Index to Exhibits
at Page 51
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (fee required)
For the fiscal year ended: May 3, 1997
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (no fee required)
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.)
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
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
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 July 15, 1997 was approximately $2,380,900.
The number of shares outstanding of each of the registrant's classes of
common stock as of July 15, 1997 was:
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>
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. The Corporation functions as a
holding company, with wholly-owned subsidiaries that conduct business in the
areas of malt beverage production, dry food processing and packaging,
equipment leasing and real estate investment. Financial information about
industry segments is set forth in footnote 7 of the financial statements set
forth in Item 8 of this report.
Malt Beverage Business. The Corporation's malt beverage business is
conducted by its wholly-owned subsidiary, The Genesee Brewing Company, Inc.
("Genesee Brewing Company"). Genesee Brewing Company commenced brewing at the
end of Prohibition in 1933.
During the fiscal year ended May 3, 1997, Genesee Brewing Company sold
approximately 2.0 million barrels of malt beverage products, an increase of
4.5% over the prior fiscal year. Sales generally are greater in the summer
than in the winter months.
Malt beverage products produced by Genesee Brewing Company are marketed
under the following trademarks: Genesee Beer, Genesee Light Beer, Genesee
Cream Ale, Genesee NA, Genny Ice Beer, Genny Red Lager, Genny Summer Brew,
Koch's Golden Anniversary Beer, Koch's Golden Anniversary Light Beer and
Koch's Golden Anniversary Ice Beer. The Genesee and Koch's brands generate
approximately two-thirds of Genesee Brewing Company's sales volume.
In fiscal 1996, Genesee Brewing Company established a new brewing
division known as HighFalls Brewing Company to consolidate product
development, sales and marketing of its rapidly growing line of craft
brands. The HighFalls Brewing Company brands are marketed under the
following trademarks: Michael Shea's Irish Amber, Michael Shea's Black &
Tan, JW Dundee's Honey Brown Lager, JW Dundee's Honey Brown Light and
HighFalls India Pale Ale.
Genesee Brewing Company owns no patents, licenses, franchises or
concessions, except for the trademarks identified above. These trademarks
are a valuable source of product identity for Genesee Brewing Company brands.
In October, 1995, Genesee Brewing Company commenced production of malt
beverage products under a contract with Boston Beer Company. In fiscal 1997,
Genesee Brewing Company produced approximately 250,000 barrels for Boston
Beer Company. Sales to Boston Beer Company accounted for 12.5% of Genesee
Brewing Company's barrel sales and 7.6% of its net revenues in fiscal 1997.
On April 30, 1997, the contract between Genesee Brewing Company and Boston
Beer Company was amended and extended through the year 2016. Either party may
terminate the contract without cause after giving the other party between one
and four years' prior notice of termination. The duration of the
notification period is based 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 notification period required.
Except in Monroe County, New York, where Genesee Brewing Company sells
its products directly to retailers, beer and ale are sold to approximately
270 independent wholesale distributors. Through this distribution system,
malt beverages produced by Genesee Brewing Company are resold to retailers in
thirty three states and the Canadian provinces of Ontario and Quebec. Sales
to distributors located in New York, Pennsylvania and Ohio account for
approximately two-thirds of Genesee Brewing Company's sales. Demand for the
HighFalls Brewing Company craft brands caused Genesee Brewing Company to
expand distribution of the HighFalls brands to California, Oklahoma, New
Mexico and Arkansas in fiscal 1997. Genesee Brewing Company plans to expand
distribution of the HighFalls brands to additional markets.
<PAGE>
Genesee Brewing Company's marketing organization consists of
advertising, marketing, sales, graphics design, merchandising, sales
administration and field sales personnel. These sales personnel work with
the independent distributors to stimulate sales in each distributor's
territory.
The brewing industry in the United States is mature and highly
competitive. Genesee Brewing Company's products compete with a growing
number of national, regional, microbrewed, contract brewed and imported
brands. Genesee Brewing Company competes on the basis of advertising,
pricing and/or promotion, depending on the competitive brand strategy and the
particular market involved. The domestic brewing industry is dominated by
four brewers whose brands accounted for approximately 90% of the beer and ale
sold in the United States in 1996. Genesee Brewing Company's brands accounted
for approximately 1% of the beer and ale sold in the United States in 1996
and its relative position in the industry in terms of annual barrel sales is
believed to be sixth.
Overall consumption of malt beverage products in the United States has
increased only slightly during the past ten years. Much of this growth has
come from new products marketed as extensions of established brands and the
popularity of microbrewery and craft brewed products, which has spawned the
small but growing craft beer segment.
During the past several years, Genesee Brewing Company has extended its
Genesee and Koch's brands with the introduction of a number of new products,
including Genesee NA, Genny Ice Beer, Genny Red Lager, Koch's Golden
Anniversary Light Beer, Koch's Golden Anniversary Ice Beer and, in May 1997,
Genny Summer Brew.
Genesee Brewing Company was an early entrant in the craft beer segment
when it introduced Michael Shea's Irish Amber in fiscal 1992. Craft beers
are brewed using a variety of traditional and specialty ingredients and
brewing recipes to create fuller flavored malt beverage products. The craft
category grew by approximately twenty-five percent in calendar 1996 but
represents only about three percent of the malt beverage products consumed in
the United States. Genesee Brewing Company's line of craft beers, now sold
by its HighFalls Brewing Company division, has grown to include Michael
Shea's Irish Amber, Michael Shea's Black & Tan, JW Dundee's Honey Brown
Lager, JW Dundee's Honey Brown Light and HighFalls India Pale Ale. The
HighFalls craft brands now account for 23% of Genesee Brewing Company's
overall barrel sales and represent a significant opportunity in this growing
segment of the malt beverage market. As part of the Corporation's strategy
to grow and strengthen its brewing business, HighFalls Brewing Company plans
to continue to develop new brands to expand its line of craft products.
Beer and ale products are produced from barley malt, water, hops, yeast
and other brewing grains and ingredients. Genesee Brewing Company uses the
Krausen process in the brewing of beer. This process produces natural
carbonation by the addition of a small amount of beer in the early stages of
fermentation to fermented beer at the beginning of the aging process.
Variations in flavor, appearance and aroma are achieved by changing the
proportions and types of brewing ingredients, modifying the brewing process,
using different strains of yeast in the process of fermentation and altering
the aging period.
Genesee Brewing Company has several sources of supply available to it
for most of the ingredients, packaging materials and equipment utilized in
the brewing and bottling operations. Glass bottles in which beer and ale are
packaged are purchased from two sources. Although Genesee Brewing Company is
not under any contractual obligation to limit purchases of bottles to these
suppliers, the consolidation of the glass industry in North America has
reduced the number of alternative sources.
Genesee Brewing Company purchases all of its requirements for aluminum
cans from a single supplier under an agreement which runs through December
31, 1998. This supplier has multiple plants which are qualified to produce
cans for Genesee Brewing Company. If the current supplier was unable to
supply Genesee Brewing Company's requirements, alternative sources for
<PAGE>
aluminum cans might not be readily available. The cost of aluminum cans
increased significantly in fiscal 1996 as a result of a world-wide increase
in the price of aluminum. The cost of aluminum cans in fiscal 1997 was
substantially below that in fiscal 1996.
Fiber board and chipboard used for secondary packaging of glass bottles
and aluminum cans (e.g., 6-pack baskets, 12-pack wraps, etc.) are purchased
from single sources to maintain compatibility with packaging equipment used
by Genesee Brewing Company. A second source for baskets has been tested and
approved. A second source for wraps might not be readily available.
Corrugated packaging used for 24-can trays and 24-pack cartons is
purchased from two suppliers. Genesee Brewing Company is not under any
contractual obligation to limit purchases of corrugated packaging to these
two suppliers and additional sources for these packaging materials are
readily available.
Genesee Brewing Company has an agreement to purchase virtually all of
its requirements for barley malt from a single supplier. This agreement runs
through December 2001. Alternative sources for barley malt are readily
available, subject to the possibility of shortages which may affect the
entire commercial malting industry. Specialty malt used in craft products
are purchased from a number of other suppliers.
The price, quality and availability of agricultural ingredients used in
the brewing process are affected by weather and other climatic conditions in
the regions where these ingredients are grown. The 1996 growing season was
favorable for both the quality and yields of barley and corn. As a result,
there was adequate supply and prices for barley malt and corn products
decreased during the second half of fiscal 1997.
The price, quality and availability of agricultural ingredients for the
remainder of fiscal 1998 should be determined by climatic conditions during
the 1997 growing season. To date, there have been no adverse trends in the
regions where agricultural ingredients used by Genesee Brewing Company are
grown.
A substantial portion of Genesee Brewing Company's requirements for hops
is purchased on a contract basis two to three years in advance of harvest.
These contracts are firm with respect to quality, price and variety. The
balance of hops requirements is purchased as needed on the open market.
In addition to the governmental regulation common to most businesses,
Genesee Brewing Company is regulated by the U.S. Treasury Department's Bureau
of Alcohol, Tobacco and Firearms, the U. S. Food and Drug Administration, the
New York State Liquor Authority, the New York Department of Agriculture and
Markets and the state alcohol beverage control agencies in each state in
which its products are sold. These regulations cover, among other matters,
collection of federal and state taxes, physical changes in plant and other
operating facilities, types of credit allowed, reporting and changing prices,
sales promotion, advertising and public relations, labeling and packaging,
changes in officers and directors, investigations of employees, and
distribution methods and relationships.
Seven states where Genesee Brewing Company products are sold (New York,
Vermont, Maine, Connecticut, Massachusetts, Michigan and Delaware) require
consumers to pay a deposit on containers. The United States Congress and
several other states in which Genesee Brewing Company products are sold have,
from time to time, considered legislation that would require a deposit on
containers, impose special taxes on non-refillable containers or
non-biodegradable packaging materials, or require hazard warnings to be
included in advertising or posted at retail outlets.
Although Genesee Brewing Company has facilities for removing certain
solid waste materials from effluent discharged by its Rochester, New York
brewing plant, the effluent is discharged into the Rochester Pure Waters
District sewage system for further treatment. An agreement with the
<PAGE>
Rochester Pure Waters District provides that Genesee Brewing Company will
make annual surcharge payments to the District which will fluctuate with
production levels and may vary according to effluent content. In fiscal
1997, a surcharge of approximately $334,000 was paid in addition to the
normal sanitary and combined sewage charge for the year of approximately
$530,000.
Food Business. The Corporation's food business is conducted by its
wholly-owned subsidiary, Ontario Foods, Incorporated ("Ontario Foods").
Ontario Foods produces a variety of dry food and beverage products, including
soup mixes, side dishes, infant cereals, iced tea mixes, instant beverage
mixes and hot cocoa.
In May 1997, subsequent to the end of fiscal 1997, the Corporation
acquired Freedom Foods, Inc., the nation's largest producer of private label
bouillon cubes and powder, which reported sales of approximately $6 million
in calendar 1996. Ontario Foods is in the process of moving Freedom Foods'
operations from the Tampa, Florida area and combining them with Ontario
Foods' operations in Albion, New York.
Ontario Foods' products are produced by mixing and blending various dry
ingredients and packaging these products in a variety of packaging
configurations, including flexible pouches, cups, cartons, fiber and metal
cans and bulk packaging in fiber drums and polyethylene lined cartons.
Food and beverage products produced by Ontario Foods are sold by Ontario
Foods' salesmen and through a network of independent brokers to food store
chains throughout the United States as private label products under the label
of the food store chain and under Ontario Foods' proprietary brand labels.
Chain store private label products are a growing product category in the
United States and represent the largest component of Ontario Foods'
revenues.
Ontario Foods' proprietary brand labels are Thirst Quench'r, Taste of
the Alps, Sadano's, Golden Kettle and Van Dutch. Except for these
trademarks, Ontario Foods does not own any trademarks, patents, franchises or
concessions which are material to its business.
Ontario Foods also produces and packages dry food and beverage products
under contract processing/packaging arrangements with major food companies.
Contract processing/packaging agreements are typically short term in nature,
terminating with the end of the particular production run. The blending and
packaging of infant breakfast cereal accounted for a significant amount of
Ontario Foods' contract processing/packaging business in fiscal 1996. This
contract was terminated late in fiscal 1996 when the customer moved
production of this successful product into its own facility.
The food and beverage products produced by Ontario Foods utilize a
variety of ingredients. Some of these ingredients are processed by Ontario
Foods from a raw state while others have been pre-processed and are further
processed by Ontario Foods to produce the finished product. Numerous sources
of supply are available for the ingredients used in Ontario Foods' products.
Packaging materials used by Ontario Foods are purchased from a variety of
sources. Products produced under contract processing/packaging agreements
typically utilize ingredients and packaging supplied by the customer.
Ontario Foods' product mix varies on a seasonal basis. For example,
iced tea and beverage mixes are produced in greater quantity in the spring
and summer months whereas dry soup mixes, side dishes and hot cocoa are
typically produced in the fall and winter months.
The dry food industry consists of thousands of producers ranging from
large multi-national companies with extensive product offerings and
operations, to small specialty producers which serve specific geographic
areas or market niches. Ontario Foods competes primarily on the basis of
quality, price and service.
In addition to the governmental regulations common to most businesses,
food processing is regulated by the U.S. Food and Drug Administration, the
U.S. Department of Agriculture, the New York Department of Agriculture and
<PAGE>
Markets and a variety of other state and local agencies. These regulations
cover, among other things, ingredients and packaging materials, product
labeling, plant sanitation and processing methods, and disposal of
adulterated or contaminated ingredients or products.
Other Businesses. The Corporation's equipment leasing business is
conducted by a joint venture known as Cheyenne Leasing Company ("Cheyenne"),
which is 85% owned by the Corporation's Genesee Ventures, Inc. ("Genesee
Ventures") subsidiary. In fiscal 1997, Cheyenne financed leases involving
equipment having an initial cost of approximately $22 million. Cheyenne's
total lease portfolio as of May 3, 1997 included almost 300 leases
representing an initial equipment cost of approximately $140 million.
The Corporation's real estate investment activities are conducted by
three subsidiaries of Genesee Ventures. One subsidiary owns a ten-percent
interest in a Class A office building in Rochester, New York. The second
subsidiary owns a fifty-percent interest in a 408-unit residential property
located in a suburb of Syracuse, New York. The third subsidiary owns a
fifty-percent interest in a 150-unit residential property located in a suburb
of Rochester, New York.
Employees. As of May 3, 1997, the Corporation and its subsidiaries
employed 735 people. Genesee Brewing Company employed 622 people, 376 of
whom are represented by six separate unions whose collective bargaining
agreements generally conform to those of the brewing industry. Employee
relations with Genesee Brewing Company's employees have been good. Ontario
Foods employed 113 people, none of whom are represented by a union. Employee
relations with Ontario Foods' employees have been good.
Item 2. Properties
Brewing Operations. Genesee Brewing Company's brewing, bottling,
racking, storage, shipping, branch distribution, garage, office and
maintenance facilities are situated in Rochester, New York on approximately
26 acres of land.
The original brewing building in Rochester is approximately 100 years
old and is of stone construction. A second brewhouse was built in 1980.
Genesee Brewing Company's other buildings in Rochester are of concrete block,
steel or metal construction and have been constructed since 1932, except for
certain warehouse and distribution facilities which are about 85 years old.
Based on current product and package mix, these facilities give Genesee
Brewing Company capacity for producing approximately 3,500,000 barrels of
beer and ale per year. If demand warranted, Genesee Brewing Company could
implement further phases of a plant expansion plan which, based on current
product and package mix, could achieve a total annual capacity of
approximately 6,000,000 barrels.
Production equipment is upgraded or added as needed and is comparable to
that used in the industry. In fiscal 1997, Genesee Brewing Company completed
a $5.1 million capital project to install a new keg filling line to handle
the Sankey-style tapping system that is becoming the standard configuration
for draft dispensing systems. This project included a substantial investment
in new Sankey-style cooperage. Genesee Brewing Company purchased another
$700,000 of new Sankey cooperage in June 1997 and expects to continue to
invest in Sankey cooperage over the next few years as volume grows for this
package. The new Sankey system allows Genesee Brewing Company to package
its products in virtually all of the package types, sizes and configurations
commonly utilized in the domestic brewing industry.
All of the properties described above are owned free and clear of any
mortgages or other encumbrances. The Corporation considers the above
properties and equipment to be in generally good condition and suitable for
the conduct of its business.
<PAGE>
In June 1995, Genesee Brewing Company was notified that Consolidated
Rail Corporation ("Conrail") intends, within three years, to abandon the
track which is used to deliver brewing grains to Genesee Brewing Company and
for shipment of some finished product. To date, Conrail has not filed for
abandonment of the track. In June 1997, Norfolk Southern Railroad and CSX
filed a joint application with the Surface Transportation Board for approval
of a proposed acquisition of Conrail. A decision by the Surface
Transportation Board on the proposed acquisition is expected to take up to a
year. The Corporation believes it is unlikely that Conrail will take any
action in furtherance of the abandonment of this track while the Surface
Transportation Board is reviewing the proposed acquisition. Other methods
for delivery of brewing grains and shipment of finished product are available
but may be more expensive.
Genesee Brewing Company owns and operates a fleet of 12 delivery trucks
and 9 tractors and 16 trailers used to transport beer to customers. Genesee
Brewing Company also owns or leases 77 automobiles used by salesmen and
executives and 15 pick-up trucks and vans.
Food Processing Operations. Ontario Foods leases approximately 220,000
square feet of office, production, laboratory and storage space in Albion,
New York. The term of the lease expires in the year 2000. Ontario Foods
also maintains a sales office in Ocean Township, New Jersey.
The production facility, which is comprised of several buildings with
attendant leasehold improvements, was designed and constructed for food
processing operations. The buildings and related equipment are considered to
be in generally good condition and are adequate and suitable for the current
and projected future needs of Ontario Foods.
Ontario Foods has production equipment for freeze drying, mixing and
packaging of food products. Equipment is regularly maintained and upgraded
and is comparable to that used in the industry.
Other. The Corporation's Genesee Ventures subsidiary has interests in
three real estate investments which are described in the Other Businesses
section of Item 1 of this report. Each real estate investment is owned by a
separate subsidiary of Genesee Ventures in partnership with a real estate
investment and management company.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter ended May 3, 1997.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
The Corporation's Class B Common Stock trades on the NASDAQ National
Market tier of the NASDAQ Stock Market under the symbol GENBB. As of June
23, 1997, the approximate number of holders of record of Class A (voting)
Common Stock and Class B (non-voting) Common Stock were 154 and 1,123
respectively. There is no established public trading market for the
Corporation's Class A stock, which has generally traded within the same range
as Class B stock. The price for the Class B stock as reported by NASDAQ and
the dividends paid per share on Class A and B stock for each quarter for the
past two years are shown below:
<TABLE>
<S> <C> <C> <C>
UNAUDITED FISCAL YEAR ENDED MAY 3, 1997 FISCAL YEAR ENDED APRIL 30, 1996
Market Price Market Price
High Low Dividends High Low Dividends
First Quarter $ 46 43 1/4 .35 $ 38 1/2 36 1/2 .35
Second Quarter 45 40 1/2 .35 49 1/2 37 1/2 .35
Third Quarter 43 1/4 40 3/4 .35 48 43 3/4 .35
Fourth Quarter 43 40 1/4 .75 49 44 1/4 .75
</TABLE>
The Corporation expects to continue its policy of paying dividends. The
dividends paid in any year, however, depend on earnings, capital requirements
and the overall financial condition of the Corporation.
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Unaudited
Years Ended 5/3/97 4/30/96 4/30/95 4/30/94 4/30/93
Net Revenues $154,543 143,108 131,367 137,142 138,745
Earnings Before Cumulative Effect of
Changes in Accounting Principles 3,346 3,321 5,608 4,080 342
Net Earnings / (Loss) 3,346 3,321 6,368 4,080 (6,505)
Total Assets 136,929 134,035 135,332 138,194 135,753
Total Long Term Debt 0 0 4,038 9,869 10,154
Earnings Per Share Before Cumulative
Effect of Changes in Accounting Principles 2.07 2.06 3.50 2.55 0.21
Net Earnings / (Loss) Per Share 2.07 2.06 3.98 2.55 (4.06)
Cash Dividends Per Share 1.80 1.80 1.80 1.60 1.60
(Dollars in thousands, except per share data)
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Summary. Consolidated net revenues for the fiscal year ended May 3, 1997
were $154.5 million compared to fiscal 1996 net revenues of $143.1 million, and
fiscal 1995 net revenues of $131.4 million. The Corporation reported net
earnings of $3.3 million in fiscal 1997 which was approximately even with fiscal
1996 and $3.1 million less than the $6.4 million of net earnings reported in
fiscal 1995.
Fiscal 1997 consolidated operating income of $2.6 million was $1.7
million higher than operating income reported for fiscal 1996 due to the
improved operating performance of all three of the Corporation's business
segments -- brewing, foods, and equipment leasing/real estate. The primary
reason for this improvement was the increased sales volume and lower aluminum
can costs experienced by Genesee Brewing Company in fiscal 1997.
Despite increased operating earnings, the Corporation's increase in net
earnings was small due to lower investment income in fiscal 1997. Fiscal
1996 results benefited from a $1.2 million gain on the sale of securities due
to a non-recurring event.
Results of Operations. (Fiscal 1997 vs. Fiscal 1996)
Genesee Brewing Company
Net sales for Genesee Brewing Company, the Corporation's largest
subsidiary, were $127.1 million, an increase of $7.0 million or 5.8% from the
$120.1 million reported in fiscal 1996. Genesee Brewing Company's barrel
volume for fiscal 1997 increased 4.5% to approximately 2.0 million barrels
compared to approximately 1.9 million barrels in fiscal 1996. The increase
in barrel volume was due in part to production under a contract to brew and
package malt beverage products for the Boston Beer Company. During fiscal
1997, Genesee Brewing Company sold 250,000 barrels of malt beverage products
to Boston Beer Company compared to 50,000 barrels in fiscal 1996, the first
year of production under the contract.
The increase in Genesee Brewing Company's net sales and barrel volume
was also attributable to continued growth in the sales of HighFalls products,
which were up nearly 120,000 barrels (or 35%) in fiscal 1997. However barrel
sales of Genesee Brewing Company's more established brands continued to
decline in fiscal 1997, showing a 14% decline in volume from the prior year.
For the past several years, Genesee Brewing Company and most other brewers
have experienced volume declines in their established brands due to changing
consumer preferences that favor new products and "niche" brands targeted at
specific consumer markets. Genesee Brewing Company has addressed this trend
with the introduction of new products as described in Item 1 of this report.
In addition, during the fourth quarter of fiscal 1997, Genesee Brewing
Company completely redesigned the label graphics on its core Genesee Beer,
Genny Light, and Genesee Cream Ale products.
Genesee Brewing Company's net sales revenue per barrel increased by
$0.76 in fiscal 1997, due to a general industry price increase that went into
effect late in fiscal 1996 and to proportionately greater sales of HighFalls
brands. HighFalls barrel volume represented 23% of Genesee Brewing Company's
total barrel sales volume in fiscal 1997, compared to 18% in fiscal 1996.
Partially offsetting the effect of increased unit prices and a shift in brand
mix towards higher priced HighFalls volume was the increased volume of
contract business which carries a much lower unit price than products
marketed directly by Genesee Brewing Company. Contract sales volume
accounted for 12.5% of Genesee Brewing Company's total barrel sales volume in
fiscal 1997 compared to just 2.4% in fiscal 1996.
Genesee Brewing Company's gross profit for fiscal 1997 was up $3.8
million over the prior year due in part to higher unit prices, increased
<PAGE>
contract brewing and HighFalls volume, and lower aluminum can prices. During
the third quarter of fiscal 1996, the company negotiated lower prices under
its aluminum can supply contract commencing January 1, 1996. The change in
the contract established a ceiling price for aluminum cans in calendar years
1996 and 1997. The new lower prices resulted in approximately $2 million of
cost savings in fiscal 1997 relative to the costs Genesee Brewing Company
would have otherwise incurred had the supply contract not been renegotiated.
Genesee Brewing Company's selling, general and administrative expenses
were up $2.6 million in fiscal 1997, primarily as a result of planned
increases in selling and marketing expenditures to support the growth of its
HighFalls brands. Selling and marketing expenditures increased $1.6 million
in fiscal 1997 compared to fiscal 1996 as Genesee Brewing Company continued
its plan to expand distribution into various new markets throughout the
continental United States. During fiscal 1997, Genesee Brewing Company
expanded sales of its HighFalls products to New Mexico, Arkansas, California
and Oklahoma. The increased sales and marketing expenditures were used for
additional sales personnel, point of sale merchandise, and other promotions
in new and existing HighFalls markets. In addition, these expenditures
included increased promotional spending on Genesee Brewing Company's
established brands in response to the intense competition faced by
established brands throughout the industry.
The general price increase, lower aluminum can costs, and increased
volume from HighFalls and contract brewing volume all contributed to the $1.3
million improvement in Genesee Brewing Company's operating performance for
fiscal 1997. Genesee Brewing Company was approximately break-even in fiscal
1997 compared to a $1.3 million operating loss in fiscal 1996.
Information regarding the terms and duration of the contract between
Genesee Brewing Company and Boston Beer Company is set forth in the
description of the malt beverage business contained in Item 1 of this report.
Ontario Foods, Incorporated
Net sales for Ontario Foods increased $4.1 million in fiscal 1997
representing a 20% increase over net sales in the prior year. The overall
increase in net sales was due primarily to sales of private label iced tea
mix which were up $2.3 million, or 43%. In addition, Ontario Foods reported
continued growth in side dish sales, particularly in its line of noodles and
sauce products which were up $1.7 million, or 25%, in fiscal 1997.
Ontario Foods' gross profit was up $259,000 in fiscal 1997 due to higher
sales volume.
Ontario Foods selling, general and administrative expenses increased
$156,000 in fiscal 1997 compared to the same period last year due primarily
to higher commissions paid to food brokers as a result of increased sales.
The higher sales volume had a direct impact on Ontario Foods' operating
performance in fiscal 1997. The company reported an operating profit of
$784,000 in fiscal 1997 compared to an operating profit of $682,000 in fiscal
1996.
Genesee Ventures, Inc.
Genesee Ventures' fiscal 1997 operating income was $2.4 million, a
$400,000 increase over fiscal 1996 operating income of $2 million. The
increase was due to higher lease revenue generated by Cheyenne Leasing
Company as a result of the large volume of leases closed late in fiscal
1996. Cheyenne Leasing's residual experience continued to be favorable in
fiscal 1997. The fair market value of equipment which came off lease in
fiscal 1997 exceeded estimated residual values used for accounting purposes
by an average of 25%.
<PAGE>
Results of Operations. (Fiscal 1996 vs. Fiscal 1995)
Fiscal 1996 consolidated net revenues of $143.1 million were up $11.7
million compared to net revenues of $131.4 million in fiscal 1995. Net sales
for Genesee Brewing Company were $120.1 million, an increase of $9.8 million
or 8.9% from the $110.3 million reported in fiscal 1995. Genesee Brewing
Company's barrel sales volume for fiscal 1996 increased 6% to 1.9 million
barrels compared to 1.8 million barrels in fiscal 1995. The increase in malt
beverage sales was due in part to production under a contract to brew and
package malt beverage products for the Boston Beer Company. Production under
the contract commenced in October 1995 and generated sales of approximately
50,000 barrels in fiscal 1996.
The increases in Genesee Brewing Company's net sales and barrel sales
were also attributable to continued growth in the sales of HighFalls products
and to the popularity of value-priced 30 and 36 can "multi-paks". The
increased volume from HighFalls brands and the newly introduced Genny Red
brand more than offset the volume decline in Genesee Brewing Company's more
established "core" brands. Barrel sales of Genesee Brewing Company's
HighFalls brands more than doubled in fiscal 1996 representing approximately
18% of total barrel sales.
Genesee Brewing Company's net sales per barrel increased by $1.63 in
fiscal 1996. The increase in net sales per barrel was due to a general
industry price increase that went into effect late in fiscal 1996 and to a
shift in brand mix towards the HighFalls brands, which are priced higher than
Genesee Brewing Company's other brands.
Net sales for Ontario Foods increased $2.9 million in fiscal 1996
despite lower sales revenue from contract packaging. Ontario Foods' overall
increase in net sales was due primarily to continued growth in side dish
sales, particularly in its line of noodles and sauce products which was up $1
million in fiscal 1996.
Despite higher gross sales revenue, Genesee Corporation's consolidated
gross profit declined by $3.2 million in fiscal 1996 as compared to fiscal
1995, due to lower margins reported by Genesee Brewing Company, primarily as
a result of the $3.4 million increase in the cost of aluminum cans. The
aluminum can price increase had an adverse impact on the profitability of all
domestic brewing companies that use aluminum cans. Genesee Brewing Company
did, however, benefit from falling aluminum prices later in fiscal 1996.
Genesee Brewing Company negotiated a change in its aluminum can supply
contract commencing January 1, 1996. The change in the contract establishes
a ceiling price for aluminum cans in calendar years 1996 and 1997. The new
lower prices resulted in approximately $350,000 of cost savings in the fourth
quarter of fiscal 1996.
In addition to generally higher aluminum can costs in fiscal 1996,
Genesee Brewing Company also experienced an unfavorable shift in package mix
away from higher margin 24-can packages and returnable, refillable bottle
packages and into lower margin, value-priced multi-paks. This shift in
package mix more than offset a favorable shift in brand mix mentioned above
and further depressed Genesee Brewing Company's gross profit margins. The
unfavorable shift in package mix was somewhat offset in the final months of
fiscal 1996 by the general price increase that went into effect late that
year.
Ontario Foods' gross profit was up substantially in fiscal 1996 due to
higher sales volume. Gross profit margins as a percent of sales were also up
due to a more favorable sales mix. Side dish lines represented a greater
percentage of total sales in fiscal 1996 compared to fiscal 1995.
Consolidated selling, general and administrative expenses were up
$638,000 in fiscal 1996, primarily as a result of Genesee Brewing Company's
planned increases in selling and marketing expenditures to support the growth
of its HighFalls brands. Selling and marketing expenditures increased $1.7
million in fiscal 1996 compared to fiscal 1995. Offsetting the selling and
marketing increases were decreases in various benefit and compensation
expenses.
<PAGE>
On a consolidated basis, Genesee Corporation reported operating income
of $900,000 in fiscal 1996 compared to operating income of $4.7 million in
fiscal 1995.
Genesee Brewing Company reported an operating loss of $1.3 million, a
decrease of $4.2 million from fiscal 1995, primarily due to the previously
mentioned increase in aluminum can costs, a less favorable package mix, and
planned increases in selling and marketing expenditures.
Ontario Foods' operating income of $682,000 in fiscal 1996 represented a
$212,000 increase over fiscal 1995's operating income of $470,000. The
increase in Ontario Foods' operating income was due primarily to the
successful implementation in fiscal 1994 of a restructuring plan which
eliminated low profit ingredients and contract business and focused resources
on Ontario Foods' private label business. As a result of this restructuring,
Ontario Foods greatly improved production efficiencies and pursued more
promising sales opportunities.
Genesee Ventures' fiscal 1996 operating income of $2.0 million
represents a decrease of $300,000 from fiscal 1995 operating income of $2.3
million. The decline in operating income was primarily the result of the
sale of Genesee Ventures' majority interest in a Columbus, Ohio apartment
project in August 1994. Fiscal 1995 results included three months of
operating income from the project whereas fiscal 1996 results did not include
any. If income from the Columbus project was excluded, Genesee Venture's
fiscal 1996 operating income would have been up $14,000 compared to the prior
year, due to favorable lease residual experience.
Genesee Corporation's consolidated investment income -- representing
interest income, realized gains and losses on marketable securities, dividend
income from marketable equity securities, and, prior to fiscal 1995,
unrealized losses on marketable securities -- was $4.5 million in fiscal 1996
compared to $3.5 million in fiscal 1995. The higher investment income was
primarily due to realized gains on the sale of marketable securities. During
the fourth quarter of fiscal 1996, the Corporation sold its interest in an
equity fund at the request of the fund manager in order to allow the fund to
change its legal structure. The Corporation then invested the proceeds in a
new mutual fund managed by the same fund manager. As a result of this
transaction, the Corporation was required to recognize a gain of
approximately $1.2 million. Prior to the transaction the after-tax portion
of this gain had been shown in the equity section of the Corporation's
consolidated balance sheet.
In sum, the Corporation's net earnings were down $3.1 million in fiscal
1996 due to lower operating income for Genesee Brewing Company and the
unusual income items recorded in fiscal 1995 (gain on sale of real estate and
cumulative effect of change in accounting principle relating to marketable
securities.)
Liquidity and Capital Resources. Cash, cash equivalents and short term
investments in total were $37.1 million at May 3, 1997 compared to $37.5
million at April 30, 1996. The net accounts receivable balance at May 3,
1997 of $11 million was $2.2 million lower than the balance at April 30, 1996
of $13.2 million. Accounts receivable were somewhat higher than normal at
April 30, 1996 due to the timing of payments received from credit customers.
Total inventories were $14 million at May 3, 1997 compared to $12
million at April 30, 1996. The higher inventory balances were due to Ontario
Foods' low sugar inventory levels at April 30, 1996 and to Genesee Brewing's
higher liquid inventories on May 3, 1997 resulting from higher production
levels under the Boston Beer contract.
Capital expenditures in fiscal 1997 totaled $8.0 million compared to
$6.8 million in fiscal 1996. Fiscal 1997 capital expenditures include a $5.1
million project to install a new Sankey draft filling line and the cooperage
to run on the line.
<PAGE>
At May 3, 1997, the Corporation showed $648,000 of unrealized gains (net
of taxes) in the shareholders' equity section of its consolidated balance
sheet compared to $113,000 of unrealized losses (net of taxes) shown on the
Corporation's April 30, 1996 consolidated balance sheet. The turnaround was
due to the strong performance of the equity markets over the past year.
During the second quarter of fiscal 1997, the mortgage on the Rochester,
New York office building (in which the Corporation has both a partner's and
creditor's interest) was extended for one year by 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 to September 1997. 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 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 partners in the project are currently
negotiating with another financial institution to refinance the existing
mortgage before September 1997.
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 all 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, which is usually obtained on a
non-recourse basis.
On May 15, 1997, subsequent to the end of fiscal year 1997, the
Corporation completed the acquisition of all 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 revenue from the manufacture and sale of private label bouillon cubes
and bouillon 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 is currently in the process of
relocating Freedom Foods' manufacturing and sales operations to Ontario
Foods' facility in Albion, New York. The acquisition was financed internally
and will be accounted for using the purchase method.
<PAGE>
Item 8. Financial Statements and Supplementary Data
(a) Selected Quarterly Financial Data
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Total
Fiscal Year Ended 5/3/97 Quarter Quarter Quarter Quarter Year
Net Revenues $40,344 37,055 35,329 41,815 154,543
Gross Profit 10,649 8,425 7,772 10,729 37,575
Net Earnings 1,392 36 414 1,504 3,346
Net Earnings Per Share .86 .02 .26 .93 2.07
First Second Third Fourth Total
Fiscal Year Ended 4/30/96 Quarter Quarter Quarter Quarter Year
Net Revenues $38,363 35,326 32,368 37,051 143,108
Gross Profit 9,167 7,548 6,730 9,670 33,115
Net Earnings 901 (182) 59 2,543 3,321
Net Earnings Per Share .56 (.11) .04 1.57 2.06
(Dollars in thousands, except per share data)
</TABLE>
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Financial Statements Page
Report of Independent Accountants - Price Waterhouse LLP 16
Report of Independent Accountants - KPMG Peat Marwick LLP 17
Consolidated Balance Sheets at May 3, 1997 and April 30, 1996 18
Consolidated Statements of Earnings and Retained Earnings
for the three years ended May 3, 1997, April 30, 1996 and
April 30, 1995 19
Consolidated Statements of Cash Flows for the three years ended
May 3, 1997, April 30, 1996 and April 30, 1995 20
Notes to Consolidated Financial Statements 22
Financial Statement Schedules:
For the three years ended May 3, 1997, April 30, 1996 and
April 30, 1995
Schedule II - Consolidated Valuation and Qualifying Accounts 50
<PAGE>
(b) Consolidated Financial Statements
Report of Independent Accountants
The Board of Directors and Shareholders
of Genesee Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) of the Annual Report on Form 10-K present
fairly, in all material respects, the financial position of Genesee Corporation
and its subsidiaries at May 3, 1997 and April 30, 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Corporation's 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 generally accepted auditing
standards, which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Rochester, New York
June 6, 1997
<PAGE>
Report of Independent Accountants
The Board of Directors and Shareholders
of Genesee Corporation:
We have audited the consolidated statement of earnings and retained earnings,
and cash flows of Genesee Corporation and subsidiaries for the year ended
April 30, 1995. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Genesee Corporation and subsidiaries for the year ended April 30,
1995 in conformity with generally accepted accounting principles.
As discussed in note 1, the Corporation changed its method of accounting for
debt and equity securities in the year ended April 30, 1995.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Rochester, New York
June 2, 1995, except for
note 17 which was dated
June 12, 1995
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
May 3, 1997 and April 30, 1996
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C>
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 4,521 2,560
Marketable securities available for sale 32,627 34,896
Trade accounts receivable, less allowance for doubtful
receivables of $408 in 1997 and $433 in 1996 11,037 13,168
Inventories, at lower of cost (first-in, first-out) or market 13,957 11,959
Deferred income tax assets 760 898
Other current assets 1,219 1,376
Total current assets 64,121 64,857
Net property, plant and equipment 32,986 30,306
Investment in and notes receivable from
unconsolidated real estate partnerships 4,949 8,466
Investment in direct financing and leveraged leases 32,144 28,092
Other assets 2,729 2,314
Total assets 136,929 134,035
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 9,611 10,210
Income taxes payable 932 455
Federal and state beer taxes payable 2,029 2,246
Accrued expenses and other 6,395 5,827
Total current liabilities 18,967 18,738
Deferred income tax liabilities 8,789 7,482
Accrued post-retirement benefits 15,515 15,526
Other liabilities 413 428
Total liabilities 43,684 42,174
Minority interests in consolidated subsidiaries 1,690 1,527
Shareholders' equity:
Common stock:
Class A, voting, $.50 par value. Authorized 450,000
shares; 209,885 shares issued and outstanding 105 105
Class B, non-voting, $.50 par value. Authorized 3,850,000
shares; 1,506,876 shares issued 753 753
Additional paid-in capital 5,834 5,839
Retained earnings 87,720 87,285
Unrealized gain /(loss) on marketable securities, net of income taxes 648 (113)
Less Class B treasury stock, at cost; 99,534 shares in 1997 and
100,410 shares in 1996 3,505 3,535
Total shareholders' equity 91,555 90,334
Total liabilities and shareholders' equity $ 136,929 134,035
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended May 3, 1997, April 30, 1996 and April 30, 1995
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Revenues $ 194,669 184,050 169,754
Federal and state beer taxes 40,126 40,942 38,387
Net revenues 154,543 143,108 131,367
Cost of goods sold 116,968 109,993 95,098
Gross profit 37,575 33,115 36,269
Selling, general and administrative expenses 34,979 32,215 31,577
Operating income 2,596 900 4,692
Investment income 2,932 4,538 3,465
Other income / (expense), net 347 232 (461)
Gain on sale of interest in real estate partnership - - 1,670
Minority interests in earnings of subsidiaries (698) (669) (721)
Earnings before income taxes and cumulative
effect of change in accounting principle 5,177 5,001 8,645
Income taxes 1,831 1,680 3,037
Earnings before cumulative effect of
change in accounting principle 3,346 3,321 5,608
Cumulative effect of accounting change
net of income tax expense of $507 - - 760
Net earnings 3,346 3,321 6,368
Retained earnings at beginning of year 87,285 86,870 83,385
Dividends - $1.80 per share in 1997,
1996 and 1995 2,911 2,906 2,883
Retained earnings at end of year $ 87,720 87,285 86,870
Earnings per common share:
Earnings before cumulative effect of change
in accounting principle 2.07 2.06 3.50
Cumulative effect of accounting change - - .48
Net earnings per common share $ 2.07 2.06 3.98
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 3, 1997, April 30, 1996 and April 30, 1995
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net earnings $ 3,346 3,321 6,368
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effect of change in accounting principle - - (760)
Gain on disposition of assets (398) (1,416) (1,839)
Provision for loss/(gain) on disposition of property,
plant and equipment 39 (9) 457
Depreciation 5,172 4,749 4,595
Deferred tax provision 1,006 980 1,294
Other 673 536 609
Changes in noncash assets and liabilities:
Trade accounts receivable 2,156 (1,969) 524
Inventories (1,998) 1,657 (2,903)
Other assets (258) (274) (529)
Accounts payable (599) 932 (340)
Accrued expense and other 568 (741) 418
Income taxes payable 477 (287) 328
Federal and state beer taxes (217) 20 79
Accrued post-retirement benefits (11) (172) 441
Other liabilities (15) 120 238
Net cash provided by operating activities 9,941 7,447 8,980
Cash flows from investing activities:
Capital expenditures (7,951) (6,773) (4,379)
Proceeds from sale of property, plant, and equipment 125 65 11,905
Sales of marketable securities 13,401 15,178 10,570
Purchases of marketable securities (9,599) (13,406) (13,928)
Investments in and advances to unconsolidated
real estate partnerships, net of distributions 3,517 (4,161) 209
Net investment in direct financing and leveraged leases (4,052) (4,935) (840)
Repayment of real estate mortgage receivable - 5,807 -
Withdrawals by minority interest (535) (570) (747)
Other - - 193
Net cash /(used in) provided by investing activities (5,094) (8,795) 2,983
Cash flows from financing activities:
Principal payments on long-term debt - (4,038) (5,831)
Payment of dividends (2,911) (2,906) (2,883)
Proceeds from exercise of stock options 25 527 48
Purchase of treasury stock - (97) (34)
Net cash used in financing activities (2,886) (6,514) (8,700)
Net increase / (decrease) in cash and
cash equivalents 1,961 (7,862) 3,263
Cash and cash equivalents at beginning of year 2,560 10,422 7,159
Cash and cash equivalents at end of year $ 4,521 2,560 10,422
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 3, 1997, April 30, 1996 and April 30, 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation and Nature of Operations
The consolidated financial statements of Genesee Corporation and
subsidiaries (the Corporation) include the consolidated accounts of Genesee
Corporation; The Genesee Brewing Company, Inc.; Ontario Foods, Incorporated
and Genesee Ventures, Inc., which is the Corporation's wholly owned equipment
leasing and real estate subsidiary. The vast majority of the Corporation's
production of beer, ale and food products is sold in the United States to
independent wholesalers or retail establishments.
The Corporation's investment in a real estate limited partnership in
which it has less than a majority interest is accounted for by the equity
method. The Corporation's proportionate share of the results of operations
of this unconsolidated limited partnership is recorded as other income or
expense in the consolidated statements of earnings.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash, Cash Equivalents and Marketable Securities
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less. Marketable
securities include mutual funds; corporate, government and government agency
obligations; and common stock and equivalents.
During fiscal 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115), effective May 1, 1994.
Returnable Containers
Returnable containers (kegs, bottles and related cases), specifically
identifiable as owned by The Genesee Brewing Company, Inc., are capitalized
at cost and are reflected in the consolidated financial statements in
property, plant and equipment. All generic returnable containers are
expensed when shipped.
A liability for deposits charged to customers for returnable containers
is included in the consolidated financial statements.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Revenue Recognition
Revenue from the sale of beer, ale and food products is recognized upon
shipment. Revenue from the Corporation's lease portfolio is recognized on a
level yield method. Revenue from real estate investments is recognized when
rent is earned.
Property, Plant and Equipment
The Corporation provides for depreciation at rates which are estimated
to write off the cost of depreciable assets over the following useful lives:
buildings, 25 to 50 years; machinery, 3 to 20 years; equipment, furniture and
fixtures, 3 to 20 years; returnable containers, estimated trip life or 8 to
15 years. The straight-line method of depreciation is generally used on all
assets.
Income Taxes
The provision for income taxes is based upon pretax 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. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which the temporary differences are
expected to reverse and give immediate effect to changes in income tax rates.
Stock-Based Compensation
The Corporation measures compensation cost for its stock-based compensation
plans under the provisions of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. In accordance with Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123), disclosure of compensation costs on the basis of
fair value is presented in Note 11 - Stock Option and Bonus Plans.
Concentration of Credit Risk
The majority of the accounts receivable balances are from malt beverage
distributors. The Corporation minimizes its credit risk with purchase money
security interests in inventory and proceeds, personal guarantees or letters
of credit. The Corporation's lease receivables 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
New Accounting Standard
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 to 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 $2.07,
$2.06 and $3.98 in fiscal 1997, 1996 and 1995, respectively. The pro forma
effect of SFAS 128 would result in diluted earnings per share of $2.06, $2.05
and $3.97 in fiscal 1997, 1996 and 1995, respectively.
Earnings Per Share
Earnings per share amounts are based on the weighted average number of
combined shares of Class A and Class B common stock outstanding. Weighted
averages were 1,617,102 in fiscal 1997, 1,610,968 in fiscal 1996 and
1,601,842 in fiscal 1995.
Reclassifications
It is the Corporation's policy to reclassify certain amounts in the prior
year consolidated financial statements to conform with the current year
presentation.
Fiscal Year
Effective in fiscal 1997, the Corporation changed its fiscal year to end on
the Saturday closest to April 30. This change in fiscal year end had no material
impact on results of operations for fiscal 1997. Fiscal years for the financial
statements included herein ended May 3, 1997, April 30, 1996 and April 30, 1995.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Financial Instruments
The following estimated fair value amounts have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Corporation could realize in
a current market exchange. The use of different market assumptions or estimation
methodologies may have a material effect on the estimated fair value amounts.
The carrying amount of cash and cash equivalents approximate a reasonable
estimation of their fair value. Fair value of marketable securities is
determined based on quoted market prices for investments. Fair value of the
mortgage receivables is based on discounted cash flows.
Marketable equity securities are classified as available for sale. The
amortized cost, gross unrealized gains/losses and fair values of marketable
securities at May 3, 1997 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Equity securities $ 1,713 574 37 2,250
Fixed income securities:
Debt securities issued by U.S. Government 3,446 58 71 3,433
Corporate debt securities 4,694 49 91 4,652
Mortgage-backed securities 946 38 - 984
Subtotal 9,086 145 162 9,069
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Financial Instruments (continued)
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Mutual funds:
Equity funds 2,106 270 - 2,376
Fixed income funds 8,938 - 464 8,474
Foreign funds 3,452 934 - 4,386
Mortgage-backed funds 5,303 - 249 5,054
Subtotal 19,799 1,204 713 20,290
Other 1,018 - - 1,018
Marketable securities available for sale $31,616 1,923 912 32,627
(Dollars in thousands)
The amortized cost, gross unrealized gains/losses and fair values of
marketable securities at April 30, 1996 are as follows:
Equity securities $ 1,598 420 10 2,008
Fixed income securities:
Debt securities issued by U.S. Government 1,943 13 89 1,867
Corporate debt securities 4,551 105 126 4,530
Mortgage-backed securities 946 34 - 980
Subtotal 7,440 152 215 7,377
Mutual funds:
Equity funds 3,000 - - 3,000
Fixed income funds 12,852 - 792 12,060
Foreign funds 3,260 658 - 3,918
Mortgage-backed funds 6,004 - 400 5,604
Subtotal 25,116 658 1,192 24,582
Other 929 - - 929
Marketable securities available for sale $ 35,083 1,230 1,417 34,896
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Financial Instruments (continued)
The amortized cost and fair value of fixed income securities at
May 3, 1997, by contractual maturity, are as follows:
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Contractual maturity:
Within one year $ 143 150
After one year, but within five years 1,936 1,917
After five years, but within ten years 5,142 5,085
After ten years 919 933
Subtotal 8,140 8,085
Mortgage-backed securities 946 984
Total fixed income securities $ 9,086 9,069
(Dollars in thousands)
</TABLE>
The following represents the total proceeds from sales of marketable
securities for fiscal years ended May 3, 1997, April 30, 1996 and April 30, 1995
and the components of net gains and losses realized on those sales, which are
determined on a weighted average basis:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Proceeds from sales $ 13,401 15,178 10,570
Gains from sales 603 1,656 178
Losses from sales (270) (187) (216)
Net gains / (losses) from sales $ 333 1,469 (38)
(Dollars in thousands)
</TABLE>
(3) Income Taxes
Components of income tax expense (benefit) for the fiscal years ended
May 3, 1997, April 30, 1996 and April 30, 1995 are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Current:
Federal $ 792 718 1,259
State 33 (18) 484
Total current income tax expense 825 700 1,743
Deferred:
Federal 1,032 824 1,588
State (26) 156 (294)
Total deferred income tax expense 1,006 980 1,294
Total income tax expense $ 1,831 1,680 3,037
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (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
fiscal years ended May 3, 1997, April 30, 1996 and April 30, 1995:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Computed expected tax expense @ 34% $ 1,760 1,700 2,939
State income taxes (net of federal income tax benefit) 5 298 125
Resolution of state tax audit - (295) -
Other, net 66 (23) (27)
Total income tax expense $ 1,831 1,680 3,037
Effective tax rate 35.4% 33.6% 35.1%
(Dollars in thousands)
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities at May 3, 1997 and
April 30, 1996 are presented below:
<TABLE>
<S> <C> <C>
1997 1996
Deferred income tax assets:
Deposit liabilities $ 313 380
Allowance for doubtful accounts 163 173
Deferred compensation and other
employee related accruals 1,328 1,151
Post-retirement benefits other than pensions 6,485 6,512
Alternative minimum tax credit carryforward 4,602 4,226
Unrealized losses on investments - 75
State investment tax credit 617 965
Other 1,484 1,650
Gross deferred income tax assets 14,992 15,132
Valuation allowance for deferred income tax assets (192) (815)
Total deferred income tax assets 14,800 14,317
Deferred income tax liabilities:
Basis differential on leasing portfolio 17,934 16,295
Accelerated depreciation on plant and equipment 3,525 3,233
Returnable containers 739 821
Unrealized gains on investments 364 -
Other 267 552
Total deferred income tax liabilities 22,829 20,901
Net deferred income tax liabilities $ 8,029 6,584
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes (continued)
Deferred income tax assets at May 3, 1997 include $4,602,000 of
alternative minimum tax (AMT) credits, which carryforward indefinitely, and
$617,000 of state investment tax credits, which began to expire in fiscal
1997 and are limited in annual usage. A valuation allowance has been
recorded to the extent that credits may expire unused. The change in the
deferred tax asset or liability for unrealized gains or losses on investments
is reflected in equity in accordance with SFAS 115 (see note 1).
(4) Inventories
Inventories at May 3, 1997 and April 30, 1996 are summarized as follows:
<TABLE>
<S> <C> <C>
1997 1996
Finished goods $ 5,250 3,219
Goods in process 2,301 1,891
Raw materials, containers and packaging supplies 6,406 6,849
Total inventories $ 13,957 11,959
(Dollars in thousands)
</TABLE>
(5) Property, Plant and Equipment
Property, plant and equipment at May 3, 1997 and April 30, 1996 are
summarized as follows:
<TABLE>
<S> <C> <C>
1997 1996
Land and land improvements $ 1,175 1,175
Buildings 21,615 21,190
Machinery, equipment, furniture and fixtures 77,149 74,377
Returnable containers 11,299 6,326
Construction in process 795 646
Total property, plant and equipment 112,033 103,714
Less accumulated depreciation 79,047 73,408
Net property, plant and equipment $ 32,986 30,306
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Leasing Activities
The Corporation's leasing activity is conducted by Cheyenne Leasing
Company, a joint venture which is 85% owned by Genesee Ventures, Inc.
Information pertaining to the Corporation's net investment in direct
financing leases and leveraged leases at May 3, 1997 and April 30, 1996 is
presented below:
<TABLE>
<S> <C> <C>
1997 1996 .
Direct Direct
Financing Leveraged Financing Leveraged
Minimum rentals receivable $ 2,873 1,073 3,686 1,405
Estimated unguaranteed residual
value of leased assets 1,011 35,489 1,158 29,946
Unearned and deferred income (575) (7,727) (819) (7,284)
Investment in leases 3,309 28,835 4,025 24,067
Investment in direct financing and leveraged leases 32,144 28,092
Deferred taxes arising from leases (17,934) (16,295)
Net after-tax investment in leases $ 14,210 11,797
(Dollars in thousands)
</TABLE>
The following is a schedule of minimum rentals receivable by year for
direct financing and leveraged leases at May 3, 1997:
Fiscal Year :
1998 $ 1,593
1999 1,169
2000 676
2001 349
2002 118
Thereafter 41
Total minimum rentals receivable $ 3,946
(Dollars in thousands)
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Industry Segments
The Corporation's principal business segments are: beer and ale
products, dehydrated food products, equipment leasing, and real estate
investments. Intersegment sales and transfers are not material. Financial
information for these segments is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Operating Identi-
Net Income / Capital fiable
Fiscal Year Revenues (Loss) Depreciation Additions Assets
1997
Brewing $ 127,074 (12) 4,637 7,674 58,139
Food processing 24,979 784 535 277 11,612
Leasing and real estate 2,490 2,428 - - 39,316
Corporate and other - (604) - - 27,862
Total $ 154,543 2,596 5,172 7,951 136,929
1996
Brewing $ 120,102 (1,289) 4,276 6,065 54,121
Food processing 20,890 682 473 708 11,613
Leasing and real estate 2,116 2,046 - - 37,925
Corporate and other - (539) - - 30,376
Total $ 143,108 900 4,749 6,773 134,035
1995
Brewing $ 110,323 2,936 4,190 3,559 54,018
Food processing 17,993 470 405 820 13,474
Leasing and real estate 3,051 2,324 - - 34,911
Corporate and other - (1,038) - - 32,929
Total $ 131,367 4,692 4,595 4,379 135,332
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Supplemental Balance Sheet and Cash Flow Information
Cash Flow Information
Cash paid for taxes was $1,429,000, $693,000 and $1,609,000 in fiscal 1997,
fiscal 1996 and fiscal 1995 respectively; cash paid for interest on debt of
consolidated real estate limited partnerships was $75,000 and $598,000 in fiscal
1996 and in fiscal 1995, respectively, and there were no payments in fiscal
1997.
(9) Real Estate Investments
In August 1994, the Corporation sold its 89% interest in a real estate
limited partnership for cash and recognized a pre-tax gain of $1,670,000
recorded on the consolidated statements of earnings for the fiscal year ended
April 30, 1995.
During the second quarter of fiscal 1997, the mortgage on a Rochester,
New York 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 to September 1997. The
partners in the project are negotiating with other financial institutions to
refinance the existing mortgage before September 1997.
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 existing lender.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Shareholders' Equity
A summary of changes in and balances of additional paid-in capital,
treasury stock and unrealized loss on marketable securities as of and for the
three fiscal years ended April 30, 1995, April 30, 1996 and May 3, 1997 is as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Unrealized
Gain/(Loss) on
Additional Treasury Stock Marketable
Paid-in Capital Shares Amount Securities
Balances at April 30, 1994 $5,882 115,439 $(4,022) $ -
Net change in unrealized loss
on marketable securities - - - (652)
Stock options exercised - (1,500) (48) -
Acquisition of stock - 1,178 48 -
Stock bonus issued - (377) 14 -
Balances at April 30, 1995 $ 5,882 114,740 $ (4,008) $ (652)
Net change in unrealized loss
on marketable securities - - - 539
Stock options exercised (43) (16,250) 570 -
Acquisition of stock - 2,796 (131) -
Stock bonus issued - (876) 34 -
Balances at April 30, 1996 $ 5,839 100,410 $ (3,535) $ (113)
Net change in unrealized gain
on marketable securities - - - 761
Stock bonus issued (5) (876) 30 -
Balances at May 3, 1997 $ 5,834 99,534 $ (3,505) $ 648
(Dollars in thousands)
</TABLE>
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stock Option and Bonus Plans
Under the Corporation's 1992 Stock Plan, as amended (the "Stock Plan"),
officers and other key employees may, at the discretion of the Management
Continuity Committee of the Board of Directors, be granted options which allow
for the purchase of shares of the Corporation's Class A and Class B common
stock. These options may be exercised any time from the award date to a
specified date not more than ten years from the award date or five years in the
case of 10% or more shareholders. Under the Stock Plan, outside directors are
granted options each year to purchase shares of Class B common stock. Outside
director options may be exercised at any time from the option award date until
five years after the award date.
The Corporation has adopted a Stock Bonus Incentive Program under the Stock
Plan (the "Bonus Program"). The Bonus Program authorizes the board of directors
to award shares of Class B common stock to officers and other key employees,
which shares are issued from treasury shares in five equal annual installments
commencing in the year in which the award takes place.
Changes in stock options are as follows:
<TABLE>
<S> <C> <C>
Weighted Average
Shares Price Per Share
Outstanding at April 30, 1994 102,500 $ 40.80
Granted 31,000 38.92
Canceled (46,750) 42.57
Exercised (1,500) 34.62
Outstanding at April 30, 1995 85,250 39.13
Granted 7,000 44.27
Exercised (16,250) 32.51
Outstanding at April 30, 1996 76,000 41.02
Granted 35,500 45.49
Canceled (3,000) 40.87
Outstanding at May 3, 1997 108,500 $42.46
</TABLE>
Common stock reserved for options and employee awards totaled 110,691
shares as of May 3, 1997 and 79,127 shares as of April 30,1996.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Stock Option and Bonus Plans (continued)
In October 1995, the FASB issued SFAS 123 , Accounting for Stock-Based
Compensation. The Corporation adopted the disclosure provisions of SFAS 123
in fiscal 1997 and continues to apply the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees for Plan Accounting. If
compensation cost for the Corporation's stock-based plans had been determined
based on the fair value at the grant dates in accordance with SFAS 123, the
Corporation's net income and earnings per share for the fiscal years ended
May 3, 1997 and April 30, 1996 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<S> <C> <C> <C> <C>
1997 1996
Net Earnings Net Earnings
Income Per Share Income Per Share
Reported earnings $ 3,346 $ 2.07 $ 3,321 $ 2.06
Pro forma earnings $ 3,114 $ 1.93 $ 3,272 $ 2.03
</TABLE>
(Dollars in thousands, except per share data)
For purposes of this disclosure, the fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected option term of 4.9
years, expected volatility of 16.1% and 17.6% in fiscal 1997 and fiscal 1996,
respectively, expected dividend yield of 4.1% and risk-free interest rates of
6.45% and 5.83% in fiscal 1997 and fiscal 1996, respectively. The weighted
average fair value of stock options granted was $6.66 in fiscal 1997 and
$6.95 in fiscal 1996.
The following table summarizes information about stock options
outstanding and exercisable at May 3, 1997:
<TABLE>
<S>
<C> <C> <C> <C>
Range of Exercise Number Outstanding Weighted Average Weighted Average
Prices Per Share at May 3, 1997 Contractual Life in Years Exercise Price
$34.00 - 39.00 22,000 1.6 $36.26
39.00 - 44.00 30,750 2.8 39.68
44.00 - 50.00 55,750 2.5 46.44
$34.00 - 50.00 108,500 2.4 $42.46
</TABLE>
<PAGE>
GENESEE CORPORATIONAND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Post-retirement Benefits
The Corporation provides certain health care and life insurance benefits to
retired employees and spouses under a defined benefit plan covering
substantially all retirees and employees. The Corporation's share of
nonbargaining health care costs is limited to twice its fiscal 1993 cost, with
the Corporation sharing future health care cost increases equally with
nonbargaining retirees until such limit is reached. The Corporation implemented
a cap on the future medical cost for bargaining retirees equal to 150% of its
fiscal 1994 cost. The Corporation pays for all future health care cost increases
until the cap is reached.
The life insurance benefits are noncontributory and provide an
earnings related benefit to salaried exempt employees and executives and a
fixed benefit to other covered employees. This plan is not funded by the
Corporation.
The following table presents the plan's funded status reconciled
with amounts recognized in the Corporation's consolidated balance sheet at
May 3, 1997 and April 30, 1996:
<TABLE>
<S> <C> <C>
1997 1996
Accumulated post-retirement benefit obligation:
Retirees $ 6,035 6,606
Fully eligible active plan participants 966 1,021
Other active plan participants 3,699 4,068
10,700 11,695
Unrecognized net gain from past experience
different from that assumed 2,468 1,073
Prior service benefit not yet recognized in net
periodic post-retirement benefit cost 3,043 3,392
Accrued post-retirement benefit cost
included in the balance sheets $ 16,211 16,160
(Dollars in thousands)
</TABLE>
Net periodic post-retirement benefit cost for fiscal years ended May 3,
1997, April 30, 1996 and April 30, 1995 includes the following components:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Service cost $ 247 173 291
Interest cost 849 805 989
Net amortization and deferral (349) (464) (257)
Net periodic post-retirement benefit cost $ 747 514 1,023
</TABLE>
(Dollars in thousands)
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Post-retirement Benefits (continued)
The implementation of a cap on the medical cost for bargaining retirees
required an interim measurement as of November 1, 1994. The cap on
bargaining health care cost increases resulted in a $496,000 decrease in
fiscal 1995 net periodic post-retirement benefit cost and a $3.5 million
decrease in the accumulated post-retirement benefit obligation at April 30,
1995.
For measurement purposes, a 9.5 % annual rate of increase in the per
capita cost of covered benefits was assumed for fiscal 1997, 8.5% for fiscal
1998, decreasing gradually to 5.5 % by fiscal 2001 and remaining at that
level thereafter. The long-term rate for compensation increases for
non-bargaining employees is assumed to be 4.0% for each year. The weighted
average discount rate used in determining the accumulated post-retirement
benefit obligation was 9.0% at November 1, 1994, 8.5% at April 30, 1995,
7.5% at April 30, 1996 and 8.2% at May 3, 1997.
Increasing the assumed health care cost trend rates by 1 percentage
point in each year would not have a significant impact on the accumulated
post-retirement benefit obligation as of May 3, 1997 nor on the net periodic
post-retirement benefit expense for 1997.
(13) Retirement Plans
Substantially all union employees are covered under a multi-employer
pension plan which requires the Corporation to contribute specified amounts
per employee. The Corporation has no current intentions to withdraw from
this plan. All costs under the plan are paid currently and charged directly
to earnings ($879,000 in fiscal 1997, $815,000 in fiscal 1996 and $793,000 in
fiscal 1995).
All salaried and office employees who have been employed by the
Corporation for two years are eligible for coverage in fully trusted,
contributory (optional) profit sharing retirement plans. The plans generally
provide for annual contributions by the Corporation at the discretion of the
Board of Directors. Contributions under the plans are paid currently and
charged directly to earnings ($1,220,000 in fiscal 1997, $1,147,000 in fiscal
1996 and $1,248,000 in fiscal 1995).
(14) Subsequent Event
On May 15, 1997, subsequent to the end of fiscal 1997, the Corporation
completed the acquisition of all the common stock of Freedom Foods, Inc., a
food company located in Odessa, Florida. For the year ended December 31,
1996, Freedom Foods reported sales of $6 million from the manufacture and
sale of private label bouillon cubes and bouillon powder. The acquisition was
financed internally by the Corporation and will be accounted for using the
purchase method.
<PAGE>
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Inapplicable
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors: The table below lists the directors of the Corporation
and sets forth their ages, their other positions with the Corporation and its
subsidiaries, the principal occupations of those directors who do not hold
other positions with the Corporation or its subsidiaries, and the expiration
of their terms in office. The term in office of each director expires at the
annual meeting of shareholders of the Class A Common Stock held in the year
specified.
<TABLE>
<S> <C> <C> <C> <C>
Name and Age Director Position and Principal Occupation Expiration
Since for the Last Five Years of Term
in Office
Stephen B. Ashley (57) 1987 Chariman and Chief Executive Officer of The 1999
Ashley Group (1)
William A. Buckingham (54) 1992 Retired; formerly Executive Vice President of 1998
First Empire State Corporation and Manufacturers
and Traders Trust Company (2)
Thomas E. Clement (64) 1970 Partner - Nixon, Hargrave, Devans & Doyle, 1999
Attorneys
Gary C. Geminn (54) 1986 Vice President - Production of Genesee Brewing 1997
Company
William J. Hoot (80) 1960 Retired; formerly President of the Corporation 1997
Samuel T. Hubbard, Jr.(47) 1992 President and Chief Executive Officer of The Alling 1998
and Cory Company (3)
Robert N. Latella (54) 1986 Executive Vice President and Chief Operating Officer 1998
of the Corporation
Richard P. Miller, Jr.(54) 1987 Senior Vice President and Chief Operating Officer of 1997
the University of Rochester (4)
John D. Reifenrath (69) 1982 Retired; formerly Senior Vice President- Marketing of 1998
Genesee Brewing Company (5)
Charles S. Wehle (49) 1976 Senior Vice President of the Corporation (6) 1997
John L. Wehle, Jr. (51) 1976 Chairman of the Board, President and Chief Executive 1999
</TABLE>
<PAGE>
(1) Mr. Ashley has been Chairman and Chair Executive Officer of The Ashley
Group since July 1996. The Ashley Group is an affiliated group of
privately-owned real estate management and investment companies. Prior to July
1996, Mr. Ashley was Chairman and Chief Executive Officer of Sibley Mortgage
Corporation and Sibley Real Estate Services, privately-owned mortgage banking
and real estate management companies, respectively. Mr. Ashley is also a
Director of Hahn Automotive Warehouse, Inc., Federal National Mortgage
Association, Manning & Napier Fund, Inc. and Manning & Napier Insurance Fund,
Inc.
(2) Mr. Buckingham retired in 1996 as Executive Vice President of First
Empire State Corporation, a publicly-held bank holding company and
Manufacturers and Traders Trust Company, a New York State chartered bank.
(3) The Alling and Cory Company is a distributor of paper and packaging
products headquartered in Rochester, New York. Mr. Hubbard is also a
Director of First Empire State Corporation and Rochester Gas and Electric
Company, Inc.
(4) Mr. Miller is also a Director of Rochester Telephone Corporation.
(5) Mr. Reifenrath retired in 1993 as Senior Vice President - Marketing of
Genesee Brewing Company.
(6) See Note (3) to Item 10(b).
(7) Mr. Wehle is also a Director of First Empire State Corporation.
(b) Executive Officers and Significant Employees: The table below
lists the executive officers and significant employees of the Corporation and
its subsidiaries and sets forth their ages, the dates they became officers
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.
<TABLE>
<S> <C> <C> <C> <C>
Officer of the
Name Age Company Since Office
John L. Wehle, Jr. 51 1970 Chairman of the Board, President and
Chief Executive Officer (1)
Robert N.Latella 54 1986 Excutive Vice President and Chief Operating
Officer (2)
Charles S. Wehle 49 1988 Senior Vice President (3)
Gary C. Geminn 54 1985 Vice President - Production of Genesee
Brewing Company (4)
Karl D.Simonson 54 1994 Vice President - Planning & Development (5)
William A. Neilson 46 1986 Vice President - Human Resources (6)
Mark W. Leunig 42 1988 Vice President, Secretary and General Counsel (7)
Edward J. Rompala 37 1989 Vice President and Treasurer (8)
Michael C. Atseff 41 1992 Controller (9)
</TABLE>
<PAGE>
(1) Mr. J. L. Wehle, Jr. was elected Chairman of the Board of Directors in
November 1993. He has been President and Chief Executive Officer of the
Corporation for more than five years. He is also a Director and Chief Executive
Officer of Genesee Brewing Company.
(2) Mr. Latella has been Executive Vice President and Chief Operating
Officer of the Corporation for more than five years. He is also a Director and
Executive Vice President of Genesee Brewing Company.
(3) Mr. Wehle was elected Senior Vice President of the Corporation in
January 1995. He was elected President of Genesee Brewing Company in October
1996. Prior to that he served as Executive Vice President of Genesee Brewing
Company, a position he held for more than five years.
(4) Mr. Geminn has been Vice President - Production of Genesee Brewing
Company for more than five years.
(5) Mr. Simonson was elected Vice President - Planning and Development of
the Corporation in October 1994. He is also President of Ontario Foods, a
position he has held since June 1993. He joined the Corporation in September
1992 as Manager of Planning and Development. Prior to that he held a variety
of senior management positions in the food industry.
(6) Mr. Neilson has been Vice President - Human Resources of the Corporation
for more than five years. He is also Vice President - Human Resources of
Genesee Brewing Company.
(7) Mr. Leunig was elected Vice President of the Corporation and Genesee
Brewing Company in October 1994. He also serves as Secretary and General
Counsel of the Corporation and Genesee Brewing Company, positions he has held
for more than five years.
(8) Mr. Rompala was elected Vice President of the Corporation and Genesee
Brewing Company in October 1994. He also serves as Treasurer of the
Corporation and Genesee Brewing Company, positions he has held for more than
five years.
(9) Mr. Atseff has been Controller of the Corporation for more than five
years.
John L. Wehle, Jr. and Charles S. Wehle are brothers.
(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 3, 1997.
<PAGE>
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 Chief
Executive Officer and the four other most highly compensated executive
officers of the Corporation whose total annual salary and bonus for the
fiscal year ended May 3, 1997 exceeded $100,000.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other
Annual Restricted All Other
Name and Compen- Stock Stock Compensa-
Principal Position Fiscal Year Salary ($) Bonus ($) sation ($) Awards($)(4) Options (#) sation ($)
John L. Wehle, Jr. 1997 $337,016 $ 3,180(1) $ 1,590 0 5,000 $ 52,337 (5)
Chairman of the 1996 327,200 64,609(2) 1,811 0 0 60,135
Board, President, 1995 320,000 151,382(3) 1,500 6,930 5,000 54,547
Chief Executive
Officer
Robert N. Latella 1997 229,450 3,180(1) 1,590 0 4,000 36,226 (6)
Executive Vice 1996 222,767 45,701(2) 1,811 0 0 42,393
President, Chief 1995 214,065 104,616(3) 1,500 6,930 4,000 38,261
Operating Officer
Charles S. Wehle 1997 192,500 2,385(1) 1,193 0 3,000 29,129 (7)
Senior Vice 1996 163,375 35,008(2) 1,358 0 0 25,448
President 1995 142,625 35,668(3) 1,125 5,390 3,000 22,105
Gary C. Geminn 1997 113,749 2,186(1) 1,093 0 2,000 16,766 (8)
Vice President- 1996 110,436 15,473(2) 1,245 0 0 17,286
Production of 1995 106,122 23,663(3) 1,031 4,620 2,000 17,776
Genesee Brewing
Company
Karl D. Simonson 1997 112,475 2,186(1) 1,093 0 1,500 16,979 (9)
Vice President - 1996 106,251 14,972(2) 1,245 0 0 16,784
Planning & 1995 91,504 21,894(3) 1,031 4,620 1,500 8,046
Development
</TABLE>
(1) Amounts reflect stock bonuses earned during fiscal 1997 under the
Corporation's 1992 Stock Plan, which were paid to the named executive officer in
June 1997.
(2) Amounts reflect cash and stock bonuses earned during fiscal 1996
under the Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan, which
were paid to the named executive officer in June 1996.
(3) Amounts reflect cash and stock bonuses earned during fiscal 1995 under
the Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan, which were
paid to the named executive officer in June 1995.
<PAGE>
(4) The restricted stock awards reported in this column vest annually in
one-quarter increments over a four-year period. No dividends are paid on the
restricted stock. As of May 3, 1997, the aggregate number of shares and
corresponding value of restricted stock held by each of the named individuals
was as follows: 205 shares valued at $7,820 held by each of Mr. J. L. Wehle,
Jr. and Mr. Latella; 155 shares valued at $5,916 held by Mr. C. S. Wehle; and
140 shares valued at $5,338 held by each of Mr. Geminn and Mr. Simonson.
(5) Amount reflects $18,000 contribution under the Corporation's Profit
Sharing Retirement Plan, $31,169 contribution under the Corporation's Benefit
Restoration Plan and $3,168 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. J. L. Wehle, Jr.
(6) Amount reflects $18,000 contribution under the Corporation's Profit
Sharing Retirement Plan, $15,928 contribution under the Corporation's Benefit
Restoration Plan and $2,298 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. Latella.
(7) Amount reflects $18,000 contribution under the Corporation's Profit
Sharing Retirement Plan, $10,120 contribution under the Corporation's
Benefit Restoration Plan and $1,009 in premiums paid by the Corporation on
life insurance policies for the benefit of Mr. C. S. Wehle.
(8) Amount reflects $15,775 contribution under the Corporation's Profit
Sharing Retirement Plan and $991 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. Geminn.
(9) Amount reflects $16,000 contribution under the Corporation's Profit
Sharing Retirement Plan and $979 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. Simonson.
(b) The table below sets forth information about options granted to the
named executive officers during the Corporation's fiscal year ended May 3,
1997.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
Individual Grants % of Total Value at Assumed
Options Annual Rates of Stock
Granted to Prices Appreciation for
Options Employees in Option Term (2)
Granted Fiscal Year Excercise Price Expiration
Name (#) (1) Fiscal Year ($/SH) Date 5% ($) 10% ($)
John L. Wehle, Jr. 5,000 17.5% $49.98 6/30/01 $40,071 $217,101
Robert N. Latella 4,000 14.0% $45.44 6/30/01 50,217 191,841
Charles S. Wehle 3,000 10.5% $49.98 6/30/01 24,043 130,261
Gary C. Geminn 2,000 7.0% $45.44 6/30/01 25,108 95,921
Karl D. Simonson 1,500 5.3% $45.44 6/30/01 18,831 71,940
</TABLE>
(1) Options to acquire shares of Class B Common Stock pursuant to the
Corporation's 1992 Stock Plan. Options are exercisable in their entirety
from and after the date of grant.
(2) The potential realizable value illustrates value that might be realized
upon exercise of the options immediately prior to the expiration of their term,
assuming the specified annual compound rates of appreciation on the
Corporation's Class B Common Stock over the term of the options.
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 3, 1997; and the aggregate
number and value of options held by the named executive officer at the end of
the fiscal year:
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Value of Unexercised
Number of Unexercised in-the-money
Options at FY-End (#) Options at FY-End (#)
Shares
Acquired on Value $ Exerci- Unexercis- Exercis- Unexercis-
Name Exercise Realized able able able able
John L. Wehle, Jr. 0 0 17,000 0 $ 8,400 0
Robert N. Latella 0 0 14,000 0 27,170 0
Charles S. Wehle 0 0 11,000 0 5,600 0
Gary C. Geminn 0 0 6,500 0 10,580 0
Karl D. Simonson 0 0 5,000 0 18,280 0
</TABLE>
(d) Director Compensation. Directors who are employees of the Corporation
do not receive directors' fees or other compensation for their services as
directors. Directors who are not employees receive an annual fee of $7,000 plus
$500 for each Board and Committee meeting they attend. Each director who is not
an employee is also granted an option each year under the Corporation's 1992
Stock Plan to purchase 1,000 shares of Class B Common Stock.
(e) Agreements With Named Executive Officers.
(1) The Corporation has agreements with John L. Wehle, Jr.,
Charles S. Wehle and Robert N. Latella (the "Agreements") which provide that,
after a "Change in Control" (as that term is defined in the Agreements), if
employment of the named executive officers is terminated by the Corporation
without "Cause" (as that term is defined in the Agreements) or by the named
executive officers for "Good Reason" (as that term is defined in the
Agreements), the Corporation must pay a lump sum payment equal to a maximum
of three times the annual base salary of the named executive officers in
effect at the date of termination of employment, plus three times the largest
bonus paid to him at any time during the preceding five fiscal years.
(2) Under an agreement with the Corporation, John L. Wehle, Jr. is
employed by the Corporation for so long as may be mutually agreed upon. Mr.
Wehle is also entitled to receive for so long as he lives a monthly payment
of $7,500 in the event he ceases to be employed by the Corporation, whether
by reason of death, disability or otherwise. If Mr. Wehle should die prior
to having received 120 such monthly installments, the Corporation is
obligated to pay the remainder of such installments to his designated
beneficiaries or to his estate. Installment payments while Mr. Wehle is
alive are contingent upon his not engaging in a competing business without
the Corporation's consent.
(f) Compensation Committee Interlocks and Insider Participation.
Stephen B. Ashley, Thomas E. Clement and William J. Hoot served during the
fiscal year ended May 3, 1997 as members of the Management Continuity
Committee of the Corporation's Board of Directors. Mr. Hoot was an officer
of the Corporation prior to his retirement in 1982. See description of
relationship with Mr. Clement at Item 13.
<PAGE>
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 15,
1997, 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:
<TABLE>
<S> <C> <C> <C>
Percent of
Name and Address Amount Owned Class A Stock
John L. Wehle, Jr., as Trustee 73,845 (1) 35.2%
under the Will of Louis A. Wehle
P. O. Box 762
Rochester, New York 14603
John L. Wehle, Jr., Charles S. Wehle 41,957 (2) 20.0%
and Henry S. Wehle
P. O. Box 762
Rochester, New York 14603
John L. Wehle, Jr., as Trustee under 12,145 (3) 5.8%
Elizabeth R. Wehle Trust
P. O. Box 762
Rochester, New York 14603
Franklin Resources, Inc. 23,511 11.2%
777 Mariners Island Boulevard
San Mateo, California 94404
</TABLE>
(1) The power to vote and otherwise act with respect to these shares is
vested in John L. Wehle, Jr. while a trustee. In the event of his death,
resignation or incapacity, such power would pass to Charles 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 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"), John L. Wehle, Jr. is appointed
proxy to vote all voting securities of the Corporation then owned or thereafter
acquired by the Shareholders. Under the Shareholder Agreement, Charles S. Wehle
would succeed John L. Wehle, Jr. as proxy in the event of the death, incapacity
or resignation of John L. Wehle, Jr. The Shareholder Agreement will continue in
effect until terminated in writing signed by all of the surviving Shareholders.
As of July 15, 1997, 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 John L. Wehle, Jr. while a trustee.
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.
(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 15, 1997 by each director and by
all directors and officers as a group are set forth in the following table:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Shares of Percentage of Share 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
John L. Wehle, Jr. 127,947 (1) 61.0% 94,748 (3) (4) 6.9%
(5) (6)
William J. Hoot 119 (17) 4,343 (7) (17)
Robert N. Latella 604 (17) 13,775 (8) (17)
Gary C. Geminn NONE -- 7,069 (9) (17)
John D. Reifenrath NONE -- 5,072 (10) (17)
Charles S. Wehle (2) (2) 10,205 (4) (11) (17)
Thomas E. Clement NONE -- 3,104 (4) (12) (17)
Stephen B. Ashley NONE -- 3,200 (13) (17)
Richard P. Miller, Jr. NONE -- 3,100 (14) (17)
Karl D. Simonson NONE -- 5,190 (15) (17)
William A. Buckingham 240 (17) 3,000 (4) (16) (17)
Samuel T. Hubbard, Jr. NONE -- 3,000 (16) (17)
All Directors and Execu- 128,935 61.4% 172,869 11.7%
tive Officers as a group
(16 persons)
</TABLE>
(1) See Table under Item 12(a) and Notes (1), (2) and (3) thereto.
(2) See Table under Item 12(a) and Notes (1) and (2) thereto.
(3) Includes 40,633 shares held as trustee under the will of Louis A.
Wehle. See Note (1) to table set forth in Item 12(a) above.
(4) These directors serve as trustees of Genesee Country Museum, which
holds 37,638 Class B shares, none of which are included in the table above.
J. L. Wehle, Jr. is also an officer of the Museum.
(5) Includes 37,090 shares held as trustee under Elizabeth R. Wehle
irrevocable trust dated January 12,1950. The power to act with respect to
those shares is vested in John L. Wehle, Jr. while a trustee.
(6) Includes 4,025 shares owned individually and 13,000 shares which may be
acquired pursuant to presently exercisable stock options.
(7) Includes 1,343 shares owned individually and 3,000 shares which may be
acquired pursuant to presently exercisable stock options.
(8) Includes 3,275 shares owned individually and 10,500 shares which may be
acquired pursuant to presently exercisable stock options.
<PAGE>
(9) Includes 2,069 shares owned individually and 5,000 shares which may be
acquired pursuant to presently exercisable stock options.
(10) Includes 3,072 shares owned individually and 2,000 shares which may be
acquired pursuant to presently exercisable stock options.
(11) Includes 2,205 shares owned individually, 8,000 shares which may be
acquired pursuant to presently exercisable stock options.
(12) Includes 104 shares owned individually and 3,000 shares which may be
acquired pursuant to presently exercisable stock options.
(13) Includes 200 shares owned individually and 3,000 shares which may be
acquired pursuant to presently exercisable stock options.
(14) Includes 100 shares owned by Mr. Miller's wife, the beneficial ownership
of which is disclaimed by Mr. Miller, and 3,000 shares which may be
acquired pursuant to presently exercisable stock options.
(15) Includes 190 shares owned individually and 5,000 shares which may be
acquired pursuant to presently exercisable stock options.
(16) Shares which may be acquired pursuant to presently exercisable stock
options.
(17) 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
The professional corporation of Thomas E. Clement, a director of the
Corporation, is a partner of the law firm of Nixon, Hargrave, Devans & Doyle,
which during fiscal year 1997 performed legal services for the Corporation
and which the Corporation intends to retain to provide such services in
fiscal year 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statement Schedule:
See Index to Financial Statements at Page 15 of this report.
Other 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.
<PAGE>
2. Exhibits:
See Exhibit Index at Page 51 of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
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
<TABLE>
<S> <C> <C>
July 23, 1997 By: /s/John L. Wehle, Jr.
(Date) John L. Wehle, Jr., Chairman, President
and Chief Executive Officer
July 23, 1997 By: /s/Edward J. Rompala
(Date) Edward J. Rompala, Vice President and
Treasurer (Principal Financial Officer)
July 23, 1997 By: /s/Michael C. Atseff
(Date) Michael C. Atseff, Controller
</TABLE>
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 23, 1997 Director
Stephen B. Ashley (Date)
/s/William A. Buckingham July 23, 1997 Director
William A. Buckingham (Date)
/s/Thomas E. Clement July 23, 1997 Director
Thomas E. Clement (Date)
/s/Gary C. Geminn July 23, 1997 Director
Gary C. Geminn (Date)
<PAGE>
/s/William J. Hoot July 23, 1997 Director
William J. Hoot (Date)
/s/Samuel T. Hubbard, Jr. July 23, 1997 Director
Samuel T. Hubbard, Jr. (Date)
/s/Robert N. Latella July 23, 1997 Director
Robert N. Latella (Date)
/s/Richard P. Miller, Jr. July 23, 1997 Director
Richard P. Miller, Jr. (Date)
/s/John D. Reifenrath July 23, 1997 Director
John D. Reifenrath (Date)
/s/Charles S. Wehle July 23, 1997 Director
Charles S. Wehle (Date)
/s/John L. Wehle, Jr. July 23, 1997 Director
John L. Wehle, Jr. (Date)
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Genesee Corporation:
Under date of June 2, 1995, except for note 17 which was dated June 12,
1995, we reported on the consolidated statements of earnings and retained
earnings, and cash flows of Genesee Corporation and subsidiaries for the year
ended April 30, 1995, included elsewhere herein. In connection with our audit of
the aforementioned consolidated financial statements, we also have audited the
related 1995 consolidated financial statement schedule of valuation and
qualifying accounts. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our audit.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in note 1, the Corporation changed its method of accounting
for debt and equity securities in fiscal 1995.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Rochester, New York
June 2, 1995
<PAGE>
SCHEDULE II
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts
Years ended May 3, 1997, April 30, 1996 and 1995
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance at Additons Balance
beginning charged to cost at end
Description of period and expenses Deductions of period
Dollars in Thousands
1997
Allowance for doubtful
receivable $ 433 (27) (2) 408
Allowance for loss on idle
plant and equipment 448 39 - 487
Allowance for obsolete
inventory 208 558 568 198
$ 1,089 570 566 1,093
1996
Allowance for doubtful
receivables $ 565 25 157 433
Allowance for loss on idle
plant and equipment 457 - 9 448
Allowance for obsolete
inventory 68 510 370 208
$ 1,090 535 536 1,089
1995
Allowance for doubtful
receivables $ 677 (10) 102 565
Allowance for loss on idle
plant and equipment 486 457 486 457
Allowance for obsolete
inventory 280 86 298 68
$ 1,443 533 886 1,090
</TABLE>
<PAGE>
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 30,1994).
3-2 By-Laws (incorporated by reference to Exhibit 3-2 to the --
Corporation's report on Form 10-K for the fiscal year ended
April 30, 1995).
10-1 1986 Genesee Incentive Bonus Plan, as amended and restated 52
in 1997.
10-2 1992 Stock Plan as amended in 1994 (incorporated by refer- --
ence to Exhibit 10-3 to the Corporation's report on Form
10-K for the fiscal year ended April 30, 1995).
10-3 Stock Bonus Incentive Program under 1992 Stock.
10-4 Agreement with John L. Wehle, Jr. dated August 29, 1994 --
(incorporated by reference to Exhibit 10-5 to the Corpor-
ation's report on Form 10-K for the fiscal year ended
April 30, 1995).
10-5 Executive Agreement with J. L. Wehle, Jr. dated February --
27, 1995 (incorporated by reference to Exhibit 10-6 to the
Corporation's report on Form 10-K for the fiscal year ended
April 30, 1995). Substantially identical agreements were
executed with C. S. Wehle and R. N. Latella.
10-6 Indemnification Agreement with J. L. Wehle, Jr. dated --
June 8, 1989 (incorporated by reference to Exhibit 10-7 to
the Corporation's report on Form 10-K for the fiscal year
ended April 30, 1995). Substantially identical agreements
were executed with all other directors and officers of the
Corporation.
10-7 Trust Agreement under the Genesee Corporation Deferred 58
Compensation Plans.
21 Subsidiaries of the Registrant 65
<PAGE>
Exhibit 10-1
GENESEE CORPORATION
1986 INCENTIVE BONUS PLAN
Adopted by the Management Continuity Committee: September 5, 1986
Ratified by the Board of Directors: October 23, 1986
Amended: April 27, 1987; June 8, 1988; June 12, 1990
<PAGE>
GENESEE CORPORATION
1986 INCENTIVE BONUS PLAN
Section 1: Purpose
This Plan is intended to further the attainment of the Company's
long-term profit and growth objectives by providing incentive to those key
executives whose management and individual performance have a direct impact
on achieving those objectives. The Plan also is expected to encourage the
continued employment of the Company's key executives and to facilitate the
recruiting of executive personnel in the future.
Section 2: Definitions
As used herein, the following terms shall have the following meanings:
(A) "Company" shall mean Genesee Corporation and its Subsidiaries, and their
successors and assigns.
"Brewery" shall mean The Genesee Brewing Company, Inc., its wholly
owned subsidiary, Fred B. Koch Brewery and their successors and assigns.
(B) "Plan" shall mean this Incentive Bonus Plan in its entirety, including
any amendments thereof and any rules and regulations adopted pursuant hereto.
(C) "Committee" shall mean the Management Continuity Committee of the Board
of Directors of the Company (or such other successor Committee as may be
appointed by the Board). The Committee shall consist of at least three
members of the Board, none of whom shall be, while serving on the Committee,
eligible to receive an award under the Plan.
(D) "Eligible Employee" shall mean any employee of the Company who is a
member of a select group of management employees and who, upon the
recommendations Management of the Company and in the opinion of the
Committee, is in a position to have a direct and significant impact on
achieving the Company's long-term profit and growth objectives.
(E) "Participant" shall mean an eligible employee to whom an incentive bonus
award may be made under the Plan.
(F) "Company Pre-Tax Income" shall mean the consolidated income of the
Company for fiscal year before extraordinary items and before provisions for
federal, state or other taxes on income. For purposes of the Plan, accruals
or payments made pursuant to the Plan shall be excluded from expenses when
calculating Company Pre-Tax Income.
(G) "Brewery Operating Income" shall mean the income of the Brewery for a
fiscal year before provisions for federal, state or other taxes on income and
before interest income and "other income," solely from the manufacture and
sales of malt beverages and operations incident thereto, including the
manufacture and sales of malt as set forth on the Brewery's internal
financial statements, applied on a consistent basis. For purposes of the
Plan, accruals or payments made pursuant to the Plan shall by excluded from
expenses when calculating Operating Income.
(H) "Barrel Sales" shall mean the aggregate unit volume of sales of malt
beverages during a fiscal year of the Company, expressed in terms of barrels
sold.
<PAGE>
(I) "Subsidiary" shall mean any corporation of which, at the time of
reference, 50% or more of the shares entitled to vote generally in an
election of directors are owned directly or indirectly by Genesee Corporation
or any Subsidiary thereof.
Other terms shall have the respective meanings given them in succeeding
sections of the Plan.
Section 3: Administration
(A) The Plan shall be administered by the Committee. The Committee (acting
by vote of a majority of the members present at the meeting at which a
quorum if present) shall have the authority, in its sole discretion and form
time to time: (I) to designate the employees or classes of employees
eligible to participate in the Plan; (ii) to grant awards under the Plan in
such form and amount as the Committee shall determine; (iii) to impose such
limitations, restrictions and conditions upon any such award as the Committee
shall deem appropriate; (iv) to interpret the Plan, to adopt, amend and
rescind rules and regulations relating to the Plan, and to make all other
determinations and take all other actions necessary or advisable for the
implementation and administration of the Plan.
(B) From time to time, the Committee in its sole discretion may make
adjustments in the calculation of the quantitative targets established in an
Award Year so that changes in accounting principles, extraordinary or unusual
charges or credits, the effects of acquisitions, or mergers, consolidations,
and other corporate transactions, and other elements of or factors
influencing the calculation do not distort or affect the operation of the
Plan in a manner inconsistent with the achievement of its purposes.
(C) The decisions and determinations of the Committee on all matters
relating to the Plan shall be final, conclusive, and binding upon all
parties. In administering the Plan the Committee may employ accountants and
counsel (who may be the independent auditors and outside counsel for the
Company) and other persons to assist or render advice to it, all at the
expense of the Company. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan or any award
thereunder.
Section 4: Award Year
An Award Year shall be a fiscal year of the Company in respect of which
an incentive bonus award is made under this Plan.
Section 5: Incentive Bonus Awards
(A) The Committee may from time to time, after receiving recommendations
from the Chief Executive Officer of the Company, and subject to the
provisions of the Plan and such other terms and conditions as the Committee
may prescribe, grant one or more awards to one of more Eligible Employees
(expressed in terms of percentages of salaries paid during an Award Year),
based upon the achievement of quantitative targets established in respect of
an Award Year.
(B) The achievement of targets shall result in the payment to Participants
of cash bonuses (subject to the provisions of Section 6 hereof). In
establishing targets, the Committee shall determine three levels of awards,
based upon the achievement of (1) minimum, (2) primary and (3) maximum
levels of achievement during an Award Year. In any case where the level
achieved exceeds the primary target level but is less than the maximum target
level, the bonus to be paid shall be increased so as to be proportionate to
the difference between the two levels. Thus, for example, of the Operating
Income target achieved is 50% of the difference between the primary target
and the maximum target, the bonus to be paid shall be equal to the percentage
of salary awarded for achieving the primary target plus 50% of the difference
between that amount and the amount which would have been paid if the maximum
target had been achieved.
<PAGE>
(C) There shall be three categories of Eligible Employees, each having a
separate award level expressed as a percentage of the salary paid to him or
her during the Award Year.
(1) Chairman of the Board; President and Chief Executive Officer; and
Executive Vice President and Chief Operating Officer.
(2) All other officers of the Company; and
(3) All other Eligible Employees
(D) In addition, there shall be a discretionary component of awards, which
shall also be expressed in terms of a percentage of salary. The percentages
of salary established by the Committee for discretionary awards shall be the
maximum awards payable upon the achievement of targets, within which the
amounts to be paid to each Participant (which may range from no payments to
the maximum amount payable) shall be determined by the Committee in the case
of Category 1 employees, and the Chairman of the Board and the Chief
Executive Officer in the case of all other employees, in their sole
discretion after reviewing the performance and contributions of each
Participant.
(E) No Awards shall be made which, if maximum targets were achieved and the
maximum discretionary award were paid, would result in an Award in excess of
the following percentages of the salary paid to any Participant during the
relevant Award Year: Category 1 employees: 60%; Category 2 employees: 50%;
Category 3 employees: 30%.
Section 6: Payment of Awards
Each participant shall elect prior to the commencement of each Award
Year whether to receive all of part of any possible bonus award in cash.
Unless a written election is made to receive the award in cash, payment of
same will be deferred. Cash payments shall be made as soon as practicable
after the Company has made the necessary calculations, and all payments shall
be subject to the withholding of any required taxes.
Section 7: Deferral of Payment
Bonus awards which are deferred will be credited to an account
("Deferred Account") established by the Company for each Participant and will
be subject to such conditions as the Committee may consider necessary to
maintain an effective deferral.
Section 8: Deemed Investment of Deferred Amounts
Even though this Plan is totally unfunded and will not result in assets
being placed beyond the reach of the Company's creditors, each Participant
will be able to select the basis on Deferred Account will be deemed to be
invested in the T. Rowe Price family of mutual funds and each Participant
shall be able to elect, from time to time on forms provided by the Company,
in which fund or funds his Deferred Account shall be deemed invested. His
Deferred Account shall be credited with earnings and losses as a means of
measuring the amount in such account at any given time.
Section 9: Payment of Deferred Accounts
Payment of a Participant's Deferred Account shall commence as soon as
practicable after the Participant's termination of employment and shall be
paid in not more than ten annual installments. The Committee shall consult
with the Participant before determining the method and duration of such
payments and shall endeavor to accommodate the wishes of the Participant. In
the case of a Participant's death, payment shall be made in a lump sum to the
Participant's estate. Payment may also be made without a termination of
employment if a Participant makes a request on the basis of severe financial
hardship, which is here defined as having been caused by an accident, illness
or event (affecting either the Participant or his immediate family) beyond
the control of the Participant. The Committee, in its sole discretion, shall
decide whether such request qualifies as a hardship payment and shall limit
the amount paid to the Participant to that reasonably necessary to eliminate
the hardship.
<PAGE>
Section 10: Termination of Employment
Except as is herein provided, a Participant must continue in the employ
of the Company through the conclusion of the Award Year in order to be
eligible for payment of a bonus award.
In the event a Participant's employment terminates prior to the end of
the Award Year because of normal retirement on of after age 62, or disability
under the Company's long term disability policy, or death, the Participant
shall be entitled to a pro rata bonus based upon the percentage of the year
completed prior to termination of employment.
Section 11: Amendment
The Committee may from time to time amend, modify, suspend the operation
of or terminate in whole or in part any or all of the provisions of the Plan,
except that no such action shall deprive a Participant of any bonus award
which has been earned.
Section 12: Reorganization
In the event that Genesee Corporation ("Genesee") is merged or
consolidated with another corporation and Genesee if not the surviving
corporation, or in the event that a substantial part of the assets of Genesee
are acquired by another corporation, or in the event of the reorganization or
liquidation of Genesee (each such event being hereinafter referred to as a
"Reorganization Event") or in the event that the Board of Directors of
Genesee shall propose that Genesee enter into a Reorganization Event, then
the Committee may in its discretion modify any outstanding awards on an
equitable basis, including the modification of targets and/or the
circumstances under which awards shall be deemed to have been earned.
Section 13: Newly Eligible Employees
The Committee shall be entitled to make such rules, regulations,
determinations and awards as it deems appropriate in respect of any employee
who becomes eligible to participate in the Plan after the commencement of an
Award Year.
Section 14: Effective Date
The Plan shall be effective as of May 1, 1986. The Committee may grant
awards in respect of fiscal year of the Company ending May 3, 1987.
Section 15: Miscellaneous
(A) No payment of Plan awards and no Deferred Account shall be subject in
any manner to anticipation, alienation, pledge, transfer, or assignment,
except by will or by the laws of descent and distribution and any attempt to
anticipate, alienate, pledge, transfer, or assign shall be void.
(B) Neither the granting of, nor any payout with respect to, any award under
the Plan shall limit a Participant's right to receive, or to be eligible for,
any other compensation or benefits.
<PAGE>
(C) The selection of an Eligible Employee as a Participant for an award
shall not constitute a contract of employment between the Participant and the
Company or otherwise entitle the Participant to remain in the employ of the
Company.
(D) Bonus awards will not be considered as compensation for the purpose of
computing employee contributions or benefits under any Company profit
sharing, retirement, pension, thrift, group life insurance or other employee
benefit plan.
(E) Each payment that is to be made in cash shall be from the general funds
of the Company. No special or separate fund shall be established or other
segregation of assets made to assure payout of any such Plan awards or
amounts credited to Deferred Accounts. No Participant or other person shall
have under any circumstances any interest whatever in any particular property
or assets of the Company.
<PAGE>
EXHIBIT 10-7
TRUST AGREEMENT
UNDER THE
GENESEE CORPORATION
DEFERRED COMPENSATION PLANS
This Trust Agreement is made this 27th day of December, 1995 by and
between GENESEE CORPORATION (the "Company") and M&T BANK - MANUFACTURERS AND
TRADERS TRUST CO. (the "Trustee");
WHEREAS, Company has adopted the nonqualified deferred compensation
plans (the "Plans") listed in the Appendix;
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plans with respect to the individuals participating in the
Plans;
WHEREAS, Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of Company's Insolvency, as herein defined, until paid
to Plan participants and their beneficiaries in such manner and at such times
as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Plans as unfunded plans maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of
1974; and
WHEREAS, it is the intention of Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plans.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) Company agrees to deposit with Trustee in trust such contributions
as from time to time it determines are appropriate to meet the funding
requirements of the Plans. Contributions and the earnings thereon shall
become the principal of the Trust to be held, administered and disposed of by
Trustee as provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon approval by the Company's
Board of Directors.
(c) The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter
1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively
for the uses and purposes of Plan participants, their beneficiaries and the
Company's general creditors as herein set forth. Plan participants and their
<PAGE>
beneficiaries shall have no preferred claim on, or any beneficial ownership
interest in, any assets of the Trust. Any rights created under the Plans and
this Trust Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Company. Any assets held by the
Trust will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency, as defined in Section 3(a)
herein.
(e) Within 90 days of determining the amounts deferred under a Plan,
the Company shall be required to irrevocably deposit such additional cash or
other property to the Trust in an amount sufficient to pay each Plan
participant or beneficiary the benefits payable pursuant to the terms of the
Plans as of the close of the Plan year.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) Company shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available
under the Plans), and the time of commencement for payment of such amounts.
Except as otherwise provided herein, Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment
Schedule. The Trustee shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plans and
shall pay amounts withheld to the appropriate taxing authorities or determine
that such amounts have been reported, withheld and paid by the Company.
(b) The entitlement of a Plan participant or his or her beneficiaries
to benefits under the Plans shall be determined by Company or such party as
it shall designate under the Plans, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plans.
(c) Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plans.
Company shall notify Trustee of its decision to make payment of benefits
directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with
the terms of the Plans, Company shall make the balance of each such payment
as it falls due. Trustee shall notify Company where principal and earnings
are not sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust
Beneficiary When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to
pay its debts as they become due, or (ii) Company is subject to a pending
proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject
to claims of general creditors of Company under federal and state law as set
forth below.
(1) The Board of Directors and the Chief Executive Officer of
Company shall have the duty to inform Trustee in writing of Company's
Insolvency. If a person claiming to be a creditor of Company alleges in
writing to Trustee that Company has become Insolvent, Trustee shall determine
whether Company is Insolvent and, pending such determination, Trustee shall
discontinue payment of benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's Insolvency,
or has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether Company is Insolvent. Trustee may in all events rely on such
<PAGE>
evidence concerning Company's solvency as may be furnished to Trustee and
that provides Trustee with a reasonable basis for making a determination
concerning Company's solvency.
(3) If at any time Trustee has determined that Company is
Insolvent, Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the benefit of
Company's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of Plan participants or their beneficiaries as
general creditors of Company with respect to benefits due under the Plans or
otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of this
Trust Agreement only after Trustee has determined that Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plans for the
period of such discontinuance, less the aggregate amount of any payments made
to Plan participants or their beneficiaries by Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, Company shall have no right or power to direct Trustee to return
to Company or to divert to others any of the Trust assets before all payment
of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plans.
Section 5. Investment of Authority.
(a) In no event may Trustee invest in securities (including stock or
rights to acquire stock) or obligations issued by Company, other than a de
minimis amount held in common investment vehicles in which Trustee invests.
All rights associated with assets of the Trust shall be exercised by Trustee
or the person designated by Trustee, and shall in no event be exercisable by
or rest with Plan participants except that voting rights with respect to
Trust assets will be exercised by Company.
(b) If the Plan so provides, the Board of Directors of the Company may
appoint an Investment Manager to direct the investment of all or a portion of
the Trust fund. An Investment Manger, upon its appointment shall acknowledge
in writing that it shall act with the care, prudence and diligence under the
circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims. An Investment Manager shall supply the
Trustee in writing with the names of any individuals authorized to act on its
behalf, including specimen signatures. The Trustee may rely (and be fully
protected in relying) on any written communication purporting to be signed by
such individuals on behalf of the Investment Manager as being the act of the
Investment Manager, and may assume that any designation of individuals
entitled to sign communications on behalf of the Investment Manager remains
in effect until advised by the Investment Manager in writing to the
contrary. The Trustee shall invest and reinvest any portion of the Trust
fund that the Company has advised it is subject to the direction of an
Investment Manager to the extent and in the manner directed by the Investment
Manager in writing. The Trustee need not inquire into whether investment
instructions received from an Investment Manager represent proper investment
decisions. The Trustee shall have no duty to review any investment to be
acquired, held, or disposed of pursuant to such directions or to make
recommendations with respect to the investment of any portion of the Trust
fund under the direction of an Investment Manager. The Trustee shall have no
liability with respect to the investment of any portion of the Trust fund
subject to the direction of an Investment Manager and shall be fully
protected in complying without questions with the direction of, or failing to
act in the absence of any direction from, an Investment Manager.
<PAGE>
Section 6. Disposition of Income.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes not paid by Company, shall be accumulated and reinvested.
Section 7. Accounting by Trustee.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made;
including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 60 days following the close of each calendar
year and within 60 days after the removal or resignation of Trustee, Trustee
shall deliver to Company a written account of its administration of the Trust
during such year or during the period from the close of the last preceding
year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities
and other property held in the Trust at the end of such year or as of the
date of such removal or resignation, as the case may be.
Section 8. Responsibility of Trustee.
(a) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant
to a direction, request or approval given by Company which is contemplated
by, and in conformity, the terms of the Plans or this Trust and is given in
writing by Company. In the event of a dispute between Company and a party,
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If Company does not pay such costs, expenses and liabilities
in a reasonably timely manner, Trustee may obtain payment form the Trust.
(c) Trustee may consult with legal counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.
(d) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
Section 9. Compensation and Expenses of Trustee.
All investment fees and expenses shall be paid from Trust assets.
Company shall pay all administrative fees and expenses. If Company fails to
pay such administrative fees and expenses they shall be paid from the Trust.
<PAGE>
Section 10. Resignation and Removal of Trustee.
(a) Trustee may resign at any time by written notice to Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise.
(b) Trustee may be removed by Company on 30 days notice or upon shorter
notice accepted by Trustee.
(c) Upon a Change of Control, as defined herein, Trustee may not be
removed by Company. In addition, Trustee shall automatically become plan
administrator of the Plans upon a Change in Control and shall pay out Plan
benefits and otherwise administer the Plans in accordance with their terms.
(d) If Trustee resigns following a Change of Control, as defined
herein, Trustee shall select a successor Trustee in accordance with the
provisions of Section 11(b) hereof prior to the effective date of Trustee's
resignation or removal.
(e) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed with 30 days after
receipt of notice of resignation, removal or transfer, unless Company extends
the time limit.
(f) If Trustee resigns [or is removed], a successor shall be appointed,
in accordance with section 11 hereof, by the effective date or resignation or
removal under paragraph (a) [or (b)] of this section. If no such appointment
has been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses of
the trust.
Section 11. Appointment of Successor.
(a) If Trustee resigns [or is removed] in accordance with Section 10(a)
[or (b)] hereof, Company may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by Company or the
successor Trustee to evidence the transfer.
(b) If Trustee resigns or is removed pursuant to the provisions of
Section 10(d) hereof and selects a successor Trustee, Trustee may appoint any
third party such as a bank trust department or other party that may be
granted corporate trustee powers under state law. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
Trustee. The new Trustee shall have all the rights and powers of the former
Trustee, including ownership rights in Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the
successor Trustee to evidence the transfer.
Section 12. Amendment or Termination.
(a) This Trust Agreement may be amended by a written instrument
executed by Trustee and Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plans or shall make the Trust
revocable after it has become irrevocable in accordance with Section 1(b)
hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans. Upon termination of the Trust any assets
remaining in the Trust shall be returned to Company.
<PAGE>
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) For purposes of this Trust, Change of Control shall mean the
purchase or other acquisition by any person, entity or group of persons,
within the meaning of section 13(d) or 14(d) of the Securities Exchange Act
of 1934 ("Act"), or any comparable successor provisions, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 30
percent or more of either the outstanding shares of common stock or the
combined voting power of Company's then outstanding voting securities
entitled to vote generally, or the approval by the stockholders of Company of
a reorganization, merger, or consolidation, in each case, with respect to
which persons who were stockholders of Company immediately prior to such
reorganization, merger or consolidation do not immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally
in the election of directors of the reorganized, merged or consolidated
Company's then outstanding securities, or a liquidation or dissolution of
Company or of the sale of all or substantially all of Company's assets.
Section 14. Effective Date.
The effective date of this Trust Agreement shall be January 1, 1996.
Dated: December 27, 1995 GENESEE CORPORATION
By /s/Robert N. Latella
Title Executive Vice President
Dated: December 27, 1995
M&T BANK
By /s/James Olek
Title Vice President
<PAGE>
APPENDIX
PLANS COVERED BY THE GENESEE CORPORATION DEFERRED COMPENSATION TRUST
Genesee Corporation 1986 Incentive Bonus Plan
Genesee Corporation Benefit Restoration Plan
R. N. Latella Supplemental Retirement Contribution
<PAGE>
EXHIBIT 21
Subsidiaries
Names State of Incorporation
The Genesee Brewing Company, Inc. New York
Genesee Ventures, Inc. New York
Ontario Foods, Incorporated New York
Freedom Foods, Inc. New Jersey
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-03-1997
<PERIOD-END> MAY-03-1997
<CASH> 4,521
<SECURITIES> 32,627
<RECEIVABLES> 11,445
<ALLOWANCES> 408
<INVENTORY> 13,957
<CURRENT-ASSETS> 64,121
<PP&E> 112,033
<DEPRECIATION> 79,047
<TOTAL-ASSETS> 136,929
<CURRENT-LIABILITIES> 18,967
<BONDS> 0
<COMMON> 858
0
0
<OTHER-SE> 90,697
<TOTAL-LIABILITY-AND-EQUITY> 136,929
<SALES> 194,669
<TOTAL-REVENUES> 194,669
<CGS> 116,968
<TOTAL-COSTS> 40,126
<OTHER-EXPENSES> 34,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,177
<INCOME-TAX> 1,831
<INCOME-CONTINUING> 3,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,346
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 0
