INDUS REALTY TRUST, INC. - Quarter Report: 2012 June (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 June 2, 2012

 

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 o

 

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 x No o

 

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 o No x

 

Number of shares of Common Stock outstanding at July 2, 2012:  5,139,526

 

 

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GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) June 2, 2012 and December 3, 2011	3
		Consolidated Statements of Operations (unaudited) 13 and 26 Weeks Ended June 2, 2012 and May 28, 2011	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) 13 and 26 Weeks Ended June 2, 2012 and May 28, 2011	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) 26 Weeks Ended June 2, 2012 and May 28, 2011	6
		Consolidated Statements of Cash Flows (unaudited) 26 Weeks Ended June 2, 2012 and May 28, 2011	7
		Notes to Consolidated Financial Statements (unaudited)	8-23
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-35
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	35
	ITEM 4	Controls and Procedures	36
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	37
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	37-40
		SIGNATURES	41

 

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PART I                    FINANCIAL INFORMATION

 

ITEM 1.                                                         FINANCIAL STATEMENTS

 

GRIFFIN LAND & NURSERIES, INC.

Consolidated Balance Sheets

(dollars in thousands, except per share data)

(unaudited)

 

		June 2, 2012			December 3, 2011
ASSETS
Current Assets:
Cash and cash equivalents		$	11,940		$	7,431
Accounts receivable, less allowance of $174 and $131		5,801			1,717
Inventories, net		13,471			13,695
Deferred income taxes		607			614
Other current assets		2,642			4,932
Total current assets		34,461			28,389
Real estate assets, net		122,790			116,295
Deferred income taxes		3,370			3,045
Available for sale securities - Investment in Centaur Media plc		2,704			3,005
Property and equipment, net		2,222			2,248
Real estate held for sale, net		1,861			12,989
Other assets		9,204			10,704
Total assets		$	176,612		$	176,675
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	1,683		$	1,700
Accounts payable and accrued liabilities		4,920			3,954
Deferred revenue		641			1,296
Total current liabilities		7,244			6,950
Long-term debt		58,634			59,481
Other noncurrent liabilities		7,479			6,939
Total liabilities		73,357			73,370
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,526,492 and 5,521,170 shares issued, respectively, and 5,139,526 and 5,134,204 shares outstanding, respectively		55			55
Additional paid-in capital		106,754			106,370
Retained earnings		11,394			11,284
Accumulated other comprehensive loss, net of tax		(1,522		)	(978		)
Treasury stock, at cost, 386,966 shares		(13,426		)	(13,426		)
Total stockholders’ equity		103,255			103,305
Total liabilities and stockholders’ equity		$	176,612		$	176,675

 

See Notes to Consolidated Financial Statements.

 

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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,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Rental revenue and property sales		$	4,476		$	4,438		$	8,889		$	8,844
Landscape nursery net sales and other revenue		8,258			9,262			8,458			9,445
Total revenue		12,734			13,700			17,347			18,289
Costs related to rental revenue and property sales		2,929			2,889			5,922			6,528
Costs of landscape nursery sales and other revenue		7,162			8,035			7,335			8,916
Total costs of goods sold and costs related to rental revenue and property sales		10,091			10,924			13,257			15,444
Gross profit		2,643			2,776			4,090			2,845
Selling, general and administrative expenses		2,698			2,994			5,420			5,826
(Gain) on insurance recovery		—			—			—			(200		)
Operating loss		(55		)	(218		)	(1,330		)	(2,781		)
Interest expense		(830		)	(1,056		)	(1,705		)	(2,132		)
Investment income		82			80			469			91
Loss before income tax benefit		(803		)	(1,194		)	(2,566		)	(4,822		)
Income tax benefit		391			428			1,029			1,790
Loss from continuing operations		(412		)	(766		)	(1,537		)	(3,032		)
Discontinued operation, net of tax:
Income from operations, net of tax		—			137			117			274
Gain on sale of warehouse, net of tax		—			—			1,530			—
Total discontinued operation, net of tax		—			137			1,647			274
Net income (loss)		$	(412	)	$	(629	)	$	110		$	(2,758	)
Basic net income (loss) per common share:
Loss from continuing operations		$	(0.08	)	$	(0.15	)	$	(0.30	)	$	(0.59	)
Income from discontinued operation		—			0.03			0.32			0.05
Basic net income (loss) per common share		$	(0.08	)	$	(0.12	)	$	0.02		$	(0.54	)
Diluted net income (loss) per common share:
Loss from continuing operations		$	(0.08	)	$	(0.15	)	$	(0.30	)	$	(0.59	)
Income from discontinued operation		—			0.03			0.32			0.05
Diluted net income (loss) per common share		$	(0.08	)	$	(0.12	)	$	0.02		$	(0.54	)

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands, except per share data)

(unaudited)

 

		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Net income (loss)		$	(412	)	$	(629	)	$	110		$	(2,758	)
Other comprehensive income (loss), net of tax:
Decrease in fair value of Centaur Media		(530		)	(593		)	(196		)	(205		)
(Decrease) increase in fair value of cash flow hedges		(197		)	(359		)	(348		)	119
Total other comprehensive loss, net of tax		(727		)	(952		)	(544		)	(86		)
Total comprehensive loss		$	(1,139	)	$	(1,581	)	$	(434	)	$	(2,844	)

 

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 June 2, 2012 and May 28, 2011

(dollars in thousands)

(unaudited)

 

		Shares of Common Stock Issued		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
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		)
Other comprehensive income from cash flow hedging transactions, net of tax		—		—			—			—			119			—			119
Other comprehensive loss from Centaur Media plc, net of tax		—		—			—			—			(205		)	—			(205		)
Balance at May 28, 2011		5,521,170		$	55		$	106,083		$	12,027		$	921		$	(13,426	)	$	105,660
Balance at December 3, 2011		5,521,170		$	55		$	106,370		$	11,284		$	(978	)	$	(13,426	)	$	103,305
Stock-based compensation expense		—		—			304			—			—			—			304
Exercise of stock options		5,322		—			80			—			—			—			80
Net income		—		—			—			110			—			—			110
Other comprehensive loss from cash flow hedging transactions, net of tax		—		—			—			—			(348		)	—			(348		)
Other comprehensive loss from Centaur Media plc, net of tax		—		—			—			—			(196		)	—			(196		)
Balance at June 2, 2012		5,526,492		$	55		$	106,754		$	11,394		$	(1,522	)	$	(13,426	)	$	103,255

 

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,
		June 2, 2012			May 28, 2011
Operating activities:
Net income (loss)		$	110		$	(2,758	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		3,078			3,440
Gain on sale of property		(2,886		)	—
Stock-based compensation expense		304			277
Amortization of debt issuance costs		148			127
Deferred income taxes		(8		)	(1,615		)
Provision for bad debts		6			20
Income from equity investments		(6		)	(6		)
Provision for inventory losses		—			400
Changes in assets and liabilities:
Accounts receivable		(4,090		)	(5,027		)
Inventories		224			823
Other current assets		2,290			1,678
Accounts payable and accrued liabilities		124			1,055
Deferred revenue		(751		)	(772		)
Other noncurrent assets and noncurrent liabilities, net		(29		)	(253		)
Net cash used in operating activities		(1,486		)	(2,611		)
Investing activities:
Proceeds from sale of property, net of expenses		15,537			—
Additions to real estate assets		(8,385		)	(773		)
Return of capital from Shemin Nurseries Holding Corp.		309			—
Additions to property and equipment		(115		)	(131		)
Net cash provided by (used in) investing activities		7,346			(904		)
Financing activities:
Payments of debt		(918		)	(864		)
Dividends paid to stockholders		(513		)	(1,025		)
Exercise of stock options		80			186
Debt issuance costs		—			(260		)
Net cash used in financing activities		(1,351		)	(1,963		)
Net increase (decrease) in cash and cash equivalents		4,509			(5,478		)
Cash and cash equivalents at beginning of period		7,431			9,260
Cash and cash equivalents at end of period		$	11,940		$	3,782

 

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 December 3, 2011 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 December 3, 2011 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 (“US GAAP”).

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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.

 

As of June 2, 2012, Griffin was a party to two interest rate swap agreements to hedge 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

 

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interest rates.  The change in fair values of Griffin’s interest rate swap agreements are recorded as 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 June 2, 2012 (the “2012 second quarter”) and the twenty-six weeks ended June 2, 2012 (the “2012 six month period”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended May 28, 2011 is referred to herein as the “2011 second quarter” and the twenty-six weeks ended May 28, 2011 is referred to herein as the “2011 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 was effective for Griffin in the 2011 first 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 became effective for Griffin in the fiscal 2012 first quarter.  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.  These disclosure requirements became effective for Griffin in the fiscal 2012 first quarter.  The adoption of this guidance did not have a material impact on Griffin’s consolidated financial statements.

 

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income,” which amends the presentation of comprehensive income and facilitates the convergence of U.S. GAAP and International Financial Reporting Standards. The new guidance requires an entity to present components of net income and other comprehensive income in either one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements.  This new guidance eliminates the option to report other comprehensive income and its components in the statement of changes in equity.  While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance.  This new guidance became effective for Griffin in the fiscal 2012 second quarter, as Griffin chose to present the components of net income and other comprehensive

 

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income in two separate statements.  The adoption of this new presentation of comprehensive income did not have an effect on Griffin’s financial position or results of operations.

 

2.              Discontinued Operation

 

On January 31, 2012, Griffin Land closed on the sale of its Manchester, Connecticut warehouse to its full building tenant in that building, an affiliate of Raymour & Flanigan (“Raymour”).  Net cash proceeds from the sale, after selling expenses of $438 paid out of proceeds at closing and $25 paid separately, were $15,537, and a pretax gain of $2,886 is included in the results for discontinued operation in the 2012 six month period.  Upon completion of the sale, Griffin deposited the cash of $15,562 received from the sale at closing into an escrow account for the potential purchase of a replacement property under a Section 1031 like-kind exchange.  As Griffin Land did not identify a replacement property within the time frame required under the tax rules and regulations governing a Section 1031 like-kind exchange, on March 19, 2012 the cash being held in escrow was released to Griffin Land.

 

In the fiscal 2011 fourth quarter, Griffin Land gave notice to Raymour that Griffin Land was exercising the put option under its lease with Raymour to sell the Manchester warehouse to Raymour for $16.0 million.  Accordingly, the building was classified as real estate held for sale on Griffin’s consolidated balance sheet as of December 3, 2011.  The operating results of the Manchester warehouse are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented. Rental revenue and operating profit from the Manchester warehouse were as follows:

 

		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Rental revenue		$	—		$	408		$	273		$	815
Operating profit		$	—		$	222		$	221		$	444

 

3.              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,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Total net sales and other revenue:
Rental revenue and property sales		$	4,476		$	4,438		$	8,889		$	8,844
Landscape nursery net sales and other revenue		8,258			9,262			8,458			9,445
		$	12,734		$	13,700		$	17,347		$	18,289
Operating profit (loss):
Real estate		$	912		$	886		$	1,640		$	940
Landscape nursery		36			82			(607		)	(1,120		)
Industry segment totals		948			968			1,033			(180		)
General corporate expense		(1,003		)	(1,186		)	(2,363		)	(2,601		)
Operating loss		(55		)	(218		)	(1,330		)	(2,781		)
Interest expense		(830		)	(1,056		)	(1,705		)	(2,132		)
Investment income		82			80			469			91
Loss before income tax benefit		$	(803	)	$	(1,194	)	$	(2,566	)	$	(4,822	)

 

The above table reflects the net sales and other revenue and operating profit/loss included in continuing operations on Griffin’s consolidated statements of operations.  Operating results of the Manchester, Connecticut warehouse and the gain on the sale of that building are included in the results of the discontinued operation on Griffin’s consolidated statements of operations (see Note 2).

 

Continuing operations of the real estate segment had no revenue from property sales in either the 2012 six month period or the 2011 six month period. In fiscal 2009, Imperial shut down operations on its Florida farm and entered into a lease with another grower for that property. Other revenue of the landscape nursery segment includes revenue from the rental of Imperial’s Florida farm as follows:

 

		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Rental revenue from Imperial’s Florida farm		$	117		$	118		$	235		$	235

 

 

 

 

		June 2, 2012			December 3, 2011
Identifiable assets:
Real estate		$	132,734		$	140,409
Landscape nursery		24,532			21,303
Industry segment totals		157,266			161,712
General corporate		19,346			14,963
Total assets		$	176,612		$	176,675

 

4.              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

 

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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.

 

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 interest rate swap derivatives (see Note 9).  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.

 

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 June 2, 2012 and December 3, 2011, Griffin’s consolidated balance sheets include acquired intangible assets related to a building acquired in fiscal 2010.  These assets are comprised of the value of an 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 an independent appraisal of the acquired property.  Therefore, Griffin categorized the acquired intangible assets related to the acquired property as Level 3 within the fair value hierarchy.

 

During the 2012 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:

 

		June 2, 2012
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	2,704		$	—		$	—
Interest rate swap liabilities		$	—		$	2,968		$	—

 

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		December 3, 2011
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	3,005		$	—		$	—
Interest rate swap liabilities		$	—		$	2,415		$	—

 

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

 

		Fair Value		June 2, 2012						December 3, 2011
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		1		$	11,940		$	11,940		$	7,431		$	7,431
Available-for-sale securities		1		2,704			2,704			3,005			3,005
Financial liabilities:
Revolving line of credit		2		—			—			—			—
Mortgage debt		2		60,230			62,881			61,135			63,294
Interest rate swaps		2		2,968			2,968			2,415			2,415

 

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 values 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.

 

5.     Inventories

 

Inventories consist of:

 

		June 2, 2012			December 3, 2011
Nursery stock		$	12,139		$	12,739
Materials and supplies		1,332			956
		$	13,471		$	13,695

 

There were no charges to increase inventory reserves in the 2012 six month period.  In the 2011 six month period, a net charge of $400 was included in costs of landscape nursery sales to establish a reserve for the estimated book value of plants that had become unsaleable because some of Imperial’s hoop houses, in which the plants were stored, collapsed as a result of snow load from winter storms in 2011.  In the 2011 first quarter, a charge of $550 was included in costs of landscape nursery sales based

 

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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 2011 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 the collapsed hoop houses was reflected in costs of landscape nursery sales in the 2011 second quarter.  Costs of landscape nursery sales in the 2011 second quarter also included 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 reflected as a gain on insurance recovery in the 2011 six month period consolidated statement of operations (see Notes 8 and 11).  The claim was settled in the 2011 fourth quarter and an additional $279 of insurance proceeds was received at that time.

 

6.     Real Estate Assets

 

Real estate assets consist of:

 

		Estimated Useful Lives		June 2, 2012			December 3, 2011
Land				$	10,267		$	10,435
Land improvements		10 to 30 years		14,040			14,037
Buildings and improvements		10 to 40 years		117,390			117,120
Tenant improvements		Shorter of useful life or terms of related lease		14,441			14,104
Development costs				20,956			12,464
				177,094			168,160
Accumulated depreciation				(54,304		)	(51,865		)
				$	122,790		$	116,295

 

Included in real estate assets, net, as of June 2, 2012 and December 3, 2011 was $2,025 and $2,161, 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 and capitalized interest related to real estate assets, net, were as follows:

 

		For the 13 Weeks Ended,						For the 26 Weeks Ended,
		June 2, 2012			May 28, 2011			June 2, 2012			May 28, 2011
Depreciation expense		$	1,289		$	1,331		$	2,570		$	2,677
Capitalized interest		$	220		$	—		$	369		$	—

 

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