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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 January 25, 2003
----------------
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)
January 25, 2003 and April 27, 2002
(Dollars in thousands, except per share data)
UNAUDITED
JANUARY 25, 2003 APRIL 27, 2002
---------------- --------------
ASSETS
Cash and cash equivalents $ 3,732 $ 11,147
Restricted cash 5,600 5,600
Marketable securities available for sale 5,342 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 49 209
Estimated income tax receivable 842 994
Other assets 332 811
---------- ----------
Total assets $ 18,697 $ 41,860
========== ==========
LIABILITIES AND NET ASSETS
Accrued compensation $ 917 $ 1,245
Accrued expenses and other liabilities 982 1,021
Liquidating distribution payable 0 8,370
Accrued self-insured workers compensation 1,260 1,602
---------- ----------
Total liabilities 3,159 12,238
---------- ----------
Net assets in liquidation $ 15,538 $ 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 $ 9.28 $ 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 Thirty-Nine and Thirteen Weeks Ended January 25, 2003 and
For the Seventeen and Thirteen Weeks Ended January 26, 2002
(Dollars in thousands)
UNAUDITED
Net assets in liquidation at April 27, 2002 $ 29,622
Liquidating distributions paid to shareholders (13,393)
Interest income 604
Changes in estimated liquidation values of assets and liabilities (1,602)
--------
Net assets in liquidation at October 26, 2002 15,231
Interest income 239
Changes in estimated liquidation values of assets and liabilities 68
--------
Net assets in liquidation at January 25, 2003 $ 15,538
========
Net assets in liquidation at September 29, 2001 $ 59,086
Liquidating distributions payable to shareholders (21,763)
Interest income 411
Changes in estimated liquidation values of assets and liabilities 197
--------
Net assets in liquidation at October 27, 2001 37,931
Interest income 526
Changes in estimated liquidation values of assets and liabilities (915)
--------
Net assets in liquidation at January 26, 2002 $ 37,542
========
See accompanying notes to consolidated financial statements.
Page 4 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 $714) (21,154)
Loss on sale of the Foods Division (less applicable income tax benefit of $257) (1,551)
Adjustment to the loss on disposal of Genesee Ventures, Inc.
(less applicable income tax expense of $145) 232
---------
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 $ (0.93)
Basic and diluted gain per share from disposal of Genesee Ventures, Inc. $ 0.14
---------
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 5 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)
Other (293)
Changes in non-cash assets and liabilities, net of amounts sold:
Income taxes payable 545
---------
Net cash used in continuing operating activities 384
Net cash provided by discontinued operations 1,436
--------------------------------------------------------------------------
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 6 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 the Corporation's 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.
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 from High Falls, which 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 continues to hold some of the leases, which it retained
after this sale.
The Corporation sold its Foods Division in October 2001 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. In April
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% 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 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 7 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 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 January
25, 2003.
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 January 25, 2003,
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 investment manager. Valuation of the
Corporation's marketable securities is based upon closing prices of the
marketable securities, as provided by the investment manager, at
January 25, 2003.
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, the Corporation received $11 million in notes
receivable from High Falls. 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 government backed loans. At January 25, 2003, the amount remaining
due to the Corporation from High Falls is $4 million under a
subordinated note receivable with an original face amount of $4.5
million. The $4 million balance is payable as follows: $1 million was
due on December 15, 2002 and $3 million is due on December 15, 2003.
High Falls did not make the $1 million principal payment due on
December 15, 2002 and is currently in
Page 8 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (B) LIQUIDATION BASIS OF ACCOUNTING (CONTINUED)
default under the terms of the remaining High Falls note. The
Corporation is currently engaged in discussions with High Falls
regarding possible restructuring of the High Falls note. The
Corporation has adjusted the value of the remaining balance of the High
Falls note on the 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.
Investment in direct financing and leveraged leases - Presented at the
present value of future lease payments of leases renewed for a fixed
term 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 for future income, the utilization of tax
credits, carryforwards and carrybacks. Certain amounts included in the
estimated income tax receivable are subject to audit by both state and
federal taxing authorities. The Corporation has requested accelerated
audits from both state and federal taxing authorities for the tax years
ending April 27, 2002, April 28, 2001, and April 29, 2000. The net
receivable is an estimation of the accumulation of the payments and
refunds expected in the future. Because tax returns are filed utilizing
estimates and management's reasonable interpretation of applicable
rules, the actual results after a tax audit can be different from
amounts initially filed. Based upon all known facts, management has
made an estimation of the range of probable outcomes after the audits
referred to above have been completed. The tax receivable on the
Statement of Net Assets is management's estimate of the most probable
point within the range. Such estimations are often updated as
additional information becomes available.
Due to the numerous significant business dispositions that occurred
during the years which are to be audited, management believes it is
probable that the results of the aforementioned audits may increase or
decrease the amount of income tax receivable recorded in the Statement
of Net Assets by up to approximately $400,000. The Corporation may also
incur additional professional fees as a result of these audits.
During the first quarter of fiscal 2003 the estimated income tax
receivable was reduced by $200,000 related to the Corporation's sale of
its investment in the two apartment complexes mentioned in Note A.
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 the expected
completion date, which has been extended to April 2004 from February
2004. These run-out costs 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.
The run-out costs estimate was increased by $450,000 in the second
quarter of fiscal 2003 to reflect management's revised estimate of
these costs and by $200,000 in the third quarter of fiscal 2003 to
reflect the extension of the expected completion date to April 2004.
Given that there is inherent uncertainty in the estimation process,
actual results could be materially different from the amount that the
Corporation has estimated.
Page 9 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE (B) LIQUIDATION BASIS OF ACCOUNTING (CONTINUED)
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. During the
third quarter of fiscal 2003, the preliminary audit findings were
modified by New York State resulting in a decrease in this liability by
$115,000.
Liquidating Distribution Payable - Exists when the Corporation has
declared a partial liquidating distribution prior to the date of the
statement of net assets in liquidation with such distribution to be
paid subsequent to the statement date. This amount is calculated by
multiplying the number of outstanding Class A and Class B shares by the
declared dollar per share amount.
Accrued self-insured workers compensation - Based on an independent
actuarial valuation. 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.
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 January
25, 2003 and Statement of Changes in Net Assets in Liquidation for the
thirty-nine and thirteen weeks ended January 25, 2003, and the for the
seventeen and thirteen weeks ended January 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 statement date.
Going-Concern Basis Financial Statements
For the twenty-two week period 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 fiscal 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.
Page 10 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
NOTE (C) FINANCIAL STATEMENT PRESENTATION (CONTINUED)
In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. Statement No. 145 no longer requires that gains
and losses on the early extinguishment of debt be classified as an
extraordinary item. The Corporation has reclassified such extraordinary
items presented on its consolidated statement of earnings and
comprehensive loss in prior periods. The remaining provisions of
Statement No. 145 did not have a material effect on the Corporation's
financial position or results of operations.
NOTE (D) SUBSEQUENT EVENT
On February 21, 2003, the Corporation's Board of Directors declared a
sixth partial liquidating distribution in the amount of $4,185,000, or
$2.50 per share, payable on March 17, 2003 to Class A and Class B
shareholders of record on March 10, 2003.
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 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 - JANUARY 25, 2003
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
--------- ----
TOTAL $56,083,000 $33.50
=========== ======
On February 21, 2003, the Corporation's Board of Directors declared a
sixth partial liquidating distribution in the amount of $4,185,000, or
$2.50 per share, payable on March 17, 2003 to shareholders of record on
March 10, 2003.
Subject to amounts that the Corporation may hold to discharge
obligations and potential contingent liabilities, 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) is allowed to reduce
the financial assurance for its self-insured workers compensation
liability described below. The length of time
Page 11 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 25, 2003 (CONTINUED)
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.
Management currently estimates that the Corporation's plan of
liquidation and dissolution will be completed by April 2004.
Notwithstanding the Corporation's current estimate that the plan of
liquidation and dissolution will be completed by April 2004, the
Corporation currently expects that the net realizable value of certain
assets will not be distributable to shareholders and certain of the
Corporation's liabilities, including the workers compensation liability
described below, will not be discharged by that date. All such assets
and liabilities will be retained by the dissolved Corporation or
transferred to a post-dissolution entity to be held for the benefit of
the Corporation's shareholders and will be distributed to shareholders
as the net realizable value of such retained assets become
distributable after discharging any retained liabilities.
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 1.2% per annum. Investment in money
market funds is intended 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.
Restricted cash represents cash which the Corporation is temporarily
unable to access. $2.4 million in restricted cash is being held in
escrow by a nationally chartered bank to cover potential claims arising
from the sale of the Corporation's Foods Division. The escrow is
scheduled to expire on April 5, 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 Division exceed
$250,000. As of January 25, 2003, 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 in a money-market account
with a commercial bank as collateral 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
"Board") to maintain the $3.2 million standby letter of credit, which
is in effect through August 2003. The Corporation expects to renew this
letter of credit or obtain a replacement standby letter of credit in a
like amount from another commercial bank if the current letter of
credit is not renewed. The issuing bank 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 a $1.3
million actuarial valuation of the Corporation's workers compensation
liability as of January 25, 2003 and the Corporation's expectation that
the actuarial valuation of its 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 December
2003 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.
Page 12 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 25, 2003 (CONTINUED)
The Corporation's marketable securities consist of a bond portfolio
managed by an investment management firm. This portfolio had a fair
market value of $5,342,000 at January 25, 2003. The investments in this
portfolio include $819,000 in U.S. treasury notes and government agency
bonds with the balance of $4,523,000 invested in corporate bonds. The
portfolio at January 25, 2003 has a Moody's dollar weighted average
rating of A1. The portfolio currently has a weighted average duration
of approximately 1.44 years. The current weighted average yield to
maturity is approximately 2.47%.
During the first two quarters of fiscal 2003, the Corporation received
$6.1 million in principal payments from High Falls in full satisfaction
of two High Falls bridge notes described in Note B to the accompanying
consolidated financial statements. The remaining $4 million note
receivable from High Falls bears interest at the rate of 12% per annum;
however, interest is currently accruing at the default rate of 14% per
annum as a result of the default by High Falls on the December 15, 2002
$1 million principal payment. Interest is paid quarterly. The $4
million balance is payable as follows: $1 million was due on December
15, 2002 and $3 million is due on December 15, 2003. High Falls did not
make the $1 million principal payment due on December 15, 2002. As a
result of this default, the Corporation is engaged in discussions with
High Falls regarding the possible restructuring of the note. The
December 15, 2003 principal payment can be extended by High Falls to
December 15, 2005 if High Falls does not achieve 2.5 million barrels of
contract brewing volume as measured from December 15, 2000 through
December 15, 2003. High Falls has certified to the Corporation that as
of December 31, 2002, it has achieved 2,153,946 barrels of contract
brewing volume since December 15, 2000.
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 against collateral pledged to
secure the note 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.
During the second quarter of fiscal 2003, the Corporation 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. This adjustment
had no effect on the estimated income tax receivable amount presented
in the Statement of Net Assets in Liquidation.
In the first quarter of fiscal 2003, 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.
In the second quarter of fiscal 2003, the Corporation sold its two real
estate investments that are described in Note A 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.
Page 13 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 25, 2003 (CONTINUED)
Other assets decreased during the first three quarters of fiscal 2003
primarily as a result of prepaid insurance amortization, the receipt of
$168,000 in insurance refunds, and the collection of $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 $328,000. This decrease is
a result of the payment of compensation related costs of approximately
$600,000 and an increase in the compensation component of the run-out
accrual in the second quarter by approximately $300,000.
Accrued expenses and other liabilities decreased by $39,000 from its
April 27, 2002 balance. This net decrease is primarily the result of
the payment of $551,000 of incurred operating costs, the increase of an
accrual by $235,000 which represents modified 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 the second and third quarters by
approximately $150,000 and $200,000, respectively.
The accrued self-insured workers compensation liability decreased by
$342,000 in the first three quarters 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 amount and timing of
payments to the Corporation by High Falls Brewing Company LLC ("High
Falls") under the 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 as a result of
the default by High Falls under that note; 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,
Page 14 of 18
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS (CONTINUED)
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.
Item 4. Controls and Procedures
In accordance with Securities Exchange Act of 1934 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 November 14, 2002, December 3, 2002 and December
24, 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: 3/7/03 /s/ Stephen B. Ashley
-------------------- ------------------------------------
Stephen B. Ashley
President
Date: 3/7/03 /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: March 7, 2003
/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: March 7, 2003
/s/ Steven M. Morse
------------------------------------------
Vice President and Chief Financial Officer