SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 26, 1996
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.)
445 St. Paul Street, Rochester, New York 14605
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 546-1030
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
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), 209,885
par value $.50 per share
Class B Common Stock (non-voting), 1,407,342
par value $.50 per share
1
<PAGE>
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 26, 1996 and April 30, 1996
<TABLE>
UNAUDITED AUDITED
(Dollars in Thousands) October 26, 1996 April 30, 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,066 2,560
Marketable securities available for sale 34,923 34,896
Trade accounts receivable, less allowance for doubtful receivables
of $397 at October 26, 1996; $433 at April 30, 1996 11,929 13,168
Inventories, at lower of cost (first-in, first-out) or market 12,625 11,959
Deferred income tax assets 899 898
Other current assets 1,288 1,376
Total current assets 63,730 64,857
Net property, plant and equipment 30,424 30,306
Investment in and notes receivable from unconsolidated real estate partnerships 8,413 8,466
Investments in direct financing and leveraged leases 28,883 28,092
Other assets 2,625 2,314
Total assets 134,075 134,035
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 9,439 10,210
Income taxes payable 707 455
Federal and state beer taxes payable 1,398 2,246
Accrued expenses and other 6,335 5,827
Total current liabilities 17,879 18,738
Deferred income tax liabilities 7,814 7,482
Accrued postretirement benefits 15,593 15,526
Other liabilities 405 428
Total liabilities 41,691 42,174
Minority interests in consolidated subsidiaries 1,689 1,527
Shareholders' equity:
Common stock Class A 105 105
Common stock Class B 753 753
Additional paid-in capital 5,849 5,839
Retained earnings 87,015 87,285
Unrealized gain / (loss) on marketable securities, net of income taxes 478 (113)
Less treasury stock, at cost 3,505 3,535
Total shareholders' equity 90,695 90,334
Total liabilities and shareholders' equity $ 134,075 134,035
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
GENESEE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF EARNINGS AND RETAINED EARNINGS
Thirteen Weeks Ended October 26, 1996 and October 28, 1995
(Dollars in Thousands,
Except Per Share Data)
<TABLE>
UNAUDITED
1996 1995
<S> <C> <C>
Revenues $47,296 45,251
Federal and state beer taxes 10,241 9,925
Net revenues 37,055 35,326
Cost of sales 28,630 27,778
Gross profit 8,425 7,548
Selling, general and administrative expenses 8,818 8,521
Operating income / (loss) (393) (973)
Investment income 528 780
Other income / (expense), net 83 82
Interest of minority partners in earnings of
consolidated subsidiaries (161) (193)
Earnings / (loss) before income taxes 57 (304)
Income taxes 21 (122)
Net earnings / (loss) - $.02 per share in 1996
and ($.11) in 1995 36 (182)
Retained earnings at beginning of period 88,112 87,209
Less: dividends - $.70 per share in 1996
and $.70 per share in 1995 1,133 1,132
Retained earnings at end of period $87,015 85,895
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
GENESEE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF EARNINGS AND RETAINED EARNINGS
Twenty Six Weeks Ended October 26, 1996 and October 28, 1995
(Dollars in Thousands,
Except Per Share Data)
<TABLE>
UNAUDITED
1996 1995
<S> <C> <C>
Revenues $98,864 95,523
Federal and state beer taxes 21,466 21,834
Net revenues 77,398 73,689
Cost of sales 58,325 56,974
Gross profit 19,073 16,715
Selling, general and administrative expenses 17,767 16,879
Operating income / (loss) 1,306 (164)
Investment income 1,132 1,602
Other income / (expense), net 143 75
Interest of minority partners in earnings of
consolidated subsidiaries (349) (315)
Earnings before income taxes 2,232 1,198
Income taxes 804 479
Net earnings - $.88 per share in 1996
and $.45 in 1995 1,428 719
Retained earnings at beginning of period 87,285 86,869
Less: Dividends - $1.05 per share in 1996
and $1.05 per share in 1995 1,698 1,693
Retained earnings at end of period $87,015 85,895
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty Six Weeks Ended October 26, 1996 and October 28, 1995
<TABLE>
UNAUDITED
(Dollars in thousands) 1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,428 719
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,431 2,430
Loss on disposition of assets 64 0
Deferred tax provision (1) 113
Other 315 326
Changes in non-cash assets and liabilities:
Trade accounts receivable 1,275 594
Inventories (666) 514
Other assets (223) (1,746)
Accounts payable (771) (458)
Accrued expenses and other 507 (656)
Income taxes payable 252 26
Federal and state beer taxes (848) (477)
Accrued postretirement benefits 67 0
Other liabilities (23) 135
Net cash provided by operating activities 3,807 1,520
Cash flows from investing activities:
Capital expenditures (2,549) (3,640)
Sales of marketable securities 5,861 3,058
Purchases of marketable securities (5,029) (5,463)
Investments in and advances to unconsolidated real
real estate investments, net of distributions 53 (4,223)
Net investment in direct financing and leveraged leases (792) 396
Withdrawals by minority interest (187) (351)
Repayment of real estate mortgage receivable 0 5,807
Net cash used in investing activities (2,643) (4,416)
Cash flows from financing activities:
Principal payments on long term debt 0 (4,038)
Payment of dividends (1,698) (1,693)
Net proceeds from treasury stock transactions 40 430
Net cash used in financing activities (1,658) (5,301)
Net increase / (decrease) in cash and cash equivalents (494) (8,197)
Cash and cash equivalents at beginning of the year 2,560 10,422
Cash and cash equivalents at end of the period $ 2,066 2,225
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
GENESEE CORPORATION
Notes to Consolidated Financial Statements
NOTE (A) The Corporation's consolidated financial statements
enclosed herein are unaudited with the exception of the
Consolidated Balance Sheet at April 30, 1996 and, because
of the seasonal nature of the business and the varying
schedule of its special sales efforts, these results are
not necessarily indicative of the results to be expected
for the entire year. In the opinion of management,
the interim financial statements reflect all adjustments,
consisting of only normal recurring items, which are
necessary for a fair presentation of the results for the
periods presented. The accompanying financial statements
have been prepared in accordance with GAAP and SEC
guidelines applicable to interim financial information.
These statements should be reviewed in conjunction with
the annual report to shareholders for the year ended April
30, 1996.
NOTE (B) The weighted average number of Class A and Class B shares
outstanding used in the computation of net earnings per
share is 1,617,227 for the thirteen week period ended
October 26, 1996 and 1,608,726 for the thirteen week
period ended October 28, 1995. The weighted average number
of Class A and Class B shares outstanding used in the
computation of net earnings per share is 1,616,971 for the
twenty six weeks ended October 26, 1996 and 1,605,576 for
the twenty six weeks ended October 28, 1995.
NOTE (C) Inventories are summarized as follows:
<TABLE>
Dollars in thousands
October 26, 1996 April 30, 1996
<C> <C>
Finished goods $ 4,043 $ 3,219
Goods in process 1,936 1,891
Raw materials, containers and packaging supplies 6,646 6,849
Total inventories $ 12,625 $ 11,959
</TABLE>
6
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of 13 weeks ended October 26, 1996 to 13 weeks ended
October 28, 1995
Consolidated net revenues for the thirteen weeks ended October
26, 1996 were $37.1 million, an increase of $1.8 million over
consolidated net revenues reported for the same period last year.
The higher revenues were primarily due to increased sales by Genesee
Brewing Company.
On a consolidated basis, the Corporation reported net earnings
of $36,000, or $.02 per share in the second quarter this year,
compared to a net loss of $182,000, or $.11 per share, for the same
period last year. The higher profit relative to last year was
primarily attributable to improved performance by Genesee Brewing
Company.
Genesee Brewing Company
Genesee Brewing Company's net sales in the second quarter were
$30.6 million, an increase of $1.9 million from last year's second
quarter net sales of $28.7 million. Barrel sales (which include
volume under the contract to brew and package product for Boston
Beer Company) were up 36,000 barrels, or 7.7%. The increases in net
sales and barrel sales were partially attributable to higher volume
under the contract with Boston Beer Company. Volume under this
contract was up 78,000 barrels compared to the second quarter last
year when production had just commenced. In addition, sales of
Genesee Brewing Company's HighFalls craft brands continued to grow,
with second quarter barrels sales up 21,000 barrels, or 27%,
relative to the same period a year ago. Sales of Genesee Brewing
Company's established core brands, however, continued to decline.
Sales revenues in the second quarter this year benefited from a
general industry price increase that went into effect late in fiscal
1996. This price increase also had a favorable affect on Genesee
Brewing Company's gross profit which increased to $7.1 million, or
23.2% of net sales, in the second quarter of fiscal 1997, compared
to $6.0 million, or 20.9% of net sales, in the second quarter of
fiscal 1996. The increase in gross profit is also attributable to
lower aluminum can costs.
Genesee Brewing Company's selling, general and administrative
expenses were up $296,000 in the second quarter of fiscal 1997
compared to the same period last year. The increase was primarily
due to the timing of planned increases in sales and marketing
expenditures, primarily to support the company's HighFalls brands,
including expansion into new markets.
Genesee Brewing Company showed an operating loss of $1.1
million for the second quarter this year versus a $1.8 million
operating loss for the second quarter last year. Increased contract
brewing and HighFalls volume, higher selling prices and lower
aluminum can costs all contributed to Genesee Brewing Company's
improved profit performance in the second quarter of fiscal 1997.
7
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Ontario Foods
Second quarter net sales for Ontario Foods were $5.9 million,
compared to $6.1 million for the second quarter last year. The
sales decrease is attributable to lower contract sales resulting
from the loss of a major contract customer that moved production to
its own production facility late in fiscal 1996. Despite lower
overall sales, private label sales increased by $260,000 compared to
the second quarter last year, due primarily to the continued growth
in the company's line of noodles and rice side dish products.
The lower contract sales had an adverse effect on
profitability, which was only partially offset by private label
sales. Ontario Foods reported a second quarter operating profit of
$281,000, compared to $489,000 of operating income reported in the
second quarter last year. In addition to the lower contract sales,
Ontario Food's margins were adversely affected by higher sugar
prices and freight costs.
Genesee Ventures
Genesee Ventures, Inc., the Corporation's equipment leasing and
real estate investment subsidiary, reported operating income of
$558,000 for the second quarter of fiscal 1997, compared to $553,000
for the second quarter of fiscal 1996. Lease revenues continued to
be strong, showing the effect of the large volume of leases closed
last year. Genesee Ventures' real estate investments maintained
high occupancy rates and performance was generally on plan for the
second quarter.
Comparison of 26 weeks ended October 26, 1996 to 26 weeks ended
October 28, 1995
Consolidated net revenues for the twenty-six weeks ended
October 26, 1996 were $77.4 million, an increase of $3.7 million
from the consolidated net revenues of $73.7 million reported for the
same period last year. The higher revenues were the result of
higher malt beverage sales, side dish sales and lease revenues.
On a consolidated basis, the Corporation reported net earnings
of $1.4 million, or $.88 per share, for the first half this year,
compared to net earnings of $719,000, or $.45 per share, for the
same period last year. The $709,000, or $.43 per share, increase in
net earnings was primarily attributable to Genesee Brewing Company's
improvement in operating performance.
8
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Genesee Brewing Company
Genesee Brewing Company's net sales in the first half of fiscal
1997 were $65.4 million, an increase of $2.6 million, or 4.1%, from
the prior year's net sales of $62.8 million. Barrel sales (which
include volume under the contract to brew and package product for
Boston Beer Company) were up 27,000 barrels, or 2.7%, in the first
half of fiscal 1997. The increases in net sales and barrel sales
for the Genesee Brewing Company were the result of sales under the
Boston Beer Company contract, which totaled 129,000 barrels in the
first half of this year compared to 4,000 barrels in the same period
last year, an increase of 69,000 barrels, or 46%, in HighFalls craft
brand sales, and increased unit prices as a result of the general
industry price increase.
Genesee Brewing Company's gross profit was $16.8 million, or
25.6% of net sales, in the first half of fiscal 1997, compared to
$14.5 million, or 23.1% of net sales, in the first half of fiscal
1996. The 2.5% increase in gross profit as a percent of net sales
was primarily the result of the industry price increase as well as a
reduction in the cost of aluminum cans.
Genesee Brewing Company's selling, general and administrative
expense increased $888,000 in the first half of fiscal 1997 compared
to the same period last year. The increase was primarily due to the
timing of planned increases in selling and marketing expenditures to
support the growth of the company's HighFalls brands, including
expansion into new markets.
Operating profit was $282,000 for the first half of this year
compared to an operating loss of $1.1 million reported in the first
half of last year. Increased contract brewing and HighFalls volume,
higher selling prices and lower aluminum can costs all contributed
to Genesee Brewing Company's improved profit performance in the
first half of fiscal 1997.
Ontario Foods
Net sales for Ontario Foods were $10.7 million in the first
half of fiscal 1997, compared to $9.9 million for the first half
last year. The increase in net sales of $800,000, or 8.0%, for the
first half was attributable to continued growth in side dish sales.
Ontario Foods reported operating income of $136,000 for the
first half of fiscal 1997, compared to operating income of $316,000
for the same period last year. The decrease in operating income was
due primarily to lower contract manufacturing revenues and to an
increase in sugar costs.
9
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Genesee Ventures
Genesee Ventures, Inc., the Corporation's equipment leasing and
real estate investment subsidiary, reported operating income of $1.2
million for the first half of fiscal 1997, compared to $947,000 for
the first half of fiscal 1996. The increase in operating income was
primarily attributable to higher lease revenues from Cheyenne
Leasing. Cheyenne Leasing's strong revenues are due in turn to the
high volume of leases closed in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities totaled $37.0
million at October 26, 1996, compared to $37.5 million at April 30,
1996.
Trade receivables at October 26, 1996 were approximately $1.2
million lower than the balances reported at April 30, 1996. The
peak selling season for Genesee Brewing Company is typically April
through August. Genesee Brewing Company's receivables are
traditionally higher at fiscal year end and throughout the summer
months.
Inventories at October 26, 1996 were $666,000 higher than the
balances reported at April 30, 1996. The higher inventory balances
were due primarily to increased inventories for Boston Beer
Company. In addition, Ontario Foods typically purchases sugar
during the fall and winter months to take advantage of lower
material prices for spring and summer production of iced tea and
drink mixes. Ontario Foods' sugar inventories therefore typically
begin to increase in the fall.
During fiscal 1997, Genesee Brewing Company initiated work on a
multi-million dollar capital project to install a new keg filling
system. This new system will enhance Genesee's packaging
capabilities and allow it to package draft beer for both types of
draft dispensing systems currently used by the retail trade. The
system is expected to be in service prior to the end of the third
quarter and is expected to cost in excess of $5 million, which will
be funded internally. At the end of the second quarter of fiscal
1997, $1.1 million had been spent on this project.
The Corporation expects to fund future capital needs internally
as it has in the past. With respect to real estate and equipment
leasing, such investments may also include a debt component,
generally obtained on a non-recourse basis.
Current liabilities at October 26, 1996 were down $859,000 from
fiscal year end. This decrease was primarily attributable to timing
of federal and state beer tax payments.
10
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
During the second quarter this year, the mortgage on the
Clinton Square office building (in which the Corporation has both a
partner's and creditor's interest) was extended for one year with
the existing lender. As part of that extension, the Corporation
agreed to extend its $2.5 million limited guarantee of the mortgage
loan for one year. The building is currently 97% occupied,
operating on plan and in compliance with all covenants and
obligations contained in the mortgage loan agreement. The building
has an appraised value in excess of the debt against the building.
In addition, the other partners have provided Genesee Corporation
with additional collateral to secure the Corporation's obligation
under its guaranty to the bank.
To enhance the Corporation's opportunities for future growth
and to capitalize on its strong financial condition, the
Corporation's long term strategy includes plans to seek investment
opportunities outside its core brewing business. The Corporation
will continue to search for and develop such opportunities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In September 1992, Myrtha Hernandez, doing business as Upstate
Returns, commenced a lawsuit in U.S. District Court for the Western
District of New York against Genesee Brewing Company and beer
distributors and soft drink bottlers in Rochester, New York. The
lawsuit alleged that Genesee Brewing Company conspired with the
other defendants in violation of federal and state antitrust
statutes to prohibit and restrain the plaintiff from entering the
beverage container recycling business. The complaint sought
compensatory damages of $1,000,000, trebling thereof under
applicable antitrust statutes, punitive damages of $15,000,000,
attorneys fees, costs and disbursements. The District Court granted
summary judgment in favor of Genesee Brewing Company and the other
defendants in May 1995. The Second Circuit Court of Appeals
rejected the plaintiff's appeal of the District Court decision
granting summary judgment. In April 1996, the plaintiff filed a
motion with the District Court to reopen the case. The District
Court denied this motion and the plaintiff has appealed the denial
to the Second Circuit Court of Appeals.
11
<PAGE>
GENESEE CORPORATION
Item 4. Submission of Matters to Vote of Security Holders
The Corporation's annual meeting of Class A shareholders was
held on October 24, 1996. At the annual meeting, shareholders
elected Stephen B. Ashley, Thomas E. Clement and John L. Wehle, Jr.
to serve as directors until the annual meeting of shareholders in
1999. The terms of office of William A. Buckingham, Gary C. Geminn,
William J. Hoot, Samuel T. Hubbard, Jr., Robert N. Latella, Richard
P. Miller, Jr., John D. Reifenrath and Charles S. Wehle continued
after the annual meeting of shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are being filed with this report.
(b) The Corporation did not file any report on Form 8-K
during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GENESEE CORPORATION
Date: 12/10/96 / s / Robert N. Latella
Robert N. Latella
Executive Vice President
and Chief Operating Officer
Date: 12/10/96 / s / Edward J. Rompala
Edward J. Rompala
Vice President and Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S>
<C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> OCT-26-1996
<CASH> 2,066
<SECURITIES> 34,923
<RECEIVABLES> 12,326
<ALLOWANCES> 397
<INVENTORY> 12,625
<CURRENT-ASSETS> 63,730
<PP&E> 106,265
<DEPRECIATION> 75,841
<TOTAL-ASSETS> 134,075
<CURRENT-LIABILITIES> 17,879
<BONDS> 0
<COMMON> 858
0
0
<OTHER-SE> 89,837
<TOTAL-LIABILITY-AND-EQUITY> 134,075
<SALES> 98,864
<TOTAL-REVENUES> 98,864
<CGS> 58,325
<TOTAL-COSTS> 21,466
<OTHER-EXPENSES> 17,767
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,232
<INCOME-TAX> 804
<INCOME-CONTINUING> 1,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,428
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0
