Index to Exhibits
at Page 49
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
For the fiscal year ended: May 2, 1998
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number: 0-1653
GENESEE CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 16-0445920
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 17, 1998 was $1,986,518.
The number of shares outstanding of each of the registrant's classes of
common stock as of July 17, 1998 was:
Number of Shares
Class Outstanding
Class A Common Stock (voting) 209,885
par value $.50 per share
Class B Common Stock (non-voting) 1,409,024
par value $.50 per share
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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 2, 1998, Genesee Brewing Company sold
approximately 1.9 million barrels of malt beverage products, a decrease of 7.2%
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, Genny
Winter Brew, Genesee Spring Bock, Koch's Golden Anniversary Beer, Koch's Golden
Anniversary Light Beer and Koch's Golden Anniversary Ice Beer. The Genesee and
Koch's brands contributed 62% of Genesee Brewing Company's barrel sales and 42%
of the Corporation's consolidated net revenues in fiscal 1998; 66% of barrel
sales and 49% of consolidated net revenues in fiscal 1997, and 80% of barrel
sales and 62% of consolidated net revenues in fiscal 1996.
The product development, sales and marketing of Genesee Brewing Company's
line of craft brands is conducted by a separate division known as HighFalls
Brewing Company. 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 and JW Dundee's Honey Light Lager. The HighFalls
brands contributed 23% of Genesee Brewing Company's barrel sales and 24% of the
Corporation's consolidated net revenues in fiscal 1998; 23% of barrel sales and
24% of consolidated net revenues in fiscal 1997; and 18% of barrel sales and 19%
of consolidated net revenues in fiscal 1996.
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.
Genesee Brewing Company also produces malt beverage products under a
contract with Boston Beer Company. The contract between Genesee Brewing Company
and Boston Beer Company extends through the year 2016 but 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. In fiscal 1998, Genesee Brewing Company
produced approximately 278,000 barrels for Boston Beer Company. Sales to Boston
Beer Company accounted for 14% of Genesee Brewing Company's barrel sales and 6%
of the Corporation's consolidated net revenues in fiscal 1998.
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-six states and the Canadian provinces of Ontario and Quebec. Sales to
distributors located in New York, Pennsylvania and Ohio accounted for
approximately 63% of Genesee Brewing
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Company's sales in fiscal 1998. Genesee Brewing Company expanded
distribution of the HighFalls brands to Kentucky, Louisiana, Nevada and
Wisconsin in fiscal 1998. Genesee Brewing Company may expand distribution of the
HighFalls brands to additional markets.
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.
The domestic brewing industry is dominated by three brewers (Anheuser-Busch,
Miller Brewing Co. and Coors Brewing Co) whose brands accounted for
approximately 83% of the beer and ale sold in the United States in 1997. Genesee
Brewing Company's brands accounted for less than 1% of the beer sold in the
United States in 1997 and its relative position in the domestic brewing industry
in terms of annual barrel sales is believed to be sixth.
Genesee Brewing Company competes with more than 100 companies that produce,
import or market malt beverage products in the United States. Genesee Brewing
Company's products compete with nationally distributed brands, regionally and
locally distributed brands, microbrewed brands, contract brewed brands and
imported brands. Genesee Brewing Company products compete on the basis of
advertising, taste, quality, packaging, pricing and/or promotion, depending on
the competitive brand strategy and the particular market involved. Although all
brands compete against each other in the overall market, specific brands compete
primarily with other brands that are positioned in the same product category.
The product categories that are generally recognized in the United States are
the super-premium priced, premium priced, regional priced, popular priced, malt
liquor, craft/specialty and import categories. The Genesee and Koch's brands,
generally compete in the regional and popular priced categories. Depending on
the particular market, the HighFalls brands compete in the premium,
craft/specialty or super-premium category.
Overall consumption of malt beverage products in the United States has
increased only slightly during the past ten years and demand for many
established domestic brands has declined as consumers turned to the many new
domestic brands, the wide array of imported brands and the diverse range of beer
styles offered by the craft/specialty category beer segment. As has been the
case for several years, Genesee Brewing Company's core brands continue to
experience declining volume. Genesee and Koch's brand volume declined 12.4% in
fiscal 1998 following a 14% decline in fiscal 1997.
As a result of these trends and the excess capacity that exists in the
industry, brewers have attempted to gain market share through reduced pricing,
intensive marketing and promotional programs, new product introductions and
innovative packaging. Intense price competition has prevented any meaningful
price increases during the past two years. In addition, the industry has seen
increased levels of price discounting and price promotions and a growth in
popularity of value priced 30 and 36 can Multipaks.
The competitive position of smaller brewers like Genesee Brewing Company
has also been adversely affected by the consolidation that is occurring within
the distribution tier of the brewing industry. The National Beer Wholesalers
Association estimates that the number of beer wholesalers in the United States
declined by 14% between 1992 and 1997. The effects of this consolidation have
been aggravated by the aggressive efforts of the large national brewers to
obtain an increasing share of the distributor's time and attention devoted to
their brands. During the past several years, the large national brewers have
implemented a wide range of inducements, incentives and contractual terms to
cause their distributors to make a greater commitment to their brands, largely
at the expense of the brands of smaller brewers, like Genesee, that are also
sold by these distributors. These developments have made it increasingly
difficult for Genesee Brewing Company to effectively promote and sell its brands
in its core markets and to expand sales of its products in new or lower share
markets.
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Growth of the craft/specialty category slowed dramatically in 1997,
especially during the second half of the year. During the five-year period ended
December 31, 1996, the craft/specialty category grew at a compounded annual rate
of almost 40%. However, the company believes the growth rate for the
craft/specialty category fell to single digit in calendar 1997, with several of
the larger craft brewers reporting no gains or a decline in sales. The large
national brewers have now entered the category with craft-style products of
their own or by acquiring ownership interests in existing craft/specialty
brewers. These trends suggest that the craft/specialty category may experience,
at best, only modest growth in the near term and that competitive pressures in
the category will continue to increase. Reflecting these trends, sales of the
HighFalls brands declined 4.1% in fiscal 1998.
The competitive conditions in the brewing industry that are impacting the
performance of Genesee Brewing Company are not expected to abate in the near
term. In response to these conditions, Genesee Brewing Company reduced planned
increases in its fiscal 1998 sales and marketing budgets by $1.5 million. In
addition, Genesee Brewing Company is proceeding more slowly with plans to expand
distribution into additional states and to add new brands to its product line.
Genesee Brewing Company is focusing its resources on stabilizing sales and
improving trends for its current brand portfolio in existing markets. Among
initiatives currently under way is a television and radio advertising campaign
to promote the JW Dundee's Honey Brown Lager brand.
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. Genesee Brewing Company is required to
purchase approximately 80% of its requirements for glass bottles from one of
these suppliers. This supplier has multiple plants which are capable of
producing bottles for Genesee Brewing Company. Consolidation in the glass
industry in North America has reduced the number of glass bottle suppliers
available to Genesee Brewing Company so alternative sources for bottles might
not be readily available if the current suppliers are unable to supply Genesee
Brewing Company's requirements.
Genesee Brewing Company purchases all of its requirements for aluminum cans
from a single supplier under an agreement which runs through December 2000. 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 aluminum cans might not be
readily available. The cost of aluminum cans increased slightly in fiscal 1998
because of increased raw material costs and a one-time upcharge to cover tooling
costs for a changeover to wide mouth cans.
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 is purchased from two suppliers
and corrugated packaging for the 24-pack carton is purchased from a single
supplier. Genesee Brewing Company is not under any contractual obligation to
limit purchases of corrugated packaging to these 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
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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 single supplier and additional sources for
specialty malts are readily available. Genesee Brewing Company purchases corn
grits on the open market from four suppliers and is not under any contractual
commitment with any of these suppliers. Prices for corn grits are determined by
the commodity futures market.
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 1997 growing season was favorable
for both quality and yields of barley and corn. As a result, there was adequate
supply and prices for barley malt and corn products were substantially lower in
fiscal 1998.
The price, quality and availability of agricultural ingredients for the
remainder of fiscal 1999 should be determined by climatic conditions during the
1998 growing season. To date, conditions have been favorable 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 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 1998, a surcharge of approximately
$310,000 was paid in addition to the normal sanitary and combined sewage charge
for the year of approximately $497,000.
Genesee Brewing Company has engaged an engineering firm to undertake
inspections of the brewery's system for storing and handling chemicals used to
clean and sanitize brewing equipment and refillable bottles to determine the
extent of any upgrades that may be required to achieve compliance with New York
regulations governing the bulk storage of such chemicals which become effective
in December 1999. The preliminary results of these inspections indicate that the
system will require significant upgrades to achieve compliance with the
regulations. It is believed that the capital cost of such upgrades will be
significant. A final inspection report and assessment of compliance requirements
is expected from the engineering firm in August 1998 which will allow Genesee
Brewing Company to implement an action
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plan to achieve compliance with the bulk storage requirements or petition
for a variance from certain requirements.
Food Business. The Corporation's food business is conducted by its Foods
Division which consists of two wholly owned subsidiaries, Ontario Foods,
Incorporated and Freedom Foods, Inc. The Corporation acquired Freedom Foods,
Inc. in May 1997 and moved its operations from the Tampa, Florida area to
Albion, New York, combining them with Ontario Foods' operations. The Foods
Division produces a variety of dry food and beverage products, including soup
mixes, side dishes, bouillon cubes and powder, infant cereals, iced tea mixes,
instant beverage mixes and hot cocoa.
On July 20, 1998, the Corporation entered into agreements to acquire all of
the issued and outstanding shares of capital stock of TKI Foods ("TKI Foods")
and to acquire certain of the assets of Spectrum Foods, Inc. ("Spectrum"), an
affiliate of TKI Foods. These transactions are expected to close on or about
August 1, 1998. TKI Foods is the nation's largest producer of private label
artificial sweeteners. Spectrum produces private label sauces. TKI Foods and
Spectrum had combined sales of approximately $21 million in calendar 1997. The
private label artificial sweetener and sauce products produced, respectively, by
TKI Foods and Spectrum are sold to many of the same retail food store chains
that are currently customers for the Foods Division's private label side dish,
bouillon, iced tea and beverage mix products.
The Foods Division's 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 the Foods Division are sold by Foods
Division 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 or as house brands under Foods Division proprietary brand
labels. Chain store private label products are a growing product category in the
United States and represent the largest component of Foods Division's revenues.
Private label sales represented 19.5% of the Corporation's consolidated net
revenues in fiscal 1998, 15.3% of consolidated net revenues in fiscal 1997, and
13.7% of consolidated net revenues in fiscal 1996.
The Foods Division's proprietary brand labels are Thirst Quench'r, Taste of
the Alps, Sadano's, Golden Kettle and Freedom. Except for these trademarks, the
Foods Division does not own any trademarks, patents, franchises or concessions
which are material to its business.
The Foods Division 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 instant soup under a contract with the United State government
accounted for a significant amount of the Foods Division's contract
processing/packaging business in fiscal 1998. This contract was completed in
fiscal 1998.
The food and beverage products produced by the Foods Division utilize a
variety of ingredients. Some of these ingredients are processed by the Foods
Division from a raw state while others have been pre-processed and are further
processed by the Foods Division to produce the finished product. Numerous
sources of supply are available for the ingredients used in the Foods Division
products. Packaging materials used by the Foods Division are purchased from a
variety of sources. Products produced under contract processing/packaging
agreements typically utilize ingredients and packaging supplied by the customer.
The Foods Division's 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 bouillon products, dry soup mixes, side dishes and hot
cocoa are typically produced in the fall and winter months.
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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. The Foods Division 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 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 1998, Cheyenne financed leases involving equipment having
an initial cost of approximately $16 million. Cheyenne's total lease portfolio
as of May 2, 1998 included almost 300 leases representing an initial equipment
cost of approximately $150 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 2, 1998, the Corporation and its subsidiaries employed
729 people. Genesee Brewing Company employed 589 people, 366 of whom are
represented by six separate unions whose collective bargaining agreements
generally conform to those of the brewing industry. In June and July 1998,
three-year contracts were successfully negotiated with three unions representing
328 of Genesee Brewing Company's union employees. Negotiations with the other
three unions are currently in progress and the Corporation expects to reach
agreements with these unions during the next several weeks. Employee relations
with Genesee Brewing Company's employees have been good. The Foods Division
employed 140 people, none of whom are represented by a union. Employee relations
with the Foods Division's 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 1998, Genesee Brewing Company completed a
$5.3 million capital project to replace an existing bottling line. This project
included the removal of all existing packaging equipment and replacing
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it with new equipment that is faster and operates more efficiently. Boston
Beer Company contributed $3.8 million to the cost of this project under its
contract brewing agreement with Genesee Brewing Company.
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.
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 ("STB") for approval of a proposed
acquisition of Conrail. Conrail did not take any further action on the
threatened abandonment during the pendency of the STB approval process. In June
1998, the STB approved the joint acquisition. The track that serves Genesee
Brewing Company will be acquired by CSX if the acquisition is consummated with
Conrail. CSX has advised Genesee Brewing Company that it intends to continue
rail service on the track that serves Genesee Brewing Company.
Genesee Brewing Company owns and operates a fleet of 12 delivery trucks and
9 tractors and 15 trailers used to transport beer to customers. Genesee Brewing
Company also owns or leases 82 automobiles used by salesmen and executives and
15 pick-up trucks and vans.
Food Processing Operations. The Foods Division leases approximately 220,000
square feet of office, production, laboratory and storage space in Albion, New
York. The term of the lease expires in May 2000. The Foods Division also
maintains a sales office in Ocean Township, New Jersey. The Foods Division has
initiated a review of its current and projected space requirements in view of
the May 2000 termination of the lease on its Albion, New York production
facility. Options being considered include extending the lease on the current
facility, exercising an option under the lease to purchase the current facility,
or leasing or purchasing another facility and relocating the Foods Division
operations.
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 needs
of the Foods Division.
The Foods Division 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
None.
Item 4. Submission of Matters to a Vote of Security Holders There were no
matters submitted to a vote of security holders during the fourth quarter
ended May 2, 1998.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders
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 29, 1998, the
number of holders of record of Class A (voting) Common Stock and Class B
(non-voting) Common Stock were 142 and 1,047, 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>
Unaudited Fiscal Year Ended May 2, 1998 Fiscal Year Ended May 3, 1997
Market Price Market Price
High Low Dividends High Low Dividends
First Quarter $ 42 39 3/4 .35 $ 46 43 1/4 .35
Second Quarter 50 42 3/8 .35 45 40 1/2 .35
Third Quarter 46 39 1/4 .35 43 1/4 40 3/4 .35
Fourth Quarter 42 1/4 35 3/16 .75 43 40 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>
Unaudited
<S> <C> <C> <C> <C> <C>
Years Ended 5/2/98 5/3/97 4/30/96 4/30/95 4/30/94
Net Revenues $154,093 154,543 143,108 137,142 131,367
Earnings Before Cumulative Effect of
Change in Accounting Principle 1,335 3,346 3,321 4,080 5,608
Net Earnings 1,335 3,346 3,321 4,080 6,368
Total Assets 135,589 136,929 134,035 138,194 135,332
Total Long Term Debt - - - 9,869 4,038
Basic Earnings Per Share Before Cumulative
Effect of Change in Accounting Principle .83 2.07 2.06 3.50 2.55
Diluted Earnings Per Share Before Cumulative
Effect of Change in Accounting Principle .82 2.06 2.05 3.49 2.54
Basic Earnings Per Share .83 2.07 2.06 3.98 2.55
Diluted Earnings Per Share .82 2.06 2.05 3.97 2.54
Cash Dividends Per Share 1.80 1.80 1.80 1.80 1.60
</TABLE>
(Dollars in thousands, except per share data)
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Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Summary. Consolidated net revenues for the fiscal year ended May 2, 1998
were $154.1 million compared to fiscal 1997 net revenues of $154.5 million and
fiscal 1996 net revenues of $143.1 million. The Corporation reported net
earnings of $1.3 million in fiscal 1998, which was $2.0 million less than fiscal
1997 and 1996.
For fiscal 1998, the Corporation showed a consolidated operating loss of
$688,000 compared to the $2.6 million of operating income reported for fiscal
1997. The $3.3 million decrease in operating profit was attributable to a
decline in Genesee Brewing Company's operating performance. The primary reason
for this decline was a 7.2% decrease in barrel sales.
Partially offsetting the negative impact of the brewing business was the
favorable performance of the Corporation's foods division and its equipment
leasing and real estate operations. In addition, the Corporation reported an
$800,000 increase in investment income primarily as a result of realized capital
gains on securities sold to finance a food company acquisition.
Results of Operations (Fiscal 1998 vs. Fiscal 1997)
Genesee Brewing Company
Net sales for Genesee Brewing Company, the Corporation's largest
subsidiary, were $117.2 million, a decrease of $9.8 million or 7.7% from the
$127.1 million reported in fiscal 1997. Genesee Brewing Company's barrel volume
for fiscal 1998 decreased 7.2% to 1,878,000 barrels compared to 2,023,000
barrels in fiscal 1997. The decrease in Genesee Brewing Company's net sales and
barrel volume was partially attributable to a 4.1% decline in the sales of
HighFalls products, which represented 23.3% of total volume. However, as has
been the case for several years, Genesee Brewing Company's core brands continued
to show large volume declines. Core brand volume was down 164,000 barrels, or
12.4% in fiscal 1998. Within the core brands, higher-margin returnable glass
packages and 24-can packages showed the largest volume declines. These declines
were partially offset by higher unit sales of lower margin, value-priced 30 and
36 can "Multipaks".
Barrel sales of malt beverage products to the Boston Beer Company increased
9.4% in fiscal 1998 to 278,000 barrels (representing 14% of overall barrel
volume) compared to 250,000 barrels (or 12.6% of total barrel volume) in fiscal
1997. Volume growth under this contract slowed down in fiscal 1998 primarily as
a result of production approaching the maximum level required by Boston Beer
Company to meet consumer demand in the markets where Boston Beer Company
products produced by Genesee Brewing Company are sold. Boston Beer Company has
reported that sales of its Samuel Adams craft brands declined slightly in
calendar 1997 and, therefore, the Corporation does not anticipate future growth
of sales to Boston Beer Company. Future changes in volume will depend on
consumer demand for Boston Beer Company products and on decisions made by Boston
Beer Company regarding allocation of production among its several sources of
supply.
Genesee Brewing Company's gross profit for fiscal 1998 decreased $5.3
million from $32.5 million in fiscal 1997 to $27.2 million in fiscal 1998. The
lower gross profit was primarily due to negative volume trends and the
unfavorable shift in product mix towards lower-margin contract volume and
Multipak can packages. In addition, intense competition has resulted in price
stagnation over the past two years, further depressing Genesee Brewing Company's
gross profit margins.
Genesee Brewing Company's selling, general and administrative expenses were
up $133,000 in fiscal 1998, primarily as a result of increases in selling and
marketing expenditures to support the Company's expansion into new markets with
its HighFalls Brands. Expansion market sales increased
<PAGE>
Page - 11
3.2% in fiscal 1998 representing 12.8% of total barrelage. The increased
sales and marketing expenditures were used for additional sales personnel, point
of sale merchandise, and other promotions.
Due to lower volume, an unfavorable shift in product mix and increased
sales and marketing expenditures, Genesee Brewing Company reported a fiscal 1998
operating loss of $5.4 million versus a $12,000 loss in fiscal 1997.
See also Item 1 of this Report, which is incorporated herein by reference,
for information regarding known trends and uncertainties in the brewing
business.
Foods Division
Net sales for the Corporation's Foods Division increased $8.9 million in
fiscal 1998, representing a 35.6% increase over net sales in the prior year. The
increase in net sales was due primarily to the acquisition of Freedom Foods,
Inc. in May 1997. Sales of bouillon products acquired in that transaction
totaled $6.8 million in fiscal 1998. The increase in Foods Division net sales is
also attributable to a short term government soup contract and continued growth
in iced tea sales.
The Foods Division's gross profit was up $2.6 million in fiscal 1998 due to
higher sales volume and the favorable effect of selling higher-margin bouillon
products.
Foods Division selling, general and administrative expenses increased
$597,000 in fiscal 1998 compared to the same period last year due primarily to
higher commissions paid to food brokers as a result of increased sales and to
incremental costs associated with the addition of the bouillon business.
The higher sales volume had a direct impact on Foods Division's operating
performance in fiscal 1998. The Foods Division reported an operating profit of
$2.2 million in fiscal 1998 compared to an operating profit of $784,000 in
fiscal 1997.
Genesee Ventures, Inc.
Genesee Venture' fiscal 1998 operating income was $2.9 million, a $490,000
increase over fiscal 1997 operating income of $2.4 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 1998.
In addition, during the second quarter of fiscal 1998, the Corporation and
its partners in a Rochester, New York office building completed the refinancing
of the mortgage on the building. The closing took place on September 25, 1997.
Prior to receipt of this new financing package, Genesee Ventures, Inc. had
maintained a reserve against interest receivable from the partnership on a loan
Genesee Ventures, Inc. had provided as part of a previous financing package.
Based on the partnership's current financial condition, Genesee Ventures, Inc.
determined that the reserve was no longer necessary. As a result of the
elimination of this reserve, Genesee Ventures, Inc. recognized $564,000 of
interest income in fiscal 1998.
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 2,023,000 barrels compared to 1,936,000
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,
<PAGE>
Page - 12
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 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 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.
Foods Division
Net sales for the Foods Division 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, the Foods Division 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.
<PAGE>
Page - 13
The Foods Division's gross profit was up $259,000 in fiscal 1997 due to
higher sales volume.
Foods Division 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 the Foods Division's
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%.
Liquidity and Capital Resources. Cash, cash equivalents and marketable
securities totaled $20.5 million at May 2, 1998 compared to $37.1 million at May
3, 1997. The decrease was primarily due to the internally funded acquisition of
Freedom Foods for $11.3 million in May 1997.
On May 15, 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 had
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. Shortly after closing, the Corporation
relocated Freedom Foods' manufacturing and sales operations to Ontario Foods'
facility in Albion, New York. The acquisition was accounted for using the
purchase method.
In addition to the acquisition of Freedom Foods, cash was also used to
finance an inventory build by the Foods Division to support growth of its
private label business. Inventories at May 2, 1998 were $301,000 higher than the
balances reported at May 3, 1997. The net accounts receivable balance at May 2,
1998 of $10.2 million was $874,000 lower than the balance at May 3, 1997 of
$11.0 million.
Capital expenditures in fiscal 1998 totaled $5.7 million compared to $8.0
million in fiscal 1997. Fiscal 1997 capital expenditures included a $5.1 million
project to install a new Sankey draft filling line and the cooperage to run on
the line.
At May 2, 1998, the Corporation showed $752,000 of unrealized gains (net of
taxes) in the shareholders' equity section of its consolidated balance sheet
compared to $648,000 of unrealized gains (net of taxes) shown on the
Corporation's May 3, 1997 consolidated balance sheet. The increase was due to
the strong performance of the equity markets over the past year.
During the second quarter of fiscal 1998, the mortgage on the Clinton
Square office building (in which the Corporation has both a partner's and
creditor's interest) was refinanced. As part of that refinancing, the
Corporation agreed to a $2.75 million limited guarantee of the mortgage loan.
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 guaranty to the
bank.
<PAGE>
Page - 14
The Corporation has developed a plan in the past year to fully address Year
2000 compliance and it does not expect that the cost of modifying its
information technology infrastructure will be material to its financial
condition or results of operations. The Corporation does not anticipate any
material disruption in its operations as a result of any failure by the
Corporation to be in compliance. In the event that any of the Corporation's
significant suppliers or customers do not successfully and timely achieve Year
2000 compliance, the Corporation's business or operations should not be
materially affected.
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 most 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.
Subsequent to fiscal year end May 2, 1998, the Corporation entered into an
agreement to acquire 100% of the stock of TKI, Inc., an Illinois-based company
that manufactures and sells private label sweeteners and miscellaneous other
private label products. The Corporation also agreed to purchase certain assets
of Spectrum Foods, Inc., a sister company of TKI also located in Illinois, that
manufactures and sells private label sauces. The total consideration for TKI and
Spectrum is approximately $20 million which is expected to be funded through
internal and external sources.
TKI and Spectrum sell to many of the same supermarket chains as the
Corporation's Foods Division. Upon completion of the acquisitions, the
Corporation will consolidate all food manufacturing by moving the acquired
operations from Illinois to upstate New York.
<PAGE>
Page - 15
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 5/2/98 Quarter Quarter Quarter Quarter Year
Net Revenues $ 42,945 39,914 35,859 35,375 154,093
Gross Profit 10,863 8,907 6,982 8,906 35,658
Net Earnings / (Loss) 1,417 (769) (347) 1,034 1,335
Basic Earnings/ (Loss)Per Share .88 (.48) (.21) .64 .83
Diluted Earnings / (Loss)Per Share .87 (.48) .64 .82 (.21)
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
Basic Earnings Per Share .86 .02 .26 .93 2.07
Diluted Earnings Per Share .86 .02 .25 .93 2.06
</TABLE>
(Dollars in thousands, except per share data)
(b) Index to Financial Statements
<TABLE>
<S> <C>
Page
Report of Independent Accountants - PricewaterhouseCoopers LLP 16
Consolidated Balance Sheets at May 2, 1998 and May 3, 1997 17
Consolidated Statements of Earnings and Retained Earnings
For the three years ended May 2, 1998, May 3, 1997 and April 30, 1996 18
Consolidated Statements of Cash Flows for the three years ended
May 2, 1998, May 3, 1997 and April 30, 1996 19
Notes to Consolidated Financial Statements 21
Financial Statement Schedules:
For the three years ended May 2, 1998, May 3, 1997 and April 30, 1996
Schedule II - Consolidated Valuation and Qualifying Accounts 48
</TABLE>
<PAGE>
Page - 16
(c) 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 2, 1998 and May 3, 1997 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended May 2, 1998 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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, 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/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
June 5, 1998, except as to Note 16, which is as of July 20, 1998
<PAGE>
Page - 17
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
May 2, 1998 and May 3, 1996
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C>
Assets 1998 1997
Current assets:
Cash and cash equivalents $ 2,692 4,521
Marketable securities available for sale 17,808 32,627
Trade accounts receivable, less allowance for doubtful
receivables of $433 in 1998 and $408 in 1997 10,163 11,037
Inventories, at lower of cost (first-in, first-out) or market 14,258 13,957
Deferred income tax assets 1,315 760
Other current assets 683 1,219
Total current assets 46,919 64,121
Net property, plant and equipment 33,311 32,986
Investment in and notes receivable from
unconsolidated real estate partnerships 5,534 4,949
Investment in direct financing and leveraged lease 34,638 32,144
Goodwill and other intangibles, net 10,737 208
Other assets 4,450 2,521
Total assets 135,589 136,929
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 8,358 9,611
Income taxes payable 692 932
Federal and state beer taxes payable 1,756 2,029
Accrued expenses and other 7,255 6,395
Total current liabilities 18,061 18,967
Deferred income tax liabilities 9,295 8,789
Accrued post-retirement benefits 15,415 15,515
Other liabilities 471 413
Total liabilities 43,242 43,684
Minority interests in consolidated subsidiaries 2,227 1,690
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 5,842 5,834
Retained earnings 86,143 87,720
Unrealized gain on marketable securities, net of income taxes 752 648
Less: Class B treasury stock, at cost; 98,682 shares in 1998
and 99,534 shares in 1997 3,475 3,505
Total shareholders' equity 90,120 91,555
Total liabilities and shareholders' equity $ 135,589 136,929
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
Page - 18
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Retained Earnings
Years ended May 2, 1998, May 3, 1997 and April 30, 1996
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Revenues $ 186,359 194,669 184,050
Federal and state beer taxes 32,266 40,126 40,942
Net revenues 154,093 154,543 143,108
Cost of goods sold 118,435 116,968 109,993
Gross profit 35,658 37,575 33,115
Selling, general and administrative expenses 36,346 34,979 32,215
Operating (loss) / income (688) 2,596 900
Investment income 3,728 2,932 4,538
Other income / (expense), net 73 347 232
Minority interests in earnings of subsidiaries (804) (698) (669)
Earnings before income taxes 2,309 5,177 5,001
Income taxes 974 1,831 1,680
Net earnings 1,335 3,346 3,321
Retained earnings at beginning of year 87,720 87,285 86,870
Dividends - $1.80 per share in 1998,
1997 and 1996 2,912 2,911 2,906
Retained earnings at end of year $ 86,143 87,720 87,285
Basic earnings per share $ .83 2.07 2.06
Diluted earnings per share $ .82 2.06 2.05
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Page - 19
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 2, 1998, May 3, 1997 and April 30, 1996
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net earnings $ 1,335 3,346 3,321
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Gain on disposition of assets (1,338) (398) (1,416)
Depreciation and amortization 6,285 5,228 4,757
Deferred tax provision (257) 1,006 980
Other 830 673 536
Changes in non-cash assets and liabilities:
Trade accounts receivable 1,150 2,156 (1,969)
Inventories 79 (1,998) 1,657
Other assets (3) (275) (291)
Accounts payable (1,387) (599) 932
Accrued expense and other 29 568 (741)
Income taxes payable (240) 477 (287)
Federal and state beer taxes (273) (217) 20
Accrued post-retirement benefits (100) (11) (172)
Other liabilities 58 (15) 120
Net cash provided by operating activities $ 6,168 9,941 7,447
</TABLE>
<PAGE>
Page - 20
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1996
Cash flows from investing activities:
Purchase of Freedom Foods, net of cash acquired $ (11,060) - -
Capital expenditures (5,746) (7,951) (6,773)
Proceeds from sale of property, plant, and equipment 802 125 65
Proceeds from sale of marketable securities 31,668 13,401 15,178
Purchases of marketable securities and other investments (16,885) (9,599) (13,406)
Investments in and advances to unconsolidated
real estate partnerships, net of distributions (585) 3,517 (4,161)
Net investment in direct financing and leveraged leases (2,494) (4,052) (4,935)
Repayment of real estate mortgage receivable - - 5,807
Withdrawals by minority interest (267) (535) (570)
Net cash used in investing activities (4,567) (5,094) (8,795)
Cash flows from financing activities:
Principal payments on long-term debt (556) - (4,038)
Payment of dividends (2,912) (2,911) (2,906)
Proceeds from exercise of stock options 38 25 527
Purchase of treasury stock - - (97)
Net cash used in financing activities (3,430) (2,886) (6,514)
Net (decrease) / increase in cash and
cash equivalents (1,829) 1,961 (7,862)
Cash and cash equivalents at beginning of year 4,521 2,560 10,422
Cash and cash equivalents at end of year $ 2,692 4,521 2,560
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Page - 21
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 2, 1998, May 3, 1997 and April 30, 1996
(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, Freedom Foods,
Inc. (as of May 15, 1997) 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 inter-company 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.
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.
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.
<PAGE>
Page - 22
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
The Corporation provides for depreciation at rates that are
estimated to expense 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 12 - 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.
Goodwill and Other Intangibles
Goodwill and other intangibles are amortized on a
straight-line basis ranging from 3 to 25 years. The
carrying value of goodwill and other intangibles are
assessed periodically based on the expected future cash
flows of the assets associated with the goodwill and other
intangibles.
<PAGE>
Page - 23
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Earnings Per Share
During the third quarter of fiscal 1998, the Corporation
adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS 128). The
statement replaces the presentation of primary earnings per
share with Basic earnings per share, which is computed by
dividing the income available to common shareholders by the
weighted average number of common shares outstanding for the
period. SFAS 128 also requires the presentation of Diluted
earnings per share, which reflects the potential dilution
that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
All prior periods have been restated to reflect the
provisions of SFAS 128.
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
2, 1998, May 3, 1997 and April 30, 1996.
(2) Acquisition
On May 15, 1997, the Corporation acquired all of the common
stock of Freedom Foods, Inc., a food company located in Odessa,
Florida, for $11.3 million, representing $3.3 million of assets
acquired and $2.0 million of liabilities assumed. Freedom
Foods sells to many of the same supermarket chains already
buying private label soup, side dish, and drink mix products
from Ontario Foods. During fiscal 1998, the Corporation
completed the relocation of Freedom Foods' manufacturing and
sales operations to Ontario Foods' facility in Albion, New
York. The acquisition was financed internally and was
accounted for using the purchase method. The excess of the
aggregate purchase price of net assets acquired was
approximately $10.0 million.
(3) 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.
<PAGE>
Page - 24
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Financial Instruments (continued)
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 2, 1998 are as
follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Fixed income securities:
Debt securities issued by U.S. Government 2,131 172 1 2,302
Corporate debt securities 4,293 59 31 4,321
Mortgage-backed securities 702 50 1 751
Subtotal 7,126 281 33 7,374
Mutual funds:
Equity funds 2,730 552 - 3,282
Fixed income funds 5,202 - 138 5,064
Foreign funds 1,117 513 - 1,630
Subtotal 9,049 1,065 138 9,976
Other 458 - - 458
Marketable securities available for sale $ 16,633 1,346 171 17,808
(Dollars in thousands)
The amortized cost, gross unrealized gains/losses and fair
values of marketable securities at May 3, 1997 are as
follows:
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
(Dollars in thousands)
</TABLE>
<PAGE>
Page - 25
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C> <C> <C>
(3) Financial Instruments (continued)
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)
</TABLE>
The amortized cost and fair value of fixed income securities at May 2,
1998, by contractual maturity, are as follows:
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Contractual maturity:
After one year, but within five years 2,567 2,566
After five years, but within ten years 2,719 2,787
After ten years 1,138 1,270
Subtotal 6,424 6,623
Mortgage-backed securities 702 751
Total fixed income securities $ 7,126 7,374
</TABLE>
(Dollars in thousands)
The following represents the total proceeds from sales of marketable
securities for fiscal years ended May 2, 1998, May 3, 1997 and April 30, 1996
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>
1998 1997 1996
Proceeds from sales $ 31,668 13,401 15,178
Gains from sales 1,818 603 1,656
Losses from sales (516) (270) (187)
Net gains from sales $ 1,302 333 1,469
(Dollars in thousands)
</TABLE>
<PAGE>
Page - 26
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes
Components of income tax expense (benefit) for the fiscal years ended May
2, 1998, May 3, 1997 and April 30, 1996 are as follows:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Current:
Federal $ 1,105 792 718
State 126 33 (18)
Total current income tax expense 1,231 825 700
Deferred:
Federal (244) 1,032 824
State (13) (26) 156
Total deferred income tax (benefit) / expense (257) 1,006 980
Total income tax expense $ 974 1,831 1,680
</TABLE>
(Dollars in thousands)
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 2, 1998, May 3, 1997 and April 30, 1996:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Computed expected tax expense @ 34% $ 785 1,760 1,700
State income taxes (net of federal income tax benefit) 75 5 298
Amortization of Goodwill 128 - -
Resolution of state tax audit - - (295)
Other, net (14) 66 (23)
Total income tax expense $ 974 1,831 1,680
Effective tax rate 42.2% 35.4% 33.6%
</TABLE>
(Dollars in thousands)
<PAGE>
Page - 27
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and liabilities at May 2, 1998
and May 3, 1997 are presented below:
<TABLE>
<S> <C> <C>
1998 1997
Deferred income tax assets:
Deposit liabilities $ 240 313
Allowance for doubtful accounts 173 163
Deferred compensation and other
employee related accruals 887 1,328
Post-retirement benefits other than pensions 6,451 6,485
Alternative minimum tax credit carryforward 4,158 4,602
State investment tax credit 829 617
Other 1,982 1,484
Gross deferred income tax assets 14,720 14,992
Valuation allowance for deferred income tax assets (472) (192)
Total deferred income tax assets 14,248 14,800
Deferred income tax liabilities:
Basis differential on leasing portfolio 16,903 17,934
Accelerated depreciation on plant and equipment 3,944 3,525
Returnable containers 341 739
Unrealized gains on investments 423 364
Other 617 267
Total deferred income tax liabilities 22,227 22,829
Net deferred income tax liabilities$ 7,980 8,029
</TABLE>
(Dollars in thousands)
Deferred income tax assets at May 2, 1998 include $4,158,000 of alternative
minimum tax (AMT) credits, which carry forward indefinitely, and $829,000 of
state investment tax credits, which will begin to expire in fiscal 2000 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 Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS 115).
<PAGE>
Page - 28
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Inventories
Inventories at May 2, 1998 and May 3, 1997 are summarized as follows:
<TABLE>
<S> <C> <C>
1998 1997
Finished goods $ 5,567 5,250
Goods in process 1,664 2,301
Raw materials, containers and packaging supplies 7,027 6,406
Total inventories $ 14,258 13,957
</TABLE>
(Dollars in thousands)
(6) Property, Plant and Equipment
Property, plant and equipment at May 2, 1998 and May 3, 1997 are
summarized as follows:
<TABLE>
<S> <C> <C>
1998 1997
Land and land improvements $ 1,175 1,175
Buildings 22,104 21,615
Machinery, equipment, furniture and fixtures 79,474 77,149
Returnable containers 12,573 11,299
Construction in process 2,585 795
Total property, plant and equipment 117,911 112,033
Less accumulated depreciation 84,600 79,047
Net property, plant and equipment $ 33,311 32,986
</TABLE>
(Dollars in thousands)
<PAGE>
Page - 29
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Leasing Activities
The Corporation's leasing activity is conducted by Cheyenne Leasing
Company, a joint venture that is 85% owned by Genesee Ventures, Inc.
Information pertaining to the Corporation's net investment in direct
financing leases and leveraged leases at May 2, 1998 and May 3, 1997
is presented below:
<TABLE>
<S> <C> <C>
1998 1997
Direct Direct
Financing Leveraged Financing Leveraged
Minimum rentals receivable $ 3,248 755 2,873 1,073
Estimated unguaranteed residual
value of leased assets 1,125 37,320 1,011 35,489
Unearned and deferred income (590) (7,220) (575) (7,727)
Investment in leases 3,783 30,855 3,309 28,835
Investment in direct financing and leveraged leases 34,638 32,144
Deferred taxes arising from leases (16,903) (17,934)
Net after-tax investment in leases $ 17,735 14,210
</TABLE>
(Dollars in thousands)
The following is a schedule of minimum rentals receivable by year for
direct financing and leveraged leases at May 2, 1998:
Fiscal Year:
1999 $ 1,988
2000 971
2001 562
2002 328
2003 154
Total minimum rentals receivable $ 4,003
(Dollars in thousands)
<PAGE>
Page - 30
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) 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 / Depreciation Capital fiable
Fiscal Year Revenues (Loss) and Amortization Additions Assets
1998
Brewing $ 117,235 (5,446) 5,046 4,589 55,771
Food processing 33,876 2,237 1,239 1,157 25,461
Leasing and real estate 2,982 2,918 - - 43,505
Corporate and other - (397) - - 10,852
Total $ 154,093 (688) 6,285 5,746 135,589
1997
Brewing $ 127,074 (12) 4,637 7,674 58,139
Food processing 24,979 784 591 277 11,612
Leasing and real estate 2,490 2,428 - - 39,316
Corporate and other - (604) - - 27,862
Total $ 154,543 2,596 5,228 7,951 136,929
1996
Brewing $ 120,102 (1,289) 4,276 6,065 54,121
Food processing 20,890 682 481 708 11,613
Leasing and real estate 2,116 2,046 - - 37,925
Corporate and other - (539) - - 30,376
Total $ 143,108 900 4,757 6,773 134,035
</TABLE>
(Dollars in thousands)
<PAGE>
Page - 31
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Supplemental Cash Flow Information
Cash paid for taxes was $1,504,000, $1,429,000 and $693,000 in fiscal 1998,
Fiscal 1997 and fiscal 1996 respectively; cash paid for interest on
debt of consolidated real estate limited partnerships was $75,000 in
fiscal 1996, and there were no payments in fiscal 1998 or 1997.
(10) Real Estate Investments
During the second quarter of fiscal 1998, the Corporation and its partners
finalized negotiations with a new lender to refinance the mortgage on a
Rochester New York office building. The new financing package includes a
$31.5 million first mortgage loan obtained on a non-recourse basis and a
$5.5 million term loan which is secured, in part, by a 50% limited
guarantee from the Corporation. The Corporation's exposure under the
guarantee is capped at $2.75 million.
The building has an appraised value in excess of the total debt against it.
In addition, the other partners in the project have provided the
Corporation with collateral to secure the Corporation's obligation under
its guarantee of the term loan.
(11) Shareholders' Equity
A summary of changes in and balances of additional paid-in capital,
treasury stock and unrealized (loss) and gains on marketable securities as
of and for the three fiscal years ended April 30, 1996, May 3, 1997 and May
2, 1998 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, 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
Net change in unrealized gain
on marketable securities - - - 104
Stock bonus issued 8 (852) 30 -
Balances at May 2, 1998 $ 5,842 98,682 $(3,475) $ 752
</TABLE>
(Dollars in thousands)
<PAGE>
Page - 32
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) 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. These 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, 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
Forfeited (3,000) 40.87
Outstanding at May 3, 1997 108,500 42.46
Granted 38,000 45.48
Expired (21,500) 46.72
Outstanding at May 2, 1998 125,000 42.63
</TABLE>
Common stock reserved for options and employee awards totaled 126,339
shares as of May 2, 1998 and 110,691 shares as of May 3, 1997.
<PAGE>
Page - 33
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) 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 basic and diluted earnings per
share for the fiscal years ended May 2, 1998, May 3, 1997 and April 30,
1996 would have been reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C> <C>
Reported Pro Forma
Earnings Earnings
1998
Net income $ 1,335 1,070
Basic earnings per share .83 .66
Diluted earnings per share .82 .66
1997
Net income 3,346 3,114
Basic earnings per share 2.07 1.93
Diluted earnings per share 2.06 1.92
1996
Net income 3,321 3,272
Basic earnings per share 2.06 2.03
Diluted earnings per share 2.05 2.02
</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 18.2%, 16.1% and 17.6% in fiscal 1998,
fiscal 1997 and fiscal 1996, respectively, expected dividend yield of 4.1%
and risk-free interest rates of 6.08%, 6.45% and 5.83% in fiscal 1998,
fiscal 1997 and fiscal 1996, respectively. The weighted average fair value
of stock options granted was $6.97 in fiscal 1998, $6.66 in fiscal 1997 and
$6.95 in fiscal 1996.
<PAGE>
Page - 34
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stock Option and Bonus Plans (continued)
The following table summarizes information about stock options outstanding
and exercisable at May 2, 1998:
<TABLE>
<S> <C> <C> <C> <C>
Range of Number Weighted Average Weighted
Exercise Outstanding at Contractual Life Average
Prices Per May 2, 1998 in Years Exercise Price
Share
$34.00 - 39.00 22,000 .6 $ 36.26
39.00 - 44.00 30,750 1.9 39.68
44.00 - 50.00 72,250 3.7 45.83
$34.00 - 50.00 125,000 2.7 $ 42.63
</TABLE>
(13) Earnings Per Share
The computation of earnings per share for the years ended May 2, 1998, May
3, 1997 and April 30, 1996 is based on the following:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Net income (in thousands) $ 1,335 3,346 3,321
Basic earnings per share .83 2.07 2.06
Diluted earnings per share .82 2.06 2.05
Weighted average common shares outstanding 1,617,962 1,617,102 1,610,968
Weighted average and common equivalent shares 1,622,069 1,622,008 1,618,730
</TABLE>
(14) 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
non-bargaining health care costs is limited to twice its fiscal 1993 cost,
with the Corporation sharing future health care cost increases equally with
non-bargaining 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.
<PAGE>
Page - 35
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Post-retirement Benefits (continued)
The following table presents the plan's funded status reconciled with
amounts recognized in the Corporation's consolidated balance sheet at May
2, 1998 and May 3,1997:
<TABLE>
<S> <C> <C>
1998 1997
Accumulated post-retirement benefit obligation:
Retirees $ 6,136 6,035
Fully eligible active plan participants 1,063 966
Other active plan participants 4,470 3,699
11,669 10,700
Unrecognized net gain from past experience
different from that assumed 1,764 2,468
Prior service benefit not yet recognized in net
periodic post-retirement benefit cost 2,694 3,043
Accrued post-retirement benefit cost
included in the balance sheets $ 16,127 16,211
</TABLE>
(Dollars in thousands)
Net periodic post-retirement benefit cost for fiscal years ended May 2,
1998, May 3, 1997 and April 30, 1996 includes the following components:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
Service cost $ 226 247 173
Interest cost 845 849 805
Net amortization and deferral (443) (349) (464)
Net periodic post-retirement benefit cost $ 628 747 514
</TABLE>
(Dollars in thousands)
For measurement purposes, a 8.5% annual rate of increase in the per capita
cost of covered benefits was assumed for fiscal 1998, 7.5% for fiscal 1997,
decreasing gradually to 5.5% by fiscal 2002 and remaining at that level
thereafter. The long-term rate for compensation increases for
non-bargaining employees is assumed to be 4% for each year. The weighted
average discount rate used in determining the accumulated post-retirement
benefit obligation was 7.5% at April 30, 1996, 8.2% at May 3, 1997 and 7.0%
at May 2, 1998.
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 2, 1998 nor on the net
periodic post-retirement benefit expense for 1998.
<PAGE>
Page - 36
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) 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 ($853,000 in fiscal 1998, $879,000 in fiscal 1997 and $815,000
in fiscal 1996).
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 ($1,292,000 in fiscal 1998, $1,289,000 in fiscal 1997
and $1,217,000 in fiscal 1996).
(16) Subsequent Event
On July 20, 1998, the Corporation entered into an agreement to acquire 100%
of the stock of TKI Foods, Inc., a privately held, Illinois-based food
manufacturer. At the same time, the Corporation also entered into an
agreement to acquire certain assets of Spectrum Foods, Inc. (a sister
company of TKI). TKI's primary product line consists of private label
artificial sweeteners; Spectrum Foods' primary product line consists of
private label sauces. The total acquisition price for TKI and Spectrum
Foods will be approximately $20 million, which the Corporation expects to
fund through both internal and external sources.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable
<PAGE>
Page - 37
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
William J. Hoot, former President and director of the Corporation, retired as a
director in October 1997 and was named to the honorary position of Director
Emeritus, in which capacity he is invited to attend meetings of the Board of
Directors, but he has no authority to vote or otherwise direct or manage the
business or affairs of the Corporation.
<TABLE>
<S> <C> <C> <C>
Expiration
Director Position and Principal Occupation of Term
Name and Age Since for the Last Five Years in Office
Stephen B. Ashley (58) 1987 Chairman and Chief Executive 1999
Officer of The Ashley Group (1)
William A. Buckingham (55) 1992 Retired; formerly Executive Vice 1998
President of First Empire State
Corporation and Manufacturers and
Traders Trust Company (2)
Thomas E. Clement (65) 1970 Partner - Nixon, Hargrave, Devans 1999
& Doyle, Attorneys
Gary C. Geminn (55) 1986 Senior Vice President Operations 2000
of Genesee Brewing
Samuel T. Hubbard, Jr. (48) 1992 President and Chief Executive 1998
Officer of The Alling & Cory
Company (3)
Robert N. Latella (55) 1986 Executive Vice President and 1998
Chief Operating Officer of the
Corporation
Richard P. Miller, Jr. (55) 1987 Senior Vice President and Chief 2000
Operating Officer of the
University of Rochester (4)
John D. Reifenrath (70) 1982 Retired; formerly Senior Vice 1998
President - Marketing of Genesee
Brewing Company (5)
Charles S. Wehle (50) 1976 Senior Vice President of the 2000
Corporation (6)
John L. Wehle, Jr. (52) 1976 Chairman of the Board, President 1999
the Corporation (7)
</TABLE>
<PAGE>
Page - 38
(1) Mr. Ashley has been Chairman and Chief 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 and Exeter 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 & 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 Corporation.
(4) Mr. Miller is also a Director of Frontier Telephone of Rochester.
(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. 52 1970 Chairman of the Board, President and
Chief Executive Officer (1)
Robert N. Latella 55 1986 Executive Vice President and Chief Operating
Officer (2)
Charles S. Wehle 50 1988 Senior Vice President (3)
Gary C. Geminn 55 1985 Senior Vice President - Operations of
Genesee Brewing Company (4)
Karl D. Simonson 55 1994 Vice President - Planning & Development (5)
Simonson
William A. Neilson 47 1986 Vice President - Human Resources (6)
Mark W. Leunig 43 1988 Vice President, Secretary and General Counsel (7)
Edward J. Rompala 38 1989 Vice President, Finance and Treasurer (8)
Michael C. Atseff 42 1992 Controller (9)
</TABLE>
<PAGE>
Page - 39
(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. C. S. 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 was elected Senior Vice President Operations of Genesee Brewing
Company in November 1997. Prior to that, he served as Vice President -
Production of Genesee Brewing Company, a position he held 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 Finance of the Corporation and
Genesee Brewing Company in October 1997. Prior to that, he was a Vice
President of the Corporation and Genesee Brewing Company, positions he had
held since 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 2, 1998.
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
<PAGE>
Page - 40
of the Corporation whose total annual salary and bonus for the fiscal year
ended May 2, 1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Other
Annual Restricted All Other
Name and Compen- Stock Stock Compensa-
Principal Position Fiscal Year Salary($) Bonus($) sation($) Awards($)(5) Options(#) tion($)
John L.Wehle, Jr., 1998 $ 347,126 $ 2,570 (1) $ 1,285 0 5,000 $ 39,903(6)
Chairman of the 1997 337,016 3,180 (3) 1,590 0 5,000 52,337
Board, President, 1996 327,200 64,609 (4) 1,811 0 0 60,135
Chief Executive
Officer
Robert N. Latella, 1998 236,334 64,939 (2) 1,285 0 4,000 29,160(7)
Executive Vice 1997 229,450 3,180 (3) 1,590 0 4,000 36,226
President, Chief 1996 222,767 45,701 (4) 1,811 0 0 42,393
Operating Officer
Charles S. Wehle, 1998 204,500 1,928 (1) 964 0 4,000 23,992(8)
Senior Vice 1997 192,500 2,385 (3) 1,193 0 3,000 29,129
President 1996 163,375 35,008 (4) 1,358 0 0 25,448
Karl D. Simonson, 1998 121,650 16,354 (2) 884 0 2,000 14,931(9)
Vice President - 1997 112,475 2,186 (3) 1,093 0 1,500 16,979
Planning & 1996 106,251 14,972 (4) 1,245 0 0 16,784
Development
Mark W. Leunig, 1998 107,697 14,944 (2) 884 0 1,500 11,717(10)
Vice President, 1997 100,052 2,186 (3) 1,093 0 1,500 13,713
General Counsel 1996 97,138 10,196 (4) 1,245 0 0 14,801
and Secretary
</TABLE>
(1) Amounts reflect stock bonuses earned during fiscal 1998 under the
Corporation's 1992 Stock Plan, which were paid to the named executive
officer in June 1998.
(2) Amounts reflect cash and stock bonuses earned during fiscal 1998 under
the Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan, which
were paid to the named executive officer in June 1998.
(3) Amounts reflect cash and stock bonuses earned during fiscal 1997 under
the Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan, which
were paid to the named executive officer in June 1997.
(4) 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.
(5) As of May 2, 1998, the aggregate number of shares and corresponding
value of restricted stock held by each of the named individuals was as
follows: 125 shares valued at $4,776 held by each of Mr. J. L. Wehle,
Jr. and Mr. Latella; 95 shares valued at $3,632 held by Mr. C. S.
Wehle; and 85 shares
<PAGE>
Page - 41
valued at $3,247 held by each of Mr. Leunig and Mr. Simonson. No
dividends are paid on the restricted stock.
(6) Amount reflects $16,400 contribution under the Corporation's Profit
Sharing Retirement Plan, $20,335 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.
(7) Amount reflects $16,400 contribution under the Corporation's Profit
Sharing Retirement Plan, $9,052 contribution under the Corporation's
Benefit Restoration Plan and $3,708 in premiums paid by the
Corporation on life insurance policies for the benefit of Mr. Latella.
(8) Amount reflects $16,400 contribution under the Corporation's Profit
Sharing Retirement Plan, $5,576 contribution under the Corporation's
Benefit Restoration Plan and $2,016 in premiums paid by the
Corporation on life insurance policies for the benefit of Mr. C. S.
Wehle.
(9) Amount reflects $13,338 contribution under the Corporation's Profit
Sharing Retirement Plan and $1,593 in premiums paid by the Corporation
on life insurance policies for the benefit of Mr. Simonson.
(10) Amount reflects $11,407 contribution under the Corporation's Profit
Sharing Retirement Plan and $310 in premiums paid by the Corporation
on life insurance policies for the benefit of Mr. Leunig.
(b) The table below sets forth information about options granted to the
named executive officers during the Corporation's fiscal year ended May 2, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Potential Realizable
Individual Grants Value at Assumed
% of Total Annual Rates of Stock
Options Price Appreciation for
Options Granted to Option Term (2)
Granted Employees in Exercise Price Expiration
Name (#)(1) Fiscal Year ($/SH) Date 5% ($) 10% ($)
John L. Wehle, Jr. 5,000 15.6% $48.62 8/14/02 $38,958 $112,823
Robert N. Latella 4,000 12.5% $44.20 8/14/02 $48,847 $107,938
Charles S. Wehle 4,000 12.5% $48.62 8/14/02 $31,167 $ 90,258
Karl D. Simonson 2,000 6.3% $44.20 8/14/02 $24.423 $ 53,969
Mark W. Leunig 1,500 4.7% $44.20 8/14/02 $18,317 $ 40,477
</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 2, 1998; and the aggregate number and value
of options held by the named executive officer at the end of the fiscal year:
<PAGE>
Page - 42
<TABLE>
<S>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<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 $ Exercis- Unexercis- Exercis- Unexercis-
Name Exercise Realized able able able able
John L. Wehle, Jr. 0 0 18,000 0 $ 0 0
Robert N. Latella 0 0 14,500 0 7,675 0
Charles S. Wehle 0 0 11,500 0 0 0
Karl D. Simonson 0 0 7,000 0 6,140 0
Mark W. Leunig 0 0 5,500 0 3,070 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, and William J. Hoot as Director
Emeritus, 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, William A. Buckingham, Thomas E. Clement and William J. Hoot served
during the fiscal year ended May 2, 1998 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; he retired from the Board of
Directors in October 1997 and was named to the honorary position of Director
Emeritus of the Corporation. See description of relationship with Mr. Clement at
Item 13.
<PAGE>
Page - 43
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 17, 1998,
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>
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. 41,957 (2) 20.0%
Wehle
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 17, 1998, 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 17, 1998 by each director and by all
directors and officers as a group are set forth in the following table:
<PAGE>
Page - 44
<TABLE>
<S> <C> <C> <C> <C>
Shares of Percentage Of Shares of Percentage Of
Name of Director Class A Class A Class B Class B
or Executive Officer Common Stock Common Stock Common Stock Common Stock
John L. Wehle, Jr. 127,947 (1) 61.0% 98,078 (3)(4) 6.9%
Robert N. Latella 604 (15) 19,355 (7) 1.4%
Gary C. Geminn NONE -- 10,124 (8) (15)
John D. Reifenrath NONE -- 3,000 (9) (15)
Charles S. Wehle (2) (2) 16,265 (10) 1.1%
Thomas E. Clement NONE -- 4,104 (4)(11) (15)
Stephen B. Ashley NONE -- 4,200 (12) (15)
Richard P. Miller NONE -- 4,100 (13) (15)
Karl D. Simonson NONE -- 7,245 (14) (15)
William A. Buckingham 240 (15) 4,000 (4)(9) (15)
Samuel T. Hubbard, Jr. NONE -- 4,000 (9) (15)
All Directors and 128,816 61.4% 195,626 13.1%
Executive Officers as a
group (15 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 Chairman of the
Board of Trustees 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 355 shares owned individually and 20,000 shares
which may be acquired pursuant to presently exercisable stock
options.
(7) Includes 3,355 shares owned individually and 16,000 shares
which may be acquired pursuant to presently exercisable stock
options.
(8) Includes 2,124 shares owned individually and 8,000 shares
which may be acquired pursuant to presently exercisable stock
options.
(9) Shares which may be acquired pursuant to presently
exercisable stock options.
(10) Includes 2,265 shares owned individually, 14,000 shares
which may be acquired pursuant to presently exercisable stock
options.
<PAGE>
Page - 45
(11) Includes 104 shares owned individually and 4,000 shares which
may be acquired pursuant to presently exercisable stock
options.
(12) Includes 200 shares owned individually and 4,000 shares which
may be acquired pursuant to presently exercisable stock
options.
(13) Includes 100 shares owned by Mr. Miller's wife, the
beneficial ownership of which is disclaimed by Mr. Miller,
and 4,000 shares which may be acquired pursuant to presently
exercisable stock options.
(14) Includes 245 shares owned individually and 7,000 shares which
may be acquired pursuant to presently exercisable stock
options.
(15) 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 1998 performed legal services for the Corporation and
which the Corporation intends to retain to provide such services in fiscal year
1999.
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.
2. Exhibits:
See Exhibit Index at Page 49 of this report.
(b) Reports on Form 8-K.
The Corporation filed a report on Form 8-K on July
22, 1998 to report that the Corporation has
entered into agreements to acquire TKI Foods, Inc.
and Spectrum Foods, Inc.
<PAGE>
Page - 46
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.
July 29, 1998 By: /s/John L. Wehle, Jr.
(Date) John L. Wehle, Jr., Chairman, President
and Chief Executive Officer
July 27, 1998 By: /s/Edward J. Rompala
(Date) Edward J. Rompala, Vice President Finance
and Treasurer (Principal Financial Officer)
July 27, 1998 By: /s/Michael C. Atseff
(Date) Michael C. Atseff, Controller
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, 1998 Director
Stephen B. Ashley (Date)
/s/William A. Buckingham July 23, 1998 Director
William A. Buckingham (Date)
/s/Thomas E. Clement July 29, 1998 Director
Thomas E. Clement (Date)
/s/Gary C. Geminn July 22, 1998 Director
Gary C. Geminn (Date)
/s/Samuel T. Hubbard, Jr. July 22, 1998 Director
Samuel T. Hubbard, Jr. (Date)
/s/Robert N. Latella July 22, 1998 Director
Robert N. Latella (Date)
/s/Richard P. Miller, Jr. July 29, 1998 Director
Richard P. Miller, Jr. (Date)
<PAGE>
Page - 47
/s/John D. Reifenrath July 24, 1998 Director
John D. Reifenrath (Date)
/s/Charles S. Wehle July 23, 1998 Director
Charles S. Wehle (Date)
/s/John L. Wehle, Jr. July 29, 1998 Director
John L. Wehle, Jr. (Date)
<PAGE>
Page - 48
SCHEDULE II
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts
Years ended May 2, 1998, May 3, 1997 and April 30, 1996
<TABLE>
<S> <C> <C> <C> <C>
Balance at Additions Balance
beginning charged to cost at end
Description of period and expenses Deductions of period
(Dollars in Thousands)
1998
Allowance for doubtful
receivables $ 408 31 6 433
Allowance for loss on idle
plant and equipment 487 152 5 634
Allowance for obsolete
inventory 198 538 349 387
$1,093 721 360 1,454
1997
Allowance for doubtful $ 433 (27) (2) 408
receivables
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
</TABLE>
<PAGE>
Page - 49
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 to the
Corporation's report on Form 10-Q for the fiscal
quarter ended November 1, 1997). --
10-1 1986 Genesee Incentive Bonus Plan, as amended and 50
restated in 1997.
10-2 1992 Stock Plan as amended in 1994 (incorporated by --
reference 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 Plan. 59
10-4 Agreement with John L. Wehle, Jr. dated August 29, --
1994 (incorporated by reference to Exhibit 10-5 to the
Corporation'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 --
Compensation Plans (incorporated by reference to
Exhibit 10-7 to the Corporation's report on Form 10-K
for the fiscal year ended May 3, 1997).
21 Subsidiaries of the Registrant 63
<PAGE>
Page - 50
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
Restated: January 1, 1996
Amendment and Restatement adopted by the Management
Continuity Committee: April 24, 1997, Effective May 4, 1997
Amendment and Restatement ratified by the Board of
Directors: June 12, 1997
<PAGE>
Page - 51
GENESEE CORPORATION
1986 INCENTIVE BONUS PLAN
Section 1 Purpose
This Plan is intended to further the attainment of the Corporation'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 Corporation'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) "Corporation" shall mean Genesee Corporation and its Subsidiaries, and
their successors and assigns.
(B) "Brewery" shall mean The Genesee Brewing Company, Inc., its
subsidiaries and their successors and assigns.
(C) "Base Salary" for any Award Year shall mean the regular annualized
salary rate of a Participant effective as of August 1 of such Award
Year.
(D) "Plan" shall mean this 1986 Incentive Bonus Plan in its entirety,
including any amendments thereof and any rules and regulations adopted
pursuant hereto.
(E) "Committee" shall mean the Management Continuity Committee of the
Board of Directors of the Corporation (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.
(F) "Eligible Employee" shall mean any employee of the Corporation who is
a member of a select group of management employees and who, upon the
recommendations of management of the Corporation and in the opinion of
the Committee, is in a position to have a direct and significant
impact on achieving the Corporation's long-term profit and growth
objectives.
(G) "Participant" shall mean an Eligible Employee to whom an incentive
bonus award may be made under the Plan.
(H) "Corporation Pre-Tax Income" shall mean the consolidated income of the
Corporation for a 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 Corporation Pre-Tax Income.
(I) "Brewery Operating Income" shall mean the consolidated income of the
Brewery for a fiscal year before extraordinary items, before
provisions for federal, state or other taxes on income, and before
interest income and "other income/ (expense)", as a result of normal
operations of the Brewery. Such normal operations include the sale of
malt beverages and attendant items (e.g., POS, by-products, scrap,
malt, etc.) and sales and marketing, manufacturing, or distribution
services provided as a means to leverage the Brewery's tangible or
intangible assets, including
<PAGE>
Page - 52
sales of malt beverages brewed and/or packaged pursuant to contract
arrangements for others. Brewery Operating Income shall be as set
forth on the Brewery's internal financial statements, applied on a
consistent basis, except that, for purposes of the Plan, accruals or
payments made pursuant to the Plan shall be excluded from the
calculation of Brewery Operating Income.
(J) "Non-Brewery Pre-Tax Income" shall mean Corporation Pre-Tax Income
less Brewery Operating Income less any non-operating income or expense
item of the Brewery other than inter-company income or expense items.
For purposes of the Plan, accruals or payments made pursuant to the
Plan shall be excluded from expenses when calculating Non-Brewery
Pre-Tax Income.
(K) "Net Income" shall mean the consolidated net income of the Corporation
as shown on the Corporation's audited statement of earnings in any
applicable Award Year, before any cumulative effect of change in
accounting principle, whether income or expense, as may result from
adoption of new accounting rules and before any non-operating item
deemed to be truly extraordinary and non-recurring by the Committee in
its sole discretion.
(L) "Barrel Sales" shall mean the aggregate unit volume of sales of malt
beverages during a fiscal year of the Corporation, excluding sales of
malt beverages to Boston Brewing Company, expressed in terms of
barrels sold.
(M) "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.
(N) "Participating Corporation" means the Corporation and any Subsidiary
whose employees are eligible to participate in this plan.
(O) "Trustee" means the M & T Bank or any other trustee as may be
appointed by the Corporation.
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 is present) shall have the authority, in its sole discretion
and from time to time: (i) to designate Participants; (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 as defined in Section 4 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 Corporation) and other persons to assist or
render advice to it, all at the expense of
<PAGE>
Page - 53
the Corporation. 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 Corporation 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 Corporation, 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 or more
Eligible Employees (expressed in terms of percentages of Base Salary)
based upon the achievement of quantitative goals established in
respect of an Award Year for each of the performance measures
identified in Sections 2(H), 2(I),2(J), and 2(L) hereof (collectively
the "Performance Measures").
(B) There shall be three categories of Eligible Employees:
Category A:
Chief Executive Officer of the Corporation; Chief Operating Officer of
the Corporation; President of the Brewery; and such other senior
officers of the Corporation as the Committee may designate.
Category B:
All other officers of the Corporation as the Committee may designate;
and
Category C:
All other Eligible Employees
(C) The achievement of the goals established for the Performance Measures
shall result in the payment to Participants of cash bonuses (subject
to the provisions of Section 5(G) and Section 6 hereof). The
Committee, after receiving recommendations from the Chief Executive
Officer of the Corporation, shall establish three goal levels for each
Performance Measure in an Award Year: (1) Threshold, (2) Target and
(3) Maximum. In any case where the level achieved for any Performance
Measure exceeds the Target goal but is less than the Maximum goal, the
bonus to be paid shall be increased so as to be proportionate to the
difference between the two goals. Thus, for example, if the level of
Brewery Operating Income achieved is 50% of the difference between the
Target and the Maximum, the bonus to be paid shall be equal to the
percentage of Base Salary awarded for achieving the Target plus 50% of
the difference between that amount and the amount which would have
been paid if the Maximum goal for Brewery Operating Income had been
achieved.
(D) Bonuses for each category of Eligible Employees shall be calculated
based on the percentage of Base Salary set forth below for each of the
three categories identified in Section 5(B) hereof (the "Aggregate
Bonus Percentage").
Participant Aggregate Bonus Percentage
Category Threshold Target Maximum
---------------------------------------------------
A 15.0% 50% 87.5%
<PAGE>
Page - 54
B 10.0% 25% 40 %
C 5.0% 10% 17.5%
(E) When designating Participants, the Committee, after receiving
recommendations from the Chief Executive Officer of the Corporation,
shall designate each Participant as a "Corporate" Participant or a
"Brewery" Participant. Performance Measures shall be weighted for both
"Corporate" and "Brewery" Participants for purposes of allocating the
Aggregate Bonus Percentage among the applicable Performance Measures
as illustrated below:
Corporate Participants
Performance Measure Weighting
Participant Corporation Brewery Non-Brewery
Category Pre-Tax Income Operating Pre-Tax Income
Income
A, B, C 40% 30% 30%
Bonus Opportunity (%)
Participant Achievement Corporation Brewery Non-Brewery
Category Level Pre-Tax Operating Pre-Tax Total
Income Income Income
A Threshold 6 4.5 4.5 15
Target 20 15 15 50
Maximum 35 26.25 26.25 87.5
B Threshold 4 3 3 10
Target 10 7.5 7.5 25
Maximum 16 12 12 40
C Threshold 2 1.5 1.5 5
Target 4 3 3 10
Maximum 7 5.25 5.25 17.5
Brewery Participants
Performance Measure Weighting
Participant Brewery
Category Operating Barrel Sales
Income
----------------------------------------------
B, C 50% 50%
Bonus Opportunity (%)
Participant Achievement Brewery
Category Level Operating Barrel Sales Total
Income
-------------------------------------------------------------
B Threshold 5 5 10
Target 12.5 12.5 25
<PAGE>
Page - 55
Maximum 20 20 40
C Threshold 2.5 2.5 5
Target 5 5 10
Maximum 8.75 8.75 17.5
(F) In addition, the Chief Executive Officer of the Corporation, with
approval from the Committee, may make a "Discretionary Adjustment"(as
defined below) to any bonus award otherwise payable under the Plan or
a "Discretionary Award" (as defined below) when an award would not
otherwise be paid to a Participant under the Plan. Discretionary
Adjustments and Discretionary Awards shall be used only to award
exceptional performance by a Participant and it is anticipated that
such discretion will be exercised infrequently, particularly in the
case of Discretionary Awards.
(1) Discretionary Adjustment shall mean an adjustment up or down of up to
twenty-five percent (25%) of an award earned by the designated Participant under
the Plan. The amount of any Discretionary Adjustment shall be subject to pro
rata adjustment under Section 5(G) hereof.
(2) Discretionary Award: In the event that no bonus award is earned based
on the failure to achieve the Threshold goal for any of the Performance
Measures, a discretionary bonus award of up to fifty percent (50%) of the
Aggregate Bonus Percentage for the Target level may be paid to a designated
Participant. The limitations set forth in Section 5(G) hereof shall not apply to
a Discretionary Award.
(G) Awards under the Plan will be paid in full provided that the
Corporation would have Net Income of at least One Dollar in an Award
Year after full payment of all Awards. In the event that the
Corporation would not have Net Income of at least One Dollar after
full payment of all Awards, all Awards shall be reduced by a pro rata
amount sufficient to establish Net Income of One Dollar after payment
or accrual of the reduced awards. Except for Discretionary Awards
under Section 5(F) (2), no awards shall be paid under the Plan if the
Corporation does not have Net Income of at least One Dollar after
accounting for the payment or accrual of awards.
Section 6 Payment of Awards
Each Participant shall elect prior to the commencement of each Award Year
whether to receive all or part of any possible bonus award in cash. Unless a
written election is made to defer the award, payment of same will be made in
cash. Cash payments shall be made as soon as practicable after the Corporation
has made the necessary calculations, and all payments shall be subject to the
withholding of any required taxes.
Section 7 Deferral of Payment
Prior to the commencement of an Award Year, a Participant may elect to
defer payment of all or any portion of a bonus award by executing and delivering
to the Corporation a written deferral in form satisfactory to the Corporation.
The Committee reserves the right to determine a participant's eligibility to
defer an award in order to comply with applicable law. Bonus awards which are
deferred will be credited to an account ("Deferred Account") established by the
Corporation for each Participant and will be subject to such conditions as the
Committee may consider necessary to maintain an effective deferral.
(A) Investment of Deferred Amounts. The Participating Corporation of a
Participant shall have the ultimate obligation to pay out all deferred
amounts plus the earnings thereon in accordance with the terms of this
Plan.
<PAGE>
Page - 56
In order to meet the Participating Corporation's obligations under
this Plan, the Corporation may appoint a Trustee and direct such
Trustee to establish individual investment accounts for each
Participant. The Trustee shall be empowered to invest such accounts
and any earnings thereon in such investments (not to include
securities of the Trustee) as may be designated by the Committee. In
the event a Trustee is appointed to invest Participant accounts, the
Committee shall be responsible for directing how the accounts are to
be invested, taking into account Participant preferences. For this
purpose, a Participant may express a preference to the Committee how
he would prefer to have his accounts invested among the investment
choices made available from time to time by the Committee. A
Participant may also elect a preference for changing the investment of
his or her account as frequently as the Committee in its sole
discretion may permit. All such preferences shall be made pursuant to
such procedures as the Committee shall adopt. If no Trustee is
appointed, the Committee shall establish bookkeeping accounts and
credit earnings to such accounts in accordance with such investment
benchmarks it may establish from time to time.
(B) Rollover of Other Deferred Compensation Accounts. The Committee in its
sole discretion may direct the transfer of amounts deferred by a
Participant under another unfunded deferred compensation plan of a
Participating Corporation to the Participant's account under this
Plan. Such transfer shall be made only for the purpose of commonly
investing the deferred amounts under a single trust agreement. Any
such transfer of assets shall be permitted only to the extent that the
assets are of a type in which the Trustee can invest under this Plan.
No transfer of assets shall change the terms of any deferred
compensation election made by the Participant with respect to such
transferred assets. However, to the extent consistent with any
election on the other unfunded deferred compensation arrangement's
election form, the terms of this Plan and its associated trust
agreement shall govern such transferred amounts.
(C) Limitations on Assignment of Benefits. The Corporation's purpose in
creating a separate trust account is to provide comfort to
Participants that the deferred amounts will be available to pay
benefits when due. However, each eligible Participant's account in
such trust shall be subject to the claims of his or her Participating
Corporation's creditors in the event of the Participating
Corporation's insolvency or bankruptcy as provided in the trust
agreement. Notwithstanding the foregoing, the benefits payable under
this Plan shall not revert to a Participating Corporation or be
subject to the Participating Corporation's creditors prior to
insolvency or bankruptcy, nor shall they be subject in any way to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind by the
Participant, his beneficiary or the creditors of either, including any
such liability as may arise from the Participant's bankruptcy.
(D) Unfunded Nature of Plan. Notwithstanding any investment arrangements
that may be established, it is intended that this Plan shall be
treated as an unfunded plan of deferred compensation as this term is
used in Title I of ERISA and it shall be administered accordingly.
(E) Timing and Form of Benefit Payments. The amounts accumulated in a
Participant's account shall be paid in full or shall commence within
30 days of termination of employment. Account balances may be made in
cash or in property in either a lump sum or in monthly installment
payments of substantially equal amounts for a specified number of
years not in excess of five. The election of the form of payment shall
be made initially at the time a Participant commences participation in
the Plan. The form of payment may be changed by a Participant's
written election to the Committee at any time up to 36 months prior to
termination of employment. Any change made within 36 months of a
Participant's termination date shall be disregarded by the Committee.
If no valid election is on file with the Committee, benefits shall be
paid in a lump sum amount within 30 days of termination of employment.
(F) Death Benefits. In the event of a Participant's death, his account
balance shall be payable to his designated beneficiary which may be a
natural person, a trust or an estate. A Participant shall designate
his beneficiary in writing on a form acceptable to the Committee. All
death benefit
<PAGE>
Page - 57
payments shall be made in a lump sum amount. The filing of any
beneficiary designation form shall have the effect of automatically
revoking any beneficiary designation form filed previously. The
consent of a previously-designated beneficiary shall not be a
prerequisite for a Participant to file a new beneficiary designation
form.
All death benefits shall be made in a lump sum payment as soon as
administratively practicable following the date of the Participant's
death. If a beneficiary is not validly designated , or is not living
or cannot be found at the date of payment, any amount payable pursuant
to this Plan shall be paid to the spouse of the Participant if living
at the time of payment, otherwise in equal shares to such children of
the Participant as may be living at the time of payment; provided,
however, that if there is no surviving spouse or child at the time of
payment, such payment will be made to the estate of the Participant.
(G) Hardship Withdrawals. Notwithstanding the payment terms set forth
above, benefits may be paid prior to termination in the case of an
unforeseeable emergency. For this purpose, an unforeseeable emergency
means an unanticipated emergency that is caused by an event beyond the
control of the Participant or the Participant's beneficiary and that
would result in severe financial hardship to the affected individual
if early withdrawal were not permitted. The amount that may be paid
under this section is limited to the amount necessary to meet the
emergency.
(H) Source of Benefit Payments. Subject to the claims of a Participating
Corporation's creditors, the Trustee shall pay benefits in accordance
with the Committee's directions. If the Trustee holds insufficient
funds to pay the deferred amounts, adjusted for the earnings (and
losses) on them, each Participating Corporation shall have the
obligation to pay such amounts to its Participants. Such payments
shall be made from the general assets of the Participating
Corporation.
Section 8 Termination of Employment
Except as is herein provided, a Participant must continue in the employ of
the Corporation through the conclusion of the Award Year in order to be eligible
for payment of a bonus award. If a Participant terminates employment for any
reason other than as provided in the next paragraph, the current year's
incentive bonus will be forfeited. Awards earned by terminated Participants will
be paid at the same time as awards are paid to active Participants.
In the event a Participant's employment terminates prior to the end of the
Award Year because of normal retirement on or after age 62, disability under the
Corporation'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 9 Amendment and Termination
(A) Corporation's Authority. While it intends to maintain this Plan for as
long as necessary to achieve its purposes, the Corporation reserves
the right to amend or to terminate the Plan at any time for whatever
reason it may deem appropriate. No Plan amendment shall accelerate the
payment of amounts previously deferred or provide for additional
benefits.
(B) Participating Corporation Obligations for Benefits. Notwithstanding
the preceding paragraph, the Participating Corporation hereby make a
contractual commitment to pay to their respective participating
Employees the benefits accrued under this Plan to the extent they are
financially capable of meeting such obligations.
<PAGE>
Page - 58
Section 10 Reorganization
In the event that Genesee Corporation ("Genesee") is merged or consolidated
with another corporation and Genesee is 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 11 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 12 Effective Date
The Plan shall be effective as of May 1, 1986. The effective date of this
restatement is the first day of the 1997-98 Award Year.
Section 13 Miscellaneous
(A) 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.
(B) The selection of an Eligible Employee as a Participant for an award
shall not constitute a contract of employment between the Participant
and a Participating Corporation or otherwise entitle the Participant
to remain in the employ of the Corporation.
(C) Taxes. All contributions to the Plan and all participants from the
Plan, whether made by a Participating Corporation or the Trustee,
shall be subject to all taxes required to be withheld under applicable
laws and regulation of any governmental authorities.
(D) This Plan shall be interpreted and enforced in accordance with the
laws of the State of New York.
In Witness Whereof, the Corporation has caused this Plan document to be
executed by its duly authorized officer as of the 24th day of April 1997.
GENESEE CORPORATION
BY: s/Robert N. Latella
TITLE: Executive Vice President and COO
<PAGE>
Page - 59
Exhibit 10-3
GENESEE CORPORATION
STOCK BONUS INCENTIVE PROGRAM
Adopted Under the
1992 Stock Plan
Section 1. Purpose
This Program is intended to further the attainment of the Company's
long-term profit and growth objectives by (i) providing incentive to achieve
such objectives to those key executives whose management and individual
performance have a direct impact thereon, (ii) making awards for achieving such
objectives in the form of Common Stock of the Company in order to identify most
closely the interests of such executives with the interests of the shareholders
of the Company, and (iii) encouraging participating executives to hold stock
awards for long term investment.
Section 2. Definitions
When used herein, the terms defined in Section 2 of the Genesee Corporation
1986 Incentive Bonus Plan, as heretofore or hereafter amended ("Bonus Plan")
shall have the same meanings.
Section 3. Applicability of 1992 Stock Plan
Any award of shares of the Common Stock ("Stock) of the Company made under
this Program shall be deemed to have been made pursuant to the provisions of the
Genesee Corporation1992 Stock Plan, as heretofore or hereafter amended ("Stock
Plan") The terms of the Stock Plan shall be applicable to this Program, except
for those terms intended to be applicable only to stock options.
Section 4. Administration
(A) The Program 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 is present) shall have the authority, in its sole discretion and from
time to time: (i) to designate the employees or classes of employees eligible to
participate in the Program; (ii) to grant awards under the Program in such
amounts 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 Program, to adopt, amend and rescind rules
and regulations relating to the Program, and to make all other determinations
and take all other actions necessary or advisable for the implementation and
administration of the Program.
(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,
other corporate transactions and other elements of or factors influencing the
calculation do
<PAGE>
Page - 60
not distort or affect the operation of the Program in a manner inconsistent
with the achievement of its purposes.
(C) The decisions and determinations of the Committee on all matters
relating to the Program shall be final, conclusive, and binding upon all
parties. In administering the Program 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 Program or any award thereunder.
Section 5. Awards
(A) Prior to July 31 of a fiscal year of the Company ('an Award Year"), the
Committee shall determine (i) the employees of the Company who shall be eligible
for awards under the Program in respect of that Award Year, (ii) the
quantitative Company performance targets which must be met in such Award Year
before any awards may be made, and (iii) the maximum number of shares of Stock
which may be awarded in respect of such Award Year in the aggregate and to each
such employee. Targets may, but need not be, the same targets that are
established in respect of the relevant Award Year under the Bonus Plan.
(B) If the targets theretofore established by the Committee have been met,
the Committee may, in its sole discretion and within the limits theretofore
established by it (taking into account the recommendations of the Chief
Executive Officer and the Chairman of the Board), make awards of Stock of the
Company to participants in the Program. Such awards shall be made, if at all,
promptly after (i) the achievement of targets for the Award Year has been
determined and (ii) the Committee has taken action with respect to the award of
discretionary cash bonuses under the Bonus Plan in respect of the same Award
Year.
(C) Awards will be made in Class B Common Stock.
Section 6. Restrictions
Of each award made pursuant to this Program, payment shall be made as
follows: 20% promptly after the award is made by the Committee ("Award Date") ,
and 20% on each of the next four anniversaries of the Award Date (the "Award
Period"). The payout of an award on each anniversary date is subject to the
awardee continuing in the employ of the Company from the Award Date through such
anniversary date. In the event, therefore, an awardee's employment terminates
prior to any such anniversary date for any reason other than death, normal
retirement on or after age 62 or disability under the Company's long term
disability policy, any portion of an award not then paid out shall be forfeited;
and, in the case of death, normal retirement or disability under the Company's
long term disability policy, the unpaid portion of any award shall be deemed to
have been earned and shall be paid out either immediately or on the remaining
anniversary dates as if the awardee had remained in the employ of the Company,
as the Committee may in its sole discretion determine.
Section 7. Change in Control
(A) A "Change in Control" shall be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (a)
Genesee Corporation (for purposes of this Section 7, "Employer") or (b) any
corporation owned, directly or indirectly, by the Employer or the shareholders
of the Employer in substantially the same proportions as their ownership of
<PAGE>
Page - 61
stock of the Employer), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Employer representing 20% or more of the combined voting power of the Employer's
then outstanding securities (provided, however, that none of John L. Wehle, any
direct descendant of John L. Wehle, the trust established under the will of
Louis A. Wehle and any trustee thereunder shall be a "person" for purposes of
this Section 7);
(ii) during any period of two consecutive years, there is elected 20% or
more of the members of the Board of Directors of Employer without the approval
of the nomination of such members by a majority of that portion of the Board
consisting of members who were serving at the beginning of the two-year period;
(iii)the shareholders of the Employer approve a merger or consolidation of
the Employer with any other corporation, other than (a) a merger or
consolidation which would result in the voting securities of the Employer
outstanding immediately prior thereto continuing to represent more than 80% of
the combined voting power of the voting securities of the Employer, or such
surviving entity, outstanding immediately after such merger or consolidation; or
(b) a merger or consolidation effected to implement a recapitalization of the
Employer (or similar transaction) in which no "person" (as defined above)
acquires more than 20% of the combined voting power of the Employer's
then-outstanding securities; or
(iv) the shareholders of the Employer approve an agreement for the sale or
disposition by the Employer of all or substantially all of the Employer's
assets.
(B) In the event of a Change In Control, all awards theretofore made and
then outstanding but not yet vested shall immediately be paid in full as if the
awardee had remained in the employ of the Company throughout the Award Period.
Section 8. Additional Bonus.
At the time when an awardee incurs taxable income with respect to an award
of Stock under this Program, the Company shall make an additional payment (which
shall be immediately withheld) to the awardee in an amount which will equal
one-half of the amount of the income incurred due to the award.
Section 9. Amendment or Termination.
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 this Program.
Section 10. 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 Program after the commencement of an
Award Year.
Section 11. Effective Date
The Program shall be effective as of March 5, 1992. The first Award Year of
the Company in respect of which awards may be made is the fiscal year ending
April 30, 1993.
<PAGE>
Page - 62
Section 12. Miscellaneous
A) Prior to payment, no Program awards 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 Program shall limit a participant's right to receive, or to be
eligible for, any other compensation or benefits. However, awards, and payments
made under Section 8, 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.
(C) The selection of an employee as a participant for, or the granting of,
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) 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 Program awards or payments
under Section 8. Common stock representing awards not yet vested shall, however,
be retained by the Company as treasury stock until such time as it is
deliverable to participants in accordance with the terms of this Program. No
participant in the Program or other person shall have under any circumstances
any interest whatever in any particular property or assets of the Company.
Adopted By the Board of Directors of Genesee
Corporation on March 5, 1992.
s/Mark W. Leunig
Mark W. Leunig
Secretary
<PAGE>
Page - 63
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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-02-1998
<PERIOD-END> MAY-02-1998
<CASH> 2,692
<SECURITIES> 17,808
<RECEIVABLES> 10,596
<ALLOWANCES> 433
<INVENTORY> 14,258
<CURRENT-ASSETS> 46,919
<PP&E> 117,911
<DEPRECIATION> 84,600
<TOTAL-ASSETS> 135,589
<CURRENT-LIABILITIES> 18,061
<BONDS> 0
<COMMON> 858
0
0
<OTHER-SE> 89,262
<TOTAL-LIABILITY-AND-EQUITY> 135,589
<SALES> 186,359
<TOTAL-REVENUES> 186,359
<CGS> 118,435
<TOTAL-COSTS> 32,266
<OTHER-EXPENSES> 36,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,309
<INCOME-TAX> 974
<INCOME-CONTINUING> 1,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,335
<EPS-PRIMARY> 0.83
<EPS-DILUTED> 0.82
</TABLE>
