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INDUS REALTY TRUST, INC. - Annual Report: 2002 (Form 10-K)


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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-K


ý

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

For the fiscal year ended November 30, 2002

OR

o

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

Commission file number 0-29288


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

Delaware
(State or other jurisdiction of
incorporation or organization)
  06-0868496
(I.R.S. Employer Identification No.)

One Rockefeller Plaza
New York, New York

(Address of principal executive offices)

 

10020
(Zip Code)

(212) 218-7910
(Registrant's Telephone Number, Including Area Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Title of Each Class
  Name of Each Exchange on Which Registered
Common Stock $0.01 par value   Nasdaq National Market

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes o    No ý

        Indicate by check mark whether the Registrant is an accelerated filer (as defined under Rule 12b-2 of the Securities Exchange Act of 1934)  Yes o    No ý

        The aggregate market value of the Common Stock held by non-affiliates of the Registrant, was approximately $26,873,000 based on the closing sales price on the Nasdaq National Market on February 26, 2003. Shares of Common Stock held by each executive officer, director, and persons or entities known to the Registrant to be affiliates of the foregoing have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.

        As of February 26, 2003, 4,864,916 shares of common stock were outstanding.





PART 1

ITEM 1. BUSINESS

        Griffin Land & Nurseries, Inc. ("Griffin") and its subsidiaries comprise principally a landscape nursery and a real estate business. Griffin is engaged in two principal lines of business: (1) the landscape nursery products business, comprised of the growing of containerized landscape nursery products for sale principally to retail garden center operators, landscape nursery mass merchandisers and wholesale sales and service centers, whose main customers are landscape contractors; and (2) the real estate business, comprised of (x) the ownership, construction, leasing and management of commercial and industrial properties and (y) the development of residential subdivisions on real estate owned by Griffin in Connecticut and Massachusetts. On January 26, 2001, a portion of the landscape nursery products business which had related to the operation of wholesale sales and service centers (the "SSCs") was sold to Shemin Nurseries, Inc. ("Shemin"). Griffin holds an approximately 14% interest in the equity of Shemin Acquisition Corp. ("Acquisition"), the parent company of Shemin, acquired as part of the sale. The investment in Acquisition is accounted for under the cost method of accounting for investments. Griffin also owns an approximately 35% interest (32% fully diluted) in Centaur Communications, Ltd. ("Centaur"), a United Kingdom magazine and information services publisher which is accounted for under the equity method of accounting, and has a lesser interest in Linguaphone Group plc ("Linguaphone"), a designer and distributor of language teaching materials based in the United Kingdom, which is accounted for under the cost method of accounting for investments.

Landscape Nursery Business

        The landscape nursery operations of Griffin are operated by its wholly-owned subsidiary, Imperial Nurseries, Inc. ("Imperial"). Imperial is a grower and, to a small extent, broker of wholesale landscape nursery stock. The landscape nursery industry is extremely fragmented. Imperial believes that its sales volume places it among the twenty largest landscape nursery growers in the country. On January 26, 2001, Imperial completed the sale of its SSCs, which provided most of Imperial's operating profit in prior years. As a result of the sale, the central overhead of Imperial, which could be reduced only in part, is now borne entirely by the growing operation.

        Imperial's container growing operations are located on land owned by Griffin in Connecticut (approximately 455 acres currently used) and land owned by Imperial in northern Florida (approximately 450 acres currently used). The Florida growing operation is currently completing its planned expansion on adjacent lands owned by Imperial. Upon completion of current plans, the Florida farm will use approximately 490 acres. At that time, substantially all of the useable contiguous lands suitable for the container growing operations in Connecticut and a large portion of such lands in northern Florida will be in use. The Florida farm has also improved and expanded its shipping docks and customer service facilities and is improving its irrigation and water recycling operations. Imperial's inventories consist of container-grown plants on these two farms. The largest products of Imperial are evergreens, flowering shrubs and hollies in Florida and rhododendron, evergreens and flowering shrubs in Connecticut. Other major product categories in Florida include juniper, trees, perennials and crape myrtle. During 2000, a decision was made to reduce materially the number of azalea and juniper to be grown in Florida and to increase the number of larger plants of several varieties in Florida including leyland cypress, some varieties of deciduous shrubs, crape myrtle and trees. In Connecticut, alberta spruce, perennials and trees are other major products. Container-grown product is held principally from one to five years prior to its sale by Imperial. Over the past four years, Imperial substantially increased its production and sales of perennials which have a much shorter growing cycle than most of the rest of Imperial's products. Because many perennials were grown for sale by the SSCs, after the sale of the SSCs, the number of perennials being grown has been reduced starting in 2002. Commencing in 2003, Imperial will be selling some smaller perennials and a number of other products as one of several licensed growers under the "Novalis" trade name, and also in association with P. Allen Smith, an author and garden show host.

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        Imperial is reviewing a variety of approaches to increase the return on assets for its growing operations, including changes in the relative quantities of some products currently grown and proposed to be grown and also possible changes in the potting and growing cycle for some of its containerized production. Some of these programs are also directed at developing faster growing products and improved soil mixes. A substantial portion of the products which are part of the expanded Florida production will be of larger sizes requiring an extended growing cycle. The major investment in nursery growing assets in the current cycle of planned investment in Florida was substantially completed during 2002. Imperial is currently planning to expand its field grown liner program in Connecticut on land owned by Griffin and is also considering some other products and product sizes for both sales in its existing markets and expanding the market area served by the Florida farm. Any such changes, if successful, taking into account the growing cycles of the related plants, will take a substantial period to be reflected in results of operations to any material extent. Imperial's growing operation incurred charges for inventory losses above normal levels of approximately $1.8 million in 2002 and $0.6 million in 2001. These charges were due principally to crop failures and poor results from the propagation of new plants in Florida.

        The growing operations serve a market comprised principally of retail garden center operators, landscape nursery mass merchandisers and wholesale sales and service centers. Shemin, the purchaser of Imperial's SSCs, has a contract to purchase some Imperial grown product during 2003. Imperial's major markets are in the Northeast, Mid-Atlantic, the northern portion of the Southeast and the Midwest. Imperial may seek to expand its distribution in parts of the Southeast. Nursery sales are extremely seasonal, peaking in Spring, and are strongly affected by commercial and residential building activity and are materially affected by weather conditions, particularly in the Spring planting season. Drought conditions in the Mid-Atlantic and Northeast areas adversely affected sales of Imperial in the 2002 season as did excessive rain and cold in the Midwest. Prices and competition in 2003 are expected to be affected by product grown by Imperial and others which was not sold, when expected, last year. Competition may also reflect the weakened financial condition of at least one major grower and by the weakened financial conditions of some customers of Imperial.

        Imperial's sales are made to a large variety of customers. In fiscal 2002, sales to Shemin represented 10.1% of Imperial's total sales. Imperial's supply agreement with Shemin, entered into in conjunction with the sale of the SSCs to Shemin, expires on December 31, 2003. Imperial expects to continue to be a supplier to Shemin, although not necessarily at the same sales level, after the supply agreement terminates. There were no other customers in fiscal 2001 and fiscal 2000 that represented more than 10% of Imperial's annual sales in those years.

        Imperial has increased its containerized growing capacity to meet the potential volume and quality needs of its customers and to capitalize on expected growth in the Mid-Atlantic and Midwest markets. Imperial also expects to seek to expand its sales in the Southeast. Shipping capacity in Florida has also been increased, but may require some additional peaking capacity. In coming years, Imperial expects that a higher portion of its shipping will be made on trucks outfitted with shelves, which will increase shipping expenses. Over the last two years, additional sales support has been provided to the farming operation, and in future years, additional sales support may be required to be provided to mass merchandisers.

        During 2000, Imperial operated seven SSCs which sold a wide range of plant material, including a large portion purchased from growers other than Imperial, and horticultural tools and products to the trade. The largest portion of the sales of the SSCs were to professional landscapers. The SSCs, all of which were owned by Imperial, were located in Windsor, Connecticut; Aston and Pittsburgh, Pennsylvania; Columbus and Cincinnati, Ohio; White Marsh, Maryland; and Manassas, Virginia. During 2000, operating results of the SSCs improved from the prior year. The SSCs had become the principal contributor to the operating profit of Imperial. In January 2001, the SSCs were sold to Shemin for cash and stock in Shemin Acquisition Corporation. Griffin reported a pretax profit of approximately $9.5 million on this transaction. See Note 2 to the consolidated financial statements included in Item 8.

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Real Estate Business

        Griffin's real estate division, Griffin Land, is directly engaged in the real estate development business on portions of its land in Connecticut. Griffin Land develops portions of its properties for industrial, commercial and residential use. Griffin Land may also endeavor to sell some of its non-core land without obtaining development approvals. Additionally, in future years, Griffin Land may seek to acquire and develop on land not presently owned. The headquarters for this operation is in Bloomfield, Connecticut.

        For several years, the real estate market in the Hartford area, particularly that in the northwest quadrant where the majority of Griffin's acreage is located, was depressed by a number of factors, including the decline of employment in the manufacturing and financial services industries. In 2000, there was some recovery in this market, including some recovery in the office portion of this market, which had been particularly weak. During 2001, in the area of Griffin's properties, there was not a significant change in the vacancy rates of office space, but Griffin Land and a joint venture, in which Griffin Land owned a 30% interest, succeeded in leasing 42,000 square feet of office space (a portion with occupancy and rent commencing in 2002) and Griffin Land delivered to tenants approximately 235,000 square feet (net of vacated space) of industrial and flex space. In 2002, an increase in the amount of industrial space leased was partially offset by a reduction in the net amount of office and flex space leased by Griffin Land. There can be no assurance as to the condition of the real estate market in this region in the near future. Current projections, made by analysts, show little growth for this market during 2003, particularly in office space, where lease terms are generally five years or fewer. Despite the employment decline in the manufacturing and financial services industries, the unemployment rate in the area is quite low. Griffin Land's development of its land is also affected by land planning issues, particularly in the town of Simsbury, Connecticut.

    Commercial and Industrial Developments

    New England Tradeport

        A significant amount of Griffin Land's current commercial and industrial development efforts are focused on a 600 acre tract owned by Griffin Land near Bradley International Airport and Interstate 91 known as the New England Tradeport. To date, approximately 395,000 square feet of warehouse and light manufacturing space has been completed, of which approximately 380,000 (96%) is occupied, and a bottling and distribution plant has been built by the Pepsi Bottling Group ("Pepsi") on land sold to Pepsi by Griffin Land. Leases covering approximately 31.0% of the currently leased space in New England Tradeport expire prior to December 31, 2004. Griffin Land has begun site work for a new approximately 115,000 square foot warehouse which it expects to complete in 2003. The only currently vacant spaces are 10,000 and 5,000 square feet, respectively, in one older industrial building owned by Griffin Land.

        Griffin Land has a state traffic control certificate for the development of 1.3 million square feet in the New England Tradeport. Griffin Land intends to continue to direct its primary efforts in the industrial properties portion of its real estate business toward construction and leasing of light industrial and warehouse facilities at the New England Tradeport. Future development in the New England Tradeport may require investment in off-site infrastructure on behalf of Windsor, Connecticut and improvement of some state or town roads. At present, $13.9 million is invested in buildings at New England Tradeport and $2.7 million is invested in the undeveloped land there. All of Griffin Land's existing buildings at New England Tradeport are currently mortgaged for an aggregate of approximately $15.6 million.

    Griffin Center and Griffin Center South

        Griffin's other substantial development is the combination of Griffin Center in Windsor, Connecticut and Griffin Center South in Bloomfield, Connecticut. Together these master planned

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developments comprise approximately 600 acres, approximately 63% of which have been developed with approximately 2,165,000 square feet of office and industrial space.

        Griffin Center currently includes ten corporate office buildings built by Griffin Land. Griffin Land currently owns two office buildings which have an aggregate of 161,000 square feet in the Griffin Center office complex. Through fiscal 2002, those buildings were owned by a joint venture in which Griffin Land held a 30% interest. Griffin Land purchased the remaining 70% interest in December 2002 for approximately $8.8 million. Occupancy in those buildings is approximately 152,000 square feet (94%). During 2001, Griffin Land completed the shell of a light manufacturing building of 165,000 square feet in Griffin Center for JDS Uniphase Corporation ("JDS") which is leased to JDS under a fifteen-year lease. Under the agreement, JDS paid for its interior improvements, which were material to the total cost of the building. At present, JDS has vacated the building which they are seeking to sublease. In 2002, Griffin Land built the shell of a 50,000 square foot single story office building in Griffin Center which is currently ready for tenant work but is unleased. Griffin's aggregate investment in Griffin Center, after acquiring the 70% interest in the two office buildings, is $24.9 million. Including the two office buildings recently acquired, leases covering approximately 18% of the currently leased space in Griffin Center expire prior to December 31, 2004. Mortgages on Griffin Land's buildings in Griffin Center, including a new mortgage on the two offices buildings recently acquired, total $15.9 million

        In Griffin Center South, a 130-acre tract with sixteen buildings of flex and research and development space, Griffin Land has retained for lease 9 buildings. During 2001, Griffin Land accepted the surrender of a 57,500 square foot lease, for a termination fee, from JDS. Approximately 55% of that building has been released with occupancy starting in early 2003. Griffin Land also accepted back from JDS, in 2002, 10,000 square feet in another building which is currently for lease. JDS made a payment for termination of its lease in which it had made material improvements. A third lease of 11,400 square feet was surrendered by another tenant. That space is currently not leased. The Griffin Center South buildings have an aggregate of approximately 220,000 square feet of flex and research and development space and 18,000 square feet of storage space. Leases covering approximately 17% of the currently leased space expire prior to December 31, 2004. Undeveloped land remaining in Griffin Center South is sufficient for an additional approximately 200,000 square feet of space. The aggregate investment in Griffin Center South is $10.6 million.

    Other Office and Industrial Subdivisions

        Three additional Griffin Land parcels appropriate for office or industrial uses are currently marketed for development, including 100 acres in the South Windsor Technology Center, 28 acres in the Day Hill Technology Center in Windsor and a 16 acre parcel in Windsor for smaller build-to-suit industrial buildings.

    Residential Developments

    Simsbury

        In November 1999, Griffin Land filed plans for the creation of a residential community of 640 homes on a 363-acre site in Simsbury. After the conclusion of the original hearings in this matter, Griffin Land reduced the number of proposed homes to 371. One quarter of these homes would be deed restricted affordable housing under Connecticut statutes. The public hearings focused on the density of the proposed development, as well as sewer, wetlands and soil contamination issues arising from prior use of the land for farming, as a result of which certain pesticides remain in the upper portion of the soil. The local commissions rejected the plan which is now before the Connecticut courts in a number of separate but related actions. See "Regulation: Environmental Matters". Griffin Land believes that its development plan for this site includes an appropriate method (which has received support from the Connecticut Department of Environmental Protection) of remediating the soils. The outcome of the pending litigation cannot be predicted. In December 2002, the trial court for two cases

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related to this development held for Griffin. Simsbury is seeking to appeal those decisions. Those decisions would require compliance with conservation and septic decisions which would affect the development. The current book value of the land, including design and development costs to date, for this proposed development is $3.2 million. Griffin Land owns another 500 acres in Simsbury, portions of which are zoned residential and other portions of which are zoned industrial. The industrial land is probably more suited to commercial use. Griffin Land may seek to develop or sell such lands if approvals can be obtained.

    Windsor

        In 1988, a subsidiary of Griffin began infrastructure work at Walden Woods, a 153 acre site in Windsor, Connecticut, which was originally planned to contain more than 435 residential units. Through the end of fiscal 2002, 155 homes have been built. In 2000, Griffin entered into an agreement with a developer for the sale of the balance of the development rights at Walden Woods. Completion of this transaction, which is subject to site plan and other approvals by the town, would provide a significant cash flow to Griffin. Griffin's aggregate investment in Walden Woods is $2.7 million.

    Suffield

        Griffin is currently seeking to prepare 95 acres of contiguous land in Suffield for residential subdivision, which has received some preliminary favorable consideration.

    Other

        In addition, approximately 500 acres in Connecticut are leased for tobacco growing to General Cigar Co., Inc., at annual rentals approximating the land's annual carrying cost. The lease for these properties, which extends through February 2007, may be terminated as to 100 acres annually, on one year's prior notice.

        Griffin is evaluating its other properties for residential development over a period of years. Griffin anticipates that obtaining subdivision approvals in many of the towns where it holds land appropriate for residential subdivision will be an extended process.

Investments

    Centaur Communications, Ltd.

        Griffin owns approximately 35% (32% fully diluted) of the outstanding common stock of Centaur, a privately-held publisher of business magazines in the United Kingdom and a compiler and supplier of computerized financial information through a subsidiary, Perfect Information, Ltd. As a result of a repurchase of common stock by Centaur and an additional investment by Griffin in 1998, Griffin's interest in Centaur was increased to its present level. The agreements relating to that transaction contemplate an offering of Centaur stock or sale of Centaur in the next year subject to a number of factors, including market conditions. Results of Centaur were significantly affected by the sale, at a substantial gain, of its Lawtel division in August 2002 and were adversely affected by the write down of goodwill of its engineering division. The British market for business advertising is currently not strong.

    Linguaphone Group plc

        Griffin received, in 1997 from Centaur, a 25% interest in Linguaphone. In early 1999, a recapitalization of Linguaphone resulted in Griffin's interest being reduced to approximately 14% (11% fully diluted). Further transactions by Linguaphone have reduced Griffin's ownership interest to approximately 8%. Accordingly, Griffin now accounts for Linguaphone under the cost method of accounting for investments. Griffin's 2001 statement of operations includes a charge of approximately $2.2 million to write down its investment in Linguaphone to less than $100,000 due to Linguaphone's financial results. Griffin invested $145,000 in Linguaphone in fiscal 2002.

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    Shemin Acquisition Corporation

        In connection with Imperial's sale of the SSCs, Imperial holds approximately 14% of the outstanding common stock of Shemin Acquisition Corporation, a privately held company that is the parent company of Shemin Nurseries, Inc. Imperial accounts for its investment in Acquisition under the cost method of accounting for investments.

Financial Information Regarding Industry Segments

        See Note 3 to the consolidated financial statements of Griffin included elsewhere herein for certain financial information regarding the landscape nursery business and the real estate business.

Employees

        As of November 30, 2002, Griffin employed 220 persons on a full-time basis, including 16 in its real estate division and 200 in its landscape nursery business. At present, none of Griffin's employees are represented by a union. Griffin believes that its relations with its employees are satisfactory.

Competition

        The landscape nursery business is competitive, and Imperial competes against a number of other companies, including national, regional and local landscape nursery businesses. Some of Imperial's competitors in the landscape nursery industry are larger than Imperial. Growers of landscape nursery products compete on the bases of price, product and service quality and product availability.

        Numerous real estate developers operate in the portion of Connecticut and Massachusetts in which Griffin's holdings are concentrated. Some of such businesses may have greater financial resources than Griffin. Griffin's real estate business competes on the bases of location, price, availability of space, convenience and amenities.

Regulation: Environmental Matters

        Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to remediate properly such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership (direct or indirect), operation, management and development of real estate properties, Griffin may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, a well as certain other related costs, including governmental fines and injuries to persons and property. In Simsbury, Connecticut, the value of Griffin's land is affected by the presence of chlordane on a portion of the land which is intended for residential use. Although Griffin believes its proposed method of reducing chlordane contamination to levels below those that would impede residential development of such properties is appropriate and feasible, the acceptance of the method by any town commission has not yet been obtained. In the event that Griffin is unable adequately to remediate this property, its ability to develop such property for its intended purposes would be materially affected.

        Griffin periodically reviews its properties for the purpose of evaluating such properties' compliance with applicable state and federal environmental laws. Griffin does not anticipate experiencing, in the immediate future, material expense in complying with such laws other than in connection with development operations which may require additional clean up expenses.

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ITEM 2. PROPERTIES

Land Holdings

        Griffin is a major landholder in the State of Connecticut, owning approximately 4,100 acres, and also owns approximately 450 acres of land in Massachusetts. In addition, Griffin owns approximately 1,100 acres in northern Florida, most of the useable portion of which is used for Imperial's growing operations or is contiguous to such operations.

        The book value of undeveloped land holdings, including land improvements, owned by Griffin, principally in the Hartford, Connecticut area, is approximately $16 million. Griffin believes the fair market value of such land is substantially in excess of its book value, including land improvements.

        A listing of the locations of Griffin's real estate held for development or sale, a portion of which, principally in Bloomfield, East Granby and Windsor, has been developed, and nursery real estate, is as follows:


Real Estate Held For Development or Sale

Location of Property

  Land Area (Acres)
Connecticut    
  Bloomfield   370
  East Granby   104
  East Windsor   115
  Granby   118
  Simsbury   865
  South Windsor   103
  Suffield   372
  Windsor   1,198

Massachusetts

 

 
  Southwick   442

Florida

 

 
  Leon County   6
  Hillsborough County   1


Nursery Real Estate

Location of Property

  Land Area (Acres)
Florida    
  Quincy   1,066

Connecticut

 

 
  East Granby   470
  Granby   305
  Windsor   33
  Simsbury   10

        Griffin also leases approximately 2,100 square feet in New York City for its executive offices.

ITEM 3. LEGAL PROCEEDINGS

        As discussed in Item 1, certain parts of Griffin's property in Simsbury, Connecticut, are affected by the presence of chlordane. Although the various federal, state and local agencies may have an interest in the matter, there are no proceedings known by Griffin to be contemplated by any of these agencies

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in connection with possible chlordane exceedences on such land. Various aspects of Griffin's plans for its proposed residential development in Simsbury are currently being litigated. See discussion of residential development included in the Liquidity and Capital Resources section of Item 7.

        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 will not be material to Griffin's financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Market Information

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

 
  1st
Quarter

  2nd
Quarter

  3rd
Quarter

  4th
Quarter

 
  High
  Low
  High
  Low
  High
  Low
  High
  Low
2002   $ 16.35   $ 12.56   $ 16.73   $ 13.77   $ 17.79   $ 13.15   $ 17.00   $ 13.40
2001   $ 14.75   $ 11.13   $ 18.85   $ 12.94   $ 18.08   $ 15.00   $ 15.51   $ 11.00

        On February 26, 2003, the number of record holders of common stock of Griffin was approximately 507, which does not include beneficial owners whose shares are held of record in the names of brokers or nominees. The closing market price as quoted on the Nasdaq National Market on such date was $10.95 per share. See Item 12 "Security Ownership of Certain Beneficial Owners and Management" for information on our equity compensation plan.


Dividend Policy

        Griffin's current policy is to retain any earnings to finance the operation and expansion of its businesses.

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ITEM 6. SELECTED FINANCIAL DATA

        The following table sets forth selected statement of operations data for fiscal years 1998 through 2002 and balance sheet data as of the end of each fiscal year.

 
  2002
  2001
  2000
  1999
  1998
 
 
  (dollars in thousands, except per share data)

 
Statement of Operations Data:                                
Net sales & other revenue   $ 33,961   $ 32,013   $ 74,374   $ 64,998   $ 53,133  
Operating (loss) profit     (2,288 )   (3,182 )   3,812     3,130     74  
Gain on sale of Sales & Service Centers         9,469              
(Loss) income before equity investments (a)(b)     (717 )   1,490     1,670     1,623     86  
Net income (loss)     2,925     1,137     2,262     2,176     (65 )
Basic net income (loss) per share     0.60     0.23     0.47     0.45     (0.01 )
Diluted net income (loss) per share     0.53     0.22     0.45     0.42     (0.03 )
Balance Sheet Data:                                
Total assets     132,956     124,175     127,284     112,885     104,730  
Working capital     34,291     31,095     29,193     36,337     33,304  
Long-term debt     26,007     15,940     9,008     8,860     2,666  
Stockholders' equity     99,470     96,916     95,718     93,270     91,000  

(a)
Loss before equity investment for fiscal 2002 includes an income tax benefit of $1.5 million for the reversal of an accrual for income taxes as a result of the favorable settlement of tax examinations of prior years. See Note 4 to the consolidated financial statements included in Item 8.

(b)
Income before equity investment in fiscal 2001 includes a pretax charge of $2.2 million to write-down the value of Griffin's investment in Linguaphone Group plc.

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

Overview

        The consolidated financial statements of Griffin include the accounts of Griffin's subsidiary in the landscape nursery business, Imperial Nurseries, Inc. ("Imperial"), and Griffin's Connecticut and Massachusetts based real estate business ("Griffin Land"). Griffin also has an equity investment in Centaur Communications, Ltd. ("Centaur"), a magazine publishing business based in the United Kingdom. On January 26, 2001, Imperial completed the sale of its wholesale sales and service centers (the "SSCs") to Shemin Nurseries, Inc. A substantial amount of the operating profit of Imperial in fiscal 2000 was attributable to the SSCs. Imperial remains in the landscape nursery business with its container growing operations in Connecticut and northern Florida. Griffin's statement of operations in fiscal 2000 and through the date of sale of the SSCs in fiscal 2001 includes the results of operations of the SSCs. In 2001, Imperial completed an expansion of its Connecticut growing operation and is currently nearing completion of the expansion of its growing operation in northern Florida.

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        The notes to Griffin's consolidated financial statements included in Item 8 contain a summary of the significant accounting policies and methods used in the preparation of Griffin's consolidated financial statements. However, in the opinion of management, Griffin does not have any individual accounting policy that is critical to the preparation of its consolidated financial statements. This is due principally to the definitive nature of the accounting requirements for the landscape nursery and real estate businesses in which Griffin is engaged. Also, in many cases, Griffin must use an accounting policy or method because it is the only policy or method permitted under accounting principles generally accepted in the United States of America. The following is a review of the more significant accounting policies and methods used by Griffin:

      Revenue Recognition—Griffin recognizes revenues for its landscape nursery business upon shipment of products to customers when title and risk of loss pass to the customers. In Griffin's real estate business, rental revenue is recorded in accordance with Statement of Financial Accounting Standard ("SFAS") No. 13, "Accounting for Leases", which requires that rental revenue be recognized on a straight-line basis over the term of the lease. Real estate sales are recorded in accordance with SFAS No. 66, "Accounting for Sales of Real Estate" which establishes standards for recognition of profit on real estate sales. These standards require that profit on a transaction not be recognized until the amount is determinable, collectability of the sales price is reasonably assured and the earnings process is complete.

      Depreciation and Amortization—Griffin depreciates its property and equipment and its real estate held for lease using straight-line methods. Griffin amortizes goodwill related to its investment in Centaur on a straight-line method over forty years. Beginning in fiscal 2003, Griffin, as required, will adopt SFAS No. 142. Accordingly, Griffin will no longer amortize the goodwill related to its investment in Centaur, but that goodwill, and any other, will be tested at least annually for impairment (see Note 1 to the consolidated financial statements in Item 8).

      Inventories—Griffin's inventories of its landscape nursery business are stated at the lower of cost or market. Cost is determined using the average cost method. Although nursery stock includes certain inventories that will not be sold within one year, it is industry practice to include such inventories in current assets.

      Impairment of Long-Lived Assets—Griffin evaluates the carrying value of its long-lived assets in relation to their operating performance and future undiscounted cash flows.

Results of Operations

    Fiscal 2002 Compared to Fiscal 2001

        Griffin's consolidated net sales and other revenue were $34.0 million in fiscal 2002 as compared to $32.0 million in fiscal 2001. The increase of $2.0 million reflects an increase in net sales and other revenue of $1.6 million at Imperial and an increase in net sales and other revenue of $0.4 million at Griffin Land. Net sales and other revenue at Griffin Land increased from $8.4 million in fiscal 2001 to $8.8 million in fiscal 2002. The increase of $0.4 million in net sales and other revenue at Griffin Land reflects an increase of $0.6 million of revenue from its leasing operations partially offset by a decrease of $0.2 million on revenue from property sales. The higher net sales and other revenue from Griffin Land's leasing operations was due to (a) an increase of $0.6 million in rental revenue from two buildings that were built and partially leased in fiscal 2001 and leased for the entire year in fiscal 2002; (b) a net increase of $0.5 million in rental revenue from leasing space that was previously vacant, net of previously leased space that was vacated in the current year; and (c) an increase of $0.2 million in rental revenue from the 57,000 square foot building in the New England Tradeport that was completed in fiscal 2002 and leased for a portion of the year; which was partially offset by a decrease of $0.7 million in other revenue in fiscal 2002 as compared to fiscal 2001 due to $0.5 million received in

11


fiscal 2001 in connection with an agreement to terminate early a lease and $0.2 million from construction management fees received in fiscal 2001.

        Net sales and other revenue at Imperial increased from $23.6 million in fiscal 2001 to $25.2 million in fiscal 2002. The increase in net sales and other revenue at Imperial of $1.6 million reflects an increase in net sales of Imperial's container grown plants of $3.5 million in fiscal 2002 partially offset by the inclusion in fiscal 2001 of $1.9 million of net sales from the SSCs prior to their sale in January 2001. The increase in net sales of container grown plants reflects an increase in sales of larger sized plants, which have a higher per unit sales price, which more than offset a 2% decline in unit sales volume in fiscal 2002 as compared to fiscal 2001. The increase in sales of larger sized plants reflects changes in Imperial's product mix made over the past several years. Management believes that fiscal 2002 net sales were hampered by unfavorable weather conditions in Imperial's markets during the Spring, its peak selling season. Drought conditions in the Mid-Atlantic area and excessive rain and cold in the Midwest negatively affected sales in those areas.

        Griffin incurred an operating loss of $2.3 million in fiscal 2002 as compared to an operating loss of $3.2 million in fiscal 2001. Griffin's operating loss in fiscal 2001 included an operating loss of $0.8 million from Imperial's SSCs prior to their sale in January 2001. Excluding the operating loss from the SSCs in fiscal 2001, Griffin's overall operating results were substantially unchanged in fiscal 2002 as compared to fiscal 2001.

        Operating profit at Griffin Land increased from $1.0 million in fiscal 2001 to $1.1 million in fiscal 2002. The increase of $0.1 million in operating profit at Griffin Land reflects an increase of $0.3 million in profit from property sales and a decrease of $0.1 million in general and administrative expenses offset by an increase of $0.3 million in depreciation expense. Profit, before depreciation, from Griffin Land's commercial properties was $5.1 million in fiscal 2002 and fiscal 2001. However, fiscal 2001 results included a $0.5 million benefit from a lease termination. Excluding the early lease termination payment received in fiscal 2001, profit, before depreciation, from Griffin Land's commercial properties increased by $0.5 million in fiscal 2002 as compared to fiscal 2001. This reflects an increase in the amount of space leased in fiscal 2002 as compared to fiscal 2001. At November 30, 2002, Griffin Land had 1,013,000 square feet of office, flex and industrial space available for lease (including 50,000 square feet in the office building shell that was recently completed and is now ready for tenant work and the 160,000 square feet of office space in the two buildings owned by the joint venture in which Griffin held a 30% interest as of November 30, 2002), of which 885,000 square feet (87%) was occupied. At December 1, 2001 Griffin had 906,000 square feet of office and industrial space available for lease with 826,000 square feet (91%) occupied at that time. The increase in the amount of square feet available reflects the completion in fiscal 2002 of a 57,000 square foot facility in the New England Tradeport that is fully leased and the completion of the shell of a 50,000 square foot office building that is not yet leased.

        Profit from property sales at Griffin Land increased by $0.3 million in fiscal 2002 as compared to fiscal 2001 despite the decrease in property sales revenue in fiscal 2002 as compared to fiscal 2001. The increased profitability reflects the substantially lower cost basis of the land sold in fiscal 2002 compared to the cost basis of the land sold in the prior year. The increase in depreciation expense in fiscal 2002 as compared to fiscal 2001 reflects a full year of depreciation expense in fiscal 2002, as compared to a partial year of depreciation expense in fiscal 2001, on tenant improvements on two buildings totaling 205,000 square feet placed in service during fiscal 2001 and the start of depreciation on the 57,000 square foot building that was completed in fiscal 2002.

        General and administrative expenses at Griffin Land decreased from $2.2 million in fiscal 2001 to $2.1 million in fiscal 2002. The lower general and administrative expenses reflects a decrease of $0.1 million in donations expense in fiscal 2002 as compared to fiscal 2001 and a decrease of $0.1 million in employee recruitment expenses partially offset by higher insurance expenses.

12



        Imperial incurred an operating loss of $1.9 million in both fiscal 2002 and fiscal 2001 (excluding the loss from the SSC operations of $0.8 million before they were sold in January 2001). The increase in gross profit generated from the higher net sales in fiscal 2002 was substantially offset by higher charges for unsaleable inventory, which were $1.8 million in fiscal 2002 as compared to $0.6 million in fiscal 2001. The charges for unsaleable inventory in the current year were caused principally by failures in certain crops, poor results from the propagation of new plants in Florida and failure to sell certain parts of the inventory which then became unsaleable. As a result of these issues, management has made changes in certain horticultural practices and changes of certain personnel. Imperial's gross margin on sales, excluding the charges for unsaleable inventory, was 17% in fiscal 2002 as compared to 15% in fiscal 2001. The higher gross margin on sales was principally due to changes in Imperial's product mix. Imperial's operating expenses in fiscal 2002 were $4.4 million, or 17.5% of net sales, as compared to $4.6 million, or 21.2% of net sales, in fiscal 2001, excluding the effect of the SSCs in fiscal 2001. The lower operating expenses in fiscal 2002 reflect principally lower central overhead expenses at Imperial due to headcount reductions as a result of the sale of the SSCs in fiscal 2001.

        Griffin's interest expense increased from $0.9 million in fiscal 2001 to $1.6 million in fiscal 2002. The higher interest reflects increased borrowings outstanding in fiscal 2002 as compared to fiscal 2001. Borrowings in the current year were used to support the working capital needs at Griffin's businesses, and investment in Griffin Land's real estate operation and capital expenditures at Imperial. Griffin's financing requirements in fiscal 2001 were met using the proceeds from the sale of the SSCs that remained after paying down the balance then outstanding of Griffin's revolving credit agreement. Griffin's average amount of debt outstanding in fiscal 2002 was $23.2 million as compared to $15.0 million in fiscal 2001. In addition, in fiscal 2002 Griffin had capitalized interest of $0.1 million as compared to capitalized interest of $0.4 million in fiscal 2001. The lower amount of capitalized interest in fiscal 2002 reflects the lower amount of construction activity in fiscal 2002 as compared to fiscal 2001.

        Griffin's effective rate of the income tax benefit in fiscal 2002 is 82% as compared to an effective income tax rate of 55% in fiscal 2001. The high effective benefit rate in fiscal 2002 reflects the tax benefit on its pretax loss and the reversal of a liability of $1.5 million for income taxes as a result of a favorable outcome of tax examinations for earlier years. The tax examinations were made on tax returns filed by Culbro Corporation ("Culbro"), Griffin's parent company prior to the distribution (the "Distribution") of Griffin common stock to Culbro's shareholders in 1997. Under a Tax Sharing Agreement, the liability for income taxes was assumed by Griffin from Culbro at the time of the Distribution. The high effective tax rate in fiscal 2001 reflects a basis difference in the writedown of an investment.

        Griffin's equity income from Centaur was $3.6 million in fiscal 2002 as compared to an equity loss of $0.4 million in fiscal 2001. The higher equity income in fiscal 2002 reflects the gain at Centaur from the sale of its Lawtel operation, of which Griffin's allocable share was $8.4 million. There was no cash received by Griffin from the sale because Centaur used the proceeds to pay down its debt. Partially offsetting the gain on the sale of Lawtel was a goodwill impairment charge at Centaur, of which Griffin's allocable share was $5.0 million. Griffin's equity income from Centaur in fiscal 2002 also benefited from the reversal by Centaur of a valuation allowance on certain of its deferred tax assets, of which Griffin's allocable share was $0.7 million. The equity loss in fiscal 2001 included a charge, of which Griffin's allocable share was $0.9 million, for expenses related to a proposed stock offering or sale that did not take place. Excluding the effect of these items, Griffin's equity results from Centaur were lower in fiscal 2002 as compared to fiscal 2001, reflecting a weakened economy in the United Kingdom which has resulted in lower revenue and lower operating results at Centaur.

13



    Fiscal 2001 Compared to Fiscal 2000

        Griffin's net sales and other revenue were $32.0 million in fiscal 2001 as compared to $74.4 million in fiscal 2000. Net sales and other revenue at Imperial were $23.6 million in fiscal 2001 as compared to $68.6 million in fiscal 2000. The lower net sales at Imperial reflects the effect of the sale of the SSCs in January 2001. Net sales of the SSCs were $48.3 million in fiscal 2000 as compared to $1.9 million in fiscal 2001 through the date the SSCs were sold. Excluding the effect of the sale of the SSCs, net sales at Imperial increased by $1.4 million. The increase in net sales at Imperial principally reflects additional product available for sale as a result of the recent expansion of Imperial's Connecticut and northern Florida growing operations.

        Net sales and other revenue at Griffin Land increased from $5.8 million in fiscal 2000 to $8.4 million in fiscal 2001. This increase of $2.6 million reflects an increase of $2.3 million from higher rental revenue in fiscal 2001 as a result of leases on buildings completed and occupied in fiscal 2001 and new leases on space that was vacant in fiscal 2000 but occupied for most of fiscal 2001. Additionally, revenue in fiscal 2001 included $0.5 million from the agreement to terminate early a lease on one of its buildings. The increase in rental revenue and the revenue from the early termination at Griffin Land substantially offset lower revenue from land sales in fiscal 2001 as compared to fiscal 2000. Revenue from land sales decreased from $1.2 million in fiscal 2000 to $0.8 million in fiscal 2001.

        Griffin incurred an operating loss of $3.2 million in fiscal 2001 as compared to an operating profit of $3.8 million in fiscal 2000. Imperial incurred an operating loss of $2.7 million in fiscal 2001 as compared to an operating profit of $5.3 million in fiscal 2000. The lower operating results at Imperial reflects the effect of the sale of the SSCs in January 2001. Due to the seasonality of the landscape nursery business, the SSCs incurred an operating loss, before Imperial's central overhead expenses, of $0.8 million from the beginning of the 2001 fiscal year through their sale in January 2001. The SSCs generated an operating profit, before Imperial's central overhead expenses, of $6.6 million in fiscal 2000. Imperial's growing operations, including all of Imperial's central overhead expenses, incurred an operating loss of $1.9 million in fiscal 2001 as compared to an operating loss of $1.3 million in fiscal 2000. The effect of higher net sales of container grown plants by Imperial's growing operations was more than offset by higher cost of sales in fiscal 2001, which included a charge for unsaleable inventory of $0.6 million, due principally to horticultural issues, recorded in the 2001 third quarter. Imperial's operating expenses, excluding those expenses directly related to the SSCs, were $4.6 million in fiscal 2001 as compared to $5.4 million in fiscal 2000. As a percentage of net sales, operating expenses were 21.2% in fiscal 2001 as compared to 26.7% in fiscal 2000, excluding operating expenses directly related to the SSCs. The lower operating expenses in fiscal 2001 principally reflects lower central overhead expenses at Imperial due principally to staff reductions as a result of the sale of the SSCs and lower incentive compensation expense in fiscal 2001 as compared to fiscal 2000.

        Operating profit at Griffin Land increased to $1.0 million in fiscal 2001 as compared to $0.2 million in fiscal 2000. The increased operating profit at Griffin Land principally reflects higher profit from commercial properties as a result of the increase in rental revenue in fiscal 2001. Profit before depreciation from Griffin Land's commercial properties, excluding the benefit of the lease termination, was $4.6 million in fiscal 2001 as compared to $2.9 million in fiscal 2000. The increase in profit, before depreciation, from commercial properties was partially offset by lower profit from property sales, higher operating expenses and higher depreciation expense. Profit from property sales declined from $0.5 million in fiscal 2000 to $0.1 million in fiscal 2001 due to the lower property sales revenue and the inclusion of properties with a lower cost basis in fiscal 2000 sales. The higher depreciation expense reflected depreciation on new buildings placed into service in fiscal 2001.

        Griffin's results in fiscal 2001 reflect a write-down of $2.2 million on its investment in Linguaphone Group plc ("Linguaphone"). The write-down reflects the decrease in the value of Linguaphone based on a recent stock offering. Approximately 80% of the carrying value of Griffin's investment in

14



Linguaphone resulted from a distribution in 1997 of the common stock of Linguaphone by its former parent company, Centaur. The remaining carrying value of Griffin's investment in Linguaphone, approximately $0.2 million, reflects a recent cash investment by Griffin.

        Griffin's interest expense declined from $1.1 million in fiscal 2000 to $0.9 million in fiscal 2001. Griffin's interest income increased by $0.1 million in fiscal 2001 as compared to fiscal 2000. The lower interest expense and higher interest income reflect repayment of the entire amount outstanding under Griffin's Credit Agreement from the cash proceeds received from the sale of the SSCs in January 2001. The remaining cash received from the sale of the SSCs, after repayment of the amount then outstanding under Griffin's revolving credit agreement was used to finance operations. Additionally, higher interest payments on mortgages, reflecting interest on a new mortgage entered into in March 2001, was more than offset by a higher amount of interest capitalized on new construction projects during fiscal 2001 as compared to fiscal 2000.

        Griffin's effective tax rate in fiscal 2001 is 55% as compared to 39% in fiscal 2000. The higher effective tax rate in 2001 reflects the effect of the tax basis of Griffin's investment in Linguaphone being lower than its book basis, therefore the write-down did not generate the expected tax benefit had the tax basis of that asset been comparable to its book basis.

        Griffin had an equity loss from Centaur in fiscal 2001 of $0.4 million as compared to equity income of $0.6 million in fiscal 2000. Although Centaur's operations were generally more profitable in fiscal 2001, Centaur incurred expenses, of which Griffin's allocable share was $0.9 million, related to a proposed stock offering or sale that did not take place.

Liquidity and Capital Resources

        Net cash used in operating activities was $2.2 million in fiscal 2002 as compared to $6.0 million of net cash used in operating activities in fiscal 2001. The decrease of $3.8 million of net cash used in operating activities was due to several factors, including receiving an income tax refund of $0.2 million in fiscal 2002 as compared to income tax payments of $2.3 million in fiscal 2001. The fiscal 2001 income tax payments principally relate to the gain on sale of the SSCs in that year. Additionally, fiscal 2002 operating results at Griffin Land, before depreciation, increased by $0.4 million, and although Imperial's fiscal 2002 results from its container growing operations were substantially unchanged from fiscal 2001, fiscal 2001 included an operating loss of $0.8 million from Imperial's SSCs before they were sold. These items were partially offset by the effect of higher interest expense and overall unfavorable working capital changes.

        In fiscal 2002, cash used in investing activities was $7.0 million as compared to cash of $5.4 million provided by investing activities in fiscal 2001, which included net proceeds of $18.4 million from the sale of Imperial's SSCs in 2001. Additions to Griffin Land's real estate assets were $3.4 million in fiscal 2002 as compared to $10.2 million in fiscal 2001. The higher amount of additions to real estate assets in fiscal 2001 reflects construction of a 165,000 square foot building in Griffin Center in Windsor, Connecticut, and a 40,000 square foot building in Griffin Center South in Bloomfield, Connecticut, in that year. Both of these buildings were completed in fiscal 2001 and are now leased. In addition, the shell of a 57,000 square foot building, built on speculation was started in fiscal 2001. In fiscal 2002, cash used for additions to Griffin Land's real estate assets included building the shell of a 50,000 square foot office building in Griffin Center and the completion of the shell and build out of the interior of its new 57,000 square foot building in the New England Tradeport in Windsor, Connecticut. The tenant work for that building, started as a result of entering into a lease for the entirety of that building, was completed in the 2002 third quarter. The shell of the new 50,000 square foot office building was completed in the 2002 fourth quarter and is ready for tenant work, although none of this building has been leased yet. Fiscal 2002 investing activities also include a $1 million payment for a

15



deposit on Griffin Land's acquisition of a 70% interest in a joint venture that owns two office buildings. The acquisition was completed in December 2002 (see below).

        Capital expenditures of $2.5 million in fiscal 2002 and $2.9 million in fiscal 2001 were principally for the expansion of Imperial's farming operation in northern Florida. Over the past three years, Imperial has expanded and updated its facilities in Connecticut and northern Florida. Total costs of these projects is approximately $7.5 million, with only $0.3 million of work left to complete as of the end of fiscal 2002. The expansion is expected to be completed in fiscal 2003.

        In fiscal 2002, cash provided by financing activities was $9.3 million as compared to cash of $0.5 million used in financing activities in fiscal 2001. Cash provided by financing activities in fiscal 2002 principally reflects borrowings made under Griffin's $19.4 million revolving credit agreement, as amended (the "2002 Credit Agreement"), with Fleet National Bank ("Fleet") which was completed on February 8, 2002 and a new mortgage entered into on September 17, 2002. The 2002 Credit Agreement has a three year term and is collateralized by certain of Griffin Land's real estate assets. The initial borrowing under the 2002 Credit Agreement was used to repay the amount then outstanding under Griffin's bridge loan, to repay a mortgage on one of Griffin's commercial buildings and for certain expenses related to the 2002 Credit Agreement. Subsequent borrowings were used to finance Griffin's seasonal working capital requirements, particularly those at Imperial. There was $4.2 million outstanding on the 2002 Credit Agreement at November 30, 2002.

        On September 17, 2002, a subsidiary of Griffin completed a $7.7 million nonrecourse mortgage of two commercial buildings. The mortgage loan has an interest rate of 7% and a fifteen year term, with payments based on a twenty-five year amortization period. Proceeds of the mortgage were used to reduce amounts outstanding under the 2002 Credit Agreement. One of the properties included in this mortgage was previously included in the collateral for the 2002 Credit Agreement. As a result of removing that property from the collateral of the 2002 Credit Agreement, the commitment under the 2002 Credit Agreement was reduced to $14.1 million. Griffin is currently negotiating with Fleet to increase the amount available under the 2002 Credit Agreement to $21.0 million. The proposed increase in the commitment would be collateralized by certain of Griffin's real estate assets.

        Subsequent to the end of fiscal 2002, Griffin completed the acquisition, for $8.8 million, of a 70% interest in a joint venture that owns two office buildings of approximately 80,000 square feet each in Griffin Center. Griffin previously held the other 30% interest in these buildings. This acquisition was temporarily financed under the 2002 Credit Agreement. Shortly after the acquisition, Griffin completed a $9.7 million nonrecourse mortgage. The mortgage loan has an interest rate of 6.08% and a ten year term with payments based on a twenty-five year amortization period. Proceeds of the mortgage were used to reduce amounts outstanding under the 2002 Credit Agreement.

        In fiscal 2003, Griffin Land is planning to continue to invest in its real estate assets, including plans to build, on speculation, the shell of an approximately 115,000 square foot facility in the New England Tradeport, which is expected to require approximately $4.0 million. Additional amounts will be required to complete the interior of this new building and the interior of the 50,000 square foot office building in Griffin Center that was completed at the end of fiscal 2002. The buildout of the interiors of these buildings will be started when leases are obtained. Improvements to be made in fiscal 2003 to the infrastructure at Griffin Center and the New England Tradeport are expected to be approximately $0.7 million.

        Griffin Land will also continue to seek approval for its proposed residential developments. Early in fiscal 2002, a court ruling upheld the denial, by Simsbury's Inland Wetlands Commission, of Griffin's Land's application for a wetlands activity permit in connection with its proposed residential development. Griffin Land is appealing that decision. On December 27, 2002, the Superior Court ruled that Simsbury's Planning and Zoning Commissions improperly denied Griffin's residential applications and ordered the commissions to reverse their decisions and approve Griffin Land's proposed zone

16



change and proposed site plan. The town is requesting permission from the Appellate Court to appeal these decisions. Griffin Land also has an agreement for the sale of the remaining development rights at its Walden Woods residential development in Windsor, Connecticut. The completion of that sale is subject to the purchaser receiving approval from the town's commissions for their development plans and, based on such plans, proceeds from that sale are expected to be approximately $3.0 million. Approvals from the town's commission on wetlands were obtained in fiscal 2002, but a suit was filed challenging that approval. Completion of this transaction is not expected to take place in fiscal 2003. Griffin Land has also applied for approvals for a 55 lot residential subdivision in Suffield, Connecticut. Sales from this project are not expected in fiscal 2003. Griffin Land intends to proceed with its other residential development plans on other of its lands that are also appropriate for that use.

        Griffin's capital spending at Imperial in fiscal 2003 is expected to be less than $1.0 million, substantially lower than it has been the past two years because the expansion of Imperial's northern Florida growing operation is substantially completed.

        Griffin's payments (including principal and interest) under contractual obligations as of November 30, 2002 are as follows:

 
  Total
  Due Within
One Year

  Due From
1-3 Years

  Due From
3-5 Years

  Due in More
Than 5 Years

 
  (in millions)

Mortgages   $ 38.0   $ 2.1   $ 4.1   $ 4.1   $ 27.7
2002 Credit Agreement (a)   $ 4.2   $   $ 4.2   $   $
Capital Lease Obligations   $ 0.5   $ 0.2   $ 0.3   $   $
Operating Lease Obligations   $ 1.0   $ 0.2   $ 0.4   $ 0.3   $ 0.1
Purchase Obligations (b)   $ 1.1   $ 1.1   $   $   $
Other   $ 0.8   $   $   $   $ 0.8

(a)
Reflects the amount outstanding for the 2002 Credit Agreement as of November 30, 2002. Due to the variable interest rate on this debt, interest for future periods is not included above.

(b)
Includes commitments made as of November 30, 2002 for the purchase of services and materials for the planned construction in fiscal 2003 of an approximately 115,000 square foot building. Subsequent to November 30, 2002, additional purchase commitments aggregating $3.2 million for services and materials for construction were incurred.

        Management believes that in the near term, based on the current level of operations and anticipated growth, borrowings available under the 2002 Credit Agreement, as amended, and cash generated from operations will be sufficient to finance Griffin's working capital requirements, expected capital expenditures of the landscape nursery business and development of its real estate assets. Over the intermediate and long term, additional mortgage placements, construction financing or additional bank credit facilities are expected to be required to fund capital projects.

Forward-Looking Information

        The above information in Management's Discussion and Analysis of Financial Condition and Results of Operations includes "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although Griffin believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such plans, intentions or expectations will be achieved, particularly with respect to the expansion and improved return on assets of Imperial's operations, construction and leasing of additional facilities in the real estate business, completion of the sale of the development rights of Walden Woods, approval of other proposed residential subdivisions and obtaining an increase in the commitment of the 2002 Credit Agreement. The projected information disclosed herein is based on assumptions and

17



estimates that, while considered reasonable by Griffin as of the date hereof, are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, many of which are beyond the control of Griffin.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in earnings and cash flows.

        For fixed rate mortgage debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flows. Griffin does not have an obligation to prepay any fixed rate debt prior to maturity, and therefore, interest rate risk and changes in the fair market value of fixed rate debt should not have a significant impact on earnings or cash flows until such debt is refinanced, if necessary. Griffin's mortgage interest rates and related principal payment requirements are described in Note 5 to the consolidated financial statements in Item 8. For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect future earnings and cash flows. Griffin had $4.2 million of variable rate debt outstanding at November 30, 2002.

        Griffin is exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on market values of Griffin's cash equivalent short-term investments. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount of interest income earned and cash flow from these investments.

        Griffin does not currently have any derivative financial instruments in place to manage interest costs, but that does not mean that Griffin will not use them as a means to manage interest rate risk in the future.

        Griffin does not use foreign currency exchange forward contracts or commodity contracts and does not have foreign currency exposure in operations. Griffin does have equity investments in privately-owned companies based in the United Kingdom. Changes in foreign currency exchange rates could affect the results of an equity investment in Griffin's financial statements. The companies have historically reinvested their earnings for future growth. The ultimate liquidation of those investments and conversion of proceeds into United States currency is subject to future foreign currency exchange rates.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


GRIFFIN LAND & NURSERIES, INC

Consolidated Statement of Operations

(dollars in thousands, except per share data)

 
  For the Fiscal Years Ended,
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Net sales and other revenue   $ 33,961   $ 32,013   $ 74,374  
Cost of goods sold     28,196     24,948     52,175  
Selling, general and administrative expenses     8,053     10,247     18,387  
   
 
 
 
Operating (loss) profit     (2,288 )   (3,182 )   3,812  
Gain on sale of Sales and Service Centers         9,469      
Write-down of investment         (2,225 )    
Interest expense     (1,619 )   (933 )   (1,141 )
Interest income     26     149     43  
   
 
 
 
(Loss) income before income tax (benefit) provision     (3,881 )   3,278     2,714  
Income tax (benefit) provision     (3,164 )   1,788     1,044  
   
 
 
 
(Loss) income before equity investment     (717 )   1,490     1,670  
Income (loss) from Centaur Communications, Ltd.     3,642     (353 )   592  
   
 
 
 
Net income   $ 2,925   $ 1,137   $ 2,262  
   
 
 
 
Basic net income per common share   $ 0.60   $ 0.23   $ 0.47  
   
 
 
 
Diluted net income per common share   $ 0.53   $ 0.22   $ 0.45  
   
 
 
 

See Notes to Consolidated Financial Statements.

19



GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheet

(dollars in thousands, except per share data)

 
  Nov. 30,
2002

  Dec. 1,
2001

ASSETS
Current Assets            
Cash   $ 24   $ 23
Accounts receivable, less allowance of $129 and $132     1,999     2,437
Inventories     31,164     30,449
Deferred income taxes     2,110     1,788
Other current assets     3,473     2,667
   
 
Total current assets     38,770     37,364
Real estate held for sale or lease, net     50,546     49,242
Investment in Centaur Communications, Ltd.     20,279     17,012
Property and equipment, net     12,514     11,418
Other assets     10,847     9,139
   
 
Total assets   $ 132,956   $ 124,175
   
 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities            
Accounts payable and accrued liabilities   $ 3,939   $ 5,761
Long-term debt due within one year     540     508
   
 
Total current liabilities     4,479     6,269
Long-term debt     26,007     15,940
Deferred income taxes     1,906     1,457
Other noncurrent liabilities     1,094     3,593
   
 
Total liabilities     33,486     27,259
   
 
Commitments and Contingencies (Note 12)            

Common stock, par value $0.01 per share, 10,000,000 shares authorized, 4,864,916 shares issued and outstanding

 

 

49

 

 

49
Additional paid-in capital     93,588     93,584
Retained earnings     5,961     3,036
Accumulated other comprehensive (loss) income     (128 )   247
   
 
Total stockholders' equity     99,470     96,916
   
 
Total liabilities and stockholders' equity   $ 132,956   $ 124,175
   
 

See Notes to Consolidated Financial Statements.

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statement of Stockholders' Equity

(dollars in thousands)

 
  Shares of
Common
Stock

  Common
Stock

  Additional
Paid-in
Captial

  Retained
Earnings
(Deficit)

  Accumulated
Other
Comprehensive
Income (Loss)

  Total
 
Balance at November 27, 1999   4,862,704   $ 49   $ 93,584   $ (363 ) $   $ 93,270  
Other comprehensive income                   186     186  
Net income               2,262         2,262  
   
 
 
 
 
 
 
Balance at December 2, 2000   4,862,704     49     93,584     1,899     186     95,718  
Other comprehensive income                   61     61  
Net income               1,137         1,137  
   
 
 
 
 
 
 
Balance at December 1, 2001   4,862,704     49     93,584     3,036     247     96,916  
Exercise of employee stock options   2,212         4             4  
Other comprehensive loss                   (375 )   (375 )
Net income               2,925         2,925  
   
 
 
 
 
 
 
Balance at November 30, 2002   4,864,916   $ 49   $ 93,588   $ 5,961   $ (128 ) $ 99,470  
   
 
 
 
 
 
 

See Notes to Consolidated Financial Statements.

21



GRIFFIN LAND & NURSERIES, INC.

Consolidated Statement of Cash Flows

(dollars in thousands)

 
  For the Fiscal Years Ended,
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Operating activities:                    
Net income   $ 2,925   $ 1,137   $ 2,262  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:                    
  Depreciation and amortization     3,226     2,919     2,533  
  (Income) loss from equity investment     (3,642 )   353     (592 )
  Reversal of tax liability     (1,508 )        
  Deferred income taxes     (373 )   (93 )   927  
  Gain on sale of Sales and Service Centers         (9,469 )    
  Write-down of investment         2,225      
Changes in assets and liabilities which (decreased) increased cash:                    
  Accounts receivable     438     2,328     30  
  Inventories     (715 )   (3,033 )   (2,673 )
  Other current assets     (1,048 )   27     (1,008 )
  Accounts payable and accrued liabilities     (1,822 )   (1,861 )   2,929  
  Other, net     302     (529 )   667  
   
 
 
 
Net cash (used in) provided by operations     (2,217 )   (5,996 )   5,075  
   
 
 
 
Investing activities:                    
Additions to real estate held for sale or lease     (3,420 )   (10,238 )   (9,108 )
Additions to property and equipment     (2,478 )   (2,899 )   (3,715 )
Deposit for purchase of joint venture interest     (1,000 )        
Proceeds from sale of Sales and Service Centers         18,390      
Other, net     (145 )   111      
   
 
 
 
Net cash (used in) provided by investing activities     (7,043 )   5,364     (12,823 )
   
 
 
 
Financing activities:                    
Increase in debt     10,925     12,075     7,300  
Payments of debt     (893 )   (12,457 )   (429 )
Debt issuance costs     (771 )   (89 )    
   
 
 
 
Net cash provided by (used in) financing activities     9,261     (471 )   6,871  
   
 
 
 
Net increase (decrease) in cash and cash equivalents     1     (1,103 )   (877 )
Cash and cash equivalents at beginning of year     23     1,126     2,003  
   
 
 
 
Cash and cash equivalents at end of year   $ 24   $ 23   $ 1,126  
   
 
 
 

See Notes to Consolidated Financial Statements.

22



GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

1.    Summary of Significant Accounting Policies

    Basis of Presentation

        The accompanying consolidated financial statements of Griffin Land & Nurseries, Inc. ("Griffin") include the accounts of Griffin's real estate division ("Griffin Land") and Griffin's wholly-owned subsidiary, Imperial Nurseries, Inc. ("Imperial"). All intercompany transactions have been eliminated.

        Griffin accounts for its investments in Centaur Communications, Ltd. ("Centaur") and real estate joint ventures under the equity method. Centaur reports on a June 30 fiscal year in accordance with generally accepted accounting principles in the United Kingdom. Griffin reports its share of equity in Centaur's earnings based upon Griffin's fiscal year. Griffin converts Centaur's financial statements to accounting principles generally accepted in the United States of America and translates balance sheet information at the exchange rate as of the balance sheet date and uses the average exchange rates over the period to translate the statement of operations. Substantially all of Griffin's investment in Centaur represents the excess of the cost of Griffin's investment over the book value of its equity in Centaur (representing publishing rights and goodwill) and is being amortized on a straight-line basis over 30-40 years, which commenced in 1985. Effective in fiscal 2003, Griffin will no longer amortize goodwill related to its investment in Centaur (see below).

    Business Segments

        Griffin is engaged in the landscape nursery and real estate businesses. Imperial, Griffin's subsidiary in the landscape nursery segment, is engaged in growing plants in containers which are sold principally to mass merchandisers, garden centers and wholesalers. On January 26, 2001, Imperial completed the sale of its wholesale sales and service centers (see Note 2). Imperial remains in the landscape nursery business with its growing operations in Connecticut and northern Florida.

        Griffin's real estate segment, Griffin Land, builds, leases and manages commercial and industrial properties and develops residential subdivisions on its land in Connecticut and Massachusetts.

    Fiscal Year

        Griffin's fiscal year ends on the Saturday nearest November 30. Fiscal 2002 ended November 30, 2002 and contained 52 weeks. Fiscal 2001 ended December 1, 2001 and contained 52 weeks. Fiscal 2000 ended December 2, 2000 and contained 53 weeks. The effect of an additional week in fiscal 2000 as compared to fiscal 2002 and fiscal 2001 was not material to Griffin's results of operations or cash flows.

    Inventories

        Griffin's inventories are stated at the lower of cost or market using the average cost method. Nursery stock includes certain inventories which will not be sold or used within one year. It is industry practice to include such inventories in current assets.

    Stock-Based Compensation

        Griffin accounts for stock options using the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted the

23


disclosure provisions of SFAS No. 123 which require disclosing the pro forma effect on earnings and earnings per share of the fair value method of accounting for stock-based compensation.

    Property and Equipment

        Property and equipment are carried at cost. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and principally on accelerated methods for tax purposes.

    Real Estate Held for Sale or Lease

        Real estate held for sale or lease is carried at cost. Interest is capitalized during the construction period of major facilities. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's useful life. Depreciation is determined on a straight-line basis over the estimated useful asset lives for financial reporting purposes and principally on accelerated methods for tax purposes. Repair and maintenance costs are expensed as incurred.

    Impairment of Investments in Long-Lived Assets

        Griffin periodically reviews long-lived assets to determine if there are indicators of impairment. When indicators of impairment are present, Griffin evaluates the carrying value of the assets in relation to the operating performance and future undiscounted cash flows of the underlying assets. Griffin adjusts the net book value of the underlying assets if the sum of the expected future cash flows is less than book value.

    Revenue and Gain Recognition

        In the landscape nursery business, sales and the related cost of sales are recognized upon shipment of products. Sales returns are not material. In 2000, the Financial Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF") issued EITF 00-10, "Accounting for Shipping and Handling Fees and Costs" which Griffin adopted at the beginning of fiscal 2001. EITF 00-10 stated that all amounts billed to customers for shipping and handling should be included in net sales and the costs of shipping and handling should be included in cost of sales.

        In the real estate business, revenue includes rental revenue from Griffin Land's commercial and industrial properties and proceeds from the sales of real estate. Rental revenue is accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for Leases." Gains on real estate sales are recognized in accordance with SFAS No. 66, "Accounting for Sales of Real Estate," based on the specific terms of the sale.

    Recent Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets." Under the provisions of SFAS No. 142, goodwill will no longer be amortized, but will be subject to a periodic test for impairment based upon fair values. Griffin does not anticipate a charge for impairment upon adoption of SFAS No. 142. Griffin's results from its equity investment in Centaur for fiscal 2002, fiscal

24


2001, and fiscal 2000 would have increased approximately $0.5 million annually due to the elimination of goodwill amortization. SFAS No. 142 will be effective for Griffin in fiscal 2003.

        In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations." This pronouncement addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 will be effective for Griffin in fiscal 2003. At this time, management believes that this new standard will not have an impact on Griffin's financial statements.

        In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This pronouncement retains the requirements of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flow and measures an impairment loss as the difference between the carrying amount and fair value of the asset. This pronouncement also addresses the accounting for long-lived assets to be disposed of other than by sale and long-lived assets to be disposed of by sale. SFAS No. 144 will be effective for Griffin in fiscal 2003. At this time, management believes that this new standard will not have an impact on Griffin's financial statements.

        In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 requires gains and losses from certain debt extinguishment as part of a risk management strategy not to be reported as extraordinary items. SFAS No. 145 will be effective for Griffin in fiscal 2003. At this time, management believes that this new standard will not have an impact on Griffin's financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This new pronouncement addresses financial accounting and reporting for costs associated with exit or disposal activities and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 will be effective for Griffin in fiscal 2003. At this time, management believes that this new standard will not have an impact on Griffin's financial statements.

        In December, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123". This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation, and requires enhanced disclosure of information on stock-based compensation in annual and interim financial statements. SFAS No. 148 will be effective for Griffin in fiscal 2003. At this time, management does not expect to change its method of accounting for stock-based compensation, but has included the required enhanced disclosure in Note 7.

    Environmental Matters

        Environmental expenditures are expensed or capitalized as appropriate, depending upon their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and do not have future economic benefit, are expensed. Expenditures that create future benefit or contribute to future revenue generation are capitalized. Liabilities related to future remediation costs

25


are recorded when environmental assessments and/or cleanups are probable, and the costs can be reasonably estimated. There were no liabilities related to environmental assessments as of November 30, 2002 and December 1, 2001.

    Fair Value of Financial Instruments

        The amounts included in the financial statements for accounts receivable, accounts payable and accrued liabilities reflect their fair values because of the short-term maturity of these instruments. The fair values of Griffin's other financial instruments are discussed in Note 5.

    Earnings Per Share

        Basic net income per common share is calculated by dividing net income by the average number of common shares outstanding during the year. The calculation of diluted net income per common share includes adjusting net income to include the effect of stock options outstanding at Griffin's equity investee, Centaur, and adjusting outstanding shares, assuming conversion of all potentially dilutive Griffin stock options.

    Reclassifications

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

    Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the period reported. Actual results could differ from those estimates. The more significant estimates include, among others, the impairment charge for Linguaphone recorded in fiscal 2001, the allowance for doubtful accounts, the inventory reserves, deferred taxes, net realizeable value of real estate held for sale or lease and the assumptions used in determining the accrual for postretirement benefits.

2.    Sale of Sales and Service Centers

        On January 26, 2001, Imperial completed the sale of all of the assets of its seven wholesale sales and service centers (the "SSCs") to Shemin Nurseries, Inc. ("Shemin"). Shemin also assumed certain liabilities related to the SSCs. The SSCs sold a wide variety of plant material and horticultural tools and products to the landscape trade. A portion of the products sold by the SSCs were grown by Imperial's farming operations. Imperial's only continuing involvement in Shemin is an approximately 13.8% ownership interest in Shemin's parent company (see below) and a three year supply agreement pursuant to which Shemin is obligated to purchase Imperial grown product for the SSCs. The supply agreement will terminate on December 31, 2003. The net book value of the assets sold and liabilities assumed by Shemin was $13.5 million. Prior to the sale of the SSCs in fiscal 2001, the net sales of the SSCs were $1.9 million and the SSCs incurred an operating loss, before Imperial's central overhead expenses, of $0.8 million through the date of the sale. For fiscal 2000, net sales of the SSCs were

26



$48.3 million and the operating profit of the SSCs, before Imperial's central overhead expenses, was $6.6 million. Imperial continues in the landscape nursery business with its container growing operations in Connecticut and northern Florida.

        The consideration received by Imperial on the sale of the SSCs included cash of $18.4 million after expenses. Cash of $11.2 million from the sale was used to repay all of the amount then outstanding under Griffin's Credit Agreement. The remaining cash was used for general corporate purposes. In addition to the cash payment, Griffin received 20,570 shares of common stock (representing approximately 13.8% of the outstanding common stock) of Shemin Acquisition Corporation ("Acquisition"), the parent company of Shemin. The common stock of Acquisition is valued at $6.1 million and is included in other assets on the accompanying balance sheet. As a result of Griffin retaining a common equity ownership interest in Acquisition, $1.5 million of the gain from the sale of the SSCs has been deferred, and is offset against the investment in Acquisition on Griffin's balance sheet. Imperial accounts for its investment in Acquisition under the cost method of accounting for investments.

        The sale of the SSCs reflected the disposition of the following assets and liabilities by Imperial:

Accounts receivable   $ 1,407  
Inventories     4,453  
Other current assets     1,037  
Fixed assets, net     7,393  
Other assets     161  
   
 
      14,451  
Accounts payable and accrued liabilities     (719 )
Capital leases     (271 )
   
 
Net assets disposed   $ 13,461  
   
 

        The following unaudited Pro Forma Condensed Consolidated Statement of Operations for the fiscal years ended December 1, 2001 and December 2, 2000 include pro forma adjustments to reflect the sale of the SSCs as if it had taken place at the beginning of the respective fiscal periods. Such adjustments include the elimination of sales, cost of sales and direct operating expenses of the SSCs, the elimination of salaries and benefits of employees terminated as a result of the sale of the SSCs, the inclusion of sales from Imperial's growing operations to the SSCs acquired by Shemin, the effect of the net cash proceeds on Griffin's interest expense and interest income, and adjustment to Griffin's income tax provision.

        In the opinion of management, all adjustments necessary to fairly present this pro forma information have been made. The pro forma information does not purport to be indicative of the results that would have been reported had this transaction actually occurred on the dates specified, nor is it indicative of Griffin's future results.

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Pro Forma Condensed Consolidated Statement of Operations (Unaudited)

 
  For the Fiscal Years Ended
 
 
  Dec. 1,
2001

  Dec. 2,
2000

 
Net sales and other revenue   $ 30,130   $ 28,841  
Cost of goods sold     23,517     21,566  
Selling, general and administrative expenses     8,931     9,052  
   
 
 
Operating loss     (2,318 )   (1,777 )
Gain on sale of Sales and Service Centers     9,469     9,469  
Write-down of investment     (2,225 )    
Nonoperating expenses, net     (624 )   (175 )
   
 
 
Income before income tax provision     4,302     7,517  
Income tax provision     2,198     2,950  
   
 
 
Income before equity investment     2,104     4,567  
(Loss) income from equity investment     (353 )   592  
   
 
 
Net income   $ 1,751   $ 5,159  
   
 
 
Basic net income per common share   $ 0.36   $ 1.06  
   
 
 
Diluted net income per common share   $ 0.35   $ 1.04  
   
 
 

3.    Industry Segment Information

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

28


 
  For the Fiscal Years Ended,
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Net sales and other revenue                    
Landscape nursery product sales   $ 25,212   $ 23,610   $ 68,563  
Rental revenue and real estate sales     8,749     8,403     5,811  
   
 
 
 
    $ 33,961   $ 32,013   $ 74,374  
   
 
 
 
Operating profit (loss)                    
Landscape nursery   $ (1,921 ) $ (2,741 ) $ 5,303  
Real estate     1,142     1,046     151  
   
 
 
 
Industry segment totals     (779 )   (1,695 )   5,454  
General corporate expense     (1,509 )   (1,487 )   (1,642 )
Gain on sale of Sales and Service Centers         9,469      
Write-down of investment         (2,225 )    
Interest expense, net     (1,593 )   (784 )   (1,098 )
   
 
 
 
(Loss) income before income tax (benefit) provision   $ (3,881 ) $ 3,278   $ 2,714  
   
 
 
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

Identifiable assets                  
Landscape nursery   $ 50,306   $ 48,908   $ 56,336
Real estate     58,431     55,746     46,814
   
 
 
Industry segment totals     108,737     104,654     103,150
General corporate (consists primarily of investments)     24,219     19,521     24,134
   
 
 
    $ 132,956   $ 124,175   $ 127,284
   
 
 
 
  Capital Expenditures
  Depreciation and Amortization
 
  For the Fiscal Years Ended,
  For the Fiscal Years Ended,
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

Landscape nursery   $ 2,451   $ 2,815   $ 3,618   $ 1,172   $ 1,267   $ 1,463
Real estate     3,447     10,322     9,205     1,911     1,613     1,056
   
 
 
 
 
 
Industry segment totals     5,898     13,137     12,823     3,083     2,880     2,519
General corporate                 143     39     14
   
 
 
 
 
 
    $ 5,898   $ 13,137   $ 12,823   $ 3,226   $ 2,919   $ 2,533
   
 
 
 
 
 

        See Note 2 regarding the sale of the SSCs and Note 9 for information on Griffin's equity investment in Centaur.

29



4.    Income Taxes

        Griffin's income tax (benefit)/provision and deferred tax assets and liabilities in the accompanying financial statements have been calculated in accordance with SFAS No. 109 "Accounting for Income Taxes." The income tax (benefit)/provisions for fiscal 2002, fiscal 2001 and fiscal 2000 are summarized as follows:

 
  For the Fiscal Years Ended,
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

Current federal   $ (2,837 ) $ 1,525   $ 8
Current state and local     46     356     110
Deferred     (373 )   (93 )   926
   
 
 
Total income tax (benefit) provision   $ (3,164 ) $ 1,788   $ 1,044
   
 
 

        The reasons for the difference between the United States statutory income tax rate and the effective rates are shown in the following table:

 
  For the Fiscal Years Ended,
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Tax provision at statutory rates   $ (1,320 ) $ 1,115   $ 923  
State and local taxes     (141 )   427     187  
Reversal of accrued tax liability     (1,508 )        
Basis difference on investment         343      
Other     (195 )   (97 )   (66 )
   
 
 
 
Total income tax (benefit) provision   $ (3,164 ) $ 1,788   $ 1,044  
   
 
 
 

        The reversal of an accrual for income tax liability reflects the favorable settlement of tax examinations of earlier years. The tax examinations were made on tax returns filed by Culbro Corporation ("Culbro"), Griffin's parent company prior to distribution (the "Distribution") of Griffin common stock to Culbro's stockholders in 1997. The accrual for income taxes was assumed by Griffin from Culbro at the time of the Distribution for unresolved tax examinations of earlier years. Under a Tax Sharing Agreement between Griffin and Culbro, Griffin remained liable after the Distribution for tax assessments related to certain items included on Culbro's consolidated income tax returns. The Tax Sharing Agreement provided, among other things, for the allocation between Culbro and Griffin of federal, state, local and foreign tax liabilities for all periods that Griffin was a wholly-owned subsidiary of Culbro. With respect to the consolidated tax returns filed by Culbro, the Tax Sharing Agreement provides that Griffin remained liable for any amounts that Culbro would have been required to pay with respect to any deficiencies assessed through the date of the Distribution, generally as if Griffin had filed separate tax returns.

30


        The significant components of Griffin's deferred tax asset and liability are as follows:

 
  Nov. 30,
2002

  Dec. 1,
2001

Inventory   $ 1,474   $ 1,212
NOL carryforward     256     99
Other     380     477
   
 
Deferred tax asset   $ 2,110   $ 1,788
   
 
 
  Nov. 30,
2002

  Dec. 1,
2001

 
Depreciation   $ 2,173   $ 2,076  
Deferred gain on sale of SSCs     (551 )   (551 )
Write-down of investment     (413 )   (413 )
Other     697     345  
   
 
 
Deferred tax liability   $ 1,906   $ 1,457  
   
 
 

5.    Long-Term Debt

        Long-term debt includes:

 
  Nov. 30,
2002

  Dec. 1,
2001

Mortgages   $ 21,811   $ 14,779
Credit Agreement     4,250    
Bridge Loan         1,000
Capital leases     486     669
   
 
Total     26,547     16,448
Less: due within one year     540     508
   
 
Total long-term debt   $ 26,007   $ 15,940
   
 

        On February 8, 2002, Griffin entered into a $19.4 million revolving credit agreement, as amended (the "2002 Credit Agreement") with Fleet National Bank ("Fleet"). The amount available for borrowing under the 2002 Credit Agreement was reduced to $14.1 million as described below. The initial borrowings under the 2002 Credit Agreement were used to repay the amount then outstanding ($4.5 million) under Griffin's bridge loan, to repay a mortgage of $0.4 million on one of Griffin's commercial buildings and for certain expenses related to the 2002 Credit Agreement. The 2002 Credit Agreement is being used to finance working capital requirements at Griffin's landscape nursery and real estate businesses and for investment in Griffin's real estate assets. Borrowings under the 2002 Credit Agreement may be, at Griffin's option, on an overnight basis or for periods of one, two, three or six months. Overnight borrowings bear interest at Fleet's prime rate plus a margin of 0.5% per annum. Borrowings of one month and longer bear interest at the London Interbank Offered Rate ("LIBOR") plus a margin of 2.5% per annum. The amount outstanding at November 30, 2002 under the 2002 Credit Agreement had a weighted average interest rate of 3.97%. The margins can be reduced if Griffin achieves certain debt service coverage ratios (as defined). There are no compensating balance requirements, and Griffin pays a commitment fee of 0.25% per annum on unused borrowing capacity.

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The 2002 Credit Agreement is collateralized by certain of Griffin's real estate assets and includes financial covenants with respect to Griffin's fixed charge coverage (as defined), net worth and leverage. As of August 31, 2002 and November 30, 2002, Griffin was in default under the fixed charge coverage ratio of the 2002 Credit Agreement. The 2002 Credit Agreement was amended to adjust the fixed charge coverage ratio, and after giving effect to the amendments, Griffin is no longer in default.

        On September 17, 2002, Griffin completed a $7.7 million nonrecourse mortgage of two commercial properties. Proceeds of the mortgage were used to reduce the amount outstanding under the 2002 Credit Agreement. The mortgage has an interest rate of 7.0% and a term of fifteen years, with payments based on a twenty-five year amortization period. One of the properties included in this mortgage was previously included as collateral under the 2002 Credit Agreement. As a result of removing that property from the collateral of the 2002 Credit Agreement, the commitment under the 2002 Credit Agreement was reduced to $14.1 million.

        At November 30, 2002, Griffin had three nonrecourse mortgages outstanding. These mortgages had balances of $7,983, $6,172 and $7,656, with fixed interest rates of 8.54%, 8.125% and 7.0%, respectively. The annual principal payment requirements under the terms of the mortgages for the years 2003 through 2007 are $340, $365, $397, $430 and $464, respectively. The book value of buildings under the mortgages was $21.2 million at November 30, 2002.

        At November 30, 2002 and December 1, 2001, the fair value of Griffin's mortgages was $23.9 million and $15.8 million, respectively. Fair value is based on the present value of future cash flows discounted at estimated borrowing rates for comparable risks, maturities and collateral. Management believes that because of their variable interest rates, the amount included on Griffin's balance sheet for the 2002 Credit Agreement at November 30, 2002 and the amount included on Griffin's balance sheet for the Bridge Loan at December 1, 2001 reflect their fair values.

        On December 17, 2002, Griffin completed a $9.75 million nonrecourse mortgage of two commercial properties. Proceeds of the mortgage were used to finance Griffin's $8.8 million acquisition, completed on December 6, 2002, of a 70% interest in those buildings. Griffin previously held a 30% interest in those buildings. The mortgage has a 6.08% rate and a term of ten years, with payments based on a twenty-five year amortization period.

        Future minimum lease payments under capital leases for transportation equipment and the present value of such payments as of November 30, 2002 were:

2003   $ 241
2004     175
2005     92
2006     23
2007     2
   
Total minimum lease payments     533
Less: amounts representing interest     47
   
Present value of minimum lease payments (a)   $ 486
   

(a)
Includes current portion of $200 at November 30, 2002.

        At November 30, 2002 and December 1, 2001, machinery and equipment included capital leases amounting to $305 and $411, respectively, which is net of accumulated amortization of $398 and $883, respectively, at November 30, 2002 and December 1, 2001. Amortization expense relating to capital leases in fiscal 2002, fiscal 2001, and fiscal 2000 was $174, $204, and $295, respectively.

32


6.    Retirement Benefits

    Savings Plan

        Griffin maintains the Griffin Land & Nurseries, Inc. 401(k) Savings Plan (the "Griffin Savings Plan") for its employees, a defined contribution plan whereby Griffin matches 60% of each employee's contribution, up to a maximum of 5% of base salary. Griffin's contributions to the Griffin Savings Plan in fiscal 2002, fiscal 2001 and fiscal 2000 were $152, $156 and $251, respectively.

    Deferred Compensation Plan

        In fiscal 1999, Griffin adopted a non-qualified deferred compensation plan (the "Deferred Compensation Plan") for certain employees who, due to Internal Revenue Service guidelines, cannot take full advantage of the Griffin Savings Plan. Contributions to the Deferred Compensation Plan started in fiscal 2000. At November 30, 2002 and December 1, 2001, Griffin's liability under the Deferred Compensation Plan was $243 and $189, respectively. The expense for Griffin's matching contributions to the Deferred Compensation Plan in fiscal 2002, fiscal 2001 and fiscal 2000 was $20, $27 and $19, respectively. The Deferred Compensation Plan is unfunded, with benefits to be paid from Griffin's general assets.

    Postretirement Benefits

        Griffin maintains a postretirement benefits program which provides principally health and life insurance benefits to certain of its employees. The liability for postretirement benefits is included in other noncurrent liabilities on the consolidated balance sheet. Because Griffin's obligation for retiree medical benefits is fixed under the terms of Griffin's postretirement benefits program, any increase in the medical cost trend would have no effect on the accumulated postretirement benefit obligation, service cost or interest cost. The components of Griffin's postretirement benefits expense is as follows:

 
  For the Fiscal Years Ended,
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

Service cost   $ 25   $ 24   $ 21
Interest     37     32     29
   
 
 
Total expense   $ 62   $ 56   $ 50
   
 
 

        Griffin's liability for postretirement benefits, as determined by the Plan's actuaries, is shown below. None of these liabilities were funded as of November 30, 2002 and December 1, 2001.

 
  Nov. 30,
2002

  Dec. 1,
2001

 
Retirees   $ 71   $ 36  
Fully eligible active participants     303     277  
Other active participants     276     241  
Unrecognized net loss from experience differences and assumption changes     (117 )   (77 )
   
 
 
Liability for postretirement benefits   $ 533   $ 477  
   
 
 

        Discount rates of 6.75% and 7.0% were used to compute the accumulated postretirement benefit obligations at November 30, 2002 and December 1, 2001, respectively.

33


7.    Stockholders' Equity

    Per Share Results

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

 
  For the Fiscal Years Ended,
 
 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Net income as reported for computation of basic per share results   $ 2,925   $ 1,137   $ 2,262  
Adjustment to net income for assumed exercise of options of equity investee (Centaur)     (283 )   (23 )   (41 )
   
 
 
 
Adjusted net income for computation of diluted per share results   $ 2,642   $ 1,114   $ 2,221  
   
 
 
 
Weighted average shares outstanding for computation of basic per share results     4,864,000     4,863,000     4,863,000  
Incremental shares from assumed exercise of Griffin stock options     107,000     114,000     67,000  
   
 
 
 
Adjusted weighted average shares for computation of diluted per share results     4,971,000     4,977,000     4,930,000  
   
 
 
 

    Griffin Stock Option Plan

        The Griffin Land & Nurseries, Inc. 1997 Stock Option Plan (the "Griffin Stock Option Plan"), adopted in 1997 and subsequently amended, makes available a total of 1,250,000 options to purchase shares of Griffin common stock. Options granted under the Griffin Stock Option Plan may be either incentive stock options or non-qualified stock options issued at market value on the date approved by the Board of Directors of Griffin. None of the options outstanding at November 30, 2002 may be exercised as stock appreciation rights.

        The Griffin Stock Option Plan is administered by the Compensation Committee of the Board of Directors of Griffin. A summary of the activity under the Griffin Stock Option Plan is as follows:

 
  Number of
Shares

  Weighted Avg.
Exercise Price

Outstanding at November 27, 1999   601,707   $ 12.16
Granted in 2000   27,000     11.34
Cancelled in 2000   (900 )   13.25
   
 
Outstanding at December 2, 2000   627,807     12.12
Granted in 2001   55,300     14.29
Cancelled in 2001   (53,800 )   13.97
   
 
Outstanding at December 1, 2001   629,307     12.18
Exercised in 2002   (2,212 )   1.79
Granted in 2002   32,983     15.26
Cancelled in 2002   (4,000 )   13.09
   
 
Outstanding at November 30, 2002   656,078   $ 12.37
   
 
Number of option holders at November 30, 2002   28      
   
     

34


Range of Exercise Prices

  Outstanding at
Nov. 30, 2002

  Weighted Avg.
Exercise Price

  Weighted Avg.
Remaining
Contractual Life
(in years)

Under $3.00   32,223   $ 1.75   1.5
$3.00-$11.00   100,172     7.52   3.2
Over $11.00   523,683     13.95   6.0
   
         
    656,078          
   
         

        Of the options issued in fiscal 2002, 25,000 vest in equal installments on the third, fourth and fifth anniversaries from the date of grant and 7,983 vest on the second anniversary from the date of grant. Of the options issued in fiscal 2001, 40,300 vest in equal installments on the third, fourth and fifth anniversaries from the date of grant and 15,000 vest on the second anniversary from the date of grant. Of the options issued in fiscal 2000, 20,000 options vest in equal installments on the third, fourth and fifth anniversaires from the date of grant, 4,000 options vested during fiscal 2002 and 3,000 were vested on the date of grant. At November 30, 2002, 412,730 options outstanding under the Griffin Stock Option Plan were exerciseable with a weighted average price of $11.64 per share.

Stock-Based Compensation

        Griffin accounts for stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted the disclosure provisions of SFAS No. 123 which require disclosing the pro forma effect on earnings and earnings per share of the fair value method of accounting for stock-based compensation. Griffin's results would have been the following pro forma amounts under the method prescribed by SFAS No. 123.

 
  Nov. 30,
2002

  Dec. 1,
2001

  Dec. 2,
2000

 
Net income, as reported   $ 2,925   $ 1,137   $ 2,262  
Total stock based employee compensation expense determined under fair value based method for all awards, net of tax effects     (332 )   (357 )   (388 )
   
 
 
 
Net income, pro forma (under SFAS No. 123)   $ 2,593   $ 780   $ 1,874  
   
 
 
 
Adjusted net income for computation of diluted per share results, pro forma (SFAS No. 123)   $ 2,310   $ 757   $ 1,833  
   
 
 
 

Basic net income per common share, as reported

 

$

0.60

 

$

0.23

 

$

0.47

 
Basic net income per common share, pro forma (under SFAS No. 123)   $ 0.53   $ 0.16   $ 0.39  

Diluted net income per common share, as reported

 

$

0.53

 

$

0.22

 

$

0.45

 
Diluted net income per common share, pro forma (under SFAS No. 123)   $ 0.46   $ 0.15   $ 0.37  

35


        The weighted average fair value of each option granted during fiscal 2002, fiscal 2001 and fiscal 2000, were $7.15, $4.82 and $5.20, respectively, estimated as of the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used in the model to calculate the fair value of each option; expected volatility of approximately 46% in fiscal 2002, and 35% in fiscal 2001 and fiscal 2000; risk free interest rates in fiscal 2002, fiscal 2001 and fiscal 2000 of 4.77%, 5.00% and 5.15%, respectively; expected option term of 5 years and no dividend yield for all options issued.

8.    Operating Leases

        Future minimum rental payments for the next five years under noncancelable leases as of November 30, 2002 were:

2003   $ 158
2004     175
2005     169
2006     167
2007     166
Later years     131
   
Total minimum lease payments   $ 966
   

        Total rental expense for all operating leases in fiscal 2002, fiscal 2001 and fiscal 2000 was $157, $182 and $408, respectively.

        As lessor, Griffin Land's real estate activities include the leasing of industrial and office space in Connecticut. Future minimum rentals to be received under noncancelable leases as of November 30, 2002 were:

2003   $ 7,121
2004     6,497
2005     5,971
2006     4,672
2007     3,722
Later years     14,269
   
    $ 42,252
   

        Total rental revenue from all leases in fiscal 2002, fiscal 2001 and fiscal 2000 was $6,557, $5,402 and $3,629, respectively. On December 6, 2002, Griffin acquired the 70% interest that it did not already own in a joint venture that owns two office buildings. Minimum rental revenue under noncancellable leases to be received from these two buildings for the years 2003 through 2007, which is not included in the above table, are $2,423, $2,188, $1,499, $1,135 and $305, respectively.

36



9.    Investments

    Investment in Centaur

        Griffin holds 5.4 million shares of the 15.4 million shares of Centaur common stock outstanding, or approximately 35%. Griffin's equity results from Centaur for each of the three fiscal years ended November 30, 2002, reflect Centaur's results for the twelve month periods ended November 30, 2002, November 30, 2001, and November 30, 2000, respectively. Griffin's equity income (loss) from Centaur for each of the three fiscal years ended November 30, 2002 includes $578 for amortization of the excess of the cost of Griffin's investment over the book value of its equity in Centaur (representing publishing rights and goodwill). Griffin's retained earnings at November 30, 2002 includes undistributed earnings from Centaur of $5.2 million. The following table reflects Centaur's results for the twelve month periods ended November 30, 2002, November 30, 2001 and November 30, 2000.

 
  Twelve Months Ended,
 
 
  Nov. 30,
2002

  Nov. 30,
2001

  Nov. 30,
2000

 
Net sales   $ 95,298   $ 94,921   $ 107,002  
Costs and expenses     106,050     89,353     95,231  
   
 
 
 
Operating (loss) profit     (10,752 )   5,568     11,771  
Nonoperating expenses     2,113     1,945     2,389  
   
 
 
 
Pretax (loss) income     (12,865 )   3,623     9,382  
Income tax (benefit) provision     (1,084 )   2,282     3,297  
   
 
 
 
(Loss) income from continuing operations     (11,781 )   1,341     6,085  
Discontinued operation:                    
  Income (loss) from discontinued operation, net of tax     45     (411 )   (2,969 )
  Gain on sale of discontinued operation, net of tax     23,736          
   
 
 
 
Net income   $ 12,000   $ 930   $ 3,116  
   
 
 
 

        In August, 2002 Centaur completed the sale of its Lawtel operation that provided on-line legal information. Griffin did not receive any cash from the sale as Centaur used the proceeds to pay down debt. Griffin's allocable portion of the gain was $8.4 million, and is included in Griffin's equity income from Centaur in the fiscal year ended November 30, 2002. Lawtel is accounted for as a discontinued operation in Centaur's operating results in each of the periods presented above.

        Also included in Griffin's equity results from Centaur in the fiscal year ended November 30, 2002 was a charge for goodwill impairment at Centaur of which Griffin's allocable share of this charge was $5.0 million. Centaur's income tax benefit from continuing operations in the fiscal year ended November 30, 2002 includes the effect of a reduction of a valuation allowance on certain deferred tax assets related to prior years operating losses of a subsidiary of Centaur. Griffin's allocable share of this item was $0.7 million. The income tax (benefit) provision of Centaur reflects the nondeductability of certain expenses under tax laws in the United Kingdom.

37



        The following table reflects Centaur's balance sheet as of November 30, 2002 and November 30, 2001.

 
  Nov. 30,
2002

  Nov. 30,
2001

 
Current assets   $ 19,895   $ 23,701  
Intangible assets     5,955     19,157  
Other noncurrent assets     11,380     11,691  
   
 
 
Total assets   $ 37,230   $ 54,549  
   
 
 
Current liabilities   $ 23,893   $ 31,594  
Debt         20,803  
Noncurrent liabilities     2,710     3,135  
   
 
 
Total liabilities     26,603     55,532  
Stockholders' equity (deficit)     10,627     (983 )
   
 
 
Total liabilities and stockholders' equity (deficit)   $ 37,230   $ 54,549  
   
 
 

    Real Estate Joint Venture

        Included in other assets at November 30, 2002 and December 1, 2001 is $3,103 and $3,099, respectively, for Griffin's 30% interest in a real estate joint venture that owns two commercial properties in Connecticut. Results of this investment are included in operating profit. On December 6, 2002, Griffin acquired the remaining 70% interest in these buildings for $8.8 million (see Note 5). Upon completion of that transaction, the joint venture was liquidated.

10.    Supplemental Financial Statement Information

    Related Party Transactions

        Prior to the Distribution on July 3, 1997, Griffin, as lessor, and General Cigar Co., Inc. ("General Cigar"), as lessee, entered into a lease for certain agricultural land in Connecticut and Massachusetts (the "Agricultural Lease"). At the time the Agricultural Lease was consummated, both Griffin and General Cigar were wholly-owned subsidiaries of Culbro. The Agricultural Lease is for approximately 500 acres of arable land held by Griffin for possible development in the long term, but which is being used by General Cigar for growing Connecticut Shade wrapper tobacco. General Cigar's use of the land is limited to the cultivation of cigar wrapper tobacco. The Agricultural Lease has an initial term of ten years and provides for the extension of the lease for additional periods thereafter. In addition, at Griffin's option, the Agricultural Lease may be terminated with respect to 100 acres of such land annually upon one year's prior notice. The rent payable by General Cigar under the Agricultural Lease is approximately equal to the aggregate amount of all taxes and other assessments payable by Griffin attributable to the land leased. In fiscal 2002, fiscal 2001, and fiscal 2000 General Cigar made rental payments of $147, $144, and $148, respectively, to Griffin with respect to the Agricultural Lease.

38


10.    Supplemental Financial Statement Information (Continued)

        Also prior to the Distribution in 1997, Griffin entered into a Services Agreement (the "Services Agreement") with Culbro, and its successor, General Cigar Holdings, Inc. ("GC Holdings"). The Services Agreement was terminated with respect to all services provided by GC Holdings after one year, except for certain transportation services, with respect to which the Services Agreement was amended and extended through March 2002, at which time it was not renewed. In fiscal 2002, fiscal 2001 and fiscal 2000, Griffin paid $55, $109 and $141, respectively, to GC Holdings under the Services Agreement. As of November 30, 2002 there were no amounts due GC Holdings from Griffin with respect to the Services Agreement. As of December 1, 2001, $110 was due to GC Holdings from Griffin with respect to the Services Agreement.

        In 1997 subsequent to the Distribution, Griffin, as lessor, and General Cigar, as lessee, entered into a lease for approximately 40,000 square feet of office space in the Griffin Center South development in Bloomfield, Connecticut (the "Commercial Lease"). The Commercial Lease has an initial term of ten years and provides for the extension of the lease for additional annual periods thereafter. Under the Commercial Lease, General Cigar made rental payments to Griffin in fiscal 2002, fiscal 2001 and fiscal 2000 of $655, $571 and $511, respectively. Management believes the rent payable by General Cigar to Griffin under the Commercial Lease approximates market rates.

    Comprehensive Income

        The statement of stockholders' equity for the years ended November 30, 2002, December 1, 2001 and December 2, 2000 includes other comprehensive (loss) income of ($375), $61 and $186, respectively, relating to the effect of translation adjustments on Griffin's equity investment in Centaur.

    Inventories

        Inventories consist of:

 
  Nov. 30,
2002

  Dec. 1,
2001

Nursery stock   $ 29,960   $ 29,514
Materials and supplies     1,204     935
   
 
    $ 31,164   $ 30,449
   
 

        Although all inventories are classified as a current asset based upon industry practice (see Note 1), approximately $13.8 million of the inventory at November 30, 2002 is not currently expected to be sold within twelve months of the balance sheet date.

    Property and Equipment

        Property and equipment consist of:

 
  Estimated
Useful Lives

  Nov. 30,
2002

  Dec. 1,
2001

 
Land and improvements       $ 5,075   $ 4,175  
Buildings   10 to 40 years     2,964     2,960  
Machinery and equipment   3 to 20 years     14,789     15,093  
       
 
 
          22,828     22,228  
Accumulated depreciation         (10,314 )   (10,810 )
       
 
 
        $ 12,514   $ 11,418  
       
 
 

39


        Total depreciation expense related to property and equipment in fiscal 2002, fiscal 2001 and fiscal 2000 was $1,076, $1,367 and $1,526, respectively.

    Real Estate Held for Sale or Lease

        Real estate held for sale or lease consists of:

 
   
  November 30, 2002
 
 
  Estimated
Useful Lives

  Held for
Sale

  Held for
Lease

  Total
 
Land       $ 1,330   $ 3,097   $ 4,427  
Land improvements   15 years         3,978     3,978  
Buildings   40 years         40,482     40,482  
Development costs         6,374     7,540     13,914  
       
 
 
 
          7,704     55,097     62,801  
Accumulated depreciation             (12,255 )   (12,255 )
       
 
 
 
        $ 7,704   $ 42,842   $ 50,546  
       
 
 
 
 
   
  December 1, 2001
 
 
  Estimated
Useful Lives

  Held for
Sale

  Held for
Lease

  Total
 
Land       $ 1,342   $ 3,097   $ 4,439  
Land improvements   15 years         3,948     3,948  
Buildings   40 years         40,613     40,613  
Development costs         5,991     4,744     10,735  
       
 
 
 
          7,333     52,402     59,735  
Accumulated depreciation             (10,493 )   (10,493 )
       
 
 
 
        $ 7,333   $ 41,909   $ 49,242  
       
 
 
 

        Griffin capitalized interest in fiscal 2002, fiscal 2001 and fiscal 2000 of $61, $377 and $91, respectively. Total depreciation expense related to real estate held for sale or lease in fiscal 2002, fiscal 2001 and fiscal 2000 was $1,762, $1,494 and $937, respectively.

    Accounts Payable and Accrued Expenses

        Accounts payable and accrued expenses consist of:

 
  Nov. 30,
2002

  Dec. 1,
2001

Trade payables   $ 1,495   $ 2,165
Accrued salaries, wages and other compensation     410     376
Accrued construction costs     336     650
Retainage     248     659
Other accrued liabilities     1,450     1,911
   
 
    $ 3,939   $ 5,761
   
 

40


    Supplemental Cash Flow Information

        Griffin incurred capital lease obligations in fiscal 2002, fiscal 2001 and fiscal 2000 of $67, $412 and $576, respectively.

        In fiscal 2002, Griffin received an income tax refund, net of income tax payments, of $225. In fiscal 2001 and fiscal 2000, Griffin made income tax payments of $2,272 and $141, respectively. Interest payments, net of capitalized interest, were $1,614, $988 and $1,086 in fiscal 2002, fiscal 2001 and fiscal 2000, respectively.

11.    Quarterly Results of Operations (Unaudited)

        Summarized quarterly financial data are presented below:

2002 Quarters

  1st
  2nd
  3rd
  4th(a)
  Total
Net sales and other revenue   $ 2,599   $ 19,903   $ 5,973   $ 5,486   $ 33,961
Gross profit     743     4,082     254     686     5,765
Net income (loss)     (1,465 )   1,629     1,499     1,262     2,925
Basic net income (loss) per common share     (0.30 )   0.33     0.31     0.26     0.60
Diluted net income (loss) per common
share
    (0.30 )   0.32     0.26     0.25     0.53
2001 Quarters

  1st
  2nd
  3rd
  4th(a)
  Total
Net sales and other revenue   $ 3,947   $ 16,808   $ 6,453   $ 4,805   $ 32,013
Gross profit     1,021     3,503     1,558     983     7,065
Net income (loss)     4,069     719     (1,289 )   (2,362 )   1,137
Basic net income (loss) per common share     0.84     0.15     (0.27 )   (0.49 )   0.23
Diluted net income (loss) per common
share
    0.82     0.14     (0.27 )   (0.49 )   0.22

(a)
The 2002 fourth quarter reflects an income tax benefit of $1.5 million for the reversal of an accrual for income taxes as a result of the favorable settlement of tax examinations of prior years.
(b)
The 2001 fourth quarter includes an impairment charge of $2.2 million to write-down Griffin's investment in Linguaphone.

12.    Commitments and Contingencies

        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 will not be material to Griffin's financial position, results of operations or cash flows.

        As of November 30, 2002, Griffin had committed purchase obligations, including materials and services related to construction of a new 115,000 square foot facility by Griffin Land, of $1.1 million. Subsequent to November 30, 2002, Griffin entered into purchase obligations for an additional $3.2 million, principally related to the construction of the new building.

41



Report of Independent Accountants

To the Stockholders and Directors of
Griffin Land & Nurseries, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Griffin Land & Nurseries, Inc. and its subsidiaries at November 30, 2002 and December 1, 2001 and the results of their operations and cash flows for the fiscal years ended November 30, 2002, December 1, 2001 and December 2, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Griffin Land & Nurseries, Inc.; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these consolidated financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PRICEWATERHOUSECOOPERS LLP
February 24, 2003
Hartford, Connecticut


Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-30639) of Griffin Land & Nurseries, Inc. of our report dated February 24, 2003, which appears above in this Form 10-K of Griffin Land & Nurseries, Inc. for the fiscal year ended November 30, 2002. We also consent to the incorporation by reference in such Registration Statement on Form S-8 of our report on the financial statement schedules, which appears in Exhibit 23.2 on this Form 10-K of Griffin Land & Nurseries, Inc. for the fiscal year ended November 30, 2002.

/s/ PRICEWATERHOUSECOOPERS LLP
February 24, 2003
Hartford, Connecticut

42


ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION

        The following table sets forth the information called for in this Item 10:

Name

  Age
  Position

Edgar M. Cullman

 

85

 

Chairman of the Board and Director

Frederick M. Danziger

 

62

 

President, Chief Executive Officer and Director

Anthony J. Galici

 

45

 

Vice President, Chief Financial Officer and Secretary

John L. Ernst

 

62

 

Director

Winston J. Churchill, Jr.

 

62

 

Director

Thomas C. Israel

 

58

 

Director

David F. Stein

 

62

 

Director

Gregory M. Schaan

 

45

 

President and Chief Executive Officer of Imperial Nurseries, Inc.

        Edgar M. Cullman has been the Chairman of the Board of Griffin since April 1997. He has been Chairman of the Board of General Cigar Holdings, Inc., since December 1996. From 1962 to 1996 he served as Chief Executive Officer of Culbro Corporation. Mr. Cullman served as a director of Culbro Corporation from 1961 until 1997 and was Chairman of Culbro Corporation from 1975 until 1997. He also is a director of Centaur Communications, Ltd., and Bloomingdale Properties, Inc. Edgar M. Cullman is the uncle of John L. Ernst and the father-in-law of Frederick M. Danziger.

        Frederick M. Danziger has been a director and the President and Chief Executive Officer of Griffin since April 1997, and was a director of Culbro Corporation from 1975 until 1997. He was previously involved in the real estate operations of Griffin in the early 1980s. Mr. Danziger was Of Counsel to the law firm of Latham & Watkins from 1995 until 1997. From 1974 until 1995, Mr. Danziger was a Member of the law firm of Mudge Rose Guthrie Alexander & Ferdon. Mr. Danziger also is a director of Monro Muffler/Brake, Inc., Bloomingdale Properties, Inc. and Centaur Communications, Ltd.

        Anthony J. Galici has been the Vice President, Chief Financial Officer and Secretary of Griffin since April 1997. Mr. Galici was Vice President and Assistant Controller of Culbro Corporation from 1995 until 1997. Prior to 1995, he was Assistant Controller of Culbro Corporation.

        John L. Ernst has been a director of Griffin since April 1997. Mr. Ernst also was a director of Culbro Corporation from 1983 until 1997 and a director of General Cigar Holdings, Inc. from December 1996 through May 2000. He is the Chairman of the Board and President of Bloomingdale Properties, Inc., an investment and real estate company. Mr. Ernst also is a director of the Doral Financial Corporation.

        Winston J. Churchill, Jr. has been a director of Griffin since April 1997. Mr. Churchill, Jr. is also a director of Amkor Technology, Inc., USDATA Corporation and Innovative Solutions and Support, Inc. He is a managing general partner of SCP Private Equity Partners, L.P., a private equity fund, and is Chairman of Churchill Investment Partners, Inc. and CIP Capital, Inc.

43



        Thomas C. Israel has been a director of Griffin since July 2000. Mr. Israel is also a director of Asbury Automotive Group, Inc. Mr. Israel was a director of Culbro Corporation from 1989 until 1997 and a director of General Cigar Holdings, Inc. from December 1996 through May 2000. Mr. Israel is Chairman of A.C. Israel Enterprises, Inc., an investment company.

        David F. Stein has been a director of Griffin since November 1997. Mr. Stein is Vice Chairman of J&W Seligman & Co., Inc., an asset management firm. He has been Vice Chairman since 1996. Mr. Stein was a Managing Director of J&W Seligman & Co., Inc., from 1990 until 1996.

        Gregory M. Schaan has been the President and Chief Executive Officer of Imperial Nurseries, Inc. ("Imperial") since October 1999. From 1997 until 1999 he was Senior Vice President of Sales and Marketing of Imperial. From 1992 until 1997 he was Vice President of Sales and Marketing of Imperial.

ITEM 11. EXECUTIVE COMPENSATION

        The following table sets forth the annual and long-term compensation for Mr. Danziger, Griffin's President and Chief Executive Officer, and Mr. Galici, Griffin's Vice President, Chief Financial Officer and Secretary (the "Named Executive Officers"), as well as the total compensation paid by Griffin during fiscal 2002, fiscal 2001 and fiscal 2000 to the Named Executive Officers. There are no other executive officers of Griffin.


Summary Compensation Table

 
   
   
   
   
  Long Term
Compensation
Awards

 
  Annual Compensation
   
  Number of Securities Underlying Stock Options Granted
Name and Principal Position

  Other Annual
Compensation(1)

  Year
  Salary
  Bonus
Frederick M. Danziger   2002   $ 413,858   $   $ 12,727  
  President and Chief Executive Officer   2001     398,086     261,000     12,312  
    2000     386,538     111,000     12,138  

Anthony J. Galici

 

2002

 

$

194,615

 

$


 

$

14,559

 

  Vice President, Chief Financial Officer   2001     188,846     123,000     14,199   7,500
  and Secretary   2000     180,577     48,000     5,923   10,000

(1)
Amounts shown under Other Annual Compensation include matching contributions made by Griffin under its 401(k) Savings Plan and its Deferred Compensation Plan, and other miscellaneous cash benefits, but do not include funding for or receipt of retirement plan benefits. No executive officer who would otherwise have been includable in such table resigned or terminated employment during fiscal 2002, fiscal 2001 or fiscal 2000.

44


        There were no awards of restricted stock or payouts pursuant to long term incentive plans made to any Named Executive Officer in fiscal 2002. There were no stock options granted to a Named Executive Officer in fiscal 2002.


Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

 
   
   
  Number of Securities
Underlying Options Held at
Fiscal Year End

  Value of Unexercised
In-the-Money Options at
Fiscal Year End(1)

Name

  Shares
Acquired
on Exercise

  Value
Realized

  Exercisable
  Unexercisable
  Exercisable
  Unexercisable
Frederick M. Danziger     $   200,000   100,000   $ 31,500   $ 63,000
Anthony J. Galici   2,212     27,110   25,429   27,500     66,188     39,510

(1)
The amounts presented in this column have been calculated based upon the difference between the fair market value of $13.88 per share (the average of the high and low prices of Griffin's Common Stock on November 29, 2002) and the exercise price of each stock option.

        There were no stock options exercised by the Named Executive Officers in 2001 and 2000.


Compensation of Directors

        Members of the Board of Directors who are not employees of Griffin receive $15,000 per year and $750 for each Board and Committee meeting attended. Effective January 1, 2003, Chairmen of the Committees receive $5,000 per year. The 1997 Stock Option Plan, as amended, provides that non-employee Directors who are not members of the Cullman & Ernst Group receive annually options exercisable for shares of Common Stock at an exercise price that is the market price at the time of grant. Under the 1997 Stock Option Plan, as amended, the number of shares granted to non-employee Directors is equal to $40,000 divided by the fair market value per share of Griffin common stock at the time of grant. In 2002 Griffin granted Mr. Churchill, Jr., Mr. Stein and Mr. Israel each options exercisable for 2,661 shares of Common Stock, and expects to grant additional options to Messrs. Churchill, Jr., Israel and Stein in 2003 consistent with the 1997 Stock Option Plan, as amended.


Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires Griffin's officers and directors, and persons who own more than ten percent of its Common Stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are required by regulation to furnish Griffin with copies of all Section 16(a) forms they file. Based upon its involvement in the preparation of certain of such forms and a review of copies of other such forms received by it, Griffin believes that with respect to fiscal 2002, all such Section 16(a) filing requirements were satisfied. The stock option ownership of the officers is disclosed in the stock option table set forth above and the description of stock option grants to directors is disclosed under the heading "Compensation of Directors."


Compensation Committee Interlocks and Insider Participation

        Messrs. Cullman, Danziger, and Ernst are members of the Board of Directors of Bloomingdale Properties, of which Mr. Ernst is Chairman and President and other members of the Cullman & Ernst Group are associated. Mr. Danziger also serves as trustee of the retirement plan for Bloomingdale Properties.

45


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table lists the number of shares and options to purchase shares of Common Stock of Griffin beneficially owned or held by (i) each person known by Griffin to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) the nominees for election as directors (who are all current directors), (iii) the Named Executive Officers (as defined in Item 11) and (iv) all directors and officers of Griffin, collectively. Unless otherwise indicated, information is provided as of November 30, 2002.

Name and Address(1)

  Shares Beneficially Owned(2)
  Percent of Total
Edgar M. Cullman (3)   977,342   18.5
Edgar M. Cullman, Jr. (3)   946,038   17.9
Louise B. Cullman (3)   846,775   16.0
Susan R. Cullman (3)   758,607   14.4
Frederick M. Danziger (3)   476,320   9.0
Lucy C. Danziger (3)   1,043,992   19.8
John L. Ernst (3)   421,250   8.0
Winston J. Churchill, Jr.   49,000   *
Thomas C. Israel   15,000   *
David F. Stein   44,000   *
Anthony J. Galici   37,246   *
B. Bros. Realty Limited Partnership (4)   233,792   4.4
Gabelli Funds, Inc. et al (5)   1,503,200   28.5
All directors and officers collectively, consisting of
7 persons (6)
  2,020,158   38.3

*
Less than 1%

(1)
Unless otherwise indicated, the address of each person named in the table is 641 Lexington Avenue, New York, New York 10022.

(2)
This information reflects the definition of beneficial ownership adopted by the Securities and Exchange Commission (the "Commission"). Beneficial ownership reflects sole investment and voting power, except as reflected in footnote 3. Where more than one person shares investment and voting power in the same shares, such shares may be shown more than once. Such shares are reflected only once, however, in the total for all directors and officers. Includes options exercisable within 60 days pursuant to the 1997 Stock Option Plan. Excluded are shares held by charitable foundations and trusts of which members of the Cullman and Ernst families, including persons referred to in this footnote 2, are officers and directors. As of November 30, 2002, a group (the "Cullman and Ernst Group") consisting of Messrs. Cullman, direct members of their families and trusts for their benefit; Mr. Ernst, his sister and direct members of their families and trusts for their benefit; a partnership in which members of the Cullman and Ernst families hold substantial direct and indirect interests; and charitable foundations and trusts of which members of the Cullman and Ernst families are directors or trustees, owned an aggregate of approximately 2,327,295 shares of Common Stock (approximately 47.8% of the outstanding shares of Common Stock). Among others, Mr. Cullman, Mr. Cullman, Jr., Mr. Ernst and Mr. Danziger (who is a member of the Cullman & Ernst Group) hold investment and voting power or shared investment and voting power over such shares. Certain of such shares are pledged as security for loans payable under standard pledge arrangements. A form filed with the Commission on behalf of the Cullman & Ernst Group states that there is no formal agreement governing the group's holding and voting of such shares but that there is an informal understanding that the persons and entities included in the group will hold and vote together with shares owned by each of them in each case

46


    subject to any applicable fiduciary responsibilities. Louise B. Cullman is the wife of Edgar M. Cullman; Edgar M. Cullman, Jr., is the son of Edgar M. Cullman and Louise B. Cullman; Susan R. Cullman and Lucy C. Danziger are the daughters of Edgar M. Cullman and Louise B. Cullman; and Lucy C. Danziger is the wife of Frederick M. Danziger.

(3)
Included within the shares shown as beneficially owned by Edgar M. Cullman are 866,204 shares in which he holds shared investment and/or voting power; included within the shares shown as beneficially owned by John L. Ernst are 411,321 shares in which he holds shared investment and/or voting power; and included within the shares shown as beneficially owned by Frederick M. Danziger are 209,778 shares in which he holds shared investment and/or voting power. Included within the shares shown as beneficially owned by Edgar M. Cullman, Jr., are 716,918 shares in which he holds shared investment and/or voting power; included with the shares owned by Louise B. Cullman are 743,365 shares in which she holds shared investment and/or voting power; included within the shares shown as beneficially owned by Susan R. Cullman are 670,842 shares in which she holds shared investment and/or voting power; and included within the shares shown as beneficially owned by Lucy C. Danziger are 962,150 shares in which she holds shared investment and/or voting power. Excluded in each case are shares held by charitable foundations and trusts in which such persons or their families or trusts for their benefit are officers and directors. Messrs. Cullman, Danziger and Ernst disclaim beneficial interest in all shares over which there is shared investment and/or voting power and in all excluded shares.

(4)
The address of B. Bros. Realty Limited Partnership ("B. Bros.") is 641 Lexington Avenue, New York, New York 10022. Lucy C. Danziger and John L. Ernst are the general partners of B. Bros.

(5)
The address of such person is Gabelli Funds, Inc., One Corporate Center, Rye, New York 10580. A form filed with the Securities and Exchange Commission in July 1997 by Gabelli Funds, Inc. et al, as subsequently amended, indicates that the securities have been acquired by Gabelli Group Capital Partners, Inc., and certain of its direct and indirect subsidiaries on behalf of their investment advisory clients. Griffin has been informed that no individual client of Gabelli Group Capital Partners, Inc. et al, has ownership of more than 5% of Griffin's outstanding Common Stock.

(6)
Excluding shares held by certain charitable foundations, the officers and/or directors of which include certain officers and directors of Griffin.

        The table below provides information on Griffin's equity compensation plan as of November 30, 2002:

Plan Category

  Number of securities
to be issued upon
exercise of
outstanding options
(a)

  Weighted average
exercise price of
outstanding
options
(b)

  Number of securities
remaining available for
future issuance under the
equity compensation plan
(excluding securities
reflected in column (a))
(c)

Equity compensation plan approved by security holders   656,078   $ 12.37   288,115
   
 
 

        Note: There are no equity compensation plans that were not approved by security holders.

47


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        For the information of stockholders, attention is called to the following transactions between Griffin and other parties in which the persons mentioned below might have had a direct or indirect interest.

        Messrs. Cullman, Danziger and Ernst are members of the Board of Directors of Bloomingdale Properties, Inc. ("Bloomingdale Properties") of which Mr. Ernst is Chairman and President and other members of the Cullman & Ernst Group are associated. Real estate management and advisory services have been provided to Griffin by John Fletcher, an employee of Bloomingdale Properties, for which Mr. Fletcher receives compensation at a rate of approximately $50,000 per year.

        Edgar M. Cullman, the Chairman of Griffin, is also the Chairman of General Cigar Holdings, Inc. ("GC Holdings"), the successor to Culbro. In addition, certain members of the Cullman & Ernst Group who may be deemed to beneficially own more than five percent of Griffin's Common Stock (see Item 12) also may be deemed to beneficially own more than five percent of the Common Stock of GC Holdings. Prior to the distribution of the common stock of Griffin to Culbro stockholders in 1997 (the "Distribution"), Griffin, as lessor, and General Cigar Co., Inc. ("General Cigar"), a wholly-owned subsidiary of GC Holdings, as lessee, entered into a lease for certain agricultural land in Connecticut and Massachusetts (the "Agricultural Lease"). The Agricultural Lease is for approximately 500 acres of arable land held by Griffin for possible development in the long term, but which is being used by General Cigar for growing Connecticut Shade wrapper tobacco. General Cigar's use of the land is limited to the cultivation of cigar wrapper tobacco. The Agricultural Lease has an initial term of ten years and provides for the extension of the lease for additional periods thereafter. In addition, at Griffin's option, the Agricultural Lease may be terminated with respect to 100 acres of such land annually upon one year's prior notice. In fiscal 2002, fiscal 2001 and fiscal 2000, General Cigar made rental payments of $147,000, $144,000 and $148,000, respectively, to Griffin with respect to the Agricultural Lease.

        Also in 1997, Griffin entered into a Services Agreement (the "Services Agreement") with Culbro. Pursuant to the Services Agreement, Culbro, and its successor GC Holdings, provided Griffin, for a period of one year after the Distribution, with certain administrative services, including internal audit, tax preparation, legal and transportation services. The Services Agreement was terminated with respect to all services provided by GC Holdings as of July 1998, except for certain transportation services, with respect to which the Services Agreement was amended and extended through March 2002, at which time it was not renewed. In fiscal 2002, fiscal 2001 and fiscal 2000, Griffin paid $55,000, $109,000 and $141,000, respectively, to GC Holdings under the Services Agreement.

        In late 1997, Griffin, as lessor, and General Cigar, as lessee, entered into a lease for approximately 40,000 square feet of office space in the Griffin Center South office complex in Bloomfield, Connecticut (the "Commercial Lease"). The Commercial Lease has an initital term of ten years and provides for the extension of the lease for additional annual periods thereafter. In fiscal 2002, fiscal 2001 and fiscal 2000 General Cigar made rental payments to Griffin of $655,000, $571,000 and $511,000, respectively, under the Commercial Lease. Management believes the rent payable by General Cigar to Griffin under the Commercial Lease is at market rates.

ITEM 14. CONTROLS AND PROCEDURES

        Griffin maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to Griffin's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management

48



recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, Griffin has investments in certain unconsolidated entities. As Griffin does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those it maintains with respect to its consolidated subsidiaries.

        Within 90 days prior to the date of this report, Griffin carried out an evaluation, under the supervision and with the participation of Griffin's management, including its Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of Griffin's disclosure controls and procedures. Based on the foregoing, Griffin's Chief Executive Officer and Chief Financial Officer concluded that Griffin's disclosure controls and procedures were effective.

        There have been no significant changes in Griffin's internal controls or in other factors that could significantly affect the internal controls subsequent to the date Griffin completed its evaluation.

49



PART IV

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS

        (a)(1) Financial Statements-see also Item 8

            (2) Financial Statement Schedules and Financial Statements of Equity Investee

        The following financial statements of Griffin's equity investee and additional financial data should be read in conjunction with the financial statements in such 2002 Annual Report to Shareholders. Schedules not included with this additional financial data have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

SCHEDULES

II—Valuation and Qualifying Accounts and Reserves   S-1
III—Real Estate and Accumulated Depreciation   S-2/S-3

FINANCIAL STATEMENTS

Centaur Communications, Ltd. financial statements for the year ended June 30, 2002   F-1
    (b)
    On October 3, 2002 Griffin filed a Form 8-K dated October 3, 2002 to report its agreement to acquire the 70% interest owned by USAA Real Estate Company in two office buildings in Griffin Center, Windsor, Connecticut.

    (c)
    Exhibits

Exhibit No.

  Description
2.1   Form of Distribution Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24,1996, as amended)
2.2   Asset Purchase Agreement among Shemin Nurseries, Inc., Shemin Acquisition Corporation and Imperial Nurseries, Inc. dated January 5, 2001 (incorporated by reference to the Form 8-K of Griffin Land & Nurseries, Inc. dated January 26, 2001 filed February 12, 2001)
3.1   Form of Amended and Restated Certificate of Incorporation of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
3.2   Form of Bylaws of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.1   Form of Tax Sharing Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.2   Form of Benefits and Employment Matters Allocation Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.3   Form of Services Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)

50


10.4   Form of Agricultural Lease between Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.5   Employment Agreement between Culbro Corporation and Jay M. Green, dated as of April 8, 1994, and as amended on January 11, 1997 (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.6   Form of 1997 Stock Option Plan of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.7   Form of 401(k) Plan of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.8   1996 Stock Plan of Culbro Corporation dated as of March 15, 1996 (incorporated by reference to the definitive proxy statement of Culbro Corporation, dated March 15, 1996, for its Annual Meeting of Shareholders held on April 11, 1996)
10.9   1992 Stock Plan of Culbro Corporation, dated December 10, 1993 (incorporated by reference to the definitive proxy statement of Culbro Corporation, dated March 31, 1993, for its Annual Meeting of Shareholders held on April 8, 1993)
10.10   Stock Option Plan for Non-employee Directors of Culbro Corporation, dated December 10, 1993 (incorporated by reference to the definitive proxy statement of Culbro Corporation, dated March 3, 1993, for its Annual Meeting of Shareholders held on April 8, 1993)
10.11   1991 Employees Incentive Stock Option Plan of Culbro Corporation, dated as of January 31, 1991 and as amended on February 12, 1995 (incorporated by reference to the definitive proxy statement of Culbro Corporation, dated April 9, 1991, for its Annual Meeting of Shareholders held on May 9, 1991)
10.12   Annual Incentive Compensation Plan of Culbro Corporation, dated as of December 7, 1995 (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.13   Annual Incentive Compensation Plan of General Cigar Co., Inc., dated as of December 7, 1995 (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.14   Long-Term Performance Plan of Culbro Corporation for the three-year period 1995-1997 (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.15   Deferred Incentive Compensation Plan of Culbro Corporation, dated as of December 13, 1982 and as amended on February 12, 1985 (incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, as amended)
10.16   Revolving Credit Agreement and Guaranty dated May 6, 1998 (incorporated by reference to Form 10-Q dated May 30, 1998 filed July 10, 1998)
10.17   Loan Agreement dated June 24, 1999 (incorporated by reference to Form 10-Q dated August 28, 1999 filed October 8, 1999)
10.18   Revolving Credit Agreement dated August 3, 1999 (incorporated by reference to Form 10-Q dated August 28, 1999 filed October 8, 1999)

51


10.19   Credit Agreement dated as of February 8, 2002 by and between Griffin Land & Nurseries, Inc. and Fleet National Bank (incorporated by reference to Form 10-K dated December 1, 2001 filed March 1, 2002)
10.20   Amendment Agreement dated as of August 31, 2002 by and between Griffin Land & Nurseries, Inc. and Fleet National Bank amending certain Credit Agreement dated as of February 8, 2002 (incorporated by reference to Form 10-Q dated August 31, 2002 filed October 11, 2002)
10.21   Mortgage Deed, Security Agreement, Financing Statement and Fixture Filing with Absolute Assignment of Rents and Leases \ dated September 17, 2002 between Tradeport Development I, LLC and Farm Bureau Life Insurance Company (incorporated by reference to Form 10-Q dated August 31, 2002 filed October 11, 2002)
10.22   Letter of Agreement between Griffin Land & Nurseries, Inc. and USAA Real Estate Company (incorporated by reference to Form 10-Q dated August 31, 2002 filed October 11, 2002)
10.23   Agreement of Purchase and Sale of Partnership Interest between Griffin Land & Nurseries, Inc. and USAA Real Estate Company dated December 5, 2002
10.24   Mortgage Deed and Security Agreement dated December 17, 2002 between Griffin Center Development IV, LLC and Webster Bank
10.25   Second Amendment Agreement dated as of January 31, 2003 by and between Griffin Land & Nurseries, Inc. and Fleet National Bank amending certain Credit Agreement dated as of February 8, 2002
21   Subsidiaries of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
23.1   Consent of PricewaterhouseCoopers LLP (included with the report accompanying Item 8 of this Form 10-K)
23.2   Report of Independent Accountants on Financial Statement Schedules

52



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 28, 2003.

    GRIFFIN LAND & NURSERIES, INC.

 

 

By:

/s/  
FREDERICK M. DANZIGER      
Frederick M. Danziger
President and Chief Executive Officer

 

 

By:

/s/  
ANTHONY J. GALICI      
Anthony J. Galici
Vice President, Chief Financial Officer
and Secretary

        Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed by the following persons on behalf of the Corporation and in the capacities indicated as of February 28, 2003.

Name
  Title
   

 

 

 

 

 
/s/  WINSTON J. CHURCHILL, JR.      
Winston J. Churchill, Jr.
  Director    

/s/  
EDGAR M. CULLMAN      
Edgar M. Cullman

 

Chairman of the Board and Director

 

 

/s/  
FREDERICK M. DANZIGER      
Frederick M. Danziger

 

Director, President and Chief Executive Officer

 

 

/s/  
JOHN L. ERNST      
John L. Ernst

 

Director

 

 

/s/  
ANTHONY J. GALICI      
Anthony J. Galici

 

Vice President, Chief Financial Officer and Secretary

 

 

/s/  
THOMAS C. ISRAEL      
Thomas C. Israel

 

Director

 

 

/s/  
DAVID F. STEIN      
David F. Stein

 

Director

 

 

53



FORM OF CERTIFICATION

I, Frederick M. Danziger, certify that:

    1.
    I have reviewed this annual report on Form 10-K of Griffin Land & Nurseries, Inc.

    2.
    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

    3.
    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this annual report;

    4.
    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a)
    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

    b)
    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

    c)
    Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

    5.
    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

    a)
    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

    b)
    Any fraud, whether or not material, that involves the management or other employees who have a significant role in the registrant's internal controls; and

    6.
    The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
      Date: February 28, 2003

 

 

 

/s/  
FREDERICK M. DANZIGER      
Frederick M. Danziger
President and Chief Executive Officer

54



FORM OF CERTIFICATION

I, Anthony J. Galici, certify that:

    1.
    I have reviewed this annual report on Form 10-K of Griffin Land & Nurseries, Inc.

    2.
    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

    3.
    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this annual report;

    4.
    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a)
    Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

    b)
    Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

    c)
    Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

    5.
    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

    a)
    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

    b)
    Any fraud, whether or not material, that involves the management or other employees who have a significant role in the registrant's internal controls; and

    6.
    The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
      Date: February 28, 2003

 

 

 

/s/  
ANTHONY J. GALICI      
Anthony J. Galici
Vice President, Chief Financial Officer
and Secretary

55



Schedule II—Valuation and Qualifying Accounts and Reserves
(dollars in thousands)

Description

  Balance at
Beginning
of Year

  Charged to
Cost and
Expenses

  Charged
to Other
Accounts

  Deductions
From
Reserves

  Balance
at End
of Year


For fiscal year ended November 30, 2002

Reserves:                        
Uncollectible accounts—trade   $ 132   32   18   53(3 ) $ 129
   
 
 
 
 
Inventories   $ 130   1,840   100   1,452(2 ) $ 618
   
 
 
 
 

For fiscal year ended December 1, 2001
Reserves:                 196(1 )    
Uncollectible accounts—trade   $ 580   48   4   304(3 ) $ 132
   
 
 
 
 
Inventories   $ 135   60     65(2 ) $ 130
   
 
 
 
 

For fiscal year ended December 2, 2000
Reserves:                        
Uncollectible accounts—trade   $ 564   72   14   70(3 ) $ 580
   
 
 
 
 
Inventories   $ 601   227     693(2 ) $ 135
   
 
 
 
 

Notes:

(1)
Reflects amount related to the disposition of the Sales and Service Centers by Imperial Nurseries, Inc. on January 26, 2001.

(2)
Inventories disposed.

(3)
Accounts receivable written off.

S-1


Schedule III—Real Estate
and Accumulated Depreciation
(dollars in thousands)

 
   
   
   
   
  Gross Amount
at November 30, 2002

   
   
   
 
   
  Initial Cost
   
   
   
   
 
   
  Cost Capitalized
Subsequent
to Acquisition
Improvements

   
   
   
Description

  Encumbrances
  Land
  Bldg. &
Improve.

  Land
  Land
Improve.

  Bldg.
  Devel. Cost
  Total
  Accum.
Dep.

  Date of
Construction

  Date of
Acquisition

  Depr.
Life

Real Estate Held for Sale                                                                        
Undeveloped Land   $   $ 1,061   $   $   $ 1,061   $   $   $   $ 1,061   $            
Residential Development
Simsbury, CT
        203         2,998     203             2,998     3,201                
Residential Development
Windsor, CT
        66         2,641     66             2,641     2,707                
Other                 735                 735     735                
   
 
 
 
 
 
 
 
 
 
           
Subtotal         1,330         6,374     1,330             6,374     7,704                
   
 
 
 
 
 
 
 
 
 
           
Real Estate Held for Lease                                                                        
Undeveloped Land         2,185             2,185                 2,185                
New England Tradeport
Windsor/E. Granby, CT.
                                                                       
  Undeveloped portion         439         2,278     439             2,278     2,717                
  Industrial Buildings     7,983     29         3,930     29     399     3,510     21     3,959     (2,469 ) 1978       40 yrs.
  Industrial Building         13     1,722     396     13     319     1,799         2,131     (943 )     1989   40 yrs.
  Industrial Building         9         3,928     9     313     3,615         3,937     (469 ) 1998       40 yrs.
  Industrial Building     7,656     10         5,569     10     325     5,244         5,579     (934 ) 1999       40 yrs.
  Industrial Building         10         3,028     10     4     3,024         3,038     (80 ) 2001       40 yrs.
  Construction in Progress                 156                 156     156                
Griffin Center
Windsor, CT.
                                                                       
  Undeveloped portion         179         2,169     179             2,169     2,348                
  Industrial Building     6,172     22         7,791     22         7,791         7,813     (353 ) 2001       40 yrs.
  Restaurant                 1,410         207     1,203         1,410     (801 ) 1983       40 yrs.
  Construction in Progress                 2,678                 2,678     2,678       2002        
Griffin Center South
Bloomfield, CT.
                                                                       
  Undeveloped portion         142         218     142             218     360                
  Office Building         47         2,960     47     341     2,613     6     3,007     (1,806 ) 1977       40 yrs.
  Office Building         3         1,929     3     248     1,673     8     1,932     (866 ) 1985       40 yrs.
  Office Building         1         1,797     1     364     1,431     2     1,798     (669 ) 1988       40 yrs.
  Office Building         1         1,522     1     177     1,343     2     1,523     (616 ) 1989       40 yrs.
  Office Building                 670         82     588         670     (279 ) 1988       40 yrs.
  Office Buildings         5         3,445     5     127     3,318         3,450     (1,055 ) 1991       40 yrs.
  Office Building         2         3,334     2     4     3,330         3,336     (146 ) 2001       40 yrs.
Other                 1,070         1,068         2     1,070     (769 )          
   
 
 
 
 
 
 
 
 
 
           
Subtotal     21,811     3,097     1,722     50,278     3,097     3,978     40,482     7,540     55,097     (12,255 )          
   
 
 
 
 
 
 
 
 
 
           
    $ 21,811   $ 4,427   $ 1,722   $ 56,652   $ 4,427   $ 3,978   $ 40,482   $ 13,914   $ 62,801   $ (12,255 )          
   
 
 
 
 
 
 
 
 
 
           

S-2


Schedule III—Real Estate
and Accumulated Depreciation (Continued)
November 30, 2002
(dollars in thousands)


Fiscal year ended November 30, 2002

 
  Cost
  Reserve
 
Balance at beginning of year   $ 59,735   $ (10,493 )
Changes during the year:              
  Improvements     3,220      
  Additions to reserve charged to costs and expense         (1,762 )
  Cost of sales     (154 )    
   
 
 
Balance at end of year   $ 62,801   $ (12,255 )
   
 
 


Fiscal year ended December 1, 2001

 
  Cost
  Reserve
 
Balance at beginning of year   $ 50,439   $ (9,218 )
Changes during the year:              
  Improvements     10,238      
  Additions to reserve charged to costs and expense         (1,494 )
  Cost of sales     (942 )   219  
   
 
 
Balance at end of year   $ 59,735   $ (10,493 )
   
 
 


Fiscal year ended December 2, 2000

 
  Cost
  Reserve
 
Balance at beginning of year   $ 42,047   $ (8,281 )
Changes during the year:              
  Improvements     9,108      
  Additions to reserve charged to costs and expense         (937 )
  Cost of sales     (716 )    
   
 
 
Balance at end of year   $ 50,439   $ (9,218 )
   
 
 

S-3


Centaur Communications
Limited

(Registered number 1595235)

Annual report
for the year ended 30 June 2002

F-1



INDEPENDENT ACCOUNTANTS

To the Board of Directors and shareholders of Centaur Communications Limited

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in financial position (cash flows) and of changes in capital stock, reserves not available for distribution and unappropriated earnings (shareholders' equity) present fairly, in all material respects, the financial position of Centaur Communications Limited and its subsidiaries at 30 June 2002 and 2001, and the results of their operations and their cash flows for each of the years ended 30 June 2002 and 2001, in conformity with accounting principles generally accepted in the United Kingdom. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

        Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States. The application of the latter would have affected the determination of consolidated net income expressed in sterling for each of the years ended 30 June 2002 and 2001 and the determination of consolidated stockholders' equity and consolidated financial position also expressed in sterling at 30 June 2002 and 2001 to the extent summarised in note 35 to the consolidated financial statements.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London

15 November 2002
Except for the information presented in note 35 for which the date is 30 January 2003

F-2



Centaur Communications Limited

Consolidated profit and loss account for the year ended 30 June 2002

 
  Note
  Continuing
operations
2002

  Discontinued
operations
2002

  Total
2002

  2001
(restated)

 
 
   
  £'000
  £'000
  £'000
  £'000
 
Turnover   1   63,327   5,374   68,701   76,520  
Cost of sales       (36,276 ) (3,869 ) (40,145 ) (42,641 )
       
 
 
 
 
Gross profit       27,051   1,505   28,556   33,879  
Distribution costs       (4,180 ) (139 ) (4,319 ) (4,589 )
Administrative expenses       (29,341 ) (1,722 ) (31,063 ) (23,006 )
       
 
 
 
 
Adjusted EBITDA   1   5,808   (160 ) 5,648   11,842  
Depreciation of tangible fixed assets       (2,332 ) (191 ) (2,523 ) (2,255 )
Amortisation of goodwill       (880 ) (5 ) (885 ) (875 )
Exceptional administrative costs   4   (9,066 )   (9,066 ) (2,428 )
       
 
 
 
 
Operating (loss) / profit       (6,470 ) (356 ) (6,826 ) 6,284  
       
 
         
Loss on disposal of business                 (105 )
Interest receivable and similar income   6           46   67  
Interest payable and similar charges   7           (1,449 ) (1,592 )
               
 
 
(Loss) / profit on ordinary activities before taxation   3           (8,229 ) 4,654  
Tax on (loss) / profit on ordinary activities   8           (358 ) (2,430 )
               
 
 
(Loss) / profit on ordinary activities after taxation               (8,587 ) 2,224  
Equity minority interests               (41 ) (101 )
               
 
 
(Loss) / profit for the financial year               (8,628 ) 2,123  
Dividends   9             (191 )
               
 
 
Retained (loss) / profit for the financial year   23           (8,628 ) 1,932  
               
 
 

        Adjusted EBITDA is calculated as operating (loss) / profit excluding depreciation, amortisation and exceptional administrative expenses as detailed in note 4.

        The accounting policies on pages 12 and 13 and notes on pages 14 to 34 form a integral part of these financial statements.

F-3



Centaur Communications Limited

Consolidated balance sheet at 30 June 2002

 
   
  2002
  2001
(restated)

 
 
  Note
  £'000
  £'000
  £'000
  £'000
 
Fixed assets                      
Intangible fixed assets   10   2,352       12,060      
Tangible fixed assets   11   8,262       7,750      
Investments   12   459       423      
       
 
 
 
 
            11,073       20,233  
Current assets                      
Stocks   13   550       601      
Debtors   14   14,512       16,946      
Cash at bank and in hand       3,300       1,578      
       
 
 
 
 
            18,362       19,125  
Creditors: amounts falling due within one year   15       (23,234 )     (23,691 )
           
     
 
Net current liabilities           (4,872 )     (4,566 )
           
     
 
Total assets less current liabilities           6,201       15,667  
Creditors: amounts falling due after more than one year   16       (13,787 )     (15,125 )
Provisions for liabilities and charges   18       (445 )      
           
     
 
            (8,031 )     542  
           
     
 
Capital and reserves                      
Called up share capital   20       1,539       1,532  
Share premium account   21       13,436       13,378  
Capital redemption reserve   22       483       483  
Profit and loss account   23       (23,536 )     (14,908 )
           
     
 
Equity shareholders' (deficit) / funds           (8,078 )     485  
Equity minority interests   28       47       57  
           
     
 
            (8,031 )     542  
           
     
 

        The financial statements were approved by the Board of Directors on 15 November 2002,except for the information presented in note 35 which was approved on 30 January 2003, and were signed on its behalf by:

/s/    GTD Wilmot

GTD Wilmot
Director

        The accounting policies on pages 12 and 13 and notes on pages 14 to 34 form an integral part of these financial statements.

F-4



Centaur Communications Limited

Company balance sheet at 30 June 2002

 
   
  2002
  2001
(restated)

 
 
  Note
  £'000
  £'000
  £'000
  £'000
 
Fixed assets                      
Intangible assets   10   136       474      
Tangible assets   11   42       53      
Investments   12   4,726       4,741      
       
 
 
 
 
            4,904       5,268  
Current assets                      
Debtors   14   43,125       52,252      
Cash at bank and in hand       741       1,007      
       
 
 
 
 
            43,866       53,259  
Creditors: amounts falling due within one year   15       (10,123 )     (18,501 )
           
     
 
Net current assets           33,743       34,758  
           
     
 
Total assets less current liabilities           38,647       40,026  
Creditors: amounts falling due after more than one year   16       (13,787 )     (15,125 )
Provisions for liabilities and charges   18       (1,252 )     (1,254 )
           
     
 
            23,608       23,647  
           
     
 
Capital and reserves                      
Called up share capital   20       1,539       1,532  
Share premium account   21       13,436       13,378  
Capital redemption reserve   22       483       483  
Profit and loss account   23       8,150       8,254  
           
     
 
Equity shareholders' funds           23,608       23,647  
           
     
 

        The financial statements were approved by the Board of Directors on 15 November 2002,except for the information presented in note 35 which was approved on 30 January 2003, and were signed on its behalf by:

/s/    GTD Wilmot

GTD Wilmot
Director

        The accounting policies on pages 12 and 13 and notes on pages 14 to 34 form an integral part of these financial statements.

F-5



Centaur Communications Limited

Consolidated cash flow statement for the year ended 30 June 2002

 
  Note
  2002
  2001
(restated)

 
 
   
  £'000
  £'000
 
Net cash inflow from operating activities   29   8,182   13,991  
       
 
 
Returns on investments and servicing of finance              
Interest received       46   67  
Interest paid       (1,487 ) (1,549 )
Dividends paid to minority interests       (51 ) (120 )
       
 
 
Net cash (outflow) from returns on investments and servicing of finance       (1,492 ) (1,602 )
Taxation       (561 ) (1,811 )
       
 
 
Capital expenditure and financial investment              
Purchase of tangible fixed assets       (3,071 ) (3,332 )
Sale of tangible fixed assets       59   52  
Acquisition of trade investments       (36 ) (74 )
       
 
 
Net cash (outflow) for capital expenditure and financial investment       (3,048 ) (3,354 )
Acquisitions and disposals              
Purchase of additional investment in subsidiary undertaking   33     (491 )
Disposal of unincorporated business   32     137  
       
 
 
Net cash outflow for acquisitions and disposals         (354 )
Equity dividends paid to shareholders       (191 )  
Net cash inflow before financing       2,890   6,870  
Financing              
Issue of ordinary share capital   20,21   65    
Repayment of bank and other borrowings       (1,250 ) (6,450 )
       
 
 
Net cash (outflow) from financing       (1,185 ) (6,450 )
       
 
 
Increase in cash   30,31   1,705   420  
       
 
 

        The accounting policies on pages 12 and 13 and notes on pages 14 to 34 form an integral part of these financial statements.

F-6



Centaur Communications Limited

Statement of Group total recognised gains and losses

 
  2002
  2001
(restated)

 
  £'000
  £'000

(Loss) / profit for the financial year

 

(8,628

)

2,123
   
 
Total recognised (losses)/gains relating to the financial year   (8,628 ) 2,123
       
Prior year adjustment (note 8—FRS 19 "Deferred Taxation")   1,250    
   
   
Total losses recognised since last financial statements   (7,378 )  
   
   

Reconciliation of movements in Group shareholders' funds

 
  2002
  2001
(restated)

 
 
  £'000
  £'000
 

(Loss) / profit for the financial year

 

(8,628

)

2,123

 
Dividends     (191 )
New share capital issued   65    
   
 
 
Net (decrease) / increase in shareholders' funds   (8,563 ) 1,932  

Opening shareholders' (deficit) / funds (originally £(2,762,000) at 1 July 2000 and £(765,000) at 1 July 2001 before adding prior year adjustment of £1,315,000 and £1,250,000 respectively).

 

485

 

(1,447

)
   
 
 
Closing shareholders' funds   (8,078 ) 485  
   
 
 

        The accounting policies on pages 12 and 13 and notes on pages 14 to 34 form an integral part of these financial statements

F-7


Centaur Communications Limited

Principal accounting policies

a)    Basis of preparation

    The financial statements have been prepared under the historical cost convention in accordance with applicable accounting standards in the United Kingdom.

b)    Basis of consolidation

    The financial statements incorporate that of the Company, its subsidiary undertakings and have been consolidated using the acquisition method of accounting. Profits or losses on intra-Group transactions are eliminated in full. The results of subsidiaries or unincorporated businesses acquired or disposed of are included from the date of acquisition or up to the date of disposal.

c)    Turnover

    Turnover represents sales of advertising space, subscriptions and individual publications and revenue from exhibitions and conferences, exclusive of value added tax.

    Sales of advertising space are recognised in the period in which publication occurs. Sales of publications are recognised in the period in which the sale is made. Revenue received in advance for exhibitions and conferences is deferred and recognised in the period in which the event takes place.

    Revenue from subscriptions to publications and on-line services is deferred and recognised in the profit and loss account on a straight-line basis over the subscription period.

d)    Investments

    Investments are recorded at cost less provision for impairment in value.

e)    Goodwill

    Goodwill purchased or arising on consolidation has been capitalised and is amortised over its estimated useful economic life of 20 years, which is the period over which the directors estimate that the values of the underlying businesses acquired are expected to exceed the value of the underlying assets.

f)    Tangible fixed assets

    Tangible fixed assets are stated at cost less accumulated depreciation. Depreciation of tangible assets is provided on a straight-line basis over the following estimated useful lives of the assets:

Leasehold improvements     20 years or the length of the lease if shorter
Fixtures and fittings     10 years
Computer equipment     3-5 years (except costs of developing computer databases—10 years)
Motor vehicles     4 years

g)    Impairment of fixed assets and goodwill

    The need for any fixed asset or goodwill impairment write down is assessed by comparison of the carrying value of the asset against the higher of net realisable value or value in use. The value in use is determined from estimated discounted future cash flows. Discount rates used are based on the circumstances of the individual businesses.

F-8


h)    Deferred tax

    Deferred tax is recognised in respect of all timing difference that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.

    A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing difference can be deducted.

    Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing difference are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

    On adoption of Financial Reporting Standard (FRS)19 "Deferred Taxation," the Group has changed its accounting policy in respect of deferred taxation, and restated prior year results accordingly (note 8).

i)    Stocks

    Stocks are stated at the lower of cost and net realisable value. For raw materials cost is the purchase price. Work in progress comprises costs incurred relating to publications, exhibitions and conferences prior to the publication date or the date of the event. For goods for resale cost is the purchase price, or, in the case of publications, the direct cost of production.

j)    Operating leases

    Rentals payable under operating leases are charged to the profit and loss account on a straight-line basis over the term of the lease.

k)    Pensions

    Pension costs charged to the profit and loss account represent the amount of contributions payable to the Company's defined contribution scheme in respect of the accounting period.

l)    Remuneration element of share options

    In accordance with Urgent Issues Task Force (UITF) Abstract 17 "Employee share schemes," the fair value of share options at the date of grant, less any consideration to be received from the employee, is charged to the profit and loss account over the performance period to which the grant relates. An equal amount is credited directly to reserves in the same period.

m)  Foreign currencies

    Transactions denominated in foreign currency are translated at exchange rates prevailing at the transaction date. Assets and liabilities are translated at exchange rates prevailing at the year end date. Any gains or losses arising on exchange are reflected in the profit and loss account.

F-9



Centaur Communications Limited

Notes to the financial statements

1    Segmental reporting

        The Group is involved in the single activity of the creation and dissemination of business and professional information. There is therefore no segmental reporting required. However, set out below are analyses of turnover and adjusted EBITDA of the Group by the communities it serves, by source of revenue, by established activities and new products.

Analysis by community

 
  Turnover
  Adjusted EBITDA
 
 
  2002
£'000

  2001
£'000

  2002
£'000

  2001
£'000

 
Marketing, creative and new media   23,935   30,460   3,723   8,821  
Legal and financial   26,546   27,418   2,756   4,530  
Engineering and construction   11,526   10,467   (1,291 ) (1,417 )
Other   6,694   8,175   460   (92 )
   
 
 
 
 
    68,701   76,520   5,648   11,842  
   
 
 
 
 

Analysis by source of revenue

 
  Turnover
  Adjusted EBITDA
 
 
  2002
£'000

  2001
£'000

  2002
£'000

  2001
£'000

 
Printed products   41,595   55,179   4,085   12,400  
Electronic products   11,878   9,801   (697 ) (2,448 )
Exhibitions and conferences   13,510   10,511   1,768   1,287  
Other   1,718   1,029   492   603  
   
 
 
 
 
    68,701   76,520   5,648   11,842  
   
 
 
 
 

Analysis by established activities, new products and discontinued products

 
  Turnover
  Adjusted EBITDA
 
 
  2002
£'000

  2001
£'000

  2002
£'000

  2001
£'000

 
Established products   59,275   61,484   10,144   17,426  
New products   4,052   10,076   (4,336 ) (5,104 )
Discontinued products   5,374   4,960   (160 ) (480 )
   
 
 
 
 
    68,701   76,520   5,648   11,842  
   
 
 
 
 

        A product is regarded as new until the earlier of 3 years from date of launch or acquisition and the end of a 3-month consecutive period of positive adjusted EBITDA for that product. Substantially all net assets are located and all turnover and adjusted EBITDA are generated in the United Kingdom.

F-10



2    Prior period operating profit

        The analysis between continuing and discontinued activities of the prior period is:

 
  Note
  Continuing
operations
2001
(restated)

  Discontinued
operations
2001
(restated)

  Total
2001
(restated)

 
 
   
   
   
  £'000

 
Turnover   1   71,560   4,960   76,520  
Cost of sales       (39,050 ) (3,591 ) (42,641 )
       
 
 
 
Gross profit       32,510   1,369   33,879  
Distribution costs       (4,525 ) (64 ) (4,589 )
Administrative expenses       (21,032 ) (1,974 ) (23,006 )
       
 
 
 
Adjusted EBITDA   1   12,322   (480 ) 11,842  
Depreciation of tangible fixed assets       (2,069 ) (186 ) (2,255 )
Amortisation of goodwill       (872 ) (3 ) (875 )
Exceptional administrative costs   4   (2,428 )   (2,428 )
       
 
 
 
Operating Profit/(loss)       6,953   (669 ) 6,284  
       
 
 
 

        The discontinued activities for the current year and the prior year contain the results of Lawtel, the on-line legal reporting business and that of the fortnightly magazine, Leisure and Hospitality Business.

3    (Loss) / profit on ordinary activities before taxation

        (Loss) / profit on ordinary activities before taxation is stated after charging:

 
  2002
  2001
(restated)

 
  £'000

  £'000

Staff costs (note 5)   28,773   27,343
Exceptional administrative costs (note 4)   9,066   2,428
Leasehold property rentals   2,767   2,187
Other operating leases   198   210
Depreciation of tangible fixed assets   2,523   2,255
Amortisation of goodwill   885   875
(Profit) / loss on disposal of fixed assets   (23 ) 3
Loss on disposal of trade investment     10
Auditors' remuneration:        
  —audit services   73   92
  —non-audit services (2001; of this £702,000 is included in the exceptional administrative costs below)   13   707

F-11


4    Exceptional administrative expenses

        Exceptional administrative expenses relate to continuing operations and comprise:

 
  2002
  2001
(restated)

 
  £'000

  £'000

Goodwill impairment   8,823  
Provision for onerous property contracts   243  
Professional fees incurred in respect of the long term financing review     1,663
Amounts payable under executive incentive schemes     765
   
 
    9,066   2,428
   
 

        FRS 10 "goodwill and intangible assets," requires an impairment review to be undertaken if the carrying value is considered not to be recoverable in full. A review of the goodwill portfolio has resulted in an impairment provision of £8,823,507.

        Within the onerous property contracts provision, the Group has provided against future liabilities for all long-term idle properties.

5    Employees and directors

Staff costs

 
  2002
  2001
(restated)

 
  £'000

  £'000

Wages and salaries   25,801   24,516
Social security costs   2,540   2,472
Other pension costs   432   355
   
 
    28,773   27,343
   
 

        The average monthly number of persons employed during the year, including executive directors, was 778 (2001: 803).

Directors' emoluments

 
  2002
  2001
(restated)

 
  £'000

  £'000

Aggregate emoluments   775   609
Pension contributions to money purchase schemes   74   70
   
 
    849   679
   
 

        During the year 2 directors (2001: 2 directors) participated in money purchase pension schemes.

        Options have been granted, in prior years, to certain directors to subscribe for ordinary shares of 10p each in Centaur Communications Limited. Full details are given in the directors' report.

F-12



Highest paid director

 
  2002
  2001
(restated)

 
  £'000

  £'000

Aggregate emoluments   451   327
Pension contributions to money purchase scheme   50   47
   
 
    501   374
   
 

6    Interest receivable and similar income

 
  2002
  2001
(restated)

 
  £'000

  £'000

Interest on bank deposits   46   67
   
 

7    Interest payable and similar charges

 
  2002
  2001
(restated)

 
  £'000

  £'000

Interest on bank loans and overdrafts   1,229   1,549
Amortisation of borrowings issue costs (note 17)   220   43
   
 
    1,449   1,592
   
 

8    Tax on (loss) / profit on ordinary activities

 
  2002
  2001
(restated)

 
  £'000

  £'000

UK corporation tax at 30% (2001: 30%):        
  —current year   371   2,231
   
 
  —over provision in previous periods   (208 )
   
 
    163   2,231
   
 
Deferred taxation   195   199
   
 
    358   2,430
   
 

F-13


        The Group has adopted FRS 19 "Deferred tax," and has restated prior year figures accordingly. Adoption has resulted in the recognition of deferred tax assets in respect of losses and other timing difference incurred in prior years, and corresponding restatement of the prior year results. The effect of the FRS 19 restatement is as follows:

 
  2002
  2001
as previously
reported

  FRS19
restatement

  2001
(restated)

 
  £'000

  £'000

  £'000

  £'000

Tax on (loss) / profit on ordinary activities                
UK corporation tax   163   2,231     2,231
Deferred tax   195   134   65   199
   
 
 
 
    358   2,365   65   2,430
   
 
 
 
Balance sheet                
Deferred tax asset (notes 14 and 19)   297     492   492
   
 
 
 
 
  2002
  2001
(restated)

 
 
  £'000

  £'000

 
(Loss) / profit on ordinary activities before tax   (8,229 ) 4,654  
(Loss) / profit on ordinary activities multiplied by standard rate of corporation tax in the UK 2002: 30% (2001:30%)   (2,469 ) 1,396  
Effects of:          
Expenses not deductible for tax purposes   3,174   832  
Capital allowances for the period in excess of depreciation   (77 ) (10 )
Utilisation of tax losses   (135 ) 3  
Adjustments to tax charge in respect of previous periods   (208 )  
Adjustment in respect of provisions   (122 ) 10  
   
 
 
Current tax charge for the period   163   2,231  
   
 
 

9 Dividends

 
  2002
  2001
(restated)

 
  £'000

  £'000

Dividend—final     191
   
 

F-14


10 Intangible fixed assets

 
  Goodwill

 
  Group
£'000

  Company
£'000

Cost        
At 1 July 2001 and 30 June 2002   16,685   1,130
   
 
Amortisation        
At 1 July 2001   4,625   656
   
 
Impairment   8,823   298
Charge for the year   885   40
   
 
At 30 June 2002   14,333   994
   
 
Net book amount        
At 30 June 2002   2,352   136
   
 
At 30 June 2001   12,060   474
   
 

        FRS 10 "goodwill and intangible assets," requires an impairment review to be undertaken if the carrying value is considered not to be recoverable in full. A review of the goodwill portfolio has resulted in an impairment provision of £8,823,507. The discount rate used in the impairment evaluation was 7.5%.

11 Tangible fixed assets

 
  Leasehold
Improvements

  Fixtures
and Fittings

  Computer
Equipment

  Motor
Vehicles

  Total
 
 
  £'000

  £'000

  £'000

  £'000

  £'000

 
Group                      

Cost

 

 

 

 

 

 

 

 

 

 

 
At 1 July 2001   920   2,500   12,290   672   16,382  
   
 
 
 
 
 
Additions   153   101   2,792   25   3,071  
Disposals     (9 ) (3 ) (230 ) (242 )
   
 
 
 
 
 
At 30 June 2002   1,073   2,592   15,079   467   19,211  
   
 
 
 
 
 
Depreciation                      
At 1 July 2001   279   1,161   6,809   383   8,632  
   
 
 
 
 
 
Charge for the year   86   214   2,113   110   2,523  
Disposals     (6 ) (3 ) (197 ) (206 )
   
 
 
 
 
 
At 30 June 2002   365   1,369   8,919   296   10,949  
   
 
 
 
 
 
Net book amount                      
At 30 June 2002   708   1,223   6,160   171   8,262  
   
 
 
 
 
 
At 30 June 2001   641   1,339   5,481   289   7,750  
   
 
 
 
 
 

F-15


Company                      

Cost

 

 

 

 

 

 

 

 

 

 

 
At 1 July 2001 and                      
at 30 June 2002   193   314   12   18   537  
   
 
 
 
 
 
Depreciation                      
At 1 July 2001   142   312   12   18   484  
Charge for the year   10   1       11  
   
 
 
 
 
 
At 30 June 2002   152   313   12   18   495  
   
 
 
 
 
 
Net book amount                      
At 30 June 2002   41   1       42  
   
 
 
 
 
 
At 30 June 2001   51   2       53  
   
 
 
 
 
 

12 Investments

 
  Investments
in subsidiary
undertakings

  Unlisted trade
investments

  Total
 
 
  £'000

  £'000

  £'000

 
Group              

Cost and net book amount

 

 

 

 

 

 

 
At 1 July 2001     423   423  
Additions     51   51  
Disposals     (15 ) (15 )
   
 
 
 
At 30 June 2002     459   459  
   
 
 
 
Company              

Cost

 

 

 

 

 

 

 
At 1 July 2001   7,777   199   7,976  
Disposals     (15 ) (15 )
   
 
 
 
At 30 June 2002   7,777   184   7,961  
   
 
 
 
Provisions              
At 30 July 2001 and at 30 June 2002   (3,235 )   (3,235 )
   
 
 
 
Net book amount              
At 30 June 2002   4,542   184   4,726  
   
 
 
 
At 30 June 2001   4,542   199   4,741  
   
 
 
 

F-16


        Centaur Communications Limited holds IPE International Publishers Limited as an investment within its accounts. IPE International Publishers limited is a company incorporated in England and Wales (company registration number 03233596).

        Centaur Communications Limited holds 34% of the ordinary share capital of IPE International Publishers Limited. For the year ended 30 June 2001, IPE International Publishers Limited filed accounts at Companies House showing a loss for the year of £20,967 and the aggregate amount of capital and reserves of £282,758.

        In the opinion of the directors, Centaur Communications Limited does not exert a significant influence on the operations or decisions of IPE International Publishers Limited.

        In the opinion of the Directors, the value of the Group's investments is not less than their carrying amount.

Principal subsidiary undertakings at 30 June 2002

 
  Holding of ordinary shares
   
Name

  Group
%

  Company
%

  Principal activity

Lawtel Limited (formerly Chiron Communications Limited)

 

100

 

100

 

Magazine publishing

Hali Publications Limited

 

100

 

69.6

 

Magazine publishing

Ascent Publishing Limited

 

100

 

100

 

Magazine publishing

IFA Events Limited

 

80

 

80

 

Exhibitions

Your Business Magazine Limited

 

100

 

100

 

Holding company

Perfect Information Limited

 

99.78

 

98.93

 

Financial information services

Consultancy Europe Associates Limited

 

100

 

100

 

Legal information services

Mind Advertising Limited

 

50

 

50

 

Information services

        In addition to the holdings above, the Company holds 100% of the issued preference share capital of Hali Publications Limited.

        All the above subsidiary undertakings are incorporated in England and Wales. A full list of subsidiary undertakings will be included with the Company's next annual return.

F-17


13 Stocks

 
  2002
  2001
(restated)

 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

Raw materials   35     60  
Work in progress   503     533  
Goods for resale   12     8  
   
 
 
 
    550     601  
   
 
 
 

14    Debtors

 
  2002
  2001
(restated)

 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

Trade debtors   12,456     15,094  
Amounts owed by Group undertakings     43,108     52,202
Other debtors   270   17   264   50
Deferred tax asset (note 19)   297     492    
Prepayments and accrued income   1.489     1,096  
   
 
 
 
    14,512   43,125   16,946   52,252
   
 
 
 

15    Creditors: amounts falling due within one year

 
  2002
  2001
(restated)

 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

Bank and other borrowings   2,039   2,000   1,972   1,950
Amounts owed to Group undertakings     7,446     15,919
Trade creditors   2,640     2,270  
Corporation tax   365   22   763   172
Social security and other taxes   2,362   18   1,997   25
Other creditors   428   102   336   191
Accruals and deferred income   15,400   535   16,353   244
   
 
 
 
    23,234   10,123   23,691   18,501
   
 
 
 

16    Creditors: amounts falling due after more than one year

 
  2002
  2001 (restated)
 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

Bank and other borrowings   13,787   13,787   15,125   15,125
   
 
 
 

F-18


17    Bank and other borrowings

 
   
  2001
(restated)

 
Group and Company

  2002
 
  £'000

  £'000

 
Revolving credit facility     8,500  
Term loan   16,000   8,750  
Issue costs of term loan   (258 ) (300 )
   
 
 
    15,742   16,950  
Amortisation of issue costs   45   125  
   
 
 
    15,787   17,075  
   
 
 
The principal amounts of these borrowings are repayable as follows:  
Within 1 year:          
Term loan   2,000   1,950  
   
 
 
Between 1 and 2 years:          
Revolving credit facility     1,700  
Term loan   4,000   2,600  
   
 
 
Between 2 and 5 years:          
Revolving credit facility     6,800  
Term loan   10,000   4,200  
   
 
 

        The Term Loan was granted on 14 December 2001 and is guaranteed by the Company's subsidiaries, Lawtel Limited (formerly Chiron Communications Limited), Ascent Publishing Limited, Hali Publications Limited, Chiron Communications Limited (formerly Oguz Press Limited) and Your Business Magazine Limited. It is repayable in quarterly instalments commencing 14 March 2003 and ending 14 March 2007. The interest rate is calculated by reference to a formula and approximated to 5.04% per annum.

        The Revolving Credit Facility was granted on 14 December 2001 and is guaranteed by the Company's subsidiaries, Lawtel Limited (formerly Chiron Communications Limited), Ascent Publishing Limited, Hali Publications Limited, Chiron Communications Limited (formerly Oguz Press Limited) and Your Business Magazine Limited. The maximum facility allowed is £4,000,000 for a period ending on 14 December 2002 and is extendable by a further year. The interest rate is calculated by reference to a formula and approximated to 5.04% per annum.

        Both the above cross guarantees are secured by fixed and floating charges over the Group's assets.

        On 1 November 2001 the Company entered into an interest rate swap arrangement, under which the variable rate applying to a principal amount of £10,000,000 of the Term Loan is swapped to a fixed rate of 5.88% until 1 November 2004.

        Subsequent to the financial year end the Term Loan amounting to £16 million was redeemed in full but is available to be redrawn if necessary to finance future investment.

F-19



18    Provisions for liabilities and charges

 
  Onerous
Property
Contracts

  Restructuring
Provisions

  Total
 
  £'000

  £'000

  £'000

Group            
At 1 July 2001      
Charge for the year   243   202   445
   
 
 
At 30 June 2002   243   202   445
   
 
 
 
  Deffered tax
(note 19)

  Onerous
Property Contracts

  Restructuring Provisions
  Total
 
 
  £'000

  £'000

  £'000

  £'000

 
Company                  
At 1 July 2001   1,254       1,254  
Credit for the year   (2 )     (2 )
   
 
 
 
 
At 30 June 2002   1,252       1,252  
   
 
 
 
 

19    Deferred Tax

Deferred tax asset

        The deferred tax asset in the Group comprises the following amounts:

 
  2002
  2001
(restated)

 
 
  Group
£'000

  Group
£'000

 
Accelerated capital allowances   (3 ) (65 )
Tax losses carried forward   922   1,066  
Other timing differences   (622 ) (509 )
   
 
 
    297   492  
   
 
 
 
  Deferred tax
 
 
  £'000

 
Group      
At 1 July 2001 (restated)   492  
Charge for the year   (195 )
   
 
At 30 June 2002   297  
   
 

F-20


Deferred tax liability

        The deferred tax liability in the Company comprises:

 
  2002
  2001
(restated)

 
  Company
£'000

  Company
£'000

Accelerated capital allowances   7   13
Other timing differences   1,245   1,241
   
 
    1,252   1,254
   
 

        Unrecognised deferred tax assets comprise the following amounts:

 
  2002
  2001
(restated)

 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

Tax losses carried forward   16     15  
Other timing differences   1,657   1,657   1,980   1,980
   
 
 
 
    1,673   1,657   1,995   1,980
   
 
 
 

20    Called up share capital

Authorised

 
  2002
  2001
(restated)

 
  £'000

  £'000


50,000,000 Ordinary shares of 10p each

 

5,000

 

5,000
   
 

Allotted, called up and fully paid

 
  2002
  2001
(restated)

 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000


Ordinary shares of 10p each

 

 

 

 

 

 

 

 
As at 1 July 2001 (15,324,757 shares)   1,532   1,532   1,531   1,531
Allotted under share option scheme (65,000 shares)   7   7   1   1
   
 
 
 
As at 30 June 2002 (15,389,757 shares)   1,539   1,539   1,532   1,532
   
 
 
 

F-21


        The company has in issue class A, B, C and D ordinary shares which all rank pari passu in all respects.

        During the year employees of the Group exercised their options over ordinary shares in the Company at a price of £1.00 per share as follows:

 
  Number of
shares

Date of exercise    
August 2001   15,000
September 2001   50,000
   
    65,000
   

        At 30 June 2002 options had been granted and agreed to be granted to certain directors and employees to subscribe for a total of 1,761,496 ordinary shares of 10p each at varying times and varying prices up to August 2006. The directors' options are disclosed in the directors' report.

21  Share premium account

 
  2002
  2001 (restated)
 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

As at 1 July 2001   13,378   13,378   13,378   13,378
Premium on shares issued during the year under share option scheme   58   58    
   
 
 
 
As at 30 June 2002   13,436   13,436   13,378   13,378
   
 
 
 

22  Capital redemption reserve

 
  2002
  2001 (restated)
 
  Group
£'000

  Company
£'000

  Group
£'000

  Company
£'000

At 1 July and 30 June 2002   483   483   483   483
   
 
 
 

23  Profit and loss account

 
  Group
  Company
 
 
  £'000

  £'000

 
At 1 July 2001—as previously reported   (16,158 ) 8,254  
Prior year adjustment (note 7- FRS 19 "Deferred Tax")   1,250    
   
 
 
At 1 July 2001—as restated   (14,908 ) 8,254  

Retained (loss)/profit for the financial year

 

(8,628

)

(104

)
   
 
 
At 30 June 2002   (23,536 ) 8,150  
   
 
 

F-22


        At 30 June 2002, £98,000 of goodwill remained eliminated directly against the profit and loss account reserve. This will be charged to the profit and loss account in the period in which disposal of the related business is made.

        Of the Company's profit and loss account at 30 June 2002, £918,000 is regarded as being available for distribution. In addition, a further £2,078,000 may become available for distribution if dividends are declared and paid up to the Company by subsidiaries.

        The Company has taken advantage of the exemption available under section 230 of the Companies Act 1985 and has not presented its own profit and loss account in these financial statements. Of the Group loss for the financial year, £(104,783) (2001: profit £200,264) is dealt with in the financial statements of the Company.

24  Capital commitments

        The Group and Company had no capital commitments at 30 June 2002 or 30 June 2001.

25  Operating lease commitments

        The operating lease rentals payable within one year of the balance sheet date are as follows:

 
  Land and buildings
  Equipment
 
  2002
£'000

  2001
£'000

  2002
£'000

  2001
£'000

On leases expiring:                
  — within 1 year   38   22   7  
  — between 2 and 5 years   194   38   192   211
  — after 5 years   2,495   2,671    
   
 
 
 
    2,727   2,731   199   211
   
 
 
 

26  Pension schemes

        The Group contributes to individual and collective money purchase pension schemes in respect of directors and employees once they have completed the requisite period of service. The charge for the year in respect of these pension schemes is shown in note 5.

27  Contingent liabilities

        The Company, together with its subsidiary undertakings, has granted a cross guarantee in favour of its bankers in respect of the bank borrowings of the Group. The guarantee is secured by fixed and floating charges over the Group's assets.

F-23



28  Equity Minority interests

 
  £'000
 
At 1 July 2001   57  
Dividend paid   (51 )
Share of net income for the year   41  
   
 
At 30 June 2002   47  
   
 

29  Net cash inflow from operating activities

        Reconciliation of operating (loss) / profit to net cash inflow from operating activities:

 
  2002
  2001
(restated)

 
 
  £'000

  £'000

 
Operating (loss) / profit   (6,826 ) 6,284  
Depreciation of tangible fixed assets   2,523   2,255  
Amortisation of goodwill   885   875  
Exceptional item—impairment of goodwill   8,823    
(Profit) / loss on disposal of fixed assets   (23 ) 3  
Loss on disposal of trade investment     10  
Decrease / (increase) in stocks   51   (138 )
Decrease in debtors   2,239   3,982  
(Decrease) / increase in creditors   65   720  
Increase in provisions   445    
   
 
 
Net cash inflow from operating activities   8,182   13,991  
   
 
 

30  Analysis of movement in net debt

 
  At 1 July
2001

  Cash flow
  Other non-cash
changes

  At 30 June
2002

 
 
  £'000

  £'000

  £'000

  £'000

 
Cash at bank and in hand   1,556   1,705     3,261  
   
 
 
 
 
Debt due within 1 year (before issue costs)   (1,950 ) 1,950   (2,000 ) (2,000 )
Debt due after 1 year (before issue costs)   (15,300 ) (700 ) 2,000   (14,000 )
   
 
 
 
 
    (17,250 ) 1,250     (16,000 )
   
 
 
 
 
    (15,694 ) 2,955     (12,739 )
   
 
 
 
 

F-24


31    Reconciliation of net cash flows to movements in net debt

 
  2002
  2001
(restated)

 
 
  £'000

  £'000

 

Increase in cash in the year

 

1,705

 

420

 
Cash outflow from changes in debt   1,250   6,450  
   
 
 
Change in net debt resulting from cash flows   2,955   6,870  
   
 
 
Movement in net debt in the year   2,955   6,870  
Net debt at 1 July (before issue costs)   (15,694 ) (22,564 )
   
 
 
Net debt at 30 June (before issue costs)   (12,739 ) (15,694 )
   
 
 

32    Disposal of business

        In year ended 30 June 2002, the Group did not make a material disposal of a business. (2001:On 5 October 2000, the Group disposed of the business of EXE for a cash consideration of £137,000, giving rise to a loss of £105,000.)

33    Acquisitions

        During the year ended June 2002 the Group did not make any acquisitions. During the year ended 30 June 2001 made the following acquisitions:

 
  Mind Advertising
Limited(a)

  IFA Events
Limited(b)

  IFA Events
Limited(c)

  Total
 
 
  £'000

  £'000

  £'000

  £'000

 
Tangible fixed assets   3   28   26   57  
Stocks     60   54   114  
Debtors   9   293   452   754  
Cash at bank and in hand   4   103   283   390  
Creditors: amounts falling due within one year   (15 ) (344 ) (583 ) (942 )
   
 
 
 
 
    1   140   232   373  
Minority interests   (1 ) (126 ) (188 ) (315 )
   
 
 
 
 
Group share of net assets acquired     14   44   58  
Goodwill   50   137   246   433  
   
 
 
 
 
Consideration   50   151   290   491  
   
 
 
 
 
Satisfied by:                  
Cash   50   151   290   491  
   
 
 
 
 

        The following information relates to prior period comparatives:

a)
Mind Advertising Limited

      On 27 July 2000, the Group acquired 50% of the assets and liabilities of Mind Advertising Limited for a consideration of £50,000. This purchase was accounted for by the acquisition method of accounting. The book values of the assets and liabilities acquired, which are shown in the table above, approximated to their fair values.

F-25


b)
IFA Events Limited

      On 18 October 2000, the Group acquired a further 10% of the issued share capital of IFA Events Limited for a consideration of £151,000. This purchase was accounted for by the acquisition method of accounting. The book values of the assets and liabilities acquired, which are shown in the table above, approximated to their fair values.

c)
IFA Events Limited

      On 3 May 2001, the Group acquired a further 19% of the issued share capital of IFA Events Limited for a consideration of £290,000. This purchase was accounted for by the acquisition method of accounting. The book values of the assets and liabilities acquired, which are shown in the table above, approximated to their fair values.

34    Post balance sheet events

    a)
    Subsequent to the financial year end, the Group disposed of its subsidiary companies Lawtel Limited and Consultancy Europe Associates Limited, the on-line legal reporting business, to Thomson Legal & Regulatory Limited for a consideration of £17.1 million resulting in a profit on disposal of £15.4m. Of this consideration a total of £1.45 million is deferred over three years. The results of this on-line legal reporting business are shown as discontinued activities.

    b)
    Subsequent to the financial year end the Term Loan amounting to £16 million was redeemed in full.

    c)
    Subsequent to the year end, the Group sold the business of Leisure and Hospitality Business to William Reed Publishing Limited for a consideration of £1.

35    Reconciliation to generally accepted accounting principles in the United States ("US GAAP")

        The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"), which differs in certain significant respects from US GAAP. Such differences include methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.

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        The effect on the consolidated net income and shareholders' equity of applying the significant differences between UK GAAP and US GAAP is summarised in the reconciliation statements over the page:

        (a) Reconciliation of net income

 
  2002
  2001
 
 
  £'000

  £'000

 

Net income (loss) in accordance with UK GAAP

 

(8,628

)

1,932

 
Dividend proposed (1)   (191 ) 191  
Amortisation of goodwill (2)   (501 ) 299  
Disposal of unincorporated business (3)     (48 )
Remuneration Effect of options exercised (4)   35    
Release of valuation allowance against deferred tax asset (6)   1,250    
Valuation allowance deferred tax asset     65  
   
 
 
Net income (loss)in accordance with US GAAP   (8,035 ) 2,439  
   
 
 

        (b) Reconciliation of shareholders' equity

 
  2002
  Restated
2001

 
 
  £'000

  £'000

 

Equity shareholders' funds in accordance with UK GAAP

 

(8,078

)

(765

)
Prior period adjustment—Deferred Tax(6)     1,250  
   
 
 
    (8,078 ) 485  
Dividend proposed(1)     191  
Deferred taxes(6)     (1,250 )
Amortisation of goodwill(2)   1,023   1,572  
Disposal of business(3)     (48 )
Reinstatement of goodwill written off(5)   98   98  
Remuneration element of equity share options(4)   (1,464 ) (1,499 )
   
 
 
    (8,421 ) (451 )
   
 
 
 
(c) Changes in US GAAP shareholders' equity

 

 

 

 

 

Shareholders' equity at the beginning of the year

 

(451

)

(2,890

)
Net income (loss)   (8,035 ) 2,439  
Issue of share capital   65    
   
 
 
    (8,421 ) (451 )
   
 
 

(1)
A dividend of £191,000 was proposed for the period ended 30 June 2001. Under UK GAAP dividends are reported on an accruals basis and therefore was included in arriving at the net income for the year ended 30 June 2001. Under US GAAP dividends are not reported until the board declare the dividend to the shareholders and therefore the dividend will be a reconciling

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    item until paid. The dividend was declared in the quarter ending 31 December 2001 and is therefore charged as an expense under US GAAP in the year ended 30 June 2002.

(2)
Under UK GAAP goodwill is being amortised over a maximum period of 20 years, following the adoption of FRS 10. In accordance with US GAAP goodwill is amortised over an estimated economic life of 30 years. In the current year, goodwill relating to the Engineering portfolio and Leisure and Hospitality Business was impaired and written down.

(3)
During the year ended 30 June 2001, the Group disposed of an unincorporated business, EXE and the related goodwill. The profit on disposal under US GAAP was lower by £48,000, this being the difference in accumulated amortisation on the EXE goodwill asset.

(4)
Under UK GAAP, the remuneration element of stock options is charged against net income in the period between the options being granted and the date of vesting, with an equal amount credited directly to shareholders' equity. Under US GAAP an available alternative method is to charge net income and credit a liability account, with the balance on the liability account being subsequently transferred to shareholders' equity as the options are exercised or lapse.

    The Group has adopted this available alternative method and accordingly a GAAP difference arises in shareholders' equity.

(5)
Under UK GAAP, the group has previously written off goodwill of £98,000 directly to shareholders' equity. Under US GAAP, the goodwill is reinstated and is being amortised over 30 years.

(6)
Under UK GAAP, FRS 19 requires full provision to be made for deferred tax assets and liabilities arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation. Deferred tax assets are recognised to the extent that they are regarded as recoverable. Recoverability is regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

    Under US GAAP deferred taxes are provided for on a full liability basis. Under the full liability method, deferred tax assets and liabilities are recognised between the financial and tax bases of assets, liabilities and for tax loss carry forwards at the statutory rate of each reporting date. A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realised.

    A subsidiary undertaking of Centaur Communications Limited, Perfect Information Limited, incurred tax losses up to June 2001 of £2,872,000, which under UK tax law are carried forward indefinitely to be offset against taxable profits arising from the same trade. The Company adopted FRS 19 during 2002 and restated prior financial statements. The historical conversion to U.S.GAAP recognised a deferred tax asset and provided a full valuation allowance at 30 June 2001.

    Perfect Information has made taxable profits in the current financial year and Centaur Communications Limited consider it more likely than not that Perfect Information will produce suitable taxable profits from which the future reversal of the underlying timing difference can be deducted. This has resulted in a deferred tax asset being created under FRS 19 and accordingly under US GAAP, the valuation allowance set against the related deferred tax asset has been released.

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QuickLinks

PART 1
Real Estate Held For Development or Sale
Nursery Real Estate
PART II
Market Information
Dividend Policy
GRIFFIN LAND & NURSERIES, INC Consolidated Statement of Operations (dollars in thousands, except per share data)
GRIFFIN LAND & NURSERIES, INC. Consolidated Balance Sheet (dollars in thousands, except per share data)
GRIFFIN LAND & NURSERIES, INC. Consolidated Statement of Stockholders' Equity (dollars in thousands)
GRIFFIN LAND & NURSERIES, INC. Consolidated Statement of Cash Flows (dollars in thousands)
GRIFFIN LAND & NURSERIES, INC. Notes to Consolidated Financial Statements (dollars in thousands, except per share data)
Report of Independent Accountants
Consent of Independent Accountants
PART III
Summary Compensation Table
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Compensation of Directors
Section 16(a) Beneficial Ownership Reporting Compliance
Compensation Committee Interlocks and Insider Participation
PART IV
SIGNATURES
FORM OF CERTIFICATION
FORM OF CERTIFICATION
Schedule II—Valuation and Qualifying Accounts and Reserves (dollars in thousands)
Fiscal year ended November 30, 2002
Fiscal year ended December 1, 2001
Fiscal year ended December 2, 2000
INDEPENDENT ACCOUNTANTS
Centaur Communications Limited Consolidated profit and loss account for the year ended 30 June 2002
Centaur Communications Limited Consolidated balance sheet at 30 June 2002
Centaur Communications Limited Company balance sheet at 30 June 2002
Centaur Communications Limited Consolidated cash flow statement for the year ended 30 June 2002
Centaur Communications Limited Statement of Group total recognised gains and losses
Centaur Communications Limited Notes to the financial statements