**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**Form 10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | ** ** | **FOR THE QUARTERLY PERIOD ENDED  AUGUST 27, 2005**                                                                                                                                                                              |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                               |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | ** ** | **FOR THE TRANSITION PERIOD  FROM                TO                ** |

 

**Commission File No. 1-12879**

 

**GRIFFIN LAND &NURSERIES, INC.**

(Exact nameof registrant as specified in its charter)

 
| **Delaware**                                                    | ** ** | **06-0868496**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (state or other jurisdiction of  incorporation or organization) |       | (IRS  Employer Identification Number) |
|                                                            |       |                                  |
| **One Rockefeller  Plaza, New York, New York**                  | ** ** | **10020**                             |
| (Address  of principal executive offices)                       |       | (Zip  Code)                           |

 

Registrant’s Telephone Numberincluding Area Code                  **(212) 218-7910**

 

 

(Former name, former address and former fiscal year,if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

Yes   o    No   ý

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

 

Yes   o    No   ý

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes   o    No   ý

**Number ofshares of Common Stock outstanding at October 17, 2005: 4,999,604**

 

 

----

 

**GRIFFIN LAND &NURSERIES, INC.**

**Form 10-Q**

 
| *PART I -*  | FINANCIAL INFORMATION |                                                                                                                           |
|------------------|-----------------------|--------------------------------------------------------------------------------------------------------------------------------|
| * *         | *ITEM 1 -*            | * *                                                                                                                       |
|             |                  | Financial Statements                                                                                                           |   |
|             |                  |                                                                                                                           |   |
|             |                  | Consolidated  Statements of Operations  13 and 39 Weeks Ended August 27, 2005 and August 28, 2004                    |   |
|             |                  |                                                                                                                           |   |
|             |                  | Consolidated  Balance Sheets  August 27, 2005 and November 27, 2004                                                  |   |
|             |                  |                                                                                                                           |   |
|             |                  | Consolidated  Statements of Changes in Stockholders’ Equity  39 Weeks Ended August 27, 2005 and August 28, 2004 |   |
|             |                  |                                                                                                                           |   |
|             |                  | Consolidated  Statements of Cash Flows  39 Weeks Ended August 27, 2005 and August 28, 2004                           |   |
|             |                  |                                                                                                                           |   |
|             |                  | Notes  to Consolidated Financial Statements                                                                                    |   |
|             |                  |                                                                                                                           |
| * *         | *ITEM 2 -*            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                    |   |
|             |                  |                                                                                                                           |   |
| * *         | *ITEM 4 -*            | Controls and  Procedures                                                                                                       |   |
|             |                  |                                                                                                                           |   |
| *PART II -* | OTHER INFORMATION     |                                                                                                                           |
|             |                  |                                                                                                                           |
| * *         | *ITEM 1-*             | Legal Proceedings                                                                                                              |   |
|             |                  |                                                                                                                           |
| * *         | *ITEM 6 -*            | Exhibits                                                                                                                       |   |
|             |                  |                                                                                                                           |
|             | SIGNATURES            |                                                                                                                           |

 

----

 
| **PART I** | ** ** | **FINANCIAL  INFORMATION** |
|-----------------|------------|----------------------------|
| ** **      | ** ** | ** **                 |
| **ITEM 1.**     | ** ** | **FINANCIAL STATEMENTS**   |

** **

**GRIFFIN LAND &NURSERIES, INC.**

Consolidated Statementsof Operations

(dollars inthousands, except per share data)

(unaudited)

 
| ** **                                                                 | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                 | ** ** | **August 27,   2005**  | ** ** | **August 28,   2004**  | ** ** | **August 27,   2005** | ** ** | **August 28,   2004** | ** ** |
| ** **                                                                 | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                 | ** ** | ** **                  | ** ** | **(Note 10)**               | ** ** | ** ** | ** ** | **(Note 10)** | ** ** |
| Landscape nursery net sales                                                |       | $                           | 5,699      |                        | $          | 5,077 |   | $ | 23,337 |   | $ | 24,624 |   |
| Rental revenue and property sales                                          |       | 3,350                       |       | 5,789                       |       | 9,748 |   | 11,186 |   |
| Total revenue                                                              |       | 9,049                       |       | 10,866                      |       | 33,085 |   | 35,810 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Costs of landscape nursery sales                                           |       | 6,060                       |       | 5,266                       |       | 21,127 |   | 22,327 |   |
| Costs related to rental revenue and property  sales                        |       | 2,266                       |       | 5,005                       |       | 6,707 |   | 8,896 |   |
| Total costs of goods sold                                                  |       | 8,326                       |       | 10,271                      |       | 27,834 |   | 31,223 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Gross profit                                                               |       | 723                         |       | 595                         |       | 5,251 |   | 4,587 |   |
| Selling, general and administrative  expenses                              |       | 2,514                       |       | 2,389                       |       | 8,151 |   | 7,120 |   |
| Operating loss                                                             |       | (1,791                      | )          | (1,794                      | )          | (2,900 | ) | (2,533 | ) |
| Gain on sale of Shemin Acquisition  Corporation                            |       | 3,235                       |       | —                      |       | 3,235 |   | — |   |
| Gain on sale of Centaur Communications,  Ltd.                              |       | —                      |       | —                      |       | — |   | 51,107 |   |
| Foreign currency exchange gain                                             |       | —                      |       | —                      |       | — |   | 1,070 |   |
| Interest expense                                                           |       | (659                        | )          | (611                        | )          | (1,697 | ) | (2,329 | ) |
| Interest income, dividend income and gains on  short-term investments      |       | 284                         |       | 133                         |       | 804 |   | 238 |   |
| Income (loss) before income tax provision  (benefit) and equity investment |       | 1,069                       |       | (2,272                      | )          | (558 | ) | 47,553 |   |
| Income tax provision (benefit)                                             |       | 353                         |       | (1,052                      | )          | (207 | ) | 15,720 |   |
| Income (loss) before equity investment                                     |       | 716                         |       | (1,220                      | )          | (351 | ) | 31,833 |   |
| Equity income from Centaur Communications,  Ltd.                           |       | —                      |       | —                      |       | — |   | 328 |   |
| Net income (loss)                                                          |       | $                           | 716        |                        | $          | (1,220 | ) | $ | (351 | ) | $ | 32,161 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Basic net income (loss) per common share                                   |       | $                           | 0.14       |                        | $          | (0.25 | ) | $ | (0.07 | ) | $ | 6.56 |   |
| Diluted net income (loss) per common share                                 |       | $                           | 0.14       |                        | $          | (0.25 | ) | $ | (0.07 | ) | $ | 6.31 |   |

 

See Notes to Consolidated Financial Statements*.*

 

3

----

 

**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Balance Sheets**

(dollars in thousands, except pershare data)

(unaudited)

 
| ** **                                                                                                                                   | ** ** | **August 27, 2005** | ** ** | **Nov. 27, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|
| ** **                                                                                                                                   | ** ** | ** **               | ** ** | **(As Restated)**      | ** ** |
| ** **                                                                                                                                   | ** ** | ** **               | ** ** | **(Note 10)**          | ** ** |
| ASSETS                                                                                                                                       |       |                     |       |                   |       |
| Current  Assets:                                                                                                                             |       |                     |       |                   |       |
| Cash and cash equivalents                                                                                                                    |       | $                        | 918        |                   | $          | 8,827 |   |
| Short-term investments                                                                                                                       |       | 43,288                   |       | 30,173                 |       |
| Accounts receivable, less allowance of $280  and $188                                                                                        |       | 4,927                    |       | 2,162                  |       |
| Inventories, net                                                                                                                             |       | 32,647                   |       | 32,184                 |       |
| Deferred income taxes                                                                                                                        |       | 2,627                    |       | 1,572                  |       |
| Other current assets                                                                                                                         |       | 4,085                    |       | 3,423                  |       |
| Total  current assets                                                                                                                        |       | 88,492                   |       | 78,341                 |       |
| Real estate  held for sale or lease, net                                                                                                     |       | 75,296                   |       | 65,675                 |       |
| Property and  equipment, net                                                                                                                 |       | 10,867                   |       | 11,310                 |       |
| Investment  in Centaur Holdings, plc                                                                                                         |       | 9,566                    |       | 11,290                 |       |
| Other assets                                                                                                                                 |       | 5,589                    |       | 10,274                 |       |
| Total assets                                                                                                                                 |       | $                        | 189,810    |                   | $          | 176,890 |   |
|                                                                                                                                         |       |                     |       |                   |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                   |       |                     |       |                   |       |
| Current  Liabilities:                                                                                                                        |       |                     |       |                   |       |
| Current portion of long-term debt                                                                                                            |       | $                        | 1,039      |                   | $          | 855 |   |
| Accounts payable and accrued liabilities                                                                                                     |       | 7,183                    |       | 6,044                  |       |
| Total  current liabilities                                                                                                                   |       | 8,222                    |       | 6,899                  |       |
| Long-term  debt                                                                                                                              |       | 43,398                   |       | 31,479                 |       |
| Deferred  income taxes                                                                                                                       |       | 1,893                    |       | 1,758                  |       |
| Other  noncurrent liabilities                                                                                                                |       | 3,001                    |       | 2,624                  |       |
| Total  liabilities                                                                                                                           |       | 56,514                   |       | 42,760                 |       |
|                                                                                                                                         |       |                     |       |                   |       |
| Commitments  and contingencies (Note 9)                                                                                                      |       |                     |       |                   |       |
|                                                                                                                                         |       |                     |       |                   |       |
| Stockholders’  Equity:                                                                                                                  |       |                     |       |                   |       |
| Common stock, par value $0.01 per share,  10,000,000 shares authorized, 4,999,604 and 4,959,162 shares issued and  outstanding, respectively |       | 50                       |       | 50                     |       |
| Additional  paid-in capital                                                                                                                  |       | 95,337                   |       | 94,699                 |       |
| Retained  earnings                                                                                                                           |       | 33,826                   |       | 34,177                 |       |
| Accumulated  other comprehensive income, net of tax                                                                                          |       | 4,083                    |       | 5,204                  |       |
| Total  stockholders’ equity                                                                                                             |       | 133,296                  |       | 134,130                |       |
| Total  liabilities and stockholders’ equity                                                                                             |       | $                        | 189,810    |                   | $          | 176,890 |   |

 

See Notesto Consolidated Financial Statements**.**

 

4

----

 

**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Statements of Changes in Stockholders’ Equity**

**For the Thirty-Nine Weeks Ended August 27,2005 and August 28, 2004**

**(dollars in thousands)**

**(unaudited)**

** **
| ** **                                               | ** ** | **Shares of   Common   Stock** | ** ** | **Common   Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained   Earnings  (As Restated)  (Note 10)** | ** ** | **Accumulated   Other   Comprehensive  Income** | ** ** | **Total  (As Restated)  (Note 10)** | ** ** | **Total   Comprehensive   Income (Loss)  (As Restated)  (Note 10)** | ** ** |
|----------------------------------------------------------|------------|--------------------------------|------------|--------------------|------------|----------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------------------|------------|
| Balance at Nov. 29, 2003 (as restated)              |       | 4,876,916                      |       | $                  | 49         |                             | $          | 93,392                                            |       | $                                               | 3,189      |                                | $          | 271                                                                 |       | $ | 96,901 |   | $ | — |   |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Exercise of stock options including tax  benefit of $262 |       | 71,913                         |       | —             |       | 1,125                            |       | —                                            |       | —                                          |       | 1,125                               |       | —                                                              |       |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Net income (as restated)                                 |       | —                         |       | —             |       | —                           |       | 32,161                                            |       | —                                          |       | 32,161                              |       | 32,161                                                              |       |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Other comprehensive income                               |       | —                         |       | —             |       | —                           |       | —                                            |       | 3,786                                           |       | 3,786                               |       | 3,786                                                               |       |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Balance at August 28, 2004 (as  restated)           |       | 4,948,829                      |       | $                  | 49         |                             | $          | 94,517                                            |       | $                                               | 35,350     |                                | $          | 4,057                                                               |       | $ | 133,973 |   | $ | 35,947 |   |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Balance at Nov. 27, 2004 (as restated)              |       | 4,959,162                      |       | $                  | 50         |                             | $          | 94,699                                            |       | $                                               | 34,177     |                                | $          | 5,204                                                               |       | $ | 134,130 |   | $ | — |   |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Exercise of stock options including tax  benefit of $169 |       | 40,442                         |       | —             |       | 638                              |       | —                                            |       | —                                          |       | 638                                 |       | —                                                              |       |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Net loss                                                 |       | —                         |       | —             |       | —                           |       | (351                                              | )          | —                                          |       | (351                                | )          | (351                                                                | )          |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Other comprehensive loss                                 |       | —                         |       | —             |       | —                           |       | —                                            |       | (1,121                                          | )          | (1,121                              | )          | (1,121                                                              | )          |
|                                                     |       |                           |       |               |       |                             |       |                                              |       |                                            |       |                                |       |                                                                |       |
| Balance at August 27, 2005                          |       | 4,999,604                      |       | $                  | 50         |                             | $          | 95,337                                            |       | $                                               | 33,826     |                                | $          | 4,083                                                               |       | $ | 133,296 |   | $ | (1,472 | ) |

 

See Notes to Consolidated FinancialStatements.

** **

**5**

----

** **

**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Statements of Cash Flows**

**(dollars in thousands)**

(unaudited)

 
| ** **                                                                            | ** ** | **For the 39 Weeks Ended,** | *** *** |
|---------------------------------------------------------------------------------------|------------|-----------------------------|--------------|
| ** **                                                                            | ** ** | **August 27, 2005**    | ** **   | **August 28, 2004** | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** **   | **(As Restated)** | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** **   | **(Note 10)** | ** ** |
| **Operating  activities:**                                                            |       |                        |         |   |   |
| Net (loss)  income                                                                    |       | $                           | (351         | ) | $ | 32,161 |   |
| Adjustments  to reconcile net (loss) income to net cash used in operating activities: |       |                        |         |   |   |
| Gain on sale of Shemin Acquisition  Corporation                                       |       | (3,235                      | )            | — |   |
| Depreciation and amortization                                                         |       | 3,820                       |         | 3,544 |   |
| Gain on sale of properties                                                            |       | (973                        | )            | (43 | ) |
| Provision for inventory losses                                                        |       | 1,378                       |         | 875 |   |
| Provision for bad debts                                                               |       | 233                         |         | 282 |   |
| Real estate asset write-offs                                                          |       | 169                         |         | — |   |
| Deferred income taxes                                                                 |       | (317                        | )            | (548 | ) |
| Amortization of debt issuance costs                                                   |       | 47                          |         | 401 |   |
| Unrealized gains on trading securities                                                |       | (97                         | )            | (50 | ) |
| Gain on sale of Centaur Communications,  Ltd.                                         |       | —                      |         | (51,107 | ) |
| Tax payment included in other comprehensive  income                                   |       | —                      |         | (2,959 | ) |
| Gain on foreign exchange contract                                                     |       | —                      |         | (1,070 | ) |
| Income from equity investment                                                         |       | —                      |         | (328 | ) |
| Changes in  assets and liabilities:                                                   |       |                        |         |   |   |
| Short-term investments                                                                |       | (13,018                     | )            | (30,005 | ) |
| Accounts receivable                                                                   |       | (2,857                      | )            | (3,096 | ) |
| Inventories                                                                           |       | (1,841                      | )            | 1,145 |   |
| Other current assets                                                                  |       | (532                        | )            | (593 | ) |
| Accounts payable and accrued liabilities                                              |       | 498                         |         | 663 |   |
| Income taxes payable                                                                  |       | —                      |         | 4,918 |   |
| Other noncurrent assets and noncurrent  liabilities, net                              |       | (171                        | )       | 895 |   |
| Net cash  used in operating activities                                                |       | (17,247                     | )            | (44,915 | ) |
| **Investing  activities:**                                                            |       |                        |         |   |   |
| Additions to  real estate held for sale or lease                                      |       | (11,249                     | )            | (5,646 | ) |
| Proceeds  from the sale of Shemin Acquisition Corporation                             |       | 5,721                       |         | — |   |
| Proceeds  from distribution from Shemin Nurseries                                     |       | 1,673                       |         | — |   |
| Proceeds  from sale of properties, net of expenses                                    |       | 1,287                       |         | 3,016 |   |
| Additions to  property and equipment                                                  |       | (588                        | )            | (511 | ) |
| Proceeds  from the sale of Centaur Communications, Ltd.                               |       | —                      |         | 68,852 |   |
| Proceeds  from foreign exchange contract                                              |       | —                      |         | 1,070 |   |
| Investment  in Shemin Acquisition Corporation                                         |       | —                      |         | (143 | ) |
| Net cash  (used in) provided by investing activities                                  |       | (3,156                      | )            | 66,638 |   |
| **Financing  activities:**                                                            |       |                        |         |   |   |
| Increase in  debt                                                                     |       | 12,700                      |         | 1,500 |   |
| Payments of  debt                                                                     |       | (675                        | )            | (11,335 | ) |
| Exercise of  stock options                                                            |       | 469                         |         | 863 |   |
| Other, net                                                                            |       | —                      |         | (159 | ) |
| Net cash  provided by (used in) financing activities                                  |       | 12,494                      |         | (9,131 | ) |
| Net  (decrease) increase in cash and cash equivalents                                 |       | (7,909                      | )            | 12,592 |   |
| Cash and  cash equivalents at beginning of period                                     |       | 8,827                       |         | 18 |   |
| Cash and  cash equivalents at end of period                                           |       | $                           | 918          |   | $ | 12,610 |   |

 

See Notesto Consolidated Financial Statements.

 

6

----

 

GRIFFIN LAND & NURSERIES,INC.

**Notes toConsolidated Financial Statements**

(dollars in thousands, except pershare data)

(unaudited)

 

**1.     Basisof Presentation**

** **

The unaudited consolidated financial statements ofGriffin Land & Nurseries, Inc. (“Griffin”) include the accountsof Griffin’s real estate division (“Griffin Land”) and Griffin’s wholly-ownedsubsidiary, Imperial Nurseries, Inc. (“Imperial”), and have been preparedin conformity with the standards of accounting measurement set forth inAccounting Principles Board Opinion No. 28 and amendments thereto adoptedby the Financial Accounting Standards Board (“FASB”). Also, the accompanyingfinancial statements have been prepared in accordance with the accountingpolicies stated in Griffin’s audited financial statements for the year ended November 27,2004 included in the Report on Form 10-K/A as filed with the Securitiesand Exchange Commission, and should be read in conjunction with the Notes toFinancial Statements appearing in that report. All adjustments, comprising onlynormal recurring adjustments, which are, in the opinion of management,necessary for a fair presentation of results for the interim periods have beenreflected.  The year end consolidatedbalance sheet data as of November 27, 2004 was derived from auditedfinancial statements but does not include all disclosures required byaccounting principles generally accepted in the United States of America.

 

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and thirty-nine weeks ended August 28, 2004 and for the fiscalyears ended November 27, 2004, November 29, 2003 and November 30,2002 including the financial information of the interim periods in fiscal years2004 and 2003 to correct: (a) rental revenue and depreciation andamortization expense of its real estate business as a result of an incorrectallocation of the purchase price for Griffin’s fiscal 2003 acquisition of acontrolling interest in a joint venture that owned two office buildings inWindsor, Connecticut (Griffin had previously held a 30% interest in the jointventure), (b) depreciation  expenseof its real estate business for tenant improvements related to certain leasesin other of Griffin Land’s buildings as a result of the incorrect recording ofthe useful lives of certain tenant improvements and the misclassification of certainimprovements as tenant improvements rather than as building improvements, (c) rentalrevenue and depreciation expense of its real estate business due to themisclassification of a payment received in the 2004 second quarter from atenant for tenant improvements made by Griffin in accordance with the leaseagreement and (d) the classification of the amortization of debt issuancecosts related to Griffin’s financing agreements from selling, general andadministrative expenses to interest expense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valuesof in-place leases and tenant relationships and reduced by $1.5 million theamount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to increase Griffin’s operating losses by $53 and  $184 in the thirteen and thirty-nine weeksended August 28, 2004, respectively, as a result of an increase indepreciation and amortization expense because of the shorter time period overwhich the intangible assets are amortized as compared to the depreciable livesof the tangible real estate assets.

 

The adjustment to depreciation expense related to thecorrection of the useful lives used to determine the amount of depreciation fortenant improvements related to certain leases and the change in classificationof certain improvements from tenant improvements to building improvementsdecreased Griffin’s operating losses by $55 and $154 in the thirteen and thirty-nine weeks ended August 28, 2004,respectively.

 

7

----

 

Griffin determined that a payment received from atenant for tenant improvements made by Griffin in accordance with the leaseagreement should have been recorded as deferred rental revenue and amortizedinto rental revenue over the term of the lease. Griffin had recorded the payment received as a reduction of its tenantimprovements.  The effect of thisadjustment was to increase Griffin’s rental revenue and increase depreciationexpense by $31 and $51 for the thirteen and thirty-nine weeks ended August 28,2004, respectively.  There was no effecton Griffin’s operating profit because the depreciable lives of the tenant improvementswere the same as the lease term over which the amount received from the tenantwill be recognized as rental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to decrease Griffin’s operatinglosses and increase interest expense by $14 and $401 in the thirteen andthirty-nine weeks ended August 28, 2004.

 

In aggregate, the above adjustments resulted in adecrease of $1 to Griffin’s net loss for the thirteen weeks ended August 28,2004 and a decrease of $21 to Griffin’s net income in the thirty-nine weeksended August 28, 2004.  The changesin rental revenue and depreciation and amortization expense described hereinaffected only noncash credits and charges and did not affect Griffin’s cash position.  In addition, the adjustments related to theamortization of debt issuance costs did not affect Griffin’s pretax income(loss), net income (loss) or net income (loss) per share in any period.  The effect of the above adjustments onGriffin’s consolidated statement of cash flows for the thirty-nine weeks ended August 28,2004 was to decrease net cash used in operating activities from $46,417 to$44,915 and to decrease net cash provided by investing activities from $68,140to $66,638.  There were no changes to netcash used in financing activities for the thirty-nine weeks ended August 28,2004.  Griffin’s consolidated balancesheet as of November 27, 2004 was restated for the above adjustments, butsuch adjustments were not material to Griffin’s balance sheet (see Note 10).

 

Griffin revised the amounts reported on thequarterly data from those originally reported in its Report on Form 10-Qfor the thirteen and thirty-nine weeks ended August 28, 2004 for rentalrevenue and costs related to rental revenue because Griffin determined that ithad inadvertently reported certain intercompany revenue and expenses of thesame amount in each period related to property management activities at Griffin’sreal estate business.  The revisionsdecreased both revenue and related costs in the thirteen and thirty-nine weeksended August 28, 2004 by $246 and $689, respectively, to eliminate thoseoffsetting intercompany amounts that were inadvertently included in the priorperiods. The revisions had no effect on previously reported gross profit,operating profit (loss), net income (loss) or net income (loss) per share inany of Griffin’s previously issued consolidated statements of operations. Inaddition, the revisions had no effect on any of Griffin’s previouslyissued consolidated balance sheets or consolidated statements of cash flows.

 

The results of operations for the thirteen andthirty-nine weeks ended August 27, 2005 are not necessarily indicative ofthe results to be expected for the full year. Certain amounts from the prior year have been reclassified to conform tothe current presentation.

 

Griffin accounts for stock options under AccountingPrinciples Board Opinion No. 25, “Accounting for Stock Issued toEmployees,” and has adopted SFAS No. 123, which requires disclosure of thepro forma effect on earnings and earnings per share of the fair value method ofaccounting for stock-based compensation, and SFAS No. 148, whichprescribes a method of disclosure. Griffin’s results would have been the following pro forma amounts underthe method prescribed by SFAS No. 123:

 

8

----

 
| ** **                                                                                                             | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                             | ** ** | **August 27, 2005**    | ** ** | **August 28, 2004**    | ** ** | **August 27, 2005** | ** ** | **August 28, 2004** | ** ** |
| ** **                                                                                                             | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                                             | ** ** | ** **                  | ** ** | **(Note 10)**               | ** ** | ** ** | ** ** | **(Note 10)** | ** ** |
| Net income (loss), as reported                                                                                         |       | $                           | 716        |                        | $          | (1,220 | ) | $ | (351 | ) | $ | 32,161 |   |
| Total stock based employee compensation expense  determined under fair value method for all awards, net of tax effects |       | (32                         | )          | (30                         | )          | (67 | ) | (86 | ) |
| Net income (loss), pro forma                                                                                           |       | 684                         |       | (1,250                      | )          | (418 | ) | 32,075 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Adjustment to net income (loss) for exercise  of options of equity investee                                            |       | —                      |       | —                      |       | — |   | (38 | ) |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Adjusted net income (loss) for computation of  diluted per share results, pro forma                                    |       | $                           | 684        |                        | $          | (1,250 | ) | $ | (418 | ) | $ | 32,037 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Basic net income (loss) per common share, as  reported                                                                 |       | $                           | 0.14       |                        | $          | (0.25 | ) | $ | (0.07 | ) | $ | 6.56 |   |
| Basic net income (loss) per common share, pro  forma                                                                   |       | $                           | 0.14       |                        | $          | (0.25 | ) | $ | (0.08 | ) | $ | 6.55 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Diluted net income (loss) per common share,  as reported                                                               |       | $                           | 0.14       |                        | $          | (0.25 | ) | $ | (0.07 | ) | $ | 6.31 |   |
| Diluted net income (loss) per common share,  pro forma                                                                 |       | $                           | 0.13       |                        | $          | (0.25 | ) | $ | (0.08 | ) | $ | 6.29 |   |

 

There were 6,268 stockoptions granted during the thirty-nine weeks ended August 27, 2005.  The fair value of each option granted was$11.15, estimated as of the date of grant using the Black-Scholes optionpricing model.  The assumptions used indetermining the fair value of the options granted were an expected volatilityof 44.06%, risk free interest rate of 3.77%, a five year option term and nodividend yield.

 

There were 7,218 stockoptions granted during the thirteen and thirty-nine weeks ended August 28,2004.  The fair value of each optiongranted during the thirteen and thirty-nine weeks ended August 28, 2004was $11.59 estimated as of the date of grant using the Black-Scholes optionpricing model.  The assumptions used indetermining the fair value of the options granted in the thirteen and thirty-nineweeks ended August 28, 2004 were an expected volatility of 150.5%, riskfree interest rate of 3.85%, a five year option term and no dividend yield.

 

2.     RecentAccounting Pronouncements

 

In November 2004, the FASB issued SFAS No. 151,“Inventory Costs (an amendment of ARB No. 43, Chapter 4).”  This new standard requires the recognition ofabnormal inventory costs related to idle facility expenses, freight, handlingcosts and spoilage as period costs.  SFASNo. 151 will be effective for Griffin in fiscal 2006 and is not expectedto have a material impact on Griffin’s consolidated financial statements.

 

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets” (“SFAS No. 153”).  This Statement amends the guidance in APBOpinion No. 29, “Accounting for 

 

9

----

 

Nonmonetary Transactions” (“APB No. 29”).  APB No. 29 provided an exception to thebasic measurement principle (fair value) for exchanges of similar assets,requiring that some nonmonetary exchanges be recorded on a carryoverbasis.  SFAS No. 153 eliminates theexception to fair value for exchanges of similar productive assets and replacesit with a general exception for exchange transactions that do not havecommercial substance, that is, transactions that are not expected to result insignificant changes in the cash flows of the reporting entity.  SFAS No. 153 will be effective forGriffin in the fourth quarter of fiscal 2005 and is not expected to have anyimpact on Griffin’s consolidated financial statements.

 

In December 2004, the FASB issued SFAS No. 123R,“Share-Based Payment.”  This new standardsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”and its related implementation guidance. SFAS No. 123R requires an issuer to recognize the compensation costof employee services received in exchange for an award of equityinstruments.  Therefore, the cost ofrewarding individuals with equity instruments will be recognized in Griffin’sfinancial statements rather than disclosed in a pro forma statement in thefinancial statement footnotes.  In March 2005,the SEC issued Staff Accounting Bulletin No. 107 related to the valuationof share-based payment arrangements under SFAS No. 123R.  Management has utilized the guidance in thisbulletin in preparing its estimates for the effect of SFAS No. 123R.  SFAS No. 123R will be effective forGriffin in the first quarter of fiscal 2006. Management expects to adopt SFAS No. 123R in the 2006 first quarterusing the modified prospective application method, and expects that theadoption of SFAS No. 123R will decrease Griffin’s annual basic and dilutedper share results by $0.01 to $0.04 per share.

 

In March 2005, the FASB issued FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations (an interpretation of FASB Statement No. 143),” (“Fin No. 47”).  Fin No. 47 clarifies the timing ofliability recognition for legal obligations associated with the retirement oftangible long-lived assets.  Fin No. 47will be effective for Griffin in fiscal 2006 and is not expected to have amaterial impact on Griffin’s consolidated financial statements.

 

In May 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections-a replacement of APB Opinion No. 20 and FASBStatement No. 3” (SFAS No. 154”). This new standard requires retrospective application to prior periods’financial statements of voluntary changes in accounting principles, unless itis impracticable to do so.  SFAS No. 154also provides that a correction of errors in previously issued financialstatements should be termed a “restatement”. The new standard is effective for accounting changes and correction oferrors in fiscal years beginning after December 15, 2005.  Griffin has incorporated the provisions ofSFAS No. 154 in the presentation of its Form 10-K/A for the fiscalyear ended November 27, 2004, its Form 10-Q/A for the quarter ended February 26,2005, its Form 10-Q for the quarter ended May 28, 2005 and this Form 10-Qfor the quarter ended August 27, 2005.

 

**3.****                                     ****Industry Segment Information**

 

Griffin’s reportable segments are defined by theirproducts and services, and are comprised of the landscape nursery and realestate segments.  Management operates andreceives reporting based upon these segments. Griffin has no operations outside the United States of America.  Griffin’s export sales and transactionsbetween segments are not material.

 

10

----

 
| ** **                                                                                     | ** ** | **For the 13 Weeks Ended,** | *** *** | **For the 39 Weeks Ended,** | *** *** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------|--------------|-----------------------------|--------------|
| ** **                                                                                     | ** ** | **August 27,  2005**   | ** **   | **August 28,  2004**   | ** **   | **August 27,  2005** | ** ** | **August 28,  2004** | ** ** |
| ** **                                                                                     | ** ** | ** **                  | ** **   | **(As Restated)**           | ** **   | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                     | ** ** | ** **                  | ** **   | **(Note 10)**               | ** **   | ** ** | ** ** | **(Note 10)** | ** ** |
| Total revenue:                                                                                 |       |                        |         |                        |         |   |   |   |   |
| Landscape nursery net sales                                                                    |       | $                           | 5,699        |                        | $            | 5,077 |   | $ | 23,337 |   | $ | 24,624 |   |
| Rental revenue and property sales                                                              |       | 3,350                       |         | 5,789                       |         | 9,748 |   | 11,186 |   |
|                                                                                           |       | $                           | 9,049        |                        | $            | 10,866 |   | $ | 33,085 |   | $ | 35,810 |   |
| Operating profit (loss):                                                                       |       |                        |         |                        |         |   |   |   |   |
| Landscape nursery                                                                              |       | $                           | (1,428       | )                           | $            | (1,514 | ) | $ | (1,415 | ) | $ | (1,488 | ) |
| Real estate                                                                                    |       | 390                         |         | 176                         |         | 1,027 |   | 525 |   |
| Industry segment totals                                                                        |       | (1,038                      | )            | (1,338                      | )            | (388 | ) | (963 | ) |
| General corporate expense                                                                      |       | (753                        | )            | (456                        | )            | (2,512 | ) | (1,570 | ) |
| Operating profit (loss)                                                                        |       | (1,791                      | )            | (1,794                      | )            | (2,900 | ) | (2,533 | ) |
| Gain on sale of Centaur Communications,  Ltd.                                                  |       | —                      |         | —                      |         | — |   | 51,107 |   |
| Gain on sale of Shemin Acquisition  Corporation                                                |       | 3,235                       |         | —                      |         | 3,235 |   | — |   |
| Foreign currency exchange gain                                                                 |       | —                      |         | —                      |         | — |   | 1,070 |   |
| Interest expense, net of interest income,  dividend income and gains on short-term investments |       | (375                        | )            | (478                        | )            | (893 | ) | (2,091 | ) |
| Income (loss) before income tax provision  (benefit)                                           |       | $                           | 1,069        |                        | $            | (2,272 | ) | $ | (558 | ) | $ | 47,553 |   |

 
| ** **                                             | ** ** | **August 27, 2005** | ** ** | **Nov. 27, 2004** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|------------------------|------------|
| ** **                                             | ** ** | ** **               | ** ** | **(As Restated)**      | ** ** |
| ** **                                             | ** ** | ** **               | ** ** | **(Note 10)**          | ** ** |
| Identifiable assets:                                   | ** ** | ** **               | ** ** | ** **             | ** ** |
| Landscape  nursery                                     |       | $                        | 48,632     |                   | $          | 50,330 |   |
| Real estate                                            |       | 82,476                   |       | 73,451                 |       |
| Industry  segment totals                               |       | 131,108                  |       | 123,781                |       |
| General  corporate (consists primarily of investments) |       | 58,702                   |       | 53,109                 |       |
| Total assets                                           |       | $                        | 189,810    |                   | $          | 176,890 |   |

 

Griffin restated its financial statements forthe thirteen weeks ended February 26, 2005, for the thirteen and thirty-nineweeks ended August 28, 2004 and for the fiscal years ended November 27,2004, November 29, 2003 and November 30, 2002 (see Note 10).

 

Griffin revised previously reported rental revenue andrelated costs by the same amount to eliminate certain duplicated amountsincluded in the prior year (see Note 1). The effect of these revisions,which Griffin believes were not material, was to decrease both revenue andrelated costs of the real estate segment in the thirteen and thirty-nine weeksended August 28, 2004 by $246 and $689, respectively. The revisions had noeffect on previously reported real estate segment operating profit orpreviously reported identifiable assets of the real estate segment.

 

Revenue of the real estate segment in the thirteen andthirty-nine weeks ended August 27, 2005 includes property sales revenue of$425 and $1,340, respectively.  Revenueof the real estate segment in the thirteen and thirty-nine weeks ended August 28,2004 includes property sales revenue of $3,090 and $3,275, respectively.

 

11

----

 

See Note 4 for information on Griffin’s previouslyheld equity investment in Centaur Communications, Ltd. (“Centaur”).

 

4.             Equity Investment

 

On March 10, 2004, Griffin completed the sale ofits equity investment in Centaur to a newly formed company, Centaur Holdings,plc (“Centaur Holdings”).  At the time ofthe sale, Griffin held 5,428,194 B Ordinary shares of Centaur common stock,representing approximately 32% of Centaur’s outstanding common stock.  The sale agreement between Griffin, holdersof A Ordinary shares of Centaur and the holder of C Ordinary shares of Centaur(collectively, the “Sellers”) and Centaur Holdings contains certainwarranties.  Warranty claims by CentaurHoldings must first exceed £1 million in the aggregate (approximately $1.8million based on the foreign currency exchange rate in effect at August 27,2005) before the Sellers are required to make any payments.  The warranty period expired on September 30,2005, except for warranties related to income taxes and pension liabilities,which expire on September 30, 2010. To date, there have not been any warranty claims made.  In conjunction with this transaction, CentaurHoldings completed an initial public offering of its common stock whichcurrently trades on the London Stock Exchange.

 

The consideration received by Griffin included cashproceeds of $68.9 million after transaction expenses of $1.5 million but beforeincome tax payments.  In addition to thecash proceeds, Griffin received 6,477,150 shares of Centaur Holdings commonstock (representing approximately 4.4% of its newly issued outstanding commonstock), which was valued at approximately $11.7 million based on the £1.00 pershare price of the initial public offering of shares by Centaur Holdings andthe foreign currency exchange rate in effect at that time.  Subsequent to the sale, a portion of the cashproceeds from the sale were used to repay all of the amount then outstanding($18.4 million) under Griffin’s Credit Agreement with Fleet National Bank.

 

Included in Griffin’s pretax income for thethirty-nine weeks ended August 28, 2004 is a gain on the sale of Centaurof $51.1 million and a foreign currency exchange gain of $1.1 million relatedto the sale.  In connection with theCentaur transaction, substantially all of the stock options of Centaur wereexercised immediately prior to the closing of the transaction, which resultedin Griffin’s ownership being reduced from 35% to 32%.  The gain of approximately $2.3 million thatresulted from the dilution of Griffin’s ownership is included in the gain onthe sale of that investment.  Griffin’sremaining investment in Centaur Holdings is recorded based on the fair marketvalue of that investment.  At the time ofthe sale, approximately $5.4 million was reported as other comprehensiveincome, reflecting the difference, net of tax, between the estimated fairmarket value of Griffin’s investment in Centaur Holdings and the book value ofthe pro rata portion of the investment in Centaur that remained as a result ofreceiving Centaur Holdings common stock as part of the sale proceeds.  Griffin has retained its ownership interestin Centaur Holdings and accounts for that investment as an available-for-salesecurity under SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities.”

 

Prior to the sale, Griffin accounted for itsinvestment in Centaur under the equity method of accounting forinvestments.  The unaudited summarizedfinancial data of Centaur presented below were derived from consolidatedfinancial information of Centaur for the 100 day period from December 1,2003 through March 9, 2004.  Griffin’sequity income for that period included $101 for amortization of publishingrights and reflected adjustments necessary to present Centaur’s results inaccordance with generally accepted accounting principles in the United Statesof America.

 

12

----

 
| ** **             | ** ** | **From**              | ** ** |
|------------------------|------------|-----------------------|------------|
| ** **             | ** ** | **Dec. 1, 2003** | ** ** |
| ** **             | ** ** | **through**           | ** ** |
| ** **             | ** ** | **Mar. 9, 2004** | ** ** |
| Net sales              |       | $                     | 31,972     |   |
| Costs and  expenses    |       | (29,753               | )          |
| Operating  profit      |       | 2,219                 |       |
| Nonoperating  expenses |       | (319                  | )          |
| Pretax  income         |       | 1,900                 |       |
| Income tax  provision  |       | (670                  | )          |
| Net income             |       | $                     | 1,230      |   |

 

5.     Long-TermDebt

 

Long-term debt includes:

 
| ** **                     | ** ** | **August 27, 2005** | ** ** | **November 27, 2004** | ** ** |
|--------------------------------|------------|--------------------------|------------|----------------------------|------------|
| Nonrecourse  mortgages:        |       |                     |       |                       |       |
| 8.54% due July 1, 2009    |       | $                        | 7,782      |                       | $          | 7,842 |   |
| 6.08% due January 1, 2013 |       | 9,291                    |       | 9,433                      |       |
| 6.30% due May 1, 2014     |       | 1,350                    |       | 1,436                      |       |
| 5.46% due August 1, 2015  |       | 12,686                   |       | —                     |       |
| 8.13% due April 1, 2016   |       | 5,721                    |       | 5,853                      |       |
| 7.0% due October 1, 2017  |       | 7,308                    |       | 7,410                      |       |
| Total  nonrecourse mortgages   |       | 44,138                   |       | 31,974                     |       |
| Capital  leases                |       | 299                      |       | 360                        |       |
| Total                          |       | 44,437                   |       | 32,334                     |       |
| Less:  current portion         |       | (1,039                   | )          | (855                       | )          |
| Total  long-term debt          |       | $                        | 43,398     |                       | $          | 31,479 |   |

 

In March 2004, as a result of the proceedsreceived from the sale of Centaur (see Note 4), Griffin repaid the entireamount then outstanding ($18.4 million) under its Credit Agreement (the “CreditAgreement”) with Fleet National Bank and subsequently terminated the CreditAgreement, which was scheduled to expire in February 2005.

 

On July 7, 2005, a subsidiary of Griffincompleted a mortgage for $12.7 million on two of its industrial buildings.  This new mortgage has an interest rate of5.46% and a ten year term, with payments based on a thirty year amortizationschedule.  The mortgage is nonrecourse,however Griffin entered into a master lease with its subsidiary for the spacein the mortgaged buildings that was not leased to third-party tenants at theinception of the new mortgage (the “Initial Vacant Space”).  As Griffin Land enters into approved leasesfor the Initial Vacant Space, the master lease between Griffin and itssubsidiary on that portion of the Initial Vacant Space will be terminated.

 

At August 27, 2005 and November 27, 2004,the fair values of Griffin’s mortgages were $46.6 million and $33.2 million,respectively. Fair value is based on the present value of future cash flowsdiscounted at estimated borrowing rates for comparable risks, maturities andcollateral.

 

13

----

 

6.     StockOptions

 

Activity under the Griffin Land & Nurseries, Inc.1997 Stock Option Plan (the “Griffin Stock Option Plan”) is summarized asfollows:

 
| ** **                          | ** ** | **For the 39 Weeks Ended,** | *** *** |
|-------------------------------------|------------|-----------------------------|--------------|
| ** **                          | ** ** | **August 27, 2005**    | ** **   | **August 28, 2004** | ** ** |
| ** **                          | ** ** | **Number of   Shares**      | ** **   | **Weighted Avg.   Exercise Price** | ** ** | **Number of   Shares** | ** ** | **Weighted Avg.   Exercise Price** | ** ** |
| Outstanding  at beginning of period |       | 584,514                     |         | $ | 12.78 |   | 659,542 |   | $ | 12.57 |   |
| Issued                              |       | 6,268                       |         | 25.53 |   | 7,218 |   | 24.94 |   |
| Exercised                           |       | (40,442                     | )            | 11.60 |   | (71,913 | ) | 12.01 |   |
| Cancelled                           |       | (9,667                      | )            | 13.70 |   | — |   | — |   |
| Outstanding  at end of period       |       | 540,673                     |         | $ | 13.00 |   | 594,847 |   | $ | 12.79 |   |

 
| Number of  option holders at August 27, 2005 |   |   |   |   | 24 |   |
|---------------------------------------------------|--------|--------|--------|--------|----|--------|

 
| **Range of Exercise Prices** | ** ** | **Outstanding at  August 27, 2005** | ** ** | **Weighted Avg.   Exercise Price** | ** ** | **Weighted Avg.   Remaining   Contractual Life   (in years)** | ** ** |
|------------------------------|------------|------------------------------------------|------------|------------------------------------|------------|---------------------------------------------------------------|------------|
| $4.00-$9.00                  |       | 96,172                                   |       | $                                  | 7.55       |                                                          | 0.5        |   |
| $9.00-$18.00                 |       | 431,015                                  |       | 13.83                              |       | 3.5                                                           |       |
| Over $18.00                  |       | 13,486                                   |       | 25.21                              |       | 9.2                                                           |       |
|                         |       | 540,673                                  |       |                               |       |                                                          |       |
|                              |            |                                          |            |                                    |            |                                                               |            |  |

 

At August 27, 2005, 503,857 options outstanding underthe Griffin Stock Option Plan were exercisable with a weighted average exerciseprice of $12.65 per share.

 

14

----

 

7.     PerShare Results

 

Basic and diluted per share results were based on thefollowing:

 
| *** ***                                                                        | *** *** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | *** *** |
|-------------------------------------------------------------------------------------|--------------|-----------------------------|------------|-----------------------------|--------------|
| ** **                                                                          | ** **   | **August 27,  2005**   | ** ** | **August 28,  2004**   | ** **   | **August 27,  2005** | ** ** | **August 28,  2004** | ** ** |
| ** **                                                                          | ** **   | ** **                  | ** ** | **(As Restated)**           | ** **   | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                          | ** **   | ** **                  | ** ** | **(Note 10)**               | ** **   | ** ** | ** ** | **(Note 10)** | ** ** |
| Net income (loss) as reported for  computation of basic per share results           |         | $                           | 716        |                        | $            | (1,220 | ) | $ | (351 | ) | $ | 32,161 |   |
| Adjustment to net income (loss) for  exercise of options of equity investee         |         | —                      |       | —                      |         | — |   | (38 | ) |
| Net income (loss) for computation of diluted  per share results                     |         | $                           | 716        |                        | $            | (1,220 | ) | $ | (351 | ) | $ | 32,123 |   |
|                                                                                |         |                        |       |                        |         |   |   |   |   |
| Weighted average shares outstanding for computation  of basic per share results (a) |         | 4,991,000                   |       | 4,918,000                   |         | 4,974,000 |   | 4,899,000 |   |
| Incremental shares from assumed exercise of  Griffin stock options                  |         | 185,000                     |       | —                      |         | — |   | 194,000 |   |
| Weighted average shares outstanding for computation  of diluted per share results   |         | 5,176,000                   |       | 4,918,000                   |         | 4,974,000 |   | 5,093,000 |   |

 

----

| **(a)** | ** ** | **Incremental  shares from the exercise of Griffin stock options were not included in the  periods where the inclusion of such shares would be anti-dilutive. For the  thirteen weeks ended August 28, 2004, the incremental shares from the  assumed exercise of stock options would have been 211,000. For the  thirty-nine weeks ended August 27, 2005, the incremental shares from the  assumed exercise of stock options would have been 198,000.** |
|---------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

8.                                      Supplemental Financial StatementInformation

 

*Short-TermInvestments*

 

Griffin’s short-term investments are comprised of debtsecurities and are accounted for as trading securities under SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities.”  Accordingly, the securities are carried attheir fair values based upon the quoted market prices of those investments atthe balance sheet date, and net realized and unrealized gains and losses onthose investments are included in pretax income (loss).  The composition of short-term investments at August 27,2005 and November 27, 2004 is as follows:

 

15

----

 
| *** ***                          | ** ** | **As of August 27, 2005** | *** *** | **As of Nov. 27, 2004** | *** *** |
|---------------------------------------|------------|--------------------------------|--------------|------------------------------|--------------|
| ** **                            | ** ** | **Cost**                       | ** **   | **Market Value**             | ** **   | **Cost** | ** ** | **Market Value** | ** ** |
| Commercial  Paper                     |       | $                              | 17,398       |                         | $            | 17,402 |   | $ | 15,015 |   | $ | 15,032 |   |
| Certificates  of Deposit              |       | 14,343                         |         | 14,448                       |         | 7,368 |   | 7,415 |   |
| Federal  Agency Coupon Notes          |       | 10,129                         |         | 10,185                       |         | 3,219 |   | 3,220 |   |
| Auction Rate  Fixed Income Securities |       | 1,250                          |         | 1,253                        |         | 4,500 |   | 4,506 |   |
| Total  short-term investments         |       | $                              | 43,120       |                         | $            | 43,288 |   | $ | 30,102 |   | $ | 30,173 |   |

 

Income from investments for the thirteen andthirty-nine weeks ended August 27, 2005 and August 28, 2004 consistsof:

 
| *** ***                                    | *** *** | **For the 13 Weeks Ended,** | *** *** | **For the 39 Weeks Ended,** | *** *** |
|-------------------------------------------------|--------------|-----------------------------|--------------|-----------------------------|--------------|
| ** **                                      | ** **   | **August 27,  2005**   | ** **   | **August 28,  2004**   | ** **   | **August 27,  2005** | ** ** | **August 28,  2004** | ** ** |
|                                            |         |                        |         |                        |         |   |   |   |
| Net realized  gains on the sales of investments |         | $                           | 128          |                        | $            | 5 |   | $ | 484 |   | $ | 5 |   |
| Change in  net unrealized gains on investments  |         | 119                         |         | 50                          |         | 97 |   | 50 |   |
| Interest and  dividend income                   |         | 37                          |         | 78                          |         | 223 |   | 183 |   |
|                                            |         | $                           | 284          |                        | $            | 133 |   | $ | 804 |   | $ | 238 |   |

 

*Accumulated OtherComprehensive Income*

 

Changes in accumulated other comprehensive income forthe thirteen and thirty-nine weeks ended August 27, 2005 and August 28,2004 consist of the following:

 
| *** ***                                                                                                                          | *** *** | **For the 39 Weeks Ended,** | *** *** |
|---------------------------------------------------------------------------------------------------------------------------------------|--------------|-----------------------------|--------------|
| ** **                                                                                                                            | ** **   | **August 27, 2005**    | ** **   | **August 28, 2004** | ** ** |
|                                                                                                                                  |         |                        |         |   |   |
| Balance at beginning of period                                                                                                        |         | $                           | 5,204        |   | $ | 271 |   |
| Effect of foreign currency exchange rate  changes related to equity investment in Centaur Communications, Ltd.                        |         | —                      |         | 302 |   |
| Transfer to pretax income as a result of  the sale of Centaur Communications, Ltd.                                                    |         | —                      |         | (494 | ) |
| Increase to record the initial investment  in Centaur Holdings, plc at fair market value, net of tax of $2,958                        |         | —                      |         | 5,414 |   |
| Decrease in fair market value at end of  period of Centaur Holdings, plc, net of tax benefit of $429 and $755,  respectively          |         | (798                        | )            | (1,402 | ) |
| Decrease in value of Centaur Holdings, plc,  due to foreign currency exchange loss, net of tax benefit of $174 and $18,  respectively |         | (323                        | )            | (34 | ) |
| Balance at end of period                                                                                                              |         | $                           | 4,083        |   | $ | 4,057 |   |

 

16

----

 

*Shemin Acquisition Corp.*

 

On May 31, 2005, Griffin completed the sale ofits equity interest in Shemin Acquisition Corporation (“Shemin Acquisition”),which Griffin accounted for under the cost method of accounting forinvestments.  Griffin held approximately14% of the outstanding common stock of Shemin Acquisition prior to thetransaction at a carrying value of $4.7 million.  Griffin received initial cash proceeds of$5.9 million from the sale of its remaining common stock of Shemin Acquisitionand recorded a pretax gain of $3.2 million on this transaction.  Immediately prior to that sale, Griffinexchanged a portion of its holdings in Shemin Acquisition for an approximate14% equity interest in Shemin Nurseries Holding Corp. (“Shemin Nurseries”),which operates a landscape nursery distribution business through a subsidiarythat previously was a subsidiary of Shemin Acquisition.  On June 29, 2005 Griffin received a cashdistribution of $1.5 million from Shemin Nurseries.  Subsequent to these transactions, SheminNurseries paid $0.2 million to the buyer of Shemin Acquisition on behalf ofGriffin, for Griffin’s share of the purchase price adjustment related to thedetermination of Shemin Acquisition’s working capital as of the closing date ofthe sale.  Griffin recorded this as anadditional distribution from Shemin Nurseries. The total distribution from Shemin Nurseries of $1.7 million wasrecorded as a return of investment because Shemin Nurseries did not have cumulativeearnings from the time of Griffin’s original investment in Shemin Nurseries.  Therefore, Griffin’s remaining investment inShemin Nurseries was $0.5 million as of August 27, 2005 and is included inother assets on Griffin’s consolidated balance sheet.  Griffin is accounting for its interest inShemin Nurseries under the cost method of accounting for investments.

 

*Supplemental Cash FlowInformation*

 

Included in accounts payableand accrued liabilities at August 27, 2005 and November 27, 2004 were$2,850 and $2,209, respectively, for additions to real estate held for sale orlease.

 

*Inventories*

 

Inventories consist of:

 
| ** **              | ** ** | **August 27, 2005** | ** ** | **Nov. 27,  2004** | ** ** |
|-------------------------|------------|--------------------------|------------|-------------------------|------------|
|                    |       |                     |       |                    |       |
| Nursery  stock          |       | $                        | 32,660     |                    | $          | 31,737 |   |
| Materials  and supplies |       | 1,602                    |       | 1,096                   |       |
|                    |       | 34,262                   |       | 32,833                  |       |
| Reserves                |       | (1,615                   | )          | (649                    | )          |
|                    |       | $                        | 32,647     |                    | $          | 32,184 |   |

 

17

----

 

*Property and Equipment*

 

Property and equipment consist of:

 
| ** **                 | ** ** | ** ** | ** ** | **Estimated   Useful Lives** | ** ** | **August 27,   2005** | ** ** | **Nov. 27,   2004** | ** ** |
|----------------------------|------------|------------|------------|------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                 | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **                 | ** ** | ** **               | ** ** |
| Land                       |       |       |       |                         |       | $                          | 1,289      | ** **               | $          | 1,283 |   |
| Land improvements          |       |       |       | 10 to 20 years               |       | 5,377                      |       | 5,274                    |       |
| Buildings and improvements |       |       |       | 10 to 40 years               |       | 3,057                      |       | 3,033                    |       |
| Machinery and equipment    |       |       |       | 3 to 20 years                |       | 16,571                     |       | 16,054                   |       |
|                       |       |       |       |                         |       | 26,294                     |       | 25,644                   |       |
| Accumulated depreciation   |       |       |       |                         |       | (15,427                    | )          | (14,334                  | )          |
|                       |       |       |       |                         |       | $                          | 10,867     |                     | $          | 11,310 |   |

 

Griffin incurred capital lease obligations of $78 and$192, respectively, in the thirty-nine weeks ended August 27, 2005 and August 28,2004.

 

*Real Estate Held for Sale orLease*

 

Real estate held for sale or lease consists of:

 
| ** **                  | ** ** | **Estimated  Useful Lives**                      | ** ** | **August 27, 2005** | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|--------------------------|------------|
| **Held for Sale**           | ** ** | **Held for Lease**                               | ** ** | **Total**                |
| Land                        |       |                                             |       | $                        | 1,229      |   | $ | 4,515 |   | $ | 5,744 |   |
| Land  improvements          |       | 15 years                                         |       | —                   |       | 4,975 |   | 4,975 |   |
| Buildings  and improvements |       | 10 to 40 years                                   |       | —                   |       | 61,080 |   | 61,080 |   |
| Tenant  improvements        |       | Shorter of useful life or terms of related lease |       | —                   |       | 9,046 |   | 9,046 |   |
| Development  costs          |       |                                             |       | 5,087                    |       | 8,944 |   | 14,031 |   |
|                        |       |                                             |       | 6,316                    |       | 88,560 |   | 94,876 |   |
| Accumulated  depreciation   |       |                                             |       | —                   |       | (19,580 | ) | (19,580 | ) |
|                        |       |                                             |       | $                        | 6,316      |   | $ | 68,980 |   | $ | 75,296 |   |

 

18

----

 
| ** **                  | ** ** | **Estimated  Useful Lives**                      | ** ** | **November 27, 2004** | ** ** |
|-----------------------------|------------|--------------------------------------------------|------------|----------------------------|------------|
| **Held for Sale**           | ** ** | **Held for Lease**                               | ** ** | **Total**                  |
| ** **                  | ** ** | ** **                                       | ** ** | ** **                 | ** ** | **(As Restated)  (Note 11)** | ** ** | **(As Restated)  (Note 11)** | ** ** |
| Land                        |       |                                             |       | $                          | 1,252      |   | $ | 4,287 |   | $ | 5,539 |   |
| Land  improvements          |       | 15 years                                         |       | —                     |       | 4,951 |   | 4,951 |   |
| Buildings  and improvements |       | 10 to 40 years                                   |       | —                     |       | 54,185 |   | 54,185 |   |
| Tenant  improvements        |       | Shorter of useful life or terms of related lease |       | —                     |       | 6,627 |   | 6,627 |   |
| Development  costs          |       |                                             |       | 4,939                      |       | 6,998 |   | 11,937 |   |
|                        |       |                                             |       | 6,191                      |       | 77,048 |   | 83,239 |   |
| Accumulated  depreciation   |       |                                             |       | —                     |       | (17,564 | ) | (17,564 | ) |
|                        |       |                                             |       | $                          | 6,191      |   | $ | 59,484 |   | $ | 65,675 |   |

 

*Deferred IncomeTaxes*

 

A deferred tax asset of $603 and deferred taxliability of $2,185 were included as a credit and a charge, respectively, toother comprehensive income in the thirty-nine weeks ended August 27, 2005and August 28, 2004, respectively, related to mark to market adjustmentson the investment in Centaur Holdings.

 

*PostretirementBenefits*

 

Griffin maintains a postretirement benefits programwhich provides principally health and life insurance benefits to certain of itsretirees. The liability for postretirement benefits is included in othernoncurrent liabilities on the consolidated balance sheets. Because Griffin’sobligation for retiree medical benefits is fixed under the terms of Griffin’spostretirement benefits program, any increase in the medical cost trend wouldhave no effect on the accumulated postretirement benefit obligation, servicecost or interest cost. Griffin’s postretirement benefits are unfunded, withbenefits to be paid from Griffin’s general assets.  Griffin’s contributions for the thirty-nineweeks ended August 27, 2005 and August 28, 2004 were $7 and $9respectively, with an expected contribution of $10 for the fiscal 2005 fullyear.  The components of Griffin’spostretirement benefits expense are as follows:

 
| *** ***                       | *** *** | **For the 13 Weeks Ended,** | *** *** | **For the 39 Weeks Ended,** | *** *** |
|------------------------------------|--------------|-----------------------------|--------------|-----------------------------|--------------|
| ** **                         | ** **   | **Aug. 27,   2005**    | ** **   | **Aug. 28,   2004**    | ** **   | **Aug. 27,   2005** | ** ** | **Aug. 28,   2004** | ** ** |
| ** **                         | ** **   | ** **                  | ** **   | ** **                  | ** **   | ** ** | ** ** | ** ** | ** ** |
| Service cost                       |         | $                           | 9            |                        | $            | 5 |   | $ | 27 |   | $ | 16 |   |
| Interest                           |         | 14                          |         | 12                          |         | 39 |   | 35 |   |
| Amortization  of unrecognized loss |         | 2                           |         | 2                           |         | 7 |   | 7 |   |
|                               |         | $                           | 25           |                        | $            | 19 |   | $ | 73 |   | $ | 58 |   |
|                                    |              |                             |              |                             |              |  |  |  |  |  |  |  |  |  |

 

19

----

 

9.     Commitmentsand Contingencies

 

As of August 27, 2005, Griffin had committedpurchase obligations of $3.2 million, principally for construction of a newindustrial building at Griffin Land, tenant improvement work related to newleases in Griffin Land’s industrial and office buildings and for the purchaseof raw materials by Imperial.

 

Griffin is involved, as a defendant, in variouslitigation matters arising in the ordinary course of business.  In the opinion of management, based on theadvice of counsel, the ultimate liability, if any, with respect to thesematters will not be material to Griffin’s consolidated financial position,results of operations or cash flows.

 

**10.   Restatement**

** **

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and thirty-nine weeks ended August 28, 2004 and the fiscal yearsended November 27, 2004, November 29, 2003 and November 30,2002, including the financial information of the interim periods in fiscalyears 2004 and 2003 to correct: (a) rental revenue and depreciation andamortization expense of its real estate business as a result of an incorrectallocation of the purchase price for Griffin’s fiscal 2003 acquisition of a controllinginterest in a joint venture that owned two office buildings in Windsor,Connecticut (Griffin had previously held a 30% interest in the joint venture), (b) depreciationexpense of its real estate business for tenant improvements related to certainleases in other of Griffin Land’s buildings as a result of the incorrectrecording of the useful lives of certain tenant improvements and themisclassification of certain improvements as tenant improvements rather than asbuilding improvements, (c) rental revenue and depreciation expense of itsreal estate business due to the misclassification of a payment received in the2004 second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement and (d) the classification of theamortization of debt issuance costs related to Griffin’s financing agreementsfrom selling, general and administrative expenses to interest expense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valuesof in-place leases and tenant relationships and reduced by $1.5 million theamount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to increase Griffin’s operating losses by $53 and $184 andto decrease per share results by $0.01 and $0.02 in the thirteen andthirty-nine weeks ended August 28, 2004, respectively, as a result of anincrease in depreciation and amortization expense because of the shorter timeperiod over which the intangible assets are amortized as compared to thedepreciable lives of the tangible real estate assets.

 

The adjustment to depreciation and amortizationexpense related to the correction of the useful lives used to determine theamount of depreciation for tenant improvements related to certain leases andthe change in classification of certain improvements from tenant improvementsto building improvements decreased Griffin’s operating losses by $55 and $154and increased per share results by $0.01 and $0.02 in the thirteen andthirty-nine weeks ended August 28, 2004, respectively.

 

Griffin determined that a payment received in the 2004second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferredrental revenue and amortized into rental revenue over the term of thelease.  Griffin had recorded the paymentreceived as a reduction of its tenant improvements.  The effect of this adjustment was to increaseGriffin’s rental revenue and increase depreciation expense by $31 and $51 forthe thirteen and thirty-nine weeks ended August 28, 2004,respectively.  There was no effect onGriffin’s operating losses 

 

20

----

 

and no effect on per share resultsbecause the depreciable lives of the tenant improvements were the same as thelease term over which the amount received from the tenant will be recognized asrental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to decrease Griffin’s operatinglosses and increase interest expense by $14 and $401 in the thirteen andthirty-nine weeks ended August 28, 2004, respectively.

 

In aggregate, the above adjustments resulted in adecrease of $1 to Griffin’s net loss for the thirteen weeks ended August 28,2004 and a decrease of $21 to Griffin’s net income for the thirty-nine weeksended August 28, 2004.  The changesin rental revenue and depreciation and amortization expense described hereinaffected only noncash credits and charges and did not affect Griffin’s cashposition.  In addition, the adjustmentsrelated to the amortization of debt issuance costs did not affect Griffin’spretax income (loss), net income (loss) or net income (loss) per share in anyperiod.  The effect of the aboveadjustments on Griffin’s consolidated statement of cash flows for thethirty-nine weeks ended August 28, 2004 was to decrease net cash used inoperating activities from $46,417 to $44,915 and to decrease net cash providedby investing activities from $68,140 to $66,638.  There were no changes to net cash used infinancing activities for the thirty-nine weeks ended August 28, 2004.  Griffin’s consolidated balance sheet as of November 27,2004 was restated for the effects of the above adjustments, but suchadjustments were not material to Griffin’s consolidated balance sheet.

 

The following table sets forth additional detailregarding the effects of the restatement on Griffin’s consolidated financialstatements for the thirteen and thirty-nine weeks ended August 28, 2004:

 

21

----

 

Statementof Operations Data

 
| ** **                                                                 | ** ** | **For the thirteen weeks ended,** | ** ** | **For the thirty-nine weeks ended,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------|------------|--------------------------------------|------------|
| ** **                                                                 | ** ** | **August 28, 2004**               | ** ** | **August 28, 2004**                  | ** ** |
| ** **                                                                 | ** ** | **As  Reported**                  | ** ** | **Adjustments**                      | ** ** | **As  Restated** | ** ** | **As  Reported** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
|                                                                       |       |                              |       |                                 |       |   |   |   |   |   |   |   |   |
| Landscape nursery net sales                                                |       | $                                 | 5,077      |                                 | $          | — |   | $ | 5,077 |   | $ | 24,624 |   | $ | — |   | $ | 24,624 |   |
| Rental revenue and property sales                                          |       | 5,758                             |       | 31                                   | (a)        | 5,789 |   | 11,128 |   | 58 | (a) | 11,186 |   |
| Total revenue                                                              |       | 10,835                            |       | 31                                   |       | 10,866 |   | 35,752 |   | 58 |   | 35,810 |   |
|                                                                       |       |                              |       |                                 |       |   |   |   |   |   |   |   |   |
| Costs of landscape nursery sales                                           |       | 5,266                             |       | —                               |       | 5,266 |   | 22,327 |   | — |   | 22,327 |   |
| Costs related to rental revenue and  property sales                        |       | 4,976                             |       | 29                                   | (b)        | 5,005 |   | 8,808 |   | 88 | (b) | 8,896 |   |
| Total costs of goods sold                                                  |       | 10,242                            |       | 29                                   |       | 10,271 |   | 31,135 |   | 88 |   | 31,223 |   |
|                                                                       |       |                              |       |                                 |       |   |   |   |   |   |   |   |   |
| Gross profit                                                               |       | 593                               |       | 2                                    |       | 595 |   | 4,617 |   | (30 | ) | 4,587 |   |
| Selling, general and administrative  expenses                              |       | 2,403                             |       | (14                                  | )(c)       | 2,389 |   | 7,521 |   | (401 | )(c) | 7,120 |   |
| Operating loss                                                             |       | (1,810                            | )          | 16                                   |       | (1,794 | ) | (2,904 | ) | 371 |   | (2,533 | ) |
| Gain on sale of Centaur Communications,  Ltd.                              |       | —                            |       | —                               |       | — |   | 51,107 |   | — |   | 51,107 |   |
| Foreign currency exchange gain                                             |       | —                            |       | —                               |       | — |   | 1,070 |   | — |   | 1,070 |   |
| Interest expense                                                           |       | (597                              | )          | (14                                  | )(d)       | (611 | ) | (1,928 | ) | (401 | )(d) | (2,329 | ) |
| Interest income, dividend income and gains  on short-term investments      |       | 133                               |       | —                               |       | 133 |   | 238 |   | — |   | 238 |   |
| (Loss) income before income tax (benefit)  provision and equity investment |       | (2,274                            | )          | 2                                    |       | (2,272 | ) | 47,583 |   | (30 | ) | 47,553 |   |
| Income tax (benefit) provision                                             |       | (1,053                            | )          | 1                                    | (e)        | (1,052 | ) | 15,729 |   | (9 | )(e) | 15,720 |   |
| (Loss) income before equity investment                                     |       | (1,221                            | )          | 1                                    |       | (1,220 | ) | 31,854 |   | (21 | ) | 31,833 |   |
| Equity income from Centaur Communications,  Ltd.                           |       | —                            |       | —                               |       | — |   | 328 |   | — |   | 328 |   |
| Net (loss) income                                                          |       | $                                 | (1,221     | )                                    | $          | 1 |   | $ | (1,220 | ) | $ | 32,182 |   | $ | (21 | ) | $ | 32,161 |   |
| Basic net (loss) income per common share                                   |       | $                                 | (0.25      | )                                    | $          | — |   | $ | (0.25 | ) | $ | 6.57 |   | $ | (0.01 | ) | $ | 6.56 |   |
| Diluted net (loss) income per common share                                 |       | $                                 | (0.25      | )                                    | $          | — |   | $ | (0.25 | ) | $ | 6.31 |   | $ | — |   | $ | 6.31 |   |

 

Balance Sheet Data

 
| ** **                                        | ** ** | **November 27, 2004** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **As  Reported**      | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
|                                              |       |                  |       |   |   |   |   |
| Total  current assets                             |       | $                     | 78,341     |   | $ | — |   | $ | 78,341 |   |
| Real estate  held for sale or lease, net          |       | 66,043                |       | (368 | )(f) | 65,675 |   |
| Property and  equipment, net                      |       | 11,310                |       | — |   | 11,310 |   |
| Investment  in Centaur Holdings, plc              |       | 11,290                |       | — |   | 11,290 |   |
| Other assets                                      |       | 9,413                 |       | 861 | (g) | 10,274 |   |
| Total assets                                      |       | $                     | 176,397    |   | $ | 493 |   | $ | 176,890 |   |
|                                              |       |                  |       |   |   |   |   |
| Total  current liabilities                        |       | $                     | 6,776      |   | $ | 123 | (h) | $ | 6,899 |   |
| Long-term  debt                                   |       | 31,479                |       | — |   | 31,479 |   |
| Deferred  income taxes                            |       | 1,979                 |       | (221 | )(i) | 1,758 |   |
| Other  noncurrent liabilities                     |       | 1,600                 |       | 1,024 | (j) | 2,624 |   |
| Total  liabilities                                |       | 41,834                |       | 926 |   | 42,760 |   |
| Total  stockholders’ equity                  |       | 134,563               |       | (433 | )(k) | 134,130 |   |
| Total  liabilities and stockholders’  equity |       | $                     | 176,397    |   | $ | 493 |   | $ | 176,890 |   |

 

22

----

 

----

| (a)    |   | Reflects increases in rental revenue of $31 and $51 for the thirteen  and thirty-nine weeks ended August 28, 2004, respectively, to reflect  the amortization of deferred rental revenue as a result of a reimbursement  from a tenant for tenant improvements made by Griffin in accordance with the  lease terms. Also reflects an increase of $7 for the thirty-nine weeks ended  August 28, 2004 for amortization of above-market and below-market leases  reflecting a change in the value of above-market and below-market leases as a  result of the reallocation of a portion of the purchase price of a fiscal  2003 acquisition as described in Note (b)(i) below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (b)    |   | Reflects: (i) net increases in depreciation and amortization  expense of intangible assets of $53 and $191 in the thirteen and thirty-nine  weeks ended August 28, 2004, respectively, as a result of the  reallocation of $1.5 million of the purchase price from real estate held for  sale or lease to the values of in-place leases and tenant relationships with  respect to Griffin’s fiscal 2003 acquisition of a controlling interest in a  joint venture that owned two office buildings; (ii) decreases in  depreciation expense of $55 and $154 for the thirteen and thirty-nine weeks  ended August 28, 2004, respectively, to correct the depreciation related  to certain tenant improvements as a result of incorrect useful lives used to  determine the amount of depreciation and the reclassification of certain  improvements from tenant improvements to building improvements; and  (iii) increases in depreciation expense of $31 and $51 in the thirteen  and thirty-nine weeks ended August 28, 2004, respectively, as a result  of recording a payment received from a tenant for tenant improvements made by  Griffin in accordance with the lease agreement as deferred rental revenue  instead of as a reduction to tenant improvements, as originally recorded. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (c)    |   | Reflects decreases in selling, general and administrative expenses of  $14 and $401 in the thirteen and thirty-nine weeks ended August 28,  2004, respectively, as a result of the correction to the classification of  the amortization of debt issuance costs from selling, general and  administrative expenses to interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (d)    |   | Reflects increases in interest expense of $14 and $401 in the  thirteen and thirty-nine weeks ended August 28, 2004 for the correction  to the classification of amortization of debt issuance costs from selling,  general and administrative expenses to interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (e)    |   | Reflects a decrease in the income tax benefit as a result of a decrease  in loss before income tax benefit in the thirteen weeks ended August 28,  2004 and a decrease in the income tax provision as a result of a decrease in  income before income taxes in the thirty-nine weeks ended August 28,  2004 as a result of the adjustments described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| (f)    |   | Reflects: (i) a decrease in real  estate held for sale or lease of $1,364 as a result of the correction to the  allocation of the purchase price of the fiscal 2003 acquisition as described  in Note (b)(i) above; (ii) an increase in real estate held for sale  or lease of $1,147 for the recording of a payment received from a tenant for  tenant improvements made by Griffin as deferred rental revenue instead of as  a reduction of tenant improvements, as originally recorded; and (iii) a  decrease in real estate held for sale or lease of $151 to correct the  depreciation related to certain tenant improvements as a result of the  incorrect useful lives of these assets being used to determine the amount of  depreciation and the change in classification of certain improvements from  tenant improvements to building improvements.                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

23

----

 
| (g)    |   | Reflects an increase in the values of  in-place leases and tenant relationships, which are included in other assets  on Griffin’s consolidated balance sheet, as a result of the reallocation of a  portion of the purchase price of a fiscal 2003 acquisition as described in  Note (b)(i) above.                                                              |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| (h)    |   | Reflects an increase to current liabilities  for the current portion of deferred rental revenue as a result of a payment  received from a tenant for tenant improvements made by Griffin in accordance  with the lease agreement as described in Note (b)(iii) above. The  deferred rental revenue is being amortized to rental revenue over the term of  the lease. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| (i)    |   | Reflects the cumulative tax effect related to the adjustments  discussed above.                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| (j)    |   | Reflects an increase in other noncurrent  liabilities for deferred rental revenue as a result of a payment received  from a tenant for tenant improvements made by Griffin in accordance with the  lease agreement as described in Note (b)(iii) above. The deferred rental  revenue is being amortized to rental revenue over the term of the lease.                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
| (k)    |   | Reflects the cumulative effect of the above adjustments on  stockholders’ equity.                                                                                                                                                                                                                                                                                    |

 

24

----

 
| ITEM 2. |   | MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|--------|---------------------------------------------------------------------------------------------|

** **

**Overview**

** **

The consolidated financial statements of Griffin Land &Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s subsidiaryin the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”),and Griffin’s Connecticut and Massachusetts based real estate business (“GriffinLand”).  Through March 9, 2004,Griffin had an equity investment in Centaur Communications, Ltd. (“Centaur”), aprivately held magazine publishing business based in the United Kingdom.  On March 10, 2004, Griffin completed thesale of its equity investment in Centaur, receiving cash proceeds of $68.9million after transaction expenses of $1.5 million but before income taxpayments, and 6,477,150 shares of common stock of Centaur Holdings, plc (“CentaurHoldings”), the newly formed acquiring company. Griffin has retained its ownership interest in Centaur Holdings andaccounts for that investment as an available-for-sale security under SFAS No. 115,“Accounting For Certain Investments in Debt and Equity Securities.”

 

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and thirty-nine weeks ended August 28, 2004 and the fiscal yearsended November 27, 2004, November 29, 2003 and November 30,2002, including the financial information of the interim periods in those fiscalyears, to correct: (a) rental revenue and depreciation and amortizationexpense of its real estate business as a result of an incorrect allocation ofthe purchase price for Griffin’s fiscal 2003 acquisition of a controllinginterest in a joint venture that owned two office buildings in Windsor,Connecticut (Griffin had previously held a 30% interest in the joint venture), (b) depreciationexpense of its real estate business for tenant improvements related to certainleases in other of Griffin Land’s buildings as a result of the incorrectrecording of the useful lives of certain tenant improvements and themisclassification of certain improvements as tenant improvements rather than asbuilding improvements, (c) rental revenue and depreciation expense of itsreal estate business due to the misclassification of a payment received in the2004 second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement and (d) the classification of theamortization of debt issuance costs related to Griffin’s financing agreementsfrom selling, general and administrative expenses to interest expense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valuesof in-place leases and tenant relationships and reduced by $1.5 million theamount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to increase Griffin’s operating losses by $53,000 and$184,000 in the thirteen and thirty-nine weeks ended August 28, 2004,respectively, as a result of an increase in depreciation and amortizationexpense because of the shorter time period over which the intangible assets areamortized as compared to the depreciable lives of the tangible real estateassets.

 

The adjustment to depreciation expense related to thecorrection of the useful lives used to determine the amount of depreciation andamortization for tenant improvements related to certain leases and the changein classification of certain improvements from tenant improvements to buildingimprovements decreased Griffin’s operating losses by $55,000 and $154,000 inthe thirteen and thirty-nine weeks ended August 28, 2004, respectively.

 

Griffin determined that a payment received in the 2004second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferredrental revenue and amortized into rental revenue over the term of thelease.  Griffin had recorded the paymentreceived as a reduction of its tenant improvements.  The effect of this adjustment was to 

 

25

----

 

increase Griffin’s rental revenue andincrease depreciation expense by $31,000 and $51,000 for the thirteen andthirty-nine weeks ended August 28, 2004, respectively.  There was no effect on Griffin’s operatinglosses because the depreciable lives of the tenant improvements were the sameas the lease term over which the amount received from the tenant will berecognized as rental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to decrease Griffin’s operatinglosses and increase interest expense by $14,000 and  $401,000 in the thirteen and thirty-nineweeks ended August 28, 2004, respectively.

 

In aggregate, the above adjustments resulted in adecrease of $1,000 to Griffin’s net loss for the thirteen weeks ended August 28,2004 and a decrease of $21,000 to Griffin’s net income in the thirty-nine weeksended August 28, 2004.  The changesin rental revenue and depreciation and amortization expense described hereinaffected only noncash credits and charges and did not affect Griffin’s cashposition.  In addition, the adjustmentsrelated to the amortization of debt issuance costs did not affect Griffin’spretax income (loss), net income (loss) or net income (loss) per share in anyperiod.  The effect of the aboveadjustments on Griffin’s consolidated statement of cash flows for thethirty-nine weeks ended August 28, 2004 was to decrease net cash used inoperating activities from $46.4 million to $44.9 million and to decrease netcash provided by investing activities from $68.1 million to $66.6 million.  There were no changes to net cash used infinancing activities for the thirty-nine weeks ended August 28, 2004.  Griffin’s consolidated balance sheet as of November 27,2004 was restated for the effects of the above adjustments, but suchadjustments were not material to Griffin’s consolidated balance sheet. See Note10 to Griffin’s consolidated financial statements for additional informationregarding the effects of the restatement.

 

The significant accounting policies and methods usedin the preparation of Griffin’s consolidated financial statements included inItem 1 are consistent with those used in the preparation of Griffin’s auditedfinancial statements for the year ended November 27, 2004 included inGriffin’s Report on Form 10-K/A as filed with the Securities and ExchangeCommission.  The preparation of Griffin’sfinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make certainestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the dates ofthe financial statements and revenue and expenses during the periodsreported.  Actual results could differfrom those estimates.  The significantaccounting estimates used by Griffin in preparation of its financial statementsfor the thirteen and thirty-nine weeks ended August 27, 2005 areconsistent with those used by Griffin in preparation of its fiscal 2004financial statements.

 

**Summary**

** **

**Results of Griffin’s operating businesses forthe thirteen weeks ended August 27, 2005 (the “2005 third quarter”)improved slightly over the thirteen weeks ended August 28, 2004 (the “2004third quarter”).  Operating profit atGriffin Land increased in the 2005 third quarter as compared to the 2004 thirdquarter due to higher profit on land sales in the current quarter.  Imperial’s 2005 third quarter operating losswas slightly lower than the 2004 third quarter operating loss due principallyto lower selling, general and administrative expenses.  The improved operating results of Griffin’soperating businesses were offset by higher general corporate expense in the2005 third quarter.  Griffin’s 2005 thirdquarter net income was an improvement over its 2004 third quarter net loss dueto the $3.2 million pretax gain from the sale of its investment in SheminAcquisition Corporation in the 2005 third quarter.**

 

**Results of Griffin’s operating businesses forthe thirty-nine weeks ended August 27, 2005 (the “2005 nine month period”)increased over the thirty-nine weeks ended August 28, 2004 (the “2004 ninemonth period”).  Operating profit atGriffin Land increased in the 2005 nine month period as compared to**

 

**26**

----

 

**the 2004nine month period due to profit from land sales in the current year.  Imperial’s operating results for the 2005nine month period were essentially unchanged from the prior year.  An increase in general corporate expense inthe 2005 nine month period more than offset the higher profit at GriffinLand.  The 2004 nine month periodincluded a pretax gain totaling $52.2 million from the sale of Centaur and arelated foreign currency exchange gain. The 2005 nine month period included a $3.2 million pretax gain from thesale of Shemin Acquisition Corporation. Interest expense was lower in the 2005 nine month period as compared tothe 2004 nine month period due to the paydown last year of the amountsoutstanding under Griffin’s Credit Agreement with a portion of the proceedsfrom the sale of Centaur.**

 

**Results ofOperations**

** **

**Thirteen WeeksEnded August 27, 2005 Compared to the Thirteen Weeks Ended August 28,2004**

** **

Net sales and other revenue decreased from $10.9million in the 2004 third quarter to $9.0 million in the 2005 third quarter.  The decrease of $1.9 million reflects a $2.4million decrease at Griffin Land partially offset by a $0.6 million increase atImperial.

 

Net sales and other revenue at Griffin Land decreasedfrom $5.8 million in the 2004 third quarter to $3.3 million in the 2005 thirdquarter.  The decrease of $2.5 millionreflects lower revenue from land sales, as the 2004 third quarter included landsales revenue of $3.1 million from the sale of Griffin Land’s remainingdevelopment rights of its Walden Woods residential development in Windsor,Connecticut, as compared to land sales revenue of $0.4 million in the 2005third quarter from the sale of undeveloped residential land.  Partially offsetting the lower revenue fromland sales was higher revenue from leasing operations, which increased from$2.7 million in the 2004 third quarter to $2.9 million in the 2005 thirdquarter, principally reflecting a net increase in space under lease.   At August 27, 2005, Griffin Land owned1,267,000 square feet of completed industrial, flex and office space, with1,027,000 square feet (81%) leased.  Atthe end of the 2004 third quarter, Griffin Land owned 1,130,000 square feet ofcompleted industrial, flex and office space, with 940,000 square feet (83%)leased.  The increase in the total squarefootage owned by Griffin Land reflects a newly constructed 137,000 square footindustrial building in the New England Tradeport that came on line at thebeginning of the 2005 third quarter.  This building was built on speculation and is approximately 50%leased.  The increase in the amount ofsquare feet under lease reflects the space leased in the new industrialbuilding and other new leases entered into subsequent to the third quarter lastyear, net of space vacated during that period. Market activity by users of industrial and warehouse space was strongthrough the second quarter this year, but appears to have softened in the thirdquarter, as evidenced by a recent decline in inquiries from prospectivetenants.

 

Net sales and other revenue at Imperial increased from$5.1 million in the 2004 third quarter to $5.7 million in the 2005 thirdquarter.  Overall unit sales volume inthe 2005 third quarter was essentially flat as compared to the 2004 thirdquarter, however on average, 2005 third quarter sales were of large sizedproduct, resulting in the increase in revenue in the current year quarter.  Most of the sales increase in the 2005 thirdquarter over the 2004 third quarter occurred in the first month of the quarter,as poor early spring weather delayed shipments to customers in Imperial’smarkets, resulting in some deliveries of spring product being delayed intoJune, the first month of the third quarter.

 

Griffin incurred consolidated operating losses of $1.8million in both the 2005 third quarter and the 2004 third quarters.  In the 2005 third quarter as compared to the2004 third quarter, there was an increase of $0.2 million in operating profitat Griffin Land and a decrease of $0.1 million in the operating loss atImperial, which were offset by an increase of $0.3 million in general corporateexpense.

 

Operating profit at Griffin Land increased from $0.2million in the 2004 third quarter to $0.4 million in the 2005 third quarter,reflecting the following:

 

27

----

 
| ** **                                                                                                                       | ** ** | **2005**                   | ** ** | **2004**          | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                                                                                       | ** ** | **Third Qtr.**             | ** ** | **Third Qtr.**    | ** ** |
| ** **                                                                                                                       | ** ** | ** **                 | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                                                       | ** ** | **(amounts in thousands)** | ** ** |
|                                                                                                                             |       |                       |       |              |       |
| Rental revenue                                                                                                                   |       | $                          | 2,925      |              | $          | 2,699 |   |
| Revenue from land sales                                                                                                          |       | 425                        |       | 3,090             |       |
| Total revenue                                                                                                                    |       | 3,350                      |       | 5,789             |       |
| Costs related to rental revenue excluding depreciation  and amortization (a)                                                     |       | 1,074                      |       | 963               |       |
| Costs related to land sales                                                                                                      |       | 46                         |       | 3,205             |       |
| Total costs excluding depreciation and  amortization                                                                             |       | 1,120                      |       | 4,168             |       |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense (a) |       | 1,851                      |       | 1,736             |       |
| Profit (loss) from land sales                                                                                                    |       | 379                        |       | (115              | )          |
| General and administrative expenses  excluding depreciation and amortization expense (a)                                         |       | (684                       | )          | (602              | )          |
| Profit before depreciation and amortization  expense                                                                             |       | 1,546                      |       | 1,019             |       |
| Depreciation and amortization expense  related to costs of rental revenue                                                        |       | (1,146                     | )          | (837              | )          |
| Depreciation and amortization expense -  other                                                                                   |       | (10                        | )          | (6                | )          |
| Operating profit                                                                                                                 |       | $                          | 390        |              | $          | 176 |   |

 

----

(a)           The costs related to rental revenueexcluding depreciation and amortization, profit from leasing activities beforegeneral and administrative expenses and before depreciation and amortizationexpense and general and administrative expenses excluding depreciation andamortization expense are disclosures not in conformity with generally acceptedaccounting principles.  They arepresented because Griffin believes they are useful financial indicators formeasuring the results in its real estate division.  However, they should not be considered as analternative to operating profit as a measure of operating results in accordancewith generally accepted accounting principles.

 

Profit from leasing activities before general andadministrative expenses and before depreciation and amortization expense increasedfrom $1.7 million to $1.9 million due to the higher rental revenue, partiallyoffset by higher building operating expenses. The higher building operating expense principally reflects higherutility and repair expenses, which increased $0.1 million combined.  The profit from land sales in the 2005 thirdquarter reflects the sale of undeveloped residential land that had a very lowcost basis.   The 2004 third quarterreflected the sale of the development rights of Walden Woods in which GriffinLand incurred a loss because of the high cost basis of that residential project,the costs of obtaining approvals from the town’s land use commissions andtransaction expenses.  Griffin Land’sgeneral and administrative expenses increased slightly in the 2005 thirdquarter as compared to the 2004 third quarter due principally to an increase inbad debt expense.  Depreciation andamortization expense increased from $0.8 million in the 2004 third quarter to$1.1 million in the 2005 third quarter. The increase of $0.3 million reflects $0.2 million due to the acceleratedamortization of intangible assets related to a lease that will terminate earlythis year and $0.1 million due to depreciation on tenant improvements for newleases and depreciation on the new industrial building that was placed inservice at the beginning of the current quarter.  The early termination of the lease was agreedto by Griffin Land because that tenant will be relocating to another of GriffinLand's buildings under a new ten year lease expected to become effective in the2005 fourth quarter.

 

28

----

 

Imperial incurred a $1.4 million operating loss in the2005 third quarter, as compared to an operating loss of $1.5 million in the2004 third quarter, as follows:

 
| ** **                                    | ** ** | **2005**                  | ** ** | **2004**       | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|----------------|------------|
| ** **                                    | ** ** | **Third Qtr.**            | ** ** | **Third Qtr.** | ** ** |
| ** **                                    | ** ** | **(amounts in millions)** | ** ** |
| Net sales  and other revenue                  |       | $                         | 5,699      |           | $          | 5,077 |   |
| Cost of  goods sold                           |       | 6,060                     |       | 5,266          |       |
| Gross loss                                    |       | (361                      | )          | (189           | )          |
| Selling,  general and administrative expenses |       | 1,067                     |       | 1,325          |       |
| Operating  loss                               |       | $                         | (1,428     | )              | $          | (1,514 | ) |

 

In the 2005 third quarter, Imperial’s operatingresults reflect a $0.8 million increase in cost of goods sold as compared tothe 2004 third quarter, which more than offset the $0.6 million increase in netsales and other revenue in the current quarter over the 2004 thirdquarter.  The higher 2005 third quartercost of sales reflects higher inventory costs along with increased deliverycosts.  Cost of goods sold in the 2005third quarter also includes a charge of $0.8 million for unsaleableinventories, as compared to a $0.9 million charge for unsaleable inventoriesincluded in the 2004 third quarter cost of goods sold.  These charges resulted from disease and otherhorticultural issues, insufficient sell through on certain inventories whichthen became unsaleable and certain inventories in which the inventory valuesexceeded their net realizable value. Excluding the inventory charges, Imperial’s gross margin on salesdecreased from 13.5% in the 2004 third quarter to 7.3% in the 2005 thirdquarter.  The lower margin on sales,excluding the inventory charges, principally reflects the higher inventorycosts, higher delivery expenses and generally lower selling prices in the 2005third quarter as compared to the 2004 third quarter.  The lower selling prices in the 2005 thirdquarter reflect the effect of price reductions given to customers in order tosell through product that was not shipped in spring, as planned.

 

Imperial’s selling, general and administrativeexpenses decreased by $0.3 million in the 2005 third quarter as compared to the2004 third quarter, principally reflecting lower bad debt expense in the 2005third quarter as compared to the 2004 third quarter.  The 2004 third quarter included a charge of$0.2 million for bad debt expense as a result of the bankruptcy filing by oneof Imperial’s larger customers, Frank’s Nursery & Crafts, Inc.  As a percentage of net sales, selling,general and administrative expenses decreased from 26.1% in the 2004 thirdquarter to 18.7% in the 2005 third quarter.

 

Griffin’s general corporate expense increased from$0.5 million in the 2004 third quarter to $0.8 million in the 2005 thirdquarter.  The higher general corporateexpense reflects $0.1 million of costs incurred for Griffin’s compliance with Section 404of the Sarbanes-Oxley Act and higher audit expenses  in connection with the restatement of Griffin’sprior period financial statements.

 

In the 2005 third quarter, Griffin sold its investmentin Shemin Acquisition Corporation for cash proceeds of $5.7 million, resultingin a gain of $3.2 million.  Immediatelyprior to the sale, Griffin exchanged a portion of its Shemin AcquisitionCorporation common stock for common stock of Shemin Nurseries Holding Corp.,which operates a landscape nursery distribution business through itssubsidiary.  See Note 8 to theconsolidated financial statements in Item 1.

 

Griffin’s consolidated interest expense increased from$0.6 million in the 2004 third quarter to $0.7 million in the 2005 third quarter.  The higher interest expense in the currentquarter reflects interest on a new $12.7 million nonrecourse mortgage on two ofGriffin Land’s industrial properties that was executed in the 2005 thirdquarter.  Griffin’s average outstandingdebt in the 2005 third quarter was $38.3 

 

29

----

 

million as compared to averageoutstanding debt of $32.6 million in the 2004 third quarter.  The higher outstanding debt principallyreflects the new mortgage.

 

Griffin reported interest income, dividend income andgains on short-term investments of $0.3 million in the 2005 third quarter ascompared to $0.1 million in the 2004 third quarter.  The increase reflects Griffin having a greateramount of short-term investments in the current year and improved return oninvestments, attributed to generally higher short-term interest rates in thecurrent year.   The increase in theamount of short-term investments in the current year’s quarter reflects theinvestment of the cash received from the sale of Shemin Acquisition and fromthe recently executed mortgage.

 

Griffin’s effective income tax provision rate was33.0% for the 2005 third quarter as compared to an effective tax benefit rateof 46.3% in the 2004 third quarter.  Thedecrease in the effective tax rate principally reflects the release of anincome tax liability of $0.2 million in the 2004 third quarter upon completionof tax examinations of prior years.

 

**Thirty-NineWeeks Ended August 27, 2005 Compared to the Thirty-Nine Weeks Ended August 28,2004**

** **

Net sales and other revenue decreased from $35.8million in the 2004 nine month period to $33.1 million in the 2005 nine monthperiod, reflecting decreases of $1.4 million at Griffin Land and $1.3 millionat Imperial.

 

Net sales and other revenue at Griffin Land decreasedfrom $11.2 million in the 2004 nine month period to $9.7 million in the 2005nine month period.  The decrease of $1.5million reflects a $1.9 million decrease in land sales revenue partially offsetby an increase of $0.5 million in revenue from leasing operations.  Revenue from land sales decreased from $3.3million in the 2004 nine month period to $1.4 million in the 2005 nine monthperiod.   The 2004 nine month periodincluded land sales revenue of  $3.1million from the sale of the remaining development rights at Walden Woods.  Land sales in the 2005 nine month periodincludes a sale of undeveloped commercial land that closed in the secondquarter and a 2005 third quarter sale of undeveloped residential land.  Revenue from leasing operations increasedfrom $7.9 million in the 2004 nine month period to $8.4 million in the 2005nine month period, as increased rental revenue of $0.4 million from new leasesthat became effective subsequent to last year’s nine month period and $0.4million from leases that were in place for the entire 2005 nine month period ascompared to being effective for only a portion of the 2004 nine month periodwere partially offset by a $0.3 million decrease in rental revenue as a resultof vacancies in the current year.

 

Net sales and other revenue at Imperial decreased from$24.6 million in the 2004 nine month period to $23.3 million in the 2005 ninemonth period.  Unit sales volume was 16%lower in the 2005 nine month period as compared to the 2004 nine monthperiod.  The effect of the decline inunit sales volume was partially offset by selling, on average, larger sizematerial in the current year.  Thedecrease in unit sales volume reflects, in part, reduced sales to mass merchantand wholesale customers in connection with efforts to increase sales toindependent garden center customers in order to sell a greater percentage ofImperial’s available product to the independent garden center customer segment,which has more favorable pricing than Imperial’s other customer segments.

 

Griffin incurred a consolidated operating loss of $2.9million in the 2005 nine month period, as compared to an operating loss of $2.5million in the 2004 nine month period. The lower operating results reflects an increase of $0.9 million ingeneral corporate expense, partially offset by an increase of $0.5 million inoperating profit at Griffin Land and a decrease of $0.1 million in theoperating loss at Imperial.

 

30

----

 

Operating profit at Griffin Land increased from $0.5million in the 2004 nine month period to $1.0 million in the 2005 nine monthperiod, reflecting the following:

 
| ** **                                                                                                                       | ** ** | **2005**                   | ** ** | **2004**          | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                                                                                       | ** ** | **Nine Months**            | ** ** | **Nine Months**   | ** ** |
| ** **                                                                                                                       | ** ** | ** **                 | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                                                       | ** ** | **(amounts in thousands)** | ** ** |
|                                                                                                                             |       |                       |       |              |       |
| Rental revenue                                                                                                                   |       | $                          | 8,408      |              | $          | 7,911 |   |
| Revenue from land sales                                                                                                          |       | 1,340                      |       | 3,275             |       |
| Total revenue                                                                                                                    |       | 9,748                      |       | 11,186            |       |
| Costs related to rental revenue excluding depreciation  and amortization (a)                                                     |       | 3,576                      |       | 3,050             |       |
| Costs related to land sales                                                                                                      |       | 385                        |       | 3,417             |       |
| Total costs excluding depreciation and  amortization                                                                             |       | 3,961                      |       | 6,467             |       |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense (a) |       | 4,832                      |       | 4,861             |       |
| Gain (loss) from land sales                                                                                                      |       | 955                        |       | (142              | )          |
| General and administrative expenses  excluding depreciation and amortization expense (a)                                         |       | (1,990                     | )          | (1,753            | )          |
| Profit before depreciation and amortization  expense                                                                             |       | 3,797                      |       | 2,966             |       |
| Depreciation and amortization expense  related to costs of rental revenue                                                        |       | (2,746                     | )          | (2,429            | )          |
| Depreciation and amortization expense -  other                                                                                   |       | (24                        | )          | (12               | )          |
| Operating profit                                                                                                                 |       | $                          | 1,027      |              | $          | 525 |   |

 

----

(a)           The costs related to rental revenueexcluding depreciation and amortization, profit from leasing activities beforegeneral and administrative expenses and before depreciation and amortizationexpense and general and administrative expenses excluding depreciation andamortization expense are disclosures not in conformity with generally acceptedaccounting principles.  They arepresented because Griffin believes they are useful financial indicators formeasuring the results in its real estate division.  However, they should not be considered as analternative to operating profit as a measure of operating results in accordancewith generally accepted accounting principles.

 

Griffin Land’s profit from leasing activities beforegeneral and administrative expenses and before depreciation and amortizationexpense was essentially unchanged in the 2005 nine month period as compared tothe 2004 nine month period.  The $0.5million increase in rental revenue was substantially offset by an increase of$0.5 million in building operating expenses, principally reflecting a $0.2million increase in snow removal expenses incurred earlier this year, a $0.1 millionincrease in utility expenses and a charge of $0.2 million to write-offcapitalized costs related to a lease that was terminated in the first quarterof the current year.  The leasetermination was related to a new longer-term lease with a new tenant for thatbuilding with lease rates that are equal to the rental rates that Griffin Landwould have received over the remaining term of the terminated lease.

 

Profit from land sales was $1.0 million in the 2005nine month period as compared to a loss of $0.1 million in the 2004 nine monthperiod.  Profit on land sales in the 2005nine month period reflects 

 

31

----

 

sales of undeveloped commercial andresidential land that had low cost bases. The 2004 nine month period reflects a loss of $0.2 million on the saleof the remaining development rights at Griffin Land’s Walden Woods residentialdevelopment because of the high cost basis of that development, and thewriteoff of $0.2 million of costs on two potential land sale transactions thatdid not take place, partially offset by the profit of $0.2 million from thesale of undeveloped residential land.

 

Griffin Land’s general and administrative expensesincreased from $1.8 million in the 2004 nine month period to $2.0 million inthe 2005 nine month period.  The increaseof $0.2 million principally reflects an increase of $0.1 million in bad debtexpense and an increase of $0.1 million in insurance expense.  Depreciation and amortization expenseincreased from $2.4 million in the 2004 nine month period to $2.7 million inthe 2005 nine month period.  The increaseof $0.3 million reflects $0.2 million for the accelerated amortization ofintangible assets as a result of an early termination of a lease that will beeffective in the 2005 fourth quarter and depreciation on tenant improvementsrelated to new leases this year and the new building placed in service at thestart of the 2005 third quarter.  Theearly termination of the lease was agreed to by Griffin Land because thattenant will be relocating to another of Griffin Land’s buildings under a newten year lease expected to become effective in the 2005 fourth quarter.

 

Imperial incurred an operating loss of $1.4 million inthe 2005 nine month period as compared to an operating loss of $1.5 million inthe 2004 nine month period, as follows:

 
| ** **                                    | ** ** | **2005**                  | ** ** | **2004**        | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Nine Months**           | ** ** | **Nine Months** | ** ** |
| ** **                                    | ** ** | **(amounts in millions)** | ** ** |
|                                          |       |                      |       |            |       |
| Net sales  and other revenue                  |       | $                         | 23,337     |            | $          | 24,624 |   |
| Cost of  goods sold                           |       | 21,127                    |       | 22,327          |       |
| Gross profit                                  |       | 2,210                     |       | 2,297           |       |
| Selling,  general and administrative expenses |       | 3,625                     |       | 3,785           |       |
| Operating  loss                               |       | $                         | (1,415     | )               | $          | (1,488 | ) |

 

Imperial’s operating results in the 2005 nine monthperiod were slightly improved as compared to the 2004 nine month period dueprincipally to lower selling, general and administrative expenses in thecurrent year as compared to the 2004 nine month period.  Imperial’s gross profit was essentiallyunchanged in the 2005 nine month period as compared to the 2004 nine monthperiod, as the benefit from improved selling prices in the current year wasoffset by an increase of $0.4 million in charges for unsaleable inventories andinventories expected to be sold below their carrying values.  Excluding the additional charges forunsaleable inventories in both periods, Imperial’s gross margin on salesincreased from 12.9% in the 2004 nine month period to 15.2% in the 2005 ninemonth period, principally reflecting improved pricing in the current year as aresult of an increase in sales to garden center customers and garden centercustomers becoming a greater percentage of Imperial’s total sales.  In addition, increased delivery charges tocustomers and slightly lower delivery costs also contributed to the improvedgross margins on sales in the current year. The lack of sell through on certain product lines in the current yearmay negatively impact future pricing and gross margins on sales, as product mayneed to be discounted more heavily than was done this year to ensure that it issold before it deteriorates into an unsaleable condition.

 

Imperial’s selling, general and administrativeexpenses decreased by $0.2 million in the 2005 nine month period as compared tothe 2004 nine month period due principally to lower bad debt expense in thecurrent year.  As a percentage of netsales, selling, 

 

32

----

 

general and administrative expensesincreased from 15.4% in the 2004 nine month period to 15.5% in the 2005 ninemonth period.

 

Griffin’s general corporate expense increased from$1.6 million in the 2004 nine month period to $2.5 million in the 2005 ninemonth period.  The increase principallyreflects $0.4 million for preparations to comply with Section 404 of theSarbanes-Oxley Act, $0.1 million for higher audit related expenses, $0.1million for higher compensation expenses, $0.1 million for increased donationcosts and $0.1 million for a retrospective insurance charge related to a formeraffiliate of Griffin.

 

In the 2005 nine month period, Griffin sold its commonstock in Shemin Acquisition Corporation for cash proceeds of $5.7 million,resulting in a gain of $3.2 million. Immediately prior to the sale, Griffin exchanged a portion of its SheminAcquisition common stock for common stock of Shemin Nurseries Holdings Corp.,which operates a landscape nursery distribution business through itssubsidiary.  See Note 8 to theconsolidated financial statements in Item 1.

 

In the 2004 nine month period Griffin completed thesale of its investment in Centaur to Centaur Holdings, plc (“Centaur Holdings”),a newly formed company.  Griffin receivedcash proceeds of  $68.9 million aftertransaction expenses of $1.5 million but before income tax payments.  In addition to the cash proceeds, Griffinreceived 6,477,150 shares of common stock of Centaur Holdings, which was valuedat approximately $11.7 million based on the £1.00 per share price of theinitial public offering of shares by Centaur Holdings and the foreign currencyexchange rate in effect at that time. Griffin recorded a pretax gain of $51.1 million on the sale and aforeign currency exchange gain of $1.1 million related to the sale.  In connection with the Centaur transaction,substantially all of the stock options of Centaur were exercised immediatelyprior to the closing of the Centaur transaction, which resulted in Griffin’sownership being reduced from 35% to 32%. The gain of approximately $2.3 million that resulted from the dilutionof Griffin’s ownership is included in the gain on the sale of thatinvestment.  In addition, Griffinrecorded other comprehensive income of $4.0 million in the 2004 nine monthperiod, reflecting the difference, net of tax, between the value of Griffin’sinvestment in Centaur Holdings and the book value of the pro rata portion ofthe investment in Centaur that remained as a result of receiving the CentaurHoldings common stock as a part of the sale proceeds, adjusted to reflectmarket pricing of Centaur Holdings as of the balance sheet date.

 

Griffin’s consolidated interest expense decreased from$2.3 million in the 2004 nine month period to $1.7 million in the 2005 ninemonth period.  The lower interest expensein the 2005 nine month period principally reflects the prior year amortizationof $0.3 million of debt issuance costs related to the termination of Griffin'sformer credit agreement and $0.2 million of interest for borrowings under the creditagreement before it was terminated in the prior year.  In 2004, Griffin repaid all borrowings underthe credit agreement with a portion of the proceeds from the sale of Centaur.

 

Griffin had $0.8 million of interest income, dividendincome and gains on short-term investments in the 2005 nine month period ascompared to $0.2 million in the 2004 nine month period.  The increase reflects Griffin havingshort-term investments for the entire nine month period in 2005 as compared tohaving short-term investments for only a portion of the 2004 nine month periodand generally higher short-term interest rates in the current year.

 

Griffin’s effective income tax benefit rate was 37.1%for the 2005 nine month period, as compared to an effective income tax rate of33.1% for the 2004 nine month period. The effective tax rate for the 2005 nine month period reflects a federalincome tax benefit rate of 35% and the effect of state income taxbenefits.  The 2004 nine month periodeffective tax rate reflects a 35% rate for federal income taxes adjusted forstate income taxes and certain tax credits related to foreign income taxes paidby 

 

33

----

 

Centaur.  In addition, the 2004 nine month periodincludes the release of an income tax liability of $0.2 million upon completionof tax examinations of prior years.

 

Griffin’s 2004 nine month period included equityincome of $0.3 million through the date of Griffin’s sale of its investment inCentaur.  There was no equity income fromCentaur in the 2005 nine month period.

 

**Liquidity andCapital Resources**

** **

Net cash used in operating activities decreased from$44.9 million in the 2004 nine month period to $17.2 million in the 2005 ninemonth period.  The decrease in net cashused in operating activities reflects the decrease of cash used to acquiretrading securities from $30.0 million in the 2004 nine month period to $13.0million in the 2005 nine month period and cash used for income tax payments of$14.1 million made in the 2004 nine month period.  There were no income tax payments made in the2005 nine month period.

 

In the 2005 nine month period, Griffin had net cash of$3.2 million used in investing activities, as compared to net cash provided byinvesting activities of $66.6 million in the 2004 nine month period.  Net cash provided by investing activities inthe prior year reflected the cash proceeds of $69.9 million from the sale ofCentaur and a related foreign currency exchange gain and $3.0 million of cashproceeds from land sales.  The currentyear includes cash proceeds of $7.4 million from the sale of Griffin’sinvestment in Shemin Acquisition and a subsequent distribution from Griffin’sremaining investment in Shemin Nurseries Holding Corp. and cash proceeds of$1.3 million from land sales.  Additionsto real estate held for sale or lease increased from $5.6 million in the 2004nine month period to $11.2 million in the 2005 nine month period, reflectingincreased investment in Griffin Land’s real estate business as a result of theconstruction of a 137,000 square foot industrial building in the Tradeport thatwas completed at the end of the 2005 second quarter, the start of constructionthis year on another 137,000 square foot industrial building in the Tradeportand tenant improvements by Griffin Land related to several new leases executedin the current year.  Additions toproperty and equipment, principally for Imperial, were $0.6 million in the 2005nine month period as compared to $0.5 million in the 2004 nine monthperiod.  The current year expenditureswere principally to purchase additional portable shelving units that are usedon trucks in delivering product to customers. The additional shelving units contributed to reducing freight costs inthe current year, reducing the number of empty trucks returning to Imperial’sFlorida location in order to have the shelving units available for anothershipment during the peak spring shipping season.  The prior year additions at Imperial wereprincipally for completion of the expansion of its Florida operations.

 

Net cash provided by financing activities was $12.5million in the 2005 nine month period as compared to net cash of $9.1 millionused in financing activities in the 2004 nine month period.  The net cash provided by financing activitiesin the 2005 nine month period reflects the proceeds from executing a $12.7million nonrecourse mortgage on two industrial buildings in the Tradeport.  This new mortgage has an interest rate of5.46% and a ten year term with payments based on a thirty year amortizationschedule.  The net cash used in financingactivities in the 2004 nine month period principally reflects the repayment of allof Griffin’s outstanding borrowings under its Credit Agreement with a portionof the proceeds Griffin received from the sale of Centaur.  That Credit Agreement was subsequentlycancelled last year after the repayment was made.

 

In the near-term, Griffin plans to continue to investin its real estate business.  As a resultof the recent completion of new leases for industrial space and expressions ofinterest by potential users of that type of space in the 2005 second quarter,Griffin Land started construction, on speculation, on the shell of anadditional 137,000 square foot industrial building in the Tradeport.  Griffin Land expects to complete 

 

34

----

 

the construction of the buildingshell by the end of this year.   Griffinrecently executed leases for approximately 69,000 square feet in this buildingwhich are expected to commence in the beginning of fiscal 2006.  Griffin Land also expects to build out theinteriors of its other buildings as leases are completed and to continue toinvest in infrastructure improvements required for present and futuredevelopment in its office and industrial parks. 

 

Last year, Griffin Land received approval for itsproposed residential development, Stratton Farms, in Suffield,Connecticut.  An owner of certain landadjacent to Stratton Farms filed an appeal of the approvals issued by the town’sland use commissions.  A recent courtruling has denied that appeal, however, the owner of the adjacent land hasrequested a rehearing.  Infrastructurework on this residential development, may commence in the latter part of thisyear, as all required permits have been received.  Griffin Land is continuing developmentactivities to obtain approvals for its proposed residential development inSimsbury, Connecticut, and intends to proceed with other residentialdevelopment plans on its land holdings that are also appropriate for that use.  Thus far in fiscal 2005, Griffin Land hascompleted sales of commercial and residential land which generated total cashproceeds of $2.4 million.

 

Griffin’s payments (including principal and interest)under contractual obligations as of August 27, 2005 are as follows:

 
| ** **                   | ** ** | **Total**         | ** ** | **Due Within   One Year** | ** ** | **Due From   1-3 Years** | ** ** | **Due From   3-5 Years** | ** ** | **Due in More   Than 5 Years** | ** ** |
|------------------------------|------------|-------------------|------------|---------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **(in millions)** | ** ** |
| Mortgages                    |       | $                 | 66.4       |                      | $          | 3.9                      |       | $                        | 7.8        |                           | $          | 14.3 |   | $ | 40.4 |   |
| Capital  Lease Obligations   |       | 0.3               |       | 0.1                       |       | 0.2                      |       | —                   |       | —                         |       |
| Operating  Lease Obligations |       | 0.5               |       | 0.2                       |       | 0.3                      |       | —                   |       | —                         |       |
| Purchase  Obligations (1)    |       | 3.2               |       | 3.2                       |       | —                   |       | —                   |       | —                         |       |
| Other (2)                    |       | 1.6               |       | —                    |       | —                   |       | —                   |       | 1.6                            |       |
|                         |       | $                 | 72.0       |                      | $          | 7.4                      |       | $                        | 8.3        |                           | $          | 14.3 |   | $ | 42.0 |   |

 

----

(1)                                  Includes obligations for theconstruction of a new industrial building and tenant improvement work for newleases at Griffin Land and for the purchase of raw materials by Imperial.

 

(2)                                  Includes Griffin’s deferredcompensation plan and other postretirement benefit liabilities.

 

As of August 27, 2005, Griffin had cash andshort-term investments of approximately $44.2 million.  Management believes that the significantamount of cash and short-term investments will be sufficient to finance theworking capital requirements of its businesses and fund continued investment inGriffin’s real estate assets for the foreseeable future.  Griffin Land may also continue to seeknonrecourse mortgage placements on selected properties.  Griffin also anticipates seeking to purchaseeither or both land and buildings with a substantial portion of its cash andshort-term investment balances.   Thereare no specific real estate acquisitions planned at this time.  Such acquisitions may or may not occur basedon many factors, including real estate pricing.

 

35

----

 

**Recent Accounting Pronouncements**

 

**In November 2004, the FASB issued SFAS No. 151,“Inventory Costs (an amendment of ARB No. 43, Chapter 4).”  This new standard requires the recognition ofabnormal inventory costs related to idle facility expenses, freight, handlingcosts and spoilage as period costs.  SFASNo. 151 will be effective for Griffin in fiscal 2006 and is not expectedto have a material impact on Griffin’s consolidated financial statements.**

 

In December 2004, the FASB issued SFAS No. 153,“Exchanges of Nonmonetary Assets” (“SFAS No. 153”).  This Statement amends the guidance in APBOpinion No. 29, “Accounting for Nonmonetary Transactions” (“APB No. 29”).  APB No. 29 provided an exception to thebasic measurement principle (fair value) for exchanges of similar assets,requiring that some nonmonetary exchanges be recorded on a carryoverbasis.  SFAS No. 153 eliminates theexception to fair value for exchanges of similar productive assets and replacesit with a general exception for exchange transactions that do not havecommercial substance, that is, transactions that are not expected to result insignificant changes in the cash flows of the reporting entity.  SFAS No. 153 will be effective forGriffin in the fourth quarter of fiscal 2005 and is not expected to have anyimpact on Griffin’s consolidated financial statements.

 

**In December 2004, the FASB issued SFAS No. 123R,“Share-Based Payment.”  This new standardsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”and its related implementation guidance. SFAS No. 123R requires an issuer to recognize the compensation costof employee services received in exchange for an award of equityinstruments.  Therefore, the cost ofrewarding individuals with equity instruments will be recognized in Griffin’sfinancial statements rather than disclosed in a pro forma statement in the financialstatement footnotes.  In March 2005,the SEC issued Staff Accounting Bulletin No. 107 related to the valuationof share-based payment arrangements under SFAS No. 123R.  Management has utilized the guidance in thisbulletin in preparing its estimates for the effect of SFAS No. 123R.  SFAS No. 123R will be effective forGriffin in the first quarter of fiscal 2006. Management expects to adopt SFAS No. 123R in the 2006 first quarterusing the modified prospective application method, and expects that the adoptionof SFAS No. 123R will decrease Griffin’s annual basic and diluted pershare results by $0.01 to $0.04 per share.**

 

**In March 2005, the FASB issued FASBInterpretation No. 47, “Accounting for Conditional Asset RetirementObligations (an interpretation of FASB Statement No. 143),” (“Fin No. 47”).  Fin No. 47 clarifies the timing ofliability recognition for legal obligations associated with the retirement oftangible long-lived assets.  Fin No. 47will be effective for Griffin in fiscal 2006 and is not expected to have amaterial impact on Griffin’s consolidated financial statements.**

 

In May 2005,the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-areplacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS No. 154”).  This new standard requires retrospectiveapplication to prior periods’ financial statements of voluntary changes inaccounting principle, unless it is impracticable to do so.  SFAS No. 154 also provides that acorrection of errors in previously issued financial statements should be termeda “restatement”.  The new standard iseffective for accounting changes and correction of errors in fiscal yearsbeginning after December 15, 2005. Griffin has incorporated the provisions of SFAS No. 154 in thepresentation of its Form 10-K/A for the fiscal year ended November 27,2004, its Form 10-Q/A for the quarter ended February 26, 2005, its Form 10-Qfor the quarter ended May 28, 2005 and this Form 10-Q for the quarterended August 27, 2005.

 

36

----

 

**Forward-LookingInformation**

** **

**The above information in Management’sDiscussion and Analysis of Financial Condition and Results of Operationsincludes “forward-looking statements” within the meaning of Section 27A ofthe Securities Act and Section 21E of the Exchange Act.  Although Griffin believes that its plans,intentions and expectations reflected in such forward-looking statements arereasonable, it can give no assurance that such plans, intentions or expectationswill be achieved, particularly with respect to improvement in operating resultsof Imperial, leasing of currently vacant space, construction of additionalfacilities in the real estate business, completion of land sales that arecurrently under contract and approval of currently proposed residentialsubdivisions.  The projected informationdisclosed herein is based on assumptions and estimates that, while consideredreasonable by Griffin as of the date hereof, are inherently subject to significantbusiness, economic, competitive and regulatory uncertainties and contingencies,many of which are beyond the control of Griffin.**

 

**37**

----

 
| **ITEM 4.** | **CONTROLS  AND PROCEDURES** |
|-------------|------------------------------|

 

**Evaluation of Disclosure Controls andProcedures**

 

**Griffin maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in its Exchange Act reports is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms, and that such information is accumulated andcommunicated to Griffin’s management, including its Chief Executive Officer andChief Financial Officer, as appropriate, to allow timely decisions regardingrequired disclosure.  In designing andevaluating the disclosure controls and procedures, management recognizes thatany controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives,and management necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.**

 

**As required by SEC Rule 13a-15(b), Griffin carried out anevaluation, under the supervision and with the participation of Griffin’smanagement, including Griffin’s Chief Executive Officer and Griffin’s ChiefFinancial Officer, of the effectiveness of the design and operation of Griffin’sdisclosure controls and procedures as of the end of the fiscal period coveredby this report.**

 

**On July 25, 2005, the Audit Committee ofGriffin's Board of Directors determined to restate Griffin's financial resultsfor the fiscal years ended November 29, 2003 and November 27, 2004and the unaudited quarterly financial information for fiscal 2003, fiscal 2004and the consolidated financial statements for the first quarter of fiscal 2005to correct the previously reported accounting for an acquisition of real estateassets that took place in fiscal 2003 and was reported upon in its 2003 and2004 consolidated financial statements. In analyzing the effect of a lease termination in one of its officebuildings on its consolidated financial statements for the thirteen weeks endedMay 28, 2005, Griffin determined that the allocation of the purchase pricefor the acquisition in fiscal 2003 of a controlling interest in a joint venturethat owned two office buildings was incorrect. Griffin previously held a 30% interest in the joint venture.  As described in Note 10 to the consolidatedfinancial statements included in Item 1, Griffin determined that a greaterportion of the purchase price should have been allocated to intangible assetsrather than to Griffin’s tangible real estate assets and has restated itsfinancial results to reflect the correct allocation.  The effect of this change was to increasedepreciation and amortization expense for the fiscal years ended November 29,2003 and November 27, 2004, the related interim periods, and the thirteenweeks ended February 26, 2005 because of the shorter time period overwhich the intangible assets are amortized as compared to the depreciable livesof the tangible real estate assets.**

 

**In the process of preparing the restatementof its consolidated financial statements, Griffin determined that the usefullives of certain tenant improvements were not adjusted at the time a lease wasextended in fiscal 2003, the useful lives of tenant improvements related tocertain other leases were incorrectly recorded in its fixed asset system, therewas a misclassification of certain improvements as tenant improvements ratherthan as building improvements and the recording of a payment received in the2004 second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferred rental revenue instead of reducingthe amount of Griffin’s tenant improvements. These issues resulted in errors in reported rental revenue anddepreciation and amortization expense related to certain of Griffin’sproperties prior to fiscal 2002, during fiscal 2003, fiscal 2004, the relatedinterim periods and the 2005 first quarter (the effect of this issue onpreviously reported results for fiscal 2002 was immaterial).  Accordingly, Griffin adjusted its rentalrevenue and depreciation and amortization expense for those respectiveperiods.  Griffin also determined thatthe amortization of debt issuance costs for the periods covered by therestatement had been misclassified in selling, general and administrativeexpenses rather than being included in interest expense.**

 

**38**

----

 

**As a result of the error in allocation of thepurchase price for the controlling interest in the joint venture, the incorrectuseful lives used to determine depreciation expense of certain tenantimprovements, the misclassification of certain improvements as tenantimprovements rather than as building improvements, the incorrect recording of apayment received in fiscal 2004 from a tenant for tenant improvements made byGriffin in accordance with the lease agreement and the misclassification of theamortization of debt issuance costs, Griffin’s Chief Executive Officer andChief Financial Officer determined that Griffin’s disclosure controls and procedures were not effective at areasonable assurance level as of the end of the period covered by this reportbecause these errors resulted from material weaknesses in Griffin’s internal control over financialreporting, which are described below. Although Griffin's Chief Executive Officer and Chief Financial Officerbelieve that each of these material weaknesses have now been corrected, thematerial weaknesses regarding the recording of depreciation and amortizationexpense and the recording of deferred rental revenue from tenants had not beencorrected as of the end of the period covered by this report.**

 

**A material weakness is a control deficiency,or combination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. As of August 27, 2005, Griffin did not maintain effective controlsover (i) the accounting for acquisitions; (ii) the recording of depreciation and amortization expense and therecording of deferred rental revenue from tenants and (iii) accounting foramortization of debt issuance costs. Specifically, controls over the allocation of the purchase price and therecording of tenant improvement information into Griffin’s fixed asset systemwere ineffective.  The purchase price wasincorrectly allocated between intangible and tangible real estate assets, theuseful lives of certain tenant improvements were incorrect, certainimprovements were misclassified as tenant improvements rather than as building improvementsand a payment received from a tenant for tenant improvements made by Griffinwas not properly recorded as deferred rental revenue, resulting inmisstatements to rental revenue and depreciation and amortization expense.  Finally, Griffin’s accounting for theamortization of debt issuance costs was incorrect.  These control deficiencies resulted in therestatement of Griffin’s 2002, 2003 and 2004 consolidated financial statements,for each of the unaudited quarterly interim financial information of 2003 and2004 as well as the first quarter 2005 consolidated financial statements.  Additionally, these control deficienciescould result in a misstatement of the aforementioned accounts that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.  Accordingly, management has concluded thateach of these internal control deficiencies constitutes a material weakness.  Because of these material weaknesses,management has concluded that Griffin did not maintain effective internalcontrol over financial reporting as of August 27, 2005, based on criteriaestablished in the Internal Control - Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”).**

 

**Although Griffin has not entered into anytransactions similar to the acquisition of real estate assets in fiscal 2003, Griffin'smanagement has educated its accounting staff regarding the proper methodologyof allocating the purchase price of future acquisitions.  In addition, Griffin has changed itsprocedures for the recording, reviewing, approving and documenting ofinformation entered into its real estate asset depreciation system to ensurethat the correct information is used in determining depreciation expense.  Griffin has also educated its accountingstaff regarding the proper recording of payments received from tenants fortenant improvements made by Griffin and recording the amortization of debtissuance costs.**

 

**Changes in Internal Control over FinancialReporting**

 

**Except as described above, there has been nochange in Griffin’s internal control over financial reporting during Griffin’smost recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, Griffin’s internal control over financialreporting.**

 

**39**

----

 
| **PART II** | **OTHER INFORMATION** |
|------------------|-----------------------|

 
| ITEM  1. | Legal Proceedings |   |
|----------|-------------------|--------|

 
|   | In 1999, Griffin Land filed land use applications with the  land use commissions of Simsbury, Connecticut for Meadowood, a proposed  residential development on approximately 363 acres of land.  In 2000, Simsbury’s land use commissions  issued denials of Griffin Land’s Meadowood application.  As a result of those denials, Griffin Land brought  several separate, but related, suits appealing those decisions.  In 2002, the trial court upheld two of  Griffin Land’s appeals and ordered the town’s Planning and Zoning Commissions  to approve the Meadowood application.   The town appealed those decisions.   In 2004, the Connecticut Supreme Court ordered the Zoning Commission  to approve the zoning regulations proposed by Griffin Land for  Meadowood.  The Connecticut Supreme Court  also ruled that the denial of the Meadowood application by the Planning Commission  can be upheld because Griffin Land had not obtained the required sewer usage  permits at the time the application was made to the Planning Commission.  The required sewer usage permits for  Meadowood have been subsequently obtained.   Also in 2004, the Connecticut Supreme Court reversed a lower court  decision that had denied Griffin Land a wetlands permit, and remanded the  case to Superior Court for further proceedings to determine if a wetlands  permit must be issued.  On June 6,  2005, the Superior Court ruled that Griffin Land must again apply to the town’s  Conservation and Inland Wetlands Commission for a wetlands permit for its  proposed Meadowood development. This ruling is not yet final because Griffin  Land has petitioned the Appellate Court to review and reverse this ruling. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | In 2004, the Planning and Zoning Commission of Suffield,  Connecticut approved Griffin Land’s proposed residential development known as  Stratton Farms.  An owner of certain  land adjacent to Stratton Farms then filed an appeal of the approval issued  by the town’s land use commission.  On September 26,  2005, the Superior Court of Hartford, Connecticut denied the appeal by the  adjoining landowner, however, the landowner has requested a rehearing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 
|         |           |   |
|--------------|----------------|--------|
|         |           |   |
| ITEMS 2 - 5. | Not Applicable |   |
|         |           |   |
|              |                |        |  |  |

 

40

----

 
| ITEM 6. | Exhibits             |       |
|---------|----------------------|------------|
|    |                 |       |
|    | **Exhibit No.** | ** ** | **Description** |
|    | 31.1                 |       | Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a),  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|    |                 |       |   |
|    | 31.2                 |       | Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a),  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|    |                 |       |   |
|    | 32.1                 |       | Certifications of Chief Executive Officer Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|    |                 |       |   |
|    | 32.2                 |       | Certifications of Chief Financial Officer Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
|         |                      |            |  |  |

 

41

----

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on its behalfby the undersigned thereunto duly authorized.

 

 
| ** **             | ** ** | **GRIFFIN LAND &  NURSERIES, INC.**           |
|------------------------|------------|--------------------------------------------------------|
|                   |       |                                                   |
|                   |       |                                                   |
|                   |       |                                                   | /s/ FREDERICK M. DANZIGER |
| DATE: November 1, 2005 |       | Frederick M. Danziger                                  |
|                   |       | President and Chief Executive  Officer                 |
|                   |       |                                                   |
|                   |       |                                                   |
|                   |       |                                                   | /s/ ANTHONY J. GALICI |
| DATE: November 1, 2005 |       | Anthony J. Galici                                      |
|                   |       | Vice President, Chief Financial  Officer and Secretary |
|                        |            |                                                        |  |  |

 

42

----