SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
Quarterly Report
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the 13 Weeks Ended Commission File No.
AUGUST 28, 1999 0-29288
GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0868496
(state or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
ONE ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020
(Address of Principal Executive Offices) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (212) 218-7910
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- ------
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1999: 4,862,704
GRIFFIN LAND & NURSERIES, INC.
FORM 10Q
PART I FINANCIAL INFORMATION PAGE
CONSOLIDATED STATEMENT OF OPERATIONS
13 WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998 3
CONSOLIDATED STATEMENT OF OPERATIONS
39 WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998 4
CONSOLIDATED BALANCE SHEET
AUGUST 28, 1999 AND NOVEMBER 28, 1998 5
CONSOLIDATED STATEMENT OF CASH FLOWS
39 WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998 6
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
39 WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-16
PART II OTHER INFORMATION 17
SIGNATURES 18
PART I
ITEM 1. FINANCIAL STATEMENTS
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
FOR THE 13 WEEKS ENDED,
-----------------------
AUG. 28, AUG. 29,
1999 1998
--------- ---------
Net sales and other revenue $14,409 $ 11,019
Cost and expenses:
Cost of goods sold 9,238 7,424
Selling, general and administrative expenses 4,206 3,955
--------- ---------
Operating profit (loss) 965 (360)
Interest expense 233 47
Interest income 19 66
--------- ---------
Income (loss) before income tax provision (benefit) 751 (341)
Income tax provision (benefit) 275 (127)
--------- ---------
Income (loss) before equity investments 476 (214)
--------- ---------
Loss from equity investments:
Investment in Centaur Communications, Ltd. (167) (89)
Investment in Linguaphone Group plc - (423)
--------- ---------
Loss from equity investments (167) (512)
--------- ---------
Net income (loss) $ 309 $ (726)
--------- ---------
--------- ---------
Basic net income (loss) per common share $0.06 $ (0.15)
--------- ---------
--------- ---------
Diluted net income (loss) per common share $0.06 $ (0.15)
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share data)
FOR THE 39 WEEKS ENDED,
----------------------
AUG. 28, AUG. 29,
1999 1998
--------- ---------
Net sales and other revenue $46,867 $ 38,240
Cost and expenses:
Cost of goods sold 31,783 26,719
Selling, general and administrative expenses 12,207 11,387
--------- ---------
Operating profit 2,877 134
Interest expense 415 129
Interest income 44 253
--------- ---------
Income before income tax provision 2,506 258
Income tax provision 977 95
--------- ---------
Income before equity investments 1,529 163
--------- ---------
Income (loss) from equity investments:
Investment in Centaur Communications, Ltd. 227 579
Investment in Linguaphone Group plc (12) (460)
--------- ---------
Income from equity investments 215 119
--------- ---------
Net income $ 1,744 $ 282
--------- ---------
--------- ---------
Basic net income per common share $0.36 $ 0.06
--------- ---------
--------- ---------
Diluted net income per common share $0.34 $ 0.05
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
GRIFFIN LAND & NURSERIES, INC
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
AUG. 28, NOV. 28,
1999 1998
ASSETS --------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 3,358 $2,059
Accounts receivable, less allowance of $637 and $490 4,931 4,654
Inventories 28,630 26,746
Deferred income taxes 3,220 3,220
Other current assets 2,496 2,625
--------- ---------
TOTAL CURRENT ASSETS 42,635 39,304
Real estate held for sale or lease, net 33,324 31,519
Investment in Centaur Communiciations, Ltd. 16,380 16,153
Property and equipment, net 13,532 12,635
Other assets 5,934 5,305
--------- ---------
TOTAL ASSETS $111,805 $104,916
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 3,531 $ 5,586
Long-term debt due within one year 340 322
Income taxes payable - 92
--------- ---------
TOTAL CURRENT LIABILITIES 3,871 6,000
Long-term debt 8,877 2,666
Deferred income taxes 2,074 1,097
Other noncurrent liabilities 4,053 3,967
--------- ---------
TOTAL LIABILITIES 18,875 13,730
--------- ---------
Commitments and contingencies - -
Common stock, par value $0.01 per share,
authorized 10,000,000 shares, issued and
outstanding 4,842,704 shares 48 48
Additional paid in capital 93,491 93,491
Accumulated deficit (609) (2,353)
--------- ---------
Total stockholders' equity 92,930 91,186
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $111,805 $104,916
--------- ---------
--------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE 39 WEEKS ENDED,
-----------------------
AUG. 28, AUG. 29,
1999 1998
-------- --------
OPERATING ACTIVITIES:
Net income $ 1,744 $ 282
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 1,740 1,550
Income from equity investments (215) (119)
Deferred income taxes 977 95
Changes in assets and liabilities:
Accounts receivable (424) 836
Inventories (1,884) (1,186)
Income tax refund received 926 --
Accounts payable and accrued liabilities (1,895) (1,259)
Other, net (592) (745)
-------- --------
Net cash provided by (used in) operating activities 377 (546)
-------- --------
INVESTING ACTIVITIES:
Additions to real estate held for sale or lease (2,566) (3,805)
Additions to property and equipment (1,845) (940)
Additional investment in Linguaphone Group plc (377) --
Additional investment in Centaur Communications, Ltd. -- (2,966)
Proceeds from litigation settlement -- 500
-------- --------
Net cash used in investing activities (4,788) (7,211)
-------- --------
FINANCING ACTIVITIES:
Increase in debt 8,173 --
Payments of debt (2,132) (240)
Other (331) 91
-------- --------
Net cash provided by (used in) financing activities 5,710 (149)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,299 (7,906)
Cash and cash equivalents at beginning of period 2,059 11,519
-------- --------
Cash and cash equivalents at end of period $ 3,358 $ 3,613
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
SHARES OF ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
--------- --------- ---------- ----------- ---------
Balance at November 29, 1997 4,743,590 $ 47 $ 92,950 $ (2,474) $ 90,523
Net income -- -- -- 282 282
Exercise of stock options (including
income tax benefit of $451) 99,114 1 541 -- 542
--------- --------- --------- --------- ---------
Balance at August 29, 1998 4,842,704 $ 48 $ 93,491 $ (2,192) $ 91,347
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance at November 28, 1998 4,842,704 $ 48 $ 93,491 $ (2,353) $ 91,186
Net income -- -- -- 1,744 1,744
--------- --------- --------- --------- ---------
Balance at August 28, 1999 4,842,704 $ 48 $ 93,491 $ (609) $ 92,930
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Griffin Land &
Nurseries, Inc. ("Griffin") have been prepared in conformity with the standards
of accounting measurement set forth in Accounting Principles Board Opinion No.
28 and any amendments thereto adopted by the Financial Accounting Standards
Board ("FASB"). Also, the accompanying financial statements have been prepared
in accordance with the accounting policies stated in Griffin's audited 1998
Financial Statements included in the Report on Form 10-K as filed with the
Securities and Exchange Commission on February 26, 1999, and should be read in
conjunction with the Notes to Financial Statements appearing in that report. All
adjustments, comprising only normal recurring adjustments which are, in the
opinion of management, necessary for a fair presentation of results for the
interim periods have been reflected.
The results of operations for the thirteen and thirty-nine weeks ended
August 28, 1999, are not necessarily indicative of the results to be expected
for the full year.
Certain amounts from the prior year have been reclassified to conform
to the current presentation.
2. INDUSTRY SEGMENT INFORMATION
Griffin's reportable segments are defined by their products and
services, and are comprised of the landscape nursery and real estate segments.
Griffin has no operations outside the United States. Griffin's export sales and
transactions between segments are not material.
FOR THE 13 WEEKS ENDED, FOR THE 39 WEEKS ENDED
----------------------- ----------------------
AUG. 28, AUG. 29, AUG. 28, AUG. 29,
1999 1998 1999 1998
---- ---- ---- ----
NET SALES AND OTHER REVENUE
Landscape nursery $ 12,287 $ 10,218 $ 42,804 $ 36,048
Real estate 2,122 801 4,063 2,192
-------- -------- -------- --------
$ 14,409 $ 11,019 $ 46,867 $ 38,240
-------- -------- -------- --------
-------- -------- -------- --------
OPERATING PROFIT (LOSS)
Landscape nursery $ 461 $ 136 $ 3,084 $ 1,882
Real estate 904 158 914 (165)
-------- -------- -------- --------
Industry segment totals 1,365 294 3,998 1,717
General corporate expense 400 654 1,121 1,583
Interest expense (income), net 214 (19) 371 (124)
-------- -------- -------- --------
Income (loss) before income tax provision (benefit) $ 751 $ (341) $ 2,506 $ 258
-------- -------- -------- --------
-------- -------- -------- --------
AUG. 28, NOV. 28,
1999 1998
---- ----
IDENTIFIABLE ASSETS
Landscape nursery $50,629 $46,881
Real estate 38,475 35,480
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Industry segment totals 89,104 82,361
General corporate 22,701 22,555
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$111,805 $104,916
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See Note 3 for information on Griffin's equity investment in Centaur
Communications, Ltd.
3. INVESTMENTS
INVESTMENT IN CENTAUR COMMUNICATIONS, LTD.
Griffin accounts for its investment in Centaur Communications, Ltd.
("Centaur") under the equity method of accounting for investments. The
summarized financial data of Centaur shown below was derived from Centaur's
financial statements which are prepared in accordance with generally accepted
accounting principles in the United Kingdom. Griffin's equity income (loss) from
Centaur reflects adjustments necessary to present Centaur's results in
accordance with generally accepted accounting principles in the United States.
NINE MONTHS ENDED,
------------------
AUG. 28, AUG. 29,
1999 1998
---- ----
Net sales $ 63,774 $ 52,967
Costs and expenses 59,115 46,075
-------- --------
Operating profit 4,659 6,892
Nonoperating expense 1,846 874
-------- --------
Income before taxes 2,813 6,018
Income taxes 959 2,755
-------- --------
Net income $ 1,854 $ 3,263
-------- --------
-------- --------
AUG. 28, NOV. 28,
1999 1998
-------- --------
Current assets $ 29,392 $ 20,637
Intangible assets 25,163 8,752
Other noncurrent assets 10,864 8,074
-------- --------
Total assets $ 65,419 $ 37,463
-------- --------
-------- --------
Current liabilities $ 27,387 $ 21,897
Debt 40,425 19,800
Noncurrent liabilities 3,529 3,493
-------- --------
Total liabilities 71,341 45,190
Accumulated deficit (5,922) (7,727)
-------- --------
Total liabilities and deficit $ 65,419 $ 37,463
-------- --------
-------- --------
On March 31, 1999, Centaur acquired a group of United Kingdom magazines
and trade shows in the engineering field from Miller Freeman UK, Ltd. for
approximately $20 million. Centaur financed this acquisition with debt.
INVESTMENT IN LINGUAPHONE GROUP PLC
On January 22, 1999, Linguaphone Group plc ("Linguaphone") completed an
offering of its common stock in which Griffin participated to a limited extent.
As a result of the issuance of additional shares of Linguaphone common stock,
Griffin's common equity ownership was reduced to approximately 14% of
Linguaphone's outstanding common stock after the offering. As a result, Griffin
is accounting for its investment in Linguaphone under the cost method of
accounting for investments subsequent to the reduction in its common equity
ownership interest in Linguaphone. Prior to the reduction in its common equity
ownership interest, Griffin accounted for its investment in Linguaphone under
the equity method of accounting for investments.
Griffin's investment in Linguaphone was approximately $2.3 million at
August 28, 1999, and is included in other assets on Griffin's consolidated
balance sheet.
4. LONG-TERM DEBT
Long-term debt includes:
AUG. 28, NOV. 28,
1999 1998
---- ----
Mortgages $8,731 $2,495
Credit Agreement - -
Capital leases 486 493
------ ------
Total 9,217 2,988
Less: due within one year 340 322
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Total long-term debt $8,877 $2,666
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------ ------
On June 24, 1999, Griffin entered into a nonrecourse mortgage of $8.2
million on several of its buildings in the New England Tradeport. The mortgage
has an interest rate of 8.54% and a ten year term, with payments based on a
thirty year amortization schedule. Proceeds were used to reduce amounts then
outstanding under the Imperial Nurseries, Inc. Credit Agreement (the "Imperial
Credit Agreement") and to repay an existing mortgage on certain of those
buildings. The existing mortgage had a balance of $1.9 million at the time of
repayment and an interest rate of 8.63%. The book value of the buildings covered
by the new mortgage was $6.8 million at August 28, 1999.
On August 3, 1999 Griffin completed a new $20 million Revolving
Credit Agreement (the "Griffin Credit Agreement") to replace the $10 million
Imperial Credit Agreement. The Griffin Credit Agreement is an unsecured
facility with the same lender as the Imperial Credit Agreement and terminates
in May 2001. Borrowings under the Griffin Credit Agreement may be, at
Griffin's option, on an overnight basis or for periods of one, two, three or
six months. Overnight borrowings bear interest at the lender's prime rate
plus 1/4% per annum. Borrowings of one month and longer bear interest at the
London Interbank Offerred Rate ("LIBOR") plus 1 3/4% per annum. There are no
compensating balance agreements, and Griffin will pay a commitment fee of 1/4
of 1% per annum on unused borrowing capacity. Borrowings under the Griffin
Credit Agreement will be used principally to finance working capital
requirements at Griffin's landscape nursery and real estate businesses. The
Griffin Credit Agreement includes financial covenants with respect to
Griffin's debt service coverage (as defined), net worth, operating profit and
capital expenditures. There were no borrowings under the Griffin Credit
Agreement in the 1999 third quarter.
5. STOCK OPTIONS
On January 11, 1999, Griffin's Board of Directors approved an amendment
to Griffin's 1997 Stock Option Plan which made available an additional 300,000
shares for grant. On May 10, 1999, Griffin's stockholders approved the 1997
Griffin Stock Option Plan, as amended. The Board also approved a total of
248,100 options to be granted at $13.25 per share, the market price of Griffin's
common stock at the time of grant. The options granted have a ten year life and
vest in equal installments on the third, fourth and fifth anniversaries from the
date of grant. Under the terms of Griffin's 1997 Stock Option Plan, the
Independent Directors were granted non-qualified stock options upon their
reelection to the Board of Directors at Griffin's 1999 Annual Meeting. A total
of 4,000 options were granted to the Independent Directors at $13.00 per share,
the market price of Griffin's common stock at the time of grant. Activity under
Griffin's 1997 Stock Option Plan is summarized as follows:
NUMBER OF WEIGHTED AVG. EXERCISE PRICE
SHARES
--------- ----------------------------
Options outstanding at November 28, 1998 369,607 $10.79
Options issued after November 28, 1998 252,100 $13.25
-------
Options outstanding at August 28, 1999 621,707 $11.78
-------
-------
Number of option holders as of August 28, 1999 39
--
--
At August 28, 1999, there were 160,607 vested options outstanding under
the Griffin Stock Option Plan with a weighted average price of $5.65 per share.
6. PER SHARE RESULTS
Basic and diluted per share results were based on the following:
FOR THE 13 WEEKS ENDED, FOR THE 39 WEEKS ENDED,
----------------------- -----------------------
AUG. 28, AUG. 29, AUG. 28, AUG. 29,
1999 1998 1999 1998
---- ---- ---- ----
Net income (loss) as reported for computation of basic per
share results $ 309 $ (726) $ 1,744 $ 282
Adjustment to net income (loss) for assumed exercise of
options of equity investee (Centaur) -- -- (48) (39)
----------- ----------- ----------- -----------
Adjusted net income (loss) for computation of diluted per
share results $ 309 $ (726) $ 1,696 $ 243
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding for computation of
basic per share results 4,843,000 4,771,000 4,843,000 4,754,000
Incremental shares from assumed exercise of stock options 82,000 -- 82,000 189,000
----------- ----------- ----------- -----------
Adjusted weighted average shares for computation of
diluted per share results 4,925,000 4,771,000 4,925,000 4,943,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
7. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
INVENTORIES
Inventories consist of:
AUG. 28, NOV. 28,
1999 1998
---- ----
Nursery stock $25,997 $ 24,329
Finished goods 1,728 1,420
Materials and supplies 905 997
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$28,630 $26,746
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PROPERTY AND EQUIPMENT
Property and equipment consist of:
AUG. 28, NOV. 28,
1999 1998
---- ----
Land and improvements $ 7,372 $ 6,336
Buildings 3,964 3,871
Machinery and equipment 13,860 13,297
--------- --------
25,196 23,504
Accumulated depreciation (11,664) (10,869)
--------- --------
$13,532 $12,635
--------- --------
--------- --------
Griffin incurred capital lease obligations of $188 and $199,
respectively, in the thirty-nine weeks ended August 28, 1999 and August 29,
1998.
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease consists of:
AUG. 28, NOV. 28,
1999 1998
---- ----
Land $ 4,745 $ 4,761
Land improvements 12,832 12,716
Buildings 23,772 21,498
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41,349 38,975
Accumulated depreciation (8,025) (7,456)
-------- -------
$33,324 $31,519
-------- -------
-------- -------
On July 20, 1999 Griffin's real estate division, Griffin Land,
completed the sale of undeveloped land for proceeds of $1.0 million. The
book value of the land sold and expenses of sale were $0.1 million.
ITEM 2
GRIFFIN LAND & NURSERIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Griffin's operations are comprised of two segments: the landscape
nursery business and the real estate business. The following discussion contains
information relating to the consolidated operations of Griffin and, where
appropriate, separate information regarding each of these segments. As used in
this discussion the term "Imperial" refers to Griffin's landscape nursery
operations (conducted by Griffin's wholly-owned subsidiary, Imperial Nurseries,
Inc.) and the term "Griffin Land" refers to Griffin's real estate operations.
RESULTS OF OPERATIONS
Thirteen Weeks Ended August 28, 1999 Compared to the Thirteen Weeks
Ended August 29, 1998
Griffin's net sales and other revenue were $14.4 million in the
thirteen weeks ended August 28, 1999 (the "1999 third quarter") as compared
to net sales and other revenue of $11.0 million in the thirteen weeks ended
August 29, 1998 (the "1998 third quarter"). The increase of $3.4 million
reflects higher net sales at both Imperial and Griffin Land. Imperial's net
sales increased $2.1 million to $12.3 million in the 1999 third quarter from
$10.2 million in the 1998 third quarter. The increase reflects higher volume
at Imperial's wholesale sales and service centers and an increase in sales of
containerized plants from Imperial's farm operations. Net sales and other
revenue at Griffin Land increased $1.3 million to $2.1 million in the 1999
third quarter from $0.8 million in the 1998 third quarter. The increase at
Griffin Land principally reflects a land sale in the 1999 third quarter which
generated proceeds of $1.0 million (there were no land sales in the 1998
third quarter) and higher rental revenue due to new leases entered into
during 1998, including the approximately 98,000 square foot warehouse
facility completed in mid-1998 that became fully leased at the beginning of
1999.
Griffin's operating profit (before interest) was $1.0 million in the
1999 third quarter as compared to an operating loss of $0.4 million in the 1998
third quarter. Operating profit at Imperial increased to $0.5 million in the
1999 third quarter from $0.1 million in the 1998 third quarter. The increase in
Imperial's operating profit reflects a $0.6 million increase in gross profit,
partially offset by higher operating expenses. The higher gross profit reflected
the increased sales volume noted above. Imperial's operating expenses increased
from $3.1 million in the 1998 third quarter to $3.3 million in the 1999 third
quarter, primarily due to the volume increase at its wholesale centers. As a
percentage of net sales, operating expenses were 27.3% of net sales in the 1999
third quarter as compared to 30.8% of net sales in the 1998 third quarter.
Griffin Land had an operating profit of $0.9 million in the 1999
third quarter as compared to an operating profit of $0.2 million in the 1998
third quarter. The increase in operating profit reflects a gain of $0.9
million on the land sale in the current quarter and the higher rental revenue
in the current quarter, partially offset by higher operating expenses. The
higher expenses in the 1999 third quarter reflect the effect of a litigation
settlement in the 1998 third quarter which resulted in a $0.2 million
reduction of operating expenses in last year's third quarter. Excluding the
effect of the litigation settlement last year, Griffin Land's operating
expenses were substantially unchanged in the 1999 third quarter as compared
to the 1998 third quarter.
Griffin's interest expense increased to $0.2 million in the 1999 third
quarter as compared to less than $0.1 million in the 1998 third quarter. The
higher interest expense reflects the increased debt level during the 1999 third
quarter principally to fund Imperial's seasonal working capital requirements and
real estate investments. In 1998, cash on hand was used to meet these
requirements.
The loss from Griffin's equity investment in Centaur Communications,
Ltd. ("Centaur") was higher in the 1999 third quarter as compared to last year's
third quarter. Higher operating expenses and higher interest expense at Centaur
more than offset increased revenue at Centaur. The 1998 third quarter included
an equity loss from Griffin's investment in Linguaphone Group plc
("Linguaphone"). Griffin's investment in Linguaphone was reduced in the first
quarter of this year and is now accounted for under the cost method of
accounting for investments. Accordingly, there are no equity results from
Linguaphone in the 1999 third quarter.
Thirty-nine Weeks Ended August 28, 1999 Compared to the Thirty-nine
Weeks Ended August 29, 1998
Griffin's net sales and other revenue were $46.9 million in the
thirty-nine weeks ended August 28, 1999 (the "1999 nine month period") as
compared to net sales and other revenue of $38.2 million in the thirty-nine
weeks ended August 29, 1998 (the "1998 nine month period"). The increase of $8.7
million reflects higher net sales at both Imperial and Griffin Land. Imperial's
net sales increased $6.8 million to $42.8 million in the 1999 nine month period
from $36.0 million in the 1998 nine month period. The higher net sales at
Imperial principally reflects increased volume at its wholesale sales and
service centers, which benefitted from favorable weather conditions during
Imperial's peak spring selling season in the second quarter. Net sales and other
revenue at Griffin Land increased to $4.1 million in the 1999 nine month period
from $2.2 million in the 1998 nine month period. The increase reflected the land
sale in the 1999 third quarter and an increase in rental revenue in the 1999
nine month period from new leases, including the approximately 98,000 square
foot warehouse in the New England Tradeport, which was completed in mid-1998 and
was fully leased for the 1999 nine month period.
Griffin's operating profit (before interest) in the 1999 nine month
period increased $2.8 million to $2.9 million from $0.1 million in the 1998 nine
month period. Operating profit at Imperial increased $1.2 million to $3.1
million in the 1999 nine month period as compared to $1.9 million in the 1998
nine month period. Imperial's higher operating profit principally reflects
increased gross profit on the higher sales at its wholesale centers. Imperial's
gross profit increased to $12.9 million in the 1999 nine month period from $10.7
million in the 1998 nine month period. In addition to the higher volume,
Imperial's gross profit margin increased to 30.1% in the 1999 nine month period
from 29.8% in the 1998 nine month period. Imperial's operating expenses were
$9.8 million in the 1999 nine month period as compared to $8.8 million in the
1998 nine month period. As a percentage of net sales, operating expenses
decreased to 22.9% of net sales in the 1999 nine month period from 24.6% in the
1998 nine month period.
In the 1999 nine month period, Griffin Land had operating profit of
$0.9 million as compared to an operating loss of $0.2 million in the 1998 nine
month period. Griffin Land's improved results principally reflect profit on the
1999 third quarter land sale and higher rental revenue in the 1999 nine month
period, partially offset by higher operating expenses. Griffin Land's rental
properties generated an operating profit, before depreciation, of $2.1 million
in the 1999 nine month period as compared to $1.5 million in the 1998 nine month
period. The increase reflects a higher occupancy rate and the increase in
available space as a result of completely leasing, effective at the beginning of
1999, the warehouse completed in mid-1998. Operating expenses at Griffin Land
increased $0.3 million in the 1999 nine month period as compared to the 1998
nine month period due principally to the effect of a litigation settlement in
the 1998 nine month period which resulted in a $0.2 million credit to operating
expenses last year.
Griffin's interest expense increased to $0.4 million in the 1999 nine
month period as compared to $0.1 million in the 1998 nine month period. The
higher interest expense principally reflects borrowings in the current year to
finance seasonal working capital requirements at Imperial and additional
investments in its real estate assets by Griffin Land. In the 1998 nine month
period, these requirements were financed from cash on hand.
Griffin had equity income from Centaur of $0.2 million in the 1999 nine
month period as compared to equity income of $0.6 million in the 1998 nine month
period. The effect of higher revenue at Centaur was more than offset by higher
operating expenses and higher interest expense. The increase in Centaur's
interest expense reflects borrowings incurred in August 1998 in connection with
Centaur's repurchase of a portion of its outstanding common stock at that time
and additional borrowings by Centaur earlier this year to finance an
acquisition. As a result of Griffin's limited participation in a share offering
by Linguaphone earlier this year, Griffin's investment in Linguaphone was
reduced and Griffin now accounts for that investment under the cost method of
accounting.
LIQUIDITY AND CAPITAL RESOURCES
Griffin's net cash provided by operating activities was $0.4 million
in the 1999 nine month period as compared to net cash used in operating
activities of $0.5 million in the 1998 nine month period. The increase in
cash from operations principally reflects higher net income and an income tax
refund of $0.9 million received in the current year, partially offset by
increased accounts receivable and inventories. Net cash used in investing
activities was $4.8 million in the 1999 nine month period as compared to $7.2
million in the 1998 nine month period. The change reflects an additional
investment in Centaur of $3.0 million in the 1998 nine month period and
lower expenditures in the current year for real estate by Griffin Land,
partially offset by a $0.9 million increase in additions to property and
equipment in the 1999 nine month period as compared to the 1998 nine month
period. The increase in additions to property and equipment in the 1999 nine
month period principally reflects the acquisition of land adjacent to
Imperial's Cincinnati wholesale sales and service center to expand that
center. Additions to real estate held in the 1999 nine month period
principally reflect completion of an approximately 100,000 square foot
warehouse in the New England Tradeport. The shell of this new warehouse was
substantially completed at the end of the 1999 second quarter. There are no
leases on this new building.
In the 1999 third quarter, Griffin entered into an $8.2 million
nonrecourse mortgage on several of its buildings in the New England
Tradeport. Proceeds were used to reduce the amount then outstanding under the
Imperial Credit Agreement and to repay an existing mortgage on certain of
those properties. The new warehouse completed in the second quarter this year
is not mortgaged. Also in the 1999 third quarter, Griffin entered into a $20
million revolving credit loan (the "Griffin Credit Agreement") to replace the
$10 million revolving credit facility with Imperial. The Griffin Credit
Agreement is an unsecured facility that terminates in May 2001 and will
provide financing for working capital requirements of Griffin's landscape
nursery and real estate businesses.
In the 1999 third quarter, Imperial started several capital projects
to improve and expand its containerized plant production facilities in
Florida and Connecticut. These projects are expected to be completed over the
next six to twelve months at a projected cost of approximately $4.0 million.
Additionally, Imperial entered into an agreement to acquire land in central
New Jersey for a new wholesale sales and service center. Completion of the
land purchase is contingent upon receiving all required regulatory approvals
to operate a wholesale sales and service center on that site. If such
approval is received, expenditures for the land acquisition and site work is
projected to be approximately $2.5 million over the next twelve months.
Management believes that in the near term, based on the current
level of operations and anticipated growth, that its cash on hand, cash flow
from operations and borrowings under the Griffin Credit Agreement will be
sufficient to finance the working capital requirements and expected capital
expenditures of its landscape nursery business and fund development of its
real estate assets. Over the intermediate and long term, selective mortgage
placements may also be required to fund capital projects.
YEAR 2000
Griffin is continuing to address its year 2000 ("Y2K") issue and has
identified its critical computer applications that were not Y2K compliant. All
of the computer applications that were not Y2K compliant have been modified,
successfully tested and are now Y2K compliant. The modification of the computer
applications for Y2K compliance was performed by Griffin employees. Costs
attributed to such work were 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.
FORWARD-LOOKING INFORMATION
The 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 leasing of its recently constructed warehouse, the
improvements and expansion of Imperial's farm operations, and the opening of a
wholesale sales and service center in central New Jersey. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II OTHER INFORMATION
Items 1 - 5 not applicable
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
Exhibit No. Description
----------- -----------
10.17 Loan Agreement dated June 24, 1999
10.18 Revolving Credit Agreement dated August 3, 1999
27 Financial Data Schedule
(b) There were no reports filed on Form 8K by the
Registrant during the 1999 third quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIFFIN LAND & NURSERIES, INC.
/s/ Frederick M. Danziger
-------------------------------------
Date: October 8, 1999 Frederick M. Danziger
President and Chief Executive Officer
/s/ Anthony J. Galici
-------------------------------------
Date: October 8, 1999 Anthony J. Galici
Vice President, Chief Financial Officer
and Secretary