INDUS REALTY TRUST, INC. - Quarter Report: 2014 February (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 February 28, 2014

 

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 o  No x

 

Number of shares of Common Stock outstanding at April 4, 2014: 5,146,366

 

 

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GRIFFIN LAND & NURSERIES, INC.

FORM 10-Q

Index

 

PART I -		FINANCIAL INFORMATION
	ITEM 1	Financial Statements
		Consolidated Balance Sheets (unaudited) February 28, 2014 and November 30, 2013	3
		Consolidated Statements of Operations (unaudited) Quarters Ended February 28, 2014 and March 2, 2013	4
		Consolidated Statements of Comprehensive Income (Loss) (unaudited) Quarters Ended February 28, 2014 and March 2, 2013	5
		Consolidated Statements of Changes in Stockholders’ Equity (unaudited) Quarters Ended February 28, 2014 and March 2, 2013	6
		Consolidated Statements of Cash Flows (unaudited) Quarters Ended February 28, 2014 and March 2, 2013	7
		Notes to Consolidated Financial Statements (unaudited)	8-22
	ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23-29
	ITEM 3	Quantitative and Qualitative Disclosures About Market Risk	29
	ITEM 4	Controls and Procedures	30
PART II -		OTHER INFORMATION
	ITEM 1	Not Applicable
	ITEM 1A	Risk Factors	31
	ITEMS 2-5	Not Applicable
	ITEM 6	Exhibits	31-34
		SIGNATURES	35

 

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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)

 

		Feb. 28, 2014			Nov. 30, 2013
ASSETS
Real estate assets at cost, net of accumulated depreciation		$	135,590		$	131,190
Real estate held for sale		1,104			1,104
Cash and cash equivalents		10,050			14,179
Proceeds held in escrow		8,863			8,860
Deferred income taxes		6,638			5,975
Note receivable		4,082			—
Available for sale securities - Investment in Centaur Media plc		2,468			2,208
Property and equipment, net of accumulated depreciation		269			1,950
Other assets		13,590			13,634
Assets of discontinued operation		883			5,627
Total assets		$	183,537		$	184,727
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgage loans		$	66,179		$	66,708
Deferred revenue		8,022			8,467
Accounts payable and accrued liabilities		4,948			3,011
Dividend payable		—			1,029
Other liabilities		6,433			6,629
Liabilities of discontinued operation		806			768
Total liabilities		86,388			86,612
Commitments and Contingencies (Note 11)
Stockholders’ Equity
Common stock, par value $0.01 per share, 10,000,000 shares authorized, 5,534,687 shares issued and 5,146,366 shares outstanding		55			55
Additional paid-in capital		107,626			107,603
Retained earnings		3,002			4,372
Accumulated other comprehensive loss, net of tax		(68		)	(449		)
Treasury stock, at cost, 388,321 shares		(13,466		)	(13,466		)
Total stockholders’ equity		97,149			98,115
Total liabilities and stockholders’ equity		$	183,537		$	184,727

 

 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 Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
Rental revenue		$	4,966		$	4,741
Revenue from property sales		93			884
Total revenue		5,059			5,625
Operating expenses of rental properties		2,451			2,064
Depreciation and amortization expense		1,641			1,593
Costs related to property sales		24			143
General and administrative expenses		2,184			2,205
Total expenses		6,300			6,005
Operating loss		(1,241		)	(380		)
Interest expense		(904		)	(978		)
Gain on sale of common stock in Centaur Media plc		318			504
Investment income		47			—
Gain on sale of investment in Shemin Nurseries Holding Corp.		—			3,397
(Loss) income before income tax provision		(1,780		)	2,543
Income tax benefit (provision)		682			(859		)
(Loss) income from continuing operations		(1,098		)	1,684
Discontinued operations, net of tax:
Loss from landscape nursery business, including loss on sale of assets of $31, net of tax, in the 2014 first quarter		(272		)	(374		)
Net (loss) income		$	(1,370	)	$	1,310
Basic net (loss) income per common share:
(Loss) income from continuing operations		$	(0.21	)	$	0.33
Loss from discontinued operations		(0.06		)	(0.08		)
Basic net (loss) income per common share		$	(0.27	)	$	0.25
Diluted net (loss) income per common share:
(Loss) income from continuing operations		$	(0.21	)	$	0.33
Loss from discontinued operations		(0.06		)	(0.08		)
Diluted net (loss) income per common share		$	(0.27	)	$	0.25

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(dollars in thousands)

(unaudited)

 

		For the Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
Net (loss) income		$	(1,370	)	$	1,310
Other comprehensive income (loss), net of tax:
Reclassifications included in net (loss) income		(47		)	(222		)
Increase (decrease) in fair value of Centaur Media plc		539			(39		)
Unrealized (loss) gain on cash flow hedges		(111		)	83
Total other comprehensive income (loss), net of tax		381			(178		)
Total comprehensive (loss) income		$	(989	)	$	1,132

 

See Notes to Consolidated Financial Statements.

 

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GRIFFIN LAND & NURSERIES, INC.

Consolidated Statements of Changes in Stockholders’ Equity

For the Quarters Ended February 28, 2014 and March 2, 2013

(dollars in thousands)

(unaudited)

 

		Shares of Common Stock Issued		Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at December 1, 2012		5,527,911		$	55		$	107,056		$	11,222		$	(721	)	$	(13,466	)	$	104,146
Stock-based compensation		—		—			115			—			—			—			115
Net income		—		—			—			1,310			—			—			1,310
Total other comprehensive loss, net of tax		—		—			—			—			(178		)	—			(178		)
Balance at March 2, 2013		5,527,911		$	55		$	107,171		$	12,532		$	(899	)	$	(13,466	)	$	105,393
Balance at November 30, 2013		5,534,687		$	55		$	107,603		$	4,372		$	(449	)	$	(13,466	)	$	98,115
Stock-based compensation		—		—			23			—			—			—			23
Net loss		—		—			—			(1,370		)	—			—			(1,370		)
Total other comprehensive income, net of tax		—		—			—			—			381			—			381
Balance at February 28, 2014		5,534,687		$	55		$	107,626		$	3,002		$	(68	)	$	(13,466	)	$	97,149

 

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 Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
Operating activities:
Net (loss) income		$	(1,370	)	$	1,310
Loss from discontinued operation		272			374
(Loss) income from continuing operations		(1,098		)	1,684
Adjustments to reconcile (loss) income from continuing operations to net cash used in operating activities of continuing operations:
Depreciation and amortization		1,641			1,593
Deferred income taxes		(682		)	859
Gain on sale of common stock in Centaur Media plc		(318		)	(504		)
Stock-based compensation expense		153			106
Gain on sale of property		(69		)	(741		)
Amortization of debt issuance costs		65			76
Accretion of discount on note receivable		(46		)	—
Gain on sale of investment in Shemin Nurseries Holding Corp.		—			(3,397		)
Changes in assets and liabilities:
Other assets		69			234
Accounts payable and accrued liabilities		458			(74		)
Deferred revenue		(352		)	(519		)
Other liabilities		132			294
Net cash used in operating activities of continuing operations		(47		)	(389		)
Net cash used in operating activities of discontinued operation		(914		)	(2,677		)
Net cash used in operating activities		(961		)	(3,066		)
Investing activities:
Additions to real estate assets		(2,686		)	(8,430		)
Proceeds from the sale of business		874			—
Proceeds from the sale of common stock in Centaur Media plc		251			869
Additions to property and equipment		(49		)	(41		)
Proceeds from property sales returned from escrow		—			6,934
Proceeds from the sale of investment in Shemin Nurseries Holding Corp.		—			3,226
Net cash (used in) provided by investing activities		(1,610		)	2,558
Financing activities:
Dividends paid to stockholders		(1,029		)	(1,028		)
Payments of debt		(529		)	(610		)
Net cash used in financing activities		(1,558		)	(1,638		)
Net decrease in cash and cash equivalents		(4,129		)	(2,146		)
Cash and cash equivalents at beginning of period		14,179			10,181
Cash and cash equivalents at end of period		$	10,050		$	8,035

 

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”) reflect Griffin’s real estate business, conducted through its wholly-owned subsidiary, Griffin Land, LLC (“Griffin Land”) and Griffin’s landscape nursery business, conducted through its wholly-owned subsidiary, Imperial Nurseries, Inc. (“Imperial”) that is reported as a discontinued operation (see below).  Griffin Land is principally engaged in the development, management and leasing of industrial and commercial properties. Periodically, Griffin Land may sell certain portions of its undeveloped land that it has owned for an extended time period and the use of which is not consistent with Griffin Land’s core development and leasing strategy.

 

Imperial’s growing operations are reflected in the accompanying unaudited consolidated financial statements as a discontinued operation due to the sale, effective January 8, 2014, of its inventory and certain of its assets (the “Imperial Sale”) to Monrovia Connecticut LLC (“Monrovia”), a subsidiary of Monrovia Nursery Company (see Notes 2, 4 and 10).  Concurrent with the Imperial Sale, a subsidiary of Griffin and Imperial entered into a long-term lease with Monrovia for Imperial’s Connecticut production nursery.  As the growing operations of Imperial are reflected as a discontinued operation in Griffin’s unaudited consolidated financial statements, Griffin’s continuing operations presented in the accompanying financial statements solely reflect its real estate business and, therefore, industry segment information is not presented.  Accordingly, certain prior period amounts in Griffin’s unaudited consolidated financial statements have been reclassified to conform to the current presentation which better reflects Griffin’s real estate business, including presentation of an unclassified balance sheet consistent with industry practice.  Certain parts of Imperial’s prior year results, such as rental revenue and expense related to the leasing of Imperial’s Florida farm to another grower and certain expenses related to the property and equipment of Imperial’s Connecticut farm, which continues to be owned by Griffin and leased to Monrovia, are included in Griffin’s continuing operations.

 

Through the fiscal year ended November 30, 2013 (“fiscal 2013”), Griffin reported on a 52-53 week fiscal year that ended on the Saturday nearest November 30 and included four quarters of 13 weeks each.  Starting in the fiscal year ending November 30, 2014 (“fiscal 2014”), Griffin is reporting on a twelve month fiscal year that will end on November 30 with interim periods comprised of three months that end on the last day of the third month of each quarter.  Accordingly, the fiscal 2014 first quarter ended on February 28, 2014.

 

These financial statements 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 consolidated audited financial statements for fiscal 2013 included in Griffin’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 13, 2014, 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 30, 2013 was derived from Griffin’s

 

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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 and the estimated costs to complete required offsite improvements to land sold.  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 February 28, 2014, Griffin was a party to several interest rate swap agreements to hedge its interest rate exposures.  Griffin does not use derivatives for speculative purposes.  Griffin applies 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.

 

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 three months ended February 28, 2014 (the “2014 first quarter”) are not necessarily indicative of the results to be expected for the full year. The thirteen weeks ended March 2, 2013 is referred to herein as the “2013 first quarter.”

 

Recent Accounting Pronouncements

 

In July 2013, the FASB issued Accounting Standards Update No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Specifically, this update requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions.  This update will be effective for Griffin in the 2014 second quarter.  Griffin is evaluating the impact that the application of this update will have on its consolidated financial statements.

 

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2.              Discontinued Operation

 

Effective January 8, 2014, in accordance with the terms of the Imperial Sale (see Notes 1, 4 and 10), Imperial sold its inventory and certain assets for $874 in cash (subject to certain adjustments) and a non-interest bearing note receivable of $4,250 (the “Promissory Note”).  The Promissory Note is due in two installments: $2,750 is due on June 1, 2014 and $1,500 is due on June 1, 2015 and was discounted at 7% to its present value of $4,036 at inception. The Promissory Note is secured by an irrevocable letter of credit.  Under the terms of the Imperial Sale, Griffin and Imperial agreed to indemnify Monrovia for any potential environmental liabilities relating to periods prior to the effective date of the Imperial Sale and also agreed to certain non-competition restrictions for a four-year period.

 

Concurrent with the Imperial Sale, Imperial and River Bend Holdings, LLC, a wholly-owned subsidiary of Griffin, entered into a Lease and Option Agreement and an Addendum to such agreement (the “Imperial Lease”, and together with the Imperial Sale, the “Imperial Transaction”) with Monrovia, pursuant to which Monrovia is leasing Imperial’s Connecticut production nursery for a ten-year period, with options to extend for up to an additional fifteen years exercisable by Monrovia. The Imperial Lease provides for net annual rent payable to Griffin of $500 for each of the first five years with rent for subsequent years determined in accordance with the Imperial Lease. The Imperial Lease also grants Monrovia an option to purchase most of the land, land improvements and other operating assets that were used by Imperial in its Connecticut growing operations during the first thirteen years of the lease period for $10,500, or $7,000 if only a certain portion of the land is purchased, subject in each case to certain adjustments as provided for in the Imperial Lease.  Accordingly, the operating results of Imperial’s growing operations are reflected as a discontinued operation in Griffin’s consolidated statements of operations for all periods presented and the assets and liabilities of the growing operations of Imperial (excluding those assets that are part of the Imperial Lease) are shown as assets and liabilities of discontinued operation on Griffin’s consolidated balance sheets.  The property and equipment previously used by Imperial and currently leased to Monrovia were reclassified on January 8, 2014 from property and equipment to real estate assets on Griffin’s consolidated balance sheet. The property and equipment had a cost of $11,485 and accumulated depreciation of $9,850 at the time it was reclassified.

 

Revenue and the pretax loss from Imperial’s growing operations, reflected as a discontinued operation in Griffin’s consolidated statements of operations, were as follows:

 

		For the Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
Net sales and other revenue		$	11		$	85
Pretax loss		$	(400	)	$	(589	)

 

In the fiscal 2013 fourth quarter, a charge of $10,400 to inventory was included in cost of landscape nursery sales to reduce Imperial’s nursery inventories to fair value, which was the net realizable value based on the terms of the Imperial Sale.  The pretax loss from the Imperial Sale in the 2014 first quarter was as follows:

 

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Consideration received, including cash of $874 and note receivable of $4,036		$	4,910
Carrying value of assets sold, principally inventory		(4,561		)
Curtailment of employee benefit plan (see Note 10)		309
Severance and other expenses		(710		)
Pretax loss		$	(52	)

 

The assets and liabilities of Imperial’s growing operation, reflected as a discontinued operation are as follows:

 

		Feb. 28, 2014			Nov. 30, 2013
Assets:
Accounts receivable		$	661		$	1,151
Inventories		—			4,116
Other		222			360
		$	883		$	5,627
Liabilities:
Accounts payable and accrued liabilities		$	806		$	768

 

3.              Fair Value

 

Griffin applies the provisions of FASB ASC 820, “Fair Value Measurements” (“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 interest rate swap derivatives (see Note 7).  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.

 

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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.

 

During the 2014 first quarter, Griffin did not transfer any assets or liabilities in or out of Levels 1 or 2.  The following are Griffin’s financial assets and liabilities carried at fair value and measured at fair value on a recurring basis:

 

		February 28, 2014
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	2,468		$	—		$	—
Interest rate swap asset		$	—		$	61		$	—
Interest rate swap liabilities		$	—		$	2,210		$	—

 

		November 30, 2013
		Quoted Prices in			Significant			Significant
		Active Markets for			Observable			Unobservable
		Identical Assets			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)
Marketable equity securities		$	2,208		$	—		$	—
Interest rate swap asset		$	—		$	63		$	—
Interest rate swap liabilities		$	—		$	2,285		$	—

 

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

 

		Fair Value		February 28, 2014						November 30, 2013
		Hierarchy		Carrying			Estimated			Carrying			Estimated
		Level		Value			Fair Value			Value			Fair Value
Financial assets:
Cash and cash equivalents		1		$	10,050		$	10,050		$	14,179		$	14,179
Available-for-sale securities		1		2,468			2,468			2,208			2,208
Interest rate swap		2		61			61			63			63
Financial liabilities:
Mortgage debt		2		66,179			67,287			66,708			67,931
Interest rate swaps		2		2,210			2,210			2,285			2,285

 

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

 

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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.

 

4.              Real Estate Assets

 

Real estate assets consist of:

 

		Estimated Useful Lives		Feb. 28, 2014			Nov. 30, 2013
Land				$	18,224		$	17,507
Land improvements		10 to 30 years		17,090			15,529
Buildings and improvements		10 to 40 years		123,638			126,245
Tenant improvements		Shorter of useful life or terms of related lease		16,231			16,126
Machinery and equipment		3 to 20 years		11,810			—
Development costs				20,530			16,861
				207,523			192,268
Accumulated depreciation				(71,933		)	(61,078		)
				$	135,590		$	131,190

 

Included in real estate assets, net as of February 28, 2014 was $1,600 reflecting the net book value of Imperial’s Connecticut farm assets that were leased to Monrovia effective January 8, 2014 (see Notes 1, 2 and 10).  Prior to that date, the assets were reported as part of property and equipment.  The assets reclassified from property and equipment to real estate assets had a cost of $11,485, net of accumulated depreciation of $9,850 at the time of the reclassification.

 

Total depreciation expense and capitalized interest related to real estate assets, net were as follows:

 

		For the Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
Depreciation expense		$	1,424		$	1,380
Capitalized interest		$	124		$	—

 

In the fourth quarter of fiscal 2013, Griffin Land completed the sale of approximately 90 acres of undeveloped land for approximately $9,000 in cash, before transaction costs (the “Windsor Land Sale”).  The land sold is located in Windsor, Connecticut and is part of an approximately 268 acre parcel of undeveloped land that straddles the town line between Windsor and Bloomfield, Connecticut.  Under the terms of the Windsor Land Sale, Griffin Land and the buyer will each construct roadways connecting the land parcel sold with existing town roads. The roads to be built will become new town roads, thereby providing public access to the remaining acreage in Griffin Land’s land parcel.  As a result of Griffin

 

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Land’s continuing involvement with the land sold, the Windsor Land Sale is being accounted for under the percentage of completion method, whereby the revenue and gain on the sale are being recognized as the total costs related to the property sold are incurred.  At the closing of the Windsor Land Sale, cash proceeds of $8,860 were placed in escrow for the purchase of a replacement property under a Section 1031 like-kind exchange, which is reflected in Proceeds Held in Escrow on Griffin’s consolidated balance sheets as of February 28, 2014 and November 30, 2013. Under IRS regulations for a Section 1031 like-kind exchange, if a replacement property is not acquired by May 20, 2014, the proceeds held in escrow will be returned to Griffin.

 

As of February 28, 2014, approximately 31% of the total costs related to the Windsor Land Sale have been incurred; therefore, from the date of the Windsor Land Sale through February 28, 2014, approximately 31% of the total revenue and pretax gain on the sale have been recognized in Griffin’s consolidated statement of operations.  Griffin’s consolidated statement of operations for the 2014 first quarter includes revenue of $93 and a pretax gain of $69 from the Windsor Land Sale.  The balance of the revenue and pretax gain on sale will be recognized when the remaining costs are incurred, which is expected to take place mostly in fiscal 2014.  Included on Griffin’s consolidated balance sheet as of February 28, 2014, is deferred revenue of $6,208 that will be recognized as the remaining costs are incurred.  Including the pretax gain on sale of $1,990 recognized in fiscal 2013 and $93 recognized in the 2014 first quarter, the total gain on the Windsor Land Sale is expected to be approximately $6,688 after all revenue is recognized and all costs are incurred.  While management has used its best estimates, based on industry knowledge and experience, in projecting the total costs of the required roadways, increases or decreases in future costs as compared with current estimated amounts would reduce or increase the gain recognized in future periods (see Note 10).

 

Real estate assets held for sale consist of:

 

		Feb. 28, 2014			Nov. 30, 2013
Land		$	30		$	30
Development costs		1,074			1,074
		$	1,104		$	1,104

 

5.              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, reflecting both changes in the stock price and changes in the foreign currency exchange rate, are included, net of income taxes, in accumulated other comprehensive income (see Note 9).

 

As of November 30, 2013, Griffin held 2,452,462 shares of Centaur Media common stock.  In the 2014 first quarter, Griffin sold 500,000 shares of its Centaur Media common stock for total cash proceeds of $566, after transaction costs, including $315 that was received subsequent to the end of the 2014 first quarter.  The sale of Centaur Media common stock resulted in a pretax gain of $318 in the 2014 first quarter.  Griffin utilized the average cost method to determine its gain on the sale of Centaur stock.  As of February 28, 2014, Griffin held 1,952,462 shares of Centaur Media common stock.

 

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

 

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		Feb. 28, 2014			Nov. 30, 2013
Fair value		$	2,468		$	2,208
Cost		1,014			1,274
Unrealized gain		$	1,454		$	934

 

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.  As a result of cash distributions from SNHC in years prior to fiscal 2013 which were treated as returns of investment, 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.

 

6.              Property and Equipment

 

Property and equipment consist of:

 

		Estimated Useful Lives		Feb. 28, 2014			Nov. 30, 2013
Land				$	—		$	437
Land improvements		10 to 20 years		—			1,561
Buildings and improvements		10 to 40 years		—			1,865
Machinery and equipment		3 to 20 years		1,211			12,135
				1,211			15,998
Accumulated depreciation				(942		)	(14,048		)
				$	269		$	1,950

 

As a result of the Imperial Lease, the assets of the Connecticut farm were reclassified from property and equipment to real estate assets on January 8, 2014.  The net book value of the assets reclassified was $1,635, reflecting cost of $11,485 net of accumulated depreciation of $9,850.

 

Griffin incurred new capital lease obligations of $53 and $48 related to equipment acquisitions in the 2014 first quarter and the 2013 first quarter, respectively.

 

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7.              Mortgage Loans

 

Griffin’s mortgage loans, which are nonrecourse, consist of:

 

		Feb. 28, 2014			Nov. 30, 2013
6.30%, due May 1, 2014		$	50		$	99
5.73%, due August 1, 2015		18,511			18,615
8.13%, due April 1, 2016		3,513			3,603
7.0%, due October 2, 2017		5,717			5,779
Variable rate mortgage, due October 2, 2017*		6,521			6,563
Variable rate mortgage, due February 1, 2019*		11,086			11,150
Variable rate mortgage, due August 1, 2019*		7,826			7,869
Variable rate mortgage, due January 27, 2020*		3,934			3,961
Variable rate mortgage, due September 1, 2023*		9,021			9,069
Total nonrecourse mortgages		$	66,179		$	66,708

 

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

 

As of February 28, 2014, Griffin was a party to several interest rate swap agreements related to its variable rate nonrecourse mortgages on certain of its real estate assets.  Griffin accounts for its interest rate swap agreements as effective cash flow hedges (see Note 3).  No ineffectiveness on the cash flow hedges was recognized as of February 28, 2014 and none is anticipated over the term of the agreements.  Amounts in other comprehensive income (loss) will be reclassified into interest expense over the term of the swap agreements to achieve fixed rates on each mortgage.  None of the interest rate swap agreements contain any credit risk related contingent features.  In the 2014 first quarter, Griffin recognized a loss (included in other comprehensive income) before taxes of $177 on its interest rate swap agreements.  In the 2013 first quarter, Griffin recognized a gain (included in other comprehensive loss) before taxes of $131 on its interest rate swap agreements.

 

As of February 28, 2014, $992 is expected to be reclassified over the next twelve months from accumulated other comprehensive loss to interest expense.  As of February 28, 2014, the net fair value of Griffin’s interest rate swap agreements was $2,149, with $61 included in other assets and $2,210 included in other liabilities on Griffin’s consolidated balance sheet.

 

Subsequent to the end of the 2014 first quarter, Griffin Land and Farm Bureau Life Insurance Company (“Farm Bureau”) agreed to terms on the refinancing of two of Griffin Land’s nonrecourse mortgage loans with Farm Bureau, the 8.13% mortgage due April 1, 2016 and the 7.0% mortgage due October 2, 2017. These two mortgage loans had a combined balance of $9,230 as of February 28, 2014. As per the terms agreed to with Farm Bureau, the combined balance after refinancing will be $14,500, with both loans having a fixed interest rate of 5.09%. The refinancing would extend the mortgage loans for 15 years with payments based on a 15 year amortization schedule. The completion of this transaction is subject to completion of due diligence by Farm Bureau and completion of definitive loan agreements. There is no guarantee that these refinancings will be completed on these terms, or at all.

 

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8.              Revolving Credit Agreement

 

Griffin has a $12,500 revolving credit line with Webster Bank (the “Webster Credit Line”) that expires May 1, 2015. Griffin has an option to extend the Webster Credit Line for an additional year.  Interest on the outstanding borrowings under the Webster Credit Line are at the one month LIBOR rate plus 2.75%.  The Webster Credit Line is collateralized by Griffin Land’s properties in Griffin Center South, aggregating approximately 235,000 square feet and an approximately 48,000 square foot single-story office building in Griffin Center.  There have been no borrowings under the Webster Credit Line since its inception.

 

9.              Stockholders’ Equity

 

Per Share Results

 

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

 

		For the Quarter Ended,
		Feb. 28, 2014			Mar. 2, 2013
(Loss) income from continuing operations for computation of basic and diluted per share results, net of tax		$	(1,098	)	$	1,684
Loss from discontinued operations for computation of basic and diluted per share results, net of tax		(272		)	(374		)
Net (loss) income		$	(1,370	)	$	1,310
Weighted average shares outstanding for computation of basic per share results		5,147,000			5,140,000
Incremental shares from assumed exercise of Griffin stock options (a)		—			4,000
Adjusted weighted average shares for computation of diluted per share results		5,147,000			5,144,000

 

(a)                   Incremental shares from the assumed exercise of Griffin stock options are not included in periods where the inclusion of such shares would be anti-dilutive.  Such assessment is based on income (loss) from continuing operations when net income includes discontinued operations.  The incremental shares from the assumed exercise of stock options in the 2014 first quarter would have been 16,000. 

 

Griffin Stock Option Plan

 

Stock options are granted by Griffin under the Griffin Land & Nurseries, Inc. 2009 Stock Option Plan (the “2009 Stock Option Plan”).  Options granted under the 2009 Stock Option Plan may be either

 

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incentive stock options or non-qualified stock options issued at fair market value on the date approved by Griffin’s Compensation Committee. Vesting of all of Griffin’s previously issued stock options is solely based upon service requirements and does not contain market or performance conditions.  Stock options issued will expire ten years from the grant date.  In accordance with the 2009 Stock Option Plan, stock options issued to non-employee directors upon their initial election to the board of directors are fully exercisable immediately upon the date of the option grant. Stock options issued to non-employee directors upon their reelection to the board of directors vest on the second anniversary from the date of grant. Stock options issued to employees vest in equal installments on the third, fourth and fifth anniversaries from the date of grant. None of the stock options outstanding at February 28, 2014 may be exercised as stock appreciation rights.  Griffin did not grant any stock options in either the 2014 first quarter or the 2013 first quarter.

 

Activity under the Griffin Stock Option Plan is summarized as follows:

 

		For the Quarter Ended,
		Feb. 28, 2014					Mar. 2, 2013
		Number of Shares		Weighted Avg. Exercise Price			Number of Shares		Weighted Avg. Exercise Price
Outstanding at beginning of period		239,677		$	30.35		243,841		$	29.88
Forfeited		(23,000	)	$	30.27		—		$	—
Outstanding at end of period		216,677		$	30.36		243,841		$	29.88

 

Range of Exercise Prices		Outstanding at February 28, 2014		Weighted Avg. Exercise Price			Weighted Avg. Remaining Contractual Life (in years)		Total Intrinsic Value
$23.00-$28.00		21,276		$	25.37		5.8		$	112
$28.00-$32.00		112,326		$	28.96		6.7		$	190
$32.00-$39.00		83,075		$	33.52		4.6		$	—
		216,677		$	30.36		5.8		$	302

 

Number of option holders at February 28, 2014

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Compensation expense and related tax benefits for stock options were as follows:

 

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