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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-29288
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GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0868496
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE ROCKEFELLER PLAZA 10020
NEW YORK, NEW YORK (Zip Code)
(Address of principal
executive offices)
(212) 218-7910
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
COMMON STOCK $0.01 PAR VALUE NASDAQ NATIONAL MARKET
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/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing:
$10,916,000 approximately, based on the closing sales price on the Nasdaq
National Market on February 5, 1999. Shares of Common Stock held by each
executive officer, director, holders of greater than 10% of the outstanding
Common Stock of the Registrant and persons or entities known to the Registrant
to be affiliates of the foregoing have been excluded in that such persons may be
deemed to be affiliates. This assumption regarding affiliate status is not
necessarily a conclusive determination for other purposes.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: Common Stock:
4,842,704 shares as of February 5, 1999.
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PART I
ITEM 1. BUSINESS
Griffin and its subsidiaries comprise principally a landscape nursery and
real estate business. At the end of its 1998 fiscal year Griffin engaged in two
principal lines of business: (1) the landscape nursery products business,
comprised of (x) the growing of containerized landscape nursery products for
sale principally to garden center operators and landscape nursery mass
merchandisers, and (y) the owning and operating of wholesale sales and service
centers whose principal customers are landscape contractors; and (2) the real
estate business, comprised of (x) the owning, building and managing of
commercial and industrial properties and (y) the developing of residential
subdivisions on real estate owned by Griffin in Connecticut and Massachusetts.
Griffin also owns an approximately 35% interest (33% fully diluted) in Centaur
Communications, Ltd., a United Kingdom magazine and information services
publisher and has a lesser interest in Linguaphone Group, plc which will be
accounted for under the cost method of accounting for investments in 1999 but
which is reflected on an equity basis in 1998 results.
LANDSCAPE NURSERY BUSINESS
The landscape nursery operations of Griffin are operated by its wholly-owned
subsidiary, Imperial Nurseries, Inc. ("Imperial"). Imperial is a grower,
distributor and, to a much lesser extent, broker of wholesale landscape nursery
stock. The landscape nursery industry is extremely fragmented, with the industry
leader having less than 1% of total market share. Imperial believes that its
volume places it among the twenty largest landscape nursery companies in the
country.
Imperial's container growing operations are located on property owned by
Griffin in Connecticut (400 acres) and in northern Florida (350 acres). The
majority of Imperial's inventories are container-grown plants on those two
farms. The largest portion of Imperial's container-grown product consists of
broad leaf evergreens, including azaleas and rhododendron. Other major product
categories include juniper and deciduous shrubs. Container-grown product is held
principally from one to five years prior to its sale by Imperial. Recently
Imperial has substantially increased its production of perennials which have a
much shorter growing cycle than most of the rest of Imperial's product. During
1997, Imperial determined to terminate its own growing of field-grown product
and created a reserve estimated to be sufficient to absorb the losses from
terminating these operations. The liquidation of the field-grown inventory
appears to be on schedule and budget. Imperial contracts with a grower in the
Mid-Atlantic states to grow field-grown product for Imperial. The agreement
provides for Imperial to purchase such product over a five year period and is
part of a program intended to replace Imperial's previous investment in
field-grown plants and to shorten its product growing cycles.
Imperial is also reviewing a variety of approaches to increase its return on
assets with potentially different approaches for different categories of
products. Among such possible approaches are changing the potting and growing
cycle for some of its containerized production, and adding a broader selection
of perennial flowers and flowering shrubs to its list of products. Some of these
programs are also directed at developing quicker growing products and improved
soil mixes.
The growing operations serve a market comprised principally of retail chain
store garden departments, retail nurseries and garden centers, wholesale
nurseries, distributors and to a lesser extent landscapers as direct customers.
Imperial-grown products are also distributed through its own wholesale
horticultural sales and service centers whose main customers are landscapers.
Imperial's major markets are in the Northeast, Mid-Atlantic, the northern
portion of the Southeast and Midwest. Nursery sales are extremely seasonal,
peaking in spring, and are strongly affected by commercial and residential
building activity as well as materially affected by weather conditions,
particularly in the Spring planting season.
1
Imperial operates seven wholesale horticultural sales and service centers
which sell a wide range of plant material, including a large portion purchased
from growers other than Imperial, and horticultural tools and products to the
trade. The largest portion of the sales of these centers is to professional
landscapers. The centers, all of which are owned by Imperial, are located in
Windsor, Connecticut; Aston and Pittsburgh, Pennsylvania; Columbus and
Cincinnati, Ohio; White Marsh, Maryland; and Manassas, Virginia. The Cincinnati
center is currently being expanded, and a site is being sought for a New Jersey
center. During 1998, results from these centers improved substantially.
Currently Imperial's sales are made to a large variety of customers, none of
whom represents more than 4% of sales.
Containerized growing and shipping capacity has been increased to meet the
potential volume and quality needs of Imperial's customers and to capitalize on
expected growth in the Mid-Atlantic and Midwest markets. Imperial has also added
to its sales coverage in these areas with additional sales personnel at the
farms and an additional salesperson in the marketplace. In coming years a larger
part of Imperial's shipping will probably be made on trucks outfitted with
shelves. This may increase shipping expenses.
REAL ESTATE BUSINESS
Griffin is directly engaged in the real estate development business on
portions of its land in Connecticut. Griffin develops portions of its properties
for commercial, residential and industrial use. The headquarters for this
operation is in Bloomfield, Connecticut.
During the last several years, the real estate market in the Hartford area,
particularly that in the northwest quadrant, where the majority of Griffin's
acreage is located, has been depressed by a number of factors, including the
decline of employment in the defense and insurance industries. There can be no
assurance that the condition of the real estate market in this region will
improve in the near future. The development of Griffin's land was also affected
by land planning issues, particularly in the town of Simsbury. In Simsbury, the
value of Griffin's land is affected by the presence of chlordane on a portion of
the land which is intended for residential development. Griffin is examining
means of remediation on its lands and will seek to subdivide certain of its
Simsbury properties over a reasonable period. Negotiations to sell one parcel in
Simsbury are continuing; but, completion of that proposed transaction is subject
to a number of conditions. Griffin anticipates that obtaining subdivision
approvals in many of the towns where it holds land to be an extended process.
The most substantial of Griffin's current development efforts are focused on
a 600 acre tract owned by Griffin near Bradley International Airport and
Interstate 91 known as the New England Tradeport. To date, approximately 240,000
square feet of warehouse and light manufacturing space have been completed and
are approximately 94% occupied, and a bottling and distribution plant for
Pepsi-Cola has been built. The completed and leased space includes approximately
98,000 square feet completed and leased last year. An additional warehouse of
approximately 100,000 square feet has been built on speculation and will be
ready for leasing in the 1999 second quarter. A state traffic control
certificate for the future development of 1.3 million square feet has been
obtained for the New England Tradeport. Griffin, based on satisfactory results
for its second building, intends to continue to direct its primary efforts at
the construction and leasing of light industrial and warehouse facilities at the
New England Tradeport. Development at the New England Tradeport may require
investment in offsite infrastructure on behalf of Windsor, Connecticut and may
require improvement of some state or town roads.
Griffin's most substantial development is the combination of Griffin Center
in Windsor, Connecticut and Griffin Center South in Bloomfield, Connecticut.
Together these master planned developments comprise approximately 600 acres,
half of which have been developed with nearly 1,750,000 square feet of office
and industrial space. Griffin Center currently includes nine corporate
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office buildings built by Griffin. Griffin currently maintains only a 30%
interest in two office buildings in the Griffin Center office complex which have
an aggregate of 160,000 square feet. In Griffin Center South, a 130-acre tract
with fifteen buildings of industrial and research/development space, Griffin has
retained for rental nine buildings, which are now substantially fully rented.
These buildings have an aggregate of approximately 175,000 square feet. During
1998, the last major vacancy in the Griffin Center South buildings retained by
Griffin was rented with occupancy and rent expected to commence in March of this
year.
Two additional Griffin parcels appropriate for office or industrial
developments are available for development including 28 acres in the Day Hill
Technology Center in Windsor, and 100 acres in the South Windsor Technology
Center. State traffic certificates have been obtained for these parcels for
500,000 square feet and 200,000 square feet of development, respectively.
In 1988, a subsidiary of Griffin began infrastructure work at Walden Woods,
a 153-acre site in Windsor, Connecticut, which was planned to contain more than
365 residential units. Prior to 1992 Griffin had built and sold 45 homes before
discontinuing its home building operations at Walden Woods. Since then, two
third-party home builders have completed an additional 64 homes. Griffin is
evaluating other of its lands for residential development over a period of
years.
Griffin is seeking to develop a joint venture to process bulky waste and
build a transfer station and recycling operation on a portion of its Connecticut
land. In addition, approximately 500 acres in Connecticut are leased for tobacco
growing to General Cigar at rentals approximating the land's carrying cost. The
lease for these properties, which extends for 10 years, may be terminated as to
100 acres annually, on one year's prior notice.
EQUITY INVESTMENTS
ELI WITT
During 1998 Griffin's involvement with, and investment in, Eli Witt was
terminated. Griffin released its mortgage on an Eli Witt warehouse and its
creditor claims and was released from all claims which might have been made
against it in the bankruptcy proceedings of Eli Witt.
CENTAUR
Griffin owns approximately 35% (33% fully diluted) of the common stock of
Centaur Communications, Ltd., ("Centaur") a privately-held publisher of business
magazines in the United Kingdom and a compiler and supplier of computerized
financial information through a subsidiary, Perfect Information, Ltd. Although
Centaur's magazines are now operating substantially on plan, Centaur's earnings
are being affected by operating losses of Perfect Information, Ltd. Until August
4, 1998, Griffin's interest was approximately 25%. As a result of a repurchase
of common stock by Centaur and an additional investment by Griffin, Griffin's
interest was increased. The agreements relating to that transaction provide for
an offering of Centaur stock or sale of Centaur in four to five years.
LINGUAPHONE
Griffin received in 1997 from Centaur a 25% interest in Linguaphone Group,
plc ("Linguaphone"). Griffin's 1998 results included an equity loss from
Linguaphone of approximately $1.1 million. In early 1999, Linguaphone was
recapitalized. As a result of the recapitalization, Griffin's interest was
reduced to approximately 14% (11% fully diluted), and Linguaphone will now be
accounted for under the cost method of accounting for investments.
3
FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS
See Note 3 to the Consolidated Financial Statements of Griffin included
elsewhere herein for certain financial information regarding the landscape
nursery business and the real estate business.
EMPLOYEES
Griffin employs approximately 332 persons on a full-time basis, including 12
in its real estate business and 320 in its landscape nursery business. At
present, none of these employees are represented by a union. Griffin believes
that its relations with its employees are satisfactory.
COMPETITION
The nursery business is competitive, and Imperial competes against a number
of other companies, including national, local and regional nursery businesses.
Some of Griffin's competitors in the nursery industry are larger than Imperial.
Numerous real estate developers operate in the portion of Connecticut and
Massachusetts in which Griffin's holdings are concentrated. Some of such
businesses compete in each business of Griffin and may have greater financial
resources than Griffin.
REGULATION: ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with contamination. The cost of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure properly to remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. In connection with the ownership (direct or indirect), operation,
management and development of real properties, Griffin may be considered an
owner or operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property. In Simsbury,
the value of Griffin's land is affected by the presence of chlordane on a
portion of the land which is intended for residential use. Griffin is
experimenting with means of remediation on such lands. Although Griffin believes
that it will be able to take steps to reduce chlordane contamination to levels
below that which would impede residential development of such properties, there
can be no assurance that Griffin will be able to do so in a timely or economic
fashion, or at all. In the event that Griffin is unable adequately to remediate
this property, its ability to develop such property for its intended purposes
would be materially affected. In addition, Griffin is seeking to develop a joint
venture to process bulky waste and build a transfer station and recycling
operation on a portion of its land in Windsor, Connecticut. Although Griffin
intends to conduct such operations in compliance with all applicable
environmental laws, there can be no assurance that Griffin will not incur
incremental additional costs in connection with such operations resulting from
environmental compliance efforts, or as a result of any future noncompliance
with such laws.
Griffin periodically reviews its properties for the purpose of evaluating
such properties' compliance with applicable state and federal environmental
laws. Griffin does not anticipate experiencing in the immediate future material
expense in complying with such laws.
4
ITEM 2. PROPERTIES
LAND HOLDINGS
Griffin Land & Nurseries, Inc. is a major landholder in the State of
Connecticut and also owns land in Massachusetts. In addition, Griffin owns
approximately 1,000 acres in Florida, most of which is used for Imperial
Nurseries' growing operations or is contiguous to such operations, and also owns
sites for Imperial Nurseries' seven sales and service centers. Each such center
typically has a warehouse/ office facility and 10-15 acres of nursery stock.
The book value of undeveloped land holdings owned by Griffin, principally in
the Hartford CT area, is approximately $5,000,000. Griffin believes the fair
market value is substantially in excess of such book value including land
improvements.
A listing of the locations of Griffin's commercial and nursery real estate,
a portion of which, principally in Bloomfield, East Granby and Windsor, has been
developed, is as follows:
COMMERCIAL REAL ESTATE
LOCATION OF PROPERTY LAND AREA (ACRES)
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CONNECTICUT....................................................................................
Bloomfield................................................................................... 320
East Granby.................................................................................. 187
East Windsor................................................................................. 115
Granby....................................................................................... 106
Simsbury..................................................................................... 875
South Windsor................................................................................ 103
Suffield..................................................................................... 375
Windsor...................................................................................... 1,190
MASSACHUSETTS
Southwick.................................................................................... 425
FLORIDA
Hillsborough County.......................................................................... 9
Leon County.................................................................................. 6
5
NURSERY REAL ESTATE
LOCATION OF PROPERTY LAND AREA (ACRES)
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FLORIDA
Quincy....................................................................................... 1,046
CONNECTICUT
East Granby.................................................................................. 393
Granby....................................................................................... 267
Windsor...................................................................................... 52
PENNSYLVANIA
Aston........................................................................................ 16
Pittsburgh................................................................................... 10
VIRGINIA
Manassas..................................................................................... 16
OHIO
Columbus..................................................................................... 12
Cincinnati................................................................................... 11
MARYLAND
White Marsh.................................................................................. 20
Griffin also leases approximately 2,100 square feet in New York City for its
Executive Offices.
ITEM 3. LEGAL PROCEEDINGS
As a result of the spin-off arrangements pursuant to which Griffin became a
public company, Griffin acquired the 50.1% interest in Eli Witt previously held
by Culbro Corporation (Griffin's parent prior to the spinoff). In November 1996,
Eli Witt filed for protection under Chapter 11 of the Federal Bankruptcy Law.
All matters relating to this bankruptcy proceeding were settled by Griffin
releasing its claims against Eli Witt, including a second mortgage, and Eli Witt
releasing all possible claims against Griffin.
Certain parts of Griffin's property in Simsbury, Connecticut, are affected
by the presence of chlordane. Although the various federal, state and local
agencies may have an interest in the matter, there are no proceedings known by
Griffin to be contemplated by any of these agencies in connection with possible
chlordane exceedences on such properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The following are the high and low prices of common shares of Griffin Land &
Nurseries, Inc. as traded on the OTC Bulletin Board from the Distribution of
Griffin's common stock on July 3, 1997, through April 28, 1998 and on the Nasdaq
National Market subsequent to April 28, 1998:
1ST 2ND QUARTER 3RD QUARTER 4TH
QUARTER QUARTER
-------------------- -------------------- -------------------- ---------
HIGH LOW HIGH LOW HIGH LOW HIGH
--------- --------- --------- --------- --------- --------- ---------
1998......................................... 15 7/16 12 1/2 19 12 1/2 18 1/2 11 15
1997......................................... -- -- -- -- 17 7/8 14 7/8 19 7/8
LOW
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1998......................................... 11 1/16
1997......................................... 12 7/8
On February 5, 1999, the number of record holders of common stock of Griffin
was approximately 666, which does not include beneficial owners whose shares are
held of record in the names of brokers or nominees. The closing market price as
quoted on the Nasdaq National Market on such date was $10.00 per share. The
information appearing in Notes 8 and 12 to the Consolidated Financial Statements
are hereby incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected statement of operations data for
fiscal years 1994 through 1998 and balance sheet data as of the end of each
fiscal year.
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales & other revenue.................................. $ 51,231 $ 46,288 $ 46,531 $ 41,756 $ 43,024
Operating profit (loss).................................... 74 (3,236) (1,245) 810 (4,867)
Income (loss) from continuing operations................... 121 (2,136) (4,063) (4,265) (7,157)
Net income (loss).......................................... 121 (2,136) (4,606) (580) (3,833)
Basic net income (loss) per share (a)...................... 0.03 (0.45)
Diluted net income (loss) per share (a).................... 0.01 (0.45)
BALANCE SHEET DATA:
Total assets............................................... 104,916 103,736 101,775 165,655 167,421
Working capital............................................ 33,304 41,130 36,698 23,069 28,112
Long-term debt (b)......................................... 2,666 2,830 38,846 72,737 91,614
Stockholders' equity /Culbro Investment (c)................ 91,186 90,523 47,449 61,299 44,426
The Selected Financial Data presented above reflects CMS Gilbreth Packaging
Systems, Inc. as a discontinued operation in 1993 through 1996. This business
was sold in 1996.
(a) Griffin was a consolidated subsidiary of Culbro through July 3, 1997.
Accordingly, the per share results for 1997 presented above are on a pro
forma basis because the Griffin common stock was not outstanding the entire
period.
(b) Culbro's general long-term debt was included on Griffin's historical balance
sheet through February 27, 1997, when such debt was assumed by Griffin's
former affiliate, General Cigar Holdings, Inc. in connection with the
distribution of Griffin's common stock to Culbro's shareholders.
(c) Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro.
Accordingly, the retained earnings and intercompany balances with its former
parent are reflected in Culbro Investment prior to July 3, 1997.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The consolidated financial statements of Griffin include the accounts of
Griffin's subsidiary in the landscape nursery business, Imperial Nurseries, Inc.
("Imperial"), and Griffin's Connecticut and Massachusetts based real estate
business, Griffin Land. Griffin also has equity interests in Centaur
Communications, Ltd. ("Centaur"), a magazine publishing business, based in the
United Kingdom and Linguaphone Group plc ("Linguaphone"), a distributor of
language learning materials based in the United Kingdom with sales in Europe and
Asia. Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). On July 3, 1997, Culbro distributed the common stock of
Griffin to its shareholders in a tax-free distribution (the "Distribution").
Subsequent to the Distribution, Griffin has operated as an independent
stand-alone entity. Prior to March 18, 1997, Griffin was known as Culbro Land
Resources, Inc. As a result of a recapitalization of Linguaphone in early 1999,
Griffin's common equity ownership was reduced and Griffin will account for its
investment in Lingauphone under the cost method of accounting for investments,
prospectively.
The financial statements of Griffin reflect the results of the operations of
Griffin's businesses and investments. Prior to the Distribution in July 1997,
Griffin's results included allocations to Griffin from Culbro for corporate
overhead of $1.0 million and $1.8 million in fiscal 1997 and fiscal 1996,
respectively. Additionally, $0.9 million of a Culbro unusual expense item was
allocated to Griffin in fiscal 1996. These allocations, which may not
necessarily reflect the additional expenses Griffin would have incurred had it
operated as a separate stand-alone entity prior to the Distribution, are deemed
reasonable by Griffin management. Griffin's results of operations in 1997 and
prior years include interest expense on Culbro general corporate debt. The
Culbro debt was included in Griffin's financial statements through the 1997
first quarter, when that debt was assumed by General Cigar Holdings, Inc. ("GC
Holdings") pursuant to the Distribution Agreement. Interest expense on Culbro's
general debt that was included in Griffin's results of operations was $0.7
million and $7.3 million in fiscal 1997 and fiscal 1996, respectively. Such
interest expense has not been part of Griffin's results of operations subsequent
to the Distribution. In 1998, Griffin operated as a stand-alone entity for the
full year. Accordingly, there are no allocations or charges from Culbro
reflected in Griffin's 1998 results.
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
In fiscal 1998, Griffin's net sales increased $4.9 million, or 11%, to $51.2
million from $46.3 million in fiscal 1997. The net sales increase was due to net
sales at Imperial, which were $48.2 million in fiscal 1998 as compared to $42.6
million in fiscal 1997. The $5.6 million (13%) net sales increase at Imperial
principally reflected increased volume and higher prices at the wholesale sales
and service centers, which accounted for substantially all of Imperial's net
sales increase.
Net sales in Griffin's real estate business, Griffin Land, decreased from
$3.7 million in fiscal 1997 to $3.1 million in fiscal 1998. Net sales in fiscal
1997 included $0.7 million from sales of remaining residential lots from
developments started in earlier years. There were no land sales in fiscal 1998.
Excluding the residential lot sales, net sales at Griffin Land increased
slightly in fiscal 1998 as compared to fiscal 1997. Rental revenue from Griffin
Land's buildings increased to $2.6 million in fiscal 1998 from $2.1 million in
fiscal 1997. The higher rental revenue principally reflected increased occupancy
as the result of new leases. Occupancy in Griffin Land's properties, excluding
the new warehouse constructed in 1998, increased from 80% at the end of fiscal
1997 to 91% at the end of fiscal 1998. Including new leases that became
effective subsequent to the end of fiscal 1998, Griffin Land's occupancy rate in
its properties was approximately 95%, including full occupancy in its Griffin
Center South development.
8
Griffin's consolidated operating results were substantially break-even in
fiscal 1998 as compared to an operating loss of $3.2 million in fiscal 1997. The
increased operating results principally reflected the effect of the $3.3 million
charge incurred in fiscal 1997 by Imperial to reserve for certain plant
inventories. Operating profit at Imperial increased to $2.3 million in fiscal
1998 as compared to $1.9 million in fiscal 1997, excluding the effect of last
year's inventory charge. Imperial's overall gross profit margins decreased
slightly to 28.8% in fiscal 1998 from 29.4% in fiscal 1997, again excluding the
effect of the inventory charge in 1997. The operating profit increase at
Imperial reflects the effect of higher net sales in fiscal 1998, partially
offset by higher operating expenses. As a percentage of net sales, operating
expenses were 24.1% in fiscal 1998 as compared to 25.0% in fiscal 1997. The
operating expense increase principally reflected higher selling expenses related
to the increased volume at Imperial's wholesale sales and service centers.
Griffin Land incurred an operating loss of $0.3 million in fiscal 1998
versus an operating loss of $0.2 million in fiscal 1997. Operating results in
fiscal 1998 include the settlement of a litigation initiated by Griffin Land for
reimbursement of certain costs to repair two commercial buildings owned by
Griffin Land. Proceeds from the settlement in excess of repair costs were
approximately $0.2 million and are reflected as a reduction of Griffin Land's
operating expenses. Excluding the effect of the benefit from the litigation
settlement in fiscal 1998, operating results at Griffin Land decreased by $0.3
million, principally reflecting the effect of the residential land sales in
fiscal 1997. Griffin Land's rental properties generated an operating profit,
before depreciation, of $2.1 million in fiscal 1998 versus $1.8 million in
fiscal 1997, reflecting the higher occupancy noted above and corresponding
increase in rental revenue. Although Griffin Land's overall operating results
were lower, there has been a substantial amount of development activity at
Griffin Land that management believes should benefit future years. In 1998,
Griffin Land completed construction of a new approximately 98,000 square foot
warehouse in the New England Tradeport, Griffin Land's 600 acre industrial park
adjacent to Bradley International Airport. Although only partially leased in the
1998 third and fourth quarters, new leases that were effective in December 1998
resulted in this new warehouse being fully leased at the start of fiscal 1999.
Additionally, Griffin Land started construction in 1998 on another approximately
100,000 square foot warehouse that is expected to be completed in the 1999
second quarter. This new warehouse is not yet leased.
The decrease in Griffin's interest expense principally reflects the
inclusion in the 1997 first quarter of interest expense of $0.7 million related
to Culbro's general corporate debt that was assumed by General Cigar Holdings at
the end of the 1997 first quarter. The higher income tax rate principally
reflects the effect of state and local taxes.
Income from Griffin's equity investments was lower in 1998 as a result of
losses at Linguaphone, which more than offset increased profit at Centaur.
Centaur's 1998 results included one-time expenses aggregating approximately $1.1
million before taxes (approximately $0.3 million allocable to Griffin's
interest), relating to the restructuring of Centaur's ownership. Additionally,
increased operating profit of Centaur's magazine publishing operations was
partially offset by operating losses incurred by Centaur's subsidiary, Perfect
Information, Ltd., which operates a database service that provides financial
information to its customers. During 1998, Griffin's common equity ownership of
Centaur increased to approximately 35% (33% fully diluted) as a result of
Griffin's purchase of Centaur common stock and Centaur's repurchase of common
stock from other Centaur stockholders (see Note 10 of the consolidated financial
statements included in Item 8). The equity loss for Linguaphone includes foreign
currency exchange losses incurred by Linguaphone for which Griffin's allocable
share was approximately $0.5 million. Linguaphone recently completed an offering
of its common stock in which Griffin participated to a limited extent. As a
result, Griffin's common equity ownership in Linguaphone was reduced from
approximately 25% to approximately 14% (11% fully diluted). Griffin will account
for its investment in Linguaphone under the cost method of accounting for
investments, prospectively.
9
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales and other revenue of $46.3 million in fiscal 1997 was slightly
lower than fiscal 1996 net sales and other revenue of $46.5 million. Net sales
at Imperial increased 15% to $42.6 million in fiscal 1997 from $37.0 million in
fiscal 1996. The increased sales reflected higher volume and improved pricing at
Imperial's wholesale sales and service centers, which contributed approximately
75% of Imperial's total increase in net sales. The balance of Imperial's sales
increase reflected higher sales volume of containerized plants from its growing
operations in Connecticut and Florida. Net sales and other revenue in Griffin's
real estate business, Griffin Land, were $3.7 million in fiscal 1997 as compared
to $9.5 million in fiscal 1996. The decrease principally reflected the effect of
a 1996 sale, which generated $4.0 million in proceeds, of Griffin's 30% interest
in a joint venture that owned commercial properties.
Griffin incurred a consolidated operating loss of $3.2 million in fiscal
1997 as compared to an operating loss of $1.2 million in fiscal 1996. The higher
operating loss reflected results at Imperial, which incurred a $1.4 million
operating loss in fiscal 1997 as compared to an operating profit of $1.6 million
in fiscal 1996. Imperial's fiscal 1997 results included a $3.3 million charge to
reserve for certain plant inventories. Approximately 75% of the charge related
to field grown plant inventories in which the current carrying cost will not be
recovered as a result of horticultural issues and market conditions. The
remaining portion of the charge related principally to certain container grown
plants originally potted in 1994 which have not matured properly. Imperial is
continuing to phase out its field grown plant program and will concentrate its
production resources on its container plant facilities in Connecticut and
Florida, which are substantially larger than its field grown inventory
operation. Imperial is replacing its field grown program by entering into
strategic alliances and contract growing agreements. Excluding this charge,
Imperial's operating results in fiscal 1997 were slightly higher as compared to
fiscal 1996. The effect of Imperial's higher net sales was substantially offset
by higher costs, principally due to increased costs associated with
containerized plants sold from the Connecticut and Florida operations. As a
result, margins on sales declined from 29.9% in 1996 to 29.4% in 1997. Operating
expenses at Imperial increased in fiscal 1997 versus fiscal 1996; however, as a
percentage of net sales, operating expenses decreased to 25.0% of net sales in
fiscal 1997 from 25.5% of net sales in fiscal 1996.
Griffin Land incurred an operating loss of $0.2 million in fiscal 1997 as
compared to an operating loss of $0.3 million in fiscal 1996. Increased results
from sales of property, due principally to the effect of the loss on the sale of
the joint venture last year, were substantially offset by lower income from
joint venture operations and lower property management income.
Griffin's general corporate expense decreased from $2.6 million in fiscal
1996 to $1.6 million in fiscal 1997. The decrease principally reflects the
allocation to Griffin of $0.9 million for its share of a Culbro unusual expense
item principally related to the termination of certain incentive programs. The
other nonoperating income of $1.9 million in fiscal 1996 reflected accrued
dividends and accretion income on the preferred stock of Eli Witt previously
held by Griffin. The accrued dividends and accretion income were equal to
interest on a subordinated note payable that was satisfied by exchange of the
Eli Witt preferred stock in November 1996. Interest on the subordinated note
payable was included in interest expense in fiscal 1996.
Interest expense decreased to $1.0 million in fiscal 1997 from $7.8 million
in fiscal 1996. The decrease reflects the assumption on February 27, 1997, of
Culbro's general corporate debt by GC Holdings in accordance with the
Distribution Agreement. Additionally, the fiscal 1996 fourth quarter reflected
the reduction of Culbro's general corporate debt from the proceeds received on
the sale of CMS Gilbreth Packaging Systems, Inc., and from the exchange of Eli
Witt preferred stock to satisfy a related subordinated note payable.
10
Griffin's income from its equity investments, principally Centaur, was $0.3
million in fiscal 1997 and fiscal 1996. Fiscal 1997 results included an expense
for stock option compensation at Centaur for which the portion attributable to
Griffin was approximately $0.6 million. Excluding that item, Centaur's operating
results were significantly improved over the prior year, reflecting improved
markets in the United Kingdom, where Centaur operates.
The net loss from the discontinued operation in fiscal 1996 reflects
operating results of CMS Gilbreth Packaging Systems, Inc. and the loss on the
sale of that business, which was completed in November 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $0.6 million in fiscal 1998 as
compared to $1.0 million of net cash used in operating activities in fiscal
1997. The improved cash flow from operating activities principally reflects
improved operating results at Imperial, partially offset by an increase in
inventories at Imperial. Net cash used in 1998 financing activities reflected
debt payments partially offset by proceeds from the exercise of stock options.
Net cash provided by financing activities in 1997 principally reflected
borrowings under Culbro's general corporate debt prior to such debt being
assumed by GC Holdings on February 27, 1997.
Net cash used in investing activities was $9.8 million in fiscal 1998 as
compared to $1.9 million in fiscal 1997. The increased use of cash in investing
activities reflects the significant amount of real estate development activity
that took place in fiscal 1998, Griffin's first full year as a stand-alone
company. Additions to real estate of $6.2 million included the completion of an
approximately 98,000 square foot warehouse building, now fully leased, and the
start of another approximately 100,000 square foot warehouse building in the New
England Tradeport. The balance of the additions to real estate reflect building
improvements and tenant improvements related to the new leases entered into in
1998. Investment activities in 1998 also included approximately $3.0 million for
Griffin's additional investment in Centaur (see Note 10 of the consolidated
financial statements included in Item 8), and approximately $1.2 million of
capital expenditures in the landscape nursery business, principally for
improvements at Imperial's container plant production facilities. Net cash used
in Griffin's investing activities in fiscal 1998 was partially offset by
proceeds of $0.5 million from the settlement of a litigation initiated by
Griffin Land for reimbursement of certain costs to repair two commercial
buildings owned by Griffin Land.
On May 6, 1998, Imperial entered into a Revolving Credit Agreement with a
bank which provides a seasonally adjusted line of credit of up to $10 million to
supplement Imperial's cash flow from operations, as required. The Credit
Agreement is collateralized principally by Imperial's accounts receivable and
inventories, and is guaranteed by Griffin. The Credit Agreement contains
financial covenants with respect to Imperial's net worth, fixed charge coverage
(as defined), capital expenditures and cash distributions to Griffin. There were
no borrowings under the Credit Agreement in fiscal 1998.
In early 1999, Imperial purchased land adjacent to one of its wholesale
distribution centers to enable that location to expand. Total expenditures,
including land improvements are estimated to be $1.1 million. Additionally,
Imperial is examining locations to locate a new wholesale sales and service
center that would open in fiscal 1999. Management also anticipates the continued
development of its real estate assets in fiscal 1999, including completion of
the approximately 100,000 square foot warehouse in the New England Tradeport
that was started in fiscal 1998. Completion of this new facility is expected in
the 1999 second quarter and will require expenditures of approximately $2.5
million in fiscal 1999. Additionally, Griffin Land will continue to upgrade its
rental properties and intends to begin subdivision activities on some of its
land that is naturally useable for residential purposes.
11
In 1999, Griffin intends to seek mortgage financing on several of its
buildings in the New England Tradeport. Proceeds will be used to repay an
existing mortgage on some of those properties with the balance used for further
development of Griffin's real estate asssets.
Management believes that in the near term, based on the current level of
operations and anticipated growth, cash flow from operations and borrowings
under the landscape nursery credit facility or real estate financing will be
sufficient to finance its landscape nursery business and fund development of its
real estate assets. Over the intermediate and long term, selective mortgage
placements and borrowings under a credit facility may also be required to fund
capital projects.
YEAR 2000
Griffin is addressing its year 2000 ("Y2K") issues and has identified its
critical computer applications that are not Y2K compliant. A substantial portion
of the applications not Y2K compliant have been modified, successfully tested
and are now Y2K compliant. Modification of the balance of the computer
applications originally identified as not Y2K compliant is currently under way,
with all applications anticipated to be Y2K compliant no later than March 31,
1999. The modification on the applications that are already Y2K compliant and
the work currently in process is being performed by Griffin employees. Costs
attributed to such work are expected to be less than $0.1 million in the
aggregate.
Griffin has initiated a company-wide review of major customers, vendors and
other third parties to determine the extent, if any, to which Griffin would be
vulnerable to those third parties' failure to remedy their own Y2K issues. Those
third parties contacted have indicated that they have Y2K readiness programs in
place or they anticipate being Y2K compliant on or before December 31, 1999. We
will continue to assess the progress of our critical business partners in
reaching Y2K readiness.
Griffin believes that its efforts to address the Y2K issue will be
successful. However, failure of critical third parties adequately to address
their respective Y2K issues could have a material adverse effect on Griffin's
business, financial condition and results of operations. Therefore, Griffin's
program for Y2K compliance includes the development of contingency plans for
continuing operations in the event such problems arise. However, there can be no
assurance that such contingency plans will be adequate to handle all problems
which may arise.
The above information in Management's Discussion and Analysis of Financial
Condition and Results of Operations includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although Griffin believes that its plans, intentions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions or expectations will be achieved,
particularly with respect to the completion of the new warehouse, obtaining
mortgage financing, opening of an additional sales and service center and
becoming Y2K compliant in a timely manner. The projected information disclosed
herein is based on assumptions and estimates that, while considered reasonable
by Griffin as of the date hereof, are inherently subject to significant
business, economic, competitive and regulatory uncertainties and contingencies,
many of which are beyond the control of Griffin.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE FISCAL YEARS ENDED,
------------------------------
NOV.
28, NOV. 29, NOV. 30,
1998 1997 1996
------- ---------- --------
Net sales and other revenue.................................................. $51,231 $ 46,288 $ 46,531
Costs and expenses:
Cost of goods sold........................................................... 36,218 35,767 34,210
Selling, general and administrative expenses................................. 14,939 13,757 12,666
Other expense................................................................ -- -- 900
------- ---------- --------
Operating profit (loss)...................................................... 74 (3,236) (1,245)
Other nonoperating income.................................................... -- -- 1,917
Interest expense............................................................. 185 1,002 7,805
Interest income.............................................................. 298 266 --
------- ---------- --------
Income (loss) before income tax provision (benefit).......................... 187 (3,972) (7,133)
Income tax provision (benefit)............................................... 101 (1,470) (2,767)
------- ---------- --------
Income (loss) before equity investments...................................... 86 (2,502) (4,366)
------- ---------- --------
Income (loss) from equity investments:
Investment in Centaur Communications, Ltd.................................. 1,088 426 303
Investment in Linguaphone Group plc........................................ (1,053) (60) --
------- ---------- --------
Income from equity investments............................................... 35 366 303
------- ---------- --------
Income (loss) from continuing operations..................................... 121 (2,136) (4,063)
------- ---------- --------
Discontinued operation:
Loss on sale of discontinued operation, net of tax benefit and reversal of
deferred taxes of $4,182................................................... -- -- (1,311)
Income from discontinued operation, net of taxes of $527..................... -- -- 768
------- ---------- --------
Net loss from discontinued operation......................................... -- -- (543)
------- ---------- --------
Net income (loss)............................................................ $ 121 $ (2,136) $ (4,606)
------- ---------- --------
------- ---------- --------
Basic net income (loss) per common share..................................... $ 0.03 $ (0.45)(a)
------- ----------
------- ----------
Diluted net income (loss) per common share................................... $ 0.01 $ (0.45)(a)
------- ----------
------- ----------
(a) 1997 per share results are pro forma. See Note 8.
See Notes to Consolidated Financial Statements.
13
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOV. 28, NOV. 29,
1998 1997
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................................. $ 2,059 $ 11,519
Accounts receivable, less allowance of $490 and $456...................................... 4,654 4,541
Inventories............................................................................... 26,746 25,343
Deferred income taxes..................................................................... 3,220 2,844
Other current assets...................................................................... 2,625 2,107
---------- ----------
TOTAL CURRENT ASSETS...................................................................... 39,304 46,354
Real estate held for sale or lease, net................................................... 31,519 26,429
Investment in Centaur Communications, Ltd................................................. 16,153 12,097
Property and equipment, net............................................................... 12,635 12,524
Investment in Linguaphone Group plc....................................................... 1,911 2,964
Other assets, including investments in real estate joint ventures of $3,128 and $3,261.... 3,394 3,368
---------- ----------
TOTAL ASSETS.............................................................................. $ 104,916 $ 103,736
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................................................. $ 5,586 $ 4,980
Long-term debt due within one year........................................................ 322 244
Income tax payable........................................................................ 92 --
---------- ----------
TOTAL CURRENT LIABILITIES................................................................. 6,000 5,224
Long-term debt............................................................................ 2,666 2,830
Deferred income taxes..................................................................... 1,097 986
Other noncurrent liabilities.............................................................. 3,967 4,173
---------- ----------
TOTAL LIABILITIES......................................................................... 13,730 13,213
---------- ----------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 13)............................................... -- --
Common stock, par value $0.01 per share,
authorized 10,000,000 shares, issued and outstanding 4,842,704 shares................... 48 47
Additional paid in capital................................................................ 93,491 92,950
Accumulated deficit....................................................................... (2,353) (2,474)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY................................................................ 91,186 90,523
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................ $ 104,916 $ 103,736
---------- ----------
---------- ----------
See Notes to Consolidated Financial Statements.
14
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE FISCAL YEARS ENDED,
---------------------------------
NOV. 28, NOV. 29, NOV. 30,
1998 1997 1996
---------- --------- ----------
OPERATING ACTIVITIES:
Net income (loss)............................................................... $ 121 $ (2,136) $ (4,606)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization................................................... 2,004 1,921 2,405
Loss from discontinued operation, before tax.................................... -- -- 4,198
Income from equity investments.................................................. (35) (366) (303)
Proceeds from sale of investment in a real estate joint venture................. -- -- 4,042
Deferred income taxes........................................................... 186 (1,085) (7,739)
Increase in inventory deposits.................................................. (188) (108) (71)
Changes in assets and liabilities which increased (decreased) cash:
Accounts receivable............................................................. (147) (829) (232)
Inventories..................................................................... (1,403) 2,187 (1,599)
Accounts payable and accrued liabilities........................................ 606 (579) (1,474)
Other, net...................................................................... (557) 33 3,746
---------- --------- ----------
Net cash provided by (used in) operating activities of continuing operations.... 587 (962) (1,633)
Cash provided by operating activities of discontinued operation................. -- -- 3,547
---------- --------- ----------
Net cash provided by (used in) operating activities............................. 587 (962) 1,914
---------- --------- ----------
INVESTING ACTIVITIES:
Additions to real estate held for sale or lease................................. (6,182) (953) (592)
Additional investment in Centaur Communications, Ltd............................ (2,968) -- --
Additions to property and equipment............................................. (1,164) (936) (1,378)
Proceeds from litigation settlement............................................. 500 -- --
Proceeds from sale of discontinued operation.................................... -- -- 35,030
Investing activities of discontinued operation.................................. -- -- (947)
---------- --------- ----------
Net cash (used in) provided by investing activities............................. (9,814) (1,889) 32,113
---------- --------- ----------
FINANCING ACTIVITIES:
Payments of debt................................................................ (324) (271) (25,099)
Proceeds from exercise of stock options......................................... 91 408 --
Net transactions with Culbro.................................................... -- (560) (9,244)
Increase in debt (prior to Liability Assumption in 1997)........................ -- 7,422 --
---------- --------- ----------
Net cash (used in) provided by financing activities............................. (233) 6,999 (34,343)
---------- --------- ----------
Net (decrease) increase in cash and cash equivalents............................ (9,460) 4,148 (316)
Cash and cash equivalents at beginning of year.................................. 11,519 7,371 7,687
---------- --------- ----------
Cash and cash equivalents at end of year........................................ $ 2,059 $ 11,519 $ 7,371
---------- --------- ----------
---------- --------- ----------
See Notes to Consolidated Financial Statements.
15
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Griffin Land &
Nurseries, Inc. ("Griffin") include the accounts of Griffin's real estate
division ("Griffin Land"), Imperial Nurseries, Inc. ("Imperial") and CMS
Gilbreth Packaging Systems, Inc. ("CMS Gilbreth"), which was sold in 1996 (see
Note 2) and is reported as a discontinued operation in these statements. Prior
to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro Corporation
("Culbro"). On July 3, 1997, as previously approved by Culbro's Board of
Directors, Culbro distributed (the "Distribution") the common stock of Griffin
to Culbro's shareholders on a one-to-one ratio. Prior to March 18, 1997, Griffin
was known as Culbro Land Resources, Inc. The consolidated financial statements
have been presented as if Griffin had operated as an independent stand-alone
entity for all periods presented (see Note 2). Such financial statements may not
necessarily present the financial position, results of operations and cash flows
Griffin would have reported had it actually operated as a stand-alone entity
prior to the Distribution in 1997. All intercompany transactions have been
eliminated.
Griffin accounts for its investments in Centaur Communication, Ltd.
("Centaur"), Linguaphone Group plc ("Linguaphone") and real estate joint
ventures under the equity method. Results of real estate joint ventures are
included in operating profit. As a result of a recapitalization of Linguaphone
in early 1999, Griffin's common equity ownership was reduced and Griffin will
account for its investment in Linguaphone under the cost method of accounting
for investments prospectively (see Note 10).
BUSINESS SEGMENTS
Griffin is engaged in the landscape nursery and real estate businesses.
Imperial, Griffin's subsidiary in the landscape nursery segment, is engaged in
growing plants which are sold principally to garden centers, wholesalers and
merchandisers, and operating sales and service centers which sell principally to
landscapers. Griffin's real estate segment, Griffin Land, builds and manages
commercial and industrial properties and develops residential subdivisions on
its land in Connecticut and Massachusetts.
FISCAL YEAR
Griffin's fiscal year ends on the Saturday nearest November 30. Fiscal years
1998, 1997 and 1996 each contained 52 weeks and ended November 28, 1998,
November 29, 1997 and November 30, 1996, respectively.
INVENTORIES
Griffin's inventories are stated at the lower of cost or market using the
average cost method. Nursery stock includes certain inventories which will not
be sold or used within one year. It is industry practice to include such
inventories in current assets.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is determined on a
straight-line basis over the estimated useful asset lives for financial
reporting purposes and principally on accelerated methods for tax purposes.
16
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease is carried at cost. Interest is
capitalized during the construction period of major facilities. The capitalized
interest is recorded as part of the asset to which it relates and is amortized
over the asset's useful life. Depreciation is determined on a straight-line
basis over the estimated useful asset lives for financial reporting purposes and
principally on accelerated methods for tax purposes.
REVENUE AND GAIN RECOGNITION
In the landscape nursery business, sales and the related cost of sales are
recognized upon shipment of products. Sales returns are not material. In the
real estate business, gains on real estate sales are recognized in accordance
with SFAS No. 66, "Accounting for Sales of Real Estate."
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts included in the financial statements for accounts receivable,
accounts payable and accrued liabilities reflect their fair values because of
the short-term maturity of these instruments. The fair values of Griffin's other
financial instruments are discussed in Note 6.
STOCK OPTIONS
Griffin accounts for stock-based compensation under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". In 1997,
Griffin adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" which require disclosing the pro forma effect on
earnings and earnings per share of the fair value method of accounting for
stock-based compensation.
EARNINGS PER SHARE
In the 1998 first quarter, Griffin adopted SFAS No. 128, "Earnings Per
Share". The new standard requires direct presentation of net income per common
share and net income per common share assuming dilution on the face of the
statement of operations.
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro.
Accordingly, per share results for 1997 are presented on a pro forma basis.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates.
17
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. CERTAIN TRANSACTIONS
On February 27, 1997, Griffin, Culbro and General Cigar Holdings, Inc. ("GC
Holdings"), a Culbro subsidiary, entered into a Distribution Agreement (the
"Distribution Agreement"). Pursuant to the Distribution Agreement, Culbro
transferred (the "Asset Transfers") to Griffin substantially all the non-tobacco
related assets of Culbro, including: (i) all of the outstanding common stock of
Imperial Nurseries, Inc., then a wholly-owned subsidiary of Culbro; (ii)
approximately 5,500 acres of land in Connecticut and Florida, as well as nursery
sales and service centers; (iii) Culbro's interests in, and assets previously
owned by, Eli Witt; (iv) Culbro's approximately 25% interest in Centaur; and (v)
all licenses, permits, accounts receivable, prepaid expenses, reserves and other
assets (other than cash) related to the real estate and landscape nursery
businesses. The Distribution Agreement provided for (i) the consummation of the
Asset Transfers described above, (ii) the Distribution of Griffin's common stock
to the existing shareholders of Culbro following the initial public offering
(the "Offering") of GC Holdings Class A Common Stock, and (iii) following the
Distribution, the merger of Culbro, subject to certain conditions, with and into
GC Holdings (the "Merger"). The Merger was completed on August 29, 1997.
The Distribution Agreement also provided for the assumption by Griffin of
all the liabilities related to the businesses and assets transferred to Griffin
from Culbro. Pursuant to the Distribution Agreement, Griffin was also allocated
$7 million in cash. All of the transferred assets and related liabilities are
included in the accompanying consolidated financial statements at Culbro's
historical cost.
Under the terms of the Distribution Agreement, on February 27, 1997, GC
Holdings assumed all of Culbro's general corporate debt and certain other
liabilities, including retirement obligations, which were included in Griffin's
historical financial statements through that date (the "Liability Assumption").
The following consolidated condensed unaudited pro forma statement of operations
for 1997 gives effect to the Liability Assumption by GC Holdings as if it
occurred at the beginning of that fiscal year. The pro forma financial
information presented may not necessarily reflect the results of operations had
this transaction actually taken place on the assumed date.
CONSOLIDATED CONDENSED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
1997
---------
Net sales.......................................................................... $ 46,288
---------
Operating loss..................................................................... (3,236)
Interest expense, net.............................................................. 6
---------
Loss before income tax benefit..................................................... (3,242)
Income tax benefit................................................................. (1,200)
---------
Loss before equity investments..................................................... (2,042)
Income from equity investments..................................................... 366
---------
Net loss........................................................................... $ (1,676)
---------
---------
Basic net loss per share........................................................... $ (0.35)
---------
---------
Diluted net loss per share......................................................... $ (0.35)
---------
---------
18
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
2. CERTAIN TRANSACTIONS (CONTINUED)
On November 8, 1996, the sale of Griffin's labeling and packaging systems
business, CMS Gilbreth, was completed. Net proceeds, after sale expenses, were
$35.0 million, and Griffin recorded a pretax loss of $5.5 million on the sale,
net of operating profit of $1.6 million earned during the phase-out period. The
sale proceeds were used to repay debt. CMS Gilbreth is reported as a
discontinued operation in the accompanying financial statements. Net sales of
CMS Gilbreth were $43.6 million in 1996 through the date of sale.
3. INDUSTRY SEGMENT INFORMATION
Griffin has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Griffin's reportable segments are defined
by their products and services, and are comprised of the landscape nursery and
real estate segments (see Note 1). Griffin has no operations outside the United
States. Griffin's export sales and transactions between segments are not
material.
1998 1997 1996
---------- ---------- ----------
NET SALES AND OTHER REVENUE
Landscape nursery............................................................ $ 48,180 $ 42,618 $ 37,045
Real estate.................................................................. 3,051 3,670 9,486
---------- ---------- ----------
$ 51,231 $ 46,288 $ 46,531
---------- ---------- ----------
---------- ---------- ----------
OPERATING PROFIT (LOSS)
Landscape nursery (a)........................................................ $ 2,277 $ (1,433) $ 1,650
Real estate.................................................................. (320) (202) (300)
---------- ---------- ----------
Industry segment totals...................................................... 1,957 (1,635) 1,350
General corporate expense, net (b)........................................... 1,883 1,601 2,595
Other nonoperating income, net............................................... -- -- 1,917
Interest income (expense), net............................................... 113 (736) (7,805)
---------- ---------- ----------
Income (loss) before income tax provision (benefit).......................... $ 187 $ (3,972) $ (7,133)
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS
Landscape nursery............................................................ $ 46,881 $ 46,558 $ 44,113
Real estate.................................................................. 35,480 31,320 31,499
---------- ---------- ----------
Industry segment totals...................................................... 82,361 77,878 75,612
General corporate............................................................ 22,555 25,858 26,163
---------- ---------- ----------
$ 104,916 $ 103,736 $ 101,775
---------- ---------- ----------
---------- ---------- ----------
(a) Results in the landscape nursery segment in 1997 include a charge of $3.3
million to reserve for certain plant inventories. Approximately 75% of the
charge relates to field grown plant inventories in which the carrying cost
will not be recovered as a result of horticultural problems and market
conditions. Imperial is continuing to phase out its field grown program. The
remaining portion of the charge relates principally to certain container
grown plant inventories which did not mature properly.
19
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
3. INDUSTRY SEGMENT INFORMATION (CONTINUED)
(b) General corporate expense in 1996 includes an allocation to Griffin by
Culbro of $0.9 million for the termination of an incentive compensation
plan, severance and other expenses in contemplation of the Distribution (see
Note 2).
DEPRECIATION AND AMORTIZATION
CAPITAL EXPENDITURES
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
Landscape nursery............................................... $ 1,144 $ 861 $ 1,258 $ 1,212 $ 1,145 $ 1,116
Real estate..................................................... 6,188 957 712 775 772 889
--------- --------- --------- --------- --------- ---------
Industry segment totals......................................... 7,332 1,818 1,970 1,987 1,917 2,005
General Corporate............................................... 14 71 -- 17 4 400
--------- --------- --------- --------- --------- ---------
$ 7,346 $ 1,889 $ 1,970 $ 2,004 $ 1,921 $ 2,405
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
See Note 10 for information on Griffin's equity investments in Centaur and
Linguaphone.
4. RELATED PARTY TRANSACTIONS
Prior to the Distribution in 1997, Griffin, as lessor, and General Cigar
Co., Inc. ("General Cigar"), a wholly owned subsidiary of GC Holdings, as
lessee, entered into a lease for certain agricultural land in Connecticut and
Massachusetts (the "Agricultural Lease"). The Agricultural Lease is for
approximately 500 acres of arable land held by Griffin for possible development
in the long term, but which is being used by General Cigar for growing
Connecticut Shade wrapper tobacco. General Cigar's use of the land is limited to
the cultivation of cigar wrapper tobacco. The Agricultural Lease has an initial
term of ten years and provides for the extension of the lease for additional
periods thereafter. In addition, at Griffin's option, the Agricultural Lease may
be terminated with respect to 100 acres of such land annually upon one year's
prior notice. The rent payable by General Cigar under the Agricultural Lease is
approximately equal to the aggregate amount of all taxes and other assessments
payable by Griffin attributable to the land leased.
Also in 1997, Griffin, as lessor, and General Cigar, as lessee, entered into
a lease for approximately 40,000 square feet of office space in the Griffin
Center South office complex in Bloomfield, Connecticut (the "Commercial Lease").
The Commercial Lease has an initial term of ten years and provides for the
extension of the lease for additional annual periods thereafter. Management
believes the rent payable by General Cigar to Griffin under the Commercial Lease
is at market rates.
5. INCOME TAXES
For all periods prior to the Distribution, Griffin's results of operations
were included in Culbro's consolidated U.S. federal income tax returns and all
tax liabilities were paid by Culbro. Subsequent to the Distribution, Griffin has
filed separate tax returns from its former parent company. Griffin's income tax
provisions and deferred tax assets and liabilities in the accompanying financial
statements have been calculated in accordance with SFAS No. 109 "Accounting for
Income Taxes" as if Griffin had filed
20
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INCOME TAXES (CONTINUED)
separate tax returns for the periods prior to the Distribution. The income tax
provision (benefit) for 1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
--------- --------- ---------
Continuing operations:
Current federal................................................................... $ (246) $ (680) $ 1,788
Current state and local........................................................... 170 (208) 138
Deferred, principally federal..................................................... 177 (582) (4,693)
--------- --------- ---------
Income tax provision (benefit) from continuing operations........................... $ 101 $ (1,470) $ (2,767)
--------- --------- ---------
Discontinued operation:
Current federal................................................................... -- -- (553)
Current state and local........................................................... -- -- (277)
Deferred, principally federal..................................................... -- -- (2,825)
--------- --------- ---------
Income tax benefit from discontinued operation...................................... -- -- (3,655)
--------- --------- ---------
Total income tax provision (benefit)................................................ $ 101 $ (1,470) $ (6,422)
--------- --------- ---------
--------- --------- ---------
The reasons for the difference between the United States statutory income
tax rate and the effective rates for continuing operations are shown in the
following table:
1998 1997 1996
--------- --------- ---------
Tax provision (benefit) at statutory rates.......................................... $ 64 $ (1,350) $ (2,497)
State and local taxes............................................................... 111 (137) 90
Other............................................................................... (74) 17 (360)
--------- --------- ---------
$ 101 $ (1,470) $ (2,767)
--------- --------- ---------
--------- --------- ---------
The significant components of Griffin's deferred tax asset and liability are
as follows:
1998 1997
--------- ---------
Inventory......................................................................... $ 2,532 $ 2,391
Accrued expenses.................................................................. 688 453
--------- ---------
Deferred tax asset................................................................ $ 3,220 $ 2,844
--------- ---------
--------- ---------
1998 1997
--------- ---------
Depreciation...................................................................... $ 2,256 $ 2,250
NOL carryover..................................................................... (1,568) (1,414)
Other............................................................................. 409 150
--------- ---------
Deferred tax liability............................................................ $ 1,097 $ 986
--------- ---------
--------- ---------
21
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. INCOME TAXES (CONTINUED)
As of November 28, 1998, Griffin has available for income tax purposes
approximately $3.8 million in federal net operating loss carryforwards which may
be used to offset future taxable income. These loss carryforwards begin to
expire in fiscal year 2012.
In connection with the Distribution, Culbro and Griffin entered into a Tax
Sharing Agreement which provided, among other things, for the allocation between
Culbro and Griffin of federal, state, local and foreign tax liabilities for all
periods through the Distribution. With respect to the consolidated tax returns
filed by Culbro, the Tax Sharing Agreement provides that Griffin will be liable
for any amounts that it would have been required to pay with respect to any
deficiencies assessed, generally as if it had filed separate tax returns.
6. LONG-TERM DEBT
Long-term debt includes:
NOV. 28, NOV. 29,
1998 1997
--------- ---------
Mortgages...................................................................................... $ 2,495 $ 2,573
Capital leases................................................................................. 493 501
Credit Agreement............................................................................... -- --
--------- ---------
Total.......................................................................................... 2,988 3,074
Less: due within one year...................................................................... 322 244
--------- ---------
Total long-term debt........................................................................... $ 2,666 $ 2,830
--------- ---------
--------- ---------
As of November 28, 1998, the annual principal payment requirements under the
terms of the mortgages are $0.1 million for each of the years 1999 through 2003.
The mortgages are on two office buildings and three industrial buildings which
had a combined net book value of $3.6 million at November 28, 1998. The interest
rates on these mortgages range from 9.0% to 10.2%.
On May 6, 1998, Imperial entered into a Revolving Credit Agreement (the
"Credit Agreement") with a bank which provides a seasonally adjusted line of
credit up to $10 million to supplement Imperial's cash flow from operations, as
required. Borrowings under the Credit Agreement may be, at Imperial's option, on
an overnight basis or for periods of one, two, three or six months. Overnight
borrowings bear interest at the bank's prime rate. Borrowings of one month and
longer bear interest at the London Interbank Offered Rate plus a margin of
1.75%. The Credit Agreement terminates in June, 1999, and there are no
compensating balance requirements. Imperial pays a commitment fee of
1/4 of 1% per annum on unused borrowing capacity. The Credit Agreement is
collateralized principally by Imperial's accounts receivable and inventories,
and is guaranteed by Griffin. The Credit Agreement contains financial covenants
with respect to Imperial's net worth, fixed charge coverage (as defined),
capital expenditures and cash distributions to Griffin. There were no borrowings
under the Credit Agreement during 1998.
Management believes that the amounts reflected on the balance sheet for its
mortgages reflect their current market values based on market interest rates for
comparable risks, maturities and collateral.
22
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. RETIREMENT BENEFITS
SAVINGS PLAN
In connection with the Distribution, Griffin established the Griffin Land &
Nurseries, Inc. 401(k) Savings Plan ("Griffin Savings Plan") for its employees.
Prior to the Distribution, Griffin's employees participated in the Culbro
Corporation 401(k) Savings Plan ("Culbro Savings Plan"). Subsequent to the
Distribution, amounts related to Griffin employees in the Culbro Savings Plan
were transferred to the Griffin Savings Plan. The Griffin Savings Plan is a
defined contribution plan whereby Griffin matches 60% of each employee's
contribution, up to a maximum of 5% of base salary. Griffin's contributions to
the Griffin Savings Plan and, prior to the Distribution, to the Culbro Savings
Plan were $0.2 million in fiscal 1998 and $0.1 million per year in fiscal 1997
and fiscal 1996. The matching percentage by Griffin of each employee's
contribution is greater under the Griffin Savings Plan as compared to the Culbro
Savings Plan.
OTHER POSTRETIREMENT BENEFITS
Through the Distribution, Griffin's employees participated in Culbro's
postretirement benefits program which provides principally health and life
insurance benefits to certain of its retired employees. The annual cost of such
benefits attributable to Griffin's employees under the plan's benefit formula
was approximately $0.1 million per year in fiscal 1998, fiscal 1997 and fiscal
1996. In accordance with the Distribution Agreement, the liabilities for Griffin
employees who had retired prior to the Distribution and the liabilities for
employees related to businesses no longer a part of Griffin were assumed by GC
Holdings. The liability for postretirement benefits for certain of Griffin's
active employees at the time of the Distribution remains with Griffin and is
included in other noncurrent liabilities on the consolidated balance sheet.
The components for Griffin's postretirement benefits expense is as follows:
1998 1997
--------- ---------
Service cost--benefits earned during the year..................................................... $ 18 $ 26
Interest on accumulated post retirement benefit obligation........................................ 22 16
--------- ---------
Total expense..................................................................................... $ 40 $ 42
--------- ---------
--------- ---------
Griffin's liability for postretirement benefits, as determined by the Plan's
actuaries, is shown below. None of these liabilities have been funded at
November 28, 1998 and November 29, 1997.
1998 1997
--------- ---------
Retirees.......................................................................................... $ -- $ --
Fully eligible active participants................................................................ 98 78
Other active participants......................................................................... 272 201
Unrecognized net gain from experience differences and assumption changes.......................... (58) (7)
--------- ---------
Liability for other postretirement benefits....................................................... $ 312 $ 272
--------- ---------
--------- ---------
Discount rates of 7.15% and 7.50% were used to compute the accumulated
postretirement benefit obligations at November 28, 1998 and November 29, 1997,
respectively. Because Griffin's obligation for
23
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. RETIREMENT BENEFITS (CONTINUED)
retiree medical benefits is fixed, any increase in the medical cost trend would
have no effect on the accumulated postretirement benefit obligation, service
cost or interest cost.
PENSION PLAN
Through the Distribution, Griffin's employees participated in Culbro's
noncontributory defined benefit pension plan. Pension expense of $0.1 million
per year for fiscal 1997 through the Distribution and fiscal 1996 is included in
the consolidated statement of operations, and reflects Griffin's direct share of
Culbro's consolidated pension expense based on the benefit costs attributable to
Griffin's employees, as determined by the plan's actuaries.
In accordance with the Distribution Agreement, the pension plan was assumed
by GC Holdings. Effective at the time of the Distribution, Griffin terminated
its participation in the plan, and Griffin's employees' years of service and
benefits accrued at that time were frozen at the date of termination.
Accordingly, Griffin has not incurred pension expense subsequent to the
Distribution. All vested pension obligations as of the date of the Distribution
Agreement for Griffin's current and former employees were assumed by GC
Holdings.
8. STOCKHOLDERS' EQUITY
Activity in Griffin's stockholders' equity accounts subsequent to the
Distribution was as follows:
ADDITIONAL
COMMON PAID ACCUMULATED
STOCK IN CAPITAL DEFICIT
----------- -------------- ------------
Reclassification of Culbro Investment account on July 3, 1997............ $ 46 $ 91,722 $ --
Exercise of stock options, including $821 income tax benefit............. 1 1,228 --
Net loss subsequent to Distribution...................................... -- -- (2,474)
----- ------- ------------
Balance at November 29, 1997............................................. $ 47 $ 92,950 $ (2,474)
Exercise of stock options, including $451 income tax benefit............. 1 541 --
Net income............................................................... -- -- 121
----- ------- ------------
Balance at November 28, 1998............................................. $ 48 $ 93,491 $ (2,353)
----- ------- ------------
----- ------- ------------
PER SHARE RESULTS
Per share results for 1997 are pro forma because Griffin was a wholly-owned
subsidiary of Culbro during a portion of that year, and have been restated to
present basic and diluted per share results consistent with Griffin's required
adoption of Statement of Financial Accounting Standard No. 128, "Earnings per
Share" at the beginning of fiscal 1998. Basic and diluted per share results were
based on the following information:
24
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
1998 1997
---------- -----------
Net income (loss) as reported for computation of basic per share results............... $ 121 $ (2,136)
Adjustment to net income (loss) for assumed exercise of options of equity investee
(Centaur)............................................................................ (91) (12)
---------- -----------
Adjusted net income (loss) for computation of diluted per share results................ $ 30 $ (2,148)
---------- -----------
---------- -----------
1997
1998 (PRO FORMA)
---------- -----------
Weighted average shares outstanding for computation of basic per share results......... 4,776,000 4,730,000
Incremental shares from assumed exercise of Griffin stock options...................... 164,000 --
---------- -----------
Adjusted weighted average shares for computation of diluted per share results.......... 4,940,000 4,730,000
---------- -----------
---------- -----------
GRIFFIN STOCK OPTION PLAN
In 1997, Griffin established the Griffin Land & Nurseries, Inc. 1997 Stock
Option Plan (the "Griffin Stock Option Plan"), which made available a total of
700,000 options to purchase shares of Griffin common stock. Options granted
under the Griffin Stock Option Plan may be either incentive stock options or
non-qualified stock options. Incentive stock options issued under the Griffin
Stock Option Plan will satisfy certain Internal Revenue Code requirements
applicable thereto. Of such 700,000 options, 250,000 were made available for
issuance with respect to new options that may be granted to certain officers,
employees, consultants and directors of Griffin following the Distribution. The
remaining options were made available for the conversion of the Culbro options
to Griffin options at the time of the Distribution. Upon completion of the
Distribution, Culbro converted all employee stock options then outstanding under
Culbro's stock option plans into options to purchase shares of common stock of
Griffin, par value $0.01 per share, and options to purchase shares of common
stock of Culbro. The number of outstanding options and exercise prices were
adjusted to preserve the value of the Culbro options. At the time of the
Distribution, there were 438,202 Culbro stock options outstanding under various
Culbro stock option plans and an employment agreement with an officer of Culbro.
A portion of the options outstanding under the Culbro plans were able to be
exercised as incentive stock options, which under current tax laws will not
provide any tax deductions to Griffin. All Culbro options held by Culbro
employees who did not become employees of Griffin were vested as of the
Distribution date. None of the options outstanding at November 28, 1998 may be
exercised as stock appreciation rights.
The Griffin Stock Option Plan is administered by the Compensation Committee
of the Board of Directors of Griffin. A summary of the activity under the
Griffin Stock Option Plan is as follows:
25
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
WEIGHTED AVG
NUMBER OF EXERCISE
SHARES PRICE
----------- -------------
Culbro options converted to Griffin options at time of Distribution.................... 438,202 $3.01
Options granted by Griffin............................................................. 229,000 14.68
Exercised in 1997...................................................................... (184,481) 2.21
----------- -------------
Outstanding at November 29, 1997....................................................... 482,721 8.86
Exercised in 1998...................................................................... (99,114) 0.92
Cancelled in 1998...................................................................... (20,000) 14.68
----------- -------------
Outstanding at November 28, 1998....................................................... 363,607 $10.66
----------- -------------
----------- -------------
Number of option holders at November 28, 1998.......................................... 16
-----------
-----------
WEIGHTED AVG.
OUTSTANDING AT EXERCISE
RANGE OF EXERCISE PRICES NOV. 28, 1998 PRICE
- --------------------------------------------------------------- -------------- -------------
Under $3.00.................................................... 54,435 $ 1.01
$3.00-$9.00.................................................... 100,172 $ 7.52
Over $13.00.................................................... 209,000 $ 14.68
-------
363,607
-------
-------
Options granted by Griffin in 1997 vest in equal installments on the third,
fourth and fifth anniversaries from the date of grant. At November 28, 1998,
153,401 options outstanding under the Griffin Stock Option Plan were vested with
a weighted average price of $5.32 per share.
In January 1999, Griffin's Board of Directors approved an amendment which
made available an additional 300,000 shares for grant under the Griffin Stock
Option Plan. The Board approved a total of 248,100 options to be granted at the
market price at time of grant. Such amendment is subject to approval by
Griffin's stockholders.
STOCK-BASED COMPENSATION
Griffin accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and has adopted the
disclosure provisions of SFAS No. 123 which require disclosing the pro forma
effect on earnings and earnings per share of the fair value method of accounting
for stock-based compensation. Griffin's results would have been the following
pro forma amounts under the method prescribed by SFAS No. 123.
1998 1997
--------- ---------
Net income (loss) as reported................................................................. $ 121 $ (2,136)
Net loss, pro forma (unaudited)............................................................... $ (59) $ (2,228)
Basic net income (loss) per common share, as reported......................................... $ 0.03 $ (0.45)
Basic net loss per common share, pro forma (unaudited)........................................ $ (0.01) $ (0.47)
Diluted net income (loss) per common share, as reported....................................... $ 0.01 $ (0.45)
Diluted net loss per common share, pro forma (unaudited)...................................... $ (0.03) $ (0.47)
26
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STOCKHOLDERS' EQUITY (CONTINUED)
The weighted average fair value of each option granted during 1997 was
$6.10, estimated as of the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions; expected volatility of
approximately 35%; risk free interest rate of 6.15%; expected option term of 5
years and no dividend yield for all options issued. Because the options were
granted in 1997 immediately after the Distribution of Griffin common stock by
Culbro, the expected option term was developed using Culbro's historical grant
and exercise information.
9. LEASES
CAPITAL LEASES
Future minimum lease payments under capital leases for transportation
equipment and the present value of such payments as of November 28, 1998 were:
1999................................................................. $ 260
2000................................................................. 162
2001................................................................. 87
2002................................................................. 37
---------
Total minimum lease payments......................................... 546
Less: amounts representing interest.................................. 53
---------
Present value of minimum lease payments (a).......................... $ 493
---------
---------
(a) Includes current portion of $0.2 million at November 28, 1998.
At November 28, 1998 and November 29, 1997, machinery and equipment included
capital leases amounting to $0.5 million, which is net of accumulated
amortization of $1.6 million at both November 28, 1998 and November 29, 1997.
Amortization expense relating to capital leases was $0.2 million per year in
fiscal 1998, fiscal 1997 and fiscal 1996.
OPERATING LEASES
Future minimum rental payments for the next five years under noncancelable
leases as of November 28, 1998 were:
1999................................................................ $ 493
2000................................................................ 368
2001..............................................