INDUS REALTY TRUST, INC. - Annual Report: 2007 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 1-12879

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 if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.    Yes o No ý

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o No ý

        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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o                Accelerated filer ý                Non-accelerated filer o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes o No ý

        The aggregate market value of the Common Stock held by non-affiliates of the registrant, was approximately $94,149,000 based on the closing sales price on the Nasdaq National Market on June 1, 2007, 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 January 25, 2008, 5,092,649 shares of common stock were outstanding.

PART I

ITEM 1.    BUSINESS

        Griffin Land & Nurseries, Inc. ("Griffin") and its subsidiaries comprise principally a real estate business 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 business comprised of the growing of containerized plants for sale principally to independent retail garden centers, rewholesalers, whose main customers are landscape contractors, and mass merchandisers.

        Griffin also owns an approximate 4% interest in Centaur Media, plc ("Centaur Media"), a publicly held magazine and information services publisher based in the United Kingdom, and an approximate 14% interest in Shemin Nurseries Holding Corp. ("SNHC"), a private company that operates a landscape nursery distribution business through its subsidiary, Shemin Nurseries, Inc. ("Shemin Nurseries").

        Griffin was incorporated as Culbro Realty and Development Corporation in 1970 and was a wholly-owned subsidiary of Culbro Corporation ("Culbro") through July 3, 1997. On July 3, 1997, Culbro distributed (the "Distribution") to its shareholders the common stock of Griffin in a tax-free distribution. In early 1997, prior to the Distribution, the Company's name was changed to Griffin Land & Nurseries, Inc.

        Griffin does not maintain a corporate website. Griffin's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and the proxy statement for Griffin's Annual Meeting of Stockholders can be accessed through the SEC website at www.sec.gov.

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 expects to continue to sell some of its land holdings either before or after obtaining development approvals. Griffin Land will seek to acquire and develop properties not presently owned and expects to continue to seek to acquire existing buildings. The headquarters for this operation is in Bloomfield, Connecticut.

        Griffin Land's real estate holdings are located in the Hartford, Connecticut area, particularly in the north submarket of Hartford. The Hartford market has experienced some recovery from its decline in the early 1990s, although the recovery has been more evident in the industrial warehousing/distribution and light manufacturing sectors. The office market in the Hartford area, particularly the north submarket, remained weak in 2007. Many prospective tenants chose to renew their leases at their present locations. The north submarket of Hartford continues to have the highest vacancy percentage and the lowest rental rates for office space of all of Hartford's submarkets. There can be no assurance as to the direction of the real estate market in this region in the near future.

        In 2007, market activity for the leasing of industrial and warehouse space appeared fairly strong in the first half of the year, but weakened in the second half of the year, as evidenced by a decline in the number of inquiries from prospective tenants. Recently, several warehousing and light industrial buildings, competitive with Griffin Land's industrial buildings, have been built in the greater Hartford area. These facilities will compete with Griffin Land's properties in the leasing of new industrial space in the north submarket of Hartford. Additional capacity in the industrial market could adversely affect Griffin Land's operating results from its leasing business, by potentially resulting in longer times to lease vacant space, depressing lease rates in Griffin Land's properties or hindering renewals by existing tenants.

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        The decline in the residential real estate market and tightening of credit availability during 2007 may adversely affect Griffin Land's real estate development activities in the near term. The decline in the residential real estate market could delay or postpone the sale of the remaining residential lots that are currently under contract at Stratton Farms, Griffin Land's residential development in Suffield, Connecticut. Through the end of fiscal 2007, Griffin Land had sold twenty-five of the fifty lots in that development to a local home builder, with the balance of the lots scheduled to be sold within the next year. In addition, the softening of the residential real estate market could result in lower selling prices for Griffin Land's undeveloped land intended for residential use or delay the sale of such land. The tightening in the credit market in 2007 could adversely impact future financing of Griffin Land's office and industrial facilities or adversely impact the financing of potential acquisitions of real estate assets.

        In fiscal 2005, Griffin Land leased approximately 56,000 square feet of additional space (net of vacated space) and leases aggregating approximately 90,000 square feet were extended. In fiscal 2006, Griffin Land leased approximately 206,000 square feet of additional space (net of vacated space) and leases aggregating approximately 167,000 square feet were extended. Approximately 137,000 square feet of the newly leased space in fiscal 2006 was in an industrial building that was constructed in the prior year and placed in service at the beginning of fiscal 2006. That building is now fully leased. In fiscal 2007, Griffin Land leased approximately 168,000 square feet of additional space (including the 31,000 square feet warehouse that was acquired and leased back to the seller) and leases aggregating 168,000 square feet were extended. A lease for approximately 40,000 square feet of office space expired at the end of fiscal 2007 and was not renewed. Approximately 92,000 square feet of the newly leased space in fiscal 2007 was in two new industrial buildings that were completed and placed in service in 2007. These new facilities aggregate approximately 275,000 square feet, with the balance of approximately 183,000 square feet available for lease.

        In fiscal 2007, Griffin Land completed several property sales, generating cash proceeds of $13.3 million. Included in those transactions were the sale of approximately 73 acres of undeveloped land in Griffin Center in Windsor, Connecticut, the sale of approximately 103 acres of undeveloped land in South Windsor, Connecticut, the sale of the second phase of residential lots of Stratton Farms, and the sale of a small parcel of undeveloped land near the central business district of Tampa, Florida. Also in fiscal 2007, Griffin Land recognized revenue and profit from the land sold to Walgreen Co. ("Walgreen") that was consummated in fiscal 2006. Although all of the cash proceeds from that sale were received in fiscal 2006, because that transaction was accounted for using the percentage of completion method, a portion of the revenue and profit from that sale was deferred in fiscal 2006, to be recognized in subsequent years as required road improvements are made. In the 2007 fourth quarter, Griffin Land purchased approximately 24 acres of land which included an approximate 31,000 square foot warehouse. The land parcel acquired abuts a significant parcel of undeveloped land held by Griffin Land. The terms of this acquisition include a ten year lease of the warehouse to the seller, who uses the facility in its operations. This acquisition was made using a portion of the proceeds from a land sale earlier in the year as part of a Section 1031 exchange for income tax purposes, which results in the deferral of a portion of the income taxes related to the prior land sale.

        Griffin Land's development of its land is affected by land planning and potential environmental issues. Subdivision and other residential development issues may also be affected by the potential adoption of initiatives meant to limit or concentrate residential growth. Commercial and industrial development activities for Griffin Land's undeveloped land may also be affected by traffic considerations and other restrictions to development imposed by governmental agencies.

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Commercial and Industrial Developments

New England Tradeport

        The major portion of Griffin Land's current commercial and industrial development effort is focused on the New England Tradeport ("Tradeport"), a 600 acre industrial park near Bradley International Airport and Interstate 91, located in Windsor and East Granby, Connecticut. As of December 1, 2007, Tradeport contained approximately 1,061,000 square feet of warehouse and light manufacturing space built and owned by Griffin Land, of which approximately 80% was leased, a large distribution facility being built by Walgreen on land purchased from Griffin Land in fiscal 2006 (see below), and a bottling and distribution plant built by the Pepsi Bottling Group ("Pepsi") on land sold to Pepsi by Griffin Land in the early 1990s.

        In 2007, Griffin Land completed construction, on speculation, of the shells of two warehouse and light manufacturing facilities. These buildings are located on an approximate 90 acre parcel within Tradeport that received State Traffic Commission approval for approximately 900,000 square feet of new construction in connection with the fiscal 2006 sale of undeveloped land to Walgreen. Approvals to construct another approximately 200,000 square feet on other land parcels in Tradeport were also obtained in connection with the Walgreen transaction. As of December 1, 2007, $47.6 million was invested (net book value) in buildings owned by Griffin Land that are located in Tradeport and $4.5 million was invested (net book value) by Griffin Land in the undeveloped land there. As of December 1, 2007, all of Griffin Land's existing buildings at Tradeport, other than the two new facilities that are unmortgaged, were mortgaged for an aggregate of approximately $36.4 million.

        In the 2006 third quarter, Griffin Land sold approximately 130 acres of undeveloped land in Tradeport to Walgreen for their construction of a distribution center. The sale generated cash proceeds of $13.0 million, before transaction expenses. As provided under the terms of the sale contract and as required under a revised State Traffic Commission certificate (the "STC Certificate") covering the area in Tradeport located in Windsor, certain improvements to existing roads were required. The cost of these improvements is the responsibility of Griffin Land, however, a portion of the costs are being borne by the town of Windsor and Walgreen. At the end of fiscal 2006, approximately $5.1 million of the revenue and approximately $3.8 million of the total projected pretax gain on this transaction had not been recognized in Griffin's fiscal 2006 statement of operations. In fiscal 2007, as a result of changes to the design of the required road improvements, management revised its estimate of the total projected costs of the road improvements, which resulted in an increase of $0.5 million to the total projected pretax gain on the land sale to Walgreen. In fiscal 2007, approximately $3.1 million of revenue and $2.7 million of profit previously deferred were recognized in the statement of operations as work progressed on the required road improvements. The balance of the revenue and profit that remains deferred at the end of fiscal 2007 is expected to be recognized in fiscal 2008 as the required road improvements are expected to be completed.

        In connection with the fiscal 2006 land sale to Walgreen, the State Traffic Commission of Connecticut approved a revised STC Certificate that allowed Griffin Land to construct an additional approximately 1.1 million square feet of light manufacturing and warehouse space on certain parcels in Tradeport. Through the end of fiscal 2007, Griffin Land has built approximately 275,000 square feet of this space, and will build another approximate 100,000 square foot facility in fiscal 2008. In January 2008, a lease for approximately 58,000 square feet of the building to be built in 2008 was executed with a tenant whose current 22,000 square foot lease in one of Griffin Land's other Tradeport buildings will expire in fiscal 2008. Construction of this new building is expected to be complete at the end of the fiscal 2008 third quarter. The balance of the space that has been approved is expected to be built over time as demand warrants. After the construction of all of the additional square footage permitted under the STC Certificate as currently permitted, there will remain an additional approximately 152 acres of undeveloped land in Tradeport. There are no State Traffic Commission or other approvals

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(other than zoning) for the development of this additional land currently in place, and Griffin Land believes that significant additional infrastructure improvements may be required to obtain approvals to develop these 152 acres.

        In fiscal 2007, Griffin Land leased approximately 107,000 square feet of warehouse and light industrial space in Tradeport, including approximately 92,000 square feet of space in the two buildings that were completed and placed in service during the year and 15,000 square feet of previously vacant space in two of its older Tradeport industrial buildings. Approximately 183,000 square feet in those new buildings remains available for lease. In fiscal 2007, Griffin Land also renewed several leases covering approximately 85,000 square feet. At the end of fiscal 2007, in addition to the vacant space in the two new buildings, there was only approximately 29,000 square feet of vacant space in Griffin Land's other Tradeport buildings. A summary of Griffin Land's square footage owned and leased in Tradeport at the end of each of the past three fiscal years and leases in Tradeport scheduled to terminate during each of the next three fiscal years are as follows:

        Griffin Land expects to negotiate renewals with its tenants that have expiring leases.

        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 its warehouse and light manufacturing facilities at Tradeport. Griffin Land may also seek to acquire additional developed and/or undeveloped land parcels both in Connecticut and elsewhere to expand the industrial/warehouse portion of its real estate business.

Griffin Center and Griffin Center South

        Griffin's other substantial development is the combination of Griffin Center in Windsor and Bloomfield, Connecticut and Griffin Center South in Bloomfield. Together these master planned developments comprise approximately 600 acres and as of December 1, 2007, approximately 63% has been developed with approximately 2,165,000 square feet of office and industrial space. In 2007, Griffin Land sold approximately 73 acres of undeveloped land in Griffin Center to The Hartford Insurance Company ("The Hartford"), which is presently constructing an approximately 400,000 square foot office building.

        Griffin Center currently includes ten office buildings (excluding the building under construction by The Hartford Insurance Company), a light manufacturing building and a small restaurant. Griffin Land currently owns two multi-story office buildings that have an aggregate of approximately 161,000 square feet, a single story approximately 48,000 square foot office building, a 165,000 square foot light manufacturing building and the small restaurant building. As of December 1, 2007, $19.8 million was invested (net book value) in Griffin Land's buildings in Griffin Center and $1.3 million was invested by Griffin Land in the undeveloped land there. Griffin Land's multi-story office buildings and its light manufacturing building in Griffin Center are mortgaged for an aggregate of approximately $13.1 million.

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        On June 22, 2007, Griffin Land executed an agreement to sell approximately 45 acres of land in Bloomfield, Connecticut that is part of Griffin Center to a developer of residential housing. The purchase price is $4.5 million, but may increase to $5.6 million or decrease to $3.9 million depending on the number of residential units the buyer is permitted to build. In addition, Griffin Land would receive additional revenue upon the buyer's sale of residential units. Completion of this transaction is subject to several contingencies, including satisfactory completion of due diligence by the buyer and the buyer obtaining all required governmental approvals for its proposed development plans. The time frame for the buyer to obtain all of the governmental approvals is expected to be an extended one, with the closing of this transaction not expected within the next twelve months. There can be no assurance that this transaction will be completed under its current terms, or at all.

        In fiscal 2007, Griffin Land leased approximately 12,000 square feet of previously vacant space in Griffin Center and renewed leases for approximately 81,000 square feet in Griffin Center. As of December 1, 2007, approximately 318,000 square feet of Griffin Land's buildings was leased, comprising approximately 83% of Griffin Land's total space in Griffin Center. A summary of Griffin Land's square footage owned and leased in Griffin Center at the end of each of the past three fiscal years and leases in Griffin Center scheduled to terminate during each of the next three fiscal years are as follows:

        Griffin Land expects to negotiate renewals with its tenants that have expiring leases.

        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 in Griffin Center South 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 December 1, 2007, Griffin Land's aggregate investment (net book value) in its buildings in Griffin Center South was $9.4 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 two additional buildings aggregating approximately 175,000 square feet.

        In fiscal 2007, Griffin Land leased approximately 19,000 square feet of previously vacant space in Griffin Center South and renewed a lease for approximately 2,000 square feet. The other lease that was scheduled to expire in fiscal 2007 was for approximately 40,000 square feet of office space, and it was not renewed. As of December 1, 2007, approximately 125,000 square feet of space in the Griffin Center South buildings owned by Griffin Land was leased, comprising 53% of Griffin Land's total space in Griffin Center South. A summary of Griffin Land's square footage owned and leased in Griffin Center

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South at the end of each of the past three fiscal years and leases in Griffin Center South scheduled to terminate during each of the next three fiscal years are as follows:

        Griffin Land expects to negotiate renewals with tenants that have expiring leases.

Other Industrial Properties

        In the 2006 third quarter, Griffin Land acquired an approximate 308,000 square foot warehouse facility in Manchester, Connecticut. The purchase price of $13.5 million was paid in cash at closing. The facility was used in the operations of its previous owner, and was vacant at closing. The purchase of this warehouse facility was part of a Section 1031 exchange whereby income taxes related to the gain on the June 2006 land sale to Walgreen and a smaller land sale completed in fiscal 2006 were deferred. Griffin Land is marketing this facility for lease. Although there have been several inquiries made by prospective tenants and Griffin Land has made several proposals to prospective tenants to lease all or a portion of this facility, there have not been any leases executed for space in this building since it was acquired.

        In the 2007 second quarter, Griffin Land completed the sale of approximately 103 acres of undeveloped land in South Windsor, Connecticut to a food distributor for construction of a distribution facility. This transaction generated cash proceeds of approximately $2.5 million to Griffin Land. In the 2007 fourth quarter, Griffin Land acquired approximately 24 acres of land and an approximate 31,000 square foot warehouse facility in Bloomfield, Connecticut from General Cigar Company, Inc. ("General Cigar"). The purchase price of $2.7 million was paid in cash at closing. The land acquired abuts approximately 244 acres of undeveloped land held by Griffin Land. The purchase of this warehouse facility was also part of a Section 1031 exchange whereby a portion of the income taxes related to the gain on the land sale to The Hartford Insurance Company were deferred. As part of this transaction, Griffin Land entered into a ten year lease with General Cigar, which will continue to use this facility in its operations.

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. One quarter of these homes were to be deed restricted under Connecticut statutes for affordable housing. The public hearings before the town's land use commissions on this proposed residential development 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. After the conclusion of the public hearings, Griffin Land amended its plans and reduced the number of proposed homes to 371. The town's land use commissions rejected the amended plans, and Griffin Land filed several separate but related actions appealing the denials of the land use commissions. At the time the original application for Meadowood was filed with the town, Griffin Land's proposal included a method (which has received support from the Connecticut

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Department of Environmental Protection) of remediating the soils of the residual pesticides. However, recent soil testing conducted by Griffin Land indicates that the residual pesticides that remain in the soil on much of the Meadowood site are below levels that would require remediation.

        In December 2002, the trial court for two cases related to Meadowood 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 that could affect the proposed development. Griffin Land appealed an adverse decision on wetlands issues to the Connecticut Supreme Court, which reversed the decision and remanded the case to the trial level court for further consideration. In November 2003, Griffin Land filed a second amendment to its plans for Meadowood, which reduced the density to 298 homes, with certain land reserved for future development, and eliminated most activities in the wetlands and wetland upland areas. The town's Conservation and Inland Wetlands Commission, which has jurisdiction of wetland issues, denied that application. That denial has been appealed.

        In January 2007, Griffin Land and the town of Simsbury jointly filed a motion in the Appellate Court to have the appeal remanded to the Superior Court in anticipation of the parties potentially presenting a settlement proposal to the court for its review and approval. In June 2007, at a joint meeting of the town's Planning, Zoning and Inland Wetlands Commissions, a tentative settlement agreement was presented for their review. The tentative settlement includes, among other things, approval for up to 299 homes, certain remediation measures to be performed by Griffin Land and the purchase by the town, subject to approvals, of a portion of the Meadowood land for town open space. The Zoning and Inland Wetlands Commissions approved resolutions at that meeting accepting the proposed settlement terms. The Planning Commission approved the resolution at a subsequent meeting. A formal settlement agreement must be executed by Griffin Land and the town and then approved by the Connecticut Superior Court, which will consider each Commission's agreement at a public court hearing and render its decision. If approved by the Court, as expected, the previously filed cases would be withdrawn with no further litigation between the parties on this matter (see Item 3 Legal Proceedings). Griffin Land is currently working with the Connecticut Department of Environmental Protection and the U.S. Army Corps of Engineers to determine the remediation measures that will be required. Griffin Land may also be required to acquire some road frontage for required road improvements.

        As of December 1, 2007, the book value of the land for this proposed development, including design, development and legal costs, was $5.3 million. Management believes that the costs for Meadowood that have been expended to date will be recovered.

        Griffin Land owns another approximate 500 acres in Simsbury, portions of which are zoned for residential use and other portions of which are zoned for industrial use. Not all of such land is developable. The land currently zoned for industrial use is probably more suited to commercial use. Griffin Land may seek to develop or sell such lands if approvals can be obtained.

Suffield

        In 2003, Griffin Land received approval from the Planning and Zoning Commission of Suffield, Connecticut for the subdivision of 97 acres of contiguous land in Suffield into a development of 50 homes called Stratton Farms. An adjoining landowner filed a lawsuit challenging the Commission's approval of Stratton Farms. The lawsuit and subsequent appeals were denied. After the final required permit was received by Griffin Land in the 2005 fourth quarter, Griffin Land completed construction of the infrastructure for this residential development. In fiscal 2006, Griffin Land entered into a contract with a home builder to sell the fifty residential lots over a three year time period. The first sale, ten residential lots, was completed in the 2006 third quarter, and the second sale, fifteen residential lots,

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was completed in the 2007 third quarter. Under the terms of the contract, the last two sales comprising the remaining twenty-five residential lots are scheduled to be closed in fiscal 2008. The weakening of the residential real estate market this past year may result in the delay of the sale of the remaining twenty-five lots. There is no assurance that the remaining lots at Stratton Farms will be sold under the current contract terms, or at all.

Other

        In fiscal 2007, Griffin Land leased approximately 700 acres of undeveloped land in Connecticut and Massachusetts to local farmers. Much of this land had previously been leased to General Cigar under a ten-year lease agreement that terminated on February 28, 2007. That lease was entered into when Griffin and General Cigar were wholly-owned subsidiaries of Culbro Corporation. The revenue generated from the leasing of farmland is not material to Griffin Land's total revenue.

        Griffin Land is evaluating its other properties for residential or other development in the future. 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 of containerized landscape nursery stock and, to a small extent, a broker of wholesale landscape nursery stock. The landscape nursery industry is extremely fragmented and Imperial believes that its sales volume places it among the fifty largest landscape nursery growers in the country.

        Imperial's growing operations are located on land owned by Griffin in Connecticut (approximately 445 acres currently used) and land owned by Imperial in northern Florida (approximately 490 acres currently used). In fiscal 2004, Imperial completed an expansion of its northern Florida facility, which included improved and expanded shipping capacity, customer service facilities and irrigation and water recycling operations. A substantial portion of the products that were part of the increased Florida production were of larger sizes, requiring extended growing cycles. Currently, substantially all of the useable contiguous lands suitable for the container-growing operations in Connecticut is used, as is a large portion of such land in northern Florida, although not all available space is being utilized in Florida. Imperial also uses approximately 45 acres of land in Connecticut to grow liners (starter plants) in the field for transplanting into containers. Imperial expects to relocate its field liner growing operation to other land owned by Griffin.

        Imperial's growing operations serve a market comprised principally of independent garden centers, rewholesalers, whose main customers are landscape contractors, and mass merchandisers. 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 additional parts of the Southeast. In 2007, Imperial increased its sales resources in the Southeast in order to increase its sales in areas that are closer to its Florida farm than the areas that Imperial's Florida farm has previously supplied. In conjunction with the increase in sales coverage in the Southeast, Imperial reduced its sales coverage to certain parts of the Midwest area. The decision to reduce coverage in that area reflected the increasing difficulty in servicing and competing for business in a market that is distant from both the Connecticut and Florida facilities, and management's decision to not increase its overall selling expenses when it increased sales resources in the Southeast. The drought conditions that affected parts of the Southeast in 2007 could negatively impact Imperial's efforts to increase sales in that region.

        Imperial's sales are extremely seasonal, peaking in spring, are strongly affected by weather conditions, particularly in the spring planting season, and are affected by commercial and residential building activity. The slowdown in new housing starts that took place in fiscal 2007 may adversely impact Imperial's future results. Although Imperial only has minimal sales to home builders, they are

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the ultimate users of a portion of the product that is sold to rewholesale customers. The slowdown in home building could adversely affect sales to Imperial's rewholesaler customer segment, which accounted for approximately 32% of Imperial's sales in fiscal 2007. Imperial's sales are made to a large variety of customers, no single one of which represented more than 10% of Imperial's total sales in fiscal 2007 and fiscal 2006. However, aggregate net sales to Imperial's ten largest customers, including several large mass merchandisers, accounted for 25% of Imperial's total net sales in fiscal 2007 and 35% of Imperial's total net sales in fiscal 2006.

        Imperial's inventories consist principally 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, magnolia, perennials and crepe myrtle. In Connecticut, alberta spruce, perennials and trees are other major products. Container-grown product is held principally from one to five years before it is sold. Several years ago, Imperial started selling some 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 that enable it to grow and sell certain branded products available only to a limited number of growers. These programs are directed toward increasing Imperial's sales to independent garden centers.

        In 2006, Imperial reduced production at its Florida farm, which resulted in a reduction of the inventory level maintained at that facility. The reduction in inventory better matched inventory quantities with sales volume and with the shorter shipping season from the Florida farm. Inventory levels at Florida in 2007 were similar in quantity with the prior year, and may in the future be adjusted to expected sales volume. In Connecticut, although future production may reflect increases and decreases to the numbers of plants grown in current varieties and sizes, overall future utilization at that facility is expected to remain consistent with the current utilization.

        Imperial is reviewing a variety of approaches to improve its operating results, 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 cycles for some of its containerized production. The reduction in product being grown in Florida in order to better align its production with expected sales volume and the increased focus on the Southeast marketplace are part of this effort. In addition, over the past two years, Imperial has increased the percentage of its product sold to independent garden centers and reduced its sales to mass merchant customers. Sales to independent garden centers generally have more favorable gross margins as compared to sales to mass merchandisers. The field grown liner program in Connecticut is directed at increasing gross profit on sales by reducing plant costs. Any such changes, if successful, taking into account the growing cycles of the related plants, will take a substantial period of time to be reflected in results of operations to any material extent.

        In fiscal 2007, Imperial's cost of goods sold includes $0.7 million for inventory losses. The inventory losses reflect a higher than expected level of disposals of unsaleable product, increases to inventory reserves because the carrying costs of certain inventories exceed their net realizeable values and the writeoff of certain inventories that will no longer be sold due to changes in product mix, principally at Imperial's northern Florida operation. The charge for unsaleable inventories and net realizeable value issues was $0.8 million in fiscal 2006 and $3.1 million in fiscal 2005.

        Shipping capacity and shipping expense are major cost concerns, especially on product shipped to customers from Imperial's northern Florida location because of the distance between the northern Florida farm and Imperial's main markets. Over the past two years, costs of shipping have increased significantly as the result of higher fuel costs, the need to arrange for the return of portable shelving units for subsequent shipments and competition with other companies in northern Florida for the availability of trucks during Imperial's peak spring shipping period. In fiscal 2007, Imperial increased the number of trucking vendors, improved the routing of shipments and had additional portable shelving units available. These improvements, along with an increase in delivery charges to customers,

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substantially improved the net impact of transportation on Imperial's operating results. Management is continuing its efforts to review its shipping practices. In fiscal 2007 Imperial planned its shipping in ways that reduced the need for returning trucks empty which helped in managing total shipping costs.

Investments

Centaur Media, plc

        In fiscal 2004, Griffin sold its holdings in Centaur Communications, Ltd. ("Centaur Communications") and, in addition to the cash proceeds of $68.9 million, received 6,477,150 shares of common stock of Centaur Holdings, plc ("Centaur Holdings"), approximately 4% of the outstanding common stock of Centaur Holdings at the time of the transaction. In June 2006, Centaur Holdings changed its name to Centaur Media, plc ("Centaur Media"). Centaur Media is a publicly traded company listed on the London Stock Exchange. In fiscal 2007, Griffin sold 1,200,000 shares of its Centaur Media common stock for proceeds of approximately $3.5 million, which resulted in a pretax gain of $2.9 million. Griffin accounts for its remaining investment in Centaur Media as an available-for-sale security. Accordingly, changes in the market value of Griffin's remaining investment in Centaur Media, including both changes in the 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 Nurseries Holding Corp.

        In fiscal 2001, Griffin sold the portion of Imperial's business that operated wholesale sales and service centers and received cash proceeds of $18.4 million and approximately 14% of the outstanding common stock of Shemin Acquisition Corp. ("Shemin Acquisition"), a privately held company that operated a landscape nursery distribution business and an irrigation supply business through its subsidiaries. Griffin accounted for its investment in Shemin Acquisition under the cost method of accounting for investments. In fiscal 2004, Griffin invested an additional $143,000 in Shemin Acquisition and maintained its approximate 14% ownership interest. In fiscal 2005, Griffin exchanged a portion of its holdings in Shemin Acquisition for common stock in Shemin Nurseries Holding Corp. ("SNHC"), which operates a landscape nursery distribution business through its subsidiary that previously was a wholly-owned subsidiary of Shemin Acquisition. Griffin then completed the sale of its remaining stock in Shemin Acquisition for cash proceeds of $5.7 million. Also in fiscal 2005, Griffin received a cash distribution of $1.7 million from SNHC. In the fiscal 2007 third quarter, Griffin received cash of $1.8 million from SNHC, which included dividend income of $1.6 million and a $0.2 million return of investment. Griffin continues to hold its investment in SNHC and accounts for this investment under the cost method of accounting for investments.

Financial Information Regarding Industry Segments

        See Note 2 to the consolidated financial statements of Griffin for certain financial information regarding the real estate business and the landscape nursery business.

Employees

        As of December 1, 2007, Griffin employed 205 people on a full-time basis, including 21 in its real estate business and 179 in its landscape nursery business. Presently, none of Griffin's employees are represented by a union. Griffin believes that its relations with its employees are satisfactory.

Competition

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

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        Numerous real estate developers operate in the portion of Connecticut and Massachusetts in which Griffin's holdings are concentrated. Some of these 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 and dieldrin, arising from the prior use of the land for farming on a portion of the land that is intended for residential use. In the event that Griffin Land is unable to adequately remediate any of its land intended for residential use, Griffin Land's 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 1A.    RISK FACTORS

        Griffin's real estate and landscape nursery businesses have a number of risk factors. The risk factors discussed below are the ones that management deems to be material, but they may not be the only risks facing Griffin's businesses. Additional risks not currently known or currently deemed not to be material may also impact Griffin's businesses.

Risks Associated with Concentration of Real Estate Holdings

        Griffin Land's real estate operations are concentrated in the Hartford, Connecticut area. Adverse changes in the local economy or real estate market could impact Griffin Land's real estate operations, including the market's ability to absorb newly constructed space and Griffin Land's ability to retenant vacant space.

Potential Environmental Liability

        Griffin Land has extensive land holdings in Connecticut and Massachusetts. Under federal, state and local environmental laws, ordinances and regulations, Griffin Land may be required to investigate and clean up the effects of releases of hazardous substances or petroleum products at its properties because of its current or past ownership or operation of the real estate. If previously unidentified environmental problems arise, Griffin Land may have to make substantial payments, which could adversely affect its cash flow. As an owner or operator of properties, Griffin Land may have to pay for property damage and for investigation and clean-up costs incurred in connection with the

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contamination. The law typically imposes clean-up responsibility and liability regardless of whether the owner or operator knew of or caused the contamination.

Competition and Governmental Regulations

        Griffin Land's real estate operations compete with other properties in Griffin Land's area of operation and are subject to governmental regulations that affect real estate development, such as local zoning ordinances. The construction of new facilities by competitors would increase capacity in the marketplace, which could result in Griffin Land experiencing longer times to lease vacant space, depressing lease rates or hindering renewals by existing tenants.

Insurance Coverage Does Not Include All Potential Losses in the Real Estate Business

        Griffin Land carries comprehensive insurance coverage, including property, fire, terrorism and loss of rental revenue. The insurance coverage contains policy specifications and insured limits. Griffin Land believes its properties are adequately insured. However, there are certain losses that are not generally insured against or that are not fully insured against. If an uninsured loss or a loss in excess of insured limits occurs with respect to one or more of Griffin Land's properties, Griffin Land could experience a significant loss of capital invested and potential revenue from the properties affected.

Risks of Agricultural and Environmental Factors

        Imperial's production of plants may be adversely affected by agricultural and environmental factors beyond its control such as a hurricane at its northern Florida location or severe drought conditions. A hurricane at its northern Florida facility could damage Imperial's facilities and result in a loss of inventory (see Risks of Loss in the Landscape Nursery Business Not Covered by Insurance). Imperial's production facilities could also be adversely affected by severe drought conditions. While management believes that Imperial's Connecticut and northern Florida operations have sufficient water supplies available, a severe drought could impact Imperial's ability to maintain adequately its inventory. In addition, a severe drought in Imperial's main sales markets could substantially impact Imperial's sales.

        Other agricultural or environmental factors that could materially impact Imperial's growing operations are adverse weather conditions, such as freezing conditions (particularly at the northern Florida facility), plant diseases, pests and the improper use of herbicides and pesticides. The occurrence of any one of these factors could materially affect Imperial's growing operations, and result in a portion of Imperial's inventory becoming unsaleable.

Concentration of Customers

        Although no single customer of Imperial accounted for more than 10% of Imperial's total net sales in fiscal 2007, Imperial's ten largest customers, including several mass merchandisers, accounted for 25% of Imperial's total net sales in fiscal 2007. Management expects that a small number of customers will continue to account for a significant portion of Imperial's net sales over the next several years. Imperial does not have any material sales contracts with any of its customers. Certain of Imperial's independent garden center customers purchase product from Imperial through buying cooperatives. The loss of one of Imperial's larger customers or the inability to collect accounts receivable from one of Imperial's larger customers, including buying cooperatives, could have an adverse effect on Imperial. One of Griffin Land's tenants accounted for approximately 10% of its total rental revenue in fiscal 2007.

Regulatory Risks

        Imperial's operations are subject to various laws and environmental regulations. The failure to comply with such laws and environmental regulations could result in liabilities being incurred for Imperial's actions. Recently, there has been an increase in legislation regarding the sale and

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transportation of plant varieties considered to be "invasive" by state governments. The continuation of such legislation could adversely impact Imperial's operations by reducing the area where inventories of plants considered to be invasive may be sold or transported.

Risks Associated with the Cost of Raw Materials and Energy Costs

        Imperial's operations could be adversely affected by increases in the cost of growing plants, the costs of certain materials and energy costs. Prices of certain petroleum based materials, such as plant containers and plastics used in protecting inventory during the winter, have increased as overall petroleum prices have increased. In addition, increases in energy costs and the lack of availability of energy could also adversely impact Imperial's operations, particularly at Imperial's Connecticut facility, which uses heat generated from natural gas and propane to maintain certain parts of its inventory during the winter.

        Griffin Land's construction activities could be adversely affected by increases in raw materials or energy costs. As petroleum and other energy costs increase, products used in the construction of Griffin Land's facilities, such as steel, masonry, asphalt, cement and building products are expected to increase, based on recent bids. An increase in construction costs will increase the cost of building new facilities and may negatively impact Griffin Land's future operating results through increased depreciation expenses. An increase in construction costs would also require increased investment in Griffin Land's real estate assets, which may lower the return on investment in new facilities in the real estate business.

Residential Real Estate Market and Credit Availability

        The decline in the residential real estate market and tightening of credit availability during 2007 may adversely affect Griffin Land's real estate development activities. The decline in the residential real estate market could result in the delay or cancellation of the completion of residential land sales currently under contract and could result in the delay of the development of Griffin Land's other undeveloped land intended for residential use. The slowdown in new housing starts in 2007 may also adversely affect Imperial's future results. Although Imperial only has minimal sales of product to home builders, they are the ultimate users of a portion of the product sold to Imperial's rewholesale customer segment, which accounted for 32% of Imperial's sales in fiscal 2007.

Availability of Transportation Vendors to Deliver Product

        Substantially all of Imperial's sales are delivered to customers' locations using independent contractors for trucking services. The ability to ship products timely, especially during the peak spring shipping season, could be adversely impacted by shortages in available trucking capacity. Significant increases in transportation costs could have a material adverse effect on Imperial's business, as customers may choose to purchase product from local growers or Imperial may not be able to pass along such increases to customers. The risks regarding transportation, while significant to Imperial's entire operation, are more acute at its northern Florida facility, because that facility is, on average, more distant from its customers than Imperial's Connecticut facility.

Availability of Labor

        Labor costs comprise a substantial portion of Imperial's production costs. Imperial is subject to the Fair Labor Standards Act as well as various federal, state and local regulations that govern matters such as minimum wage requirements, working conditions and worker regulations. As a significant amount of Imperial's seasonal employees are paid at slightly above minimum wage rates, any increase in such minimum wage rates could adversely impact Imperial's results. In addition, Imperial depends on a significant amount of seasonal labor, particularly during its peak shipping period in the spring. Changes in immigration laws could make it more difficult for Imperial to meet its seasonal labor requirements, which could adversely affect Imperial's operations.

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Risks of Loss in the Landscape Nursery Business Not Covered by Insurance

        Imperial carries comprehensive insurance coverage, including property, liability, fire and terrorism on its production facilities and its inventories. The insurance contains policy specifications and insured limits, and does not cover all possible losses that Imperial could incur. For example, Imperial's insurance that covers its inventory at its northern Florida facility does not include losses that may occur from wind, such as from a hurricane or tornado.

Investment in Foreign Company

        Griffin has an investment in Centaur Media, plc, a public company based in the United Kingdom. The ultimate liquidation of that investment and conversion of proceeds into United States currency is subject to future foreign currency exchange rates.

Litigation

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

The Concentrated Ownership of Griffin Common Stock by Members of the Cullman and Ernst Families

        Members of the Cullman and Ernst families (the "Cullman and Ernst Group"), which include directors Edgar M. Cullman, David M. Danziger and Frederick M. Danziger, members of their families and trusts for their benefit, partnerships in which they own substantial interests and charitable foundations on whose boards of directors they sit, owned, directly or indirectly, approximately 49.7% of the outstanding common stock of Griffin as of December 1, 2007. There is an informal understanding that the persons and entities included in the Cullman and Ernst Group will vote together the shares owned by each of them. As a result, the Cullman and Ernst Group may effectively control the determination of Griffin's corporate and management policies and may limit other Griffin stockholders' ability to influence Griffin's corporate and management policies.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        Not applicable.

ITEM 2.    PROPERTIES

Land Holdings

        Griffin is a major landholder in the State of Connecticut, owning approximately 3,650 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.

        At December 1, 2007, the book value of undeveloped land holdings, including land improvements, owned by Griffin, principally in the Hartford, Connecticut area, was approximately $17.0 million. Griffin believes the fair market value of such land is substantially in excess of its book value, including land improvements.

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        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 2,200 square feet in New York City for its executive offices.

        As with many companies engaged in real estate investment and development, Griffin holds its real estate portfolio subject to mortgage debt. See Note 4 to Griffin's consolidated financial statements for information concerning the mortgage debt associated with Griffin's properties.

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 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 with respect to chlordane.

        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 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

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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. In 2005, the Superior Court ruled that Griffin Land must again apply to the town's Conservation and Inland Wetlands Commission for a wetlands permit for its proposed Meadowood development. However, the wetlands case has been accepted for review by the Connecticut Appellate Court, and is currently pending there.

        In January 2007, Griffin Land and the town of Simsbury jointly filed a motion in the Appellate Court to have the appeal remanded to the Superior Court in anticipation of the parties potentially presenting a settlement proposal to the court for its review and approval. In June 2007, at a joint meeting of the town's Planning, Zoning and Inland Wetlands Commissions, a tentative settlement agreement was presented for their review. The tentative settlement includes, among other things, approval for up to 299 homes, certain remediation measures to be performed by Griffin Land and the purchase by the town, subject to approvals, of a portion of the Meadowood land for town open space. The Zoning and Inland Wetlands Commissions approved resolutions at that meeting accepting the proposed settlement terms. The Planning Commission approved the resolution at a subsequent meeting. A formal settlement agreement must be executed by Griffin Land and the town and then approved by the Connecticut Superior Court, which will consider each Commission's agreement at a public court hearing and render its decision. If approved by the Court, as expected, the previously filed cases would be withdrawn with no further litigation between the parties on this matter.

        On June 25, 2007, Griffin and its subsidiary, Imperial Nurseries, settled a lawsuit filed against them and several of their officers and employees (the "Griffin Defendants") by twelve migrant and seasonal workers employed by an independent farm labor contractor, Pro Tree Forestry Services ("Pro Tree"), that had been engaged by Imperial to provide labor at its Connecticut farm. The plaintiffs alleged, among other things, that they worked at Imperial's Connecticut farm for approximately three months in the spring of 2006; that they were not paid sufficient wages by the Pro Tree defendants as required by state and federal laws; and that the Griffin defendants were liable as joint and/or integrated employers. The lawsuit included a number of other causes of action against the Pro Tree defendants related to this issue, including claims under the Migrant and Seasonal Agricultural Protection Act, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the Alien Tort Claims Act, and other statutory and common law claims, and asserted that certain of the Griffin Defendants were jointly liable for certain of those claims. Under the settlement, Griffin agreed to pay certain amounts to the plaintiffs for wages and damages they allegedly suffered. On July 13, 2007, Imperial settled a lawsuit filed against Imperial by the United States Department of Labor (the "DOL") that claimed that Pro Tree had underpaid its employees while they were working at Imperial's Connecticut farm, and because Pro Tree refused to pay back wages to its employees, Imperial was required to pay those individuals. The total cost to Griffin for both of those lawsuits, including legal fees incurred in fiscal 2007 and net of recovery under Griffin's insurance policies, was approximately $0.5 million.

        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.

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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 January 25, 2008, the number of record holders of common stock of Griffin was approximately 399, 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 $34.01 per share.

Issuer Purchases of Equity Securities

        The following table provides information regarding purchases of equity securities by the issuer for the fiscal year ended December 1, 2007.

(1)

On January 30, 2007, Griffin's Board of Directors authorized the repurchase of up to 150,000 shares of Griffin's outstanding common stock through private transactions. The program to repurchase does not obligate Griffin to repurchase any specific number of shares, and may be suspended at any time at management's discretion. In November 2007, the Board of Directors increased by 100,000 shares the number of shares authorized to be repurchased under the program and extended the program through December 31, 2008. As of December 1, 2007, the number of shares authorized to be repurchased was 137,100.

Dividend Policy

        From the time Griffin became a public company in 1997 through the third quarter of fiscal 2007, Griffin did not pay dividends. In the 2007 fourth quarter, Griffin declared a quarterly cash dividend of $0.10 per share on its common stock. Griffin expects to pay quarterly dividends to its shareholders in future quarters subject to the Board of Directors' evaluation of other uses for Griffin's cash.

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Securities Authorized For Issuance Under Equity Compensation Plans

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

Stock Performance Graph

        The following graph compares the total percentage changes in the cumulative total stockholder return (assuming the reinvestment of dividends) on Griffin's Common Stock with the cumulative total return of the Russell 2000 Index from November 30, 2002 to December 1, 2007. It is assumed in the graph that the value of each investment was $100 at November 30, 2002. Griffin is not aware of any other company that substantially participates in both the landscape nursery and real estate businesses, and would therefore be suitable for comparison to Griffin as a "peer issuer" within Griffin's lines of business.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following table sets forth selected statement of operations data for fiscal years 2003 through 2007 and balance sheet data as of the end of each fiscal year. The selected financial data for fiscal 2005, fiscal 2006 and fiscal 2007 are derived from the audited consolidated financial statements included in Item 8 of this report. The selected financial data for fiscal 2003 and fiscal 2004 were derived from the audited consolidated financial statements for those years.

(a)

In fiscal 2006, Griffin adopted FASB Interpretation No. 47 "Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143" ("FIN No. 47"). See Note 1 to Griffin's consolidated financial statements.

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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 Connecticut and Massachusetts based real estate business ("Griffin Land") and Griffin's subsidiary in the landscape nursery business, Imperial Nurseries, Inc. ("Imperial").

        The notes to Griffin's consolidated financial statements included in Item 8 contain a summary of the significant accounting policies and methods used in the preparation of Griffin's consolidated financial statements. However, in the opinion of management, 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 are the critical accounting estimates and methods used by Griffin:

        Investments: Griffin classifies its investments in debt and equity securities that have readily determinable fair values as either available-for-sale or trading securities, based upon management's intent regarding each security. If there is a decline in fair value of available-for-sale securities, Griffin evaluates whether such decline is other than temporary, and if the decline is deemed to be other than temporary, Griffin would record the decline in its statement of operations.

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

        Inventories: In applying the principle of the lower of cost or market using the average cost method for 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 and sales pricing.

        Income taxes: 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 reviewed periodically for future recoverability.

        Revenue and gain recognition: 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. When the percentage of completion method is used to account for a sale of real estate, costs included in determining the percentage of completion include the costs of the land sold, allocated master planning costs, selling and transaction costs and estimated future costs related to the land sold.

        Stock based compensation: Griffin determines stock based compensation based on the estimated fair values of stock options as determined on their grant dates using the Black-Scholes option-pricing model. In determining the estimated fair values of stock options issued, Griffin makes assumptions on expected volatility, risk free interest rates, expected option terms and dividend yields.

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Summary

        Griffin's net income for fiscal 2007 is $8.3 million as compared to a loss before the cumulative effect of a change in accounting principle, net of tax, of $0.2 million in fiscal 2006 and a net loss of $0.4 million in fiscal 2006. The improved results in fiscal 2007 principally reflect improved results of Griffin's operating businesses, Griffin Land and Imperial, a gain on the sale of a portion of Griffin's investment in Centaur Media, plc ("Centaur Media"), and an increase in investment income. Fiscal 2006 results also included a charge, net of tax, of $0.2 million for a change in accounting principle.

        Operating profit at Griffin Land increased from $7.0 million in fiscal 2006 to $15.1 million in fiscal 2007 due principally to higher profit from property sales. Profit from Griffin Land's leasing operations also increased in fiscal 2007 as compared to fiscal 2006. Imperial incurred an operating loss of $1.4 million in fiscal 2007 as compared to an operating loss of $2.4 million in fiscal 2006, due principally to higher margins on sales. Griffin's general corporate expense increased to $4.3 million in fiscal 2007 from $4.2 million in fiscal 2006. An increase in legal costs, primarily related to a lawsuit in 2007, were substantially offset by lower expenses for compliance with Section 404 of the Sarbanes-Oxley Act and lower incentive compensation expense. Fiscal 2007 included a pretax gain of $2.9 million from the sale of a portion of Griffin's investment in Centaur Media. Investment income was higher in fiscal 2007 as compared to fiscal 2006 due principally to dividend income from Shemin Nurseries Holding Corp. ("SNHC"). Interest expense in fiscal 2007 was higher than fiscal 2006 due to interest expense on an $8.5 million nonrecourse mortgage entered into by Griffin Land near the end of fiscal 2006.

        In fiscal 2007, Griffin adopted SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS No. 158"). The adoption of SFAS No. 158 did not impact Griffin's consolidated statement of operations, but did increase Griffin's accumulated other comprehensive income by $47,000. See Notes 1 and 5 to the consolidated financial statements included in Item 8.

        The change in accounting principle in fiscal 2006 reflected the recording of conditional asset retirement obligations in accordance with FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143." Also, at the beginning of the 2006 fiscal year, Griffin adopted SFAS No. 123(R) "Share-Based Payment" ("SFAS No. 123(R)") using the modified prospective method of adoption. Results for prior periods were not restated. The effect of the adoption of SFAS No. 123(R) on fiscal 2007 and 2006 results of operations was not material. See Notes 1 and 6 to the consolidated financial statements included in Item 8.

Fiscal 2007 Compared to Fiscal 2006

        Griffin's consolidated total revenue increased from $53.2 million in fiscal 2006 to $59.4 million in fiscal 2007, reflecting an increase in revenue of approximately $9.6 million at Griffin Land, partially offset by a decrease in revenue of approximately $3.4 million at Imperial.

        Revenue at Griffin Land increased from $21.8 million in fiscal 2006 to $31.4 million in fiscal 2007. The increase of approximately $9.6 million reflects an increase of approximately $7.5 million in revenue from property sales and an increase of approximately $2.1 million of revenue from leasing operations. Property sales occur periodically, and changes in revenue from year to year from these transactions are generally not indicators of any trends in the real estate business. Revenue from property sales in fiscal 2007 reflects several sales of undeveloped land, including the sale of approximately 73 acres in Griffin Center in Windsor, Connecticut to The Hartford Insurance Company for their construction of a large office complex, the sale of approximately 103 acres in South Windsor, Connecticut to a food distributor for construction of a distribution facility, the sale of the second phase of residential lots of Stratton Farms, Griffin Land's residential development in Suffield, Connecticut, and the sale of undeveloped land near the downtown area in Tampa, Florida. In addition, fiscal 2007 includes $3.1 million of revenue recognized from the land sale to Walgreen that closed last year and is being accounted for

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using the percentage of completion method. The revenue recognized in fiscal 2007 from the land sale to Walgreen reflects the work performed on the required road improvements in fiscal 2007 and the impact of management reducing its estimate of the total costs to complete the required improvements due to changes to the design of certain portions of the required improvements. The effect of reducing the total estimated cost was to increase the percentage of completion, thereby resulting in additional revenue being recognized in fiscal 2007. Property sales revenue in fiscal 2006 included the initial revenue recognition from the land sale to Walgreen, the first sale of residential lots in Stratton Farms and two smaller land sales.

        The increase of $2.1 million in Griffin Land's revenue from its leasing operations in 2007, as compared to fiscal 2006, principally reflects $1.5 million from leasing space that was vacant during fiscal 2006, net of space previously occupied that is now vacant, $0.3 million from leasing space in the two new Tradeport buildings that were completed and each partially leased this year and $0.3 million from other lease revenue. At December 1, 2007, Griffin Land owned approximately 2,016,000 square feet of industrial, flex and office space, with approximately 1,322,000 square feet (66%) leased. Griffin Land's vacant space at December 1, 2007 includes a 308,000 square foot warehouse, which has remained vacant since it was acquired near the end of the 2006 third quarter. At the end of fiscal 2006, Griffin Land owned approximately 1,711,000 square feet with approximately 1,194,000 square feet (70%) leased. The increase in the total square footage of Griffin Land's portfolio reflects two new industrial buildings in Tradeport completed in fiscal 2007, aggregating approximately 275,000 square feet and an approximate 31,000 square foot warehouse facility acquired in the fiscal 2007 fourth quarter. Approximately 92,000 square feet of the new Tradeport buildings and the entire warehouse facility acquired in fiscal 2007 were leased at the end of fiscal 2007. The increase of approximately 128,000 square feet under lease at the end of fiscal 2007 versus the end of fiscal 2006 reflects the space leased in the new industrial buildings placed in service in fiscal 2007, the space leased in the warehouse facility acquired in fiscal 2007, and approximately 45,000 square feet of previously vacant space leased during fiscal 2007, partially offset by a lease for approximately 40,000 square feet in one of Griffin Land's flex buildings that expired and was not renewed. Market activity for industrial space in the area where Griffin Land's properties are located softened in the second half of fiscal 2007 and has not yet shown signs of a significant recovery. The softening of the industrial market may result in slowing Griffin Land's development of new buildings in Tradeport. Griffin Land is currently adding a 100,000 square foot industrial building in Tradeport. Market activity for office space in the area where Griffin Land's office properties are located continues to be soft.

        Net sales and other revenue at Imperial decreased from $31.5 million in fiscal 2006 to $28.0 million in fiscal 2007. Unit sales volume decreased 26% in fiscal 2007 as compared to fiscal 2006. Due to the seasonality of the landscape nursery business, the decrease in Imperial's net sales during fiscal 2007 took place mostly during the second quarter. The decrease in net sales was due to less product being available for sale this year and generally poor weather in Imperial's markets during most of the spring. The reduced amount of product available for sale this year reflects Imperial's efforts last year to move previously unsold product and management's decision to reduce inventories to levels consistent with sales expectations. The relatively poor weather this spring resulted in the reduction of reorders, as it took retail customers a longer time to sell through their initial deliveries of product. The decrease in net sales was proportionately less than the decrease in unit sales volume due to higher pricing in fiscal 2007 and selling, on average, larger units in fiscal 2007 than fiscal 2006. The higher pricing in fiscal 2007 principally reflects Imperial selling a greater percentage of its product to independent garden center customers, the customer segment with the most favorable pricing for Imperial. Imperial's sales to independent garden center customers increased to approximately 52% of total sales in fiscal 2007 from approximately 43% in fiscal 2006.

        Griffin had consolidated operating profit, including general corporate expense, of $9.4 million in fiscal 2007 as compared to consolidated operating profit, including general corporate expense, of

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$0.3 million in fiscal 2006. Operating results at Griffin Land and Imperial increased by approximately $8.1 million and approximately $1.1 million, respectively, in fiscal 2007 as compared to fiscal 2006. General corporate expense increased by approximately $0.1 million in fiscal 2007 as compared to fiscal 2006.

        Operating results at Griffin Land in fiscal 2007 and fiscal 2006 were as follows:

(a)

The costs related to rental revenue excluding depreciation and amortization expense, profit from leasing activities before general and administrative expenses and before depreciation and amortization expense, general and administrative expenses excluding depreciation and amortization expense, and profit before depreciation and amortization expense are disclosures not in conformity with accounting principles generally accepted in the United States of America. They are presented because Griffin believes they are useful financial indicators for measuring the results in its real estate business segment. However, they should not be considered as an alternative to operating profit as a measure of operating results in accordance with accounting principles generally accepted in the United States of America.

        The increase of $0.9 million in Griffin Land's profit from leasing activities before general and administrative expenses and before depreciation and amortization expense principally reflects the increase in rental revenue partially offset by an increase in costs related to rental revenue excluding depreciation and amortization expenses. The higher costs reflect $0.9 million of building operating expenses related to the warehouse facility purchased in the fiscal 2006 third quarter and the Tradeport industrial buildings that were completed this year, and an increase of $0.3 million in various expenses in all of Griffin Land's other buildings.

        The increase in the gain from property sales at Griffin Land in fiscal 2007 principally reflects a higher volume of property sale transactions closed this year (as discussed above). Included in the gain

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on property sales in fiscal 2007 is the recognition of approximately $2.7 million from the 2006 land sale to Walgreen that was previously deferred. As provided in the terms of the contract for the sale of that land, and as required under the State Traffic Commission Certificate, certain improvements to existing roads were required. The cost of these improvements is the responsibility of Griffin Land, however, a portion of the costs will either be reimbursed from the purchaser of the land or performed by the town. As a result of Griffin Land's continuing involvement with the required improvements to the existing roads, this land sale was accounted for under the percentage of completion method. Accordingly, the revenue and the pretax gain on the sale are being recognized on a pro rata basis in a ratio equal to the percentage of the total costs incurred to the total anticipated costs of sale, including the allocated costs of the required improvements to existing roads. The recognition of revenue and profit related to the Walgreen land sale reflects the road improvements made by Griffin Land in fiscal 2007. In addition, in fiscal 2007, management reduced its estimate of the total costs to be incurred to complete the required improvements due to changes to the design of certain portions of the required improvements. As a result, the total projected pretax gain on this transaction increased from $9.7 million to $10.2 million and the percentage of completion increased as a result of the reduction of the total expected costs. While management has used its best estimates based on industry knowledge and experience in projecting the total costs of the required road improvements, increases or decreases in future costs as compared with current projected amounts would reduce or increase the gains to be recognized in future periods. Management expects to complete the required road improvements in fiscal 2008 and recognize the balance of the deferred revenue and profit in that year.

        Griffin Land's general and administrative expenses decreased $0.2 million in fiscal 2007 as compared to fiscal 2006 due principally to lower incentive compensation expense. Depreciation and amortization expense at Griffin Land increased $0.3 million in fiscal 2007 as compared to fiscal 2006. Depreciation expense increased $0.7 million related to the warehouse purchased near the end of the 2006 third quarter, the new industrial buildings and tenant improvements placed in service in fiscal 2007. The effect of these increases was partially offset by lower depreciation of $0.3 million as assets became fully depreciated and the inclusion in fiscal 2006 of $0.1 million of accelerated depreciation and amortization expense related to leases that terminated in that year.

        Imperial's operating results for fiscal 2007 and fiscal 2006 are as follows:

        The reduction of Imperial's operating loss reflects a $1.3 million increase in gross profit partially offset by a $0.2 million increase in selling, general and administrative expenses. The higher gross profit reflects improved pricing, including higher charges for delivery, and lower delivery costs. The improved pricing reflects a greater percentage of Imperial's sales volume going to independent garden center customers in fiscal 2007 as compared to fiscal 2006, the customer segment with the most favorable pricing for Imperial. The lower delivery costs reflect Imperial expanding its base of trucking vendors in fiscal 2007 and the more efficient routing of trucks. Imperial incurred a charge for unsaleable inventories of $0.7 million in fiscal 2007 as compared to a $0.8 million charge for unsaleable inventory in fiscal 2006. Imperial's gross margin on sales, excluding the charges for unsaleable inventories in fiscal 2007 and fiscal 2006, increased from 10.2% in fiscal 2006 to 15.8% in fiscal 2007.

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        Imperial's selling, general and administrative expenses increased by $0.2 million in fiscal 2007 as compared to fiscal 2006, reflecting $0.2 million of costs related to the litigation against Imperial by employees of a farm labor contractor previously engaged by Imperial. The increase in general and administrative expenses was partially offset by a reduction in selling expenses, due principally to lower headcount. As a percentage of net sales, selling, general and administrative expenses increased from 15.4% in fiscal 2006 to 18.1% in fiscal 2007.

        Griffin's general corporate expense increased to $4.3 million in fiscal 2007 from $4.2 million in fiscal 2006. The increase principally reflects (i) $0.3 million of costs related to the litigation against Griffin that was settled during fiscal 2007; (ii) an increase of $0.2 million in payroll expense, payroll taxes and employee benefits due, in part, to additional staff added in fiscal 2007; (iii) an increase of $0.1 million of general legal expenses; and (iv) an increase of $0.3 million in other general corporate expenses. These increases were substantially offset by a decrease of $0.5 million of expenses related to compliance with Section 404 of the Sarbanes-Oxley Act and a reduction of $0.3 million in incentive compensation expense. The lower Section 404 compliance expense reflects the hiring of additional staff to assist in Griffin's compliance efforts, which reduced the services required of outside consultants this year, and generally lower expenses for a company's second year of compliance.

        In fiscal 2007, Griffin sold 1.2 million of its approximately 6.5 million shares of common stock in Centaur Media for proceeds of $3.5 million and recorded a pretax gain of $2.9 million on those sales. In the future, Griffin may sell a portion of its remaining holdings in Centaur Media, depending on the market price of Centaur Media's common stock and the foreign currency exchange rate.

        Griffin's consolidated interest expense increased to $3.2 million in fiscal 2007 from $2.9 million in fiscal 2006. An increase in interest expense due to an additional borrowing of $8.5 million under a nonrecourse mortgage loan, completed in the 2006 fourth quarter, was partially offset by an increase in the amount of interest capitalized in fiscal 2007 as compared to fiscal 2006. The increase in capitalized interest in fiscal 2007 reflects interest capitalized on the construction of a building in Tradeport that was completed at the end of the 2007 first quarter, interest capitalized on a new Tradeport industrial building completed in the 2007 fourth quarter and interest capitalized on land improvements that were under construction in fiscal 2007. Griffin's average outstanding debt in fiscal 2007 was $51.1 million as compared to $44.4 million in fiscal 2006.

        Griffin's investment income was $3.9 million in fiscal 2007 as compared to $2.3 million in fiscal 2006. The increase of $1.6 million principally reflects dividend income of $1.6 million from SNHC in fiscal 2007. Investment income from short-term investments and cash equivalents was substantially unchanged in fiscal 2007 as compared to fiscal 2006 as the effect of having, on average, a lower amount of short-term investments and cash equivalents in fiscal 2007 was substantially offset by generally higher interest rates in fiscal 2007 as compared to fiscal 2006. Investment income in fiscal 2007 included interest income related to an income tax refund, which substantially offset the effect of fiscal 2006 including approximately $0.2 million of undistributed equity income from an investment in an agricultural cooperative in which Griffin holds a 25% interest. Because that investment had not been accounted for in periods prior to fiscal 2006, the cumulative effect was recorded in investment income in fiscal 2006. The investment income in fiscal 2007 related to that agricultural cooperative was minimal.

        Griffin's effective income tax rate was 36.2% in fiscal 2007, as compared to 5.3% for fiscal 2006. The effective tax rate in fiscal 2007 reflects a 35% rate for federal income taxes adjusted for state income taxes and permanent differences between book and taxable income. Griffin's income tax benefit for fiscal 2006 reflects the federal statutory rate of 35% substantially offset by the establishment of a valuation allowance of $0.1 million against certain deferred tax assets and the effect of permanent differences. The deferred tax assets on which the valuation allowance was recorded relate to certain state net operating loss carryforwards ("NOLs") of Imperial. The establishment of the valuation allowance in fiscal 2006 reflects management's determination that it is more likely than not that Imperial will not generate sufficient taxable income in the future to utilize the NOLs. In addition, the fiscal 2006 income tax benefit reflects the effect of permanent differences and adjustments to certain deferred tax assets and liabilities. Although these items are not significant amounts, their impact on the effective tax rate was significant because of the small pretax loss in fiscal 2006.

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        In fiscal 2006, Griffin recorded a net of tax charge of $0.2 million for a change in accounting principle. This change relates to Griffin's recording the fair value of its conditional asset retirement obligations as prescribed by FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143." The conditional asset retirement obligations relate principally to tobacco barns and other structures on Griffin's land holdings that contain asbestos, primarily in roofing materials. These structures are not currently used in Griffin's operations and do not have any book value, therefore, the full amount of the conditional asset retirement obligation was recorded as a charge in Griffin's consolidated statement of operations. These structures remain from the tobacco growing operations of former affiliates of Griffin.

Fiscal 2006 Compared to Fiscal 2005

        Total revenue increased from $41.9 million in fiscal 2005 to $53.2 million in fiscal 2006, reflecting an increase in rental revenue and property sales of approximately $7.5 million at Griffin Land and an increase in net sales of approximately $3.8 million at Imperial.

        Rental revenue and property sales at Griffin Land increased from $14.2 million in fiscal 2005 to $21.8 million in fiscal 2006. The increase of approximately $7.5 million reflects an approximately $7.1 million increase in revenue from property sales and an increase of approximately $0.4 million in rental revenue from leasing operations. The increase in revenue from property sales principally reflects revenue of $7.9 million recognized on the sale of approximately 130 acres of undeveloped land in Tradeport to Walgreen. The land sale to Walgreen generated cash proceeds of $13.0 million and has been accounted for using the percentage of completion method. Accordingly, approximately $5.1 million of revenue from that sale was deferred at the end of fiscal 2006 and will be recognized in subsequent periods when the costs of required road improvements related to this transaction are incurred. In addition, Griffin Land also closed the first sale of residential lots of its Suffield, Connecticut residential development, Stratton Farms, which generated revenue of $1.0 million. Two other smaller land sales were completed in fiscal 2006 and generated revenue of $0.8 million in the aggregate. Rental revenue from leasing operations increased from $11.7 million in fiscal 2005 to $12.0 million in fiscal 2006. The increase principally reflects: (i) revenue of $1.1 million from leases in two industrial buildings that were in service during the entire year in fiscal 2006 as compared to one of these buildings not in service during fiscal 2005 and the other building in service for approximately six months of fiscal 2005; and (ii) $0.5 million from leasing previously vacant space. Partially offsetting those increases was the loss of revenue of $1.2 million from leases in effect during fiscal 2005 that either expired and were not renewed or were terminated early.

        At the end of fiscal 2006, Griffin Land owned 1,711,000 square feet of industrial, flex and office space, with 1,194,000 square feet (70%) leased, as compared to 989,000 square feet (78%) leased of Griffin Land's 1,266,000 square feet at the end of fiscal 2005. The increase in total space in fiscal 2006 as compared to fiscal 2005 reflects the acquisition of a 308,000 square foot warehouse near the end of the 2006 third quarter and a 137,000 square foot industrial building that was completed and placed in service at the beginning of fiscal 2006. The increase in space leased principally reflects leasing all of the new industrial building completed and placed in service in the early part of fiscal 2006 and leasing other previously vacant industrial and office space. Excluding the warehouse facility acquired in the 2006 third quarter, which was vacant at the time of acquisition and was not leased in fiscal 2006, 85% of Griffin's square footage was leased at the end of fiscal 2006.

        Net sales and other revenue at Imperial increased from $27.7 million in fiscal 2005 to $31.5 million in fiscal 2006. Unit sales volume increased approximately 7.0% in fiscal 2006 as compared to fiscal 2005. The increase in sales volume took place mostly in the second quarter and was attributed to improved spring weather this year, as compared to last year, and management's focus on reducing Imperial's inventory levels to be more in line with expected sales. Imperial's business is highly seasonal

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with spring sales, which take place mainly in the second quarter, comprising a majority of its annual sales.

        Griffin had consolidated operating profit, including general corporate expense, of $0.3 million in fiscal 2006 as compared to a consolidated operating loss, including general corporate expense, of $4.8 million in fiscal 2005. Operating profit at Griffin Land increased to $7.0 million in fiscal 2006 from $2.3 million in fiscal 2005. Imperial's operating loss decreased to $2.4 million in fiscal 2006 from $3.7 million in fiscal 2005. General corporate expense increased to $4.2 million in fiscal 2006 from $3.4 million in fiscal 2005.

        Operating results at Griffin Land for fiscal 2006 and fiscal 2005 were as follows:

(a)

The costs related to rental revenue excluding depreciation and amortization expense, profit from leasing activities before general and administrative expenses and before depreciation and amortization expense, general and administrative expenses excluding depreciation and amortization expense and profit before depreciation and amortization expense are disclosures not in conformity with accounting principles generally accepted in the United States of America. They are presented because Griffin believes they are useful financial indicators for measuring the results in its real estate business segment. However, they should not be considered as an alternative to operating profit as a measure of operating results in accordance with accounting principles generally accepted in the United States of America.

        Griffin Land's profit from leasing activities before general and administrative expenses and before depreciation and amortization expense decreased slightly in fiscal 2006 as compared to fiscal 2005. The approximate $0.4 million increase in rental revenue was substantially offset by an approximate $0.4 million increase in costs related to rental revenue excluding depreciation and amortization expenses. The increase in costs principally reflects a $0.6 million increase in building operating expenses

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offset by the effect of fiscal 2005 including a charge of $0.2 million to write off capitalized costs related to a lease termination in that year. The increase in building operating expenses reflects $0.5 million for the two buildings on line for the entire 2006 fiscal year as compared to one of the buildings on line for six months in fiscal 2005 and the other not in operation during fiscal 2005, $0.1 million of operating expense related to the warehouse facility acquired near the end of the fiscal 2006 third quarter and an increase in utility expenses of $0.2 million across all buildings due to a utility rate increase effective at the beginning of fiscal 2006. These were partially offset by a $0.2 million reduction in other building operating expenses, principally snow removal. The charge to write off capitalized costs of $0.2 million in fiscal 2005 related to a lease that was terminated in that year. The lease termination was in connection with a new longer-term lease with a new tenant for that building, with lease rates that are equal to the rental rates under the terminated lease over the remaining term of the terminated lease.

        The gain from property sales in fiscal 2006 includes approximately $5.9 million from the sale of approximately 130 acres of undeveloped land in Tradeport to Walgreen and approximately $1.1 million from the sale of residential land in the Stratton Farms development and two smaller land sales. The land sale to Walgreen has been accounted for using the percentage of completion method. Accordingly, an additional gain of approximately $3.8 million from that transaction has been deferred and will be recognized in future periods when the costs of required roadwork improvements related to this transaction are incurred. While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required road improvements, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain to be recognized in future periods. The gain from property sales at Griffin Land in fiscal 2005 principally reflects the sale of commercial land in Windsor, Connecticut and three sales of undeveloped residential land. General and administrative expenses at Griffin Land increased from $2.7 million in fiscal 2005 to $2.9 million in fiscal 2006 principally reflecting higher incentive compensation expense in fiscal 2006 related to Griffin Land's operating results, principally completed property sales.

        Depreciation and amortization expense at Griffin Land increased approximately $0.2 million in fiscal 2006 as compared to fiscal 2005. The increase reflects an additional approximate $0.6 million of depreciation expense related to the two industrial buildings that were in service for the entire 2006 fiscal year as compared to one of the buildings not in service during fiscal 2005 and the other placed in service midway during fiscal 2005 and $0.1 million of depreciation expense related to the warehouse facility acquired near the end of the 2006 third quarter. Partially offsetting those increases was a net decrease of $0.5 million of depreciation and amortization expense in two office buildings as a result of accelerated depreciation and amortization recorded in fiscal 2005 related to early lease terminations in those buildings.

        Imperial's operating results in fiscal 2006 and fiscal 2005 were as follows:

        Imperial's operating loss decreased by approximately $1.3 million in fiscal 2006 as compared to fiscal 2005 reflecting an approximate $1.5 million increase in gross profit partially offset by an approximate $0.2 million increase in selling, general and administrative expenses. Fiscal 2006 includes a cost of goods sold charge of $0.8 million to reserve for unsaleable inventories and inventories that are

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expected to be sold below their carrying values. Fiscal 2005 included a cost of goods sold charge of $3.1 million for these items. Partially offsetting the positive effect on gross profit of the lower cost of goods sold charge in fiscal 2006 as compared to fiscal 2005 were higher plant costs and higher delivery costs in fiscal 2006 as compared to fiscal 2005. The higher plant costs reflect, in part, increased costs of production and inventory sold in fiscal 2006 that had been held beyond its expected sales window thus having additional costs. The higher shipping costs reflect increased delivery charges from trucking vendors. Imperial's gross margin on sales (excluding in each year the effect of the cost of goods sold charges related to unsaleable inventories) decreased from 14.5% in fiscal 2005 to 10.2% in fiscal 2006.

        Imperial's selling, general and administrative expenses increased by approximately $0.2 million in fiscal 2006 as compared to fiscal 2005. The increase reflects higher selling expenses, principally sales commissions, related to the increase in net sales in fiscal 2006. As a percentage of net sales, selling, general and administrative expenses decreased from 16.7% in fiscal 2005 to 15.4% in fiscal 2006.

        Griffin's general corporate expense was $4.2 million in fiscal 2006 as compared to $3.4 million in fiscal 2005. Fiscal 2005 included a $0.1 million retrospective insurance charge related to a former affiliate of Griffin. Excluding the effect of that item in fiscal 2005, general corporate expense increased by $0.9 million due principally to an increase of $0.6 million related to compliance with Section 404 of the Sarbanes-Oxley Act and an increase of $0.5 million in incentive compensation expense in fiscal 2006, partially offset by a net reduction of $0.2 million of other expenses.

        In fiscal 2005, Griffin sold its investment in Shemin Acquisition for cash proceeds of $5.7 million, resulting in a pretax gain of $3.2 million. Immediately prior to the sale, Griffin exchanged a portion of its Shemin Acquisition common stock for common stock of Shemin Nurseries Holding Corp. ("SNHC"), which operates a landscape nursery distribution business through its subsidiary. Griffin has retained its ownership in SNHC. See Note 8 to the consolidated financial statements.

        Griffin's consolidated interest expense increased from $2.4 million in fiscal 2005 to $2.9 million in fiscal 2006. The increase principally reflects interest on the $12.7 million mortgage that was completed in the 2005 third quarter. This mortgage was outstanding for the entire 2006 fiscal year as compared to less than six months in fiscal 2005. Griffin's average outstanding debt in fiscal 2006 was $44.4 million as compared to $36.8 million in fiscal 2005.

        Griffin's investment income was $2.3 million in fiscal 2006 as compared to $1.3 million in fiscal 2005. The increase of investment income in fiscal 2006 reflects a higher yield from short-term investments due, generally, to higher short-term interest rates, interest income on the proceeds from the sale of land to Walgreen that were held in escrow during most of the 2006 third quarter and an increase in dividend income from Centaur Media. The proceeds from the land sale to Walgreen were used to purchase a warehouse facility in fiscal 2006. In addition, fiscal 2006 includes approximately $0.2 million of undistributed equity income from an investment in an agricultural cooperative in which Griffin holds a 25% interest. Because this investment had not been accounted for in prior years, the cumulative effect was recorded within other investment income in fiscal 2006. Management believes the amount recorded is immaterial to annual periods and expects that the results of this investment will not be significant to Griffin in future periods.

        Griffin's income tax benefit for fiscal 2006 reflects the federal statutory rate of 35% substantially offset by the establishment of a valuation allowance of $0.1 million against certain deferred tax assets and the effect of permanent differences. The deferred tax assets on which the valuation allowance was recorded relate to certain state net operating loss carryforwards ("NOLs") of Imperial. The establishment of the valuation allowance reflects management's determination that it is more likely than not, that Imperial will not generate sufficient taxable income in the future to utilize the NOLs. In addition, the fiscal 2006 income tax benefit reflects the effect of permanent differences and adjustments to certain deferred tax assets and liabilities. Although these items are not significant amounts, their impact on the effective tax rate is significant because of the small pretax loss in fiscal 2006. The

30

effective income tax rate for fiscal 2005 was a benefit of 47.1% reflecting the federal statutory rate of 35%, the reversal of a valuation allowance of $0.3 million related to a deferred tax asset and the effect of state income tax benefits. The deferred tax asset related to a basis difference in Griffin's investment in Linguaphone Group Ltd., which was sold in the fiscal 2005 fourth quarter.

        In the fourth quarter of fiscal 2006, Griffin recorded a net of tax charge of $0.2 million for a change in accounting principle. This change relates to Griffin's recording the fair value of its conditional asset retirement obligations as prescribed by FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations an interpretation of FASB Statement No. 143." The conditional asset retirement obligations relate principally to tobacco barns and other structures on Griffin's land holdings that contain asbestos, primarily in roofing materials. These structures are not currently used in Griffin's operations and do not have any book value, therefore, the full amount of the conditional asset retirement obligation was recorded as a change in Griffin's consolidated statement of operations. These structures remain from the tobacco growing operations of former affiliates of Griffin.

Off Balance Sheet Arrangements

        Griffin does not have any off balance sheet arrangements.

Liquidity and Capital Resources

        Net cash provided by operating activities was $11.8 million in fiscal 2007 as compared to $6.1 million in fiscal 2006. Net cash provided by operating activities in fiscal 2007 includes $12.7 million of cash generated from a reduction of short-term investments as compared to $5.3 million of cash generated from a reduction of short-term investments in fiscal 2006. Excluding the cash provided by the reduction in short-term investments in each year, Griffin used cash of $0.8 million in operating activities in fiscal 2007 as compared to cash of $0.8 million provided by operating activities in fiscal 2006. Although fiscal 2007 had net income of $8.3 million as compared to a net loss of $0.4 million in fiscal 2006, a substantial portion of the increase in net income reflects an increase in gains on property sales and a gain from the sale of stock in Centaur Media in fiscal 2007, which are excluded from cash provided by operating activities. In fiscal 2006, the decrease of $1.8 million in inventories, as compared to a $0.5 million increase in fiscal 2007, reflected the sale of excess inventories at Imperial in fiscal 2006. The decrease in other current assets of $3.6 million in fiscal 2007, as compared to an increase of $4.0 million in fiscal 2006, reflects an income tax receivable recorded in fiscal 2006 that was collected in fiscal 2007. The decrease in fiscal 2007 of $2.0 million in accounts payable and accrued liabilities, as compared to an increase of $2.1 million in fiscal 2006, reflects the timing of payments.

        In fiscal 2007, Griffin had net cash of $2.0 million provided by investing activities as compared to net cash of $14.5 million used in investing activities in fiscal 2006. Net cash provided by investing activities in fiscal 2007 reflects cash of $13.3 million generated from property sales and cash of $3.5 million from the sale of a portion of Griffin's investment in Centaur Media. These items were substantially offset by $14.6 million of cash used for additions to Griffin Land's real estate assets. The additions to Griffin Land's real estate assets were principally for the completion of a 127,000 square foot industrial building in Tradeport, built on speculation, construction, also on speculation, of a new 148,000 square foot industrial building in Tradeport, site work for several other industrial buildings in Tradeport, the acquisition of a 31,000 square foot warehouse facility in Bloomfield, Connecticut, and tenant improvements related to new leases. As part of the agreement to purchase the warehouse in Bloomfield, Griffin Land entered into a ten-year lease agreement with the seller for the entire warehouse facility. The purchase price of the Bloomfield warehouse was $2.7 million, which was paid for with a portion of the proceeds, then in escrow, from the land sale earlier in the year to The Hartford Insurance Company. Additions to property and equipment, principally for Imperial, were $0.5 million in fiscal 2007, principally to replace equipment used in Imperial's farming operations. The

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return of investment from SNHC of $0.2 million reflects the portion of a total of $1.8 million received from SNHC that was not reported as dividend income, based on SNHC's cumulative earnings.

        Net cash used in financing activities was $5.0 million in fiscal 2007 as compared to net cash of $9.5 million provided by financing activities in fiscal 2006. The net cash used in financing activities in fiscal 2007 includes $4.2 million of cash used by Griffin to repurchase 112,900 shares of its outstanding common stock and $2.2 million used for principal payments on Griffin Land's nonrecourse mortgages and payments of capital lease obligations. Included in the fiscal 2007 mortgage principal payments was a $1.0 million prepayment on Griffin Land's 6.08% mortgage due January 1, 2013. Griffin Land was not in compliance with the debt service coverage ratio requirement of that loan, which is collateralized by two multi-story office buildings located in Griffin Center in Windsor, Connecticut. In connection with the $1.0 million prepayment, the lender deferred the debt service coverage requirement until the beginning of fiscal 2009. As a result of the prepayment, Griffin incurred a prepayment penalty of $20,000 to be paid at the maturity of the mortgage. The loan's future monthly payments were adjusted to reflect the prepayment, but the loan's interest rate and maturity date did not change as a result of the prepayment. Partially offsetting those items were $1.0 million of cash provided by the tax benefit of stock options exercised and $0.4 million of cash provided by the exercise of stock options.

        In the near-term, Griffin plans to continue to invest in its real estate business. In addition to the completion of the two industrial buildings in Tradeport in fiscal 2007, Griffin Land has completed much of the site work for several additional Tradeport industrial buildings. The cost of site work in the section of Tradeport where these new buildings are located was higher than site costs for previous Tradeport buildings constructed by Griffin Land, reflecting the nature of the land on which the buildings will be located along with berms and roadwork required to develop this section of Tradeport. Griffin Land also expects to incur expenditures to build out the interiors of its new buildings as leases are completed, and to continue to invest in infrastructure improvements required for present and future development in its office and industrial parks.

        In January 2008, Griffin Land entered into a lease for approximately 58,000 square feet with a tenant that currently leases approximately 22,000 square feet in one of Griffin Land's Tradeport industrial buildings. The new lease will be in a new 100,000 square foot building that Griffin Land will construct in fiscal 2008, with completion expected at the end of the third quarter. Based on recent bid pricing, construction costs for this new building will be higher than previous facilities built by Griffin Land in the past several years.

        In fiscal 2007, Griffin Land determined that an agreement to sell to the State of Connecticut Department of Environmental Protection (the "DEP") approximately 165 acres of undeveloped land in Suffield, Connecticut will not be completed. The land would have been used for conservation purposes by the DEP. The agreement was terminated because the current level of certain residual pesticides that remain in the upper portions of the soil from the previous use of the land for farming exceeds certain levels, thereby reducing the amount the DEP would be willing to pay for the land. While remediation of the residual pesticides is not required, Griffin is considering its options to perform remediation.

        In fiscal 2007, Griffin Land reached an accord for a settlement with the town of Simsbury's land use commissions regarding Meadowood, Griffin Land's proposed residential development. A formal settlement agreement must be executed by Griffin Land and the town, and is subject to approval by the Connecticut Superior Court, which is expected. The settlement provides, among other things, the number of homes permitted to be built in Meadowood, the amount of open space to be included in Meadowood and the resolution of environmental remediation issues prior to the commencement of construction. Griffin Land intends to continue with its Meadowood residential development plans and to proceed with residential development plans on its other land holdings that are appropriate for that use.

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        In January 2007, Griffin announced that its Board of Directors had authorized a program to repurchase, from time to time, up to 150,000 shares of its outstanding common stock through private transactions. The program to repurchase does not obligate Griffin to repurchase any specific number of shares, and may be suspended at any time at management's discretion. During fiscal 2007, Griffin repurchased 112,900 shares of its outstanding common stock for $4.2 million. In November 2007, the Board of Directors authorized an additional 100,000 shares for repurchase under the same terms and conditions as authorized earlier in the year. The Board also extended the program to repurchase common stock through December 31, 2008. Therefore, as of December 1, 2007 Griffin is authorized to repurchase 137,100 shares of its common stock. If the total amount of authorized shares are repurchased, based on the price of Griffin's common stock as of December 1, 2007, Griffin would pay approximately $5.0 million.

        In the fourth quarter of fiscal 2007, Griffin's Board of Directors approved a quarterly dividend payment of $0.10 per common share. Griffin expects to pay quarterly dividends to its shareholders in future quarters subject to the Board of Directors evaluation of other uses for Griffin's cash. Payment of quarterly dividends at that rate would require approximately $2.0 million per year.

        On June 22, 2007, Griffin Land executed an agreement to sell approximately 45 acres of land in Bloomfield, Connecticut that is part of Griffin Center to a developer of residential housing. The purchase price is $4.5 million, but may increase to $5.6 million or decrease to $3.9 million depending on the number of residential units the buyer is permitted to build. In addition, Griffin Land would receive additional revenue upon the buyer's sale of residential units. Completion of this transaction is subject to several contingencies, including satisfactory completion of due diligence by the buyer and the buyer obtaining governmental approvals for its proposed development plans. The time frame for the buyer to obtain all of the required governmental approvals is expected to be an extended one, with the closing of this transaction not expected within the next twelve months. There can be no assurance that this transaction will be completed under its current terms, or at all.

        Griffin's payments (including principal and interest) under contractual obligations as of December 1, 2007 are as follows:

(1)

Includes obligations for the construction of tenant improvements, infrastructure improvements in Tradeport and for the purchase of plants and raw materials by Imperial.

(2)

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

        As of December 1, 2007, Griffin had cash and short-term investments of approximately $34.0 million, down from $38.2 million at the beginning of fiscal 2007. Management believes that the significant amount of cash and short-term investments currently held by Griffin will be sufficient to finance the working capital requirements of its businesses, the continued investment in Griffin's real estate assets for the foreseeable future and the repurchase of its common stock as authorized by the Board of Directors. Griffin may also continue to seek nonrecourse mortgage placements on selected properties. Griffin also will seek to purchase either or both land and buildings, which may potentially

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include land and buildings in other areas, with a substantial portion of its cash and short-term investment balances. Real estate acquisitions may or may not occur based on many factors, including real estate pricing.

Recent Accounting Pronouncements

        In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("Fin No. 48"). The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." Specifically, Fin No. 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Fin No. 48 also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. Fin No. 48 is effective for fiscal years beginning after December 15, 2006. The adoption of Fin No. 48 is not expected to have a material effect on Griffin's consolidated financial position, results of operations or cash flows.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This new standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This statement does not require any new fair value measurements but provides guidance in determining fair value measurements presently used in the preparation of financial statements. This new standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. Griffin is evaluating the impact of this new pronouncement on its consolidated financial statements.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities, Including an amendment of FASB Statement No. 115," ("SFAS No. 159"). This statement permits entities to choose to measure many financial instruments and certain other items that are not currently required to be measured at fair value. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Griffin is evaluating the impact of this new pronouncement on its consolidated financial statements.

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, completion of property sales currently under contract, or the repurchase by Griffin of the number of shares of its outstanding common stock as authorized by its Board of Directors. 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 the 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.

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        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 4 to the consolidated financial statements. 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 during the fiscal year ended December 1, 2007.

        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. These investments generally consist of overnight investments that are not significantly exposed to interest rate risk. Griffin's short-term investments generally consist of debt instruments with maturities ranging from one to six months, with a weighted average maturity of approximately three months as of December 1, 2007. Due to the generally short-term composition of its investments, Griffin's investments are not significantly exposed to interest rate risk except to the extent that changes in interest rates will ultimately affect the amount of interest income earned and cash flow from these investments.

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

        Griffin does not have foreign currency exposure in operations. Griffin does have an investment in a public company, Centaur Media, plc, based in the United Kingdom. The ultimate liquidation of that investment and conversion of proceeds into United States currency is subject to future foreign currency exchange rates. A 10% decrease in the foreign currency exchange rate at December 1, 2007 would have resulted in a $1.0 million reduction of the fair value of that instrument.

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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

For the Fiscal Years Ended December 1, 2007, December 2, 2006 and December 3, 2005

(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)