INDUS REALTY TRUST, INC. - Annual Report: 2004 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 0-29288

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

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

        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 $62,500,000 based on the closing sales price on the Nasdaq National Market on May 28, 2004, the last business day of the registrant's most recently completed second quarter. Shares of Common Stock held by each executive officer, director, and persons or entities known to the registrant to be affiliates of the foregoing have been excluded in that such persons may be deemed to be affiliates. This assumption regarding affiliate status is not necessarily a conclusive determination for other purposes.

        As of February 1, 2005, 4,962,272 shares of common stock were outstanding.

PART I

ITEM 1. BUSINESS

        Griffin Land & Nurseries, Inc. ("Griffin") and its subsidiaries comprise principally a real estate and a landscape nursery business. Griffin is engaged in two lines of business: (1) the real estate business comprised of (a) the ownership, construction, leasing and management of commercial and industrial properties and (b) the development of residential subdivisions on real estate owned by Griffin in Connecticut and Massachusetts and (2) 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.

        Griffin also owns an approximately 4% interest in Centaur Holdings, plc ("Centaur Holdings"), a publicly held magazine and information services publisher based in the United Kingdom. Griffin received the stock in Centaur Holdings as part of the consideration from the sale, completed March 10, 2004, of its equity investment in Centaur Communications, Ltd. ("Centaur"). Griffin also holds an approximately 14% interest in the equity of Shemin Acquisition Corp. ("Acquisition"), a private company that is the parent company of Shemin Nurseries, Inc. ("Shemin"). This investment was acquired as part of the sale, in 2001, of a portion of the landscape nursery business which operated wholesale sales and service centers (the "SSCs"). Griffin has an approximately 3% equity interest in Linguaphone Group Ltd. ("Linguaphone"), a private company based in the United Kingdom which designs and distributes language teaching materials.

Real Estate Business

        Griffin's real estate division, Griffin Land, is directly engaged in the real estate development business on parts of its land in Connecticut. Griffin Land develops portions of its properties for industrial, commercial and residential use and may also endeavor to sell some of its non-core land holdings either before or after obtaining development approvals. Griffin Land may seek to acquire and develop properties not presently owned and may seek to acquire existing buildings. The headquarters for this operation is in Bloomfield, Connecticut.

        Several years ago, the real estate market in the Hartford area, particularly that in the northwest quadrant where the majority of Griffin Land's acreage is located, was depressed by a number of factors, including the decline of employment in manufacturing and financial services. More recently, there has been some recovery in this market, particularly in the industrial market. The office market, which had been particularly weak, has been effectively flat over the last few years. In 2002, an increase in the amount of industrial space leased by Griffin Land was partially offset by a reduction in the net amount of office and flex space leased. In 2003, Griffin Land succeeded in extending leases of 189,426 square feet (principally industrial), leased 31,287 square feet of previously vacant industrial space and leased 21,800 square feet of industrial space that was vacated by an early lease termination. During 2004, Griffin Land leased 78,055 square feet of additional space (net of vacated space) and leases aggregating 77,988 square feet were extended. There can be no assurance as to the direction of the real estate market in this region in the near future; however, in the fall of 2004 and continuing since that time, there have been a substantial number of requests for proposals for space in both industrial and office buildings. Griffin Land has recently entered into a new lease for approximately 40,000 square feet of industrial space in a building currently under construction for delivery in mid 2005. Griffin Land's development of its land is affected by land planning issues, particularly in the town of Simsbury, Connecticut. Subdivision and other development issues may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth.

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Commercial and Industrial Developments

New England Tradeport

        A significant amount of Griffin Land's current commercial and industrial development effort is focused on a 600 acre tract owned by Griffin Land near Bradley International Airport and Interstate 91 known as the New England Tradeport, located in Windsor and East Granby, Connecticut. To date, approximately 512,000 square feet of warehouse and light manufacturing space has been completed by Griffin Land, of which approximately 85% is currently leased, and a bottling and distribution plant was built in the early 1990s by the Pepsi Bottling Group ("Pepsi") on land sold to Pepsi by Griffin Land. Griffin Land is currently constructing the shell of a new approximately 137,000 square foot warehouse (the "new shell") which is expected to be available in the spring of 2005. As of November 27, 2004, $21.1 million was invested (net book value) in buildings located in the New England Tradeport, including the new shell, and $2.8 million was invested (net book value) in the undeveloped land there. All of Griffin Land's existing buildings at New England Tradeport, other than the building completed near the end of fiscal 2003 and the new shell under construction, are mortgaged for an aggregate of approximately $16.7 million. Griffin Land expects to seek nonrecourse mortgage financing for its unmortgaged New England Tradeport buildings during 2005.

        In 2004, Griffin Land extended leases in the New England Tradeport covering 52,243 square feet representing all of the square footage that was scheduled to terminate in 2004. In 2004, Griffin Land also completed leases for 78,630 square feet of previously vacant space. In addition, a lease for approximately 40,000 square feet of the new shell under construction was recently signed with tenant occupancy expected in mid 2005. Also, Griffin Land was recently notified by a tenant in one of its older industrial buildings that the tenant intends to exercise its right to terminate early its lease for approximately 15,000 square feet. In addition to the balance of the new shell, the only other vacant spaces in the New England Tradeport are a total of 16,500 square feet in one of Griffin Land's older industrial buildings (not including the expected early termination) and approximately 63,000 square feet in the building completed near the end of fiscal 2003. Leases scheduled to terminate over the next three years are as follows:

        Griffin Land has a state traffic control certificate which requires annual renewal for the development of an aggregate of 1.3 million square feet in the portion of New England Tradeport located in Windsor, Connecticut (approximately 586 acres). The certificate may require the funding of some infrastructure improvements on town or state roads in connection with development of more space than is currently built. Griffin Land intends to continue to direct its primary efforts in the industrial properties portion of its real estate business with construction and leasing of light industrial and warehouse facilities at the New England Tradeport. Griffin Land expects to commence construction of another approximately 137,000 square foot industrial building in the spring of 2005.

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 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, a light manufacturing building and a small restaurant building built by Griffin Land. Griffin Land currently owns two multi-story office buildings which have an aggregate of 161,000 square feet, a single story 50,000 square foot office

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building, whose shell was completed in 2002 and is currently 32% leased, the light manufacturing building and the small restaurant building. Through fiscal 2002, the two multi-story office 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 $8.7 million. As of November 27, 2004, $21.7 million was invested (net book value) in Griffin Land's buildings in Griffin Center and $1.5 million was invested in the undeveloped land there. Three of Griffin Land's existing buildings are mortgaged for an aggregate of approximately $15.3 million.

        Currently, 332,152 square feet in Griffin Center is leased, comprising approximately 87% of Griffin Land's total space in Griffin Center. In 2005, a tenant who currently occupies 43,988 square feet in one of the multi-story office buildings may terminate its lease one year early and relocate to the single story 50,000 square foot office building, which will result in the single story office building being fully leased. Leases in Griffin Center scheduled to terminate over the next three years are as follows:

(a)

Includes 43,988 square feet that may terminate in 2005, one year early, in connection with the tenant moving to Griffin Land's single story office building.

        During 2001, Griffin Land completed a light manufacturing building of 165,000 square feet in Griffin Center for JDS Uniphase Corporation ("JDS") which was leased to JDS under a fifteen-year lease. Effective in early fiscal 2005, a new tenant replaced JDS on the lease, which was amended to extend its term, terminate certain options and provide the new tenant an option to purchase the building at the higher of $11.5 million or fair market value in 2021. Lease rates under the amended lease are unchanged from the lease with JDS for the term of the original lease with JDS. This transaction will result in a charge of approximately $0.1 million for the write-off of certain capitalized costs related to the original lease with JDS in the 2005 first quarter.

        Griffin Center South is a 130-acre tract with sixteen buildings of single story office, flex and storage space. Griffin Land currently owns nine buildings with an aggregate of 235,000 square feet, which contain approximately 217,000 square feet of single story office and flex space and 18,000 square feet of storage space. At November 27, 2004, the aggregate investment (net book value) in Griffin Center South was $10.6 million. None of Griffin Land's properties in Griffin Center South are mortgaged. Undeveloped land remaining in Griffin Center South is sufficient to build at least one additional building of approximately 55,000 square feet.

        Currently, 168,221 square feet of space in the Griffin Center South buildings owned by Griffin Land is leased, comprising 72% of Griffin Land's total space in Griffin Center South. Leases in Griffin Center South scheduled to terminate over the next three years are as follows:

Other Office and Industrial Subdivisions

        Three additional Griffin Land parcels appropriate for office or industrial uses are currently marketed for development, including 103 acres in the South Windsor Technology Center, 28 acres in the Day Hill Technology Center in Windsor and a 16 acre parcel in Windsor originally expected to be developed with smaller build-to-suit industrial buildings. Griffin Land has entered into an agreement

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for the sale of the 16 acre parcel in Windsor. The sale is subject to certain conditions but is expected to be completed in the first half of 2005.

Residential Developments

Simsbury

        In November 1999, Griffin Land filed plans for the creation of a residential community of 640 homes, called Meadowood, on a 363 acre site in Simsbury, Connecticut. After the conclusion of the original public hearings before the town's land use commissions, Griffin Land amended its plan and reduced the number of proposed homes to 371. One quarter of these homes are to 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 related to this development ruled in favor of Griffin Land. Simsbury appealed those decisions, one of which was affirmed and the other relating to planning was reversed in part, due to the failure to have obtained a sewer connection approval for Meadowood, which has now been obtained. Those decisions could require compliance with other court decisions on wetlands conservation and placement of septic systems within the sewer district which could affect the proposed development. In a separate but related case, the Connecticut Supreme Court found that the proposed soil remediation had not been shown to result in a health hazard. Griffin Land appealed an adverse decision on wetlands to the Connecticut Supreme Court, which reversed the decision and remanded the case to the trial level court for further consideration. On November 12, 2003, Griffin Land filed a second amendment to its plans which reduced the density to 298 homes and eliminated most activities in the wetlands and wetland upland areas. The Conservation Commission which has jurisdiction of wetland issues denied that application. That denial has been appealed. The first amended plan, however, remains to be decided by the trial level court of Connecticut. That court declined to direct new hearings by the Conservation Commission. The current book value of the land, including design and development costs to date, for this proposed development is $4.0 million. Management believes that development costs for Meadowood that have been expended to date will be recovered.

        Griffin Land owns approximately another 500 acres in Simsbury, portions of which are zoned residential and other portions of which are zoned industrial. Not all of such land is developable. 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 Land began infrastructure work at Walden Woods, a 153 acre site in Windsor, Connecticut, which was originally planned to contain approximately 435 residential units. In 2004, Griffin Land completed the sale of the balance of the development rights, and recorded a loss of approximately $0.2 million on this transaction. Griffin Land retained one residential lot in Walden Woods, which was sold in early 2005.

Suffield

        In 2003, Griffin Land received approval for the subdivision of 97 acres of contiguous land in Suffield, Connecticut, into a development of 50 homes called Stratton Farms. However, a suit was

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brought by an adjoining landowner challenging the approval, and Griffin Land was subsequently informed that the required notices posted by the town were not in accordance with applicable requirements. The subdivision plans were resubmitted to the town's land use commissions in January 2004, were reapproved and are currently being contested by the adjoining landowner.

Other

        Griffin Land leases approximately 500 acres in Connecticut to General Cigar Co., Inc. for tobacco growing at annual rents approximating the land's annual carrying cost. The lease for these properties, which extends through February 2007, may be terminated by Griffin Land with respect to 100 acres annually, on one year's prior notice.

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

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, and 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 sales and service centers, 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 490 acres currently used). The Florida growing operation has substantially completed its planned expansion on adjacent lands owned by Imperial. Currently, substantially all of the useable contiguous lands suitable for the container-growing operations in Connecticut and a large portion of such land in northern Florida are prepared for container growing operations, however not all available space is currently being utilized. The Florida farm has also improved and expanded its shipping capacity and customer service facilities and has improved its irrigation and water recycling operations. In Connecticut, Imperial uses approximately 40 acres of land owned by Griffin to grow liners for transplantation into containers. In the future, that land may be used for real estate development. Imperial has evaluated other land held by Griffin for this use. Some capital expenditures would be required to convert other land for liner growing by Imperial.

        Imperial's growing operations serve a market comprised principally of retail garden center operators, landscape nursery mass merchandisers and wholesale sales and service centers. Imperial's major markets are in the Northeast, Mid-Atlantic, the northern portion of the Southeast and the Midwest. Imperial is attempting to expand its distribution to parts of the Southeast. Nursery sales are extremely seasonal, peaking in Spring, and are strongly affected by commercial and residential building activity and are also materially affected by weather conditions, particularly in the Spring planting season.

        Imperial's sales are made to a large variety of customers, none of which represented more than 10% of Imperial's total sales in fiscal 2004 and fiscal 2003. However, sales to mass merchandisers, comprised of several large customers, accounted for 29% of Imperial's total net sales in fiscal 2004, which was down from 35% of total net sales in fiscal 2003. 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, expired on January 26, 2004. Imperial continues to be a supplier to Shemin, although not necessarily at the same sales level as when the sales contract was in effect.

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        Imperial's inventories consist of container-grown plants on its two farms. The largest volume products of Imperial are evergreens, including leyland cypress, many varieties of hollies and flowering shrubs in Florida and rhododendron, evergreens and flowering shrubs in Connecticut. Other major product categories in Florida include nandina, juniper, trees, perennials and crapemyrtle. In Connecticut, alberta spruce, perennials and trees are other major products. During 2000, a decision was made to reduce significantly 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, hollies, some varieties of deciduous shrubs, crapemyrtle and trees. Container-grown product is held principally from one to five years before it is sold by Imperial. Prior to 2002, 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 was reduced starting in 2002. Commencing in 2003, Imperial has been selling some smaller perennials and a number of other products as one of several licensed growers under the "Novalis" trade name. Imperial has entered into additional licensing agreements which enable it to grow and sell certain varieties available only to certain growers. These programs are directed toward increasing Imperial's sales to retail garden centers.

        Imperial is reviewing a variety of approaches to improve the operating results 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. Another approach is an effort to increase the percentage of Imperial's product sold to retail garden centers. Sales to garden centers generally have more favorable gross margins than those from sales to mass merchandisers or wholesalers. In addition, efforts are being directed at expanding sales in the Southeast which is closer to the Florida farm and would help reduce delivery costs on product shipped from Florida. A substantial portion of the products which are part of the expanded Florida production are of larger sizes requiring an extended growing cycle and some may require added sales emphasis in the Southeast. The field grown liner program in Connecticut is another program directed at reducing plant costs. 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 incurred charges for inventory losses above normal levels of approximately $1.1 million in 2004, $0.4 million in 2003 and $1.8 million in 2002. These charges were due principally to crop failures, disease, poor results from the propagation of new plants in Florida and incomplete sell through of certain products.

        Shipping capacity and shipping expense are major cost concerns. Shipping capacity in Florida has been increased, but may require some additional peaking capacity. Costs of shipping from Florida have been increasing because of higher fuel costs, an increased need to arrange for the return of empty trucks to assure that portable shelving units were available for subsequent shipments and that there is an adequate supply of trucks during the peak spring shipping season. In January 2004, shipping costs also increased due to new Federal Department of Transportation regulations requiring more off duty hours for truck drivers and making shipments with multiple stops more costly. Imperial intends to purchase additional portable shelving units and to plan its shipping in ways to reduce the need for returning trucks empty. 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. In addition, obtaining the necessary labor for Florida's Spring shipping requirements was costly in 2004 due to concern for the availability of local seasonal labor. Also, additional store service support is being required for mass merchandiser customers.

        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 had become the principal contributor to the operating profit of Imperial. In January 2001, the SSCs were

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sold to Shemin for cash and stock in Shemin Acquisition Corporation. Griffin reported a pretax profit of approximately $9.5 million on this transaction.

Investments

Centaur Communications, Ltd.

        In March of 2004, the Company sold its interest in Centaur for consideration aggregating $68.9 million in cash (after sale expenses and including a foreign currency exchange gain) and common stock in the buying corporation (see below). The sale resulted in a pre-tax gain of $51.1 million and a related foreign currency exchange gain of $1.1 million.

Centaur Holdings, plc

        In connection with the sale of Centaur, Griffin received 6,447,150 shares of common stock of Centaur Holdings, approximately 4% of the outstanding common stock of Centaur Holdings at the time of the transaction. Centaur Holdings is a publicly traded company that was originally listed on the Alternative Investment Market of the London Stock Exchange. In December 2004, Centaur Holdings moved its listing to the London Stock Exchange. Griffin accounts for its investment in Centaur Holdings as an available for sale security. Accordingly, changes in the market value of Griffin's interest in Centaur Holdings, including both changes in its stock price and changes in the foreign currency exchange rate, are not included in Griffin's net income but are included in Griffin's other comprehensive income.

Shemin Acquisition Corporation

        In connection with Imperial's sale of the SSCs, Imperial holds approximately 14% of the outstanding common stock of Shemin Acquisition Corp., 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. In January 2004, Griffin invested an additional $143,000 in Acquisition.

Linguaphone Group Ltd.

        In 1997, Griffin received 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 3%. Accordingly, Griffin now accounts for Linguaphone under the cost method of accounting for investments. Linguaphone's operations in its 2004 fiscal year were improved but it continues to report a loss. In prior years, Griffin recorded a charge to write down its investment in Linguaphone.

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 27, 2004, Griffin employed 231 persons on a full-time basis, including 14 in its real estate business and 213 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.

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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 Land may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. The value of Griffin's land may be affected by the presence of chlordane, arising from the prior use of the land for farming, on a portion of the land which is intended for residential use. Although Griffin Land 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 has not yet been obtained in Simsbury, Connecticut, where Griffin Land has proposed a substantial residential development (see Item 3 Legal Proceedings). The cost of remediation of chlordane is not expected to be material to the value of the land for residential development. In the event that Griffin Land is unable to adequately remediate this property, its ability to develop such property for its intended purposes would be materially affected.

        Griffin Land periodically reviews its properties for the purpose of evaluating such properties' compliance with applicable state and federal environmental laws. At this time, Griffin Land does not anticipate experiencing, in the next twelve months, material expense in complying with such laws. However, Griffin Land may incur certain remediation costs in the future in connection with its development operations. Such costs are not expected to be significant as compared to expected proceeds of development projects.

ITEM 2. PROPERTIES

Land Holdings

        Griffin is a major landholder in the State of Connecticut, owning approximately 4,000 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.

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        The book value of undeveloped land holdings, including land improvements, owned by Griffin, principally in the Hartford, Connecticut area, is approximately $13.2 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, Connecticut has been developed, and nursery real estate, is as follows:

Real Estate Held For Development or Sale

Nursery Real Estate

        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 in connection with possible chlordane exceedences on such land.

        In 1999, Griffin Land filed land use applications with the land use commissions of Simsbury, Connecticut for Meadowood, a proposed residential development on approximately 363 acres of land. In 2000, Simsbury's land use commissions issued denials of Griffin Land's Meadowood application. As a result of those denials, Griffin Land brought several separate, but related, suits appealing those

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decisions. In 2002, the trial court upheld two of Griffin Land's appeals and ordered the town's Planning and Zoning Commissions to approve the Meadowood application. The town appealed those decisions. In 2004, the Connecticut Supreme Court ordered the Zoning Commission to approve the zoning regulations proposed by Griffin Land for Meadowood. The Connecticut Supreme Court also ruled that the denial of the Meadowood application by the Planning Commission can be upheld because Griffin Land had not obtained the required sewer usage permits at the time the application was made to the Planning Commission. The required sewer usage permits for Meadowood have been subsequently obtained. Also in 2004, the Connecticut Supreme Court reversed a lower court decision that had denied Griffin Land a wetlands permit, and remanded the case to Superior Court for further proceedings to determine if a wetlands permit must be issued. That remanded case is pending in Superior Court.

        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 EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

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

        On February 1, 2005, the number of record holders of common stock of Griffin was approximately 452, 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 $24.82 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 2000 through 2004 and balance sheet data as of the end of each fiscal year.

(a)

As described in footnote 1 to the consolidated financial statements included in Item 8, previously reported amounts for total revenue were reduced by $1,059, $937, $999 and $485 for fiscal 2003, fiscal 2002, fiscal 2001 and fiscal 2000, respectively. Related cost of sales in those years was reduced by the same amount that the revenue was reduced each year. The revisions reflect changes to amounts recorded for property management revenue and expenses in Griffin's real estate division to eliminate certain offsetting intercompany amounts that were inadvertantly included in those years. These revisions, which Griffin believes are not material, do not affect previously reported operating profit (loss), net income (loss), net income (loss) per share or balance sheet data.

(b)

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.

(c)

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 Ltd.

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"). Prior to March 10, 2004, Griffin had an equity investment in Centaur Communications, Ltd. ("Centaur"), a privately held magazine publishing business based in the United Kingdom. On March 10, 2004, Griffin completed the sale of its investment in Centaur and recorded a substantial gain. The proceeds from that sale included cash and stock in the acquiring company, Centaur Holdings, plc ("Centaur Holdings"). Griffin's investment in Centaur Holdings is accounted for as an available for sale security.

        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

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financial statements. However, in the opinion of management, because of the relative magnitude of Griffin's inventories and real estate assets, accounting methods and estimates related to those assets are critical to the preparation of Griffin's consolidated financial statements. In many other cases, however, 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 estimates and methods used by Griffin:

Investments: Griffin classifies its investments in debt and equity securities that have readily determinable fair values based upon management's intent regarding the security. If there is a decline in fair value of available-for-sale securities, Griffin evaluates whether such decline is other than temporary.

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

Inventories: In applying the principle of the lower of cost or market using the average cost method to nursery stock, management must estimate the future recoverability of certain parts of the inventory that have not matured as planned. Such estimates are based on the physical characteristics of the nursery stock in question and potential sales outlets.

Deferred tax assets: In applying SFAS No. 109 "Accounting for Income Taxes," management estimates future taxable income from operations, the sale of appreciated assets and tax planning strategies in determining if it is more likely than not that Griffin will realize the benefits of its deferred tax assets.

Impairment of Long-Lived Assets: Griffin evaluates the carrying value of its long-lived assets in relation to their fair values, operating performance and future undiscounted cash flows. In connection with Griffin's real estate business, development costs that have been capitalized are periodically reviewed for future recoverability.

Summary

        Griffin's results in fiscal 2004 reflect a substantial pretax gain on the sale of its investment in Centaur and a related gain on a foreign currency exchange contract, offset by lower operating results at Griffin Land and Imperial and higher general corporate expense. Griffin's overall interest expense was lower in fiscal 2004 as compared to fiscal 2003, and interest and dividend income was higher in fiscal 2004 as compared to fiscal 2003. The lower interest expense and higher interest and dividend income reflect a portion of the cash received from the sale of Centaur being used to repay the amount outstanding under Griffin's revolving credit agreement, with the balance of the cash proceeds being used for income tax payments and investments. A detailed discussion of fiscal 2004 results is included below.

Results of Operations

        Griffin's consolidated total revenue increased from $37.1 million in fiscal 2003 to $41.2 million in fiscal 2004. The increase of $4.1 million reflects increases in revenue of $3.5 million at Griffin Land and $0.6 million at Imperial.

        Revenue at Griffin Land increased from $10.3 million in fiscal 2003 to $13.8 million in fiscal 2004, principally reflecting an increase in revenue of $3.3 million from property sales. The 2004 property sales included $3.0 million from the sale of Griffin Land's remaining development rights at its Walden Woods residential development in Windsor, Connecticut and two smaller sales of residential land. There were no property sales in fiscal 2003.

        Griffin Land's revenue from leasing operations increased $0.2 million in fiscal 2004 as compared to fiscal 2003 as rental revenue from new leases, including two new tenants in the 117,000 square foot

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industrial building that was completed near the end of fiscal 2003 and partially leased in 2004, was partially offset by the effect of vacancies in space that was leased in fiscal 2003 but was unleased for most or all of fiscal 2004. During fiscal 2004, Griffin Land released 77,988 square feet and signed new leases for 96,296 square feet and had leases for 18,241 square feet which were terminated without a replacement tenant. At the end of fiscal 2004, Griffin Land owned 1,130,000 square feet of industrial, flex and office space, with 933,000 square feet (83%) leased, as compared to 858,000 (76%) of Griffin Land's 1,130,000 square feet leased at the end of fiscal 2003. The increase in space leased principally reflects the partial leasing of the new building discussed above. Market activity, based on inquiries from potential tenants, in the area where Griffin's properties are located increased in 2004 as compared to 2003, especially for industrial space. Inquiries by prospective tenants and requests for proposals for both office and industrial space were strong at the end of 2004 into early 2005.

        Total revenue at Imperial increased from $26.8 million in fiscal 2003 to $27.4 million in fiscal 2004. Unit sales volume in fiscal 2004 declined 4.5% from the unit sales volume in fiscal 2003. The effect of the decline in unit sales volume in fiscal 2004 was more than offset by increased sales to Imperial's garden center customer segment, which generally have higher per unit selling prices than units sold to Imperial's other customer segments. In fiscal 2005, Imperial plans to continue to attempt to increase the proportion of product sold to garden centers and reduce, as a percentage of total sales, sales to mass merchants.

        Griffin incurred a consolidated operating loss of $4.4 million in fiscal 2004 as compared to a consolidated operating loss of $1.8 million in fiscal 2003. The lower operating results reflect decreases of $0.7 million and $0.6 million at Griffin Land and Imperial, respectively, and an increase of $1.3 million in general corporate expense.

        Operating profit at Griffin Land decreased from $1.5 million in fiscal 2003 to $0.8 million in fiscal 2004, reflecting the following:

        The decrease of $0.2 million in Griffin Land's profit from leasing activities before general and administrative expenses and before depreciation and amortization expense principally reflects higher building operating expenses, reflecting higher utility expenses, real estate taxes and repair and maintenance expenses, partially offset by lower snow removal expenses. A portion of the increased operating expenses were not subject to reimbursement from tenants.

        Griffin Land's loss from property sales reflect a profit of $0.3 million from sales of undeveloped residential land, offset by a loss of $0.2 million on the sale of the remaining development rights at Griffin Land's residential development, Walden Woods, in Windsor, Connecticut, and the writeoff of $0.2 million of costs on two potential property sale transactions that did not take place. The increase of $0.2 million in general and administrative expenses reflects higher salary and benefit expenses. The increase of $0.2 million in depreciation and amortization expense principally reflects depreciation on the new 117,000 square foot industrial building completed at the end of fiscal 2003.

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        Imperial's operating loss increased from $1.6 million in fiscal 2003 to $2.2 million in fiscal 2004, as follows:

        The $0.6 million increase in Imperial's operating loss was due principally to a $1.1 million charge for unsaleable inventories in fiscal 2004 as compared to a charge of $0.4 million for unsaleable inventories in fiscal 2003. The increased charge for unsaleable inventories in fiscal 2004 was principally due to disease and other horticultural issues caused by excessive rainfall in the summer and early fall at Imperial's northern Florida operation, insufficient sell through on certain inventories, particularly smaller size fast growing products at Imperial's Connecticut operation, and production plan changes whereby certain young liner plants will not be grown into larger sizes. Inventories of the smaller sized products are planned to be much lower in fiscal 2005 than they were in fiscal 2004.

        Excluding the additional charges for unsaleable inventories in both years, Imperial's gross margins on sales increased from 11.9% in fiscal 2003 to 12.7% in fiscal 2004. The increase in gross margins, excluding those charges, principally reflected the improved pricing in fiscal 2004 that resulted from selling a greater percentage of higher priced plants to garden center customers.

        Imperial's selling, general and administrative expenses increased from $4.4 million in fiscal 2003 to $4.5 million in fiscal 2004. As a percentage of net sales, Imperial's selling, general and administrative expenses were 16.3% of net sales in both fiscal 2003 and fiscal 2004. An increase in selling expenses of $0.3 million in fiscal 2004 as compared to fiscal 2003 was mostly offset by lower marketing and general and administrative expenses. The higher selling expenses reflect higher salesperson compensation expense and higher bad debt expense. The increase in salesperson compensation expense reflects an increased headcount of salespersons and an increase in commissions due to the improved pricing and higher sales to customer segments that generate higher commissions. The increase in bad debt expense reflects the Chapter 11 filing by Frank's Nursery & Crafts, Inc. ("Frank's"), one of Imperial's larger customers. Imperial's bad debt expense on the Frank's bankruptcy was mitigated by the subsequent sale of its claim, which recovered a significant percentage of the total amount due from Frank's at the time it declared bankruptcy. The lower marketing expenses principally reflects the inclusion in fiscal 2003 of expenses related to the introduction of plants to be sold under the new "Novalis" trade name. The lower general and administrative expenses reflect lower donation and contribution expenses.

        Griffin's general corporate expense increased from $1.8 million in fiscal 2003 to $3.0 million in fiscal 2004. The increase reflects incentive compensation expense of $0.6 million in fiscal 2004 as compared to no incentive compensation expense in fiscal 2003. In addition, general corporate expense increased $0.2 million for the write off of unamortized debt issuance costs related to Griffin's Credit Agreement, which was terminated in the 2004 second quarter, $0.2 million for capital based state and local taxes and $0.1 million for costs related to a proposed financing which did not take place.

        In fiscal 2004, Griffin completed the sale of its investment in Centaur to Centaur Holdings, a newly formed company. Griffin received cash proceeds of $68.9 million after transaction expenses of $1.5 million but before income tax payments. In addition to the cash proceeds, Griffin received 6,477,150 shares of common stock of Centaur Holdings, which was valued at approximately $11.7 million based on the £1.00 per share price of the initial public offering of shares by Centaur

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Holdings and the foreign currency exchange rate in effect at that time. Griffin was prohibited from selling its Centaur Holdings common stock for six months from the transaction date. That restriction lapsed in the 2004 fourth quarter. Griffin recorded a pretax gain of $51.1 million on the sale and a foreign currency exchange gain of $1.1 million related to the sale. In connection with the Centaur transaction, substantially all of the stock options of Centaur were exercised immediately prior to the closing of the Centaur transaction, which resulted in Griffin's ownership being reduced from 35% to 32%. The gain of approximately $2.3 million that resulted from the dilution of Griffin's ownership is included in the gain on the sale of that investment. In addition, Griffin recorded other comprehensive income of $5.4 million at the time of the transaction, reflecting the difference, net of tax, between the value of Griffin's investment in Centaur Holdings and the book value of the pro rata portion of the investment in Centaur that remained as a result of receiving the Centaur Holdings common stock as a part of the sale proceeds. Subsequent to the transaction, Griffin recorded an other comprehensive loss of $0.2 million reflecting changes in the market price of the common stock of Centaur Holdings and changes in the foreign currency exchange rate.

        Griffin's consolidated interest expense decreased from $2.6 million in fiscal 2003 to $2.5 million in fiscal 2004. Higher interest expense in the 2004 first quarter as compared to the 2003 first quarter was offset by the lower interest expense in the balance of the year as a result of the paydown of the entire amount outstanding under the Credit Agreement with a portion of the proceeds from the sale of Centaur. Griffin's average outstanding debt in fiscal 2004 was $36.4 million as compared to $39.7 million in fiscal 2003.

        Griffin had $0.5 million of interest income, dividend income and gains on short-term investments in fiscal 2004 from the investment of the remaining proceeds from the sale of Centaur, after repaying the Credit Agreement debt and making estimated income tax payments.

        Griffin's effective income tax provision rate was 33.0% for fiscal 2004, as compared to an effective income tax benefit rate of 37.0% in fiscal 2003. The 2004 effective income tax provision rate principally reflects a 35% rate for federal income taxes adjusted for certain tax credits related to foreign income taxes paid by Centaur and a basis difference on that investment. In addition, the fiscal 2004 effective tax rate includes the release of an income tax liability of $0.2 million upon completion of tax examinations of prior years. The effective income tax benefit rate for fiscal 2003 reflects a 34% rate for federal income taxes adjusted for state income taxes.

        Griffin's fiscal 2004 results include equity income of $0.3 million through the date of Griffin's sale of its investment in Centaur, as compared to equity income of $0.4 million in fiscal 2003. Griffin's 2003 equity income included a charge, of which Griffin's allocable share was $0.5 million, to accrue future costs (less expected sublease income) for an operating lease of office space that was no longer used by Centaur. Excluding the effect of the charge of future lease costs, the lower equity results reflected the sale of Griffin's investment early in fiscal 2004 as compared to recording equity income for the entire year in fiscal 2003.

Fiscal 2003 Compared to Fiscal 2002

        Griffin's total revenue increased from $33.0 million in fiscal 2002 to $37.1 million in fiscal 2003. The increase of $4.1 million reflects increases in total revenue of $2.5 million at Griffin Land and $1.6 million at Imperial.

        Total revenue at Griffin Land increased from $7.8 million in fiscal 2002 to $10.3 million in fiscal 2003, reflecting an increase of $3.0 million in revenue from Griffin Land's leasing operations partially offset by not having any property sales in fiscal 2003 as compared to revenue of $0.5 million from property sales in fiscal 2002. The increase in revenue from leasing operations was due to (a) $2.4 million from the two multi-story office buildings that Griffin Land acquired in the 2003 first quarter; (b) a $0.3 million increase from new leases of existing space, net of revenue decreases from vacancies; and (c) $0.3 million from leasing space that was completed and leased mid year in fiscal

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2002 but leased for the entire year in fiscal 2003. Revenue from the early termination of leases was $0.1 million in both fiscal 2003 and fiscal 2002. At November 30, 2003, Griffin Land owned 1,130,000 square feet of office, flex and industrial space for lease, with 858,000 (76%) leased. At November 30, 2002, Griffin Land had 1,013,000 square feet of office, flex and industrial space available for lease of which 885,000 square feet (87%) was leased. The increase in the amount of total square feet available for lease reflects the completion in the fiscal 2003 fourth quarter of the shell of a 117,000 square foot industrial building that was ready for tenant work but not yet leased at the end of fiscal 2003. Leasing in the industrial, flex and office markets where Griffin Land's properties are located was slower in fiscal 2003 as compared to the previous two years. Inquiries from prospective tenants have increased in the latter part of fiscal 2003 and the early part of fiscal 2004 as compared to earlier in fiscal 2003, which management believes indicates that leasing activity may strengthen in the second half of fiscal 2004.

        Total revenue at Imperial increased from $25.2 million in fiscal 2002 to $26.8 million in fiscal 2003. The increase in Imperial's revenue principally reflects a 4% increase in unit sales volume and the effect of selling, on average, larger sized material in fiscal 2003 as compared to fiscal 2002. The increase in sales of larger sized plants reflects changes in Imperial's product mix made over the past several years. These were offset by overall lower pricing, as product available from growers appeared to exceed demand. Management believes that net sales in fiscal 2003 and fiscal 2002 were hampered by unfavorable weather conditions, particularly during Imperial's peak spring selling season in both years. In fiscal 2003, cold weather in March and early April, including snow in some areas, followed by excessive rain in the latter part of spring resulted in customers delaying and, in many cases, canceling orders. These factors particularly affected Imperial's garden center and wholesaler customer segments. In fiscal 2002, net sales were negatively affected by poor spring weather, which included drought conditions in the Mid-Atlantic area and excessive rain and cold in the Midwest. Imperial's spring net sales accounts for approximately 70% of Imperial's annual net sales.

        Griffin's consolidated operating loss decreased from $2.3 million in fiscal 2002 to $1.8 million in fiscal 2003. The lower consolidated operating loss reflects an increase of $0.4 million in operating profit at Griffin Land and a decrease of $0.3 million in the operating loss at Imperial, partially offset by an increase of $0.2 million in Griffin's general corporate expense.

        Operating profit at Griffin Land increased from $1.1 million in fiscal 2002 to $1.5 million in fiscal 2003, reflecting the following:

        Griffin Land's profit (before depreciation and interest) from its leasing activities increased from $5.1 million in fiscal 2002 to $6.7 million in fiscal 2003, due principally to the increase of $3.1 million in rental revenue discussed above, partially offset by an increase of $1.5 million in operating expenses of Griffin Land's buildings. The higher operating expenses reflect $1.1 million related to the two office buildings acquired in the 2003 first quarter, $0.1 million from buildings that were online for the entire year in fiscal 2003 as compared to part of the year in fiscal 2002 and $0.2 million of higher expenses throughout all buildings, due principally to higher snow removal costs, utility expenses and real estate

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taxes. Property sales generated a profit of $0.3 million in fiscal 2002, however there were no property sales in fiscal 2003. Depreciation and amortization expense at Griffin Land increased in fiscal 2003 as compared to fiscal 2002 due principally to depreciation on the two office buildings acquired in the fiscal 2003 first quarter and a full year's depreciation on buildings completed in fiscal 2002, which included only a partial year's depreciation on those assets. Griffin Land's general and administrative expenses, including real estate taxes on undeveloped land, increased from $2.1 million in fiscal 2002 to $2.2 million in fiscal 2003, due principally to real estate tax increases.

        Imperial's operating loss decreased from $1.9 million in fiscal 2002 to $1.6 million in fiscal 2003, as follows:

        The lower operating loss reflects an increase in Imperial's gross profit from $2.5 million in fiscal 2002 to $2.8 million in fiscal 2003. The higher gross profit was due to a lower charge for unsaleable inventories in fiscal 2003 as compared to fiscal 2002 partially offset by the effect of lower pricing. In fiscal 2003, cost of goods sold included a $0.4 million charge for inventory losses above normal amounts as compared to a $1.8 million charge included in fiscal 2002 cost of goods sold. The inventory charge in fiscal 2002 reflected failures in certain crops, poor results from the propagation of new plants at Imperial's northern Florida operation and failure to sell certain parts of the inventory which subsequently became unsaleable. The significantly lower inventory charge in fiscal 2003 was due to improved operations at Imperial's Florida facility partially offset by the effect of certain disease issues at Imperial's Connecticut operations.

        Excluding the effect of the inventory charges of $1.8 million in fiscal 2002 and $0.4 million in fiscal 2003, Imperial's gross profit decreased from $4.3 million in fiscal 2002 to $3.2 million in fiscal 2003. Imperial's gross margins on sales (excluding the effect of the inventory charges in both years) decreased from 17.1% in fiscal 2002 to 11.9% in fiscal 2003. The lower gross profit and lower margins reflect the effect of the weakened pricing in fiscal 2003 and higher fiscal 2003 freight costs that could not be passed on to customers, which more than offset the effect of the increase in unit sales volume. The higher freight costs, due principally to shipments from Imperial's northern Florida facility, reflect the cost of ensuring that a sufficient quantity of common carrier trucks was available to Imperial to meet the demand for deliveries during Imperial's peak spring selling season. Management is continuing to seek new vendor relationships to ensure continued availability of trucks in sufficient quantity to meet expected demand and to reduce these costs in the future.

        Imperial's selling, general and administrative expenses were $4.4 million in fiscal 2002 and fiscal 2003, but as a percentage of net sales, these expenses decreased from 17.5% of net sales in fiscal 2002 to 16.3% of net sales in fiscal 2003. Imperial's marketing expense (included in selling, general and administrative expense) increased by $0.1 million in fiscal 2003 due principally to promotion of products sold under the new "Novalis" trade name. Overall lower expenses in other areas, due in part to a headcount reduction and efforts to maintain expenses at prior year's level, offset the effect of the higher marketing expenses.

        Griffin's general corporate expense increased from $1.5 million in fiscal 2002 to $1.7 million in fiscal 2003. The increase principally reflects $0.1 million due to higher compensation expenses and $0.1 million of general expense increases.

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        Griffin's consolidated interest expense increased from $1.6 million in fiscal 2002 to $2.6 million in fiscal 2003. The increase reflects the overall higher amount of borrowings outstanding in fiscal 2003 as compared to fiscal 2002. Griffin's average amount of debt outstanding in fiscal 2003 was $39.7 million as compared to average outstanding debt of $23.2 million in fiscal 2002. The higher amount of outstanding debt in fiscal 2003 includes the $9.75 million nonrecourse mortgage completed in the 2003 first quarter to finance the acquisition of the 70% interest in two Griffin Center office buildings and other borrowings needed to supplement operating cash flow to finance Griffin's working capital requirements and real estate development activities.

        The effective rate of Griffin's income tax benefit in fiscal 2003 was 37% as compared to an effective income tax benefit rate of 82% in fiscal 2002. The effective rate of Griffin's income tax benefit in fiscal 2003 reflects a 34% rate for a federal income tax benefit, adjusted for state income tax benefits. Based on projected future taxable income from operations, the sale of appreciated assets, tax planning strategies and the future period in which net operating loss carryforwards may be utilized, management believes it is more likely than not that Griffin will realize the benefits of its deferred tax assets currently reported. Therefore, a valuation allowance is not included in Griffin's results for fiscal 2003. The high effective income tax benefit rate in fiscal 2002 reflects the tax benefit on Griffin's 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 certain income taxes was assumed by Griffin from Culbro at the time of the Distribution.

        Griffin's equity income from Centaur decreased from $3.6 million in fiscal 2002 to $0.4 million in fiscal 2003. The lower equity income in fiscal 2003 reflects several nonrecurring type items included in Centaur's results in fiscal 2002. These included the gain at Centaur from the sale of its Lawtel operation, of which Griffin's allocable share was $8.4 million. 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 included the effect of Centaur reversing a valuation allowance on certain of its deferred tax assets, of which Griffin's allocable share was $0.7 million. Griffin's fiscal 2003 equity income includes the effect of a charge, of which Griffin's allocable share is $0.5 million, for future costs of a lease for office space no longer being used. Griffin's equity income from Centaur in fiscal 2003 also benefited from discontinuing the amortization of goodwill at the beginning of fiscal 2003 in accordance with Griffin's adoption of SFAS No. 142. Excluding the net effect of these fiscal 2003 and 2002 one-time items, Griffin's equity income in Centaur increased in fiscal 2003 as compared to fiscal 2002 due principally to increased operating profit at Centaur. The increase in net sales at Centaur from fiscal 2002 to fiscal 2003 was offset by higher costs and expenses.

Off Balance Sheet Arrangements

        Griffin does not have any material off balance sheet arrangements.

Liquidity and Capital Resources

        Cash used in operating activities increased from $0.9 million in fiscal 2003 to $46.9 million in fiscal 2004. The $46.0 million increase in cash used in operating activities principally reflects the investment of $30.2 million of the proceeds from the sale of Centaur in short-term investments and Griffin's income tax payments of $16.0 million related to the gain on the sale of Centaur.

        Cash provided by investing activities was $64.9 million in fiscal 2004 as compared to cash used in investing activities of $14.6 million in fiscal 2003. The cash provided by investing activities in fiscal 2004 reflects the proceeds of $68.9 million from the sale of Centaur and a related foreign currency exchange contract, and property sale proceeds of $3.0 million, principally from the Walden Woods sale. The net

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cash used in investing activities in fiscal 2003 reflects $7.7 million used for the acquisition of a 70% interest in a real estate joint venture that owned two multi-story office buildings of approximately 80,000 square feet each located in Griffin Center in Windsor, Connecticut. Griffin had previously held the remaining 30% interest. Additions to real estate held for lease in fiscal 2004 principally reflect the start of construction of a new 137,000 square foot industrial building and tenant improvements, related to new leases and to a ten year lease extension with a major tenant in the New England Tradeport. The new lease rates on the extended lease were based in part on the tenant improvement investment, including an interest factor, to provide Griffin Land an appropriate return over the lease term on its investment of these improvement costs.

        Additions to property and equipment, principally for Imperial, decreased from $0.7 million in fiscal 2003 to $0.6 million in fiscal 2004. The additions in fiscal 2003 were generally for the completion of the expansion of Imperial's northern Florida growing operation that had been ongoing over the prior four years. Additions to property and equipment in fiscal 2004 were to construct facilities needed for a portion of the product to be sold under the new "Novalis" trade name, to increase shipping capacity to meet its needs during its peak spring demand period and for general improvements.

        Net cash used in financing activities was $9.2 million in fiscal 2004 as compared to net cash of $15.5 million provided by financing activities in fiscal 2003. The net cash used in financing activities in fiscal 2004 reflects the paydown of all of the outstanding amounts under the Credit Agreement using a portion of the proceeds from the sale of Centaur. Fiscal 2004 also includes $1.5 million of proceeds from an additional mortgage on two industrial buildings. The proceeds were used to finance tenant improvements related to a ten year lease extension by a major tenant in one of those buildings. The net cash generated from financing activities in fiscal 2003 includes the proceeds from a $9.75 million nonrecourse mortgage placed on the two multi-story office buildings of the joint venture acquired in December 2002 and borrowings under the Credit Agreement to finance Griffin's operations.

        Griffin plans to continue to invest in its real estate business. Additional amounts will be required to complete the remainder of the interiors of the shells of an office building and an industrial building that were built on speculation and available for occupancy in fiscal 2003 and fiscal 2004, respectively. Currently, each building is partially leased. The buildout of the unleased parts of these buildings will be started when leases are obtained. Griffin Land will also continue to invest in infrastructure improvements required for present and future development in its office and industrial parks. In fiscal 2004, Griffin Land started construction, on speculation, of the shell of a new approximately 137,000 square foot industrial building in the New England Tradeport. The shell of that building is expected to be completed in the 2005 spring, and a lease for approximately 40,000 square feet in that building was recently signed. Tenant work for that lease will begin in early 2005, with occupancy expected by mid year. Additional tenant work will be started as new leases are completed. Construction of an additional industrial building is expected to be started in fiscal 2005 if the current strong expressions of interest by prospective users for Griffin Land's industrial buildings result in new leases for that space. Management intends to continue to build industrial space on speculation to ensure that space is available for new leases. Also in fiscal 2004, Griffin Land received approval for its proposed residential development, Stratton Farms, in Suffield, Connecticut. An owner of certain land adjacent to Stratton Farms has filed an appeal of the approvals issued by the town's land use commissions. The start of infrastructure work on this project is expected to begin in fiscal 2005. Revenue from land sales in Stratton Farms is not expected until the latter part of fiscal 2005.

        Griffin Land has entered into agreements to sell undeveloped residential land for $1.0 million and to sell commercial land for $0.8 million. The completion of the residential land sale is contingent on the buyer obtaining approvals from the towns' land use commissions. Completion of the sale of commercial land is contingent upon Griffin Land completing some remediation of the soils on the site, which is expected to be completed in the first half of fiscal 2005. Griffin Land intends to proceed with residential development plans on other of its lands that are also appropriate for that use.

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        Griffin's payments (including principal and interest) under contractual obligations as of November 27, 2004 are as follows:

(1)

Includes $2.5 million for the purchase of plant materials and supplies and $2.0 million related to the construction of a new industrial building.

(2)

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

        As a result of the Centaur transaction, Griffin repaid the entire amount outstanding under its Credit Agreement, terminated the Credit Agreement and currently has cash of $8.8 million and short-term investments of $30.2 million. Management believes that the significant amount of cash on hand and short-term investments will be sufficient to finance the working capital requirements of Griffin's businesses and fund continued investment in Griffin's real estate assets for the foreseeable future. Griffin Land will also continue to seek nonrecourse mortgage placements on selected properties. Griffin also anticipates seeking to purchase either or both other land and buildings with a substantial portion of its cash and short-term investment balances. There are no specific real estate investments contracted for at this time. Such investment may or may not occur based on many factors, including real estate pricing.

Recent Accounting Pronouncements

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs (an amendment of ARB No. 43, Chapter 4)." This new standard requires the recognition of abnormal inventory costs related to idle facility expenses, freight, handling costs and spoilage as period costs. SFAS No. 151 will be effective for Griffin in fiscal 2006 and is not expected to have a material impact on Griffin's financial statements.

        In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This new standard supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R requires an issuer to recognize the cost of employee services received in exchange for an award of equity instruments. Therefore, the cost of rewarding equity instruments will be recognized in Griffin's financial statements rather than disclosed in a pro forma statement in the financial statement footnotes. SFAS No. 123R will be effective for Griffin in the fourth quarter of fiscal 2005. Management has not yet fully evaluated the effect of SFAS No. 123R on Griffin's financial statements and has not determined the method of adoption it will use to implement SFAS No. 123R.

        In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets (an amendment of APB Opinion No. 29)." This new standard requires an issuer to measure and recognize nonmonetary exchanges which are anticipated to have an impact on future cash flows. SFAS No. 153 will be effective for Griffin in the fourth quarter of fiscal 2005 and is not excepted to have any impact on Griffin's financial statements.

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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 improved return on assets of Imperial's operations, construction and leasing of additional facilities in the real estate business, approval of proposed residential subdivisions, or completion of property sales currently under contract. The projected information disclosed herein is based on assumptions and estimates that, while considered reasonable by Griffin as of the date hereof, are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, many of which are beyond the control of Griffin.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Market risk represents the risk of changes in 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 included 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 did not have any variable rate debt outstanding at November 27, 2004. An increase in interest rates of 1% would have increased Griffin's interest expense on the variable rate debt that was outstanding during the year by $38,000.

        Griffin is exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on market values of Griffin's cash equivalents and short-term investments. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk, and investments with maturities principally less than three months 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.

        In connection with the sale of its investment in Centaur, Griffin entered into a foreign currency exchange forward contract with Fleet National Bank to hedge Griffin's exposure to the short-term fluctuation in the foreign currency exchange rate between the time the definitive agreement on the sale of Centaur was completed and the closing of the transaction and receipt of the sale proceeds. Griffin fulfilled its obligation under the contract with the proceeds from the sale of Centaur.

        Griffin does not have foreign currency exposure in operations. Griffin does have an investment in a public company, Centaur Holdings, plc and a private company, Linguaphone Group Ltd., both based in the United Kingdom. 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 Statements of Operations

(dollars in thousands, except per share data)

See Notes to Consolidated Financial Statements.

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

See Notes to Consolidated Financial Statements.

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders' Equity

(dollars in thousands)

See Notes to Consolidated Financial Statements.

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

See Notes to Consolidated Financial Statements.

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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.

        Through March 10, 2004, Griffin had an investment in Centaur Communications, Ltd. ("Centaur") which it accounted for under the equity method of accounting for investments. Centaur reported on a June 30 fiscal year in accordance with generally accepted accounting principles in the United Kingdom. However, Griffin reported its share of equity in Centaur's earnings (losses) based upon Griffin's fiscal year. Griffin converted Centaur's financial statements to accounting principles generally accepted in the United States of America and translated balance sheet information at the exchange rate as of the balance sheet date and used the average exchange rates over the respective periods to translate the statement of operations. Substantially all of Griffin's investment in Centaur represented the excess of the cost of Griffin's investment over the book value of its equity in Centaur (representing publishing rights and goodwill) and, through fiscal 2002, was being amortized on a straight-line basis over 30-40 years, which commenced in 1985. Effective in fiscal 2003, Griffin no longer amortized goodwill related to its investment in Centaur (see below), but continued to amortize publishing rights over 30 years. On March 10, 2004 Griffin completed the sale of Centaur (see Note 2).

        In connection with the preparation of its financial statements for the fiscal year ended November 27, 2004, Griffin determined that it had inadvertently reported certain intercompany revenue and expenses of the same amount in each period related to property management activities at Griffin's real estate business. Accordingly, in the fourth quarter of fiscal 2004, Griffin revised rental revenue and related costs to eliminate the duplicated amounts for all periods presented. The revisions, which Griffin believes are not material, decreased both revenue and related costs in the fiscal years ended November 29, 2003 and November 30, 2002 by $1,059 and $937, respectively, to eliminate those offsetting intercompany amounts that were inadvertantly included in prior periods. The revisions have no effect on previously reported gross profit, operating profit (loss), net income (loss) or net income (loss) per share in any of Griffin's previously issued consolidated statements of operations. In addition, the revisions have no effect on any of Griffin's previously issued consolidated balance sheets or consolidated statements of cash flows.

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, home centers, garden centers, wholesalers and landscape contractors.

        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 years 2004, 2003 and 2002 each contained 52 weeks and ended November 27, 2004, November 29, 2003 and November 30, 2002, respectively.

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Cash and Cash Equivalents

        Cash equivalents are composed of highly liquid investments with insignificant interest rate risk and an original maturity of three months or less, and are recorded at market. As of November 27, 2004, $8,791 of the cash and cash equivalents included on Griffin's consolidated balance sheet was held in the form of money market funds. There were no cash equivalents included on Griffin's November 29, 2003 consolidated balance sheet.

Investments

        Griffin's short-term investments are comprised of equity and debt securities and are accounted for as trading securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Accordingly, the securities are carried at their fair value based upon the quoted market prices of those investments at the balance sheet date, and the net realized and unrealized gains and losses on these investments are included in pretax income (loss).

        Griffin's investment in the common stock of Centaur Holdings, plc is accounted for as an available-for-sale security under SFAS No. 115, whereby increases or decreases in the value of this investment, net of income taxes, along with the effect of changes in the foreign currency exchange rate, are included in other comprehensive income (loss).

        Griffin's investment in a real estate joint venture is accounted for under the equity method. This investment is included in other assets on Griffin's balance sheet.

        Griffin's investments in Shemin Acquisition Corporation ("Acquisition") and Linguaphone Group, Ltd. ("Linguaphone") are accounted for under the cost method of accounting for investments. These investments are included in other assets on Griffin's balance sheet.

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 complies with the disclosure provisions of SFAS No. 123 and SFAS No. 148, which require disclosing the pro forma effect on earnings and earnings per share of the fair value method of accounting for stock-based

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compensation. Griffin's reported results would have been the following pro forma amounts under the method prescribed by SFAS No. 123:

        The weighted average fair values of each option granted during fiscal 2004, fiscal 2003, and fiscal 2002, were $11.59, $5.63, and $7.15, 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:

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. Repair and maintenance costs are expensed as incurred.

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

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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 its 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 their fair values and to the operating performance and future undiscounted cash flows of the underlying assets. Griffin adjusts the net book value of an underlying asset if its fair value is determined to be less than book value.

        Griffin also periodically reviews the recoverability of its development costs, including expected remediation costs on current projects, that are included in real estate held for sale or lease. To the extent that carrying value exceeds the fair value of a project's development costs, an impairment loss is recorded. There were no impairment losses recorded in the fiscal years ended November 27, 2004, November 29, 2003 and November 30, 2002.

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. All amounts billed to customers for shipping and handling are included in net sales and the costs of shipping and handling are 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 property sales. Rental revenue is accounted for in accordance with SFAS No. 13, "Accounting for Leases." Gains on property sales are recognized in accordance with SFAS No. 66, "Accounting for Sales of Real Estate," based on the specific terms of each sale.

Goodwill and Other Intangible Assets

        At the beginning of fiscal 2003, Griffin adopted SFAS No. 142 "Goodwill and Other Intangible Assets." Under the provisions of SFAS No. 142, goodwill is no longer amortized, but is subject to periodic tests for impairment based upon fair values. Griffin did not incur a charge for impairment upon adoption of SFAS No. 142. Accordingly, there is no amortization of goodwill included in Griffin's results from its equity investment in Centaur in fiscal 2003 and in fiscal 2004 through the date Griffin

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sold its investment in Centaur. The following reflects adjustments to the fiscal 2002 results as if SFAS No. 142 had been adopted in that year:

        Griffin's other intangible assets consist principally of the value of above-market and below-market in-place leases and customer relationships with tenants recorded in connection with Griffin's acquisition in fiscal 2003 of a 70% interest in a joint venture that owned two multi-story office buildings. Amortization of the value of above-market and below-market leases is determined on a straight-line basis over the lease terms. Amortization of the value of customer relationships with tenants is determined on a straight-line basis over the lease terms and anticipated renewal periods. Other intangible assets are included in other assets on Griffin's balance sheet.

Recent Accounting Pronouncements

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for derivative contracts entered into or modified after June 30, 2003. Griffin does not currently have any derivative instruments. This new standard did not have an impact on Griffin's financial statements.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This new standard requires an issuer to classify certain financial instruments as liabilities or, in some instances, assets. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003. This new standard did not have an impact on Griffin's financial statements.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs (an amendment of ARB No. 43, Chapter 4)." This new standard requires the recognition of abnormal inventory costs related to idle facility expenses, freight, handling costs and spoilage as period costs. SFAS No. 151 will be effective for Griffin in fiscal 2006 and is not expected to have a material impact on Griffin's financial statements.

        In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." This new standard supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and its related implementation guidance. SFAS No. 123R requires an issuer to recognize the cost of employee services received in exchange for an award of equity instruments. Therefore, the cost of rewarding equity

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instruments will be recognized in Griffin's financial statements rather than disclosed in a pro forma statement in the financial statement footnotes. SFAS No. 123R will be effective for Griffin in the fourth quarter of fiscal 2005. Management has not yet fully evaluated the effect of SFAS No. 123R on Griffin's financial statements and has not determined the method of adoption it will use to implement SFAS No. 123R.

        In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets (an amendment of APB Opinion No. 29)." This new standard requires an issuer to measure and recognize nonmonetary exchanges which are anticipated to have an impact on future cash flows. SFAS No. 153 will be effective for Griffin in the fourth quarter of fiscal 2005 and is not expected to have any impact on Griffin's financial statements.

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 that do not have future economic benefit, are expensed. Expenditures that create future benefit or contribute to future revenue generation are capitalized. Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable, and the costs can be reasonably estimated. There were no liabilities recorded related to environmental assessments as of November 27, 2004 and November 29, 2003.

Fair Value of Financial Instruments

        The amounts included in the financial statements for short-term investments, 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 (loss) per common share is calculated by dividing net income (loss) by the average number of common shares outstanding during the year. The calculation of diluted net income (loss) per common share includes adjusting Griffin's net income (loss) to include the effect of stock options outstanding at Griffin's equity investee, Centaur, for the 100 day period from December 1, 2003 through March 9, 2004, fiscal 2003 and fiscal 2002, and adjusting outstanding shares, assuming conversion of all potentially dilutive Griffin stock options.

Risks and Uncertainties

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

        Griffin Land's real estate holdings are currently concentrated in the Hartford, Connecticut area. Changes in the local economy could adversely impact Griffin Land's leasing operations.

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        Imperial's inventory and sales are subject to risk from drought or excessive rain. The landscape nursery business is highly seasonal, with the majority of sales occurring in the spring (Griffin's fiscal second quarter). Adverse weather during the peak spring selling season could impact landscape nursery sales. In the future, certain customers may require Imperial to ship product on a consignment basis, whereby Imperial would be exposed to risk of inventory loss while the product is in the customers' possession.

        Griffin Land and Imperial conduct business based on periodic evaluations of their customers' financial condition and generally do not require collateral. These evaluations require significant judgment and are based on multiple sources of information such as historical bad debt experiences, industry and geographic concentrations of credit risk, current economic trends and changes in customer payment terms. Griffin does not believe a significant risk of loss from a concentration of credit exists for Griffin Land or Imperial.

        Griffin is exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on market values of Griffin's cash equivalents and short-term investments. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk, and investments with maturities principally less than three months 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.

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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the periods reported. Actual results could differ from those estimates. The more significant estimates include, among others, the allowance for doubtful accounts, the inventory reserves, deferred taxes, net realizable value of real estate held for sale or lease and the assumptions used in determining the accrual for postretirement benefits.

2.    Sale of Centaur Communications, Ltd.

        On March 10, 2004, Griffin completed the sale of its equity investment in Centaur to a newly formed company, Centaur Holdings. At the time of the sale, Griffin held 5,428,194 B Ordinary shares of Centaur common stock, representing approximately 32% of Centaur's outstanding common stock. The sale agreement between Griffin, holders of A Ordinary shares of Centaur and the holder of C Ordinary shares of Centaur (collectively, the "Sellers") and Centaur Holdings contains certain warranties. Warranty claims by Centaur Holdings must first exceed £1 million in the aggregate (approximately $1.8 million based on the foreign currency exchange rate in effect at the time of the sale) before the Sellers are required to make any payments. The warranty period expires on September 30, 2005, except for warranties related to income taxes and pension liabilities, which expire on September 30, 2010. To date, there have not been any warranty claims made. In conjunction with

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this transaction, Centaur Holdings completed an initial public offering of its common stock, which was originally traded on the Alternative Investment Market of the London Stock Exchange and is currently trading on the London Stock Exchange.

        The consideration received by Griffin included cash proceeds of $68.9 million after transaction expenses of $1.5 million but before income tax payments. In addition to the cash proceeds, Griffin received 6,477,150 shares of Centaur Holdings common stock (representing approximately 4.4% of its newly issued outstanding common stock), which was valued at approximately $11.7 million based on the £1.00 per share price of the initial public offering of shares by Centaur Holdings and the foreign currency exchange rate in effect at that time. Griffin was prohibited from selling its ownership in Centaur Holdings for six months from the date the transaction was completed. That restriction has now lapsed. In March 2004, a portion of the cash proceeds from the sale were used to repay all of the amount outstanding ($18.4 million) under Griffin's Credit Agreement with Fleet National Bank.

        Included in Griffin's pretax income for fiscal 2004 is a gain on the sale of Centaur of $51.1 million and a foreign currency exchange gain of $1.1 million related to the sale (see Note 10). In connection with the Centaur transaction, substantially all of the stock options of Centaur were exercised immediately prior to the closing of the transaction, which resulted in Griffin's ownership being reduced from 35% to 32%. The gain of approximately $2.3 million that resulted from the dilution of Griffin's ownership is included in the gain on the sale of that investment. Griffin's remaining investment in Centaur Holdings is recorded based on the fair market value of that investment. At the time of the sale, approximately $5.4 million was reported as other comprehensive income, reflecting the difference, net of tax, between the estimated fair market value of Griffin's investment in Centaur Holdings and the book value of the pro rata portion of the investment in Centaur that remained as a result of receiving Centaur Holdings common stock as part of the sale proceeds. From the date of the transaction through November 27, 2004, Griffin recorded an other comprehensive loss of $0.2 million reflecting the reduction, net of tax, of the fair market value of Centaur Holdings (see Note 10).

        Prior to the sale, Griffin accounted for its investment in Centaur under the equity method of accounting for investments. The unaudited summarized financial data of Centaur presented below were derived from consolidated financial information of Centaur for the 100 day period from December 1, 2003 through March 9, 2004 and the twelve month periods ended November 30, 2003 and November 30, 2002. Griffin's equity income for the 100 day period from December 1, 2003 through March 9, 2004 and fiscal 2003 included $101 and $369, respectively, in each period for amortization of publishing rights. Griffin's equity income from Centaur in fiscal 2002 included $578 for amortization of the excess of the cost of Griffin's investment over its respective share of Centaur's book value (representing publishing rights and goodwill). Griffin's equity income from Centaur also reflects

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adjustments necessary to present Centaur's results for the respective periods in accordance with generally accepted accounting principles in the United States of America.

        In August, 2002 Centaur completed the sale of its Lawtel operation that provides on-line legal information. Griffin did not receive any cash from the sale as Centaur used the proceeds to pay down debt. Griffin's equity share 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 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 equity share 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 equity share of this item was $0.7 million. The income tax provision (benefit) of Centaur reflects the nondeductability of certain expenses under tax laws in the United Kingdom.

        A reconciliation of Centaur's income to Griffin's equity income as reflected on the statements of operations is as follows:

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        The following table reflects Centaur's financial position as of November 30, 2003:

        In Centaur's year ended June 30, 2003, Centaur recorded a tax expense and a deferred tax liability of $883 related to an error pertaining to its year ended June 30, 1996. Such expense was reflected in Centaur's results for the twelve month period ended November 30, 2003 as set forth above, which results are used by Griffin to record its equity share of Centaur's earnings. In recording its equity share of Centaur's earnings for Griffin's year ended November 30, 2003, Griffin excluded its $216 equity share of this 1996 expense and restated its investment in Centaur and corresponding equity (additional paid in capital) by $216 as of November 27, 1999, the earliest balance sheet date reported in Griffin's fiscal 2003 financial statements.

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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.