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 AUGUST 2, 1997
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), 1,408,194
par value $.50 per share
<PAGE>
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 2, 1997 and May 3, 1997
<TABLE>
<S> <C> <C>
UNAUDITED AUDITED
(Dollars in Thousands) August 2, 1997 May 3, 1997
ASSETS
Current assets:
Cash and cash equivalents $ 964 4,521
Marketable securities available for sale 20,396 32,627
Trade accounts receivable, less allowance for doubtful receivables
of $414 at August 2, 1997; $408 at May 3, 1997 12,953 11,037
Inventories, at lower of cost (first-in, first-out) or market 15,940 13,957
Deferred income tax assets 760 760
Other current assets 1,963 1,219
Total current assets 52,976 64,121
Net property, plant and equipment 35,094 32,986
Investment in and notes receivable from unconsolidated real estate
partnerships 4,961 4,949
Investments in direct financing and leveraged leases 32,716 32,144
Goodwill 9,500 -
Other assets 3,923 2,729
Total assets 139,170 136,929
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 9,944 9,611
Income taxes payable 1,361 932
Federal and state beer taxes payable 2,060 2,029
Accrued expenses and other 5,399 6,395
Total current liabilities 18,764 18,967
Deferred income tax liabilities 9,114 8,789
Accrued postretirement benefits 15,515 15,515
Mortgage payable 552 -
Other liabilities 344 413
Total liabilities 44,289 43,684
Minority interests in consolidated subsidiaries 1,860 1,690
Shareholders' equity:
Common stock Class A 105 105
Common stock Class B 753 753
Additional paid-in capital 5,842 5,834
Retained earnings 88,571 87,720
Unrealized gain on marketable securities, net of income tax 1,225 648
Less treasury stock, at cost 3,475 3,505
Total shareholders' equity 93,021 91,555
Total liabilities and shareholders' equity $ 139,170 136,929
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GENESEE CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF EARNINGS AND RETAINED EARNINGS
Thirteen Weeks Ended August 2, 1997 and July 27, 1996
<TABLE>
<S> <C> <C>
(Dollars in Thousands,
Except Per Share Data) UNAUDITED
1997 1996
Revenues $53,052 51,569
Federal and state beer taxes 10,107 11,225
Net revenues 42,945 40,344
Cost of sales 32,082 29,695
Gross profit 10,863 10,649
Selling, general and administrative expenses 9,218 8,950
Operating income 1,645 1,699
Investment income 834 604
Other income / (expense), net (31) 60
Interest of minority partners in earnings of
consolidated subsidiaries (189) (188)
Earnings before income taxes 2,259 2,175
Income taxes 842 783
Net earnings - $.88 per share in 1997
and $.86 in 1996 1,417 1,392
Retained earnings at beginning of period 87,720 87,285
Less: dividends - $.35 per share in 1997
and $.35 per share in 1996 566 565
Retained earnings at end of period $88,571 88,112
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
GENESEE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended August 2, 1997 and July 27, 1996
<TABLE>
<S> <C> <C>
UNAUDITED
(Dollars in thousands) 1997 1996
Cash flows from operating activities:
Net earnings $ 1,417 1,392
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,399 1,244
Other 211 230
Changes in non-cash assets and liabilities:
Trade accounts receivable (1,621) (515)
Inventories (1,603) (1,103)
Other assets (669) (160)
Accounts payable 198 139
Accrued expenses and other (2,041) 765
Income taxes payable 428 843
Federal and state beer taxes 31 (290)
Accrued postretirement benefits - 67
Other liabilities (69) (23)
Net cash (used in) provided by operating activities (2,319) 2,589
Cash flows from investing activities:
Purchase of Freedom Foods, net of cash acquired (11,060) -
Capital expenditures (2,173) (1,580)
Sales of marketable securities 21,456 4,220
Purchases of marketable securities (8,324) (2,988)
Investments in and advances to unconsolidated real
estate investments, net of distributions (11) (3)
Net investment in direct financing and leveraged lease (572) 68
Withdrawals by minority interest (19) (107)
Net cash used in investing activities (703) (390)
Cash flows from financing activities:
Principle payments on mortgage payable (4) 0
Payment of dividends (566) (565)
Net proceeds from treasury stock transactions 35 40
Net cash used in financing activities (535) (525)
Net (decrease) increase in cash and cash equivalents (3,557) 1,674
Cash and cash equivalents at beginning of the year 4,521 2,560
Cash and cash equivalents at end of the period $ 964 4,234
</TABLE>
See accompanying notes to consolidated financial statements.
<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 May
3, 1997 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 financial statements presented in the Corporation's Annual
Report to shareholders for the year ended May 3, 1997.
NOTE (B) The weighted average number of Class A and Class B shares
outstanding used in the computation of net earnings per share is 1,618,079 for
the thirteen week period ended August 2, 1997 and 1,616,709 for the thirteen
week period ended July 27, 1996.
NOTE (C) Inventories are summarized as follows:
<TABLE>
<S> <C> <C> <C>
Dollars in thousands
August 2, 1997 May 3, 1997
Finished goods $ 5,274 $ 5,250
Goods in process 2,141 2,301
Raw materials, containers and packaging supplies 8,525 6,406
Total inventories $ 15,940 $ 13,957
</TABLE>
NOTE (D) In February 1997, the Financial Accounting Standard Board (FASB)
issued Statement No. 128, Earnings per Share (SFAS 128), which requires
presentation of earnings per share by all entities that have issued common stock
or potential common stock if those securities trade in a public market. SFAS No.
128 requires basic and diluted earnings per share be presented for all periods
for which a statement of earnings is presented. The Corporation is required to
adopt SFAS No. 128 in the third quarter of fiscal 1998. The pro forma effect of
SFAS 128 would result in basic earnings per share of $.88 and $.86 in the first
quarter of fiscal 1998 and 1997, respectively. The pro forma effect of SFAS 128
would result in diluted earnings per share of $.87 and $.86 in the first quarter
of fiscal 1998 and 1997, respectively.
<PAGE>
GENESEE CORPORATION
Notes to Consolidated Financial Statements (continued)
NOTE (E) On May 15, 1997, the Corporation acquired all of the common stock
of Freedom Foods, Inc., a food company located in Odessa, Florida, for $11.3
million. For the year ended December 31, 1996, Freedom Foods reported $6 million
in sales from the manufacture and sale of private label bouillon cubes and
powder. Freedom Foods sells to many of the same supermarket chains already
buying private label soup, side dish, and drink mix products from Ontario Foods.
The Corporation recently completed the relocation of Freedom Foods'
manufacturing and sales operations to Ontario Foods' facility in Albion, New
York. The acquisition was financed internally and was accounted for using the
purchase method.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Comparison of 13 weeks ended August 2, 1997 to 13 weeks ended July 27, 1996
Consolidated net revenues for the thirteen weeks ended August 2, 1997 were
$42.9 million, an increase of $2.6 million over the consolidated net revenues
reported for the same period last year. The higher revenues were the result of
higher private label sales at Ontario Foods and contract brewing volume at
Genesee Brewing Company. In addition, the Corporation's net revenues were also
favorably impacted by the acquisition of Freedom Foods, Inc. on May 15, 1997.
Freedom Foods produces private label bouillon cubes and powder. For the year
ended December 31, 1996, Freedom Foods reported annual sales of $6 million,
selling to many of the same supermarket chains currently buying private label
soup, side dish, and drink mix products from Ontario Foods.
On a consolidated basis, the Corporation reported operating income of $1.6
million for the first quarter this year compared to operating income of $1.7
million for the same period last year.
Earnings before income taxes were up $84,000 due in part to the $468,000
of capital gains realized when the Corporation sold marketable securities in
order to finance the acquisition of Freedom Foods.
The Corporation reported consolidated net earnings of $1.4 million, or
$.88 per share, in the first quarter this year, compared to net earnings of $1.4
million, or $.86 per share, for the same period last year. The effective income
tax rate for the first quarter of fiscal 1998 was 37.3%, an increase from 36.0%
in the first quarter of fiscal 1997, due to the effect of non-deductible
goodwill amortization resulting from the acquisition of Freedom Foods, Inc.
<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 quarter were $35.1
million, an increase of $315,000 from last year's first quarter net sales.
Barrel sales for the first quarter this year were up 3.2% over last year due to
higher volume of Genesee Brewing Company's HighFalls brands and contract
production for Boston Beer Company. HighFalls brands were up over 11,000 barrels
(or 10%) due to the Genesee Brewing Company's plan of geographic expansion and
to continued growth in the craft segment of the beer business. Although the
craft segment continues to grow, it is now growing at a slower pace than last
year due to the continued proliferation of brands and the natural maturation of
the segment.
Contract brewing volume was up 29,000 barrels (or 63%) over the first
quarter last year as the relationship with Boston Beer Company continued to grow
and develop. On April 30, 1997, the contract between Genesee Brewing Company and
Boston Beer Company was amended and extended through the year 2016. Either party
has the right to terminate the contract without cause after giving the other
party advance notice of its intent to terminate. The required notification
period runs from one to four years depending on the volume of product produced
under the contract in the twelve months preceding the notice of termination --
the greater the volume, the longer the required notification period.
Partially offsetting the growth of HighFalls and contract volume was the
continued decline in the sales of Genesee Brewing Company's core products. The
Genesee and Koch's brands were down a combined 9% in the first quarter.
Genesee Brewing Company's gross profit decreased $482,000 to $9.2 million,
or 26.2% of net sales, in the first quarter of fiscal 1998, compared to $9.7
million, or 27.8% of net sales, in the first quarter of fiscal 1997. The
decrease in percentage gross profit margins was primarily the result of the
shift in sales mix towards lower-margin contract business. In the first quarter
this year, contract volume represented 13% of total barrel volume whereas it
represented 8% of total volume in the first quarter last year.
Genesee Brewing Company's selling, general and administrative expenses
were up $324,000 in the first quarter of fiscal 1998 compared to the same period
last year. This increase is the result of the timing of planned increases in
selling and marketing expenditures to support the geographic expansion of
HighFalls distribution. During the first quarter this year, Genesee Brewing
Company expanded sales of its HighFalls products to Wisconsin and Louisiana.
Due to the decline in core brand volume and the higher sales and marketing
expenses, first quarter operating income for Genesee Brewing Company declined to
$530,000, compared to operating income of $1.3 million in the first quarter last
year.
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Foods Division
Net sales for the Foods Division were $7.1 million in the first quarter of
fiscal 1998, compared to $4.9 million for the first quarter last year. The sales
increase was attributable to continued growth in private label sales of iced tea
mix and side dish sales and an increase in contract manufacturing revenues,
primarily due a government soup contract. In addition, the acquisition of
Freedom Foods added $718,000 of bouillon sales in the first quarter.
Operating income in the first quarter was up $513,000 to a profit of
$368,000, compared to a $145,000 operating loss in the first quarter last year.
Due to transaction costs and other expenses incurred in moving Freedom Foods'
production from Florida to New York and the seasonality of its bouillon
business, Freedom Foods contributed only $29,000 to the Foods Division's
operating income.
Genesee Ventures
Genesee Ventures, Inc., the Corporation's equipment leasing and real
estate investment subsidiary, reported operating income of $673,000 for the
first quarter of fiscal 1998, compared to $641,000 for the first quarter of
fiscal 1997. The higher operating income was primarily due to an increase in
lease revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and marketable securities totaled $21.4 million at
August 2, 1997 and $37.1 million at May 3, 1997. This decrease in cash, cash
equivalents and marketable securities was primarily due to the acquisition of
Freedom Foods on May 15, 1997. The acquisition was financed internally, through
the sale of marketable securities, and was accounted for using the purchase
method. The decline in cash, cash equivalents, and marketable securities was
also the result of an inventory build at Ontario Foods due to increased sales
and the Freedom Foods acquisition.
Trade receivables at August 2, 1997 were approximately $1.9 million higher
than the balances reported at May 3, 1997 due to the increased sales volume in
the first quarter of fiscal 1998. Genesee Brewing Company's accounts receivable
also increased from May 3, 1997 due to seasonality.
Inventories at August 2, 1997 were approximately $2.0 million higher than
the balances reported at May 3, 1997 due to the continued growth of the Foods
Division.
The increase in net plant, property and equipment was primarily due to the
addition of Freedom Foods assets.
<PAGE>
GENESEE CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
During the first quarter of fiscal 1998, the Corporation and its partners
in a Rochester, New York office building engaged in negotiations with a new
lender to refinance the mortgage on the building. The closing on this
refinancing is currently scheduled for September 25, 1997. In September 1996,
the mortgage on the building (in which the Corporation has both a partner's and
creditor's interest) was extended to September 31, 1997 by the existing lender.
As part of that extension, the Corporation agreed to extend its $2.5 million
limited guarantee of the mortgage loan to September 31, 1997. The building is
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 it. In addition, the other
partners in the project have provided the Corporation with additional collateral
to secure the Corporation's obligation under its guarantee to the lender.
The Corporation has a strategy to search for and develop opportunities
which will contribute to the Corporation's future growth. The Corporation plans
to continue to use its strong financial position to further diversify its
business in order to broaden its profit base and contribute to the continued
long-term success of the Corporation.
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.
The Corporation also continues to seek acquisition opportunities in the foods
industry. Any such acquisition may involve new debt or the assumption of
existing debt.
<PAGE>
GENESEE CORPORATION
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. On May 2, 1995, the
District Court granted Genesee Brewing Company's motion and dismissed all
claims. The plaintiff appealed the dismissal to the Second Circuit Court of
Appeals, which affirmed the dismissal of all claims on March 18, 1997. The order
of dismissal was entered by the District Court on April 17, 1997 and the time to
file an appeal to the U. S. Supreme Court expired on July 16, 1997.
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 reports 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.
Date: 9/12/97 / s / Mark W. Leunig
Mark W. Leunig
Vice President, Secretary
Date: 9/12/97 / s / Edward J. Rompala
Edward J. Rompala
Vice President and Treasurer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-2-1997
<PERIOD-END> AUG-2-1997
<CASH> 964
<SECURITIES> 20,396
<RECEIVABLES> 13,367
<ALLOWANCES> 414
<INVENTORY> 15,940
<CURRENT-ASSETS> 52,976
<PP&E> 115,442
<DEPRECIATION> 80,348
<TOTAL-ASSETS> 139,170
<CURRENT-LIABILITIES> 18,764
<BONDS> 0
<COMMON> 858
0
0
<OTHER-SE> 91,063
<TOTAL-LIABILITY-AND-EQUITY> 139,170
<SALES> 53,052
<TOTAL-REVENUES> 53,052
<CGS> 32,082
<TOTAL-COSTS> 10,107
<OTHER-EXPENSES> 9,218
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<INCOME-PRETAX> 2,259
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