-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M5fU08FjKNJ0o+KlHqwtVAoID+VfneZHjmp6rdBED5RwVS32K1ux/FOg+rvBd9bf l/PcnjffPLHHGRIYnf5Hsw== 0000950152-04-001598.txt : 20040304 0000950152-04-001598.hdr.sgml : 20040304 20040304160057 ACCESSION NUMBER: 0000950152-04-001598 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040131 FILED AS OF DATE: 20040304 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESEE CORP CENTRAL INDEX KEY: 0000040934 STANDARD INDUSTRIAL CLASSIFICATION: MALT BEVERAGES [2082] IRS NUMBER: 160445920 STATE OF INCORPORATION: NY FISCAL YEAR END: 0503 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-01653 FILM NUMBER: 04648964 BUSINESS ADDRESS: STREET 1: 600 POWERS BUILDING STREET 2: 16 WEST MAIN STREET CITY: ROCHESTER STATE: NY ZIP: 14614 BUSINESS PHONE: 7164541250 MAIL ADDRESS: STREET 1: 600 POWERS BUILDING STREET 2: 16 WEST MAIN STREET CITY: ROCHESTER STATE: NY ZIP: 146141601 FORMER COMPANY: FORMER CONFORMED NAME: GENESEE BREWING CO INC DATE OF NAME CHANGE: 19880322 10-Q 1 l06165ae10vq.txt GENESEE CORPORATION 10-Q Index to Exhibits at page 14 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________________to_______________ Commission File Number 0 - 1653 GENESEE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) STATE OF NEW YORK 16-0445920 - ------------------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 600 Powers Bldg., 16 W. Main Street, Rochester, New York 14614 - ---------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (585) 454-1250 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] As of the date of this report, the Registrant had the following shares of common stock outstanding:
Number of Shares Class Outstanding ----- ----------- Class A Common Stock (voting), par value $.50 per share 209,885 Class B Common Stock (non-voting), par value $.50 per share 1,464,201
Page 2 of 17 GENESEE CORPORATION AND SUBSIDIARIES Statement Of Net Assets In Liquidation (Liquidation Basis) January 31, 2004 and May 3, 2003 (Dollars in thousands, except per share data)
January 31, 2004 May 3, 2003 ---------------- ----------- ASSETS Cash and cash equivalents $ 4,368 $ 6,572 Restricted cash 3,200 3,200 Marketable securities available for sale 0 3,010 Note receivable 1,100 2,800 Estimated income tax receivable, net 115 0 Other assets 203 353 ---------- ---------- Total assets $ 8,986 $ 15,935 ========== ========== LIABILITIES AND NET ASSETS Accrued compensation $ 222 $ 525 Accrued expenses and other liabilities 602 874 Estimated income tax payable, net 0 4,664 Accrued self-insured workers compensation 1,065 1,495 ---------- ---------- Total liabilities 1,889 7,558 ---------- ---------- Net assets in liquidation $ 7,097 $ 8,377 ========== ========== Number of common shares outstanding (Class A - 209,885; Class B - 1,464,201) 1,674,086 1,674,086 Net assets in liquidation per outstanding share $ 4.24 $ 5.00 ========== ==========
See accompanying notes to consolidated financial statements. Page 3 of 17 GENESEE CORPORATION AND SUBSIDIARIES Statement Of Changes In Net Assets In Liquidation (Liquidation Basis) For the Thirteen Week and Thirty Nine Week Periods Ended January 31, 2004 and January 25, 2003 (Dollars in thousands)
2004 2003 --------- -------- Net assets in liquidation at May 3, 2003 and April 27, 2002, respectively $ 8,377 $ 29,622 High Falls subordinated note receivable: Interest income 140 120 Interest income, net 12 194 Changes in estimated liquidation values of assets and liabilities 2 (17) --------- -------- Net assets in liquidation at August 2, 2003 and July 27, 2002, respectively 8,531 29,919 Liquidating distributions paid to shareholders 0 (13,393) High Falls subordinated note receivable: Interest income 70 120 Change in fair value (1,700) (1,200) Interest (expense) income, net (58) 179 Changes in estimated liquidation values of assets and liabilities (163) (394) --------- -------- Net assets in liquidation at November 1, 2003 and October 26, 2002, respectively 6,680 15,231 High Falls subordinated note receivable: Interest income 120 120 Interest (expense) income, net (60) 119 Changes in estimated liquidation values of assets and liabilities 357 68 --------- -------- Net assets in liquidation at January 31, 2004 and January 25, 2003, respectively $ 7,097 $ 15,538 ========= ========
See accompanying notes to consolidated financial statements. Page 4 of 17 GENESEE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE (A) Divestiture of the Corporation's Operating Businesses and Other Assets In October 2000, Genesee Corporation (the "Corporation") shareholders approved a plan to divest all of the Corporation's operations and then liquidate and dissolve the Corporation (the "Plan of Liquidation and Dissolution.") Since then, as discussed below, the Corporation has divested all of its operations and substantially all of its other assets. The proceeds from these divestitures, net of amounts paid or reserved to discharge all of the Corporation's obligations and liabilities, are being distributed to the Corporation's shareholders in a series of liquidating distributions. The Corporation sold its brewing business in December 2000 to High Falls Brewing Company, LLC ("High Falls") for $27.2 million. The Corporation received $11 million of the sale price in the form of notes receivable from High Falls, which are more fully described in Note B. The Corporation sold a significant portion of its equipment lease portfolio in December 2000 and received $12.8 million in proceeds. Since then, the Corporation continued to hold and manage a small number of leases that it retained after this sale. The final lease matured in November 2003 resulting in the conclusion of the Corporation's equipment leasing activities. The Corporation sold its Foods Division in October 2001 to Associated Brands, Inc. ("ABI") for $24.4 million. On May 31, 2002, the Corporation sold its ten-percent interest in an office building located in Rochester, New York and a related note receivable from the building owner for $2.4 million in cash. On September 16, 2002, the Corporation sold its 50% interests in a 408-unit apartment complex located in Syracuse, New York and a 150-unit apartment complex located in Rochester, New York for a combined sales price of $4.5 million. With the sale of its interest in the apartment complexes mentioned above, the Corporation completed the liquidation phase of its plan of liquidation and dissolution. NOTE (B) Liquidation Basis of Accounting With the sale of its Foods Division, which is described in Note A, the Corporation adopted the liquidation basis of accounting effective September 29, 2001. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, which estimates are periodically reviewed and adjusted. A Statement of Net Assets and a Statement of Changes in Net Assets are the two financial statements presented under the Liquidation Basis of Accounting. Page 5 of 17 GENESEE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE (B) Liquidation Basis of Accounting (continued) The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts necessarily requires many estimates and assumptions. In addition, there are substantial risks and uncertainties associated with carrying out the liquidation and dissolution of the Corporation. The valuations presented in the accompanying Statement of Net Assets in Liquidation represent estimates, based on present facts and circumstances, of the net realizable values of assets and the costs associated with carrying out the plan of liquidation and dissolution based on the assumptions set forth below. The actual values and costs are expected to differ from the amounts shown herein and could be greater or lesser than the amounts recorded. In particular, the estimates of the Corporation's costs will vary with the length of time it operates. In addition, the estimate of net assets in liquidation per share presented in accordance with accounting principles generally accepted in the United States of America (GAAP) in the accompanying Statement of Net Assets in Liquidation generally does not incorporate a present value discount to reflect the amount of time that will transpire before the value of those assets is distributed to shareholders. Accordingly, it is not possible to predict the aggregate amount that will ultimately be distributable to shareholders and no assurance can be given that the amount to be received in liquidation will equal or exceed the estimate of net assets in liquidation per share presented in the accompanying Statement of Net Assets in Liquidation or the price or prices at which the Corporation's common stock has traded or is expected to trade in the future. General assumptions used and asset and liability values under the Liquidation Basis of Accounting Following are assumptions utilized by management in assessing the fair value of assets and the expected settlement values of liabilities included in the Statement of Net Assets in Liquidation as of January 31, 2004. Cash and cash equivalents and restricted cash - Presented at face value. The Corporation considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Corporation maintains balances in various operating and money market accounts in excess of federally insured limits. At January 31, 2004, substantially all cash balances were in excess of federally insured limits. The Corporation's Board of Directors (the "Board") has adopted a Contingent Liability Reserve Policy whereby the Corporation will maintain a cash contingency reserve equal to $2.5 million, or $1.50 per outstanding share, for unexpected expenses of the Corporation. The amount of the reserve may be modified in the future by the Board as deemed necessary. The balance of this reserve is $2.5 million at January 31, 2004; however, it is not classified as restricted or as a liability in the accompanying Statement of Net Assets in Liquidation. Marketable securities available for sale - Presented at quoted market prices. The Corporation had maintained a portfolio that consisted predominantly of high quality corporate bonds which was managed by an independent third party investment manager. Valuation of the Corporation's marketable securities was based upon closing prices of their marketable securities, as provided by the investment manager. During the second quarter of fiscal 2004 the Corporation liquidated its portfolio by selling all of its marketable securities. Page 6 of 17 GENESEE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE (B) Liquidation Basis of Accounting (continued) Notes receivable - Stated at fair value, which has been discounted from face value as described below. As partial consideration for the sale of its brewing business in December 2000, the Corporation received $11 million in notes receivable from High Falls. On July 30, 2002 the Corporation received $5.9 million in satisfaction of the remaining principal balance due on two bridge notes with original face amounts of $3.5 million and $3 million. This prepayment was in accordance with the terms of the notes, which required prepayment at such time as the buyer received proceeds from government backed loans. At January 31, 2004, the amount remaining due to the Corporation from High Falls is $4 million under a subordinated note with an original face amount of $4.5 million (the "High Falls Note"). The $4 million balance was payable as follows: $1 million was due on December 15, 2002 and $3 million was due on December 15, 2003. High Falls did not make the $1 million principal payment due on December 15, 2002 or the $3 million principal payment due on December 15, 2003 and is currently in default under the terms of the High Falls Note. During the second quarter of fiscal 2003 the Corporation adjusted the value of the $4 million balance due on the High Falls Note to $2.8 million to reflect management's estimate of the value of the note, based on the fair market value of publicly traded debt instruments of similar quality. The Corporation had been in discussions with High Falls regarding the restructuring of the High Falls Note in connection with the possible recapitalization of High Falls Brewing Company. In November 2003 High Falls notified the Corporation that High Falls' efforts to recapitalize High Falls in a transaction with a third party had ended unsuccessfully and that High Falls would not be able to make the December 15, 2003 $3 million principal payment. A proposal from High Falls to refinance the remaining balance of the High Falls Note is expected soon. As a result of these developments, in November 2003 management reduced its estimate of the value of the High Falls Note by another $1.7 million to $1.1 million, based on the fair market value of publicly traded debt instruments of similar quality. Estimated income tax receivable - Based on management's estimate. Amount reflects the impact on cash flow under an orderly liquidation scenario. It is comprised of taxes and estimated interest currently owed on prior year tax underpayments and estimated amounts of taxes to be received within the next year. It includes adjustments for estimates of future expenditures, the utilization of tax credits, and carryforwards and carrybacks. Certain amounts included in the estimated income tax receivable are subject to audit by both state and federal taxing authorities, most notably as it relates to the fiscal years ended May 3, 2003 and May 1, 2004. The Corporation requested, and has settled, accelerated audits from the federal taxing authorities for the tax years ending April 27, 2002, April 28, 2001, and April 29, 2000. State audits have also been resolved through the fiscal year ended April 27, 2002. As tax returns are filed utilizing management's interpretation of applicable rules, the actual results after a tax audit can be different from amounts initially filed. Based upon all known facts, management has made an estimation of the range of probable outcomes after all tax returns have been filed and reviewed by the taxing authorities and during the third quarter of fiscal 2004, a $365,000 adjustment was recorded by the Corporation which replaced a $250,000 estimated income tax liability with a $115,000 estimated income tax receivable. The estimated income tax receivable on the accompanying Statement of Net Assets in Liquidation is management's estimate of the most probable point within the range. Such estimates are often updated as additional information becomes available. The Corporation may incur additional professional fees as a result of any additional income tax audits. Page 7 of 17 GENESEE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE (B) Liquidation Basis of Accounting (continued) Other assets - Valued based on management estimates. At January 31, 2004 the $203,000 balance is primarily comprised of prepaid insurance, accrued interest receivable, and a note receivable from a former customer of the Genesee Brewing Company, Inc., that the Corporation retained after the sale of its brewing business to High Falls. Accrued compensation and accrued expenses and other liabilities - Based on management's estimate. These are the estimated costs to complete the Plan of Liquidation and Dissolution, and represent the estimated cash costs of operating the Corporation through April 2004 and for an additional wind-up phase after April 2004. During the second and third quarters of fiscal 2004 the estimate of certain costs were adjusted to reflect management's current expectations. These costs, which include personnel, facilities, professional fees, and other related costs, are estimated based on various assumptions regarding the number of employees, the use of outside professionals (including attorneys and accountants) and other costs. Due to the inherent uncertainty in the estimation process, actual results could be materially different. The table below details these costs by category as of May 3, 2003 and January 31, 2004 and the expenditures and management adjustments that occurred during the first three quarters of fiscal 2004.
Nine Months Ended Nine Months Ended May 3, 2003 January 31, 2004 January 31, 2004 January 31, 2004 Category Balance Expenditures Adjustments Balance - -------------------------------------------------------------------------------------------------------------------- Compensation and related costs $ 525,000 $ (303,000) $ 0 $ 222,000 - ------------------------------------------------------------------------------------------------------------------ Office expenses, including rent 54,000 (33,000) (11,000) 10,000 - ------------------------------------------------------------------------------------------------------------------ Insurance expense 200,000 (101,000) 51,000 150,000 - ------------------------------------------------------------------------------------------------------------------ Professional fees 205,000 (317,000) 191,000 79,000 - ------------------------------------------------------------------------------------------------------------------ Post April 2004 costs 300,000 0 0 300,000 - ------------------------------------------------------------------------------------------------------------------ Other 115,000 (81,000) 29,000 63,000 - ------------------------------------------------------------------------------------------------------------------ Totals $1,399,000 $ (835,000) $ 260,000 $ 824,000 - ------------------------------------------------------------------------------------------------------------------
The $191,000 adjustment to the professional fees estimate is primarily related to an expected increase in legal and accounting costs as the Corporation appropriately positions itself for its post April 2004 phase to wind up its business. Page 8 of 17 GENESEE CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE (B) Liquidation Basis of Accounting (continued) Accrued self-insured workers compensation - Based on an independent actuarial valuation. The Corporation's brewing and foods businesses were self-insured for workers compensation claims and the Corporation retained this liability after those businesses were sold. In connection with this liability, the Corporation is required by the New York Workers Compensation Board (the "Compensation Board") to maintain the $3.2 million standby letter of credit, which has been renewed through August 2004. The issuing bank required the Corporation to collateralize the letter of credit by maintaining a cash balance of $3.2 million in a money-market account with the bank. Contingent liabilities - As with any operating business, the Corporation may have potential contingent liabilities in addition to the liabilities recorded in the accompanying consolidated financial statements. Because no claims for contingent liabilities have been made or threatened, no amount has been recorded for such liabilities in the accompanying consolidated financial statements. NOTE (C) Financial Statement Presentation Liquidation Basis Financial Statements The Corporation's Statement of Net Assets in Liquidation as of January 31, 2004 and Statement of Changes in Net Assets in Liquidation for the thirteen week and thirty nine week periods ended January 31, 2004 and January 25, 2003 presented herein are unaudited. The May 3, 2003 Statement of Net Assets has been audited. In the opinion of management, these financial statements reflect all adjustments which are necessary for a fair presentation of the results for the interim period presented. Net assets in liquidation per outstanding share, which is reported in the Statement of Net Assets in Liquidation, is calculated by dividing net assets in liquidation by the number of common shares outstanding as of the statement date. The accompanying financial statements have been prepared in accordance with GAAP and Securities and Exchange Commission (the "SEC") guidelines applicable to interim financial information. These statements should be reviewed in conjunction with the Corporation's annual report on Form 10-K for the fiscal year ended May 3, 2003. It is the Corporation's policy to reclassify certain amounts in the prior year consolidated financial statements to conform to the current year presentation. NOTE (D) Class B Common Stock De-listing and Closing of Stock Books At the close of business on December 31, 2003 the Corporation's Class B Common Stock was de-listed from the Nasdaq National Market and the Corporation's stock books for its Class A and Class B Common Stock were closed. The Corporation expects to file a certificate of dissolution with the New York State Department of State in the future. These actions are pursuant to the Plan of Liquidation and Dissolution. Page 9 of 17 GENESEE CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This financial review should be read in conjunction with the accompanying consolidated financial statements and notes. Effective September 29, 2001 the Corporation adopted the liquidation basis of accounting which is described in detail in Note B to the accompanying consolidated financial statements. In the current and prior fiscal years the Corporation had no operations; therefore, there is no discussion of operations presented. See also Note D to the accompanying consolidated financial statements presented in this report that are incorporated herein by reference thereto. LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004 Liquidating distributions have been paid to shareholders under the Corporation's plan of liquidation and dissolution as follows:
AMOUNT AMOUNT DATE PAID DISTRIBUTED PER SHARE --------- ----------- --------- March 1, 2001 $12,557,000 $ 7.50 November 1, 2001 21,763,000 13.00 May 17, 2002 8,370,000 5.00 August 26, 2002 8,370,000 5.00 October 11, 2002 5,023,000 3.00 March 17, 2003 4,185,000 2.50 April 28, 2003 2,511,000 1.50 ----------- ------ TOTAL $62,779,000 $37.50 =========== ======
Subject to amounts that the Corporation may hold to discharge obligations and potential contingent liabilities (see Contingent Liability Reserve Policy described below), the Corporation expects to pay additional liquidating distributions as the Corporation: (a) receives payments on the remaining promissory note described in Note B to the accompanying consolidated financial statements which accompany this report; (b) is allowed to reduce the financial assurance for its self-insured workers compensation liability described below; (c) reduces the amount of the Contingent Liability Reserve described below. The length of time that will be required to wind-up the Corporation's affairs is uncertain and will impact the value of the Corporation's net assets in liquidation due to the ongoing expense of operating the Corporation. While Management has targeted that the Plan of Liquidation and Dissolution will be completed by April 2004, there will be a further phase required to wind up its business, necessitated by certain assets and liabilities having a longer maturity or term. While the duration of this additional phase is unknown, there will be costs associated with it. The Corporation has estimated the present value of those costs at $300,000 and this amount has been recorded as a part of the run-out accrual and reflected in the accrued expenses and other liabilities line in the accompanying Statement of Net Assets in Liquidation. Page 10 of 17 GENESEE CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004 (continued) As a result of certain assets and liabilities having a maturity or term beyond April 2004, the Corporation currently expects that the net realizable value of certain assets, including the High Falls note receivable, will not be distributable to shareholders by that date and that certain of the Corporation's liabilities, including the workers compensation liability described below, will not be discharged by that date. All such assets and liabilities will be retained by the Corporation or transferred to a post-dissolution entity to be held for the benefit of the Corporation's shareholders and cash will be distributed to shareholders as the net realizable values of such retained assets become distributable after discharging any retained liabilities. Since it is unknown how long it will be before a final liquidating distribution is paid to shareholders, the present value of the net assets in liquidation per outstanding share could be less than is reported in the accompanying Statement of Net Assets in Liquidation and the ultimate distributions to shareholders may differ materially from the Corporation's current estimate. The Corporation's unrestricted and restricted cash and cash equivalents are invested in commercial bank money market funds to earn a market rate of return on those funds and give the Corporation the security and flexibility required as it completes the liquidation and dissolution process. These funds are currently yielding approximately 1.0% per annum. The Corporation's Board of Directors (the "Board") has adopted a Contingent Liability Reserve Policy whereby the Corporation will maintain a cash contingency reserve equal to $2.5 million, or $1.50 per outstanding share, for unexpected expenses of the Corporation. The amount of the reserve may be modified in the future by the Board as deemed necessary. The balance of this reserve is $2.5 million at January 31, 2004; however, it is not classified as restricted or as a liability in the accompanying Statement of Net Assets in Liquidation. Restricted cash represents cash that the Corporation is temporarily unable to access. Restricted cash in the amount of $3.2 million is being held in a money-market account with a commercial bank as collateral for a standby letter of credit issued by the bank to provide statutorily required financial assurance for the Corporation's self-insured workers compensation liability. The Corporation is required by the New York Workers Compensation Board (the "Compensation Board") to maintain the $3.2 million standby letter of credit, which has been renewed through August 2004. The issuing bank requires the Corporation to collateralize the letter of credit by maintaining a cash balance of $3.2 million in a money-market account with the bank. The Compensation Board has recently completed its review of the $3.2 million financial security requirement and has decided it will not adjust the financial security requirement to an amount more consistent with the $1.1 million actuarial valuation of the workers compensation liability recorded in the accompanying Statement of Net Assets in Liquidation. It is management's current expectation that the Compensation Board will require the Corporation to maintain some amount of financial assurance for the actuarially determined duration of the self-insured workers compensation liability, which is currently estimated to be twenty to twenty-five years, and any such amount would not be available for distribution to shareholders until the Corporation is relieved of its financial assurance obligation. The Corporation's marketable securities consisted of a bond portfolio managed by an investment management firm. This portfolio was liquidated during the second quarter of fiscal 2004 with the proceeds invested in commercial bank money market funds. Page 11 of 17 GENESEE CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004 (continued) During the first three quarters of fiscal 2004, the Corporation received $362,000 in interest from High Falls on the High Falls Note that is described in Note B to the accompanying consolidated financial statements. The remaining High Falls Note bears interest at the rate of 12% per annum; however, interest is currently accruing at the default rate of 14% per annum as a result of the default by High Falls on the December 15, 2002 and December 15, 2003 $1 million and $3 million principal payments, respectively. However, the Corporation has only received interest at 12% for its June 15, 2003, September 15, 2003, and December 15, 2003 quarterly interest payments. The $4 million balance was payable as follows: $1 million was due on December 15, 2002 and $3 million was due on December 15, 2003. As mentioned above, High Falls did not make the $1 million or $3 million principal payments. The Corporation had been in discussions with High Falls regarding the restructuring of the High Falls Note in connection with the possible recapitalization of High Falls Brewing Company. In November 2003 High Falls notified the Corporation that High Falls' efforts to recapitalize High Falls in a transaction with a third party had ended unsuccessfully. A proposal from High Falls to refinance the remaining balance of the High Falls Note is expected soon. Under the current arrangement with High Falls, the December 15, 2003 principal payment could have been extended by High Falls to December 15, 2005 if High Falls did not achieve 2.5 million barrels of contract brewing volume as measured from December 15, 2000 through December 15, 2003. High Falls, which is required to certify its contract volume annually, has certified to the Corporation that as of December 15, 2003, it has achieved 2,720,083 barrels of contract brewing volume since December 15, 2000. The High Falls Note is subordinate to High Falls' senior bank debt and mezzanine financing. Under the terms of the senior debt agreements, in the event of a default by High Falls, the senior lenders could declare a standstill, which would prevent the Corporation from receiving principal and interest payments and enforcing its rights against collateral pledged by High Falls to secure the High Falls Note. If the senior lenders were to declare a standstill, payments to the Corporation and the Corporation's rights against collateral pledged to secure the note could be suspended indefinitely. The terms of the High Falls seller financing are detailed in exhibits to the Corporation's report on Form 8-K filed on January 2, 2001. During the second quarter of fiscal 2003, the Corporation adjusted the value of the $4 million balance due on the High Falls Note to $2.8 million to reflect management's estimate of the value of the note, based on the fair market value of publicly traded debt instruments of similar quality. As a result of the developments described above, in November 2003 management reduced its estimate of the value of the High Falls Note by another $1.7 million, to $1.1 million, based on the fair market value of publicly traded debt instruments of similar quality. This adjustment had no effect on the estimated income tax receivable amount presented in the Statement of Net Assets in Liquidation. Other than the $260,000 fiscal 2004 adjustments to the estimated costs to complete the Corporation's Plan of Liquidation and Dissolution, which are primarily related to professional fees and are included in Note B to the accompanying consolidated financial statements, the accrued compensation and accrued expenses and other liabilities line items decreased during the first three quarters of fiscal 2004 as a result of the occurrence of anticipated expenditures. Page 12 of 17 GENESEE CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) LIQUIDITY AND CAPITAL RESOURCES - JANUARY 31, 2004 (continued) During the first quarter of fiscal 2004, the Corporation paid $4.7 million to the Internal Revenue Service on account. As a result, the estimated net income tax payable financial statement line item decreased accordingly. See also Note D to the accompanying consolidated financial statements, which is incorporated herein by reference thereto, which explains the Corporation's Class B Common Stock de-listing and closing of the Corporation's stock books. Forward-Looking Statements This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include estimates of the net assets of the Corporation in liquidation, statements about the amount and timing of the payment of additional liquidating distributions and statements about the Corporation's operating costs through final dissolution, including the additional wind-up phase beyond April 2004, which will vary with the length of time it operates. The cautionary statements regarding estimates of net assets in liquidation set forth in Note B to the accompanying consolidated financial statements that accompany this report are incorporated herein by reference. The forward-looking statements in this report are subject to a number of other significant risks and uncertainties, and there can be no assurance that the expectations reflected in those statements will be realized or achieved. Such risks and uncertainties include, without limitation, the amount and timing of payments to the Corporation by High Falls under the remaining promissory note described in Note B to the accompanying consolidated financial statements which accompany this report; the possible extension of payment or renegotiation of terms as a result of the default by High Falls under that note; possible contingent liabilities and post-closing indemnification and other obligations arising from the sale of the Corporation's operating businesses and other assets; the risk that federal, state or local taxing authorities will audit the tax returns filed by the Corporation that report the sale of its brewing, foods and equipment leasing businesses and other assets resulting in additional taxes being assessed against the Corporation; the risk that income, sales, use and other tax returns filed by the Corporation prior to the divestiture of its brewing, foods and equipment leasing businesses might be audited by federal, state or local taxing authorities resulting in additional taxes being assessed against the Corporation; the risk that the Corporation may not be able to realize its current estimate of the net value of its assets; the risk that the Corporation may have underestimated the settlement expense of its obligations and liabilities, including without limitation, its estimates of self-insured workers compensation liability, accrued compensation, and tax liabilities; risks associated with the liquidation and dissolution of the Corporation, including without limitation, settlement of the Corporation's liabilities and obligations, costs incurred in connection with carrying out the plan of liquidation and dissolution and additional run-out expense, discharge of contingent liabilities, and the winding up and dissolution of the Corporation. Item 4. Controls and Procedures In accordance with Securities Exchange Act of 1934 rules, the Corporation's management, under the supervision of the President and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the Corporation concluded that the design and operation of its disclosure controls and procedures were effective. There has been no change in the Corporation's internal control over financial reporting that occurred during the period covered by this quarterly report, that has materially affected, or is reasonably likely to affect, the Corporation's internal control over financial reporting. Page 13 of 17 GENESEE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: See Exhibit Index at Page 14 of this report. (b) Reports on Form 8-K. The Corporation filed reports on Form 8-K on November 7, 2003 and December 23, 2003 to report information under Item 5 (Other Events.) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENESEE CORPORATION Date: 3/04/04 /s/ Stephen B. Ashley ----------------------------- Stephen B. Ashley President Date: 3/04/04 /s/ Steven M. Morse ---------------------------- Steven M. Morse Vice President and Chief Financial Officer Page 14 of 17 GENESEE CORPORATION AND SUBSIDIARIES EXHIBIT INDEX
Exhibit Number Exhibit Page No. - ----------- ----------------------------------------------------------------------------------- -------- 31 Officer Certifications as required by Section 302 of the Sarbanes-Oxley Act of 2002. 15 32 Officer Certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002. 17
EX-31 3 l06165aexv31.txt EXHIBIT 31 Page 15 of 17 GENESEE CORPORATION AND SUBSIDIARIES EXHIBIT 31 I, Stephen B. Ashley, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Genesee Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 4, 2004 /s/ Stephen B. Ashley ----------------------------- President Page 16 of 17 GENESEE CORPORATION AND SUBSIDIARIES I, Steven M. Morse, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Genesee Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 4, 2004 /s/ Steven M. Morse ------------------------------------------ Vice President and Chief Financial Officer EX-32 4 l06165aexv32.txt EXHIBIT 32 Page 17 of 17 GENESEE CORPORATION AND SUBSIDIARIES EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Genesee Corporation (the "Company") on Form 10-Q for the period ending January 31, 2004 as filed with the Securities and Exchange commission on the date hereof (the "Report") I, Steven M. Morse, Vice President and Chief Financial Officer (as Principal Financial Officer) of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) The information contained in the Report presents, in all material respects, the financial condition and results of operations of the Company. /s/ Steven M. Morse ----------------------------------- Steven M. Morse Vice President and Chief Financial Officer March 4, 2004 CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Genesee Corporation (the "Company") on Form 10-Q for the period ending January 31, 2004 as filed with the Securities and Exchange commission on the date hereof (the "Report") I, Stephen B. Ashley, President of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (i) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) The information contained in the Report presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen B. Ashley ---------------------------- Stephen B. Ashley President March 4, 2004 -----END PRIVACY-ENHANCED MESSAGE-----