 30, 2002 reflect their fair values.
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. . . . . . . . . . . . . 16,164 12.75
Exercised. . . . . . . . . . . . (12,000) 1.69
Cancelled. . . . . . . . . . . . (700) 13.07
----------- --------------
Outstanding at May 31, 2003. . . 659,542 $ 12.57
=========== ==============
Number of option holders at May 31, 2003 28
===
Weighted Avg.
Remaining
Outstanding at Weighted Avg. Contractual Life
Range of Exercise Prices May 31, 2003 Exercise Price (in years)
- ------------------------ -------------- -------------- ----------------
Under $3.00. . . . . . . 20,223 $ 1.79 1.5
$3.00-$11.00. . . . . . 100,172 7.52 2.7
Over $11.00. . . . . . . 539,147 13.91 5.6
--------------
659,542
==============
At May 31, 2003, 494,093 options outstanding under the Griffin Stock Option
Plan were exerciseable with a weighted average price of $12.29 per share.
Griffin accounts for stock options under Accounting Principles Board
Opinion No. 25 ("APB 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 did not incur any stock based employee compensation expense
under APB No. 25 in the twenty-six weeks ended May 31, 2003 or June 1, 2002.
Griffin's results would have been the following pro forma amounts under the
method prescribed by SFAS No. 123.
For the 13 Weeks Ended, For the 26 Weeks Ended,
----------------------- -----------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
--------- ---------- ---------- ---------
Net income (loss), as reported . . . . . . . . . . . . . . . . . . . $ 486 $ 1,629 $ (1,166) $ 164
Total stock based employee compensation expense determined
under fair value based method for all awards, net of tax effects. (67) (104) (132) (200)
--------- ---------- ---------- ---------
Net income (loss), pro forma (under SFAS No. 123). . . . . . . . . . $ 419 $ 1,525 $ (1,298) $ (36)
========= ========== ========== =========
Adjusted net income (loss) for computation of diluted per share
results, proforma (under SFAS No. 123). . . . . . . . . . . . . . $ 419 $ 1,469 $ (1,298) $ (72)
========= ========== ========== =========
Basic net income (loss) per common share, as reported. . . . . . . . $ 0.10 $ 0.33 $ (0.24) $ 0.03
Basic net income (loss) per common share, pro forma
(under SFAS No. 123) . . . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.31 $ (0.27) $ (0.01)
Diluted net income (loss) per common share, as reported. . . . . . . $ 0.10 $ 0.32 $ (0.24) $ 0.03
Diluted net income (loss) per common share, pro forma
(under SFAS No. 123) . . . . . . . . . . . . . . . . . . . . . $ 0.09 $ 0.29 $ (0.27) $ (0.01)
The weighted average fair value of each option granted during the
twenty-six weeks ended May 31, 2003 and the twenty-six weeks ended June 1, 2002
were $5.79 and $7.15, respectively, 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 granted: expected volatility of
approximately 47% and 46%, respectively; risk free interest rates ranging from
2.43% to 4.77%, respectively; expected option term of 5 years, and no dividend
yield for all options issued.
7. Per Share Results
Basic and diluted per share results were based on the following:
For the 13 Weeks Ended, For the 26 Weeks Ended,
----------------------- -----------------------
May 31, June 1, May 31, June 1,
2003 2002 2003 2002
---------- ----------- ----------- -----------
Net income (loss) as reported for computation of basic
per share results . . . . . . . . . . . . . . . . . . $ 486 $ 1,629 $ (1,166) $ 164
Adjustment to net income (loss) for assumed exercise of
options of equity investee (Centaur) . . . . . . . . . - (56) - (36)
---------- ----------- ----------- -----------
Net income (loss) as reported for computation of diluted
per share results . . . . . . . . . . . . . . . . . . $ 486 $ 1,573 $ (1,166) $ 128
========== =========== =========== ===========
Weighted average shares outstanding for computation of
basic per share results. . . . . . . . . . . . . . . . 4,874,000 4,865,000 4,869,000 4,864,000
Incremental shares from assumed exercise of Griffin
stock options. . . . . . . . . . . . . . . . . . . . . 55,000 126,000 - 110,000
---------- ----------- ----------- -----------
Weighted average shares outstanding for computation of
diluted per share results. . . . . . . . . . . . . . . 4,929,000 4,991,000 4,869,000 4,974,000
========== =========== =========== ===========
8. Supplemental Financial Statement Information
Other Comprehensive Income
The Statement of Stockholders' Equity for the twenty-six weeks ended May
31, 2003 includes other comprehensive income of $240, reflecting translation
adjustments related to Griffin's equity investment in Centaur.
Inventories
Inventories consist of:
May 31, Nov. 30,
2003 2002
--------- ---------
Nursery stock. . . . . $ 26,941 $ 29,960
Materials and supplies 2,403 1,204
--------- ---------
$ 29,344 $ 31,164
========= =========
Property and Equipment
Property and equipment consist of:
Estimated May 31, Nov. 30,
Useful Lives 2003 2002
-------------- ---------- ----------
Land and improvements. . $ 5,126 $ 5,075
Buildings. . . . . . . . 10 to 40 years 3,008 2,964
Machinery and equipment. 3 to 20 years 15,251 14,789
---------- ----------
23,385 22,828
Accumulated depreciation (10,914) (10,314)
---------- ----------
$ 12,471 $ 12,514
========== ==========
Griffin incurred capital lease obligations of $76 and $59, respectively,
during the twenty-six weeks ended May 31, 2003 and June 1, 2002.
Real Estate Held for Sale or Lease
Real estate held for sale or lease consists of:
May 31, 2003
---------------------------------
Estimated Held for Held for
Useful Lives Sale Lease Total
------------ ---------- ---------- ----------
Land . . . . . . . . . . $ 1,330 $ 4,101 $ 5,431
Land improvements. . . . 15 years - 4,490 4,490
Buildings. . . . . . . . 40 years - 53,799 53,799
Development costs. . . . 6,621 5,958 12,579
---------- ---------- ----------
7,951 68,348 76,299
Accumulated depreciation - (13,543) (13,543)
---------- ---------- ----------
$ 7,951 $ 54,805 $ 62,756
========== ========== ==========
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 May 31, 2003. Subsequent to the
acquisition, Griffin's investment in the joint venture was terminated and its
assets and liabilities were reclassified, principally into real estate held for
lease.
Supplemental Cash Flow Information
In the twenty-six weeks ended May 31, 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 May 31, 2003, Griffin had committed purchase obligations of $3.3
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 May 31, 2003 Compared to the Thirteen Weeks Ended June
1, 2002
Net sales and other revenue increased from $19.9 million in the thirteen
weeks ended June 1, 2002 (the "2002 second quarter") to $21.9 million in the
thirteen weeks ended May 31, 2003 (the "2003 second quarter"). The increase of
$2.0 million in net sales and other revenue reflects increases in net sales and
other revenue of $1.6 million at Imperial and $0.4 million at Griffin Land.
Net sales and other revenue at Griffin Land increased from $2.4 million in
the 2002 second quarter to $2.8 million in the 2003 second quarter, reflecting
an increase of $0.7 million in revenue from Griffin Land's leasing operations,
partially offset by a decrease of $0.3 million of revenue from land sales.
There were no land sales in the 2003 second quarter as compared to revenue of
$0.3 million from land sales in 2002 second quarter. The increase in revenue
from leasing operations was due to (a) $0.5 million from the two office
buildings that Griffin Land acquired in December 2002; (b) $0.1 million from
increased billings to tenants for services; (c) $0.1 million from leasing space
that was vacant in the 2002 second quarter; and (d) $0.1 million from leasing
space that was completed and occupied subsequent to the 2002 second quarter,
partially offset by the effect of $0.1 million received in the 2002 second
quarter from the early termination of two leases. At May 31, 2003, Griffin Land
owned 1,013,000 square feet of office and industrial space available for lease,
with 885,000 square feet (87%) leased. At June 1, 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 807,000 square feet (84%) 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. The increase in space leased from
807,000 square feet at June 1, 2002 to 885,000 square feet at May 31, 2003
reflects leases which commenced or were entered into in the second half of
fiscal 2002. Leasing activity in the industrial and office markets where
Griffin Land's properties are located has been relatively slow in the first half
of fiscal 2003.
Net sales and other revenue at Imperial increased from $17.4 million in the
2002 second quarter to $19.0 million in the 2003 second quarter. The increase
in net sales reflects a 4% increase in unit sales volume and selling, on
average, larger sized plants in the 2003 second quarter as compared to the 2002
second quarter, which have a higher per unit sales price. The increase in sales
of larger sized plants reflects changes in Imperial's product mix made over the
past several years. Management believes that unfavorable weather conditions in
Imperial's markets hampered sales in both the 2003 and 2002 second quarters,
which comprise Imperial's peak spring selling season. In the 2003 second
quarter, cold weather in March and early April, including snow in some areas,
delayed customers taking their initial shipments, and was followed by excessive
rain in the latter part of the second quarter throughout a substantial part of
Imperial's markets. These factors negatively affected sales, as independent
garden centers and wholesale distribution customers did not take shipment of all
of the product they had previously ordered. In the 2002 second quarter, net
sales were hampered by drought conditions in the Mid-Atlantic area and excessive
rain and cold in the Midwest.
Griffin's consolidated results reflect an operating profit of $1.8 million
in both the 2003 and 2002 second quarters. Operating profit at Imperial, was
$1.8 million in both the 2003 and 2002 second quarters and Griffin Land had an
operating profit of $0.4 million in both the 2003 and 2002 second quarters.
Griffin's general corporate expense was $0.4 million in both the 2003 and 2002
second quarters.
Although overall operating profit at Griffin Land was substantially
unchanged in the 2003 second quarter as compared to the 2002 second quarter,
operating profit (before depreciation and interest) from Griffin Land's leasing
activities increased from $1.3 million in the 2002 second quarter to $1.7
million in the 2003 second quarter. This increase reflects the increased leasing
revenue discussed above, partially offset by an increase of $0.3 million in the
operating expenses of Griffin Land's buildings, due to expenses of the two
office buildings acquired in December 2002. The increase in operating profit
(before depreciation and interest) from leasing operations was offset by not
having any land sales in the 2003 second quarter as compared to profit from land
sales of $0.2 million in the 2002 second quarter and an increase in depreciation
expense from $0.6 million in the 2002 second quarter to $0.7 million in the 2003
second quarter, due principally to the office buildings acquired. Selling,
general and administrative expenses of Griffin Land were $0.5 million in both
the 2003 and 2002 second quarters.
Operating profit at Imperial of $1.8 million in both the 2003 and 2002
second quarters reflects the increased volume and higher net sales in the 2003
second quarter as compared to the 2002 second quarter, offset by the effect of a
lower gross margin on sales in the 2003 second quarter as compared to the 2002
second quarter. Gross margin on sales was 16.2% in the 2003 second quarter as
compared to 17.8% in the 2002 second quarter, which included the effect of a
$0.4 million charge in cost of goods sold for inventory losses in excess of
normal amounts due to disease issues in propagation and the lack of proper
development of some of the plants of certain varieties. Excluding the effect of
the inventory charge in the 2002 second quarter, Imperial's gross margin on
sales would have declined 3.9% in the 2003 second quarter as compared to the
2002 second quarter. The lower gross margin in the 2003 second quarter offset
the increase in Imperial's net sales and other revenue, which resulted in
Imperial's gross profit being $3.1 million in both the 2003 and 2002 second
quarters. The lower gross margin on sales in the 2003 second quarter reflects
relatively lower pricing as compared to the 2002 second quarter as a result of
difficult market conditions and efforts by Imperial to relieve inventory that
was available for sale, but not sold, in fiscal 2002 and, therefore, carried
over into the current year. Based on its current sales level, Imperial expects
to carry into next year a portion of its inventory that was available for sale
in fiscal 2003. Additionally, in the 2003 second quarter, mass merchandiser
customers, which generally receive lower pricing through larger volume
purchases, comprised a greater percentage of Imperial's total net sales than
those customers did in the 2002 second quarter. Imperial's selling, general and
administrative expenses were $1.3 million in both the 2003 and 2002 second
quarters, but as a percentage of net sales, selling, general and administrative
expenses decreased from 7.6% in the 2002 second quarter to 6.8% in the 2003
second quarter.
Griffin's interest expense increased from $0.4 million in the 2002 second
quarter to $0.7 million in the 2003 second quarter. The increase reflects the
overall higher amount of borrowings outstanding in the 2003 second quarter as
compared to the 2002 second 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 second quarter was $42.5 million as compared to
$24.5 million in the 2002 second quarter.
Griffin incurred an equity loss from Centaur of $0.3 million in the 2003
second quarter as compared to equity income of $0.7 million in the 2002 second
quarter. The equity loss includes a charge, of which Griffin's allocable share
was $0.5 million, to accrue future costs (less expected sublease income) for an
operating lease of office space no longer in use by Centaur. Excluding that
charge, Centaur's results reflect lower revenue and increased costs and
expenses, partially offset by 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 to the financial statements included in Item 1).
Twenty-six Weeks Ended May 31, 2003 Compared to the Twenty-six Weeks Ended
June 1, 2002
Net sales and other revenue increased from $22.5 million in the twenty-six
weeks ended June 1, 2002 (the "2002 six month period") to $25.0 million in the
twenty-six weeks ended May 31, 2003 (the "2003 six month period"). The increase
of $2.5 million in net sales and other revenue reflects increases of $1.4
million in net sales and other revenue at Griffin Land and $1.1 million at
Imperial.
Net sales and other revenue at Griffin Land increased from $4.3 million in
the 2002 six month period to $5.7 million in the 2003 six month period,
reflecting an increase of $1.7 million in revenue from Griffin Land's leasing
operations, partially offset by a decrease of $0.3 million of revenue from land
sales. There were no land sales in the 2003 six month period. The increase in
revenue from leasing operations was due to (a) $1.1 million from the two office
buildings that Griffin Land acquired in December 2002; (b) $0.3 million from
increased billings to tenants for services; (c) $0.1 million from leasing space
that was vacant in the 2002 six month period; and (d) $0.3 million for leasing
space that was completed and occupied subsequent to the 2002 six month period,
partially offset by the effect of $0.1 million received in the 2002 six month
period from the early termination of two leases.
Net sales and other revenue at Imperial increased from $18.2 million in the
2002 six month period to $19.3 million in the 2003 six month period. The
increase in net sales reflects a 2% increase in unit sales volume and selling,
on average, larger sized plants, which have a higher per unit sales price. The
increase in sales of larger sized plants reflects changes in Imperial's product
mix made over the past several years. Management believes that net sales in the
2002 and 2003 six month periods, which include Imperial's peak spring selling
season, were hampered by unfavorable weather conditions in Imperial's markets,
as described above in the analysis of Griffin's results of operations for the
thirteen weeks ended May 31, 2003 as compared to the thirteen weeks ended June
1, 2002.
Griffin's consolidated results reflect an operating profit of $0.3 million
in the 2003 six month period and as compared to an operating profit of $0.7
million in the 2002 six month period. Operating profit at Imperial was $0.6
million in the 2003 six month period as compared to operating profit of $0.8
million in the 2002 six month period and Griffin Land had an operating profit of
$0.6 million in both the 2003 and 2002 six month periods. Griffin's general
corporate expense was $0.9 million in the 2003 six month period as compared to
$0.8 million in the 2002 six month period.
Although overall operating profit at Griffin Land was substantially
unchanged in the 2003 six month period as compared to the 2002 six month period,
operating profit (before depreciation and interest) from Griffin Land's leasing
activities increased from $2.5 million in the 2002 six month period to $3.2
million in the 2003 six month period. This increase reflects the increased
revenue from leasing operations discussed above partially offset by an increase
of $1.0 million in the operating expenses of Griffin Land's buildings, due
principally to expenses of the two office buildings acquired in December 2002.
The increase in operating profit (before depreciation and interest) from leasing
operations was offset by not having any land sales in the 2003 six month period
as compared to land sale profit of $0.2 million in the 2002 six month period.
Additionally, Griffin Land had an increase of $0.4 million in depreciation
expense from $1.1 million in the 2002 six month period to $1.5 million in the
2003 six month period, due principally to depreciation expense of the office
buildings acquired earlier this year and depreciation expense of a building
placed in service in the 2002 third quarter. Griffin Land's selling, general
and administrative expenses increased by $0.2 million from $0.9 million in the
2002 six month period to $1.1 million in the 2003 six month period, due
principally to increased marketing costs.
Operating profit at Imperial of $0.6 million in the 2003 six month period
as compared to $0.8 million in the 2002 six month period reflects a lower gross
margin on sales, which more than offset the increased net sales in the 2003 six
month period as compared to the 2002 six month period. Gross margins on sales
were 16.0% in the 2003 six month period as compared to 17.5% in the 2002 six
month period, which included the $0.4 million charge for unsaleable inventory.
Excluding the effect of the inventory charge in the 2002 six month period,
Imperial's gross margin on sales would have declined 3.7% in the 2003 six month
period as compared to the 2002 six month period. The lower margins at Imperial
reflect the factors discussed above in the analysis of Griffin's results of
operations for the thirteen weeks ended May 31, 2003 as compared to the thirteen
weeks ended June 1, 2002. The lower gross margin in the 2003 six month period
offset the increase in Imperial's net sales and other revenue, which resulted in
Imperial's gross profit being $3.1 million in the 2003 six month period as
compared to $3.2 million in the 2002 six month period. Imperial's selling,
general and administrative expenses were $2.5 million in the 2003 six month
period as compared to $2.4 million in the 2002 six month period and as a
percentage of net sales, selling, general and administrative expenses increased
from 13.0% in the 2002 six month period to 13.2% in the 2003 six month period.
Griffin's interest expense increased from $0.8 million in the 2002 six
month period to $1.3 million in the 2003 six month period. The increase
reflects the overall higher amount of borrowings outstanding in the 2003 six
month period as compared to the 2002 six month period, 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 2002 six month period was
$38.5 million as compared to $21.7 million in the 2002 six month period.
Griffin incurred an equity loss from Centaur of $0.6 million in the 2003
six month period as compared to equity income of $0.2 million in the 2002 six
month period. The equity loss from Centaur includes the charge for future costs
of a lease for office space no longer being used. Centaur's operating results
have been hampered by the weakened advertising market in the United Kingdom, and
their increase in net sales and other revenue was more than offset by higher
costs and expenses. Centaur's interest expense in the 2003 six month period was
lower than the 2002 six month period as a result of Centaur reducing its debt
with the proceeds from the sale of its Lawtel operation in the 2002 third
quarter. Centaur's results also reflect the effect of discontinuing the
amortization of goodwill in fiscal 2003 as a result of the adoption of SFAS No.
142 (see Note 1 to the financial statements included in Item 1).
Liquidity and Capital Resources
In the 2003 six month period, cash used in operating activities was $7.5
million as compared to $6.7 million of cash used in operating activities in the
2002 six month period. The lower operating results (excluding the equity results
from Centaur) in the 2003 six month period, as compared to the 2002 six month
period, and the increase of cash used for working capital was partially offset
by the effect of higher depreciation in the 2003 six month period. The higher
depreciation was due to the increase in Griffin Land's real estate holdings,
including the acquisition of two office buildings (see below). Operating cash
flow from Imperial, previously anticipated to be generated from the reduction of
Imperial's inventories this year, will be less than expected.
Cash used in investing activities of $9.8 million in the 2003 six month
period includes $9.4 million for additions to real estate held for sale or lease
and $0.4 million for additions to property and equipment. The additions to
Griffin Land's real estate assets principally reflect 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 and the start of
construction of an approximately 115,000 square foot facility in the New England
Tradeport being built on speculation. A deposit of $1.0 million, made prior to
the end of fiscal 2002, was applied against the purchase price of the buildings
acquired. The $0.4 million of additions to property and equipment in the 2003
six month period principally reflects the completion of the expansion of
Imperial's northern Florida growing operation that had been ongoing during the
past three years. 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 $1.5 million in fiscal 2003.
Net cash provided by financing activities of $17.4 million in the 2003 six
month period 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 $8.0 million from $4.2 million
at November 30, 2002 to $12.2 million at May 31, 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. On May 22, 2003 Griffin entered into an
amendment agreement with Fleet providing for an increase of the commitment under
the 2002 Credit Agreement from $14.1 million to $20.5 million. The additional
commitment amount is collateralized by certain of Griffin Land's real estate
holdings.
In the 2003 six month period, Griffin Land started 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 $0.5 million. Periodically,
additional investment in existing buildings is required for new and renewal
leases. 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. Griffin does not expect
to receive any cash from its residential subdivisions this year.
Griffin's payments (including principal and interest) under contractual
obligations as of May 31, 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. . . . . . . . . . $ 51.9 $ 2.8 $ 5.7 $ 5.6 $ 37.8
2002 Credit Agreement (a). . 12.2 0.0 12.2 0.0 0.0
Capital Lease Obligations. . 0.5 0.3 0.2 0.0 0.0
Operating Lease Obligations. 0.9 0.2 0.3 0.3 0.1
Purchase Obligations (b) . . 3.3 3.0 0.1 0.1 0.1
Other. . . . . . . . . . . . 0.9 0.0 0.0 0.0 0.9
------ ---------- ---------- --------- ------------
$ 69.7 $ 6.3 $ 18.5 $ 6.0 $ 38.9
====== ========== ========== ========= ============
(a) Reflects the amount outstanding for the 2002 Credit Agreement as of
May 31, 2003. Due to the variable interest rate on this debt,
interest for future periods is not included above.
(b) Includes commitments made as of May 31, 2003 for the purchase of
services and materials for an approximately 115,000 square foot
building that is currently under construction.
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 and meet Griffin's debt service
obligations. Some additional financing may be required for development of
Griffin's real estate assets, including expenditures related to new and renewal
leases. 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 $12.2
million of variable rate debt outstanding at May 31, 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 and 3 are not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) Annual Meeting of Stockholders: May 16, 2003
(b) The following were elected as Directors at the Annual Meeting
(c)(i) 1) Mr. Winston J. Churchill, Jr. was elected a Director for
2003 with 4,768,439 votes in favor, 5,879 withheld, and
102,598 not voting.
2) Mr. Edgar M. Cullman was elected a Director for 2003 with
4,768,301 votes in favor, 6,017 withheld, and 102,598 not
voting.
3) Mr. Frederick M. Danziger was elected a Director for 2003
with 4,768,406 votes in favor, 5,912 withheld, and 102,598
not voting.
4) Mr. John L. Ernst was elected a Director for 2003 with
4,768,339 votes in favor, 5,979 withheld, and 102,598 not
voting.
5) Mr. Thomas C. Israel was elected a Director for 2003 with
4,768,439 votes in favor, 5,879 withheld, and 102,598 not
voting.
6) Mr. David F. Stein was elected a Director for 2003 with
4,768,439 votes in favor, 5,879 withheld, and 102,598 not
voting.
(ii) The authorization of the selection of PricewaterhouseCoopers LLP as
independent accountants for 2003 was approved with 4,764,671 votes
in favor, 7,740 opposed, and 104,505 not voting.
Item 5 is not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------------------------------------------------------
10.26 Third Amendment Agreement dated as of May 22, 2003 by and
between Griffin Land & Nurseries, Inc. and Fleet National Bank
amending certain Credit Agreement dated as of February 8, 2002.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) (1) On December 6, 2002, Griffin filed Form 8-K to report the
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 report the
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.
(4) On April 10, 2003, Griffin filed Form 8-K to report its 2003
first quarter results of operations.
(5) On May 28, 2003, Griffin filed Form 8-K to report the
completion of the third amendment to its revolving credit
agreement.
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 14, 2003 Frederick M. Danziger
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ Anthony J. Galici
---------------------
Date: July 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: July 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: July 14, 2003 /S/ Anthony J. Galici
---------------------
Anthony J. Galici
Vice President, Chief Financial Officer and
Secretary
EXHIBITS
Exhibit 10.26
THIRD AMENDMENT AGREEMENT
-------------------------
THIRD AMENDMENT AGREEMENT (this "AMENDMENT AGREEMENT") dated as of May 22,
2003 by and between Griffin Land & Nurseries, Inc. (the "BORROWER") and Fleet
National Bank (the "BANK"), amending a certain Credit Agreement dated as of
February 8, 2002 between the Borrower and the Bank, as amended by that certain
Amendment Agreement dated as of August 31, 2002 and that certain Second
Amendment Agreement dated as of January 31, 2003 (as amended, the "CREDIT
AGREEMENT").
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Credit Agreement, the Bank has made
and continues to make loans to the Borrower; and
WHEREAS, the Borrower has requested, among other things, that the Bank
amend certain terms and conditions of the Credit Agreement; and
WHEREAS, the Bank is willing to amend certain terms and conditions of the Credit
Agreement on the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS.
Capitalized terms used herein without definition that are defined in the
Credit Agreement shall have the same meanings herein as therein.
2. RATIFICATION OF EXISTING AGREEMENTS.
All of the Borrower's obligations and liabilities to the Bank as
evidenced by or otherwise arising under the Credit Agreement, the Note and the
other Loan Documents, except as otherwise expressly modified in this Amendment
Agreement upon the terms set forth herein, are, by the Borrower's execution of
this Amendment Agreement, ratified and confirmed in all respects. In addition,
by the Borrower's execution of this Amendment Agreement, the Borrower represents
and warrants that no counterclaim, right of set-off or defense of any kind
exists or is outstanding as of the date hereof with respect to such obligations
and liabilities.
3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Bank that all of the
representations and warranties made by the Borrower and the Guarantors in the
Credit Agreement, the Note and the other Loan Documents are true and correct on
the date hereof as if made on and as of the date hereof, except to the extent
that any of such representations and warranties expressly relate by their terms
to a prior date and for matters previously disclosed to the Bank in writing.
4. CONDITIONS PRECEDENT.
The effectiveness of the amendments contemplated hereby shall be subject
to the satisfaction on or before the date hereof of each of the following
conditions precedent:
(a) Representations and Warranties. All of the representations and
warranties made by the Borrower herein, whether directly or incorporated by
reference, shall be true and correct on the date hereof, except as provided in
3 hereof.
(b) Performance; No Event of Default. The Borrower shall have performed and
complied in all material respects with all terms and conditions herein
required to be performed or complied with by it prior to or at the time hereof,
and there shall exist no Event of Default or condition which, with either or
both the giving of notice of the lapse of time, would result in an Event of
Default upon the execution and delivery of this Amendment Agreement.
(c) Corporate Action. All requisite corporate action necessary for the
valid execution, delivery and performance by the Borrower and the Guarantors of
this Amendment Agreement and all other instruments and documents delivered by
the Borrower and the Guarantors in connection therewith shall have been duly and
effectively taken.
(d) Delivery. The relevant parties hereto shall have executed and delivered
this Amendment Agreement, the Amended and Restated Revolving Credit Note, the
new Mortgage, the new Assignment of Leases and Rents and the new Environmental
Indemnity Agreement, each in form and substance satisfactory to the Bank.
(e) Fees and Expenses. The Borrower shall have paid to the Bank an
amendment fee in the amount of $26,000. The Borrower shall also have paid to
the Bank all fees and expenses incurred by the Bank in connection with this
Amendment Agreement, the Credit Agreement or the other Loan Documents on or
prior to the date hereof.
5. AMENDMENTS TO THE CREDIT AGREEMENT.
5.1. AMENDMENT TO 1.
The definition of the "COMMITMENT" appearing in Section 1 of the Credit
Agreement is hereby amended by deleting the "$19,380,000" in the third line of
such definition and substituting "$20,508,000" therefor.
5.2. AMENDMENT TO 1.
The second sentence of the definition of the term "EBITDA" appearing in
Section 1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
For the purpose of calculating the Fixed Charge Coverage Ratio only, (x)
any operating income from any Real Estate owned by the Borrower or any of its
Subsidiaries which is encumbered by a Non-Recourse Mortgage as to which no
default exists at the time that the Fixed Charge Coverage Ratio is being
determined and which is Cash Flow Positive for the fiscal period as to which the
Fixed Charge Coverage Ratio is being determined shall be excluded from the
calculation of "EBITDA" up to and including the amount necessary to satisfy the
corresponding debt service for the relevant period in respect of the
Indebtedness incurred by the Borrower or such Subsidiary which is secured by
such Non-Recourse Mortgage (including all principal and interest) and (y) any
write-off of inventory up to an amount equal to $400,000 for the fiscal quarter
ending June 1, 2002, up to an amount equal to $930,000 for the fiscal quarter
ended August 31, 2002 and up to an amount equal to $510,000 for the fiscal
quarter ended November 30, 2002 shall be excluded from the calculation of
"EBITDA" so long as the Occupancy Condition is being met.
5.3. AMENDMENT TO 1.
The following definitions appearing in Section 1 of the Credit Agreement
are hereby amended in their entirety to read as follows:
Assignment of Leases and Rents. Collectively, the Assignment to Leases and
Rents dated or to be dated on or prior to the Closing Date from the Borrower to
the Bank and the Assignment of Leases and Rents, dated or to be dated on or
prior to the Third Amendment Date from River Bend to the Bank, and each in form
and substance satisfactory to the Bank.
Environmental Indemnity Agreements. Collectively, the Environmental
Indemnity Agreement dated or to be dated on or prior to the Closing Date from
the Borrower to the Bank and the Environmental Indemnity Agreement, dated or to
be dated on or prior to the Third Amendment Date from River Bend to the Bank,
and each in form and substance satisfactory to the Bank.
Mortgages. Collectively, the Open-End Mortgage and Security Agreement,
dated or to be dated on or prior to the Closing Date from the Borrower to the
Bank and the Open-End Mortgage and Security Agreement, dated or to be dated on
or prior to the Third Amendment Date from River Bend to the Bank with respect to
the fee interests of the Borrower and River Bend, respectively, and each in form
and substance satisfactory to the Bank.
Occupancy Condition. The period during which the Real Estate that serves
as the Collateral (other than the Real Estate located at 21 Griffin Road North,
Windsor, Connecticut and any Real Estate serving as Collateral without buildings
or improvements thereon) maintains an aggregate occupancy rate in respect of
leases entered into at market rates with parties other than Borrower or any of
its Subsidiaries (but including space occupied by the Borrower of not more than
4,548 square feet) of sixty-five percent (65%) or more calculated on the basis
of square footage.
5.4. AMENDMENT TO 1.
The following new definition is hereby added to Section 1 of the Credit
Agreement in its proper alphabetical order to read as follows:
"Third Amendment Date. May 22, 2003."
5.5. AMENDMENT TO 2.4.
Section 2.4 of the Credit Agreement is hereby amended by deleting
"$19,380,000" from the second line of such Section and substituting
"$20,508,000" therefor and by deleting "Closing Date" from the third line of
such Section and substituting "Third Amendment Date" therefor.
5.6. AMENDMENT TO SCHEDULE 1.
Schedule 1 of the Credit Agreement is hereby amended in its entirety as set
forth on Schedule 1 attached hereto and made a part hereof.
6. ADDITIONAL COVENANTS.
Without any prejudice or impairment whatsoever to any of the Bank's
rights and remedies contained in the Credit Agreement and the covenants
contained therein, the Note or in any of the other Loan Documents, the Borrower
additionally covenants and agrees with the Bank that the Borrower shall comply
and continue to comply with all of the terms, covenants and provisions contained
in the Credit Agreement, the Note and the other Loan Documents, except as such
terms, covenants and provisions are expressly modified by this Amendment
Agreement upon the terms set forth herein. The Borrower expressly acknowledges
and agrees that any failure by the Borrower to comply with the terms and
conditions of this 6 or any other provisions contained in this Amendment
Agreement shall constitute an Event of Default under the Credit Agreement.
7. EXPENSES.
The Borrower agrees to pay to the Bank upon demand an amount equal to any
and all out-of-pocket costs or expenses (including reasonable legal fees and
disbursements and appraisal expenses) incurred or sustained by the Bank in
connection with the preparation of this Amendment Agreement.
8. MISCELLANEOUS.
(a) This Amendment Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
(b) Except as otherwise expressly provided by this Amendment Agreement, all
of the respective terms, conditions and provisions of the Credit Agreement shall
remain the same. It is declared and agreed by each of the parties hereto
that the Credit Agreement, as amended hereby, shall continue in full force and
effect, and that this Amendment Agreement and the Credit Agreement be read and
construed as one instrument, and all references in the Loan Documents to the
Credit Agreement shall hereafter refer to the Credit Agreement, as amended by
this Amendment Agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and behalf by its duly authorized officer as of the
date first written above.
FLEET NATIONAL BANK
By: /S/ Matthew Hummel
Title: Senior Vice President
GRIFFIN LAND & NURSERIES, INC.
By:/S/ Anthony J. Galici
Title: Vice President and Secretary
Each of the undersigned Guarantors acknowledges and accepts the foregoing and
ratifies and confirms its obligations under its respective Guaranty:
IMPERIAL NURSERIES, INC.
By:/S/ Anthony J. Galici
Its Senior Vice President
RIVER BEND ASSOCIATES, INC.
By:/S/ Anthony J. Galici
Its Vice President
Exhibit 99.1
CERTIFICATION
PURSUANT TO 18 UNITED STATES CODE SS. 1350
The undersigned hereby certifies that to his knowledge the quarterly report
of Griffin Land & Nurseries, Inc. (the "Company") filed with the Securities and
Exchange Commission on the date hereof fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the
information contained in such report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ FREDERICK M. DANZIGER
-------------------------
Frederick M. Danziger
President and Chief Executive Officer
July 14, 2003
Exhibit 99.2
CERTIFICATION
PURSUANT TO 18 UNITED STATES CODE SS. 1350
The undersigned hereby certifies that to his knowledge the quarterly report
of Griffin Land & Nurseries, Inc. (the "Company") filed with the Securities and
Exchange Commission on the date hereof fully complies with the requirements of
Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and that the
information contained in such report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ ANTHONY J. GALICI
---------------------
Anthony J. Galici
Vice President, Chief Financial Officer
July 14, 2003