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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 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 17
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Net Assets In Liquidation (Liquidation Basis)
January 31, 2004 and May 3, 2003
(Dollars in thousands, except per share data)
January 31, 2004 May 3, 2003
---------------- -----------
ASSETS
Cash and cash equivalents $ 4,368 $ 6,572
Restricted cash 3,200 3,200
Marketable securities available for sale 0 3,010
Note receivable 1,100 2,800
Estimated income tax receivable, net 115 0
Other assets 203 353
---------- ----------
Total assets $ 8,986 $ 15,935
========== ==========
LIABILITIES AND NET ASSETS
Accrued compensation $ 222 $ 525
Accrued expenses and other liabilities 602 874
Estimated income tax payable, net 0 4,664
Accrued self-insured workers compensation 1,065 1,495
---------- ----------
Total liabilities 1,889 7,558
---------- ----------
Net assets in liquidation $ 7,097 $ 8,377
========== ==========
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 $ 4.24 $ 5.00
========== ==========
See accompanying notes to consolidated financial statements.
Page 3 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Changes In Net Assets In Liquidation (Liquidation Basis)
For the Thirteen Week and Thirty Nine Week Periods Ended January 31, 2004 and
January 25, 2003
(Dollars in thousands)
2004 2003
--------- --------
Net assets in liquidation at May 3, 2003 and April 27, 2002, respectively $ 8,377 $ 29,622
High Falls subordinated note receivable:
Interest income 140 120
Interest income, net 12 194
Changes in estimated liquidation values of assets and liabilities 2 (17)
--------- --------
Net assets in liquidation at August 2, 2003 and July 27, 2002, respectively 8,531 29,919
Liquidating distributions paid to shareholders 0 (13,393)
High Falls subordinated note receivable:
Interest income 70 120
Change in fair value (1,700) (1,200)
Interest (expense) income, net (58) 179
Changes in estimated liquidation values of assets and liabilities (163) (394)
--------- --------
Net assets in liquidation at November 1, 2003 and October 26, 2002, respectively 6,680 15,231
High Falls subordinated note receivable:
Interest income 120 120
Interest (expense) income, net (60) 119
Changes in estimated liquidation values of assets and liabilities 357 68
--------- --------
Net assets in liquidation at January 31, 2004 and January 25, 2003, respectively $ 7,097 $ 15,538
========= ========
See accompanying notes to consolidated financial statements.
Page 4 of 17
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. 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. Since then, the Corporation continued to hold and
manage a small number of leases that it retained after this
sale. The final lease matured in November 2003 resulting in
the conclusion of the Corporation's equipment leasing
activities.
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 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 5 of 17
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 January 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 January 31, 2004, substantially
all cash balances were in excess of federally insured limits.
The Corporation's Board of Directors (the "Board") has adopted
a Contingent Liability Reserve Policy whereby the Corporation
will maintain a cash contingency reserve equal to $2.5
million, or $1.50 per outstanding share, for unexpected
expenses of the Corporation. The amount of the reserve may be
modified in the future by the Board as deemed necessary. The
balance of this reserve is $2.5 million at January 31, 2004;
however, it is not classified as restricted or as a liability
in the accompanying Statement of Net Assets in Liquidation.
Marketable securities available for sale - Presented at quoted
market prices. The Corporation had maintained a portfolio that
consisted predominantly of high quality corporate bonds which
was managed by an independent third party investment manager.
Valuation of the Corporation's marketable securities was based
upon closing prices of their marketable securities, as
provided by the investment manager. During the second quarter
of fiscal 2004 the Corporation liquidated its portfolio by
selling all of its marketable securities.
Page 6 of 17
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. 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 31, 2004, the amount remaining due to the
Corporation from High Falls is $4 million under a subordinated
note with an original face amount of $4.5 million (the "High
Falls Note"). The $4 million balance was payable as follows:
$1 million was due on December 15, 2002 and $3 million was due
on December 15, 2003. High Falls did not make the $1 million
principal payment due on December 15, 2002 or the $3 million
principal payment due on December 15, 2003 and is currently in
default under the terms of the High Falls Note. During the
second quarter of fiscal 2003 the Corporation adjusted the
value of the $4 million balance due on the High Falls Note to
$2.8 million to reflect management's estimate of the value of
the note, based on the fair market value of publicly traded
debt instruments of similar quality. The Corporation had been
in discussions with High Falls regarding the restructuring of
the High Falls Note in connection with the possible
recapitalization of High Falls Brewing Company. In November
2003 High Falls notified the Corporation that High Falls'
efforts to recapitalize High Falls in a transaction with a
third party had ended unsuccessfully and that High Falls would
not be able to make the December 15, 2003 $3 million principal
payment. A proposal from High Falls to refinance the remaining
balance of the High Falls Note is expected soon. As a result
of these developments, in November 2003 management reduced its
estimate of the value of the High Falls Note by another $1.7
million to $1.1 million, based on the fair market value of
publicly traded debt instruments of similar quality.
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 taxes and
estimated interest currently owed on prior year tax
underpayments and estimated amounts of taxes to be received
within the next year. 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.
As tax returns are filed utilizing management's 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 all tax returns have been filed and
reviewed by the taxing authorities and during the third
quarter of fiscal 2004, a $365,000 adjustment was recorded by
the Corporation which replaced a $250,000 estimated income tax
liability with a $115,000 estimated income tax receivable. The
estimated income tax receivable 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.
Page 7 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
Other assets - Valued based on management estimates. At
January 31, 2004 the $203,000 balance is primarily comprised
of prepaid insurance, accrued interest receivable, 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 and accrued expenses and other
liabilities - Based on management's estimate. These are the
estimated costs to complete the Plan of Liquidation and
Dissolution, and represent the estimated cash costs of
operating the Corporation through April 2004 and for an
additional wind-up phase after April 2004. During the second
and third quarters of fiscal 2004 the estimate of certain
costs were adjusted to reflect management's current
expectations.
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. Due to the inherent uncertainty in the
estimation process, actual results could be materially
different. The table below details these costs by category as
of May 3, 2003 and January 31, 2004 and the expenditures and
management adjustments that occurred during the first three
quarters of fiscal 2004.
Nine Months Ended Nine Months Ended
May 3, 2003 January 31, 2004 January 31, 2004 January 31, 2004
Category Balance Expenditures Adjustments Balance
- --------------------------------------------------------------------------------------------------------------------
Compensation and related costs $ 525,000 $ (303,000) $ 0 $ 222,000
- ------------------------------------------------------------------------------------------------------------------
Office expenses,
including rent 54,000 (33,000) (11,000) 10,000
- ------------------------------------------------------------------------------------------------------------------
Insurance expense 200,000 (101,000) 51,000 150,000
- ------------------------------------------------------------------------------------------------------------------
Professional fees 205,000 (317,000) 191,000 79,000
- ------------------------------------------------------------------------------------------------------------------
Post April 2004 costs 300,000 0 0 300,000
- ------------------------------------------------------------------------------------------------------------------
Other 115,000 (81,000) 29,000 63,000
- ------------------------------------------------------------------------------------------------------------------
Totals $1,399,000 $ (835,000) $ 260,000 $ 824,000
- ------------------------------------------------------------------------------------------------------------------
The $191,000 adjustment to the professional fees estimate is
primarily related to an expected increase in legal and
accounting costs as the Corporation appropriately positions
itself for its post April 2004 phase to wind up its business.
Page 8 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE (B) Liquidation Basis of Accounting (continued)
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. In connection with this liability, the
Corporation is required by the New York Workers Compensation
Board (the "Compensation Board") to maintain the $3.2 million
standby letter of credit, which has been renewed through
August 2004. 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.
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 31, 2004 and Statement of Changes in Net Assets in
Liquidation for the thirteen week and thirty nine week periods
ended January 31, 2004 and January 25, 2003 presented herein
are unaudited. The May 3, 2003 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 3, 2003. 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. These
actions are pursuant to the Plan of Liquidation and
Dissolution.
Page 9 of 17
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 - JANUARY 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
----------- ------
TOTAL $62,779,000 $37.50
=========== ======
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: (a) receives payments on the
remaining promissory note described in Note B to the
accompanying consolidated financial statements which accompany
this report; (b) is allowed to reduce the financial assurance
for its self-insured workers compensation liability described
below; (c) 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. While Management has targeted that the Plan of
Liquidation and Dissolution will be completed by April 2004,
there will be a further phase required to wind up its
business, necessitated by certain assets and liabilities
having a longer maturity or term. While the duration of this
additional phase is unknown, there will be costs associated
with it. The Corporation has estimated the present value of
those costs at $300,000 and this amount has been recorded as a
part of the run-out accrual and reflected in the accrued
expenses and other liabilities line in the accompanying
Statement of Net Assets in Liquidation.
Page 10 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004
(continued)
As a result of certain assets and liabilities having a
maturity or term beyond April 2004, the Corporation currently
expects that the net realizable value of certain assets,
including the High Falls note receivable, will not be
distributable to shareholders by that date and that 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 Corporation or transferred to a post-dissolution entity
to be held for the benefit of the Corporation's shareholders
and cash will be distributed to shareholders as the net
realizable values 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 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 1.0% per annum. The
Corporation's Board of Directors (the "Board") has adopted a
Contingent Liability Reserve Policy whereby the Corporation
will maintain a cash contingency reserve equal to $2.5
million, or $1.50 per outstanding share, for unexpected
expenses of the Corporation. The amount of the reserve may be
modified in the future by the Board as deemed necessary. The
balance of this reserve is $2.5 million at January 31, 2004;
however, it 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. Restricted cash in the amount of
$3.2 million 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 "Compensation Board") to
maintain the $3.2 million standby letter of credit, which has
been renewed through August 2004. The issuing bank requires
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. The Compensation Board has recently
completed its review of the $3.2 million financial security
requirement and has decided it will not adjust the financial
security requirement to an amount more consistent with the
$1.1 million actuarial valuation of the workers compensation
liability recorded in the accompanying Statement of Net Assets
in Liquidation. 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 would not be
available for distribution to shareholders until the
Corporation is relieved of its financial assurance obligation.
The Corporation's marketable securities consisted of a bond
portfolio managed by an investment management firm. This
portfolio was liquidated during the second quarter of fiscal
2004 with the proceeds invested in commercial bank money
market funds.
Page 11 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004
(continued)
During the first three quarters of fiscal 2004, the
Corporation received $362,000 in interest from High Falls on
the High Falls Note that is described in Note B to the
accompanying consolidated financial statements. The remaining
High Falls Note 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 and December 15, 2003 $1 million and $3
million principal payments, respectively. However, the
Corporation has only received interest at 12% for its June 15,
2003, September 15, 2003, and December 15, 2003 quarterly
interest payments. The $4 million balance was payable as
follows: $1 million was due on December 15, 2002 and $3
million was due on December 15, 2003. As mentioned above, High
Falls did not make the $1 million or $3 million principal
payments. The Corporation had been in discussions with High
Falls regarding the restructuring of the High Falls Note in
connection with the possible recapitalization of High Falls
Brewing Company. In November 2003 High Falls notified the
Corporation that High Falls' efforts to recapitalize High
Falls in a transaction with a third party had ended
unsuccessfully. A proposal from High Falls to refinance the
remaining balance of the High Falls Note is expected soon.
Under the current arrangement with High Falls, the December
15, 2003 principal payment could have been extended by High
Falls to December 15, 2005 if High Falls did not achieve 2.5
million barrels of contract brewing volume as measured from
December 15, 2000 through December 15, 2003. High Falls, which
is required to certify its contract volume annually, has
certified to the Corporation that as of December 15, 2003, it
has achieved 2,720,083 barrels of contract brewing volume
since December 15, 2000.
The High Falls 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 High Falls 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 $4 million balance due on the High
Falls Note to $2.8 million to reflect management's estimate of
the value of the note, based on the fair market value of
publicly traded debt instruments of similar quality. As a
result of the developments described above, in November 2003
management reduced its estimate of the value of the High Falls
Note by another $1.7 million, to $1.1 million, 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.
Other than the $260,000 fiscal 2004 adjustments to the
estimated costs to complete the Corporation's Plan of
Liquidation and Dissolution, which are primarily related to
professional fees and are included in Note B to the
accompanying consolidated financial statements, the accrued
compensation and accrued expenses and other liabilities line
items decreased during the first three quarters of fiscal 2004
as a result of the occurrence of anticipated expenditures.
Page 12 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004
(continued)
During the first quarter of fiscal 2004, the Corporation paid
$4.7 million to the Internal Revenue Service on account. As a
result, the estimated net income tax payable financial
statement line item decreased accordingly.
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.
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 phase beyond April 2004, 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, the amount and timing of
payments to the Corporation by High Falls under the remaining
promissory note described in Note B to the accompanying 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 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 incurred in connection with carrying out the plan of
liquidation and dissolution and additional run-out expense, discharge
of contingent liabilities, and 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 as of the end of the period covered by this quarterly
report. Based on that evaluation, the Corporation concluded that the
design and operation of its disclosure controls and procedures were
effective. There has been no change in the Corporation's internal
control over financial reporting that occurred during the period
covered by this quarterly report, that has materially affected, or is
reasonably likely to affect, the Corporation's internal control over
financial reporting.
Page 13 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index at Page 14 of this report.
(b) Reports on Form 8-K. The Corporation filed reports on Form 8-K
on November 7, 2003 and December 23, 2003 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: 3/04/04 /s/ Stephen B. Ashley
-----------------------------
Stephen B. Ashley
President
Date: 3/04/04 /s/ Steven M. Morse
----------------------------
Steven M. Morse
Vice President and Chief Financial Officer
Page 14 of 17
GENESEE CORPORATION
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Exhibit Page No.
- ----------- ----------------------------------------------------------------------------------- --------
31 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. 17