10-Q 1 a13-20204_110q.htm 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED August 31, 2013

 

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

 

FOR THE TRANSITION PERIOD FROM              TO             

 

Commission File No. 1-12879

 

GRIFFIN LAND & NURSERIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

06-0868496

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification Number)

 

 

 

One Rockefeller Plaza, New York, New York

 

10020

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s Telephone Number including Area Code  (212) 218-7910

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

 

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨

 

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 x

 

 

 

 

Non-accelerated filer o

Smaller reporting company o

 

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

 

Number of shares of Common Stock outstanding at October 4, 2013: 5,146,366

 

 

 



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) August 31, 2013 and December 1, 2012

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) 13 and 39 Weeks Ended August 31, 2013 and September 1, 2012

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) 13 and 39 Weeks Ended August 31, 2013 and September 1, 2012

5

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) 39 Weeks Ended August 31, 2013 and September 1, 2012

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) 39 Weeks Ended August 31, 2013 and September 1, 2012

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8-25

 

 

 

 

 

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26-40

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

40

 

 

 

 

 

ITEM 4

Controls and Procedures

41

 

 

 

 

PART II -

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

42

 

 

 

 

 

ITEMS 2-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

42-45

 

 

 

 

 

 

SIGNATURES

46

 



Table of Contents

 

PART I                                                     FINANCIAL INFORMATION

 

ITEM 1.                                                  FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

 

 

August 31, 2013

 

December 1, 2012

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

15,185

 

$

10,181

 

Accounts receivable, less allowance of $144 and $128

 

2,702

 

1,846

 

Inventories, net

 

14,639

 

14,206

 

Deferred income taxes

 

39

 

525

 

Other current assets

 

4,184

 

3,564

 

Total current assets

 

36,749

 

30,322

 

Real estate assets, net

 

130,721

 

123,927

 

Available for sale securities - Investment in Centaur Media plc

 

2,526

 

4,226

 

Deferred income taxes

 

2,345

 

2,222

 

Property and equipment, net

 

2,020

 

2,125

 

Real estate held for sale, net

 

1,632

 

1,186

 

Proceeds held in escrow

 

 

6,934

 

Other assets

 

8,636

 

9,172

 

Total assets

 

$

184,629

 

$

180,114

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

2,104

 

$

1,869

 

Accounts payable and accrued liabilities

 

3,838

 

4,904

 

Deferred revenue

 

1,582

 

3,742

 

Total current liabilities

 

7,524

 

10,515

 

Long-term debt

 

65,203

 

57,692

 

Other noncurrent liabilities

 

6,753

 

7,761

 

Total liabilities

 

79,480

 

75,968

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

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

 

107,494

 

107,056

 

Retained earnings

 

11,491

 

11,222

 

Accumulated other comprehensive loss, net of tax

 

(425

)

(721

)

Treasury stock, at cost, 388,321 shares

 

(13,466

)

(13,466

)

Total stockholders’ equity

 

105,149

 

104,146

 

Total liabilities and stockholders’ equity

 

$

184,629

 

$

180,114

 

 

See Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

 

 

For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

Rental revenue and property sales

 

$

5,387

 

$

9,866

 

$

17,166

 

$

18,755

 

Landscape nursery net sales and other revenue

 

2,844

 

2,681

 

12,018

 

11,139

 

Total revenue

 

8,231

 

12,547

 

29,184

 

29,894

 

 

 

 

 

 

 

 

 

 

 

Costs related to rental revenue and property sales

 

3,364

 

3,747

 

10,422

 

9,669

 

Costs of landscape nursery net sales and other revenue

 

2,801

 

2,434

 

10,606

 

9,769

 

Total costs of goods sold and costs related to rental revenue and property sales

 

6,165

 

6,181

 

21,028

 

19,438

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

2,066

 

6,366

 

8,156

 

10,456

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

2,424

 

2,354

 

8,518

 

7,774

 

Operating (loss) profit

 

(358

)

4,012

 

(362

)

2,682

 

Gain on sale of investment in Shemin Nurseries Holding Corporation

 

 

 

3,397

 

 

Gain on sale of common stock in Centaur Media plc

 

 

 

504

 

 

Interest expense

 

(938

)

(817

)

(2,881

)

(2,522

)

Loss on debt extinguishment

 

 

 

(286

)

 

Investment income

 

 

10

 

51

 

479

 

Income (loss) before income tax (provision) benefit

 

(1,296

)

3,205

 

423

 

639

 

Income tax (provision) benefit

 

367

 

(1,323

)

(154

)

(294

)

Income (loss) from continuing operations

 

(929

)

1,882

 

269

 

345

 

Discontinued operation, net of tax:

 

 

 

 

 

 

 

 

 

Income from operations, net of tax

 

 

 

 

117

 

Gain on sale of warehouse, net of tax

 

 

 

 

1,530

 

Total discontinued operation, net of tax

 

 

 

 

1,647

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(929

)

$

1,882

 

$

269

 

$

1,992

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.18

)

$

0.37

 

$

0.05

 

$

0.07

 

Income from discontinued operation

 

 

 

 

0.32

 

Basic net income (loss) per common share

 

$

(0.18

)

$

0.37

 

$

0.05

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.18

)

$

0.37

 

$

0.05

 

$

0.07

 

Income from discontinued operation

 

 

 

 

0.32

 

Diluted net income (loss) per common share

 

$

(0.18

)

$

0.37

 

$

0.05

 

$

0.39

 

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

 

 

For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(929

)

$

1,882

 

$

269

 

$

1,992

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss)

 

122

 

105

 

20

 

312

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in fair value of Centaur Media plc

 

324

 

257

 

(348

)

61

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on cash flow hedges

 

357

 

(249

)

624

 

(804

)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income (loss), net of tax

 

803

 

113

 

296

 

(431

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

(126

)

$

1,995

 

$

565

 

$

1,561

 

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Thirty-Nine Weeks Ended August 31, 2013 and September 1, 2012

(dollars in thousands)

(unaudited)

 

 

 

Shares of
Common
Stock
Issued

 

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Treasury
Stock

 

Total

 

Balance at December 3, 2011

 

5,521,170

 

$

55

 

$

106,370

 

$

11,284

 

$

(978

)

$

(13,426

)

$

103,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

428

 

 

 

 

428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

5,322

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

1,992

 

 

 

1,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications included in net income

 

 

 

 

 

312

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

(804

)

 

(804

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income from Centaur Media plc, net of tax

 

 

 

 

 

61

 

 

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 1, 2012

 

5,526,492

 

$

55

 

$

106,878

 

$

13,276

 

$

(1,409

)

$

(13,426

)

$

105,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 1, 2012

 

5,527,911

 

$

55

 

$

107,056

 

$

11,222

 

$

(721

)

$

(13,466

)

$

104,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

358

 

 

 

 

358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

6,776

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

269

 

 

 

269

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications included in net income

 

 

 

 

 

20

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

624

 

 

624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss from Centaur Media plc, net of tax

 

 

 

 

 

(348

)

 

(348

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at August 31, 2013

 

5,534,687

 

$

55

 

$

107,494

 

$

11,491

 

$

(425

)

$

(13,466

)

$

105,149

 

 

See Notes to Consolidated Financial Statements.

 

6



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

Operating activities:

 

 

 

 

 

Net income

 

$

269

 

$

1,992

 

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

 

 

 

 

 

Depreciation and amortization

 

4,984

 

4,593

 

Gain on sale of investment in Shemin Nurseries Holding Corporation

 

(3,397

)

 

Gain on sales of properties

 

(2,312

)

(7,510

)

Gain on sale of common stock in Centaur Media plc

 

(504

)

 

Stock-based compensation expense

 

358

 

428

 

Provision for inventory losses

 

300

 

250

 

Loss on debt extinguishment

 

286

 

 

Amortization of debt issuance costs

 

205

 

222

 

Deferred income taxes

 

154

 

1,115

 

Provision for bad debts

 

35

 

17

 

Income from equity investments

 

(4

)

(6

)

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(891

)

(764

)

Inventories

 

(733

)

(97

)

Other current assets

 

(620

)

73

 

Accounts payable and accrued liabilities

 

733

 

648

 

Deferred revenue

 

208

 

217

 

Other noncurrent assets and noncurrent liabilities, net

 

38

 

340

 

Net cash (used in) provided by operating activities

 

(891

)

1,518

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Additions to real estate assets

 

(12,262

)

(12,330

)

Proceeds from property sale returned from escrow

 

6,934

 

 

Proceeds from the sale of investment in Shemin Nurseries Holding Corporation

 

3,418

 

 

Proceeds from the sale of common stock in Centaur Media plc

 

1,160

 

 

Proceeds from sales of properties, net of expenses

 

505

 

22,466

 

Additions to property and equipment

 

(104

)

(130

)

Proceeds from property sale deposited in escrow

 

 

(6,931

)

Return of capital from Shemin Nurseries Holding Corporation

 

 

309

 

Net cash (used in) provided by investing activities

 

(349

)

3,384

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Proceeds from debt

 

9,100

 

 

Payments of debt

 

(1,402

)

(1,233

)

Dividends paid to stockholders

 

(1,028

)

(513

)

Debt issuance costs

 

(436

)

 

Exercise of stock options

 

80

 

80

 

Debt modification costs

 

(70

)

 

Net cash provided by (used in) financing activities

 

6,244

 

(1,666

)

Net increase in cash and cash equivalents

 

5,004

 

3,236

 

Cash and cash equivalents at beginning of period

 

10,181

 

7,431

 

Cash and cash equivalents at end of period

 

$

15,185

 

$

10,667

 

 

See Notes to Consolidated Financial Statements.

 

7



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

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

(unaudited)

 

1.              Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Griffin Land & Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s real estate business (“Griffin Land”) which is conducted through several subsidiaries and Griffin’s wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”), and have been prepared in conformity with the standards of accounting measurement set forth by the Financial Accounting Standards Board (“FASB”) ASC 270, “Interim Reporting.”

 

The accompanying financial statements have been prepared in accordance with the accounting policies stated in Griffin’s audited financial statements for the fiscal year ended December 1, 2012 (“fiscal 2012”) included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission, and should be read in conjunction with the Notes to Consolidated Financial Statements appearing in that report. All adjustments, comprising only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods, have been reflected and all intercompany transactions have been eliminated.  The consolidated balance sheet data as of December 1, 2012 was derived from Griffin’s audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period.  Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations, valuation of derivative instruments, the allowance for doubtful accounts receivable, the estimated costs to complete required offsite improvements to land sold and the adequacy of inventory reserves.  Griffin bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by Griffin may differ materially and adversely from Griffin’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

As of August 31, 2013, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposures.  Griffin does not use derivatives for speculative purposes.  Griffin applies 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 assessed 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.

 

8



Table of Contents

 

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 change in fair values of Griffin’s interest rate swap agreements are recorded as components of accumulated other comprehensive income in stockholders’ equity to the extent they are effective.  Any ineffective portion of the change in fair value of these instruments would be recorded as interest expense.

 

The results of operations for the thirteen weeks ended August 31, 2013 (the “2013 third quarter”) and the thirty-nine weeks ended August 31, 2013 (the “2013 nine month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended September 1, 2012 is referred to herein as the “2012 third quarter” and the thirty-nine weeks ended September 1, 2012 is referred to herein as the “2012 nine month period.”

 

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 does not require new disclosures but 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 2013 second quarter; however, Griffin adopted the new presentation requirements in the 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) 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 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.

 

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This update will be effective for Griffin in the 2014 second quarter.  Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

 

2.              Discontinued Operation

 

On January 31, 2012, Griffin Land closed on the sale of its Manchester, Connecticut warehouse to its full building tenant in that building.  Net cash proceeds from the sale, after selling expenses of $438 paid out of the proceeds at closing and $25 paid separately, were $15,537, and a pretax gain of $2,886 is included in the results for discontinued operation in the 2012 nine month period.  Upon completion of the sale, Griffin Land 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.  Because 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 that was being held in escrow was released to Griffin Land.

 

The operating results of the Manchester warehouse prior to its sale are reflected as a discontinued operation in Griffin’s consolidated statement of operations for the 2012 nine month period.  Rental revenue and pretax operating profit from the Manchester warehouse in the 2012 nine month period were $273 and $221, respectively.

 

3.              Industry Segment Information

 

Griffin defines its reportable segments by their products and services, which are comprised of the real estate and landscape nursery segments.  Management operates and receives reporting based upon these segments.  Griffin has no operations outside the United States.  Griffin’s export sales and transactions between segments are not material.

 

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For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

Total net sales and other revenue:

 

 

 

 

 

 

 

 

 

Rental revenue and property sales

 

$

5,387

 

$

9,866

 

$

17,166

 

$

18,755

 

Landscape nursery net sales and other revenue

 

2,844

 

2,681

 

12,018

 

11,139

 

 

 

$

8,231

 

$

12,547

 

$

29,184

 

$

29,894

 

Operating profit (loss):

 

 

 

 

 

 

 

 

 

Real estate

 

$

1,393

 

$

5,498

 

$

4,604

 

$

7,138

 

Landscape nursery

 

(703

)

(468

)

(1,112

)

(1,075

)

Industry segment totals

 

690

 

5,030

 

3,492

 

6,063

 

General corporate expense

 

(1,048

)

(1,018

)

(3,854

)

(3,381

)

Operating (loss) profit

 

(358

)

4,012

 

(362

)

2,682

 

Gain on sale of investment in Shemin Nurseries Holding Corporation

 

 

 

3,397

 

 

Gain on sale of common stock in Centaur Media plc

 

 

 

504

 

 

Interest expense

 

(938

)

(817

)

(2,881

)

(2,522

)

Loss on debt extinguishment

 

 

 

(286

)

 

Investment income

 

 

10

 

51

 

479

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income tax (provision) benefit

 

$

(1,296

)

$

3,205

 

$

423

 

$

639

 

 

The above table reflects the net sales and other revenue and operating profit (loss) included in continuing operations on Griffin’s consolidated statements of operations.  Operating results of the Manchester, Connecticut warehouse and the gain on the sale of that building are included in the results of the discontinued operation on Griffin’s consolidated statements of operations (see Note 2).

 

Continuing operations of the real estate segment include property sales revenue of $331 and $2,805 in the 2013 third quarter and 2013 nine month period, respectively.  The 2013 nine month period primarily includes the recognition of previously deferred revenue on a land sale that was completed in the 2012 third quarter (see Note 11).  Included in property sales revenue in the 2013 nine month period is $177 from an amended agreement related to that 2012 land sale.  Continuing operations of the real estate segment in the 2012 third quarter and 2012 nine month period include property sales revenue of $5,360 which was also related to that same land sale.

 

In fiscal 2009, Imperial shut down operations on its Florida farm and entered into a lease with another landscape nursery grower for that property.  Other revenue of the landscape nursery segment includes revenue from the rental of Imperial’s Florida farm as follows:

 

 

 

For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

 

 

 

 

 

 

 

 

 

 

Rental revenue from Imperial’s Florida farm

 

$

117

 

$

117

 

$

351

 

$

352

 

 

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Identifiable assets:

 

August 31, 2013

 

December 1, 2012

 

Real estate

 

$

141,354

 

$

142,440

 

Landscape nursery

 

21,769

 

20,693

 

Industry segment totals

 

163,123

 

163,133

 

General corporate

 

21,506

 

16,981

 

Total assets

 

$

184,629

 

$

180,114

 

 

4.              Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurements and Disclosures” (“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.

 

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 9).  Beginning in the 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 Overnight Indexed Swap (“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 the 2013 nine month period, Griffin did not transfer any assets or liabilities in or out of Levels 1 or 2.  The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 

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August 31, 2013

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Marketable equity securities

 

$

2,526

 

$

 

$

 

Interest rate swap liabilities

 

$

 

$

1,642

 

$

 

 

 

 

December 1, 2012

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Marketable equity securities

 

$

4,226

 

$

 

$

 

Interest rate swap liabilities

 

$

 

$

3,191

 

$

 

 

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

 

 

 

Fair Value

 

August 31, 2013

 

December 1, 2012

 

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Level

 

Value

 

Fair Value

 

Value

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

15,185

 

$

15,185

 

$

10,181

 

$

10,181

 

Available-for-sale securities

 

1

 

2,526

 

2,526

 

4,226

 

4,226

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Mortgage debt

 

2

 

67,213

 

68,552

 

59,489

 

61,781

 

Interest rate swaps

 

2

 

1,642

 

1,642

 

3,191

 

3,191

 

 

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.

 

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5.              Inventories

 

Inventories consist of:

 

 

 

August 31, 2013

 

December 1, 2012

 

 

 

 

 

 

 

Nursery stock

 

$

13,876

 

$

13,058

 

Materials and supplies

 

763

 

1,148

 

 

 

$

14,639

 

$

14,206

 

 

In the 2013 third quarter and 2013 nine month period, a charge of $300 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.  The 2012 third quarter and 2012 nine month period included a charge of $250 to increase inventory reserves for unsaleable inventories and plants that were expected to be sold below cost as seconds.

 

6.              Real Estate Assets

 

Real estate assets consist of:

 

 

 

Estimated
Useful Lives

 

August 31, 2013

 

December 1, 2012

 

Land

 

 

 

$

17,385

 

$

10,267

 

Land improvements

 

10 to 30 years

 

15,367

 

15,138

 

Buildings and improvements

 

10 to 40 years

 

127,151

 

125,971

 

Tenant improvements

 

Shorter of useful life or terms of related lease

 

16,191

 

14,738

 

Development costs

 

 

 

15,415

 

14,557

 

 

 

 

 

191,509

 

180,671

 

Accumulated depreciation

 

 

 

(60,788

)

(56,744

)

 

 

 

 

$

130,721

 

$

123,927

 

 

Included in real estate assets, net as of August 31, 2013 and December 1, 2012 was $1,771 and $1,921, respectively, reflecting the net book value of Imperial’s Florida farm that was shut down in fiscal 2009 and is being leased to another landscape nursery grower.

 

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

 

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For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,388

 

$

1,269

 

$

4,136

 

$

3,839

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

 

$

227

 

$

 

$

596

 

 

In the 2012 third quarter, Griffin Land sold 93 acres of undeveloped land in the New England Tradeport (“Tradeport”), Griffin Land’s industrial park located in Windsor and East Granby, Connecticut, 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, reflected as 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.

 

On December 28, 2012, Griffin Land closed on the acquisition of approximately 49 acres of undeveloped land in the Lehigh Valley 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.  As governmental approvals of such development were not in place at the time of closing, the seller agreed to provide Griffin Land with rescission rights if the required approvals were not obtained or the seller did not complete certain post-closing obligations.  Griffin Land has received conditional final plan approvals for its development plans for the land acquired, and expects to record the final development plans by the end of 2013.

 

As of the end of the 2013 second quarter, all of the costs related to the Dollar Tree Sale were incurred; therefore, from the date of the Dollar Tree Sale through the end of the 2013 second quarter, 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 the 2013 nine month period includes revenue of $2,474 and a pretax gain of $2,109 from the Dollar Tree Sale.  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.  Included in the pretax gain is $177 from an amended 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.

 

Real estate assets held for sale consist of:

 

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August 31, 2013

 

December 1, 2012

 

Land

 

$

170

 

$

35

 

Development costs

 

1,462

 

1,151

 

 

 

1,632

 

1,186

 

Accumulated depreciation

 

 

 

 

 

$

1,632

 

$

1,186

 

 

See Note 13 for information related to an agreement entered into by Griffin Land for the sale of undeveloped land subsequent to August 31, 2013.

 

7.              Investments

 

Centaur Media plc

 

Griffin’s investment in the common stock of Centaur Media plc (“Centaur Media”) is accounted for as an available-for-sale security under FASB ASC 320-10, “Investments — Debt and Equity Securities.”  Accordingly, changes in the fair value of Centaur Media, net of income taxes, along with the effect of changes in the foreign currency exchange rate, net of income taxes, are included in accumulated other comprehensive income (see Note 10).

 

As of December 1, 2012, Griffin held 5,277,150 shares of Centaur Media common stock.  In the 2013 nine month period, Griffin sold 1,324,688 shares of its Centaur Media common stock for total cash proceeds of $1,160, after transaction costs.  The sale of Centaur Media common stock resulted in a pretax gain of $504 in the 2013 nine month period.  Griffin held 3,952,462 shares of Centaur Media common stock as of August 31, 2013.

 

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

 

 

 

August 31, 2013

 

December 1, 2012

 

 

 

 

 

 

 

Fair value

 

$

2,526

 

$

4,226

 

Cost

 

1,957

 

2,613

 

Unrealized gain

 

$

569

 

$

1,613

 

 

Shemin Nurseries Holding Corp.

 

As of December 1, 2012, Griffin held an approximate 14% equity interest in Shemin Nurseries Holding Corp. (“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 the 2012 first quarter, 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.

 

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8.              Property and Equipment

 

Property and equipment consist of:

 

 

 

Estimated Useful
Lives

 

August 31, 2013

 

December 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

 

12,138

 

12,300

 

 

 

 

 

16,001

 

16,155

 

Accumulated depreciation

 

 

 

(13,981

)

(14,030

)

 

 

 

 

$

2,020

 

$

2,125

 

 

9.              Long-Term Debt

 

Long-term debt includes:

 

 

 

August 31, 2013

 

December 1, 2012

 

Nonrecourse mortgages:

 

 

 

 

 

6.30%, due May 1, 2014

 

$

148

 

$

289

 

5.73%, due August 1, 2015

 

18,718

 

19,018

 

8.13%, due April 1, 2016

 

3,690

 

3,943

 

7.0%, due October 2, 2017

 

5,840

 

6,016

 

Variable rate mortgage, due October 2, 2017*

 

6,604

 

6,726

 

Variable rate mortgage, due February 1, 2019*

 

11,213

 

11,396

 

Variable rate mortgage, due August 1, 2019*

 

7,911

 

8,034

 

Variable rate mortgage, due January 27, 2020*

 

3,989

 

4,067

 

Variable rate mortgage, due September 1, 2023*

 

9,100

 

 

Total nonrecourse mortgages

 

67,213

 

59,489

 

Revolving line of credit

 

 

 

Capital leases

 

94

 

72

 

Total

 

67,307

 

59,561

 

Less: current portion

 

(2,104

)

(1,869

)

Total long-term debt

 

$

65,203

 

$

57,692

 

 


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

 

As of August 31, 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 4).  No ineffectiveness on the cash flow hedges was recognized as of August 31, 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 the 2013 nine month period, Griffin recognized a

 

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gain (included in other comprehensive income) before taxes of $990 on its interest rate swap agreements.  In the 2012 nine month period, Griffin recognized a loss (included in other comprehensive income) before taxes of $1,276 on its interest rate swap agreements.

 

As of August 31, 2013, $965 is expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense.  As of August 31, 2013, the liability for Griffin’s interest rate swap agreements was $1,642 and is included in other noncurrent liabilities on Griffin’s consolidated balance sheet.

 

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 April 24, 2013, Griffin closed on a new $12.5 million 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 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 or in the 2013 nine month period and there were no borrowings under the Webster Credit Line as of the date of this Quarterly Report on Form 10-Q.

 

On August 28, 2013, a subsidiary of Griffin closed on a $9.1 million 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.  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 of principal and interest starting on October 1, 2013, 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 $9.1 million at inception to fix the interest rate of the 2023 First Niagara Mortgage at 4.79%.  Payments under the swap agreement commence on October 1, 2013 and will continue monthly until September 1, 2023, which is also the termination date of the 2023 First Niagara Mortgage.

 

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10.       Stockholders’ Equity

 

Per Share Results

 

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

 

 

 

For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(929

)

$

1,882

 

$

269

 

$

345

 

 

 

 

 

 

 

 

 

 

 

Income as reported from discontinued operations for computation of basic and diluted per share results, net of tax

 

 

 

 

1,647

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(929

)

$

1,882

 

$

269

 

$

1,992

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

5,146,000

 

5,139,000

 

5,143,000

 

5,137,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

4,000

 

7,000

 

4,000

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares for computation of diluted per share results

 

5,146,000

 

5,143,000

 

5,150,000

 

5,141,000

 

 


(a)             Incremental shares from the assumed exercise of Griffin stock options are not included in periods where the inclusion of such shares would be anti-dilutive.  Such assessment is based on income (loss) from continuing operations when net income includes discontinued operations.  The incremental shares from the assumed exercise of stock options in the thirteen weeks ended August 31, 2013 would have been 10,000.

 

Griffin Stock Option Plan

 

Stock options are granted by Griffin under the Griffin Land & Nurseries, Inc. 2009 Stock Option Plan (the “2009 Stock Option Plan”).  Options granted under the 2009 Stock Option Plan may be either incentive stock options or non-qualified stock options issued at fair market value on the date approved by Griffin’s Compensation Committee. Vesting of all of Griffin’s previously issued stock options is solely based upon service requirements and does not contain market or performance conditions.  Stock options issued will expire ten years from the grant date.  In accordance with the 2009 Stock Option Plan, stock options issued to non-employee directors upon their initial election to the board of directors are fully exercisable immediately upon the date of the option grant. Stock options issued to non-employee directors upon their reelection to the board of directors vest on the second anniversary from the date of grant. Stock options issued to employees vest in equal installments on the third, fourth and fifth anniversaries from the date of grant. None of the stock options outstanding at August 31, 2013 may be exercised as stock appreciation rights.

 

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The following options were granted by Griffin under the 2009 Stock Option Plan to non-employee directors upon their re-election to Griffin’s Board of Directors:

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

 

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

 

 

 

 

 

 

 

 

 

 

Non-employee directors

 

8,112

 

$

12.94

 

6,748

 

$

11.32

 

 

The fair values of all options granted were estimated as of the grant date using the Black-Scholes option-pricing model.  Assumptions used in determining the fair value of the stock options granted in the 2013 and 2012 nine month periods were as follows:

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

 

 

 

 

 

 

Expected volatility

 

40.3

%

41.1

%

Risk free interest rate

 

1.33

%

1.16

%

Expected option term (in years)

 

8.5

 

8.5

 

Annual dividend yield

 

$

0.20

 

 

 

Activity under the Griffin Stock Option Plan is summarized as follows:

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

Vested Options

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Outstanding at beginning of period

 

80,451

 

$

29.95

 

54,075

 

$

27.08

 

Exercised

 

(6,776

)

$

11.81

 

(5,322

)

$

15.03

 

Vested

 

34,143

 

$

32.36

 

33,801

 

$

32.69

 

Forfeited

 

(2,667

)

$

32.28

 

(1,419

)

$

28.18

 

Outstanding at end of period

 

105,151

 

$

31.85

 

81,135

 

$

30.19

 

 

20



Table of Contents

 

Range of Exercise
Prices for Vested
Options

 

Outstanding at
August 31, 2013

 

Weighted Avg.
Exercise Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

$23.00-$32.00

 

33,742

 

$

28.15

 

4.6

 

$

89

 

$32.00-$39.00

 

71,409

 

$

33.59

 

5.3

 

 

 

 

105,151

 

$

31.85

 

5.1

 

$

89

 

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

Nonvested Options

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Nonvested at beginning of period

 

163,390

 

$

29.84

 

190,443

 

$

30.56

 

Granted

 

8,112

 

$

29.58

 

6,748

 

$

23.70

 

Vested

 

(34,143

)

$

32.36

 

(33,801

)

$

32.69

 

Forfeited

 

(2,833

)

$

30.03

 

 

$

 

Nonvested at end of period

 

134,526

 

$

29.18

 

163,390

 

$

29.84

 

 

Range of Exercise
Prices for
Nonvested Options

 

Outstanding at
August 31, 2013

 

Weighted Avg.
Exercise Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

$23.00-$30.00

 

115,360

 

$

28.53

 

7.6

 

$

255

 

$33.00-$35.00

 

19,166

 

$

33.07

 

5.4

 

 

 

 

134,526

 

$

29.18

 

7.3

 

$

255

 

 

Number of option holders at August 31, 2013

17

 

 

Compensation expense and related tax benefits for stock options were as follows:

 

 

 

For the 13 Weeks Ended,

 

For the 39 Weeks Ended,

 

 

 

August 31,
2013

 

September 1,
2012

 

August 31,
2013

 

September 1,
2012

 

 

 

 

 

 

 

 

 

 

 

Compensation expense

 

$

91

 

$

124

 

$

358

 

$

428

 

 

 

 

 

 

 

 

 

 

 

Related tax benefit

 

$

29

 

$

32

 

$

86

 

$

98

 

 

As of August 31, 2013, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

Balance of Fiscal 2013

 

$

107

 

Fiscal 2014

 

$

262

 

 

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Table of Contents

 

Fiscal 2015

 

$

111

 

Fiscal 2016

 

$

12

 

 

Accumulated Other Comprehensive Loss

 

Accumulated other comprehensive loss, net of tax, is comprised of the following:

 

 

 

Unrealized

 

Unrealized gain

 

Actuarial gain

 

 

 

 

 

loss on cash

 

on investment

 

on postretirement

 

 

 

 

 

flow hedges

 

in Centaur Media

 

benefit plan

 

Total

 

Balance December 1, 2012

 

$

(2,011

)

$

1,054

 

$

236

 

$

(721

)

 

 

 

 

 

 

 

 

 

 

Before reclassfication

 

624

 

(348

)

 

276

 

Amount reclassified

 

352

 

(332

)

 

20

 

Net current period activity for other comprehensive loss

 

976

 

(680

)

 

296

 

Balance August 31, 2013

 

$

(1,035

)

$

374

 

$

236

 

$

(425

)

 

Changes in accumulated other comprehensive income (loss) are as follows:

 

 

 

For the 13 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

 

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification included in net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges (interest expense)

 

$

193

 

$

(71

)

$

122

 

$

166

 

$

(61

)

$

105

 

Total reclassification included in net income (loss)

 

193

 

(71

)

122

 

166

 

(61

)

105

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for the increase in the foreign currency exchange rate

 

49

 

(17

)

32

 

96

 

(33

)

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for the increase in fair value

 

450

 

(158

)

292

 

298

 

(104

)

194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase (decrease) in fair value of Griffin’s cash flow hedges

 

566

 

(209

)

357

 

(394

)

145

 

(249

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

$

1,258

 

$

(455

)

$

803

 

$

166

 

$

(53

)

$

113

 

 

22



Table of Contents

 

 

 

For the 39 Weeks Ended,

 

 

 

August 31, 2013

 

September 1, 2012

 

 

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain on sale of Centaur Media (gain on sale)

 

$

(509

)

$

177

 

$

(332

)

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on cash flow hedges (interest expense)

 

559

 

(207

)

352

 

495

 

(183

)

312