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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-29288
GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
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)
</TABLE>
(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:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock $0.01 par value OTC Bulletin Board
</TABLE>
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:
$14,800,000 approximately, based on the closing sales price on the OTC Bulletin
Board on February 18, 1998. 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:
4,743,590 shares as of February 18, 1998.
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PART I
ITEM 1--BUSINESS
Griffin Land & Nurseries, Inc. ("Griffin" or the "Company") and its
subsidiaries comprise principally a landscape nursery and real estate business.
At the end of its 1997 fiscal year Griffin engaged in two principal lines of
business: (1) the landscape nursery products business, comprised of (x) the
growing of container 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 principle 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 25%
interest in Centaur Communications, Ltd., a United Kingdom magazine and
information services publisher.
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 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 growing operations
place it among the twenty largest landscape nursery growers in the country.
Imperial's container growing operations are located on property owned by
Griffin in Connecticut (approximately 400 acres) and in northern Florida
(approximately 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. Imperial has determined to terminate its own growing of
field-grown product and in the third quarter created a reserve estimated to be
sufficient to absorb the losses from terminating these operations over the next
two years. Container-grown product is held principally from one to three years
prior to its sale by Griffin. 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. This
program 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 increasing its return on assets with
potentially different approaches for differing categories of products. Among
such possible approaches are: (i) changing the growing cycle for some of its
containerized production; (ii) selling such plants in terra cotta or similar
containers for immediate use by customers; and (iii) adding a broader selection
of perennial flowers and flowering shrubs to its list of products. Some of these
programs are also directed at reducing the growing time of certain products.
The growing operations serve a market comprised principally of retail chain
store garden departments, retail nurseries and garden centers, and wholesale
nurseries and distributors. Imperial-grown products are also distributed through
its own wholesale horticultural sales and service centers whose largest
customers are landscapers. Imperial's major markets are in the Northeast,
Mid-Atlantic, the northern portion of the Southeast and Mid-West. Nursery sales
are highly seasonal, peaking in spring, and are affected by commercial and
residential building activity as well as weather conditions.
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.
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Containerized growing and shipping capacity has been increased to meet the
potential volume and quality needs of Imperial's customers and to capitalize on
any growth in the Mid-Atlantic and Mid-West markets. Imperial is evaluating
methods of making more efficient its loading and handling of container products
both on its farms and at its service centers and is experimenting with new
distribution methods to deepen its coverage of wholesale center customers
through more frequent delivery services.
In 1997, Imperial continued to diversify its customer base in order to
reduce its dependence on a few large customers. Currently Imperial's sales are
made to a large variety of customers, none of whom represents more than 3% of
sales.
REAL ESTATE BUSINESS
Griffin, through its "Griffin Land" division, is directly engaged in the
real estate development business on portions of its land in Connecticut, with
headquarters in Bloomfield, Connecticut. Griffin develops portions of its
properties for commercial, residential and industrial use.
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. Griffin anticipates that obtaining
subdivision approvals in many of the towns where it holds land will 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, 140,000 square feet
of warehouse and light manufacturing space have been developed and are
approximately 90% occupied and a bottling and distribution plant for Pepsi-Cola
has been built. A state traffic control certificate for the future development
of 1.3 million square feet has been obtained for the New England Tradeport.
Griffin is currently building an approximately 98,000 square foot warehouse
facility on a part of this land. This building is being built without being
preleased. Griffin, based on satisfactory results for this first building,
intends 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 has required investment in offsite infrastructure on
behalf of Windsor, Connecticut and improvement of some state and town roads, to
which Griffin has contributed. Additional offsite investment including road
expenses may be required.
Griffin's other substantial developments are 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 office buildings built by
Griffin. During the 1980s, Griffin sold 70% interests in five of the buildings
to a bank-managed real estate investment fund. In 1996, these buildings were
sold in a transaction initiated by the successor of that partner. Griffin
recorded a pre-tax loss as a result of the 1996 part of this transaction. In the
1980s, Griffin also sold 70% interests in two other office buildings to an
insurance company. Griffin currently maintains a 30% interest in those two
office buildings in the Griffin Center Office Complex which aggregate 160,000
square feet.
Griffin Center South, a 130-acre tract, comprises sixteen buildings of
industrial and research/ development space. Nine of these buildings with an
aggregate of approximately 188,000 square feet have been retained by Griffin for
rental and are 78% rented. During 1997, one building was rerented by, and
substantially improved for, a tenant from a different location in Griffin Center
South. Most of that tenant's
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prior space was also rerented. As a result of these transactions, aggregate
rents within Griffin Center are expected to increase.
Two additional Griffin parcels available for development include 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
approximately 365 residential units. Completion of that amount of units may not
be achieved. 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 76 homes. Griffin is
evaluating other of its lands for residential development over a period of
years. During 1997, a parcel in Suffield, Connecticut was sold for residential
development which was the principal land sale by Griffin for the year.
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 but
has run into some local opposition. Other sites for that operation are being
explored. In addition, approximately 500 acres are leased for tobacco growing to
General Cigar Co., Inc. at rentals approximating 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
Griffin owns 50.1% of The Eli Witt Company ("Eli Witt"), a wholesale
distributor of tobacco, sundries and general merchandise. Griffin deconsolidated
Eli Witt as of April 25, 1994 and subsequently has accounted for its investment
in Eli Witt under the equity method. In November 1996 Eli Witt filed for
protection under Chapter 11 of the Federal Bankruptcy Law. In connection with
such filing Eli Witt sold all of its operating assets to another wholesale
distributor in March 1997. Shareholders of Eli Witt are not expected to receive
any proceeds from the sale. See Item 3-Legal Matters.
CENTAUR
Griffin owns approximately 25% of the stock of Centaur Communication Limited
("Centaur"), a privately-held publisher of business magazines, including
MARKETING WEEK and MONEY MARKETING in the United Kingdom and received during
1997 as a distribution 25% of the stock of Linguaphone Group PLC ("Linguaphone")
which had been owned by Centaur. After a period of time during which results
were adversely affected by a number of factors including adverse business
conditions in the United Kingdom, this business is now profitable. Two members
of Griffin's Board of Directors are on the Board of Directors of Centaur.
Griffin's investments in Centaur and Linguaphone are carried at an aggregate
amount of approximately $15 million.
FINANCIAL INFORMATION REGARDING INDUSTRY SEGMENTS
See Note 5 to the Combined 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 259 persons on a full-time basis, including 10
in its real estate business and 249 in its landscape nursery business. At
present, none of these employees is represented by a union. Griffin believes
that its relations with its employees are satisfactory.
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COMPETITION
The nursery business is competitive and Griffin competes against a number of
other companies, including national, local and regional nursery businesses. Some
of Griffin's competitors may be in a stronger financial position than Griffin.
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 anticipated 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 to properly remediate such substances, may adversely affect the
owners 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 Griffins 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 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.
ITEM 2--PROPERTIES
LAND HOLDINGS
Griffin Land & Nurseries, Inc. is a major landholder in the State of
Connecticut and also owns land in the State of 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 exclusive of land
improvements. Griffin believes the fair market value is very substantially in
excess of such book value including land improvements.
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A listing of the location 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
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LOCATION OF PROPERTY LAND AREA (ACRES)
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CONNECTICUT
Bloomfield, CT................................................................................. 320
East Granby, CT................................................................................ 187
East Windsor, CT............................................................................... 115
Granby, CT..................................................................................... 106
Simsbury, CT................................................................................... 875
South Windsor, CT.............................................................................. 103
Suffield, CT................................................................................... 375
Windsor, CT.................................................................................... 1,167
MASSACHUSETTS
Southwick, MA.................................................................................. 425
FLORIDA
Hillsborough County, FL........................................................................ 9
Leon County, FL................................................................................ 6
</TABLE>
NURSERY REAL ESTATE
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LOCATION OF PROPERTY LAND AREA (ACRES)
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FLORIDA
Quincy, FL..................................................................................... 1,046
CONNECTICUT
East Granby, CT................................................................................ 393
Granby, CT..................................................................................... 267
Windsor, CT.................................................................................... 75
PENNSYLVANIA
Aston, PA...................................................................................... 16
Pittsburgh, PA................................................................................. 10
VIRGINIA
Manassas, VA................................................................................... 16
OHIO
Columbus, OH................................................................................... 12
Cincinnati, OH................................................................................. 11
MARYLAND
White Marsh, MD................................................................................ 20
</TABLE>
Griffin also leases approximately 2,100 square feet in New York City for its
Executive Offices.
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ITEM 3--LEGAL PROCEEDINGS
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). As a result of the transaction pursuant to which Griffin
became a public company, Griffin acquired Culbro's 50.1% common stock interest
in Eli Witt. In November 1996, Eli Witt filed for protection under Chapter 11 of
the Federal Bankruptcy Law. Prior to February 1993, Eli Witt was a wholly-owned
subsidiary of Culbro and filed consolidated tax returns with Culbro. Culbro, Eli
Witt and other parties engaged in two complex acquisitions and reorganizations
in 1993 and 1994, pursuant to which Culbro received material distributions. The
distributions made to Culbro in February 1993 included approximately $46 million
in repayment of inter-company liabilities to Culbro and approximately $42
million in repayment of capital. The integration of a subsequent acquisition was
not successful. Culbro subsequently loaned $5 million to Eli Witt. These
transactions (including the transfer of funds to Culbro) have been reviewed by
Eli Witt creditors and other parties in interest in connection with the Chapter
11 case. Griffin believes that Eli Witt was adequately capitalized and solvent
at the time of and after the distributions. Griffin also believes that the
bankruptcy of Eli Witt was caused by a number of other factors which occurred
subsequently to the distributions, including principally an unforeseen reduction
in the prices of cigarettes, which both reduced the ongoing profitability of Eli
Witt and eliminated the profits it had earned from recurrent cigarette price
increases. Accordingly, Griffin believes that such distributions would not
constitute a fraudulent conveyance under applicable federal and state insolvency
laws. Griffin is not entitled to contribution from Culbro or General Cigar
Holdings, Inc. ("GC Holdings") for liabilities assumed by Griffin relating to
the Eli Witt matter. Griffin is obligated to indemnify Culbro and GC Holdings
for any liability relating to the Eli Witt matter. Although Griffin believes
that any claim challenging the distributions described above would be without
merit, any such claim, if asserted and successfully prosecuted, could have a
material adverse effect on Griffin's financial condition. Recently, the
bankruptcy court confirmed Eli Witt's plan of reorganization. The plan permitted
Eli Witt to sell certain real property on which Griffin holds a second mortgage.
In connection with a motion to approve the sale of such property, Griffin and
Culbro would be released from any liability to Eli Witt, the creditors of Eli
Witt and any party claiming by or through the bankruptcy estate of Eli Witt in
return for a release of Griffin's second mortgage on the property and a release
of its other claims in the bankruptcy. The bankruptcy court has not yet approved
the sale and the releases. As it is currently structured, the release is
contingent upon the sale. Furthermore, based upon recent communications from the
proposed buyer of the real property it appears unlikely that the sale (and
related releases) will be consummated.
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.
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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 as
traded on the OTC Bulletin Board subsequent to the Distribution of Griffin's
common stock on July 3, 1997:
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3RD QUARTER 4TH QUARTER
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HIGH LOW HIGH LOW
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1997......................................................... 17 7/8 14 7/8 19 7/8 12 7/8
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On February 18, 1998 the number of record holders of common stock of Griffin
was approximately 711, 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 OTC Bulletin Board on such date was $13.50 per share. The
information appearing in Notes 10 and 14 to the Consolidated Financial
Statements is hereby incorporated by reference.
ITEM 6--SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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1997 1996 1995 1994 1993
--------- --------- --------- --------- ------------
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STATEMENT OF OPERATIONS DATA:
Net sales & other revenue............................... $ 46,288 $ 46,531 $ 41,756 $ 43,024 $ 1,239,855
Operating profit (loss)................................. (3,236) (1,245) 810 (4,867) 11,336
Loss from continuing operations......................... (2,136) (4,063) (4,265) (7,157) (2,632)
Net loss................................................ (2,136) (4,606) (580) (3,833) (4,510)
Pro forma net loss per share (a)........................ (0.44)
BALANCE SHEET DATA:
Total assets............................................ 102,750 101,775 165,655 167,421 316,056
Working capital......................................... 40,144 36,698 23,069 28,112 74,262
Long-term debt (b)...................................... 2,830 38,846 72,737 91,614 172,068
Stockholders' equity/Culbro Investment (c).............. 90,523 47,449 61,299 44,426 32,406
</TABLE>
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. The information presented for 1993 reflects Eli Witt as a
consolidated subsidiary. Subsequent years reflect the deconsolidation of Eli
Witt. Reference is made to the Management's Discussion and Analysis of Financial
Condition and Results of Operations, particularly for a discussion of certain
unusual items.
(a) Griffin was a wholly-owned subsidiary of Culbro through July 3, 1997.
Accordingly, the per share results presented above are on a pro forma basis
using the weighted average common shares equal to Culbro's weighted average
shares because the Griffin common stock was distributed to the Culbro
shareholders on a one-for-one basis.
(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, GC Holdings in connection with the distribution of Griffin's
common stock to Culbro's shareholders.
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(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.
ITEM 7-- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). On July 3, 1997, Culbro distributed to its shareholders
the common stock of Griffin in a tax-free distribution, (the "Distribution").
Subsequent to the Distribution, Griffin has operated and is operating as an
independent stand-alone entity. Prior to March 18, 1997, Griffin was known as
Culbro Land Resources, Inc. Griffin principally owns and operates a landscape
nursery business through its subsidiary, Imperial, and a
Connecticut-and-Massachusetts-based real estate business, Griffin Land, and has
an approximately 25% equity interest in Centaur, a magazine publishing business
in the United Kingdom, all of which were held by Griffin or transferred to
Griffin in accordance with a Distribution Agreement between Griffin, Culbro and
GC Holdings ("GC Holdings"), a Culbro subsidiary. Subsequent to the
Distribution, Centaur distributed to its shareholders the common stock of its
subsidiary, Linguaphone. Accordingly, Griffin has an approximately 25% equity
interest in Linguaphone.
The financial statements of Griffin reflect the results of the operations of
Griffin's businesses and investments. Griffin's results through the Distribution
include allocations to Griffin from Culbro for corporate overhead of $1.0
million, $1.8 million and $2.1 million in fiscal 1997, fiscal 1996 and fiscal
1995, 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 financial statements include
interest expense on debt specifically incurred by Griffin, and interest expense
on Culbro general corporate debt. The Culbro debt was included in Griffin's
financial statements through February 27, 1997, the date this debt was assumed
by GC Holdings pursuant to the Distribution Agreement. Accordingly, this debt is
excluded from Griffin's capital structure subsequent to February 27, 1997.
Interest expense on Culbro's general corporate debt that has been included in
Griffin's results of operations was $0.7 million, $7.3 million and $7.6 million
in fiscal 1997, fiscal 1996 and fiscal 1995, respectively. Such interest expense
will not be part of Griffin's results of operations on a prospective basis.
Griffin's results of operations should be read in conjunction with the unaudited
pro forma results of operations in Note 3 of the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
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, in which Griffin Land received $4.0 million in proceeds, of all of
the properties of a real estate joint venture in which Griffin Land held a 30%
interest.
Griffin incurred an 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
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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 partially 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. Improved results
from sales of property, due principally to comparison with 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 in fiscal 1996 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.
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.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales and other revenue increased 11.4% or $4.7 million, to $46.5
million in fiscal 1996 compared to $41.8 million in fiscal 1995. The increase in
net sales and other revenue was due to higher net sales and other revenue at
both Imperial and Griffin Land. At Imperial, net sales increased 6.2% or $2.1
million to $37.0 million in fiscal 1996 from $34.9 million in fiscal 1995. This
increase reflected increased sales at the wholesale nursery sales and service
centers. Net sales and other revenue at Griffin Land increased $2.6 million to
$9.5 million in fiscal 1996 from $6.9 million in fiscal 1995. The increase
reflected the sale of all of
9
<PAGE>
the properties of a real estate joint venture in which Griffin Land held a 30%
interest. The joint venture sale generated net proceeds of $4.0 million and a
pretax loss of $0.4 million. Excluding this transaction, net sales and other
revenue decreased by $1.8 million, due to lower residential lot sales and lower
sales of undeveloped commercial land.
Griffin incurred an operating loss of $1.2 million in fiscal 1996 compared
to an operating profit of $0.8 million in fiscal 1995. At Imperial, operating
profit was $1.6 million in fiscal 1996 compared to $1.7 million in fiscal 1995,
reflecting higher operating expenses, which offset the effect of the higher
sales. An increase in gross margins to 29.9% in fiscal 1996 from 29.1% in fiscal
1995 was due to the effect of a $1.0 million charge in fiscal 1995 to reserve
for excess field-grown plant inventories, offset by product mix and competitive
pricing pressures in fiscal 1996. Operating expenses at Imperial increased to
25.5% of net sales in fiscal 1996 from 25.1% of net sales in fiscal 1995. The
increase reflected higher selling expenses, and the operating expenses of a new
sales and service center. In the real estate segment, Griffin Land incurred an
operating loss of $0.3 million in fiscal 1996 compared to an operating profit of
$1.2 million in fiscal 1995. The lower results reflected the loss of $0.4
million on the joint venture sale and the effect of the lower residential and
commercial land sales.
General corporate expense increased to $2.6 million in fiscal 1996 from $2.2
million in fiscal 1995. The increase in fiscal 1996 reflects Griffin's allocated
share of a Culbro corporate compensation expense item.
Other nonoperating income of $1.9 million in fiscal 1996 and $0.9 million in
fiscal 1995 included principally accretion and accrued dividend income on the
preferred stock of Eli Witt of $2.2 million and $2.3 million in fiscal 1996 and
fiscal 1995, respectively. In fiscal 1995 the accretion and dividend income was
partially offset by expenses incurred in connection with Griffin's support for
the refinancing of Eli Witt. The accretion and accrued dividend income on the
preferred stock equaled the interest expense recorded in those years on a
related exchangeable subordinated note payable. In the 1996 fourth quarter, the
Eli Witt preferred stock was exchanged in satisfaction of a subordinated note
issued by Culbro and all accrued interest thereon.
Interest expense decreased to $7.8 million in fiscal 1996 from $8.2 million
in fiscal 1995 due to lower debt levels, reflecting the proceeds from the sale
of CMS Gilbreth, which were used to repay debt.
Results from Griffin's equity investment in Centaur increased to $0.3
million of equity income in fiscal 1996 from an equity loss of $0.2 million in
fiscal 1995. The increase reflected improved business conditions for Centaur's
publishing business in the United Kingdom.
The results of the discontinued CMS Gilbreth operation in fiscal 1996
reflected a loss of $0.5 million, net of tax, compared to income of $3.7
million, net of tax, in fiscal 1995. The 1996 results included a net loss of
$1.3 million on the sale of CMS Gilbreth partially offset by income of $0.8
million from this business prior to the sale.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operating activities of continuing operations was $1.9
million in fiscal 1997 as compared to $2.2 million in fiscal 1996. Operating
results and changes in certain assets and liabilities which increased cash were
substantially offset by the effect of the proceeds received in fiscal 1996 from
the sale of a real estate joint venture. Fiscal 1996 also included approximately
$3.5 million of cash generated by activities of Griffin's discontinued
operation, the sale of which was completed in November 1996. Cash used in
investing activities in fiscal 1997 reflected capital expenditures, principally
in the landscape nursery business, which were lower than fiscal 1996. Investing
activities in fiscal 1996 also included cash generated from the sale of the
discontinued operation and capital expenditures of that business prior to its
sale. Net cash provided by financing activities in fiscal 1997 principally
reflected borrowings under Culbro's general corporate debt prior to such debt
being assumed by GC Holdings on February 27, 1997. Fiscal 1996
10
<PAGE>
reflected the reduction of debt, principally from proceeds generated from the
sale of the discontinued operation.
Through February 27, 1997, the date of the Distribution Agreement between
Griffin, Culbro and GC Holdings, the cash management and treasury activities of
Griffin were integrated with those of Culbro. Griffin's cash receipts were
transferred daily into Culbro's cash account and Griffin's cash disbursement
accounts were reimbursed by Culbro on a daily basis. Subsequent to that date and
through the distribution of Griffin common stock to Culbro's shareholders on
July 3, 1997, Griffin's cash flows were segregated from those of Culbro and its
other subsidiaries.
As a subsidiary of Culbro, Griffin did not maintain its own separate credit
facilities. Borrowings under the Culbro credit facilities were reflected in
Griffin's financial statements until, in accordance with the Distribution
Agreement, such debt was assumed by GC Holdings on February 27, 1997. This debt
is no longer included in Griffin's capital structure. Griffin has received a
commitment from a commercial bank for a $10 million line of credit to be used
for general working capital purposes in its landscape nursery business to
supplement cash flow from operations, as required. The line of credit is subject
to completion of a definitive loan agreement.
In the 1997 fourth quarter, Griffin Land started construction on an
approximately 98,000 square foot warehouse facility in the New England
Tradeport, Griffin's industrial park located near Bradley International Airport
in the Hartford-Springfield corridor. Completion is anticipated in the 1998
second quarter. Construction costs, which will include investment in off-site
infrastructure on behalf of Windsor, Connecticut, are estimated to be
approximately $4.5 million, which are being financed from cash on hand.
Management believes, based on the current level of operations and
anticipated growth, that cash flow from operations, cash on hand and, if needed,
borrowings under the landscape nursery credit facility or real estate financing
will be sufficient to finance its landscape nursery business and fund future
real estate projects. Over the longer term, selective mortgage placements and
additional credit facilities may also be required to fund capital projects.
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 the construction of the new warehouse. 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.
11
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
----------------------------------
<S> <C> <C> <C>
NOV. 29, NOV. 30, DEC. 2,
1997 1996 1995
---------- ---------- ----------
Net sales and other revenue................................................ $ 46,288 $ 46,531 $ 41,756
Costs and expenses:
Cost of goods sold......................................................... 35,767 34,210 28,389
Selling, general and administrative expenses............................... 13,757 12,666 12,557
Other expense.............................................................. -- 900 --
---------- ---------- ----------
Operating (loss) profit.................................................... (3,236) (1,245) 810
Other nonoperating income, net............................................. -- 1,917 923
Interest expense........................................................... 1,002 7,805 8,193
Interest income............................................................ 266 -- --
---------- ---------- ----------
Loss before income tax benefit............................................. (3,972) (7,133) (6,460)
Income tax benefit......................................................... (1,470) (2,767) (2,348)
---------- ---------- ----------
Loss before equity investments............................................. (2,502) (4,366) (4,112)
Income (loss) from equity investments...................................... 366 303 (153)
---------- ---------- ----------
Loss from continuing operations............................................ (2,136) (4,063) (4,265)
---------- ---------- ----------
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 (1996--$527;
1995--$2,580)............................................................ -- 768 3,685
---------- ---------- ----------
Net (loss) income from discontinued operation.............................. -- (543) 3,685
---------- ---------- ----------
Net loss................................................................... $ (2,136) $ (4,606) $ (580)
---------- ---------- ----------
---------- ---------- ----------
Pro forma net loss per common share........................................ $ (0.44)
----------
----------
</TABLE>
See Notes to Consolidated Financial Statements.
12
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOV. 29, NOV. 30,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................ $ 11,519 $ 7,371
Accounts receivable, less allowance of $456 and $302................................. 4,745 3,962
Inventories.......................................................................... 25,343 27,530
Deferred income taxes................................................................ 1,858 4,047
Other current assets................................................................. 1,903 1,158
------------ ------------
TOTAL CURRENT ASSETS................................................................. 45,368 44,068
Real estate held for sale or lease, net.............................................. 26,429 26,697
Equity investments................................................................... 15,061 14,695
Property and equipment, net.......................................................... 12,524 12,841
Other assets, including investments in real estate joint ventures
of $3,261 and $3,403............................................................... 3,368 3,474
------------ ------------
TOTAL ASSETS......................................................................... $ 102,750 $ 101,775
------------ ------------
------------ ------------
LIABILITIES, STOCKHOLDERS' EQUITY AND CULBRO INVESTMENT
CURRENT LIABILITIES
Accounts payable and accrued liabilities............................................. $ 4,980 $ 7,093
Long-term debt due within one year................................................... 244 277
------------ ------------
TOTAL CURRENT LIABILITIES............................................................ 5,224 7,370
Long-term debt....................................................................... 2,830 38,846
Other noncurrent liabilities......................................................... 4,173 8,110
------------ ------------
TOTAL LIABILITIES.................................................................... 12,227 54,326
COMMITMENTS AND CONTINGENCIES (SEE NOTE 15).......................................... -- --
Culbro Investment.................................................................... -- 47,449
Common stock, par value $0.01 per share, authorized 10,000,000 shares, issued and
outstanding 4,743,590 shares 47 --
Additional paid in capital........................................................... 92,950 --
Accumulated deficit.................................................................. (2,474) --
------------ ------------
TOTAL STOCKHOLDERS' EQUITY AND CULBRO INVESTMENT..................................... 90,523 47,449
------------ ------------
TOTAL LIABILITIES, STOCKHOLDERS' EQUITY AND CULBRO INVESTMENT........................ $ 102,750 $ 101,775
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
13
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
-------------------------------
<S> <C> <C> <C>
NOV. 29, NOV. 30, DEC. 2,
1997 1996 1995
--------- --------- ---------
OPERATING ACTIVITIES:
Net loss......................................................................... $ (2,136) $ (4,606) $ (580)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization.................................................... 1,921 2,405 2,416
Loss (income) from discontinued operation, before tax............................ -- 4,198 (6,265)
(Income) loss from equity investments............................................ (366) (303) 153
Discount and interest on subordinated note....................................... -- 2,167 2,349
Accretion and dividend income on preferred stock of Eli Witt..................... -- (2,167) (2,349)
Proceeds from sale of investment in real estate joint venture.................... -- 4,042 --
Additions to real estate held for sale or lease.................................. (953) (592) (802)
Deferred income taxes............................................................ (1,085) (7,739) 1,533
Changes in assets and liabilities which increased (decreased) cash:
Accounts receivable.............................................................. (937) (303) (177)
Inventories...................................................................... 2,187 (1,599) (1,159)
Accounts payable and accrued liabilities......................................... (579) (1,474) 499
Other, net....................................................................... 33 3,746 511
--------- --------- ---------
Net cash used in operating activities of continuing operations................... (1,915) (2,225) (3,871)
Cash provided by operating activities of discontinued operation.................. -- 3,547 9,435
--------- --------- ---------
Net cash (used in) provided by operating activities.............................. (1,915) 1,322 5,564
--------- --------- ---------
INVESTING ACTIVITIES:
Additions to property and equipment.............................................. (936) (1,378) (847)
Proceeds from sale of discontinued operation..................................... -- 35,030 --
Investment in Eli Witt subordinated note......................................... -- -- (5,000)
Investing activities of discontinued operation................................... -- (947) (1,450)
--------- --------- ---------
Net cash (used in) provided by investing activities.............................. (936) 32,705 (7,297)
--------- --------- ---------
FINANCING ACTIVITIES:
Increase in debt (prior to Liability Assumption)................................. 7,422 -- --
Net transactions with Culbro..................................................... (560) (9,244) 17,453
Proceeds from exercise of stock options.......................................... 408 -- --
Payments of debt................................................................. (271) (25,099) (14,829)
--------- --------- ---------
Net cash provided by (used in) financing activities.............................. 6,999 (34,343) 2,624
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................. 4,148 (316) 891
Cash and cash equivalents at beginning of year................................... 7,371 7,687 6,796
--------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 11,519 $ 7,371 $ 7,687
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
14
<PAGE>
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
Prior to July 3, 1997, Griffin Land & Nurseries, Inc. ("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. The accompanying consolidated financial statements of 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 4) and is reported as a
discontinued operation in these statements. 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.
See Note 3 for consolidated condensed unaudited pro forma financial information.
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.
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, leases and
manages commercial and industrial properties and develops residential
subdivisions on real estate in Connecticut and Massachusetts that was previously
owned by Culbro and transferred to Griffin in accordance with the Distribution
Agreement (see Note 2).
FISCAL YEAR
Griffin's fiscal year ends on the Saturday nearest November 30. Fiscal years
1997, 1996 and 1995 each contained 52 weeks and ended November 29, 1997,
November 30, 1996 and December 2, 1995, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit, bank commercial paper and
Eurodollar deposits. The bank commercial paper and Eurodollar deposits mature
within 90 days of purchase.
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.
15
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 8.
PER SHARE RESULTS
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro.
Accordingly, per share results are presented on a pro forma basis. For periods
prior to the Distribution of Griffin common stock to Culbro's shareholders, pro
forma per share results reflect the weighted average common shares outstanding
equal to Culbro's weighted average common shares outstanding because the Griffin
common stock was distributed to Culbro's shareholders on a one-for-one basis.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 requires companies to present basic earnings per share and,
if applicable, diluted earnings per share instead of primary and fully diluted
earnings per share. Basic earnings per share include the weighted-average number
of common shares outstanding during the period, and does not include common
stock equivalents. Under SFAS No. 128, diluted earnings per share include the
weighted-average shares outstanding and common stock equivalents. SFAS No. 128
must be adopted by Griffin in fiscal 1998. Early adoption of SFAS No. 128 is not
permitted. See Note 10.
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.
16
<PAGE>
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").
See Note 3 for the pro forma effect of the Liability Assumption on Griffin's
results of operations.
3. CONSOLIDATED CONDENSED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
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 the 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)
<TABLE>
<S> <C>
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
---------
Loss from continuing operations.......................... $ (1,676)
---------
---------
Loss per share from continuing operations................ $ (0.34)
---------
---------
</TABLE>
17
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. BUSINESS DISPOSITION
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 fiscal
1996 through the date of sale and $51.0 million in fiscal 1995.
5. INDUSTRY SEGMENT INFORMATION
Griffin's businesses operate in the landscape nursery and real estate
industry segments (See Note 1). Griffin has no operations outside the United
States. Griffin's export sales are not material. Capital expenditures and
depreciation and amortization presented herein include amounts related to
capital leases.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES AND OTHER REVENUE
Landscape nursery........................................ $ 42,618 $ 37,045 $ 34,894
Real estate.............................................. 3,670 9,486 6,862
---------- ---------- ----------
$ 46,288 $ 46,531 $ 41,756
---------- ---------- ----------
---------- ---------- ----------
OPERATING PROFIT (LOSS)
Landscape nursery (a).................................... $ (1,433) $ 1,650 $ 1,732
Real estate.............................................. (202) (300) 1,228
---------- ---------- ----------
Industry segment totals.................................. (1,635) 1,350 2,960
General corporate expense, net (b)....................... 1,601 2,595 2,150
Other nonoperating income, net........................... -- 1,917 923
Interest expense, net.................................... 736 7,805 8,193
---------- ---------- ----------
Loss before income tax benefit........................... $ (3,972) $ (7,133) $ (6,460)
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS
Landscape nursery........................................ $ 46,558 $ 44,113 $ 43,046
Real estate.............................................. 31,320 31,499 41,063
---------- ---------- ----------
Industry segment totals.................................. 77,878 75,612 84,109
General corporate........................................ 24,872 26,163 39,438
Net assets of discontinued operation..................... -- -- 42,108
---------- ---------- ----------
$ 102,750 $ 101,775 $ 165,655
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(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 current 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.
18
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
5. 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).
<TABLE>
<CAPTION>
DEPRECIATION AND
CAPITAL EXPENDITURES AMORTIZATION
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
Landscape nursery.................... $ 861 $ 1,258 $ 789 $ 1,145 $ 1,116 $ 1,132
Real estate.......................... 4 120 58 772 889 917
--------- --------- --------- --------- --------- ---------
Industry segment totals.............. 865 1,378 847 1,917 2,005 2,049
General Corporate.................... 71 -- -- 4 400 367
--------- --------- --------- --------- --------- ---------
$ 936 $ 1,378 $ 847 $ 1,921 $ 2,405 $ 2,416
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
CULBRO INVESTMENT
Through the Distribution, Griffin maintained an intercompany account with
Culbro in which intercompany transactions, including cash transfers and the
liability for benefit and insurance costs and allocated general and
administrative expenses (described below) were recorded. The balance in the
intercompany account at the end of 1996 and 1995 was included in Culbro
Investment in the consolidated balance sheet. The Culbro Investment account also
included the cumulative results of Griffin and its capital stock. Concurrent
with the distribution of Griffin common stock to Culbro's shareholders on July
3, 1997, the balance in the Culbro Investment account was reclassified to common
stock and additional paid-in capital (see Note 10). The changes in the Culbro
Investment account are summarized as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED,
-------------------------------
<S> <C> <C> <C>
NOV. 29, NOV. 30, DEC. 2,
1997 1996 1995
--------- --------- ---------
Balance beginning of period.................................. $ 47,449 $ 61,299 $ 44,426
Net income (loss) prior to Distribution in 1997.............. 338 (4,606) (580)
Transactions with Culbro..................................... (560) (9,244) 17,453
Liability Assumption (see Note 2)............................ 44,541 -- --
Reclassification of balance in Culbro
Investment to common stock & additional
paid-in capital............................................ (91,768) -- --
--------- --------- ---------
Balance end of period........................................ $ -- $ 47,449 $ 61,299
--------- --------- ---------
--------- --------- ---------
</TABLE>
TREASURY
Through the Distribution Agreement date (February 27, 1997), Griffin's
treasury activities were integrated in Culbro's cash management system.
Griffin's cash receipts were transferred daily into Culbro's cash account and
Griffin's cash disbursement accounts were reimbursed by Culbro on a daily basis.
The difference between cash transferred by Griffin to Culbro and reimbursements
by Culbro to Griffin's
19
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
disbursement accounts was reflected in Culbro Investment in the consolidated
balance sheet. Pursuant to the Distribution Agreement, Griffin's treasury
activities were separated from Culbro and its other subsidiaries from the date
of the Distribution Agreement through the actual Distribution of Griffin's
common stock to Culbro's shareholders.
INTERCOMPANY ACTIVITIES
Prior to the Distribution, Griffin's employees participated in certain
benefit programs which were sponsored and administered by Culbro. See Note 9 for
discussion of employee benefit plan costs. Griffin's risk insurance and employee
medical coverage were provided through insurance policies and programs purchased
by Culbro on behalf of Griffin and Culbro's other subsidiaries. The cost of
these items was allocated based on the specific insurance data related to each
subsidiary of Culbro. All direct charges relating to Griffin for these services,
and Griffin's participation in these plans, were charged to Griffin by Culbro
and included in Griffin's consolidated financial statements through the date of
the Distribution. Prior to the Distribution, a portion of Culbro management time
and resources were related to the operations of Griffin, and Culbro also
performed certain specific administrative functions for Griffin, including
legal, tax, treasury, human resources and internal audit. In addition to the
direct charges for employee benefits and risk insurance described above, the
consolidated statement of operations reflects general and administrative
expenses of $1.0 million in 1997 through the Distribution and $1.8 million and
$2.1 million for fiscal 1996 and fiscal 1995, respectively, allocated by Culbro
to Griffin for these services. These charges were based principally on Griffin's
proportionate share of expenses relating to the Culbro corporate activities
associated with Griffin's operations and are considered by management to be
reasonable. These amounts may not necessarily be indicative of the actual
general and administrative expenses Griffin would have incurred had it operated
independently prior to the Distribution.
In lieu of Griffin being charged interest on its intercompany balance with
Culbro, all of the interest on Culbro's general corporate debt was included in
Griffin's consolidated statement of operations through the date of the Liability
Assumption (see Notes 2 and 3). All of the general corporate debt of Culbro was
included in Griffin's financial statements because management determined that
this debt related to Culbro's nontobacco businesses.
LEASES
Griffin, as lessor, and General Cigar Co., Inc. ("General Cigar"), a
wholly-owned subsidiary of GC Holdings, as lessee, have entered into leases for
certain agricultural land in Connecticut and Massachusetts (the "Agricultural
Lease") and for certain commercial office space in Connecticut (the "Commercial
Lease"). The Agricultural Lease is for approximately 500 acres of arable land
held by Griffin for possible development in the long-term, but which will be
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. The Commercial Lease is for approximately
40,000 square feet of office space in the Griffin Center South office complex in
Bloomfield, Connecticut. The
20
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Commercial Lease has an initial term of ten years and provides for the extension
of the lease for additional periods thereafter. Management believes the rent
payable by General Cigar under the Commercial Lease is at market rates.
SERVICES AGREEMENT
Culbro (GC Holdings following the Merger) and Griffin entered into a
services agreement (the "Services Agreement") pursuant to which Culbro agreed to
provide a number of administrative and other services to Griffin for a period of
at least one year. These services include administration of certain of Griffin's
insurance policies, internal audit, preparation of tax returns, transportation
and general in-house legal services. Griffin will make an annual payment of
approximately $0.6 million to, and will reimburse out-of-pocket expenses
incurred by, Culbro in connection with such services.
7. 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. Accordingly, Griffin's income taxes payable
were included in Culbro Investment through the date of the Distribution.
Subsequent to the Distribution, Griffin will file separate tax returns from its
former parent company. The income tax provisions and deferred tax liabilities in
the accompanying financial statements have been calculated in accordance with
SFAS No. 109 "Accounting for Income Taxes" as if Griffin had filed separate tax
returns for the periods prior to the Distribution. The income tax (benefit)
provision for fiscal 1997, fiscal 1996 and fiscal 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Continuing operations:
Current federal............................................. $ (680) $ 1,788 $ (2,973)
Current state and local..................................... (208) 138 (205)
Deferred, principally federal............................... (582) (4,693) 830
--------- --------- ---------
Income tax benefit from continuing operations................. (1,470) (2,767) (2,348)
--------- --------- ---------
Discontinued operation:
Current federal............................................. -- (553) 2,057
Current state and local..................................... -- (277) 292
Deferred, principally federal............................... -- (2,825) 231
--------- --------- ---------
Income tax (benefit) provision from discontinued operation.... -- (3,655) 2,580
--------- --------- ---------
Total income tax (benefit) provision.......................... $ (1,470) $ (6,422) $ 232
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax benefit at statutory rates................................ $ (1,350) $ (2,497) $ (2,261)
State and local income taxes.................................. (137) 90 (133)
Other......................................................... 17 (360) 46
--------- --------- ---------
$ (1,470) $ (2,767) $ (2,348)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The significant components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
NOV. 29, NOV. 30,
1997 1996
--------- ---------
<S> <C> <C>
Inventories.............................................................. $ 2,391 $ 1,880
Depreciation............................................................. (2,250) (1,390)
NOL carryover............................................................ 1,414 --
Accrued expenses......................................................... 743 1,900
Other.................................................................... (440) 1,657
--------- ---------
$ 1,858 $ 4,047
--------- ---------
--------- ---------
</TABLE>
In connection with the Distribution Agreement, 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.
8. LONG-TERM DEBT
Long-term debt includes:
<TABLE>
<CAPTION>
NOV. 29, NOV. 30,
1997 1996
--------- ---------
<S> <C> <C>
Credit Agreement......................................................... $ -- $ 36,000
Mortgages................................................................ 2,573 2,644
Capital leases........................................................... 501 479
--------- ---------
Total.................................................................... 3,074 39,123
Less: due within one year................................................ 244 277
--------- ---------
Total long-term debt..................................................... $ 2,830 $ 38,846
--------- ---------
--------- ---------
</TABLE>
The decrease in long-term debt reflects the effect of the Liability
Assumption, whereby, on February 27, 1997, in accordance with the Distribution
Agreement (see Note 2), GC Holdings assumed Culbro's general corporate debt that
had been included in Griffin's historical financial statements. Accordingly,
this
22
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. LONG-TERM DEBT (CONTINUED)
debt was not part of Griffin's debt structure subsequent to February 27, 1997.
Interest expense incurred on Culbro's general corporate debt that was included
in Griffin's Statement of Operations was $0.7 million in fiscal 1997 prior to
the Liability Assumption and $7.3 million and $7.6 million in fiscal 1996 and
fiscal 1995, respectively. Culbro had entered into two interest rate swap
agreements with major banks as a hedge against interest rate exposure on its
variable rate debt. The effect of these swap agreements was to decrease interest
expense that is reflected in Griffin's results of operation in fiscal 1996 and
fiscal 1995 by $0.1 million and $0.6 million, respectively, reflecting payments
received from the banks under these agreements.
As of November 29, 1997, the annual principal payment requirements under the
terms of the mortgages are $0.1 million for each of the years 1998 through 2002.
The mortgages are on two office buildings and three industrial buildings which
had a combined net book value of $3.7 million at November 29, 1997. The interest
rates on these mortgages range from 9.0% to 10.2%.
In October 1996, Griffin Land satisfied a nonrecourse mortgage of
approximately $3.8 million on a commercial property by transferring the property
to the lender in satisfaction of the outstanding mortgage. The net book value of
the property was substantially equal to the mortgage balance.
In November 1996, Griffin exchanged shares of preferred stock of Eli Witt in
satisfaction of the principal and accrued interest on a $15 million subordinated
note payable to a third party originally due August 1998. Interest expense in
fiscal 1996 and fiscal 1995 included $0.8 million and $0.9 million,
respectively, for amortization of the original issue discount on the
subordinated note.
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.
9. RETIREMENT BENEFITS
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, fiscal 1996 and fiscal 1995
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 its 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 did not incur 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 will be assumed by GC
Holdings.
23
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
9. RETIREMENT BENEFITS (CONTINUED)
SAVINGS PLAN
Subsequent to the Distribution, Griffin established the Griffin Land &
Nurseries, Inc. 401(k) Savings Plan ("Griffin Savings Plan") for its employees.
Prior to establishment of the Griffin Savings Plan, 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 $0.1 million per year in fiscal 1997, fiscal 1996 and
fiscal 1995.
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 1997, fiscal 1996 and fiscal
1995. 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.
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 29, 1997 and November 30, 1996.
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Retirees..................................................................... $ -- $ 905
Fully eligible active participants........................................... 78 317
Other active participants.................................................... 201 105
Unrecognized net gain from experience differences
and assumption changes..................................................... (7) 213
--------- ---------
Liability for other postretirement benefits.................................. $ 272 $ 1,540
--------- ---------
--------- ---------
</TABLE>
Discount rates of 7.5% and 7.75% were used to compute the accumulated
postretirement benefit obligations at November 29, 1997 and November 30, 1996,
respectively. Because Griffin's obligation for 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.
24
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCKHOLDERS' EQUITY
Effective with the Distribution, the Culbro Investment account was
reclassified into common stock and additional paid in capital. Activity in
Griffin's stockholders' equity accounts subsequent to the Distribution was as
follows:
<TABLE>
<CAPTION>
ADDITIONAL
PAID ACCUMULATED
COMMON STOCK IN CAPITAL DEFICIT
----------------- -------------- ------------
<S> <C> <C> <C>
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 Nov. 29, 1997....................... $ 47 $ 92,950 $ (2,474)
--- ------- ------------
--- ------- ------------
</TABLE>
CULBRO STOCK OPTION PLANS
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, par value $0.01 per share, of Griffin 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 Culbro stock options
outstanding under the Culbro 1996 Stock Plan, the 1992 Stock Plan and the 1991
Employees Incentive Stock Option Plan, (collectively, the "Culbro Stock Plans")
for officers and key employees. The options had been granted at prices equal to
the fair market value of Culbro common stock at the date of grant. A portion of
the options outstanding under these plans may be exercised as incentive stock
options, which under current tax laws will not provide any tax deductions to
Griffin. Substantially all of the Culbro options outstanding under the Culbro
Stock Plans that were converted to Griffin options were vested as of the date of
Distribution. None of the options outstanding at November 29, 1997 under the
Culbro Stock Plans may be exercised as stock appreciation rights.
At the time of the Distribution, there also were Culbro stock options
outstanding under the 1996 Stock Option Plan for Nonemployee Directors and the
1992 Stock Option Plan for Nonemployee Directors (collectively, the "Culbro
Nonemployee Plans"). The options had been granted at prices equal to fair market
value of Culbro common stock at the date of grant. Additionally, at the time of
the Distribution, there were Culbro stock options outstanding in accordance with
the terms of an employment agreement entered into in May 1994 between Culbro and
an officer of Culbro. All of the Culbro options outstanding under the Culbro
Nonemployee Plans and the employment agreement that were converted to
25
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCKHOLDERS' EQUITY (CONTINUED)
Griffin options were vested as of the date of the Distribution. A summary of the
activity related to the plans listed above is as follows:
<TABLE>
<S> <C>
Culbro options converted to Griffin options at time of
Distribution.................................................... 438,202
Exercised subsequent to the Distribution.......................... 184,481
---------
Outstanding at November 29, 1997.................................. 253,721
---------
---------
Option prices range between....................................... $0.43
and
$8.51
Number of option holders as of November 29, 1997.................. 11
</TABLE>
GRIFFIN STOCK OPTION PLAN
Effective as of the Distribution date, Griffin established the Griffin Land
& Nurseries, Inc. 1997 Stock Option Plan (the "Griffin Stock Option Plan"). A
total of 700,000 shares of common stock were made available for issuance under
the Griffin Stock Option Plan. Of such 700,000 shares, 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 shares were made available for the conversion of the
Culbro options to Griffin options at the time of the Distribution (see above).
The Griffin Stock Option Plan is administered by the Compensation Committee of
the Board of Directors of Griffin. 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. All of
the options granted under the Griffin Stock Option Plan subsequent to the
Distribution were granted at prices equal to fair market value of Griffin common
stock at the date of grant and become vested in equal increments on the third,
fourth and fifth anniversaries of the grant date. The options granted subsequent
to the Distribution under the Griffin Stock Option Plan expire ten years from
the date of grant. A summary of the activity related to options issued
subsequent to the Distribution under the Griffin Stock Option Plan is as
follows:
<TABLE>
<S> <C>
Options granted subsequent to the Distribution and outstanding at
November 29, 1997............................................... 229,000
---------
---------
Options prices range between...................................... $13.88
and
$14.69
Number of option holders.......................................... 9
</TABLE>
STOCK-BASED COMPENSATION
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation." This statement establishes a fair value method of
accounting for, or disclosing, stock-based compensation plans. Griffin is
accounting 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
26
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. STOCKHOLDERS' EQUITY (CONTINUED)
of accounting for stock-based compensation. Griffin's loss from continuing
operations and loss per common share from continuing operations would have been
the following pro forma amounts under the method prescribed by SFAS No. 123.
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Net loss as reported................................................................ $ (2,136)
Net loss pro forma.................................................................. $ (2,228)
Net loss per common share as reported............................................... $ (0.44)
Net loss per common share, pro forma................................................ $ (0.46)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1997; 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 Griffin was previously a subsidiary of
Culbro, the expected option term was developed using Culbro's historical grant
and exercise information.
PER SHARE RESULTS
The pro forma weighted average shares used in the calculation of pro forma
per share results for fiscal 1997 was approximately 4,800,000. In February 1997,
the FASB issued SFAS No. 128, which requires companies to present basic earnings
per share and, if applicable, diluted earnings per share instead of primary and
fully diluted earnings per share. There was no material difference between pro
forma basic loss per share and pro forma diluted loss per share than the amounts
reported for pro forma primary loss per share.
11. LEASES
CAPITAL LEASES
Future minimum lease payments under capital leases for transportation
equipment and the present value of such payments as of November 29, 1997 were:
<TABLE>
<S> <C>
1998................................................................. $ 229
1999................................................................. 185
2000................................................................. 99
2001................................................................. 45
---------
Total minimum lease payments......................................... 558
Less: amounts representing interest.................................. 57
---------
Present value of minimum lease payments (a).......................... $ 501
---------
---------
</TABLE>
(a) Includes current portion of $0.2 million at November 29, 1997.
At November 29, 1997 and November 30, 1996, machinery and equipment included
capital leases amounting to $0.5 million, which is net of accumulated
depreciation of $1.5 million at both November 29, 1997 and November 30, 1996.
Depreciation expense relating to capital leases was $0.2 million per year in
fiscal 1997, fiscal 1996 and fiscal 1995.
27
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
11. LEASES (CONTINUED)
OPERATING LEASES
Future minimum rental payments for the next five years under noncancelable
leases as of November 29, 1997 were:
<TABLE>
<S> <C>
1998................................................................ $ 427
1999................................................................ 426
2000................................................................ 311
2001................................................................ 203
2002................................................................ 136
Later years......................................................... 70
---------
Total minimum lease payments........................................ $ 1,573
---------
---------
</TABLE>
Total rental expense for all operating leases was $0.4 million in fiscal
1997 and $0.3 million per year in fiscal 1996 and fiscal 1995.
As lessor, Griffin Land's real estate activities include the leasing of
office and industrial space in Connecticut. Future minimum rentals to be
received under noncancelable leases as of November 29, 1997 were:
<TABLE>
<S> <C>
1998............................................................... $ 1,978
1999............................................................... 1,815
2000............................................................... 1,794
2001............................................................... 1,627
2002............................................................... 1,535
Later years........................................................ 2,701
---------
Total minimum rental revenue....................................... $ 11,450
---------
---------
</TABLE>
Total rental revenue from all leases was $1.9 million, $2.5 million and $2.8
million in fiscal 1997, fiscal 1996 and fiscal 1995, respectively.
12. EQUITY INVESTMENTS
INVESTMENTS IN CENTAUR AND LINGUAPHONE
In accordance with the Asset Transfers (see Note 2), Culbro transferred to
Griffin its ownership of approximately 25% of the outstanding common stock of
Centaur, which is primarily engaged in the publishing business in the United
Kingdom. On September 3, 1997, Centaur distributed the common stock of its
subsidiary, Linguaphone Group PLC ("Linguaphone") to Centaur's shareholders.
Accordingly, Griffin received approximately 25% of the outstanding common stock
of Linguaphone. Griffin's book value in its investments in Centaur and
Linguaphone was $11.8 million and $3.3 million, respectively, at November 29,
1997. Approximately $6.6 million of the book value of Griffin's investment in
Centaur represents the excess of the cost of Griffin's investment over the book
value of its equity in Centaur and is being amortized on a straight-line basis
over 40 years, which commenced in 1985.
28
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. EQUITY INVESTMENTS (CONTINUED)
Centaur reports on a June 30 fiscal year. The unaudited summarized financial
data presented below was derived from Centaur's audited financial statements
adjusted to report on a fiscal year consistent with Griffin. Centaur's financial
statements are prepared in accordance with generally accepted accounting
principles in the United Kingdom. Griffin's equity income reflects certain
adjustments to reflect Centaur's results in accordance with generally accepted
accounting principles in the United States. Such adjustments included an expense
in fiscal 1997 for stock option compensation of which Griffin's share was $0.6
million.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED,
-------------------------------
<S> <C> <C> <C>
NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995
--------- --------- ---------
Net sales.................................................... $ 85,713 $ 69,450 $ 61,227
Costs and expenses........................................... 79,948 65,932 60,816
--------- --------- ---------
Income before taxes.......................................... 5,765 3,518 411
Income taxes................................................. 3,217 1,544 387
--------- --------- ---------
Net Income................................................... $ 2,548 $ 1,974 $ 24
--------- --------- ---------
--------- --------- ---------
<CAPTION>
NOV. 30, NOV. 30,
1997 1996
--------- ---------
<S> <C> <C> <C>
Current assets............................................... $ 27,345 $ 27,514
Intangible assets............................................ 7,510 21,278
Other noncurrent assets...................................... 7,015 6,270
--------- ---------
Total assets................................................. $ 41,870 $ 55,062
--------- ---------
--------- ---------
Current liabilities.......................................... $ 18,844 $ 15,246
Other noncurrent liabilities................................. 6,549 5,404
--------- ---------
Total liabilities............................................ 25,393 20,650
Shareholders' equity......................................... 16,477 34,412
--------- ---------
Total liabilities and shareholders' equity................... $ 41,870 $ 55,062
--------- ---------
--------- ---------
</TABLE>
REAL ESTATE JOINT VENTURES
Included in other assets at November 29, 1997 and November 30, 1996, is $3.3
million and $3.4 million, respectively, for Griffin's 30% interest in a real
estate joint venture that owns commercial properties in Connecticut. Results of
this investment are included in operating profit. In 1996, all of the assets of
another real estate joint venture were sold. Griffin received net proceeds of
$4.0 million from the sale and recorded a pretax loss on the sale of $0.4
million in 1996.
29
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
OTHER EXPENSE
Other expense in 1996 includes the allocation to Griffin of charges recorded
by Culbro in connection with the termination of a management long-term incentive
compensation plan which was based on Culbro's stock price, and the acceleration
of the vesting of benefits under that plan, and accruals for severance and
related expenses in connection with a headcount reduction at the Culbro
corporate office in anticipation of the Distribution. Griffin's allocable share
of these expenses was determined substantially on the same basis as the
allocation of Culbro's general and administrative expenses referred to in Note 6
and is considered by management to be reasonable.
OTHER NONOPERATING INCOME, NET
Included in other nonoperating income, net, in fiscal 1996 and fiscal 1995,
was the accrual of dividend and accretion income on the preferred stock of Eli
Witt that was held by Griffin, which was equal to the interest expense on the
subordinated note, that was satisfied by the exchange of the preferred stock in
1996. In 1995, other nonoperating income, net, also included expenses related to
Griffin's support of the refinancing of Eli Witt.
INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
NOV. 29, NOV. 30,
1997 1996
--------- ---------
<S> <C> <C>
Nursery stock........................................................... $ 23,224 $ 25,651
Finished goods.......................................................... 1,255 1,137
Materials and supplies.................................................. 864 742
--------- ---------
$ 25,343 $ 27,530
--------- ---------
--------- ---------
</TABLE>
Results at Imperial 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.
PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
ESTIMATED USEFUL NOV. 29, NOV. 30,
LIVES 1997 1996
---------------- --------- ---------
<S> <C> <C> <C>
Land and improvements................................. $ 6,205 $ 6,147
Buildings............................................. 10 to 40 years 3,824 3,807
Machinery and equipment............................... 3 to 20 years 12,714 12,337
--------- ---------
22,743 22,291
Accumulated depreciation.............................. (10,219) (9,450)
--------- ---------
$ 12,524 $ 12,841
--------- ---------
--------- ---------
</TABLE>
30
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION (CONTINUED)
Total depreciation expense related to property and equipment was $1.2
million per year in fiscal 1997, fiscal 1996 and fiscal 1995.
REAL ESTATE HELD FOR SALE OR LEASE
Real estate held for sale or lease consists of:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL NOV. 29, NOV. 30,
LIVES 1997 1996
----------- --------- ---------
<S> <C> <C> <C>
Land....................................................... $ 4,808 $ 4,778
Land improvements.......................................... 10,967 10,650
Buildings.................................................. 40 years 17,438 17,340
--------- ---------
33,213 32,768
Accumulated depreciation................................... (6,784) (6,071)
--------- ---------
$ 26,429 $ 26,697
--------- ---------
--------- ---------
</TABLE>
Total depreciation expense related to real estate held for sale or lease was
$0.7 million in fiscal 1997 and $0.8 million per year in fiscal 1996 and fiscal
1995.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include trade payables of $3.0 million
and $2.0 million at November 29, 1997 and November 30, 1996, respectively;
accrued salaries, wages and other compensation of $0.6 million and $1.2 million
at November 29, 1997 and November 30, 1996, respectively; and other accrued
liabilities of $1.3 million and $3.9 million at November 29, 1997 and November
30, 1996, respectively.
SUPPLEMENTAL CASH FLOW INFORMATION
Prior to the Distribution, interest and tax payments were made by Culbro on
behalf of Griffin. Griffin will be included in Culbro's consolidated federal
income tax returns through the Distribution date (see Note 7). Accordingly, tax
and interest payments made by Culbro are reflected in Net Transactions with
Culbro on the consolidated statement of cash flows. Interest payments were $1.0
million, $5.9 million and $6.0 million in fiscal 1997, fiscal 1996 and fiscal
1995, respectively, including payments of $0.7 million, $5.4 million and $5.4
million in fiscal 1997, fiscal 1996 and fiscal 1995, respectively, under
Culbro's general corporate debt facilities that were either repaid by Griffin or
transferred to GC Holdings pursuant to the Distribution Agreement.
On February 27, 1997 in accordance with the Distribution Agreement, 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. On July 3, 1997 Culbro
distributed to its shareholders the common stock of Griffin. In 1996, Griffin
Land exchanged a commercial property in satisfaction of the outstanding
nonrecourse mortgage on that property. Also in 1996, Griffin exchanged preferred
stock of Eli Witt that it held in satisfaction of a subordinated note payable
and all accrued interest thereon. There was no cash paid or received in any of
these transactions, therefore they are not reflected on the Consolidated
Statement of Cash Flows.
31
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial data are presented below:
<TABLE>
<CAPTION>
1996 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales and other revenue................................ $ 3,352 $ 18,238 $ 11,110 $ 13,831 $ 46,531
Gross profit............................................... 944 5,490 3,452 2,435 12,321
Income (loss) from continuing operations................... (1,967) 455 (1,015) (1,536) (4,063)
Net income (loss).......................................... (1,471) 727 (2,326) (1,536) (4,606)
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS 1ST 2ND 3RD 4TH TOTAL
- ------------------------------------------------------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales and other revenue................................. $ 2,725 $ 20,905 $ 10,878 $ 11,780 $ 46,288
Gross profit................................................ 782 6,336 313 3,090 10,521
Net income (loss)........................................... (2,013) 1,989 (1,651) (461) (2,136)
Pro forma net income (loss) per share....................... (0.42) 0.41 (0.33) (0.09) (0.44)
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
As a result of the Asset Transfers described in Note 2, Griffin acquired the
50.1% interest in Eli Witt previously held by Culbro. In 1993 and 1994, Culbro,
Eli Witt and other parties engaged in two complex acquisitions and
reorganizations, pursuant to which Culbro received significant distributions
from Eli Witt to repay debt, including substantial amounts Culbro had previously
borrowed from unaffiliated third parties to fund Eli Witt's business. Culbro
subsequently loaned $5 million to Eli Witt. In 1996, Eli Witt filed for
protection under Chapter 11 of the Federal Bankruptcy Law. In connection with
such filing, Eli Witt sold all of its operating assets to another wholesale
distributor in March 1997. Shareholders of Eli Witt did not receive any proceeds
from the sale, and Griffin had no investment related to Eli Witt on its 1997 or
1996 consolidated balance sheets. These transactions (including the transfer of
funds to Culbro) have been reviewed by Eli Witt's creditors and other parties in
interest in connection with Eli Witt's Chapter 11 filing. Although Griffin
believes that any claim challenging the distributions described above would be
without merit, any such claim, if asserted and successfully prosecuted, could
have a material adverse effect on Griffin's financial condition. Recently, the
bankruptcy court confirmed Eli Witt's plan of reorganization. The Plan permitted
Eli Witt to sell certain real property on which Griffin holds a second mortgage.
In connection with a motion to approve the sale of such property, Griffin and
Culbro would be released from any liability to Eli Witt, the creditors of Eli
Witt and any party claiming by or through the bankruptcy estate of Eli Witt in
return for release of Griffin's second mortgage on the property and a release of
its other claims in the bankruptcy. The bankruptcy court has not yet approved
the sale and the releases. As it is currently structured, the release is
contingent upon the sale. Furthermore, based upon recent communications from the
proposed buyer of the real property it appears unlikely that the sale (and
related releases) will be consummated. Management does not believe that this
matter will have a material adverse effect upon the financial condition of
Griffin.
Imperial has entered into a contract growing agreement with a supplier of
field grown plants. In accordance with the agreement, Imperial has agreed to
purchase inventory as it becomes available with an aggregate purchase price of
approximately $1.8 million over the next four years.
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Griffin Land & Nurseries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and cash flows present fairly, in all
material respects, the financial position of Griffin Land & Nurseries, Inc. and
its subsidiaries at November 29, 1997 and November 30, 1996, and the results of
their operations and their cash flows for the fiscal years ended November 29,
1997, November 30, 1996 and December 2, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of Griffin Land & Nurseries, Inc.; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the fiscal 1997 financial statements of Centaur
Communications, Ltd., an investment which is carried at equity in the
consolidated financial statements (see Note 12) and represents approximately
11.5% of consolidated assets. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for Centaur Communications, Ltd. included in the
consolidated financial statements for the year ended November 29, 1997, is based
on the report of the other auditors. We conducted our audits of these statements
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- ------------------
Hartford, Connecticut
February 18, 1998
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Centaur Communications Limited
Dear Sirs:
CENTAUR COMMUNICATIONS LIMITED ("THE COMPANY") AND ITS SUBSIDIARIES ("THE
GROUP")
We have audited the consolidated balance sheet of Centaur Communications
Limited and its subsidiaries as at June 30, 1997 and the related consolidated
statements of operations, of changes in shareholders' equity and of the cash
flows (which statements are not included herein) for the year ended June 30,
1997.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Company's directors are responsible for the preparation of the financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those financial statements and to report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with auditing standards generally
accepted in the United Kingdom and the United States.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Group for the year ended June 30, 1997 and have been
properly prepared in accordance with the Companies Act 1985.
United Kingdom accounting standards vary in certain important respects from
accounting principles generally accepted in the United States. The application
of the latter would have affected the determination of consolidated net profit
for the year ended June 30, 1997 and the determination of consolidated
shareholders' equity and consolidated financial position as at June 30, 1997 to
the extent summarized in note 33 to the consolidated financial statements.
/s/ GRANT THORNTON
Chartered Accountants
London
11 November 1997 (Except for Note 33 as to
which the date is February 25, 1998)
34
<PAGE>
ITEM 9--DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10-13--DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION
In accordance with General Instruction G-3 to Form 10-K, the information
called for in Item 10 with respect to directors and Items 11 through 13 with
respect to directors and executive officers is not presented here since such
information is to be included in the definitive proxy statement which involves
the election of directors which will be filed pursuant to Regulation 14A no
later than 120 days after the close of the fiscal year, and such information is
hereby incorporated by reference from such proxy statement.
The following table sets forth the information called for in this Item 10
with respect to executive officers of the corporation:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Edgar M. Cullman..................................... 80 Chairman of the Board and Director
Frederick M. Danziger................................ 58 President, Chief Executive Officer and Director
Anthony J. Galici.................................... 40 Chief Financial Officer
Richard L. Wyckoff................................... 37 President of Imperial Nurseries, Inc.
John L. Ernst........................................ 57 Director
Winston J. Churchill, Jr............................. 58 Director
David F. Stein....................................... 57 Director
Martha Collier....................................... 41 Senior Vice President of Marketing and Leasing
</TABLE>
EDGAR M. CULLMAN has been the Chairman of the Board of Griffin since April
1997. He has been Chairman of the Board of GC Holdings since December 1996. From
1962 to 1996 he served as Chief Executive Officer of Culbro. Mr. Cullman served
as a Director of Culbro from 1961 until 1997 and had been Chairman of Culbro
since 1975. He also is a Director of Centaur Communications Limited,
Bloomingdale Properties, Inc. and Eli Witt. Eli Witt filed for relief from its
creditors under Chapter 11 of the Federal Bankruptcy Code in November 1996.
Edgar M. Cullman is the uncle of John L. Ernst and the father-in-law of
Frederick M. Danziger.
FREDERICK M. DANZIGER has been a Director and the President and Chief
Executive Officer of Griffin since April 1997, was a director of Culbro from
1975 until 1997. He was previously involved in the real estate operations of
Griffin in the early 1980s. Mr. Danziger was Of Counsel to the law firm of
Latham & Watkins from 1995 until 1997. From 1974 until 1995, Mr. Danziger was a
Member of the law firm of Mudge Rose Guthrie Alexander & Ferdon. Mr. Danziger
also is a director of Monro Muffler/Brake, Inc., Bloomingdale Properties, Inc.,
Doral Financial Corporation and Centaur Communications Limited, and is a general
partner of Ryan Instruments, L.P.
ANTHONY J. GALICI has been the Chief Financial Officer of Griffin since
April 1997. Mr. Galici was Vice President-Assistant Controller of Culbro from
1995 until 1997. Prior to 1995, he was Assistant Controller of Culbro.
RICHARD L. WYCKOFF has been the President of Imperial Nurseries, Inc. since
August 1991. From 1990 until August 1991 he served as Vice President-Corporate
and Business Development of Culbro. Mr. Wyckoff currently holds numerous
positions on industry associations including The American Association of
Nurserymen and Horticulture Research Institute.
JOHN L. ERNST is a Director of Griffin and GC Holdings. He has been a
Director of Griffin since April 1997 and a director of GC Holdings since
December 1996. Mr. Ernst also was a Director of Culbro from 1983 until 1997. He
is the Chairman of the Board and President of Bloomingdale Properties, Inc., an
investment and real estate company. Mr. Ernst also is a director of the Doral
Financial Corporation.
35
<PAGE>
WINSTON J. CHURCHILL, JR. has been a Director of Griffin since April 1997.
Mr. Churchill is also Chairman of the Board of Central Sprinkler Corporation and
IBAH, Inc. and a member of the board of Geotek Communications, Inc. and Tescorp,
Inc. He is a managing general partner of SCP Private Equity Partners, L.P., a
private equity fund sponsored by Safeguard Scientifics Inc., and is chairman of
Churchill Investment Partners, Inc. and CIP Capital, Inc.
DAVID F. STEIN has been a Director of Griffin since November 1997. Mr. Stein
is Vice Chairman of J&W Seligman & Co. Inc., an asset management firm. He has
been Vice Chairman since 1996. Mr. Stein was Managing Director of J&W Seligman &
Co. Inc. from 1990 until 1996.
MARTHA COLLIER has been the Senior Vice President of Marketing and Leasing
of Griffin since 1997. From 1995 until 1997 she was a Vice President of Griffin,
and from 1989 until 1995 she was Controller of Griffin.
36
<PAGE>
PART IV
ITEM 14. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements--see Item 8 and pages S-1 through S-3
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Form of Distribution Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar
Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, as amended)
3.1 Form of Amended and Restated Certificate of Incorporation of Griffin Land & Nurseries, Inc. (incorporated
by reference to the Form 10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
3.2 Form of Bylaws of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin
Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.1 Form of Tax Sharing Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar
Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, amended)
10.2 Form of Benefits and Employment Matters Allocation Agreement among Culbro Corporation, Griffin Land &
Nurseries, Inc. and General Cigar Holdings, Inc. (incorporated by reference to the Registration
Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24, 1996, amended)
10.3 Form of Services Agreement among Culbro Corporation, Griffin Land & Nurseries, Inc. and General Cigar
Holdings, Inc. (incorporated by reference to the Registration Statement on Form S-1 of General Cigar
Holdings, Inc., filed December 24, 1996, amended)
10.4 Form of Agricultural Lease between Griffin Land & Nurseries, Inc. and General Cigar Holdings, Inc.
(incorporated by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc.,
filed December 24, 1996, amended)
10.5 Employment Agreement between Culbro Corporation and Jay M. Green, dated as of April 8, 1994 and as
amended on January 11, 1997 (incorporated by reference to the Registration Statement on Form S-1 of
General Cigar Holdings, Inc., filed December 24, 1996, amended)
10.6 Form of 1997 Stock Option Plan of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form
10 of Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.7 Form of 401(k) Plan of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of
Griffin Land & Nurseries, Inc., filed April 8, 1997, as amended)
10.8 1996 Stock Plan of Culbro Corporation dated as of March 15, 1996 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 15, 1996, for its Annual Meeting of
Shareholders held on April 11, 1996)
10.9 1992 Stock Plan of Culbro Corporation, dated December 10, 1993 (incorporated by reference to the
definitive proxy statement of Culbro Corporation, dated March 31, 1993, for its Annual Meeting of
Shareholders held on April 8, 1993)
10.10 Stock Option Plan for Non-employee Directors of Culbro Corporation, dated December 10, 1993 (incorporated
by reference to the definitive proxy statement of Culbro Corporation, dated March 3, 1993, for its
Annual Meeting of Shareholders held on April 8, 1993)
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.11 1991 Employees Incentive Stock Option Plan of Culbro Corporation, dated as of January 31, 1991 and as
amended on February 12, 1995 (incorporated by reference to the definitive proxy statement of Culbro
Corporation, dated April 9, 1991, for its Annual Meeting of Shareholders held on May 9, 1993)
10.12 Annual Incentive Compensation Plan of Culbro Corporation, dated as of December 7, 1995 (incorporated by
reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24,
1996, amended)
10.13 Annual Incentive Compensation Plan of General Cigar Co., Inc., dated as of December 7, 1995 (incorporated
by reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December
24, 1996, amended)
10.14 Long Term Performance Plan of Culbro Corporation for the three-year period 1995-1997 (incorporated by
reference to the Registration Statement on Form S-1 of General Cigar Holdings, Inc., filed December 24,
1996, amended)
10.15 Deferred Incentive Compensation Plan of Culbro Corporation, dated as of December 13, 1982 and as amended
on February 12, 1985 (incorporated by reference to the Registration Statement on Form S-1 of General
Cigar Holdings, Inc., filed December 24, 1996, amended)
21.1 Subsidiaries of Griffin Land & Nurseries, Inc. (incorporated by reference to the Form 10 of Griffin Land
& Nurseries, Inc., filed April 8, 1997, as amended)
23 Report of Independent Acountants on Financial Statement Schedules
27 Financial Data Schedule
</TABLE>
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
GRIFFIN LAND & NURSERIES, INC.
By: /s/ FREDERICK M. DANZIGER
-----------------------------------------
Frederick M. Danziger
CHIEF EXECUTIVE OFFICER
By: /s/ ANTHONY J. GALICI
-----------------------------------------
Anthony J. Galici
VICE PRESIDENT--FINANCE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed by the following persons on behalf of the
Corporation and in the capacities indicated as of February 26, 1998.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/S/ WINSTON J. CHURCHILL, Director
JR.
- ------------------------------
(Winston J. Churchill, Jr.)
/s/ EDGAR M. CULLMAN Chairman of the Board and
- ------------------------------ Director
(Edgar M. Cullman)
/s/ FREDERICK M. DANZIGER President, Director and
- ------------------------------ Chief Executive Officer
(Frederick M. Danziger)
/s/ JOHN L. ERNST Director
- ------------------------------
(John L. Ernst)
/s/ ANTHONY J. GALICI Vice President, Finance
- ------------------------------
(Anthony J. Galici)
/s/ DAVID F. STEIN Director
- ------------------------------
(David F. Stein)
39
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
INDEX TO ADDITIONAL FINANCIAL DATA
The following additional financial data should be read in conjunction with
the financial statements in such 1997 Annual Report to Stockholders. Schedules
not included with this additional financial data have been omitted because they
are not applicable or the required information is shown in the financial
statements or notes thereto.
<TABLE>
<CAPTION>
SCHEDULE PAGE
- ------------ ------------
<C> <C> <S> <C>
II -- Valuation and Qualifying Accounts and Reserves................................... S-1
III -- Real Estate and Accumulated Depreciation......................................... S-2/S-3
</TABLE>
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES OF YEAR
- ------------------------------------------------- ----------- ------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
FOR FISCAL YEAR ENDED NOVEMBER 29, 1997
Reserves:
Uncollectible accounts--trade.................... $ 302 163 35 44(1) $ 456
----------- ----- --- --- -----------
Inventories...................................... $ 965 3,300 -- 746(2) $ 3,519
----------- ----- --- --- -----------
FOR FISCAL YEAR ENDED NOVEMBER 30, 1996
Reserves:
Uncollectible accounts--trade.................... $ 338 70 22 128(1) $ 302
----------- ----- --- --- -----------
Inventories...................................... $ 1,000 16 300 351(2) $ 965
----------- ----- --- --- -----------
FOR FISCAL YEAR ENDED DECEMBER 2, 1995
Reserves:
Uncollectible accounts--trade.................... $ 351 147 3 163(1) $ 338
----------- ----- --- --- -----------
Inventories...................................... $ 743 1,007 -- 750(2) $ 1,000
----------- ----- --- --- -----------
</TABLE>
- ------------------------
Notes:
(1) Accounts receivable written-off.
(2) Inventories disposed.
S-1
<PAGE>
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED
SUBSEQUENT GROSS AMOUNT
INITIAL COST TO ACQUISITION AT NOVEMBER 29, 1997
---------------------------- ----------------- --------------------------
DESCRIPTION ENCUMBRANCES LAND BLDG & IMPROVE IMPROVEMENTS LAND BLDG & IMPROVE
- ---------------------------- --------------- --------- ----------------- ----------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Land........................ $ 4,583 -- $ 7,278 $ 4,583 $ 7,278
Restaurant
Bloomfield, CT............ -- -- 1,266 -- 1,266
Residential Development
Windsor, CT............... 126 -- 3,689 126 3,689
Office Building,
Bloomfield, CT............ 652 47 -- 2,524 47 2,524
Office Building,
Bloomfield, CT............ 3 -- 1,815 3 1,815
Office Building,
Bloomfield, CT............ 1 -- 1,565 1 1,565
Office Building,
Bloomfield, CT............ 1 -- 1,491 1 1,491
Office Building,
Bloomfield, CT............ -- -- 666 -- 666
Office Buildings,
Bloomfield, CT............ 5 -- 2,978 5 2,978
Industrial Buildings,
East Granby, CT........... 1,921 29 -- 3,225 29 3,225
Industrial Building
East Granby, CT........... 13 1,723 185 13 1,908
------ --------- ------ ------- --------- -------
$ 2,573 $ 4,808 $ 1,723 $ 26,682 $ 4,808 $ 28,405
------ --------- ------ ------- --------- -------
------ --------- ------ ------- --------- -------
<CAPTION>
DESCRIPTION TOTAL ACCUM DEP DATE OF CONSTR. DATE OF ACQ DEPR LIFE
- ---------------------------- --------- ----------- ----------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Land........................ $ 11,861 ($ 429)
Restaurant
Bloomfield, CT............ 1,266 (562) 1983 40 Yrs
Residential Development
Windsor, CT............... 3,815 --
Office Building,
Bloomfield, CT............ 2,571 (1,262) 1977
Office Building,
Bloomfield, CT............ 1,818 (604) 1985 40 Yrs
Office Building,
Bloomfield, CT............ 1,566 (367) 1988 40 Yrs
Office Building,
Bloomfield, CT............ 1,492 (376) 1988 40 Yrs
Office Building,
Bloomfield, CT............ 666 (182) 1988 40 Yrs
Office Buildings,
Bloomfield, CT............ 2,983 (561) 1991 40 Yrs
Industrial Buildings,
East Granby, CT........... 3,254 (1,843) 1978 40 Yrs
Industrial Building
East Granby, CT........... 1,921 (598) 1989 40 Yrs
--------- -----------
$ 33,213 ($ 6,784)
--------- -----------
--------- -----------
</TABLE>
S-2
<PAGE>
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 29, 1997
COST RESERVE
--------- ---------
<S> <C> <C>
Balance at beginning of year.............................................. $ 32,768 $ (6,071)
Changes during the year:
Improvements.............................................................. 953
Additions to reserve charged to costs and expense......................... (713)
Cost of sales............................................................. (508)
--------- ---------
Balance at end of year.................................................... $ 33,213 $ (6,784)
--------- ---------
--------- ---------
FISCAL YEAR ENDED NOVEMBER 30, 1996
<CAPTION>
COST RESERVE
--------- ---------
<S> <C> <C>
Balance at beginning of year.............................................. $ 37,921 $ (6,179)
Changes during the year:
Improvements.............................................................. 592
Additions to reserve charged to costs and expense......................... (822)
Transfer to lender for outstanding mortgage............................... (4,648) 930
Cost of sales............................................................. (1,097)
--------- ---------
Balance at end of year.................................................... $ 32,768 $ (6,071)
--------- ---------
--------- ---------
FISCAL YEAR ENDED DECEMBER 2, 1995
<CAPTION>
COST RESERVE
--------- ---------
<S> <C> <C>
Balance at beginning of year.............................................. $ 38,285 $ (5,118)
Changes during the year:
Improvements.............................................................. 802
Additions to reserve charged to costs and expense......................... (814)
Reclassification.......................................................... (247)
Cost of sales............................................................. (1,166)
--------- ---------
Balance at end of year.................................................... $ 37,921 ($ 6,179)
--------- ---------
--------- ---------
</TABLE>
S-3
<PAGE>
EXHIBIT 23
To the Directors of Griffin Land & Nurseries, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1998 appearing in the 1997 Annual Report to
Stockholders of Griffin Land & Nurseries, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/S/ PRICE WATERHOUSE LLP
Hartford, Connecticut
February 18, 1998
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