**UNITED STATESSECURITIES AND EXCHANGE 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 28, 2004**                                                                                                                                                                                                                                               |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                                                                                                                          |
| **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. 0-29288**

 

**GRIFFIN LAND & NURSERIES, INC.**

(Exact name of 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 Number  including Area Code **(212)  218-7910 |

 

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 
|   |   | Yes |   | ý |   | No |   | o |
|--------|--------|-----|--------|--------|--------|----|--------|---|

 

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

 
|   |   | Yes |   | o |   | No |   | ý |
|--------|--------|-----|--------|---|--------|----|--------|--------|

 

**Numberof shares of Common Stock outstanding at October 4, 2004:**4,948,829

 

 

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**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 28, 2004 and August 30, 2003, respectively      |   |
|                                                                                                   |                                                                                                                 |   |
|                                                                                                   | Consolidated Balance Sheets  August 28, 2004 and November 29, 2003                                                   |   |
|                                                                                                   |                                                                                                                 |   |
|                                                                                                   | Consolidated Statements of  Changes in Stockholders’ Equity  39 Weeks Ended August 28, 2004 and August 30, 2003 |   |
|                                                                                                   |                                                                                                                 |   |
|                                                                                                   | Consolidated Statements of  Cash Flows  39 Weeks Ended August 28, 2004 and August 30, 2003                           |   |
|                                                                                                   |                                                                                                                 |   |
|                                                                                                   | Notes  to Consolidated Financial Statements                                                                          |   |
|                                                                                                   |                                                                                                                 |
| *ITEM 2 - Management’s  Discussion and Analysis ofFinancial Condition and Results of  Operations* |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *ITEM 3 -Quantitative and  Qualitative Disclosures About Market Risk*                                  |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *ITEM 4 - Controls  and Procedures*                                                                    |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *PART II  -  OTHER INFORMATION*                                                              |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *ITEM  1 - Legal Proceedings*                                                                          |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *ITEM  4 - Submission of Matters to a Vote of  Security Holders*                                       |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| *ITEM 6 - Exhibits and Reports on Form 8-K*                                                            |                                                                                                                 |
|                                                                                                   |                                                                                                                 |
| **SIGNATURES**                                                                                         |                                                                                                                 |

 

2

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**PART I****  FINANCIALINFORMATION**

 

**ITEM 1**.  FINANCIALSTATEMENTS

** **

**GRIFFIN LAND & NURSERIES,INC.**

Consolidated Statements of Operations

(dollars in thousands, except per share data)

(unaudited)

 
|                                                                       |   | **For the 13  Weeks Ended,** |   | **For the 39  Weeks Ended,** |   |
|----------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                                       |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003**           |   | **Aug. 28,  2004** |   | **Aug. 30,  2003** |   |
| Net sales and other revenue                                                |   | $                            | 11,081 |                         | $      | 7,452 |   | $ | 36,441 |   | $ | 32,416 |   |
| Cost of goods sold                                                         |   | 10,488                       |   | 6,628                        |   | 31,824 |   | 26,702 |   |
| Selling, general and administrative expenses                               |   | 2,403                        |   | 2,147                        |   | 7,521 |   | 6,692 |   |
| Operating loss                                                             |   | (1,810                       | )      | (1,323                       | )      | (2,904 | ) | (978 | ) |
| Gain on sale of Centaur Communications, Ltd.                               |   | —                       |   | —                       |   | 51,107 |   | — |   |
| Foreign currency exchange gain                                             |   | —                       |   | —                       |   | 1,070 |   | — |   |
| Interest expense                                                           |   | (597                         | )      | (648                         | )      | (1,928 | ) | (1,959 | ) |
| Interest income, dividend income and gains on short-term investments       |   | 133                          |   | 6                            |   | 238 |   | 23 |   |
| (Loss) income before income tax (benefit) provision and equity  investment |   | (2,274                       | )      | (1,965                       | )      | 47,583 |   | (2,914 | ) |
| Income tax (benefit) provision                                             |   | (1,053                       | )      | (702                         | )      | 15,729 |   | (1,043 | ) |
| (Loss) income before equity investment                                     |   | (1,221                       | )      | (1,263                       | )      | 31,854 |   | (1,871 | ) |
| Income (loss) from equity investment                                       |   | —                       |   | 77                           |   | 328 |   | (481 | ) |
| Net (loss) income                                                          |   | $                            | (1,221 | )                            | $      | (1,186 | ) | $ | 32,182 |   | $ | (2,352 | ) |
|                                                                       |   |                         |   |                         |   |   |   |   |   |
| Basic net (loss) income per common share                                   |   | $                            | (0.25  | )                            | $      | (0.24 | ) | $ | 6.57 |   | $ | (0.48 | ) |
| Diluted net (loss) income per common share                                 |   | $                            | (0.25  | )                            | $      | (0.25 | ) | $ | 6.31 |   | $ | (0.48 | ) |

 

See Notes to ConsolidatedFinancial Statements*.*

 

3

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**GRIFFIN LAND & NURSERIES, INC**

**ConsolidatedBalance Sheets**

(dollarsin thousands, except per share data)

(unaudited)

 

 
|                                                                                                                                         |   | **August 28,  2004** |    | **November  29,  2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-------------------------|--------|
| ASSETS                                                                                                                                       |   |                 |    |                    |   |
| Current Assets:                                                                                                                              |   |                 |    |                    |   |
| Cash and cash equivalents                                                                                                                    |   | $                    | 12,610  |                    | $      | 18 |   |
| Short-term investments, net                                                                                                                  |   | 30,055               |    | —                  |   |
| Accounts receivable, less allowance of $399 and $149                                                                                         |   | 4,794                |    | 1,948                   |   |
| Inventories                                                                                                                                  |   | 30,376               |    | 32,396                  |   |
| Deferred income taxes                                                                                                                        |   | 3,125                |    | 1,812                   |   |
| Other current assets                                                                                                                         |   | 3,752                |    | 3,161                   |   |
| Total current assets                                                                                                                         |   | 84,712               |    | 39,335                  |   |
| Real estate held for sale or lease, net                                                                                                      |   | 63,581               |    | 64,653                  |   |
| Property and equipment, net                                                                                                                  |   | 11,498               |    | 11,919                  |   |
| Investment in Centaur Holdings, PLC                                                                                                          |   | 9,449                |    | —                  |   |
| Investment in Centaur Communications, Ltd.                                                                                                   |   | —               |    | 20,895                  |   |
| Other assets                                                                                                                                 |   | 8,747                |    | 8,919                   |   |
| Total assets                                                                                                                                 |   | $                    | 177,987 |                    | $      | 145,721 |   |
|                                                                                                                                         |   |                 |    |                    |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                    |   |                 |    |                    |   |
| Current Liabilities:                                                                                                                         |   |                 |    |                    |   |
| Accounts payable and accrued liabilities                                                                                                     |   | $                    | 4,889   |                    | $      | 4,573 |   |
| Income taxes payable                                                                                                                         |   | 4,656                |    | —                  |   |
| Current portion of long-term debt                                                                                                            |   | 849                  |    | 11,428                  |   |
| Total current liabilities                                                                                                                    |   | 10,394               |    | 16,001                  |   |
| Long-term debt                                                                                                                               |   | 31,673               |    | 30,737                  |   |
| Other noncurrent liabilities                                                                                                                 |   | 1,503                |    | 1,659                   |   |
| Total liabilities                                                                                                                            |   | 43,570               |    | 48,397                  |   |
|                                                                                                                                         |   |                 |    |                    |   |
| Commitments and contingencies                                                                                                                |   |                 |    |                    |   |
|                                                                                                                                         |   |                 |    |                    |   |
| Stockholders’ Equity:                                                                                                                   |   |                 |    |                    |   |
| Common stock, par value $0.01 per share, 10,000,000 shares  authorized, 4,948,829 and 4,876,916 shares issued and outstanding,  respectively |   | 49                   |    | 49                      |   |
| Additional paid-in capital                                                                                                                   |   | 94,517               |    | 93,392                  |   |
| Retained earnings                                                                                                                            |   | 35,794               |    | 3,612                   |   |
| Accumulated other comprehensive income                                                                                                       |   | 4,057                |    | 271                     |   |
| Total stockholders’ equity                                                                                                              |   | 134,417              |    | 97,324                  |   |
| Total liabilities and stockholders’ equity                                                                                              |   | $                    | 177,987 |                    | $      | 145,721 |   |

 

See Notes to Consolidated Financial Statements**.**

 

4

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**GRIFFIN LAND & NURSERIES,INC.**

**ConsolidatedStatements of Changes in Stockholders’ Equity**

**(dollars in thousands)**

**(unaudited)**

 
|                                                     |   | **Shares of  Common  Stock** |   | **Common  Stock** |   | **Additional  Paid-in  Capital** |   | **Retained  Earnings** |   | **Accumulated  Other  Comprehensive  Income (Loss)** |   | **Total** |   | **Total  Comprehensive  Income (Loss)** |   |
|----------------------------------------------------------|--------|------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------|--------|------------------------------------------------------|--------|-----------|--------|-----------------------------------------|--------|
| Balance at Nov. 30, 2002                                 |   | 4,864,916                    |   | $                 | 49     |                             | $      | 93,372                 |   | $                                                    | 5,961  |      | $      | (128                                    | )      | $ | 99,254 |   | $ | — |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Exercise of stock options                                |   | 12,000                       |   | —            |   | 20                               |   | —                 |   | —                                               |   | 20        |   | —                                  |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Net loss                                                 |   | —                       |   | —            |   | —                           |   | (2,352                 | )      | —                                               |   | (2,352    | )      | (2,352                                  | )      |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Other comprehensive income                               |   | —                       |   | —            |   | —                           |   | —                 |   | 82                                                   |   | 82        |   | 82                                      |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Balance at August 30, 2003                               |   | 4,876,916                    |   | $                 | 49     |                             | $      | 93,392                 |   | $                                                    | 3,609  |      | $      | (46                                     | )      | $ | 97,004 |   | $ | (2,270 | ) |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Balance at Nov. 29, 2003                                 |   | 4,876,916                    |   | $                 | 49     |                             | $      | 93,392                 |   | $                                                    | 3,612  |      | $      | 271                                     |   | $ | 97,324 |   | $ | — |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Exercise of stock options including tax  benefit of $262 |   | 71,913                       |   | —            |   | 1,125                            |   | —                 |   | —                                               |   | 1,125     |   | —                                  |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Net income                                               |   | —                       |   | —            |   | —                           |   | 32,182                 |   | —                                               |   | 32,182    |   | 32,182                                  |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Other comprehensive income                               |   | —                       |   | —            |   | —                           |   | —                 |   | 3,786                                                |   | 3,786     |   | 3,786                                   |   |
|                                                     |   |                         |   |              |   |                             |   |                   |   |                                                 |   |      |   |                                    |   |
| Balance at August 28, 2004                               |   | 4,948,829                    |   | $                 | 49     |                             | $      | 94,517                 |   | $                                                    | 35,794 |      | $      | 4,057                                   |   | $ | 134,417 |   | $ | 35,968 |   |

 

See Notes toConsolidated Financial Statements.

 

5

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GRIFFIN LAND& NURSERIES, INC.

**ConsolidatedStatements of Cash Flows**

**(dollars in thousands)**

(unaudited)

 
|                                                                                   |   | **For the 39  Weeks Ended,** |   |
|----------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                   |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003** |   |
| Operating activities:                                                                  |   |                         |   |   |   |
| Net income (loss)                                                                      |   | $                            | 32,182 |   | $ | (2,352 | ) |
| Adjustments to reconcile net income (loss)  to net cash used in operating activities:  |   |                         |   |   |   |
| Gain on sale of Centaur Communications,  Ltd.                                          |   | (51,107                      | )      | — |   |
| Tax payment included in other comprehensive  income                                    |   | (2,959                       | )      | — |   |
| Depreciation and amortization                                                          |   | 3,577                        |   | 3,349 |   |
| Gain on foreign exchange contract                                                      |   | (1,070                       | )      | — |   |
| (Income) loss from equity investment                                                   |   | (328                         | )      | 481 |   |
| Deferred income taxes                                                                  |   | (539                         | )      | (1,289 | ) |
| Write-off of unamortized financing costs                                               |   | 280                          |   | — |   |
| Unrealized gains on trading securities                                                 |   | (50                          | )      | — |   |
| Net gain on sale of properties                                                         |   | (43                          | )      | — |   |
| Changes in assets and liabilities:                                                     |   |                         |   |   |   |
| Investment in trading securities                                                       |   | (30,005                      | )      |   |   |
| Accounts receivable                                                                    |   | (3,096                       | )      | (2,452 | ) |
| Inventories                                                                            |   | 2,020                        |   | 840 |   |
| Other current assets                                                                   |   | (593                         | )      | (801 | ) |
| Accounts payable and accrued liabilities                                               |   | 267                          |   | 712 |   |
| Income taxes payable                                                                   |   | 4,918                        |   | — |   |
| Income tax refunds, net                                                                |   | —                       |   | 1,048 |   |
| Other, net                                                                             |   | 129                          |   | 392 |   |
| Net cash used in operating activities                                                  |   | (46,417                      | )      | (72 | ) |
|                                                                                   |   |                         |   |   |   |
| Investing activities:                                                                  |   |                         |   |   |   |
| Proceeds from the sale of Centaur  Communications, Ltd., net of expenses               |   | 68,852                       |   | — |   |
| Acquisition of 70% interest in real estate  joint venture, net of cash acquired of $16 |   | —                       |   | (7,702 | ) |
| Additions to real estate held for sale or  lease                                       |   | (4,144                       | )      | (4,527 | ) |
| Proceeds from sale of properties, net of  expenses                                     |   | 3,016                        |   | — |   |
| Proceeds from foreign exchange contract                                                |   | 1,070                        |   | — |   |
| Additions to property and equipment                                                    |   | (511                         | )      | (614 | ) |
| Investment in Shemin Acquisition  Corporation                                          |   | (143                         | )      | — |   |
| Net cash provided by (used in) investing  activities                                   |   | 68,140                       |   | (12,843 | ) |
|                                                                                   |   |                         |   |   |   |
| Financing activities:                                                                  |   |                         |   |   |   |
| Payments of debt                                                                       |   | (11,335                      | )      | (520 | ) |
| Increase in debt                                                                       |   | 1,500                        |   | 13,475 |   |
| Exercise of stock options                                                              |   | 863                          |   | 20 |   |
| Other, net                                                                             |   | (159                         | )      | (66 | ) |
| Net cash (used in) provided by financing  activities                                   |   | (9,131                       | )      | 12,909 |   |
| Net increase (decrease) in cash and cash  equivalents                                  |   | 12,592                       |   | (6 | ) |
| Cash and cash equivalents at beginning of  period                                      |   | 18                           |   | 24 |   |
| Cash and cash equivalents at end of period                                             |   | $                            | 12,610 |   | $ | 18 |   |

 

See Notes to Consolidated Financial Statements.

 

6

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GRIFFINLAND & NURSERIES, INC.

**Notes** to ConsolidatedFinancial Statements

(dollarsin thousands, except per share data)

(unaudited)

 

1.     Basis of Presentation

** **

Theunaudited consolidated financial statements of Griffin Land & Nurseries,Inc. (“Griffin”) include the accounts of Griffin’s real estate division(“Griffin Land”) and Griffin’s wholly-owned subsidiary, Imperial Nurseries,Inc. (“Imperial”), and have been prepared in conformity with the standards ofaccounting measurement set forth in Accounting Principles Board Opinion No. 28and amendments thereto adopted by the Financial Accounting Standards Board(“FASB”). Also, the accompanying financial statements have been prepared inaccordance with the accounting policies stated in Griffin’s audited financialstatements for the year ended November 29, 2003 included in the Report on Form10-K as filed with the Securities and Exchange Commission, and should be readin conjunction with the Notes to Financial Statements appearing in that report.All adjustments, comprising only normal recurring adjustments, which are, inthe opinion of management, necessary for a fair presentation of results for theinterim periods have been reflected. The year end consolidated balance sheet data as of November 29, 2003 wasderived from audited financial statements but does not include all disclosuresrequired by accounting principles generally accepted in the United States ofAmerica.

 

Theresults of operations for the thirteen and thirty-nine weeks ended August 28,2004 are not necessarily indicative of the results to be expected for the fullyear.

 

Griffinaccounts for stock options under Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and has adopted SFASNo. 123, which requires disclosure of the pro forma effect on earnings and earningsper share of the fair value method of accounting for stock-based compensation,and SFAS No. 148, which prescribes a method of disclosure.  Griffin’s results would have been thefollowing pro forma amounts under the method prescribed by SFAS No. 123:

 

7

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|                                                                                                                   |   | **For the 13  Weeks Ended,** |   | **For the 39  Weeks Ended,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                                                                                   |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003**           |   | **Aug. 28,  2004** |   | **Aug. 30,  2003** |   |
| Net (loss) income, as reported                                                                                         |   | $                            | (1,221 | )                            | $      | (1,186 | ) | $ | 32,182 |   | $ | (2,352 | ) |
| Total stock based employee compensation  expense determined under fair value method for all awards, net of tax effects |   | (30                          | )      | (67                          | )      | (86 | ) | (199 | ) |
| Net (loss) income, pro forma (under SFAS  No. 123)                                                                     |   | $                            | (1,251 | )                            | $      | (1,253 | ) | $ | 32,096 |   | $ | (2,551 | ) |
|                                                                                                                   |   |                         |   |                         |   |   |   |   |   |
| Adjusted net (loss) income for computation  of diluted per share results, pro forma (under SFAS No. 123)               |   | $                            | (1,251 | )                            | $      | (1,264 | ) | $ | 32,058 |   | $ | (2,551 | ) |
|                                                                                                                   |   |                         |   |                         |   |   |   |   |   |
| Basic net (loss) income per common share,  as reported                                                                 |   | $                            | (0.25  | )                            | $      | (0.24 | ) | $ | 6.57 |   | $ | (0.48 | ) |
| Basic net (loss) income per common share,  pro forma (under SFAS No. 123)                                              |   | $                            | (0.25  | )                            | $      | (0.26 | ) | $ | 6.55 |   | $ | (0.52 | ) |
|                                                                                                                   |   |                         |   |                         |   |   |   |   |   |
| Diluted net (loss) income per common share,  as reported                                                               |   | $                            | (0.25  | )                            | $      | (0.25 | ) | $ | 6.31 |   | $ | (0.48 | ) |
| Diluted net (loss) income per common share,  pro forma (under SFAS No. 123)                                            |   | $                            | (0.25  | )                            | $      | (0.26 | ) | $ | 6.29 |   | $ | (0.52 | ) |

 

During the thirty-nine weeks ended August 28, 2004 and August30, 2003, there were 7,218 and 16,164 options issued, respectively.  The weighted average fair values of eachoption granted during the thirty-nine weeks ended August 28, 2004 and August30, 2003 were $22.84 and $5.79, respectively, estimated as of the dates ofgrant using the Black-Scholes option-pricing model.  The following weighted average assumptions were used in the modelto calculate the fair values of each option:

 
|                              |   | **For the 39  Weeks Ended,** |   |
|-----------------------------------|--------|------------------------------|--------|
|                              |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003** |   |
|                              |   |                         |   |   |   |
| Expected volatility               |   | 150.5                        | %      | 47.3 | % |
|                              |   |                         |   |   |   |
| Range of risk free interest rates |   | 3.9                          | %      | 2.4% - 3.0 | % |
|                              |   |                         |   |   |   |
| Expected option term (in years)   |   | 5                            |   | 5 |   |
|                              |   |                         |   |   |   |
| Dividend yield                    |   | none                         |   | none |   |

 

8

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2.     Recent AccountingPronouncements

 

In January2003, the FASB issued FASB Interpretation No. 46, “Consolidation of VariableInterest Entities (an interpretation of Accounting Research Bulletin No. 51,Consolidated Financial Statements),” (“Fin No. 46”). Fin No. 46 requiresexisting unconsolidated variable interest entities to be included in theconsolidated financial statements of a business enterprise if the primarybeneficiaries of the variable interest entities do not effectively disperserisk among all parties involved. The requirements of Fin No. 46 were effectivefor Griffin in the first quarter of fiscal 2004. The adoption of Fin No. 46 didnot have an impact on Griffin’s financial statements.

 

**3.     IndustrySegment Information**

** **

**Griffin’sreportable segments are defined by their products and services, and arecomprised of the landscape nursery and real estate segments.  Management operates and receives reportingbased upon these segments.  Griffin hasno operations outside the United States. Griffin’s export sales and transactions between segments are not material.**

** **

 
|                                                                                            |   | **For the 13  Weeks Ended,** |   | **For the 39  Weeks Ended,** |   |
|-------------------------------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                                                            |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003**           |   | **Aug. 28,  2004** |   | **Aug. 30,  2003** |   |
| Net sales and other revenue:                                                                    |   |                         |   |                         |   |   |   |   |   |
| Landscape nursery product sales                                                                 |   | $                            | 5,077  |                         | $      | 4,640 |   | $ | 24,624 |   | $ | 23,956 |   |
| Real estate sales and rental revenue                                                            |   | 6,004                        |   | 2,812                        |   | 11,817 |   | 8,460 |   |
|                                                                                            |   | $                            | 11,081 |                         | $      | 7,452 |   | $ | 36,441 |   | $ | 32,416 |   |
| Operating (loss) profit:                                                                        |   |                         |   |                         |   |   |   |   |   |
| Landscape nursery                                                                               |   | $                            | (1,514 | )                            | $      | (1,263 | ) | $ | (1,488 | ) | $ | (707 | ) |
| Real estate                                                                                     |   | 160                          |   | 438                          |   | 514 |   | 1,079 |   |
| Industry segment totals                                                                         |   | (1,354                       | )      | (825                         | )      | (974 | ) | 372 |   |
| General corporate expense                                                                       |   | (456                         | )      | (498                         | )      | (1,930 | ) | (1,350 | ) |
| Operating loss                                                                                  |   | (1,810                       | )      | (1,323                       | )      | (2,904 | ) | (978 | ) |
| Gain on sale of Centaur Communications, Ltd.                                                    |   | —                       |   | —                       |   | 51,107 |   | — |   |
| Foreign currency exchange gain                                                                  |   | —                       |   | —                       |   | 1,070 |   | — |   |
| Interest expense, net of interest income, dividend income, and gains  on short-term investments |   | (464                         | )      | (642                         | )      | (1,690 | ) | (1,936 | ) |
| (Loss) income before income taxes and equity investment                                         |   | $                            | (2,274 | )                            | $      | (1,965 | ) | $ | 47,583 |   | $ | (2,914 | ) |

 

9

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|                    |   | **Aug. 28,  2004** |    | **Nov. 29,  2003** |   |
|-------------------------|--------|--------------------|---------|--------------------|--------|
| Identifiable assets:    |   |               |    |               |   |
| Landscape nursery       |   | $                  | 51,080  |               | $      | 50,904 |   |
| Real estate             |   | 71,132             |    | 71,124             |   |
| Industry segment totals |   | 122,212            |    | 122,028            |   |
| General corporate       |   | 55,775             |    | 23,693             |   |
| Total assets            |   | $                  | 177,987 |               | $      | 145,721 |   |

 

See Note 4 for information on Griffin’s previously heldequity investment in Centaur.

 

4.     Equity Investment

 

On March 10, 2004, Griffin completed the sale of its equityinvestment in Centaur Communications, Ltd. (“Centaur”) to a newly formedcompany, Centaur Holdings, PLC (“Centaur Holdings”).  At the time of the sale, Griffin held 5,428,194 B Ordinary sharesof Centaur common stock, approximately 32% of Centaur’s outstanding commonstock.  The sale agreement betweenGriffin, holders of A Ordinary shares of Centaur and the holder of C Ordinaryshares of Centaur (collectively, the “Sellers”) and Centaur Holdings containscertain warranties.  Warranty claims byCentaur Holdings must first exceed £1 million in the aggregate (approximately$1.8 million based on the foreign currency exchange rate in effect at the timeof the sale) before the Sellers are required to make any payments.  The warranty period expires on September 30,2005, except for warranties related to income taxes and pension liabilities,which expire on September 30, 2010.   Todate, there have not been any warranty claims made.  In conjunction with this transaction, Centaur Holdings completedan initial public offering of its common stock, and is currently trading on theAlternative Investment Market of the London Stock Exchange.

 

The consideration received by Griffin included cash proceedsof $68.9 million after transaction expenses of $1.5 million but before incometax payments.  In addition to the cashproceeds, Griffin received 6,477,150 shares of Centaur Holdings common stock(representing approximately 4.4% of its newly issued outstanding common stock),which was valued at approximately $11.7 million based on the £1.00 per shareprice of the initial public offering of shares by Centaur Holdings and theforeign currency exchange rate in effect at that time.  Griffin was prohibited from selling itsownership in Centaur Holdings for six months from the date the transaction wascompleted.  That restriction has nowlapsed.   In March 2004, a portion ofthe cash proceeds from the sale were used to repay all of the amountoutstanding ($18.4 million) under Griffin’s Credit Agreement with FleetNational Bank.

 

Included in Griffin’s pretax income for the thirty-nine weeksended August 28, 2004 is a gain on the sale of Centaur of $51.1 million and aforeign currency exchange gain of $1.1 million related to the sale (see Note8).  In connection with the Centaurtransaction, substantially all of the stock options of Centaur were exercisedimmediately prior to the closing of the transaction, which resulted inGriffin’s ownership being reduced from 35% to 32%.  The gain of approximately $2.3 million that resulted from thedilution of Griffin’s ownership is included in the gain on the sale of that investment.  Griffin’s remaining investment in CentaurHoldings is recorded based on the fair market value of that investment.  At the time of the sale, approximately $5.4million was reported as other comprehensive income, reflecting the difference,net of tax, between the estimated fair market value of Griffin’s investment inCentaur Holdings and the book value of the pro rata portion of the investmentin Centaur that remained as a result of receiving Centaur Holdings common stockas part of the sale proceeds.  Griffinis accounting for its investment in Centaur Holdings as an available for salesecurity under SFAS No. 115, “Accounting for Certain Investments in Debt andEquity Securities,” whereby increases or decreases in the value of thatinvestment, net of income taxes, along with the effect of changes in theforeign currency exchange

 

10

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rate,are included in other comprehensive income (loss).  From the date of the transaction through August 28, 2004, Griffinrecorded an other comprehensive loss of $1.4 million reflecting the reduction,net of tax, of the fair market value of Centaur Holdings (see Note 8).

 

Prior to the sale, Griffin accounted for its investment inCentaur under the equity method of accounting for investments.  The unaudited summarized financial data ofCentaur presented below were derived from consolidated financial information ofCentaur for the 100 day period from December 1, 2003 through March 9, 2004 andthe nine months ended August 31, 2003. Griffin’s equity income (loss) for the 100 day period from December 1,2003 through March 9, 2004 and the nine months ended August 30, 2003 included$101 and $276, respectively, in each period for amortization of publishingrights.  Griffin’s equity income (loss)from Centaur also reflects adjustments necessary to present Centaur’s resultsfor the respective periods in accordance with generally accepted accountingprinciples in the United States of America.

 

|                           |   | **From  December 1, 2003  through March 9, 2004** |   | **Nine  Months Ended  August 31, 2003** |   |
|--------------------------------|--------|---------------------------------------------------|--------|-----------------------------------------|--------|
| Net sales                      |   | $                                                 | 31,972 |                                    | $      | 70,916 |   |
| Costs and expenses             |   | 29,753                                            |   | 69,379                                  |   |
| Operating profit               |   | 2,219                                             |   | 1,537                                   |   |
| Nonoperating expenses          |   | (319                                              | )      | (2,674                                  | )      |
| Pretax income (loss)           |   | 1,900                                             |   | (1,137                                  | )      |
| Income tax provision (benefit) |   | 670                                               |   | (552                                    | )      |
| Net income (loss)              |   | $                                                 | 1,230  |                                    | $      | (585 | ) |

 

|                                            |   | **As of  Nov. 30, 2003** |   |
|-------------------------------------------------|--------|--------------------------|--------|
| Current assets                                  |   | $                        | 25,275 |   |
| Intangible assets                               |   | 9,732                    |   |
| Other noncurrent assets                         |   | 10,975                   |   |
| Total assets                                    |   | $                        | 45,982 |   |
|                                            |   |                     |   |
| Current liabilities                             |   | $                        | 30,047 |   |
| Other noncurrent liabilities                    |   | 2,581                    |   |
| Total liabilities                               |   | 32,628                   |   |
| Stockholders’ equity                       |   | 13,354                   |   |
| Total liabilities and stockholders’ equity |   | $                        | 45,982 |   |

 

11

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5.     Long-TermDebt

 

Long-termdebt includes:

 

|                        |   | **August 28,  2004** |   | **November  29,  2003** |   |
|-----------------------------|--------|----------------------|--------|-------------------------|--------|
| Nonrecourse mortgages:      |   |                 |   |                    |   |
| 8.54% due July 1, 2009      |   | $                    | 7,861  |                    | $      | 7,914 |   |
| 6.08% due January 1, 2013   |   | 9,477                |   | 9,610                   |   |
| 6.30% due May 1, 2014       |   | 1,464                |   | —                  |   |
| 8.13% due April 1, 2016     |   | 5,896                |   | 6,019                   |   |
| 7.0% due October 1, 2017    |   | 7,443                |   | 7,537                   |   |
| Total nonrecourse mortgages |   | 32,141               |   | 31,080                  |   |
| Credit Agreement            |   | —               |   | 10,725                  |   |
| Capital leases              |   | 381                  |   | 360                     |   |
| Total                       |   | 32,522               |   | 42,165                  |   |
| Less: current portion       |   | (849                 | )      | (11,428                 | )      |
| Total long-term debt        |   | $                    | 31,673 |                    | $      | 30,737 |   |

 

As a result of the proceeds received from the sale of Centaur(see Note 4), Griffin repaid the entire amount then outstanding ($18.4 million)under its Credit Agreement (the “Credit Agreement”) with Fleet National Bankand subsequently terminated the Credit Agreement, which was scheduled to expirein February 2005.  Accordingly,unamortized debt issuance costs of approximately $0.3 million are included ingeneral and administrative expense in the thirty-nine weeks ended August 28,2004.  The Credit Agreement balance wasincluded in the current portion of long-term debt at November 29, 2003.

 

OnDecember 17, 2002 Griffin obtained a $9.75 million nonrecourse mortgage of twooffice buildings. Proceeds of the mortgage were used to finance Griffin’sacquisition, completed on December 6, 2002, of a 70% interest in thosebuildings. Griffin previously held the remaining 30% interest in thosebuildings.  The mortgage has a 6.08%rate and a term of ten years, with payments based on a twenty-five yearamortization period.

 

On April 16, 2004, Griffin completed an Amendment to itsmortgage (the “Mortgage Amendment”) on two industrial buildings in Windsor,Connecticut.  The Mortgage Amendmentprovided for an additional borrowing of $1.5 million for a term of ten years atan interest rate of 6.3%.  Proceeds fromthe additional borrowing under the Mortgage Amendment were used for capitalimprovements made for a major tenant in one of the buildings.  The capital improvements were related to aten year lease extension by that tenant.

 

At August 28, 2004 and November 29, 2003, the fair values of Griffin’smortgages were $33.3 million and $32.3 million, respectively. Fair value isbased on the present value of future cash flows discounted at estimatedborrowing rates for comparable risks, maturities and collateral. Managementbelieves that because of its variable interest rate, the amount included onGriffin’s balance sheet for the Credit Agreement at November 29, 2003 reflectsits fair value.

 

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6.     Stock Options

 

Activityunder the Griffin Land & Nurseries, Inc. 1997 Stock Option Plan (the“Griffin Stock Option Plan”) is summarized as follows:

 
|                                        |   | **Number of  Shares** |   | **Weighted  Avg.  Exercise Price** |   |
|---------------------------------------------|--------|-----------------------|--------|------------------------------------|--------|
| Outstanding at November 29, 2003            |   | 659,542               |   | $                                  | 12.57  |   |
| Issued                                      |   | 7,218                 |   | 24.94                              |   |
| Exercised                                   |   | (71,913               | )      | 12.01                              |   |
| Outstanding at August 28, 2004              |   | 594,847               |   | $                                  | 12.79  |   |
|                                        |   |                  |   |                               |   |   |
| Number of option holders at August 28, 2004 |   | 27                    |   |                               |   |

 
| **Range of Exercise Prices** |   | **Outstanding  at  Aug. 28, 2004** |   | **Weighted  Avg.  Exercise Price** |   | **Weighted  Avg.  Remaining  Contractual Life  (in years)** |   |
|------------------------------|--------|------------------------------------|--------|------------------------------------|--------|-------------------------------------------------------------|--------|
| Under $3.00                  |   | 8,011                              |   | $                                  | 1.88   |                                                        | 0.6    |   |
| $3.00–$11.00            |   | 98,172                             |   | 7.53                               |   | 1.5                                                         |   |
| Over $11.00                  |   | 488,664                            |   | 14.02                              |   | 4.6                                                         |   |
|                         |   | 594,847                            |   |                               |   |                                                        |   |
|                              |        |                                    |        |                                    |        |                                                             |        |  |

 

At August 28,2004, 521,407 options outstanding under the Griffin Stock Option Plan wereexerciseable with a weighted average exercise price of $12.56 per share.

 

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7.     Per Share Results

 

Basic and diluted per share results were based onthe following:

 
|                                                                              |   | **For the 13  Weeks Ended,** |   | **For the 39  Weeks Ended,** |   |
|-----------------------------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                                              |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003**           |   | **Aug. 28,  2004** |   | **Aug. 30,  2003** |   |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Net (loss) income as reported for computation of basic per share  results         |   | $                            | (1,221 | )                            | $      | (1,186 | ) | $ | 32,182 |   | $ | (2,352 | ) |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Adjustment to net (loss) income for exercise of options of equity  investee       |   | —                       |   | (11                          | )      | (38 | ) | — |   |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Net (loss) income for computation of diluted per share results                    |   | $                            | (1,221 | )                            | $      | (1,197 | ) | $ | 32,144 |   | $ | (2,352 | ) |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Weighted average shares outstanding for computation of basic per  share results   |   | 4,918,000                    |   | 4,877,000                    |   | 4,899,000 |   | 4,872,000 |   |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Incremental shares from assumed exercise of Griffin stock options                 |   | —                       |   | —                       |   | 194,000 |   | — |   |
|                                                                              |   |                         |   |                         |   |   |   |   |   |
| Weighted average shares outstanding for computation of diluted per  share results |   | 4,918,000                    |   | 4,877,000                    |   | 5,093,000 |   | 4,872,000 |   |

 

8.     Supplemental FinancialStatement Information

** **

*Short-Term Investments*

 

Griffin’sshort-term investments are comprised of equity and debt securities, and areaccounted for as trading securities under SFAS No. 115, “Accounting for CertainInvestments in Debt and Equity Securities.”  Accordingly, the securities are carried at their fair value based uponthe quoted market prices of those investments at August 28, 2004, and net realizedand unrealized gains and losses on these investments are included in pretaxincome (loss).  The composition ofshort-term investments at August 28, 2004 is as follows:

 
|                          |   | **Cost** |   | **Market  Value** |   |
|-------------------------------|--------|----------|--------|-------------------|--------|
| Certificates of Deposit       |   | $        | 10,266 |              | $      | 10,302 |   |
| Commercial Paper              |   | 9,580    |   | 9,585             |   |
| Money Market Preferred Stocks |   | 7,170    |   | 7,176             |   |
| Federal Agency Discount Notes |   | 2,989    |   | 2,992             |   |
| Total short-term investments  |   | $        | 30,005 |              | $      | 30,055 |   |

 

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Incomefrom short-term investments for the thirteen and thirty-nine weeks ended August28, 2004 and August 30, 2003 consists of:

 
|                                                       |   | **For the 13  Weeks Ended,** |   | **For the 39  Weeks Ended,** |   |
|------------------------------------------------------------|--------|------------------------------|--------|------------------------------|--------|
|                                                       |   | **August 28,  2004**         |   | **August 30,  2003**         |   | **August 28,  2004** |   | **August 30,  2003** |   |
| Interest and dividend income                               |   | $                            | 78     |                         | $      | 6 |   | $ | 183 |   | $ | 23 |   |
| Net realized gains on the sales of  short-term investments |   | 5                            |   | —                       |   | 5 |   | — |   |
| Net unrealized gains on short-term  investments            |   | 50                           |   | —                       |   | 50 |   | — |   |
|                                                       |   | $                            | 133    |                         | $      | 6 |   | $ | 238 |   | $ | 23 |   |

 

*Accumulated Other Comprehensive Income (Loss)*

 

Changesin accumulated other comprehensive income (loss) for the thirty-nine weeksended August 28, 2004 and August 30, 2003 consist of the following:

 
|                                                                                                           |   | **For the 39  Weeks Ended,** |   |
|----------------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                                           |   | **Aug. 28,  2004**           |   | **Aug. 30,  2003** |   |
| Balance at beginning of period                                                                                 |   | $                            | 271    |   | $ | (128 | ) |
| Effect of foreign currency exchange rate  changes related to equity investment in Centaur Communications, Ltd. |   | 302                          |   | 82 |   |
| Transfer to pretax income as a result of  the sale of Centaur Communications, Ltd.                             |   | (494                         | )      | — |   |
| Increase to record the investment in  Centaur Holdings, PLC at fair market value, net of tax of $2,958         |   | 5,414                        |   | — |   |
| Reduction in fair market value of Centaur  Holdings, PLC, net of tax benefit of $773                           |   | (1,436                       | )      | — |   |
| Balance at end of period                                                                                       |   | $                            | 4,057  |   | $ | (46 | ) |

 

*Foreign Currency Exchange Contract*

 

In connection with the sale of Centaur (see Note4), Griffin entered into a foreign currency exchange forward contract withFleet National Bank on February 27, 2004. The contract hedged the currency fluctuation of British Sterling betweenthe time the agreement on the sale of Centaur was executed (February 27, 2004)and the date the transaction was closed (March 10, 2004).  Griffin’s obligation under the contract wasfulfilled with the proceeds from the sale of Centaur.  As a result of the contract, the exchange rate of the proceedswas higher than the prevailing exchange rate at the time the transaction wascompleted.  Accordingly, in thethirty-nine weeks ended August 28, 2004, Griffin reported a foreign currencyexchange gain of $1.1 million related to the sale of its investment in Centaur.

 

15

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*Supplemental Cash Flow Information*

 

In the thirty-nine weeks ended August 28, 2004, Griffin madeincome tax payments of $14.1 million.  Inthe thirty-nine weeks ended August 30, 2003, Griffin received income taxrefunds of $1.0 million.  In thethirty-nine weeks ended August 28, 2004 and August 30, 2003, Griffinmade interest payments of $1.9 million and $2.0 million, respectively.

 

*Inventories*

 

Inventories consist of:

 
| ** **             | ** ** | **Aug. 28,  2004** | ** ** | **Nov. 29,  2003** | ** ** |
|------------------------|------------|--------------------|------------|--------------------|------------|
|                   |       |               |       |               |       |
| Nursery stock          |       | $                  | 29,073     |               | $          | 31,076 |   |
| Materials and supplies |       | 1,303              |       | 1,320              |       |
|                   |       | $                  | 30,376     |               | $          | 32,396 |   |

 

*Property and Equipment*

 

Property and equipment consist of:

 
| ** **               | ** ** | **Estimated  Useful Lives** | ** ** | **Aug. 28,  2004** | ** ** | **Nov. 29,  2003** | ** ** |
|--------------------------|------------|-----------------------------|------------|--------------------|------------|--------------------|------------|
| Land and improvements    |       | 15 years                    |       | $                  | 4,846      |               | $          | 5,003 |   |
| Buildings                |       | 10 to 40 years              |       | 3,033              |       | 3,028              |       |
| Machinery and equipment  |       | 3 to 20 years               |       | 15,829             |       | 15,309             |       |
|                     |       |                        |       | 23,708             |       | 23,340             |       |
| Accumulated depreciation |       |                        |       | (12,210            | )          | (11,421            | )          |
|                     |       |                        |       | $                  | 11,498     |               | $          | 11,919 |   |

 

Griffin incurred capital lease obligations of $192 and $99,respectively, in the thirty-nine weeks ended August 28, 2004 andAugust 30, 2003.

 

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*Real Estate Held for Sale or Lease*

 

Real estate held for sale or lease consists of:

 
| ** **               | ** ** | ** **                  | ** ** | **August 28, 2004** | ** ** |
|--------------------------|------------|-----------------------------|------------|--------------------------|------------|
| ** **               | ** ** | **Estimated  Useful Lives** | ** ** | **Held for  Sale**       | ** ** | **Held for  Lease** | ** ** | **Total** | ** ** |
| Land                     |       |                        |       | $                        | 1,252      |   | $ | 4,101 |   | $ | 5,353 |   |
| Land improvements        |       | 15 years                    |       | —                   |       | 4,884 |   | 4,884 |   |
| Buildings                |       | 40 years                    |       | —                   |       | 61,091 |   | 61,091 |   |
| Development costs        |       |                        |       | 4,794                    |       | 4,264 |   | 9,058 |   |
|                     |       |                        |       | 6,046                    |       | 74,340 |   | 80,386 |   |
| Accumulated depreciation |       |                        |       | —                   |       | (16,805 | ) | (16,805 | ) |
|                     |       |                        |       | $                        | 6,046      |   | $ | 57,535 |   | $ | 63,581 |   |

 
| ** **               | ** ** | ** **                  | ** ** | **November 29, 2003** | ** ** |
|--------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **               | ** ** | **Estimated  Useful Lives** | ** ** | **Held for  Sale**         | ** ** | **Held for  Lease** | ** ** | **Total** | ** ** |
| Land                     |       |                        |       | $                          | 1,330      |   | $ | 4,101 |   | $ | 5,431 |   |
| Land improvements        |       | 15 years                    |       | 9                          |       | 4,522 |   | 4,531 |   |
| Buildings                |       | 40 years                    |       | —                     |       | 57,481 |   | 57,481 |   |
| Development costs        |       |                        |       | 6,880                      |       | 5,073 |   | 11,953 |   |
|                     |       |                        |       | 8,219                      |       | 71,177 |   | 79,396 |   |
| Accumulated depreciation |       |                        |       | —                     |       | (14,743 | ) | (14,743 | ) |
|                     |       |                        |       | $                          | 8,219      |   | $ | 56,434 |   | $ | 64,653 |   |

 

*Real Estate Joint Venture*

 

On December 6, 2002, Griffin acquired the remaining 70% interestin a joint venture that owned two office buildings of approximately 80,000square feet each in Griffin Center in Windsor, Connecticut.  Griffin previously held the remaining 30%interest in the joint venture. Subsequent to the acquisition, Griffin’s investment in the joint venturewas terminated.  The book value ofGriffin’s investment in the joint venture was $3.1 million at the time of theacquisition and was reclassified, principally into real estate held forlease.  Griffin accounted for itsacquisition of the remaining 70% interest in the real estate joint venture inaccordance with SFAS No. 141 “Business Combinations”, which required thepurchase price to be allocated to the assets acquired and liabilitiesassumed.  Accordingly, the purchase pricewas allocated to real estate held for lease, intangible assets related to theleases in place, lease commissions and tenant relationships based upon theirfair values.  Approximately $1.0 millionof the purchase price was allocated to intangible assets and is being amortizedover periods ranging from five to fifteen years.  At August 28, 2004, intangible assets of$802, net of accumulated amortization, are included in other assets onGriffin’s balance sheet.

 

17

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*Postretirement Benefits*

 

Griffinmaintains a postretirement benefits program which provides principally healthand life insurance benefits to certain of its retirees. The liability forpostretirement benefits is included in other noncurrent liabilities on theconsolidated balance sheet. Because Griffin’s obligation for retiree medicalbenefits is fixed under the terms of Griffin’s postretirement benefits program,any increase in the medical cost trend would have no effect on the accumulatedpostretirement benefit obligation, service cost or interest cost. Griffin’spostretirement benefits are unfunded, with benefits to be paid from Griffin’sgeneral assets.  Griffin’s contributionsfor the thirteen and thirty-nine weeks ended August 28, 2004 were $3 and$9 respectively, with an expected contribution of $14 for the full fiscalyear.  The components of Griffin’spostretirement benefits expense are as follows:

 
| ** **   | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|--------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **   | ** ** | **Aug. 28,  2004**          | ** ** | **Aug. 30,  2003**          | ** ** | **Aug. 28,  2004** | ** ** | **Aug. 30,  2003** | ** ** |
| ** **   | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost |       | $                           | 5          |                        | $          | 4 |   | $ | 15 |   | $ | 16 |   |
| Interest     |       | 14                          |       | 15                          |       | 43 |   | 42 |   |
|         |       | $                           | 19         |                        | $          | 19 |   | $ | 58 |   | $ | 58 |   |

 

9.               Commitments and Contingencies

 

As of August 28, 2004, Griffin had committed purchase obligationsof $4.9 million, principally for construction of the shell of a new industrialbuilding.

 

Griffin is involved, as a defendant, in various litigation mattersarising in the ordinary course of business. In the opinion of management, based on the advice of counsel, theultimate liability, if any, with respect to these matters will not be materialto Griffin’s consolidated financial position, results of operations or cashflows.

 

In the 2004 second quarter, Griffin Land agreed to an amended lease forits 165,000 square foot building in Griffin Center.  The amended lease reflects the replacement ofthe current tenant with a new tenant and extends the term of the lease from2016 to 2024.  Rental revenue under theamended lease is the same as the original lease through the original leaseterm.  The amended lease also providesthe new tenant an option to purchase this facility, at fair market value, in2021.  The amended lease will becomeeffective if certain contingencies are resolved prior to November 30,2004.  If these contingencies are notresolved, the original lease remains in effect.

 

18

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ITEM 2.                                                     MANAGEMENT’SDISCUSSION 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 subsidiary in the landscapenursery business, Imperial Nurseries, Inc. (“Imperial”), and Griffin’sConnecticut and Massachusetts based real estate business (“Griffin Land”).  Through March 9, 2004, Griffin had anequity investment in Centaur Communications, Ltd. (“Centaur”), a privately heldmagazine publishing business based in the United Kingdom.  On March 10, 2004, Griffin completed thesale of its investment in Centaur (see Note 4 to Griffin’s consolidatedfinancial statements included in Item 1 of this report).

 

The significant accounting policies and methods used in the preparationof Griffin’s consolidated financial statements included in Item 1 areconsistent with those used in the preparation of Griffin’s audited financialstatements for the year ended November 29, 2003 included in the Report onForm 10-K as filed with the Securities and Exchange Commission.  The preparation of Griffin’s financialstatements in conformity with generally accepted accounting principles requiresmanagement to make certain estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the dates of the financial statements and revenue and expensesduring the periods reported.  Actualresults could differ from those estimates. The significant accounting estimates used by Griffin in preparation ofits financial statements for the thirteen and thirty-nine weeks endedAugust 28, 2004 are consistent with those used by Griffin in preparationof its fiscal 2003 financial statements.

 

Summary

 

Results of Griffin’s operating businesses for the thirteen weeks endedAugust 28, 2004 (the “2004 third quarter”) were lower than the results forthe thirteen weeks ended August 30, 2003 (the “2003 third quarter”).  The 2004 third quarter operating loss atImperial was higher than the operating loss in the 2003 third quarter due to costof goods sold being a higher percentage of net sales in the 2004 third quarteras compared to the 2003 third quarter and higher selling expenses.  The relatively higher cost of goods sold inthe 2004 third quarter principally reflects a charge of $0.9 million forunsaleable inventories as compared to a charge of $0.3 million for unsaleableinventories in the 2003 third quarter. Operating profit at Griffin Land was lower in the 2004 third quarter ascompared to the 2003 third quarter due principally to a small loss on propertysales in the current quarter and higher expenses.

 

Results of Griffin’s operating businesses for the thirty-nine weeksended August 28, 2004 (the “2004 nine month period”) were lower than theresults of Griffin’s operating businesses for the thirty-nine weeks endedAugust 30, 2003 (the “2003 nine month period”).  Lower operating results at Imperial were dueprincipally to cost of goods sold being a higher percentage of net sales in the2004 nine month period as compared to the 2003 nine month period, principallydue to the higher charge for unsaleable inventories.  Operating profit at Griffin Land was lower inthe 2004 nine month period, as compared to the 2003 nine month period, due tohigher building operating expenses, higher general and administrative expensesand higher depreciation and amortization expense.  The 2004 nine month period includes asubstantial gain on Griffin’s sale of its investment in Centaur and a relatedforeign currency exchange gain.

 

19

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Results of Operations

 

**Thirteen Weeks Ended August 28, 2004 Compared to the ThirteenWeeks Ended August 30, 2003**

 

Net sales and other revenue increased from $7.5 million in the 2003third quarter to $11.1 million in the 2004 third quarter.  The increase of $3.6 million reflects a $3.2million increase at Griffin Land and a $0.4 million increase at Imperial.

 

Net sales and other revenue at Griffin Land increased from $2.8 millionin the 2003 third quarter to $6.0 million in the 2004 third quarter.  The increase of $3.2 million reflects revenuefrom property sales of $3.1 million and an increase of $0.1 million in revenuefrom its leasing operations.  There wereno property sales in the 2003 third quarter. The property sales revenue was due principally to the completion of thesale of Griffin Land’s remaining development rights at its Walden Woodsresidential development in Windsor, Connecticut.  The increase in revenue from leasingoperations principally reflects a net increase in space leased.  At August 28, 2004, Griffin Land owned1,130,000 square feet of industrial, flex and office space, with 940,000 squarefeet (83%) leased.  At the end of the 2003third quarter, Griffin Land had 1,013,000 square feet of industrial, flex and officespace, with 858,000 square feet (85%) leased. The increase in the square feet leased at August 28, 2004 ascompared to August 30, 2003 reflects the effect of leases in a newlyconstructed building, partially offset by increased vacancies in some ofGriffin Land’s other buildings.  Thelower percentage of space leased at the end of the 2004 third quarter and theincrease in total square feet available in Griffin Land’s portfolio versus thecomparable time last year principally reflects the completion in the 2003fourth quarter of the shell of a 117,000 square foot industrial building thatwas built on speculation, of which 54,000 square feet was leased and occupiedas of August 28, 2004.  In additionto the 54,000 square feet leased in the new industrial building in the NewEngland Tradeport, Griffin Land also leased 20,000 square feet in two of itsindustrial buildings in the New England Tradeport and 16,000 square feet in theshell of a 50,000 square foot office building in Griffin Center in Windsor,Connecticut that was built on speculation at the end of fiscal 2002.  In addition to the new leases for industrialspace, there has been a significant increase in market activity this year,particularly by users of industrial and warehouse space, as evidenced by therecent increase in requests for proposals from Griffin Land by prospectiveusers for that type of space.

 

Net sales and other revenue at Imperial increased from $4.6 million inthe 2003 third quarter to $5.1 million in the 2004 third quarter.  Unit sales volume in the 2004 third quarterwas 13% lower than the 2003 third quarter. The effect of the lower unit volume in the 2004 third quarter was morethan offset by selling, on average, larger sized units in the 2004 thirdquarter as compared to the 2003 third quarter andimproved pricing in the current quarter as compared to the 2003 third quarter.

 

Griffin incurred a consolidated operating loss of $1.8 million in the2004 third quarter as compared to a $1.3 million consolidated operating loss inthe 2003 third quarter.  The higheroperating loss principally reflects an increase of $0.2 million in theoperating loss at Imperial and a decrease of $0.2 million in operating profitat Griffin Land.

 

Operating profit at Griffin Land decreased from $0.4 million in the2003 third quarter to $0.2 million in the 2004 third quarter, reflecting thefollowing:

 

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| ** **                                                                                                                   | ** ** | **2004  Third Qtr.**      | ** ** | **2003  Third Qtr.** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|----------------------|------------|
| ** **                                                                                                                   | ** ** | **(amounts in millions)** | ** ** |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense |       | $                         | 1.7        |                 | $          | 1.7 |   |
| Loss from land sales                                                                                                         |       | (0.1                      | )          | —               |       |
| General and administrative expenses                                                                                          |       | (0.6                      | )          | (0.5                 | )          |
| Profit before depreciation and amortization  expense                                                                         |       | 1.0                       |       | 1.2                  |       |
| Depreciation and amortization expense                                                                                        |       | (0.8                      | )          | (0.8                 | )          |
| Operating profit                                                                                                             |       | $                         | 0.2        |                 | $          | 0.4 |   |

 

Profit from leasing activities before general and administrativeexpenses and before depreciation and amortization expense was essentiallyunchanged, as an increase in leasing revenue was offset by higher buildingoperating expenses.  Results from landsales reflect a loss of $0.2 million from the sale of the development rights ofWalden Woods partially offset by a gain of $0.1 million on a small sale ofresidential land.  The loss on the saleof the development rights of Walden Woods reflected the buildup of costs inthis residential project over its many years, the costs of obtaining approvalsfrom the town’s land use commissions and transaction expenses.

 

The operating loss at Imperial increased from $1.3 million in the 2003third quarter to $1.5 million in the 2004 third quarter, as follows:

 
| ** **                                    | ** ** | **2004  Third Qtr.**      | ** ** | **2003  Third Qtr.** | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **(amounts in millions)** | ** ** |
| Net sales and other revenue                   |       | $                         | 5.1        |                 | $          | 4.6 |   |
| Cost of goods sold                            |       | 5.3                       |       | 4.8                  |       |
| Gross loss                                    |       | (0.2                      | )          | (0.2                 | )          |
| Selling, general and administrative  expenses |       | (1.3                      | )          | (1.1                 | )          |
| Operating loss                                |       | $                         | (1.5       | )                    | $          | (1.3 | ) |

 

The $0.2 million increase in Imperial’s operating loss was dueprincipally to a charge of $0.9 million for unsaleable inventories included inthe 2004 cost of goods sold and an increase of $0.2 million in selling, generaland administrative expenses.  Cost ofgoods sold in the 2003 third quarter included a $0.3 million charge forunsaleable inventories.  The higher chargefor unsaleable inventories in the 2004 third quarter was due to disease andother horticultural issues caused by excessive third quarter rainfall atImperial’s northern Florida operation and insufficient sell through on certaininventories, particularly at Imperial’s Connecticut operation, which thenbecame unsaleable.  Excluding theinventory charges, Imperial’s gross margin on sales increased from 0.5% in the2003 third quarter to 13.5% in the 2004 third quarter.  The improved margin on sales, excluding theinventory charges, principally reflects improved selling prices in the 2004third quarter.

 

Imperial’s selling, general andadministrative expenses increased by $0.2 million in the 2004 third quarter ascompared to the 2003 third quarter.  The increase in selling, general andadministrative expenses principally reflects higher bad debt expense as aresult of the recent bankruptcy filing by one of Imperial’s larger customers,Frank’s Nursery & Crafts, Inc., and higher compensation expense for salespersons.  The higher compensation expense forsalespersons reflects an increased headcount of salespersons in the currentyear and higher sales to customer segments that generate higher commissions

 

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earned. As a percentage of net sales, selling, general and administrativeexpenses increased from 22.4% in the 2003 third quarter to 26.2% in the 2004third quarter.

 

Griffin’s general corporate expense was $0.5 million in the 2003 and2004 third quarters.

 

Griffin’s consolidated interest expense was $0.6 million in both the2003 and 2004 third quarters.  Therelatively unchanged interest expense reflects lower interest payments in thecurrent quarter, offset by the effect of a portion of 2003 third quarter interestbeing capitalized as compared to no capitalized interest in the 2004 thirdquarter.  The decrease in interestpayments reflects the lower amount of borrowings outstanding in the 2004 thirdquarter as compared to the 2003 third quarter. Griffin’s average outstanding debt in the 2004 third quarter was $32.6million as compared to average outstanding debt of $41.3 million in the 2003third quarter.  The lower outstandingdebt reflects the paydown in the 2004 second quarter of the entire amountoutstanding under Griffin’s Credit Agreement with Fleet National Bank from aportion of the proceeds from the sale of Centaur.

 

Griffin reported interest income, dividendincome and gains on short-term investments of $0.1 million in the 2004 thirdquarter, reflecting earnings on investment of the remaining proceeds from thesale of Centaur.

 

Griffin’s effective income tax benefit rate was 46.3% in the 2004 thirdquarter as compared to 35.7% in the 2003 third quarter.  The increase in the income tax benefit rateprincipally reflects the release, in the 2004 third quarter, of an income taxliability of $0.2 million upon completion of tax examinations of prior years.

 

There was no equity income in the 2004 third quarter as a result of thesale of Centaur earlier in the year. Griffin had $0.1 million of equity income from Centaur in the 2003 thirdquarter.

 

**Thirty-Nine Weeks Ended August 28, 2004 Compared to theThirty-Nine Weeks Ended August 30, 2003**

 

Net sales and other revenue increased from $32.4 million in the 2003 ninemonth period to $36.4 million in the 2004 nine month period, reflectingincreases of $3.3 million at Griffin Land and $0.7 million at Imperial.

 

Net sales and other revenue at Griffin Land increased from $8.5 millionin the 2003 nine month period to $11.8 million in the 2004 nine monthperiod.  The increase of $3.3 millionreflects property sales revenue of $3.3 million in the 2004 nine month periodas compared to no property sales revenue in the 2003 nine month period.  Revenue from leasing operations was $8.5million in both the 2003 and 2004 nine month periods, as increased rentalrevenue from new leases was offset by the effect of vacancies, principally inflex space, in the current year.

 

Net sales and other revenue at Imperial increased from $23.9 million inthe 2003 nine month period to $24.6 million in the 2004 nine month period.  Unit sales volume in the 2004 nine monthperiod decreased 3% as compared to the 2003 nine month period.  The effect of the lower unit volume in the2004 nine month period was more than offset by selling, on average, largersized units in the 2004 nine month period and higher sales to the garden centercustomers segment, which generally have higher per unit selling prices.

 

Griffin incurred a consolidated operating loss of $2.9 million in the2004 nine month period as compared to a consolidated operating loss of $1.0million in the 2003 nine month period. The lower operating results reflect decreases of $0.8 million and $0.6million in the operating results at Imperial and Griffin Land, respectively,and an increase of $0.5 million in general corporate expense.

 

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Operating profit at Griffin Land decreased from $1.1 million in the2003 nine month period to $0.5 million in the 2004 nine month period,reflecting the following:

 
| ** **                                                                                                                   | ** ** | **2004  Nine Months**     | ** ** | **2003  Nine Months** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                                                                                                                   | ** ** | **(amounts in millions)** | ** ** |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense |       | $                         | 4.8        |                  | $          | 5.0 |   |
| Loss on land sales                                                                                                           |       | (0.1                      | )          | —                |       |
| General and administrative expenses                                                                                          |       | (1.8                      | )          | (1.7                  | )          |
| Profit before depreciation and amortization  expense                                                                         |       | 2.9                       |       | 3.3                   |       |
| Depreciation and amortization expense                                                                                        |       | (2.4                      | )          | (2.2                  | )          |
| Operating profit                                                                                                             |       | $                         | 0.5        |                  | $          | 1.1 |   |

 

The decrease of $0.2 million in Griffin Land’s profit from leasingactivities before general and administrative expenses and before depreciationand amortization expense was due to higher building operating expenses,reflecting higher utility expenses, real estate taxes and repair andmaintenance expenses, partially offset by lower snow removal costs.  A portion of the increased operating expenseswere not subject to reimbursement by tenants. Results from property sales reflect a profit of $0.3 million from salesof undeveloped residential land, offset by a loss of $0.2 million on the saleof the remaining development rights at Griffin Land’s residential development,Walden Woods, in Windsor, Connecticut, and the writeoff of $0.2 million ofcosts on two potential land sale transactions that did not take place.  The increase of $0.1 million in general andadministrative expenses reflects higher salary and benefit expenses.  The increase of $0.2 million in depreciationand amortization expense principally reflects depreciation on the new 117,000square foot industrial building completed at the end of fiscal 2003.

 

Imperial’s operating loss increased from $0.7 million in the 2003 ninemonth period to $1.5 million in the 2004 nine month period, as follows:

 
| ** **                                    | ** ** | **2004  Nine Months**     | ** ** | **2003  Nine Months** | ** ** |
|-----------------------------------------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **(amounts in millions)** | ** ** |
|                                          |       |                      |       |                  |       |
| Net sales and other revenue                   |       | $                         | 24.6       |                  | $          | 23.9 |   |
| Cost of goods sold                            |       | 22.3                      |       | 21.0                  |       |
| Gross profit                                  |       | 2.3                       |       | 2.9                   |       |
| Selling, general and administrative  expenses |       | (3.8                      | )          | (3.6                  | )          |
| Operating loss                                |       | $                         | (1.5       | )                     | $          | (0.7 | ) |

 

The $0.8 million increase in the operating loss was due principally tothe charge of $0.9 million for unsaleable inventory in the 2004 nine monthperiod as compared to the charge for unsaleable inventory of $0.3 million inthe 2003 nine month period and higher selling, general and administrativeexpenses in the current year.  Excludingthe additional charge for unsaleable inventories in both periods, Imperial’sgross margin on sales decreased from 13.0% in the 2003 nine month period to12.9% in the 2004 nine month period.  Theslightly lower margins principally reflect higher inventory costs and higherreturns and allowances, which more than offset the effect of higher pricing.

 

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Imperial’s selling, general and administrative expenses increased by$0.2 million in the 2004 nine month period as compared to the 2003 nine monthperiod.  As a percentage of net sales,selling, general and administrative expenses increased from 14.9% in the 2003nine month period to 15.4% in the 2004 nine month period.  Decreases of $0.1 million in general andadministrative expenses and $0.1 million in marketing expenses in the 2004 ninemonth period were offset by an increase of $0.4 million in sellingexpenses.  The lower marketing expensesprincipally reflect the inclusion in the 2003 nine month period of expensesrelated to the introduction of plants to be sold under the new “Novalis” tradename.  The lower general andadministrative expenses in the 2004 nine month period ascompared to the 2003 nine month period reflects lower donation andcontribution expenses.  The increase inselling expenses in the 2004 nine month period as compared to the 2003 ninemonth period principally reflects higher compensation expense of salespersonsand higher bad debt expense.  The highersalesperson compensation expense reflects an increased headcount ofsalespersons in the 2004 nine month period as compared to the 2003 nine monthperiod and increased commissions due to the improved pricing and higher salesto customer segments that generate higher sales commissions.  The higher bad debt expense was related tothe recent bankruptcy filing by Frank’s Nursery & Crafts, Inc., one ofImperial’s larger customers.

 

Griffin’s general corporate expense increased from $1.4 million in the2003 nine month period to $1.9 million in the 2004 nine month period.  The increase principally reflects theexpenses of $0.3 million for the write off of unamortized debt issuance costsrelated to the Credit Agreement, which was terminated by Griffin in May 2004,and the write off of $0.1 million of costs associated with a proposed financingthat did not take place.

 

In the 2004 nine month period Griffin completed the sale of itsinvestment in Centaur to Centaur Holdings, PLC (“Centaur Holdings”), a newly formed company. Griffin received cash proceeds of $68.9 million after transactionexpenses 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 was prohibited from selling its Centaur Holdings common stockfor six months from the transaction date. That restriction has now lapsed. 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 $2.0 million inthe 2003 nine month period to $1.9 million in the 2004 nine month period.  Higher interest expense in the 2004 firstquarter as compared to the 2003 first quarter was offset by the lower interestexpense in the 2004 second and third quarters as a result of the paydown of theentire amount outstanding under the Credit Agreement with a portion of theproceeds from the sale of Centaur. Griffin’s average outstanding debt in the 2004 nine month period was$37.6 million as compared to $39.1 million in the 2003 nine month period.

 

Griffin had $0.2 million of interest income, dividend income and gainson short-term investments in the 2004 nine month period from the investment ofthe remaining proceeds from the sale of Centaur, after repaying the CreditAgreement debt and making estimated income tax payments.

 

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Griffin’s effective income tax rate was 33.1% for the 2004 nine monthperiod, as compared to an effective income tax benefit rate of 35.8% for the2003 nine month period.  The 2004 ninemonth period effective tax rate reflects a 35% rate for federal income taxesadjusted for state income taxes and certain tax credits related to foreignincome taxes paid by Centaur.  Inaddition, the 2004 nine month period includes the release of an income taxliability of $0.2 million upon completion of tax examinations of prioryears.  The effective tax rate for the2003 nine month period reflects a 34% rate for federal income taxes adjustedfor state income taxes.

 

Griffin’s 2004 nine month period included equity income of $0.3 millionthrough the date of Griffin’s sale of its investment in Centaur, as compared toan equity loss of $0.5 million in the 2003 nine month period.  The 2003 nine month period included a charge,of which Griffin’s allocable share was $0.5 million, to accrue future costs(less expected sublease income) for an operating lease of office space that wasno longer used by Centaur.

 

**Liquidity and Capital Resources**

 

Cash used in operating activities increased from $0.1 million in the2003 nine month period to $46.4 million in the 2004 nine month period.  The $46.3 million increase in cash used inoperating activities principally reflects the investment of $30.0 million ofthe proceeds from Centaur in short-term investments and Griffin’s estimatedquarterly income tax payments of $14.1 million related to the gain on the saleof Centaur.

 

Cash provided by investing activities was $68.1 million in the 2004nine month period as compared to cash used in investing activities of $12.8million in the 2003 nine month period. The cash provided by investing activities in the 2004 nine month periodreflects the proceeds of $68.9 million from the sale of Centaur and a relatedforeign currency exchange contract, and property sale proceeds of $3.0 million,principally from the Walden Woods sale. The net cash used in investing activities in the 2003 nine month periodreflects $7.7 million used for the acquisition of a 70% interest in a realestate joint venture that owned two office buildings of approximately 80,000square feet each located in Griffin Center in Windsor, Connecticut.  Griffin had previously held the remaining 30%interest.  Additions to real estate in2004 principally reflect tenant improvements, completed in the second quarter,on space in which Griffin Land recently entered into a ten year lease extensionwith a major tenant.  The new lease ratesconsider these expenditures, including an interest factor, to provide GriffinLand an appropriate return over the lease term on its investment of theseinitial costs.

 

Additions to property and equipment, principally for Imperial,decreased from $0.6 million in the 2003 nine month period to $0.5 million inthe 2004 nine month period.  Theadditions in the 2003 nine month period were generally for the completion of theexpansion of Imperial’s northern Florida growing operation that had beenongoing over the prior four years. Additions to property and equipment in the 2004 nine month period wereto construct facilities needed for a portion of the product to be sold underthe new “Novalis” trade name, to increase shipping capacity to meet its needsduring its peak spring demand period and for general improvements.

 

Net cash used in financing activities was $9.1 million in the 2004 ninemonth period as compared to net cash of $12.9 million provided by financingactivities in the 2003 nine month period. The net cash used in financing activities in the 2004 nine month periodreflects the paydown of all of the outstanding amounts under the CreditAgreement using a portion of the proceeds from the sale of Centaur.  The 2004 nine month period also includes $1.5million of proceeds of an additional mortgage on two industrial buildings.  The proceeds were used to finance tenantimprovements related to a ten year lease extension by a major tenant in one ofthose buildings.  The net cash generatedfrom financing activities in the 2003 nine month period includes the proceedsfrom a $9.75 million nonrecourse mortgage placed on the two

 

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office buildings of the joint ventureacquired in December 2002 and borrowings under the Credit Agreement tofinance Griffin’s operations.

 

In the balance of fiscal 2004, Griffin plans to continue to invest inits real estate business.  Additionalamounts will be required to complete the remainder of the interiors of theshells of an office building and an industrial building that were built onspeculation.  Currently, each building ispartially leased.  The buildout of theunleased parts of these buildings will be started when leases are obtained.  Griffin Land will also continue to invest ininfrastructure improvements required for present and future development in itsoffice and industrial parks.  In the 2004third quarter, Griffin Land started construction, on speculation, of the shellof a new approximately 138,000 square foot industrial building in the NewEngland Tradeport.  Construction ofadditional industrial buildings may be started if the current strongexpressions of interest by prospective users of Griffin Land’s industrialbuildings result in new leases for industrial space.  Management intends to continue to buildindustrial space on speculation to ensure that space is available for newleases.  Also in the 2004 third quarter,Griffin Land received approval for its proposed residential development,Stratton Farms, in Suffield, Connecticut. An owner of certain land adjacent to Stratton Farms has filed an appealof the approvals issued by the town’s land use commissions.  The start of infrastructure work on thisproject is expected to begin in the 2004 fourth quarter.  Revenue from land sales in Stratton Farms isnot expected until 2005.

 

Griffin Land has entered into agreements to sell undevelopedresidential land for $1.0 million and to sell commercial land for $0.8million.  The completion of thesetransactions is contingent on the buyers obtaining approvals from the towns’land use commissions.  Neither of thesetransactions are expected to be completed thisyear.  Griffin Land intends to proceed with residential development plans on other of itslands that are also appropriate for that use.

 

Griffin’s payments (including principal and interest) under contractualobligations as of August 28, 2004 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                   |       | $                 | 50.3       |                     | $          | 3.0                     |       | $                       | 6.1        |                          | $          | 13.3 |   | $ | 27.9 |   |
| Capital Lease Obligations   |       | 0.4               |       | 0.2                      |       | 0.2                     |       | —                  |       | —                        |       |
| Operating Lease Obligations |       | 0.7               |       | 0.2                      |       | 0.3                     |       | 0.2                     |       | —                        |       |
| Purchase Obligations        |       | 4.9               |       | 4.9                      |       | —                  |       | —                  |       | —                        |       |
| Other (1)                   |       | 1.2               |       | —                   |       | —                  |       | —                  |       | 1.2                           |       |
|                        |       | $                 | 57.5       |                     | $          | 8.3                     |       | $                       | 6.6        |                          | $          | 13.5 |   | $ | 29.1 |   |

 

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(1)          Includes Griffin’s deferred compensation planand other postretirement benefit liabilities.

 

As a result of the Centaur transaction, Griffin repaid the entire amountoutstanding under its Credit Agreement, terminated the Credit Agreement andcurrently has cash of $12.6 million and short-term investments of $30.1million.  Management believes that thesignificant amount of cash on hand and short-term investments will besufficient to finance the working capital requirements of Griffin’s businessesand fund continued investment in Griffin’s real estate assets for theforeseeable future.  Griffin Land mayalso continue to seek nonrecourse mortgage placements on selectedproperties.  Griffin expects to use thebalance of the proceeds from the Centaur sale for additional real estateinvestment; however, there are no specific real estateinvestments planned at this time.  Suchinvestment may or may not occur based on many factors, including real estatepricing.

 

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**Forward-Looking Information**

 

The above information in Management’s Discussion and Analysis ofFinancial Condition and Results of Operations includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act andSection 21E of the Exchange Act. Although Griffin believes that its plans, intentions and expectationsreflected in such forward-looking statements are reasonable, it can give no assurancethat such plans, intentions or expectations will be achieved, particularly withrespect to the improved return on assets of Imperial’s operations, successfulcompletion of negotiations for leasing currently vacant space, construction ofadditional facilities in the real estate business and approval of currentlyproposed residential subdivisions.  Theprojected information disclosed herein is based on assumptions and estimatesthat, while considered reasonable by Griffin as of the date hereof, are inherentlysubject to significant business, economic, competitive and regulatoryuncertainties and contingencies, many of which are beyond the control ofGriffin.

 

ITEM 3.                                                     QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risk represents the risk of changes in value of a financialinstrument, derivative or non-derivative, caused by fluctuations in interestrates, foreign exchange rates and equity prices.  Changes in these factors could causefluctuations in earnings and cash flows.

 

For fixed rate mortgage debt, changes in interest rates generallyaffect the fair market value of the debt instrument, but not earnings or cashflows.  Griffin does not have anobligation to repay any fixed rate debt prior to maturity, and therefore,interest rate risk and changes in the fair market value of fixed rate debtshould not have a significant impact on earnings or cash flows until such debtis refinanced, if necessary.  Forvariable rate debt, changes in interest rates generally do not impact the fairmarket value of the debt instrument, but do affect future earnings and cashflows.  Griffin had no variable rate debtoutstanding at August 28, 2004.  Anincrease in interest rates of 1% would have increased Griffin’s interestexpense by approximately $38,000 in the thirty-nine weeks ended August 28,2004.

 

Griffin is exposed to market risks from fluctuations in interest ratesand the effects of those fluctuations on market values of Griffin’s cashequivalents and short-term investments. These investments generally consist of investments with maturitiesprincipally less than three months that are not significantly exposed tointerest rate risk, except to the extent that changes in interest rates willultimately affect the amount of interest income earned and cash flow from theseinvestments.

 

Griffin does not currently have any derivative financial instruments inplace to manage interest costs, but that does not mean that Griffin will notuse them as a means to manage interest rate risk in the future.

 

In connection with the sale of its investment in Centaur, Griffinentered into a foreign currency exchange forward contract with Fleet NationalBank to hedge Griffin’s exposure to the short-term fluctuation in the foreigncurrency exchange rate between the time the definitive agreement on the sale ofCentaur was completed and the closing of the transaction and receipt of thesale proceeds.  Griffin fulfilled itsobligation under the contract with the proceeds from the sale of Centaur.

 

Griffin does not have foreign currency exposure in its operations.  Griffin retains an investment in CentaurHoldings PLC, a newly formed public company traded on the AlternativeInvestment Market of

 

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the London Stock Exchange.  The ultimate liquidation of this investmentand conversion of proceeds into United States currency is subject to futureforeign currency exchange rates.

 

ITEM 4.                                                     CONTROLSAND PROCEDURES

 

Griffin maintains disclosure controls and procedures that are designed toensure that information required to be disclosed in Griffin’s Exchange Actreports is recorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission’s rules and forms and thatsuch information is accumulated and communicated to Griffin’s management,including its Chief Executive Officer and Chief Financial Officer, asappropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.  Also, we have investments in certainunconsolidated entities.  As we do notcontrol or manage these entities, our disclosure controls and procedures withrespect to such entities are necessarily substantially more limited than thosewe maintain with respect to our consolidated subsidiaries.

 

As required by SEC Rule 13a-15(b), Griffin carried out an evaluation,under the supervision and with the participation of Griffin’s management,including Griffin’s Chief Executive Officer and Griffin’s Chief FinancialOfficer, of the effectiveness of the design and operation of Griffin’sdisclosure controls and procedures as of the end of the quarter covered by thisreport.  Based on the foregoing, Griffin’sChief Executive Officer and Chief Financial Officer concluded that Griffin’sdisclosure controls and procedures were effective at the reasonable assurancelevel.

 

There has been no change in Griffin’s internal controls over financialreporting during Griffin’s most recent fiscal quarter that has materiallyaffected, or is reasonably likely to materially affect, Griffin’s internalcontrols over financial reporting.

 

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**PART II****                                                   OTHERINFORMATION**

 

ITEM 1.                                                     LegalProceedings

 

As a result of the denials in 2000 by the land use commissions of thetown of Simsbury, Connecticut, of Griffin Land’s proposed residentialdevelopment called Meadowood, Griffin Land broughtseveral separate but related suits appealing those decisions.  In May 2004, the Connecticut Supreme Courtreversed a lower court denial of Griffin Land’s wetlands permit application andsent the case back to the lower court for further proceedings to determine whethera permit must be issued.  On September 7,2004, the Supreme Court of the State of Connecticut issued decisions on theappeals by the town of Simsbury of lower court decisions issued in previousyears.  This lower court decision hadreversed the denials for land use permits issued by Simsbury’s Planning andZoning Commissions at the conclusion of public hearings on the Meadowoodapplication.  The state Supreme Courtupheld the lower court’s ruling, rezoning the property to the use proposed byGriffin Land, but invalidated the proposed site plan until approval of thesewer usage has been finalized.  Thisdecision requires Griffin Land to obtain the necessary approvals from thetown’s Water Pollution Control Authority before resubmitting an application tothe town’s Planning and Zoning Commissions.

 

ITEMS 2 - 3.                              Not Applicable

 

ITEM 4.                                                     Submissionof Matters to a Vote of Security Holders

 

(a)          Annual Meeting of Stockholders:  June 24, 2004

 

(b)         The following were elected as Directors at theAnnual Meeting

 
| (c)(i) | 1)                                                                                                                                                                                        |   | Mr. Winston J. Churchill, Jr. was elected a Director for 2004 with  4,714,410 votes in favor, 6,104 withheld, and 182,548 not voting. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 2)                                                                                                                                                                                        |   | Mr. Edgar M. Cullman was elected a Director for 2004 with 4,714,277  votes in favor, 6,237 withheld, and 182,548 not voting.          |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 3)                                                                                                                                                                                        |   | Mr. Frederick M. Danziger was elected a Director for 2004 with  4,714,277 votes in favor, 6,237 withheld, and 182,548 not voting.     |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 4)                                                                                                                                                                                        |   | Mr. John L. Ernst was elected a Director for 2004 with 4,541,253  votes in favor, 179,261 withheld, and 182,548 not voting.           |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 5)                                                                                                                                                                                        |   | Mr. Thomas C. Israel was elected a Director for 2004 with 4,714,386  votes in favor, 6,128 withheld, and 182,548 not voting.          |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 6)                                                                                                                                                                                        |   | Mr. Alan Plotkin was elected a Director for 2004 with 4,704,410 votes  in favor, 16,104 withheld and 182,548 not voting.              |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
|   | 7)                                                                                                                                                                                        |   | Mr. David F. Stein was elected a Director for 2004 with 4,541,386  votes in favor, 179,128 withheld, and 182,548 not voting.          |
|   |                                                                                                                                                                                      |   |                                                                                                                                  |
| (ii)   | The authorization of the selection of PricewaterhouseCoopers LLP as  independent accountants for 2004 was approved with 4,710,397 votes in favor,  4,500 opposed, and 188,165 not voting. |

 

ITEM 5.                                                     NotApplicable

 

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ITEM 6.                                                     Exhibitsand Reports on Form 8-K

 

(a) 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 |

 
| (b)    | Reports on Form 8-K |
|--------|---------------------|
|   |                |   |   |
|   | (1)                 |   | Griffin filed a Form 8-K dated June 24, 2004 to report the  comments made by Frederick M. Danziger, Griffin’s President and Chief  Executive Officer, at Griffin’s 2004 Annual Meeting of Stockholders. |
|   |                |   |   |
|   | (2)                 |   | Griffin filed a Form 8-K dated July 12, 2004 to announce its  2004 second quarter results of operations. |
|   |                |   |   |
|   | (3)                 |   | Griffin filed a Form 8-K dated July 21, 2004 to announce the  completion of the sale of its remaining development rights in Walden Woods,  Griffin’s residential development in Windsor, Connecticut. |

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| Griffin Land & Nurseries, Inc. |
|------------------------------------|
| ** **                         |
| ** **                         |
|                               | /s/ FREDERICK M. DANZIGER |
| DATE:  October 11, 2004  | Frederick M.  Danziger |
|                               | President and Chief Executive Officer |
|                               |   |
|                               |   |
|                               | /s/ ANTHONY J. GALICI |
| DATE:  October 11, 2004  | Anthony J. Galici |
|                               | Vice President, Chief Financial Officer |
|                               | and Secretary |
|                                    |  |  |  |

 

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