0001104659-14-050919.txt : 20140710 0001104659-14-050919.hdr.sgml : 20140710 20140710105034 ACCESSION NUMBER: 0001104659-14-050919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20140531 FILED AS OF DATE: 20140710 DATE AS OF CHANGE: 20140710 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: 14968571 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 a14-16081_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 May 31, 2014

 

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 3, 2014:  5,149,574

 

 

 



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -

 

FINANCIAL INFORMATION

 

 

 

 

 

 

ITEM 1

Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets (unaudited) May 31, 2014 and November 30, 2013

3

 

 

 

 

 

 

Consolidated Statements of Operations (unaudited) Three Months and Six Months Ended May 31, 2014 and June 1, 2013

4

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months and Six Months Ended May 31, 2014 and June 1, 2013

5

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) Six Months Ended May 31, 2014 and June 1, 2013

6

 

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) Six Months Ended May 31, 2014 and June 1, 2013

7

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8-24

 

 

 

 

 

ITEM 2

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

25-32

 

 

 

 

 

ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

32-33

 

 

 

 

 

ITEM 4

Controls and Procedures

33

 

 

 

 

PART II -

 

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1

Not Applicable

 

 

 

 

 

 

ITEM 1A

Risk Factors

34

 

 

 

 

 

ITEMS 2-5

Not Applicable

 

 

 

 

 

 

ITEM 6

Exhibits

34-37

 

 

 

 

 

 

SIGNATURES

38

 

2



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)

 

 

 

May 31, 2014

 

November 30, 2013

 

ASSETS

 

 

 

 

 

Real estate assets at cost, net of accumulated depreciation

 

$

140,540

 

$

131,190

 

Real estate held for sale

 

1,104

 

1,104

 

Cash and cash equivalents

 

13,067

 

14,179

 

Proceeds held in escrow

 

 

8,860

 

Deferred income taxes

 

6,927

 

5,975

 

Note receivable

 

4,151

 

 

Available for sale securities - Investment in Centaur Media plc

 

2,142

 

2,208

 

Property and equipment, net of accumulated depreciation

 

256

 

1,950

 

Other assets

 

12,320

 

13,634

 

Assets of discontinued operation

 

672

 

5,627

 

Total assets

 

$

181,179

 

$

184,727

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Mortgage loans

 

$

65,639

 

$

66,708

 

Deferred revenue

 

7,472

 

8,467

 

Accounts payable and accrued liabilities

 

4,620

 

3,011

 

Dividend payable

 

 

1,029

 

Other liabilities

 

6,477

 

6,629

 

Liabilities of discontinued operation

 

94

 

768

 

Total liabilities

 

84,302

 

86,612

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,537,895 and 5,534,687 shares issued, respectively, and 5,149,574 and 5,146,366 shares outstanding, respectively

 

55

 

55

 

Additional paid-in capital

 

107,766

 

107,603

 

Retained earnings

 

3,167

 

4,372

 

Accumulated other comprehensive loss, net of tax

 

(645

)

(449

)

Treasury stock, at cost, 388,321 shares

 

(13,466

)

(13,466

)

Total stockholders’ equity

 

96,877

 

98,115

 

Total liabilities and stockholders’ equity

 

$

181,179

 

$

184,727

 

 

 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 Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

Rental revenue

 

$

5,064

 

$

4,798

 

$

10,030

 

$

9,539

 

Revenue from property sales

 

277

 

1,590

 

370

 

2,474

 

Total revenue

 

5,341

 

6,388

 

10,400

 

12,013

 

 

 

 

 

 

 

 

 

 

 

Operating expenses of rental properties

 

1,747

 

1,723

 

4,198

 

3,787

 

Depreciation and amortization expense

 

1,638

 

1,727

 

3,279

 

3,320

 

Costs related to property sales

 

70

 

222

 

94

 

365

 

General and administrative expenses

 

1,696

 

2,135

 

3,880

 

4,340

 

Total expenses

 

5,151

 

5,807

 

11,451

 

11,812

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

190

 

581

 

(1,051

)

201

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(774

)

(965

)

(1,678

)

(1,943

)

Investment income

 

141

 

51

 

188

 

51

 

Gain on sale of common stock in Centaur Media plc

 

 

 

318

 

504

 

Loss on debt extinguishment

 

 

(286

)

 

(286

)

Gain on sale of investment in Shemin Nurseries Holding Corp.

 

 

 

 

3,397

 

(Loss) income before income tax benefit (provision)

 

(443

)

(619

)

(2,223

)

1,924

 

Income tax benefit (provision)

 

218

 

225

 

900

 

(634

)

(Loss) income from continuing operations

 

(225

)

(394

)

(1,323

)

1,290

 

Discontinued operations, net of tax:

 

 

 

 

 

 

 

 

 

Gain (loss) from landscape nursery business, including the gain (loss) on sale of assets of $3 and ($28), net of tax, in the 2014 three month period and 2014 six month period, respectively

 

390

 

282

 

118

 

(92

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

165

 

$

(112

)

$

(1,205

)

$

1,198

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(0.04

)

$

(0.08

)

$

(0.26

)

$

0.25

 

Income (loss) from discontinued operations

 

0.07

 

0.06

 

0.03

 

(0.02

)

Basic net income (loss) per common share

 

$

0.03

 

$

(0.02

)

$

(0.23

)

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations

 

$

(0.04

)

$

(0.08

)

$

(0.26

)

$

0.25

 

Income (loss) from discontinued operations

 

0.07

 

0.06

 

0.03

 

(0.02

)

Diluted net income (loss) per common share

 

$

0.03

 

$

(0.02

)

$

(0.23

)

$

0.23

 

 

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 Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

165

 

$

(112

)

$

(1,205

)

$

1,198

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss)

 

(144

)

120

 

(191

)

(102

)

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in fair value of Centaur Media plc

 

(212

)

(633

)

327

 

(672

)

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) gain on cash flow hedges

 

(221

)

184

 

(332

)

267

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

(577

)

(329

)

(196

)

(507

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive (loss) income

 

$

(412

)

$

(441

)

$

(1,401

)

$

691

 

 

See Notes to Consolidated Financial Statements.

 

5



Table of Contents

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Six Months Ended May 31, 2014 and June 1, 2013

(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 1, 2012

 

5,527,911

 

$

55

 

$

107,056

 

$

11,222

 

$

(721

)

$

(13,466

)

$

104,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

267

 

 

 

 

267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

6,776

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

1,198

 

 

 

1,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

 

 

 

 

(507

)

 

(507

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 1, 2013

 

5,534,687

 

$

55

 

$

107,403

 

$

12,420

 

$

(1,228

)

$

(13,466

)

$

105,184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at November 30, 2013

 

5,534,687

 

$

55

 

$

107,603

 

$

4,372

 

$

(449

)

$

(13,466

)

$

98,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

83

 

 

 

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

3,208

 

 

80

 

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

(1,205

)

 

 

(1,205

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive loss, net of tax

 

 

 

 

 

(196

)

 

(196

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at May 31, 2014

 

5,537,895

 

$

55

 

$

107,766

 

$

3,167

 

$

(645

)

$

(13,466

)

$

96,877

 

 

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 Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

Operating activities:

 

 

 

 

 

Net (loss) income

 

$

(1,205

)

$

1,198

 

(Income) loss from discontinued operations

 

(118

)

92

 

(Loss) income from continuing operations

 

(1,323

)

1,290

 

Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities of continuing operations:

 

 

 

 

 

Depreciation and amortization

 

3,279

 

3,320

 

Deferred income taxes

 

(900

)

634

 

Gain on sale of common stock in Centaur Media plc

 

(318

)

(504

)

Gain on sales of property

 

(276

)

(2,109

)

Stock-based compensation expense

 

213

 

236

 

Amortization of debt issuance costs

 

131

 

144

 

Accretion of discount on note receivable

 

(115

)

 

Loss on debt extinguishment

 

 

286

 

Gain on sale of investment in Shemin Nurseries Holding Corp.

 

 

(3,397

)

Changes in assets and liabilities:

 

 

 

 

 

Other assets

 

803

 

913

 

Accounts payable and accrued liabilities

 

(70

)

232

 

Deferred revenue

 

(625

)

(945

)

Other liabilities

 

106

 

376

 

Net cash provided by operating activities of continuing operations

 

905

 

476

 

Net cash used in operating activities of discontinued operations

 

(511

)

(4,712

)

Net cash provided by (used in) operating activities

 

394

 

(4,236

)

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Additions to real estate assets

 

(8,927

)

(10,051

)

Proceeds from property sales returned from escrow

 

8,864

 

6,934

 

Proceeds from the sale of common stock in Centaur Media plc

 

566

 

1,160

 

Proceeds from the sale of business

 

169

 

 

Additions to property and equipment

 

(58

)

(65

)

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

 

 

3,418

 

Net cash provided by investing activities

 

614

 

1,396

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Payments of debt

 

(1,069

)

(925

)

Dividends paid to stockholders

 

(1,029

)

(1,028

)

Debt issuance costs

 

(102

)

(214

)

Exercise of stock options

 

80

 

80

 

Debt modification costs

 

 

(70

)

Net cash used in financing activities

 

(2,120

)

(2,157

)

Net decrease in cash and cash equivalents

 

(1,112

)

(4,997

)

Cash and cash equivalents at beginning of period

 

14,179

 

10,181

 

Cash and cash equivalents at end of period

 

$

13,067

 

$

5,184

 

 

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”) reflect Griffin’s real estate business, conducted through its wholly-owned subsidiary, Griffin Land, LLC (“Griffin Land”) and Griffin’s landscape nursery business, conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”) that is reported as a discontinued operation (see below).  Griffin Land is principally engaged in the development, management and leasing of industrial and commercial properties. Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin Land’s core development and leasing strategy.

 

Imperial’s growing operations are reflected in the accompanying unaudited consolidated financial statements as a discontinued operation due to the sale, effective January 8, 2014, of its inventory and certain of its assets (the “Imperial Sale”) to Monrovia Connecticut LLC (“Monrovia”), a subsidiary of Monrovia Nursery Company (see Notes 2, 4 and 10).  Concurrent with the Imperial Sale, a subsidiary of Griffin and Imperial entered into a long-term lease with Monrovia for Imperial’s Connecticut production nursery.  As the growing operations of Imperial are reflected as a discontinued operation in Griffin’s unaudited consolidated financial statements, Griffin’s continuing operations presented in the accompanying financial statements solely reflect its real estate business and, therefore, industry segment information is not presented.  Accordingly, certain prior period amounts in Griffin’s unaudited consolidated financial statements have been reclassified to conform to the current presentation which better reflects Griffin’s real estate business, including presentation of an unclassified balance sheet consistent with real estate industry practice.  Certain parts of Imperial’s prior year results, such as rental revenue and expense related to the leasing of Imperial’s Florida farm to another grower and certain expenses related to the property and equipment of Imperial’s Connecticut farm, which continues to be owned by Griffin and leased to Monrovia, are included in Griffin’s continuing operations.

 

Through the fiscal year ended November 30, 2013 (“fiscal 2013”), Griffin reported on a 52-53 week fiscal year that ended on the Saturday nearest November 30 and included four quarters of 13 weeks each.  Starting in the fiscal year ending November 30, 2014 (“fiscal 2014”), Griffin is reporting on a twelve month fiscal year that will end on November 30 with interim periods comprised of three months that end on the last day of the third month of each quarter.  Accordingly, the fiscal 2014 second quarter ended on May 31, 2014.

 

These financial statements 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 consolidated audited financial statements for fiscal 2013 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2014, 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 November 30, 2013 was derived from Griffin’s audited financial statements but

 

8



Table of Contents

 

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 and the estimated costs to complete required offsite improvements to land sold.  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 May 31, 2014, 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.

 

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

 

The results of operations for the three months ended May 31, 2014 (the “2014 second quarter”) and the six months ended May 31, 2014 (the “2014 six month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen and twenty-six weeks ended June 1, 2013 are referred to herein as the “2013 second quarter” and “2013 six month period,” respectively.

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Specifically, this update requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions.  This update was effective for Griffin in the 2014 second quarter.  The adoption of this guidance did not have an impact on Griffin’s financial position or results of operations.

 

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2.              Discontinued Operation

 

Effective January 8, 2014, in accordance with the terms of the Imperial Sale (see Notes 1, 4 and 10), Imperial sold its inventory and certain assets for $732 in cash and a non-interest bearing note receivable of $4,250 (the “Promissory Note”).  Net cash of $732 was received from Monrovia in the 2014 six month period and Griffin paid $563 in severance and other expenses.  The Promissory Note is due in two installments: $2,750 was due on June 1, 2014 and $1,500 is due on June 1, 2015. The Promissory Note was discounted at 7% to its present value of $4,036 at inception and is secured by an irrevocable letter of credit.  Subsequent to the end of the 2014 second quarter, Griffin received payment of the $2,750 installment from Monrovia.  Under the terms of the Imperial Sale, Griffin and Imperial agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Imperial Sale and also agreed to certain non-competition restrictions for a four-year period.

 

Concurrent with the Imperial Sale, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the “Imperial Lease”, and together with the Imperial Sale, the “Imperial Transaction”) with Monrovia, pursuant to which Monrovia is leasing Imperial’s Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease provides for net annual rent payable to Griffin of $500 for each of the first five years with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase most of the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10,500, or $7,000 if only a certain portion of the land is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease.  Accordingly, the operating results of Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented and the assets and liabilities of the growing operations of Imperial (excluding those assets that are part of the Imperial Lease) are shown as assets and liabilities of the discontinued operation on Griffin’s consolidated balance sheets.  The property and equipment previously used by Imperial and currently leased to Monrovia were reclassified on January 8, 2014 from property and equipment to real estate assets on Griffin’s consolidated balance sheet. The property and equipment had a cost of $11,485 and accumulated depreciation of $9,850 at the time it was reclassified.

 

Revenue and the pretax income (loss) from Imperial’s growing operations, reflected as a discontinued operation in Griffin’s consolidated statements of operations, were as follows:

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

Net sales and other revenue

 

$

69

 

$

8,855

 

$

80

 

$

8,940

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss)

 

$

644

 

$

384

 

$

244

 

$

(205

)

 

The pretax income of Imperial’s discontinued operation in the 2014 second quarter and 2014 six month period includes $451 for the reclassification of actuarial gains related to Griffin’s postretirement benefits program from other comprehensive income into pretax income as a result of the termination of Griffin’s postretirement benefits program (see Note 10).

 

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In the thirteen weeks ended November 30, 2013 (the “ 2013 fourth quarter”), a charge of $10,400 was included in cost of landscape nursery sales to reduce Imperial’s nursery inventories to fair value, which was the net realizable value based on the terms of the Imperial Sale.  The pretax loss from the Imperial Sale in the 2014 six month period was as follows:

 

Consideration received from Monrovia, reflecting cash of $732 and note receivable of $4,036

 

$

4,768

 

Carrying value of assets sold, principally inventory

 

(4,561

)

Curtailment of employee benefit plan (see Note 10)

 

309

 

Severance and other expenses

 

(563

)

Pretax loss

 

$

(47

)

 

The assets and liabilities of Imperial’s growing operation, reflected as a discontinued operation, are as follows:

 

 

 

May 31, 2014

 

November 30, 2013

 

Assets:

 

 

 

 

 

Accounts receivable

 

$

387

 

$

1,151

 

Inventories

 

 

4,116

 

Other

 

285

 

360

 

 

 

$

672

 

$

5,627

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

94

 

$

768

 

 

3.              Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurements” (“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 7).  These inputs are readily available in

 

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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 2014 six 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:

 

 

 

May 31, 2014

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

2,142

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap asset

 

$

 

$

38

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,282

 

$

 

 

 

 

November 30, 2013

 

 

 

Quoted Prices in

 

Significant

 

Significant

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Marketable equity securities

 

$

2,208

 

$

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap asset

 

$

 

$

63

 

$

 

 

 

 

 

 

 

 

 

Interest rate swap liabilities

 

$

 

$

2,285

 

$

 

 

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

 

 

 

Fair Value

 

May 31, 2014

 

November 30, 2013

 

 

 

Hierarchy

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Level

 

Value

 

Fair Value

 

Value

 

Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1

 

$

13,067

 

$

13,067

 

$

14,179

 

$

14,179

 

Available-for-sale securities

 

1

 

2,142

 

2,142

 

2,208

 

2,208

 

Interest rate swap

 

2

 

38

 

38

 

63

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Mortgage debt

 

2

 

65,639

 

66,418

 

66,708

 

67,931

 

Interest rate swaps

 

2

 

2,282

 

2,282

 

2,285

 

2,285

 

 

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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.

 

4.              Real Estate Assets

 

Real estate assets consist of:

 

 

 

Estimated
Useful Lives

 

May 31, 2014

 

November 30, 2013

 

Land

 

 

 

$

18,224

 

$

17,507

 

Land improvements

 

10 to 30 years

 

17,090

 

15,529

 

Buildings and improvements

 

10 to 40 years

 

123,711

 

122,057

 

Tenant improvements

 

Shorter of useful life or terms of related lease

 

16,296

 

16,126

 

Machinery and equipment

 

3 to 20 years

 

11,810

 

4,188

 

Development costs

 

 

 

26,739

 

16,861

 

 

 

 

 

213,870

 

192,268

 

Accumulated depreciation

 

 

 

(73,330

)

(61,078

)

 

 

 

 

$

140,540

 

$

131,190

 

 

Included in real estate assets, net as of May 31, 2014 was $1,547 reflecting the net book value of Imperial’s Connecticut farm assets that were leased to Monrovia effective January 8, 2014 (see Notes 1, 2 and 10).  Prior to that date, these assets were reported as part of property and equipment.  The assets reclassified from property and equipment to real estate assets had a cost of $11,485, net of accumulated depreciation of $9,850 at the time of the reclassification.

 

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

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

$

1,374

 

$

1,368

 

$

2,798

 

$

2,748

 

 

 

 

 

 

 

 

 

 

 

Capitalized interest

 

$

251

 

$

 

$

375

 

$

 

 

In the 2013 fourth quarter, Griffin Land completed the sale of approximately 90 acres of undeveloped land for approximately $9,000 in cash, before transaction costs (the “Windsor Land Sale”).  The land sold is located in Windsor, Connecticut and is part of an approximately 268 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut.  Under the

 

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terms of the Windsor Land Sale, Griffin Land and the buyer will each construct roadways connecting the land parcel sold with existing town roads. The roads to be built will become new town roads, thereby providing public access to the remaining acreage in Griffin Land’s land parcel.  As a result of Griffin Land’s continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method, whereby the revenue and gain on the sale are being recognized as the total costs related to the property sold are incurred.  At the closing of the Windsor Land Sale, cash proceeds of $8,860 were placed in escrow for the potential purchase of a replacement property in a like-kind exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, which was reflected as Proceeds Held in Escrow on Griffin’s consolidated balance sheet as of November 30, 2013.  The proceeds held in escrow were returned to Griffin in the 2014 second quarter as a replacement property was not acquired.

 

As of May 31, 2014, approximately 34% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through May 31, 2014, approximately 34% of the total revenue and pretax gain on the sale have been recognized in Griffin’s consolidated statements of operations.  Griffin’s consolidated statements of operations for the 2014 second quarter and 2014 six month period include revenue of $277 and $370, respectively, and a pretax gain of $207 and $276, respectively, from the Windsor Land Sale.  The balance of the revenue and pretax gain on sale will be recognized when the remaining costs are incurred, which is expected to take place mostly in the third and fourth quarters of fiscal 2014.  Included on Griffin’s consolidated balance sheet as of May 31, 2014, is deferred revenue of $5,930 that will be recognized as the remaining costs are incurred.  Including the pretax gain on sale of $1,990 recognized in fiscal 2013 and $276 recognized in the 2014 six month period, the total gain on the Windsor Land Sale is expected to be approximately $6,688 after all revenue is recognized and all costs are incurred.  While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required roadways, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain recognized in future periods (see Note 10).

 

Real estate assets held for sale consist of:

 

 

 

May 31, 2014

 

November 30, 2013

 

Land

 

$

30

 

$

30

 

Development costs

 

1,074

 

1,074

 

 

 

$

1,104

 

$

1,104

 

 

5.              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, reflecting both changes in the stock price and changes in the foreign currency exchange rate, are included, net of income taxes, in accumulated other comprehensive income (see Note 9).

 

As of November 30, 2013, Griffin held 2,452,462 shares of Centaur Media common stock.  In the 2014 six month period, Griffin sold 500,000 shares of its Centaur Media common stock for total cash proceeds of $566, after transaction costs.  The sale of Centaur Media common stock resulted in a pretax gain of $318 in the 2014 six month period.  Griffin utilized the average cost method to determine its gain

 

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on the sale of Centaur stock.  As of May 31, 2014, Griffin held 1,952,462 shares of Centaur Media common stock.

 

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

 

 

 

May 31, 2014

 

November 30, 2013

 

 

 

 

 

 

 

Fair value

 

$

2,142

 

$

2,208

 

Cost

 

1,014

 

1,274

 

Unrealized gain

 

$

1,128

 

$

934

 

 

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.  As a result of cash distributions from SNHC in years prior to fiscal 2013 which were treated as returns of investment, 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.

 

6.              Property and Equipment

 

Property and equipment consist of:

 

 

 

Estimated Useful
Lives

 

May 31, 2014

 

November 30, 2013

 

Land

 

 

 

$

 

$

437

 

Land improvements

 

10 to 20 years

 

 

1,561

 

Buildings and improvements

 

10 to 40 years

 

 

1,865

 

Machinery and equipment

 

3 to 20 years

 

1,220

 

12,135

 

 

 

 

 

1,220

 

15,998

 

Accumulated depreciation

 

 

 

(964

)

(14,048

)

 

 

 

 

$

256

 

$

1,950

 

 

As a result of the Imperial Lease, certain assets of the Connecticut farm were reclassified from property and equipment to real estate assets on January 8, 2014.  The net book value of the assets reclassified was $1,635, reflecting cost of $11,485 net of accumulated depreciation of $9,850.

 

Griffin incurred new capital lease obligations of $53 and $48 related to equipment acquisitions in the 2014 six month period and the 2013 six month period, respectively.

 

7.              Mortgage Loans

 

Griffin’s mortgage loans, which are nonrecourse, consist of:

 

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Table of Contents

 

 

 

May 31, 2014

 

November 30, 2013

 

 

 

 

 

 

 

6.30%, due May 1, 2014

 

$

 

$

99

 

5.73%, due August 1, 2015

 

18,405

 

18,615

 

8.13%, due April 1, 2016

 

3,422

 

3,603

 

7.0%, due October 2, 2017

 

5,654

 

5,779

 

Variable rate mortgage, due October 2, 2017*

 

6,479

 

6,563

 

Variable rate mortgage, due February 1, 2019*

 

11,021

 

11,150

 

Variable rate mortgage, due August 1, 2019*

 

7,781

 

7,869

 

Variable rate mortgage, due January 27, 2020*

 

3,905

 

3,961

 

Variable rate mortgage, due September 1, 2023*

 

8,972

 

9,069

 

Total nonrecourse mortgages

 

$

65,639

 

$

66,708

 

 


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

 

As of May 31, 2014, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgages on certain of its real estate assets.  Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 3).  No ineffectiveness on the cash flow hedges was recognized as of May 31, 2014 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 2014 six month period, Griffin recognized a loss (included in other comprehensive loss) before taxes of $526 on its interest rate swap agreements.  In the 2013 six month period, Griffin recognized a gain (included in other comprehensive loss) before taxes of $424 on its interest rate swap agreements.

 

As of May 31, 2014, $992 was expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense.  As of May 31, 2014, the net fair value of Griffin’s interest rate swap agreements was $2,244, with $38 included in other assets and $2,282 included in other liabilities on Griffin’s consolidated balance sheet.

 

On June 6, 2014, a subsidiary of Griffin, Griffin Center Development I, LLC, completed the refinancing of its nonrecourse mortgage loan (the “GCD Mortgage Loan”) with Farm Bureau Life Insurance Company (“Farm Bureau”) that was due April 1, 2016. The GCD Mortgage Loan is collateralized by a 165,000 square foot flex building in Windsor, Connecticut. At the time of the refinancing, the GCD Mortgage Loan had a balance of $3,391 and had an interest rate of 8.13%.  The refinancing increased the loan amount to $7,868, reduced the interest rate to 5.09% and extended the loan term to 15 years from the time of the refinancing, with payments based on a 15 year amortization schedule.

 

Also on June 6, 2014, a subsidiary of Griffin, Tradeport Development I, LLC, completed the refinancing of its nonrecourse mortgage loan (the “TD Mortgage Loan”) with Farm Bureau that was due October 2, 2017. The TD Mortgage Loan is collateralized by a 100,000 square foot industrial building and a 57,000 square foot industrial building, both located in Windsor, Connecticut. At the time of the refinancing, the TD Mortgage Loan had a balance of $5,632 and had an interest rate of 7.0%. The refinancing increased the loan amount to $6,632, reduced the interest rate to 5.09% and extended the loan term to 15 years from the time of the refinancing, with payments based on a 15 year amortization schedule. $1,000 of the mortgage loan proceeds from the refinancing of the TD

 

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Table of Contents

 

Mortgage Loan is being held in escrow. The escrowed funds will be released to Griffin if the 57,000 square foot industrial building is re-leased within one year from August 31, 2014, the date the current full building lease is scheduled to expire. That lease is not expected to be renewed, but may be extended for a short period. If a replacement lease reflecting rental terms agreed upon with Farm Bureau is not obtained, the proceeds being held in escrow are required to be used to make a partial prepayment, without penalty, on the TD Mortgage Loan.

 

The GCD Mortgage Loan and the TD Mortgage Loan are cross-collateralized and cross-defaulted with each other. The loans may not be voluntarily prepaid for seven years; thereafter, any prepayment would require a prepayment fee and the simultaneous prepayment of both loans.

 

8.              Revolving Credit Agreement

 

Griffin has a $12,500 revolving credit line with Webster Bank (the “Webster Credit Line”) that expires May 1, 2015.  Griffin has an option to extend the Webster Credit Line for an additional year.  Interest on the outstanding borrowings under the Webster Credit Line are at the one month LIBOR rate plus 2.75%.  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.  There have been no borrowings under the Webster Credit Line since its inception.

 

9.              Stockholders’ Equity

 

Per Share Results

 

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

 

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Table of Contents

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(225

)

$

(394

)

$

(1,323

)

$

1,290

 

 

 

 

 

 

 

 

 

 

 

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

 

390

 

282

 

118

 

(92

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

165

 

$

(112

)

$

(1,205

)

$

1,198

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for computation of basic per share results

 

5,147,000

 

5,142,000

 

5,147,000

 

5,141,000

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

6,000

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average shares for computation of diluted per share results

 

5,147,000

 

5,142,000

 

5,147,000

 

5,147,000

 

 


(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 three month and six month periods ended May 31, 2014 would have been 12,000 and 13,000, respectively.  The incremental shares from the assumed exercise of stock options in the three months ended June 1, 2013 would have been 8,000. 

 

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 May 31, 2014 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:

 

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For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

 

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

Number of
Shares

 

Fair Value per
Option at Grant
Date

 

 

 

 

 

 

 

 

 

 

 

Non-employee directors

 

8,532

 

$

12.42

 

8,112

 

$

12.94

 

 

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 2014 and 2013 six month periods were as follows:

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

Expected volatility

 

38.9

%

40.3

%

Risk free interest rate

 

2.16

%

1.33

%

Expected option term (in years)

 

8.5

 

8.5

 

Annual dividend yield

 

$

0.20

 

$

0.20

 

 

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

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

 

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Number of
Shares

 

Weighted
Avg.
Exercise
Price

 

Outstanding at beginning of period

 

239,677

 

$

30.35

 

243,841

 

$

29.88

 

Granted

 

8,532

 

$

28.12

 

8,112

 

$

29.58

 

Exercised

 

(3,208

)

$

24.94

 

(6,776

)

$

11.81

 

Forfeited

 

(23,000

)

$

30.27

 

 

 

 

Outstanding at end of period

 

222,001

 

$

30.35

 

245,177

 

$

30.37

 

 

Range of Exercise
Prices

 

Outstanding at
May 31, 2014

 

Weighted Avg.
Exercise Price

 

Weighted Avg.
Remaining
Contractual Life
(in years)

 

Total
Intrinsic
Value

 

$23.00-$28.00

 

18,068

 

$

25.45

 

6.5

 

$

48

 

$28.00-$32.00

 

120,858

 

$

28.90

 

6.0

 

$

 

$32.00-$39.00

 

83,075

 

$

33.52

 

4.4

 

$

 

 

 

222,001

 

$

30.35

 

5.4

 

$

48

 

 

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Number of option holders at May 31, 2014

 

14

 

 

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

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

Compensation expense - continuing operations

 

$

60

 

$

130

 

$

213

 

$

236

 

Compensation expense - discontinued operations

 

 

22

 

(130

)

31

 

Net compensation expense

 

$

60

 

$

152

 

$

83

 

$

267

 

 

 

 

 

 

 

 

 

 

 

Related tax benefit - continuing operations

 

$

16

 

$

28

 

$

40

 

$

57

 

 

As of May 31, 2014, the unrecognized compensation expense related to nonvested stock options that will be recognized during future periods is as follows:

 

Balance of Fiscal 2014

 

$

125

 

Fiscal 2015

 

$

153

 

Fiscal 2016

 

$

33

 

 

Accumulated Other Comprehensive Loss

 

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

 

 

 

Unrealized gain

 

Unrealized gain

 

Actuarial gain

 

 

 

 

 

(loss) on cash

 

(loss) on investment

 

on postretirement

 

 

 

 

 

flow hedges

 

in Centaur Media

 

benefits program

 

Total

 

Balance November 30, 2013

 

$

(1,401

)

$

648

 

$

304

 

$

(449

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income before reclassfications

 

(332

)

327

 

 

(5

)

Amounts reclassified

 

317

 

(204

)

(304

)

(191

)

Net activity for other comprehensive loss

 

(15

)

123

 

(304

)

(196

)

Balance May 31, 2014

 

$

(1,416

)

$

771

 

$

 

$

(645

)

 

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Unrealized gain

 

Unrealized gain

 

Actuarial gain

 

 

 

 

 

(loss) on cash

 

(loss) on investment

 

on postretirement

 

 

 

 

 

flow hedges

 

in Centaur Media

 

benefits program

 

Total

 

Balance December 1, 2012

 

$

(2,011

)

$

1,054

 

$

236

 

$

(721

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

(loss) before reclassifications

 

267

 

(672

)

 

(405

)

Amounts reclassified

 

230

 

(332

)

 

(102

)

Net activity for other comprehensive loss

 

497

 

(1,004

)

 

(507

)

Balance June 1, 2013

 

$

(1,514

)

$

50

 

$

236

 

$

(1,228

)

 

The components of other comprehensive income (loss) are as follows:

 

 

 

For the Three Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

 

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

Pre-Tax

 

Tax
(Expense)
Benefit

 

Net-of-Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassifications included in net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Termination of postretirement benefits program ($283 net of tax to discontinued operations, $21 net of tax to general and administrative expense)

 

$

(485

)

$

181

 

$

(304

)

$

 

$

 

$

 

Loss on cash flow hedges (interest expense)

 

253

 

(93

)

160

 

191

 

(71

)

120

 

Total reclassifications included in net income (loss)

 

(232

)

88

 

(144

)

191

 

(71

)

120

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for an increase (decrease) in the foreign currency exchange rate

 

1

 

(1

)

 

20

 

(7

)

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for a decrease in fair value

 

(327

)

115

 

(212

)

(995

)

349

 

(646

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in fair value adjustments on Griffin’s cash flow hedges

 

(349

)

128

 

(221

)

293

 

(109

)

184

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total change in other comprehensive (loss) income

 

(675

)

242

 

(433

)

(682

)

233

 

(449

)

Other comprehensive (loss) income

 

$

(907

)

$

330

 

$

(577

)

$

(491

)

$

162

 

$

(329

)

 

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Table of Contents

 

 

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

 

 

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)

 

$

(321

)

$

117

 

$

(204

)

$

(509

)

$

177

 

$

(332

)

Termination of postretirement benefits program ($283 net of tax to discontinued operations, $21 net of tax to general and administrative expense)

 

(485

)

181

 

(304

)

 

 

 

Loss on cash flow hedges (interest expense)

 

503

 

(186

)

317

 

366

 

(136

)

230

 

Total reclassifications included in net income (loss)

 

(303

)

112

 

(191

)

(143

)

41

 

(102

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for an increase (decrease) in the foreign currency exchange rate

 

62

 

(22

)

40

 

(223

)

78

 

(145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mark to market adjustment on Centaur Media for an increase (decrease) in fair value

 

441

 

(154

)

287

 

(811

)

284

 

(527

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease) increase in fair value adjustments on Griffin’s cash flow hedges

 

(526

)

194

 

(332

)

424

 

(157

)

267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total change in other comprehensive (loss) income

 

(23

)

18

 

(5

)

(610

)

205

 

(405

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income

 

$

(326

)

$

130

 

$

(196

)

$

(753

)

$

246

 

$

(507

)

 

Cash Dividend

 

Griffin did not declare a cash dividend in the 2014 or 2013 six month periods.  During the 2014 first quarter, Griffin paid $1,029 for the cash dividend declared in the 2013 fourth quarter.  During the 2013 first quarter, Griffin paid $1,028 for the cash dividend declared in the fourth quarter of fiscal 2012.

 

10.  Supplemental Financial Statement Information

 

Deferred Revenue on Land Sale

 

Included in deferred revenue on Griffin’s consolidated balance sheet as of May 31, 2014 is approximately $5,930 related to the Windsor Land Sale that will be recognized as road construction required by the terms of the Windsor Land Sale is completed (see Note 4).

 

Supplemental Cash Flow Information

 

An increase of $503 in the 2014 six month period and a decrease of $1,034 in the 2013 six month period in Griffin’s Investment in Centaur Media reflect the mark to market adjustments of this investment and did not affect Griffin’s cash.  In the 2014 six month period, Griffin sold 500,000 shares of its Centaur Media common stock (see Note 5).

 

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Included in accounts payable and accrued liabilities at May 31, 2014 and November 30, 2013 were $2,430 and $813, respectively, for additions to real estate assets.  Accounts payable and accrued liabilities related to additions to real estate assets increased by $1,617 in the 2014 six month period and decreased by $221 in the 2013 six month period.

 

 

 

For the Three Months Ended,

 

For the Six Months Ended,

 

 

 

May 31, 2014

 

June 1, 2013

 

May 31, 2014

 

June 1, 2013

 

 

 

 

 

 

 

 

 

 

 

Interest payments

 

$

955

 

$

658

 

$

1,930

 

$

1,847

 

 

Effective January 8, 2014, in accordance with the terms of the Imperial Sale (see Notes 1, 2 and 4), Imperial sold its inventory and certain assets for $732 in cash and the Promissory Note.  The Promissory Note is due in two installments: $2,750 was due on June 1, 2014 and $1,500 is due on June 1, 2015 and was discounted at 7% to its present value of $4,036 at inception. The Promissory Note is secured by an irrevocable letter of credit. Subsequent to the end of the second quarter, Griffin received payment of the $2,750 installment from Monrovia.

 

Other Postretirement Benefits

 

As a result of the Imperial Sale (see Note 2), the liability for postretirement benefits, included in other liabilities on Griffin’s consolidated balance sheets, was reduced from $372 at November 30, 2013 to $63 at February 28, 2014.  A curtailment gain of $309 is included in the determination of the loss on the Imperial Sale.

 

In the 2014 second quarter, Griffin terminated its postretirement benefits program.  Accordingly, the remaining liability under the postretirement benefits program was reversed and all actuarial gains under the postretirement program that had been reflected in accumulated other comprehensive income were reclassified into net income in the 2014 second quarter. As essentially all of the participants in the postretirement benefits program had been employees of Imperial, and charges related to the postretirement benefits program had been included in the results of the landscape nursery business that is now presented as a discontinued operation, the effect of the termination of the postretirement benefits program is mostly reflected in the results of discontinued operation on Griffin’s consolidated statements of operations for the 2014 second quarter and 2014 six month period.

 

Income Taxes

 

Griffin’s effective income tax rate on continuing operations was 40.5% for the 2014 six month period as compared to 33.0% in the 2013 six month period.  The effective tax rate in the 2014 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.

 

As of May 31, 2014, Griffin’s consolidated balance sheet includes a net deferred tax asset of $6,927.  Although Griffin has incurred a cumulative pretax loss from continuing operations (excluding nonrecurring items) for the three fiscal years ended November 30, 2013, management has concluded that a valuation allowance against its net deferred tax assets is not required.

 

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

 

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Table of Contents

 

11.  Commitments and Contingencies

 

As of May 31, 2014, Griffin had committed purchase obligations of approximately $1,236, principally for the balance of construction of an approximately 303,000 square foot building in the Lehigh Valley of Pennsylvania and for the development of Griffin Land’s properties.

 

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.

 

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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”) reflect Griffin’s real estate business conducted through its wholly-owned subsidiary, Griffin Land, LLC (“Griffin Land”), and Griffin’s wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”). Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated financial statements for all periods presented as a result of the sale (the “Imperial Sale”) of Imperial’s growing operations to Monrovia Connecticut LLC (“Monrovia”) and the lease of Imperial’s Connecticut farm to Monrovia (the “Imperial Lease”, and together with the Imperial Sale the “Imperial Transaction”) that became effective January 8, 2014.

 

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 November 30, 2013 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2014.

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“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 and the valuation of derivative instruments. 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 three months and six months ended May 31, 2014, are consistent with those used by Griffin to prepare its financial statements for the fiscal year ended November 30, 2013 (“fiscal 2013”).

 

Summary

 

For the three months ended May 31, 2014 (the “2014 second quarter”), Griffin had net income of approximately $0.2 million as compared to a net loss of approximately $0.1 million for the thirteen weeks ended June 1, 2013 (the “2013 second quarter”). For the 2014 second quarter, Griffin incurred a loss from continuing operations of approximately $0.2 million and had income from discontinued operations of approximately $0.4 million, as compared to a loss from continuing operations of approximately $0.4 million and income from discontinued operations of approximately $0.3 million in the 2013 second quarter. Griffin’s slightly lower loss from continuing operations in the 2014 second quarter as compared to the 2013 second quarter principally reflects lower interest expense in the 2014 second quarter (due to interest being capitalized in the 2014 second quarter versus no interest capitalized in the 2013 second quarter) and a loss on debt extinguishment of approximately $0.3 million in the 2013 second quarter, partially offset by lower operating profit in the 2014 second quarter as compared to the 2013 second quarter. The lower operating profit principally reflects a lower gain on property sales in the 2014 second quarter as compared to the 2013 second quarter.

 

For the six months ended May 31, 2014 (the “2014 six month period”), Griffin incurred a net loss of approximately $1.2 million as compared to net income of approximately $1.2 million for the twenty-six weeks ended June 1, 2013 (the “2013 six month period”). For the 2014 six month period, Griffin incurred a loss from continuing operations of approximately $1.3 million and had income from discontinued operations of approximately $0.1 million, as compared to income from continuing

 

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Table of Contents

 

operations of approximately $1.3 million and a loss from discontinued operations of approximately $0.1 million in the 2013 six month period. Griffin’s loss from continuing operations in the 2014 six month period as compared to income from continuing operations in the 2013 six month period principally reflects: (a) the inclusion in the 2013 six month period of a pretax gain of approximately $3.4 million from the sale of Griffin’s investment in Shemin Nurseries Holding Corp.; and (b) an operating loss of approximately $1.1 million incurred in the 2014 six month period as compared to operating profit of approximately $0.2 million in the 2013 six month period.

 

Results of Operations

 

2014 Second Quarter Compared to 2013 Second Quarter

 

Total revenue decreased from approximately $6.4 million in the 2013 second quarter to approximately $5.3 million in the 2014 second quarter, reflecting a decrease of approximately $1.3 million in revenue from property sales partially offset by a net increase of approximately $0.3 million in rental revenue in the 2014 second quarter as compared to the 2013 second quarter.

 

The net increase of approximately $0.3 million in rental revenue in the 2014 second quarter as compared to the 2013 second quarter principally reflects: (a) approximately $0.5 million of rental revenue from leasing previously vacant space; and (b) approximately $0.2 million from the Imperial Lease; partially offset by (c) a decrease in rental revenue of approximately $0.4 million from leases that expired and were not renewed. The increase in rental revenue due to leasing previously vacant space includes rental revenue of approximately $0.4 million from the full building lease of the 228,000 square foot industrial building in the Lehigh Valley of Pennsylvania that was completed in the fiscal year ended December 1, 2012 (“fiscal 2012”) and leased in fiscal 2013, with rental revenue commencing during the thirteen weeks ended August 31, 2013 (the “2013 third quarter”).

 

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