<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the 13 Weeks Ended Commission File No.
August 29, 1998 0-29288
GRIFFIN LAND & NURSERIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0868496
(state or other jurisdiction of incorporation (IRS Employer
or organization) Identification Number)
One Rockefeller Plaza, New York, New York 10020
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number including Area Code (212) 218-7910
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock outstanding at September 30, 1998: 4,842,704
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
Form 10-Q
<TABLE>
<CAPTION>
PART I -- FINANCIAL INFORMATION Page
<S> <C>
Consolidated Statement of Operations
13 Weeks Ended August 29, 1998 and August 30, 1997 3
Consolidated Statement of Operations
39 Weeks Ended August 29, 1998 and August 30, 1997 4
Consolidated Balance Sheet
August 29, 1998 and November 29, 1997 5
Consolidated Statement of Cash Flows
39 Weeks Ended August 29, 1998 and August 30, 1997 6
Notes to Consolidated Financial Statements 7-11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
PART II -- OTHER INFORMATION 15
SIGNATURES 16
</TABLE>
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
Consolidated Statement of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the 13 Weeks Ended,
-----------------------
August 29, 1998 August 30, 1997
--------------- ---------------
<S> <C> <C>
Net sales and other revenue $ 11,019 $ 10,878
Cost and expenses:
Cost of goods sold 7,424 10,565
Selling, general and administrative expenses 3,955 3,284
--------------- ---------------
Operating loss (360) (2,971)
Interest income 66 90
Interest expense 47 69
--------------- ---------------
Loss before income tax benefit (341) (2,950)
Income tax benefit (127) (1,277)
--------------- ---------------
Loss before equity investments (214) (1,673)
(Loss) income from equity investments (512) 22
--------------- ---------------
Net loss $ (726) $ (1,651)
--------------- ---------------
--------------- ---------------
Basic net loss per common share $ (0.15) $ (0.35)(a)
--------------- ---------------
--------------- ---------------
Diluted net loss per common share $ (0.15) $ (0.35)(a)
--------------- ---------------
--------------- ---------------
</TABLE>
(a) Per share results for the prior year are pro forma. See Note 6.
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
Consolidated Statement of Operations
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For the 39 Weeks Ended,
-----------------------
August 29, 1998 August 30, 1997
--------------- ---------------
<S> <C> <C>
Net sales and other revenue $ 38,240 $ 34,508
Cost and expenses:
Cost of goods sold 26,719 27,077
Selling, general and administrative expenses 11,387 10,126
------------ --------------
Operating profit (loss) 134 (2,695)
Interest income 253 140
Interest expense 129 935
------------ --------------
Income (loss) before income taxes 258 (3,490)
Income tax provision (benefit) 95 (1,291)
------------ --------------
Income (loss) before equity investments 163 (2,199)
Income from equity investments 119 524
------------ --------------
Net income (loss) $ 282 $(1,675)
------------ --------------
------------ --------------
Basic net income (loss) per common share $ 0.06 $(0.35)(a)
------------ --------------
------------ --------------
Diluted net income (loss) per common share $ 0.05 $(0.36)(a)
------------ --------------
------------ --------------
</TABLE>
(a) Per share results for the prior year are pro forma. See Note 6.
See Notes to Consolidated Financial Statements.
Page 4
<PAGE>
GRIFFIN LAND & NURSERIES, INC
Consolidated Balance Sheet
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
August 29, 1998 Nov. 29, 1997
--------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,613 $ 11,519
Accounts receivable, less allowance of $599 and $456 3,766 4,745
Inventories 26,529 25,343
Deferred income taxes 2,214 1,858
Other current assets 2,556 1,903
------------ --------------
Total current assets 38,678 45,368
Real estate held for sale or lease, net 29,356 26,429
Equity investments 18,146 15,061
Property and equipment, net 12,626 12,524
Other assets, including investment in real estate joint venture of
$3,154 and $3,261 3,460 3,368
------------ --------------
Total assets $102,266 $102,750
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 3,721 $ 4,980
Long-term debt due within one year 256 244
------------ -------------
Total current liabilities 3,977 5,224
Long-term debt 2,777 2,830
Other noncurrent liabilities 4,165 4,173
------------ -------------
Total liabilities 10,919 12,227
------------ -------------
Commitments and Contingencies (See Note 8)
Common stock, par value $0.01 per share, authorized
10,000,000 shares, issued and outstanding 4,842,704 shares 48 47
Additional paid in capital 93,491 92,950
Accumulated deficit (2,192) (2,474)
------------ -------------
Total stockholders' equity 91,347 90,523
------------ -------------
Total liabilities and stockholders' equity $102,266 $102,750
------------ -------------
------------ -------------
See Notes to Consolidated Financial Statements.
</TABLE>
Page 5
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
Consolidated Statement of Cash Flows
(dollars in thousands)
<TABLE>
<CAPTION>
For the 39 Weeks Ended,
-----------------------
August 29, 1998 August 30, 1997
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 282 $ (1,675)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 1,550 1,504
Income from equity investments (119) (524)
Deferred income taxes 95 (1,604)
Changes in assets and liabilities, net of effect of Liability Assumption in
1997:
Accounts receivable 836 (455)
Inventories (1,186) 2,550
Accounts payable and accrued liabilities (1,259) (1,245)
Other, net (745) (1,466)
-------------- -------------
Net cash used in operating activities (546) (2,915)
-------------- --------------
INVESTING ACTIVITIES
Additions to real estate held for sale or lease (3,805) (650)
Additional investment in Centaur Communications, Ltd. (2,966) --
Additions to property and equipment (940) (835)
Proceeds from litigation settlement 500 --
-------------- -------------
Net cash used in investing activities (7,211) (1,485)
-------------- -------------
FINANCING ACTIVITIES
Payments of debt (240) (199)
Proceeds from exercise of stock options 91 --
Increase in debt -- 7,422
Net transactions with Culbro, excluding Liability Assumption in 1997 -- (577)
-------------- --------------
Net cash (used in) provided by financing activities (149) 6,646
-------------- --------------
Net (decrease) increase in cash and cash equivalents (7,906) 2,246
Cash and cash equivalents at beginning of period 11,519 7,371
-------------- --------------
Cash and cash equivalents at end of period $ 3,613 $ 9,617
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
Page 6
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Basis of Presentation
The unaudited consolidated financial statements of Griffin Land &
Nurseries, Inc. ("Griffin") have been prepared in conformity with the standards
of accounting measurement set forth in Accounting Principles Board Opinion No.
28 and any amendments thereto adopted by the Financial Accounting Standards
Board ("FASB"). Also, the accompanying financial statements have been prepared
in accordance with the accounting policies stated in Griffin's audited 1997
Financial Statements included in Form 10K as filed with the Securities and
Exchange Commission on February 27, 1998, and should be read in conjunction with
the Notes to Financial Statements appearing in that report. All adjustments,
comprising only normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of results for the interim period
have been reflected.
Prior to July 3, 1997, Griffin was a wholly-owned subsidiary of Culbro
Corporation ("Culbro"). On July 3, 1997, as previously approved by Culbro's
Board of Directors, Culbro distributed (the "Distribution") the common stock of
Griffin to Culbro's shareholders on a one-to-one ratio (see Note 2).
The results of operations for the nine-month period ended August 29,
1998, are not necessarily indicative of the results to be expected for the full
year.
Certain amounts from the prior year have been reclassified to conform
to the current presentation.
2. 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"), which provided for the transfer of certain assets
from Culbro to Griffin (the "Asset Transfers") and the Distribution of Griffin's
common stock to the existing shareholders of Culbro. The Distribution Agreement
also provided for the assumption by Griffin of all of 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 were recorded by Griffin 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, principally retirement obligations, which were
included in Griffin's historical financial statements through that date (the
"Liability Assumption"). Griffin's 1997 nine-month results include interest
expense of approximately $0.7 million related to debt that was assumed by GC
Holdings as part of the Liability Assumption. Such debt was not part of
Griffin's capital structure subsequent to February 27, 1997.
As Griffin was a wholly-owned subsidiary of Culbro during a portion of
the 1997 third quarter and nine-month period, a portion of Culbro management
time and resources were related to Griffin's operations, and Culbro also
performed certain specific administrative functions for Griffin, including
legal, tax, treasury, human resources and internal audit. Griffin's 1997 third
quarter and nine-month results of operations include general and administrative
expenses of $0.1 million and $1.0 million, 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 that
were associated with Griffin's operations and are considered by management to be
reasonable.
Page 7
<PAGE>
3. Equity Investments
On August 4, 1998, Griffin completed the purchase of 500,000 shares of
Centaur Communications, Ltd. ("Centaur") common stock from another stockholder
of Centaur for approximately $2.9 million. Griffin's purchase was in connection
with transactions whereby the stockholder who sold the Centaur common stock to
Griffin also sold its remaining Centaur common stock to a third party, and
Centaur purchased approximately 4.8 million shares of its common stock from
certain of its other stockholders at the same per share price paid by Griffin.
As a result of these transactions, Griffin now holds approximately 5.4 million
shares of the 15.2 million shares of Centaur common stock outstanding after
these transactions.
4. Long-term Debt
On May 6, 1998, Imperial Nurseries, Inc. ("Imperial"), Griffin's
subsidiary in the landscape nursery business, entered into a Revolving Credit
Agreement (the "Credit Agreement") with a bank which provides a seasonally
adjusted line of credit up to $10 million to supplement Imperial's cash flow
from operations, as required. Borrowings under the Credit Agreement may be, at
Imperial's option, on an overnight basis or for periods of one, two, three or
six months. Overnight borrowings bear interest at the bank's prime rate.
Borrowings of one month and longer bear interest at the London Interbank Offered
Rate plus a margin of 1.75%. The Credit Agreement terminates in June, 1999, and
there are no compensating balance requirements. Imperial pays a commitment fee
of 1/4 of 1% per annum on unused borrowing capacity. The Credit Agreement is
secured principally by Imperial's accounts receivable and inventories, and is
guaranteed by Griffin. The Credit Agreement contains financial covenants with
respect to Imperial's net worth, fixed charge coverage (as defined), capital
expenditures and cash distributions to Griffin. Thus far, there have not been
any borrowings under the Credit Agreement.
5. Stockholders' Equity
Changes in stockholders' equity for the nine months ended August 29,
1998, are as follows:
<TABLE>
<CAPTION>
Common Additional Accumulated
Stock Paid-in Capital Deficit
------ --------------- -----------
<S> <C> <C> <C>
Balance--November 29, 1997 $47 $92,950 $(2,474)
Net income -- -- 282
Exercise of stock options, including
income tax benefit of
$451 1 541 --
------- ---------- -----------
Balance--August 29, 1998 $48 $93,491 $(2,192)
------- ---------- -----------
------- ---------- -----------
</TABLE>
For the nine months ended August 29, 1998, activity under the Griffin
Stock Option Plan were as follows:
<TABLE>
<CAPTION>
Options issued by Culbro and subsequently converted to
Griffin options:
<S> <C>
Options outstanding at November 29, 1997 253,721
Exercised (99,114)
-------
Options outstanding at August 29, 1998 154,607
-------
-------
Page 8
<PAGE>
Option prices vary between $0.43 and $8.51
Number of option holders as of August 29, 1998 9
Options issued by Griffin:
Options outstanding at November 29, 1997 229,000
Cancelled (20,000)
-------
Options outstanding at August 29, 1998 209,000
-------
-------
Option prices range between $13.88 and $14.69
Number of option holders as of August 29, 1998 8
</TABLE>
6. Per Share Results
Per share results for the 1997 third quarter and nine-month period are
pro forma because Griffin was a wholly-owned subsidiary of Culbro during a
portion of those periods. Per share results for the 1997 periods have been
restated to present basic and diluted per share results consistent with
Griffin's required adoption of Statement of Financial Accounting Standard No.
128, "Earnings per Share" at the beginning of fiscal 1998. Basic and diluted per
share results were based on the following information:
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------------ ----------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) as reported for computation of
basic per share results $(726) $(1,651) $282 $(1,675)
Adjustment to net income (loss) for assumed
exercise of options of equity investee (Centaur) -- (2) (39) (12)
------- -------- ------- -------
Adjusted net income (loss) for computation of
diluted per share results $(726) $(1,653) $243 $(1,687)
------- -------- ------- --------
------- -------- ------- --------
<CAPTION>
Third Quarter Nine Months
------------------------- -----------------------
1997 1997
1998 (pro forma) 1998 (pro forma)
--------- ---------- --------- -----------
<S>
<C> <C> <C> <C>
Weighted average shares outstanding for
computation of basic per share results 4,771,000 4,744,000 4,754,000 4,725,000
Incremental shares from assumed exercise of Griffin
stock options -- -- 189,000 --
--------- --------- --------- ---------
Adjusted weighted average shares for computation
of diluted per share results 4,771,000 4,744,000 4,943,000 4,725,000
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Page 9
<PAGE>
7. Supplemental Financial Statement Information
Inventories
Inventories consist of:
<TABLE>
<CAPTION>
August 29, 1998 Nov. 29, 1997
--------------- --------------
<S> <C> <C>
Nursery stock $ 24,022 $ 23,224
Finished goods 1,669 1,255
Materials and supplies 838 864
--------------- -------------
$26,529 $25,343
--------------- -------------
--------------- -------------
Property and Equipment
Property and equipment consist of:
August 29, 1998 Nov. 29, 1997
--------------- -------------
Land and improvements $ 6,331 $ 6,205
Buildings 3,889 3,824
Machinery and equipment 13,364 12,714
--------------- -------------
23,584 22,743
Accumulated depreciation (10,958) (10,219)
--------------- -------------
$12,626 $12,524
--------------- -------------
--------------- -------------
Real Estate Held for Sale or Lease
Real estate held for sale or lease consists of:
August 29, 1998 Nov. 29, 1997
--------------- -------------
Land $4,845 $ 4,808
Land improvements 12,143 10,967
Buildings 19,678 17,438
--------------- -------------
36,666 33,213
Accumulated depreciation (7,310) (6,784)
--------------- -------------
$29,356 $26,429
--------------- -------------
--------------- -------------
</TABLE>
Page 10
<PAGE>
Litigation Settlement
On June 12, 1998, Griffin's real estate business, Griffin Land,
settled litigation it had initiated to recover the costs of certain repairs
to two of its buildings. Upon settlement, Griffin Land received cash of $0.5
million and a promissory note of $0.1 million. The excess of the proceeds and
note over the repair costs were credited to Griffin Land's operating expenses
to offset costs related to this litigation that had been expensed in previous
years.
8. Commitments and Contingencies
As a result of the Asset Transfers last year, 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. These transactions (including the transfer of funds to Culbro)
were reviewed by Eli Witt's creditors and other parties in interest in
connection with Eli Witt's Chapter 11 filing. On May 21, 1998, the United States
Bankruptcy Court approved a motion whereby Griffin released all of its remaining
claims against Eli Witt in exchange for the creditors of Eli Witt releasing
Griffin from any liability in connection with the Chapter 11 filing by Eli Witt
in 1996. The claims that Griffin released had been fully reserved for by Griffin
in previous years; therefore, there was no effect on Griffin's 1998 financial
statements as a result of the Bankruptcy Court ruling.
Page 11
<PAGE>
GRIFFIN LAND & NURSERIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Third Quarter
Griffin's net sales and other revenue were $11.0 million in the 1998
third quarter as compared to net sales and other revenue of $10.9 million in the
1997 third quarter. Net sales at Imperial were $10.2 million in both the 1998
and 1997 third quarters. Imperial's net sales reflected higher volume at the
wholesale distribution centers, which offset lower sales volume at its
Connecticut and Florida container production facilities. 1998 third quarter net
sales and other revenue at Griffin's real estate division, Griffin Land, were
$0.8 million as compared to $0.7 million in the prior year's third quarter. The
increase reflects increased rental revenues in the current quarter.
Griffin incurred an operating loss (before interest) of $0.4 million in
the 1998 third quarter as compared to an operating loss of $3.0 million in the
1997 third quarter. The 1997 third quarter operating loss included a charge of
$3.3 million in cost of goods sold to reserve for certain plant inventories at
Imperial. Excluding that charge, Griffin would have recorded an operating profit
of $0.3 million in the prior year's third quarter.
Operating profit at Imperial was $0.1 million in the 1998 third quarter
as compared to $0.6 million (excluding the inventory charge) in the 1997 third
quarter. Gross profit at Imperial (excluding the inventory charge recorded last
year) was $3.3 million in both the 1998 and 1997 third quarters. Gross profit
from sales at the wholesale distribution centers increased due to the higher
volume, as margins were substantially the same as last year. Gross profit on
sales from the container production facilities was lower in the 1998 third
quarter as compared to last year's third quarter due to lower volume and lower
margins. Operating expenses increased approximately $0.5 million in the 1998
third quarter as compared to last year's third quarter principally due to
increased labor, delivery and general expenses at the distribution centers. The
increase in expenses offset the higher gross profit at the distribution centers.
Overall operating expenses were 30.8% of net sales in the 1998 third quarter as
compared to 26.5% of net sales in the 1997 third quarter.
Griffin Land reflected operating profit of $0.2 million in the 1998
third quarter, versus break even results in last year's third quarter. The
increased operating profit in the 1998 quarter reflected the settlement of
litigation initiated by Griffin Land for reimbursement of certain costs to
repair two commercial buildings owned by Griffin Land. Proceeds from the
settlement in excess of the repair costs, approximately $0.2 million, were
reflected as a reduction of Griffin Land's operating expenses. Excluding this
item, 1998 third quarter operating results at Griffin Land were slightly lower
than the 1997 third quarter, as higher rental income in the current quarter was
more than offset by higher real estate taxes and the effect of the reversal in
the 1997 third quarter of excess accruals on earlier property sales. Griffin's
general corporate expense was $0.6 million in the 1998 third quarter as compared
to $0.4 million last year.
Griffin's interest expense in the 1998 third quarter was slightly lower
than the 1997 third quarter as a result of the capitalization of interest on the
construction of a warehouse facility this year. The lower effective tax rate in
the 1998 third quarter as compared to the 1997 third quarter reflects the effect
of the reclassification of the income from equity investments last year.
The loss from equity investments of $0.5 million in the 1998 third
quarter as compared to substantially breakeven results from equity investments
in the 1997 third quarter principally reflects the effect of
Page 12
<PAGE>
one-time expenses aggregating approximately $1.1 million, before taxes, at
Centaur (approximately $0.3 million allocable to Griffin's interest) relating
to the restructuring of its ownership, and a loss of approximately $1.7 million
at Linguaphone (approximately $0.4 million allocable to Griffin's interest).
Operating results at Centaur, excluding the one-time expenses, increased over
last year.
Nine Months
In the nine month period, Griffin's net sales increased $3.7 million
from $34.5 million in 1997 to $38.2 million in 1998. The increase was due to
higher net sales at Imperial, which increased $3.7 million to $36.0 million in
the 1998 nine month period from $32.3 million in the comparable 1997 nine month
period. The sales increase at Imperial principally reflected increased sales
volume from its wholesale distribution centers. Net sales at Griffin Land were
$2.2 million in both the 1998 and 1997 nine month periods. An increase in rental
revenue in the 1998 nine month period was offset by the effect of a land sale in
the 1997 nine month period.
Griffin's operating profit (before interest) in the 1998 nine month
period was $0.1 million as compared to an operating loss of $2.7 million in the
1997 nine month period. The 1997 period included the $3.3 million charge related
to Imperial's inventory (see above). Excluding that charge, Griffin's operating
profit declined from $0.6 million in the 1997 nine month period to $0.1 million
in the 1998 nine month period. Operating profit at Imperial (excluding the
inventory charge) was $1.9 million in the 1998 and 1997 nine month periods. The
increased sales volume in 1998 resulted in an increase in gross profit of $0.9
million to $10.7 million in the 1998 period from $9.8 million in the 1997
period. Overall gross margins decreased slightly in 1998 as compared to 1997
margins. The increased gross profit was offset by higher operating expenses,
principally labor, delivery and general expenses at the wholesale distribution
centers, which generated the increase in gross profit. Overall, Imperial's
operating expenses were 24.6% of net sales in the 1998 nine month period as
compared to 24.5% of net sales in the 1997 nine month period.
Griffin Land incurred an operating loss of $0.2 million in the 1998
nine month period as compared to an operating loss of $0.1 million in the
1997 nine month period. The effect of the litigation settlement (described
above) and higher rental revenue in the current year was more than offset by
the gain on a property sale and the reversal of excess accruals in the 1997
nine month period. Griffin's general corporate expense was $1.6 million in
the 1998 nine month period as compared to $1.2 million in the 1997 nine month
period.
Griffin's interest expense decreased to $0.1 million in the 1998 nine
month period from $0.9 million in the 1997 nine month period. The decrease
principally reflected the inclusion in 1997 of interest expense of $0.7 million
related to Culbro's general corporate debt that was assumed by General Cigar
Holdings at the end of the 1997 first quarter (see Note 2).
Income from equity investments was $0.1 million in the 1998 nine month
period as compared to $0.5 million in the 1997 nine month period. The lower
results reflected one-time expenses at Centaur in the current period and lower
operating results at Linguaphone this year. Operating results of Centaur's
magazine publishing business, excluding the one-time expenses, increased over
last year.
Liquidity and Capital Resources
Net cash used in operating activities was $0.5 million in the 1998 nine
month period as compared to net cash used in operating activities of $2.9
million in the 1997 nine month period. The reduced use of cash reflects
increased results of operations partially offset by net unfavorable changes in
working capital items.
Net cash used in investing activities reflected an increase in
additions to real estate held for sale, due principally to the construction of a
new warehouse facility by Griffin Land (see below), the additional investment in
Centaur (see Note 3) and higher capital expenditures in the landscape nursery
business. The increased additions to property and equipment principally
reflected expenditures for equipment at Imperial's production facilities in
Connecticut and Florida. Proceeds from a litigation settlement at Griffin Land
(see Note 7) partially offset the cash used in investing activities previously
described. Net cash used in financing activities principally reflects the
payment of Griffin Land's mortgages and capital leases for equipment used in the
landscape nursery business. Net cash provided by financing activities in the
1997 nine month period principally reflected borrowings under Culbro's general
corporate debt prior to such debt being assumed by GC Holdings on February 27,
1997.
Page 13
<PAGE>
On May 6, 1998, Imperial entered into a Revolving Credit Agreement with
a bank which provides a seasonally adjusted line of credit of up to $10 million
to supplement Imperial's cash flow from operations, as required. The Credit
Agreement is secured principally by Imperial's accounts receivable and
inventories, and is guaranteed by Griffin. The Credit Agreement contains
financial covenants with respect to Imperial's net worth, fixed charge coverage
(as defined), capital expenditures and cash distributions to Griffin. There have
not been any borrowings under the Credit Agreement thus far.
Griffin Land has completed construction of the shell of a 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.
Construction costs paid thus far, including initial tenant improvements and
investment in offsite infrastructure, have been approximately $3.0 million
through the end of the 1998 third quarter. Including a newly signed lease,
approximately 55% of this facility is leased. In the 1998 third quarter, Griffin
Land started construction of an approximately 100,000 square foot warehouse to
be located nearby the recently completed facility in the New England Tradeport.
To date, Griffin has funded the working capital needs of Imperial, its
real estate development at Griffin Land and the additional investment in Centaur
from cash on hand. Management believes, based on the current level of operations
and anticipated growth, that cash on hand, cash flow from operations, and, if
needed, borrowings under Imperial's Credit Agreement or real estate mortgage
placements will be sufficient to finance its landscape nursery business and fund
future real estate projects.
Year 2000
Griffin is addressing its year 2000 ("Y2K") issue and has identified
its critical computer applications that are not Y2K compliant. A portion of
the applications not Y2K compliant have been modified, successfully tested
and are now Y2K compliant. Modification of the balance of the computer
applications originally identified as not Y2K compliant is currently
underway, with all applications anticipated to be Y2K compliant no later than
March 31, 1999. The modification on the applications that are already Y2K
compliant and the work currently in process is being performed by Griffin
employees. Costs attributed to such work is not material.
Griffin has initiated a company-wide review of major customers,
vendors and other third parties to determine the extent, if any, to which
Griffin would be vulnerable to those third parties' failure to remedy their
own Y2K issues. Those third parties contacted have indicated that they have
Y2K readiness programs in place or they anticipate being Y2K compliant on or
before December 31, 1999. We will continue to assess the progress of our
critical business partners in reaching Y2K readiness.
Griffin believes that its efforts to address the Y2K issue should be
successful. However, a failure of critical third parties adequately to
address their respective Y2K issues could have a material adverse effect on
Griffin's business, financial condition and results of operations. Therefore,
Griffin's program for Y2K compliance includes the development of contingency
plans for continuing operations in the event such problems arise. However,
there can be no assurance that such contingency plans will be adequate
to handle all problems which may arise.
The 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 new warehouse construction. 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.
Page 14
<PAGE>
PART II OTHER INFORMATION
Items 1 - 5 not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K by the
Registrant during the 1998 third quarter.
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIFFIN LAND & NURSERIES, INC.
/s/ Frederick M. Danziger
-------------------------------------
DATE: October 12, 1998 Frederick M. Danziger
PRESIDENT
/s/ Anthony J. Galici
------------------------------------
DATE: October 12, 1998 Anthony J. Galici
VICE PRESIDENT, FINANCE
Page 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-END> AUG-29-1998
<CASH> 3,613
<SECURITIES> 0
<RECEIVABLES> 4,365
<ALLOWANCES> (599)
<INVENTORY> 26,529
<CURRENT-ASSETS> 38,678
<PP&E> 23,584
<DEPRECIATION> (10,958)
<TOTAL-ASSETS> 102,266
<CURRENT-LIABILITIES> 3,977
<BONDS> 3,033
0
0
<COMMON> 48
<OTHER-SE> 91,299
<TOTAL-LIABILITY-AND-EQUITY> 102,266
<SALES> 36,048
<TOTAL-REVENUES> 38,240
<CGS> 26,719
<TOTAL-COSTS> 38,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 129
<INCOME-PRETAX> 258
<INCOME-TAX> 95
<INCOME-CONTINUING> 282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
</TABLE>
