0001104659-12-048632.txt : 20120712 0001104659-12-048632.hdr.sgml : 20120712 20120712095940 ACCESSION NUMBER: 0001104659-12-048632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20120602 FILED AS OF DATE: 20120712 DATE AS OF CHANGE: 20120712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRIFFIN LAND & NURSERIES INC CENTRAL INDEX KEY: 0001037390 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 060868486 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12879 FILM NUMBER: 12958694 BUSINESS ADDRESS: STREET 1: ONE ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2122187910 MAIL ADDRESS: STREET 1: ONE ROCKEFELLER PLAZA CITY: NEW YORK STATE: NY ZIP: 10020 10-Q 1 a12-12486_110q.htm 10-Q

Table of Contents

 

 

 

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 June 2, 2012

 

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 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 (§ 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 o

 

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 July 2, 2012:  5,139,526

 

 

 



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) June 2, 2012 and December 3, 2011

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) 13 and 26 Weeks Ended June 2, 2012 and May 28, 2011

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) 13 and 26 Weeks Ended June 2, 2012 and May 28, 2011

5

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) 26 Weeks Ended June 2, 2012 and May 28, 2011

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) 26 Weeks Ended June 2, 2012 and May 28, 2011

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8-23

 

 

 

 

 

ITEM 2

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

24-35

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

 

 

ITEM 4

Controls and Procedures

36

 

 

 

 

PART II -

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

37

 

 

 

 

 

ITEMS 2-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

37-40

 

 

 

 

 

 

SIGNATURES

41

 



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)

 

 

 

June 2, 2012

 

December 3, 2011

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

11,940

 

$

7,431

 

Accounts receivable, less allowance of $174 and $131

 

5,801

 

1,717

 

Inventories, net

 

13,471

 

13,695

 

Deferred income taxes

 

607

 

614

 

Other current assets

 

2,642

 

4,932

 

Total current assets

 

34,461

 

28,389

 

Real estate assets, net

 

122,790

 

116,295

 

Deferred income taxes

 

3,370

 

3,045

 

Available for sale securities - Investment in Centaur Media plc

 

2,704

 

3,005

 

Property and equipment, net

 

2,222

 

2,248

 

Real estate held for sale, net

 

1,861

 

12,989

 

Other assets

 

9,204

 

10,704

 

Total assets

 

$

176,612

 

$

176,675

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

1,683

 

$

1,700

 

Accounts payable and accrued liabilities

 

4,920

 

3,954

 

Deferred revenue

 

641

 

1,296

 

Total current liabilities

 

7,244

 

6,950

 

Long-term debt

 

58,634

 

59,481

 

Other noncurrent liabilities

 

7,479

 

6,939

 

Total liabilities

 

73,357

 

73,370

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,526,492 and 5,521,170 shares issued, respectively, and 5,139,526 and 5,134,204 shares outstanding, respectively

 

55

 

55

 

Additional paid-in capital

 

106,754

 

106,370

 

Retained earnings

 

11,394

 

11,284

 

Accumulated other comprehensive loss, net of tax

 

(1,522

)

(978

)

Treasury stock, at cost, 386,966 shares

 

(13,426

)

(13,426

)

Total stockholders’ equity

 

103,255

 

103,305

 

Total liabilities and stockholders’ equity

 

$

176,612

 

$

176,675

 

 

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 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

June 2, 2012

 

May 28, 2011

 

Rental revenue and property sales

 

$

4,476

 

$

4,438

 

$

8,889

 

$

8,844

 

Landscape nursery net sales and other revenue

 

8,258

 

9,262

 

8,458

 

9,445

 

Total revenue

 

12,734

 

13,700

 

17,347

 

18,289

 

 

 

 

 

 

 

 

 

 

 

Costs related to rental revenue and property sales

 

2,929

 

2,889

 

5,922

 

6,528

 

Costs of landscape nursery sales and other revenue

 

7,162

 

8,035

 

7,335

 

8,916

 

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

 

10,091

 

10,924

 

13,257

 

15,444

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

2,643

 

2,776

 

4,090

 

2,845

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

2,698

 

2,994

 

5,420

 

5,826

 

(Gain) on insurance recovery

 

 

 

 

(200

)

Operating loss

 

(55

)

(218

)

(1,330

)

(2,781

)

Interest expense

 

(830

)

(1,056

)

(1,705

)

(2,132

)

Investment income

 

82

 

80

 

469

 

91

 

Loss before income tax benefit

 

(803

)

(1,194

)

(2,566

)

(4,822

)

Income tax benefit

 

391

 

428

 

1,029

 

1,790

 

Loss from continuing operations

 

(412

)

(766

)

(1,537

)

(3,032

)

Discontinued operation, net of tax:

 

 

 

 

 

 

 

 

 

Income from operations, net of tax

 

 

137

 

117

 

274

 

Gain on sale of warehouse, net of tax

 

 

 

1,530

 

 

Total discontinued operation, net of tax

 

 

137

 

1,647

 

274

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(412

)

$

(629

)

$

110

 

$

(2,758

)

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.08

)

$

(0.15

)

$

(0.30

)

$

(0.59

)

Income from discontinued operation

 

 

0.03

 

0.32

 

0.05

 

Basic net income (loss) per common share

 

$

(0.08

)

$

(0.12

)

$

0.02

 

$

(0.54

)

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.08

)

$

(0.15

)

$

(0.30

)

$

(0.59

)

Income from discontinued operation

 

 

0.03

 

0.32

 

0.05

 

Diluted net income (loss) per common share

 

$

(0.08

)

$

(0.12

)

$

0.02

 

$

(0.54

)

 

See Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands, except per share data)

(unaudited)

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

June 2, 2012

 

May 28, 2011

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(412

)

$

(629

)

$

110

 

$

(2,758

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in fair value of Centaur Media

 

(530

)

(593

)

(196

)

(205

)

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in fair value of cash flow hedges

 

(197

)

(359

)

(348

)

119

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

(727

)

(952

)

(544

)

(86

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive loss

 

$

(1,139

)

$

(1,581

)

$

(434

)

$

(2,844

)

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Twenty-Six Weeks Ended June 2, 2012 and May 28, 2011

(dollars in thousands)

(unaudited)

 

 

 

Shares of
Common
Stock
Issued

 

Common
Stock

 

Additional
Paid-in
Capital

 

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 stock options

 

10,667

 

 

186

 

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

277

 

 

 

 

277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared, $0.20 per share

 

 

 

 

(1,026

)

 

 

(1,026

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(2,758

)

 

 

(2,758

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

119

 

 

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss from Centaur Media plc, net of tax

 

 

 

 

 

(205

)

 

(205

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 28, 2011

 

5,521,170

 

$

55

 

$

106,083

 

$

12,027

 

$

921

 

$

(13,426

)

$

105,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 3, 2011

 

5,521,170

 

$

55

 

$

106,370

 

$

11,284

 

$

(978

)

$

(13,426

)

$

103,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

304

 

 

 

 

304

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

5,322

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

110

 

 

 

110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

(348

)

 

(348

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss from Centaur Media plc, net of tax

 

 

 

 

 

(196

)

 

(196

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 2, 2012

 

5,526,492

 

$

55

 

$

106,754

 

$

11,394

 

$

(1,522

)

$

(13,426

)

$

103,255

 

 

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 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

110

 

$

(2,758

)

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

 

 

 

 

 

Depreciation and amortization

 

3,078

 

3,440

 

Gain on sale of property

 

(2,886

)

 

Stock-based compensation expense

 

304

 

277

 

Amortization of debt issuance costs

 

148

 

127

 

Deferred income taxes

 

(8

)

(1,615

)

Provision for bad debts

 

6

 

20

 

Income from equity investments

 

(6

)

(6

)

Provision for inventory losses

 

 

400

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(4,090

)

(5,027

)

Inventories

 

224

 

823

 

Other current assets

 

2,290

 

1,678

 

Accounts payable and accrued liabilities

 

124

 

1,055

 

Deferred revenue

 

(751

)

(772

)

Other noncurrent assets and noncurrent liabilities, net

 

(29

)

(253

)

Net cash used in operating activities

 

(1,486

)

(2,611

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Proceeds from sale of property, net of expenses

 

15,537

 

 

Additions to real estate assets

 

(8,385

)

(773

)

Return of capital from Shemin Nurseries Holding Corp.

 

309

 

 

Additions to property and equipment

 

(115

)

(131

)

Net cash provided by (used in) investing activities

 

7,346

 

(904

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Payments of debt

 

(918

)

(864

)

Dividends paid to stockholders

 

(513

)

(1,025

)

Exercise of stock options

 

80

 

186

 

Debt issuance costs

 

 

(260

)

Net cash used in financing activities

 

(1,351

)

(1,963

)

Net increase (decrease) in cash and cash equivalents

 

4,509

 

(5,478

)

Cash and cash equivalents at beginning of period

 

7,431

 

9,260

 

Cash and cash equivalents at end of period

 

$

11,940

 

$

3,782

 

 

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 division (“Griffin Land”) 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 3, 2011 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 3, 2011 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 (“US GAAP”).

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 recoverability of its accounts receivable and 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 June 2, 2012, Griffin was a party to two interest rate swap agreements to hedge 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 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.

 

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

 

8



Table of Contents

 

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 portions of the change in fair value of these instruments would be recorded as interest expense.

 

The results of operations for the thirteen weeks ended June 2, 2012 (the “2012 second quarter”) and the twenty-six weeks ended June 2, 2012 (the “2012 six month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended May 28, 2011 is referred to herein as the “2011 second quarter” and the twenty-six weeks ended May 28, 2011 is referred to herein as the “2011 six month period.”

 

Certain amounts from the prior year have been reclassified to conform to the current presentation.

 

Recent Accounting Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures,” which requires new disclosures and provides clarification of existing disclosures about fair value measurements.  More specifically, this update requires: (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs).  This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.  The update was effective for Griffin in the 2011 first quarter, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements.  Those disclosure requirements became effective for Griffin in the fiscal 2012 first quarter.  The adoption of this guidance did not have a material impact on Griffin’s consolidated financial statements.

 

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement,” which aligns disclosures related to fair value between U.S. GAAP and International Financial Reporting Standards.  The standards update includes changes to the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and changes to the disclosure of information about fair value measurements.  More specifically, the changes clarify the intent of the FASB regarding the application of existing fair value measurements and disclosures as well as changing some particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.  These disclosure requirements became effective for Griffin in the fiscal 2012 first quarter.  The adoption of this guidance did not have a material impact on Griffin’s consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income,” which amends the presentation of comprehensive income and facilitates the convergence of U.S. GAAP and International Financial Reporting Standards. The new guidance requires an entity to present components of net income and other comprehensive income in either one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements.  This new guidance eliminates the option to report other comprehensive income and its components in the statement of changes in equity.  While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance.  This new guidance became effective for Griffin in the fiscal 2012 second quarter, as Griffin chose to present the components of net income and other comprehensive

 

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income in two separate statements.  The adoption of this new presentation of comprehensive income did not have an effect on Griffin’s financial position or results of operations.

 

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, 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 for discontinued operation in the 2012 six month period.  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 $16.0 million.  Accordingly, the building was classified as real estate held for sale on Griffin’s consolidated balance sheet as of December 3, 2011.  The operating results of the Manchester warehouse are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented. Rental revenue and operating profit from the Manchester warehouse were as follows:

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

 

$

408

 

$

273

 

$

815

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

$

 

$

222

 

$

221

 

$

444

 

 

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 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

Total net sales and other revenue:

 

 

 

 

 

 

 

 

 

Rental revenue and property sales

 

$

4,476

 

$

4,438

 

$

8,889

 

$

8,844

 

Landscape nursery net sales and other revenue

 

8,258

 

9,262

 

8,458

 

9,445

 

 

 

$

12,734

 

$

13,700

 

$

17,347

 

$

18,289

 

Operating profit (loss):

 

 

 

 

 

 

 

 

 

Real estate

 

$

912

 

$

886

 

$

1,640

 

$

940

 

Landscape nursery

 

36

 

82

 

(607

)

(1,120

)

Industry segment totals

 

948

 

968

 

1,033

 

(180

)

General corporate expense

 

(1,003

)

(1,186

)

(2,363

)

(2,601

)

Operating loss

 

(55

)

(218

)

(1,330

)

(2,781

)

Interest expense

 

(830

)

(1,056

)

(1,705

)

(2,132

)

Investment income

 

82

 

80

 

469

 

91

 

Loss before income tax benefit

 

$

(803

)

$

(1,194

)

$

(2,566

)

$

(4,822

)

 

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 had no revenue from property sales in either the 2012 six month period or the 2011 six month period. In fiscal 2009, Imperial shut down operations on its Florida farm and entered into a lease with another 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 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Rental revenue from Imperial’s Florida farm

 

$

117

 

$

118

 

$

235

 

$

235

 

 

 

 

 

 

 

June 2, 2012

 

December 3, 2011

 

Identifiable assets:

 

 

 

 

 

Real estate

 

$

132,734

 

$

140,409

 

Landscape nursery

 

24,532

 

21,303

 

Industry segment totals

 

157,266

 

161,712

 

General corporate

 

19,346

 

14,963

 

Total assets

 

$

176,612

 

$

176,675

 

 

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

 

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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).  The fair values of Griffin’s interest rate swap derivative instruments are based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current LIBOR rate and swap curve along with other market data.  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.  As of June 2, 2012 and December 3, 2011, Griffin’s consolidated balance sheets include acquired intangible assets related to a building acquired in fiscal 2010.  These assets are comprised of the value of an in-place lease and the associated tenant relationship.  Griffin derived these values at the date of acquisition based on a discounted cash flow analysis using assumptions that included the rental rate of the in-place lease, the commission percentage expected to be paid on the leasing of vacant space and other data contained in an independent appraisal of the acquired property.  Therefore, Griffin categorized the acquired intangible assets related to the acquired property as Level 3 within the fair value hierarchy.

 

During the 2012 six month period, 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:

 

 

 

June 2, 2012

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Marketable equity securities

 

$

2,704

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,968

 

$

 

 

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December 3, 2011

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Marketable equity securities

 

$

3,005

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,415

 

$

 

 

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

 

 

 

Fair Value

 

June 2, 2012

 

December 3, 2011

 

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Level

 

Value

 

Fair Value

 

Value

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

11,940

 

$

11,940

 

$

7,431

 

$

7,431

 

Available-for-sale securities

 

1

 

2,704

 

2,704

 

3,005

 

3,005

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Revolving line of credit

 

2

 

 

 

 

 

Mortgage debt

 

2

 

60,230

 

62,881

 

61,135

 

63,294

 

Interest rate swaps

 

2

 

2,968

 

2,968

 

2,415

 

2,415

 

 

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 values 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 LIBOR 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.

 

5.     Inventories

 

Inventories consist of:

 

 

 

June 2, 2012

 

December 3, 2011

 

 

 

 

 

 

 

Nursery stock

 

$

12,139

 

$

12,739

 

Materials and supplies

 

1,332

 

956

 

 

 

$

13,471

 

$

13,695

 

 

There were no charges to increase inventory reserves in the 2012 six month period.  In the 2011 six month period, a net charge of $400 was included in costs of landscape nursery sales to establish a reserve for the estimated book value of plants that had become unsaleable because some of Imperial’s hoop houses, in which the plants were stored, collapsed as a result of snow load from winter storms in 2011.  In the 2011 first quarter, a charge of $550 was included in costs of landscape nursery sales based

 

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on the number of plants estimated at that time that had become unsaleable due to the collapsed hoop houses.  Upon removal of the damaged hoop houses during the 2011 second quarter, which could not have been done earlier due to the winter conditions that existed at the end of the 2011 first quarter, management determined that the number of plants affected by the hoop house collapses was lower than previously estimated.  Accordingly, a $250 reduction of the charge for plants that became unsaleable due to the collapsed hoop houses was reflected in costs of landscape nursery sales in the 2011 second quarter.  Costs of landscape nursery sales in the 2011 second quarter also included a charge of $100 for certain starter plants that were lost due to a plant disease issue.  There were no charges recorded for the damaged hoop houses because they were fully depreciated prior to fiscal 2011.  Initial insurance proceeds of $200, related to the hoop house damage, were reflected as a gain on insurance recovery in the 2011 six month period consolidated statement of operations (see Notes 8 and 11).  The claim was settled in the 2011 fourth quarter and an additional $279 of insurance proceeds was received at that time.

 

6.     Real Estate Assets

 

Real estate assets consist of:

 

 

 

Estimated
Useful Lives

 

June 2, 2012

 

December 3, 2011

 

Land

 

 

 

$

10,267

 

$

10,435

 

Land improvements

 

10 to 30 years

 

14,040

 

14,037

 

Buildings and improvements

 

10 to 40 years

 

117,390

 

117,120

 

Tenant improvements

 

Shorter of useful life or terms of related lease

 

14,441

 

14,104

 

Development costs

 

 

 

20,956

 

12,464

 

 

 

 

 

177,094

 

168,160

 

Accumulated depreciation

 

 

 

(54,304

)

(51,865

)

 

 

 

 

$

122,790

 

$

116,295

 

 

Included in real estate assets, net, as of June 2, 2012 and December 3, 2011 was $2,025 and $2,161, 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:

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,289

 

$

1,331

 

$

2,570

 

$

2,677

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

220

 

$

 

$

369

 

$

 

 

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Real estate held for sale consists of:

 

 

 

Estimated
Useful Lives

 

June 2, 2012

 

December 3, 2011

 

Land

 

 

 

$

203

 

$

1,911

 

Land improvements

 

10 to 30 years

 

 

4

 

Buildings and improvements

 

10 to 40 years

 

 

11,855

 

Development costs

 

 

 

1,658

 

1,151

 

 

 

 

 

1,861

 

14,921

 

Accumulated depreciation

 

 

 

 

(1,932

)

 

 

 

 

$

1,861

 

$

12,989

 

 

The decrease in real estate held for sale during the 2012 six month period principally reflects the sale of the warehouse in Manchester, Connecticut that closed on January 31, 2012 (see Note 2).

 

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).

 

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

 

 

 

June 2, 2012

 

December 3, 2011

 

 

 

 

 

 

 

Cost

 

$

2,677

 

$

2,677

 

Unrealized gain

 

27

 

328

 

Fair value

 

$

2,704

 

$

3,005

 

 

Shemin Nurseries Holding Corp.

 

Griffin holds an approximate 14% equity interest in Shemin Nurseries Holding Corp. (“SNHC”), which operates a landscape nursery distribution business through its subsidiary.  Griffin accounts for its investment in SNHC under the cost method of accounting for investments.  In the 2012 first quarter, Griffin received a cash distribution of $693 from SNHC.  Prior to receiving this distribution, Griffin’s carrying value of its investment in SNHC was $309.  As SNHC did not have cumulative earnings since the previous cash distribution from SNHC to Griffin in fiscal 2007, Griffin reported $309 of the payment received as a return of investment, with the balance of $384 reflected as investment income in the 2012 six month period.  Accordingly, Griffin does not have any remaining book value in its investment in SNHC.

 

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8.     Property and Equipment

 

Property and equipment consist of:

 

 

 

Estimated Useful
Lives

 

June 2, 2012

 

December 3, 2011

 

Land

 

 

 

$

437

 

$

437

 

Land improvements

 

10 to 20 years

 

1,561

 

1,561

 

Buildings and improvements

 

10 to 40 years

 

1,842

 

1,842

 

Machinery and equipment

 

3 to 20 years

 

12,254

 

12,129

 

 

 

 

 

16,094

 

15,969

 

Accumulated depreciation

 

 

 

(13,872

)

(13,721

)

 

 

 

 

$

2,222

 

$

2,248

 

 

In the 2011 first quarter, as a result of winter storms, 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 $200 related to the initial insurance proceeds received for the damaged hoop houses is included in Griffin’s 2011 six month period consolidated statement of operations.  The claim was settled in the 2011 fourth quarter and an additional $279 of insurance proceeds was received at that time (see Notes 5 and 11).

 

Griffin incurred a new capital lease obligation of $54 in the 2012 six month period.  Griffin did not incur any new capital lease obligations in the 2011 six month period.

 

9.     Long-Term Debt

 

Long-term debt includes:

 

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June 2, 2012

 

December 3, 2011

 

Nonrecourse mortgages:

 

 

 

 

 

6.08%, due January 1, 2013

 

$

6,799

 

$

6,926

 

6.30%, due May 1, 2014

 

365

 

453

 

5.73%, due August 1, 2015

 

19,179

 

19,368

 

8.13%, due April 1, 2016

 

4,105

 

4,232

 

7.0%, due October 1, 2017

 

6,110

 

6,220

 

Variable rate mortgage, due February 1, 2019*

 

11,495

 

11,609

 

Variable rate mortgage, due August 1, 2019*

 

8,100

 

8,176

 

5.25%, due January 28, 2020

 

4,077

 

4,151

 

Total nonrecourse mortgages

 

60,230

 

61,135

 

Revolving line of credit

 

 

 

Capital leases

 

87

 

46

 

Total

 

60,317

 

61,181

 

Less: current portion

 

(1,683

)

(1,700

)

Total long-term debt

 

$

58,634

 

$

59,481

 

 


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

 

As of June 2, 2012 Griffin was a party to two interest rate swap agreements related to nonrecourse mortgages on certain of its real estate assets.  Griffin accounts for both of its interest rate swap agreements as effective cash flow hedges (see Note 4).  No ineffectiveness on the cash flow hedges was recognized as of June 2, 2012 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.  Neither of the interest rate swap agreements contains any credit risk related contingent features.  In the 2012 six month period, Griffin recognized a loss (included in other comprehensive income) of $553, before taxes, and in the 2011 six month period, Griffin recognized a gain (included in other comprehensive income) of $188, before taxes, on its interest rate swap agreements.  The amounts of loss recognized on the effective portion of the interest rate swap agreements were as follows:

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Loss on swap agreements

 

$

(163

)

$

(165

)

$

(329

)

$

(335

)

 

As of June 2, 2012, $598 is expected to be reclassified over the next twelve months from other comprehensive income (loss) to interest expense.  As of June 2, 2012, the liability for Griffin’s interest rate swap agreements was $2,968 and is included in other noncurrent liabilities on Griffin’s consolidated balance sheet.

 

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 due January 1, 2013 with Webster Bank (the “Webster Mortgage”).  The Modification Agreement extends the maturity of the Webster Mortgage to October 2, 2017.  In accordance with the Modification Agreement, the interest rate under the Webster Mortgage, which currently is fixed at 6.08%, will change, effective October 1, 2012, to

 

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a floating rate of the 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 will be 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.

 

10.  Stockholders’ Equity

 

Earnings Per Share

 

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

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

June 2, 2012

 

May 28, 2011

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(412

)

$

(766

)

$

(1,537

)

$

(3,032

)

 

 

 

 

 

 

 

 

 

 

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

 

 

137

 

1,647

 

274

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(412

)

$

(629

)

$

110

 

$

(2,758

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

5,137,000

 

5,128,000

 

5,136,000

 

5,126,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares for computation of diluted per share results

 

5,137,000

 

5,128,000

 

5,136,000

 

5,126,000

 

 


(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 (loss) includes discontinued operations. The incremental shares from the assumed exercise of stock options in the thirteen and twenty-six weeks ended June 2, 2012 would have been 3,000 and 4,000, respectively. The incremental shares from the assumed exercise of stock options in the thirteen and twenty-six weeks ended May 28, 2011 would have been 9,000 for each period.

 

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

 

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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 June 2, 2012 may be exercised as stock appreciation rights.

 

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 and to Griffin’s employees:

 

 

 

For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

 

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

 

 

 

 

 

 

 

 

 

 

Non-employee directors

 

6,748

 

$

11.32

 

8,712

 

$

12.03

 

Employees

 

 

 

 

104,500

 

$10.37 - $12.88

 

Total

 

6,748

 

 

 

113,212

 

 

 

 

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 2012 and 2011 six month periods were as follows:

 

 

 

For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

 

 

 

 

 

 

Expected volatility

 

41.1

%

42.0% to 43.4%

 

Risk free interest rate

 

1.16

%

2.06% to 2.81%

 

Expected option term (in years)

 

8.5

 

5 to 8.5

 

Annual dividend yield

 

 

$0.40

 

 

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

 

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For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

Vested Options

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Outstanding at beginning of period

 

54,075

 

$

27.08

 

45,730

 

$

23.18

 

Exercised

 

(5,322

)

$

15.03

 

(10,667

)

$

17.45

 

Vested

 

33,801

 

$

32.69

 

16,847

 

$

31.08

 

Outstanding at end of period

 

82,554

 

$

30.16

 

51,910

 

$

26.92

 

 

Range of Exercise
Prices for Vested
Options

 

Outstanding at
June 2, 2012

 

Weighted Avg.
Exercise Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

Total
Grant Date
Fair
Value

 

$11.00-$12.00

 

6,776

 

$

11.81

 

1.0

 

$

79

 

$

35

 

$24.00-$32.00

 

30,679

 

$

28.72

 

4.1

 

 

432

 

$33.00-$39.00

 

45,099

 

$

33.89

 

5.8

 

 

669

 

 

 

82,554

 

$

30.16

 

4.8

 

$

79

 

$

1,136

 

 

 

 

For the 26 Weeks Ended,

 

 

 

June 2, 2012

 

May 28, 2011

 

Nonvested Options

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Nonvested at beginning of period

 

190,443

 

$

30.56

 

103,881

 

$

32.56

 

Granted

 

6,748

 

$

23.70

 

113,212

 

$

28.68

 

Vested

 

(33,801

)

$

32.69

 

(16,847

)

$

31.08

 

Nonvested at end of period

 

163,390

 

$

29.84

 

200,246

 

$

30.49

 

 

Range of Exercise
Prices for
Nonvested Options

 

Outstanding at
June 2, 2012

 

Weighted Avg.
Exercise Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

Total
Grant Date
Fair
Value

 

$24.00-$30.00

 

115,056

 

$

28.41

 

8.7

 

$

 

$

1,429

 

$33.00-$35.00

 

48,334

 

$

33.24

 

6.5

 

 

668

 

 

 

163,390

 

$

29.84

 

8.1

 

$

 

$

2,097

 

 

Number of option holders at June 2, 2012

 

18

 

 

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

 

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Table of Contents

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Compensation expense

 

$

166

 

$

162

 

$

304

 

$

277

 

 

 

 

 

 

 

 

 

 

 

Related tax benefit

 

$

31

 

$

41

 

$

66

 

$

71

 

 

As of June 2, 2012, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

Balance of Fiscal 2012

 

$

247

 

Fiscal 2013

 

$

403

 

Fiscal 2014

 

$

213

 

Fiscal 2015

 

$

90

 

Fiscal 2016

 

$

12

 

 

Accumulated Other Comprehensive Income

 

Accumulated other comprehensive income (loss) is comprised of the following:

 

 

 

June 2, 2012

 

December 3, 2011

 

Unrealized gain on investment in Centaur Media

 

$

64

 

$

260

 

Unrealized loss on cash flow hedges

 

(1,870

)

(1,522

)

Actuarial gain on postretirement benefit plan

 

284

 

284

 

 

 

$

(1,522

)

$

(978

)

 

Cash Dividend

 

Griffin did not declare a cash dividend in the 2012 six month period.  During the 2012 first quarter, Griffin paid $513 for the cash dividend declared in the 2011 fourth quarter.  In the 2011 second quarter, Griffin declared a cash dividend of $0.10 per common share for holders of record as of the close of business on May 26, 2011, which was paid on June 2, 2011.

 

11.          Supplemental Financial Statement Information

 

Gain on Insurance Recovery

 

In the 2011 six month period, snow load from winter storms caused the collapse of some of Imperial’s hoop houses and some of the plants stored in those hoop houses became unsaleable.  A charge of $300 was included in costs of landscape nursery sales in the 2011 six month period to establish a reserve for the estimated book value of the inventory that became unsaleable.  There was no charge to earnings related to the damage to the hoop houses because they were fully depreciated prior to fiscal 2011.  Initial insurance proceeds of $200, related to the hoop house damage, were received in the 2011 first quarter and were reflected as a gain on insurance recovery in the 2011 six month period consolidated statement of operations.   The claim for the damaged hoop houses was settled in the 2011 fourth quarter when Griffin received additional proceeds of $279 (see Notes 5 and 8).

 

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Table of Contents

 

Supplemental Cash Flow Information

 

Decreases of $301 and $315, respectively, in the 2012 and 2011 six month periods in Griffin’s Investment in Centaur Media reflect the mark to market adjustments of this investment and did not affect Griffin’s cash.

 

Included in accounts payable and accrued liabilities at June 2, 2012 and December 3, 2011 were $1,897 and $542, respectively, for additions to real estate assets.  Accounts payable and accrued liabilities related to additions to real estate assets increased by $1,355 and $9 in the 2012 and 2011 six month periods, respectively.

 

As of December 3, 2011, Griffin’s accrued liabilities included $513 for a dividend on Griffin’s common stock that was declared prior to the end of fiscal 2011 and paid in the 2012 first quarter.

 

 

 

For the 13 Weeks Ended,

 

For the 26 Weeks Ended,

 

 

 

June 2,
2012

 

May 28,
2011

 

June 2,
2012

 

May 28,
2011

 

 

 

 

 

 

 

 

 

 

 

Interest payments, net of capitalized interest

 

$

741

 

$

1,023

 

$

1,557

 

$

2,023

 

 

Income Taxes

 

Griffin’s effective income tax benefit rate on continuing operations was 40.1% for the 2012 six month period as compared to 37.1% for the 2011 six month period.  The effective tax benefit rate used in the 2012 six month period is based on management’s projections for the balance of the year.  To the extent that actual results differ from current projections, the effective income tax rate may change.

 

The following increases and decreases to deferred income taxes are included as charges and credits, respectively, in Griffin’s other comprehensive loss:

 

 

 

For the 13 Weeks Ended June 2, 2012

 

For the 26 Weeks Ended June 2, 2012

 

 

 

Pretax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pretax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in fair value of Centaur Media

 

$

(720

)

$

252

 

$

(468

)

$

(257

)

$

90

 

$

(167

)

Decrease in fair value of Centaur Media due to exchange gain

 

(95

)

33

 

(62

)

(44

)

15

 

(29

)

Decrease in fair value of cash flow hedges

 

(313

)

116

 

(197

)

(553

)

205

 

(348

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

$

(1,128

)

$

401

 

$

(727

)

$

(854

)

$

310

 

$

(544

)

 

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Table of Contents

 

 

 

For the 13 Weeks Ended May 28, 2011

 

For the 26 Weeks Ended May 28, 2011

 

 

 

Pretax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pretax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Decrease in fair value of Centaur Media

 

$

(986

)

$

345

 

$

(641

)

$

(575

)

$

201

 

$

(374

)

Increase in fair value of Centaur Media due to exchange gain

 

74

 

(26

)

48

 

260

 

(91

)

169

 

(Decrease) increase in fair value of cash flow hedges

 

(570

)

211

 

(359

)

188

 

(69

)

119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss

 

$

(1,482

)

$

530

 

$

(952

)

$

(127

)

$

41

 

$

(86

)

 

As of June 2, 2012, Griffin’s consolidated balance sheet includes a net current deferred tax asset of $607 and a net noncurrent deferred tax asset of $3,370.  Although Griffin has incurred pretax losses for the fiscal years ended November 28, 2009, November 27, 2010 and December 3, 2011, management has concluded that a valuation allowance against those net deferred tax assets is not required.

 

Examinations of Griffin’s fiscal 2007, fiscal 2008 and fiscal 2009 New York state income tax returns and Griffin’s fiscal 2007 Connecticut state income tax return are currently being performed.

 

12.  Commitments and Contingencies

 

On May 1, 2012, Griffin Land entered into a Purchase and Sale Agreement for the sale of approximately 14 acres of undeveloped land in Windsor, Connecticut for approximately $1.0 million in cash. The completion of this transaction is contingent on the buyer receiving approvals from the town’s land use commissions for its plans to construct an office building on the site. There is no guarantee that this transaction will be completed under its current terms, or at all.

 

As of June 2, 2012, Griffin had committed purchase obligations of $3.5 million, principally for the remaining construction on the 228,000 square foot industrial building being built by Griffin Land on the Lehigh Valley land acquired in fiscal 2010, master planning of Griffin Land’s industrial properties and the purchase of plants and raw materials by Imperial.

 

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, individually or in the aggregate to Griffin’s consolidated financial position, results of operations or cash flows.

 

13. Subsequent Event

 

On July  , 2012, Griffin Land closed on the sale of approximately 93 acres of undeveloped land in New England Tradeport, Griffin Land’s industrial park in Windsor and East Granby, Connecticut for cash consideration of $7.0 million, before transaction expenses.  At closing, the sale proceeds were placed in escrow for the potential purchase of a replacement property under a Section 1031 like-kind exchange although Griffin has not yet identified a replacement property.  If a Section 1031 like-kind exchange transaction is not completed, the escrowed funds will be returned to Griffin.

 

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Table of Contents

 

ITEM 2.                                                  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

The unaudited consolidated financial statements of Griffin Land & Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s real estate business (“Griffin Land”) and Griffin’s wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”).

 

The significant accounting policies and methods used in the preparation of Griffin’s consolidated financial statements included in Item 1 are consistent with those used in the preparation of Griffin’s audited financial statements for the fiscal year ended December 3, 2011 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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 recoverability of its accounts receivable and 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. The significant accounting estimates used by Griffin in the preparation of its financial statements for the thirteen and twenty-six weeks ended June 2, 2012 are consistent with those used by Griffin to prepare its fiscal 2011 financial statements.

 

Summary

 

Griffin incurred a loss from continuing operations and a net loss of approximately $0.4 million in the thirteen weeks ended June 2, 2012 (the “2012 second quarter”) as compared to a loss from continuing operations of approximately $0.8 million and a net loss of approximately $0.6 million in the thirteen weeks ended May 28, 2011 (the “2011 second quarter”). The 2011 second quarter included income of approximately $0.1 million, net of tax, from Griffin Land’s warehouse building in Manchester, Connecticut that was sold in the 2012 first quarter (see below) and is reflected in Griffin’s financial statements as a discontinued operation. The lower loss from continuing operations in the 2012 second quarter as compared to the 2011 second quarter principally reflects a lower consolidated operating loss and lower interest expense in the 2012 second quarter as compared to the 2011 second quarter. Griffin’s lower consolidated operating loss in the 2012 second quarter as compared to the 2011 second quarter reflects lower general corporate expense. Operating results at Griffin Land and Imperial in the 2012 second quarter as compared to the 2011 second quarter were essentially unchanged.

 

Griffin had net income of approximately $0.1 million for the twenty-six weeks ended June 2, 2012 (the “2012 six month period”) as compared to a net loss of approximately $2.8 million for the twenty-six weeks ended May 28, 2011 (the “2011 six month period”). The 2012 six month period included a gain of approximately $1.6 million, net of tax, from Griffin’s discontinued operation as compared to a gain of approximately $0.3 million, net of tax, from Griffin’s discontinued operation in the 2011 six month period. The gain on sale of the Manchester warehouse is included in the 2012 six month

 

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Table of Contents

 

results (see below). Griffin incurred a loss from continuing operations of approximately $1.5 million in the 2012 six month period as compared to a loss from continuing operations of approximately $3.0 million in the 2011 six month period. The lower loss from continuing operations in the 2012 six month period as compared to the 2011 six month period principally reflects a lower consolidated operating loss, lower interest expense and higher investment income in the 2012 six month period, partially offset by a lower income tax benefit in the 2012 six month period. Griffin’s lower consolidated operating loss in the 2012 six month period as compared to the 2011 six month period reflects an increase in operating profit at Griffin Land, a decrease in the operating loss incurred by Imperial and lower general corporate expense.

 

On January 31, 2012, Griffin Land closed on the sale of its fully leased 308,000 square foot warehouse building in Manchester, Connecticut for $16.0 million in cash (before transaction expenses), and recorded a gain on sale, before taxes, of approximately $2