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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 October 26, 2002
----------------
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
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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 18
GENESEE CORPORATION
AND SUBSIDIARIES
Statements Of Net Assets In Liquidation (Liquidation Basis)
October 26, 2002 and April 27, 2002
(Dollars in thousands, except per share data)
UNAUDITED
OCTOBER 26, 2002 APRIL 27, 2002
---------------- --------------
ASSETS
Cash and cash equivalents $ 3,716 $ 11,147
Restricted cash 5,600 5,600
Marketable securities available for sale 5,361 6,667
Notes receivable 2,800 10,081
Investment in and notes receivable from unconsolidated real estate partnerships 0 6,351
Investment in direct financing and leveraged leases 92 209
Estimated income tax receivable 842 994
Other assets 362 811
---------- ----------
Total assets $ 18,773 $ 41,860
========== ==========
LIABILITIES AND NET ASSETS
Accrued compensation $ 1,025 $ 1,245
Accrued expenses and other liabilities 1,156 1,021
Liquidating distribution payable 0 8,370
Accrued self-insured workers compensation 1,361 1,602
---------- ----------
Total liabilities 3,542 12,238
---------- ----------
Net assets in liquidation $ 15,231 $ 29,622
========== ==========
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 $ 9.10 $ 17.69
========== ==========
See accompanying notes to consolidated financial statements.
Page 3 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Changes In Net Assets In Liquidation (Liquidation Basis)
For the Twenty Six and Thirteen Weeks Ended October 26, 2002
(Dollars in thousands)
UNAUDITED
Net assets in liquidation at April 27, 2002 $ 29,622
Interest income 305
Changes in estimated liquidation values of assets and liabilities (8)
--------
Net assets in liquidation at July 27, 2002 29,919
Liquidating distributions paid to shareholders (13,393)
Interest income 299
Changes in estimated liquidation values of assets and liabilities (1,594)
--------
Net assets in liquidation at October 26, 2002 $ 15,231
========
See accompanying notes to consolidated financial statements.
Page 4 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Loss
Nine Weeks Ended September 29, 2001
(Dollars in thousands, except per share data)
UNAUDITED
Revenues $ 0
Cost of goods sold 0
-----------
Gross profit 0
Selling, general and administrative expenses 227
-----------
Operating loss (227)
Investment and interest income 290
Other income 0
-----------
Earnings from continuing operations before income taxes 63
Income tax expense 25
-----------
Earnings from continuing operations 38
Discontinued operations:
Earnings from operations of the discontinued segments
(less applicable income tax expense of $ 387
Loss on sale of the Foods Division (less applicable income tax benefit of $0) (1,166)
Adjustment to the loss on disposal of Genesee Ventures, Inc.
(less applicable income tax benefit of $ 82) (122)
-----------
Net loss before extraordinary item (863)
Extraordinary item - Loss from the exstinguishment of debt, net of income tax benefit of $ 257 (385)
-----------
Net loss (1,248)
Other comprehensive income, net of income taxes:
Unrealized holding gains arising during the period 75
-----------
Comprehensive loss $ (1,173)
===========
Basic and diluted earnings per share from continuing operations $ 0.02
Basic and diluted earnings per share from discontinued operations $ 0.23
Basic and diluted loss per share from the sale of the Foods Division $ (0.70)
Basic and diluted loss per share from disposal of Genesee Ventures, Inc. $ (0.07)
Basic and diluted loss per share from the extraordinary item $ (0.23)
-----------
Basic and diluted loss per share $ (0.75)
===========
Weighted average common shares outstanding 1,674,086
Weighted average and common equivalent shares 1,674,086
See accompanying notes to consolidated financial statements.
Page 5 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Loss
Twenty Two Weeks Ended September 29, 2001
(Dollars in thousands, except per share data)
UNAUDITED
Revenues $ 0
Cost of goods sold 0
-----------
Gross profit 0
Selling, general and administrative expenses 503
-----------
Operating loss (503)
Investment and interest income 735
Other income 5
-----------
Earnings from continuing operations before income taxes 237
Income tax expense 95
-----------
Earnings from continuing operations 142
Discontinued operations:
Loss from operations of the discontinued segments
(less applicable income tax expense of $ (21,154)
Loss on sale of the Foods Division (less applicable income tax benefit of $0) (1,166)
Adjustment to the loss on disposal of Genesee Ventures, Inc.
(less applicable income tax expense of $ 145) 232
-----------
Net loss before extraordinary item (21,946)
Extraordinary item - Loss from the exstinguishment of debt, net of income tax benefit of $ 257 (385)
-----------
Net loss (22,331)
Other comprehensive income, net of income taxes:
Unrealized holding gains arising during the period 157
-----------
Comprehensive loss $ (22,174)
===========
Basic and diluted earnings per share from continuing operations $ 0.08
Basic and diluted loss per share from discontinued operations $ (12.64)
Basic and diluted loss per share from the sale of the Foods Division $ (0.70)
Basic and diluted gain per share from disposal of Genesee Ventures, Inc. $ 0.14
Basic and diluted loss per share from the extraordinary item $ (0.23)
-----------
Basic and diluted loss per share $ (13.35)
===========
Weighted average common shares outstanding 1,674,086
Weighted average and common equivalent shares 1,674,086
See accompanying notes to consolidated financial statements.
Page 6 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
TWENTY TWO WEEKS ENDED SEPTEMBER 29, 2001
(Dollars in thousands)
UNAUDITED
2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings from continuing operations $ 142
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Net gain on sale of marketable securities (8)
Deferred tax provision (2)
Extraordinary loss from early exstinguishment of debt (642)
Other (293)
Changes in non-cash assets and liabilities, net of amounts sold:
Income taxes payable 545
-------------------
Net cash used in continuing operating activities (258)
Net cash provided by discontinued operations 2,078
------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,820
------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 2,018
Purchases of marketable securities and other investments (2,160)
-------------------
Net cash used in continuing investing activities (142)
-------------------
Proceeds from sale of Foods Division 22,079
Other cash provided by discontinued operations 535
-------------------
Net cash provided by discontinued operations 22,614
------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 22,472
------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used in continuing financing activities 0
Net cash used in discontinued operations (5,973)
------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (5,973)
------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 18,319
Cash and cash equivalents at beginning of the period 12,237
-----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 30,556
===========================================================================================================
See accompanying notes to consolidated financial statements.
Page 7 of 18
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 its operations
and then liquidate and dissolve the Corporation. 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, after
which the Corporation will be dissolved.
The Corporation sold its brewing business in December 2000 to
High Falls Brewing Company, LLC ("High Falls") for $27.2
million. The Corporation received $11 million of the sale
price in the form of notes receivable 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 continues to hold some of the leases
which it retained after this sale.
On October 10, 2001, the Corporation sold all of the
outstanding stock of its Ontario Foods, Inc. subsidiary, which
constituted its Foods Division, to Associated Brands, Inc.
("ABI") for $27 million. Net of purchase price adjustments,
the Corporation received $22.1 million in cash. The
Corporation also took back a $2.25 million note and mortgage.
The note and mortgage, together with $178,000 in cash paid by
ABI, were placed in escrow for a period of eighteen months to
cover any contingent liabilities or post-closing obligations
of the Corporation. On April 5, 2002 ABI paid in full the
$2.25 million note and mortgage so the $2.43 million escrow is
now funded entirely by cash, which is invested in commercial
bank money market funds.
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. In connection with this transaction, the
purchasers have agreed to indemnify the Corporation for any
liability arising from the Corporation's guaranty of half of a
$5.5 million senior subordinated loan on the building.
On September 16, 2002, the Corporation sold its 50% interest
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 effective September 29, 2001. 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 8 of 18
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
GAAP in the accompanying Statement of Net Assets in
Liquidation 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 generally 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 October 26, 2002.
Cash and cash equivalents / 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 October 26, 2002, substantially
all cash balances were in excess of federally insured limits.
Marketable securities available for sale - Presented at quoted
market prices. The Corporation maintains a portfolio that
consists predominantly of high quality corporate bonds which
is managed by an independent third party. Valuation of the
Corporation's marketable securities is based upon closing
prices of their marketable securities, as provided by the
investment manager, at October 26, 2002.
Notes receivable - Stated at fair value, which has been
discounted from face value as described below. As partial
consideration for the Corporation's sale of Genesee Brewing
Company, the Corporation received $11 million in notes
receivable from the buyer. On July 30, 2002 the Corporation
received $5.9 million in satisfaction of the remaining
principal balance due on 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
HUD financing. At October 26, 2002, the only amount remaining
due to the Corporation is $4 million under a subordinated note
receivable. The remaining $4 million note balance is due as
follows: $1 million due on December 15, 2002 and $3 million
due on December 15, 2003. However, the Corporation has been
notified by High Falls that it will not be able to make the $1
million December 15, 2002 principal payment. The Corporation
has adjusted the value of the subordinated note on the
Statement of Net Assets in Liquidation to $2.8 million to
reflect
Page 9 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (B) LIQUIDATION BASIS OF ACCOUNTING (CONTINUED)
management's current estimate of the value of the note, which
is based on the fair market value of publicly traded debt
instruments of similar quality.
Investment in direct financing and leveraged leases -
Presented at the present value of future lease payments of
leases under renewal and the estimated fair value of all
equipment under renewed and month-to-month leases.
Estimated income tax receivable - Based on management's
estimate. Amount reflects the impact on cash flow under an
orderly liquidation scenario. It is comprised of current taxes
on current year income, adjusting for estimates of future
income, and the utilization of tax credits and carryforwards.
Certain amounts included in the estimated income tax
receivable are subject to audit by various taxing authorities.
Management does not believe that the results of any audit will
significantly alter this amount. During the first quarter of
fiscal 2003 this amount was reduced by $200,000 related to the
Corporation's sale of its investment in the two apartment
complexes mentioned above.
Other assets - Valued based on management estimates.
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 represent the estimated cash costs of
operating the Corporation through its expected termination
date, which is currently February 2004. These run-out costs,
which were increased by $450,000 in the second quarter of
fiscal 2003, include personnel, facilities, professional fees,
and other related costs, and 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 from the amount that the Corporation has estimated.
During the first quarter of fiscal 2003, the accrued expenses
and other liabilities estimate was increased by $350,000 as
the result of preliminary audit findings from a New York State
sales and use tax audit related to the Corporation's former
brewing business.
Accrued self-insured workers compensation - Based on an
independent actuarial valuation. The Corporation is
self-insured for workers compensation claims and has retained
this liability for the subsidiaries that were sold. The
Corporation is required to have a statutory standby letter of
credit in the amount of $3.2 million for workers compensation
claims. This letter of credit, which is renewed annually, has
been collateralized by Corporation cash and is in effect
through August 2003.
Contingent liabilities - In addition to liabilities recorded
on the accompanying consolidated financial statements, the
Corporation also has certain contingent liability claims.
Management does not believe that there will be any future
material cash outflows as a result of these claims, or as a
result of any other unknown claims or liabilities, thus no
amount is included in these accompanying consolidated
financial statements.
Page 10 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
NOTE (C) FINANCIAL STATEMENT PRESENTATION
Liquidation Basis Financial Statements
The Corporation's Statement of Net Assets in Liquidation as of
October 26, 2002 and Statement of Changes in Net Assets in
Liquidation for the twenty six and thirteen weeks ended
October 26, 2002 presented herein are unaudited. The April 27,
2002 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 specific statement
date.
Going-Concern Basis Financial Statements
For the prior year nine and twenty two week periods ended
September 29, 2001, all of the Corporation's subsidiary
operating businesses are reported as discontinued operations
with only the corporate segment reported as continuing
operations. The Consolidated Statements of Earnings and
Comprehensive Loss and the Consolidated Statements of Cash
Flows are the only going-concern based financial statements
that are included in this report.
The accompanying financial statements have been prepared in
accordance with GAAP and 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 year ended April 27, 2002. It is the Corporation's
policy to reclassify certain amounts in the prior year
consolidated financial statements to conform to the current
year presentation.
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. 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
prior fiscal year the Corporation's operating businesses have
been classified as discontinued operations and in the current
fiscal year the Corporation had no operations. Therefore,
there is no discussion of operations in this financial review.
LIQUIDITY AND CAPITAL RESOURCES - OCTOBER 26, 2002
---------------------------------------------------
On October 11, 2002, the Corporation paid a partial
liquidating distribution of $5,022,000, or $3.00 per share, to
shareholders of record on October 4, 2002. This distribution
represented the fifth distribution paid to shareholders under
the Corporation's plan of liquidation and dissolution. On
August 26, 2002, the Corporation paid a partial liquidating
distribution of $8,370,000, or $5.00 per share. On May 17,
2002 the Corporation paid a partial liquidating distribution
of $8,370,000, or $5.00 per share. On November 1, 2001 the
Corporation paid a partial liquidating distribution of
$21,763,000, or $13.00 per share. On March 1, 2001, the
Corporation paid a partial liquidating distribution of
$12,557,000 or $7.50 per share. Total distributions have
amounted to $56,082,000, or $33.50 per share.
Page 11 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - OCTOBER 26, 2002
-------------------------------------------------------------
(continued)
-----------
The Corporation expects to pay additional liquidating
distributions as the Corporation: (a) receives payment on the
remaining promissory note described in Note B to the
consolidated financial statements which accompany this report;
(b) receives the proceeds from the escrow account from the
sale of the Foods Division, which is described below; and (c)
discharges contingent liabilities and post-closing obligations
arising from the sale of its assets and other contingent
liabilities. 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.
Currently, management has estimated that the winding up and
dissolution of the Corporation will be completed by February
2004.
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 than is reported in the accompanying Statement
of Net Assets in Liquidation.
The Corporation's unrestricted and restricted cash and cash
equivalents are invested in commercial bank money market
funds. These funds are currently yielding approximately 1.8%
per annum. Investment in money market funds is intended to
earn a reasonable return on those funds and give the
Corporation the security and flexibility required as it
completes the liquidation and dissolution process.
Restricted cash represents cash which the Corporation is
temporarily unable to access. $2.4 million in restricted cash
is being held in escrow, with a nationally chartered bank, for
potential claims arising from the sale of the Corporation's
Foods Division. The escrow is scheduled to expire on April 10,
2003. Upon expiration, the principal balance and all accrued
interest in the escrow account is payable to the Corporation
except to the extent that claims for post-closing liabilities
arising from the sale of the foods business exceed $270,000.
As of October 26, 2002, the total amount of all claims
chargeable against the escrow account was less than $10,000.
$3.2 million in restricted cash is being held as collateral
for a bank standby letter of credit, which provides financial
assurance for the Corporation's self-insured workers
compensation liability. The Corporation is required by the New
York Workers Compensation Board (the "Board") to maintain a
$3.2 million standby letter of credit to provide financial
assurance for self-insured workers compensation liability. The
bank that issued the standby letter of credit has required the
Corporation to collateralize the letter of credit by
maintaining a cash balance of $3.2 million in a money-market
account with the bank. Despite the lower $1.4 million
actuarial valuation as of October 26, 2002 and the Corporation
expectation that the actuarial valuation of workers
compensation liability will decline over time as claims are
paid, the Board will not review the $3.2 million financial
security requirement until at least October 2004 and it is not
currently known whether the Board will adjust the financial
security requirement to an amount more consistent with the
actuarial valuation of workers compensation liability. It is
management's current expectation that the 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's marketable securities consist of a bond
portfolio managed by an investment management firm. This
portfolio had a fair market value of $5,361,000 at October 26,
2002. The investments in this portfolio includes $763,000 in
U.S. treasury notes and government agency bonds with the
balance of $4,598,000 invested in corporate bonds with a
Moody's dollar weighted average
Page 12 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - OCTOBER 26, 2002
---------------------------------------------------
(continued)
------------
rating of Aa3. The portfolio currently has a weighted average
duration of approximately 1.67 years. The current yield to
maturity is approximately 3%.
During the first half of fiscal 2003, the Corporation received
$6.1 million in principal payments from High Falls in
satisfaction of two High Falls bridge notes described in Note
B to the accompanying consolidated financial statements. The
remaining $4 million note from High Falls bears interest at
the rate of 12% per annum. Interest is paid quarterly and
principal payments of $1 million and $3 million are due on
December 15, 2002 and December 15, 2003, respectively. The
December 15, 2003 principal payment can be extended by High
Falls to December 15, 2005 if High Falls does not achieve
certain contract brewing volume targets.
The $4 million note is subordinate to High Falls' senior bank
debt and mezzanine financing. Under the terms of the senior
debt agreements, in the event of a default by High Falls, the
senior lenders could declare a standstill, which would prevent
the Corporation from receiving principal and interest payments
and enforcing its rights against collateral pledged by High
Falls to secure the $4 million note. If the senior lenders
were to declare a standstill, payments to the Corporation and
the Corporation's rights as a secured creditor could be
suspended indefinitely. The terms of the High Falls seller
financing are detailed in exhibits to the Corporation's report
on Form 8-K filed on January 2, 2001.
High Falls is currently in compliance with all of its
obligations under its loan agreements with the Corporation.
However, as mentioned in Note B of the accompanying
consolidated financial statements, High Falls has notified the
Corporation that it will not be able to make the $1 million
December 15, 2002 principal payment, at which time High Falls
would be out of compliance with the loan agreement. If High
Falls does not make the December 15, 2002 principal payment,
interest will begin to accrue at the default rate of 14% per
annum. The Corporation has adjusted the value of the High
Falls note on its Statement of Net Assets in Liquidation to
$2.8 million to reflect management's current estimate of the
value of the note, which is based on the fair market value of
publicly traded debt instruments of similar quality.
On May 31, 2002, the Corporation received $2.4 million in
proceeds from the sale of its ten percent interest in and note
receivable from Clinton Square, which is described in Note A
of the accompanying consolidated financial statements. This
receipt of funds reduced the investment in and notes
receivable from unconsolidated real estate partnerships line
item in the Statement of Net Assets accordingly.
On September 16, 2002, the Corporation sold its two real
estate investments that are described in Note B to the
accompanying consolidated financial statements for $4.5
million. This receipt of funds reduced the investment in and
notes receivable from unconsolidated real estate partnerships
line item in the Statement of Net Assets accordingly. Also, as
a result of these sales the estimated income tax receivable
line item in the Statement of Net Assets was decreased by
$200,000.
Other assets decreased during the first half of fiscal 2003
primarily as a result of the Corporation having received
$168,000 in insurance refunds and having collected $167,000
from certain officers on outstanding loans which have now been
completely repaid.
Accrued compensation as presented in the Statement of Net
Assets decreased from its April 27, 2002 balance by
approximately $200,000. This decrease is as a result of the
payment of compensation related costs of approximately
$500,000 and an increase in the compensation component of the
run-out accrual in this quarter by approximately $300,000.
Page 13 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - OCTOBER 26, 2002
---------------------------------------------------
(continued)
-----------
Accrued expenses and other liabilities increased by $135,000.
This net increase is the result of the payment of $338,000 of
incurred operating costs, the increase of an accrual by
$350,000 which represents preliminary results from a New York
State sales and use tax audit related to the Corporation's
former brewing business, and an increase in the administrative
component of the run-out accrual in this quarter by
approximately $150,000.
The accrued self-insured workers compensation liability
decreased by $241,000 in the first half of fiscal 2003 as a
result of regular and expected payments on claims.
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
that 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 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, the risk of default by High Falls Brewing
Company LLC ("High Falls") on its payment and other obligations
under the one remaining promissory note described in Note B to the
consolidated financial statements which accompany this report; the
possible extension of payment or renegotiation of terms under the
remaining promissory note from High Falls described in Note B to
the accompanying consolidated financial statements; 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 to 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; and risks
associated with the liquidation and dissolution of the
Corporation, including without limitation, settlement of the
Corporation's liabilities and obligations, costs incurred in
connection with carrying out the plan of liquidation and
dissolution, the amount of income earned during the liquidation
period on the Corporation's bond portfolio and investment in money
market funds, risks that the market value of the Corporation's
bond portfolio could decline, risks associated with investments in
bonds and money market funds in the current low interest rate
environment, discharge of contingent liabilities, and the actual
timing of the winding up and dissolution of the Corporation.
Page 14 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 4. Controls and Procedures
In accordance with Securities Exchange Act Rules, the
Corporation's management, under the supervision of the President
and Chief Financial Officer, conducted an evaluation of the
effectiveness of the design and operation of the Corporation's
disclosure controls and procedures within 90 days of the filing
date of this quarterly report. Based on that evaluation, the
Corporation concluded that the design and operation of its
disclosure controls and procedures were effective. There have been
no significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent to
the date of such evaluation.
Page 15 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
99 Officer Certifications
(b) REPORTS ON FORM 8-K. The Corporation filed reports on
Form 8-K on July 31, 2002, September 16, 2002,
September 17, 2002, November 14, 2002, and December 3,
2002 to report information under 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: 12/9/02 /s/ Stephen B. Ashley
--------------- --------------------------------------------
Stephen B. Ashley
President
Date: 12/9/02 /s/ Steven M. Morse
--------------- --------------------------------------------
Steven M. Morse
Vice President and Chief Financial Officer
Page 16 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
I, Stephen B. Ashley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Genesee
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 9, 2002
/s/ Stephen B. Ashley
----------------------------------------
President
Page 17 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
I, Steven M. Morse, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Genesee
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 9, 2002
/s/ Steven M. Morse
-----------------------------------------------
Vice President and Chief Financial Officer