**UNITED STATES**

**SECURITIES ANDEXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-Q**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                           |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                             |
| ** ** | ** ** | **FOR THE QUARTERLY PERIOD ENDED September 2, 2006**                                                                                                                                                   |
| ** ** | ** ** | ** **                                                                                                                                                                                             |
| **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 name of registrant as specifiedin 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’sTelephone Number including Area Code **(212) 218-7910**

 

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

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days. 
|  | Yes    x | No  o |
|--|-------------------------|-----------------|

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  
|  | Large accelerated filer    o | Accelerated filer      o | Non-accelerated filer    x |
|--|---------------------------------------------|----------------------------------------------|-------------------------------------------|

 

Indicate by check mark whether theregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
|  | Yes     o | No  x |
|--|-------------------------------|-----------------|

 

Numberof shares of Common Stock outstanding at October 3, 2006: 5,112,209

 

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**GRIFFIN LAND & NURSERIES, INC.**

**FORM 10-Q**

Index
| *PART I  -*   |     |         |   | FINANCIAL INFORMATION                                                                                                              |   |   |
|--------------------|----------|--------------|--------|------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEM 1*     |   | Financial Statements                                                                                                               |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | Consolidated  Statements of Operations (unaudited)  13 and 39 Weeks Ended September 2, 2006 and August 27, 2005                    |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | Consolidated Balance  Sheets (unaudited)  September 2, 2006 and December 3, 2005                                                   |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | Consolidated  Statements of Changes in Stockholders’ Equity (unaudited)  39 Weeks Ended September 2, 2006 and August 27, 2005 |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | Consolidated  Statements of Cash Flows (unaudited)  39 Weeks Ended September 2, 2006 and August 27, 2005                           |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | Notes to Consolidated Financial Statements (unaudited)                                                                             |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEM 2*     |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                        |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEM 3*     |   | Quantitative  and Qualitative Disclosures About Market Risk                                                                        |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEM 4*     |   | Controls and Procedures                                                                                                            |   |   |
|               |     |         |   |                                                                                                                               |   |   |
| *PART  II  -* |     |         |   | OTHER  INFORMATION                                                                                                                 |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEMS  1-5* |   | Not  Applicable                                                                                                                    |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               | * * | *ITEM 6*     |   | Exhibits                                                                                                                           |   |   |
|               |     |         |   |                                                                                                                               |   |   |
|               |     |         |   | SIGNATURES                                                                                                                         |   |   |

** **

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**PARTI**                                               FINANCIALINFORMATION

**ITEM 1.**                                             FINANCIAL STATEMENTS

**Griffin Land & Nurseries, Inc.**

Consolidated Statements ofOperations

(dollars in thousands, except pershare data)

(unaudited)
| ** **                                                                                    | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                    | ** ** | **Sept. 2,**                               | ** ** | **Aug. 27,**                               | ** ** | **Sept. 2,** | ** ** | **Aug. 27,** | ** ** |
| ** **                                                                                    | ** ** | **2006**                                        | ** ** | **2005**                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Landscape nursery net  sales                                                                  |       | $                                               | 5,104      |                                            | $          | 5,699 |   | $ | 27,466 |   | $ | 23,337 |   |
| Rental revenue and  property sales                                                            |       | 12,593                                          |       | 3,350                                           |       | 18,513 |   | 9,748 |   |
| Total revenue                                                                                 |       | 17,697                                          |       | 9,049                                           |       | 45,979 |   | 33,085 |   |
|                                                                                          |       |                                            |       |                                            |       |   |   |   |   |
| Costs of landscape  nursery sales                                                             |       | 5,527                                           |       | 6,060                                           |       | 25,547 |   | 21,127 |   |
| Costs related to rental  revenue and property sales                                           |       | 4,830                                           |       | 2,266                                           |       | 9,562 |   | 6,707 |   |
| Total costs of goods  sold                                                                    |       | 10,357                                          |       | 8,326                                           |       | 35,109 |   | 27,834 |   |
|                                                                                          |       |                                            |       |                                            |       |   |   |   |   |
| Gross profit                                                                                  |       | 7,340                                           |       | 723                                             |       | 10,870 |   | 5,251 |   |
| Selling, general and  administrative expenses                                                 |       | 3,405                                           |       | 2,514                                           |       | 9,320 |   | 8,151 |   |
| Operating profit (loss)                                                                       |       | 3,935                                           |       | (1,791                                          | )          | 1,550 |   | (2,900 | ) |
| Gain on sale of Shemin  Acquisition Corporation                                               |       | —                                          |       | 3,235                                           |       | — |   | 3,235 |   |
| Interest expense                                                                              |       | (732                                            | )          | (659                                            | )          | (2,259 | ) | (1,697 | ) |
| Income from interest,  dividends, gains on short-term investments and other investment income |       | 584                                             |       | 284                                             |       | 1,571 |   | 804 |   |
|                                                                                          |       |                                            |       |                                            |       |   |   |   |   |
| Income (loss) before  income tax provision (benefit)                                          |       | 3,787                                           |       | 1,069                                           |       | 862 |   | (558 | ) |
| Income tax provision  (benefit)                                                               |       | 1,188                                           |       | 353                                             |       | 98 |   | (207 | ) |
| Net income (loss)                                                                             |       | $                                               | 2,599      |                                            | $          | 716 |   | $ | 764 |   | $ | (351 | ) |
|                                                                                          |       |                                            |       |                                            |       |   |   |   |   |
| Basic net income (loss)  per common share                                                     |       | $                                               | 0.51       |                                            | $          | 0.14 |   | $ | 0.15 |   | $ | (0.07 | ) |
| Diluted net income (loss) per common share                                                    |       | $                                               | 0.49       |                                            | $          | 0.14 |   | $ | 0.15 |   | $ | (0.07 | ) |

 

See Notes to ConsolidatedFinancial Statements*.*

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Griffin Land & Nurseries, Inc.

**ConsolidatedBalance Sheets**

(dollars in thousands, except per share data)

(unaudited)
| ** **                                                                                                                                   | ** ** | **Sept. 2, 2006** | ** ** | **Dec. 3, 2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ASSETS                                                                                                                                       |       |                        |       |                       |       |
| Current Assets:                                                                                                                              |       |                        |       |                       |       |
| Cash and cash equivalents                                                                                                                    |       | $                           | 2,835      |                       | $          | 1,207 |   |
| Short-term investments, net                                                                                                                  |       | 31,751                      |       | 40,985                     |       |
| Accounts receivable, less allowance of $138 and $311                                                                                         |       | 4,496                       |       | 2,696                      |       |
| Inventories, net                                                                                                                             |       | 29,525                      |       | 33,184                     |       |
| Deferred income taxes                                                                                                                        |       | 2,154                       |       | 1,770                      |       |
| Other current assets                                                                                                                         |       | 4,684                       |       | 3,228                      |       |
| Total current  assets                                                                                                                        |       | 75,445                      |       | 83,070                     |       |
| Real estate held  for sale or lease, net                                                                                                     |       | 97,761                      |       | 79,015                     |       |
| Property and  equipment, net                                                                                                                 |       | 9,418                       |       | 10,072                     |       |
| Investment in  Centaur Media, plc                                                                                                            |       | 14,565                      |       | 10,440                     |       |
| Other assets                                                                                                                                 |       | 5,931                       |       | 6,053                      |       |
| Total assets                                                                                                                                 |       | $                           | 203,120    |                       | $          | 188,650 |   |
|                                                                                                                                         |       |                        |       |                       |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                   |       |                        |       |                       |       |
| Current  Liabilities:                                                                                                                        |       |                        |       |                       |       |
| Current portion of long-term debt                                                                                                            |       | $                           | 1,102      |                       | $          | 1,060 |   |
| Accounts payable and accrued liabilities                                                                                                     |       | 8,546                       |       | 6,865                      |       |
| Deferred revenue                                                                                                                             |       | 6,615                       |       | 224                        |       |
| Total current  liabilities                                                                                                                   |       | 16,263                      |       | 8,149                      |       |
| Long-term debt                                                                                                                               |       | 42,465                      |       | 43,159                     |       |
| Deferred income  taxes                                                                                                                       |       | 2,634                       |       | 780                        |       |
| Deferred revenue                                                                                                                             |       | 1,548                       |       | 1,770                      |       |
| Other noncurrent  liabilities                                                                                                                |       | 2,140                       |       | 1,935                      |       |
| Total  liabilities                                                                                                                           |       | 65,050                      |       | 55,793                     |       |
|                                                                                                                                         |       |                        |       |                       |       |
| Commitments and  contingencies (Note 8)                                                                                                      |       |                        |       |                       |       |
|                                                                                                                                         |       |                        |       |                       |       |
| Stockholders’  Equity:                                                                                                                  |       |                        |       |                       |       |
| Common stock,  par value $0.01 per share, 10,000,000 shares authorized, 5,102,209 and  4,999,604 shares issued and outstanding, respectively |       | 51                          |       | 50                         |       |
| Additional  paid-in capital                                                                                                                  |       | 97,105                      |       | 95,339                     |       |
| Retained  earnings                                                                                                                           |       | 33,573                      |       | 32,809                     |       |
| Accumulated  other comprehensive income, net of tax                                                                                          |       | 7,341                       |       | 4,659                      |       |
| Total  stockholders’ equity                                                                                                             |       | 138,070                     |       | 132,857                    |       |
| Total liabilities and  stockholders’ equity                                                                                             |       | $                           | 203,120    |                       | $          | 188,650 |   |

 

See Notes to ConsolidatedFinancial Statements**.**

4

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GriffinLand & Nurseries, Inc.

**ConsolidatedStatements of Changes in Stockholders’ Equity**

**For theThirty-Nine Weeks Ended September 2, 2006 and August 27, 2005**

**(dollars in thousands)**

**(unaudited)**
| ** **                                               | ** ** | **Shares of  Common   Stock** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** | **Total  Comprehensive  Income (Loss)** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|----------------------------------------------|------------|
| Balance at Nov.  27, 2004                                |       | 4,959,162                               |       | $                 | 50         |                             | $          | 94,699                 |       | $                                                         | 34,177     |      | $          | 5,204                                        |       | $ | 134,130 |   |   |   |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Exercise of  stock options including tax benefit of $169 |       | 40,442                                  |       | —            |       | 638                              |       | —                 |       | —                                                    |       | 638       |       |                                         |       |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Net loss                                                 |       | —                                  |       | —            |       | —                           |       | (351                   | )          | —                                                    |       | (351      | )          | $                                            | (351       | ) |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Other  comprehensive loss                                |       | —                                  |       | —            |       | —                           |       | —                 |       | (1,121                                                    | )          | (1,121    | )          | (1,121                                       | )          |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Balance at Aug.  27, 2005                                |       | 4,999,604                               |       | $                 | 50         |                             | $          | 95,337                 |       | $                                                         | 33,826     |      | $          | 4,083                                        |       | $ | 133,296 |   | $ | (1,472 | ) |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Balance at Dec.  3, 2005                                 |       | 4,999,604                               |       | $                 | 50         |                             | $          | 95,339                 |       | $                                                         | 32,809     |      | $          | 4,659                                        |       | $ | 132,857 |   |   |   |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Exercise of  stock options including tax benefit of $866 |       | 102,605                                 |       | 1                 |       | 1,679                            |       | —                 |       | —                                                    |       | 1,680     |       |                                         |       |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Stock-based  compensation expense                        |       | —                                  |       | —            |       | 87                               |       | —                 |       | —                                                    |       | 87        |       |                                         |       |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Net income                                               |       | —                                  |       | —            |       | —                           |       | 764                    |       | —                                                    |       | 764       |       | $                                            | 764        |   |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Other  comprehensive income                              |       | —                                  |       | —            |       | —                           |       | —                 |       | 2,682                                                     |       | 2,682     |       | 2,682                                        |       |
|                                                     |       |                                    |       |              |       |                             |       |                   |       |                                                      |       |      |       |                                         |       |
| Balance at Sept. 2,  2006                                |       | 5,102,209                               |       | $                 | 51         |                             | $          | 97,105                 |       | $                                                         | 33,573     |      | $          | 7,341                                        |       | $ | 138,070 |   | $ | 3,446 |   |

 

See Notes to ConsolidatedFinancial Statements.

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GriffinLand & Nurseries, Inc.

**ConsolidatedStatements of Cash Flows**

**(dollars in thousands)**

(unaudited)
| ** **                                                                                           | ** ** | **For the 39 Weeks Ended,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                           | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005** | ** ** |
| **Operating  activities:**                                                                           | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Net income (loss)                                                                                    |       | $                                               | 764        |   | $ | (351 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                            |       |   |   |
| Depreciation and amortization                                                                        |       | 3,933                                           |       | 3,820 |   |
| Gain on sale of Shemin Acquisition Corporation                                                       |       | —                                          |       | (3,235 | ) |
| Gain on sale of properties                                                                           |       | (6,960                                          | )          | (955 | ) |
| Equity income from investment in agricultural  cooperative                                           |       | (151                                            | )          | — |   |
| Unrealized gain on trading securities                                                                |       | (154                                            | )          | (97 | ) |
| Provision for bad debts                                                                              |       | 83                                              |       | 233 |   |
| Deferred income taxes                                                                                |       | 27                                              |       | (317 | ) |
| Stock based compensation expense                                                                     |       | 87                                              |       | — |   |
| Amortization of debt issuance costs                                                                  |       | 62                                              |       | 47 |   |
| Provision for inventory losses                                                                       |       | 727                                             |       | 1,378 |   |
| Real estate asset write-offs                                                                         |       | —                                          |       | 169 |   |
| Changes in  assets and liabilities:                                                                  |       |                                            |       |   |   |
| Short-term investments                                                                               |       | 9,388                                           |       | (13,018 | ) |
| Accounts receivable                                                                                  |       | (1,843                                          | )          | (2,857 | ) |
| Inventories                                                                                          |       | 2,932                                           |       | (1,841 | ) |
| Other current assets                                                                                 |       | (1,500                                          | )          | (532 | ) |
| Accounts payable and accrued liabilities                                                             |       | (146                                            | )          | 498 |   |
| Deferred revenue                                                                                     |       | 1,002                                           |       | 125 |   |
| Other noncurrent assets and noncurrent liabilities,  net                                             |       | (120                                            | )          | (314 | ) |
| Net cash  provided by (used in) operating activities                                                 |       | 8,131                                           |       | (17,247 | ) |
|                                                                                                 |       |                                            |       |   |   |
| **Investing  activities:**                                                                           | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Additions to  real estate held for sale or lease                                                     |       | (21,114                                         | )          | (11,249 | ) |
| Proceeds from  sale of properties, net of expenses                                                   |       | 14,009                                          |       | 1,287 |   |
| Additions to  property and equipment                                                                 |       | (342                                            | )          | (588 | ) |
| Proceeds from  the sale of Shemin Acquisition Corporation                                            |       | —                                          |       | 5,721 |   |
| Proceeds from  distribution from Shemin Nurseries                                                    |       | —                                          |       | 1,673 |   |
| Net cash used in  investing activities                                                               |       | (7,447                                          | )          | (3,156 | ) |
|                                                                                                 |       |                                            |       |   |   |
| **Financing  activities:**                                                                           | ** ** | ** **                                      | ** ** | ** ** | ** ** |
| Tax benefit of  stock options exercised                                                              |       | 866                                             |       | — |   |
| Exercise of  stock options                                                                           |       | 814                                             |       | 469 |   |
| Increase in debt                                                                                     |       | —                                          |       | 12,700 |   |
| Payments of debt                                                                                     |       | (736                                            | )          | (675 | ) |
| Net cash  provided by financing activities                                                           |       | 944                                             |       | 12,494 |   |
| Net increase  (decrease) in cash and cash equivalents                                                |       | 1,628                                           |       | (7,909 | ) |
| Cash and cash  equivalents at beginning of period                                                    |       | 1,207                                           |       | 8,827 |   |
| Cash and cash  equivalents at end of period                                                          |       | $                                               | 2,835      |   | $ | 918 |   |

 

See Notes to ConsolidatedFinancial Statements.

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GRIFFINLAND & NURSERIES, INC.Notes to Consolidated Financial Statements(dollars inthousands unless otherwise noted, except per share data)(unaudited)

**1.     Basisof Presentation**

The unaudited consolidated financial statements of GriffinLand & Nurseries, Inc. (“Griffin”) include the accounts of Griffin’s realestate division (“Griffin Land”) and Griffin’s wholly-owned subsidiary,Imperial Nurseries, Inc. (“Imperial”), and have been prepared in conformitywith the standards of accounting measurement set forth in Accounting PrinciplesBoard Opinion No. 28 and amendments thereto adopted by the Financial AccountingStandards Board (“FASB”). The accompanying financial statements have also beenprepared in accordance with the accounting policies, except for stock-basedcompensation (see below), stated in Griffin’s audited financial statements forthe year ended December 3, 2005 included in our Report on Form 10-K as filedwith the Securities and Exchange Commission, and should be read in conjunctionwith the Notes to Financial Statements appearing in that report. Alladjustments, comprising only normal recurring adjustments, except for the otherinvestment income described in Note 7, which are, in the opinion of management,necessary for a fair presentation of results for the interim periods, have beenreflected.  The consolidated balancesheet data as of December 3, 2005 was derived from audited financial statementsbut does not include all disclosures required by accounting principlesgenerally accepted in the United States of America.

The results of operations for the thirteen and thirty-nineweeks ended September 2, 2006 are not necessarily indicative of the results tobe expected for the full year. Certain amounts from the prior year have beenreclassified to conform to the current presentation.

 In fiscal 2006, Griffin adopted the fair valuerecognition provisions of SFAS No. 123(R) “Share-Based Payment” (“SFAS No.123(R)”) using the modified prospective method of adoption. Accordingly,compensation cost recognized in the thirteen and thirty-nine weeks endedSeptember 2, 2006 is the same as that which would have been recognized had therecognition provisions of SFAS No.123(R) been applied from its original effectivedate. Results for prior periods have not been restated. See Note 5.  Prior to the thirty-nine weeks endedSeptember 2, 2006, Griffin accounted for stock options under the recognitionand measurement principles of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees.”  Nostock-based compensation cost was reflected in prior years because all optionsgranted under Griffin’s stock option plan had an exercise price equal to themarket price of the underlying common stock on the date of grant. Also, infiscal 2006 Griffin accounted for a real estate sale under the percentage ofcompletion method, which resulted in a portion of the total revenue and gainbeing deferred to future periods, and will be recognized as the costs of requiredroad improvements related to the land sold are incurred. See Note 7.

2.     Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “InventoryCosts (an amendment of ARB No. 43, Chapter 4).” This new standard requires the recognition of abnormal inventory costsrelated to idle facility expenses, freight, handling costs and spoilage asperiod costs.  SFAS No. 151 is effectivefor Griffin in fiscal 2006 and did not have a material impact on Griffin’sconsolidated financial statements for the thirteen and thirty-nine weeks endedSeptember 2, 2006.

In March 2005, the FASB issued FASB Interpretation No. 47, “Accountingfor Conditional Asset Retirement Obligations (an interpretation of FASBStatement No. 143),” (“Fin No. 47”).  FinNo. 47 clarified the timing of liability recognition for legal obligationsassociated with the retirement of tangible 

7

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long-livedassets.  Fin No. 47 will be effective forGriffin in the fourth quarter of fiscal 2006. Griffin is evaluating the impact of this new pronouncement on itsconsolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changesand Error Corrections-a replacement of APB Opinion No. 20 and FASB StatementNo. 3” (“SFAS No. 154”).  This newstandard requires retrospective application to prior periods’ financialstatements of voluntary changes in accounting principles, unless it isimpracticable to do so.  SFAS No. 154also provides that correction of errors in previously issued financialstatements should be termed a “restatement”. The new standard is effective for accounting changes and correction oferrors in fiscal years beginning after December 15, 2005.

In June 2006, the FASB issued FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“Fin No. 48”).  The interpretation clarifies the accountingfor uncertainty in income taxes recognized in a company’s financial statementsin accordance with Statement of Financial Accounting Standards No. 109, “Accountingfor Income Taxes.”  Specifically, Fin No.48 prescribes a recognition threshold and a measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. Fin No. 48 also provides guidance on the related derecognition,classification, interest and penalties, accounting for interim periods,disclosure and transition of uncertain tax positions.  Fin No. 48 is effective for fiscal yearsbeginning after December 15, 2006. Griffin is evaluating the impact of this new pronouncement on itsconsolidated financial statements.

In September 2006, the FASB issuedSFAS No. 157, “Fair Value Measurements.” This new standard defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. This statement does not require any new fair value measurements butprovides guidance in determining fair value measurements presently used in thepreparation of financial statements. This new standard is effective for financial statements issued forfiscal years beginning after November 15, 2007. Griffin is evaluating the impact of this new pronouncement on itsconsolidated financial statements.

In September 2006, the FASB issuedSFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and132(R).”  This new standard requiresemployers to recognize the overfunded or underfunded status of a definedbenefit postretirement plan as an asset or liability in its statement offinancial position and to recognize changes in that funded status in the yearin which the changes occur through comprehensive income.  For employers that have equity securitiesthat trade in a public market, this new standard requires the recognition ofthe funded status of a defined benefit postretirement plan and requiresdisclosures as of the end of the fiscal year ending after December 15,2006.  Griffin does not have a definedbenefit pension plan and its defined benefit postretirement benefit plan isunfunded and is included as a liability on Griffin’s balance sheet.

8

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**3.     IndustrySegment Information**

**Griffin’s reportable segments aredefined by their products and services, and are comprised of the landscapenursery and real estate segments. Management operates and receives reporting based upon thesesegments.  Griffin has no operationsoutside the United States.  Griffin’sexport sales and transactions between segments are not material.**
| ** **                                                                                     | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **Sept. 2,  2006**                         | ** ** | **Aug. 27,  2005**                         | ** ** | **Sept. 2,  2006** | ** ** | **Aug. 27,  2005** | ** ** |
| Total revenue:                                                                                 |       |                                            |       |                                            |       |   |   |   |   |
| Landscape  nursery net sales                                                                   |       | $                                               | 5,104      |                                            | $          | 5,699 |   | $ | 27,466 |   | $ | 23,337 |   |
| Rental revenue  and property sales                                                             |       | 12,593                                          |       | 3,350                                           |       | 18,513 |   | 9,748 |   |
|                                                                                           |       | $                                               | 17,697     |                                            | $          | 9,049 |   | $ | 45,979 |   | $ | 33,085 |   |
| Operating profit  (loss):                                                                      |       |                                            |       |                                            |       |   |   |   |   |
| Landscape nursery                                                                              |       | $                                               | (1,572     | )                                               | $          | (1,428 | ) | $ | (1,986 | ) | $ | (1,415 | ) |
| Real estate                                                                                    |       | 6,776                                           |       | 390                                             |       | 6,612 |   | 1,027 |   |
| Industry segment totals                                                                        |       | 5,204                                           |       | (1,038                                          | )          | 4,626 |   | (388 | ) |
| General corporate expense                                                                      |       | (1,269                                          | )          | (753                                            | )          | (3,076 | ) | (2,512 | ) |
| Operating profit  (loss)                                                                       |       | 3,935                                           |       | (1,791                                          | )          | 1,550 |   | (2,900 | ) |
| Gain on sale of  Shemin Acquisition Corp.                                                      |       | —                                          |       | 3,235                                           |       | — |   | 3,235 |   |
| Interest expense                                                                               |       | (732                                            | )          | (659                                            | )          | (2,259 | ) | (1,697 | ) |
| Income from  interest, dividends, gains on short-term investments and other investment  income |       | 584                                             |       | 284                                             |       | 1,571 |   | 804 |   |
| Income (loss)  before income tax provision (benefit)                                           |       | $                                               | 3,787      |                                            | $          | 1,069 |   | $ | 862 |   | $ | (558 | ) |

 
| ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** | **Sept. 2, 2006** | ** ** | **Dec. 3, 2005** | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|-------------------|------------|------------------|------------|
| Identifiable assets:                                   |       |       |       |       |       |              |       |             |       |
| Landscape  nursery                                     |       |       |       |       |       | $                 | 42,698     |             | $          | 45,495 |   |
| Real estate                                            |       |       |       |       |       | 107,331           |       | 87,313           |       |
| Industry segment  totals                               |       |       |       |       |       | 150,029           |       | 132,808          |       |
| General  corporate (consists primarily of investments) |       |       |       |       |       | 53,091            |       | 55,842           |       |
| Total assets                                           |       |       |       |       |       | $                 | 203,120    |             | $          | 188,650 |   |

 

Revenue of the real estatesegment in the thirteen and thirty-nine weeks ended September 2, 2006 includesproperty sales revenue (see Note 7) of $9,633. Revenue of the real estate segment in the thirteen and thirty-nine weeksended August 27, 2005 includes property sales revenue of $425 and $1,340,respectively.

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4.     Long-TermDebt

Long-term debt includes:
|                              | ** ** | **Sept. 2, 2006** | ** ** | **Dec. 3, 2005** | ** ** |
|------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| Nonrecourse  mortgages:      |       |                        |       |                       |       |
| 8.54% due July 1, 2009       |       | $                           | 7,702      |                       | $          | 7,761 |   |
| 6.08% due January 1, 2013    |       | 9,093                       |       | 9,244                      |       |
| 6.30% due May 1, 2014        |       | 1,239                       |       | 1,320                      |       |
| 5.46% due July 1, 2015       |       | 12,528                      |       | 12,644                     |       |
| 8.13% due April 1, 2016      |       | 5,546                       |       | 5,674                      |       |
| 7.0% due October 1, 2017     |       | 7,177                       |       | 7,273                      |       |
| Total  nonrecourse mortgages |       | 43,285                      |       | 43,916                     |       |
| Capital leases               |       | 282                         |       | 303                        |       |
| Total                        |       | 43,567                      |       | 44,219                     |       |
| Less: current  portion       |       | (1,102                      | )          | (1,060                     | )          |
| Total long-term debt         |       | $                           | 42,465     |                       | $          | 43,159 |   |

 

On July 7, 2005, a subsidiary ofGriffin completed a mortgage for $12.7 million on two of its industrialbuildings.  This mortgage has an interestrate of 5.46% and a ten year term, with payments based on a thirty yearamortization schedule.  The mortgage isnonrecourse, however, Griffin entered into a master lease with its subsidiaryfor the space in the mortgaged buildings that was not leased to third-partytenants at the inception of the new mortgage (the “Initial Vacant Space”).  As Griffin Land enters into approved leasesfor the Initial Vacant Space, the master lease between Griffin and itssubsidiary on that portion of the Initial Vacant Space will be terminated.

At September 2, 2006 and December3, 2005, the fair values of Griffin’s mortgages were $44.4 million and $46.1million, respectively. Fair value is based on the present value of future cashflows discounted at estimated borrowing rates for comparable risks, maturitiesand collateral.

5.     StockOptions

The GriffinLand & Nurseries, Inc. 1997 Stock Option Plan (the “Griffin StockOption Plan”), adopted in 1997 and subsequently amended, makes available atotal of 1,250,000 options to purchase shares of Griffin common stock. TheGriffin Stock Option Plan is administered by the Compensation Committee of theBoard of Directors of Griffin. Options granted under the Griffin Stock OptionPlan may be either incentive stock options or non-qualified stock optionsissued at market value on the date approved by the Board of Directors ofGriffin. Vesting of all of Griffin’s previously issued stock options is solelybased upon service requirements and does not contain market or performanceconditions.

Stock optionsissued will expire ten years from the grant date.  Stock options issued to independent directorsupon their initial election to the board of directors are fully exercisableimmediately upon the date of the option grant. Stock options issued to independentdirectors upon their reelection to the board of directors vest on the secondanniversary from the date of grant. Stock options issued to employees vest inequal installments on the third, fourth and fifth anniversaries from the dateof grant. None of the stock options outstanding at September 2, 2006 may beexercised as stock appreciation rights.

There were 14,140and 6,268 stock options granted during the thirty-nine weeks ended September 2,2006 and August 27, 2005, respectively. The fair values of the stock options granted were $18.38 for 5,140options granted in the thirty-nine weeks ended September 2, 2006 and $15.98 for9,000 stock 

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options granted inthe thirty-nine weeks ended September 2, 2006. The fair value of stock options granted in the thirty-nine weeks endedAugust 27, 2005 was $11.15.  The fairvalues were estimated as of the dates of grant using the Black-Scholes optionpricing model.  Assumptions used indetermining the fair values of the stock options granted were as follows:
| ** **               | ** ** | **For the 39 Weeks Ended,** | ** ** |
|--------------------------|------------|-------------------------------------------------|------------|
| ** **               | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005** | ** ** |
|                     |       |                                            |       |   |   |
| Expected  volatility     |       | 40.83%  to 43.31%                               |       | 44.06% |   |
| Risk free  interest rate |       | 5.03%  to 5.10%                                 |       | 3.77% |   |
| Option term              |       | 7  to 8.8 years                                 |       | 5  years |   |
| Dividend yield           |       | none                                            |       | none |   |

 

In the thirty-nineweeks ended September 2, 2006, Griffin adopted the fair value recognitionprovisions of SFAS No. 123(R) “Share-Based Payments” (“SFAS No. 123(R)”) usingthe modified prospective method of adoption. Compensation cost is based on theestimated fair values of stock options as determined on their grant dates andis recorded over their vesting periods. Compensation cost recognized in the thirteen and thirty-nine weeks endedSeptember 2, 2006 was $34 and $87, respectively, with related tax benefits of$10 and $27, respectively, and is the same as that which would have beenrecognized had the recognition provisions of SFAS No.123(R) been applied fromits original effective date.  Results forprior periods have not been restated. The following table reflects the effect on net income (loss) and netincome (loss) per share if the fair value based method had been applied to alloutstanding and unvested stock options in each period:
| ** **                                                                                                        | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                        | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005**                     | ** ** | **Sept. 2, 2006** | ** ** | **Aug. 27, 2005** | ** ** |
|                                                                                                              |       |                                            |       |                                            |       |   |   |   |   |
| Net income  (loss), as reported                                                                                   |       | $                                               | 2,599      |                                            | $          | 716 |   | $ | 764 |   | $ | (351 | ) |
| Stock-based  employee compensation expense included in reported net income, net of taxes                          |       | 24                                              |       | —                                          |       | 61 |   | — |   |
| Stock-based  employee compensation expense determined under fair value based method for  all awards, net of taxes |       | (24                                             | )          | (32                                             | )          | (61 | ) | (67 | ) |
| Net income  (loss), pro forma                                                                                     |       | $                                               | 2,599      |                                            | $          | 684 |   | $ | 764 |   | $ | (418 | ) |
|                                                                                                              |       |                                            |       |                                            |       |   |   |   |   |
| Basic net income  (loss) per common share, as reported                                                            |       | $                                               | 0.51       |                                            | $          | 0.14 |   | $ | 0.15 |   | $ | (0.07 | ) |
| Basic net income  (loss) per common share, pro forma                                                              |       | $                                               | 0.51       |                                            | $          | 0.14 |   | $ | 0.15 |   | $ | (0.08 | ) |
|                                                                                                              |       |                                            |       |                                            |       |   |   |   |   |
| Diluted net  income (loss) per common share, as reported                                                          |       | $                                               | 0.49       |                                            | $          | 0.14 |   | $ | 0.15 |   | $ | (0.07 | ) |
| Diluted net income  (loss) per common share, pro forma                                                            |       | $                                               | 0.49       |                                            | $          | 0.13 |   | $ | 0.15 |   | $ | (0.08 | ) |

 

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Includedin Griffin’s stock-based compensation in the thirteen and thirty-nine weeksended September 2, 2006 are the costs related to the unvested portion ofcertain stock option grants made in fiscal 2002 through fiscal 2006.  The stock options granted prior to fiscal2002 and certain other grants in fiscal 2003 and fiscal 2002 were fully vestedas of the beginning of the 2006 fiscal year. Forfeiture rates of 0% and 30.2% were utilized based on the historicalactivity of the grantees.

Activity under the Griffin Land & Nurseries, Inc. 1997Stock Option Plan (the “Griffin Stock Option Plan”) is summarized as follows:
| ** **                          | ** ** | **For the 39 Weeks Ended,** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|
| ** **                          | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005** | ** ** |
| **Vested Options**             | ** ** | **Number of  Shares**                      | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted Avg.  Exercise Price** | ** ** |
| Outstanding at  beginning of period |       | 503,857                                         |       | $ | 12.65 |   | 511,074 |   | $ | 12.55 |   |
| Exercised                           |       | (102,605                                        | )          | 7.94 |   | (40,442 | ) | 11.60 |   |
| Vested                              |       | 21,548                                          |       | 16.59 |   | 33,225 |   | 12.86 |   |
| Outstanding at  end of period       |       | 422,800                                         |       | $ | 13.99 |   | 503,857 |   | $ | 12.65 |   |

 
| **Range of Exercise Prices for  Vested Options** | ** ** | **Outstanding at  Sept. 2, 2006** | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Weighted Avg.  Remaining  Contractual Life  (in years)** | ** ** | **Total Intrinsic  Value** | ** ** |
|--------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------|------------|----------------------------|------------|
| $9.00-$18.00                                     |       | 415,582                           |       | $                                 | 13.80      |                                                       | 2.5        |                       | $          | 2,313 |   |
| Over $24.00                                      |       | 7,218                             |       | 24.94                             |       | 7.8                                                        |       | 84                         |       |
|                                             |       | 422,800                           |       | $                                 | 13.99      |                                                       | 2.6        |                       | $          | 2,397 |   |

 
| ** **                        | *** *** | **For the 39 Weeks Ended,** | *** *** |
|-----------------------------------|--------------|-----------------------------|--------------|
| ** **                        | ** **   | **Sept. 2, 2006**           | ** **   | **Aug. 27, 2005** | ** ** |
| **Nonvested Options**             | ** **   | **Number of  Shares**       | ** **   | **Weighted Avg.  Exercise Price** | ** ** | **Number of  Shares** | ** ** | **Weighted Avg.  Exercise Price** | ** ** |
| Nonvested at  beginning of period |         | 36,816                      |         | $ | 17.78 |   | 73,440 |   | $ | 14.36 |   |
| Granted                           |         | 14,140                      |         | 31.01 |   | 6,268 |   | 25.53 |   |
| Vested                            |         | (21,548                     | )            | 16.59 |   | (33,225 | ) | 12.86 |   |
| Forfeited                         |         | (667                        | )            | 14.35 |   | (9,667 | ) | 13.70 |   |
| Nonvested at end  of period       |         | 28,741                      |         | $ | 25.27 |   | 36,816 |   | $ | 17.78 |   |

 

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| **Range of Exercise Prices for   Nonvested Options** | ** ** | **Outstanding at  Sept. 2, 2006** | ** ** | **Weighted Avg.  Exercise Price** | ** ** | **Weighted Avg.  Remaining  Contractual Life  (in years)** | ** ** | **Total Intrinsic  Value** | ** ** |
|------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|------------------------------------------------------------|------------|----------------------------|------------|
| $9.00-$18.00                                         |       | 8,333                             |       | $                                 | 15.33      |                                                       | 5.5        |                       | $          | 60 |   |
| Over $24.00                                          |       | 20,408                            |       | 29.33                             |       | 9.5                                                        |       | 308                        |       |
|                                                 |       | 28,741                            |       | $                                 | 25.27      |                                                       | 8.3        |                       | $          | 368 |   |

 
| Number of option holders at September 2,  2006 |   | 20 |   |
|------------------------------------------------|--------|----|--------|

 

As of September 2, 2006, there was $36 of unrecognizedcompensation cost related to nonvested stock options that will be recognizedduring the remainder of fiscal 2006, $98 of unrecognized compensation costrelated to nonvested stock options that will be recognized in fiscal 2007, $47of unrecognized compensation cost related to nonvested stock options that willbe recognized in fiscal 2008 and a total of $41 for fiscal years 2009 through2011.  The total fair value of sharesvested during the thirty-nine weeks ended September 2, 2006 and August 27, 2005was $161 and $191, respectively.

6.     PerShare Results

Basic and diluted per share results were based onthe following:
| ** **                                                                            | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Sept. 2,  2006**                         | ** ** | **Aug. 27,  2005**                         | ** ** | **Sept. 2,  2006** | ** ** | **Aug. 27,  2005** | ** ** |
|                                                                                  |       |                                            |       |                                            |       |   |   |   |   |
| Net income  (loss) as reported for computation of basic and diluted per share results |       | $                                               | 2,599      |                                            | $          | 716 |   | $ | 764 |   | $ | (351 | ) |
|                                                                                  |       |                                            |       |                                            |       |   |   |   |   |
| Weighted average  shares outstanding for computation of basic per share results       |       | 5,099,000                                       |       | 4,991,000                                       |       | 5,072,000 |   | 4,974,000 |   |
| Incremental  shares from assumed exercise of Griffin stock options (a)                |       | 168,000                                         |       | 185,000                                         |       | 182,000 |   | — |   |
| Weighted average shares  outstanding for computation of diluted per share results     |       | 5,267,000                                       |       | 5,176,000                                       |       | 5,254,000 |   | 4,974,000 |   |
|                                                                                       |            |                                                 |            |                                                 |            |  |  |  |  |  |  |  |  |

 

----

**(a)**      Incremental sharesfrom the assumed exercise of Griffin stock options were not included in periodswhere the inclusion of such shares would be anti-dilutive.  For the thirty-nine weeks ended August 27,2005, the incremental shares from the assumed exercise of stock options wouldhave been 198,000.

** **

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**7.     SupplementalFinancial Statement Information**

*Short-Term Investments*

Griffin’s short-term investments are comprised of debtsecurities and are accounted for as trading securities under SFAS No. 115, “Accountingfor 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 dates, and net realized and unrealized gains and losses onthose investments are included in pretax income (loss).  At September 2, 2006 and December 3, 2005,$0.4 million and $1.3 million, respectively, of Griffin’s short-terminvestments were being used as security for a letter of credit of GriffinLand.  The composition of short-terminvestments at September 2, 2006 and December 3, 2005 is as follows:
| ** **                    | ** ** | **As of September 2, 2006** | ** ** | **As of December 3, 2005** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                    | ** ** | **Cost**                                        | ** ** | **Fair Value**                            | ** ** | **Cost** | ** ** | **Fair Value** | ** ** |
| Certificates of  Deposit      |       | $                                               | 14,785     |                                           | $          | 15,070 |   | $ | 20,224 |   | $ | 20,368 |   |
| Federal Agency  Coupon Notes  |       | 10,424                                          |       | 10,474                                         |       | 5,834 |   | 5,878 |   |
| Commercial Paper              |       | 6,189                                           |       | 6,207                                          |       | 14,728 |   | 14,739 |   |
| Total short-term  investments |       | $                                               | 31,398     |                                           | $          | 31,751 |   | $ | 40,786 |   | $ | 40,985 |   |

 

Income from cash equivalents and short-term investments forthe thirteen and thirty-nine weeks ended September 2, 2006 and August 27, 2005consists of:
| ** **                                                 | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                 | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005**                     | ** ** | **Sept. 2, 2006** | ** ** | **Aug. 27, 2005** | ** ** |
|                                                       |       |                                            |       |                                            |       |   |   |   |   |
| Interest and  dividend income                              |       | $                                               | 180        |                                            | $          | 37 |   | $ | 315 |   | $ | 223 |   |
| Net realized  gains on the sales of short-term investments |       | 397                                             |       | 119                                             |       | 951 |   | 484 |   |
| Net unrealized gain  on short-term investments             |       | 7                                               |       | 128                                             |       | 154 |   | 97 |   |
|                                                       |       | $                                               | 584        |                                            | $          | 284 |   | $ | 1,420 |   | $ | 804 |   |

 

*Other Investment Income*

In the thirty-nineweeks ended September 2, 2006, Griffin recorded $151, before taxes, as itsshare of the cumulative undistributed equity income from an investment in anagricultural cooperative, in which Griffin holds a 25% interest, thatmanufactures and sells fertilizer to its members who are growers of landscapenursery products.  Annual patronagerebates from this investment have been accounted for as a reduction of the costof landscape nursery sales.  Because thisinvestment had not been accounted for in previous periods, the cumulativeeffect was recorded within other investment income and is excluded from theamounts in the table above.  Managementbelieves that the amount recorded is immaterial to annual periods and expectsthat the results of this investment will not be significant to Griffin infuture periods.

*DeferredRevenue on Land Sales*

On June 9, 2006,Griffin completed the sale of 130 acres of undeveloped land in the New EnglandTradeport (“Tradeport”), Griffin’s industrial park located in Windsor and EastGranby, Connecticut, for cash proceeds of $13.0 million.  As provided in the terms of the contract forthe sale of the land and as required under a new State Traffic CommissionCertificate covering the area in Tradeport located in Windsor, certainimprovements to existing roads are required. The cost of these improvements is the responsibility of Griffin, howevera portion of the costs will either be reimbursed from the purchaser of the landor performed by the town.  As a result ofGriffin’s continuing involvement with the required improvements to the existingroads, this land sale is accounted for under the percentage of completion method.  Accordingly, the revenue and the pretax gainon the sale are recognized on a pro rata basis in a ratio equal to the percentageof the total costs incurred to the total anticipated costs of sale, includingthe allocated costs of the required improvements to existing roads. Costsincluded in determining the percentage of completion are the cost of the landsold, allocated master planning costs of Tradeport, selling and transactioncosts and estimated future costs related to the land sold.

14

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As of September 2, 2006, approximately 60% of the total costsrelated to this transaction had been incurred, therefore, 60% of the totalrevenue, approximately $7.8 million, and 60% of the pretax gain on sale,approximately $5.8 million, are included in Griffin’s results of operations forthe thirteen and thirty-nine weeks ended September 2, 2006.  The balance of the revenue and the pretaxgain on sale will be recognized as the remaining costs, principally therequired roadwork improvements, are incurred, which is expected to take placeover the next twelve to eighteen months. Included on Griffin’s balance sheet asof September 2, 2006 is deferred revenue of approximately $5.2 million thatwill be recognized as the road improvements are completed.  Including the pretax gain on the sale ofapproximately $5.8 million recognized in the thirteen and thirty-nine weeksended September 2, 2006, the total gain on this transaction is expected to beapproximately $9.7 million after all revenue is recognized and all costsincurred. While management has used its best estimates, based on industryknowledge and experience, in projecting the total costs of the required roadimprovements, increases in future costs over current estimated amounts wouldreduce the gain recognized in future periods.

OnJuly 27, 2006, Griffin completed the sale of ten residential lots in StrattonFarms, a residential development in Suffield, Connecticut.  Griffin received $1.2 million in cash atclosing, with $1.0 million allocated to the land sold and $0.2 millionallocated to the value of an option granted the buyer for the purchase ofadditional lots. As of September 2, 2006, the $0.2 million is included onGriffin’s consolidated balance sheet as deferred revenue and will be recognizedas revenue in future periods when the buyer's right to acquire additionalresidential lots expires. Griffin recognized a gain of $0.5 million on thissale.

 

*Accumulated Other ComprehensiveIncome*

Changes in accumulated other comprehensive income for thethirty-nine weeks ended September 2, 2006 and August 27, 2005 consist of thefollowing:
| ** **                                                                                                                                                     | ** ** | **For the 39 Weeks Ended,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                                                                                                     | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005** | ** ** |
|                                                                                                                                                           |       |                                            |       |   |   |
| Balance at  beginning of period                                                                                                                                |       | $                                               | 4,659      |   | $ | 5,204 |   |
| Increase  (decrease) in fair value at end of period of Centaur Media, plc, net of tax  provision of $982 and tax benefit of $429, respectively                 |       | 1,824                                           |       | (798 | ) |
| Increase  (decrease) in value of Centaur Media, plc, due to foreign currency rate  changes, net of tax provision of $461 and tax benefit of $174, respectively |       | 858                                             |       | (323 | ) |
| Balance at end of  period                                                                                                                                      |       | $                                               | 7,341      |   | $ | 4,083 |   |

 

*Shemin Acquisition Corporation*

On May 31, 2005, Griffin exchanged a portion of its holdingsin Shemin Acquisition Corp. (“Shemin Acquisition”) for an approximate 14%equity interest in Shemin Nurseries Holding Corp. (“Shemin Nurseries”), whichoperates a landscape nursery distribution business through a subsidiary thatpreviously was a subsidiary of Shemin Acquisition.  Griffin then completed the sale of itsremaining equity interest in Shemin Acquisition, which Griffin had accountedfor under the cost method of accounting for investments.  Griffin held approximately 14% of theoutstanding common stock of Shemin Acquisition prior to these transactions at acarrying value of $4.7 million.  Griffinreceived initial cash 

15

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proceedsof $5.9 million from the sale of its remaining common stock of SheminAcquisition and recorded a pretax gain of $3.2 million on this transaction.

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 of thepurchase price adjustment related to the determination of Shemin Acquisition’sworking capital as of the closing date of the sale.  Griffin recorded this as an additional distributionfrom Shemin Nurseries.  The totaldistribution from Shemin Nurseries of $1.7 million was recorded as a return ofinvestment because Shemin Nurseries did not have cumulative earnings from thetime of Griffin’s original investment in Shemin Nurseries.  As a result, Griffin’s remaining investmentin Shemin Nurseries is $0.5 million and is included in other assets on Griffin’sconsolidated balance sheets.  Griffinaccounts for its interest in Shemin Nurseries under the cost method ofaccounting for investments.

*Supplemental Cash FlowInformation*

Included in accounts payable andaccrued liabilities at September 2, 2006 and December 3, 2005 were $4,210 and$2,383, respectively, for additions to real estate held for sale or lease.

*Inventories*

Inventories consist of:
|                         | ** ** | **Sept. 2, 2006** | ** ** | **Dec. 3, 2005** | ** ** |
|-------------------------|------------|-----------------------------|------------|----------------------------|------------|
|                    |       |                        |       |                       |       |
| Nursery stock           |       | $                           | 29,332     |                       | $          | 32,993 |   |
| Materials and  supplies |       | 2,004                       |       | 2,352                      |       |
|                    |       | 31,336                      |       | 35,345                     |       |
| Reserves                |       | (1,811                      | )          | (2,161                     | )          |
|                    |       | $                           | 29,525     |                       | $          | 33,184 |   |

 

*Property and Equipment*

Property and equipment consist of:
|                             | ** ** | **Estimated  Useful Lives** | ** ** | **Sept. 2, 2006** | ** ** | **Dec. 3, 2005** | ** ** |
|-----------------------------|------------|----------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| Land                        |       |                             |       | $                           | 674        |                       | $          | 674 |   |
| Land  improvements          |       | 10  to 20 years                  |       | 5,476                       |       | 5,456                      |       |
| Buildings and  improvements |       | 10  to 40 years                  |       | 3,057                       |       | 3,057                      |       |
| Machinery and  equipment    |       | 3  to 20 years                   |       | 17,481                      |       | 17,005                     |       |
|                        |       |                             |       | 26,688                      |       | 26,192                     |       |
| Accumulated  depreciation   |       |                             |       | (17,270                     | )          | (16,120                    | )          |
|                        |       |                             |       | $                           | 9,418      |                       | $          | 10,072 |   |

 

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Griffin incurred new capital lease obligations of $84 and$78, respectively, in the thirty-nine weeks ended September 2, 2006 and August27, 2005.

*Real Estate Held for Sale orLease*

Real estate held for sale or leaseconsists of:
|                             | ** ** | ** **                                           | ** ** | **September 2, 2006** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                  | ** ** | **Estimated  Useful Lives**                     | ** ** | **Held for  Sale**         | ** ** | **Held for Lease** | ** ** | **Total** | ** ** |
| Land                        |       |                                                 |       | $                               | 1,270      |   | $ | 6,982 |   | $ | 8,252 |   |
| Land  improvements          |       | 15  years                                            |       | —                          |       | 5,395 |   | 5,395 |   |
| Buildings and  improvements |       | 10  to 40 years                                      |       | —                          |       | 80,760 |   | 80,760 |   |
| Tenant  improvements        |       | Shorter  of  useful life or  terms of  related lease |       | —                          |       | 9,335 |   | 9,335 |   |
| Development  costs          |       |                                                 |       | 7,081                           |       | 9,202 |   | 16,283 |   |
|                        |       |                                                 |       | 8,351                           |       | 111,674 |   | 120,025 |   |
| Accumulated  depreciation   |       |                                                 |       |                            |       | (22,264 | ) | (22,264 | ) |
|                        |       |                                                 |       | $                               | 8,351      |   | $ | 89,410 |   | $ | 97,761 |   |

 
|                             | ** ** | ** **                                           | ** ** | **December 3, 2005** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|----------------------|------------|
| ** **                  | ** ** | **Estimated  Useful Lives**                          | ** ** | **Held for  Sale**   | ** ** | **Held for Lease** | ** ** | **Total** | ** ** |
| Land                        |       |                                                 |       | $                    | 1,305      |   | $ | 5,074 |   | $ | 6,379 |   |
| Land  improvements          |       | 15  years                                            |       | —               |       | 5,060 |   | 5,060 |   |
| Buildings and  improvements |       | 10  to 40 years                                      |       | —               |       | 62,438 |   | 62,438 |   |
| Tenant  improvements        |       | Shorter  of  useful life or  terms of  related lease |       | —               |       | 9,044 |   | 9,044 |   |
| Development  costs          |       |                                                 |       | 5,356                |       | 10,728 |   | 16,084 |   |
|                        |       |                                                 |       | 6,661                |       | 92,344 |   | 99,005 |   |
| Accumulated  depreciation   |       |                                                 |       | —               |       | (19,990 | ) | (19,990 | ) |
|                        |       |                                                 |       | $                    | 6,661      |   | $ | 72,354 |   | $ | 79,015 |   |

 

*Income Taxes*

Griffin is projecting a 2006 annual effective tax rate on operatingincome of 22.5%.  This rate is lower than prior periods and the expected statutoryfederal rate due to changes in the projected mix of earnings and losses to betaxed in separate state jurisdictions and projected state income taxes as theyrelate to projected full year results. The projected mix of earnings inseparate state tax jurisdictions changed significantly during the 2006 thirdquarter due to the deferral of a portion of the gain reported on the land soldto Walgreen. The 2006 nine month period overall effective tax rate of 11.4% islower than the 22.5% 

 

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projectedrate due to the recognition of $0.1 million of projected state deferred taxbenefits in the current quarter. To the extent that actualresults differ from current projections, the effective income tax rate maychange. The effective income tax rate for the 2005 nine month period was 37.1%reflecting the federal statutory rate of 35% and state taxes.

An increase in a deferred income tax liability of $1,443 wasincluded as a charge to other comprehensive income in the thirty-nine weeksended September 2, 2006 and a decrease to a deferred income tax liability of$603 was included as a credit to other comprehensive income in the thirty-nineweeks ended August 27, 2005 related to the mark to market adjustments onGriffin’s investment in Centaur Media, plc.

*Postretirement Benefits*

Griffin maintains a postretirement benefits program whichprovides principally health and life insurance benefits to certain of itsretirees. The liability for postretirement benefits is included in othernoncurrent liabilities on Griffin’s consolidated balance sheets. BecauseGriffin’s obligation for retiree medical benefits is fixed under the terms ofits postretirement benefits program, any increase in the medical cost trendwould have no effect on the accumulated postretirement benefit obligation,service cost or interest cost. Griffin’s postretirement benefits are unfunded,with benefits to be paid from Griffin’s general assets.  Griffin’s contributions to the program forthe thirty-nine weeks ended September 2, 2006 and August 27, 2005 were $9 and$7, respectively, with an expected contribution of $15 for the fiscal 2006 fullyear.  The components of Griffin’spostretirement benefits expense are as follows:
|                                    | ** ** | **For the 13 Weeks Ended,** | ** ** | **For the 39 Weeks Ended,** | ** ** |
|------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                         | ** ** | **Sept. 2, 2006**                     | ** ** | **Aug. 27, 2005**                     | ** ** | **Sept. 2, 2006** | ** ** | **Aug. 27, 2005** | ** ** |
| ** **                         | ** ** | ** **                                      | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                       |       | $                                               | 8          |                                            | $          | 9 |   | $ | 23 |   | $ | 27 |   |
| Interest                           |       | 11                                              |       | 14                                              |       | 34 |   | 39 |   |
| Amortization of  unrecognized loss |       | 1                                               |       | 2                                               |       | 3 |   | 7 |   |
|                               |       | $                                               | 20         |                                            | $          | 25 |   | $ | 60 |   | $ | 73 |   |

 

8.     Commitmentsand Contingencies

**As of September 2, 2006, Griffin had committed purchaseobligations of $8.1 million, principally for Griffin Land’s construction of theshell of a new industrial building in Tradeport, site work for additionalindustrial buildings in Tradeport and required infrastructure improvements atTradeport.  The infrastructureimprovements are required by the Connecticut State Traffic Commission inconnection with an increase in the permitted square feet of construction in theportion of Tradeport located in Windsor, Connecticut.  Griffin posted a $6.5 million performancebond with the state to ensure that the infrastructure improvements are completed.**

**As of September 2, 2006, there is a $0.4 millioncollateralized letter of credit outstanding, issued by Griffin Land in favor ofthe town of Suffield, Connecticut that ensures Griffin Land’s performance incompleting certain infrastructure for Griffin Land’s residential development, StrattonFarms.  The letter of credit iscollateralized by short-term investments of $0.4 million.**

**Griffin is involved, as a defendant, in various litigationmatters 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.**

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ITEM 2.               MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Overview**

**Theconsolidated financial statements of Griffin include the accounts of Griffin’ssubsidiary in the landscape nursery business, Imperial Nurseries, Inc. (“Imperial”),and Griffin’s Connecticut and Massachusetts based real estate business (“GriffinLand”).**

**Thesignificant accounting policies and methods, except for stock basedcompensation (see below), used in the preparation of Griffin’s consolidated financialstatements included in Item 1 are consistent with those used in the preparationof Griffin’s audited financial statements for the year ended December 3, 2005included in Griffin’s Report on Form 10-K 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.  In fiscal 2006,Griffin used the percentage of completion method to account for a real estatesale, which resulted in a portion of the total revenue and gain being deferredto future periods, and will be recognized as the costs of required road improvementsrelated to the land sold are incurred.**

Summary

**Griffinreported net income of $2.6 million for the thirteen weeks ended September 2,2006 (the “2006 third quarter”) as compared to net income of $0.7 million forthe thirteen weeks ended August 27, 2005 (the “2005 third quarter”).  The increase in net income principallyreflects the gains recognized on property sales by Griffin Land, including thesale of 130 acres of undeveloped land in the New England Tradeport (“Tradeport”)to Walgreen that closed early in the 2006 third quarter.  A substantial portion of revenue and pretaxgain from the land sale to Walgreeen has been deferred and will be recognizedwhen future costs related to that transaction are incurred (see Note 7 to theconsolidated financial statements included in Item 1).  The operating loss incurred by Imperial inthe 2006 third quarter was higher than the 2005 third quarter operating lossdue principally to lower sales volume and lower gross margins on sales.  General corporate expense was higher in the2006 third quarter as compared to the 2005 third quarter due principally tohigher incentive compensation expense. Interest expense was slightly higher in the 2006 third quarter ascompared to the 2005 third quarter due principally to a full quarter ofinterest expense on the $12.7 million nonrecourse mortgage completed during the2005 third quarter.  Income frominterest, dividends, gains on short-term investments and other investmentincome was higher in the 2006 third quarter as compared to the 2005 thirdquarter due principally to the improved yield on Griffin’s short-terminvestments as a result of higher interest rates in the current year.  The 2005 third quarter included a pretax gainof $3.2 million from Griffin’s sale of a portion of its investment in SheminAcquisition Corporation (“Shemin Acquisition”).   **

**Griffin’snet income for the thirty-nine weeks ended September 2, 2006 (the “2006 ninemonth period”) was $0.8 million as compared to a net loss of $0.4 million forthe thirty-nine weeks ended August 27, 2005 (the “2005 nine month period”).  As referred to above, the improved results inthe current year principally reflect the gains recognized on property salescompleted by Griffin Land in the current year. A substantial portion of revenue and pretax gain from the land sale toWalgreen has been deferred and will be recognized when future costs related tothat transaction are incurred.  Imperialincurred an operating loss of $2.0 million in the 2006 nine month period ascompared to an operating loss of $1.4 million in the 2005 nine monthperiod.  The**

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**increased operating loss atImperial principally reflects lower gross margins on sales and higher selling,general and administrative expenses. Interest expense in the 2006 nine month period was higher than the 2005nine month period due to interest expense on the $12.7 million nonrecoursemortgage entered into by Griffin Land in the 2005 third quarter being incurredfor the entire 2006 nine month period as compared to a portion of the 2005 ninemonth period.  Income from interest,dividends, gains on short-term investments and other investment income washigher in the 2006 nine month period as compared to the 2005 nine month perioddue principally to the increased yield on short-term investments as a result ofhigher interest rates in the current year. The 2005 nine month period also included a pretax gain of $3.2 millionfrom the sale of stock of Shemin Acquisition.    **

**At thebeginning of the 2006 fiscal year, Griffin adopted SFAS No. 123(R) “Share-BasedPayment” (“SFAS No. 123(R)”) using the modified prospective method of adoption.Results for prior periods have not been restated. The effect of the adoption ofSFAS No. 123(R) on the 2006 third quarter and nine month results of operationswas not material. See Notes 1 and 5 to the consolidated financial statementsincluded in Item 1.   **

**Results of Operations**

**Thirteen Weeks Ended September 2, 2006 Compared to theThirteen Weeks Ended August 27, 2005**

**Griffin’sconsolidated total revenue increased from $9.0 million in the 2005 thirdquarter to $17.7 million in the 2006 third quarter.  The increase of approximately $8.7 millionreflects an increase in rental revenue and property sales of approximately $9.2million at Griffin Land partially offset by an approximately $0.6 milliondecrease in net sales at Imperial.**

**Theincrease in rental revenue and property sales of approximately $8.7 million atGriffin Land reflects an increase in revenue from property sales.  Rental revenue from Griffin Land’s leasingoperations was substantially unchanged in the 2006 third quarter as compared tothe 2005 third quarter.  Several new leasesexecuted in the 2006 third quarter did not generate any rental revenue in thecurrent quarter as the tenants did not take occupancy of the space before theend of the quarter.  Tenant occupancy inthe newly leased space will take place when the build-outs for the tenants arecompleted.  The increase in revenue fromproperty sales principally reflects $7.8 million of revenue recognized on thesale of 130 acres of undeveloped land in Tradeport in the 2006 thirdquarter.  The land sale to Walgreen hasbeen accounted for using the percentage of completion method.  Accordingly, approximately $5.2 million ofrevenue from the sale of land to Walgreen has been deferred and will berecognized in future periods as costs of required roadwork improvements relatedto this transaction are incurred.  Inaddition, Griffin Land also closed the first sale of residential lots of itsSuffield, Connecticut residential development, Stratton Farms, which generatedrevenue of $1.0 million in the 2006 third quarter.  Two other smaller land sales closed in the2006 third quarter and generated revenue of $0.8 million in the aggregate.  The 2005 third quarter included a sale ofcommercial land that generated revenue of $0.4 million.       **

**AtSeptember 2, 2006, Griffin Land owned 1,711,000 square feet of industrial, flexand office space, with 1,190,000 square feet (70%) leased.  Included in the total space owned is a308,000 square foot warehouse facility, purchased on August 29, 2006, which wasvacant when acquired.  Excluding thisspace, Griffin Land had 85% of its space under lease as of the end of the 2006third quarter.  At the end of the 2005third quarter, Griffin Land owned 1,266,000 square feet of industrial, flex andoffice space, with 1,027,000 square feet (81%) leased.  The increase in total space in Griffin Land’sportfolio as of September 2, 2006 as compared to the end of the 2005 thirdquarter reflects the acquisition of the vacant 308,000 square foot warehousefacility just prior to the end of the 2006 third quarter and the completion**

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**of a 137,000 square footindustrial building in the Tradeport that came on line at the beginning of thisyear.  This new building was fully leasedat the end of the 2006 third quarter. The increase in space leased at the end of the 2006 third quarter versusthe comparable time last year principally reflects new leases in industrialbuildings in Tradeport, partially offset by leases, principally in GriffinCenter South, that were terminated subsequent to the 2005 third quarter.  Included in the new leases completed thisyear are recently executed leases for approximately 164,000 square feet inwhich tenant occupancy and rental revenue are expected to begin in the fourthquarter of this year.      **

**Marketactivity for the leasing of industrial space in the area where Griffin Land’sproperties are located remained fairly strong for most of the 2006 thirdquarter, but weakened near the end of the 2006 third quarter.  Activity for the leasing of office space,which had been weak, has recently increased based on inquiries from prospectivetenants.  There is no assurance thatmarket activity for the leasing of space will result in leases for all or aportion of Griffin Land’s currently vacant space.  In addition, there have been inquiries forpotential sales of undeveloped land. **

**Net salesand other revenue at Imperial decreased from $5.7 million in the 2005 thirdquarter to $5.1 million in the 2006 third quarter.  Imperial’s unit sales volume decreasedapproximately 21% in the 2006 third quarter as compared to the 2005 thirdquarter.  The sales decrease isattributed to higher third quarter volume last year that resulted from poorweather in early spring delaying shipments, particularly from Imperial’snorthern Florida farm, into June, the first month of the third quarter.  This year, spring weather was generally goodin Imperial’s markets and customers took delivery earlier than last year.  In addition, the increase in delivery costshas resulted in customers looking to source product closer to their locations,which hampers sales out of Imperial’s Florida farm to northern customers.  Imperial’s landscape nursery business ishighly seasonal, with sales peaking in the spring, which is included in Griffin’ssecond quarter.     **

**Griffinhad a consolidated operating profit of $3.9 million in the 2006 third quarteras compared to a consolidated operating loss of $1.8 million in the 2005 thirdquarter.  The higher operating results inthe 2006 third quarter principally reflect an increase in operating profit ofapproximately $6.4 million at Griffin Land partially offset by an increase inImperial’s operating loss of approximately $0.1 million and an increase ingeneral corporate expense of approximately $0.5 million.**

** Operating results at Griffin Land in the 2006and 2005 third quarters were as follows:**

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** **
|                                                                                                                                                                | ** ** | **2006**                             | ** ** | **2005**            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|---------------------|------------|
| ** **                                                                                                                                                     | ** ** | **Third Qtr.**                  | ** ** | **Third Qtr.** | ** ** |
| ** **                                                                                                                                                     | ** ** | **(amounts in thousands)** | ** ** |
|                                                                                                                                                           |       |                                 |       |                |       |
| Rental revenue                                                                                                                                                 |       | $                                    | 2,960      |                | $          | 2,925 |   |
| Costs related to rental revenue excluding depreciation  and amortization expense (a)                                                                           |       | 1,202                                |       | 1,074               |       |
| Profit from  leasing activities before general and administrative expenses and before  depreciation and amortization expense (a)                               |       | 1,758                                |       | 1,851               |       |
|                                                                                                                                                           |       |                                 |       |                |       |
| Revenue from  property sales                                                                                                                                   |       | 9,633                                |       | 425                 |       |
| Costs related to  property sales                                                                                                                               |       | 2,673                                |       | 46                  |       |
| Gain from  property sales                                                                                                                                      |       | 6,960                                |       | 379                 |       |
|                                                                                                                                                           |       |                                 |       |                |       |
| Profit from  leasing activities and gain from property sales before general and  administrative expenses and before depreciation and amortization expenses (a) |       | 8,718                                |       | 2,230               |       |
| General and  administrative expenses excluding depreciation and amortization expense (a)                                                                       |       | (981                                 | )          | (684                | )          |
| Profit before  depreciation and amortization expense (a)                                                                                                       |       | 7,737                                |       | 1,546               |       |
| Depreciation and  amortization expense related to costs of rental revenue                                                                                      |       | (955                                 | )          | (1,146              | )          |
| Depreciation and  amortization expense - other                                                                                                                 |       | (6                                   | )          | (10                 | )          |
| Operating profit                                                                                                                                               |       | $                                    | 6,776      |                | $          | 390 |   |

 

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**(a)**           The costs related to rental revenue excludingdepreciation and amortization expense, profit from leasing activities beforegeneral and administrative expenses and before depreciation and amortizationexpense, general and administrative expenses excluding depreciation andamortization expense and profit before depreciation and amortization expenseare disclosures not in conformity with accounting principles generally acceptedin the United States of America.  Theyare presented because Griffin believes they are useful financial indicators formeasuring the results in its real estate business segment.  However, they should not be considered as analternative to operating profit as a measure of operating results in accordancewith generally accepted accounting principles in the United States of America.

**Profitfrom leasing activities before general and administrative expenses and beforedepreciation and amortization expense decreased by approximately $0.1 millionin the 2006 third quarter as compared to the 2005 third quarter.  The lower results reflect leasing revenuebeing effectively unchanged and slightly higher building operatingexpenses.  An increase of approximately$0.1 million in building operating expenses reflects expense related to anindustrial building that was completed and came on line at the beginning ofthis year and higher utility expenses in all properties.   **

**The gain fromproperty sales in the 2006 third quarter includes approximately $5.8 millionfrom the sale of approximately 130 acres of undeveloped land in Tradeport toWalgreen and approximately $1.1 million from the sale of residential land inthe Stratton Farms development and two smaller land sales.  An additional gain of $3.9 million from theland sale to Walgreen has been deferred and will be**

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**recognized in future periods asthe cost of required roadwork improvements related to this transaction areincurred. **While management has used its best estimates, basedon industry knowledge and experience, in projecting the total costs of therequired road improvements, increases in future costs over current estimated amounts would reduce thegain recognized in future periods.  GriffinLand’s general and administrative expenses were higher in the 2006 thirdquarter as compared to the 2005 third quarter due principally to an increase inincentive compensation expense related to the operating results, principallyproperty sales completed this year.  

**Depreciationand amortization expense at Griffin Land decreased approximately $0.2 millionin the 2006 third quarter as compared to the 2005 third quarter.  The decrease reflects the effect of $0.3million of accelerated amortization of intangible assets included in the 2005third quarter as a result of the early termination of leases partially offsetby $0.1 million of additional depreciation in the 2006 third quarter on theindustrial building that was completed and came on line at the beginning ofthis year and, therefore, was not included in the prior year’s third quarterresults. **

**Operatingresults at Imperial in the 2006 and 2005 third quarters were as follows:**
|                                               | ** ** | **2006**                             | ** ** | **2005**            | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|---------------------|------------|
| ** **                                    | ** ** | **Third Qtr.**                  | ** ** | **Third Qtr.** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands)** | ** ** |
| Net sales and  other revenue                  |       | $                                    | 5,104      |                | $          | 5,699 |   |
| Cost of goods  sold                           |       | 5,527                                |       | 6,060               |       |
| Gross loss                                    |       | (423                                 | )          | (361                | )          |
| Selling, general  and administrative expenses |       | 1,149                                |       | 1,067               |       |
| Operating loss                                |       | $                                    | (1,572     | )                   | $          | (1,428 | ) |

 

**The $0.1million decrease in operating results at Imperial reflects a decrease at thegross profit level and an increase in selling, general and administrativeexpenses.  The decrease at the grossprofit level reflects lower net sales and lower margins on sales.  The 2006 third quarter includes a charge of$0.6 million to reserve for unsaleable inventories and inventories that areexpected to be sold below their carrying values as compared to a charge of $0.8million related to similar items in the 2005 third quarter.  Offsetting the lower inventory charge in thecurrent quarter were higher costs of plants sold and higher costs of delivery,which were not entirely passed through to customers.  The increase in plant costs was partially dueto selling inventories that had been held past their anticipated sale dates andaccumulated higher costs.  The increasedcosts of delivery reflect the general increase in rates charged by truckingcompanies, including fuel surcharges, due to the increase in energy costs thisyear.  Excluding the inventory charges inboth periods, Imperial’s gross margin on sales decreased from 7.3% in the 2005third quarter to 4.3% in the 2006 third quarter.  The increase in delivery costs this yearcould depress future shipments from Imperial’s northern Florida facility ascustomers seek to source product closer to their locations to minimize freightcharges.   **

**Griffin’sgeneral corporate expense increased from $0.8 million in the 2005 third quarterto $1.3 million in the 2006 third quarter. The increase principally reflects an increase of $0.4 million forincentive compensation expense expected to be paid as a result of the landsales completed in the third quarter and higher costs related to compliancewith Section 404 of the Sarbanes-Oxley Act. Based on the market price of Griffin’s common stock on the last day ofits fiscal second quarter, the market capitalization of its public floatresulted in Griffin becoming an accelerated filer effective at the end offiscal 2006.  As a result, Griffin is requiredto complete its adoption of the Section 404 provisions of the Sarbanes-OxleyAct, which contributed to the increase in general corporate expense during thethird quarter and is expected to result in higher general corporate expense forthe balance of the year.   **

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**In the2005 third quarter, Griffin sold its investment in Shemin Acquisition for cashproceeds of $5.7 million, resulting in a gain of $3.2 million.  Immediately prior to the sale, Griffinexchanged a portion of its Shemin Acquisition common stock for common stock ofShemin Nurseries Holding Corp., which operates a landscape nursery distributionbusiness through its subsidiary.  SeeNote 7 to the consolidated financial statements in Item 1. **

**Griffin’sconsolidated interest expense increased slightly in the 2006 third quarter ascompared to the 2005 third quarter.  Thehigher interest expense principally reflects interest on a $12.7 millionnonrecourse mortgage on two industrial buildings in Tradeport that was enteredinto by a subsidiary of Griffin in the 2005 third quarter.  Interest on this mortgage was incurred forthe entire 2006 third quarter versus a portion of the 2005 third quarter.  Griffin’s average outstanding debt increasedto $43.7 million in the 2006 third quarter from $38.3 million in the 2005 thirdquarter, reflecting the mortgage entered into last year being outstanding theentire 2006 third quarter as compared to being outstanding for only a portionof the 2005 third quarter. **

**Griffinreported income from interest, dividends, gains on short-term investments andother investment income of $0.6 million in the 2006 third quarter as comparedto $0.3 million in the 2005 third quarter. The increase in the 2006 third quarter as compared to the 2005 thirdquarter reflects a higher yield on its short-term investments driven bygenerally higher interest rates in the current year and interest income on theproceeds from the sale of land to Walgreen that were held in escrow during muchof the 2006 third quarter.  The fundswere used for the purchase of a warehouse facility that was completed near theend of the 2006 third quarter. **

**Griffin’seffective income tax rate was 31.4% in the 2006 third quarter as compared to33.0% in the 2005 third quarter.  Thelower effective income tax rate in the 2006 third quarter principally reflectsa change in the projected effective tax rate for the full year. In addition,the 2006 third quarter income tax provision includes the effect of an increaseof $0.1 million in state deferred tax assets as the result of changes in theprojected benefits to be realized from state temporary differences and statenet operating loss carryforwards. The changes in the projected annual effectivetax rate and changes in the projected benefits to be realized from state temporarydifferences and state net operating loss carryforwards resulted from changes inmanagement’s projections of future operating results.  To the extent that actual results differ fromcurrent projections, the effective income tax rate may change.              **

**Thirty-NineWeeks Ended September 2, 2006 Compared to the Thirty-Nine Weeks Ended August27, 2005**

**Totalrevenue increased from $33.1 million in the 2005 nine month period to $46.0million in the 2006 nine month period, reflecting an increase in rental revenueand property sales of approximately $8.8 million at Griffin Land and anincrease in net sales of approximately $4.1 million at Imperial.**

**Rentalrevenue and property sales at Griffin Land increased from $9.7 million in the2005 nine month period to $18.5 million in the 2006 nine month period.  The increase of approximately $8.8 millionreflects an $8.3 million increase in revenue from property sales and anincrease of $0.5 million in rental revenue from leasing operations.  The increase in revenue from property salesprincipally reflects revenue of $7.8 million recognized on the sale of land inTradeport, the sale of residential land in Stratton Farms and two smaller landsales closed this year.  The sale of landin Tradeport generated cash proceeds of $13.0 million.  Approximately $5.2 million of revenue fromthat sale has been deferred and will be recognized in future periods as thecost of required road improvements related to this transaction are incurred.  Rental revenue from leasing operationsincreased from $8.4 million in the 2005 nine month period to $8.9 million inthe 2006 nine month period.  The increaseprincipally reflects revenue of $0.9 million from leases in two industrialbuildings that were on line the entire 2006 nine month period as compared toone of these buildings not in service during the 2005 nine month period and theother**

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**building in service for only aportion of the 2005 nine month period and $0.3 million from leasing previouslyvacant space, partially offset by the loss of revenue of $0.7 million fromleases included in the 2005 nine month period that expired and were not renewedor were terminated early.**

**Net salesand other revenue at Imperial increased from $23.3 million in the 2005 ninemonth period to $27.5 million in the 2006 nine month period.  Unit sales volume increased 18% in the 2006nine month period as compared to the 2005 nine month period.  The increase in sales volume took place inthe second quarter and was attributed to improved spring weather this year, ascompared to last year, and management’s focus on reducing Imperial’s inventorylevels to be more in line with expected sales.       **

**Griffinhad consolidated operating profit of $1.6 million in the 2006 nine month periodas compared to a consolidated operating loss of $2.9 million in the 2005 ninemonth period.  Operating profit atGriffin Land increased to $6.6 million in the 2006 nine month period from $1.0million in the 2005 nine month period. Imperial’s operating loss increased to $2.0 million for the 2006 ninemonth period from $1.4 million in the 2005 nine month period.  General corporate expense increased to $3.1million in the 2006 nine month period from $2.5 million in the 2005 nine monthperiod. **

**Operatingresults at Griffin Land in the 2006 and 2005 nine month periods were asfollows:**
|                                                                                                                                                               | ** ** | **2006**                             | ** ** | **2005**                    | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                    | ** ** | **Nine Month  Period**          | ** ** | **Nine Month  Period** | ** ** |
| ** **                                                                                                                                                    | ** ** | **(amounts in thousands)** | ** ** |
|                                                                                                                                                          |       |                                 |       |                        |       |
| Rental revenue                                                                                                                                                |       | $                                    | 8,880      |                        | $          | 8,408 |   |
|                                                                                                                                                          |       |                                 |       |                        |       |
| Costs related to  rental revenue excluding depreciation and amortization expense (a)                                                                          |       | 3,809                                |       | 3,576                       |       |
| Profit from  leasing activities before general and administrative expenses and before  depreciation and amortization expense (a)                              |       | 5,071                                |       | 4,832                       |       |
|                                                                                                                                                          |       |                                 |       |                        |       |
| Revenue from  property sales                                                                                                                                  |       | 9,633                                |       | 1,340                       |       |
| Costs related to  property sales                                                                                                                              |       | 2,673                                |       | 385                         |       |
| Gain from  property sales                                                                                                                                     |       | 6,960                                |       | 955                         |       |
|                                                                                                                                                          |       |                                 |       |                        |       |
| Profit from  leasing activities and gain from property sales before general and  administrative expenses and before depreciation and amortization expense (a) |       | 12,031                               |       | 5,787                       |       |
| General and  administrative expenses excluding depreciation and amortization expense (a)                                                                      |       | (2,320                               | )          | (1,990                      | )          |
| Profit before  depreciation and amortization expense (a)                                                                                                      |       | 9,711                                |       | 3,797                       |       |
| Depreciation and  amortization expense related to costs of rental revenue                                                                                     |       | (3,080                               | )          | (2,746                      | )          |
| Depreciation and  amortization expense - other                                                                                                                |       | (19                                  | )          | (24                         | )          |
| Operating profit                                                                                                                                              |       | $                                    | 6,612      |                        | $          | 1,027 |   |

 

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**(a)**           The costs related to rental revenue excludingdepreciation and amortization expense, profit from leasing activities beforegeneral and administrative expenses and before depreciation and amortizationexpense, general and administrative expenses excluding depreciation andamortization expense and profit before depreciation and amortization expenseare disclosures not in conformity with accounting principles generally acceptedin the United States of America. They are presented because Griffin believesthey are useful financial indicators for measuring the results in its realestate division.  However, they shouldnot be considered as an alternative to operating profit as a measure ofoperating results in accordance with generally accepted accounting principlesin the United States of America.

**Theincrease of approximately $0.2 million in Griffin Land’s profit from leasingactivities before general and administrative expenses and before depreciationand amortization expense principally reflects the increased revenue from twoindustrial properties that were on line for the entire nine month period thisyear.  Last year, one of the facilitiescame on line at the start of the third quarter while the other new industrialbuilding was not completed and generating revenue until the beginning of 2006.  The increased revenue from leasing waspartially offset by a net increase of $0.2 million in costs related to rentalrevenue excluding depreciation and amortization expenses.  The $0.2 million net increase reflectedhigher building operating expenses of $0.4 million, due to operating expensesof $0.4 million for the two buildings on line for the entire 2006 nine monthperiod and an increase in utility expenses of $0.2 million across all buildingsdue to a utility rate increase effective at the beginning of this year,partially offset by a $0.2 million reduction in other building operatingexpenses, principally snow removal, building repairs and maintenance and othergeneral expenses.  Partially offsettingthe increase in building operating expenses was the inclusion in the 2005 ninemonth period of a charge of $0.2 million to write off capitalized costs relatedto a lease that was terminated in that year. The lease termination was related to a new longer-term lease with a newtenant for that building, with lease rates that are equal to the rental ratesunder the terminated lease over the remaining term of the terminated lease.**

**The gainfrom property sales in the 2006 third quarter includes approximately $5.8million from the sale of approximately 130 acres of undeveloped land inTradeport to Walgreen and approximately $1.1 million from the sale ofresidential land in the Stratton Farms development and two smaller landsales.  An additional gain of $3.9million from the land sale to Walgreen has been deferred and will be recognizedin future periods as the cost of required roadwork improvements related to thistransaction are incurred.**Whilemanagement has used its best estimates, based on industry knowledge andexperience, in projecting the total costs of the required road improvements, increases in future costsover current estimated amounts would reduce the gain recognized in futureperiods. The gain from property sales at Griffin Land in the 2005 nine monthperiod principally reflects the sale of commercial land in Windsor,Connecticut.  General and administrativeexpenses increased from $2.0 million in the 2005 nine month period to $2.3million in the 2006 nine month period principally reflecting higher incentivecompensation expense related to the operating results, principally propertysales completed in the current year.

**Depreciationand amortization expense at Griffin Land increased by $0.3 million in the 2006nine month period as compared to the 2005 nine month period due principally tothe two industrial buildings in service the entire nine month period this yearand the accelerated depreciation of costs incurred earlier this year as aresult of the early termination of two leases because of a tenant’s bankruptcyfiling this year.**

**Imperial’soperating results in the 2006 and 2005 nine month periods were as follows:**

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|                                               | ** ** | **2006**                             | ** ** | **2005**                    | ** ** |
|-----------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                    | ** ** | **Nine Month  Period**          | ** ** | **Nine Month  Period** | ** ** |
| ** **                                    | ** ** | **(amounts in thousands)** | ** ** |
|                                          |       |                                 |       |                        |       |
| Net sales and  other revenue                  |       | $                                    | 27,466     |                        | $          | 23,337 |   |
| Cost of goods  sold                           |       | 25,547                               |       | 21,127                      |       |
| Gross profit                                  |       | 1,919                                |       | 2,210                       |       |
| Selling, general  and administrative expenses |       | 3,905                                |       | 3,625                       |       |
| Operating loss                                |       | $                                    | (1,986     | )                           | $          | (1,415 | ) |

**Imperial’s operating loss increased by $0.6 millionin the 2006 nine month period as compared to the 2005 nine month periodreflecting a $0.3 million decrease in gross profit and a $0.3 million increasein selling, general and administrative expenses.  The 2006 nine month period includes a chargeof $0.6 million to reserve for unsaleable inventories and inventories that areexpected to be sold below their carrying values.  The 2005 nine month period included a chargeof $1.3 million for these items.  Despitethe lower inventory charge in the current year, gross profit declined from lastyear as a result of higher plant costs and higher delivery costs in the 2006nine month period as compared to the 2005 nine month period.  Imperial’s gross margin on sales (excludingthe effect of the inventory charges in each year) decreased from 15.2% in the2005 nine month period to 9.3% in the 2006 nine month period.**

**Imperial’sselling, general and administrative expenses increased by $0.3 million in the2006 nine month period as compared to the 2005 nine month period.  The increase reflects higher sellingexpenses, principally sales commissions, related to the increase in net salesin the current year.  As a percentage ofnet sales, selling, general and administrative expenses decreased from 15.5% inthe 2005 nine month period to 14.2% in the 2006 nine month period.**

**Griffin’sgeneral corporate expense was $3.1 million in the 2006 nine month period as comparedto $2.5 million in the 2005 nine month period. The 2005 nine month period included a $0.1 million retrospectiveinsurance charge related to a former affiliate of Griffin.  Excluding the effect of that item in the 2005nine month period, general corporate expense increased by $0.7 million dueprincipally to an increase of $0.5 million in incentive compensation expense inthe current year and an increase of $0.2 million related to compliance withSection 404 of the Sarbanes-Oxley Act.**

**In the2005 third quarter, Griffin sold its investment in Shemin Acquisition for cashproceeds of $5.7 million, resulting in a gain of $3.2 million.  Immediately prior to the sale, Griffinexchanged a portion of its Shemin Acquisition common stock for common stock ofShemin Nurseries Holding Corp., which operates a landscape nursery distributionbusiness through its subsidiary.  SeeNote 7 to the consolidated financial statements in Item 1.**

**Griffin’sconsolidated interest expense increased from $1.7 million in the 2005 ninemonth period to $2.3 million in the 2006 nine month period.  The increase principally reflects interest onthe $12.7 million mortgage that was completed in the 2005 third quarter.  This mortgage was outstanding the entire 2006nine month period as compared to less than three months in the 2005 nine monthperiod.  Griffin’s average outstandingdebt in the 2006 nine month period was $43.9 million as compared to $34.7million in the 2005 nine month period.**

**Griffin’sincome from interest, dividends, gains on short-term investments and otherinvestment income was $1.6 million in the 2006 nine month period as compared to$0.8 million in the 2005 nine month period. The increase of investment income in the current year reflects anincreased yield from**

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**short-term investments duegenerally to higher short-term interest rates in the current year and interestincome on the proceeds from the sale of land to Walgreen that were held inescrow during most of the 2006 third quarter. The proceeds from that sale were used to purchase a warehouse facilitynear the end of the 2006 third quarter. In addition, the 2006 nine month period includes approximately $0.2million of undistributed equity income from an investment in an agriculturalcooperative in which Griffin holds a 25% interest.  Because this investment had not beenaccounted for in prior years, the cumulative effect was recorded within otherinvestment income in the 2006 nine month period.  Management believes the amount recorded isimmaterial to annual periods and expects that the results of this investmentwill not be significant to Griffin in future periods.**

**Griffinis projecting a 2006 annual effective tax rate on operating income of22.5%.  This rate is lower than priorperiods and the expected statutory federal rate due to changes in the projectedmix of earnings and losses to be taxed in separate state jurisdictions andprojected state income taxes as they relate to projected full year results. Theprojected mix of earnings in separate state tax jurisdictions changedsignificantly during the 2006 third quarter due to the deferral of a portion ofthe gain reported on the land sold to Walgreen. The 2006 nine month periodoverall effective tax rate of 11.4% is lower than the 22.5% projected rate dueto the recognition of $0.1 million of projected state deferred tax benefits inthe current quarter. To the extent that actual results differ from currentprojections, the effective income tax rate may change. The effective income taxrate for the 2005 nine month period was 37.1% reflecting the federal statutoryrate of 35% and state taxes.**

**OffBalance Sheet Arrangements**

**Griffindoes not have any material off balance sheet arrangements.**

**Liquidity and Capital Resources**

**Net cashprovided by operating activities was $8.1 million in the 2006 nine month periodas compared to net cash used in operating activities of $17.2 million in the2005 nine month period.  Net cashprovided by operating activities in the 2006 nine month period includes $9.4million of cash generated from a reduction of short-term investments ascompared to $13.0 million of cash invested in short-term investments in the2005 nine month period.  Excluding theseitems in each period, Griffin had net cash used in operating activities of $1.3million in the 2006 nine month period as compared to $4.2 million of net cashused in operating activities in the 2005 nine month period.  The lower amount of cash used in operatingactivities, excluding the effect of cash generated from and invested inshort-term investments, principally reflects the reduction of inventories atImperial, and favorable changes in accounts receivable and accounts payable andaccrued liabilities, partially offset by an unfavorable change in other currentassets.**

**In the2006 nine month period, Griffin had net cash of $7.4 million used in investingactivities as compared to net cash used in investing activities of $3.2 millionin the 2005 nine month period.  The netcash used in investing activities in the current year includes additions toGriffin Land’s real estate assets of $21.1 million, including the acquisition,completed on August 29, 2006, of a warehouse facility in Manchester,Connecticut, for $13.5 million.  Thewarehouse facility acquired was used by the previous owner in its operationsand was vacant at the time of the closing. This acquisition was part of a Section 1031 exchange for income taxpurposes, which will result in the deferral of income tax payments related tothe gains from the sale of undeveloped land to Walgreen and a smaller land salecompleted this year.**  The balance of theadditions to Griffin Land’s real estate assets principally reflect theconstruction, on speculation, of a new 127,000 square foot industrial buildingin Tradeport, which is expected to be completed by the end of this year, sitework for several industrial buildings in Tradeport, infrastructure work on aresidential subdivision in Suffield, Connecticut, payments related to thecompletion of the new industrial building that came on line in the 2006 firstquarter and tenant improvements related to new

28

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**leases.  Partially offsetting the cash used for theadditions to Griffin’s real estate assets were cash proceeds, net of expenses,of $14.0 million from property sales, including the sale to Walgreen ofundeveloped land in Tradeport and the sale of residential lots in StrattonFarms.  Revenue recognition on $5.2million of the cash proceeds from the land sale to Walgreen has been deferredand will be recognized in future periods as the costs of required roadimprovements are incurred. Additions to property and equipment, principally forImperial, were $0.3 million in the 2006 nine month period as compared to $0.6million in the 2005 nine month period. Capital expenditures for Imperial in the 2006 nine month period wereprincipally to replace equipment used in its farming operations.**

**Net cashprovided by financing activities was $0.9 million in the 2006 nine month periodas compared to $12.5 million in the 2005 nine month period.  The net cash provided by financing activitiesin the 2006 nine month period reflects cash proceeds from stock optionsexercised in the current year partially offset by payments of mortgageprincipal.  Also included in cashprovided by financing activities in the 2006 nine month period is a $0.9million tax benefit from the exercise of stock options. In accordance with SFASNo. 123(R), the presentation in Griffin’s statement of cash flows in thecurrent year has changed from prior periods to report the tax benefits from theexercise of stock options as a financing cash flow. Prior to the adoption ofSFAS No. 123(R), these tax benefits were reported as an operating cash flow.The net cash provided by financing activities in the 2005 nine month periodprincipally reflected the proceeds of a nonrecourse mortgage entered into by asubsidiary of Griffin.**

**In thenear-term, Griffin plans to continue to invest in its real estatebusiness.  In addition to theconstruction this year of a 127,000 square foot industrial building inTradeport, Griffin Land also expects to start foundation work on anotherindustrial building in Tradeport before the end of this year.  Griffin Land has also started the site workfor several additional industrial buildings in the Tradeport.  The cost of site work in the portion ofTradeport where these new buildings will be located is expected to be higherthan site costs for previous buildings recently built by Griffin Land. Thehigher site costs reflect the nature of the land on which the buildings will belocated along with required berming and roadwork on this site.  Griffin Land also expects to incurexpenditures to build out the interiors of its new buildings as leases arecompleted, and to continue to invest in infrastructure improvements requiredfor present and future development in its office and industrial parks.  In the latter part of fiscal 2005, GriffinLand started infrastructure work on Stratton Farms, a residential developmentin Suffield, Connecticut.  Griffin Landcontinued the infrastructure work on Stratton Farms in fiscal 2006 and is nowsubstantially complete.  Griffin Land isalso continuing to work towards obtaining approvals for Meadowood, its proposedresidential development in Simsbury, Connecticut.  There have been some preliminary discussionswith town officials regarding potential settlement options for Meadowood.  Griffin Land intends to proceed with otherresidential development plans on its land holdings that are appropriate forthat use.**

On May 19, 2006, GriffinLand entered into an agreement with a prospective buyer to sell approximately105 acres of undeveloped land in South Windsor, Connecticut.  Based on the terms of the agreement, GriffinLand, which holds a 75% interest in that property through a joint venture,would receive proceeds of approximately $2.7 million, before expenses.  Completion of this transaction is subject toseveral contingencies, including the buyer receiving governmental approvals forits proposed development on this site. On September 8, 2006, Griffin Land entered into an agreement to sellapproximately 73 acres of undeveloped land in Griffin Center for total proceedsof approximately $6.8 million. Completion of this sale is dependent on a number of contingencies,including the buyer satisfactorily completing its due diligence and the buyerreceiving governmental approvals, including approval from the Connecticut StateTraffic Control Department, for the buyer’s planned development.  There is no assurance that these transactionswill be completed under their current terms, or at all.

Griffin is in the processof obtaining a nonrecourse mortgage on the industrial building in Tradeportthat was completed and placed in service at the beginning of this year.  This borrowing would be with the same lenderthat Griffin completed a $12.7 million nonrecourse mortgage on two Tradeport

29

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buildings last year. The amount of the new mortgage is expected to be $8.5 million, but willnot be finalized until the lender’s due diligence is completed.  The mortgage will have an interest rate of6.13% with payments based on a thirty year amortization schedule.  The mortgage will have a term ofapproximately 8.7 years, and will be coterminous with the $12.7 millionnonrecourse mortgage entered into last year. Closing of this transaction is dependent on a number of contingencies,including completion of a definitive loan agreement.  There is no assurance that this transactionwill be completed under its current terms, or at all.

**Griffin’spayments (including principal and interest) under contractual obligations as ofSeptember 2, 2006 are as follows:**
| ** **                   | ** ** | **Total**              | ** ** | **Due Within  One Year** | ** ** | **Due From   1-3 Years** | ** ** | **Due From  3-5 Years** | ** ** | **Due in More  Than 5 Years** | ** ** |
|------------------------------|------------|------------------------|------------|------------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|---------------------------------------------------|------------|
| ** **                   | ** ** | **(in millions)** | ** ** |
| Mortgages                    |       | $                      | 62.5       |                               | $          | 3.9                                     |       | $                                 | 15.0       |                                              | $          | 6.3 |   | $ | 37.3 |   |
| Capital Lease  Obligations   |       | 0.3                    |       | 0.1                                |       | 0.2                                     |       | —                            |       | —                                            |       |
| Operating Lease  Obligations |       | 0.4                    |       | 0.2                                |       | 0.2                                     |       | —                            |       | —                                            |       |
| Purchase Obligations  (1)    |       | 8.1                    |       | 8.0                                |       | 0.1                                     |       | —                            |       | —                                            |       |
| Other (2)                    |       | 1.8                    |       | —                             |       | —                                  |       | —                            |       | 1.8                                               |       |
|                         |       | $                      | 73.1       |                               | $          | 12.2                                    |       | $                                 | 15.5       |                                              | $          | 6.3 |   | $ | 39.1 |   |

 

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| (1) |   | Includes obligations for the construction of the  shell of a new industrial building at Griffin Land, completion of tenant  improvements, infrastructure improvements in Tradeport and for the purchase  of raw materials by Imperial. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Includes Griffin’s deferred compensation plan and  other postretirement benefit liabilities.                                                                                                                                      |

 

**As ofSeptember 2, 2006, Griffin had cash and short-term investments of approximately$ 34.6 million.  Management believes thatthe significant amount of cash and short-term investments held by Griffin willbe sufficient to finance the working capital requirements of its businesses andfund continued investment in Griffin’s real estate assets for the foreseeablefuture.  Griffin may also continue toseek 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.   Realestate acquisitions may or may not occur based on many factors, including realestate pricing.**

**RecentAccounting Pronouncements**

**InNovember 2004, the FASB issued SFAS No. 151, “Inventory Costs (an amendment ofARB No. 43, Chapter 4).”  This newstandard requires the recognition of abnormal inventory costs related to idlefacility expenses, freight, handling costs and spoilage as period costs.  SFAS No. 151 is effective for Griffin infiscal 2006 and did not have a material impact on Griffin’s consolidatedfinancial statements for the thirteen and thirty-nine weeks ended September 2,2006.**

**In March2005, the FASB issued FASB Interpretation No. 47, “Accounting for ConditionalAsset Retirement Obligations (an interpretation of FASB Statement No. 143),” (“FinNo. 47”).  Fin No. 47 clarifies thetiming of liability recognition for legal obligations associated with theretirement of tangible long-lived assets. Fin No. 47 will be effective for Griffin in the fourth quarter of fiscal2006.  Griffin is evaluating the impactof this new pronouncement on its consolidated financial statements.**

**In May2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-areplacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”).  This new standard**

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**requires retrospectiveapplication to prior periods’ financial statements of voluntary changes inaccounting principles, unless it is impracticable to do so.  SFAS No. 154 also provides that correction oferrors in previously issued financial statements should be termed a “restatement”.  The new standard is effective for accountingchanges and correction of errors in fiscal years beginning after December 15,2005.**

**In June2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertaintyin Income Taxes”(“Fin No. 48”).  Theinterpretation clarifies the accounting for uncertainty in income taxes recognizedin a company’s financial statements in accordance with Statement of FinancialAccounting Standards No. 109, “Accounting for Income Taxes.”  Specifically, Fin No. 48 prescribes arecognition threshold and a measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  Fin No. 48 also providesguidance on the related derecognition, classification, interest and penalties,accounting for interim periods, disclosure and transition of uncertain taxpositions.  Fin No. 48 is effective forfiscal years beginning after December 15, 2006. Griffin is evaluating the impact of this new pronouncement on its consolidatedfinancial statements.**

**InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  This new standard defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles and expands disclosures about fair value measurements.  This statement does not require any new fairvalue measurements but provides guidance in determining fair value measurementspresently used in the preparation of financial statements.  This new standard is effective for financialstatements issued for fiscal years beginning after November 15, 2007.  Griffin is evaluating the impact of this newpronouncement on its consolidated financial statements.**

**InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87, 88, 106 and 132(R).” This new standard requires employers to recognize the overfunded orunderfunded status of a defined benefit postretirement plan as an asset orliability in its statement of financial position and to recognize changes inthat funded status in the year in which the changes occur through comprehensiveincome.  For employers that have equitysecurities that trade in a public market, this new standard requires therecognition of the funded status of a defined benefit postretirement plan andrequires disclosures as of the end of the fiscal year ending after December 15,2006.  Griffin does not have a definedbenefit pension plan and its defined benefit postretirement benefit plan isunfunded and is included as a liability on Griffin’s balance sheet.**

**Forward-Looking Information**

**The aboveinformation in Management’s Discussion and Analysis of Financial Condition andResults of Operations includes “forward-looking statements” within the meaningof Section 27A of the Securities Act and Section 21E of the Exchange Act.  Although Griffin believes that its plans,intentions and expectations reflected in such forward-looking statements arereasonable, it can give no assurance that such plans, intentions orexpectations will be achieved, particularly with respect to improvement in theoperating results of Imperial, leasing currently vacant space, construction ofadditional facilities in the real estate business, completion of land salesthat are currently under contract, approval of a currently proposed residentialsubdivision or completion of a nonrecourse mortgage on an industrialbuilding.  The projected informationdisclosed herein is based on assumptions and estimates that, while consideredreasonable by Griffin as of the date hereof, are inherently subject tosignificant business, economic, competitive and regulatory uncertainties andcontingencies, many of which are beyond the control of Griffin.**

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| ITEM 3. |   | QUANTITATIVE AND QUALITATIVE  DISCLOSURES ABOUT MARKET RISK |
|---------|--------|-------------------------------------------------------------|

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

For fixed rate mortgagedebt, changes in interest rates generally affect the fair market value of thedebt instrument, but not earnings or cash flows.  Griffin does not have an obligation to prepayany fixed rate debt prior to maturity, and therefore, interest rate risk andchanges in the fair market value of fixed rate debt should not have asignificant impact on earnings or cash flows until such debt is refinanced, ifnecessary.  Griffin’s mortgage interestrates are described in Note 4 to the unaudited consolidated financialstatements included in Item 1.  Forvariable rate debt, changes in interest rates generally do not impact the fairmarket value of the debt instrument, but do affect future earnings and cashflows.  Griffin did not have any variablerate debt outstanding during the thirteen weeks ended September 2, 2006.

**Griffinis potentially exposed to market risks from fluctuations in interest rates andthe effects of those fluctuations on market values of Griffin’s cashequivalents.  These investments generallyconsist of overnight investments that are not significantly exposed to interestrate risk.  Griffin’s short-terminvestments generally consist of debt instruments with maturities ranging fromone to eighteen months, with a weighted average maturity of approximately sixmonths as of September 2, 2006.  Theseinvestments are not significantly exposed to interest rate risk except to theextent that changes in interest rates will ultimately affect the amount ofinterest income earned and cash flow from these investments.**

Griffin does notcurrently have any derivative financial instruments in place to manage interestcosts, but that does not mean that Griffin will not use them as a means to manageinterest rate risk in the future.

**Griffindoes not have foreign currency exposure in operations.  Griffin does have an investment in a publiccompany, Centaur Media, plc, based in the United Kingdom.  The ultimate liquidation of that investmentand conversion of proceeds into United States currency is subject to futureforeign currency exchange rates.**
| ITEM 4. |   | CONTROLS AND PROCEDURES |
|---------|--------|-------------------------|

 

**Evaluation of Disclosure Controlsand Procedures**

**Griffinmaintains disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in its Exchange Act reports is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms, and that such informationis accumulated and communicated to Griffin’s management, including its ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures,management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, and management necessarily was required to applyits judgment in evaluating the cost-benefit relationship of possible controlsand procedures.**

**Asrequired by SEC Rule 13a-15(b), Griffin carried out an evaluation, under thesupervision and with the participation of Griffin’s management, includingGriffin’s Chief Executive Officer and Griffin’s Chief Financial Officer, of theeffectiveness of the design and operation of Griffin’s disclosure controls andprocedures as of the end of the fiscal period covered by this report.  Based on the foregoing, Griffin’s ChiefExecutive Officer and Chief Financial Officer concluded that disclosurecontrols and procedures were effective at the reasonable assurance level.**

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**Changes in Internal Control overFinancial Reporting**

**There hasbeen no change in Griffin’s internal control over financial reporting duringGriffin’s most recent fiscal quarter that has materially affected, or isreasonably likely to materially affect, Griffin’s internal control overfinancial reporting.**
| **PART II** | ** ** | **OTHER INFORMATION** |
|-------------|------------|-----------------------|

 
| ITEMS 1 - 5. | ** ** | Not Applicable |
|--------------|------------|----------------|
| ** **   | ** ** | ** **     |
| ITEM 6.      | ** ** | Exhibits       |

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

 

 

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|                         | ** ** | GRIFFIN LAND &  NURSERIES, INC.                    |
|-------------------------|------------|--------------------------------------------------------|
|                    |       |                                                   |
|                    |       |                                                   |
|                    |       |                                                   |   | /s/ FREDERICK M.  DANZIGER |
| DATE: October 17,  2006 |       | Frederick M. Danziger                                  |
|                    |       | President and Chief  Executive Officer                 |
|                    |       |                                                   |
|                    |       |                                                   |
|                    |       |                                                   |   | /s/ ANTHONY J. GALICI |
| DATE: October 17,  2006 |       | Anthony J. Galici                                      |
|                    |       | Vice President, Chief  Financial Officer and Secretary |
|                         |            |                                                        |  |  |  |

 

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