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Index to Exhibits at page 13
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
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 July 31, 2004
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 0 - 1653
GENESEE CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF NEW YORK 16-0445920
- ----------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
600 Powers Bldg., 16 W. Main Street, Rochester, New York 14614
- -------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (585) 454-1250
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of the date of this report, the Registrant had the following shares of common
stock outstanding:
Number of Shares
Class Outstanding
- ----- -----------
Class A Common Stock (voting), par
value $.50 per share 209,885
Class B Common Stock (non-voting), par
value $.50 per share 1,464,201
Page 2 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Net Assets In Liquidation (Liquidation Basis)
July 31, 2004 and May 1, 2004
(Dollars in thousands, except per share data)
(Unaudited)
July 31, 2004 May 1, 2004
------------- -----------
ASSETS
Cash and cash equivalents $ 2,853 $ 3,731
Restricted cash 2,416 3,200
Notes receivable 0 1,000
Estimated net income tax receivable 512 515
Other assets 376 393
---------- ----------
Total assets $ 6,157 $ 8,839
========== ==========
LIABILITIES AND NET ASSETS
Accrued expenses and other liabilities $ 364 $ 389
Accrued self-insured workers compensation 1,546 1,608
---------- ----------
Total liabilities 1,910 1,997
---------- ----------
Net assets in liquidation $ 4,247 $ 6,842
========== ==========
Number of common shares outstanding (Class A -
209,885; Class B - 1,464,201) 1,674,086 1,674,086
Net assets in liquidation per outstanding share $ 2.54 $ 4.09
========== ==========
See accompanying notes to consolidated financial statements.
Page 3 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Changes In Net Assets In Liquidation (Liquidation Basis)
For the Thirteen Weeks Ended July 31, 2004 and August 2, 2003
(Dollars in thousands)
(Unaudited)
2004 2003
---- ----
Net assets in liquidation at May 1, 2004 and May 3, 2003, respectively $ 6,842 $ 8,377
Liquidating distribution paid to shareholders (2,511) 0
High Falls subordinated note receivable:
Interest income 0 140
Interest income, net 16 12
Changes in estimated liquidation values of assets and liabilities (100) 2
------- -------
Net assets in liquidation at July 31, 2004 and August 2, 2003, respectively $ 4,247 $ 8,531
======= =======
See accompanying notes to consolidated financial statements.
Page 4 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (A) Divestiture of the Corporation's Operating Businesses and Other
Assets
In October 2000, Genesee Corporation (the "Corporation")
shareholders approved a plan to divest all of the Corporation's
operations and then liquidate and dissolve the Corporation (the
"Plan of Liquidation and Dissolution.") Since then, as discussed
below, the Corporation has divested all of its operations and
substantially all of its other assets. The proceeds from these
divestitures, net of amounts paid or reserved to discharge all of
the Corporation's obligations and liabilities, are being distributed
to the Corporation's shareholders in a series of liquidating
distributions.
The Corporation sold its brewing business in December 2000 to High
Falls Brewing Company, LLC ("High Falls") for $27.2 million of which
it actually received $24.2 million. The Corporation received $11
million of the sale price in the form of notes receivable from High
Falls, of which only $8 million in cash was received and are more
fully described in Note B.
The Corporation sold a significant portion of its equipment lease
portfolio in December 2000 and received $12.8 million in proceeds.
The Corporation sold its Foods Division in October 2001 to
Associated Brands, Inc. ("ABI") for $24.4 million.
On May 31, 2002, the Corporation sold its ten-percent interest in an
office building located in Rochester, New York and a related note
receivable from the building owner for $2.4 million in cash.
On September 16, 2002, the Corporation sold its 50% interests in a
408-unit apartment complex located in Syracuse, New York and a
150-unit apartment complex located in Rochester, New York for a
combined sales price of $4.5 million.
With the sale of its interest in the apartment complexes mentioned
above, the Corporation completed the liquidation phase of its plan
of liquidation and dissolution.
NOTE (B) Liquidation Basis of Accounting
With the sale of its Foods Division, which is described in Note A,
the Corporation adopted the liquidation basis of accounting. Under
the liquidation basis of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their
estimated settlement amounts, which estimates are periodically
reviewed and adjusted. A Statement of Net Assets and a Statement of
Changes in Net Assets are the two financial statements presented
under the Liquidation Basis of Accounting.
Page 5 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
The valuation of assets at their net realizable value and
liabilities at their anticipated settlement amounts necessarily
requires many estimates and assumptions. In addition, there are
substantial risks and uncertainties associated with carrying out the
liquidation and dissolution of the Corporation. The valuations
presented in the accompanying Statement of Net Assets in Liquidation
represent estimates, based on present facts and circumstances, of
the net realizable values of assets and the costs associated with
carrying out the plan of liquidation and dissolution based on the
assumptions set forth below. The actual values and costs are
expected to differ from the amounts shown herein and could be
greater or lesser than the amounts recorded. In particular, the
estimates of the Corporation's costs will vary with the length of
time it operates. In addition, the estimate of net assets in
liquidation per share presented in accordance with accounting
principles generally accepted in the United States of America (GAAP)
in the accompanying Statement of Net Assets in Liquidation generally
does not incorporate a present value discount to reflect the amount
of time that will transpire before the value of those assets is
distributed to shareholders. Accordingly, it is not possible to
predict the aggregate amount that will ultimately be distributable
to shareholders and no assurance can be given that the amount to be
received in liquidation will equal or exceed the estimate of net
assets in liquidation per share presented in the accompanying
Statement of Net Assets in Liquidation or the price or prices at
which the Corporation's common stock has traded or is expected to
trade in the future.
General assumptions used and asset and liability values under the
Liquidation Basis of Accounting
Following are assumptions utilized by management in assessing the
fair value of assets and the expected settlement values of
liabilities included in the Statement of Net Assets in Liquidation
as of July 31, 2004.
Cash and cash equivalents and restricted cash - Presented at face
value. The Corporation considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
The Corporation maintains balances in various operating and money
market accounts in excess of federally insured limits. At July 31,
2004, substantially all cash balances were in excess of federally
insured limits. The Corporation adopted a Contingent Liability
Reserve Policy whereby the Corporation will maintain a cash
contingency reserve for unexpected expenses of the Corporation. The
amount of the reserve may be modified in the future as deemed
necessary. The balance of this reserve is $1.6 million, or
approximately $1.00 per outstanding share at July 31, 2004; however,
it is not classified as restricted or as a liability in the
accompanying Statement of Net Assets in Liquidation.
Page 6 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
Notes receivable - Stated at fair value, which has been discounted
from face value as described below. As partial consideration for the
sale of its brewing business in December 2000, the Corporation
received $11 million in notes receivable from High Falls ($6.5
million in two bridge notes and $4.5 million in a subordinated
note.) On July 30, 2002 the Corporation received $5.9 million in
satisfaction of the remaining principal balance due on the two
bridge notes with original face amounts of $3.5 million and $3
million. This prepayment was in accordance with the terms of the
notes, which required prepayment at such time as the buyer received
proceeds from government backed loans. The Corporation received
$500,000 in principal on the subordinated note (the "High Falls
Note") in December 2001 leaving a $4 million balance due.
On May 25, 2004 the Corporation sold the High Falls Note to a third
party for $1,000,000. The High Falls Note had been in default since
December 2002. In accordance with liquidation basis accounting the
High Falls Note had been previously valued based on the fair market
value of publicly-traded debt instruments of similar quality. With
the May sale of the High Falls Note, the Corporation's May 1, 2004
Statement of Net Assets in Liquidation, included in the
Corporation's Annual Report on Form 10-K, reported the value of the
High Falls Note at $1,000,000. In recognition of previously missed
interest payments to the Corporation, High Falls has agreed to pay
the Corporation $100,000 if, prior to April 30, 2006, certain
conditions are satisfied and High Falls' senior creditors consent to
the payment.
A party to the December 2000 brewery sale claimed that the
Corporation had received approximately $120,000 in interest payments
from High Falls, which should have been paid to it, as a creditor of
High Falls that is senior to the Corporation. High Falls paid this
creditor the $120,000 on July 30, 2004 and this claim is resolved.
The sale of the High Falls Note, with the exception of the possible
receipt of $100,000 mentioned above, completed the financial matters
related to the sale of the Corporation's brewing business.
Estimated income tax receivable/payable - Based on management's
estimate. Amount reflects the impact on cash flow under an orderly
liquidation scenario. It includes adjustments for estimates of
future expenditures, the utilization of tax credits, and
carryforwards and carrybacks.
Certain amounts included in the estimated income tax receivable are
subject to audit by both state and federal taxing authorities, most
notably as it relates to the fiscal years ended May 3, 2003 and May
1, 2004. The Corporation requested, and has settled, accelerated
audits from the federal taxing authorities for the tax years ending
April 27, 2002, April 28, 2001, and April 29, 2000. State audits
have also been resolved through the fiscal year ended April 27,
2002.
Page 7 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
As tax returns are filed utilizing management's interpretation of
applicable rules, the actual tax liability or refund determined
after a tax audit can be different from amounts initially claimed
when filing tax returns. Based upon all known facts, management has
made an estimation of the range of probable outcomes after all tax
returns have been filed through the fiscal year end May 1, 2004 and
reviewed by the taxing authorities. The estimated income tax
receivable of $512,000 recorded on the accompanying Statement of Net
Assets in Liquidation is management's estimate of the most probable
point within the range. Such estimates are often updated as
additional information becomes available.
The Corporation may incur additional professional fees as a result
of any additional income tax audits.
Other assets - Valued based on management estimates. At July 31,
2004 the $376,000 balance is primarily comprised of prepaid
insurance, a deposit with the Corporation's third party
administrator for its self-insured workers compensation claims, and
a note receivable from a former customer of the Genesee Brewing
Company, Inc., that the Corporation retained after the sale of its
brewing business to High Falls.
Accrued compensation, accrued expenses, and other liabilities -
Based on management's estimate. These are the estimated costs to
complete the Corporation's Plan of Liquidation and Dissolution, and
represents the estimated cash costs of operating the Corporation
through its expected termination. These costs, which include
personnel, facilities, professional fees, and other related costs,
are estimated based on various assumptions regarding the number of
employees, the use of outside professionals (including attorneys and
accountants) and other costs. Given that there is inherent
uncertainty in the estimation process, actual results could be
materially different.
The table below details these costs by category as of May 1, 2004
and July 31, 2004 and the expenditures and management adjustments
that occurred during the first quarter of fiscal 2005.
Three Months Ended Three Months Ended
May 1, 2004 July 31, 2004 July 31, 2004 July 31, 2004
Category Balance Expenditures Adjustments Balance
- -------- ------- ------------ ----------- -------
Office expenses,
including rent $ 8,000 (3,000) 5,000 10,000
Insurance expense 24,000 (16,000) 20,000 28,000
Professional fees 275,000 (101,000) 80,000 254,000
Other 82,000 (5,000) (5,000) 72,000
Totals $ 389,000 $ (125,000) $ 100,000 $364,000
The $100,000 net adjustment during the first quarter of fiscal 2005
is primarily related to an expected increase in legal and accounting
costs for the Corporation during its wind up period.
Page 8 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
Accrued self-insured workers compensation - Based on management's
estimate. The Corporation's brewing and foods businesses were
self-insured for workers compensation claims and the Corporation
retained this liability after those businesses were sold. In
connection with this liability, the Corporation is required by the
New York Workers Compensation Board (the "Compensation Board") to
maintain a $2.4 million standby letter of credit as financial
assurance, which has been renewed through August 2005. The issuing
bank required the Corporation to collateralize the letter of credit
by maintaining a cash balance of $2.4 million in a money-market
account with the bank.
The Corporation is investigating potential alternatives to obtain a
substitute for the self-insured workers compensation financial
assurance amount that would allow it to accelerate the resolution of
this liability. The Corporation could incur additional costs to
settle this workers compensation liability
Contingent liabilities - As with any operating business, the
Corporation may have potential contingent liabilities in addition to
the liabilities recorded in the accompanying consolidated financial
statements. Because no claims for contingent liabilities have been
made or threatened, no amount has been recorded for such liabilities
in the accompanying consolidated financial statements.
NOTE (C) Financial Statement Presentation
Liquidation Basis Financial Statements
The Corporation's Statement of Net Assets in Liquidation as of July
31, 2004 and Statement of Changes in Net Assets in Liquidation for
the thirteen-week period ended July 31, 2004 and August 2, 2003
presented herein are unaudited. The May 1, 2004 Statement of Net
Assets has been audited. In the opinion of management, these
financial statements reflect all adjustments which are necessary for
a fair presentation of the results for the interim period presented.
Net assets in liquidation per outstanding share, which is reported
in the Statement of Net Assets in Liquidation, is calculated by
dividing net assets in liquidation by the number of common shares
outstanding as of the statement date.
The accompanying financial statements have been prepared in
accordance with GAAP and Securities and Exchange Commission (the
"SEC") guidelines applicable to interim financial information. These
statements should be reviewed in conjunction with the Corporation's
annual report on Form 10-K for the fiscal year ended May 1, 2004. It
is the Corporation's policy to reclassify certain amounts in the
prior year consolidated financial statements to conform to the
current year presentation.
NOTE (D) Class B Common Stock De-listing and Closing of Stock Books
At the close of business on December 31, 2003 the Corporation's
Class B Common Stock was de-listed from the Nasdaq National Market
and the Corporation's stock books for its Class A and Class B Common
Stock were closed. The Corporation expects to file a certificate of
dissolution with the New York State Department of State in the
future.
Page 9 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This financial review should be read in conjunction with the
accompanying consolidated financial statements and notes. Effective
September 29, 2001 the Corporation adopted the liquidation basis of
accounting which is described in detail in Note B to the
accompanying consolidated financial statements. In the current and
prior fiscal years the Corporation had no operations; therefore,
there is no discussion of operations presented. See also Note D to
the accompanying consolidated financial statements presented in this
report that are incorporated herein by reference thereto.
LIQUIDITY AND CAPITAL RESOURCES - JULY 31, 2004
Liquidating distributions have been paid to shareholders under the
Corporation's plan of liquidation and dissolution as follows:
AMOUNT AMOUNT
DATE PAID DISTRIBUTED PER SHARE
--------- ----------- ---------
March 1, 2001 $12,557,000 $ 7.50
November 1, 2001 21,763,000 13.00
May 17, 2002 8,370,000 5.00
August 26, 2002 8,370,000 5.00
October 11, 2002 5,023,000 3.00
March 17, 2003 4,185,000 2.50
April 28, 2003 2,511,000 1.50
June 18, 2004 2,511,000 1.50
----------- ------
TOTAL $65,290,000 $39.00
=========== ======
Subject to amounts that the Corporation may hold to discharge
obligations and potential contingent liabilities (see Contingent
Liability Reserve Policy described below), the Corporation expects
to pay additional liquidating distributions as the Corporation is
allowed to reduce the financial assurance for its self-insured
workers compensation liability described below and reduces the
amount of the Contingent Liability Reserve described below. The
length of time that will be required to wind-up the Corporation's
affairs is uncertain and will impact the value of the Corporation's
net assets in liquidation due to the ongoing expense of operating
the Corporation. The Corporation has estimated the present value of
those costs at $364,000 and this amount has been recorded on the
accrued expenses and other liabilities line in the accompanying
Statement of Net Assets in Liquidation.
Page 10 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - JULY 31, 2004 (continued)
Since it is unknown how long it will be before a final liquidating
distribution is paid to shareholders, the present value of the net
assets in liquidation per outstanding share could be less or more
than is reported in the accompanying Statement of Net Assets in
Liquidation and the ultimate distributions to shareholders may
differ materially from the Corporation's current estimate.
The Corporation's unrestricted and restricted cash and cash
equivalents are invested in commercial bank money market funds to
earn a market rate of return on those funds and give the Corporation
the security and flexibility required as it completes the
liquidation and dissolution process. These funds are currently
yielding approximately 1.2% per annum. The Corporation adopted a
Contingent Liability Reserve Policy whereby the Corporation
maintains a cash contingency for unexpected expenses of the
Corporation. The amount of the reserve may be modified in the future
as deemed necessary. The balance of this reserve was $2.5 million,
or approximately $1.50 per share, at May 1, 2004; however, after the
sale of the High Falls Note on May 25, 2004, it was further reduced
to $1.6 million, or approximately $1.00 per share. This reserve
remains at $1.6 million at July 31, 2004 and is not classified as
restricted or as a liability in the accompanying Statement of Net
Assets in Liquidation.
Restricted cash represents cash that the Corporation is temporarily
unable to access. At July 31, 2004, restricted cash in the amount of
$2.4 million is being held in a money-market account with a
commercial bank as collateral required for a standby letter of
credit issued by the bank to provide statutorily required financial
assurance for the Corporation's self-insured workers compensation
liability. The Corporation is required by the New York Workers
Compensation Board (the "Compensation Board") to maintain the
standby letter of credit, which is in effect through August 2005. It
is management's current expectation that the Compensation Board will
require the Corporation to maintain some amount of financial
assurance for the actuarially determined duration of the
self-insured workers compensation liability, which is currently
estimated to be twenty to twenty-five years, and any such amount
will not be available for distribution to shareholders until the
Corporation is relieved of its financial assurance obligation. The
Corporation is investigating potential alternatives to obtain a
substitute for the self-insured workers compensation financial
assurance amount which would allow it to accelerate the resolution
of the self-insured workers compensation liability. The Corporation
could incur additional costs to settle this workers compensation
liability.
During the first quarter of fiscal 2005, the Corporation received
$1,000,000 in proceeds from the sale of the High Falls Note. See
Note B to the accompanying consolidated financial statements.
The accrued compensation and accrued expenses and other liabilities
line items decreased during the first quarter of fiscal 2005 as a
result of the occurrence of anticipated expenditures.
See also Note D to the accompanying consolidated financial
statements, which is incorporated herein by reference thereto, which
explains the Corporation's Class B Common Stock de-listing and
closing of the Corporation's stock books.
Page 11 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements
This report contains forward-looking statements within the meaning
of the federal securities laws. These forward-looking statements
include estimates of the net assets of the Corporation in
liquidation, statements about the amount and timing of the payment
of additional liquidating distributions and statements about the
Corporation's operating costs through final dissolution, including
the additional wind-up costs, which will vary with the length of
time it operates. The cautionary statements regarding estimates of
net assets in liquidation set forth in Note B to the accompanying
consolidated financial statements that accompany this report are
incorporated herein by reference. The forward-looking statements in
this report are subject to a number of other significant risks and
uncertainties, and there can be no assurance that the expectations
reflected in those statements will be realized or achieved. Such
risks and uncertainties include, without limitation, possible
contingent liabilities and post-closing indemnification and other
obligations arising from the sale of the Corporation's operating
businesses and other assets; the risk that federal, state or local
taxing authorities will audit the tax returns filed by the
Corporation that report the sale of its brewing, foods and equipment
leasing businesses and other assets resulting in additional taxes
being assessed against the Corporation; the risk that income, sales,
use and other tax returns filed by the Corporation prior to the
divestiture of its brewing, foods and equipment leasing businesses
might be audited by federal, state or local taxing authorities
resulting in additional taxes being assessed against the
Corporation; the risk that the Corporation may not be able to
realize its current estimate of the net value of its assets; the
risk that the Corporation may have underestimated the settlement
expense of its obligations and liabilities, including without
limitation, its estimates of self-insured workers compensation
liability, accrued compensation, and tax liabilities; risks
associated with the liquidation and dissolution of the Corporation,
including without limitation, settlement of the Corporation's
liabilities and obligations, costs, including professional fees,
incurred in connection with carrying out the Plan of Liquidation and
Dissolution and additional run-out expenses, discharge of contingent
liabilities, and the winding up and dissolution of the Corporation.
Item 4. Controls and Procedures
The management of the Corporation is responsible for establishing
and maintaining effective disclosure controls and procedures, as
defined under Rules 13a-15 and 15d-15 of the Securities Exchange Act
of 1934. As of July 31, 2004, an evaluation was performed under the
supervision and with the participation of management, including the
Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Corporation's
disclosure controls and procedures. Based on that evaluation,
management concluded that the Corporation's disclosure controls and
procedures as of July 31, 2004 were effective in ensuring that
information required to be disclosed in this Quarterly Report on
Form 10-Q was recorded, processed, summarized, and reported within
the time period required by the United States Securities and
Exchange Commission's rules and forms.
There has been no change in the Corporation's internal control over
financial reporting that occurred during the most recent fiscal
quarter that has materially affected, or is reasonably likely to
affect, the Corporation's internal control over financial reporting.
Page 12 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index at Page 13 of this report.
(b) Reports on Form 8-K. The Corporation filed a report on Form
8-K on June 4, 2004 to report information under Item 2
(Acquisition or Disposition of Assets) and Item 5 (Other
Events.)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESEE CORPORATION
Date: 9/13/04 /s/ Steven M. Morse
--------------------------------------
Steven M. Morse
President, Treasurer, and Secretary
Page 13 of 16
GENESEE CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page No.
------ ------- --------
31.1 Officer Certifications as required by Section 302 of the Sarbanes-Oxley Act of 2002. 14
31.2 Officer Certifications as required by Section 302 of the Sarbanes-Oxley Act of 2002. 15
32 Officer Certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002. 16