10-K 1 a2218179z10-k.htm 10-K

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K


ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended November 30, 2013

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12879

GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  06-0868496
(I.R.S. Employer
Identification No.)

One Rockefeller Plaza
New York, New York

(Address of principal executive offices)

 

10020
(Zip Code)

(212) 218-7910
(Registrant's telephone number, including area code)

         SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:

Title of Each Class   Name of Each Exchange on Which Registered
Common Stock $0.01 par value   The NASDAQ Stock Market LLC

         SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         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 ý    No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

         The aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $79,989,000 based on the closing sales price on The NASDAQ Stock Market LLC on May 31, 2013, the last business day of the registrant's most recently completed second quarter. Shares of Common Stock held by each executive officer, director and persons or entities known to the registrant to be affiliates of the foregoing have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.

         As of February 5, 2014, 5,146,366 shares of common stock were outstanding.

   



FORWARD-LOOKING STATEMENTS

        This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For this purpose, any statements contained in this Annual Report on Form 10-K that relate to future events or conditions, including without limitation, the statements in Part I, Item 1. "Business" and Item 1A. "Risk Factors" and in Part II under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as located elsewhere in this annual report regarding industry prospects or Griffin's plans, expectations, or prospective results of operations or financial position, may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. Such forward-looking statements represent management's current expectations and are inherently uncertain. There are a number of important factors that could materially impact the value of Griffin's common stock or cause actual results to differ materially from those indicated by such forward-looking statements. Such factors include: adverse economic conditions and credit markets; a downturn in the residential real estate market; risks associated with concentration of real estate holdings; risks associated with entering new real estate markets; potential environmental liabilities; competition and governmental regulations; inadequate insurance coverage; risks of environmental factors; risks associated with the cost of raw materials or energy costs; regulatory risks; risks of investing in a foreign company; litigation risks; and the concentrated ownership of Griffin common stock by members of the Cullman and Ernst families. These and the important factors discussed under the caption "Risk Factors" in Part 1, Item 1A of this Form 10-K for the fiscal year ended November 30, 2013, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in this Form 10-K and presented elsewhere by management from time to time. Any such forward-looking statements represent management's estimates as of the date of this Annual Report on Form 10-K. While Griffin may elect to update such forward-looking statements at some point in the future, Griffin disclaims any obligation to do so, even if subsequent events cause Griffin's views to change. These forward-looking statements should not be relied upon as representing Griffin's views as of any date subsequent to the date of this Annual Report on Form 10-K.

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PART I

ITEM 1.    BUSINESS.

        Griffin Land & Nurseries, Inc. ("Griffin") operates a real estate business through its wholly-owned subsidiary, Griffin Land, LLC ("Griffin Land") that is principally engaged in the development, management and leasing of commercial and industrial properties. Griffin Land also seeks to add to its industrial and commercial property portfolio through the acquisition and development of land or purchase of buildings. Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin Land's core development and leasing strategy. The headquarters for Griffin Land is in Bloomfield, Connecticut.

        Through January 8, 2014, Griffin also operated a landscape nursery business through its wholly-owned subsidiary, Imperial Nurseries, Inc. ("Imperial"). Imperial was engaged in the growing of containerized plants for sale principally to independent retail garden centers and rewholesalers, whose main customers are landscape contractors. On January 8, 2014, Griffin and Imperial entered into an Asset Purchase Agreement (the "Purchase Agreement") pursuant to which Imperial's inventory and certain of its assets were sold to Monrovia Connecticut LLC ("Monrovia"), a subsidiary of Monrovia Nursery Company, for approximately $840,000 in cash (subject to certain adjustments) and a non-interest bearing note receivable of $4.25 million (the "Imperial Sale"). Concurrently with the entry into the Purchase Agreement, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the "Imperial Lease", and together with the Imperial Sale, the "Imperial Transaction") with Monrovia, pursuant to which Monrovia agreed to lease Imperial's Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Lease also grants Monrovia an option to purchase the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period.

        All of Griffin Land's real estate assets, including buildings and undeveloped land, were located in the Hartford, Connecticut area, primarily in the north submarket of Hartford through fiscal 2009. In fiscal 2010, Griffin Land completed its first acquisitions of real estate assets outside of the Hartford area by purchasing a fully leased 120,000 square foot industrial building in Breinigsville, Pennsylvania and a 51 acre parcel of undeveloped land in Lower Nazareth Township, Pennsylvania. Both the building and undeveloped land acquired are located in the Lehigh Valley region of Pennsylvania. In fiscal 2012, Griffin Land built an approximately 228,000 square foot industrial building on 18 acres of the Lower Nazareth land and in fiscal 2013 signed a five-year full building lease for that building. In the fiscal 2013 fourth quarter, Griffin Land started construction (on speculation) of an approximately 303,000 square foot industrial building on the balance of the 51 acre parcel of land in Lower Nazareth. Also in fiscal 2013, Griffin Land acquired an approximately 49 acre parcel of undeveloped land in Hanover Township, also in the Lehigh Valley region of Pennsylvania. Griffin Land expects to continue to seek to acquire and develop properties not presently owned that are consistent with its core strategy of developing and leasing industrial and commercial properties. Griffin Land expects that such potential acquisitions of either undeveloped land or land and buildings are likely to be located outside of the Hartford area.

        In the greater Hartford area, there are a number of warehouse facilities and office buildings, some of which are fully or partially vacant, that are competitive with Griffin Land's industrial/warehouse buildings and office/flex buildings. Additional capacity or an increase in vacancies in either the industrial or office market could adversely affect Griffin Land's operating results from its leasing operations by potentially resulting in longer times to lease vacant space, eroding lease rates in Griffin Land's properties or hindering renewals by existing tenants.

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        The greater Hartford industrial market had been slow in recent years, but experienced some recovery in 2012 and 2013. Market activity for office/flex space in the north submarket of Hartford was slow in 2013, with overall vacancy, availability and asking rates remaining relatively flat. Griffin Land believes that it benefits from its reputation as a stable company with sufficient resources to meet its obligations and deliver space to tenants timely and in accordance with the terms of their lease agreements. The warehouse/industrial market in the Lehigh Valley region of Pennsylvania has had a fairly strong level of leasing activity the past several years and reported vacancy levels are fairly low. As a result of the relatively strong market, there has been an increase in industrial/warehouse space in the Lehigh Valley. There can be no assurances as to the directions of the Hartford and Lehigh Valley real estate markets in the near future.

        As of November 30, 2013, Griffin Land owned thirty buildings comprising approximately 2.5 million square feet. Approximately 76% of this square footage is comprised of industrial/warehouse space, with the balance principally being office/flex space. As of November 30, 2013, approximately 74% of Griffin Land's industrial/warehouse space was leased and approximately 94% of Griffin Land's office/flex space was leased. Griffin Land uses nonrecourse mortgages to finance some of its real estate development activities, and as of November 30, 2013, approximately $66.7 million was outstanding under such loans. In fiscal 2013, Griffin Land's rental revenue, less operating expenses of rental properties, was approximately $12.7 million, while debt service on Griffin Land's nonrecourse mortgages was approximately $5.5 million.

        In fiscal 2013, Griffin Land entered into three new leases of industrial space for an aggregate of approximately 259,000 square feet and several new leases for an aggregate of approximately 49,000 square feet of office/flex space. The new leasing of industrial space included a five-year full building lease of the approximately 228,000 square foot industrial building in the Lehigh Valley that was completed at the end of the fiscal 2012 third quarter. New leases of industrial space in Griffin Land's Connecticut industrial/warehouse properties in 2013 aggregated approximately 31,000 square feet. In fiscal 2013, several leases of industrial space aggregating approximately 168,000 square feet expired and were not renewed. The net effect of these transactions was an increase of approximately 92,000 square feet of industrial space under lease as of November 30, 2013 as compared to December 1, 2012. In fiscal 2013, two leases for office/flex space aggregating approximately 24,000 square feet expired and were not renewed or terminated early. In fiscal 2013, Griffin Land renewed and extended several leases aggregating approximately 116,000 square feet of industrial space and approximately 20,000 square feet of office/flex space. Included in the fiscal 2013 lease renewals was a full building lease of approximately 100,000 square feet that was scheduled to expire in fiscal 2014 but was extended for ten years.

        In fiscal 2012, Griffin Land entered into three new leases of industrial/warehouse space for an aggregate of approximately 151,000 square feet and two new leases of office/flex space for an aggregate of approximately 32,000 square feet. The new leases for industrial/warehouse space included a three-year lease (with two one-year renewal options) for an entire building, approximately 127,000 square feet, in New England Tradeport ("Tradeport"), Griffin Land's industrial park in Windsor and East Granby, Connecticut. In connection with this new full building lease, Griffin Land entered into a lease termination agreement with an existing tenant that had leased approximately 42,000 square feet in that building, but had previously vacated its space and was seeking to sublease. Griffin Land received $325,000 in connection with the early termination of that lease, which was scheduled to expire in 2014. In fiscal 2012, Griffin Land renewed and extended several leases aggregating approximately 87,000 square feet of industrial space and approximately 70,000 square feet of office/flex space. In fiscal 2012, leases aggregating approximately 98,000 square feet expired and were not renewed. Of such space, approximately 85,000 square feet is industrial space (including the approximately 42,000 square foot lease that was terminated early and is now subject to a new, full building lease) and approximately 13,000 square feet is office/flex space.

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        In fiscal 2011, Griffin Land entered into two new leases of previously vacant office/flex space for an aggregate of approximately 29,000 square feet and a new lease for approximately 10,000 square feet of industrial space that had just become vacant due to the early termination of a lease for that space. Griffin Land also renewed and/or extended several leases of industrial space aggregating approximately 207,000 square feet and three leases of office/flex space aggregating approximately 46,000 square feet in fiscal 2011. Most of the leases that were renewed were scheduled to expire in fiscal 2011, except for leases aggregating approximately 43,000 square feet that were scheduled to expire subsequent to fiscal 2011.

        Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which does not fit into Griffin Land's core strategy of developing and leasing industrial and commercial properties. Such sale transactions may take place either before or after obtaining development approvals and either before or after basic infrastructure is built.

        In fiscal 2013, Griffin Land completed three land sales, the principal one of which was the sale of approximately 90 acres of undeveloped land in Windsor, Connecticut (the "Windsor Land Sale") for cash proceeds of approximately $9.0 million, before transaction expenses. The land sold under the Windsor Land Sale is part of an approximately 268 acre parcel of undeveloped land that had been held by Griffin Land for an extended time period. Under the terms of the Windsor Land Sale, Griffin Land and the buyer will construct roadways connecting the land parcel that was sold to existing town roads. The roads to be built will also provide access to the remaining acreage in Griffin Land's land parcel. As a result of Griffin Land's continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method, under which the revenue and gain on sale are recognized as the total costs related to the property sold are incurred. At the closing of the Windsor Land Sale, the cash proceeds were placed in escrow for the purchase of a replacement property under a Section 1031 like-kind exchange. As of the date of this Annual Report on Form 10-K, a replacement property has not been acquired. Griffin Land also closed on two smaller land sales in fiscal 2013 for aggregate net cash proceeds of approximately $0.3 million.

        In fiscal 2012, Griffin Land completed three property sales. The largest of these was the fiscal 2012 first quarter sale of its fully leased 308,000 square foot warehouse building in Manchester, Connecticut (the "Raymour Building"). Under the terms of the full building lease with Raymour & Flanigan ("Raymour") for that building, Griffin Land gave notice to Raymour in the fiscal 2011 fourth quarter that Griffin Land was exercising the put option under its lease to sell the facility to Raymour. The proceeds of approximately $16.0 million from that sale were placed in escrow for the potential acquisition of a replacement property as part of a Section 1031 like-kind exchange for income tax purposes. As Griffin Land did not identify a property it considered to be a suitable replacement property during the time period for purchasing a replacement property under IRS regulations, the proceeds from the sale of the Raymour Building were disbursed from the escrow account to Griffin Land in the fiscal 2012 second quarter. The sale of this property and all operating results for this property are reported as a discontinued operation for all periods presented in Griffin's consolidated statements of operations in this Annual Report on Form 10-K.

        Also in fiscal 2012, Griffin Land sold approximately 93 acres of undeveloped land in Tradeport that Griffin Land had held for an extended time period to Dollar Tree Distribution, Inc. for cash proceeds of $7.0 million (the "Dollar Tree Sale") as the buyer required ownership of its facility. Because Griffin Land was required, under the terms of the Dollar Tree Sale, to construct a sewer line to service the land sold, the Dollar Tree Sale was accounted for under the percentage of completion method, under which the revenue and gain on sale were recognized as the total costs related to the property sold were incurred. The proceeds from the Dollar Tree Sale were placed in escrow for the purchase of a replacement property under a Section 1031 like-kind exchange. On December 28, 2012, Griffin Land closed on the purchase of an approximately 49 acre parcel of undeveloped land in the

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Lehigh Valley of Pennsylvania using the proceeds from the Dollar Tree Sale that had been held in escrow to complete the Section 1031 like-kind exchange. In fiscal 2012, Griffin Land also completed the sale of approximately 14 acres of undeveloped land in Windsor, Connecticut for cash proceeds of approximately $1.0 million.

        In fiscal 2011, Griffin Land received total cash proceeds of approximately $4.0 million from three property sales that closed during that year. The largest of these was the sale of approximately 165 acres of undeveloped land in Suffield and Granby, Connecticut to a local farmer for cash proceeds of $3.0 million. In connection with that sale, the state of Connecticut acquired the development rights on that land from the farmer who purchased the property. In fiscal 2011, Griffin Land also closed on the sale of approximately 57 acres of undeveloped land (much of which is wetlands) in Granby to a local homebuilder and closed on the sale of approximately 10 acres of land in Southwick, Massachusetts.

        The weakness in the residential real estate market has adversely affected Griffin Land's real estate development activities for this industry sector. The continued weakness of the residential real estate market could result in lower selling prices for Griffin Land's land intended for residential use or delay the sale of such land.

        Griffin Land's development of its land is affected by regulatory and other constraints. Subdivision and other residential development issues may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth. Commercial and industrial development activities of Griffin Land's undeveloped land may also be affected by traffic considerations, potential environmental issues, community opposition and other restrictions to development imposed by governmental agencies.

        Griffin does not maintain a corporate website. Griffin's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and the proxy statement for Griffin's Annual Meeting of Stockholders can be accessed through the SEC website at www.sec.gov. Griffin will provide electronic or paper copies of its foregoing filings free of charge upon request. Griffin was incorporated in 1970.

    Commercial and Industrial Developments

    New England Tradeport

        A significant portion of Griffin Land's commercial and industrial development effort has been focused on New England Tradeport ("Tradeport"), a 600 acre industrial park near Bradley International Airport and Interstate 91, located in Windsor and East Granby, Connecticut. Within Tradeport, Griffin Land built and currently owns approximately 1,465,000 square feet of warehouse and light manufacturing space in thirteen buildings, of which approximately 67% was leased as of November 30, 2013. Tradeport also contains a bottling and distribution plant built by the Pepsi Bottling Group ("Pepsi") on land sold to Pepsi by Griffin Land in the early 1990s, and large distribution facilities built by Walgreen and Dollar Tree on land parcels purchased from Griffin Land in fiscal 2006 and fiscal 2012, respectively. The current State Traffic Certificate ("STC") covering Tradeport allows for total development of approximately 4,390,000 square feet within Tradeport. Of that total capacity, approximately 3,594,000 square feet currently is used by existing development, including approximately 2,129,000 square feet in the three buildings owned by others and approximately 1,465,000 square feet in existing Griffin Land-owned buildings.

        Griffin Land holds the remaining approximately 796,000 square feet of unbuilt capacity under the STC Certificate which relates to four approved building sites and an approved addition to one of Griffin Land's existing buildings. Griffin Land also owns all of the remaining undeveloped land within Tradeport, which consists of two contiguous parcels totaling approximately 95 acres, 60 acres of which are located in Windsor and the abutting 35 acres located in East Granby. There are no STC or other approvals currently in place (other than zoning in the case of Windsor) for the development of this

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remaining undeveloped land, and Griffin Land believes that additional infrastructure improvements, which may be significant, may be required to obtain approvals to develop portions of this land. As part of the Dollar Tree Sale, a sewer line was brought to an accessible point near the edge of this 95 acre combined parcel. Griffin Land intends to continue to direct much of its real estate efforts in Connecticut on the construction and leasing of its warehouse and light manufacturing facilities at Tradeport.

        In fiscal 2013, Griffin Land leased approximately 31,000 square feet of previously vacant space in Tradeport and renewed leases for approximately 115,000 square feet in Tradeport, while leases totaling 168,000 square feet expired and were not renewed. As of November 30, 2013, approximately $55.5 million was invested (net book value) in buildings owned by Griffin Land that are located in Tradeport and approximately $4.4 million was invested (net book value) by Griffin Land in the undeveloped land there. As of November 30, 2013, ten of Griffin Land's Tradeport buildings were mortgaged for an aggregate of approximately $43.5 million. Two Tradeport buildings built in fiscal 2007 and an older Tradeport building, aggregating approximately 373,000 square feet, are currently not mortgaged. A summary of Griffin Land's square footage owned and leased in Tradeport at the end of each of the past three fiscal years and leases in Tradeport scheduled to expire during each of the next three fiscal years are as follows:

 
  Square
Footage
Owned
  Square
Footage
Leased*
  Percentage
Leased
 

December 3, 2011

    1,465,000     1,052,000     72 %

December 1, 2012

    1,465,000     1,117,000     76 %

November 30, 2013

    1,465,000     981,000     67 %

 

 
  2014   2015   2016  

Square footage of leases expiring

    90,000     238,000     78,000  

Percentage of leased space at Nov. 30, 2013

    9 %   24 %   8 %

Number of tenants with leases expiring

    4     3     2  

Annual rental revenue of expiring leases

  $ 853,000   $ 1,979,000   $ 691,000  

Annual rental revenue of expiring leases as a percentage of Griffin Land's annual rental revenue

    4 %   10 %   4 %

*
The square footage leased in the three years presented above does not include approximately 47,000 square feet of space on which Tire Rack pays operating expenses and is required to occupy no later than August 2014, the beginning of the sixth year of its lease.

    Griffin Center and Griffin Center South

        Griffin Land's other substantial commercial development in Connecticut is the combination of its buildings in Griffin Center in Windsor and Bloomfield, Connecticut and Griffin Center South in Bloomfield. Together, these master planned developments comprise approximately 600 acres and as of November 30, 2013, approximately 63% of the acreage has been used to develop approximately 2,165,000 square feet of office and industrial space. Griffin Land owns approximately 617,000 of the 2,165,000 square feet of developed space.

    Griffin Center

        Currently in Griffin Center there are eleven office buildings, a flex building and a small restaurant. Griffin Land owns two multi-story office buildings that have an aggregate of approximately 161,000

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square feet, a single story office building of approximately 48,000 square feet, a 165,000 square foot flex building (the "NU Building"), which is used principally as office, data center and call center space and the small restaurant building.

        In fiscal 2013, Griffin Land leased approximately 42,000 square feet of previously vacant office space in Griffin Center and renewed one lease for approximately 5,000 square feet, while one tenant that leased approximately 5,000 square feet in one of Griffin Land's multi-story office buildings negotiated an early termination of that lease in connection with a ten-year early renewal and lease extension of its lease of 32,000 square feet in Griffin Land's single story office building in Griffin Center. Currently there are approximately 207 acres of undeveloped land in Griffin Center.

        As of November 30, 2013, approximately $18.0 million was invested (net book value) in Griffin Land's buildings in Griffin Center and approximately $1.2 million was invested by Griffin Land in the undeveloped land there. Griffin Land's two multi-story office buildings and the NU Building in Griffin Center are separately mortgaged for an aggregate of approximately $10.2 million, and Griffin Land's single story office building is included as collateral under Griffin's $12.5 million revolving line of credit. There were no borrowings under the revolving line of credit as of November 30, 2013.

        As of November 30, 2013, approximately 373,000 square feet of Griffin Land's buildings in Griffin Center were leased, comprising approximately 98% of Griffin Land's total space in Griffin Center. A summary of Griffin Land's square footage owned and leased in Griffin Center at the end of each of the past three fiscal years and leases in Griffin Center scheduled to expire during each of the next three fiscal years are as follows:

 
  Square
Footage
Owned
  Square
Footage
Leased
  Percentage
Leased
 

December 3, 2011

    382,000     335,000     88 %

December 1, 2012

    382,000     335,000     88 %

November 30, 2013

    382,000     373,000     98 %

 

 
  2014   2015   2016  

Square footage of leases expiring

    16,000     29,000     25,000  

Percentage of leased space at Nov. 30, 2013

    4 %   8 %   7 %

Number of tenants with leases expiring

    1     3     1  

Annual rental revenue of expiring leases

  $ 283,000   $ 512,000   $ 395,000  

Annual rental revenue of expiring leases as a percentage of Griffin Land's annual rental revenue

    1 %   3 %   2 %

    Griffin Center South

        Griffin Center South is a 130 acre tract with sixteen buildings of single story office, flex and storage space totaling approximately 1,152,000 square feet. Griffin Land currently owns nine buildings in Griffin Center South with an aggregate of approximately 235,000 square feet, of which approximately 217,000 square feet is single story office and flex space and approximately 18,000 square feet is storage space. In fiscal 2013, Griffin Land leased approximately 7,500 square feet in Griffin Center South and renewed two leases with an aggregate of approximately 16,000 square feet, while a tenant that leased approximately 19,000 square feet exercised its option to terminate its lease effective August 31, 2013, two years earlier than the lease's scheduled expiration date.

        As of November 30, 2013, approximately $7.3 million was invested (net book value) in Griffin Land's buildings in Griffin Center South and approximately $0.4 million was invested by Griffin Land in the undeveloped land there. As of November 30, 2013, Griffin Land's nine properties in Griffin

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Center South are included as collateral under Griffin's $12.5 million revolving line of credit. There were no borrowings under the revolving line of credit as of November 30, 2013. Griffin Land believes that the undeveloped land remaining in Griffin Center South is sufficient to build at least two additional buildings aggregating approximately 175,000 square feet.

        As of November 30, 2013, approximately 207,000 square feet of space in the Griffin Center South buildings owned by Griffin Land was leased, comprising 88% of Griffin Land's total space in Griffin Center South. A summary of Griffin Land's square footage owned and leased in Griffin Center South at the end of each of the past three fiscal years and leases in Griffin Center South scheduled to expire during each of the next three fiscal years are as follows:

 
  Square
Footage
Owned
  Square
Footage
Leased
  Percentage
Leased
 

December 3, 2011

    235,000     199,000     85 %

December 1, 2012

    235,000     219,000     93 %

November 30, 2013

    235,000     207,000     88 %

 

 
  2014   2015   2016  

Square footage of leases expiring

    10,000     62,000     37,000  

Percentage of leased space at Nov. 30, 2013

    5 %   30 %   18 %

Number of tenants with leases expiring

    2     5     3  

Annual rental revenue of expiring leases

  $ 101,000   $ 656,000   $ 436,000  

Annual rental revenue of expiring leases as a percentage of Griffin Land's annual rental revenue

    1 %   3 %   2 %

    Lehigh Valley Industrial Properties and Other Property

        In fiscal 2010, Griffin Land completed its first acquisition of property outside of the Hartford, Connecticut area, when it acquired a fully leased 120,000 square foot industrial building (the "Olympus Building") in Breinigsville, Pennsylvania, which is located in the Lehigh Valley. Subsequent to the purchase of the Olympus Building, Griffin Land and the tenant in that building agreed on a nine year extension of the lease, which now runs through 2025. Also in fiscal 2010, Griffin Land acquired approximately 51 acres of undeveloped land in Lower Nazareth, Pennsylvania, which was renamed Lehigh Valley Tradeport, and is located in a major industrial area of the Lehigh Valley. The land acquired had approvals for the development of two industrial buildings totaling approximately 530,000 square feet. In fiscal 2012, Griffin Land completed construction on the first of two buildings to be built in Lehigh Valley Tradeport, an approximately 228,000 square foot industrial building. This building was built on speculation and, in fiscal 2013, Griffin Land entered into a five-year full building lease of this building. The work completed in Lehigh Valley Tradeport for the construction of this building included a portion of the site work necessary for the construction of the second building. In the fiscal 2013 fourth quarter, Griffin Land started construction of the second building planned for Lehigh Valley Tradeport, an approximately 303,000 square foot industrial building. Completion of the construction of this building is expected to be in the fiscal 2014 second quarter. In addition to the costs of the site work for this new building discussed above, Griffin Land has invested approximately $1.4 million in the construction of this new building through November 30, 2013, and expects total construction costs, excluding site costs, to be approximately $9.5 million. These costs do not include leasing related costs.

        As of November 30, 2013, Griffin Land owned three industrial buildings aggregating approximately 379,000 square feet that are located outside of its core Connecticut office and industrial parks, including the Olympus Building and the newly built industrial building in Lehigh Valley Tradeport discussed above, which are a combined approximately 348,000 square feet. The third industrial building

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not located in one of Griffin Land's Connecticut industrial parks is a 31,000 square foot warehouse building in Bloomfield, Connecticut. All of these buildings are fully leased. The site of the Bloomfield building has approximately 24 acres of undeveloped land and abuts an approximately 244 acre parcel of undeveloped land located partly in Bloomfield and partly in Windsor, Connecticut that is also owned by Griffin Land. This 268 acre parcel is known as Phoenix Crossing. In fiscal 2013, Griffin Land sold approximately 90 acres of the Phoenix Crossing land in the Windsor Land Sale. Approximately $18.5 million was invested (net book value) in these three buildings at that date. The Olympus Building in Pennsylvania is mortgaged for approximately $4.0 million as of November 30, 2013, and the 228,000 square foot building in Lehigh Valley Tradeport is mortgaged for approximately $9.1 million as of November 30, 2013.

        On December 28, 2012, Griffin Land acquired a 49 acre parcel of undeveloped land in Hanover Township, Pennsylvania, also in the Lehigh Valley, for approximately $7.1 million in cash. Griffin Land expects to develop two industrial buildings totaling approximately 530,000 square feet on the land acquired. In late 2013, Griffin Land received final approvals for such development. The funds used to acquire this land were principally the proceeds from the Dollar Tree Sale that had been held in escrow since the closing of that transaction in order to qualify for a Section 1031 like-kind exchange for income tax purposes.

        Griffin Land may seek to acquire additional properties and/or undeveloped land parcels to expand the industrial/warehouse portion of its real estate business. Griffin Land continues to examine potential properties in the northeast and mid-Atlantic areas for potential acquisition.

Residential Developments

    Simsbury

        Several years ago, Griffin Land filed plans for the creation of a residential community, called Meadowood, on a 363 acre site in the Town of Simsbury, Connecticut ("Simsbury"). After several years of litigation with the town regarding this proposed residential development, a settlement was reached. The settlement terms included, among other things, approval for up to 296 homes, certain remediation measures and offsite road improvements to be performed by Griffin Land and the purchase by Simsbury of a portion of the Meadowood land for open space. The sale of land to Simsbury closed in fiscal 2008. In fiscal 2012, Griffin Land performed a portion of the required remediation work on the site and completed the required offsite road improvements. Griffin Land expects to spend approximately $1.4 million in fiscal 2014 to complete the remaining required remediation work on the site. Such work is expected to be completed in the fiscal 2014 second quarter. As of November 30, 2013, the book value of the land for this development, including design, development and legal costs, was approximately $6.6 million.

        Griffin Land owns another approximate 432 acres of undeveloped land in Simsbury, portions of which are zoned for residential use and other portions of which are zoned for industrial use. Not all of this land is developable. The land currently zoned for industrial use is probably more suited to commercial or mixed-use development. Griffin Land may seek to develop or sell such land.

    Suffield

        In fiscal 2006, Griffin Land completed the infrastructure for a fifty lot residential subdivision in Suffield, Connecticut called Stratton Farms. Griffin Land sold twenty-five residential lots in Stratton Farms to a local homebuilder in fiscal 2006 and fiscal 2007. That homebuilder did not exercise its option to purchase additional residential lots, thus canceling the option to acquire the remaining Stratton Farms lots. The homebuilder's decision not to purchase any lots after 2007 was attributed to the weakening of the residential real estate market. In 2009, the homebuilder that purchased the twenty-five Stratton Farms lots entered into bankruptcy proceedings, and the remaining unsold lots held by that homebuilder were foreclosed on by a local bank and sold to a privately owned regional homebuilder.

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        In fiscal 2010, Griffin Land entered into an agreement with that privately owned regional homebuilder under which in exchange for a payment of $100,000, the homebuilder obtained an option to purchase the remaining twenty-five residential lots of Stratton Farms. Under the agreement's lot takedown schedule, Griffin Land closed on the sale of the first four lots in fiscal 2010. The option was terminated in fiscal 2012 without any purchases of additional lots by the homebuilder. Griffin Land sold one Stratton Farms residential lot in fiscal 2013 to the homebuilder that previously was a party to the option agreement that terminated in 2012. As of November 30, 2013, Griffin Land held twenty Stratton Farms residential lots. The book value for Griffin Land's Stratton Farms holdings, including land, design, development and legal costs, was approximately $1.1 million at November 30, 2013.

    Other

        In fiscal 2013, Griffin Land leased approximately 512 acres of undeveloped land in Connecticut and Massachusetts to local farmers. Approximately 542 acres and 600 acres were leased to local farmers in fiscal 2012 and fiscal 2011, respectively. The revenue generated from the leasing of farmland is not material to Griffin Land's total revenue.

        Griffin Land is evaluating its other properties for development or sale in the future. Griffin Land anticipates that obtaining subdivision approvals for residential development in many of the towns where it owns land will be an extended process.

Landscape Nursery Business

        As indicated above, Griffin and Imperial entered into the Purchase Agreement with Monrovia, effective January 8, 2014, pursuant to which Imperial's inventory and certain of its assets were sold to Monrovia for approximately $840,000 in cash (subject to certain adjustments) and a non-interest bearing note receivable (the "Promissory Note") of $4.25 million, with payments of $2.75 million due on June 1, 2014 and $1.5 million due on June 1, 2015. Pursuant to the Purchase Agreement, Griffin and Imperial agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Purchase Agreement.

        Concurrently with the entry into the Purchase Agreement, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into the Imperial Lease with Monrovia, pursuant to which Monrovia agreed to lease Imperial's Connecticut production nursery for a ten-year period, with an option to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease provides for a net annual rent payable to Griffin of $500,000 for each of the first five years, with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations, during the first thirteen years of the lease period.

        Imperial's Florida farm is also being leased to another private company grower of landscape nursery plants. Imperial shut down its growing operations on its Florida farm in 2009 and entered into a six-year lease of that facility. The annual rent payable is $600,000 and the tenant has an option to purchase the facility any time during the lease term.

Investments

    Centaur Media plc

        Centaur Media plc ("Centaur Media") is a publicly traded company listed on the London Stock Exchange. As of November 30, 2013, Griffin held 2,452,462 shares of Centaur Media and accounts for its investment in Centaur Media as an available-for-sale security. Accordingly, changes in the fair value of Griffin's investment in Centaur Media, including both changes in the stock price and changes in the

11


foreign currency exchange rate, are not included in Griffin's net income but are included in Griffin's other comprehensive income. In fiscal 2013, Griffin sold 2,824,688 shares of its Centaur Media common stock, for total cash proceeds of approximately $2.5 million. Subsequent to the end of fiscal 2013, Griffin sold an additional 250,000 shares of Centaur Media for proceeds of approximately $250,000.

    Shemin Nurseries Holding Corp.

        Shemin Nurseries Holding Corp. ("SNHC") is a privately held company that operates a landscape nursery distribution business. As of December 1, 2012, Griffin held an approximately 14% equity interest in SNHC and accounted for its investment in SNHC under the cost method of accounting for investments. On January 18, 2013, Griffin sold its entire investment in SNHC for cash proceeds of approximately $3.4 million.

Employees

        As of November 30, 2013, Griffin employed 99 people on a full-time basis, including 72 employees in its landscape nursery business, 21 employees in its real estate business and 6 corporate employees. As a result of the Imperial Transaction, the employees of the landscape nursery business are no longer employed by Griffin. Most of the employees of the landscape nursery business were hired by Monrovia. Presently, none of Griffin's employees are represented by a union. Griffin believes that its relations with its employees are satisfactory.

Competition

        Numerous real estate developers operate in the portions of Connecticut, Massachusetts and the Lehigh Valley region of Pennsylvania in which Griffin's real estate holdings are concentrated. Some of these competitors have greater financial resources than Griffin. Griffin's real estate business competes on the bases of location, price, availability of space, convenience and amenities.

Regulation: Environmental Matters

        Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to remediate properly such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership (direct or indirect), operation, management and development of real estate properties, Griffin Land may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. The value of Griffin's land may be affected by the presence of residual chemicals from the prior use of the land for farming, principally on a portion of the land that is intended for residential use. In the event that Griffin Land is unable to remediate adequately any of its land intended for residential use, Griffin Land's ability to develop such property for its intended purposes would be materially affected.

        Griffin Land periodically reviews its properties for the purpose of evaluating such properties' compliance with applicable state and federal environmental laws. In connection with the Imperial Transaction, Griffin expects to incur some costs to remediate a small area of the Connecticut farm that will be leased to Monrovia under the Imperial Lease. At this time, Griffin Land does not anticipate experiencing, in the next twelve months, any material expense in complying with such laws. Griffin

12


Land may incur remediation costs in the future in connection with its development operations. Such costs are not expected to be significant as compared to expected proceeds from development projects or property sales.

ITEM 1A.    RISK FACTORS.

        Griffin's real estate business has a number of risk factors. The risk factors discussed below are those that management deems to be material, but they may not be the only risks facing Griffin. Additional risks not currently known or currently deemed not to be material may also impact Griffin.

    Adverse Economic Conditions and Credit Markets

        Griffin Land's real estate business may be affected by market conditions and economic challenges experienced by the U.S. economy as a whole, conditions in the credit markets or by local economic conditions in the markets in which its properties are located. Such conditions may impact Griffin's results of operations, financial condition or ability to expand its operations as a result of the following:

    The financial condition of Griffin Land's tenants may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;

    Significant job losses may occur, which may decrease demand for Griffin Land's office and industrial space, causing market rental rates and property values to be negatively impacted;

    Griffin's ability to borrow on terms and conditions that it finds acceptable, or at all, may be limited, which could reduce its ability to pursue acquisition and development opportunities, refinance existing debt, and/or increase future interest expense;

    Reduced values of Griffin Land's properties may limit its ability to obtain debt financing collateralized by its properties or may limit the proceeds from such potential financings; and

    A weak economy may limit sales of land intended for commercial/industrial use.

    Downturn in the Residential Real Estate Market

        Weakness in the residential real estate market may adversely affect Griffin Land's real estate development activities, including delaying the development and/or sale of Griffin Land's undeveloped land intended for residential use.

    Risks Associated with Concentration of Real Estate Holdings

        Griffin Land's real estate operations are concentrated primarily in the Hartford, Connecticut area, with additional operations in the Lehigh Valley of Pennsylvania. Adverse changes in the local economies, state or local governmental regulations or real estate markets could impact Griffin Land's real estate operations, including the market's ability to absorb newly constructed space, Griffin Land's ability to retenant vacant space and have an adverse effect on rental rates.

        Griffin Land's real estate operations compete with other properties in the areas where it operates. The construction of new facilities by competitors would increase capacity in the marketplace, and an increase in the amount of vacancies in competitors' properties and negative absorption of space could result in Griffin Land experiencing longer times to lease vacant space, eroding lease rates or hindering renewals by existing tenants.

13


    Risks Associated with Entering New Real Estate Markets

        In fiscal 2010, Griffin Land acquired a fully-leased 120,000 square foot industrial building in Breinigsville, Pennsylvania and a 51 acre parcel of undeveloped land in Lower Nazareth, Pennsylvania, known as Lehigh Valley Tradeport. In fiscal 2012, Griffin Land built, on speculation, a 228,000 square foot industrial building on a portion of Lehigh Valley Tradeport and in the fiscal 2013 fourth quarter, Griffin Land started construction on a 303,000 square foot industrial building in Lehigh Valley Tradeport. On December 28, 2012, Griffin Land completed the acquisition of approximately 49 acres of undeveloped land in Hanover Township, Pennsylvania. These acquisitions were Griffin Land's first purchases of properties outside of the Hartford, Connecticut market where Griffin Land's core real estate holdings are located. Griffin Land expects to continue to seek to acquire properties outside of the Hartford, Connecticut market. Operating in a real estate market that is new for Griffin Land creates additional risks and uncertainties to Griffin's operations.

    Potential Environmental Liabilities

        Griffin Land has extensive land holdings in Connecticut and Massachusetts, and, in fiscal 2010 began acquiring properties in the Lehigh Valley of Pennsylvania. Under federal, state and local environmental laws, ordinances and regulations, Griffin Land may be required to investigate and clean up the effects of releases of hazardous substances or petroleum products at its properties because of its current or past ownership or operation of the real estate. If previously unidentified environmental problems arise, Griffin Land may have to make substantial payments, which could adversely affect its cash flow. As an owner or operator of properties, Griffin Land may have to pay for property damage and for investigation and clean-up costs incurred in connection with a contamination. The law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination. Changes in environmental regulations may impact the development potential of Griffin Land's undeveloped land or could increase operating costs due to the cost of complying with new regulations.

    Governmental Regulations

        Griffin Land's real estate operations are subject to governmental regulations that affect real estate development, such as local zoning ordinances. Any changes in such regulations may impact the ability of Griffin Land to develop its properties or increase Griffin Land's costs of development.

    Insurance Coverage Does Not Include All Potential Losses in the Real Estate Business

        Griffin Land carries comprehensive insurance coverage, including property, fire, terrorism and loss of rental revenue. The insurance coverage contains policy specifications and insured limits. Griffin Land believes its properties are adequately insured. However, there are certain losses that are not generally insured against or that are not fully insured against. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of Griffin Land's properties, Griffin Land could experience a significant loss of capital invested and potential revenue from the properties affected.

    Risks Associated with the Cost of Raw Materials and Energy Costs

        Griffin Land's construction activities could be adversely affected by increases in raw materials or energy costs. As petroleum and other energy costs increase, products used in the construction of Griffin Land's facilities, such as steel, masonry, asphalt, cement and building products may increase. An increase in the cost of building new facilities could negatively impact Griffin Land's future operating results through increased depreciation expense. An increase in construction costs would also require increased investment in Griffin Land's real estate assets, which may lower the return on investment in new facilities in the real estate business. An increase in energy costs could increase Griffin's building operating expenses and thereby lower Griffin Land's operating results.

14


    Investment in a Foreign Company

        Griffin has an investment in Centaur Media plc, a public company based in the United Kingdom. The ultimate liquidation of that investment and conversion of proceeds into United States currency is subject to future foreign currency exchange rates.

    Griffin is Subject to Litigation That May Adversely Impact Operating Results

        Griffin is, and may in the future be, a party to a number of legal proceedings and claims arising in the ordinary course of business which could become significant. Given the inherent uncertainty of litigation, we can offer no assurance that a future adverse development related to existing litigation or any future litigation will not have a material adverse impact on Griffin's business, consolidated financial position, results of operations or cash flows.

    The Concentrated Ownership of Griffin Common Stock by Members of the Cullman and Ernst Families

        Members of the Cullman and Ernst families (the "Cullman and Ernst Group"), which include David M. Danziger, a director of Griffin, Frederick M. Danziger, Griffin's Chairman and Chief Executive Officer, Michael S. Gamzon, Griffin's President and Chief Operating Officer and John J. Kirby, Jr., a director of Griffin who is married to a member of the Cullman family, members of their families and trusts for their benefit, partnerships in which they own substantial interests and charitable foundations on whose boards of directors they sit, owned, directly or indirectly, approximately 46.6% of the outstanding common stock of Griffin as of November 30, 2013. There is an informal understanding that the persons and entities included in the Cullman and Ernst Group will vote together the shares owned by each of them. As a result, the Cullman and Ernst Group may effectively control the determination of Griffin's corporate and management policies and may limit other Griffin stockholders' ability to influence Griffin's corporate and management policies.

ITEM 1B.    UNRESOLVED STAFF COMMENTS.

        Not applicable.

ITEM 2.    PROPERTIES.

Land Holdings

        Griffin is a major landholder in the state of Connecticut, owning approximately 3,015 acres. Griffin also owns approximately 416 acres of land in Massachusetts, approximately 117 acres of land in Pennsylvania and approximately 1,066 acres in northern Florida. At November 30, 2013, the book value of land holdings owned by Griffin was approximately $30.2 million. Griffin believes the fair market value of such land is substantially in excess of its book value.

15


        Listings of the locations of Griffin's land holdings, a portion of which, principally in Bloomfield, East Granby and Windsor, Connecticut and Breinigsville, Lower Nazareth Township and Hanover Township, Pennsylvania have been developed, are as follows:

Land Holdings

Location
  Land Area  
 
  (in acres)
 

Connecticut

       

Bloomfield

    320  

East Granby

    554 (a)

East Windsor

    115  

Granby

    339 (a)

Simsbury

    795  

Suffield

    74  

Windsor

    818  

Florida

       

Quincy

    1,066 (b)

Massachusetts

       

Southwick

    416  

Pennsylvania

       

Lower Nazareth Township

    51  

Hanover Township

    49  

Breinigsville

    17  

(a)
Includes approximately 424 acres of land in East Granby and 305 acres of land in Granby that were used by Imperial in its growing operation. Effective January 9, 2014, most of such acreage is leased to Monrovia under the Imperial Lease.

(b)
The acreage in Florida was used in Imperial's landscape nursery business prior to fiscal 2009. Imperial shut down that facility in fiscal 2009 and now leases that facility to another nursery grower. That lease agreement includes an option for the tenant to purchase the Florida farm.

Developed Properties

        As of November 30, 2013, Griffin Land owned thirty buildings, comprised of seventeen industrial/warehouse buildings, twelve office/flex buildings and a small restaurant building. A listing of those facilities is as follows:

Griffin Center

       

1985 Blue Hills Avenue, Windsor, CT*

  Flex building   165,000 sq. ft.

5 Waterside Crossing, Windsor, CT*

  Office building   80,500 sq. ft.

7 Waterside Crossing, Windsor, CT*

  Office building   80,500 sq. ft.

21 Griffin Road North, Windsor, CT*

  Office building   48,300 sq. ft.

1936 Blue Hills Avenue, Windsor, CT

  Restaurant building   7,200 sq. ft.

16



Griffin Center South

       

29 - 35 Griffin Road South, Bloomfield, CT*

  Flex building   57,500 sq. ft.

55 Griffin Road South, Bloomfield, CT*

  Office/flex building   40,300 sq. ft.

340 West Newberry Road, Bloomfield, CT*

  Office/flex building   39,000 sq. ft.

206 West Newberry Road, Bloomfield, CT*

  Office/flex building   23,300 sq. ft.

204 West Newberry Road, Bloomfield, CT*

  Office/flex building   22,300 sq. ft.

210 West Newberry Road, Bloomfield, CT*

  Warehouse building   18,400 sq. ft.

330 West Newberry Road, Bloomfield, CT*

  Office/flex building   11,900 sq. ft.

310 West Newberry Road, Bloomfield, CT*

  Office/flex building   11,400 sq. ft.

320 West Newberry Road, Bloomfield, CT*

  Office/flex building   11,100 sq. ft.

 

New England Tradeport

       

100 International Drive, Windsor, CT*

  Industrial building   304,200 sq. ft.

755 Rainbow Road, Windsor, CT

  Industrial building   148,500 sq. ft.

758 Rainbow Road, Windsor, CT*

  Industrial building   137,000 sq. ft.

754 Rainbow Road, Windsor, CT*

  Industrial building   136,900 sq. ft.

759 Rainbow Road, Windsor, CT

  Industrial building   126,900 sq. ft.

75 International Drive, Windsor, CT*

  Industrial building   117,000 sq. ft.

20 International Drive, Windsor, CT*

  Industrial building   99,800 sq. ft.

40 International Drive, Windsor, CT*

  Industrial building   99,800 sq. ft.

35 International Drive, Windsor, CT

  Industrial building   97,600 sq. ft.

16 International Drive, East Granby, CT*

  Industrial building   58,400 sq. ft.

25 International Drive, Windsor, CT*

  Industrial building   57,200 sq. ft.

15 International Drive, East Granby, CT*

  Industrial building   41,600 sq. ft.

14 International Drive, East Granby, CT*

  Industrial building   40,100 sq. ft.

 

Lehigh Valley and Other Properties

       

4275 Fritch Drive, Lower Nazareth, PA*

  Industrial building   228,000 sq. ft.

871 Nestle Way, Breinigsville, PA*

  Industrial building   119,900 sq. ft.

1370 Blue Hills Avenue, Bloomfield, CT

  Industrial building   30,700 sq. ft.

*
Included as collateral under one of Griffin's nonrecourse mortgages or Griffin's revolving line of credit.

        Griffin leases approximately 2,300 square feet in New York City for its executive offices.

        As with many companies engaged in real estate investment and development, Griffin holds its real estate portfolio subject to mortgage debt. See Note 10 to Griffin's consolidated financial statements for information concerning the mortgage debt associated with Griffin's properties.

ITEM 3.    LEGAL PROCEEDINGS.

        Griffin is involved, as a defendant, in various litigation matters arising in the ordinary course of business. In the opinion of management, based on the advice of legal counsel, the ultimate liability, if any, with respect to these matters is not expected to be material to Griffin's financial position, results of operations or cash flows.

ITEM 4.    MINE SAFETY DISCLOSURES.

        Not applicable.

17



PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

        The following are the high and low prices of common shares of Griffin Land & Nurseries, Inc. as traded on The NASDAQ Stock Market LLC:

 
  1st Quarter   2nd Quarter   3rd Quarter   4th Quarter  
 
  High   Low   High   Low   High   Low   High   Low  

2013

  $ 30.56   $ 25.05   $ 30.60   $ 27.90   $ 32.59   $ 27.06   $ 33.00   $ 30.30  

2012

  $ 28.99   $ 24.86   $ 27.58   $ 23.40   $ 29.16   $ 23.77   $ 33.73   $ 24.30  

        On February 5, 2014, the number of record holders of common stock of Griffin was approximately 214, which does not include beneficial owners whose shares are held of record in the names of brokers or nominees. The closing market price as quoted on The NASDAQ Stock Market LLC on such date was $27.36 per share.


Dividend Policy

        In fiscal 2011, Griffin declared quarterly cash dividends of $0.10 per share. In the fourth quarter of fiscal 2011, Griffin's Board of Directors decided to change Griffin's dividend policy for succeeding years. Beginning in fiscal 2012, rather than continuing to pay a quarterly dividend, Griffin intends to consider the payment of an annual dividend at the end of its fiscal year. This change permits the Board to evaluate better both Griffin's prior full year results and its cash needs for the succeeding year when determining whether to declare an annual dividend. In fiscal 2012 and fiscal 2013, Griffin declared an annual dividend of $0.20 per share in each year.

18



Stock Performance Graph

        The following graph compares the total percentage changes in the cumulative total stockholder return (assuming the reinvestment of dividends) on Griffin's Common Stock with the cumulative total return of the Russell 2000 Index from November 29, 2008 to November 30, 2013. It is assumed in the graph that the value of each investment was $100 at November 29, 2008. Griffin is not aware of any other company that substantially participated in both the landscape nursery and real estate businesses during that period, and would therefore be suitable for comparison to Griffin as a "peer issuer" within Griffin's lines of business.

GRAPHIC

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ITEM 6.    SELECTED FINANCIAL DATA.

        The following table sets forth selected statement of operations data for fiscal years 2009 through 2013 and balance sheet data as of the end of each fiscal year. The selected statement of operations data for fiscal 2011, fiscal 2012 and fiscal 2013 and the selected balance sheet data for fiscal 2012 and fiscal 2013 are derived from the audited consolidated financial statements included in Item 8 of this report. The selected statement of operations data for fiscal 2009 and fiscal 2010 and the balance sheet data for fiscal 2009, fiscal 2010 and fiscal 2011 were derived from the audited consolidated financial statements for those years.

 
  2013   2012   2011   2010   2009  
 
  (dollars in thousands, except per share data)
 

Statement of Operations Data:

                               

Total revenue

  $ 25,526   $ 24,215   $ 22,657   $ 18,386   $ 15,686  

Operating income (loss)

    2,436     3,386     2,366     (1,949 )   (3,715 )

Income (loss) from continuing operations

    1,910     196     (1,308 )   (3,730 )   (4,520 )

Loss (income) from discontinued operations(1)

    (7,731 )   770     (1,166 )   (757 )   (993 )

Net (loss) income

    (5,821 )   966     (2,474 )   (4,487 )   (5,513 )

Basic income (loss) per share from continuing operations

   
0.37
   
0.04
   
(0.25

)
 
(0.73

)
 
(0.89

)

Basic (loss) income per share from discontinued operations(1)

    (1.50 )   0.15     (0.23 )   (0.15 )   (0.20 )

Basic net (loss) income per share

    (1.13 )   0.19     (0.48 )   (0.88 )   (1.09 )

Diluted income (loss) per share from continuing operations

   
0.37
   
0.04
   
(0.25

)
 
(0.73

)
 
(0.89

)

Diluted(loss) income per share from discontinued operations(1)

    (1.50 )   0.15     (0.23 )   (0.15 )   (0.20 )

Diluted net (loss) income per share

    (1.13 )   0.19     (0.48 )   (0.88 )   (1.09 )

Balance Sheet Data:

   
 
   
 
   
 
   
 
   
 
 

Total assets

    184,727     180,114     176,675     183,151     188,736  

Working capital

    13,176     19,807     21,439     24,400     35,533  

Long-term debt (including current portion)

    66,793     59,561     61,181     63,037     62,598  

Stockholders' equity

    98,115     104,146     103,305     109,067     114,746  

Cash dividends declared per common share

    0.20     0.20     0.40     0.40     0.40  

(1)
In all years presented reflects the results from the growing operations of the landscape nursery business. Fiscal 2009 through fiscal 2012, also reflects the results from the operations of the 308,000 square foot warehouse facility in Manchester, Connecticut. Fiscal 2012 results of discontinued operations also include the gain on the sale of the Manchester warehouse, which closed in the fiscal 2012 first quarter.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

        The consolidated financial statements of Griffin Land & Nurseries, Inc. ("Griffin") reflect Griffin's real estate business which is conducted through its wholly-owned subsidiary, Griffin Land, LLC ("Griffin Land"), and Griffin's wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. ("Imperial"). Imperial's growing operations are reflected as a discontinued operation in Griffin's consolidated financial statements for all periods presented as a result of the sale (the "Imperial Sale") of Imperial's growing operations to Monrovia Connecticut, LLC ("Monrovia") and the lease of Imperial's Connecticut farm to Monrovia (the "Imperial Lease", and together with the Imperial Sale the "Imperial Transaction") that became effective January 8, 2014. In addition to the growing operations of Imperial, Griffin's results of discontinued operations also include the operating results and gain on the sale of the warehouse building that was owned by Griffin Land and sold in fiscal 2012.

        The notes to Griffin's consolidated financial statements included in Item 8 contain a summary of the significant accounting policies and methods used in the preparation of Griffin's consolidated financial statements. In the opinion of management, because of the relative magnitude of Griffin's real estate assets and inventories, accounting methods and estimates related to those assets are critical to the preparation of Griffin's consolidated financial statements. Generally, Griffin must use an accounting policy or method because it is the only policy or method permitted under accounting principles generally accepted in the United States of America ("U.S. GAAP"). The following are the critical accounting estimates and methods used by Griffin:

            Accounts receivable:    Management estimates future recoverability of its accounts receivable based on an account's aging, payment history and financial condition.

            Inventories:    In applying the principle of the lower of cost or fair value using the average cost method for nursery stock, management may need to estimate the future recoverability of certain parts of the inventory that have not matured as planned. As of November 30, 2013, the fair value was the net realizable value based on the terms of the Imperial Sale.

            Investments:    Griffin classifies its investments in equity securities that have readily determinable fair values as either available-for-sale or trading securities, based upon management's intent regarding each security. If there is a decline in fair value of available-for-sale securities, Griffin evaluates whether such decline is other than temporary, and if the decline is deemed to be other than temporary, Griffin would record the decline in its consolidated statement of operations.

            Income taxes:    In accounting for income taxes under Financial Accounting Standards Board ("FASB") ASC 740, "Income Taxes," management estimates future taxable income from operations, the sale of appreciated assets, the remaining years before the expiration of loss credit carryforwards, future reversals of existing temporary differences and tax planning strategies in determining if it is more likely than not that Griffin will realize the benefits of its deferred tax assets.

            Impairment of long-lived assets:    Griffin reviews annually, as well as when conditions may indicate, its long-lived assets to determine if there are any indications of impairment, such as a prolonged vacancy in one of Griffin Land's rental properties. If indications of impairment are present, Griffin evaluates the carrying value of the assets in relation to undiscounted cash flows or the estimated fair value of the underlying assets. In connection with Griffin's real estate business, development costs that have been capitalized are reviewed periodically for future recoverability.

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            Revenue and gain recognition:    In the real estate business, revenue includes rental revenue from Griffin Land's commercial and industrial properties and proceeds from property sales. Rental revenue is accounted for on a straight-line basis over the applicable lease term in accordance with the Lease Topic (FASB ASC 840). Gains on property sales are recognized in accordance with the Property, Plant and Equipment-Real Estate Sales Topic (FASB ASC 360-20) based on the specific terms of each sale. When the percentage of completion method is used to account for a sale of real estate, costs included in determining the percentage of completion include the costs of the land sold, allocated master planning costs, selling and transaction costs and estimated future costs related to the land sold.

            Stock based compensation:    Griffin determines stock based compensation based on the estimated fair values of stock options as determined on their grant dates using the Black-Scholes option-pricing model. In determining the estimated fair values of stock options issued, Griffin makes assumptions on expected volatility, risk free interest rates, expected option terms and dividend yields.

            Derivative instruments:    Griffin evaluates each interest rate swap agreement to determine if it qualifies as an effective cash flow hedge. Changes in the fair value of each interest rate swap agreement that management determines to be an effective cash flow hedge are recorded as a component of other comprehensive income. The fair value of each interest rate swap agreement is determined based on observable market participant data, such as yield curves, as of the fair value measurement date.

Summary

        In fiscal 2013, Griffin incurred a net loss of approximately $5.8 million as compared to net income of approximately $1.0 million in fiscal 2012. The net loss in fiscal 2013 as compared to net income in fiscal 2012 reflects a significant loss from discontinued operations partially offset by improved results from Griffin's continuing operations. Griffin incurred a loss from discontinued operations of approximately $7.7 million in fiscal 2013 as compared to income from discontinued operations of approximately $0.8 million in fiscal 2012. Griffin's income from continuing operations increased from approximately $0.2 million in fiscal 2012 to approximately $1.9 million in fiscal 2013.

        The increase of approximately $1.7 million in income from continuing operations in fiscal 2013 as compared to fiscal 2012 is principally due to gains in fiscal 2013 from the sale of Griffin's investment in Shemin Nurseries Holding Corp. ("SNHC") and from the sale of a portion of the common stock of Centaur Media plc ("Centaur") of approximately $3.4 million and approximately $1.1 million, respectively. The gains on the sale of these investments in fiscal 2013 were partially offset by a decrease in operating income of approximately $0.9 million in fiscal 2013 as compared to fiscal 2012. The lower operating income principally reflects a lower gain on property sales and higher general and administrative expenses in fiscal 2013 as compared to fiscal 2012, partially offset by higher profit from leasing operations in fiscal 2013 as compared to fiscal 2012.

        Griffin's discontinued operations in fiscal 2013 reflect the results of the growing operations of Imperial's landscape nursery business. The results from discontinued operations in fiscal 2012 and fiscal 2011 reflect Imperial's landscape nursery growing operations along with the results of operations and gain on the sale of Griffin Land's 308,000 square foot warehouse building (the "Manchester Warehouse") that was sold in January 2012. The loss from discontinued operations in fiscal 2013 as compared to income from discontinued operations in fiscal 2012 reflects a pretax charge of $10.4 million in fiscal 2013 to reduce the carrying value of Imperial's inventories to fair value, which is the net realizable value based on the terms of the Imperial Sale. Income from discontinued operations in fiscal 2012 includes a gain from the sale of the Manchester Warehouse that was sold in the fiscal 2012 first quarter partially offset by a loss from Imperial's landscape nursery business. The Manchester

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Warehouse was sold for cash proceeds of $16.0 million and a gain, before taxes, of approximately $2.9 million. Griffin Land had an operating profit from the Manchester Warehouse of approximately $0.2 million, before taxes, in fiscal 2012 prior to its sale.

Results of Operations

    Fiscal 2013 Compared to Fiscal 2012

        Griffin's revenue increased from approximately $24.2 million in fiscal 2012 to approximately $25.5 million in fiscal 2013, reflecting an increase of approximately $1.6 million in rental revenue in fiscal 2013 as compared to fiscal 2012, partially offset by a decrease of approximately $0.3 million of revenue from property sales in fiscal 2013 as compared to fiscal 2012. The increase in rental revenue in fiscal 2013 as compared to fiscal 2012 is almost entirely due to higher occupancy in Griffin Land's rental properties in fiscal 2013 as compared to fiscal 2012. The net increase in rental revenue principally reflects: (a) an increase of approximately $2.1 million of rental revenue in fiscal 2013 due to leasing previously vacant space in buildings that were in service the entire year in both fiscal 2013 and fiscal 2012; and (b) an increase of approximately $0.5 million of rental revenue in fiscal 2013 from the commencement of a full building lease of the Lehigh Valley industrial building that was completed at the end of the fiscal 2012 third quarter; partially offset by (c) a decrease of approximately $0.9 million in rental revenue from leases that expired and were not renewed or terminated early.

        A summary of the square footage of Griffin Land's real estate portfolio is as follows:

 
  Total
Square
Footage
  Square
Footage
Leased
  Percentage
Leased
 

As of December 1, 2012

    2,460,000     1,822,000     74 %

As of November 30, 2013

    2,460,000     1,939,000     79 %

        The increase in square footage leased as of November 30, 2013, as compared to December 1, 2012, reflects a new full building lease in fiscal 2013 for the approximately 228,000 square foot Lehigh Valley industrial building and the leasing of several other previously vacant spaces aggregating approximately 81,000 square feet (approximately 50,000 square feet of office/flex space and approximately 31,000 square feet of industrial/warehouse space) in fiscal 2013, partially offset by leases aggregating approximately 192,000 square feet that expired in fiscal 2013 and were not renewed or terminated early. The greater Hartford industrial market had been slow in recent years, but experienced some recovery in 2012 and 2013. Market activity for office/flex space in the north submarket of Hartford was slow in 2013, with overall vacancy, availability and asking rates remaining relatively flat. Griffin Land believes that it has been able to secure new leases for office/flex space because of its reputation as a stable, well capitalized company that maintains its properties to a high standard, meets its obligations and is able to deliver space to tenants timely and in accordance with the tenant's requirements and budget.

        Revenue from property sales decreased from approximately $5.8 million in fiscal 2012 to approximately $5.5 million in fiscal 2013. Property sales occur periodically, and changes in revenue from year to year from those transactions may not be indicative of any trends in the real estate business. Property sales in fiscal 2013 include the closing of the sale of approximately 90 acres of undeveloped land in Windsor, Connecticut (the "Windsor Land Sale") for cash proceeds of approximately $9.0 million (before transaction expenses) in the fiscal 2013 fourth quarter. Griffin Land is required, under the terms of the Windsor Land Sale, to construct roadways that will connect the land sold to existing town roadways. Accordingly, because of Griffin Land's continuing involvement with the land that was sold, the Windsor Land Sale is being accounted for under the percentage of completion method, under which the revenue and the gain on sale are recognized as the total costs related to the property sale are incurred. In fiscal 2013, Griffin Land recognized approximately $2.7 million of revenue from the Windsor Land Sale. The balance of the revenue from the Windsor Land Sale will be recognized as the costs of the

23


required roadway construction are incurred, which is expected to be mostly in fiscal 2014. In addition to the revenue from the Windsor Land Sale, revenue from property sales in fiscal 2013 also included the recognition of approximately $2.3 million of previously deferred revenue from the sale of approximately 93 acres of undeveloped land in New England Tradeport ("Tradeport"), Griffin Land's industrial park in Windsor and East Granby, Connecticut, to Dollar Tree Distribution, Inc. (the "Dollar Tree Sale") that closed in fiscal 2012. As Griffin Land was required, under the terms of the Dollar Tree Sale, to construct a sewer line to service the property sold, Griffin Land accounted for the Dollar Tree Sale under the percentage of completion method. In addition to the recognition of previously deferred revenue on the Dollar Tree Sale, Griffin Land reported approximately $0.2 million of additional revenue from the Dollar Tree Sale in fiscal 2013 and also had a total of approximately $0.3 million of revenue from two smaller land sales. Property sales revenue in fiscal 2012 principally included the recognition of approximately $4.7 million of revenue from the Dollar Tree Sale and approximately $1.0 million of revenue from the sale of approximately 14 acres of undeveloped land in Windsor for cash.

        Operating expenses of rental properties increased from approximately $6.7 million in fiscal 2012 to approximately $7.5 million in fiscal 2013. The increase of approximately $0.8 million in operating expenses of rental properties principally reflects an increase of approximately $0.3 million of snow removal expenses and increases of approximately $0.1 million in both real estate taxes on rental properties and repair and maintenance expenses. The increase in snow removal expenses reflects the effect of the relatively mild winter weather in fiscal 2012, when there was a minimal amount of snowfall, as compared to a higher amount of snowfall in fiscal 2013.

        Depreciation and amortization expense increased from approximately $6.3 million in fiscal 2012 to approximately $6.7 million in fiscal 2013. The increase in depreciation and amortization expense of approximately $0.4 million in fiscal 2013 as compared to fiscal 2012 was due principally to an increase of approximately $0.3 million in fiscal 2013 on the 228,000 square foot Lehigh Valley industrial building that was completed and placed in service at the end of the fiscal 2012 third quarter, an increase of approximately $0.1 million related to new tenant improvements in several of Griffin Land's buildings and an increase of approximately $0.1 million in fiscal 2013 from accelerating depreciation on tenant improvements as a result of a tenant exercising its early lease termination option effective at the end of the fiscal 2013 third quarter. These increases in depreciation expense were partially offset by a decrease in depreciation expense of approximately $0.1 million in fiscal 2013 from certain tenant improvements becoming fully depreciated.

        Griffin's general and administrative expenses include both expenses that had previously been reflected as general corporate expense when Griffin's continuing operations included both the real estate and landscape nursery businesses and general and administrative expenses of Griffin Land. Griffin's general and administrative expenses increased from approximately $6.8 million in fiscal 2012 to approximately $7.8 million in fiscal 2013. The increase of approximately $1.0 million in general and administrative expenses principally reflects an increase of approximately $0.5 million in expenses related to Griffin's non-qualified deferred compensation plan, an increase of approximately $0.2 million in real estate taxes on undeveloped land and smaller increases in other general and administrative expenses that aggregate to approximately $0.3 million. The higher expenses of the non-qualified deferred compensation plan reflect the effect on participant balances of higher stock market performance in fiscal 2013 as compared to fiscal 2012.

        In fiscal 2013, the sale of Griffin's investment in SNHC was completed, with Griffin receiving cash proceeds of approximately $3.4 million. Because of the low carrying cost of its investment in SNHC, Griffin's gain on sale was approximately $3.4 million, essentially equal to the cash proceeds received. Also in fiscal 2013, Griffin sold 2,824,688 shares of its common stock of Centaur Media for cash proceeds of approximately $2.5 million. Griffin's gain from the sale of its Centaur Media common stock in fiscal 2013 was approximately $1.1 million. After the sales of Centaur Media common stock, Griffin owned 2,452,462 shares of Centaur Media common stock as of November 30, 2013. There were no sales of investments in fiscal 2012, however; fiscal 2012 did include investment income of approximately $0.6 million principally from a cash distribution from SNHC.

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        Griffin's interest expense increased from approximately $3.5 million in fiscal 2012 to approximately $3.8 million in fiscal 2013, principally due to approximately $0.6 million of interest being capitalized in fiscal 2012 as compared to only approximately $0.1 million of interest capitalized in fiscal 2013 and interest expense of approximately $0.1 million on a new nonrecourse mortgage loan entered into in fiscal 2013 on the new Lehigh Valley industrial building that became fully leased in fiscal 2013. Partially offsetting these increases was a decrease in interest expense of approximately $0.2 million in fiscal 2013 as compared to fiscal 2012 due to lower interest rates on mortgage loans with Webster Bank and First Niagara Bank that were refinanced in the fiscal 2012 fourth quarter and fiscal 2013 second quarter, respectively. Interest capitalized in fiscal 2012 was on the construction projects ongoing during that year, principally the Lehigh Valley industrial building that was built by Griffin Land.

        In fiscal 2013, Griffin incurred a loss on debt extinguishment of approximately $0.3 million, related to a loan modification agreement on a mortgage loan with First Niagara Bank due in January 2020 (the "2020 First Niagara Mortgage"). On April 1, 2013, Griffin Land and First Niagara Bank entered into an agreement that reduced the interest rate on the 2020 First Niagara Mortgage from a fixed rate of 5.25% to a variable rate of the one month LIBOR rate plus 2.5%. Because the difference between the present value of the future payments under the existing loan was greater than 10% of the present value of the payments under the modified loan, the loan modification was accounted for as a debt extinguishment. As such, all deferred costs related to the existing 2020 First Niagara Mortgage (approximately $0.2 million) and the fee paid to First Niagara Bank for the loan modification (approximately $0.1 million) are reflected as a loss on debt extinguishment. Concurrent with that agreement, Griffin also entered into an interest rate swap agreement with First Niagara Bank to fix the interest rate on the 2020 First Niagara Mortgage at 3.91% for the remainder of the loan term.

        Griffin's effective tax rate was 34.2% in fiscal 2013 as compared to an effective tax rate of 57.9% in fiscal 2012. The lower effective tax rate in fiscal 2013 as compared to fiscal 2012 reflects the impact of permanent differences between pretax income for book purposes and tax purposes being greater in fiscal 2012 than fiscal 2013 due to the lower amount of pretax income in fiscal 2012 as compared to fiscal 2013.

        The loss from discontinued operations, net of tax, of approximately $7.7 million in fiscal 2013, is entirely from the growing operations of the landscape nursery business. The income from discontinued operations, net of tax, of approximately $0.7 million in fiscal 2012 principally reflected the gain, net of tax, of approximately $1.5 million on the sale of the Manchester Warehouse and income from operations, net of tax, before the Manchester Warehouse was sold, partially offset by a loss, net of tax, from the growing operations of the landscape nursery business of approximately $0.9 million. The higher loss from the growing operations of the landscape nursery business in fiscal 2013 as compared to fiscal 2012 principally reflects a pretax charge of $10.4 million incurred in fiscal 2013 to reduce inventory that will be sold in the Imperial Sale to fair value, which is the net realizable value based on the terms of the Imperial Sale.

Fiscal 2012 Compared to Fiscal 2011

        Griffin's revenue increased from approximately $22.7 million in fiscal 2011 to approximately $24.2 million in fiscal 2012, reflecting an increase of approximately $1.8 million in revenue from property sales in fiscal 2012 as compared to fiscal 2011 partially offset by a decrease of approximately $0.2 million in rental revenue in fiscal 2012 as compared to fiscal 2011.

        The net decrease of approximately $0.2 million in rental revenue principally reflects: (a) a decrease of approximately $0.6 million of rental revenue in fiscal 2012 as compared to fiscal 2011 from leases that expired and were not renewed; and (b) a decrease of approximately $0.2 million of rental revenue in fiscal 2012 as compared to fiscal 2011 from lower billings for common area maintenance charges to tenants; partially offset by (c) an increase of approximately $0.5 million of rental revenue from space

25


under lease in fiscal 2012 that was vacant in fiscal 2011; and (d) an increase of approximately $0.1 million of rental revenue related to agreements with tenants to terminate leases earlier than scheduled.

        A summary of the square footage of Griffin Land's real estate portfolio, excluding the 308,000 square foot warehouse in Manchester, Connecticut that was sold in the fiscal 2012 first quarter and is accounted for as a discontinued operation in Griffin's consolidated statements of operations in both fiscal 2012 and fiscal 2011, is as follows:

 
  Total
Square
Footage
  Square
Footage
Leased
  Percentage
Leased
 

As of December 3, 2011

    2,232,000     1,736,000     78 %

As of December 1, 2012

    2,460,000     1,822,000     74 %

        The increase in total square footage of Griffin Land's real estate portfolio in fiscal 2012 reflected the construction, on speculation, of a 228,000 square foot industrial building in the Lehigh Valley of Pennsylvania in fiscal 2012. Excluding the new industrial building in the Lehigh Valley that was not leased as of December 1, 2012, Griffin Land's percentage of space leased as of December 1, 2012 would have been 82%. The increase in square footage leased in fiscal 2012 reflects several new leases aggregating approximately 183,000 square feet entered into during fiscal 2012, partially offset by leases aggregating approximately 98,000 square feet that expired and were not renewed or terminated early. Approximately 151,000 square feet of the new leasing in fiscal 2012 was industrial space, including a three-year full building lease for approximately 127,000 square feet of industrial space in one of Griffin Land's New England Tradeport buildings. In connection with this full building lease, Griffin Land entered into a lease termination agreement with an existing tenant that had leased approximately 42,000 square feet in that building, but had previously vacated its space and was seeking to sublease. In fiscal 2012, Griffin Land also renewed and extended several leases aggregating approximately 157,000 square feet, approximately 56% of which was industrial space, with the balance being office/flex space. Also, in fiscal 2012, Griffin Land received notice that a tenant was exercising an option to terminate its lease for approximately19,000 square feet in one of Griffin Land's flex buildings in Griffin Center South effective August 31, 2013, two years earlier than the scheduled lease expiration.

        Property sales revenue in fiscal 2012 included the recognition of approximately $4.7 million of revenue from the Dollar Tree Sale, which is being accounted for under the percentage of completion method, and approximately $1.0 million from the sale of approximately 14 acres of undeveloped land in Windsor for cash. Property sales in fiscal 2011 reflected approximately $3.0 million from the sale of approximately 165 acres of undeveloped land in Suffield and Granby, Connecticut and two smaller sales of undeveloped land for a total of approximately $1.0 million. Property sales occur periodically, and changes in revenue from year to year from those transactions may not be indicative of any trends in the real estate business.

        Operating expenses of rental properties decreased from approximately $7.2 million in fiscal 2011 to approximately $6.7 million in fiscal 2012. The decrease of approximately $0.5 million in operating expenses of rental properties principally reflected a decrease in snow removal expenses due to the relatively mild winter weather in fiscal 2012 as compared to the more severe winter weather in fiscal 2011.

        Depreciation and amortization expense of approximately $6.3 million in fiscal 2012 was essentially unchanged from fiscal 2011, as depreciation expense of approximately $0.1 million on the 228,000 square foot Lehigh Valley industrial building that was completed and placed in service at the end of the 2012 third quarter and an increase in depreciation expense of approximately $0.1 million related to new tenant improvements in several of Griffin Land's buildings were offset by a decrease in depreciation expense from certain tenant improvements becoming fully depreciated.

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        Griffin's general and administrative expenses were approximately $6.8 million in both fiscal 2012 and fiscal 2011. An increase of approximately $0.1 million in expenses related to Griffin's non-qualified deferred compensation plan in fiscal 2012 as compared to fiscal 2011 was offset by a net decrease of approximately $0.1 million in other general and administrative expenses.

        Griffin's interest expense decreased from approximately $4.2 million in fiscal 2011 to approximately $3.5 million in fiscal 2012. The decrease of approximately $0.7 million principally reflects approximately $0.6 million of interest capitalized in fiscal 2012 as compared to approximately $0.1 million of interest capitalized in fiscal 2011. Interest capitalized in fiscal 2012 was on the construction projects ongoing during that year, principally the Lehigh Valley industrial building that was being built by Griffin Land. Griffin's average outstanding debt in fiscal 2012 was approximately $60.3 million as compared to approximately $62.2 million in fiscal 2011, reflecting principal payments made on Griffin's nonrecourse mortgages in fiscal 2012.

        Griffin's effective tax rate was 57.9% in fiscal 2012 as compared to an effective tax rate of 17.8% in fiscal 2011. The higher effective tax rate in fiscal 2012 as compared to fiscal 2011 reflects: (a) the impact of permanent differences between book income and taxable income in fiscal 2012 being greater because of the relatively small amount of pretax income in fiscal 2012; and (b) the effect in fiscal 2011 of adjustments to certain state deferred tax assets as a result of changes in the apportionment rates of Griffin's taxable income to the different jurisdictions in which Griffin operated.

        The income from discontinued operations of approximately $0.8 million in fiscal 2012 principally reflected a gain of approximately $1.5 million, net of tax, on the sale of the Manchester Warehouse and income from operations of approximately $0.1 million, net of tax, before the Manchester Warehouse was sold in fiscal 2012, partially offset by a loss of approximately $0.9 million, net of tax, from the growing operations of the landscape nursery business. The loss, net of tax, from discontinued operations of approximately $1.2 million in fiscal 2011 reflected a loss of approximately $1.7 million, net of tax, from the growing operations the landscape nursery business partially offset by income from operations of approximately $0.5 million, net of tax, of the Manchester Warehouse.

Off Balance Sheet Arrangements

        Griffin does not have any off balance sheet arrangements.

Liquidity and Capital Resources

        Net cash used in operating activities was approximately $0.6 million in fiscal 2013 as compared to net cash provided by operating activities of approximately $1.9 million in fiscal 2012, principally reflecting a decrease of approximately $1.1 million from the net loss in fiscal 2013 as compared to net income in fiscal 2012 after factoring in the adjustments to reconcile net (loss) income to net cash used in or provided by operating activities, and approximately $1.4 million more cash used in operating activities as a result of changes in assets and liabilities in fiscal 2013 as compared to fiscal 2012. The increase in cash used as a result of changes in assets and liabilities principally reflects the timing of cash receipts and payments, including other current assets remaining essentially unchanged in fiscal 2013 as compared to a reduction in other current assets of approximately $1.4 million in fiscal 2012. The change in other current assets principally reflects fiscal 2012 including cash proceeds of approximately $0.7 million from the collection of a note receivable related to a land sale several years earlier and cash proceeds of approximately $0.5 million collected in fiscal 2012 from an insurance claim that was settled in fiscal 2011.

        Net cash used in investing activities was approximately $1.2 million in fiscal 2013 as compared to net cash provided by investing activities of approximately $3.0 million in fiscal 2012. The net cash used in investing activities in fiscal 2013 principally reflects approximately $13.5 million of cash used for additions to real estate assets, a net of approximately $2.8 million of cash deposited in escrow and

27


approximately $0.1 million of cash used for additions to property and equipment, offset by approximately $9.4 million of proceeds from property sales, approximately $3.4 million of proceeds from the sale of SNHC and approximately $2.5 million of proceeds from the sale of Centaur Media common stock. The cash deposited into escrow reflects the approximately $8.9 million of proceeds from the Windsor Land Sale that were placed in escrow for a potential Section 1031 like-kind exchange and approximately $0.9 million of cash deposited in escrow that will be used for a portion of the road construction related to the Windsor Land Sale, offset by approximately $6.9 million of cash that was returned from escrow from the Dollar Tree Sale. The funds returned from escrow from the Dollar Tree Sale were used for the acquisition of undeveloped land in the Lehigh Valley of Pennsylvania (see below). In addition to the acquisition of undeveloped land in fiscal 2013, Griffin Land's additions to its real estate assets included approximately $2.9 million for tenant improvements related to new leases, approximately $1.4 million towards construction of a 303,000 square foot industrial building in the Lehigh Valley and approximately $0.8 million of expenditures for the construction of the sewer line related to the Dollar Tree Sale. The Lehigh Valley building under construction is expected to be completed in the fiscal 2014 second quarter, and a total of approximately $8.1 million is expected to be spent in fiscal 2014 to complete construction of this facility. In fiscal 2013, Griffin had approximately $0.1 million of additions to property and equipment, mostly for purchases of equipment at both Imperial and Griffin Land.

        The 49 acre parcel of undeveloped land acquired in fiscal 2013 will support the development of two industrial buildings totaling approximately 530,000 square feet. Griffin Land has recently received final approvals for such development plans.

        Net cash provided by investing activities of approximately $3.0 million in fiscal 2012 reflected net cash proceeds of approximately $23.4 million from property sales, which included approximately $15.5 million from the sale of the Manchester Warehouse and approximately $6.9 million from the Dollar Tree Sale. The proceeds from the Dollar Tree Sale were placed in escrow to acquire a replacement property as part of a Section 1031 like-kind exchange, which was completed in fiscal 2013 with the acquisition of the land parcel in the Lehigh Valley (see above). Also in fiscal 2012, Griffin received cash of approximately $0.7 million from SNHC, approximately $0.4 million of which was reflected as dividend income and included in operating activities with the remaining balance of approximately $0.3 million reflected as a return of capital and included in investing activities. Partially offsetting the cash received from property sales and the return of capital from SNHC was approximately $13.2 million of additions to real estate assets, principally for Griffin Land's construction, on speculation, of the 228,000 square foot industrial building on an undeveloped land parcel (known as Lehigh Valley Tradeport) in the Lehigh Valley of Pennsylvania that was acquired in 2010 and the site work for the second industrial building to be built in Lehigh Valley Tradeport. Griffin Land started construction of the second Lehigh Valley Tradeport industrial building in the fiscal 2013 fourth quarter (see above). In fiscal 2012 Griffin also had approximately $0.2 million of additions to property and equipment, mostly for purchases of equipment at Griffin Land and Imperial.

        Net cash provided by financing activities was approximately $5.7 million in fiscal 2013 as compared to net cash of approximately $2.2 million used in financing activities in fiscal 2012. The net cash provided by financing activities in fiscal 2013 reflects proceeds of $9.1 million from a new nonrecourse mortgage loan that closed in fiscal 2013 (see below) and cash of approximately $0.1 million received from the exercise of stock options. These were partially offset by approximately $1.9 million for payments of principal on Griffin Land's nonrecourse mortgages, a dividend payment of approximately $1.0 million for the dividend on Griffin's common stock that was declared in the fiscal 2012 fourth quarter and paid in the fiscal 2013 first quarter, approximately $0.4 million of debt issuance costs related to a new revolving credit agreement (see below) and the new nonrecourse mortgage loan, both of which closed in fiscal 2013, and approximately $0.1 million related to the modification of a mortgage loan with First Niagara Bank (see below). Net cash used in financing activities in fiscal 2012 reflected

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approximately $1.7 million for payments of principal on Griffin Land's nonrecourse mortgages, approximately $0.5 million for the payment of dividends and approximately $0.1 million of debt issuance costs, partially offset by approximately $0.1 million received from the exercise of stock options in fiscal 2012.

        On April 1, 2013, Griffin Land entered into a loan modification agreement for its 5.25% nonrecourse mortgage loan with First Niagara Bank due in January 2020 (the "2020 First Niagara Mortgage"). The loan modification agreement changed the interest rate on the 2020 First Niagara Mortgage from a fixed rate of 5.25% to a variable rate of the one month LIBOR rate plus 2.5%. The loan modification did not change the loan's collateral or maturity date. Griffin Land paid approximately $0.1 million for the loan modification, which included a fee paid to First Niagara and third party transaction costs. Concurrent with the loan modification, Griffin Land entered into an interest rate swap agreement with First Niagara Bank to fix the interest rate on the 2020 First Niagara Mortgage at 3.91% for the duration of the loan.

        On April 24, 2013, Griffin closed on a new $12.5 million revolving credit agreement with Webster Bank (the "Webster Credit Line"). The Webster Credit Line is for two years with an option for Griffin to extend the credit line for a third year. The Webster Credit Line replaced Griffin's $12.5 million credit line with Doral Bank (the "Doral Credit Line") that was scheduled to expire on May 1, 2013. Interest on the outstanding borrowings under the Webster Credit Line will be at the one month LIBOR rate plus 2.75%. Interest on outstanding borrowings under the Doral Credit Line was the higher of the prime rate plus 1.5% or 5.875%. The Webster Credit Line is collateralized by Griffin Land's properties in Griffin Center South, aggregating approximately 235,000 square feet and an approximately 48,000 square foot single-story office building in Griffin Center. These are the same properties that collateralized the Doral Credit Line. There were no borrowings under the Doral Credit Line in fiscal 2012 and fiscal 2013, and there have been no amounts borrowed under the Webster Credit Line as of the date of this Annual Report on Form 10-K.

        On August 28, 2013, a subsidiary of Griffin closed on a $9.1 million nonrecourse mortgage with First Niagara Bank (the "2023 First Niagara Mortgage"), collateralized by the 228,000 square foot Lehigh Valley industrial building that was constructed in fiscal 2012 and fully leased in fiscal 2013. Although this mortgage is nonrecourse, Griffin and its subsidiary entered into a master lease that is coterminous with the 2023 First Niagara Mortgage which would become effective if the full building tenant in that industrial building does not renew its five-year lease when it is scheduled to expire in fiscal 2018. The 2023 First Niagara Mortgage has a ten-year term with payments based on a twenty-five year amortization schedule. The interest rate for the 2023 First Niagara Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time Griffin closed on the First Niagara Mortgage, Griffin also entered into an interest rate swap agreement with First Niagara Bank for a notional principal amount of $9.1 million at inception to fix the interest rate on the 2023 First Niagara Mortgage at 4.79% for the term of the loan.

        Griffin expects to use substantially all of the proceeds from the 2023 First Niagara Mortgage for the construction, on speculation, of the approximately 303,000 square foot industrial building in the Lehigh Valley of Pennsylvania. Construction started in the fiscal 2013 fourth quarter with completion expected in the fiscal 2014 second quarter. This new building will be located in Lehigh Valley Tradeport on land contiguous to the 228,000 square foot industrial building that was built in fiscal 2012 and fully leased in fiscal 2013. Much of the site work for this new building was done in conjunction with the site work for the first building in Lehigh Valley Tradeport. Griffin Land expects to spend approximately $9.5 million on the construction of the shell of this new building.

        On January 8, 2014, Griffin and Imperial entered into the Purchase Agreement pursuant to which Imperial's inventory and certain of its assets were sold to Monrovia for approximately $840,000 in cash (subject to certain adjustments) and a non-interest bearing note receivable of $4.25 million, with

29


payments of $2.75 million due on June 1, 2014 and $1.5 million due on June 1, 2015. The Promissory Note is secured by an irrevocable letter of credit. Concurrent with the entry into the Purchase Agreement, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into the Imperial Lease with Monrovia, pursuant to which Monrovia agreed to lease Imperial's Connecticut production nursery for a ten-year period, with an option to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease grants Monrovia an option to purchase the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10.5 million, or $7.0 million if only a certain portion of the land is purchased, subject in each case to certain adjustments and provisions as provided for in the Imperial Lease.

        The landscape nursery business is highly seasonal, with sales peaking in the spring during Griffin's fiscal second quarter. As a result of the seasonality of the landscape nursery business, Griffin's working capital requirements would increase each spring as Imperial required seasonal working capital to fund its operations. Imperial would generate cash in the second half of the year, principally due to the collection of accounts receivable from its spring sales. The absence of the need to fund Imperial's seasonal working capital needs as a result of the Imperial Transaction is expected to result in smaller seasonal changes in Griffin's working capital requirements.

        Griffin's payments (including principal and interest) under contractual obligations as of November 30, 2013 are as follows:

 
  Total   Due Within
One Year
  Due From
1 - 3 Years
  Due From
3 - 5 Years
  Due in More
Than 5 Years
 
 
  (in millions)
 

Mortgages

  $ 82.5   $ 5.9   $ 29.8   $ 16.6   $ 30.2  

Revolving Line of Credit

                     

Capital Lease Obligations

    0.1         0.1          

Operating Lease Obligations

    0.5     0.2     0.3            

Purchase Obligations(1)

    9.2     9.2              

Other(2)

    3.8                 3.8  
                       

  $ 96.1   $ 15.3   $ 30.2   $ 16.6   $ 34.0  
                       
                       

(1)
Includes obligations for the development of Griffin Land's properties, principally for construction of the new warehouse/industrial building in the Lehigh Valley.

(2)
Includes Griffin's deferred compensation plan and other postretirement benefit liabilities.

        In the near-term, Griffin plans to continue to invest in its real estate business, including the construction of buildings on its undeveloped land, the construction of new roads as required under land sale agreements, expenditures to build out interiors of its buildings as new leases are signed, infrastructure improvements required for future development of its real estate holdings and the potential acquisition of additional properties and/or undeveloped land parcels in New England or the mid-Atlantic states to expand the industrial/warehouse portion of Griffin Land's real estate business. Griffin does not expect to commence any speculative construction projects for its Connecticut real estate portfolio until a substantial portion of Griffin Land's currently vacant space there is leased.

        As of November 30, 2013, Griffin had cash and cash equivalents of approximately $14.2 million and proceeds held in escrow of approximately $8.9 million. Management believes that its cash and cash equivalents, funds held in escrow and borrowing capacity under the Webster Credit Line will be sufficient to meet Griffin's working capital requirements, the continued investment in Griffin's real estate assets and the payment of future dividends on its common stock, when and if declared by the Board of Directors. Griffin may also continue to seek other nonrecourse mortgage placements on its

30


properties. Griffin Land's real estate portfolio currently includes five buildings located in Connecticut aggregating approximately 411,000 square feet that are not mortgaged.

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 expected timing and costs of the construction of the new industrial building in the Lehigh Valley, leasing of currently vacant space, construction and leasing of additional facilities in the real estate business, mortgage financing on Griffin Land's unleveraged properties and Griffin's anticipated future liquidity. The projected information disclosed herein is based on assumptions and estimates that, while considered reasonable by Griffin as of the date hereof, are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, many of which are beyond the control of Griffin.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risk represents the risk of changes in the 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. Griffin's mortgage interest rates and related principal payment requirements are described in Note 10 to the consolidated financial statements.

        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. As of November 30, 2013, Griffin had a total of approximately $38.6 million of variable rate debt outstanding, for which Griffin has entered into interest rate swap agreements which effectively fix the interest rate on that debt. There were no other variable rate borrowings outstanding as of November 30, 2013.

        Griffin is exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of Griffin's cash equivalents. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk.

        Griffin does not have foreign currency exposure in operations. However, Griffin does have an investment in a public company, Centaur Media plc, based in the United Kingdom. The ultimate liquidation of that investment and conversion of proceeds into United States currency is subject to future foreign currency exchange rates involving the UK pound sterling. A 10% decrease in the foreign currency exchange rate at November 30, 2013 would have resulted in an approximately $0.2 million reduction of the fair value of that investment.

31


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        


GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

 
  Nov. 30, 2013   Dec. 1, 2012  

ASSETS

             

Current Assets

             

Cash and cash equivalents

  $ 14,179   $ 10,181  

Accounts receivable, less allowance of $134 and $128

    1,409     1,846  

Inventories, net (2013 subject to bulk sale, see Notes 2 and 4)

    4,116     14,206  

Deferred income taxes

    4,231     525  

Prepaid real estate taxes

    1,486     1,376  

Other current assets

    2,165     2,188  
           

Total current assets

    27,586     30,322  

Real estate assets, net

    131,190     123,927  

Proceeds held in escrow

    8,860     6,934  

Available for sale securities—Investment in Centaur Media plc

    2,208     4,226  

Property and equipment, net

    1,950     2,125  

Deferred income taxes

    1,744     2,222  

Real estate held for sale, net

    1,104     1,186  

Other assets

    10,085     9,172  
           

Total assets

  $ 184,727   $ 180,114  
           
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current Liabilities

             

Current portion of long-term debt

  $ 2,101   $ 1,869  

Accounts payable and accrued liabilities

    4,808     4,904  

Deferred revenue

    7,501     3,742  
           

Total current liabilities

    14,410     10,515  

Long-term debt

    64,692     57,692  

Other noncurrent liabilities

    7,510     7,761  
           

Total liabilities

    86,612     75,968  
           

Commitments and Contingencies (Note 16)

             

Stockholders' Equity

             

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,534,687 and 5,527,911 shares issued, respectively, and 5,146,366 and 5,139,590 shares outstanding, respectively

    55     55  

Additional paid-in capital

    107,603     107,056  

Retained earnings

    4,372     11,222  

Accumulated other comprehensive loss, net of tax

    (449 )   (721 )

Treasury stock, at cost, 388,321 shares

    (13,466 )   (13,466 )
           

Total stockholders' equity

    98,115     104,146  
           

Total liabilities and stockholders' equity

  $ 184,727   $ 180,114  
           
           

   

See Notes to Consolidated Financial Statements.

32



GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Rental revenue

  $ 20,053   $ 18,456   $ 18,657  

Revenue from property sales

    5,473     5,759     4,000  
               

Total revenue

    25,526     24,215     22,657  
               

Operating expenses of rental properties

    7,456     6,694     7,198  

Depreciation and amortization expense

    6,673     6,303     6,339  

Costs related to property sales

    1,171     989     458  

General and administrative expenses

    7,790     6,843     6,775  

Gain on insurance recoveries

            (479 )
               

Total expenses

    23,090     20,829     20,291  
               

Operating income

    2,436     3,386     2,366  

Gain on sale of investment in Shemin Nurseries Holding Corp. 

    3,397          

Gain on sale of common stock in Centaur Media plc

    1,088          

Interest expense

    (3,848 )   (3,533 )   (4,167 )

Loss on debt extinguishment

    (286 )        

Investment income

    115     613     210  
               

Income (loss) before income tax provision

    2,902     466     (1,591 )

Income tax (provision) benefit

    (992 )   (270 )   283  
               

Income (loss) from continuing operations

    1,910     196     (1,308 )
               

Discontinued operations, net of tax:

                   

Loss from landscape nursery business, net of tax

    (7,731 )   (877 )   (1,689 )

Income from warehouse building, net of tax

        117     523  

Gain on sale of warehouse building, net of tax

        1,530      
               

Total (loss) income from discontinued operations, net of tax

    (7,731 )   770     (1,166 )
               

Net (loss) income

  $ (5,821 ) $ 966   $ (2,474 )
               
               

Basic net (loss) income per common share:

                   

Income (loss) from continuing operations

  $ 0.37   $ 0.04   $ (0.25 )

(Loss) income from discontinued operations

    (1.50 )   0.15     (0.23 )
               

Basic net (loss) income per common share

  $ (1.13 ) $ 0.19   $ (0.48 )
               
               

Diluted net (loss) income per common share:

                   

Income (loss) from continuing operations

  $ 0.37   $ 0.04   $ (0.25 )

(Loss) income from discontinued operations

    (1.50 )   0.15     (0.23 )
               

Diluted net (loss) income per common share

  $ (1.13 ) $ 0.19   $ (0.48 )
               
               

   

See Notes to Consolidated Financial Statements.

33



GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive (Loss) Income

(dollars in thousands)

 
  For the Fiscal Years Ended,  
 
  Nov. 30, 2013   Dec. 1, 2012   Dec. 3, 2011  

Net (loss) income

  $ (5,821 ) $ 966   $ (2,474 )

Other comprehensive income (loss), net of tax:

                   

Increase (decrease) in fair value of Centaur Media plc

    310     794     (1,362 )

Reclassifications included in net income

    (206 )   420     460  

Unrealized gain (loss) on cash flow hedges

    100     (909 )   (1,048 )

Net actuarial gain (loss) and prior service cost for other postretirement benefits

    68     (48 )   (35 )
               

Total other comprehensive income (loss), net of tax

    272     257     (1,985 )
               

Total comprehensive (loss) income

  $ (5,549 ) $ 1,223   $ (4,459 )
               
               

   

See Notes to Consolidated Financial Statements.

34



GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders' Equity

For the Fiscal Years Ended November 30, 2013, December 1, 2012 and December 3, 2011

(dollars in thousands)

 
  Shares of
Common Stock
Issued
  Common
Stock
  Additional
Paid-in
Captial
  Retained
Earnings
  Accumulated Other
Comprehensive
Income (Loss)
  Treasury
Stock
  Total  

Balance at November 27, 2010

    5,510,503   $ 55   $ 105,620   $ 15,811   $ 1,007   $ (13,426 ) $ 109,067  

Exercise of employee stock options

    10,667         186                 186  

Stock-based compensation

            564                 564  

Dividends declared, $0.40 per share

                (2,053 )           (2,053 )

Net actuarial loss and prior service cost for other postretirement benefits, net of tax

                    (35 )       (35 )

Other comprehensive loss from cash flow hedging transactions, net of tax

                    (1,048 )       (1,048 )

Other comprehensive loss from Centaur Media plc, net of tax

                    (1,362 )       (1,362 )

Total reclassifications included in net loss, net of tax

                    460         460  

Net loss

                (2,474 )           (2,474 )
                               

Balance at December 3, 2011

    5,521,170     55     106,370     11,284     (978 )   (13,426 )   103,305  

Exercise of employee stock options, net of reversal of tax benefit on forfeited stock options of $38

    6,741         82             (40 )   42  

Stock-based compensation

            604                 604  

Dividend declared, $0.20 per share

                (1,028 )           (1,028 )

Net actuarial loss and prior service cost for other postretirement benefits, net of tax

                    (48 )       (48 )

Other comprehensive loss from cash flow hedging transactions, net of tax

                    (909 )       (909 )

Other comprehensive income from Centaur Media plc, net of tax

                    794         794  

Total reclassifications included in net income, net of tax

                    420         420  

Net income

                966             966  
                               

Balance at December 1, 2012

    5,527,911     55     107,056     11,222     (721 )   (13,466 )   104,146  

Exercise of employee stock options

    6,776         80                 80  

Stock-based compensation

            467                 467  

Dividend declared, $0.20 per share

                (1,029 )           (1,029 )

Net actuarial gain and prior service cost for other postretirement benefits, net of tax

                    68         68  

Other comprehensive income from cash flow hedging transactions, net of tax

                    100         100  

Other comprehensive income from Centaur Media plc, net of tax

                    310         310  

Total reclassifications included in net loss, net of tax

                    (206 )       (206 )

Net loss

                (5,821 )           (5,821 )
                               

Balance at November 30, 2013

    5,534,687   $ 55   $ 107,603   $ 4,372   $ (449 ) $ (13,466 ) $ 98,115  
                               
                               

   

See Notes to Consolidated Financial Statements.

35



GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

 
  For the Fiscal Years Ended,  
 
  Nov. 30, 2013   Dec. 1, 2012   Dec. 3, 2011  

Operating activities:

                   

Net (loss) income

  $ (5,821 ) $ 966   $ (2,474 )

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

                   

Provision for inventory losses

    10,900     380     1,187  

Depreciation and amortization

    6,673     6,303     6,761  

Gain on sales of properties

    (4,302 )   (7,656 )   (3,542 )

Gain on sale of investment in Shemin Nurseries Holding Corp. 

    (3,397 )        

Deferred income taxes

    (3,414 )   763     (976 )

Gain on sale of common stock in Centaur Media plc

    (1,088 )        

Stock based compensation expense

    467     604     564  

Amortization of debt issuance costs

    270     298     277  

Loss on debt extinguishment

    286          

Provision for bad debts

    37     26     1  

(Income) loss from equity investment

    (5 )   (7 )   7  

Changes in assets and liabilities:

                   

Accounts receivable

    400     (155 )   (45 )

Inventories

    (810 )   (891 )   646  

Income taxes receivable

    (5 )   (128 )   (18 )

Prepaid real state taxes

    (110 )   3     189  

Other current assets

    25     1,357     (869 )

Accounts payable and accrued liabilities

    32     163     (154 )

Deferred revenue

    (234 )   (67 )   (397 )

Other noncurrent assets and noncurrent liabilities, net

    (458 )   (14 )   253  
               

Net cash (used in) provided by operating activities

    (554 )   1,945     1,410  
               

Investing activities:

                   

Additions to real estate assets

    (13,538 )   (13,188 )   (2,832 )

Proceeds from sales of properties, net of expenses

    9,366     23,376     3,939  

Proceeds from the sale of investment in Shemin Nurseries Holding Corp. 

    3,418          

Proceeds from the sale of common stock in Centaur Media plc

    2,487          

Cash (deposited in) returned from escrow, net

    (2,797 )   (6,934 )    

Deposit for purchase of real estate assets

        (360 )    

Additions to property and equipment

    (113 )   (188 )   (264 )

Return of capital from Shemin Nurseries Holding Corp. 

        309      

Investment in Novalis LLC

            (60 )
               

Net cash (used in) provided by investing activities

    (1,177 )   3,015     783  
               

Financing activities:

                   

Proceeds from debt

    9,100          

Payments of debt

    (1,916 )   (1,674 )   (1,894 )

Dividends paid to stockholders

    (1,028 )   (513 )   (2,052 )

Debt issuance costs

    (437 )   (103 )   (262 )

Exercise of stock options

    80     80     186  

Debt modification costs

    (70 )        
               

Net cash provided by (used in) financing activities

    5,729     (2,210 )   (4,022 )
               

Net increase (decrease) in cash and cash equivalents

    3,998     2,750     (1,829 )

Cash and cash equivalents at beginning of year

    10,181     7,431     9,260  
               

Cash and cash equivalents at end of year

  $ 14,179   $ 10,181   $ 7,431  
               
               

   

See Notes to Consolidated Financial Statements.

36



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies

    Basis of Presentation

        The accompanying consolidated financial statements of Griffin Land & Nurseries, Inc. ("Griffin") reflect Griffin's real estate business, which is conducted through its wholly-owned subsidiary, Griffin Land, LLC ("Griffin Land") and Griffin's landscape nursery business, which is conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. ("Imperial"). Griffin Land is principally engaged in the development, management and leasing of industrial and commercial properties. Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin Land's core development and leasing strategy. Imperial was engaged in growing landscape nursery plants in containers for sale to independent retail garden centers and rewholesalers, whose main customers are landscape contractors. Imperial's growing operations are reflected in the accompanying consolidated statements of operations as a discontinued operation due to the sale, effective January 8, 2014, of its inventory and certain of its assets (the "Imperial Sale") to Monrovia Connecticut LLC ("Monrovia"), a subsidiary of Monrovia Nursery Company (see Notes 2 and 4). Concurrently with the Imperial Sale a subsidiary of Griffin and Imperial entered into a long-term lease with Monrovia for Imperial's Connecticut production nursery. As the growing operations of Imperial are reflected as a discontinued operation in Griffin's consolidated statements of operations, Griffin's continuing operations presented in the accompanying financial statements entirely reflect its real estate business and, therefore, industry segment information is not presented. Accordingly, certain amounts in Griffin's consolidated statements of operations have been reclassified to better reflect Griffin's real estate business. Certain parts of Imperial's prior year results, such as rental revenue and expense related to the leasing of Imperial's Florida farm to another grower and certain expenses related to the property and equipment of Imperial's Connecticut farm which will continue to be owned by Griffin and leased to Monrovia are included in Griffin's continuing operations. All intercompany transactions have been eliminated.

    Fiscal Year

        Through fiscal 2013, Griffin reported on a 52-53 week fiscal year that ended on the Saturday nearest November 30. Fiscal years 2013 and 2012 each contained 52 weeks and ended on November 30, 2013 and December 1, 2012, respectively. Fiscal year 2011 contained 53 weeks and ended on December 3, 2011. Prospectively, starting in fiscal 2014, Griffin will report on a twelve month fiscal year that will end on November 30.

    Cash and Cash Equivalents

        Cash equivalents are composed of highly liquid investments with maturity of three months or less at the date of purchase, and are recorded at fair value. At both November 30, 2013 and December 1, 2012, $175 of the cash and cash equivalents included on Griffin's consolidated balance sheets were held in the form of money market funds invested in U.S. Treasury obligations.

    Investments

        Griffin's investment in the common stock of Centaur Media plc ("Centaur Media") is accounted for as an available-for-sale security under Financial Accounting Standards Board ("FASB") ASC 320-10, "Investments—Debt and Equity Securities" ("ASC 320-10"), whereby increases or

37



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

decreases in the fair value of this investment, net of income taxes, along with the effect of changes in the foreign currency exchange rate, net of income taxes, are recorded as a component of other comprehensive income (loss).

        Griffin's investment in Shemin Nurseries Holding Corp. ("SNHC") was accounted for under the cost method of accounting for investments. Griffin sold its entire investment in SNHC in fiscal 2013 (see Note 7).

    Inventories

        Griffin's inventories reflect nursery stock and material and supplies of Imperial and are stated at the lower of cost, using the average cost method, or market. Abnormal costs of idle facility expenses, freight, handling costs and spoilage have been treated as period costs. As of November 30, 2013, the carrying value of inventory was reduced to its fair value, which is the net realizable value based on the sale of the inventories, effective January 8, 2014, under the terms of the Imperial Sale (see Notes 2 and 4).

    Stock-Based Compensation

        Griffin accounts for stock options at fair value in accordance with FASB ASC 718, "Compensation—Stock Compensation" and FASB ASC 505-50, "Equity—Equity-Based Payments to Non-Employees." For stock options that have graded vesting features, Griffin recognizes compensation cost over the requisite service period separately for each tranche of the award as though they were, in substance, multiple awards. Griffin determines its accumulated windfall tax benefits using the short-cut method.

    Property and Equipment

        Property and equipment are recorded at cost. Depreciation is recorded over the estimated useful asset lives on a straight-line basis for financial reporting purposes and principally on accelerated methods for tax purposes. Repair and maintenance costs are expensed as incurred.

        Upon disposal of property and equipment, the accounts are reduced by the related costs and accumulated depreciation. The resulting gains or losses are reflected in the consolidated statements of operations.

    Real Estate Assets

        Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with FASB ASC 805-10, "Business Combinations," they are recorded at fair value. Interest, property taxes, insurance and other costs directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalized costs are recorded as part of the asset to which they relate and are amortized over the asset's useful life. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and principally on accelerated methods for tax purposes. Repair and maintenance costs are expensed as incurred.

38



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

        Griffin classifies a property as "held for sale" when all of the following criteria for a plan of sale have been met: (1) management, having the authority to approve the action, commits to a plan to sell the property; (2) the property is available for immediate sale in its present condition, subject only to terms that are usual and customary; (3) an active program to locate a buyer and other actions required to complete the plan to sell, have been initiated; (4) the sale of the property is probable and is expected to be completed within one year or the property is under a contract to be sold; (5) the property is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and (6) actions necessary to complete the plan of sale indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. When all of these criteria have been met, the property is classified as "held for sale." When a property classified as held for sale has separate cash inflows and outflows, its operations, including any interest expense directly attributable to it, are classified as a discontinued operation in Griffin's consolidated statements of operations, and amounts for all prior periods presented are reclassified from continuing operations to discontinued operations. Depreciation of assets ceases upon designation of a property as "held for sale."

    Postretirement Benefits

        Griffin accounts for postretirement benefits in accordance with FASB ASC 715-10, "Compensation—Retirement Benefits" ("ASC 715-10"). This guidance requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. This guidance also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.

    Impairment of Investments in Long-Lived Assets

        Griffin reviews annually, as well as when conditions may indicate, its long-lived assets to determine if there are indicators of impairment, such as a prolonged vacancy in one of its properties. If indicators of impairment are present, Griffin evaluates the carrying value of the assets in relation to the operating performance and expected future undiscounted cash flows or the estimated fair value based on expected future cash flows of the underlying assets. If the undiscounted cash flows are less than the carrying value of an asset, Griffin would reduce the carrying value of a long-lived asset to its fair value if that asset's fair value is determined to be less than its carrying value.

        Griffin also reviews annually, as well as when conditions may indicate, the recoverability of its development costs, including expected remediation costs on projects that are included in real estate assets. To the extent that the carrying value exceeds the fair value of a project, including development costs, an impairment loss would be recorded.

        There were no impairment losses recorded in the fiscal years ended November 30, 2013, December 1, 2012 and December 3, 2011.

39



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

    Revenue and Gain Recognition

        In the real estate business, revenue includes rental revenue from Griffin Land's commercial and industrial properties and proceeds from property sales other than those that are reported as a discontinued operation. Rental revenue is accounted for on a straight line basis over the applicable lease term in accordance with the FASB ASC 840-10, "Leases." Gains on property sales are recognized in accordance with FASB ASC 360-20, "Property, Plant, and Equipment—Real Estate Sales," based on the specific terms of each sale. When the percentage of completion method is used to account for a sale of real estate, costs included in determining the percentage of completion include the costs of the land sold, allocated master planning costs, selling and transaction costs and estimated future costs related to the land sold.

        The growing operations of the landscape nursery business are reflected as a discontinued operation in the consolidated statements of operations. Sales and the related costs of sales are recognized upon shipment of products. Sales returns are not material.

    Income Taxes

        Griffin provides for income taxes utilizing the asset and liability method, and records deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities as measured by the tax rates that are anticipated to be in effect when these differences reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts for which realization is more likely than not. Griffin and its subsidiaries file a consolidated federal income tax return.

        Griffin evaluates each tax position taken in its tax returns and recognizes a liability for any tax position deemed less likely than not to be sustained under examination by the relevant taxing authorities. Griffin has analyzed its federal and significant state filing positions with respect to FASB ASC 740-10, "Income Taxes" ("ASC 740-10"). Griffin believes that its income tax filing positions will be sustained on examination and does not anticipate any adjustments that would result in a material change on its financial statements. As a result, no accrual for uncertain income tax positions has been recorded pursuant to ASC 740-10.

        Griffin's policy for recording interest and penalties, related to uncertain tax positions, is to record such items as part of its provision for federal and state income taxes.

    Goodwill and Other Intangible Assets

        Griffin accounts for intangible assets in accordance with FASB ASC 350-10 "Intangibles—Goodwill and Other." Griffin does not have any goodwill on its balance sheet. Griffin's other intangible assets consist of: (i) the value of in-place leases; and (ii) the value of the associated relationships with tenants. These intangible assets were recorded in connection with Griffin's acquisitions of real estate assets. Amortization of the value of in-place leases, included in costs related to rental revenue, is on a straight-line basis over the lease terms. Amortization of the value of customer relationships with tenants, included in costs related to rental revenue, is on a straight-line basis over the lease terms and anticipated renewal periods.

40



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

    Environmental Matters

        Environmental expenditures related to land and buildings are expensed or capitalized as appropriate, depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and that do not have future economic benefit, are expensed. Expenditures that create future benefit or contribute to future revenue generation are capitalized. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable, and the costs can be reasonably estimated.

    Interest Rate Swap Agreements

        As of November 30, 2013, Griffin is a party to several interest rate swap agreements to hedge its interest rate exposures. Griffin does not use derivatives for speculative purposes. Griffin applied FASB ASC 815-10, "Derivatives and Hedging," ("ASC 815-10") as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities. ASC 815-10 requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value. The changes in the fair values of the interest rate swap agreements are measured in accordance with ASC 815-10 and reflected in the carrying values of the interest rate swap agreements on Griffin's consolidated balance sheet. The estimated fair values are based primarily on projected future swap rates.

        Griffin applies cash flow hedge accounting to its interest rate swap agreements that are designated as hedges of the variability of future cash flows from floating rate liabilities based on the benchmark interest rates. The changes in fair values of Griffin's interest rate swap agreements are recorded as components of accumulated other comprehensive income (loss) ("AOCI") in stockholders' equity, to the extent they are effective. Any ineffective portions of the changes in fair values of these instruments would be recorded as interest expense.

    Conditional Asset Retirement Obligations

        Griffin accounts for its conditional asset retirement obligations in accordance with FASB ASC 410-10, "Asset Retirement and Environmental Obligations," which requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated even though uncertainty exists about the timing and/or method of settlement. The conditional asset retirement obligations relate principally to tobacco barns and other structures on Griffin's land holdings that contain asbestos, primarily in roofing materials. These structures remain from the tobacco growing operations of former affiliates of Griffin, are not material to Griffin's operations and do not have any book value.

    Treasury Stock

        Treasury stock is recorded at cost as a reduction of stockholders' equity on Griffin's consolidated balance sheets.

41



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

    Income (Loss) Per Share

        Basic income (loss) per common share is calculated by dividing income (loss) from continuing and discontinued operations by the weighted average number of common shares outstanding during the year. The calculation of diluted income (loss) per common share reflects adjusting Griffin's outstanding shares assuming the exercise of all potentially dilutive Griffin stock options.

    Risks and Uncertainties

        Griffin's future results of operations involve a number of risks and uncertainties. Factors that could affect Griffin's future operating results and cause actual results to vary materially from historical results include, but are not limited to, the geographical concentration of Griffin Land's real estate holdings, credit risk and market risk.

        Griffin Land's real estate holdings are mostly concentrated in the Hartford, Connecticut area. In fiscal 2010, Griffin Land acquired a fully-leased 120,000 square foot industrial building and a 51 acre parcel of undeveloped land in the Lehigh Valley region of Pennsylvania. In fiscal 2012, Griffin Land completed construction on the first of two buildings to be built on the Lehigh Valley land acquired, a 228,000 square foot warehouse/industrial building built on speculation and fully leased in fiscal 2013. In fiscal 2013, Griffin Land started construction on the second warehouse/industrial building to be built on the 51 acre land parcel and acquired a 49 acre parcel of undeveloped land in the Lehigh Valley. The market and economic challenges experienced by the U.S. economy as a whole or the local economic conditions in the markets in which Griffin holds properties may affect Griffin Land's real estate business. Griffin's results of operations, financial condition or ability to expand may be adversely affected as a result of: (i) unfavorable financial changes to Griffin Land's tenants which may result in tenant defaults under leases; (ii) significant job losses impacting the demand for rental space causing market rental rates and property values to be negatively impacted; (iii) the ability of Griffin to borrow on terms and conditions that it finds acceptable; and (iv) possibly reduced values of Griffin Land's properties potentially limiting the proceeds from a sale of its properties or from debt financing collateralized by its properties.

        Griffin Land conducts business based on evaluations of its prospective tenants financial condition and generally does not require collateral. These evaluations require significant judgment and are based on multiple sources of information.

        Griffin does not use derivatives for speculative purposes. Griffin applies ASC 815-10, which established accounting and reporting standards for derivative instruments and hedging activities. This accounting guidance requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheets and to measure those instruments at fair value. The estimated fair value is based primarily on projected future swap rates.

        Griffin applies cash flow hedge accounting to its interest rate swap agreements designated as hedges of the variability of future cash flows from floating rate liabilities due to the benchmark interest rates. Changes in the fair value of these interest rate swaps are recorded as a component of AOCI in stockholders' equity, to the extent they are effective. Amounts recorded to AOCI are then reclassified to interest expense as interest on the hedged borrowing is recognized. Any ineffective portion of the change in fair value of these instruments would be recorded to interest expense.

42



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

        Griffin's cash equivalents consist of overnight investments that are not significantly exposed to interest rate risk.

    Reclassifications

        Certain prior year balances have been reclassified to conform to the current year's presentation.

    Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the periods reported. Actual results could differ from those estimates. Griffin's significant estimates include the allowance for doubtful accounts receivable, inventory reserves, impairment evaluation of long-lived assets, deferred income taxes, derivative financial instruments, revenue and gain recognition including the estimated costs to complete required offsite improvements related to land sold and assumptions used in determining stock compensation.

    Recent Accounting Pronouncements

        In February 2013, the FASB issued Accounting Standards Update No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," which amends the presentation of comprehensive income. This update creates new presentation requirements related to amounts reclassified out of accumulated other comprehensive income. More specifically, this update requires: (a) disclosure of the changes in the components of accumulated other comprehensive income; (b) disclosure of the effects on the individual line items in net income for each item of accumulated other comprehensive income that is reclassified in its entirety to net income; and (c) cross-references to other disclosures that provide additional details for other comprehensive income items that are not reclassified in their entirety to net income. For items that are required to be reclassified to net income in their entirety, this new guidance requires an entity to present this information either on the face of the statement where net income is presented or in the footnotes to the financial statements. For items that are not required to be reclassified in their entirety to net income, this new guidance requires cross-references to other disclosures that provide additional information about those amounts. This update was required to be adopted by Griffin no later than the fiscal 2013 second quarter; however, Griffin adopted the new presentation requirements in the fiscal 2013 first quarter. The adoption of this guidance requires new disclosures related to amounts reclassified out of accumulated other comprehensive income but did not have an impact on Griffin's financial position or results of operations.

        In July 2013, the FASB issued Accounting Standards Update No. 2013-10, "Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate, "OIS") as a Benchmark Interest Rate for Hedge Accounting Purposes," which permits the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to interest rates on direct Treasury obligations of the U.S. government and the London Interbank Offered Rate ("LIBOR"). This update also removes the restriction on using

43



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

1. Summary of Significant Accounting Policies (Continued)

different benchmark rates for similar hedges. This update is required prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The adoption of this guidance did not have an impact on Griffin's financial position or results of operations.

        In July 2013, the FASB issued Accounting Standards Update No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists," which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Specifically, this update requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. This update will be effective for Griffin in the fiscal 2014 second quarter. Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

2. Discontinued Operations

    Imperial

        Effective January 8, 2014, in accordance with the terms of the Imperial Sale (see Notes 1 and 4), Imperial sold its inventory and certain assets for approximately $840 in cash (subject to certain adjustments) and a non-interest bearing note receivable of $4,250 (the "Promissory Note"). The Promissory Note is due in two installments: $2,750 is due on June 1, 2014 and $1,500 is due on June 1, 2015. The Promissory Note is secured by an irrevocable letter of credit. Under the terms of the Imperial Sale, Griffin and Imperial have agreed to certain non-competition restrictions for a four-year period. Griffin and Imperial have also agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Imperial Sale.

        Concurrently with the Imperial Sale, Imperial and River Bend Holdings, LLC, a wholly owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the "Imperial Lease", and together with the Imperial Sale, the "Imperial Transaction") with Monrovia, pursuant to which Monrovia agreed to lease Imperial's Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Lease provides for net annual rent payable to Griffin of $500 for each of the first five years with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase most of the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10,500, or $7,000 if only a certain portion of the land is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease. Accordingly, the operating results of Imperial's growing operations are reflected as a discontinued operation in Griffin's consolidated statements of operations for all periods presented.

44



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

2. Discontinued Operations (Continued)

        Sales revenue and the pretax loss from Imperial's growing operations were as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30, 2013   Dec. 1, 2012   Dec. 3, 2011  

Net sales

  $ 13,220   $ 12,376   $ 14,536  
               
               

Pretax loss

  $ (12,142 ) $ (1,260 ) $ (2,591 )
               
               

    Griffin Land

        On January 31, 2012, Griffin Land closed on the sale of its Manchester, Connecticut warehouse to its full building tenant in that building, an affiliate of Raymour & Flanigan ("Raymour"). Net cash proceeds from the sale, after selling expenses of $438 paid out of proceeds at closing and $25 paid separately, were $15,537, and a pretax gain of $2,886 is included in the results of discontinued operations in fiscal 2012. Upon completion of the sale, Griffin deposited the cash of $15,562 received from the sale at closing into an escrow account for the potential purchase of a replacement property under a Section 1031 like-kind exchange. As Griffin Land did not identify a replacement property within the time frame required under the tax rules and regulations governing a Section 1031 like-kind exchange, on March 19, 2012 the cash being held in escrow was released to Griffin Land.

        In the fiscal 2011 fourth quarter, Griffin Land gave notice to Raymour that Griffin Land was exercising the put option under its lease with Raymour to sell the Manchester warehouse to Raymour for $16,000. The operating results of the Manchester warehouse are reflected as a discontinued operation in Griffin's consolidated statements of operations for fiscal 2012 and fiscal 2011. Rental revenue and pretax income from the operations of the Manchester warehouse were as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30, 2013   Dec. 1, 2012   Dec. 3, 2011  

Rental revenue

  $   $ 273   $ 1,632  
               
               

Pretax income

  $   $ 221   $ 897  
               
               

3. Fair Value

        Griffin applies the provisions of FASB ASC 820, "Fair Value Measurement" ("ASC 820"), which establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset or liability's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value, as follows:

    Level 1 applies to assets or liabilities for which there are quoted market prices in active markets for identical assets or liabilities. Griffin's available-for-sale securities are considered Level 1 within the fair value hierarchy.

45



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

3. Fair Value (Continued)

    Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 2 liabilities include Griffin's interest rate swap derivatives (see Note 10). Beginning in the fiscal 2013 first quarter, the fair values of Griffin's interest rate swap derivative instruments were based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current OIS rate and swap curve along with other market data. Prior to the beginning of fiscal 2013, the fair values of Griffin's interest rate swap derivative instruments were based on discounted cash flow models that incorporated the cash flows of the derivatives as well as the current LIBOR rate and swap curve along with other market data. The change to using the OIS rate from the LIBOR rate is consistent with current industry best practices. The OIS rate is now considered the best discount rate to utilize since it is the best proxy for the risk-free rate. These inputs are readily available in public markets or can be derived from information available in publicly quoted markets, therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy.

    Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

        During fiscal 2013, Griffin did not transfer any assets or liabilities in or out of Levels 1 and 2. The following are Griffin's financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 
  November 30, 2013  
 
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Marketable equity securities

  $ 2,208   $   $  
               
               

Interest rate swap asset

  $   $ 63   $  
               
               

Interest rate swap liabilities

  $   $ 2,285   $  
               
               

 

 
  December 1, 2012  
 
  Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
  Significant
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Marketable equity securities

  $ 4,226   $   $  
               
               

Interest rate swap liabilities

  $   $ 3,191   $  
               
               

46



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

3. Fair Value (Continued)

        The carrying and estimated fair values of Griffin's financial instruments are as follows:

 
   
  November 30, 2013   December 1, 2012  
 
  Fair Value
Hierarchy
Level
  Carrying
Value
  Estimated
Fair Value
  Carrying
Value
  Estimated
Fair Value
 

Financial assets:

                               

Cash and cash equivalents

    1   $ 14,179   $ 14,179   $ 10,181   $ 10,181  

Available-for-sale securities

    1     2,208     2,208     4,226     4,226  

Interest rate swap

    2     63     63          

Financial liabilities:

   
 
   
 
   
 
   
 
   
 
 

Mortgage debt

    2   $ 66,708   $ 67,931   $ 59,489   $ 61,781  

Interest rate swaps

    2     2,285     2,285     3,191     3,191  

        The amounts included in the financial statements for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these instruments. The fair values of the available-for-sale securities are based on quoted market prices. The fair values of the mortgage debt are estimated based on current rates offered to Griffin for similar debt of the same remaining maturities and, additionally, Griffin considers its credit worthiness in determining the fair value of its debt. The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current OIS rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

        At November 30, 2013 and December 1, 2012, the fair values of Griffin's fixed rate mortgages were approximately $29,300 and approximately $35,600, respectively. The fair values were based on the present values of future cash flows discounted at estimated borrowing rates for similar loans and the credit worthiness of Griffin.

4. Inventories

        Inventories consist of:

 
  Nov. 30, 2013   Dec. 1, 2012  

Nursery stock

  $ 3,410   $ 13,058  

Materials and supplies

    706     1,148  
           

  $ 4,116   $ 14,206  
           
           

        In fiscal 2013, a charge of $10,400 to inventory was included in costs of landscape nursery sales to reduce Imperial's nursery inventories to fair value, which is the net realizable value based on the terms of the Imperial Sale (see Notes 1 and 2). Also during fiscal 2013, a charge of $500 was included in costs of landscape nursery sales to increase inventory reserves for plants that were expected to be sold below cost as seconds.

47



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

4. Inventories (Continued)

        In fiscal 2012, a charge of $380 was included in costs of landscape nursery sales to increase reserves for unsaleable inventories and plants that are expected to be sold below cost as seconds.

        In fiscal 2011, a charge of $1,187 was included in costs of landscape nursery sales and was comprised of the following: (a) $517 to reserve for plants with disease issues, mostly for boxwood plants that became unsaleable after being infected with boxwood blight, a fungal disease; (b) $370 to increase inventory reserves for plants that became unsaleable or were expected to be sold below cost as seconds; and (c) $300 for plants lost due to the collapse, from snow load during the fiscal 2011 first quarter, of some of Imperial's hoop houses in which the plants were stored.

        These charges are included in the results of discontinued operations in Griffin's consolidated statements of operations. Imperial's inventories were sold to Monrovia, effective January 8, 2014, in connection with the Imperial Transaction (see Note 2).

5. Real Estate Assets

        Real estate assets consist of:

 
  Estimated
Useful Lives
  Nov. 30,
2013
  Dec. 1,
2012
 

Land

      $ 17,507   $ 10,267  

Land improvements

  10 to 30 years     15,529     15,138  

Buildings and improvements

  10 to 40 years     126,245     125,971  

Tenant improvements

  Shorter of
useful life or
terms of
related lease
    16,126     14,738  

Development costs

        16,861     14,557  
               

        192,268     180,671  

Accumulated depreciation

        (61,078 )   (56,744 )
               

      $ 131,190   $ 123,927  
               
               

        Total depreciation expense and capitalized interest related to real estate assets, net were as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Depreciation expense

  $ 5,545   $ 5,237   $ 5,632  
               
               

Capitalized interest

  $ 71   $ 596   $ 134  
               
               

        On November 21, 2013, Griffin Land completed the sale of approximately 90 acres of undeveloped land for approximately $9,000 in cash, before transaction costs (the "Windsor Land Sale"). The land sold is in Windsor, Connecticut and is part of an approximately 268 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut. Under the terms of the sale, Griffin Land and the buyer will each construct roadways connecting the land parcel sold with

48



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

5. Real Estate Assets (Continued)

existing town roads. The roads to be built will become new town roads, thereby providing public access to the remaining acreage in Griffin Land's land parcel. As a result of Griffin Land's continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method, whereby the revenue and gain on sale are recognized as the total costs related to the property sold are incurred. At the closing of the Windsor Land Sale, cash proceeds of $8,860 were placed in escrow for the purchase of a replacement property under a Section 1031 like-kind exchange, which is reflected in Proceeds Held in Escrow on Griffin's consolidated balance sheet as of November 30, 2013.

        As of November 30, 2013, approximately 30% of the total costs related to the Windsor Land Sale have been incurred; therefore, 30% of the total revenue and pretax gain on the sale have been recognized in Griffin's consolidated statement of operations for fiscal 2013. Griffin's consolidated statement of operations for fiscal 2013 includes revenue of $2,668 and a pretax gain of $1,990 from the Windsor Land Sale. The balance of the revenue and pretax gain on sale will be recognized when the remaining costs are incurred, which is expected to take place mostly in fiscal 2014. Included on Griffin's consolidated balance sheet as of November 30, 2013 is deferred revenue of $6,300 that will be recognized as the remaining costs are incurred. Including the pretax gain on sale of $1,990 recognized in fiscal 2013, the total gain on the Windsor Land Sale is expected to be approximately $6,688 after all revenue is recognized and all costs are incurred. While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required roadways, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain recognized in future periods (see Note 14).

        In fiscal 2012, Griffin Land sold 93 acres of undeveloped land in New England Tradeport ("Tradeport"), Griffin Land's industrial park located in Windsor and East Granby, Connecticut, to Dollar Tree Distribution, Inc. for cash proceeds of $7,000, before transaction costs (the "Dollar Tree Sale"). Under the terms of the Dollar Tree Sale, Griffin Land was required to construct a sewer line to service the land that was sold. As a result of Griffin Land's continuing involvement with the land sold, the Dollar Tree Sale was accounted for under the percentage of completion method. Accordingly, the revenue and the pretax gain on sale were recognized on a pro rata basis in a ratio equal to the percentage of the total costs incurred to the total anticipated costs of sale, including the costs of the required construction of the sewer line. Costs included in determining the percentage of completion included the cost of the land sold, allocated master planning costs of Tradeport, selling and transaction costs and the cost to construct the required sewer line. Upon completion of the sale, Griffin Land deposited the cash of $6,929 received from the Dollar Tree Sale at closing into an escrow account, included in Proceeds Held in Escrow on Griffin's consolidated balance sheet as of December 1, 2012, for the potential purchase of a replacement property under a Section 1031 like-kind exchange. In fiscal 2013, Griffin Land closed on the acquisition of a parcel of undeveloped land to complete the Section 1031 like-kind exchange (see below).

        In fiscal 2013, all of the remaining costs related to the Dollar Tree Sale were incurred; therefore, from the date of the Dollar Tree Sale through the end of fiscal 2013, all of the revenue and the pretax gain on sale have been recognized in Griffin's consolidated statements of operations. Griffin's consolidated statement of operations for fiscal 2013 includes revenue of $2,474 and a pretax gain of $2,109 from the Dollar Tree Sale. Included in the pretax gain in fiscal 2013 is $177 from an amended

49



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

5. Real Estate Assets (Continued)

agreement related to the Dollar Tree Sale whereby Griffin Land received $177 upon completion of the sewer line to service the land that was sold (see Note 14). Including the pretax gain on sale of $3,942 recognized in fiscal 2012, the total pretax gain on the Dollar Tree Sale was $6,051.

        On December 28, 2012, Griffin Land closed on the acquisition of approximately 49 acres of undeveloped land in the Lehigh Valley region of Pennsylvania for $7,119 in cash, using the proceeds from the Dollar Tree Sale that were being held in escrow to complete the Section 1031 like-kind exchange. The land acquired will support the development of two industrial buildings totaling approximately 530,000 square feet. Griffin Land has received final plan approvals for its development plans for the land acquired.

        Real estate assets held for sale consist of:

 
  Estimated
Useful Lives
  Nov. 30,
2013
  Dec. 1,
2012
 

Land

        $ 30   $ 35  

Development costs

          1,074     1,151  
                 

        $ 1,104   $ 1,186  
                 
                 

6. Intangible Assets

        Griffin's intangible assets relate to the fiscal 2010 acquisition of an industrial building, the fiscal 2007 acquisition of a warehouse building and the fiscal 2003 acquisition of a controlling interest in a joint venture that owned two multi-story office buildings. The intangible assets consist of: (i) the value of in-place leases; and (ii) the value of the associated relationships with tenants.

        Intangible assets are included in other assets on Griffin's consolidated balance sheets and are as follows:

 
  Nov. 30,
2013
  Dec. 1,
2012
 

Intangible assets

  $ 1,757   $ 1,757  

Accumulated amortization

    (1,073 )   (902 )
           

Intangible assets, net

  $ 684   $ 855  
           
           

        Amortization expense of intangible assets is as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Amortization expense

  $ 171   $ 200   $ 178  
               
               

50



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

6. Intangible Assets (Continued)

        Estimated amortization expense of intangible assets over each of the next five fiscal years is:

2014

  $ 172  

2015

    172  

2016

    77  

2017

    44  

2018

    27  

7. Investments

    Centaur Media plc

        Griffin's investment in the common stock of Centaur Media is accounted for as an available-for-sale security under FASB ASC 320. Accordingly, changes in the value of Centaur Media, reflecting both changes in the stock price and changes in the foreign currency exchange rate, are included, net of income taxes, in accumulated other comprehensive income (see Note 12). Griffin reported dividend income from Centaur Media of $110, $188 and $169 in fiscal 2013, fiscal 2012 and fiscal 2011, respectively.

        As of December 1, 2012, Griffin held 5,277,150 shares of Centaur Media common stock. In fiscal 2013, Griffin sold 2,824,688 shares of its Centaur Media common stock for total cash proceeds of $2,487, after transaction costs. The sale of Centaur Media common stock resulted in a pretax gain of $1,088 in fiscal 2013. Griffin held 2,452,462 shares of Centaur Media common stock as of November 30, 2013.

        The fair value, cost and unrealized gain of Griffin's investment in Centaur Media are as follows:

 
  Nov. 30, 2013   Dec. 1, 2012  

Fair value

  $ 2,208   $ 4,226  

Cost

    1,274     2,613  
           

Unrealized gain

  $ 934   $ 1,613  
           
           

        Subsequent to November 30, 2013, Griffin sold an additional 250,000 shares of its holdings in Centaur Media for proceeds of approximately $250.

    Shemin Nurseries Holding Corp.

        As of December 1, 2012, Griffin held an approximate 14% equity interest in SNHC, which operated a landscape nursery distribution business through its subsidiary. Griffin accounted for its investment in SNHC under the cost method of accounting for investments. In fiscal 2012, Griffin received a cash distribution from SNHC which was treated as investment income and return of investment. Accordingly, Griffin did not have any remaining book value in its investment in SNHC as of December 1, 2012. On January 18, 2013, Griffin completed the sale of its investment in SNHC for total cash proceeds of $3,418, resulting in a pretax gain of $3,397.

51



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

8. Property and Equipment

        Property and equipment consist of:

 
  Estimated Useful
Lives
  Nov. 30,
2013
  Dec. 1,
2012
 

Land

      $ 437   $ 437  

Land improvements

  10 to 20 years     1,561     1,561  

Buildings and improvements

  10 to 40 years     1,865     1,857  

Machinery and equipment

  3 to 20 years     12,135     12,300  
               

        15,998     16,155  

Accumulated depreciation

        (14,048 )   (14,030 )
               

      $ 1,950   $ 2,125  
               
               

        Land improvements are primarily depreciated over 15 to 20 years, however, items such as nursery bed construction are depreciated over 10 years. Buildings are primarily depreciated over 40 years and smaller structures and building improvements are primarily depreciated over 10 to 20 years. Machinery and equipment includes equipment which is primarily depreciated over 5 to 15 years. Furniture and fixtures are primarily depreciated over an average of 7 years, vehicles are primarily depreciated over 4 to 5 years and computers are primarily depreciated over 3 to 5 years. In connection with the Imperial Transaction, most of the property and equipment will be reclassified into real estate assets.

        Total depreciation expense related to property and equipment in fiscal 2013, fiscal 2012 and fiscal 2011 was $335, $362 and $417, respectively.

        As a result of winter storms early in fiscal 2011, some of Imperial's hoop houses collapsed and a portion of the plants stored in the damaged hoop houses became unsaleable. There was no charge to earnings for the damaged hoop houses because they were fully depreciated prior to the start of fiscal 2011. A gain on insurance recovery of $479 related to the insurance proceeds received for the damaged hoop houses is included in Griffin's fiscal 2011 consolidated statement of operations (see Note 14).

9. Income Taxes

        The income tax (provision) benefit in continuing operations for fiscal 2013, fiscal 2012 and fiscal 2011 is summarized as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Current federal

  $   $   $  

Current state and local

            (113 )

Deferred federal

    (1,076 )   (172 )   648  

Deferred state and local

    84     (98 )   (252 )
               

Total income tax (provision) benefit

  $ (992 ) $ (270 ) $ 283  
               
               

        Griffin did not recognize a current tax benefit in fiscal 2013, fiscal 2012 or fiscal 2011 from the exercise of employee stock options. A benefit was not recorded in fiscal 2012 because Griffin utilized

52



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

9. Income Taxes (Continued)

net operating loss carryforwards to offset taxable income. In fiscal 2013 and fiscal 2011, Griffin did not have taxable income. As of November 30, 2013, Griffin has an unrecognized tax benefit of $1,166 for the effect of employee stock options exercised in fiscal years 2006 through 2013. In fiscal 2012, the deferred tax asset related to non-qualified stock options was reduced by $38 as a result of exercises and forfeitures of those options. There were no adjustments to deferred tax assets for exercises and forfeitures of non-qualified stock options in fiscal 2013 and fiscal 2011.

        Included in the loss from Griffin's discontinued operations are income tax benefits of $4,411 and $528 for fiscal 2013 and fiscal 2011, respectively. Included in the income of Griffin's discontinued operations is income tax expense of $1,077 for fiscal 2012.

        The income tax (provision) benefit for discontinued operations in fiscal 2013, fiscal 2012 and fiscal 2011 is net of the effect of recording valuation allowances on certain state deferred tax assets for state net operating losses of Imperial. The effect on the income tax provision for the valuation allowances in fiscal 2013 and fiscal 2012 were charges of $93 and $44, respectively, less federal income tax benefits of $33 and $15, respectively. The effect on the income tax benefit for the valuation allowance in fiscal 2011 was a credit of $23, less federal income tax expense of $8. The establishment of the valuation allowances reflects management's determination that it is more likely than not that Imperial will not generate sufficient taxable income in the future to fully utilize certain state net operating loss carryforwards.

        Other comprehensive (loss) income includes deferred tax (expense) benefit as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Mark to market adjustment on Centaur Media plc

  $ 213   $ (427 ) $ 735  

Measurement of the funded status of the defined postretirement plan

    (40 )   29     21  

Fair value adjustment of Griffin's cash flow hedges

    (359 )   287     346  
               

Total income tax (expense) benefit included in other comprehensive (loss) income

  $ (186 ) $ (111 ) $ 1,102  
               
               

        The differences between the income tax benefit at the United States statutory income tax rates and the actual income tax benefit on continuing operations for fiscal 2013, fiscal 2012 and fiscal 2011 are as follows:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Tax (provision) benefit at statutory rate

  $ (1,016 ) $ (163 ) $ 557  

State and local taxes, including valuation allowance, net of federal tax effect

    55     (64 )   (237 )

Permanent items

    (39 )   (50 )   (47 )

Other

    8     7     10  
               

Total income tax (provision) benefit

  $ (992 ) $ (270 ) $ 283  
               
               

53



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

9. Income Taxes (Continued)

        The state and local income tax expense, net of federal tax effect, principally reflects deferred tax expense due to the variations in income apportionment among Griffin's multiple state filings.

        The significant components of Griffin's deferred tax assets and deferred tax liabilities are as follows:

 
  Nov. 30,
2013
  Dec. 1,
2012
 

Deferred tax assets:

             

Inventories

  $ 4,397   $ 371  

Federal net operating loss carryforwards

    1,507     521  

Retirement benefit plans

    1,500     1,222  

State net operating loss carryforwards

    937     855  

Cash flow hedges

    821     1,180  

Non-qualified stock options

    733     608  

Deferred revenue

    485     710  

Charitable contributions

    243     154  

Conditional asset retirement obligations

    114     117  

Allowance for doubtful accounts receivable

    52     50  

Investment in Centaur Media plc

    45     310  

Investment in Shemin Nurseries Holding Corp. 

        301  

Other

    372     194  
           

Total deferred tax assets

    11,206     6,593  

Valuation allowances

    (379 )   (319 )
           

Net deferred tax assets

    10,827     6,274  
           

Deferred tax liabilities:

             

Real estate assets

    (3,272 )   (2,211 )

Deferred rent

    (926 )   (787 )

Prepaid insurance

    (180 )   (147 )

Property and equipment

    (104 )   (105 )

Other

    (370 )   (277 )
           

Total deferred tax liabilities

    (4,852 )   (3,527 )
           

Net total deferred tax assets

  $ 5,975   $ 2,747  
           
           

        Deferred income taxes on Griffin's consolidated balance sheets at November 30, 2013 and December 1, 2012 are classified as follows:

 
  November 30, 2013   December 1, 2012  
 
  Current   Noncurrent   Total   Current   Noncurrent   Total  

Asset

  $ 4,508   $ 6,319   $ 10,827   $ 722   $ 5,552   $ 6,274  

Liability

    (277 )   (4,575 )   (4,852 )   (197 )   (3,330 )   (3,527 )
                           

  $ 4,231   $ 1,744   $ 5,975   $ 525   $ 2,222   $ 2,747  
                           
                           

54



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

9. Income Taxes (Continued)

        At November 30, 2013, Griffin had federal net operating loss carryforwards of approximately $4,305 with expirations ranging from seventeen to twenty years. At November 30, 2013, Griffin had state net operating loss carryforwards of approximately $22,819, principally in Connecticut, with expirations ranging from nine to twenty years. Management has determined that a valuation allowance is required for net operating loss carryforwards in certain states (other than Connecticut) related to Imperial. Realization of the tax benefits related to the Connecticut state net operating loss carryforwards, which are not subject to valuation allowances, and the state effective tax rates at which those benefits will be realized is dependent upon future results of operations. Differences between forecasted and actual future operating results could adversely impact Griffin's ability to realize tax benefits from Connecticut state net operating losses. Therefore, the deferred tax assets relating to Connecticut state net operating loss carryforwards could be reduced in the future if estimates of future taxable income are reduced. Griffin has evaluated the likelihood that it will realize the benefits of its deferred tax assets. Based on a significant amount of appreciated assets, primarily real estate, held by Griffin and the significant length of time expected before Griffin's deferred tax assets would expire, Griffin believes that it is more likely than not that it will utilize the benefit of its deferred tax assets.

        Griffin evaluates each tax position taken in its tax returns and recognizes a liability for any tax position deemed less likely than not to be sustained under examination by the relevant taxing authorities. Griffin believes that its income tax filing positions will be sustained on examination and does not anticipate any adjustments that would result in a material change on its financial statements. As a result, no accrual for uncertain income tax positions has been recorded pursuant to FASB ASC 740-10.

        Griffin's federal income tax return for fiscal 2009 was examined by the Internal Revenue Service and accepted as filed. Federal income tax returns for fiscal 2010, fiscal 2011 and fiscal 2012 are subject to examination by the Internal Revenue Service. Examinations of Griffin's fiscal 2007, fiscal 2008 and fiscal 2009 New York state income tax returns are currently being performed. In fiscal 2012, the state of Connecticut completed an examination of Griffin's fiscal 2007 tax return. There were no significant adjustments made as a result of that examination. The remaining periods subject to examination for Griffin's significant state return, which is Connecticut, are fiscal 2008 through fiscal 2012.

55



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

10. Long-Term Debt

        Long-term debt includes:

 
  Nov. 30, 2013   Dec. 1, 2012  

Nonrecourse mortgages:

             

6.30%, due May 1, 2014

  $ 99   $ 289  

5.73%, due August 1, 2015

    18,615     19,018  

8.13%, due April 1, 2016

    3,603     3,943  

7.0%, due October 1, 2017

    5,779     6,016  

Variable rate mortgage, due October 2, 2017*

    6,563     6,726  

Variable rate mortgage, due February 1, 2019*

    11,150     11,396  

Variable rate mortgage, due August 1, 2019*

    7,869     8,034  

Variable rate mortgage, due January 27, 2020*

    3,961     4,067  

Variable rate mortgage, due September 1, 2023*

    9,069      
           

Total nonrecourse mortgages

    66,708     59,489  

Revolving line of credit

         

Capital leases

    85     72  
           

Total

    66,793     59,561  

Less: current portion

    (2,101 )   (1,869 )
           

Total long-term debt

  $ 64,692   $ 57,692  
           
           

*
Griffin entered into interest rate swap agreements to effectively fix the interest rates on these loans (see below).

        The annual principal payment requirements under the terms of the nonrecourse mortgage loans for the fiscal years 2014 through 2018 are $2,066, $19,828, $4,144, $11,877 and $936, respectively. The aggregate book value of land and buildings that are collateral for the nonrecourse mortgage loans was approximately $71,100 at November 30, 2013. The aggregate book value of land and buildings that are collateral for the revolving line of credit was approximately $10,600 at November 30, 2013.

        On August 28, 2013, a subsidiary of Griffin closed on a $9,100 nonrecourse mortgage loan with First Niagara Bank (the "2023 First Niagara Mortgage"), collateralized by a 228,000 square foot industrial building in Lower Nazareth, Pennsylvania that was constructed in fiscal 2012 and fully leased in fiscal 2013. Although this mortgage is nonrecourse, Griffin and its subsidiary entered into a master lease that is coterminous with the 2023 First Niagara Mortgage which would become effective if the full building tenant in that building does not renew its five-year lease when it is scheduled to expire in fiscal 2018. The 2023 First Niagara Mortgage has a ten-year term with monthly payments based on a twenty-five year amortization schedule. The interest rate for the 2023 First Niagara Mortgage is a floating rate of the one month LIBOR rate plus 1.95%. At the time Griffin closed on the 2023 First Niagara Mortgage, Griffin also entered into an interest rate swap agreement with First Niagara Bank for a notional principal amount of $9,100 at inception to fix the interest rate of the 2023 First Niagara Mortgage at 4.79%.

        On April 24, 2013, Griffin closed on a new $12,500 revolving credit line with Webster Bank (the "Webster Credit Line"). The Webster Credit Line is for two years with an option for Griffin to extend

56



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

10. Long-Term Debt (Continued)

the credit line for a third year. The Webster Credit Line replaced Griffin's $12,500 credit line with Doral Bank (the "Doral Credit Line") that was scheduled to expire on May 1, 2013. Interest on the outstanding borrowings under the Webster Credit Line are at the one month LIBOR rate plus 2.75%. Interest on outstanding borrowings under the Doral Credit Line was the higher of the prime rate plus 1.5% or 5.875%. The Webster Credit Line is collateralized by Griffin Land's properties in Griffin Center South, aggregating approximately 235,000 square feet, and an approximately 48,000 square foot single-story office building in Griffin Center. These are the same properties that collateralized the Doral Credit Line. There were no borrowings under the Doral Credit Line in fiscal 2013 or fiscal 2012 and there were no borrowings under the Webster Credit Line as of November 30, 2013.

        On April 1, 2013, a subsidiary of Griffin entered into a modification agreement for its 5.25% nonrecourse mortgage loan with First Niagara Bank due January 27, 2020 (the "2020 First Niagara Mortgage"). The modification agreement changed the interest rate of the 2020 First Niagara Mortgage from a fixed rate of 5.25% to a variable rate of the one month LIBOR rate plus 2.5%. The loan modification did not change the loan's collateral or maturity date. Griffin Land paid $70 to First Niagara Bank for the loan modification, plus transaction costs. Because the difference between the present values of the future payments under the existing loan and the modified loan is greater than 10%, the loan modification was accounted for as a debt extinguishment. As such, all deferred costs related to the 2020 First Niagara Mortgage ($216) and the fee paid to First Niagara Bank for the modification agreement are reflected as a loss on debt extinguishment on Griffin's consolidated statement of operations. Concurrent with the completion of the loan modification agreement, Griffin Land entered into an interest rate swap agreement with First Niagara Bank to fix the interest rate on the 2020 First Niagara Mortgage at 3.91% for the duration of the loan.

        On June 15, 2012, Griffin and two of its wholly-owned subsidiaries entered into the Third Modification Agreement (the "Modification Agreement") to the mortgage loan originally due January 1, 2013 with Webster Bank (the "Webster Mortgage"). The Modification Agreement extended the maturity of the Webster Mortgage to October 2, 2017. In accordance with the Modification Agreement, the interest rate under the Webster Mortgage, which was fixed at 6.08% through September 30, 2012, changed, effective October 1, 2012, to a floating rate of one month LIBOR plus 2.75%. In anticipation of entering into the Modification Agreement, on June 7, 2012, Griffin entered into an interest rate swap agreement with Webster Bank to effectively fix the interest rate on the Webster Mortgage at 3.86% from October 1, 2012 through the maturity of the Webster Mortgage. Pursuant to the Modification Agreement, effective on October 1, 2012, principal payments on the Webster Mortgage are based on a twenty-five year amortization schedule. The Webster Mortgage is collateralized by Griffin Land's two multi-story office buildings in Windsor, Connecticut. The Modification Agreement did not alter the collateral for the Webster Mortgage.

        As of November 30, 2013, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgages on certain of its real estate assets. Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 3). No ineffectiveness on the cash flow hedges was recognized as of November 30, 2013 and none is anticipated over the term of the agreements. Amounts in other comprehensive income (loss) will be reclassified into interest expense over the term of the swap agreements to achieve fixed rates on each mortgage. None of the interest rate swap agreements contain any credit risk related contingent features. In fiscal 2013, Griffin

57



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

10. Long-Term Debt (Continued)

recognized a net gain (included in other comprehensive income) before taxes of $969 on its interest rate swap agreements. In fiscal 2012 and fiscal 2011, Griffin recognized net losses (included in other comprehensive loss) before taxes of $776 and $934, respectively, on its interest rate swap agreements.

        As of November 30, 2013, $998 is expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense. As of November 30, 2013, the net fair value of Griffin's interest rate swap agreements was $2,222, with $63 included in other noncurrent assets and $2,285 included in other noncurrent liabilities on Griffin's consolidated balance sheet. As of December 1, 2012, the value of Griffin's interest rate swap agreements was $3,191 and is included in other noncurrent liabilities on Griffin's consolidated balance sheet.

        Future minimum lease payments under capital leases held by Griffin as lessee, principally for vehicles, and the present value of such payments as of November 30, 2013 were:

2014

  $ 39  

2015

    33  

2016

    17  

2017

    3  
       

Total minimum lease payments

    92  

Less: amounts representing interest

    (7 )
       

Present value of minimum lease payments(a)

  $ 85  
       
       

(a)
Includes current portion of $35 at November 30, 2013.

        Assets subject to capital leases, with Griffin as lessee, that are included in machinery and equipment were as follows:

 
  Nov. 30, 2013   Dec. 1, 2012  

Machinery and equipment, at cost

  $ 371   $ 406  

Accumulated amortization

    (288 )   (334 )
           

Machinery and equipment, net

  $ 83   $ 72  
           
           

        Amortization expense relating to capital leases was:

 
  For the Fiscal Years Ended,  
 
  Nov. 30, 2013   Dec. 1, 2012   Dec. 3, 2011  

Amortization expense

  $ 36   $ 36   $ 39  
               
               

11. Retirement Benefits

    Savings Plan

        Griffin maintains the Griffin Land & Nurseries, Inc. 401(k) Savings Plan (the "Griffin Savings Plan") for its employees, a defined contribution plan whereby Griffin matches 60% of each employee's

58



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

11. Retirement Benefits (Continued)

contribution, up to a maximum of 5% of base salary. Griffin's contributions to the Griffin Savings Plan in fiscal 2013, fiscal 2012 and fiscal 2011 were $137, $139 and $146, respectively.

    Deferred Compensation Plan

        Griffin maintains a non-qualified deferred compensation plan (the "Deferred Compensation Plan") for certain of its employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the Griffin Savings Plan. Griffin's liability under its Deferred Compensation Plan at November 30, 2013 and December 1, 2012 was $3,399 and $2,571, respectively. These amounts are included in other noncurrent liabilities on Griffin's consolidated balance sheets. The expense for Griffin's matching benefit to the Deferred Compensation Plan in fiscal 2013, fiscal 2012 and fiscal 2011 was $29, $29 and $31, respectively.

        The Deferred Compensation Plan is unfunded, with benefits to be paid from Griffin's general assets. The liability for the Deferred Compensation Plan reflects the amounts withheld from employees, Griffin's matching benefit and any gains or losses on participant account balances based on the assumed investment of amounts credited to participants' accounts in certain mutual funds. Participant balances are tracked and any gain or loss is determined based on the performance of the mutual funds as selected by the participants.

    Postretirement Benefits

        Griffin maintains a postretirement benefits program that provides principally health and life insurance benefits to certain of its employees. Only those employees who were employed by Griffin's predecessor company as of December 31, 1993 are eligible to participate in the postretirement benefits program. The liability for postretirement benefits is included in other noncurrent liabilities on Griffin's consolidated balance sheets.

        Griffin accounts for postretirement benefits in accordance with ASC 715-10, which requires recognition of the funded status on Griffin's consolidated balance sheet of its postretirement benefits program. The effect of ASC 715-10 in fiscal 2013 was a decrease in noncurrent liabilities of $116 and a decrease of $68, after tax, in accumulated other comprehensive loss. The effect in fiscal 2012 and fiscal 2011 was an increase in noncurrent liabilities of $77 and $56, respectively, and increases of $48 and $35, respectively, after tax, in accumulated other comprehensive loss.

59



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

11. Retirement Benefits (Continued)

        Griffin's liability for postretirement benefits, which is included in other noncurrent liabilities on its consolidated balance sheets, as determined by the plan's actuary, is shown below. The program's liability is unfunded.

 
  Nov. 30, 2013   Dec. 1, 2012  

Change in benefit obligation:

             

Benefit obligation at beginning of year

  $ 488   $ 426  

Actuarial (gain) loss

    (108 )   77  

Interest cost

    16     17  

Service cost

    9     11  

Benefits paid

        (4 )

Amortization of actuarial gain

    (33 )   (39 )
           

Benefit obligation at end of year

  $ 372   $ 488  
           
           

        Approximately $47 of the estimated net actuarial gain will be amortized from Griffin's accumulated other comprehensive loss into net periodic benefit cost in fiscal 2014.

        Griffin's liability for postretirement benefits as of November 30, 2013 and December 1, 2012 is attributed to the following:

 
  Nov. 30, 2013   Dec. 1, 2012  

Amounts recognized in the consolidated balance sheets consist of:

             

Retirees

  $   $ 16  

Fully eligible active participants

    230     273  

Other active participants

    142     199  
           

Liability for postretirement benefits

  $ 372   $ 488  
           
           

60



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

11. Retirement Benefits (Continued)

        The components of Griffin's postretirement benefits (income) expense are as follows:

 
  For the Fiscal Years
Ended,
 
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Service cost

  $ 9   $ 11   $ 10  

Interest

    16     17     18  

Amortization of actuarial gain

    (33 )   (39 )   (46 )
               

Total income

    (8 )   (11 )   (18 )

Other changes in benefit obligations recognized in other comprehensive loss:

                   

Actuarial (gain) loss

    (108 )   77     56  
               

Total recognized in net periodic benefit (income) expense and other comprehensive loss

  $ (116 ) $ 66   $ 38  
               
               

        An assumed health care cost trend of 7.2% has been utilized for the next year, with an ultimate assumed rate of 4.5% being reached in 2027. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

 
  One-Percentage-
Point Increase
  One-Percentage-
Point Decrease
 

Effect on total of service and interest cost

  $ 1   $ (1 )

Effect on postretirement benefit obligation

    10     (9 )

        Discount rates of 4.60% and 3.59% were used to compute the accumulated postretirement benefit obligations at November 30, 2013 and December 1, 2012, respectively. The discount rates used are based on the spot rate of the Citigroup Pension Discount Curve, which is used to discount the projected cash flows of the plan. Discount rates of 3.59%, 4.50% and 5.23% were used to compute the net periodic benefit expense for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.

        The following benefit payments, which reflect expected future service as appropriate, are expected to be paid as follows:

2014

  $ 9  

2015

    9  

2016

    12  

2017

    12  

2018

    15  

2019 - 2023

    113  

61



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements (Continued)

(dollars in thousands unless otherwise noted, except per share data)

12. Stockholders' Equity

    Per Share Results

        Basic and diluted results per share were based on the following:

 
  For the Fiscal Years Ended,  
 
  Nov. 30,
2013
  Dec. 1,
2012
  Dec. 3,
2011
 

Income (loss) from continuing operations for computation of basic and diluted per share results, net of tax

  $ 1,910   $ 196   $ (1,308 )

(Loss) income from discontinued operations for computation of basic and diluted per share results, net of tax

    (7,731 )   770     (1,166 )
               

Net (loss) income

  $ (5,821 ) $ 966   $ (2,474 )
               
               

Weighted average shares outstanding for computation of basic per share results

    5,144,000     5,138,000     5,130,000  

Incremental shares from assumed exercise of Griffin stock options(a)

    8,000     5,000      
               

Adjusted weighted average shares for computation of diluted per share results

    5,152,000     5,143,000     5,130,000  
               
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