INDUS REALTY TRUST, INC. - Quarter Report: 2013 March (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 March 2, 2013

 

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  x 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 April 5, 2013: 5,139,590

 

 

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GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) March 2, 2013 and December 1, 2012	3
		Consolidated Statements of Operations (unaudited) 13 Weeks Ended March 2, 2013 and March 3, 2012	4
		Consolidated Statements of Comprehensive Income (unaudited) 13 Weeks Ended March 2, 2013 and March 3, 2012	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) 13 Weeks Ended March 2, 2013 and March 3, 2012	6
		Consolidated Statements of Cash Flows (unaudited) 13 Weeks Ended March 2, 2013 and March 3, 2012	7
		Notes to Consolidated Financial Statements (unaudited)	8-23
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-31
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	32
	ITEM 4	Controls and Procedures	33
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	34
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	34-37
		SIGNATURES	38

 

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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)

 

		March 2, 2013			December 1, 2012
ASSETS
Current Assets:
Cash and cash equivalents		$	8,035		$	10,181
Accounts receivable, less allowance of $126 and $128		1,456			1,846
Inventories, net		17,250			14,206
Deferred income taxes		525			525
Other current assets		3,679			3,564
Total current assets		30,945			30,322
Real estate assets, net		130,677			123,927
Proceeds held in escrow		—			6,934
Available for sale securities - Investment in Centaur Media plc		3,002			4,226
Property and equipment, net		2,126			2,125
Deferred income taxes		1,662			2,222
Real estate held for sale, net		1,186			1,186
Other assets		8,845			9,172
Total assets		$	178,443		$	180,114
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current portion of long-term debt		$	1,756		$	1,869
Accounts payable and accrued liabilities		4,027			4,904
Deferred revenue		2,412			3,742
Total current liabilities		8,195			10,515
Long-term debt		57,243			57,692
Other noncurrent liabilities		7,612			7,761
Total liabilities		73,050			75,968
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,527,911 shares issued, and 5,139,150 shares outstanding		55			55
Additional paid-in capital		107,171			107,056
Retained earnings		12,532			11,222
Accumulated other comprehensive loss, net of tax		(899		)	(721		)
Treasury stock, at cost, 388,321 shares		(13,466		)	(13,466		)
Total stockholders’ equity		105,393			104,146
Total liabilities and stockholders’ equity		$	178,443		$	180,114

 

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,
		March 2, 2013			March 3, 2012
Rental revenue and property sales		$	5,508		$	4,413
Landscape nursery net sales and other revenue		202			200
Total revenue		5,710			4,613
Costs related to rental revenue and property sales		3,661			2,993
Costs of landscape nursery sales and other revenue		153			173
Total costs of goods sold and costs related to rental revenue and property sales		3,814			3,166
Gross profit		1,896			1,447
Selling, general and administrative expenses		2,865			2,722
Operating loss		(969		)	(1,275		)
Gain on sale of investment in Shemin Nurseries Holding Corporation		3,397			—
Gain on sale of common stock in Centaur Media plc		504			—
Interest expense		(978		)	(875		)
Investment income		—			387
Income (loss) before income tax (provision) benefit		1,954			(1,763		)
Income tax (provision) benefit		(644		)	638
Income (loss) from continuing operations		1,310			(1,125		)
Discontinued operation, net of tax:
Income from operations, net of tax		—			117
Gain on sale of warehouse, net of tax		—			1,530
Total discontinued operation, net of tax		—			1,647
Net income		$	1,310		$	522
Basic net income (loss) per common share:
Income (loss) from continuing operations		$	0.25		$	(0.22	)
Income from discontinued operation		—			0.32
Basic net income per common share		$	0.25		$	0.10
Diluted net income (loss) per common share:
Income (loss) from continuing operations		$	0.25		$	(0.22	)
Income from discontinued operation		—			0.32
Diluted net income per common share		$	0.25		$	0.10

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income

(dollars in thousands)

(unaudited)

 

		For the 13 Weeks Ended,
		March 2, 2013			March 3, 2012
Net income		$	1,310		$	522
Other comprehensive (loss) income, net of tax:
Reclassifications included in net income		(222		)	105
(Decrease) increase in fair value of Centaur Media plc		(39		)	334
Unrealized gain (loss) on cash flow hedges		83			(256		)
Total other comprehensive (loss) income, net of tax		(178		)	183
Total comprehensive income		$	1,132		$	705

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Thirteen Weeks Ended March 2, 2013 and March 3, 2012

(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 December 3, 2011		5,521,170		$	55		$	106,370		$	11,284		$	(978	)	$	(13,426	)	$	103,305
Stock-based compensation expense		—		—			138			—			—			—			138
Net income		—		—			—			522			—			—			522
Total reclassifications included in net income		—		—			—			—			105			—			105
Other comprehensive loss from cash flow hedging transactions, net of tax		—		—			—			—			(256		)	—			(256		)
Other comprehensive income from Centaur Media plc, net of tax		—		—			—			—			334			—			334
Balance at March 3, 2012		5,521,170		$	55		$	106,508		$	11,806		$	(795	)	$	(13,426	)	$	104,148
Balance at December 1, 2012		5,527,911		$	55		$	107,056		$	11,222		$	(721	)	$	(13,466	)	$	104,146
Stock-based compensation expense		—		—			115			—			—			—			115
Net income		—		—			—			1,310			—			—			1,310
Total reclassifications included in net income		—		—			—			—			(222		)	—			(222		)
Other comprehensive income from cash flow hedging transactions, net of tax		—		—			—			—			83			—			83
Other comprehensive loss from Centaur Media plc, net of tax		—		—			—			—			(39		)	—			(39		)
Balance at March 2, 2013		5,527,911		$	55		$	107,171		$	12,532		$	(899	)	$	(13,466	)	$	105,393

 

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 13 Weeks Ended,
		March 2, 2013			March 3, 2012
Operating activities:
Net income		$	1,310		$	522
Adjustments to reconcile net income to net cash used in operating activities:
Gain on sale of investment in Shemin Nurseries Holding Corporation		(3,397		)	—
Depreciation and amortization		1,657			1,529
Gain on sale of property		(741		)	(2,886		)
Deferred income taxes		644			383
Gain on sale of common stock in Centaur Media plc		(504		)	—
Stock-based compensation expense		115			138
Amortization of debt issuance costs		76			75
Changes in assets and liabilities:
Accounts receivable		390			441
Inventories		(3,044		)	(2,866		)
Other current assets		368			1,179
Accounts payable and accrued liabilities		668			628
Deferred revenue		(519		)	(484		)
Other noncurrent assets and noncurrent liabilities, net		(89		)	149
Net cash used in operating activities		(3,066		)	(1,192		)
Investing activities:
Additions to real estate assets		(8,430		)	(3,067		)
Proceeds from property sales returned from (deposited in) escrow		6,934			(15,562		)
Proceeds from the sale of investment in Shemin Nurseries Holding Corporation		3,226			—
Proceeds from the sale of common stock in Centaur Media plc		869			—
Additions to property and equipment		(41		)	(26		)
Proceeds from sale of property, net of expenses		—			15,537
Return of capital from Shemin Nurseries Holding Corporation		—			309
Net cash provided by (used in) investing activities		2,558			(2,809		)
Financing activities:
Dividends paid to stockholders		(1,028		)	(513		)
Payments of debt		(610		)	(455		)
Net cash used in financing activities		(1,638		)	(968		)
Net decrease in cash and cash equivalents		(2,146		)	(4,969		)
Cash and cash equivalents at beginning of period		10,181			7,431
Cash and cash equivalents at end of period		$	8,035		$	2,462

 

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 1, 2012 (“fiscal 2012”) 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 1, 2012 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 allowance for doubtful accounts receivable, the estimated costs to complete required offsite improvements to land sold and the adequacy of 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 March 2, 2013, Griffin was a party to three 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.  The estimated fair values are based primarily on projected future swap rates.

 

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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 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 March 2, 2013 (the “2013 first quarter”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended March 3, 2012 are referred to herein as the “2012 first quarter.”

 

Recent Accounting Pronouncements

 

In February 2013, the FASB issued Accounting Standards Update No. 2013-02, “Comprehensive Income,” which amends the presentation of comprehensive income.  This update does not require new disclosures but creates new presentation requirements related to amounts reclassified out of accumulated other comprehensive income.  More specifically, this update will require: (a) disclosure of the changes in the components of accumulated other comprehensive income; (b) disclosure of the effects on the individual line items in net income for each item of accumulated other comprehensive income that is reclassified in its entirety to net income; and (c) cross-references to other disclosures that provide additional details for other comprehensive income items that are not reclassified in their entirety to net income.  For items that are required to be reclassified to net income in their entirety, this new guidance requires an entity to present this information either on the face of the statement where net income is presented or in the footnotes to the financial statements.  For items that are not required to be reclassified in their entirety to net income, this new guidance requires cross-references to other disclosures that provide additional information about those amounts.  This update is required to be adopted by Griffin no later than the 2013 second quarter; however, Griffin chose to adopt the new presentation requirements in the 2013 first quarter.  The adoption of this guidance requires new disclosures related to amounts reclassified out of accumulated other comprehensive income but did not have an impact 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 first quarter.  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.  Because 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 that was being held in escrow was released to Griffin Land.

 

The operating results of the Manchester warehouse prior to its sale are reflected as a discontinued operation in Griffin’s consolidated statement of operations for the 2012 first quarter.  Rental revenue and operating profit from the Manchester warehouse in the 2012 first quarter were $273 and $221, respectively.

 

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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.

 

		For the 13 Weeks Ended,
		March 2, 2013			March 3, 2012
Total net sales and other revenue:
Rental revenue and property sales		$	5,508		$	4,413
Landscape nursery net sales and other revenue		202			200
		$	5,710		$	4,613
Operating profit (loss):
Real estate		$	1,066		$	728
Landscape nursery		(623		)	(643		)
Industry segment totals		443			85
General corporate expense		(1,412		)	(1,360		)
Operating loss		(969		)	(1,275		)
Gain on sale of investment in Shemin Nurseries Holding Corporation		3,397			—
Gain on sale of common stock in Centaur Media plc		504			—
Interest expense		(978		)	(875		)
Investment income		—			387
Income (loss) before income tax (provision) benefit		$	1,954		$	(1,763	)

 

The above table reflects the net sales and other revenue and operating 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 2012 first quarter consolidated statement of operations (see Note 2).

 

Continuing operations of the real estate segment include property sales revenue of $884 in the 2013 first quarter due entirely to the recognition of previously deferred revenue on a land sale that was completed in the 2012 third quarter (see Note 11).  There was no revenue from property sales in Griffin’s continuing operations in the 2012 first quarter.

 

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:

 

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		For the 13 Weeks Ended,
		March 2, 2013			March 3, 2012
Rental revenue from Imperial’s Florida farm		$	117		$	118

 

		March 2, 2013			December 1, 2012
Identifiable assets:
Real estate		$	141,630		$	142,440
Landscape nursery		22,858			20,693
Industry segment totals		164,488			163,133
General corporate		13,955			16,981
Total assets		$	178,443		$	180,114

 

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 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 three interest rate swap derivatives (see Note 9).  Beginning in the 2013 first quarter, 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 Overnight Indexed Swap (“OIS”) rate and swap curve along with other market data.  Prior to the beginning of fiscal 2013, the fair values of Griffin’s interest rate swap derivative instruments were based on discounted cash flow models that incorporated the cash flows of the derivatives as well as the current LIBOR rate and swap curve along with other market data.  The change to using the OIS rate from the LIBOR rate is consistent with current industry best practices.  The OIS rate is now considered the best discount rate to utilize since it is the best proxy for the risk-free rate.  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.

 

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During the 2013 first quarter, 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:

 

		March 2, 2013
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	3,002		$	—		$	—
Interest rate swap liabilities		$	—		$	2,885		$	—

 

		December 1, 2012
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	4,226		$	—		$	—
Interest rate swap liabilities		$	—		$	3,191		$	—

 

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

 

		Fair Value		March 2, 2013						December 1, 2012
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		1		$	8,035		$	8,035		$	10,181		$	10,181
Available-for-sale securities		1		3,002			3,002			4,226			4,226
Financial liabilities:
Mortgage debt		2		58,887			61,257			59,489			61,781
Interest rate swaps		2		2,885			2,885			3,191			3,191

 

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 OIS 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.

 

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5.     Inventories

 

Inventories consist of:

 

		March 2, 2013			December 1, 2012
Nursery stock		$	15,261		$	13,058
Materials and supplies		1,989			1,148
		$	17,250		$	14,206

 

There was a charge of $31 to increase inventory reserves in the 2013 first quarter for product that was damaged by the trucking company during shipment to Imperial.  A claim for the damaged product is included in other current assets on Griffin’s consolidated balance sheet as of March 2, 2013.  There were no charges to increase inventory reserves in the 2012 first quarter.

 

6.     Real Estate Assets

 

Real estate assets consist of:

 

		Estimated Useful Lives		March 2, 2013			December 1, 2012
Land				$	17,531		$	10,267
Land improvements		10 to 30 years		15,139			15,138
Buildings and improvements		10 to 40 years		126,012			125,971
Tenant improvements		Shorter of useful life or terms of related lease		14,707			14,738
Development costs				15,351			14,557
				188,740			180,671
Accumulated depreciation				(58,063		)	(56,744		)
				$	130,677		$	123,927

 

Included in real estate assets, net as of March 2, 2013 and December 1, 2012 was $1,869 and $1,921, 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:

 

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		For the 13 Weeks Ended,
		March 2, 2013			March 3, 2012
Depreciation expense		$	1,380		$	1,281
Capitalized interest		$	—		$	149

 

In the 2012 third quarter, Griffin Land sold 93 acres of undeveloped land in the New England Tradeport (“Tradeport”), Griffin Land’s industrial park located in Windsor and East Granby, Connecticut, for cash proceeds of $7,000, before transaction costs (the “Dollar Tree Sale”).  As required under the terms of the Dollar Tree Sale, Griffin Land is required to construct a sewer line to service the land that was sold.  As a result of Griffin Land’s continuing involvement with the land sold, the Dollar Tree Sale was accounted for under the percentage of completion method.  Accordingly, the revenue and the pretax gain on 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 costs of the required construction of the sewer line. Costs included in determining the percentage of completion are the cost of the land sold, allocated master planning costs of Tradeport, selling and transaction costs and estimated future costs related to the land sold.  Upon completion of the sale, Griffin Land deposited the cash of $6,929 received from the Dollar Tree Sale at closing into an escrow account, reflected as Proceeds Held in Escrow on Griffin’s consolidated balance sheet as of December 1, 2012, for the potential purchase of a replacement property under a Section 1031 like-kind exchange.   On December 28, 2012, Griffin Land closed on the acquisition of approximately 49 acres of undeveloped land in the Lehigh Valley of Pennsylvania for $7,119 in cash, using the proceeds from the Dollar Tree Sale that were being held in escrow to complete the Section 1031 like-kind exchange.  The land acquired is expected to support the development of two buildings totaling at least 500,000 square feet.  As governmental approvals of such development were not in place at the time of closing, the seller agreed to provide Griffin Land with rescission rights if the required approvals are not obtained or the seller does not complete certain post-closing obligations.

 

As of March 2, 2013, approximately 80% of the total costs related to the Dollar Tree Sale have been incurred; therefore, from the date of the Dollar Tree Sale through March 2, 2013, approximately 80% of the total revenue and the pretax gain on sale have been recognized in Griffin’s consolidated statements of operations.  Griffin’s consolidated statement of operations for the 2013 first quarter includes revenue of $884 and a pretax gain of $741 from the Dollar Tree Sale.  The balance of the revenue and the pretax gain on sale will be recognized as the remaining costs for the construction of the sewer line are incurred, which is expected to take place during the 2013 second quarter. Included on Griffin’s consolidated balance sheet as of March 2, 2013 is deferred revenue of  $1,413 that will be recognized as the construction of the sewer line is completed.  Including the pretax gain on sale of $3,942 recognized in fiscal 2012, the total pretax gain on the Dollar Tree Sale is expected to be approximately $5,900 after all revenue is recognized and all costs incurred.  Management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required construction of a sewer line, however, increases or decreases in projected future costs from current estimated amounts would reduce or increase the amount of gain to be recognized in future periods.

 

Real estate assets held for sale consist of:

 

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		Estimated Useful Lives		March 2, 2013			December 1, 2012
Land				$	35		$	35
Development costs				1,151			1,151
				1,186			1,186
Accumulated depreciation				—			—
				$	1,186		$	1,186

 

7.     Investments

 

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 FASB ASC 320-10, “Investments — Debt and Equity Securities.”  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 Notes 10 and 11).

 

As of December 1, 2012, Griffin held 5,277,150 shares of Centaur Media common stock.  In the 2013 first quarter, Griffin sold 1,324,688 shares of its Centaur Media common stock for total cash proceeds of $1,160, after transaction costs, including $291 that was received subsequent to the end of the 2013 first quarter.  The sale of Centaur Media common stock resulted in a pretax gain of $504 in the 2013 first quarter.  Griffin held 3,952,462 shares of Centaur Media common stock as of March 2, 2013.

 

The cost, unrealized gain and fair value of Griffin’s investment in Centaur Media are as follows:

 

		March 2, 2013			December 1, 2012
Fair value		$	3,002		$	4,226
Cost		1,957			2,613
Unrealized gain		$	1,045		$	1,613

 

Shemin Nurseries Holding Corp.

 

As of December 1, 2012, Griffin held an approximate 14% equity interest in Shemin Nurseries Holding Corp. (“SNHC”), which operated a landscape nursery distribution business through its subsidiary.  Griffin accounted for its investment in SNHC under the cost method of accounting for investments.  In the 2012 first quarter, Griffin received a cash distribution from SNHC which was treated as investment income and return of investment.  Accordingly, Griffin did not have any remaining book value in its investment in SNHC as of December 1, 2012.

 

On January 18, 2013, Griffin completed the sale of its investment in SNHC for total cash proceeds of $3,418, resulting in a pretax gain of $3,397.  Cash proceeds of $3,226 were received at closing and additional cash proceeds of $192 were received subsequent to the end of the 2013 first quarter from certain post-closing purchase price adjustments.

 

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8.     Property and Equipment

 

Property and equipment consist of:

 

		Estimated Useful Lives		March 2, 2013			December 1, 2012
Land				$	437		$	437
Land improvements		10 to 20 years		1,561			1,561
Buildings and improvements		10 to 40 years		1,859			1,857
Machinery and equipment		3 to 20 years		12,387			12,300
				16,244			16,155
Accumulated depreciation				(14,118		)	(14,030		)
				$	2,126		$	2,125

 

Griffin incurred new capital lease obligations of $48 and $54 related to equipment acquisitions in the 2013 first quarter and the 2012 first quarter, respectively.

 

9.     Long-Term Debt

 

Long-term debt includes:

 

		March 2, 2013			December 1, 2012
Nonrecourse mortgages:
6.30%, due May 1, 2014		$	227		$	289
5.73%, due August 1, 2015		18,887			19,018
8.13%, due April 1, 2016		3,833			3,943
7.0%, due October 2, 2017		5,939			6,016
Variable rate mortgage, due October 2, 2017*		6,672			6,726
Variable rate mortgage, due February 1, 2019*		11,316			11,396
Variable rate mortgage, due August 1, 2019*		7,980			8,034
5.25%, due January 27, 2020		4,033			4,067
Total nonrecourse mortgages		58,887			59,489
Revolving line of credit		—			—
Capital leases		112			72
Total		58,999			59,561
Less: current portion		(1,756		)	(1,869		)
Total long-term debt		$	57,243		$	57,692

 

* Griffin entered into interest rate swap agreements effectively to fix the interest rates on these loans (see below).

 

On June 15, 2012, Griffin and two of its wholly-owned subsidiaries entered into the Third Modification Agreement (the “Modification Agreement”) to the mortgage loan originally due January 1, 2013 with Webster Bank (the “Webster Mortgage”).  The Modification Agreement extended the maturity of the Webster Mortgage to October 2, 2017.  In accordance with the Modification Agreement, the interest rate under the Webster Mortgage, which was fixed at 6.08% through September 30, 2012,

 

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