INDUS REALTY TRUST, INC. - Quarter Report: 2011 May (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED May 28, 2011

 

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

 

FOR THE TRANSITION PERIOD FROM              TO            

 

Commission File No. 1-12879

 

GRIFFIN LAND & NURSERIES, INC.

(Exact name of registrant as specified in its charter)

 

 

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

 

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

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

 

Number of shares of Common Stock outstanding at June 30, 2011: 5,134,204

 

 

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GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Statements of Operations (unaudited) 13 and 26 Weeks Ended May 28, 2011 and May 29, 2010	3
		Consolidated Balance Sheets (unaudited) May 28, 2011 and November 27, 2010	4
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) 26 Weeks Ended May 28, 2011 and May 29, 2010	5
		Consolidated Statements of Cash Flows (unaudited) 26 Weeks Ended May 28, 2011 and May 29, 2010	6
		Notes to Consolidated Financial Statements (unaudited)	7-22
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-34
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	34
	ITEM 4	Controls and Procedures	35
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	36
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	36-38
		SIGNATURES	39

 

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PART I                  FINANCIAL INFORMATION

 

ITEM 1.                  FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 

		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		May 28, 2011			May 29, 2010			May 28, 2011			May 29, 2010
Rental revenue and property sales		$	4,846		$	4,623		$	9,659		$	9,150
Landscape nursery net sales and other revenue		9,262			10,868			9,445			11,147
Total revenue		14,108			15,491			19,104			20,297
Costs related to rental revenue and property sales		3,075			3,147			6,899			6,664
Costs of landscape nursery sales and other revenue		8,035			9,620			8,916			9,939
Total costs of goods sold and costs related to rental revenue and property sales		11,110			12,767			15,815			16,603
Gross profit		2,998			2,724			3,289			3,694
Selling, general and administrative expenses		2,994			2,912			5,826			5,886
Gain on insurance recovery		—			—			(200		)	—
Operating profit (loss)		4			(188		)	(2,337		)	(2,192		)
Interest expense		(1,056		)	(1,141		)	(2,132		)	(2,182		)
Investment income		80			70			91			174
Loss before income tax benefit		(972		)	(1,259		)	(4,378		)	(4,200		)
Income tax benefit		343			474			1,620			1,571
Net loss		$	(629	)	$	(785	)	$	(2,758	)	$	(2,629	)
Basic net loss per common share		$	(0.12	)	$	(0.15	)	$	(0.54	)	$	(0.52	)
Diluted net loss per common share		$	(0.12	)	$	(0.15	)	$	(0.54	)	$	(0.52	)

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN  LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

		May 28, 2011			November 27, 2010
ASSETS
Current Assets:
Cash and cash equivalents		$	3,782		$	9,260
Accounts receivable, less allowance of $256 and $148		6,680			1,673
Inventories, net		14,305			15,528
Deferred income taxes		423			439
Other current assets		2,557			4,235
Total current assets		27,747			31,135
Real estate held for sale or lease, net		129,967			132,038
Available-for-sale securities - Investment in Centaur Media plc		4,787			5,102
Property and equipment, net		2,258			2,363
Deferred income taxes		2,814			1,142
Other assets		11,783			11,371
Total assets		$	179,356		$	183,151
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	8,605		$	1,742
Accounts payable and accrued liabilities		4,652			3,587
Deferred revenue		796			1,406
Total current liabilities		14,053			6,735
Long-term debt		53,568			61,295
Other noncurrent liabilities		6,075			6,054
Total liabilities		73,696			74,084
Commitments and contingencies (Note 11)
Stockholders’ Equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,521,170 and 5,510,503 shares issued, respectively, and 5,134,204 and 5,123,537 shares outstanding, respectively		55			55
Additional paid-in capital		106,083			105,620
Retained earnings		12,027			15,811
Accumulated other comprehensive income, net of tax		921			1,007
Treasury stock, at cost, 386,966 shares		(13,426		)	(13,426		)
Total stockholders’ equity		105,660			109,067
Total liabilities and stockholders’ equity		$	179,356		$	183,151

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Twenty-Six Weeks Ended May 28, 2011 and May 29, 2010

(dollars in thousands)

(unaudited)

 

		Shares of Common Stock  Issued		Common Stock			Additional  Paid-in  Capital			Retained Earnings			Accumulated Other  Comprehensive Income			Treasury  Stock			Total			Total  Comprehensive Loss
Balance at November 28, 2009		5,479,402		$	55		$	104,849		$	22,342		$	926		$	(13,426	)	$	114,746
Exercise of stock options		12,000		—			136			—			—			—			136
Stock-based compensation expense		—		—			186			—			—			—			186
Dividends declared, $0.20 per share		—		—			—			(1,021		)	—			—			(1,021		)
Net loss		—		—			—			(2,629		)	—			—			(2,629		)	$	(2,629	)
Other comprehensive loss from cash flow hedging transactions, net of tax		—		—			—			—			(16		)	—			(16		)	(16		)
Other comprehensive loss from Centaur Media plc, net of tax		—		—			—			—			(645		)	—			(645		)	(645		)
Balance at May 29, 2010		5,491,402		$	55		$	105,171		$	18,692		$	265		$	(13,426	)	$	110,757		$	(3,290	)
Balance at November 27, 2010		5,510,503		$	55		$	105,620		$	15,811		$	1,007		$	(13,426	)	$	109,067
Exercise of stock options		10,667		—			186			—			—			—			186
Stock-based compensation expense		—		—			277			—			—			—			277
Dividends declared, $0.20 per share		—		—			—			(1,026		)	—			—			(1,026		)
Net loss		—		—			—			(2,758		)	—			—			(2,758		)	$	(2,758	)
Other comprehensive income from cash flow hedging transactions, net of tax		—		—			—			—			119			—			119			119
Other comprehensive loss from Centaur Media plc, net of tax		—		—			—			—			(205		)	—			(205		)	(205		)
Balance at May 28, 2011		5,521,170		$	55		$	106,083		$	12,027		$	921		$	(13,426	)	$	105,660		$	(2,844	)

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

 

		For the 26 Weeks Ended,
		May 28, 2011			May 29, 2010
Operating activities:
Net loss		$	(2,758	)	$	(2,629	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		3,440			3,546
Deferred income taxes		(1,615		)	(1,571		)
Provision for inventory losses		400			—
Stock-based compensation expense		277			186
Amortization of debt issuance costs		127			138
Provision for bad debts		20			2
Income from equity investment		(6		)	(2		)
Changes in assets and liabilities:
Short-term investments		—			454
Accounts receivable		(5,027		)	(4,461		)
Inventories		823			4,014
Other current assets		1,678			1,466
Accounts payable and accrued liabilities		1,055			870
Deferred revenue		(772		)	(668		)
Other noncurrent assets and noncurrent liabilities, net		(253		)	(1,051		)
Net cash (used in) provided by operating activities		(2,611		)	294
Investing activities:
Additions to real estate held for sale or lease		(773		)	(2,735		)
Additions to property and equipment		(131		)	(96		)
Building acquisition		—			(5,440		)
Net cash used in investing activities		(904		)	(8,271		)
Financing activities:
Dividends paid to stockholders		(1,025		)	(1,019		)
Payments of debt		(864		)	(753		)
Debt issuance costs		(260		)	(100		)
Exercise of stock options		186			136
Proceeds from debt		—			4,524
Net cash (used in) provided by financing activities		(1,963		)	2,788
Net decrease in cash and cash equivalents		(5,478		)	(5,189		)
Cash and cash equivalents at beginning of period		9,260			9,149
Cash and cash equivalents at end of period		$	3,782		$	3,960

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Notes to Consolidated Financial Statements

(dollars in thousands unless otherwise noted, except per share data)

(unaudited)

 

1.     Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Griffin Land & Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s real estate division (“Griffin Land”) and Griffin’s wholly-owned subsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”), and have been prepared in conformity with the standards of accounting measurement set forth by the Financial Accounting Standards Board (“FASB”) ASC 270, “ Interim Reporting.”

 

The accompanying financial statements have been prepared in accordance with the accounting policies stated in Griffin’s audited financial statements for the fiscal year ended November 27, 2010 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission, and should be read in conjunction with the Notes to Consolidated Financial Statements appearing in that report. All adjustments, comprising only normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of results for the interim periods, have been reflected and all intercompany transactions have been eliminated.  The consolidated balance sheet data as of November 27, 2010 was derived from Griffin’s audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period.  Griffin regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations, valuation of derivative instruments, the recoverability of its accounts receivable and inventory reserves.  Griffin bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by Griffin may differ materially and adversely from Griffin’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Griffin is a party to two interest rate swap agreements to hedge its interest rate exposures.  Griffin does not use derivatives for speculative purposes.  Griffin applied FASB ASC 815-10, “Derivatives and Hedging,” (“ASC 815-10”) as amended, which establishes accounting and reporting standards for derivative instruments and hedging activities.  ASC 815-10 requires Griffin to recognize all derivatives as either assets or liabilities on its consolidated balance sheet and measure those instruments at fair value.  The changes in the fair values of the interest rate swap agreements are assessed in accordance with ASC 815-10 and reflected in the carrying values of the interest rate swap agreements on Griffin’s consolidated balance sheet.

 

Griffin applies cash flow hedge accounting to its interest rate swap agreements that are designated as hedges of the variability of future cash flows from floating rate liabilities based on the benchmark interest rates.  The change in fair values of Griffin’s interest rate swap agreements are recorded as

 

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components of accumulated other comprehensive income in stockholders’ equity, to the extent they are effective.  Any ineffective portions of the change in fair value of these instruments would be recorded as interest expense.

 

The results of operations for the thirteen weeks ended May 28, 2011 (the “2011 second quarter”) and the twenty-six weeks ended May 28, 2011 (the “2011 six month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended May 29, 2010 is referred to herein as the “2010 second quarter” and the twenty-six weeks ended May 29, 2010 is referred to herein as the “2010 six month period.”

 

Certain amounts from the prior year have been reclassified to conform to the current presentation.

 

Recent Accounting Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Fair Value Measurements and Disclosures,” which requires new disclosures and provides clarification of existing disclosures about fair value measurements.  More specifically, this update requires: (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs).  This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.  The update is effective for Griffin in the 2011 second quarter, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements.  Those disclosure requirements will be effective for Griffin in fiscal 2012.  The adoption of this guidance did not have a material impact on Griffin’s consolidated financial statements.

 

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurement,” which aligns disclosures related to fair value between U.S. GAAP and International Financial Reporting Standards.  The standards update includes changes to the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and changes to the disclosure of information about fair value measurements.  More specifically, the changes clarify the intent of the FASB regarding the application of existing fair value measurements and disclosures as well as changing some particular principles or requirements for measuring fair value or for disclosing information about fair value measurements.   This update is effective for Griffin in the 2012 second quarter.  Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

 

2.     Industry Segment Information

 

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

 

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		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		May 28,  2011			May 29,  2010			May 28,  2011			May 29,  2010
Total net sales and other revenue:
Rental revenue and property sales		$	4,846		$	4,623		$	9,659		$	9,150
Landscape nursery net sales and other revenue		9,262			10,868			9,445			11,147
		$	14,108		$	15,491		$	19,104		$	20,297
Operating profit (loss):
Real estate		$	1,108		$	876		$	1,384		$	836
Landscape nursery		82			33			(1,120		)	(750		)
Industry segment totals		1,190			909			264			86
General corporate expense		(1,186		)	(1,097		)	(2,601		)	(2,278		)
Operating profit (loss)		4			(188		)	(2,337		)	(2,192		)
Interest expense		(1,056		)	(1,141		)	(2,132		)	(2,182		)
Investment income		80			70			91			174
Loss before income tax benefit		$	(972	)	$	(1,259	)	$	(4,378	)	$	(4,200	)

 

		May 28, 2011			November 27, 2010
Identifiable assets:
Real estate		$	141,259		$	144,458
Landscape nursery		26,668			22,662
Industry segment totals		167,927			167,120
General corporate		11,429			16,031
Total assets		$	179,356		$	183,151

 

The real estate segment had no revenue from property sales in either the 2011 or 2010 six month periods.  Other revenue of the landscape nursery segment includes $118 and $235 in the 2011 second quarter and 2011 six month period, respectively, from the rental of Imperial’s Florida farm. Other revenue of the landscape nursery segment includes $122 and $244 in the 2010 second quarter and 2010 six month period, respectively, from the rental of Imperial’s Florida farm.  Imperial shut down operations of its Florida farm in fiscal 2009.

 

3.     Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  An asset or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.   ASC 820 establishes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 applies to assets or liabilities for which there are quoted market prices in active markets for identical assets or liabilities.  Griffin’s available-for-sale securities are considered Level 1 within the fair value hierarchy.

 

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Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.  Level 2 liabilities include Griffin’s two interest rate swap derivatives (see Note 8).  The fair values of Griffin’s interest rate swap derivative instruments are based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current LIBOR rate and swap curve along with other market data.  These inputs are readily available in public markets or can be derived from information available in publicly quoted markets, therefore, Griffin has categorized these derivative instruments as Level 2 within the fair value hierarchy.

 

On January 8, 2010, Griffin closed on the acquisition of a 120,000 square foot industrial building located in Breinigsville, Pennsylvania (see Note 5).  The acquisition was accounted for in accordance with ASC 805-10 whereby the assets acquired were recorded at their fair values. The fair value of the real estate assets acquired was based upon an independent appraisal, which included the utilization of publicly available data for similar properties.  Therefore, Griffin categorized the real estate assets acquired as Level 2 within the fair value hierarchy.

 

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.  As of May 28, 2011 and November 27, 2010, Griffin’s consolidated balance sheets include acquired intangible assets related to the building acquisition in Breinigsville, Pennsylvania.  These assets are comprised of the value of the in-place lease and the associated tenant relationship.  Griffin derived these values at the date of acquisition based on a discounted cash flow analysis using assumptions that included the rental rate of the in-place lease, the commission percentage expected to be paid on the leasing of vacant space and other data contained in the independent appraisal.  Therefore, Griffin categorized the acquired intangible assets related to this transaction as Level 3 within the fair value hierarchy.

 

During the 2011 six month period, Griffin did not transfer any assets or liabilities in or out of Levels 1 and 2. The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 

		May 28, 2011
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	4,787		$	—		$	—
Interest rate swap liabilities		$	—		$	1,293		$	—

 

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		November 27, 2010
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	5,102		$	—		$	—
Interest rate swap liabilities		$	—		$	1,481		$	—

 

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

 

		May 28, 2011						November 27, 2010
		Carrying			Estimated			Carrying			Estimated
		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		$	3,782		$	3,782		$	9,260		$	9,260
Available-for-sale securities		4,787			4,787			5,102			5,102
Financial liabilities:
Revolving line of credit		—			—			—			—
Mortgage debt		62,153			64,221			62,999			65,277
Interest rate swaps		1,293			1,293			1,481			1,481

 

The fair values of the available-for-sale securities are based on quoted market prices.  The fair values of the mortgage debt are estimated based on current rates offered to Griffin for similar debt of the same remaining maturities, and additionally, Griffin considers its credit worthiness in determining the fair value of its debt.  The fair values of the interest rate swaps (used for purposes other than trading) are determined based on discounted cash flow models that incorporate the cash flows of the derivatives as well as the current LIBOR rate and swap curve along with other market data, taking into account current interest rates and the credit worthiness of the counterparty for assets and the credit worthiness of Griffin for liabilities.

 

The fair values of Griffin’s nonfinancial assets related to the building acquisition in Breinigsville, Pennsylvania on January 8, 2010, the acquisition date, are listed below.  There were no liabilities assumed in connection with this acquisition.  These assets were initially recorded at fair value but will not be re-measured at fair value unless the assets are deemed to be impaired.

 

		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Real estate held for lease		$	—		$	5,381		$	—
Intangible assets		$	—		$	—		$	1,019

 

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4.     Inventories

 

Inventories consist of:

 

		May 28, 2011			November 27, 2010
Nursery stock		$	13,044		$	14,347
Materials and supplies		1,261			1,181
		$	14,305		$	15,528

 

In the 2011 six month period, a net charge of $400 is included in costs of landscape nursery sales for excess plant losses, primarily due to the collapse from snow load, during this past winter, of some of Imperial’s hoop houses in which the plants were stored.  In the 2011 first quarter, a charge of $550 was included in costs of landscape nursery sales based on the number of plants estimated at that time that had become unsaleable due to the collapsed hoop houses.  Upon removal of the damaged hoop houses during the 2011 second quarter, which could not have been done earlier due to the winter conditions that existed at the end of the first quarter, management determined that the number of plants affected by the hoop house collapses was lower than previously estimated.  Accordingly, a $250 reduction of the charge for plants that became unsaleable due to hoop house collapses is reflected in costs of landscape nursery sales in the 2011 second quarter.  Costs of landscape nursery sales in the 2011 second quarter also includes a charge of $100 for certain starter plants that were lost due to a plant disease issue.  There were no charges recorded for the damaged hoop houses because they were fully depreciated prior to fiscal 2011.  Initial insurance proceeds of $200, related to the hoop house damage, were received and are reflected as a gain on insurance recovery in the 2011 six month consolidated statement of operations (see Notes 7 and 10).  Imperial continues to work with its insurance carrier to obtain additional recoveries for the losses incurred, and while Imperial believes that additional recoveries are likely to be received, they are not assured at this time.  Additional gain from insurance recoveries would be recorded when it becomes probable that such additional insurance proceeds will be received.

 

5.     Real Estate Assets

 

On January 8, 2010, Griffin Land closed on the purchase of a 120,000 square foot industrial building in Breinigsville, Pennsylvania.  Griffin Land paid $6.4 million in cash for the building, including approximately $1.0 million paid as a deposit in the 2009 fourth quarter.  The building is located in a major industrial area of Pennsylvania’s Lehigh Valley and was under a full building lease to Olympus Corporation of the Americas (“Olympus”) at the time of the acquisition.  Griffin Land incurred approximately $0.3 million of acquisition costs on the purchase of this building, which are included in selling, general and administrative expenses on Griffin’s consolidated statement of operations in the 2010 six month period.  Subsequent to the purchase of this building, Griffin Land completed a lease amendment with Olympus that extended the lease term through 2025.  On January 29, 2010, Griffin closed on a $4.3 million nonrecourse mortgage on this building (see Note 8).  This was Griffin Land’s first real estate purchase outside of the Hartford, Connecticut market, where Griffin Land’s core real estate holdings are located.

 

Based on an independent appraisal of the building acquired, Griffin determined that the fair value of the assets acquired approximated the purchase price.  Of the $6.4 million purchase price, approximately $5.4 million represented the fair value of the real estate held for lease and approximately $1.0 million represented the fair value of the acquired intangible assets, comprised of the value of the in-place lease at the time of purchase and a tenant relationship intangible asset.  The intangible assets are included in other assets on Griffin’s consolidated balance sheets.

 

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On March 17, 2010, Griffin Land closed on the purchase of approximately 51 acres of undeveloped land in Lower Nazareth, Pennsylvania.  Griffin Land paid approximately $1.8 million in cash plus acquisition expenses, including approximately $0.3 million paid as a deposit in the 2009 fourth quarter.  The undeveloped land is located in a major industrial area of Pennsylvania’s Lehigh Valley and has approvals for the development of two industrial buildings totaling approximately 530,000 square feet.

 

Real estate held for sale or lease consists of:

 

		Estimated		May 28, 2011
		Useful Lives		Held for Sale			Held for Lease			Total
Land				$	1,614		$	10,964		$	12,578
Land improvements		10 to 30 years		638			13,374			14,012
Buildings and improvements		10 to 40 years		—			128,729			128,729
Tenant improvements		Shorter of useful life or terms of related lease		—			14,083			14,083
Development costs				6,938			4,645			11,583
				9,190			171,795			180,985
Accumulated depreciation				—			(51,018		)	(51,018		)
				$	9,190		$	120,777		$	129,967

 

		Estimated		November 27, 2010
		Useful Lives		Held for Sale			Held for Lease			Total
Land				$	1,625		$	10,953		$	12,578
Land improvements		10 to 30 years		691			13,316			14,007
Buildings and improvements		10 to 40 years		—			128,437			128,437
Tenant improvements		Shorter of useful life or terms of related lease		—			13,922			13,922
Development costs				6,798			4,461			11,259
				9,114			171,089			180,203
Accumulated depreciation				—			(48,165		)	(48,165		)
				$	9,114		$	122,924		$	132,038

 

Included in real estate held for lease as of May 28, 2011 and November 27, 2010 was $2,298 and $2,458, respectively, reflecting the net book value of Imperial’s Florida farm that was shut down in fiscal 2009 and is being leased to another landscape nursery grower.

 

Total depreciation expense related to real estate held for sale or lease was $1,419 and $1,498 in the 2011 and 2010 second quarters, respectively, and $2,853 and $2,937 in the 2011 and 2010 six month periods, respectively.  There was no capitalized interest in the 2011 and 2010 six month periods.

 

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6.     Investments

 

Short-Term Investments

 

In the 2010 six month period, Griffin sold its remaining short-term investments.  Griffin’s short-term investments were comprised of debt securities and were accounted for as trading securities under FASB ASC 320-10, “Investments - Debt and Equity Securities” (“ASC 320-10”).  Accordingly, the securities were recorded at their fair values based upon quoted market prices at the balance sheet date and net realized and unrealized gains and losses on those investments were included in investment income on Griffin’s consolidated statements of operations.  Investment income in the 2011 and 2010 six month periods consists solely of interest and dividend income.

 

Centaur Media plc

 

Griffin’s investment in the common stock of Centaur Media plc (“Centaur Media”) is accounted for as an available-for-sale security under ASC 320.  Accordingly, changes in the fair value of Centaur Media, net of income taxes, along with the effect of changes in the foreign currency exchange rate, net of income taxes, are included in accumulated other comprehensive income (see Note 9).

 

As of May 28, 2011, the cost, gross unrealized gain and fair value of Griffin’s investment in Centaur Media were $2,677, $2,110 and $4,787, respectively.  As of November 27, 2010, the cost, gross unrealized gain and fair value of Griffin’s investment in Centaur Media were $2,677, $2,425 and $5,102, respectively.

 

7.     Property and Equipment

 

Property and equipment consist of:

 

		Estimated Useful  Lives		May 28, 2011			November 27, 2010
Land				$	437		$	437
Land improvements		10 to 20 years		1,561			1,561
Buildings and improvements		10 to 40 years		1,842			1,842
Machinery and equipment		3 to 20 years		11,980			11,849
				15,820			15,689
Accumulated depreciation				(13,562		)	(13,326		)
				$	2,258		$	2,363

 

In the 2011 first quarter, as a result of winter storms, some of Imperial’s hoop houses collapsed and a portion of the plants stored in the damaged hoop houses became unsaleable.  There was no charge to earnings for the damaged hoop houses because they were fully depreciated prior to the start of fiscal 2011.  A gain on insurance recovery of $200 related to insurance proceeds received for the damaged hoop houses is included in Griffin’s 2011 six month consolidated statement of operations.  Imperial continues to work with its insurance carrier to obtain additional recoveries for the losses incurred, and while Imperial believes that additional recoveries are likely to be received, they are not assured at this time.

 

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