INDUS REALTY TRUST, INC. - Quarter Report: 2005 August (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE QUARTERLY PERIOD ENDED AUGUST 27, 2005
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		FOR THE TRANSITION PERIOD FROM                TO

 

Commission File No. 1-12879

 

GRIFFIN LAND & NURSERIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		06-0868496
(state or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
One Rockefeller Plaza, New York, New York		10020
(Address of principal executive offices)		(Zip Code)

 

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

 

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes   o    No   ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   o    No   ý

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   o    No   ý

Number of shares of Common Stock outstanding at October 17, 2005: 4,999,604

 

 

GRIFFIN LAND & NURSERIES, INC.

Form 10-Q

 

PART I -	FINANCIAL INFORMATION
	ITEM 1 -
		Financial Statements
		Consolidated Statements of Operations 13 and 39 Weeks Ended August 27, 2005 and August 28, 2004
		Consolidated Balance Sheets August 27, 2005 and November 27, 2004
		Consolidated Statements of Changes in Stockholders’ Equity 39 Weeks Ended August 27, 2005 and August 28, 2004
		Consolidated Statements of Cash Flows 39 Weeks Ended August 27, 2005 and August 28, 2004
		Notes to Consolidated Financial Statements
	ITEM 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 4 -	Controls and Procedures
PART II -	OTHER INFORMATION
	ITEM 1-	Legal Proceedings
	ITEM 6 -	Exhibits
	SIGNATURES

 

 

PART I		FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

		For the 13 Weeks Ended,						For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004			August 27, 2005			August 28, 2004
					(As Restated)						(As Restated)
					(Note 10)						(Note 10)
Landscape nursery net sales		$	5,699		$	5,077		$	23,337		$	24,624
Rental revenue and property sales		3,350			5,789			9,748			11,186
Total revenue		9,049			10,866			33,085			35,810
Costs of landscape nursery sales		6,060			5,266			21,127			22,327
Costs related to rental revenue and property sales		2,266			5,005			6,707			8,896
Total costs of goods sold		8,326			10,271			27,834			31,223
Gross profit		723			595			5,251			4,587
Selling, general and administrative expenses		2,514			2,389			8,151			7,120
Operating loss		(1,791		)	(1,794		)	(2,900		)	(2,533		)
Gain on sale of Shemin Acquisition Corporation		3,235			—			3,235			—
Gain on sale of Centaur Communications, Ltd.		—			—			—			51,107
Foreign currency exchange gain		—			—			—			1,070
Interest expense		(659		)	(611		)	(1,697		)	(2,329		)
Interest income, dividend income and gains on short-term investments		284			133			804			238
Income (loss) before income tax provision (benefit) and equity investment		1,069			(2,272		)	(558		)	47,553
Income tax provision (benefit)		353			(1,052		)	(207		)	15,720
Income (loss) before equity investment		716			(1,220		)	(351		)	31,833
Equity income from Centaur Communications, Ltd.		—			—			—			328
Net income (loss)		$	716		$	(1,220	)	$	(351	)	$	32,161
Basic net income (loss) per common share		$	0.14		$	(0.25	)	$	(0.07	)	$	6.56
Diluted net income (loss) per common share		$	0.14		$	(0.25	)	$	(0.07	)	$	6.31

 

See Notes to Consolidated Financial Statements.

 

3

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

		August 27, 2005			Nov. 27, 2004
					(As Restated)
					(Note 10)
ASSETS
Current Assets:
Cash and cash equivalents		$	918		$	8,827
Short-term investments		43,288			30,173
Accounts receivable, less allowance of $280 and $188		4,927			2,162
Inventories, net		32,647			32,184
Deferred income taxes		2,627			1,572
Other current assets		4,085			3,423
Total current assets		88,492			78,341
Real estate held for sale or lease, net		75,296			65,675
Property and equipment, net		10,867			11,310
Investment in Centaur Holdings, plc		9,566			11,290
Other assets		5,589			10,274
Total assets		$	189,810		$	176,890
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	1,039		$	855
Accounts payable and accrued liabilities		7,183			6,044
Total current liabilities		8,222			6,899
Long-term debt		43,398			31,479
Deferred income taxes		1,893			1,758
Other noncurrent liabilities		3,001			2,624
Total liabilities		56,514			42,760
Commitments and contingencies (Note 9)
Stockholders’ Equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 4,999,604 and 4,959,162 shares issued and outstanding, respectively		50			50
Additional paid-in capital		95,337			94,699
Retained earnings		33,826			34,177
Accumulated other comprehensive income, net of tax		4,083			5,204
Total stockholders’ equity		133,296			134,130
Total liabilities and stockholders’ equity		$	189,810		$	176,890

 

See Notes to Consolidated Financial Statements.

 

4

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Thirty-Nine Weeks Ended August 27, 2005 and August 28, 2004

(dollars in thousands)

(unaudited)

 

		Shares of Common Stock		Common Stock			Additional Paid-in Capital			Retained Earnings (As Restated) (Note 10)			Accumulated Other Comprehensive Income			Total (As Restated) (Note 10)			Total Comprehensive Income (Loss) (As Restated) (Note 10)
Balance at Nov. 29, 2003 (as restated)		4,876,916		$	49		$	93,392		$	3,189		$	271		$	96,901		$	—
Exercise of stock options including tax benefit of $262		71,913		—			1,125			—			—			1,125			—
Net income (as restated)		—		—			—			32,161			—			32,161			32,161
Other comprehensive income		—		—			—			—			3,786			3,786			3,786
Balance at August 28, 2004 (as restated)		4,948,829		$	49		$	94,517		$	35,350		$	4,057		$	133,973		$	35,947
Balance at Nov. 27, 2004 (as restated)		4,959,162		$	50		$	94,699		$	34,177		$	5,204		$	134,130		$	—
Exercise of stock options including tax benefit of $169		40,442		—			638			—			—			638			—
Net loss		—		—			—			(351		)	—			(351		)	(351		)
Other comprehensive loss		—		—			—			—			(1,121		)	(1,121		)	(1,121		)
Balance at August 27, 2005		4,999,604		$	50		$	95,337		$	33,826		$	4,083		$	133,296		$	(1,472	)

 

See Notes to Consolidated Financial Statements.

 

5

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

		For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004
					(As Restated)
					(Note 10)
Operating activities:
Net (loss) income		$	(351	)	$	32,161
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on sale of Shemin Acquisition Corporation		(3,235		)	—
Depreciation and amortization		3,820			3,544
Gain on sale of properties		(973		)	(43		)
Provision for inventory losses		1,378			875
Provision for bad debts		233			282
Real estate asset write-offs		169			—
Deferred income taxes		(317		)	(548		)
Amortization of debt issuance costs		47			401
Unrealized gains on trading securities		(97		)	(50		)
Gain on sale of Centaur Communications, Ltd.		—			(51,107		)
Tax payment included in other comprehensive income		—			(2,959		)
Gain on foreign exchange contract		—			(1,070		)
Income from equity investment		—			(328		)
Changes in assets and liabilities:
Short-term investments		(13,018		)	(30,005		)
Accounts receivable		(2,857		)	(3,096		)
Inventories		(1,841		)	1,145
Other current assets		(532		)	(593		)
Accounts payable and accrued liabilities		498			663
Income taxes payable		—			4,918
Other noncurrent assets and noncurrent liabilities, net		(171		)	895
Net cash used in operating activities		(17,247		)	(44,915		)
Investing activities:
Additions to real estate held for sale or lease		(11,249		)	(5,646		)
Proceeds from the sale of Shemin Acquisition Corporation		5,721			—
Proceeds from distribution from Shemin Nurseries		1,673			—
Proceeds from sale of properties, net of expenses		1,287			3,016
Additions to property and equipment		(588		)	(511		)
Proceeds from the sale of Centaur Communications, Ltd.		—			68,852
Proceeds from foreign exchange contract		—			1,070
Investment in Shemin Acquisition Corporation		—			(143		)
Net cash (used in) provided by investing activities		(3,156		)	66,638
Financing activities:
Increase in debt		12,700			1,500
Payments of debt		(675		)	(11,335		)
Exercise of stock options		469			863
Other, net		—			(159		)
Net cash provided by (used in) financing activities		12,494			(9,131		)
Net (decrease) increase in cash and cash equivalents		(7,909		)	12,592
Cash and cash equivalents at beginning of period		8,827			18
Cash and cash equivalents at end of period		$	918		$	12,610

 

See Notes to Consolidated Financial Statements.

 

6

 

GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

 

1.     Basis of Presentation

 

The unaudited consolidated financial statements of Griffin Land & Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s real estate division (“Griffin Land”) and Griffin’s wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”), and have been prepared in conformity with the standards of accounting measurement set forth in Accounting Principles Board Opinion No. 28 and amendments thereto adopted by the Financial Accounting Standards Board (“FASB”). Also, the accompanying financial statements have been prepared in accordance with the accounting policies stated in Griffin’s audited financial statements for the year ended November 27, 2004 included in the Report on Form 10-K/A as filed with the Securities and Exchange Commission, and should be read in conjunction with the Notes to Financial Statements appearing in that report. All adjustments, comprising only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods have been reflected.  The year end consolidated balance sheet data as of November 27, 2004 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.

 

Griffin has restated its consolidated financial statements for the thirteen weeks ended February 26, 2005, for the thirteen and thirty-nine weeks ended August 28, 2004 and for the fiscal years ended November 27, 2004, November 29, 2003 and November 30, 2002 including the financial information of the interim periods in fiscal years 2004 and 2003 to correct: (a) rental revenue and depreciation and amortization expense of its real estate business as a result of an incorrect allocation of the purchase price for Griffin’s fiscal 2003 acquisition of a controlling interest in a joint venture that owned two office buildings in Windsor, Connecticut (Griffin had previously held a 30% interest in the joint venture), (b) depreciation  expense of its real estate business for tenant improvements related to certain leases in other of Griffin Land’s buildings as a result of the incorrect recording of the useful lives of certain tenant improvements and the misclassification of certain improvements as tenant improvements rather than as building improvements, (c) rental revenue and depreciation expense of its real estate business due to the misclassification of a payment received in the 2004 second quarter from a tenant for tenant improvements made by Griffin in accordance with the lease agreement and (d) the classification of the amortization of debt issuance costs related to Griffin’s financing agreements from selling, general and administrative expenses to interest expense.

 

The corrected allocation of the purchase price increased by $1.5 million the amount of intangible assets related to the values of in-place leases and tenant relationships and reduced by $1.5 million the amount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchase price allocation was to increase Griffin’s operating losses by $53 and  $184 in the thirteen and thirty-nine weeks ended August 28, 2004, respectively, as a result of an increase in depreciation and amortization expense because of the shorter time period over which the intangible assets are amortized as compared to the depreciable lives of the tangible real estate assets.

 

The adjustment to depreciation expense related to the correction of the useful lives used to determine the amount of depreciation for tenant improvements related to certain leases and the change in classification of certain improvements from tenant improvements to building improvements decreased Griffin’s operating losses by $55 and  $154 in the thirteen and thirty-nine weeks ended August 28, 2004, respectively.

 

7

 

Griffin determined that a payment received from a tenant for tenant improvements made by Griffin in accordance with the lease agreement should have been recorded as deferred rental revenue and amortized into rental revenue over the term of the lease.  Griffin had recorded the payment received as a reduction of its tenant improvements.  The effect of this adjustment was to increase Griffin’s rental revenue and increase depreciation expense by $31 and $51 for the thirteen and thirty-nine weeks ended August 28, 2004, respectively.  There was no effect on Griffin’s operating profit because the depreciable lives of the tenant improvements were the same as the lease term over which the amount received from the tenant will be recognized as rental revenue.

 

The effect of the correction to the classification of the amortization of debt issuance costs was to decrease Griffin’s operating losses and increase interest expense by $14 and $401 in the thirteen and thirty-nine weeks ended August 28, 2004.

 

In aggregate, the above adjustments resulted in a decrease of $1 to Griffin’s net loss for the thirteen weeks ended August 28, 2004 and a decrease of $21 to Griffin’s net income in the thirty-nine weeks ended August 28, 2004.  The changes in rental revenue and depreciation and amortization expense described herein affected only noncash credits and charges and did not affect Griffin’s cash position.  In addition, the adjustments related to the amortization of debt issuance costs did not affect Griffin’s pretax income (loss), net income (loss) or net income (loss) per share in any period.  The effect of the above adjustments on Griffin’s consolidated statement of cash flows for the thirty-nine weeks ended August 28, 2004 was to decrease net cash used in operating activities from $46,417 to $44,915 and to decrease net cash provided by investing activities from $68,140 to $66,638.  There were no changes to net cash used in financing activities for the thirty-nine weeks ended August 28, 2004.  Griffin’s consolidated balance sheet as of November 27, 2004 was restated for the above adjustments, but such adjustments were not material to Griffin’s balance sheet (see Note 10).

 

Griffin revised the amounts reported on the quarterly data from those originally reported in its Report on Form 10-Q for the thirteen and thirty-nine weeks ended August 28, 2004 for rental revenue and costs related to rental revenue because 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.  The revisions decreased both revenue and related costs in the thirteen and thirty-nine weeks ended August 28, 2004 by $246 and $689, respectively, to eliminate those offsetting intercompany amounts that were inadvertently included in the prior periods. The revisions had 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 had no effect on any of Griffin’s previously issued consolidated balance sheets or consolidated statements of cash flows.

 

The results of operations for the thirteen and thirty-nine weeks ended August 27, 2005 are not necessarily indicative of the results to be expected for the full year.  Certain amounts from the prior year have been reclassified to conform to the current presentation.

 

Griffin accounts for stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and has adopted SFAS No. 123, which requires disclosure of the pro forma effect on earnings and earnings per share of the fair value method of accounting for stock-based compensation, and SFAS No. 148, which prescribes a method of disclosure.  Griffin’s results would have been the following pro forma amounts under the method prescribed by SFAS No. 123:

 

8

 

		For the 13 Weeks Ended,						For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004			August 27, 2005			August 28, 2004
					(As Restated)						(As Restated)
					(Note 10)						(Note 10)
Net income (loss), as reported		$	716		$	(1,220	)	$	(351	)	$	32,161
Total stock based employee compensation expense determined under fair value method for all awards, net of tax effects		(32		)	(30		)	(67		)	(86		)
Net income (loss), pro forma		684			(1,250		)	(418		)	32,075
Adjustment to net income (loss) for exercise of options of equity investee		—			—			—			(38		)
Adjusted net income (loss) for computation of diluted per share results, pro forma		$	684		$	(1,250	)	$	(418	)	$	32,037
Basic net income (loss) per common share, as reported		$	0.14		$	(0.25	)	$	(0.07	)	$	6.56
Basic net income (loss) per common share, pro forma		$	0.14		$	(0.25	)	$	(0.08	)	$	6.55
Diluted net income (loss) per common share, as reported		$	0.14		$	(0.25	)	$	(0.07	)	$	6.31
Diluted net income (loss) per common share, pro forma		$	0.13		$	(0.25	)	$	(0.08	)	$	6.29

 

There were 6,268 stock options granted during the thirty-nine weeks ended August 27, 2005.  The fair value of each option granted was $11.15, estimated as of the date of grant using the Black-Scholes option pricing model.  The assumptions used in determining the fair value of the options granted were an expected volatility of 44.06%, risk free interest rate of 3.77%, a five year option term and no dividend yield.

 

There were 7,218 stock options granted during the thirteen and thirty-nine weeks ended August 28, 2004.  The fair value of each option granted during the thirteen and thirty-nine weeks ended August 28, 2004 was $11.59 estimated as of the date of grant using the Black-Scholes option pricing model.  The assumptions used in determining the fair value of the options granted in the thirteen and thirty-nine weeks ended August 28, 2004 were an expected volatility of 150.5%, risk free interest rate of 3.85%, a five year option term and no dividend yield.

 

2.     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 consolidated financial statements.

 

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets” (“SFAS No. 153”).  This Statement amends the guidance in APB Opinion No. 29, “Accounting for

 

9

 

Nonmonetary Transactions” (“APB No. 29”).  APB No. 29 provided an exception to the basic measurement principle (fair value) for exchanges of similar assets, requiring that some nonmonetary exchanges be recorded on a carryover basis.  SFAS No. 153 eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity.  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 consolidated 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 compensation cost of employee services received in exchange for an award of equity instruments.  Therefore, the cost of rewarding individuals with equity instruments will be recognized in Griffin’s financial statements rather than disclosed in a pro forma statement in the financial statement footnotes.  In March 2005, the SEC issued Staff Accounting Bulletin No. 107 related to the valuation of share-based payment arrangements under SFAS No. 123R.  Management has utilized the guidance in this bulletin in preparing its estimates for the effect of SFAS No. 123R.  SFAS No. 123R will be effective for Griffin in the first quarter of fiscal 2006.  Management expects to adopt SFAS No. 123R in the 2006 first quarter using the modified prospective application method, and expects that the adoption of SFAS No. 123R will decrease Griffin’s annual basic and diluted per share results by $0.01 to $0.04 per share.

 

In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations (an interpretation of FASB Statement No. 143),” (“Fin No. 47”).  Fin No. 47 clarifies the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived assets.  Fin No. 47 will be effective for Griffin in fiscal 2006 and is not expected to have a material impact on Griffin’s consolidated financial statements.

 

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS No. 154”).  This new standard requires retrospective application to prior periods’ financial statements of voluntary changes in accounting principles, unless it is impracticable to do so.  SFAS No. 154 also provides that a correction of errors in previously issued financial statements should be termed a “restatement”.  The new standard is effective for accounting changes and correction of errors in fiscal years beginning after December 15, 2005.  Griffin has incorporated the provisions of SFAS No. 154 in the presentation of its Form 10-K/A for the fiscal year ended November 27, 2004, its Form 10-Q/A for the quarter ended February 26, 2005, its Form 10-Q for the quarter ended May 28, 2005 and this Form 10-Q for the quarter ended August 27, 2005.

 

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 of America.  Griffin’s export sales and transactions between segments are not material.

 

10

 

		For the 13 Weeks Ended,						For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004			August 27, 2005			August 28, 2004
					(As Restated)						(As Restated)
					(Note 10)						(Note 10)
Total revenue:
Landscape nursery net sales		$	5,699		$	5,077		$	23,337		$	24,624
Rental revenue and property sales		3,350			5,789			9,748			11,186
		$	9,049		$	10,866		$	33,085		$	35,810
Operating profit (loss):
Landscape nursery		$	(1,428	)	$	(1,514	)	$	(1,415	)	$	(1,488	)
Real estate		390			176			1,027			525
Industry segment totals		(1,038		)	(1,338		)	(388		)	(963		)
General corporate expense		(753		)	(456		)	(2,512		)	(1,570		)
Operating profit (loss)		(1,791		)	(1,794		)	(2,900		)	(2,533		)
Gain on sale of Centaur Communications, Ltd.		—			—			—			51,107
Gain on sale of Shemin Acquisition Corporation		3,235			—			3,235			—
Foreign currency exchange gain		—			—			—			1,070
Interest expense, net of interest income, dividend income and gains on short-term investments		(375		)	(478		)	(893		)	(2,091		)
Income (loss) before income tax provision (benefit)		$	1,069		$	(2,272	)	$	(558	)	$	47,553

 

		August 27, 2005			Nov. 27, 2004
					(As Restated)
					(Note 10)
Identifiable assets:
Landscape nursery		$	48,632		$	50,330
Real estate		82,476			73,451
Industry segment totals		131,108			123,781
General corporate (consists primarily of investments)		58,702			53,109
Total assets		$	189,810		$	176,890

 

Griffin restated its financial statements for the thirteen weeks ended February 26, 2005, for the thirteen and thirty-nine weeks ended August 28, 2004 and for the fiscal years ended November 27, 2004, November 29, 2003 and November 30, 2002 (see Note 10).

 

Griffin revised previously reported rental revenue and related costs by the same amount to eliminate certain duplicated amounts included in the prior year (see Note 1). The effect of these revisions, which Griffin believes were not material, was to decrease both revenue and related costs of the real estate segment in the thirteen and thirty-nine weeks ended August 28, 2004 by $246 and $689, respectively. The revisions had no effect on previously reported real estate segment operating profit or previously reported identifiable assets of the real estate segment.

 

Revenue of the real estate segment in the thirteen and thirty-nine weeks ended August 27, 2005 includes property sales revenue of $425 and $1,340, respectively.  Revenue of the real estate segment in the thirteen and thirty-nine weeks ended August 28, 2004 includes property sales revenue of $3,090 and $3,275, respectively.

 

11

 

See Note 4 for information on Griffin’s previously held equity investment in Centaur Communications, Ltd. (“Centaur”).

 

4.             Equity Investment

 

On March 10, 2004, Griffin completed the sale of its equity investment in Centaur to a newly formed company, Centaur Holdings, plc (“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 August 27, 2005) before the Sellers are required to make any payments.  The warranty period expired 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 this transaction, Centaur Holdings completed an initial public offering of its common stock which currently trades 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.  Subsequent to the sale, a portion of the cash proceeds from the sale were used to repay all of the amount then outstanding ($18.4 million) under Griffin’s Credit Agreement with Fleet National Bank.

 

Included in Griffin’s pretax income for the thirty-nine weeks ended August 28, 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.  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.  Griffin has retained its ownership interest in Centaur Holdings and accounts for that investment as an available-for-sale security under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

 

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.  Griffin’s equity income for that period included $101 for amortization of publishing rights and reflected adjustments necessary to present Centaur’s results in accordance with generally accepted accounting principles in the United States of America.

 

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		From
		Dec. 1, 2003
		through
		Mar. 9, 2004
Net sales		$	31,972
Costs and expenses		(29,753		)
Operating profit		2,219
Nonoperating expenses		(319		)
Pretax income		1,900
Income tax provision		(670		)
Net income		$	1,230

 

5.     Long-Term Debt

 

Long-term debt includes:

 

		August 27, 2005			November 27, 2004
Nonrecourse mortgages:
8.54% due July 1, 2009		$	7,782		$	7,842
6.08% due January 1, 2013		9,291			9,433
6.30% due May 1, 2014		1,350			1,436
5.46% due August 1, 2015		12,686			—
8.13% due April 1, 2016		5,721			5,853
7.0% due October 1, 2017		7,308			7,410
Total nonrecourse mortgages		44,138			31,974
Capital leases		299			360
Total		44,437			32,334
Less: current portion		(1,039		)	(855		)
Total long-term debt		$	43,398		$	31,479

 

In March 2004, as a result of the proceeds received from the sale of Centaur (see Note 4), Griffin repaid the entire amount then outstanding ($18.4 million) under its Credit Agreement (the “Credit Agreement”) with Fleet National Bank and subsequently terminated the Credit Agreement, which was scheduled to expire in February 2005.

 

On July 7, 2005, a subsidiary of Griffin completed a mortgage for $12.7 million on two of its industrial buildings.  This new mortgage has an interest rate of 5.46% and a ten year term, with payments based on a thirty year amortization schedule.  The mortgage is nonrecourse, however Griffin entered into a master lease with its subsidiary for the space in the mortgaged buildings that was not leased to third-party tenants at the inception of the new mortgage (the “Initial Vacant Space”).  As Griffin Land enters into approved leases for the Initial Vacant Space, the master lease between Griffin and its subsidiary on that portion of the Initial Vacant Space will be terminated.

 

At August 27, 2005 and November 27, 2004, the fair values of Griffin’s mortgages were $46.6 million and $33.2 million, respectively. Fair value is based on the present value of future cash flows discounted at estimated borrowing rates for comparable risks, maturities and collateral.

 

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6.     Stock Options

 

Activity under the Griffin Land & Nurseries, Inc. 1997 Stock Option Plan (the “Griffin Stock Option Plan”) is summarized as follows:

 

		For the 39 Weeks Ended,
		August 27, 2005					August 28, 2004
		Number of Shares		Weighted Avg. Exercise Price			Number of Shares		Weighted Avg. Exercise Price
Outstanding at beginning of period		584,514		$	12.78		659,542		$	12.57
Issued		6,268		25.53			7,218		24.94
Exercised		(40,442	)	11.60			(71,913	)	12.01
Cancelled		(9,667	)	13.70			—		—
Outstanding at end of period		540,673		$	13.00		594,847		$	12.79

 

Number of option holders at August 27, 2005

24

 

Range of Exercise Prices		Outstanding at August 27, 2005		Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (in years)
$4.00-$9.00		96,172		$	7.55		0.5
$9.00-$18.00		431,015		13.83			3.5
Over $18.00		13,486		25.21			9.2
		540,673

 

At August 27, 2005, 503,857 options outstanding under the Griffin Stock Option Plan were exercisable with a weighted average exercise price of $12.65 per share.

 

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7.     Per Share Results

 

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

 

		For the 13 Weeks Ended,						For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004			August 27, 2005			August 28, 2004
					(As Restated)						(As Restated)
					(Note 10)						(Note 10)
Net income (loss) as reported for computation of basic per share results		$	716		$	(1,220	)	$	(351	)	$	32,161
Adjustment to net income (loss) for exercise of options of equity investee		—			—			—			(38		)
Net income (loss) for computation of diluted per share results		$	716		$	(1,220	)	$	(351	)	$	32,123
Weighted average shares outstanding for computation of basic per share results (a)		4,991,000			4,918,000			4,974,000			4,899,000
Incremental shares from assumed exercise of Griffin stock options		185,000			—			—			194,000
Weighted average shares outstanding for computation of diluted per share results		5,176,000			4,918,000			4,974,000			5,093,000

 

(a)

Incremental shares from the exercise of Griffin stock options were not included in the periods where the inclusion of such shares would be anti-dilutive. For the thirteen weeks ended August 28, 2004, the incremental shares from the assumed exercise of stock options would have been 211,000. For the thirty-nine weeks ended August 27, 2005, the incremental shares from the assumed exercise of stock options would have been 198,000.

 

8.                                      Supplemental Financial Statement Information

 

Short-Term Investments

 

Griffin’s short-term investments are comprised of 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 values based upon the quoted market prices of those investments at the balance sheet date, and net realized and unrealized gains and losses on those investments are included in pretax income (loss).  The composition of short-term investments at August 27, 2005 and November 27, 2004 is as follows:

 

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		As of August 27, 2005						As of Nov. 27, 2004
		Cost			Market Value			Cost			Market Value
Commercial Paper		$	17,398		$	17,402		$	15,015		$	15,032
Certificates of Deposit		14,343			14,448			7,368			7,415
Federal Agency Coupon Notes		10,129			10,185			3,219			3,220
Auction Rate Fixed Income Securities		1,250			1,253			4,500			4,506
Total short-term investments		$	43,120		$	43,288		$	30,102		$	30,173

 

Income from investments for the thirteen and thirty-nine weeks ended August 27, 2005 and August 28, 2004 consists of:

 

		For the 13 Weeks Ended,						For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004			August 27, 2005			August 28, 2004
Net realized gains on the sales of investments		$	128		$	5		$	484		$	5
Change in net unrealized gains on investments		119			50			97			50
Interest and dividend income		37			78			223			183
		$	284		$	133		$	804		$	238

 

Accumulated Other Comprehensive Income

 

Changes in accumulated other comprehensive income for the thirteen and thirty-nine weeks ended August 27, 2005 and August 28, 2004 consist of the following:

 

		For the 39 Weeks Ended,
		August 27, 2005			August 28, 2004
Balance at beginning of period		$	5,204		$	271
Effect of foreign currency exchange rate changes related to equity investment in Centaur Communications, Ltd.		—			302
Transfer to pretax income as a result of the sale of Centaur Communications, Ltd.		—			(494		)
Increase to record the initial investment in Centaur Holdings, plc at fair market value, net of tax of $2,958		—			5,414
Decrease in fair market value at end of period of Centaur Holdings, plc, net of tax benefit of $429 and $755, respectively		(798		)	(1,402		)
Decrease in value of Centaur Holdings, plc, due to foreign currency exchange loss, net of tax benefit of $174 and $18, respectively		(323		)	(34		)
Balance at end of period		$	4,083		$	4,057

 

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