**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 
| **ý** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|------------|--------------------------------------------------------------------------------------------------------|

 
| **FOR THE QUARTERLY PERIOD ENDED MAY 28, 2005** |
|------------------------------------------------------|

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 
| **FOR THE TRANSITION PERIOD FROM             TO          ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission File No. 1-12879**

 

**GRIFFIN LAND & NURSERIES,INC.**

(Exact nameof registrant as specified in its charter)

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

 

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

 

 

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

 

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

 

Yes  o   No  ý

 

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

 

Yes  o   No  ý

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

 

Yes  o   No  ý

 

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

 

 

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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 26 Weeks Ended May 28, 2005 and May 29, 2004                    |   |
|             |                  |                                                                                                                     |   |
|             |                  | Consolidated  Balance Sheets  May 28, 2005 and November 27, 2004                                               |   |
|             |                  |                                                                                                                     |   |
|             |                  | Consolidated  Statements of Changes in Stockholders’ Equity  26 Weeks Ended May 28, 2005 and May 29, 2004 |   |
|             |                  |                                                                                                                     |   |
|             |                  | Consolidated  Statements of Cash Flows  26 Weeks Ended May 28, 2005 and May 29, 2004                           |   |
|             |                  |                                                                                                                     |   |
|             |                  | Notes to Consolidated  Financial Statements                                                                              |   |
|             |                  |                                                                                                                     |   |
| * *         | *ITEM 2 -*            | Management’s  Discussion and Analysis of  Financial Condition and Results of Operations                             |   |
|             |                  |                                                                                                                     |   |
| * *         | *ITEM 4 -*            | Controls and  Procedures                                                                                                 |   |
|             |                  |                                                                                                                     |   |
| *PART II -* | OTHER INFORMATION     |                                                                                                                     |
|             |                  |                                                                                                                     |   |
| * *         | *ITEM 1-*             | Legal Proceedings                                                                                                        |   |
|             |                  |                                                                                                                     |   |
| * *         | *ITEM 4 -*            | Submission  of Matters to a Vote of Security Holders                                                                     |   |
|             |                  |                                                                                                                     |   |
| * *         | *ITEM 6 -*            | Exhibits                                                                                                                 |   |
|             |                  |                                                                                                                     |   |
|             | SIGNATURES            |                                                                                                                     |

 

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**PART I**                     FINANCIALINFORMATION

** **

**ITEM 1.**                    FINANCIAL STATEMENTS

** **

**GRIFFIN LAND &NURSERIES, INC.**

Consolidated Statements of Operations

(dollars inthousands, except per share data)

(unaudited)

 
| ** **                                                                 | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                 | ** ** | ** **                  | ** ** | **May 29, 2004**       | ** ** | ** ** | ** ** | **May 29, 2004** | ** ** |
| ** **                                                                 | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                 | ** ** | **May 28, 2005**       | ** ** | **(Note 11)**               | ** ** | **May 28, 2005** | ** ** | **(Note 11)** | ** ** |
| Landscape nursery net sales                                                |       | $                           | 17,174     |                        | $          | 19,125 |   | $ | 17,638 |   | $ | 19,547 |   |
| Rental revenue and property sales                                          |       | 3,533                       |       | 2,910                       |       | 6,398 |   | 5,397 |   |
| Total revenue                                                              |       | 20,707                      |       | 22,035                      |       | 24,036 |   | 24,944 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Costs of landscape nursery sales                                           |       | 14,470                      |       | 16,619                      |       | 15,067 |   | 17,061 |   |
| Costs related to rental revenue and  property sales                        |       | 2,183                       |       | 1,982                       |       | 4,441 |   | 3,891 |   |
| Total costs of goods sold                                                  |       | 16,653                      |       | 18,601                      |       | 19,508 |   | 20,952 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Gross profit                                                               |       | 4,054                       |       | 3,434                       |       | 4,528 |   | 3,992 |   |
| Selling, general and administrative  expenses                              |       | 3,319                       |       | 2,808                       |       | 5,637 |   | 4,731 |   |
| Operating profit (loss)                                                    |       | 735                         |       | 626                         |       | (1,109 | ) | (739 | ) |
| Gain on sale of Centaur Communications,  Ltd.                              |       | —                      |       | 51,107                      |       | — |   | 51,107 |   |
| Foreign currency exchange gain                                             |       | —                      |       | 1,070                       |       | — |   | 1,070 |   |
| Interest expense                                                           |       | (502                        | )          | (947                        | )          | (1,038 | ) | (1,718 | ) |
| Interest income, dividend income and gains on  short-term investments      |       | 334                         |       | 99                          |       | 520 |   | 105 |   |
| Income (loss) before income tax provision  (benefit) and equity investment |       | 567                         |       | 51,955                      |       | (1,627 | ) | 49,825 |   |
| Income tax provision (benefit)                                             |       | 193                         |       | 17,565                      |       | (560 | ) | 16,772 |   |
| Income (loss) before equity investment                                     |       | 374                         |       | 34,390                      |       | (1,067 | ) | 33,053 |   |
| Equity income from Centaur Communications,  Ltd.                           |       | —                      |       | 417                         |       | — |   | 328 |   |
| Net income (loss)                                                          |       | $                           | 374        |                        | $          | 34,807 |   | $ | (1,067 | ) | $ | 33,381 |   |
|                                                                       |       |                        |       |                        |       |   |   |   |   |
| Basic net income (loss) per common share                                   |       | $                           | 0.08       |                        | $          | 7.10 |   | $ | (0.21 | ) | $ | 6.83 |   |
| Diluted net income (loss) per common share                                 |       | $                           | 0.07       |                        | $          | 6.79 |   | $ | (0.21 | ) | $ | 6.58 |   |

 

See Notes to Consolidated Financial Statements*.*

 

3

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**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Balance Sheets**

(dollars in thousands, except pershare data)

(unaudited)

 
| ** **                                                                                                                                   | ** ** | ** **            | ** ** | **Nov. 27, 2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                   | ** ** | ** **            | ** ** | **(As Restated)**      | ** ** |
| ** **                                                                                                                                   | ** ** | **May 28, 2005** | ** ** | **(Note 11)**          | ** ** |
| ASSETS                                                                                                                                       |       |                  |       |                   |       |
| Current Assets:                                                                                                                              |       |                  |       |                   |       |
| Cash and cash equivalents                                                                                                                    |       | $                     | 2,033      |                   | $          | 8,827 |   |
| Short-term investments                                                                                                                       |       | 23,527                |       | 30,173                 |       |
| Accounts receivable, less allowance of $214 and $188                                                                                         |       | 11,675                |       | 2,162                  |       |
| Inventories, net                                                                                                                             |       | 32,081                |       | 32,184                 |       |
| Deferred income taxes                                                                                                                        |       | 2,175                 |       | 1,572                  |       |
| Other current assets                                                                                                                         |       | 2,930                 |       | 3,423                  |       |
| Total current assets                                                                                                                         |       | 74,421                |       | 78,341                 |       |
| Real estate held for sale or lease, net                                                                                                      |       | 70,964                |       | 65,675                 |       |
| Property and equipment, net                                                                                                                  |       | 11,193                |       | 11,310                 |       |
| Investment in Centaur Holdings, plc                                                                                                          |       | 9,984                 |       | 11,290                 |       |
| Other assets                                                                                                                                 |       | 10,408                |       | 10,274                 |       |
| Total assets                                                                                                                                 |       | $                     | 176,970    |                   | $          | 176,890 |   |
|                                                                                                                                         |       |                  |       |                   |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                    |       |                  |       |                   |       |
| Current Liabilities:                                                                                                                         |       |                  |       |                   |       |
| Current portion of long-term debt                                                                                                            |       | $                     | 869        |                   | $          | 855 |   |
| Accounts payable and accrued liabilities                                                                                                     |       | 8,077                 |       | 6,044                  |       |
| Total current liabilities                                                                                                                    |       | 8,946                 |       | 6,899                  |       |
| Long-term debt                                                                                                                               |       | 31,101                |       | 31,479                 |       |
| Deferred income taxes                                                                                                                        |       | 1,839                 |       | 1,758                  |       |
| Other noncurrent liabilities                                                                                                                 |       | 2,684                 |       | 2,624                  |       |
| Total liabilities                                                                                                                            |       | 44,570                |       | 42,760                 |       |
|                                                                                                                                         |       |                  |       |                   |       |
| Commitments and contingencies (Note 10)                                                                                                      |       |                  |       |                   |       |
|                                                                                                                                         |       |                  |       |                   |       |
| Stockholders’ Equity:                                                                                                                   |       |                  |       |                   |       |
| Common stock, par value $0.01 per share, 10,000,000 shares  authorized, 4,974,604 and 4,959,162 shares issued and outstanding,  respectively |       | 50                    |       | 50                     |       |
| Additional paid-in capital                                                                                                                   |       | 94,885                |       | 94,699                 |       |
| Retained earnings                                                                                                                            |       | 33,110                |       | 34,177                 |       |
| Accumulated other comprehensive income, net of tax                                                                                           |       | 4,355                 |       | 5,204                  |       |
| Total stockholders’ equity                                                                                                              |       | 132,400               |       | 134,130                |       |
| Total liabilities and stockholders’ equity                                                                                              |       | $                     | 176,970    |                   | $          | 176,890 |   |

 

See Notesto Consolidated Financial Statements**.**

 

4

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**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Statements ofChanges in Stockholders’ Equity**

**For the Twenty-Six Weeks Ended May 28,2005 and May 29, 2004**

**(dollars in thousands)**

**(unaudited)**

** **
| ** **                                               | ** ** | **Shares  of  Common  Stock** | ** ** | **Common  Stock** | ** **                    | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings**        | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total** | ** ** | **Total  Comprehensive  Income (Loss)** | ** ** |
|----------------------------------------------------------|------------|-------------------------------|------------|-------------------|-------------------------------|----------------------------------|------------|-------------------------------|------------|-----------------------------------------------|------------|-----------|------------|-----------------------------------------|------------|
|                                                     |       |                          |       |              | **(As  Restated)  (Note 11)** |                             |       | **(As  Restated)  (Note 11)** |       | **(As  Restated)  (Note 11)**                 |       |
| Balance at Nov. 29, 2003 (as restated)              |       | 4,876,916                     |       | $                 | 49                            |                             | $          | 93,392                        |       | $                                             | 3,189      |      | $          | 271                                     |       | $ | 96,901 |   | $ | — |   |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Exercise of stock options including tax benefit of  $115 |       | 26,146                        |       | —            |                          | 307                              |       | —                        |       | —                                        |       | 307       |       | —                                  |       |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Net income (as restated)                                 |       | —                        |       | —            |                          | —                           |       | 33,381                        |       | —                                        |       | 33,381    |       | 33,381                                  |       |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Other comprehensive income                               |       | —                        |       | —            |                          | —                           |       | —                        |       | 3,779                                         |       | 3,779     |       | 3,779                                   |       |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Balance at May  29, 2004 (as restated)              |       | 4,903,062                     |       | $                 | 49                            |                             | $          | 93,699                        |       | $                                             | 36,570     |      | $          | 4,050                                   |       | $ | 134,368 |   | $ | 37,160 |   |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Balance at Nov. 27, 2004 (as restated)              |       | 4,959,162                     |       | $                 | 50                            |                             | $          | 94,699                        |       | $                                             | 34,177     |      | $          | 5,204                                   |       | $ | 134,130 |   | $ | — |   |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Exercise of stock options including tax benefit of  $85  |       | 15,442                        |       | —            |                          | 186                              |       | —                        |       | —                                        |       | 186       |       | —                                  |       |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Net loss                                                 |       | —                        |       | —            |                          | —                           |       | (1,067                        | )          | —                                        |       | (1,067    | )          | (1,067                                  | )          |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Other comprehensive loss                                 |       | —                        |       | —            |                          | —                           |       | —                        |       | (849                                          | )          | (849      | )          | (849                                    | )          |
|                                                     |       |                          |       |              |                          |                             |       |                          |       |                                          |       |      |       |                                    |       |
| Balance at May 28, 2005                             |       | 4,974,604                     |       | $                 | 50                            |                             | $          | 94,885                        |       | $                                             | 33,110     |      | $          | 4,355                                   |       | $ | 132,400 |   | $ | (1,916 | ) |

 

See Notes to Consolidated Financial Statements.

 

5

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**GRIFFIN LAND &NURSERIES, INC.**

**Consolidated Statements of CashFlows**

**(dollars in thousands)**

(unaudited)

 
| ** **                                                                            | ** ** | **For the 26 Weeks Ended,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                            | ** ** | ** **                  | ** ** | **May 29, 2004** | ** ** |
| ** **                                                                            | ** ** | ** **                  | ** ** | **(As Restated)** | ** ** |
| ** **                                                                            | ** ** | **May 28, 2005**       | ** ** | **(Note 11)** | ** ** |
| **Operating activities:**                                                             |       |                        |       |   |   |
| Net (loss) income                                                                     |       | $                           | (1,067     | ) | $ | 33,381 |   |
| Adjustments to reconcile net (loss) income  to net cash used in operating activities: |       |                        |       |   |   |
| Depreciation and amortization                                                         |       | 2,318                       |       | 2,339 |   |
| Gain on sale of properties                                                            |       | (593                        | )          | (158 | ) |
| Provision for inventory losses                                                        |       | 587                         |       | — |   |
| Real estate asset write-offs                                                          |       | 169                         |       | — |   |
| Provision for bad debts                                                               |       | 150                         |       | 76 |   |
| Deferred income taxes                                                                 |       | (65                         | )          | (350 | ) |
| Amortization of debt issuance costs                                                   |       | 28                          |       | 387 |   |
| Unrealized gains on trading securities                                                |       | 22                          |       | — |   |
| Gain on sale of Centaur Communications,  Ltd.                                         |       | —                      |       | (51,107 | ) |
| Tax payment included in other comprehensive  income                                   |       | —                      |       | (2,959 | ) |
| Gain on foreign exchange contract                                                     |       | —                      |       | (1,070 | ) |
| Income from equity investment                                                         |       | —                      |       | (328 | ) |
| Changes in assets and liabilities:                                                    |       |                        |       |   |   |
| Short-term investments                                                                |       | 6,624                       |       | — |   |
| Accounts receivable                                                                   |       | (9,539                      | )          | (11,154 | ) |
| Inventories                                                                           |       | (484                        | )          | 2,544 |   |
| Other current assets                                                                  |       | 543                         |       | 639 |   |
| Accounts payable and accrued liabilities                                              |       | 317                         |       | 1,006 |   |
| Income taxes payable                                                                  |       | —                      |       | 9,824 |   |
| Other noncurrent assets and noncurrent  liabilities, net                              |       | (747                        | )          | 1,399 |   |
| Net cash used in operating activities                                                 |       | (1,737                      | )          | (15,531 | ) |
| ** **                                                                            |       |                        |       |   |   |
| **Investing activities:**                                                             |       |                        |       |   |   |
| Additions to real estate held for sale or  lease                                      |       | (5,057                      | )          | (4,043 | ) |
| Proceeds from sale of properties, net of  expenses                                    |       | 889                         |       | 172 |   |
| Additions to property and equipment                                                   |       | (548                        | )          | (427 | ) |
| Proceeds from the sale of Centaur  Communications, Ltd.                               |       | —                      |       | 68,852 |   |
| Proceeds from foreign exchange contract                                               |       | —                      |       | 1,070 |   |
| Investment in Shemin Acquisition  Corporation                                         |       | —                      |       | (143 | ) |
| Net cash (used in) provided by investing  activities                                  |       | (4,716                      | )          | 65,481 |   |
| ** **                                                                            |       |                        |       |   |   |
| **Financing activities:**                                                             |       |                        |       |   |   |
| Payments of debt                                                                      |       | (442                        | )          | (11,122 | ) |
| Exercise of stock options                                                             |       | 101                         |       | 192 |   |
| Increase in debt                                                                      |       | —                      |       | 1,500 |   |
| Other, net                                                                            |       | —                      |       | (159 | ) |
| Net cash used in financing activities                                                 |       | (341                        | )          | (9,589 | ) |
| Net (decrease) increase in cash and cash  equivalents                                 |       | (6,794                      | )          | 40,361 |   |
| Cash and cash equivalents at beginning of  period                                     |       | 8,827                       |       | 18 |   |
| Cash and cash equivalents at end of period                                            |       | $                           | 2,033      |   | $ | 40,379 |   |

 

See Notesto Consolidated Financial Statements.

 

6

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GRIFFIN LAND & NURSERIES,INC.

**Notes to Consolidated Financial Statements**

(dollars in thousands, except pershare data)

(unaudited)

 

**1.**     Basisof Presentation

 

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

 

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and twenty-six weeks ended May 29, 2004 and for the fiscal yearsended November 27, 2004, November 29, 2003 and November 30,2002, including the financial information of the interim periods in fiscalyears 2004 and 2003 to correct: (a) rental revenue and depreciation andamortization expense of its real estate business as a result of an incorrectallocation of the purchase price for Griffin’s fiscal 2003 acquisition of acontrolling interest in a joint venture that owned two office buildings inWindsor, Connecticut (Griffin had previously held a 30% interest in the jointventure), (b) depreciation expense of its real estate business for tenantimprovements related to certain leases in other of Griffin Land’s buildings asa result of the incorrect recording of the useful lives of certain tenantimprovements and the misclassification of certain improvements as tenantimprovements rather than as building improvements, (c) rental revenue anddepreciation expense of its real estate business due to the misclassificationof a payment received in the 2004 second quarter from a tenant for tenantimprovements made by Griffin in accordance with the lease agreement and (d) theclassification of the amortization of debt issuance costs related to Griffin’sfinancing agreements from selling, general and administrative expenses tointerest expense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valueof in-place leases and tenant relationships and reduced by $1.5 million theamount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to decrease Griffin’s operating profit by $65 and increaseGriffin’s operating loss by $131 in the thirteen and twenty-six weeks ended May 29,2004, respectively, as a result of an increase in depreciation and amortizationexpense because of the shorter time period over which the intangible assets areamortized as compared to the depreciable lives of the tangible real estateassets.

 

The adjustment to depreciation expense related to thecorrection of the useful lives used to determine the amount of depreciation andamortization for tenant improvements related to certain leases and the changein classification of certain improvements from tenant improvements to buildingimprovements increased Griffin’s operating profit by $65 and decreased Griffin’soperating loss by $99 in the thirteen and twenty-six weeks ended May 29,2004, respectively.

 

7

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Griffin determined that a payment received in the 2004second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferredrental revenue and amortized into rental revenue over the term of thelease.  Griffin had recorded the paymentreceived as a reduction of its tenant improvements.  The effect of this adjustment was to increaseGriffin’s rental revenue and increase depreciation expense by $20 for thethirteen and twenty-six weeks ended May 29, 2004.  There was no effect on Griffin’s operatingprofit because the depreciable lives of the tenant improvements were the sameas the lease term over which the amount received from the tenant will berecognized as rental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to increase Griffin’s operating profitand increase interest expense by $323 in the thirteen weeks ended May 29,2004 and to decrease Griffin’s operating loss and increase interest expense by$387 in the twenty-six weeks ended May 29, 2004.

 

In aggregate, the above adjustments resulted in nochange to Griffins net income for the thirteen weeks ended May 29, 2004and a decrease to Griffin’s net income of $22 in the twenty-six weeks ended May 29,2004.  The changes in rental revenue anddepreciation and amortization expense described herein affected only noncashcredits and charges and did not affect Griffin’s cash position.  In addition, the adjustments related to theamortization of debt issuance costs did not affect Griffin’s pretax income(loss), net income (loss) or net income (loss) per share in any period.  The effect of the above adjustments onGriffin’s consolidated statement of cash flows for the twenty-six weeks ended May 29,2004 was to decrease net cash used in operating activities from $16,760 to$15,531 and to decrease net cash provided by investing activities from $66,710to $65,481.  There were no changes to netcash used in financing activities for the twenty-six weeks ended May 29,2004.  Griffin’s consolidated balancesheet as of November 27, 2004 was restated for the effects of the aboveadjustments, but such adjustments were not material to Griffin’s consolidatedbalance sheet (see Note 11).

 

Griffin revised the amounts reported on thequarterly data from those originally reported in its Report on Form 10-Qfor the thirteen and twenty-six weeks ended May 29, 2004 for rentalrevenue and costs related to rental revenue because Griffin determined that ithad inadvertently reported certain intercompany revenue and expenses of thesame amount in each period related to property management activities at Griffin’sreal estate business.  The revisionsdecreased both revenue and related costs in the thirteen and twenty-six weeksended May 29, 2004 by $254 and $443, respectively, to eliminate thoseoffsetting intercompany amounts that were inadvertently included in the priorperiods. The revisions had no effect on previously reported gross profit,operating profit (loss), net income (loss) or net income (loss) per share inany of Griffin’s previously issued consolidated statements of operations. Inaddition, the revisions had no effect on any of Griffin’s previouslyissued consolidated balance sheets or consolidated statements of cash flows.

 

The results of operations for the thirteen andtwenty-six weeks ended May 28, 2005 are not necessarily indicative of theresults to be expected for the full year. Certain amounts from the prior year have been reclassified to conform tothe current presentation.

 

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

 

8

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| ** **                                                                                                             | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                                             | ** ** | ** **                  | ** ** | **May 29, 2004**       | ** ** | ** ** | ** ** | **May 29, 2004** | ** ** |
| ** **                                                                                                             | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                                             | ** ** | **May 28, 2005**       | ** ** | **(Note 11)**               | ** ** | **May 28, 2005** | ** ** | **(Note 11)** | ** ** |
| Net income (loss), as reported                                                                                         |       | $                           | 374        |                        | $          | 34,807 |   | $ | (1,067 | ) | $ | 33,381 |   |
| Total stock based employee compensation expense  determined under fair value method for all awards, net of tax effects |       | (32                         | )          | (28                         | )          | (35 | ) | (56 | ) |
| Net income (loss), pro forma                                                                                           |       | 342                         |       | 34,779                      |       | (1,102 | ) | 33,325 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Adjustment to net income (loss) for exercise  of options of equity investee                                            |       | —                      |       | (38                         | )          | — |   | (38 | ) |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Adjusted net income (loss) for computation of  diluted per share results, pro forma                                    |       | $                           | 342        |                        | $          | 34,741 |   | $ | (1,102 | ) | $ | 33,287 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Basic net income (loss) per common share, as  reported                                                                 |       | $                           | 0.08       |                        | $          | 7.10 |   | $ | (0.21 | ) | $ | 6.83 |   |
| Basic net income (loss) per common share, pro  forma                                                                   |       | $                           | 0.07       |                        | $          | 7.10 |   | $ | (0.22 | ) | $ | 6.82 |   |
|                                                                                                                   |       |                        |       |                        |       |   |   |   |   |
| Diluted net income (loss) per common share,  as reported                                                               |       | $                           | 0.07       |                        | $          | 6.79 |   | $ | (0.21 | ) | $ | 6.58 |   |
| Diluted net income (loss) per common share,  pro forma                                                                 |       | $                           | 0.07       |                        | $          | 6.78 |   | $ | (0.22 | ) | $ | 6.57 |   |

 

There were 6,268 stockoptions granted during the twenty-six weeks ended May 28, 2005.  The fair value of the options granted was$11.15, estimated as of the date of grant using the Black-Scholes optionpricing model.  The assumptions used indetermining the fair value of the options granted were an expected volatilityof 44.06%, risk free interest rate of 3.77%, a five year option term and nodividend yield.  There were no stockoptions granted during the twenty-six weeks ended May 29, 2004.

 

2.     Recent Accounting Pronouncements

 

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

 

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

 

9

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quarter of fiscal 2005 and is notexpected to have any impact on Griffin’s consolidated financial statements.

 

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

 

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

 

3.     IndustrySegment Information

 

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

 
| ** **                                                                                     | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                                     | ** ** | ** **                  | ** ** | **May 29, 2004**       | ** ** | ** ** | ** ** | **May 29, 2004** | ** ** |
| ** **                                                                                     | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                     | ** ** | **May 28, 2005**       | ** ** | **(Note 11)**               | ** ** | **May 28, 2005** | ** ** | **(Note 11)** | ** ** |
| Total revenue:                                                                                 |       |                        |       |                        |       |   |   |   |   |
| Landscape nursery net sales                                                                    |       | $                           | 17,174     |                        | $          | 19,125 |   | $ | 17,638 |   | $ | 19,547 |   |
| Rental revenue and property sales                                                              |       | 3,533                       |       | 2,910                       |       | 6,398 |   | 5,397 |   |
|                                                                                           |       | $                           | 20,707     |                        | $          | 22,035 |   | $ | 24,036 |   | $ | 24,944 |   |
| Operating profit (loss):                                                                       |       |                        |       |                        |       |   |   |   |   |
| Landscape nursery                                                                              |       | $                           | 1,026      |                        | $          | 899 |   | $ | 13 |   | $ | 26 |   |
| Real estate                                                                                    |       | 685                         |       | 349                         |       | 637 |   | 349 |   |
| Industry segment totals                                                                        |       | 1,711                       |       | 1,248                       |       | 650 |   | 375 |   |
| General corporate expense                                                                      |       | (976                        | )          | (622                        | )          | (1,759 | ) | (1,114 | ) |
| Operating profit (loss)                                                                        |       | 735                         |       | 626                         |       | (1,109 | ) | (739 | ) |
| Gain on sale of Centaur Communications,  Ltd.                                                  |       | —                      |       | 51,107                      |       | — |   | 51,107 |   |
| Foreign currency exchange gain                                                                 |       | —                      |       | 1,070                       |       | — |   | 1,070 |   |
| Interest expense, net of interest income,  dividend income and gains on short-term investments |       | (168                        | )          | (848                        | )          | (518 | ) | (1,613 | ) |
| Income (loss) before income tax provision  (benefit)                                           |       | $                           | 567        |                        | $          | 51,955 |   | $ | (1,627 | ) | $ | 49,825 |   |

 

10

----

 
| ** **                                            | ** ** | ** **            | ** ** | **Nov. 27, 2004** | ** ** |
|-------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                            | ** ** | ** **            | ** ** | **(As Restated)**      | ** ** |
| ** **                                            | ** ** | **May 28, 2005** | ** ** | **(Note 11)**          | ** ** |
| Identifiable  assets:                                 | ** ** | ** **            | ** ** | ** **             | ** ** |
| Landscape nursery                                     |       | $                     | 59,458     |                   | $          | 50,330 |   |
| Real estate                                           |       | 77,396                |       | 73,451                 |       |
| Industry segment totals                               |       | 136,854               |       | 123,781                |       |
| General corporate (consists primarily of investments) |       | 40,116                |       | 53,109                 |       |
| Total assets                                          |       | $                     | 176,970    |                   | $          | 176,890 |   |

 

Griffin restated its financial statements forthe thirteen weeks ended February 26, 2005, for the thirteen andtwenty-six weeks ended May 29, 2004 and for the fiscal years ended November 27,2004, November 29, 2003 and November 30, 2002 (see Note 11).

 

Griffin revised previously reported rental revenue andrelated costs by the same amount to eliminate certain duplicated amountsincluded in the prior year (see Note 1). The effect of these revisions,which Griffin believes were not material, was to decrease both revenue andrelated costs of the real estate segment in the thirteen and twenty-six weeksended May 29, 2004 by $254 and $443, respectively. The revisions had noeffect on previously reported real estate segment operating profit or previouslyreported identifiable assets of the real estate segment.

 

Revenue of the real estate segment in the thirteen andtwenty-six weeks ended May 28, 2005 includes property sales revenue of$808 and $915, respectively.  Revenue ofthe real estate segment in the thirteen and twenty-six weeks ended May 29,2004 includes property sales revenue of $185.

 

See Note 4 for information on Griffin’s previouslyheld equity investment in Centaur.

 

4.     Equity Investment

 

On March 10, 2004, Griffin completed the sale of itsequity investment in Centaur to a newly formed company, Centaur Holdings, plc (“CentaurHoldings”).  At the time of the sale,Griffin held 5,428,194 B Ordinary shares of Centaur common stock, representingapproximately 32% of Centaur’s outstanding common stock.  The sale agreement between Griffin, holdersof A Ordinary shares of Centaur and the holder of C Ordinary shares of Centaur(collectively, the “Sellers”) and Centaur Holdings contains certainwarranties.  Warranty claims by CentaurHoldings must first exceed £1 million in the aggregate (approximately $1.8million based on the foreign currency exchange rate in effect at May 28,2005) before the Sellers are required to make any payments.  The warranty period expired on September 30,2005, except for warranties related to income taxes and pension liabilities,which expire on September 30, 2010. To date, there have not been any warranty claims made.  In conjunction with this transaction, CentaurHoldings completed an initial public offering of its common stock whichcurrently trades on the London Stock Exchange.

 

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

 

11

----

 

Included in Griffin’s pretax income for the thirteenand twenty-six weeks ended May 29, 2004 is a gain on the sale of Centaurof $51.1 million and a foreign currency exchange gain of $1.1 million relatedto the sale.  In connection with theCentaur transaction, substantially all of the stock options of Centaur wereexercised immediately prior to the closing of the transaction, which resultedin Griffin’s ownership being reduced from 35% to 32%.  The gain of approximately $2.3 million thatresulted from the dilution of Griffin’s ownership is included in the gain onthe sale of that investment.  Griffin’sremaining investment in Centaur Holdings is recorded based on the fair marketvalue of that investment.  At the time ofthe sale, approximately $5.4 million was reported as other comprehensiveincome, reflecting the difference, net of tax, between the estimated fairmarket value of Griffin’s investment in Centaur Holdings and the book value ofthe pro rata portion of the investment in Centaur that remained as a result ofreceiving Centaur Holdings common stock as part of the sale proceeds.  Griffin has retained its ownership interestin Centaur Holdings and accounts for that investment as an available-for-salesecurity under SFAS No. 115, “Accounting for Certain Investments in Debtand Equity Securities.”

 

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

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

 

12

----

 

5.     Long-Term Debt

 

Long-term debt includes:

 
| ** **                     | ** ** | **May 28, 2005** | ** ** | **Nov. 27, 2004** | ** ** |
|--------------------------------|------------|-----------------------|------------|------------------------|------------|
| Nonrecourse  mortgages:        |       |                  |       |                   |       |
| 8.54% due July 1, 2009    |       | $                     | 7,801      |                   | $          | 7,842 |   |
| 6.08% due January 1, 2013 |       | 9,338                 |       | 9,433                  |       |
| 6.30% due May 1, 2014     |       | 1,379                 |       | 1,436                  |       |
| 8.13% due April 1, 2016   |       | 5,766                 |       | 5,853                  |       |
| 7.0% due October 1, 2017  |       | 7,343                 |       | 7,410                  |       |
| Total  nonrecourse mortgages   |       | 31,627                |       | 31,974                 |       |
| Capital  leases                |       | 343                   |       | 360                    |       |
| Total                          |       | 31,970                |       | 32,334                 |       |
| Less:  current portion         |       | (869                  | )          | (855                   | )          |
| Total  long-term debt          |       | $                     | 31,101     |                   | $          | 31,479 |   |

 

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

 

At May 28, 2005 and November 27, 2004, thefair values of Griffin’s mortgages were $34.6 million and $33.2 million,respectively. Fair value is based on the present value of future cash flowsdiscounted at estimated borrowing rates for comparable risks, maturities andcollateral.

 

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

 

6.     Stock Options

 

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

 
| ** **                                     | ** ** | **For the 26 Weeks Ended,** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **May 28, 2005**       | ** ** | **May 29, 2004** | ** ** |
| ** **                                     | ** ** | **Number of  Shares**       | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted Avg.  Exercise Price** | ** ** |
| Outstanding at beginning of period             |       | 584,514                     |       | $ | 12.78 |   | 659,542 |   | $ | 12.57 |   |
| Issued                                         |       | 6,268                       |       | 25.53 |   | — |   | — |   |
| Exercised                                      |       | (15,442                     | )          | 6.60 |   | (26,146 | ) | 7.36 |   |
| Cancelled                                      |       | (9,667                      | )          | 13.70 |   | — |   | — |   |
| Outstanding at end of period                   |       | 565,673                     |       | $ | 13.07 |   | 633,396 |   | $ | 12.78 |   |
|                                           |       |                        |       |   |   |   |   |   |   |
| Number of option holders at May 28,  2005 |       |                        |       | 24 |   |   |   |   |   |

 

13

----

 
| **Range of Exercise Prices** | ** ** | **Outstanding at  May 28, 2005** | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Weighted Avg.  Remaining  Contractual Life  (in years)** | ** ** |
|------------------------------|------------|---------------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------|------------|
| $4.00-$9.00                  |       | 96,172                                |       | $                                 | 7.55       |                                                       | 0.7        |   |
| $9.00-$18.00                 |       | 456,015                               |       | 13.88                             |       | 3.7                                                        |       |
| Over $18.00                  |       | 13,486                                |       | 25.21                             |       | 9.5                                                        |       |
|                         |       | 565,673                               |       |                              |       |                                                       |       |
|                              |            |                                       |            |                                   |            |                                                            |            |  |

 

At May 28, 2005, 528,857 options outstandingunder the Griffin Stock Option Plan were exercisable with a weighted averageexercise price of $12.74 per share.

 

7.     Per Share Results

 

Basicand diluted per share results were based on the following:

 
| ** **                                                                          | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                                          | ** ** | ** **                  | ** ** | **May 29, 2004**       | ** ** | ** ** | ** ** | **May 29, 2004** | ** ** |
| ** **                                                                          | ** ** | ** **                  | ** ** | **(As Restated)**           | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                                                          | ** ** | **May 28, 2005**       | ** ** | **(Note 11)**               | ** ** | **May 28, 2005** | ** ** | **(Note 11)** | ** ** |
| Net income (loss) as reported for computation of basic per share  results           |       | $                           | 374        |                        | $          | 34,807 |   | $ | (1,067 | ) | $ | 33,381 |   |
| Adjustment to net income (loss) for exercise of options of equity  investee         |       | —                      |       | (38                         | )          | — |   | (38 | ) |
| Net income (loss) for computation of diluted per share results                      |       | $                           | 374        |                        | $          | 34,769 |   | $ | (1,067 | ) | $ | 33,343 |   |
|                                                                                |       |                        |       |                        |       |   |   |   |   |
| Weighted average shares outstanding for computation of basic per  share results (a) |       | 4,970,000                   |       | 4,899,000                   |       | 4,965,000 |   | 4,889,000 |   |
| Incremental shares from assumed exercise of Griffin stock options                   |       | 201,000                     |       | 223,000                     |       | — |   | 179,000 |   |
| Weighted average shares outstanding for computation of diluted per  share results   |       | 5,171,000                   |       | 5,122,000                   |       | 4,965,000 |   | 5,068,000 |   |

 

----

**(a)**   Incrementalshares from the exercise of Griffin stock options were not included in theperiod where the inclusion of such shares would be anti-dilutive.  For the twenty-six weeks ended May 28,2005, the incremental shares from the assumed exercise of stock options wouldhave been 205,000.

 

14

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8.     Supplemental Financial StatementInformation

 

*Short-TermInvestments*

 

Griffin’s short-term investments are comprised of debtsecurities and are accounted for as trading securities under SFAS No. 115,“Accounting for Certain Investments in Debt and Equity Securities.”   Accordingly, the securities are carried attheir fair values based upon the quoted market prices of those investments atthe balance sheet date, and net realized and unrealized gains and losses onthose investments are included in pretax income (loss).  The composition of short-term investments at May 28,2005 and November 27, 2004 is as follows:

 
| ** **                            | ** ** | **As of May 28, 2005** | ** ** | **As of Nov. 27, 2004** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                            | ** ** | **Cost**                    | ** ** | **Market Value**             | ** ** | **Cost** | ** ** | **Market Value** | ** ** |
| Auction Rate  Fixed Income Securities |       | $                           | 12,620     |                         | $          | 12,647 |   | $ | 4,500 |   | $ | 4,506 |   |
| Commercial  Paper                     |       | 6,098                       |       | 6,106                        |       | 15,015 |   | 15,032 |   |
| Certificates  of Deposit              |       | 4,760                       |       | 4,774                        |       | 7,368 |   | 7,415 |   |
| Federal  Agency Coupon Notes          |       | —                      |       | —                       |       | 3,219 |   | 3,220 |   |
| Total  short-term investments         |       | $                           | 23,478     |                         | $          | 23,527 |   | $ | 30,102 |   | $ | 30,173 |   |

 

Income from investments for the thirteen andtwenty-six weeks ended May 28, 2005 and May 29, 2004 consists of:

 
| ** **                                      | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **May 28, 2005**       | ** ** | **May 29, 2004**       | ** ** | **May 28, 2005** | ** ** | **May 29, 2004** | ** ** |
| Interest and  dividend income                   |       | $                           | 153        |                        | $          | 99 |   | $ | 186 |   | $ | 105 |   |
| Net realized  gains on the sales of investments |       | 202                         |       | —                      |       | 356 |   | — |   |
| Change in  net unrealized gains on investments  |       | (21                         | )          | —                      |       | (22 | ) | — |   |
|                                            |       | $                           | 334        |                        | $          | 99 |   | $ | 520 |   | $ | 105 |   |

 

*Accumulated OtherComprehensive Income*

 

Changes in accumulated other comprehensive income forthe twenty-six weeks ended May 28, 2005 and May 29, 2004 consist ofthe following:

 

15

----

 
| ** **                                                                                                                                                      | ** ** | **For the 26 Weeks Ended,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **May 28, 2005**       | ** ** | **May 29, 2004** | ** ** |
| Balance at  beginning of period                                                                                                                                 |       | $                           | 5,204      |   | $ | 271 |   |
| Effect of foreign currency exchange rate  changes related to equity investment in Centaur Communications, Ltd.                                                  |       | —                      |       | 302 |   |
| Transfer to  pretax income as a result of the sale of Centaur Communications, Ltd.                                                                              |       | —                      |       | (494 | ) |
| Increase to record the initial investment  in Centaur Holdings, plc at fair market value, net of tax of $2,958                                                  |       | —                      |       | 5,414 |   |
| Decrease in fair market value at end of  period of Centaur Holdings, plc, net of tax benefit of $322 and $837,  respectively                                    |       | (598                        | )          | (1,553 | ) |
| (Decrease) increase in value of Centaur  Holdings, plc, due to foreign currency (loss) gain, net of tax benefit of  $135 and tax provision of $59, respectively |       | (251                        | )          | 110 |   |
| Balance at  end of period                                                                                                                                       |       | $                           | 4,355      |   | $ | 4,050 |   |

 

*Supplemental Cash FlowInformation*

 

Included in accountspayable and accrued liabilities at May 28, 2005 and November 27, 2004were $3,925 and $2,209, respectively, for additions to real estate held forsale or lease.

 

*Inventories*

 

Inventories consist of:

 
| ** **              | ** ** | **May 28,  2005** | ** ** | **Nov. 27,  2004** | ** ** |
|-------------------------|------------|------------------------|------------|-------------------------|------------|
| Nursery  stock          |       | $                      | 30,684     |                    | $          | 31,737 |   |
| Materials  and supplies |       | 2,374                  |       | 1,096                   |       |
|                    |       | 33,058                 |       | 32,833                  |       |
| Reserves                |       | (977                   | )          | (649                    | )          |
|                    |       | $                      | 32,081     |                    | $          | 32,184 |   |

 

16

----

 

*Property and Equipment*

 

Property and equipment consist of:

 
| ** **                  | ** ** | **Estimated  Useful Lives** | ** ** | **May 28,  2005** | ** ** | **Nov. 27,  2004** | ** ** |
|-----------------------------|------------|-----------------------------|------------|------------------------|------------|-------------------------|------------|
| Land                        |       |                        |       | $                      | 1,304      |                    | $          | 1,283 |   |
| Land  improvements          |       | 10 to 20 years              |       | 5,377                  |       | 5,274                   |       |
| Buildings  and improvements |       | 10 to 40 years              |       | 3,057                  |       | 3,033                   |       |
| Machinery  and equipment    |       | 3 to 20 years               |       | 16,516                 |       | 16,054                  |       |
|                        |       |                        |       | 26,254                 |       | 25,644                  |       |
| Accumulated  depreciation   |       |                        |       | (15,061                | )          | (14,334                 | )          |
|                        |       |                        |       | $                      | 11,193     |                    | $          | 11,310 |   |

 

Griffin incurred capital lease obligations of $78 and$108, respectively, in the twenty-six weeks ended May 28, 2005 and May 29,2004.

 

*Real Estate Held for Sale orLease*

 

Real estate held for sale or lease consists of:

 
| ** **                  | ** ** | **Estimated**                                      | ** ** | **May 28, 2005** | ** ** |
|-----------------------------|------------|----------------------------------------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **Useful Lives**                                   | ** ** | **Held for Sale**     | ** ** | **Held for Lease** | ** ** | **Total** | ** ** |
| Land                        |       |                                               |       | $                     | 1,237      |   | $ | 4,288 |   | $ | 5,525 |   |
| Land  improvements          |       | 15 years                                           |       | —                |       | 4,951 |   | 4,951 |   |
| Buildings  and improvements |       | 10 to 40 years                                     |       | —                |       | 54,242 |   | 54,242 |   |
| Tenant  improvements        |       | Shorter of useful  life or terms of  related lease |       | —                |       | 6,691 |   | 6,691 |   |
| Development  costs          |       |                                               |       | 5,016                 |       | 13,354 |   | 18,370 |   |
|                        |       |                                               |       | 6,253                 |       | 83,526 |   | 89,779 |   |
| Accumulated  depreciation   |       |                                               |       | —                |       | (18,815 | ) | (18,815 | ) |
|                        |       |                                               |       | $                     | 6,253      |   | $ | 64,711 |   | $ | 70,964 |   |
|                             |            |                                                    |            |                       |            |  |  |  |  |  |  |  |  |  |  |

 

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

 

*Deferred IncomeTaxes*

 

A deferred tax asset of $457 and deferred taxliability of $2,180 were included as a credit and a charge, respectively, toother comprehensive income in the twenty-six weeks ended May 28, 2005 and May 29,2004, respectively, related to mark to market adjustments on the investment inCentaur Holdings.

 

*PostretirementBenefits*

 

Griffin maintains a postretirement benefits programwhich provides principally health and life insurance benefits to certain of itsretirees. The liability for postretirement benefits is included in othernoncurrent liabilities on the consolidated balance sheets. Because Griffin’sobligation for retiree medical benefits is fixed under the terms of Griffin’spostretirement benefits program, any increase in the medical cost trend wouldhave no effect on the accumulated postretirement benefit obligation, servicecost or interest cost. Griffin’s postretirement benefits are unfunded, withbenefits to be paid from Griffin’s general assets.  Griffin’s contributions for the twenty-sixweeks ended May 28, 2005 and May 29, 2004 were $4 and $6respectively, with an expected contribution of $10 for the fiscal 2005 fullyear.  The components of Griffin’spostretirement benefits expense are as follows:

 
| ** **                         | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 26 Weeks Ended,** | ** ** |
|------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                         | ** ** | **May 28,  2005**      | ** ** | **May 29,  2004**      | ** ** | **May 28,  2005** | ** ** | **May 29,  2004** | ** ** |
| ** **                         | ** ** | ** **                  | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                       |       | $                           | 9          |                        | $          | 5 |   | $ | 18 |   | $ | 11 |   |
| Interest                           |       | 12                          |       | 12                          |       | 25 |   | 23 |   |
| Amortization  of unrecognized loss |       | 3                           |       | 2                           |       | 5 |   | 5 |   |
|                               |       | $                           | 24         |                        | $          | 19 |   | $ | 48 |   | $ | 39 |   |

 

9.  Subsequent Event

 

Prior to May 28, 2005, Griffin held anapproximate 14% equity interest in Shemin Acquisition Corporation (“SheminAcquisition”) at a carrying value of $4.7 million, which Griffin accounted forunder the cost method of accounting for investments.  On May 31, 2005, Griffin receivedinitial cash proceeds of $5.9 million from the sale of its remaining commonstock of Shemin Acquisition.  Immediatelyprior to that sale, Griffin exchanged a portion of its holdings in SheminAcquisition for an

 

18

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approximate 14% equity interest inShemin Nurseries Holding Corp. (“Shemin Nurseries”), which operates a landscapenursery distribution business through its subsidiary that previously was awholly-owned subsidiary of Shemin Acquisition. On June 29, 2005, Griffin received a cash distribution of $1.5million from Shemin Nurseries. Subsequent to these transactions, Shemin Nurseries paid $0.2 million tothe buyer of Shemin Acquisition, on behalf of Griffin, for Griffin’s share ofthe purchase price adjustment related to the determination of SheminAcquisition’s working capital as of the closing date.  The sale of its investment in SheminAcquisition resulted in a gain to Griffin that will be reflected in Griffin’sresults of operations for the thirteen weeks ended August 27, 2005.  Griffin continues to hold its investment inShemin Nurseries.

 

10.   Commitments and Contingencies

 

As of May 28, 2005, Griffin had committedpurchase obligations of $3.8 million, principally for construction of newindustrial buildings at Griffin Land, tenant improvement work related to newleases in Griffin Land’s industrial buildings and for the purchase of rawmaterials by Imperial.

 

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

 

**11.**         Restatement of Prior Periods

** **

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and twenty-six weeks ended May 29, 2004 and for the fiscal yearsended November 27, 2004, November 29, 2003 and November 30,2002, including the financial information of the interim periods in fiscalyears 2004 and 2003 to correct: (a) rental revenue and depreciation and amortizationexpense of its real estate business as a result of an incorrect allocation ofthe purchase price for Griffin’s fiscal 2003 acquisition of a controllinginterest in a joint venture that owned two office buildings in Windsor,Connecticut (Griffin had previously held a 30% interest in the joint venture), (b) depreciation expense of its real estate business for tenant improvementsrelated to certain leases in other of Griffin Land’s buildings as a result ofthe incorrect recording of the useful lives of certain tenant improvements andthe misclassification of certain improvements as tenant improvements ratherthan as building improvements, (c) rental revenue and depreciation expenseof its real estate business due to the misclassification of a payment receivedin the 2004 second quarter from a tenant for tenant improvements made byGriffin in accordance with the lease agreement and (d) the classificationof the amortization of debt issuance costs related to Griffin’s financingagreements from selling, general and administrative expenses to interestexpense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valueof in-place leases and tenant relationships and reduced by $1.5 million theamount previously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to decrease Griffin’s operating profit by $65 and increaseGriffin’s operating loss by $131 in the thirteen and twenty-six weeks ended May 29,2004, respectively, and to decrease per share results by $0.01 and $0.02 in thethirteen and twenty-six weeks ended May 29, 2004, respectively, as aresult of an increase in depreciation and amortization expense because of theshorter time period over which the intangible assets are amortized as comparedto the depreciable lives of the tangible real estate assets.

 

The adjustment to depreciation expense related to thecorrection of the useful lives used to determine the amount of depreciation fortenant improvements related to certain leases and the change in classificationof certain improvements from tenant improvements to building improvements.  The effect of this adjustment was to increaseGriffin’s operating profit by $65 and decrease Griffin’s operating loss

 

19

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by $99 in the thirteen and twenty-sixweeks ended May 29, 2004, respectively, and to increase per share resultsby $0.01 and $0.02 in the thirteen and twenty-six weeks ended May 29, 2004,respectively.

 

Griffin determined that a payment received in the 2004second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferredrental revenue and amortized into rental revenue over the term of thelease.  Griffin had recorded the paymentreceived as a reduction of its tenant improvements.  The effect of this adjustment was to increaseGriffin’s rental revenue and increase depreciation expense by $20 for thethirteen and twenty-six weeks ended May 29, 2004.  There was no effect on Griffin’s operatingprofit because the depreciable lives of the tenant improvements were the sameas the lease term over which the amount received from the tenant will be recognizedas rental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to increase Griffin’s operatingprofit and increase interest expense by $323 in the thirteen weeks ended May 29,2004 and to decrease Griffin’s operating loss and increase interest expense by$387 in the twenty-six weeks ended May 29, 2004.

 

In aggregate, the above adjustments resulted in nochange to Griffin’s net income for the thirteen weeks ended May 29, 2004and a decrease to Griffin’s net income of $22 in the twenty-six weeks ended May 29,2004.  The changes in rental revenue anddepreciation and amortization expense described herein affected only noncashcredits and charges and did not affect Griffin’s cash position.  In addition, the adjustments related to theamortization of debt issuance costs did not affect Griffin’s pretax income(loss), net income (loss) or net income (loss) per share in any period. Theeffect of the above adjustments on Griffin’s consolidated statement of cashflows for the twenty-six weeks ended May 29, 2004 was to decrease net cashused in operating activities from $16,760 to $15,531 and to decrease net cashprovided by investing activities from $66,710 to $65,481.  There were no changes to net cash used infinancing activities for the twenty-six weeks ended May 29, 2004.  Griffin’s consolidated balance sheet as of November 27,2004 was restated for the effects of the above adjustments, but suchadjustments were not material to Griffin’s consolidated balance sheet.

 

The following table sets forth additional detailregarding the effects of the restatement on Griffin’s consolidated financialstatements for the thirteen and twenty-six weeks ended May 29, 2004:

 

20

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Statement of Operations Data

 
| ** **                                                            | ** ** | **For the  thirteen weeks ended,** | ** ** | **For the  twenty-six weeks ended,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                                                            | ** ** | **May 29,  2004**             | ** ** | **May 29,  2004**               | ** ** |
| ** **                                                            | ** ** | **As  Reported**                   | ** ** | **Adjustments**                      | ** ** | **As  Restated** | ** ** | **As  Reported** | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
|                                                                  |       |                               |       |                                 |       |   |   |   |   |   |   |   |   |
| Landscape nursery  net sales                                          |       | $                                  | 19,125     |                                 | $          | — |   | $ | 19,125 |   | $ | 19,547 |   | $ | — |   | $ | 19,547 |   |
| Rental revenue  and property sales                                    |       | 2,886                              |       | 24                                   | (a)        | 2,910 |   | 5,370 |   | 27 | (a) | 5,397 |   |
| Total revenue                                                         |       | 22,011                             |       | 24                                   |       | 22,035 |   | 24,917 |   | 27 |   | 24,944 |   |
|                                                                  |       |                               |       |                                 |       |   |   |   |   |   |   |   |   |
| Costs of  landscape nursery sales                                     |       | 16,619                             |       | —                               |       | 16,619 |   | 17,061 |   | — |   | 17,061 |   |
| Costs related to  rental revenue and property sales                   |       | 1,940                              |       | 42                                   | (b)        | 1,982 |   | 3,832 |   | 59 | (b) | 3,891 |   |
| Total costs of  goods sold                                            |       | 18,559                             |       | 42                                   |       | 18,601 |   | 20,893 |   | 59 |   | 20,952 |   |
|                                                                  |       |                               |       |                                 |       |   |   |   |   |   |   |   |   |
| Gross profit                                                          |       | 3,452                              |       | (18                                  | )          | 3,434 |   | 4,024 |   | (32 | ) | 3,992 |   |
| Selling, general  and administrative expenses                         |       | 3,149                              |       | (341                                 | )(c)       | 2,808 |   | 5,118 |   | (387 | )(c) | 4,731 |   |
| Operating profit  (loss)                                              |       | 303                                |       | 323                                  |       | 626 |   | (1,094 | ) | 355 |   | (739 | ) |
| Gain on sale of  Centaur Communications, Ltd.                         |       | 51,107                             |       | —                               |       | 51,107 |   | 51,107 |   | — |   | 51,107 |   |
| Foreign currency  exchange gain                                       |       | 1,070                              |       | —                               |       | 1,070 |   | 1,070 |   | — |   | 1,070 |   |
| Interest expense                                                      |       | (624                               | )          | (323                                 | )(d)       | (947 | ) | (1,331 | ) | (387 | )(d) | (1,718 | ) |
| Interest income,  dividend income and gains on short-term investments |       | 99                                 |       | —                               |       | 99 |   | 105 |   | — |   | 105 |   |
| Income before  income tax benefit and equity investment               |       | 51,955                             |       | —                               |       | 51,955 |   | 49,857 |   | (32 | ) | 49,825 |   |
| Income tax  provision                                                 |       | 17,565                             |       | —                               |       | 17,565 |   | 16,782 |   | (10 | )(e) | 16,772 |   |
| Income before  equity investment                                      |       | 34,390                             |       | —                               |       | 34,390 |   | 33,075 |   | (22 | ) | 33,053 |   |
| Equity income  from Centaur Communications, Ltd.                      |       | 417                                |       | —                               |       | 417 |   | 328 |   | — |   | 328 |   |
| Net income                                                            |       | $                                  | 34,807     |                                 | $          | — |   | $ | 34,807 |   | $ | 33,403 |   | $ | (22 | ) | $ | 33,381 |   |
| Basic net income  per common share                                    |       | $                                  | 7.10       |                                 | $          | — |   | $ | 7.10 |   | $ | 6.83 |   | $ | — |   | $ | 6.83 |   |
| Diluted net  income per common share                                  |       | $                                  | 6.79       |                                 | $          | — |   | $ | 6.79 |   | $ | 6.58 |   | $ | — |   | $ | 6.58 |   |

 

Balance Sheet Data

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

 

21

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(a)   Reflects an increase in rental revenue of $20for the thirteen and twenty-six weeks ended May 29, 2004 to reflect theamortization of deferred rental revenue as a result of a payment received froma tenant for tenant improvements made by Griffin in accordance with the leaseterms.  Also reflects increases of $4 and$7 for the thirteen and twenty-six weeks ended May 29, 2004, respectively,for amortization of above-market and below-market leases reflecting a change inthe value of above-market and below-market leases as a result of thereallocation of a portion of the purchase price of a fiscal 2003 acquisition asdescribed in Note (b)(i) below.

 

(b)   Reflects: (i) net increases indepreciation and amortization expense of intangible assets of  $69 and $138 in the thirteen and twenty-sixweeks ended May 29, 2004, respectively, as a result of the reallocation of$1.5 million of the purchase price from real estate held for sale or lease tothe values of in-place leases and tenant relationships with respect to Griffin’sfiscal 2003 acquisition of a controlling interest in a joint venture that ownedtwo office buildings; (ii) decreases in depreciation expense of  $65 and $99 for the thirteen and twenty-sixweeks ended May 29, 2004, respectively, to correct the depreciationrelated to certain tenant improvements as a result of incorrect useful lives ofthese assets used to determine the amount of depreciation and the change inclassification of certain improvements from tenant improvements to buildingimprovements; (iii) an increase in depreciation expense of $20 in thethirteen and twenty-six weeks ended May 29, 2004 as a result of recordinga payment received from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement as deferred rental revenue instead of as areduction to tenant improvements as originally recorded; and (iv) anincrease in costs related to rental revenue of $18 for the thirteen weeks endedMay 29, 2004 to reclassify depreciation expense from selling, general andadministrative expenses to costs related to rental revenue.

 

(c)   Reflects decreases in selling, general andadministrative expenses of  $323 and $387in the thirteen and twenty-six weeks ended May 29, 2004 as a result of thecorrection to the classification of the amortization of debt issuance costs tointerest expense.  Also reflects adecrease of $18 in the thirteen weeks ended May 29, 2004 for thereclassification of depreciation expense to costs related to rental revenuefrom selling, general and administrative expenses.

 

(d)   Reflects increases in interest expenseof  $323 and $387 in the thirteen andtwenty-six weeks ended May 29, 2004 for the correction to theclassification of amortization of debt issuance costs from selling, general andadministrative expenses to interest expense.

 

(e)   Reflects a decrease in the income taxprovision as a result of the decrease in income before income tax provision inthe twenty-six weeks ended May 29, 2004 as a result of the adjustmentsdescribed above.

 

(f)    Reflects:(i) a decrease in real estate held for sale or lease of $1,364 as a resultof the correction to the allocation of the purchase price of the fiscal 2003acquisition as described in Note (b)(i) above; (ii) an increase inreal estate held for sale or lease of $1,147 for the recording of a paymentreceived from a tenant for tenant improvements made by Griffin as deferredrental revenue instead of as a reduction of tenant improvements, as originallyrecorded; and  (iii) a decrease inreal estate held for sale or lease of $151 to correct the depreciation relatedto certain tenant improvements as a result of the incorrect useful lives ofthese assets being used to determine the amount of depreciation partiallyoffset by the effect of the change in classification of certain tenantimprovements from tenant improvements to building improvements.

 

22

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(g)   Reflectsan increase in the values of in-place leases and tenant relationships, whichare included in other assets on Griffin’s consolidated balance sheet, of  $861 as of as a result of the reallocation ofa portion of the purchase price of a fiscal 2003 acquisition as described inNote (b)(i) above.

 

(h)   Reflectsan increase to current liabilities for the current portion of deferred rentalrevenue as a result of a payment received from a tenant for tenant improvementsmade by Griffin as described in Note (b)(iii) above.  The deferred rental revenue is beingamortized to rental revenue over the term of the lease.

 

(i)    Reflects the cumulative tax effect related tothe adjustments discussed above.

 

(j)    Reflectsan increase in other noncurrent liabilities for deferred rental revenue as aresult of a payment received from a tenant for tenant improvements made by Griffinas described in Note (b)(iii) above. The deferred rental revenue is being amortized to rental revenue overthe term of the lease.

 

(k)   Reflects the cumulative effect of the aboveadjustments on stockholders’ equity.

 

23

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ITEM 2.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

** **

**Overview**

** **

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

** **

Griffin has restated its consolidated financialstatements for the thirteen weeks ended February 26, 2005, for thethirteen and twenty-six weeks ended May 29, 2004 and for the fiscal yearsended November 27, 2004, November 29, 2003 and November 30,2002, including the financial information of the interim periods in fiscalyears 2004 and 2003 to correct: (a) rental revenue and depreciation andamortization expense of its real estate business as a result of an incorrectallocation of the purchase price for Griffin’s fiscal 2003 acquisition of acontrolling interest in a joint venture that owned two office buildings inWindsor, Connecticut (Griffin had previously held a 30% interest in the jointventure), (b) depreciation expense of its real estate business for tenantimprovements related to certain leases in other of Griffin Land’s buildings asa result of the incorrect recording of the useful lives of certain tenantimprovements and the misclassification of certain improvements as tenantimprovements rather than as building improvements, (c) rental revenue anddepreciation expense of its real estate business due to the misclassificationof a payment received in the 2004 second quarter from a tenant for tenantimprovements made by Griffin in accordance with the lease agreement and (d) theclassification of the amortization of debt issuance costs related to Griffin’sfinancing agreements from selling, general and administrative expenses tointerest expense.

 

The corrected allocation of the purchase priceincreased by $1.5 million the amount of intangible assets related to the valueof in-place leases and tenant relationships and reduced by $1.5 million the amountpreviously allocated to Griffin’s tangible real estate assets.  The effect of this correction to the purchaseprice allocation was to decrease Griffin’s operating profit by $65,000 andincrease Griffin’s operating loss by $131,000 in the thirteen and twenty-sixweeks ended May 29, 2004, respectively, as a result of an increase indepreciation and amortization expense because of the shorter time period overwhich the intangible assets are amortized as compared to the depreciable livesof the tangible real estate assets.

 

The adjustment to depreciation expense related to thecorrection of the useful lives used to determine the amount of depreciation fortenant improvements related to certain leases and the change in classificationof certain improvements from tenant improvements to building improvementsincreased Griffin’s operating profit by $65,000 and decreased Griffin’soperating loss by $99,000 in the thirteen and twenty-six weeks ended May 29,2004, respectively.

 

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

 

24

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increase Griffin’s rental revenue andincrease depreciation expense by $20,000 in the thirteen and twenty-six weeksended May 29, 2004.  There was noeffect on Griffin’s operating profit because the depreciable lives of thetenant improvements were the same as the lease term over which the amountreceived from the tenant will be recognized as rental revenue.

 

The effect of the correction to the classification ofthe amortization of debt issuance costs was to increase Griffin’s operatingprofit and increase interest expense by $323,000 in the thirteen weeks ended May 29,2004 and to decrease Griffin’s operating loss and increase interest expense by$387,000 in the twenty-six weeks ended May 29, 2004.

 

**In aggregate, the above adjustments resultedin no change to Griffin’s net income for the thirteen weeks ended May 29,2004 and a decrease to Griffin’s net income of $22,000 in the twenty-six weeksended May 29, 2004.  The changes inrental revenue and depreciation and amortization expense described hereinaffected only noncash credits and charges and did not affect Griffin’s cashposition.  In addition, the adjustmentsrelated to the amortization of debt issuance costs did not affect Griffin’spretax income (loss), net income (loss) or net income (loss) per share in anyperiod.  The effect of the aboveadjustments on Griffin’s consolidated statement of cash flows for thetwenty-six weeks ended May 29, 2004 was to decrease net cash used inoperating activities from $16.8 million to $15.5 million and to decrease netcash provided by investing activities from $66.7 million to $65.5 million.  There were no changes to net cash used infinancing activities for the twenty-six weeks ended May 29, 2004.  Griffin’s consolidated balance sheet as of November 27,2004 was restated for the effects of the above adjustments, but suchadjustments were not material to Griffin’s consolidated balance sheet.**See Note 11 to Griffin’sconsolidated financial statements in Item 1 for additional informationregarding the effects of the restatement on previously issued financialstatements.

** **

**The significant accounting policies and methodsused in the preparation of Griffin’s consolidated financial statements includedin Item 1 are consistent with those used in the preparation of Griffin’saudited financial statements for the year ended November 27, 2004 includedin Griffin’s Report on Form 10-K/A as filed with the Securities andExchange Commission.  The preparation ofGriffin’s financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makecertain estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at thedates of the financial statements and revenue and expenses during the periodsreported.  Actual results could differfrom those estimates.  The significantaccounting estimates used by Griffin in preparation of its financial statementsfor the thirteen and twenty-six weeks ended May 28, 2005 are consistentwith those used by Griffin in preparation of its fiscal 2004 financialstatements.**

** **

**Summary**

** **

**Griffin’s net income for the thirteen weeksended May 28, 2005 (the “2005 second quarter”) is substantially lower thanthe net income for the thirteen weeks ended May 29, 2004 (the “2004 secondquarter”) due primarily to the gain on the sale of Centaur and the relatedforeign currency exchange gain included in the 2004 second quarter.  Griffin’s consolidated operating profitincreased in the 2005 second quarter as compared to the 2004 secondquarter.  Operating profit at Griffin Landincreased in the 2005 second quarter as compared to the 2004 second quarter dueprincipally to higher profit from land sales in the current period.  Operating profit at Imperial increased in the2005 second quarter as compared to the 2004 second quarter due to higher grossprofit, due principally to improved gross margins on sales, which more thanoffset the effect of a decline in Imperial’s sales volume.  General corporate expense increased in the2005 second quarter as compared to the 2004 second quarter, primarily relatedto Griffin’s preparations to comply with Section 404 of the Sarbanes-OxleyAct.**

 

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**Griffin incurred a net loss in the twenty-sixweeks ended May 28, 2005 (the “2005 six month period”) as compared to netincome in the twenty-six weeks ended May 29, 2004 (the “2004 six monthperiod”).  The 2004 six month periodincluded the gain on the sale of Centaur and the related foreign currencyexchange gain.  Griffin’s consolidatedoperating loss in the 2005 six month period was higher than the consolidatedoperating loss in the 2004 six month period. Operating profit at Griffin Land was higher in the 2005 six month periodas compared to the 2004 six month period due principally to higher profit fromland sales.  At Imperial, operatingresults were essentially break even in both the 2005 and 2004 six monthperiods, as the benefit of higher gross margins on sales in the current yearperiod was offset by the effect of a decline in Imperial’s sales volume.  Griffin’s general corporate expense washigher in the 2005 six month period as compared to the 2004 six month perioddue to Griffin’s preparations to comply with Section 404 of theSarbanes-Oxley Act.**

** **

**Results ofOperations**

** **

**Thirteen WeeksEnded May 28, 2005 Compared to the Thirteen Weeks Ended May 29, 2004**

** **

**Griffin’s consolidated total revenuedecreased from $22.0 million in the 2004 second quarter to $20.7 million in the2005 second quarter.  The decrease of$1.3 million reflects a $1.9 million decrease in net sales at Imperialpartially offset by an increase in revenue of $0.6 million at Griffin Land.**

** **

**Revenue at Griffin Land increased from $2.9million in the 2004 second quarter to $3.5 million in the 2005 secondquarter.  The revenue increase of $0.6million reflects higher revenue from land sales.  Revenue from leasing operations was unchangedin the 2005 second quarter as compared to the 2004 second quarter.  The increase in land sales revenueprincipally reflects the sale of commercial land in Windsor, Connecticut.  In its leasing operations as of May 28,2005, Griffin Land owned 1,267,000 square feet of industrial, flex and officespace, including a new 137,000 square foot industrial building in the NewEngland Tradeport (“Tradeport”), Griffin Land’s industrial park located inWindsor and East Granby, Connecticut. This new industrial building was built on speculation and completed atthe end of the 2005 second quarter.  Currently,1,011,000 square feet (80%) is under lease, including 70,400 square feet in thenew industrial building in Tradeport (see below).  Leases in that new building will commence inthe third quarter.  At the end of the2004 second quarter, Griffin Land had 1,130,000 square feet of industrial, flexand office space, with 921,000 square feet (82%) leased.  Rental revenue in the 2005 second quarterfrom new leases of space that was vacant in the 2004 second quarter was offsetby vacancies in the current year including the expiration of leases for spacethat had been leased in the 2004 second quarter but is currently vacant.**

** **

**There was a significant increase in realestate market activity through the second quarter this year as compared to theprior year, particularly by users of industrial and warehouse space, asevidenced by the number of requests for proposals to Griffin Land byprospective users for that type of space and interest by certain currenttenants seeking to increase the amount of industrial and warehouse space theycurrently lease. However, market activity appears to have softened in the 2005third quarter, as evidenced by a decline in inquiries from prospectivetenants.  In the 2005 second quarter,Griffin Land executed a lease for an additional approximately 39,000 squarefeet of its 117,000 square foot Tradeport industrial building that was built in2003.   Also in the 2005 second quarter,Griffin Land completed a lease for approximately 31,300 square feet of the new137,000 square foot Tradeport industrial building (a lease for 39,100 squarefeet in the new building was executed earlier in the year).  The new lease for 31,300 square feet is witha current tenant of one of Griffin Land’s other industrial buildings in theTradeport.  That tenant requiredadditional space and subsequent to the 2005 second quarter vacated the 25,000square feet it had leased and moved into the newly built industrialbuilding.  The space that was vacated hasbeen leased to the building’s remaining tenant, which was also seeking toincrease the amount of space it currently leases.  Subsequent to the end of the 2005 secondquarter, Griffin Land executed a lease**

 

26

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**for 23,000square feet in the 117,000 square foot Tradeport building, and that facility isnow fully leased.  Also subsequent to the2005 second quarter, Griffin Land agreed to a lease termination with a tenantthat had leased 22,500 square feet in one of Griffin Land’s buildings inGriffin Center South.  The lease that wasterminated was scheduled to extend through January 2008.  Griffin Land received $0.3 million inconnection with this lease termination.**

** **

**Imperial’s business is highly seasonal, withsecond quarter sales volume comprising a majority of Imperial’s annual salesvolume.  Net sales and other revenue atImperial decreased from $19.1 million in the 2004 second quarter to $17.2million in the 2005 second quarter.  Thedecrease in Imperial’s net sales and other revenue reflects lower unit salesvolume, which decreased 20% in the 2005 second quarter as compared to the 2004second quarter.  The decrease in unitsales volume reflects, in part, reduced sales to Imperial’s mass merchantcustomers in connection with efforts to increase sales to garden centercustomers in order to move a greater percentage of Imperial’s available productto a customer segment with more profitable pricing.  In addition, poor weather, especially in theearly part of spring, negatively impacted Imperial’s sales in the current year.**

** **

**Griffin’s consolidated operating profitincreased from $0.6 million in the 2004 second quarter to $0.7 million in the2005 second quarter.  The increase inconsolidated operating profit principally reflects increases in operatingprofit of $0.3 million at Griffin Land and $0.1 million at Imperial offset byan increase of $0.3 million in general corporate expense.**

** **

**Operating profit at Griffin Land increasedfrom $0.4 million in the 2004 second quarter to $0.7 million in the 2005 secondquarter, reflecting the following:**

 
| ** **                                                                                                                       | ** ** | ** **                 | ** ** | **2004**          | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------|------------|
| ** **                                                                                                                       | ** ** | **2005**                   | ** ** | **Second Qtr.**   | ** ** |
| ** **                                                                                                                       | ** ** | **Second Qtr.**            | ** ** | **(As Restated)** | ** ** |
| ** **                                                                                                                       | ** ** | **(amounts in thousands)** | ** ** |
| Rental revenue                                                                                                                   |       | $                          | 2,725      |              | $          | 2,725 |   |
| Revenue from land sales                                                                                                          |       | 808                        |       | 185               |       |
| Total revenue                                                                                                                    |       | 3,533                      |       | 2,910             |       |
| Costs related to rental revenue excluding depreciation  and amortization (a)                                                     |       | 1,142                      |       | 1,037             |       |
| Costs related to land sales                                                                                                      |       | 221                        |       | 142               |       |
| Total costs excluding depreciation and  amortization                                                                             |       | 1,363                      |       | 1,179             |       |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense (a) |       | 1,583                      |       | 1,688             |       |
| Profit from land sales                                                                                                           |       | 587                        |       | 43                |       |
| General and administrative expenses  excluding depreciation and amortization expense (a)                                    |       | (657                       | )          | (578              | )          |
| Profit before depreciation and amortization  expense                                                                             |       | 1,513                      |       | 1,153             |       |
| Depreciation and amortization expense  related to costs of rental revenue                                                        |       | (820                       | )          | (803              | )          |
| Depreciation and amortization expense -  other                                                                                   |       | (8                         | )          | (1                | )          |
| Operating profit                                                                                                                 |       | $                          | 685        |              | $          | 349 |   |

 

27

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----

**(a)**   The costs related torental revenue excluding depreciation and amortization, profit from leasingactivities before general and administrative expenses and before depreciationand amortization expense and general and administrative expenses excludingdepreciation and amortization expense are disclosures not in conformity with generallyaccepted accounting principles.  They arepresented because Griffin believes they are useful financial indicators formeasuring the results in its real estate division.  However, they should not be considered as analternative to operating profit as a measure of operating results in accordancewith generally accepted accounting principles.

 

**Although rental revenue was essentially flatin the 2005 second quarter as compared to the 2004 second quarter, profit fromleasing activities before general and administrative expenses and beforedepreciation and amortization expense decreased due principally to higherbuilding operating expenses, principally utilities and maintenance costs.  The higher profit from land sales in the 2005second quarter reflects the completion of a sale of commercial land in Windsor,Connecticut.  Griffin Land’s general andadministrative expenses were higher in the 2005 second quarter as compared tothe 2004 second quarter due principally to an increase in bad debt expenses of$0.1 million.**

 

**Operating profit at Imperial increased from$0.9 million in the 2004 second quarter to operating profit of $1.0 million inthe 2005 second quarter, as follows:**

 
| ** **                                    | ** ** | **2005**                   | ** ** | **2004**        | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|-----------------|------------|
| ** **                                    | ** ** | **Second Qtr.**            | ** ** | **Second Qtr.** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands)** | ** ** |
| Net sales and other revenue                   |       | $                          | 17,174     |            | $          | 19,125 |   |
| Cost of goods sold                            |       | 14,470                     |       | 16,619          |       |
| Gross profit                                  |       | 2,704                      |       | 2,506           |       |
| Selling, general and administrative  expenses |       | 1,678                      |       | 1,607           |       |
| Operating profit                              |       | $                          | 1,026      |            | $          | 899 |   |

** **

**The $0.1 million increase in operating profitat Imperial reflects the $0.2 million increase in gross profit partially offsetby an increase of $0.1 million in selling, general and administrativeexpense.  The higher gross profitreflects an increase in gross margins from 13.1% in the 2004 second quarter to15.7% in the 2005 second quarter.  Thegross margin increase reflects improved pricing that resulted from increasedsales to garden center customers which also comprised a greater percentage ofImperial’s total net sales in the 2005 second quarter as compared to the 2004second quarter.  Net sales to gardencenter customers, which generally have more favorable pricing than othercustomer segments, accounted for 46% of net sales in the 2005 second quarter ascompared to 39% in the 2004 second quarter. In addition, increased delivery charges to customers and lower deliveryexpenses also contributed to the increase in gross margins in the currentyear.  The lower delivery expenses wereprincipally due to purchasing additional portable shelving units for use in shipmentsfrom Imperial’s Florida location and obtaining additional availability oftrucking services out of Florida, which substantially eliminated the cost ofhaving empty trucks return to that location. The effect of the improved pricing was partially offset by increasedplant costs and charges aggregating $0.4 million to reserve for inventoryshipped on consignment that will not be sold and to reserve for certaininventories which will be sold below their current carrying value or disposed.  Gross margins on sales in the second half ofthe year may be negatively impacted by efforts to sell inventory that wasavailable for sale but not sold in the first half of the year.  Imperial’s selling, general andadministrative expenses were slightly higher in the 2005 second quarter ascompared to the 2004 second quarter.  Asa percentage of net sales, selling, general and**

 

28

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**administrativeexpenses increased from 8.4% in the 2004 second quarter to 9.8% in the 2005second quarter.**

** **

**Griffin’s general corporate expense increasedfrom $0.6 million in the 2004 second quarter to $1.0 million in the 2005 secondquarter due principally to expense of $0.3 million incurred in the 2005 secondquarter related to Griffin’s preparations to comply with Section 404 ofthe Sarbanes-Oxley Act and an expense of $0.1 million in the current year for aretrospective insurance charge related to a former affiliate of Griffin.  Under an agreement with Griffin’s formerparent company, Griffin is responsible for such charges related to certainformer affiliates.**

** **

**In the 2004 second quarter Griffin completedthe sale of its investment in Centaur to Centaur Holdings, plc (“CentaurHoldings”), a newly formed company. Griffin received cash proceeds of approximately $68.9 million aftertransaction expenses of approximately $1.5 million.  In addition to the cash proceeds, Griffinreceived 6,477,150 shares of common stock of Centaur Holdings, which was valuedat approximately $11.7 million based on the £1.00 per share price of theinitial public offering of shares by Centaur Holdings and the foreign currencyexchange rate in effect at that time. Griffin recorded a pretax gain of $51.1 million on the sale and a foreigncurrency exchange gain of approximately $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 approximately $4.0 million in the 2004second quarter, reflecting the difference, net of tax, between the value ofGriffin’s investment in Centaur Holdings and the book value of the pro rataportion of the investment in Centaur that remained as a result of receiving theCentaur holdings common stock as a part of the sale proceeds, adjusted toreflect market pricing of Centaur Holdings as of the balance sheet date.**

** **

**Griffin’s consolidated interest expensedecreased from $0.9 million in the 2004 second quarter to $0.5 million in the2005 second quarter.  The lower interestexpense in the 2005 second quarter reflects lower average outstanding debt inthe current period and capitalized interest of $0.1 million in the currentperiod as compared to no capitalized interest in the 2004 second quarter.  Additionally, the 2004 second quarterinterest expense includes $0.3 million for the amortization of debt issuancecosts related to Griffin’s revolving credit agreement, which was terminated inthe 2004 second quarter.  Griffin’saverage outstanding debt in the 2005 second quarter was $32.0 million ascompared to average outstanding debt of $36.2 million in the 2004 secondquarter.  The lower average debt in thecurrent period reflects the paydown of Griffin’s revolving credit agreement debtin the 2004 second quarter with a portion of the proceeds received from thesale of Centaur last year.  Griffin’scurrent debt is comprised of nonrecourse mortgages on certain of its propertiesand a small amount of capital lease obligations.**

** **

**Griffin’s interest income, dividend incomeand gains on investments increased from $0.1 million in the 2004 second quarter to $0.3 million in the 2005second quarter, reflecting higher earnings from the investment of the remainingproceeds from the sale of Centaur.  Theincreased investment earnings reflects the general increase in short terminterest rates in the current year.**

** **

**Griffin’s effective income tax rate was 34.0%in the 2005 second quarter as compared to 33.8% in the 2004 secondquarter.  The effective income tax ratein the current period reflects a federal income tax rate of 34% adjusted forthe effect of state income taxes.  In the2004 second quarter, the effective tax rate reflected a 35% federal income taxrate adjusted for state income taxes and certain tax credits related to foreignincome taxes paid by Centaur.**

** **

**There was no equity income in the 2005 secondquarter as a result of the sale of Centaur last year.  Griffin included equity income of $0.4million from Centaur in the 2004 second quarter.**

 

29

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**Twenty-SixWeeks Ended May 28, 2005 Compared to the Twenty-Six Weeks Ended May 29,2004**

** **

**Net sales and other revenue decreased from$24.9 million in the 2004 six month period to $24.0 million in the 2005 sixmonth period, reflecting a decrease in net sales of $1.9 million at Imperial,partially offset by an increase in revenue of $1.0 million at Griffin Land.**

** **

**Net sales and other revenue at Griffin Landincreased from $5.4 million in the 2004 six month period to $6.4 million in the2005 six month period.  The increase of$1.0 million reflects increased revenue of $0.7 million from land sales in the2005 six month period and an increase of $0.3 million of revenue from leasingoperations.  The increased revenue fromland sales reflects the completion of the sale of commercial land in Windsor,Connecticut in the 2005 six month period. Revenue from leasing operations increased from $5.2 million in the 2004six month period to $5.5 million in the 2005 six month period.  The increase principally reflects the neteffect of revenue from certain leases being included for the entire 2005 sixmonth period as compared to being included for only a portion of the 2004 sixmonth period and new leases in the current year offset by the loss of revenuefrom leases included in the 2004 six month period that have expired and werenot renewed.**

** **

**Net sales and other revenue at Imperialdecreased from $19.5 million in the 2004 six month period to $17.6 million inthe 2005 six month period.  Unit salesvolume decreased 19.8% in the 2005 six month period as compared to the 2004 sixmonth period.  The decrease in net salesin the 2005 six month period reflects the factors as discussed in the 2005second quarter results.**

** **

**Griffin incurred a consolidated operatingloss of $1.1 million in the 2005 six month period as compared to a consolidatedoperating loss of $0.7 million in the 2004 six month period.  Operating profit at Griffin Land increased by$0.2 million.  Operating results at Imperialwere essentially break even in both the 2005 and 2004 six month periods.  General corporate expense increased by $0.6million in the 2005 six month period as compared to the 2004 six month period.**

** **

**Operating profit at Griffin Land increasedfrom $0.4 million in the 2004 six month period to $0.6 million in the 2005 sixmonth period, reflecting the following:**

 

30

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| ** **                                                                                                                       | ** ** | **2005  Six Month  Period** | ** **            | **2004**   | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-----------------------|------------|------------|
| ** **                                                                                                                       | ** ** | ** **                  | **Six Month  Period** | ** ** |
| ** **                                                                                                                       | ** ** | ** **                  | **(As Restated)**     | ** ** |
| ** **                                                                                                                       | ** ** | **(amounts in thousands)**  | ** **            |
| Rental revenue                                                                                                                   |       | $                           | 5,483                 |       | $          | 5,212 |   |
| Revenue from land sales                                                                                                          |       | 915                         |                  | 185        |       |
| Total revenue                                                                                                                    |       | 6,398                       |                  | 5,397      |       |
| Costs related to rental revenue excluding depreciation  and amortization (a)                                                     |       | 2,502                       |                  | 2,087      |       |
| Costs related to land sales                                                                                                      |       | 339                         |                  | 212        |       |
| Total costs excluding depreciation and  amortization                                                                             |       | 2,841                       |                  | 2,299      |       |
| Profit from leasing activities before  general and administrative expenses and before depreciation and amortization  expense (a) |       | 2,981                       |                  | 3,125      |       |
| Gain (loss) from land sales                                                                                                      |       | 576                         |                  | (27        | )          |
| General and administrative expenses  excluding depreciation and amortization expense (a)                                    |       | (1,306                      | )                     | (1,151     | )          |
| Profit before depreciation and amortization  expense                                                                             |       | 2,251                       |                  | 1,947      |       |
| Depreciation and amortization expense  related to costs of rental revenue                                                        |       | (1,600                      | )                     | (1,592     | )          |
| Depreciation and amortization expense -  other                                                                                   |       | (14                         | )                     | (6         | )          |
| Operating profit                                                                                                                 |       | $                           | 637                   |       | $          | 349 |   |

 

----

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

** **

**The decrease of $0.1 million in Griffin Land’sprofit from leasing activities before general and administrative expenses andbefore depreciation and amortization expense principally reflects a charge of$0.2 million in the 2005 six month period to write off capitalized costsrelated to a lease that was terminated in the current year.  The lease termination was related to a newlonger-term lease with a new tenant for that building, with lease rates thatare equal to the rental rates under the terminated lease over the remainingterm of the terminated lease.  Increasedrental revenue in the current year was substantially offset by higher buildingexpenses, principally due to winter related costs incurred in the 2005 firstquarter.  The gain from land salesprincipally reflects the sale of commercial land in Windsor, Connecticut. Theprior year results from land sales reflect a profit of $0.2 million from thesale of undeveloped residential land offset by the writeoff of $0.2 million ofcosts on two potential land sale transactions that did not proceed.  The increase of $0.2 million in general andadministrative expenses reflects higher bad debt expenses and higher insurancecosts.  Depreciation and amortizationexpense was essentially unchanged in the 2005 six month period as compared tothe 2004 six month period.**

 

31

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**Imperial’s operating results were essentiallybreak even in the 2005 and 2004 six month periods, as follows:**

 
| ** **                                    | ** ** | **2005**                   | ** ** | **2004**              | ** ** |
|-----------------------------------------------|------------|----------------------------|------------|-----------------------|------------|
| ** **                                    | ** ** | **Six Month  Period**      | ** ** | **Six Month  Period** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands)** | ** ** |
| Net sales and other revenue                   |       | $                          | 17,638     |                  | $          | 19,547 |   |
| Cost of goods sold                            |       | 15,067                     |       | 17,061                |       |
| Gross profit                                  |       | 2,571                      |       | 2,486                 |       |
| Selling, general and administrative  expenses |       | 2,558                      |       | 2,460                 |       |
| Operating profit                              |       | $                          | 13         |                  | $          | 26 |   |

** **

**Although net sales were lower in the 2005 sixmonth period as compared to the 2004 six month period, an increase in grossmargin on sales resulted in a small increase in gross profit dollars in the2005 six month period as compared to the 2004 six month period.  Imperial’s gross margin on sales increasedfrom 12.7% in the 2004 six month period to 14.6% in the 2005 six monthperiod.  The higher gross margin on salesreflects the improved pricing as a result of an increase in sales to gardencenter customers in the current year and garden center customers becoming agreater percentage of Imperial’s total sales. In addition, increased deliverycharges to customers and lower delivery expenses also contributed to the highergross margins in the current year.  Grossmargins on sales in the second half of the year may be negatively impacted byefforts to sell inventory that was available for sale but not sold in the firsthalf of the year.  Imperial’s selling,general and administrative expenses increased by $0.1 million in the 2005 sixmonth period as compared to the 2004 six month period.  The increase principally reflects consultingexpenses in the current year.  As apercentage of net sales, selling, general and administrative expenses increasedfrom 12.6% in the 2004 six month period to 14.5% in the 2005 six month period.**

** **

**Griffin’s general corporate expense increased$0.6 million in the 2005 six month period as compared to the 2004 six monthperiod.  The increase in general corporateexpense in the 2005 six month period principally reflects $0.3 million relatedto Griffin’s preparation to comply with Section 404 of the Sarbanes-OxleyAct, $0.1 million for a donation expense and $0.1 million for a retrospectiveinsurance charge related to a former affiliate of Griffin.**

** **

**In the 2004 six month period, Griffincompleted the sale of its investment in Centaur, recording a pretax gain on thesale of $51.1 million.  Griffin alsorecorded a foreign currency exchange gain of $1.1 million in the 2004 six monthperiod related to a foreign currency exchange contract entered into as a resultof the sale of Centaur (see discussion of these transactions in the secondquarter results).**

** **

**Griffin’s consolidated interest expensedecreased from $1.7 million in the 2004 six month period to $1.0 million in the2005 six month period.  Griffin’s averageoutstanding debt in the 2005 six month period was $32.2 million as compared to$39.8 million in the 2004 six month period. The higher interest expense in the 2004 six month period reflects higheramortization of debt issuance costs in the 2004 six month period as a result ofGriffin’s Credit Agreement being terminated in the 2004 six month period,interest expense incurred under Griffin’s Credit Agreement prior to theborrowings under that credit facility being repaid with a portion of theproceeds from the sale of Centaur and capitalized interest of $0.2 million inthe 2005 six month period as compared to no capitalized interest in the 2004six month period.**

 

32

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**Griffin’s income from interest, dividends andgains on sale of investments was $0.5 million in the 2005 six month period ascompared to $0.1 million in the 2004 six month period.  The increase of investment income in thecurrent year reflects the benefit of the investment of the remaining proceedsfrom the sale of Centaur for the entire six month period in 2005 as compared tohaving the proceeds from the sale of Centaur for only a portion of the 2004 sixmonth period.  In addition, highershort-term interest rates in the current year contributed to the higherinvestment income in the 2005 six month period.**

** **

**Griffin’s effective income tax benefit ratewas 34.4% for the 2005 six month period, as compared to 33.7% for the 2004 sixmonth period.  The effective tax rate forthe 2005 six month period reflects a 34% rate for federal income taxes adjustedfor state income taxes.  The 2004 sixmonth 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.**

** **

**As a result of the sale of its investment inCentaur last year, Griffin did not have any income from equity investments inthe current year.  Griffin’s 2004 sixmonth period included equity income of $0.3 million through the date of Griffin’ssale of its investment in Centaur.**

** **

**Liquidity andCapital Resources**

** **

**Net cash used in operating activitiesdecreased from $15.5 million in the 2004 six month period to $1.7 million inthe 2005 six month period.  The largedecrease in net cash used in operating activities reflects the effect of incometax payments of $10.0 million made in the 2004 six month period, as compared tono income tax payments made in the 2005 six month period.  In addition, the 2005 six month periodincluded $6.7 million of cash from the reduction of short-term investments.**

** **

**In the 2005 six month period, Griffin usednet cash of $4.7 million in investing activities, as compared to net cashprovided by investing activities of $65.5 million in the 2004 six month period,principally reflecting the cash proceeds from the sale of Centaur lastyear.  Additions to real estate held forsale or lease increased from $4.0 million in the 2004 six month period to $5.1million in the 2005 six month period, reflecting increased constructionactivity related to the shell of a 137,000 square foot industrial building inthe Tradeport and tenant improvement work related to new leases.  Additions to property and equipment,principally for Imperial, were $0.5 million in the 2005 six month period ascompared to $0.4 million in the 2004 six month period.  The current year expenditures wereprincipally to purchase additional portable shelving units that are used ontrucks in delivering product to customers. The prior year additions at Imperial were principally for completion ofthe expansion of its Florida operations. Proceeds from land sales were $0.9 million in the 2005 six month periodas compared to $0.2 million in the 2004 six month period.  The increase principally reflects theproceeds from the sale of commercial land in Windsor, Connecticut that wascompleted this year.**

** **

**Net cash used in financing activities was$0.3 million in the 2005 six month period as compared to net cash of $9.6million used in financing activities in the 2004 six month period.  The net cash used in financing activities inthe 2005 six month period principally reflects payments of principal on GriffinLand’s mortgages.  The net cash used infinancing activities in the 2004 six month period included the repayment ofGriffin’s debt under its revolving credit agreement with a portion of theproceeds from the sale of Centaur.**

** **

**In the balance of fiscal 2005, Griffin plansto continue to invest in its real estate business.  As a result of the recent completion of newleases for industrial space and expressions of interest by potential users ofthat type of space, Griffin Land started construction in the 2005 secondquarter on the shell of an**

 

33

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**additional137,000 square foot industrial building in the Tradeport.  This new construction is also being done onspeculation.  Griffin Land recentlyentered into leases for approximately 69,000 square feet in this building,which will result in this new building being at least 50% leased when it comeson line at the end of this year.  GriffinLand also expects to incur expenditures to build out the interiors of its newbuildings as leases are completed, and to continue to invest in infrastructureimprovements required for present and future development in its office andindustrial parks.**

** **

**Last year, Griffin Land received approval forits proposed residential development, Stratton Farms, in Suffield, Connecticut.  An owner of certain land adjacent to StrattonFarms has filed an appeal of the approval issued by the town’s land usecommission.  A recent court ruling hasdenied that appeal, however, the adjacent landowner has requested a rehearing.  Infrastructure work on this residentialdevelopment may begin later this year, as all required permits have beenobtained.   Griffin Land is continuingdevelopment activities to obtain approvals for its proposed residential developmentin Simsbury, Connecticut.  Griffin Landintends to proceed with residential development plans on other of its landsthat are also appropriate for that use.  Thusfar in fiscal 2005, Griffin Land has completed sales of commercial and residentialland which generated total cash proceeds of $2.4 million.**

** **

**On May 31, 2005, Griffin receivedinitial cash proceeds of $5.9 million from the sale of its remaining commonstock of Shemin Acquisition Corporation (“Shemin Acquisition”).  Immediately prior to that sale, Griffinexchanged a portion of its holdings in Shemin Acquisition for common stock inShemin Nurseries Holding Corp. (“Shemin Nurseries”), which operates a landscapenursery distribution business through its subsidiary that previously was asubsidiary of Shemin Acquisition.    On June 29,2005, Griffin received a cash distribution of $1.5 million from SheminNurseries.  Subsequent to thesetransactions, Shemin Nurseries paid $0.2 million to the buyer of SheminAcquisition, on behalf of Griffin, for Griffin’s share of the purchase price adjustmentrelated to the determination of Shemin Acquisition’s working capital as of theclosing date.  Griffin continues to holdits investment in Shemin Nurseries.**

** **

**On July 7, 2005, a subsidiary of GriffinLand completed a $12.7 million mortgage on two of its Tradeport industrialbuildings, the 137,000 square foot building completed at the end of the 2005second quarter and the 117,000 square foot building completed in 2003.  The new mortgage has an interest rate of5.46% and a ten year term with payments based on a thirty year amortizationschedule.  The new mortgage isnonrecourse, however, Griffin entered into a master lease with its subsidiaryfor the space in the buildings that was not leased to third-party tenants atthe inception of the mortgage (the “Initial Vacant Space”).  As Griffin Land enters into approved leasesfor the Initial Vacant Space, the master lease between Griffin and itssubsidiary on that portion of the Initial Vacant Space will be terminated.  Mortgage payments under this new mortgagewill be $0.9 million per year.**

** **

**Griffin’s payments (including principal andinterest) under contractual obligations as of May 28, 2005 are as follows:**

 

34

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| ** **                   | ** ** | **Total**         | ** ** | **Due Within  One Year** | ** ** | **Due From  1-3 Years** | ** ** | **Due From  3-5 Years** | ** ** | **Due in More  Than 5 Years** | ** ** |
|------------------------------|------------|-------------------|------------|--------------------------|------------|-------------------------|------------|-------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **(in millions)** | ** ** |
| Mortgages                    |       | $                 | 48.0       |                     | $          | 3.0                     |       | $                       | 6.0        |                          | $          | 12.8 |   | $ | 26.2 |   |
| Capital  Lease Obligations   |       | 0.4               |       | 0.1                      |       | 0.2                     |       | 0.1                     |       | —                        |       |
| Operating  Lease Obligations |       | 0.6               |       | 0.2                      |       | 0.3                     |       | 0.1                     |       | —                        |       |
| Purchase  Obligations (1)    |       | 3.8               |       | 3.8                      |       | —                  |       | —                  |       | —                        |       |
| Other (2)                    |       | 1.5               |       | —                   |       | —                  |       | —                  |       | 1.5                           |       |
|                         |       | $                 | 54.3       |                     | $          | 7.1                     |       | $                       | 6.5        |                          | $          | 13.0 |   | $ | 27.7 |   |

** **

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**(1)**   Includes obligations forthe construction of new industrial buildings and tenant improvement work fornew leases at Griffin Land and for the purchase of raw materials by Imperial.

** **

**(2)**   Includes Griffin’sdeferred compensation plan and other postretirement benefit liabilities.

** **

**Management believes that the significantamount of cash and short-term investments held by Griffin will be sufficient tofinance the working capital requirements of Griffin’s businesses and fundcontinued investment in Griffin’s real estate assets for the foreseeablefuture.  Griffin Land may also continueto seek nonrecourse mortgage placements on selected properties.  Griffin also anticipates seeking to purchaseeither or both land and buildings with a substantial portion of its cash andshort-term investment balances.   Thereare no specific real estate acquisitions planned at this time.  Such acquisitions may or may not occur basedon many factors, including real estate pricing.**

** **

**Recent Accounting Pronouncements**

** **

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

** **

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

 

**In December 2004, the FASB issued SFAS No. 123R,“Share-Based Payment.”  This new standardsupersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,”and its related implementation guidance. SFAS No. 123R requires an issuer to recognize the compensation costof employee services received in exchange for an award of equityinstruments.  Therefore, the cost ofrewarding individuals with equity instruments will be recognized in Griffin’sfinancial statements rather than disclosed in a pro forma statement in thefinancial statement footnotes.  In March 2005,the SEC issued Staff Accounting Bulletin No. 107 related to the valuationof share-based payment arrangements**

 

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**under SFAS No. 123R.  Management has utilized the guidance in thisbulletin in preparing its estimates for the effect of SFAS No. 123R.  SFAS No. 123R will be effective forGriffin in the first quarter of fiscal 2006. Management expects to adopt SFAS No. 123R using the modifiedprospective application method, and expects that the adoption of SFAS No. 123Rwill decrease Griffin’s annual basic and diluted per share results by $0.01 to$0.04 per share.**

** **

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

** **

**Forward-LookingInformation**

** **

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

 

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**ITEM 4.**                  CONTROLS AND PROCEDURES

** **

**Evaluation of Disclosure Controls andProcedures**

** **

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

** **

**As required by SEC Rule 13a-15(b),Griffin carried out an evaluation, under the supervision and with theparticipation of Griffin’s management, including Griffin’s Chief ExecutiveOfficer and Griffin’s Chief Financial Officer, of the effectiveness of thedesign and operation of Griffin’s disclosure controls and procedures as of theend of the fiscal period covered by this report.**

** **

**Based on such evaluation, Griffin concludedthat it would restate financial results for the fiscal years ended November 29,2003 and November 27, 2004 and the unaudited quarterly financialinformation for fiscal 2003, fiscal 2004 and the consolidated financial statementsfor the first quarter of fiscal 2005 to correct the previously reportedaccounting for an acquisition of real estate assets that took place in fiscal2003 and was reported upon in its 2003 and 2004 consolidated financialstatements.  In analyzing the effect of alease termination in one of its office buildings on its consolidated financialstatements for the thirteen weeks ended May 28, 2005, Griffin determinedthat the allocation of the purchase price for the acquisition in fiscal 2003 ofa controlling interest in a joint venture that owned two office buildings wasincorrect.  Griffin previously held a 30%interest in the joint venture.  Asdescribed in Note 11 to the consolidated financial statements included in Item1, Griffin determined that a greater portion of the purchase price should havebeen allocated to intangible assets rather than to Griffin’s tangible realestate assets and has restated its financial results to reflect the correctallocation.  The effect of this changewas to increase depreciation and amortization expense for the fiscal yearsended November 29, 2003 and November 27, 2004, the related interimperiods, and the thirteen weeks ended February 26, 2005 because of theshorter time period over which the intangible assets are amortized as comparedto the depreciable lives of the tangible real estate assets.**

** **

**In the process of preparing the restatementof its consolidated financial statements, Griffin determined that the usefullives of certain tenant improvements were not adjusted at the time a lease wasextended in fiscal 2003, the useful lives of tenant improvements related tocertain other leases were incorrectly recorded in its fixed asset system, therewas a misclassification of certain improvements as tenant improvements rather thanas building improvements and the recording of a payment received in the 2004second quarter from a tenant for tenant improvements made by Griffin inaccordance with the lease agreement should have been recorded as deferredrental revenue instead of reducing the amount of Griffin’s tenantimprovements.  These issues resulted inerrors in reported rental revenue and depreciation and amortization expenserelated to certain of Griffin’s properties prior to fiscal 2002, during fiscal2003, fiscal 2004, the related interim periods and the 2005 first quarter (theeffect of this issue on previously reported results for fiscal 2002 wasimmaterial).  Accordingly, Griffinadjusted its rental revenue and depreciation and amortization expense for thoserespective periods.  Griffin alsodetermined that the amortization of debt issuance costs for the periods coveredby the restatement had been misclassified in selling, general andadministrative expenses rather than being included in interest expense.**

 

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**As a result of the error in allocation of thepurchase price for the controlling interest in the joint venture, the incorrectuseful lives used to determine depreciation expense of certain tenantimprovements, the misclassification of certain improvements as tenantimprovements rather than as building improvements, the incorrect recording of apayment received in fiscal 2004 from a tenant for tenant improvements made byGriffin in accordance with the lease agreement and the misclassification of theamortization of debt issuance costs, Griffin’s Chief Executive Officer andChief Financial Officer determined that Griffin’s disclosure controls andprocedures were not effective at a reasonable assurance level as of the end ofthe period covered by this report because these errors resulted from materialweaknesses in Griffin’s internal control over financial reporting, which aredescribed below.**

 

**A material weakness is a control deficiency,or combination of control deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected. As of May 28, 2005, Griffin did not maintain effective controlsover (i) the accounting for acquisitions; (ii) the recording of depreciation and amortization expense and therecording of deferred rental revenue from tenants and (iii) accounting foramortization of debt issuance costs. Specifically, controls over the allocation of the purchase price and therecording of tenant improvement information into Griffin’s fixed asset systemwere ineffective.  The purchase price wasincorrectly allocated between intangible and tangible real estate assets, theuseful lives of certain tenant improvements were incorrect, certainimprovements were misclassified as tenant improvements rather than as buildingimprovements and a payment received from a tenant for tenant improvements madeby Griffin was not properly recorded as deferred rental revenue, resulting inmisstatements to rental revenue and depreciation and amortization expense.  Finally, Griffin’s accounting for theamortization of debt issuance costs was incorrect.  These control deficiencies resulted in therestatement of Griffin’s 2002, 2003 and 2004 consolidated financial statements,for each of the unaudited quarterly interim financial information of 2003 and2004 as well as the 2005 first quarter consolidated financial statements.  Additionally, these control deficienciescould result in a misstatement of the aforementioned accounts that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.  Accordingly, management has concluded thateach of these internal control deficiencies constitutes a materialweakness.  Because of these materialweaknesses, management has concluded that Griffin did not maintain effectiveinternal control over financial reporting as of May 28, 2005, based oncriteria established in the Internal Control - Integrated Framework issued bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).**

** **

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

** **

**Changes in Internal Control over FinancialReporting**

** **

**Each of the changes to Griffin’s internalcontrol over financial reporting discussed above occurred subsequent to thefiscal 2005 second quarter.  There was nochange in Griffin’s internal control over financial reporting during the 2005second quarter that has materially affected, or is reasonably likely tomaterially affect, Griffin’s internal control over financial reporting.**

 

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| **PART II** | ** ** | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ITEM  1.         |       | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       | In 1999, Griffin Land filed land use applications with the  land use commissions of Simsbury, Connecticut for Meadowood, a proposed  residential development on approximately 363 acres of land. In 2000,  Simsbury’s land use commissions issued denials of Griffin Land’s Meadowood  application. As a result of those denials, Griffin Land brought several  separate, but related, suits appealing those decisions. In 2002, the trial  court upheld two of Griffin Land’s appeals and ordered the town’s Planning  and Zoning Commissions to approve the Meadowood application. The town  appealed those decisions. In 2004, the Connecticut Supreme Court ordered the  Zoning Commission to approve the zoning regulations proposed by Griffin Land  for Meadowood. The Connecticut Supreme Court also ruled that the denial of  the Meadowood application by the Planning Commission can be upheld because  Griffin Land had not obtained the required sewer usage permits at the time  the application was made to the Planning Commission. The required sewer usage  permits for Meadowood have been subsequently obtained. Also in 2004, the  Connecticut Supreme Court reversed a lower court decision that had denied  Griffin Land a wetlands permit, and remanded the case to Superior Court for  further proceedings to determine if a wetlands permit must be issued. On  June 6, 2005, the Superior Court ruled that Griffin Land must again apply  to the town’s Conservation and Inland Wetlands Commission for a wetlands  permit for its proposed Meadowood development. This ruling is not yet final  because Griffin Land has petitioned the Appellate Court to review and reverse  this ruling. |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       | In 2004, the Planning and Zoning Commission of Suffield,  Connecticut approved Griffin Land’s proposed residential development known as  Stratton Farms. An owner of certain land adjacent to Stratton Farms then  filed an appeal of the approval issued by the town’s land use commission. On  September 26, 2005, the Superior Court of Hartford, Connecticut denied  the appeal by the adjoining landowner, however, the landowner has requested a  rehearing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ITEMS 2 - 3.     |       | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ITEM 4.          |       | Submission of Matters to a Vote of  Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |       | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Annual Meeting of Stockholders: May 18, 2005 |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|             |       | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | The following were elected as Directors at the Annual  Meeting, representing all of the directors: |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|             |       | (c)(i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 1) Mr. Winston Churchill, Jr. was elected a  Director for 2005 with 4,826,348 votes in favor, 7,116 withheld, and 139,974  not voting. |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 2) Mr. Edgar M. Cullman was elected a Director for  2005 with 4,828,395 votes in favor, 5,069 withheld, and 139,974 not voting. |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|             |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 3) Mr. Frederick M. Danziger was elected a Director  for 2005 with 4,828,598 votes in favor, 4,866 withheld, and 139,974 not  voting. |

 

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|       |       |                 | 4) Mr. John L. Ernst was elected a Director for 2005  with 4,816,373 votes in favor, 17,091 withheld, and 139,974 not voting.                                                                           |
|------------|------------|----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                 |                                                                                                                                                                                                         |
|       |       |                 | 5) Mr. Thomas C. Israel was elected a Director for  2005 with 4,816,523 votes in favor, 16,941 withheld, and 139,974 not voting.                                                                        |
|       |       |                 |                                                                                                                                                                                                         |
|       |       |                 | 6) Mr. Alan Plotkin was elected a Director for 2005  with 4,828,448 votes in favor, 5,016 withheld, and 139,974 not voting.                                                                             |
|       |       |                 |                                                                                                                                                                                                         |
|       |       |                 | 7) Mr. David F. Stein was elected a Director for 2005  with 4,817,523 votes in favor, 15,941 withheld, and 139,974 not voting.                                                                          |
|       |       |                 |                                                                                                                                                                                                         |
|       |       | (ii)                 | The authorization of the selection of  PricewaterhouseCoopers LLP as independent registered public accountants for  2005 was approved with 4,831,345 votes in favor, 1,414 opposed, and 140,679  not voting. |
|       |       |                 |                                                                                                                                                                                                         |
| ITEM 5.    |       | Not Applicable       |
|       |       |                 |                                                                                                                                                                                                         |
| ITEM  6.   |       | Exhibits             |
|       |       |                 |
| ** ** | ** ** | **Exhibit No.** | ** **                                                                                                                                                                                                   | **Description** |
|       |       |                 |                                                                                                                                                                                                         |   |
|       |       | 10.29                |                                                                                                                                                                                                         | Mortgage Deed Security Agreement, Fixture Filing, Financing  Statement and Assignment of Leases and Rents dated July 6, 2005 by  Tradeport Development II, LLC in favor of First Sunamerica Life Insurance  Company |
|       |       |                 |                                                                                                                                                                                                         |   |
|       |       | 10.30                |                                                                                                                                                                                                         | Promissory Note dated July 6, 2005 |
|       |       |                 |                                                                                                                                                                                                         |   |
|       |       | 10.31                |                                                                                                                                                                                                         | Guaranty Agreement as of July 6, 2005 by Griffin Land  and Nurseries, Inc. in favor of Sunamerica Life Insurance Company |
|       |       |                 |                                                                                                                                                                                                         |   |
|       |       | 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 |
|            |            |                      |                                                                                                                                                                                                              |  |  |

 

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SIGNATURES

 

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

 

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

 

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