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at Page 46
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: May 1, 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)
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
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act: Class B Common
Stock, par value
$.50 per share
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [x]
The aggregate market value of voting common stock (Class A) held by
non-affiliates, based on the price for Class B Common Stock at the close of
trading on October 31, 2003, the last business day of the fiscal 2004 second
quarter, was $369,540.
Page 2 of 55
The number of shares outstanding of each of the registrant's classes of common
stock as of July 12, 2004 was:
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 3 of 55
PART I
Item 1. Description of Business
General. Genesee Corporation (the "Corporation") was incorporated in 1932
under the laws of the State of New York. Until 1986, the Corporation was known
as The Genesee Brewing Company, Inc. and was engaged solely in the production
and sale of malt beverages. In 1986, the Corporation implemented a strategy to
diversify its business operations beyond its traditional brewing business. The
Corporation subsequently restructured to become a holding company, changed its
name and expanded its business to include subsidiaries conducting dry food
processing and packaging, equipment leasing and real estate investment.
On October 19, 2000, the Corporation's shareholders approved a plan to
liquidate and dissolve the Corporation. Pursuant to this plan, the Corporation
has now liquidated all of its operating businesses and its real estate
investments, as follows:
On December 15, 2000, the Corporation sold substantially all of the
assets and certain liabilities of its brewing business to High Falls
Brewing Company, LLC ("High Falls") for $27.2 million, of which $16.2
million was paid in cash and $11.0 million was represented by notes
receivable from High Falls. At May 1, 2004, the amount remaining due the
Corporation from High Falls was $4 million under a subordinated note
receivable with an original face amount of $4.5 million. On May 25, 2004
the Corporation sold this note to a third party for $1.0 million. The
Corporation filed a Current Report on Form 8-K on June 4, 2004 detailing
the terms of this transaction.
On December 28, 2000, the Corporation's equipment leasing subsidiary,
Cheyenne Leasing Company ("Cheyenne") sold a significant portion of its
lease portfolio for $15.3 million, generating net cash proceeds to the
Corporation of $12.8 million. Cheyenne retained a small portion of its
lease portfolio that it continued to manage through the maturity of its
final lease in November 2003.
On October 10, 2001, the Corporation sold all of the outstanding stock
of its Ontario Foods, Incorporated, 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 with the proceeds being placed
in the escrow account. On April 9, 2003 all but $25,000 of the escrow
account, which was retained for claims presented by ABI against the escrow,
was released to the Corporation. In May 2003, the escrow account was closed
with $10,277 paid to ABI and the balance paid to the Corporation.
On May 31, 2002, the Corporation sold its ten-percent interest in an
office building 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.
Page 4 of 55
With the sale of the Foods Division, 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 will be periodically reviewed and adjusted.
Under the Plan of Liquidation and Dissolution, the Corporation has paid to
Class A and Class B shareholders seven liquidating distributions totaling $62.8
million, or $37.50 per share as of May 1, 2004. On June 18, 2004, the
Corporation paid its eighth partial liquidating distribution to Class A and
Class B shareholders in the amount of $2,511,000 or $1.50 per outstanding share.
During fiscal 2004, the Corporation's Class B common stock was delisted
from the Nasdaq National Market and its Class A and Class B common stock books
were closed.
Effective April 30, 2004, all the Corporation's employees were terminated.
Effective May 31, 2004, all the directors of the Corporation and its
subsidiaries, with the exception of Stephen B. Ashley, resigned. Also effective
May 31, 2004, all officers of the Corporation and its subsidiaries, with the
exception of Steven M. Morse, resigned. Going forward, Mr. Ashley, as the
Corporation's sole director, and Mr. Morse, as the Corporation's sole officer,
will continue to lead the Corporation towards the conclusion of its Plan of
Liquidation and Dissolution.
Employees. As of May 1, 2004, the Corporation had no employees.
Item 2. Properties
None
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fiscal quarter ended May 1, 2004.
Page 5 of 55
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities
The Corporation's Class B Common Stock traded on the NASDAQ National
Market tier of the NASDAQ Stock Market (the "Nasdaq NMS") under the symbol GENBB
through December 31, 2003 at which time it was delisted from the Nasdaq NMS.
There is no established public trading market for the Corporation's Class A or
Class B stock; however, shares of both classes trade occasionally on the OTC
Bulletin Board. As of July 12, 2004, the numbers of holders of record of Class A
(voting) Common Stock and Class B (non-voting) Common Stock were 82 and 790,
respectively. The price for the Class B Common Stock as reported by NASDAQ
through December 31, 2003 and the liquidating distributions paid per share on
Class A and Class B stock for each quarter for the past two years are shown
below:
UNAUDITED FISCAL YEAR ENDED MAY 1, 2004 FISCAL YEAR ENDED MAY 3, 2003
Market Price Liquidating Market Price Liquidating
High Low Distribution High Low Distribution
---- --- ------------ ---- --- ------------
First Quarter $ 5.10 4.20 .00 $ 21.90 15.51 5.00
Second Quarter 5.04 4.40 .00 17.51 6.91 8.00
Third Quarter 4.69 * 3.51 * .00 9.84 7.52 .00
Fourth Quarter N/A * N/A * .00 9.96 4.85 4.00
* Effective December 31, 2003, the Corporation's Class B Common Stock ceased
trading on the Nasdaq NMS as described above.
Page 6 of 55
Item 6. Selected Financial Data
The selected historical financial data included in the table below as
of May 1, 2004, May 3, 2003, April 27, 2002, the twenty two weeks ended
September 29, 2001 and for the two fiscal years ended April 28, 2001 is derived
from the consolidated financial statements of the Corporation and should be read
in conjunction herewith. As described in Note 1 to the accompanying consolidated
financial statements, the Corporation adopted the liquidation basis of
accounting effective September 29, 2001. Therefore, information in the May 1,
2004, May 3, 2003, April 27, 2002 and September 29, 2001 columns below follow
this basis of accounting. The information for the two years ended April 28, 2001
follows the going-concern basis of accounting.
YEARS ENDED
May 1, May 3, April 27, Sept. 29, --------------------
2004 2003 2002 2001 4/28/01 4/29/00
---- ---- ---- ---- ------- -------
Net Revenues From Continuing Operations N/A N/A N/A $ 0 $ 0 $ 0
Net Earnings/(Loss) From Continuing Operations N/A N/A N/A 142 (1,120) (897)
Net Loss From Discontinued Operations N/A N/A N/A (22,473) (1,294) (2,503)
Total Assets $8,839 $15,935 $ 41,860 N/A 81,665 95,771
Total Long Term Debt N/A N/A N/A N/A 5,973 6,273
Net Assets in Liquidation $6,842 8,377 29,622 59,086 N/A N/A
Basic Earnings/ (Loss) Per Share From
Continuing Operations N/A N/A N/A .08 (.69) (.55)
Basic Loss Per Share From Discontinued Operations N/A N/A N/A (13.43) (.79) (1.55)
Diluted Earnings/ (Loss) Per Share From
Continuing Operations N/A N/A N/A .08 (.69) (.55)
Diluted Loss Per Share From
Discontinued Operations N/A N/A N/A (13.43) (.79) (1.55)
Cash Dividends Per Share 0.00 17.00 13.00 0.00 7.85 1.40
(Dollars in thousands, except per share data)
After paying a regular quarterly dividend of $.35 per share on June 1, 2000, the
Board of Directors suspended the payment of quarterly dividends, choosing
instead to make liquidating distributions as and when feasible under the
Corporation's Plan of Liquidation and Dissolution.
Page 7 of 55
Item 7. 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 1 to the accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES - MAY 1, 2004
Liquidating distributions have been paid to Class A and Class B
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
=========== =========
On June 18, 2004, the Corporation paid its eighth partial liquidating
distribution to Class A and Class B shareholders in the amount of $2,511,000 or
$1.50 per outstanding share.
Subject to amounts that the Corporation may hold to discharge obligations
and potential contingent liabilities (see Contingent Liability Reserve Policy
described below), the Corporation expects to pay additional liquidating
distributions as the Corporation is allowed to reduce the financial assurance
for its self-insured workers compensation liability described below and reduces
the amount of the Contingent Liability Reserve described below. The length of
time that will be required to wind-up the Corporation's affairs is uncertain and
will impact the value of the Corporation's net assets in liquidation due to the
ongoing expense of operating the Corporation. While the Corporation had
originally targeted that the Plan of Liquidation and Dissolution would 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 $379,000 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.
As a result of certain assets and liabilities having a maturity or term
beyond April 2004, the net realizable value of certain assets were not
distributable to shareholders by that date and certain of the Corporation's
liabilities, including the workers compensation liability described below, were
not be discharged by that date. 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.
Page 8 of 55
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 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 was $2.5 million, or
approximately $1.50 per share at May 1, 2004; however, it is not classified as
restricted or as a liability in the accompanying Statement of Net Assets in
Liquidation. After the sale of the High Falls Note on May 25, 2004, the
Corporation's Board further reduced the Contingent Liability Reserve to $1.6
million, or approximately $1.00 per share.
Restricted cash represents cash that the Corporation is temporarily unable
to access. At May 1, 2004, restricted cash in the amount of $3.2 million is
being held in a money-market account with a commercial bank as collateral
required for a standby letter of credit issued by the bank to provide
statutorily required financial assurance for the Corporation's self-insured
workers compensation liability. The Corporation is required by the New York
Workers Compensation Board (the "Compensation Board") to maintain the standby
letter of credit, which is in effect through August 2005. The Compensation Board
reviewed the $3.2 million financial security requirement in February 2004, and
effective June 18, 2004 the Compensation Board agreed to reduce the
Corporation's financial assurance amount to $2.4 million. Effective July 7, 2004
the standby letter of credit was reduced to $2.4 million and simultaneously the
restricted cash was reduced to the same amount. It is management's current
expectation that the Compensation Board will require the Corporation to maintain
some amount of financial assurance for the actuarially determined duration of
the self-insured workers compensation liability, which is currently estimated to
be twenty to twenty-five years, and any such amount will not be available for
distribution to shareholders until the Corporation is relieved of its financial
assurance obligation. The Corporation is investigating potential alternatives to
obtain a substitute for the self-insured workers compensation financial
assurance amount which would allow it to accelerate the resolution of the
self-insured workers compensation liability. The Corporation could incur
additional costs to settle this workers compensation liability.
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.
During fiscal 2004, the Corporation received $362,000 in interest from High
Falls on the High Falls Note as described in Note 1 to the accompanying
consolidated financial statements. As described in Note 2 to the consolidated
financial statements, which is incorporated herein by reference thereto, a
creditor of High Falls senior to the Corporation claims approximately $120,000
of this interest should have been paid to it rather than the Corporation. The
Corporation has been advised by High Falls that High Falls intends to pay this
creditor the $120,000 due on July 30, 2004. Therefore, Corporation management
has not accrued this amount at May 1, 2004. The High Falls Note was sold to a
third party on May 25, 2004 (see Note 2 to the accompanying consolidated
financial statements.)
Other assets remained relatively constant when comparing May 1, 2004 and
May 3, 2003 balances.
Page 9 of 55
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Combined accrued compensation and accrued expenses and other liabilities as
presented in the Statement of Net Assets in Liquidation decreased from its May
3, 2003 balance by $1,010,000. This decrease is a result of the payment of
compensation related costs and operating costs of approximately $1.4 million and
an increase in the run-out and additional winding-up phase accruals in the
second, third and fourth quarters by $177,000, $83,000 and $148,000
respectively.
During fiscal 2004, the estimated net income tax payable of $4,664,000 at
May 3, 2003 became an estimated net income tax receivable of $515,000 at fiscal
year end. This change from liability to asset resulted primarily from
approximately $4.7 million of tax being paid by the Corporation to the Internal
Revenue Service during the first quarter of fiscal 2004. It also reflects the
favorable settlement of an audit from the federal taxing authorities that covers
the Corporation's fiscal years ending April 27, 2002, April 28, 2001, and April
29, 2000. The $515,000 net income tax receivable is an estimation of the
accumulation of the payments and refunds expected through the fiscal year ended
May 1, 2004 and reflects the estimated impact on cash flow under an orderly
liquidation scenario.
The accrued self-insured workers compensation liability increased by
$113,000 during fiscal 2004 as a result of regular and expected payments on
claims and New York State assessments of $487,000 and a $600,000 increase in the
liability as a result of negative development of certain claims. The Corporation
is investigating potential alternatives to obtain a substitute for the
self-insured workers compensation financial assurance amount which would allow
it to accelerate the resolution of this liability. The Corporation could incur
additional costs to settle this workers compensation liability.
Page 10 of 55
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," an Interpretation of Accounting
Research Bulletin (ARB) No. 51, "Consolidated Financial Statements." FIN 46
addresses the consolidation by business enterprises of variable interest
entitles (VIEs) either: (1) that do not have sufficient equity investment at
risk to permit the entity to finance its activities without additional
subordinated financial support, or (2) in which the equity investors lack an
essential characteristic of a controlling financial interest. In December 2003,
the FASB completed deliberations of proposed modifications to FIN 46 (Revised
Interpretations) resulting in multiple effective dates based on the nature and
creation date of the VIE. The Revised Interpretations must be applied to all
VIEs no later than the end of the first interim or annual reporting period
ending after March 15, 2004. However, prior to the required application of the
Revised Interpretations, its provisions must be adopted by the end of the first
interim or annual reporting period that ends after December 15, 2003 (for the
year ended May 1, 2004 for the Corporation) for VIEs considered to be special
purpose entities (SPEs). SPEs for this provision include any entity whose
activities are primarily related to securitizations or other forms of
asset-backed financings or single-lessee leasing arrangements. The adoption of
this standard will not impact the Corporation's financial position.
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 1 to the accompanying consolidated financial
statements that accompany this report are incorporated herein by reference. The
forward-looking statements in this report are subject to a number of other
significant risks and uncertainties, and there can be no assurance that the
expectations reflected in those statements will be realized or achieved. Such
risks and uncertainties include, without limitation, possible contingent
liabilities and post-closing indemnification and other obligations arising from
the sale of the Corporation's operating businesses and other assets; the risk
that federal, state or local taxing authorities will audit the tax returns filed
by the Corporation that report the sale of its brewing, foods and equipment
leasing businesses and other assets resulting in additional taxes being assessed
against the Corporation; the risk that income, sales, use and other tax returns
filed by the Corporation prior to the divestiture of its brewing, foods and
equipment leasing businesses might be audited by federal, state or local taxing
authorities resulting in additional taxes being assessed against the
Corporation; the risk that the Corporation may not be able to realize its
current estimate of the net value of its assets; the risk that the Corporation
may have underestimated the settlement expense of its obligations and
liabilities, including without limitation, its estimates of self-insured workers
compensation liability, accrued compensation, and tax liabilities; risks
associated with the liquidation and dissolution of the Corporation, including
without limitation, settlement of the Corporation's liabilities and obligations,
costs, including professional fees, incurred in connection with carrying out the
Plan of Liquidation and Dissolution and additional run-out expense, discharge of
contingent liabilities, and the winding up and dissolution of the Corporation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Page 11 of 55
Item 8. Financial Statements and Supplementary Data
(a) Selected Quarterly Financial Data (Unaudited)
9 WEEKS 22 WEEKS
FIRST ENDED ENDED
22 WEEKS ENDED 9/29/01 QUARTER 9/29/01 9/29/01
---------------------- -------- ------- --------
Net Revenues From Continuing Operations $ 0 $ 0 $ 0
Gross Profit From Continuing Operations 0 0 0
Net Earnings From Continuing Operations 104 38 142
Net Loss From Discontinued Operations (21,187) (1,286) (22,473)
Basic Earnings Per Share From Continuing
Operations .06 .02 .08
Basic Loss Per Share From Discontinued
Operations (12.66) (.77) (13.43)
Diluted Earnings Per Share From Continuing
Operations .06 .02 .08
Diluted Loss Per Share From Discontinued
Operations (12.66) (.77) (13.43)
(Dollars in thousands, except per share data)
Page 12 of 55
Item 8. Financial Statements and Supplementary Data
(b) Index to Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm- PricewaterhouseCoopers LLP 13
Statement of Net Assets in Liquidation (Liquidation Basis) at May 1, 2004
And May 3, 2003 14
Statement of Changes in Net Assets in Liquidation (Liquidation Basis) For
the years ended May 1, 2004 and May 3, 2003 and for the thirty weeks
ended April 27, 2002 15
Consolidated Statement of Loss and Comprehensive Loss (Going Concern Basis)
For the twenty two weeks ended September 29, 2001 16
Consolidated Statement of Shareholders' Equity (Going Concern Basis)
For the twenty two weeks ended September 29, 2001 17
Consolidated Statement of Cash Flows (Going Concern Basis)
For the twenty two weeks ended September 29, 2001 18
Notes to Consolidated Financial Statements 19
Page 13 of 55
Report of Independent Registered Public Accounting Firm
To the Stockholders of
Genesee Corporation
We have audited the statements of net assets in liquidation of Genesee
Corporation as of May 1, 2004 and May 3, 2003, and the related statements of
changes in net assets in liquidation for the years then ended and the period
from September 30, 2001 to April 27, 2002. In addition, we have audited the
consolidated statements of loss and comprehensive loss, shareholders' equity,
and cash flows for the period from April 29, 2001 to September 29, 2001. These
financial statements are the responsibility of the Corporation management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully described in Note 1, the Corporation is currently being
liquidated. As a result, the Corporation has changed its basis of accounting for
periods subsequent to September 29, 2001 from the going-concern basis to a
liquidation basis.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of Genesee
Corporation as of May 1, 2004 and May 3, 2003, the changes in its net assets in
liquidation for the years then ended and the period from September 30, 2001 to
April 27, 2002, and the results of its operations and its cash flows for the
period from April 29, 2001 to September 29, 2001, in conformity with accounting
principles generally accepted in the United States of America applied on the
bases described in the preceding paragraph.
As described in Note 1, the financial statements for periods subsequent to
September 29, 2001 have been prepared on the liquidation basis of accounting,
which requires management to make significant assumptions and estimates
regarding the fair value of assets and the estimate of liquidating costs to be
incurred. Because of the inherent uncertainty related to these estimates and
assumptions, there will likely be differences between these estimates and the
actual results and those differences may be material.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
July 27, 2004
Page 14 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Net Assets In Liquidation (Liquidation Basis)
May 1, 2004 and May 3, 2003
(Dollars in thousands, except per share data)
2004 2003
---------- ----------
ASSETS
Cash and cash equivalents $ 3,731 $ 6,572
Restricted cash 3,200 3,200
Marketable securities available for sale 0 3,010
Notes receivable 1,000 2,800
Investment in direct financing and leveraged leases 0 7
Estimated net income tax receivable 515 0
Other assets 393 346
---------- ----------
Total assets $ 8,839 $ 15,935
========== ==========
LIABILITIES AND NET ASSETS
Accrued compensation $ - $ 525
Accrued expenses and other liabilities 389 874
Estimated net income tax payable 0 4,664
Accrued self-insured workers compensation 1,608 1,495
---------- ----------
Total liabilities 1,997 7,558
---------- ----------
Net assets in liquidation $ 6,842 $ 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 $ 4.09 $ 5.00
========== ==========
See accompanying notes to consolidated financial statements.
Page 15 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Statement Of Changes In Net Assets In Liquidation (Liquidation Basis)
For the Years ended May 1, 2004 and May 3, 2003 and the Thirty Weeks Ended April
27, 2002
(Dollars in thousands)
2004 2003 2002
---- ---- ----
Net assets in liquidation at May 4, 2003, April 28, 2002 and September 29, 2001, respectively $ 8,377 $ 29,622 $ 59,086
Liquidating distributions paid to shareholders 0 (20,089) (21,763)
Liquidating distribution payable to shareholders 0 0 (8,370)
High Falls subordinated note receivable:
Interest income 268 510 518
Change in fair value (1,800) (1,200) 0
Interest (expense) income, net (89) 734 446
Changes in estimated liquidation values of assets and liabilities 86 (1,200) (295)
-------- -------- --------
Net assets in liquidation at May 1, 2004, May 3, 2003 and April 27, 2002, respectively $ 6,842 $ 8,377 $ 29,622
======== ======== ========
See accompanying notes to consolidated financial statements.
Page 16 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Loss and Comprehensive Loss (Going-Concern Basis)
For the Twenty Two Weeks Ended September 29, 2001
(Dollars in thousands, except per share data)
SEPTEMBER 29,
2001
-------------
Revenues $ -
Cost of goods sold -
-------------
Gross profit -
Compensation expense - stock options -
Selling, general and administrative expenses 503
-------------
Operating loss (503)
Investment and interest income 735
Other income 5
Interest expense -
-------------
Earnings from continuing operations before income taxes 237
Income tax expense 95
-------------
Earnings (loss) 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 $0) (1,551)
Adjustment to the loss and the loss on disposal of Genesee Ventures, Inc., respectively
(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 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 17 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity (Going-Concern Basis)
(Dollars in thousands, except per share data)
Accumulated
Other
Common Stock Additional Retained Officer Comprehensive Treasury Stock
Class A Class B Paid-In Capital Earnings Loans Income Class B Total
------- ------- --------------- -------- ------- ------------- -------------- --------
BALANCE AT APRIL 28, 2001 105 753 5,803 64,485 (411) 91 (1,493) 69,333
======= ======= =============== ======== ======= ============= ============== ========
Comprehensive income:
Net loss (22,331) (22,331)
Other comprehensive income 157 157
--------
Total comprehensive loss (22,174)
------- ------- --------------- -------- ------- ------------- -------------- --------
BALANCE AT SEPTEMBER 29, 2001 $ 105 $ 753 $ 5,803 $ 42,154 $ (411) $ 248 $ (1,493) $ 47,159
======= ======= =============== ======== ======= ============= ============== ========
See accompanying notes to consolidated financial statements
Page 18 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Going-Concern Basis)
For the Twenty Two Weeks Ended September 29, 2001
(Dollars in thousands)
SEPTEMBER 29,
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 (550)
Changes in non-cash assets and liabilities, net of amounts sold:
Trade accounts receivable 3
Accounts payable 174
Accrued expenses and other 80
Income taxes payable 545
-------------
Net cash provided by 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 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 19 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 1, 2004, May 3, 2003, April 27, 2002, and September 29, 2001
(1) Liquidation Basis Note
LIQUIDATION BASIS FINANCIAL STATEMENTS
With the sale of its Foods Division, which is described Note 7,
Genesee Corporation and Subsidiaries (the Corporation) adopted the liquidation
basis of accounting effective September 29, 2001. Upon adopting the liquidation
basis of accounting, adjustments were made to the Corporation's recorded assets
and liabilities, details of which are included below. 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 will be 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.
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.
Page 20 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
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 May 1, 2004.
Cash and cash equivalents - 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 May 1, 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 was $2.5 million at May 1,
2004; however, it is not classified as restricted or as a liability in the
accompanying Statement of Net Assets in Liquidation. After the sale of the
High Falls Note on May 25, 2004, the Corporation's Board reduced the
Contingent Liability Reserve to $1.6 million, or approximately $1.00 per
share.
Page 21 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
Marketable securities available for sale - Presented at quoted market
prices. Prior to August 2003 when its investment portfolio was liquidated,
the Corporation 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, at May 3, 2003. The fair value of the
Corporation's portfolio can be summarized as follows (dollars in
thousands):
Fixed Income Securities
Debt securities issued by the U.S. Government $ 311
Corporate debt Securities 2,460
-------
2,771
Other 239
-------
Marketable Securities $ 3,010
-------
The fair value of fixed income securities, by contractual maturity, are as
follows (dollars in thousands):
Contractual maturity
Less than one year $ 673
After one year, but within five years 2,049
After five years 49
-------
Total fixed income securities $ 2,771
-------
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 Brewing Company, LLC ("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 May 1, 2004, the
amount remaining due to the Corporation from High Falls was $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, the $3 million principal payment due on December 15,
2003, or the March 2004 interest payment and therefore continued to be 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.
Page 22 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
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.
On May 25, 2004 the Corporation sold the High Falls Note receivable to a
third party for $1.0 million. See Note 2 below.
Estimated income tax receivable/payable - Based on management's estimate.
Amount reflects the impact on cash flow under an orderly liquidation
scenario. It includes adjustments for estimates of future expenditures, the
utilization of tax credits, and carryforwards and carrybacks.
Certain amounts included in the estimated income tax receivable are subject
to audit by both state and federal taxing authorities, most notably as it
relates to the fiscal years ended May 3, 2003 and May 1, 2004. The
Corporation requested, and has settled, accelerated audits from the federal
taxing authorities for the tax years ending April 27, 2002, April 28, 2001,
and April 29, 2000. State audits have also been resolved through the fiscal
year ended April 27, 2002.
As tax returns are filed utilizing management's interpretation of
applicable rules, the actual tax liability or refund determined after a tax
audit can be different from amounts initially claimed when filing tax
returns. Based upon all known facts, management has made an estimation of
the range of probable outcomes after all tax returns have been filed
through the fiscal year end May 1, 2004 and reviewed by the taxing
authorities. The estimated income tax receivable of $515,000 recorded on
the accompanying Statement of Net Assets in Liquidation is management's
estimate of the most probable point within the range. Such estimates are
often updated as additional information becomes available.
The Corporation may incur additional professional fees as a result of any
additional income tax audits.
The following table depicts the receivable and payable components of the
estimated net income tax receivable and payable as of May 1, 2004 and May
3, 2003, respectively, reported on the accompanying Statement of Net Assets
in Liquidation.
2004 2003
-------- --------
Income tax receivable $ 515 $ 0
Income tax payable 0 (4,664)
-------- --------
Estimated net income tax
receivable (payable) $ 515 $ (4,664)
======== ========
Dollars in thousands
Page 23 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
Other assets - Valued based on management estimates. At May 1, 2004 the
$393,000 balance is primarily comprised of prepaid insurance, a deposit
with the Corporation's third party administrator for its self-insured
workers compensation claims, and a note receivable from a former customer
of the Genesee Brewing Company, Inc., that the Corporation retained after
the sale of its brewing business to High Falls.
Accrued compensation, accrued expenses, and other liabilities - Based on
management's estimate. These are the estimated costs to complete the
Corporation's Plan of Liquidation and Dissolution, and represents the
estimated cash costs of operating the Corporation through its expected
termination. These costs, which include personnel, facilities, professional
fees, and other related costs, are estimated based on various assumptions
regarding the number of employees, the use of outside professionals
(including attorneys and accountants) and other costs. Given that there is
inherent uncertainty in the estimation process, actual results could be
materially different. The table below details these costs by category as of
May 1, 2004 and May 3, 2003.
2004 2003
---------- ----------
Compensation and related costs $ 0 $ 525,000
Office expenses, including rent 8,000 54,000
Insurance expense 24,000 200,000
Professional fees 275,000 205,000
Post April 2004 costs (allocated at May 1, 2004) 0 300,000
Other 82,000 115,000
---------- ----------
$ 389,000 $1,399,000
========== ==========
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.
Page 24 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
Accrued self-insured workers compensation - Based on management's estimate.
The Corporation's brewing and foods businesses were self-insured for
workers compensation claims and the Corporation retained this liability
after those businesses were sold. The Corporation is investigating
potential alternatives to obtain a substitute for the self-insured workers
compensation financial assurance amount which would allow it to accelerate
the resolution of this liability. The Corporation could incur additional
costs to settle this workers compensation liability.
Contingent liabilities - As with any operating business, the Corporation
may have potential contingent liabilities in addition to the liabilities
recorded in the accompanying consolidated financial statements. Because no
claims for contingent liabilities have been made or threatened, no amount
has been recorded for such liabilities in the accompanying consolidated
financial statements.
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 combined total of Class A and Class B shares
outstanding at May 1, 2004.
Page 25 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
Changes to asset and liability values under the Liquidation Basis of
Accounting from May 3, 2003 to May 1, 2004 .
In November 2003, the value of the High Falls note receivable was reduced
by $1.7 million to $1.1 million. See explanation above in this Note 1.
The Corporation's estimate of remaining operating costs through final
dissolution, compensation and other accrued expenses, was increased by
$177,000, $83,000, and $148,000 in the second, third and fourth quarters of
fiscal 2004, respectively. As of May 1, 2004, the Corporation has $389,000
recorded for these run-out costs covering all general and administrative
costs such as professional fees, office related costs, insurance expense,
and other miscellaneous costs expected to be incurred during the additional
phase of unknown term to wind up the Corporation's business.
The Corporation's cash operating expenses, which reduced the run-out
accrual discussed above from May 3, 2003 through May 1, 2004, were as
follows:
Compensation and related costs $ 526,000
Office expenses including rent 47,000
Insurance expense 293,000
New York Sales tax and related expense 22,000
Professional fees 431,000
Other 101,000
-----------
$ 1,420,000
===========
The accrued self-insured workers compensation liability was increased
during the fourth quarter by $600,000 primarily due to negative development
of some of open claims. The Corporation is investigating potential
alternatives to obtain a substitute for the self-insured workers
compensation financial assurance amount which would allow it to accelerate
the resolution of this liability. The Corporation could incur additional
costs to settle this workers compensation liability.
Changes to asset and liability values under the Liquidation Basis of
Accounting from April 27, 2002 to May 3, 2003.
Page 26 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1) Liquidation Basis Note (continued)
During the second quarter of fiscal 2003, the value of the High Falls note
receivable was reduced by $1.2 million to $2.8 million. See explanation
above in this note.
The value of the Corporation's investment in and notes receivable from
unconsolidated real estate partnerships was increased by approximately
$500,000 in the first quarter of fiscal 2003 based on a negotiated sales
price of the Corporation's investment in two apartment complexes that were
subsequently sold in the second quarter of fiscal 2003 for $4.5 million.
The Corporation's estimate of remaining operating costs through final
dissolution, compensation and other accrued expenses, was increased by
$450,000, $200,000, and $539,000 in the second, third and fourth quarters
of fiscal 2003, respectively. As of May 3, 2003, the Corporation has
$1,399,000 recorded for these run-out costs. $525,000 is allocated to
compensation-type costs while the remaining $874,000 covers all other
general and administrative costs such as professional fees, office related
costs, insurance expense, and other miscellaneous costs expected to be
incurred during the run-out period, which is targeted to be April 2004,
plus an additional phase of unknown term to wind up the Corporation's
business.
The Corporation's cash operating expenses, which reduced the run-out
accrual discussed above from April 27, 2002 through May 3, 2003, were as
follows:
Compensation and related costs $ 804,000
Office expenses including rent 71,000
Insurance and workers compensation
State assessment expense 382,000
New York Sales tax and related expense 413,000
Professional fees 350,000
Other 36,000
------------
$ 2,056,000
============
The accrued self-insured workers compensation liability was increased
during the fourth quarter by $250,000 primarily due to negative development
of some of open claims.
Changes to asset and liability values under the Liquidation Basis of
Accounting from September 29, 2001 to April 27, 2002.
The value of the Corporation's investment in and notes receivable from
unconsolidated real estate partnerships was increased by $250,000 in the
third quarter of fiscal 2002 based on an updated independent appraisal and
management's estimate. This line item was further increased by
Page 27 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Liquidation Basis Note (continued)
$290,000 in the fourth quarter based on the sales price realized in May
2002 on the sale of the Corporation's 10% investment in entities that own
an office building in downtown Rochester, New York and a related note
receivable.
The value of the Corporation's investment in a food service equipment and
supplies business was reduced by $355,000 to $0 in the last half of fiscal
2002. This investment had previously been included in other assets in the
statement of net assets in liquidation.
The Corporation's estimate of remaining operating costs through final
dissolution was increased by $900,000 in the third quarter of fiscal 2002.
As of April 27, 2002, the Corporation has approximately $2.0 million
recorded for these run-out costs. $1.2 million is allocated to
compensation-type costs while the remaining $800,000 covers all other
general and administrative costs such as professional fees, office related
costs, insurance expense, and other miscellaneous costs expected to be
incurred during the run-out period.
The Corporation's cash operating expenses, which reduced the run-out
accrual discussed above from September 29, 2001 through April 27, 2002,
were as follows:
Compensation and related costs $ 780,000
Office expenses including rent 38,000
Insurance expense 115,000
Professional fees 243,000
Other 33,000
----------
$1,209,000
==========
Partial Liquidating Distributions
Under its Plan of Liquidation and Dissolution the Corporation has paid the
following partial liquidating distributions to its Class A and Class B
shareholders.
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
=========== =========
Page 28 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Liquidation Basis Note (continued)
On June 18, 2004, the Corporation paid a partial liquidating distribution
to its Class A and Class B shareholders in the amount of $2,511,000 or
$1.50 per outstanding share. See Note 2 below.
Fiscal Year
The Corporation's fiscal year ends on the Saturday closest to April 30. The
fiscal year for the financial statements included herein is for the 52-week
period ending May 1, 2004, the 53-week period ending May 3, 2003, and the
52-week period ending April 27, 2002.
(2) Subsequent Events
On May 25, 2004 GBC Liquidating Corp. (formerly The Genesee Brewing Co.,
Inc.) a wholly-owned subsidiary of Genesee Corporation, sold the High Falls
Note to a third party for $1,000,000. In accordance with liquidation basis
accounting the High Falls Note was last valued, based on the fair market
value of publicly-traded debt instruments of similar quality, at $1,100,000
in the Corporation's Form 10-Q for the fiscal quarter ended January 31,
2004. The High Falls Note had been in default since December 2002, when
High Falls missed a $1,000,000 principal payment, and continued to be in
default as the December 2003 $3,000,000 principal payment, and March 2004
interest payment were missed as well. As of the date of the High Falls Note
sale, approximately $300,000 of interest had accrued on the High Falls
Note, which has been written off by the Corporation. However, High Falls
agreed to pay the Corporation $100,000 if, prior to April 30, 2006, certain
conditions are satisfied and High Falls' senior creditors consent to the
payment.
A party to the December 2000 brewery sale claims that the Corporation has
received approximately $120,000 in interest payments from High Falls, which
should have been paid to it, as a creditor of High Falls that is senior to
the Corporation. High Falls' senior creditors have imposed a number of
conditions which, if satisfied by July 31, 2004, would result in this claim
being resolved by High Falls paying the $120,000 claimed by the creditor
that is senior to the Corporation, and High Falls has agreed to reimburse
the Corporation in the event the Corporation makes this payment. The
Corporation has been advised by High Falls that High Falls intends to pay
this creditor the $120,000 due on July 30, 2004. Therefore, Corporation
management has not accrued this amount at May 1, 2004.
The sale of the High Falls Note, with the exception of the possible receipt
of $100,000 mentioned above, completes the sale of the Corporation's
brewing business, which was effected in December 2000.
The Corporation's Board of Directors declared a partial liquidating
distribution in the amount of $1.50 per outstanding share of the
Corporation's Class A and Class B common stock in May 2004. Shareholders of
record on June 11, 2004 received this distribution, which was paid on June
18, 2004. This was the eighth partial liquidating distribution paid to
shareholders under the Corporation's Plan of Liquidation and Dissolution
and brings the Corporation's total liquidating distributions to date to
$65,289,000, or $39.00 per share.
Page 29 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Summary of Significant Accounting Policies - Going-Concern Basis
GOING-CONCERN BASIS FINANCIAL STATEMENTS
Prior to September 29, 2001, the date at which the liquidation basis of
accounting was adopted, the Corporation followed the going-concern basis of
accounting. Following are notes to the consolidated financial statements
prepared under the going-concern basis of accounting. The going-concern
basis financial statements consist of the Consolidated Statement of Loss
and Comprehensive Loss for the twenty-two weeks ended September 29, 2001,
the Consolidated Statement of Cash Flows for the twenty-two weeks ended
September 29, 2001, and the Consolidated Statement of Shareholders' Equity
for the twenty-two weeks ended September 29, 2001.
Principles of Consolidation and Nature of Operations
The consolidated financial statements of the Corporation include for
continuing operations, the Corporation's corporate segment. The corporate
segment retains the Corporation's cash, investments in marketable
securities, and significant notes receivable, which in turn generates
investment income which is then used in support of corporate costs. (See
Note 7 for information related to the Corporation's discontinued segments.)
All significant inter-company balances and transactions have been
eliminated in consolidation.
Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," an Interpretation of
Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial
Statements." FIN 46 addresses the consolidation by business enterprises of
variable interest entities (VIEs) either: (1) that do not have sufficient
equity investment at risk to permit the entity to finance its activities
without additional subordinated financial support, or (2) in which the
equity investors lack an essential characteristic of a controlling
financial interest. In December 2003, the FASB completed deliberations of
proposed modifications to FIN 46 (Revised Interpretations) resulting in
multiple effective dates based on the nature and creation date of the VIE.
The Revised Interpretations must be applied to all VIEs no later than the
end of the first interim or annual reporting period ending after March 15,
2004. However, prior to the required application of the Revised
Interpretations, its provisions must be adopted by the end of the first
interim or annual reporting period that ends after December 15, 2003 (for
the year ended May 1, 2004 for the Corporation) for VIEs considered to be
special purpose entities (SPEs). SPEs for this provision include any entity
whose activities are primarily related to securitizations or other forms of
asset-backed financings or single-lessee leasing arrangements. The adoption
of this standard will not impact the Corporation's financial position.
Page 30 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Summary of Significant Accounting Policies - Going Concern Basis
(continued)
Comprehensive Loss
The Corporation reports comprehensive income or loss in accordance with the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income or
loss and its components (revenues, expenses, gains, losses, and other
comprehensive income) in a set of financial statements in order to report a
measure of all changes in equity of an enterprise. Other comprehensive
income or loss refers to revenues, expenses, gains and, losses that are
included in comprehensive income or loss but excluded from net earnings or
loss.
The amount of income tax expense allocated to other comprehensive income
for the twenty-two weeks ended September 29, 2001 was approximately
$105,000.
Income Taxes
The provision for income taxes is based upon pre-tax earnings, with
deferred income taxes arising from the permanent and temporary differences
between the financial reporting basis and the tax basis of the
Corporation's assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
may differ from those estimates.
Earnings Per Share
The Corporation presents basic earnings per share, which is computed by
dividing the income available to common shareholders by the weighted
average number of common shares outstanding for the period, and diluted
earnings per share, which reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock.
At September 29, 2001, 9,500 shares of potential common stock are
considered anti-dilutive and are excluded from the calculation of diluted
earnings per share.
Page 31 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Summary of Significant Accounting Policies - Going Concern Basis
(continued)
Reclassifications
It is the Corporation's policy to reclassify certain amounts in the prior
year consolidated financial statements to conform to the current year
presentation.
Fiscal Year
The Corporation's fiscal year ends on the Saturday closest to April 30.
(4) Income Taxes - Going Concern Basis
Components of income tax expense from continuing operations for the
twenty-two weeks ended September 29, 2001 are as follows:
Current:
Federal $ 74
State 21
----
Total current income tax expense 95
----
Deferred:
Federal 0
State 0
----
Total deferred income tax expense 0
----
Total income tax expense $ 95
====
(Dollars in thousands)
Page 32 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes - Going Concern Basis (continued)
The actual tax expense reflected in the consolidated statements of earnings
differs from the expected tax expense, computed by applying the U.S.
federal corporate tax rate to earnings before income taxes as follows for
the twenty-two weeks ended September 29, 2001:
Computed expected tax expense @ 34% $ 80
State income taxes (net of federal income tax benefit) 15
----
Total income tax expense $ 95
====
Effective tax rate 40%
====
(Dollars in thousands)
(5) Segment Reporting - Going Concern Basis
As stated in Note 3, the Corporation's corporate segment is the only
reporting segment for continuing operations. The corporate segment retains
the Corporation's investments in marketable securities, significant notes
receivable, generating investment income as well as supporting corporate
costs. (See Note 7 for information related to the Corporation's
discontinued segments.)
(6) Supplemental Cash Flow Information - Going Concern Basis
Cash refunded for taxes was approximately $11,000 for the twenty-two weeks
ended September 29, 2001; cash paid for interest was approximately $134,000
for the twenty-two weeks ended September 29, 2001. No interest was
capitalized during the twenty-two weeks ended September 29, 2001.
Page 33 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Divestiture of the Corporation's Operating Businesses - Discontinued
Operations/Going Concern Basis
In October 2000, the Corporation's shareholders approved a plan to
liquidate and dissolve the Corporation. The Corporation is liquidating by
selling or otherwise disposing of its assets and winding up its affairs.
The proceeds from the liquidation, net of amounts paid or reserved to
discharge all of the Corporation's obligations and liabilities, is 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
for $27.2 million. The Corporation received $11 million of the sale price
in the form of notes receivable more fully described in Note 1.
The Corporation sold a significant portion of its equipment lease portfolio
in December 2000 and received $12.8 million in proceeds. The Corporation
retained a small portion of its lease portfolio which it continued to
manage through the maturity of its final lease in November 2003.
On October 10, 2001, the Corporation sold all of the outstanding stock of
its Foods Division to Associated Brands, Inc. ("ABI") for $27 million. The
sale was completed in accordance with the terms of a Purchase Agreement.
Net of closing date adjustments, the Corporation received $22.1 million in
cash at closing. In addition, a $2.25 million note and mortgage and
$178,000 in cash were received by the Corporation and placed in escrow for
eighteen months. The mortgage note has since been paid and the $2.4 million
cash escrow has been released except for $25,000 which remains in the
escrow account for claims presented by ABI. These minor final claims have
been settled with the remaining account balance distributed accordingly.
Page 34 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Divestiture of the Corporation's Operating Businesses - Discontinued
Operations/Going Concern Basis (continued)
On May 31, 2002, the Corporation sold its ten-percent interest in an office
building 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.
Page 35 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Divestiture of the Corporation's Operating Businesses - Discontinued
Operations/Going Concern Basis (continued)
The results of operations for the discontinued foods, equipment leasing and
real estate investment businesses for the twenty-two week period ended
September 29, 2001 were as follows:
(Dollars in thousands)
Revenue $ 19,903
---------
Net revenue 19,903
Cost of goods sold (15,936)
Selling, general, and admin. (2,080)
Impairment charge (21,833)
Other loss (1,925)
Loss from operations of the
discontinued segments, net of tax
benefit or expense (21,154)
=========
Loss on sale of Foods Division (1,551)
=========
Adjustment to the loss on disposal of
Genesee Ventures, Inc., net of tax
expense $ 232
=========
Page 36 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Divestiture of the Corporation's Operating Businesses - Discontinued
Operations/Going Concern Basis (continued)
The Corporation's previous investment in a real estate limited partnership
in which it has less than a majority interest was accounted for by the
equity method. The Corporation's proportionate share of the results of
operations of this unconsolidated limited partnership was recorded net of
tax in discontinued operations.
Revenue Recognition
Revenue from the Corporation's lease portfolio is recognized on a level
yield method.
Concentration of Credit Risk
The Corporation's lease receivable balances are from a diversity of lessees
in various industries and businesses. This diversity, in addition to
security interests in the leased equipment, allows the Corporation to
minimize its credit risk on lease receivables. Substantially all of the
accounts receivable balances are from food retailers.
Property, Plant and Equipment
The Corporation regularly assesses all of its long-lived assets for
impairment and recognizes a loss when the carrying value of an asset
exceeds its expected future cash flows. The Corporation determined that no
impairment loss needed to be recognized for applicable assets in fiscal
2001. In the first quarter of fiscal 2002, the Corporation recorded a $21.8
million impairment charge related to the Foods Division. This charge is
included as a part of the first quarter's operating loss with an equivalent
reduction in goodwill.
Goodwill and Other Intangibles
Goodwill and other intangibles are amortized on a straight-line basis
ranging from 3 to 25 years. The carrying value of goodwill and other
intangibles are assessed periodically based on the expected future cash
flows of the assets associated with the goodwill and other intangibles. As
noted above, goodwill was reduced by $21.8 million in the first quarter of
fiscal 2002 related to an impairment charge.
Leasing Activities
The Corporation's leasing activity is conducted by Cheyenne Leasing
Company, a wholly owned subsidiary of Genesee Ventures, Inc. On October 31,
2000, Genesee Ventures, Inc. bought out the 15% minority interest in
Cheyenne Leasing Company from its joint venture partner to obtain this
wholly owned status.
Page 37 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Divestiture of the Corporation's Operating Businesses - Discontinued
Operations/Going Concern Basis (continued)
Postretirement Benefits
The Corporation previously provided certain health care and life insurance
benefits to eligible retired employees and spouses under a welfare benefit
plan (the Plan) covering substantially all retirees and employees of
Genesee Brewing Company. Effective with the sale of its brewing business on
December 15, 2000, the Corporation was relieved of its liability and
responsibility for these postretirement benefits. However, the Corporation
implemented a phase-out plan whereby retiree postretirement benefits
continued at decreasing levels through the end of calendar 2001 at which
time benefits were discontinued. Even though the Corporation's health
insurance premium subsidy concluded at December 31, 2001, the Corporation
continues to administer the retiree group's health insurance arrangement.
This administrative support ceased on December 31, 2003.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
In accordance with Securities Exchange Act of 1934 rules, the Chief
Executive Officer 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 annual report. Based on that evaluation, the Corporation concluded
that the design and operation of its disclosure controls and procedures
were effective. There were no changes in the Corporation's internal control
over financial reporting that occurred during the Corporation's most
recently completed fiscal quarter that materially affected, or are
reasonably likely to materially affect, the Corporation's internal control
over financial reporting.
Page 38 of 55
GENESEE CORPORATION
AND SUBSIDIARIES
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors: The table below lists the sole director of the
Corporation and sets forth his age, his other positions with the Corporation and
its subsidiaries, his principal occupation, and the expiration of his term in
office. The term in office expires at the annual meeting of shareholders of the
Class A Common Stock held in the year specified.
Expiration
Director Position and Principal Occupation of Term
Name and Age Since for the Last Five Years in Office
------------ ----- ----------------------- ---------
Stephen B. Ashley (64) 1987 Former President of the Corporation (1) 2005
(1) See Note (1) to Item 10(b).
(b) Executive Officers: The table below lists the executive officer of
the Corporation and its subsidiaries and sets forth his age, the dates he became
an officer and the offices held. Officers of the Corporation and its
subsidiaries serve for a term of one year beginning with the first meeting of
the Board of Directors occurring after the annual meeting of the holders of
Class A Common Stock of the Corporation.
Officer of the
Name Age Company Since Office
---- --- ------------- ------
Stephen B. Ashley 64 2000 Former President (1)
Steven M. Morse 40 2000 President, Treasurer, and Secretary (2)
(1) Mr. Ashley was elected President of the Corporation in December 2000.
Effective May 31, 2004, Mr. Ashley resigned as President of the
Corporation; however, he remains as the sole Director. Since July 1996 Mr.
Ashley has been Chairman and Chief Executive Officer of The Ashley Group,
an affiliated group of privately owned real estate management and
investment companies. Mr. Ashley is also a Director of Federal National
Mortgage Association, Exeter Fund, Inc. and Exeter Insurance Fund, Inc.
Page 39 of 55
(2) Mr. Morse was elected President, Treasurer, and Secretary of the
Corporation on May 31, 2004. On that same date he resigned as the
Corporation's Vice-President, Chief Financial Officer and Treasurer. Mr.
Morse was elected Vice President, Chief Financial Officer and Treasurer of
the Corporation on December 13, 2001. He was elected Vice President and
Treasurer in December 2000. From 1999 to 2000, Mr. Morse served as the
Corporation's Corporate Consolidations Manager. From 1996 to 1999, he
served as an Audit Manager at the public accounting firm of Deloitte &
Touche, LLP. Mr. Morse is a certified public accountant. He currently
serves as the Executive Director - Internal Audit and Compliance at
Rochester Institute of Technology, a university located in Rochester, New
York.
(c) Compliance with Section 16(a) of Securities Exchange Act of 1934:
To the Corporation's knowledge, based solely on review of copies of reports of
initial ownership and changes of ownership furnished to the Corporation by its
directors, executive officers and persons who own more than ten percent of the
Corporation's Class B Common Stock, and written representations to the
Corporation by such persons that no other reports were required, there were no
failures by such persons to comply with the reporting requirements under Section
16(a) of the Securities Exchange Act of 1934 during the Corporation's fiscal
year ended May 1, 2004.
(d) Financial Code of Ethics: See Exhibit 14 for the Corporation's
Financial Code of Ethics which is incorporated herein by reference thereto. The
Corporation will provide a copy to any person without charge upon request of the
Corporation's President, Treasurer, and Secretary at the Corporation's place of
business.
(e) Audit Committee Financial Expert: The Corporation has only one
director, and accordingly has no committees of the board and no audit committee
financial expert.
Page 40 of 55
Item 11. Executive Compensation
(a) Summary of Executive Compensation. The table below sets forth
a summary of compensation paid during the past three fiscal years for all
services rendered to the Corporation and its subsidiaries by the former
President of the Corporation (who was acting in the capacity of the Chief
Executive Officer), and the current President, Treasurer, and Secretary who is
the former Vice President, Chief Financial Officer, and Treasurer of the
Corporation.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
----------------------------------- -------------------------------------
Other
Annual Restricted Stock All Other
Name and Compen- Stock Options / Compensa-
Principal Position Fiscal Year Salary ($) Bonus ($) sation ($) Awards ($) SARs (#) tion ($)
------------------ ----------- ---------- --------- ---------- ---------- -------- --------
Stephen B. Ashley, Former 2004 60,000 0 0 0 0 0
President 2003 60,000 0 0 0 0 0
2002 60,000 0 0 0 0 0
Steven M. Morse, 2004 100,000 35,000 0 0 0 123,237(2)
President, Treasurer, and 2003 101,923 25,482 92,716(1) 0 0 39,317(3)
Secretary (Former 2002 90,481 25,000 0 0 0 103,228(4)
Vice President, Chief
Financial Officer, and
Treasurer)
(1) Amount paid upon exercise of stock appreciation rights.
(2) Amount reflects a $21,249 retirement payment under employment agreement
with Corporation, $1,613 payment in lieu of flexible spending account
benefit under employment agreement with the Corporation, $375 in premiums
paid by the Corporation on life insurance policies, and $100,000 severance
payment under an employment agreement with the Corporation.
(3) Amount reflects a $37,000 retirement payment under employment agreement
with Corporation, $1,613 payment in lieu of flexible spending account
benefit under employment agreement with the Corporation, and $704 in
premiums paid by the Corporation on life insurance policies.
(4) Amount reflects $81,080 of above-market value stock appreciation rights
held at April 27, 2002, $19,143 retirement payment under employment
agreement with the Corporation, $2,975 payment in lieu of flexible spending
account benefit under employment agreement with the Corporation, and $130
in premiums paid by the Corporation on life insurance policies.
(b) Grant of Options or Stock Appreciation Rights. The Corporation did
not grant any options or stock appreciation rights to the executive officers
identified in Item 11(a) during the Corporation's fiscal year ended May 1, 2004.
(c) Exercise of Options by Executive Officers. The table below sets
forth information about the aggregate number of shares received and the value
realized by the named executive officer upon exercise of options exercised
during the Corporation's fiscal year ended May 1, 2004; and the aggregate number
and value of options held by the named executive officer at the end of the
fiscal year:
Page 41 of 55
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-Money
Options at FY-End (#) Options at FY-End ($)
---------------------- -----------------------
Shares
Acquired on Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercise Realized ($) able able able able
- ----------------- ----------- ------------ -------- ---------- -------- ----------
Stephen B. Ashley 0 0 1,000 0 0 0
Steven M. Morse 0 0 0 0 0 0
(d) Director Compensation. The sole director receives an annual fee of
$6,000.
(e) Agreements With Named Executive Officers.
The Corporation executed on May 3, 2004 an independent contractor
agreement with Mr. Morse d/b/a Concorde Accounting & Tax Services whereby he
renders professional tax and accounting services and other related services to
the Corporation. Mr. Morse is paid an hourly rate of $150 plus related expenses.
See Exhibit 10-34 which is incorporated herein by reference thereto.
(f) Compensation Committee Interlocks and Insider Participation.
Stephen B. Ashley served during the fiscal year ended May 1, 2004 as a member of
the Management Continuity Committee of the Corporation's Board of Directors
which functioned as the Board's Compensation Committee.
Page 42 of 55
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners. The Corporation's
only class of voting securities is its Class A Common Stock. As of July 12,
2004, persons who owned of record or were known by the Corporation to own
beneficially more than 5% of the outstanding Class A Common Stock were:
Percent of
Name and Address Amount Owned Class A Stock
- -------------------------------------------------- ------------ -------------
Charles S. Wehle as Trustee 73,845 (1) 35.2%
under the Will of Louis A. Wehle
600 Powers Building
16 West Main Street
Rochester, New York 14614
Charles S. Wehle and Henry S. Wehle 41,957 (2) 20.0%
600 Powers Building
16 West Main Street
Rochester, New York 14614
Charles S. Wehle as Trustee under 12,145 (3) 5.8%
Elizabeth R. Wehle Trust
600 Powers Building
16 West Main Street
Rochester, New York 14614
(1) The power to vote and otherwise act with respect to these shares is vested
in Charles S. Wehle while a trustee. In the event of his death, resignation
or incapacity, such power would pass to Henry S. Wehle.
(2) Excludes shares owned by trusts described elsewhere in this table and
notes. Includes 31,443 shares held by Trust under Will of John L. Wehle,
8,595 shares owned individually by the Estate of John L. Wehle, Jr., 1,890
shares owned individually by Charles S. Wehle and 29 shares owned
individually by Henry S. Wehle. Pursuant to a Shareholder Agreement and
Irrevocable Proxy dated June 22, 1988 (the "Shareholder Agreement") among
John L. Wehle, John L. Wehle, Jr., Charles S. Wehle and Henry S. Wehle (the
"Shareholders"), Charles S. Wehle is appointed proxy to vote all voting
securities of the Corporation then owned or thereafter acquired by the
Shareholders. Under the Shareholder Agreement, Henry S. Wehle would succeed
Charles S. Wehle as proxy in the event of the death, incapacity or
resignation of Charles S. Wehle. The Shareholder Agreement will continue in
effect until terminated in writing signed by all of the surviving
Shareholders. As of July 12, 2004, 41,957 Class A shares, constituting 20%
of the Class A shares outstanding, are subject to the Shareholder
Agreement.
(3) The power to vote and otherwise act with respect to these shares is vested
in Charles S. Wehle while a trustee. In the event of his death, resignation
or incapacity, such power would pass to Henry S. Wehle.
Except as otherwise described above, to the Corporation's knowledge the persons
listed above have sole voting and sole investment power with respect to all
Class A shares listed.
Page 43 of 55
(b) Security Ownership of Management. The number of and percentage of
outstanding shares of Class A and Class B Common Stock of the Corporation
beneficially owned (as determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934) as of July 12, 2004 by each director and by all
directors and executive officers as a group are set forth in the following
table:
Shares of Percentage Of Shares of Percentage of
Name of Director Class A Class A Class B Class B
Or Executive Officer Common Stock Common Stock Common Stock Common Stock
- -------------------- ------------ ------------ ------------ ------------
Steven M. Morse NONE 0% 250 (2)
Stephen B. Ashley NONE 0% 1,896(1) (2)
All Directors and Executive
Officers as a group (2 persons) NONE 0% 2,146 0%
(1) Includes 896 shares owned individually and 1,000 shares which may be
acquired pursuant to presently exercisable stock options.
(2) Amount of shares owned does not exceed one-percent of shares outstanding.
(c) Change of Control Arrangements. A Shareholder Agreement and
Irrevocable Proxy among John L. Wehle, John L. Wehle, Jr., Charles S. Wehle and
Henry S. Wehle dated June 22, 1988 may at a subsequent date result in a change
in control of the Corporation, which agreement is more fully described in Note
(2) to Item 12(a).
Item 13. Certain Relationships and Related Transactions.
(a) Related Transactions. The Corporation subleased approximately
1,200 square feet of office space from S.B. Ashley Management Corporation during
fiscal 2004. Stephen B. Ashley, a director of the Corporation, is an officer,
director and majority owner of S.B. Ashley Management Corporation. During the
fiscal year ending May 1, 2004, the Corporation paid approximately $18,000 to
S.B. Ashley Management Corporation for rent, utilities, taxes and ancillary
services under the sublease with S.B. Ashley Management Corporation. Effective
May 1, 2004 the Corporation vacated this 1,200 square feet of office space and
executed a short-term lease with S.B. Ashley Management Corporation for office
space and records storage space totaling approximately 100 square feet and 200
square feet, respectively. The total monthly cost to the Corporation commencing
May 3, 2004 is approximately $200.
Page 44 of 55
PART IV
Item 14. Principal Accounting Fees and Services
Fiscal 2004 Fiscal 2003
----------- -----------
Audit Fees $ 23,500 $ 28,000
Audit-Related Fees 0 0
Tax Fees 166,958 50,485
All Other Fees 1,850 8,150
----------- -----------
Total $ 192,308 $ 86,635
The Corporation's then-existing Audit Committee pre-approved all of the
foregoing services and reviewed the fees noted above for non-audit services and
believed they were compatible with the independent accountants' independence.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statement Schedules:
All schedules have been omitted because they are either not
applicable or not required, or the required information is given
in the consolidated financial statements or the notes thereto.
2. Exhibits:
See Exhibit Index at Page 46 of this report.
(b) Reports on Form 8-K. The Corporation filed a report on Form 8-K on
April 1, 2004 to report information under Item 5 (Other Events).
Page 45 of 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
GENESEE CORPORATION
July 29, 2004 By: /s/ Steven M. Morse
- ------------------ ---------------------------------------
(Date) Steven M. Morse, President, Treasurer,
and Secretary
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/Stephen B. Ashley July 29, 2004 Director
- ------------------------------- -----------------
Stephen B. Ashley (Date)
/s/Steven M. Morse July 29, 2004 President, Treasurer,
- ------------------------------- ----------------- and Secretary (Principal
Steven M. Morse (Date) Executive Officer and
Principal Financial and
Accounting Officer)
Page 46 of 55
EXHIBIT INDEX
NUMBER DOCUMENT PAGE
- ------ -------- ----
3-1 Certificate of Incorporation (incorporated by reference to Exhibit --
3-1 to the Corporation's report on Form 10-K for the fiscal year ended April 29, 2000).
3-2 Certificate of Amendment of the Certificate of Incorporation --
(incorporated by reference to the Corporation's report on Form 10-Q for the fiscal
quarter ended January 27, 2001).
3-3 By-Laws (incorporated by reference to Exhibit 3-2 to the Corporation's report on Form --
10-K for the fiscal year ended April 29, 2000).
10-1 Asset Purchase Agreement, dated as of August 29, 2000 between The Genesee Brewing --
Company, Inc. and High Falls Brewing Company, LLC (incorporated by reference to Exhibit
10-1 to the Corporation's report on Form 8-K filed on January 2, 2001).
10-2 Amendment No. 1 to Asset Purchase Agreement dated as of December 15, 2000, between The --
Genesee Brewing Company, Inc. and High Falls Brewing Company, LLC (incorporated by
reference to Exhibit 10-2 to the Corporation's report on Form 8-K filed on January 2,
2001.)
10-3 $3,500,000 First Senior Bridge Note dated December 15, 2000 executed by High Falls --
Brewing Company, LLC in favor of The Genesee Brewing Company, Inc. (incorporated by
reference to Exhibit 10-3 to the Corporation's report on Form 8-K filed on January 2,
2001).
10-4 $3,000,000 First Senior Bridge Note dated December 15, 2000 executed by High Falls --
Brewing Company, LLC in favor of The Genesee Brewing Company, Inc. (incorporated by
reference to Exhibit 10-4 to the Corporation's report on Form 8-K filed on January 2,
2001).
10-5 Mortgage dated as of December 15, 2000 executed by High Falls Brewing Company, LLC in --
favor of The Genesee Brewing Company, Inc. (incorporated by reference to Exhibit 10-5 to
the Corporation's report on Form 8-K filed on January 2, 2001).
10-6 $4,500,000 Subordinated Promissory Note dated December 15, 2000 executed by High Falls --
Brewing Company, LLC in favor of The Genesee Brewing Company, Inc. (incorporated by
reference to Exhibit 10-6 to the Corporation's report on Form 8-K filed January 2, 2001).
10-7 Security Agreement dated as of December 15, 2000 executed by High Falls Brewing Company, --
LLC in favor of The Genesee Brewing Company, Inc. (incorporated by reference to Exhibit
10-7 to the Corporation's report on Form 8-K filed on January 2, 2001).
10-8 Intercreditor Agreement dated as of December 15, 2000 among High Falls Brewing Company, --
LLC, The Genesee Brewing Company, Inc., Manufacturers and Traders Trust Company and
Cephas Capital Partners, LP (incorporated by reference to Exhibit 10-8 to the
Corporation's report on Form 8-K filed on January 2, 2001).
Page 47 of 55
NUMBER DOCUMENT PAGE
- ------ -------- ----
10-9 Indemnification Agreement dated as of December 15, 2000 between The Genesee Brewing --
Company, Inc. and High Falls Brewing Company, LLC (incorporated by reference to Exhibit
10-10 to the Corporation's report on Form 8-K filed January 2, 2001).
10-10 Employment and Stock Appreciation Agreement with S.M. Morse dated as of December 15, --
2000 (incorporated by reference to Exhibit 10-16 to the Corporation's report on Form
10-K for the fiscal year ended April 28, 2001).
10-11 Letter agreement with S.B. Ashley dated January 8, 2001 (incorporated by reference to --
Exhibit 10-17 to the Corporation's report on Form 10-K for the fiscal year ended April
28, 2001).
10-12 Indemnification Agreement with Steven M. Morse dated June 27, 2001 (incorporated by --
reference to Exhibit 10-18 to the Corporation's report on Form 10-K for the fiscal year
ended April 28, 2001). Substantially identical agreements were executed with all other
directors and officers of the Corporation.
10-13 1992 Stock Plan (incorporated by reference to Exhibit 10-1 to the Corporation's report --
on Form 10-Q for the fiscal quarter ended October 30, 1999).
10-14 Stock Bonus Incentive Program under 1992 Stock Plan (incorporated by reference to --
Exhibit 10-3 to the Corporation's report on Form 10-K for the fiscal year ended May 2,
1998).
10-15 Agreement of Sublease by and between S.B. Ashley Management Corporation and the --
Corporation dated May 18, 2001 (incorporated by reference to Exhibit 10-27 to the
Corporation's report on Form 10-K for the fiscal year ended April 28, 2001).
10-16 Plan of Liquidation and Dissolution adopted by the Corporation's shareholders on --
October 29, 2000 (incorporated by reference to Exhibit 10-28 to the Corporation's
report on Form 10-K for the fiscal year ending April 28, 2001).
10-17 Purchase Agreement dated September 21, 2001 by and among Associated Brands, Inc., --
Associated Brands Inc. and Genesee Corporation (incorporated by reference to
Exhibit 10-1 to the Corporation's report on Form 8-K filed on October 24, 2001).
Exhibits and schedules pursuant to the Purchase Agreement have not been filed by the
registrant, which hereby undertakes to file such exhibits and schedules upon request by
the Commission.
10-18 Transfer Agreement dated May 31, 2002 by and among Genesee Ventures Inc., Home Leasing --
Corporation, Norman Leenhouts and Nelson B. Leenhouts (incorporated by reference to
Exhibit 10-26 to the Corporation's report on Form 10-K for the fiscal year ended
April 27, 2002.) Exhibits pursuant to the Transfer Agreement have not been filed by the
registrant, who hereby undertakes to file such exhibits upon request by the Commission.
10-19 Indemnification Agreement dated May 31, 2002 by and between Genesee Corporation, Norman --
Leenhouts, Nelson B. Leenhouts and Home Leasing Corporation (incorporated by reference
to Exhibit 10-26 to the Corporation's report on Form 10-K for the fiscal year ended
April 27, 2002.)
Page 48 of 55
NUMBER DOCUMENT PAGE
- ------ -------- ----
10-20 Amendment to Employment Agreement with S.M. Morse (see Exhibit 10-10 above) dated as of --
May 4, 2003. (Incorporated by reference to Exhibit 10-26 to the Corporation's report on
Form 10-K for the fiscal year ended May 3, 2003)
10-21 Agreement dated May 25, 2004 between High Falls Brewing Company, LLC and GBC Liquidating --
Corp. (incorporated by reference to Exhibit 10-1 to the Corporation's report on Form 8-K
filed on June 4, 2004)
10-22 Bill of Sale dated May 25, 2004 between GBC Liquidating Corp. and St. Paul Associates, --
LLC (incorporated by reference to Exhibit 10-2 to the Corporation's report on Form 8-K
filed on June 4, 2004)
10-23 General Release dated May 25, 2004 from GBC Liquidating Corp. to High Falls Brewing --
Company, LLC (incorporated by reference to Exhibit 10-3 to the Corporation's report on
Form 8-K filed on June 4, 2004)
10-24 Letter agreement dated May 25, 2004 between St. Paul Associates, LLC and High Falls --
Brewing Company, LLC (incorporated by reference to Exhibit 10-4 to the Corporation's
report on Form 8-K filed on June 4, 2004)
10-25 General Release dated May 25, 2004 from High Falls Brewing Company, LLC to GBC --
Liquidating Corp. (incorporated by reference to Exhibit 10-5 to the Corporation's report
on Form 8-K filed on June 4, 2004)
10-26 Note Purchase Agreement dated May 25, 2004 between GBC Liquidating corp. and St. Paul --
Associates, LLC (incorporated by reference to Exhibit 10-6 to the Corporation's report
on Form 8-K filed on June 4, 2004)
10-27 Amended and Restated Subordinated Promissory Note dated May 25, 2004 from High Falls --
Brewing company, LLC to GBC Liquidating Corp. (incorporated by reference to Exhibit 10-7
to the Corporation's report on Form 8-K filed on June 4, 2004)
10-28 Buyer's Certificate dated May 25, 2004 from St. Paul Associates, LLC (incorporated by --
reference to Exhibit 10-8 to the Corporation's report on Form 8-K filed on June 4, 2004)
10-29 Assumption of Intercreditor Agreement dated May 25, 2004 among High Falls Brewing --
company, LLC, Manufacturers & Traders Trust Company, Cephas Capital Partners, LP and GBC
Liquidating Corp. (incorporated by reference to Exhibit 10-9 to the Corporation's
report on Form 8-K filed on June 4, 2004)
10-30 General release dated May 21, 2004 from Manufacturers and Traders Trust Company to GBC --
Liquidating Corp. (incorporated by reference to Exhibit 10-10 to the Corporation's
report on Form 8-K filed on June 4, 2004)
10-31 General Release dated May 21, 2004 from Cephas Capital Partners, LP to GBC Liquidating --
Corp. (incorporated by reference to Exhibit 10-11 to the Corporation's report on Form
8-K filed on June 4, 2004)
10-32 Letter dated May 11, 2004 from Manufacturers and Traders Trust Company to High Falls --
Brewing Company, LLC (incorporated by reference to Exhibit 10-12 to the Corporation's
report on Form 8-K filed on June 4, 2004)
Page 49 of 55
NUMBER DOCUMENT PAGE
- ------ -------- ----
10-33 Closing Certificate dated May 24, 2004 from GBC Liquidating Corp. (incorporated by --
reference to Exhibit 10-13 to the Corporation's report on Form 8-K filed on June 4, 2004)
10-34 Independent Contractor Agreement dated May 3, 2004 between Genesee Corporation and
Steven M. Morse, CPA d/b/a Concorde Accounting and Tax Services 50
14 Genesee Corporation Financial Code of Ethics (incorporated by reference to Exhibit 14 to --
the Corporation's report on Form 10-K for the fiscal year ended May 3, 2003)
21 Subsidiaries of the Registrant 52
31 Officer Certifications as required by Section 302 of the Sarbanes-Oxley Act of 2002 53
32 Officer Certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002 55