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Index to Exhibits
at Page 55
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 1, 1999
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 16, 1999 was $1,511,799.
The number of shares outstanding of each of the registrant's classes of common
stock as of July 16, 1999 was:
Number of Shares
Class Outstanding
Class A Common Stock (voting) 209,885
par value $.50 per share
Class B Common Stock (non-voting) 1,410,312
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 9 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 1, 1999, Genesee Brewing Company sold
approximately 1.6 million barrels of malt beverage products, a decrease of 12.5%
over the prior fiscal year. Sales generally are greater in the summer than in
the winter months.
Malt beverage products produced by Genesee Brewing Company are marketed
under the following trademarks: Genesee Beer, Genesee Light Beer, Genesee Cream
Ale, Genesee NA, Genny Ice Beer, Genny Red Lager, 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 40% of the Corporation's consolidated net
revenues in fiscal 1999 and 62% of barrel sales and 42% of consolidated net
revenues in fiscal 1998.
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 23% of the
Corporation's consolidated net revenues in fiscal 1999 and 23% of barrel sales
and 24% of consolidated net revenues in fiscal 1998.
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 1999, Genesee Brewing Company
produced approximately 242,000 barrels for Boston Beer Company. Sales to Boston
Beer Company accounted for 15% of Genesee Brewing Company's barrel sales and 5%
of the Corporation's consolidated net revenues in fiscal 1999 and 15% of barrel
sales and 6% of consolidated net revenues in 1998.
Except in Monroe County, New York, where Genesee Brewing Company sells its
products directly to retailers, beer and ale are sold to approximately 280
independent wholesale distributors. Through this distribution system, malt
beverages produced by Genesee Brewing Company are resold to retailers in
thirty-seven states and the Canadian province of Ontario. Sales to distributors
located in New York, Pennsylvania and Ohio accounted for approximately 74% of
Genesee Brewing Company's sales in fiscal 1999 and fiscal 1998.
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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 80% of the beer and ale sold in the United States in 1998. Genesee
Brewing Company's brands accounted for less than 1% of the beer sold in the
United States in 1998. Following the acquisition of Stroh Brewing Company by
Pabst Brewing Company in April 1999, Genesee Brewing Company's relative position
in the domestic brewing industry in terms of annual barrel sales is believed to
be fifth.
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% in
both fiscal 1999 and fiscal 1998.
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 several 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.
During the five-year period ended December 31, 1996, the craft/specialty
category grew at a compounded annual rate of almost 40%. Growth of the
craft/specialty category slowed dramatically in calendar 1997 and the
Corporation believes the category experienced a decline in volume in 1998. The
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large national brewers entered the category with craft-style products of their
own or by acquiring ownership interests in existing craft/specialty brewers. In
addition, the growing popularity of imported malt beverages indicates that
consumers willing to purchase higher priced beer are showing a preference for
imports at the expense of craft and specialty brands. These trends suggest that
the craft/specialty category may continue to decline and that competitive
pressures in the category will continue to increase. Reflecting these trends,
sales of the HighFalls brands declined 12% in fiscal 1999.
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 its sales
and marketing budgets by $3 million in fiscal 1999. In addition, Genesee Brewing
Company has postponed plans to expand distribution into additional states and is
proceeding more slowly with plans 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.
The challenges facing Genesee Brewing Company have caused the Corporation
to consider strategic alternatives to maximize the value of the Corporation's
brewing business. Management is exploring further opportunities to reduce costs,
improve efficiencies and rationalize the Corporation's brewing business. Genesee
Brewing Company is also seeking to attract additional contract brewing volume.
The contract with Boston Beer Company demonstrated Genesee Brewing Company's
ability to produce high quality specialty beer and similar opportunities may be
available as a result of the reduction in industry-wide brewing capacity
following the partial shutdown of the Stroh brewery network. Additional contract
brewing would improve Genesee Brewing Company's capacity utilization and bottom
line. The Corporation is also exploring long-term strategic alternatives for its
brewing business, acknowledging that the brewing industry has undergone
fundamental change during the past ten years and is now dominated by large,
global players whose resources dwarf those of regional brewers like Genesee
Brewing Company.
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 not under
any contractual obligation to limit purchases to these two suppliers.
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 decreased slightly in fiscal 1999
because of the economic recession in Japan and Asia which has reduced global
consumption.
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.
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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 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 1998 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 1999.
The price, quality and availability of agricultural ingredients for the
remainder of fiscal 2000 should be determined by climatic conditions during the
1999 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 1999, a surcharge of approximately
$272,000 was paid in addition to the normal sanitary and combined sewage charge
for the year of approximately $480,000.
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In fiscal 1999, Genesee Brewing Company 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 upgrades to achieve compliance with regulations governing the bulk
storage of such chemicals which become effective in December 1999. These
inspections indicated that the system will require upgrades and modifications
costing approximately $1.9 million to achieve compliance with the regulations
which will be incurred during fiscal 2000. Genesee Brewing Company has modified
certain operations to exempt portions of the system from the regulations,
eliminating approximately $500,000 of the estimated cost to achieve compliance.
Genesee Brewing Company is evaluating additional changes to the system, its
operating procedures and the chemicals used with the system to further reduce
the cost to achieve compliance with, or exempt the system from coverage under,
the new regulations.
Food Business. The Corporation's food business is conducted by its Foods
Division which consists of three wholly owned subsidiaries, Ontario Foods,
Incorporated, Freedom Foods, Inc. and TKI Foods, Inc. The Foods Division
produces a variety of dry food and beverage products, including side dishes,
bouillon cubes and powder, artificial sweeteners, soup mixes, iced tea mixes,
instant beverage mixes and hot cocoa.
In furtherance of the Corporation's strategy for its Foods Division, the
Corporation acquired Freedom Foods, Inc. in May 1997 and during fiscal 1998
moved its operations from the Tampa, Florida area to Albion, New York, combining
them with Ontario Foods' operations. The Corporation acquired TKI Foods, Inc.
and certain assets of Spectrum Foods, Inc. (an affiliate of TKI Foods) in August
1998. TKI Foods is the nation's largest producer of private label artificial
sweeteners. Spectrum Foods produces private label sauces. TKI Foods and Spectrum
Foods had combined sales of approximately $21 million in calendar 1997. The
products produced by TKI Foods and Spectrum Foods 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 importance of the Corporation's Foods Division acquisition strategy was
demonstrated by the decline in sales and lower margins in fiscal 1999 for two of
the Foods Division's high volume products - side dishes and iced tea mix.
Prolonged price promotion by the leading side dish brand resulted in lower sales
and operating margins for the Foods Division's side dish line. An aggressive
effort by a large Canadian sugar refiner to displace the Foods Division's
private label iced tea mix resulted in a decline in revenues and margins on this
product line. These are normal competitive pressures that affect products in the
mature stage of their life cycle. The addition of bouillon and artificial
sweeteners to the Foods Division's product line have helped to offset lower
sales of its more mature products.
In October 1998, the Corporation purchased a 340,000 square foot production
facility in Medina, New York to house all Foods Division operations. Medina is
located approximately ten miles west of the Foods Division's current leased
facility in Albion, New York. The new facility should allow the Foods Division
to operate more efficiently by consolidating all existing operations at a single
location while retaining the loyal and experienced workforce currently employed
at the Albion facility. During fiscal 1999, the Foods Division moved the
majority of TKI Foods' operations from Springfield, Illinois to the new Medina
facility. The operations remaining in Springfield will be moved during fiscal
2000. The Foods Division's operations in Albion, New York will be moved to
Medina during fiscal 2000.
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.
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Private label sales represented 24.9% of the Corporation's consolidated net
revenues in fiscal 1999 and 19.5% of consolidated net revenues in fiscal 1998.
The Foods Division's proprietary brand labels are Thirst Quench'r, Taste of
the Alps, Sadano's, Golden Kettle, Freedom, Thin & Trim, Sweet 10, Sprinkle
Sweet and Superose. 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. As a result
of the TKI acquisition, the Foods Division also produces and packages a broad
range of products for a small number of large grocery distributors who in turn
sell to retail grocery chains and other food retailers. Contract packaging and
sales to grocery distributors accounted for 3.6% of the Corporation's
consolidated net revenues in fiscal 1999 and 2.5% 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.
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.
The challenges facing the Foods Division include the accelerating pace of
consolidation within the retail food industry. This consolidation is creating
bigger, more powerful store chains that have greater buying power, centralized
purchasing and larger geographic scope. One of the objectives of these
consolidations is to exercise greater control over chain store suppliers like
the Foods Division. To remain competitive, the Foods Division will need to
continue to lower its costs, aggressively expand its product lines and improve
the efficiency of its distribution network to serve the nationwide operations of
these large chains.
The Foods Division's business strategy is designed to meet these
challenges. With leadership in three major private label categories (side
dishes, bouillon and artificial sweeteners) and nationwide distribution, the
Foods Division is positioning itself to meet this competitive threat. The
Corporation will consider whether these changes in the competitive landscape
require that the Corporation re-evaluate the Foods Division's growth strategy.
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.
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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 1999, Cheyenne financed leases involving equipment having
an initial cost of approximately $14.2 million, down from $15.9 million of new
lease volume in fiscal 1998. Cheyenne's total lease portfolio as of May 1, 1999
included almost 300 leases representing an initial equipment cost of
approximately $133 million.
The lower new lease volume was the result of management's decision to
maintain Cheyenne's high credit and investment return standards in the face of
increasing competition from commercial banks and other financing alternatives.
The decision to not aggressively replenish Cheyenne's lease portfolio is
consistent with the Corporation's changing capital requirements. The lower lease
volume enables Cheyenne Leasing Company to fund new leases from current income
and retain excess cash flow to improve the Corporation's cash reserves and
liquidity. In the short term, strong residual income should help offset the
gradual decline in lease revenue that will result from lower lease volume. Over
time, however, Cheyenne Leasing Company's operating income will decline as the
lease portfolio matures.
A decision on the role that Cheyenne Leasing Company will play in the
Corporation's long term strategy is expected to be made during the first half of
fiscal 2000 as part of the overall assessment of the capital required to execute
the Corporation's strategies for its brewing and foods businesses. The
Corporation is evaluating the capital requirements of its operating businesses
and this analysis could affect the decision to commit additional funds to
support new leases.
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.
Genesee Ventures has not made a new real estate investment since 1995 and,
given the less liquid nature of real estate investments and the Corporation's
changing cash needs, it is unlikely that Genesee Ventures will make any
additional real estate investments in the foreseeable future.
Employees. As of May 1, 1999, the Corporation and its subsidiaries employed
748 people. Genesee Brewing Company employed 551 people, 348 of whom are
represented by six separate unions whose collective bargaining agreements
generally conform to those of the brewing industry. In fiscal 1999, three-year
contracts were successfully negotiated with the unions representing Genesee
Brewing Company's union employee. Employee relations with Genesee Brewing
Company's employees have been good. The Foods Division employed 197 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
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9
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.
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.
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 78 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 Albion 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.
In October 1998, the Corporation purchased a 340,000 square foot facility
in Medina, New York to house all of the operations of its foods business. Since
being acquired, the facility has been extensively modified to accommodate Foods
Division operations. It is expected that the transition of all operations to the
Medina facility will not be completed until the end of fiscal 2000, the date
when the lease on the existing Albion, New York facility expires. The Medina
facility is encumbered by a $4.8 million mortgage given as security for a loan,
the proceeds of which were used to fund a portion of the cost to acquire and
modify the Medina facility to accommodate Foods Division operations.
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 1, 1999.
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
The Corporation's Class B Common Stock trades on the NASDAQ National Market
tier of the NASDAQ Stock Market under the symbol GENBB. As of June 28, 1999, the
number of holders of record of Class A (voting) Common Stock and Class B
(non-voting) Common Stock were 129 and 1,009, respectively. There is no
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established public trading market for the Corporation's Class A stock, which has
generally traded within the same range as Class B stock. The price for the Class
B stock as reported by NASDAQ and the dividends paid per share on Class A and B
stock for each quarter for the past two years are shown below:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Unaudited Fiscal Year Ended May 1, 1999 Fiscal Year Ended May 2, 1998
Market Price Market Price
High Low Dividends High Low Dividends
---------------------------------------------------------------------
First Quarter $ 38 3/8 31 1/2 .35 $ 42 39 3/4 .35
Second Quarter 34 19 5/8 .35 50 42 3/8 .35
Third Quarter 26 5/8 22 3/8 .35 46 39 1/4 .35
Fourth Quarter 23 1/2 19 5/8 .75 42 1/4 35 3/16 .75
----------------------------------------------------------------------
</TABLE>
Dividends paid in any year are determined by the Corporation's Board of
Directors based on earnings, capital requirements and the overall financial
condition of the Corporation.
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended 5/1/99 5/2/98 5/3/97 4/30/96 4/30/95
----------------------------------------------------------------------
Net Revenues $150,007 154,093 154,543 143,108 131,367
Earnings Before Cumulative Effect of
Change in Accounting Principle 2,463 1,335 3,346 3,321 5,608
Net Earnings 2,463 1,335 3,346 3,321 6,368
Total Assets 143,953 135,589 136,929 134,035 135,332
Total Long Term Debt 4,761 - - - 4,038
Basic Earnings Per Share Before Cumulative
Effect of Change in Accounting Principle 1.52 .83 2.07 2.06 3.50
Diluted Earnings Per Share Before Cumulative
Effect of Change in Accounting Principle 1.52 .82 2.06 2.05 3.49
Basic Earnings Per Share 1.52 .83 2.07 2.06 3.98
Diluted Earnings Per Share 1.52 .82 2.06 2.05 3.97
Cash Dividends Per Share 1.80 1.80 1.80 1.80 1.80
----------------------------------------------------------------------
</TABLE>
(Dollars in thousands, except per share data)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Summary. Consolidated net revenues for the fiscal year ended May 1, 1999
were $150.0 million compared to fiscal 1998 net revenues of $154.1 million and
fiscal 1997 net revenues of $154.5 million. The lower revenues were due to lower
sales volume at the Genesee Brewing Company, which were partially offset by
increased sales by the Corporation's Foods Division.
<PAGE>
11
For fiscal 1999, the Corporation showed a consolidated operating income of
$348,000 compared to a $688,000 operating loss reported for fiscal 1998 and
operating income of $2.6 million in fiscal 1997. The $1.0 million increase in
operating performance was primarily attributable to an increase in equipment
lease revenue from Genesee Ventures, Inc. and a decline in Genesee Brewing
Company's operating loss.
Earnings before income taxes in fiscal 1999 were $4.6 million compared to
$2.3 million in fiscal 1998 and $5.2 million in fiscal 1997. The improvement in
earnings before income taxes was due to a $3.4 million pre-tax gain realized by
Genesee Ventures, Inc. from the sale in January 1999 of its interest in Lloyd's
Food Products, Inc., a Minnesota-based producer of prepared packaged barbecued
meat products that Genesee Ventures, Inc. acquired a minority equity interest in
during the second quarter of fiscal 1998. This $1.5 million investment was
accounted for at cost.
The Corporation reported net earnings of $2.5 million, or $1.52 basic and
diluted earnings per share, in fiscal 1999, which was $1.1 million more than
fiscal 1998 ($.83 basic and $.82 diluted earnings per share in fiscal 1998) and
$883,000 less than fiscal 1997 ($2.06 basic and $2.07 diluted earnings per share
in fiscal 1997).
Results of Operations (Fiscal 1999 vs. Fiscal 1998)
Genesee Brewing Company
Fiscal 1999 net sales for Genesee Brewing Company, the Corporation's
largest subsidiary, were $103.3 million, a decrease of $13.9 million or 11.9%
from the $117.2 million reported in fiscal 1998. Genesee Brewing Company's
barrel volume for fiscal 1999 declined 12.5% to 1,644,000 barrels compared to
1,878,000 barrels in fiscal 1998. The decline in Genesee Brewing Company's net
sales and barrel volume was partially attributable to a 12.8% decline in the
sales of HighFalls products, which represented 23.3% of total volume. Genesee
Brewing Company's core brand volume was down 142,000 barrels, or 12.2% in fiscal
1999. 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 volume produced by Genesee Brewing Company under its contract with
Boston Beer Company declined 13.1% in fiscal 1999 to 242,000 barrels
(representing 14.7% of overall beer volume) compared to 278,000 barrels
(representing 14.8% of overall beer volume) in fiscal 1998. The decline in
contract brewing volume was due to the reallocation by Boston Beer Company of a
portion of its production requirements in anticipation of the start of
production of a new package configuration by Genesee Brewing Company. Production
of the new package configuration was originally scheduled to begin in the first
quarter of fiscal 1999 but was delayed until December 1998 by the inability of a
Boston Beer Company supplier to deliver packaging materials. The decline in
volume was also due to Boston Beer Company moving production of certain short
run brands and 22-ounce packages to its Cincinnati, Ohio plant. Future changes
in contract brewing 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 1999 decreased $2.8
million from $27.2 million in fiscal 1998 to $24.4 million in fiscal 1999. The
lower gross profit was primarily due to negative volume trends and the
unfavorable shift in product mix towards Multipak can packages. In addition,
intense competition has resulted in price stagnation over the past several
years, further depressing Genesee Brewing Company's gross profit margins.
Genesee Brewing Company's selling, general and administrative expenses
decreased $3.6 million from $32.7 million in fiscal 1998 to $29.1 million in
fiscal 1999. This decrease is the result of cost reduction efforts implemented
during fiscal 1998.
<PAGE>
12
Genesee Brewing Company reported a fiscal 1999 operating loss of $4.7
million versus a $5.4 million loss in fiscal 1998. The reduction in operating
loss is attributable to cost reduction efforts, which reduced manufacturing
overhead and selling, general and administrative costs.
See also Item 1 of this Report for information regarding known trends and
uncertainties in the brewing business.
Foods Division
Net sales for the Corporation's Foods Division increased $8.8 million to
$42.7 million in fiscal 1999 as compared to $33.9 million is fiscal 1998. The
increase in net sales was primarily attributable to $12.8 million in sales of
artificial sweeteners and other private label food products of TKI Foods, Inc.
and Spectrum Foods, Inc., which were acquired by the Corporation during the
second quarter of fiscal 1999. The increase in net sales attributable to the TKI
Foods and Spectrum Foods acquisitions was partially offset by the loss of $2.3
million in net sales from a one-time government soup contract that was completed
in fiscal 1998. The Foods Division did not aggressively seek to replace this
contract manufacturing business, instead devoting resources to its core retail
private label business and the relocation and integration of TKI Foods and
Spectrum Foods business into the Foods Division.
Also partially offsetting the increase in net sales was the loss of $1.5
million of Ice Tea Mix sales in fiscal 1999 as compared to fiscal 1998. Some of
the Foods Division's retail chain store customers shifted their iced tea
purchases to a Canadian sugar refiner that is seeking to aggressively expand its
share of the United State's private label iced tea mix market. This Canadian
supplier, which controls a large percentage of the U.S. tariff rate quota for
imported products, is offering extremely low prices to Foods Division iced tea
mix customers to draw their iced tea mix business away from the Foods Division.
Management believes certain actions by the Canadian sugar refiner violates the
United States trade laws. The Corporation is seeking relief from these trade
practices through appropriate government channels. In addition to sales lost
when Foods Division customers shifted their iced tea mix to the Canadian sugar
refiner, the Foods Division also had to significantly reduce its prices for iced
tea mix to its other iced tea mix customers to retain their business, which
further eroded iced tea mix revenues and profit margins in the third quarter.
Gross profit for the Foods Division increased $2.5 million to $8.0 million
in fiscal 1999, compared to $5.5 million in fiscal 1998. The increase in gross
profit was comprised of $3.5 million in gross profit contributed by TKI Foods
and partially offset by lower margins realized by the Foods Division's other
product lines.
Selling, general and administrative expenses increased $3.0 million in
fiscal 1999 compared to fiscal 1998. This increase is primarily the result of
additional costs incurred in connection with the acquisition of TKI Foods and
Spectrum Foods.
The Foods Division had an operating profit of $1.8 million in fiscal 1999,
which was $419,000 less than the $2.2 million operating profit reported in
fiscal 1998. Foods Division profitability in fiscal 1999 was adversely impacted
by approximately $436,000 in costs associated with owning the facility in
Medina, New York that the Foods Division acquired in October 1998 and
approximately $346,000 in costs arising from transitioning the TKI Foods
business from Springfield, Illinois to the Medina facility. The Foods Division
is executing a plan, which is scheduled to be completed during fiscal 2000, to
consolidate all of its operations at the Medina facility. This consolidation of
all operations at a single location will allow the Foods Division to close its
Springfield, Illinois and Albion, New York facilities, which is expected to
generate significant cost savings for the Foods Division.
See also Item 1 of this Report for information regarding known trends and
uncertainties affecting the Foods Division.
<PAGE>
13
Genesee Ventures, Inc.
Genesee Ventures, Inc., the Corporation's equipment leasing and real estate
investment subsidiary, reported operating income of $3.9 million for fiscal
1999, compared to $2.9 million for fiscal 1998. The higher operating income was
primarily due to an increase in equipment lease revenue.
Genesee Ventures, Inc. earnings before taxes increased $3.7 million to $6.0
million as compared to $2.3 million for fiscal 1998. The increase in earnings
was due to a $3.4 million gain on the sale of Genesee Ventures' interest in
Lloyd's Food Products, Inc.
See also Item 1 of this Report for information regarding known trends and
uncertainties affecting the Corporation's equipment leasing and real estate
businesses.
Results of Operations (Fiscal 1998 vs. Fiscal 1997)
Genesee Brewing Company
Fiscal 1998 net sales for Genesee Brewing Company, the Corporation's
largest subsidiary, were $117.2 million, a decrease of $9.9 million or 7.8% from
the $127.1 million reported in fiscal 1997. Genesee Brewing Company's barrel
volume for fiscal 1998 declined 7.2% to 1,878,000 barrels compared to 2,023,000
barrels in fiscal 1997. The decline 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. Volume for Genesee
Brewing Company's core brands 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 volume produced by Genesee Brewing Company under its contract with
Boston Beer Company increased 11.2% in fiscal 1998 to 278,000 barrels
(representing 14.8% of overall barrel volume) compared to 250,000 barrels (or
12.4% of total barrel volume) in fiscal 1997. Volume growth under this contract
was lower in fiscal 1998 than in the prior year 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.
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, price stagnation resulting from intense
competition further depressed 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 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 for information regarding known trends and
uncertainties in the brewing business.
<PAGE>
14
Foods Division
Net sales for the Corporation's Foods Division increased $8.9 million in
fiscal 1998 to $33.9 million, 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 which 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.
See also Item 1 of this Report for information regarding known trends and
uncertainties affecting the Foods Division.
Genesee Ventures, Inc.
Genesee Ventures' 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 1997. 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. Prior to receipt of this new financing package,
Genesee Ventures, Inc. had maintained a reserve against interest receivable from
a loan by Genesee Ventures, Inc. to the partnership 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.
See also Item 1 of this Report for information regarding known trends and
uncertainties affecting the Corporation's equipment leasing and real estate
businesses.
Liquidity and Capital Resources.
Cash, cash equivalents, and marketable securities totaled $13.8 million at
May 1, 1999 and $20.5 million at May 2, 1998. The decline in cash, cash
equivalents, and marketable securities was the result of the sale of marketable
securities to fund a portion of the cost to acquire TKI Foods and Spectrum Foods
partially offset by operating cash flows.
Inventories at May 1, 1999 were $2.2 million higher than the balances
reported at May 2, 1998. Net property, plant and equipment balances were $3.7
million higher at May 1, 1999 than May 2, 1998. Goodwill and other intangibles
balances were $17.5 million higher at May 1, 1999 than May 2, 1998. Goodwill and
other intangibles, net property, plant and equipment, accounts receivable and
inventories primarily increased due to the acquisition of TKI Foods and Spectrum
Foods.
<PAGE>
15
Investments in direct financing and leveraged leases were $6.4 million
lower than the balances reported at May 2, 1998. This decrease was due to the
maturity of nearly 1/3 of the leasing portfolio and represents the original
investment and realized excess residual income.
Current liabilities were $5.6 million higher at May 1, 1999 compared to May
2, 1998 primarily due to the $3.0 million balance on a credit facility that was
used to fund a portion of the purchase price of TKI Foods and Spectrum Foods.
Additionally, income taxes payable increased $523,000 due to fiscal 1999
earnings, with the balance attributable to accrued liabilities acquired with TKI
Foods and Spectrum Foods.
The $4.8 million mortgage payable was established on October 29, 1998 with
a commercial bank in connection with financing the acquisition of and capital
improvements to the Foods Division's new facility in Medina, New York.
Capital expenditures in fiscal 1999 totaled $7.4 million compared to $5.7
million in fiscal 1998. The $1.7 million increase was due to a $4.2 million
increase in capital spending in the Corporation's Foods Division. This increase
was primarily due to the new production facility purchased by the Corporation in
Medina, New York. The increase in capital spending in the Foods Division was
partially offset by a $2.5 million reduction in capital spending at the Genesee
Brewing Company.
The Corporation has a strategy to search for and develop acquisition
opportunities that will contribute to the future growth of its Foods Division.
The Corporation is re-evaluating its capital resources relative to its brewing,
foods and equipment leasing businesses. The Corporation expects that it will
fund its future capital needs and any future acquisitions by its Foods Division
with a combination of debt and internally generated funds.
Genesee Brewing Company is working on changes to operating procedures,
changes in chemicals and modifications or upgrades of equipment used to store
and handle chemicals used to clean and sanitize brewing equipment, kegs and
refillable bottles (the "System") to achieve compliance with New York chemical
bulk storage regulations that will take effect in December 1999 (the
"Regulations"). The cost to achieve compliance with the Regulations by modifying
and upgrading the existing System was originally estimated to be up to $1.9
million. In January 1999, Genesee Brewing Company received regulatory approval
of a new operating procedure that will exempt a portion of the System from the
Regulations. This exemption should eliminate approximately $500,000 of the
estimated cost to achieve compliance with the Regulations. Genesee Brewing
Company is exploring further changes to the System, its operating procedures and
the chemicals used with the System to further reduce the cost to achieve
compliance with, or to exempt the System from coverage under, the Regulations.
It is anticipated that the cost of any System upgrades and modifications will be
funded internally and depreciated over their useful life.
Year 2000
General
The Corporation has formed a task force made up of senior managers that is
directing a project to address potential problems that could affect the business
operations and financial condition of the Corporation and its subsidiaries as a
result of the year 2000 issue. The year 2000 issue is the result of computer
hardware and software systems and other equipment with embedded chips or
processors that use only two digits to represent the year. As the year 2000
approaches, time-sensitive software may recognize a date using "00" as the year
1900 rather than 2000. These systems may fail to operate or be unable to process
data accurately as a result of this flaw. The year 2000 issue could arise at any
point in the supply chain, manufacturing process, distribution channels or
information systems of the Corporation, its subsidiaries and third parties with
which they do business.
<PAGE>
16
The actions that are included in the Corporation's Year 2000 project
include identification of critical and non-critical systems, determining
appropriate remediation measures, assigning responsibility and scheduling of
planned remediation, documentation and certification of task completion,
assessing third party relationships for compliance, cost estimation and
monitoring, and contingency planning for the Corporation and each of its
subsidiaries.
State of Readiness
The task force has identified critical and non-critical information and
other technology systems at its Genesee Brewing Company subsidiary, its Foods
Division and its equipment leasing and real estate investment businesses. In
November 1998, the Corporation implemented a major hardware and software upgrade
to bring the software and hardware for its primary manufacturing, information
and financial consolidation system (the "MIS System") into year 2000 compliance.
Each component of the MIS System is warranted by the applicable vendor to be
year 2000 compliant. Programming to resolve minor issues relating to the
operation of this new system has been completed and all functional components of
the system are fully operational. The MIS System is currently undergoing testing
to simulate operations in the year 2000 to provide further assurance that order
entry, delivery, scheduling, billing and other data processing and information
systems will not experience a significant malfunction from a year 2000 problem.
This year 2000 simulation testing is scheduled to be completed by August 31,
1999.
The task force has identified critical third party relationships for each
of its businesses. The Corporation's co-venturer in Cheyenne Leasing Company has
provided assurances that its internal systems for administering the equipment
leasing business are year 2000 ready. The Corporation has determined that there
are no other third parties whose failure to achieve year 2000 readiness would
materially impact its equipment leasing business. The Corporation has determined
that its real estate investments are not dependent on any third parties whose
failure to achieve year 2000 readiness would materially impact those
investments.
During the second quarter of fiscal 1999, Genesee Brewing Company contacted
all customers, mission critical vendors and other material third parties to
assess the extent of their year 2000 readiness. All 75 critical vendors of
Genesee Brewing Company have responded that they are in the process of
addressing the year 2000 issue or are already in compliance. Genesee Brewing
Company has a program to monitor the progress of critical vendors who responded
that they are addressing the year 2000 issue but are not yet in compliance. To
date, Genesee Brewing Company's Monroe County Branch distribution business and
almost two hundred independent distributors, representing in the aggregate
approximately 93% of barrel volume for Genesee Brewing Company, have reported
that they are year 2000 ready or that they are addressing the year 2000 issue.
Genesee Brewing Company has a program to monitor the progress of significant
distributors who responded that they are addressing the year 2000 issue but are
not yet in compliance.
Boston Beer Company, whose contract brewing business represents 15% of
Genesee Brewing Company's barrel volume, reported in its most recent Form 10-Q
filed with the Securities Exchange Commission on May 10, 1999 that it believes
that all of its internal computer systems are year 2000 compliant, with the
exception of its depletions tracking system, which it expected to be compliant
by June 30, 1999. Boston Beer Company also reported that it has contacted
vendors that it believes present a possible critical risk to its business; that
all 37 critical vendors have reported that they are year 2000 compliant or are
addressing the year 2000 problem; that it will monitor progress of critical
vendors who are addressing the year 2000 problem; and that it will develop
contingency plans for all services and supplies.
During fourth quarter of fiscal 1999, the Corporation's Foods Division
contacted all of its customers, critical vendors, and material third parties to
assess the extent of their year 2000 readiness. To date, 33 of 54 critical
vendors of the Foods Division have responded that they are in the process of
addressing the year 2000 issue or are already in compliance. To date, no
critical vendors have responded that they will not be year 2000 ready. The Foods
Division has a program to follow up with critical vendors who have not yet
<PAGE>
17
responded and to monitor the progress of critical vendors who responded that
they are addressing the year 2000 issue but are not yet in compliance. To date,
customers, representing 40% of Foods Division net sales, have responded that
they are in the process of addressing the year 2000 issue or are already in
compliance. To date, no customers have responded that they will not be year 2000
ready. The Foods Division has a program to follow up with significant customers
who have not yet responded and to monitor the progress of customers who
responded that they are addressing the year 2000 issue but are not yet in
compliance.
Year 2000 Costs
The Corporation is committed to making the investments required to ensure
year 2000 readiness of the information and other technology systems of each of
its business units. These investments include hardware and software upgrades and
replacement. The cost to achieve year 2000 readiness for the internal
information and other technology systems of the Corporation and its subsidiaries
is currently estimated to be approximately $1.7 million, with $1.6 million spent
to date.
Year 2000 Risks
The Corporation expects that it will achieve year 2000 readiness with its
internal systems on a timely basis, but at this time is unable to assure year
2000 readiness by all third parties in the same time frame. The failure to
achieve year 2000 readiness by any third party with which the Corporation or any
of its subsidiaries has a material business relationship could result in the
disruption of normal business activities. Risks inherent with the year 2000
problem could occur if there is an interruption of needed supplies and services,
including energy, telecommunications and information exchange suppliers. In a
worst case scenario, this could interrupt or prevent the Corporation's
businesses from producing and selling their products or receiving payment from
customers. Such failures could materially affect the Corporation's results of
operations, liquidity and financial condition. The Corporation is currently
unable to estimate the impact on its results of operations, liquidity or
financial condition from the failure to achieve year 2000 readiness by the
Corporation's critical venders, customers or other third parties.
Year 2000 Contingency Plans
Genesee Brewing Company and the Corporation's Foods Division are developing
contingency plans to address the failure of any critical vendors or a
significant number of customers to achieve year 2000 readiness. These
contingency plans are being designed to prevent or mitigate the impact on the
Corporation's brewing and foods businesses from the failure by such third
parties to achieve year 2000 readiness. Due to the seasonality of the brewing
industry, the winter months of December and January are two of Genesee Brewing
Company's lowest sales and production volume months. Genesee Brewing Company's
distributors are required to maintain inventory of packaged malt beverage
products sufficient to meet projected demand in their markets for eighteen days
and inventory of draft products sufficient to meet projected demand for fifteen
days. Because malt beverage products have limited shelf life, Genesee Brewing
Company has decided that it will not require distributors to increase inventory
levels on hand at January 1, 2000. Instead, Genesee Brewing Company will
carefully monitor distributor inventory levels in December 1999 to ensure that
required levels are maintained for all brands and package types. In addition,
Genesee Brewing Company will increase its production during December 1999 to
build maximum inventories of finished case goods, draft and bulk storage beer.
Genesee Brewing Company also will build its inventories of brewing ingredients
and packaging materials during December 1999 to have on hand on December 31,
1999 sufficient inventories to support production scheduled for January 2000.
For certain ingredients and packaging materials that cannot be stored on site in
quantities sufficient to support January 2000 production requirements, Genesee
Brewing Company has received written assurances from the suppliers of such
materials that they will have inventory available to Genesee Brewing Company on
December 31, 1999 sufficient to meet Genesee Brewing Company's January 2000
production requirements.
<PAGE>
18
The Corporation's Foods Division is developing contingency plans to address
the failure of any critical vendors or a significant number of customers to
achieve year 2000 readiness. These contingency plans will be designed to prevent
or mitigate the impact on the Foods Division's business from the failure by such
third parties to achieve year 2000 readiness. These contingency plans may
include establishing alternative sources of supply; stockpiling of certain
critical suppliers; implementing stand-by manual order entry, delivery and
billing systems. The Foods Division plans to identify specific third party
relationships that may require contingency planning by September 30, 1999 and to
develop an appropriate contingency plan for each such situation by October 31,
1999.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the
federal securities laws. These forward-looking statements may include statements
about the operations and prospects for the Corporation and its subsidiary
businesses, and statements about industry trends and conditions that may affect
the performance or financial condition of the Corporation and its subsidiary
businesses. These forward-looking statements involve significant risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements. The most important factors that could
cause actual results to differ from the expectations stated in these
forward-looking statements include, among others, the inability to implement
strategic alternatives to address the declining sales and operating losses
reported by the Genesee Brewing Company; Genesee Brewing Company and its
distributors to develop and execute effective marketing and sales strategies for
Genesee Brewing Company's products; the potential erosion of sales revenues and
profit margins through continued price stagnation, increased discounting or a
higher proportion of sales in lower margin Multipaks; the continuation of
declining sales for the craft/ specialty beer category or a potential shift in
consumer preferences away from the category, including Honey Brown Lager;
uncertainties due to the intensely competitive, stagnant nature of the beer
industry; demographic trends and social attitudes that can reduce beer sales;
the continued growth in the popularity of import and nationally advertised
beers; increases in the cost of aluminum, paper packaging and other raw
materials; the Corporation's inability to reduce manufacturing and overhead
costs of its brewing and foods businesses to more competitive levels; changes in
significant laws and government regulations affecting sales, advertising and
marketing of malt beverage products; significant increases in federal, state or
local beer or other excise taxes; the potential impact of beer industry
consolidation at both the brewer and distributor levels; a shift in consumer
preferences away from store-brand, private label food products; increased
competition from branded food product producers that might adversely affect
sales of private label products; the possibility that the Corporation's Foods
Division might experience delays, difficulties or unanticipated expenses in
integrating TKI Foods and Spectrum Foods; the possibility that the Foods
Division might experience delays, difficulties or unanticipated expenses in the
relocation of its operations to Medina, New York; the possibility that the Foods
Division might not achieve the expected synergies from the integration and
relocation of all operations into a single facility; interest rate fluctuations
that could reduce demand for or the rate of return on new equipment lease
business; increased competition in the equipment leasing business resulting from
lower interest rate environment; the possibility that Cheyenne Leasing Company
may not achieve the residual value projected for equipment coming off leases as
Cheyenne's lease portfolio matures; increases in the estimated costs to achieve
year 2000 readiness; and the risk that computer systems of the Corporation, its
subsidiaries and their significant suppliers or customers may not be year 2000
compliant.
<PAGE>
19
Item 8. Financial Statements and Supplementary Data
Selected Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth Total
Fiscal Year Ended 5/1/99 Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------
Net Revenues $ 39,391 39,188 35,429 35,999 150,007
Gross Profit 9,682 9,208 8,285 9,243 36,418
Net Earnings / (Loss) 1,132 (586) 1,751 166 2,463
Basic Earnings/ (Loss) Per Share .70 (.36) 1.08 .10 1.52
Diluted Earnings / (Loss) Per Share .70 (.36) 1.08 .10 1.52
---------------------------------------------------------------------
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) (.21) .64 .82
---------------------------------------------------------------------
</TABLE>
(Dollars in thousands, except per share data)
<TABLE>
<S> <C>
(b) Index to Financial Statements
Page
Report of Independent Accountants - PricewaterhouseCoopers LLP 20
Consolidated Balance Sheets at May 1, 1999 and May 2, 1998 21
Consolidated Statements of Earnings and Comprehensive Income
For the three years ended May 1, 1999, May 2, 1998 and May 3, 1997 23
Consolidated Statements of Shareholders' Equity
For the three years ended May 1, 1999, May 2, 1998 and May 3, 1997 24
Consolidated Statements of Cash Flows
For the three years ended May 1, 1999, May 2, 1998 and May 3, 1997 25
Notes to Consolidated Financial Statements 27
Financial Statement Schedules:
For the three years ended May 1, 1999, May 2, 1998 and May 3, 1997
Schedule II - Consolidated Valuation and Qualifying Accounts 54
</TABLE>
<PAGE>
20
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 1, 1999 and May 2, 1998, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended May 1, 1999, 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 17, 1999
<PAGE>
21
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
May 1, 1999 and May 2, 1998
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C>
Assets 1999 1998
Current assets:
Cash and cash equivalents $ 5,836 $ 2,692
Marketable securities available for sale 7,964 17,808
Trade accounts receivable, less allowance for doubtful
receivables of $478 in 1999 and $433 in 1998 10,222 10,163
Inventories, at lower of cost (first-in, first-out) or market 16,414 14,258
Deferred income tax assets 397 1,315
Other current assets 751 683
Total current assets 41,584 46,919
Net property, plant and equipment 37,040 33,311
Investment in and notes receivable from
unconsolidated real estate partnerships 5,343 5,534
Investment in direct financing and leveraged leases 28,285 34,638
Goodwill and other intangibles, net of accumulated
amortization of $1,747 in 1999 and $579 in 1998 28,280 10,737
Other assets 3,421 4,450
Total assets $ 143,953 $ 135,589
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit $ 3,000 $ -
Note payable, current portion 82 -
Accounts payable 8,421 8,358
Income taxes payable 1,215 692
Federal and state beer taxes payable 1,354 1,756
Accrued compensation 3,505 2,291
Accrued postretirement benefits, current portion 731 712
Accrued expenses and other 5,374 4,252
Total current liabilities 23,682 18,061
Note payable, noncurrent portion 4,679 -
Deferred income tax liabilities 8,251 9,295
Accrued postretirement benefits, noncurrent portion 15,332 15,415
Other liabilities 493 471
Total liabilities 52,437 43,242
Minority interests in consolidated subsidiaries 2,479 2,227
</TABLE>
<PAGE>
22
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
May 1, 1999 and May 2, 1998
(Dollars in thousands, except per share data)
(continued)
<TABLE>
<S> <C> <C>
1999 1998
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 5,856 5,842
Retained earnings 85,692 86,143
Accumulated other comprehensive income 77 752
Less: Class B treasury stock, at cost; 97,852 shares in 1999
and 98,682 shares in 1998 ( 3,446) ( 3,475)
Total shareholders' equity 89,037 90,120
Total liabilities and shareholders' equity $ 143,953 $ 135,589
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
23
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Earnings and Comprehensive Income
Years ended May 1, 1999, May 2, 1998, and May 3, 1997
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Revenues $ 178,418 $ 186,359 $ 194,669
Federal and state beer taxes 28,411 32,266 40,126
Net revenues 150,007 154,093 154,543
Cost of goods sold 113,589 118,435 116,968
Gross profit 36,418 35,658 37,575
Selling, general and administrative expenses 36,070 36,346 34,979
Operating income / (loss) 348 (688) 2,596
Investment income 2,043 3,728 2,932
Other income 4,277 246 469
Interest expense (873) (173) (122)
Minority interest in earnings of subsidiaries (1,237) (804) (698)
Earnings before income taxes 4,558 2,309 5,177
Income taxes 2,095 974 1,831
Net earnings 2,463 1,335 3,346
Other comprehensive income, net of income taxes:
Unrealized holding (losses)/gains arising during the year (675) 104 761
Comprehensive income $ 1,788 $ 1,439 $ 4,107
Basic earnings per share $ 1.52 $ .83 $ 2.07
Diluted earnings per share $ 1.52 $ .82 $ 2.06
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
24
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended May 1, 1999, May 2, 1998, and May 3, 1997
(Dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Other
Compre-
Common Stock Additional Retained hensive Treasury Stock
Class A Class B Paid-In Capital Earnings Income(Loss) Class B Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at April 30, 1996 $ 105 $ 753 $ 5,839 $ 87,285 $ (113) $ (3,535) $ 90,334
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 3,346
Other comprehensive income 761
Total comprehensive income 4,107
Dividends paid-$1.80 per share (2,911) (2,911)
Common stock bonus issued (5) 30 25
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at May 3, 1997 105 753 5,834 87,720 648 (3,505) 91,555
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 1,335
Other comprehensive income 104
Total comprehensive income 1,439
Dividends paid-$1.80 per share (2,912) (2,912)
Common stock bonus issued 8 30 38
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at May 2, 1998 105 753 5,842 86,143 752 (3,475) 90,120
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 2,463
Other comprehensive income (675)
Total comprehensive income 1,788
Dividends paid-$1.80 per share (2,914) (2,914)
Common stock bonus issued 14 29 43
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at May 1, 1999 $ 105 $ 753 $ 5,856 $ 85,692 $ 77 $ (3,446) $ 89,037
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
25
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended May 1, 1999, May 2, 1998, and May 3, 1997
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Cash flows from operating activities:
Net earnings $ 2,463 $ 1,335 $ 3,346
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Net gain on sale of marketable securities (922) (1,302) (333)
Net gain on disposition of property, plant and equipment ( 98) (36) (65)
Depreciation and amortization 6,591 6,285 5,228
Deferred tax provision 446 (257) 1,006
Other 1,325 868 698
Changes in non-cash assets and liabilities:
Trade accounts receivable 879 1,150 2,156
Inventories (278) 79 (1,998)
Other assets 844 (3) (275)
Accounts payable (1,185) (1,387) (599)
Income taxes payable 365 (240) 477
Federal and state beer taxes (402) (273) (217)
Accrued expense and other (1,496) 29 568
Accrued postretirement benefits (64) (100) (11)
Other liabilities 22 58 (15)
Net cash provided by operating activities $ 8,490 $ 6,206 $ 9,966
</TABLE>
<PAGE>
26
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Cash flows from investing activities:
Purchase of TKI Foods, net of cash acquired $ (18,632) $ - $ -
Purchase of Freedom Foods, net of cash acquired - (11,060) -
Capital expenditures (7,431) (5,746) (7,951)
Proceeds from sale of property, plant, and equipment 600 802 125
Proceeds from sale of marketable securities 11,640 31,668 13,401
Purchases of marketable securities and other investments (1,929) (16,885) (9,599)
Investments in and advances to unconsolidated
real estate partnerships, net of distributions 191 (585) 3,517
Net investment in direct financing and leveraged leases 6,353 (2,494) (4,052)
Withdrawals by minority interest (985) (267) (535)
Net cash used in investing activities (10,193) (4,567) (5,094)
Cash flows from financing activities:
Proceeds from acquisition of debt 14,800 - -
Principal payments on debt (7,039) (556) -
Payment of dividends (2,914) (2,912) (2,911)
Net cash provided by / (used in) financing activities 4,847 (3,468) (2,911)
Net increase / (decrease) in cash and
cash equivalents 3,144 (1,829) 1,961
Cash and cash equivalents at beginning of year 2,692 4,521 2,560
Cash and cash equivalents at end of year $ 5,836 $ 2,692 $ 4,521
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
27
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 1, 1999, May 2, 1998, and May 3, 1997
(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, Inc.; TKI
Foods, Inc. (as of August 3, 1998); 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.
Comprehensive Income
During fiscal 1999 the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
(SFAS 130). This statement establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains,
losses, and other comprehensive income) in a set of financial statements in
order to report a measure of all changes in equity of an enterprise. Other
<PAGE>
28
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
May 1, 1999, May 2, 1998, and May 3, 1997
(1) Summary of Significant Accounting Policies (continued)
comprehensive income refers to revenues, expenses, gains and, losses that
are included in comprehensive income but excluded from net earnings. All
prior periods presented have been restated to reflect the provisions of
SFAS 130.
The amount of income tax (benefit) or expense allocated to other
comprehensive income for fiscal 1999, 1998 and 1997 was approximately
$(380,000), $59,000 and $439,000, respectively.
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.
The Corporation regularly assesses all of its long-lived assets for
impairment and recognizes a loss when the carrying value of an asset
exceeds its fair value. The Corporation determined that no impairment loss
needs to be recognized for applicable assets in fiscal 1999, fiscal 1998
and fiscal 1997.
Income Taxes
The provision for income taxes is based upon pre-tax 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 and food retailers. The Corporation minimizes its credit risk
with purchase money security interests in inventory and personal guarantees
or letters of credit. The Corporation's lease receivable 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>
29
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies (continued)
Earnings Per Share
The Corporation presents 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, and 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.
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
The Corporation's fiscal year ends on the Saturday closest to April 30.
Fiscal years for the financial statements included herein ended May 1,
1999, May 2, 1998, and May 3, 1997.
(2) Acquisitions
On August 3, 1998, the Corporation acquired all of the common stock of TKI
Foods, Inc. (TKI) and certain assets of Spectrum Foods, Inc. (Spectrum),
food companies located in Springfield and Decatur, Illinois, respectively,
for $18.6 million, representing $ 5.6 million of assets acquired and $4.2
million of liabilities assumed. TKI and Spectrum primarily package a broad
range of dry food products, including artificial sweeteners, that are sold
to retail supermarket chains under their own labels. Many of these
supermarket chains were already customers of the Corporation. Early in
fiscal 2000, the Corporation expects to complete the relocation of TKI and
Spectrum's manufacturing operations to Ontario Foods' facility in Medina,
New York. The acquisition was accounted for using the purchase method and
was financed by drawing $10.0 million of a $15.0 million credit facility
from a commercial bank and with the Corporation's cash reserves and has
been included in the Corporation's results of operations since the date of
acquisition. The excess of the aggregate purchase price over net assets
acquired was approximately $17.2 million.
The following fiscal 1998 unaudited pro forma information presents the
results of operations of the Corporation as if the acquisition of TKI and
Spectrum had taken place on May 4, 1997. The TKI and Spectrum financial
information used in calculating the fiscal 1998 amounts below are based on
their results of operations for the twelve months ended March 31, 1998 and
are not considered to be materially different from fiscal 1998 amounts.
1999 1998
Net revenues $ 155,106 $175,464
Net earnings/(loss) 1,852 (103)
Basic earnings/(loss) per share 1.14 (.06)
Diluted earnings/(loss) per share 1.14 (.06)
(Dollars in thousands, except per share data)
<PAGE>
30
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions (continued)
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the acquisition occurred
on the date indicated, or that may result in the future.
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 bouillon products 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 over 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.
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 1, 1999 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 $ 3,501 $ 186 $ 20 $ 3,667
Corporate debt securities 3,946 49 94 3,901
7,447 235 114 7,568
Mutual funds:
Fixed income funds 39 - 1 38
Other 358 - - 358
Marketable securities available for sale $ 7,844 $ 235 $ 115 $ 7,964
</TABLE>
(Dollars in thousands)
<PAGE>
31
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
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
9,049 1,065 138 9,976
Other 458 - - 458
Marketable securities available for sale $ 16,633 $ 1,346 $ 171 $ 17,808
</TABLE>
(Dollars in thousands)
The amortized cost and fair value of fixed income securities at May 1, 1999, by
contractual maturity, are as follows:
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Contractual maturity:
Less than one year $ 255 $ 251
After one year, but within five years 3,587 3,608
After five years, but within ten years 2,105 2,070
After ten years 1,500 1,639
Total fixed income securities $ 7,447 $ 7,568
</TABLE>
(Dollars in thousands)
The following represents the total proceeds from sales of marketable securities
for fiscal years ended May 1, 1999, May 2, 1998 and May 3, 1997 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>
1999 1998 1997
Proceeds from sales $ 11,640 $ 31,668 $ 13,401
Gains from sales 1,048 1,818 603
Losses from sales (126) (516) (270)
Net gains from sales $ 922 $ 1,302 $ 333
</TABLE>
(Dollars in thousands)
<PAGE>
32
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Income Taxes
Components of income tax expense (benefit) for the fiscal years ended May
1, 1999, May 2, 1998, and May 3, 1997 are as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Current:
Federal $ 1,570 $ 1,105 $ 792
State 79 126 33
Total current income tax expense 1,649 1,231 825
Deferred:
Federal 311 (244) 1,032
State 135 (13) (26)
Total deferred income tax expense / (benefit) 446 (257) 1,006
Total income tax expense $ 2,095 $ 974 $ 1,831
</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 1, 1999, May 2, 1998, and May 3, 1997:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Computed expected tax expense @ 34% $ 1,550 $ 785 $ 1,760
State income taxes (net of federal income tax benefit) 141 75 5
Amortization of Goodwill 330 128 -
Other, net 74 (14) 66
Total income tax expense $ 2,095 $ 974 $ 1,831
Effective tax rate 46.0% 42.2% 35.4%
</TABLE>
(Dollars in thousands)
<PAGE>
33
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 1, 1999 and May 2, 1998
are presented below:
<TABLE>
<S> <C> <C>
1999 1998
Deferred income tax assets:
Deposit liabilities $ 205 $ 240
Allowance for doubtful accounts 175 173
Deferred compensation and other
employee related accruals 1,208 887
Postretirement benefits other than pensions 6,425 6,451
Alternative minimum tax credit carryforward 2,586 4,158
State investment tax credit 1,390 829
Other 1,796 1,982
Gross deferred income tax assets 13,785 14,720
Valuation allowance for deferred income tax assets (1,033) (472)
Total deferred income tax assets 12,752 14,248
Deferred income tax liabilities:
Basis differential on leasing portfolio 13,694 16,903
Accelerated depreciation on plant and equipment 4,627 3,944
Deferred gain on investment 1,378 -
Returnable containers 82 341
Unrealized gains on marketable securities 43 423
Other 782 617
Total deferred income tax liabilities 20,606 22,228
Net deferred income tax liabilities $ 7,854 $ 7,980
</TABLE>
(Dollars in thousands)
Deferred income tax assets at May 1, 1999 include $ 2,586,000 of alternative
minimum tax (AMT) credits, which carry forward indefinitely, and $ 1,390,000 of
state investment tax credits, which will begin to expire in fiscal 2003 and are
limited in annual usage. A valuation allowance has been recorded to the extent
that credits may not be realized. The change in the deferred tax asset or
liability for unrealized gains or losses on investments classified as available
for sale 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>
34
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Inventories
Inventories at May 1, 1999 and May 2, 1998 are summarized as follows:
<TABLE>
<S> <C> <C>
1999 1998
Finished goods $ 6,292 $ 5,567
Goods in process 1,445 1,664
Raw materials, containers and packaging supplies 8,677 7,027
Total inventories $ 16,414 $ 14,258
</TABLE>
(Dollars in thousands)
(6) Property, Plant and Equipment
Property, plant and equipment at May 1, 1999 and May 2, 1998 are summarized
as follows:
<TABLE>
<S> <C> <C>
1999 1998
Land and land improvements $ 1,175 $ 1,175
Buildings 22,221 22,104
Machinery, equipment, furniture and fixtures 83,683 79,474
Returnable containers 12,876 12,573
Construction in process 5,251 2,585
Total property, plant and equipment 125,206 117,911
Less accumulated depreciation 88,166 84,600
Net property, plant and equipment $ 37,040 $ 33,311
</TABLE>
(Dollars in thousands)
<PAGE>
35
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 1, 1999 and May 2, 1998 is
presented below:
<TABLE>
<S> <C> <C>
1999 1998
Direct Direct
Financing Leveraged Financing Leveraged
Minimum rentals receivable $ 1,946 $ 444 $ 3,248 $ 755
Estimated unguaranteed residual
value of leased assets 1,104 31,820 1,125 37,320
Unearned and deferred income (399) (6,630) (590) (7,220)
Investment in leases 2,651 25,634 3,783 30,855
Investment in direct financing and leveraged leases 28,285 34,638
Deferred taxes arising from leases (13,694) (16,903)
Net after-tax investment in leases $ 14,591 $ 17,735
</TABLE>
(Dollars in thousands)
The following is a schedule of minimum rentals receivable by year for direct
financing and leveraged leases at May 1, 1999:
Fiscal Year:
2000 $ 1,132
2001 700
2002 394
2003 164
Total minimum rentals receivable $ 2,390
(Dollars in thousands)
<PAGE>
36
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Debt
Line of Credit
The Corporation has operating funds available through a $15 million unsecured
line of credit agreement with a bank that matures on July 31, 1999 at which time
all outstanding principal and interest is due. Interest only payments are due
monthly and interest is accrued at an annual rate of LIBOR plus 70 basis points
(5.97% at May 1, 1999). The line of credit has an outstanding balance of
$3,000,000 at May 1, 1999. Subsequent to year end, the terms of this line of
credit agreement were modified as follows: the total line available became $10.0
million and the maturity date was extended to April 30, 2000.
Mortgage Note Payable
The Corporation borrowed $4,800,000 through a building loan agreement with a
bank to purchase a building for the Corporation's food business. This mortgage
note payable matures in November 2008, at which time all outstanding principal
and interest is due. Monthly payments of principal and interest, currently
$32,380, are required with interest accruing at a fixed annual rate of 6.49%.
The note is secured by the building acquired as well as by certain equipment and
has an outstanding balance of $4,760,956 at May 1, 1999. The note agreement
contains certain financial covenants of which the Corporation is currently in
compliance.
Term Note Payable
The Corporation also has available a multiple disbursement term note payable for
$1,700,000. These funds will be used for renovation and construction at the
building mentioned above. Maturity of this note is eight years from draw down of
funds and borrowings accrue interest at an annual rate of LIBOR plus 110 basis
points and are secured by a first mortgage on the building and by certain
equipment. The note agreement also contains certain financial covenants. At May
1, 1999, no amounts have been advanced under this agreement.
Future aggregate maturities of debt for the next five fiscal years and
thereafter is as follows:
Fiscal Year:
2000 $ 3,082
2001 88
2002 93
2003 100
2004 106
Thereafter 4,292
$ 7,761
(Dollars in thousands)
<PAGE>
37
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Segment Reporting
During fiscal 1999, the Corporation adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131). SFAS 131 supercedes previously issued segment reporting
disclosure rules and requires reporting of segment information that is
consistent with the way in which management operates the Corporation. The
adoption of SFAS 131 did not have any impact on the Corporation's financial
position or the results of operations. The segment disclosures presented for
prior years have been restated to conform with the presentation adopted for the
current year.
The Corporation has four reportable segments: brewing, food processing, leasing
and real estate, and corporate. The brewing segment produces beers and ales for
wholesale and retail distribution throughout the United States, primarily in the
northeast region of the country. The food processing segment produces dry side
dish, bouillon, artificial sweeteners, soup, drink mix and instant iced tea
products under private label for many of the country's largest supermarket
chains. The leasing and real estate segment leases construction, transportation
and other high-value equipment and machinery, and partners with experienced real
estate developers to invest in certain properties. The corporate segment retains
the Corporation's investments in marketable securities, generating investment
income as well as supporting corporate costs.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Corporation evaluates
performance based on operating income or loss and earnings before income taxes.
Intersegment sales and transfers are not material and are eliminated in
consolidation. No single customer accounted for more than 10% of revenues, and
the Corporation's international revenues are not significant.
The Corporation's reportable segments, other than corporate, are strategic
business units that offer different products and services. They are managed
separately because each business requires different technology and marketing
strategies.
<PAGE>
38
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial information for the Corporation's reportable segments is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Leasing
Food and
Fiscal Year Brewing Processing Real Estate Corporate Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
1999
- ----------------------------------------------------------------------------------------------------------------------------------
Net revenues from external customers $ 103,284 $ 42,731 $ 3,992 $ - $ - $ 150,007
Depreciation and amortization 4,426 2,165 - - - 6,591
Operating (loss)/income (4,733) 1,818 3,933 (670) - 348
Investment income 124 32 315 3,675 (2,103) 2,043
(Loss)/earnings before income taxes (4,355) 1,070 5,977 4,558 (2,692) 4,558
Identifiable assets 50,100 54,162 36,426 3,265 - 143,953
Capital expenditures 2,063 5,368 - - - 7,431
- ----------------------------------------------------------------------------------------------------------------------------------
1998
- ----------------------------------------------------------------------------------------------------------------------------------
Net revenues from external customers $ 117,235 $ 33,876 $ 2,982 $ - $ - $ 154,093
Depreciation and amortization 5,046 1,239 - - - 6,285
Operating (loss)/income (5,446) 2,237 2,918 (397) - (688)
Investment income 68 (3) 1,007 4,884 (2,228) 3,728
(Loss)/earnings before income taxes (5,188) 1,700 2,296 2,309 1,192 2,309
Identifiable assets 55,771 25,46 143,505 10,852 - 135,589
Capital expenditures 4,589 1,157 - - - 5,746
- ----------------------------------------------------------------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------------------------------------------------------------
Net revenues from external customers $ 127,074 $ 24,979 $ 2,490 $ - $ - $ 154,543
Depreciation and amortization 4,637 591 - - - 5,228
Operating (loss)/income (12) 784 2,428 (604) - 2,596
Investment income 84 - 577 4,019 (1,748) 2,932
Earnings/(loss) before income taxes 232 721 1,654 5,177 (2,607) 5,177
Identifiable assets 58,139 11,612 39,316 27,862 - 136,929
Capital expenditures 7,674 277 - - - 7,951
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Dollars in thousands)
<PAGE>
39
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Supplemental Cash Flow Information
Cash paid for taxes was approximately $ 1,132,000, $1,504,000, and
$1,429,000 in fiscal 1999, fiscal 1998, and fiscal 1997 respectively; cash
paid for interest was approximately $873,000, $173,000, and $122,000 in
fiscal 1999, fiscal 1998, and fiscal 1997 respectively.
(11) Real Estate Investment
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 that 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.
(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 that
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.
<PAGE>
40
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stock Option and Bonus Plans (continued)
Changes in stock options are as follows:
<TABLE>
<S> <C> <C>
Weighted Average
Shares Price Per Share
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
Granted 38,500 32.35
Expired (15,000) 35.77
Forfeited (10,000) 39.77
Outstanding at May 1, 1999 138,500 $ 40.72
</TABLE>
Common stock reserved for options and employee awards totaled 138,933 shares as
of May 1, 1999 and 126,339 shares as of May 2, 1998.
The Corporation adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (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 earnings and basic and diluted earnings per share for the
fiscal years ended May 1, 1999, May 2, 1998, and May 3, 1997 would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<S> <C> <C>
Reported Pro Forma
Earnings Earnings
1999
Net earnings $ 2,463 $ 2,332
Basic earnings per share 1.52 1.44
Diluted earnings per share 1.52 1.44
1998
Net earnings $ 1,335 $ 1,070
Basic earnings per share .83 .66
Diluted earnings per share .82 .66
1997
Net earnings $ 3,346 $ 3,114
Basic earnings per share 2.07 1.93
Diluted earnings per share 2.06 1.92
</TABLE>
(Dollars in thousands, except per share data)
<PAGE>
41
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stock Option and Bonus Plans (continued)
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 19.2%, 18.2%, and 16.1% in fiscal 1999,
fiscal 1998, and fiscal 1997, respectively, expected dividend yield of
5.8%, 4.1% and 4.1% and risk-free interest rates of 5.29%, 6.08%, and 6.45%
in fiscal 1999, 1998, and 1997, respectively. The weighted average fair
value of stock options granted was $3.40, $6.97, and $6.66 in fiscal 1999,
1998, and 1997, respectively.
The following table summarizes information about stock options outstanding
and exercisable at May 1, 1999:
<TABLE>
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Range of Exercise Number Outstanding Weighted Average Weighted Average
Prices Per Share May 1, 1999 at Contractual Life in Years Exercise Price
----------------------------------------------------------------------------------------------------
$24.00 - 38.00 42,000 3.7 $ 32.98
38.00 - 44.00 28,250 .8 39.73
44.00 - 47.00 68,250 2.7 45.90
---------------------------------------------------------------------------------------------------
$24.00 - 47.00 138,500 2.6 $ 40.72
---------------------------------------------------------------------------------------------------
</TABLE>
(13) Earnings Per Share
The computation of earnings per share for the years ended May 1, 1999, May
2, 1998, and May 3, 1997 is based on the following:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Net earnings (in thousands) $ 2,463 $ 1,335 $ 3,346
Basic earnings per share 1.52 .83 2.07
Diluted earnings per share 1.52 .82 2.06
Weighted average common shares outstanding 1,618,793 1,617,962 1,617,102
Weighted average and common equivalent shares 1,618,841 1,622,069 1,622,008
</TABLE>
In fiscal 1999, 1998 and 1997, respectively, 133,500, 80,750 and 59,000
shares of potential common stock are considered anti-dilutive and are
excluded from the calculation of diluted earnings per share.
(14) Postretirement Benefits
Effective May 3, 1998 the Corporation adopted Statement of Financial
Accounting Standards No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits (SFAS 132). SFAS 132 revises employers'
disclosures about pension and other postretirement benefit plans; however,
<PAGE>
42
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Postretirement Benefits (continued)
it does not change the measurement or recognition of those plans.
Therefore, the adoption of SFAS 132 had no effect on the accompanying
consolidated financial statements.
The Corporation provides certain health care and life insurance benefits to
eligible retired employees and spouses under a welfare benefit plan (the
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.
Effective January 1, 1999, the Corporation implemented a cap on the
Corporation's HMO medical cost for bargaining retirees equal to 135% of its
1994 cost. Previously, the cap on the Corporation's medical cost for
bargaining retirees was equal to 150% of its 1994 cost. The effect of this
change in the Plan was to decrease the accumulated postretirement benefit
obligation by approximately $299, 000. A prior service cost base was
established in recognition of this amendment. 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. The Plan is not prefunded by the
Corporation and there are no assets associated with the Plan.
The following table sets forth the accumulated postretirement benefit
obligation (APBO) and the total postretirement benefit liability for the
Plan at May 1, 1999 and May 2, 1998.
(Dollars in thousands)
<TABLE>
<S> <C> <C>
1999 1998
Accumulated postretirement benefit obligation (APBO) $ 12,161 $ 11,669
Unrecognized prior service cost 2,644 2,694
Unrecognized net actuarial gain 1,258 1,764
Total postretirement benefit liability $ 16,063 $ 16,127
</TABLE>
As of May 1, 1999 and May 2, 1998, $731,000 and $712,000 of this obligation
was classified as a current liability and $15,332,000 and $15,415,000 was
classified as a long-term liability, respectively.
Net periodic postretirement benefit cost for fiscal years ended May 1,
1999, May 2, 1998, and May 3, 1997 includes the following components:
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
Service cost $ 269 $ 226 $ 247
Interest cost 789 845 849
Amortization of prior service cost (349) (349) (349)
Amortization of gain (42) (94) -
Net periodic postretirement benefit cost $ 667 $ 628 $ 747
</TABLE>
<PAGE>
43
GENESEE CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Postretirement Benefits (continued)
The following table summarizes the change in the APBO for fiscal 1999 and
fiscal 1998
(Dollars in thousands)
1999 1998
APBO, beginning of year $ 11,669 $ 10,700
Service cost 269 226
Interest cost 789 845
Actuarial loss 464 610
Benefits paid (731) (712)
Amendments
(299) -
APBO, end of year $ 12,161 11,669
For measurement purposes, a 7.5%, 8.5% and 7.5% annual trend rate for
health care costs was assumed for fiscal 1999, 1998 and 1997 respectively,
decreasing gradually to 5.5% by fiscal 2001 and remaining at that level
thereafter. The long-term rate for compensation increases for
non-bargaining employees is assumed to be 4% for each year. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at May 1,1999 and May 2, 1998, and 8.2% at May
3, 1997.
Increasing the assumed health care cost trend rates by 1 percentage point
in each year would not have a significant impact on the accumulated
postretirement benefit obligation as of May 1, 1999 nor on the net periodic
postretirement benefit expense for fiscal 1999.
(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 ($815,000 in fiscal 1999, $853,000 in fiscal 1998, and
$879,000 in fiscal 1997).
All salaried and office employees who have been employed by the Corporation
for two years are eligible for coverage in fully trusteed, 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 ($1,286,000 in fiscal 1999, $1,292,000 in fiscal 1998,
and $1,289,000 in fiscal 1997).
<PAGE>
44
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> <C> <C>
Expiration
Director Position and Principal Occupation of Term
Name and Age Since for the Last Five Years in Office
- ----------------------------------------------------------------------------------------------------------------------------
Stephen B. Ashley (59) 1987 Chairman and Chief Executive 1999
Officer of The Ashley Group (1)
William A. Buckingham (56) 1992 Retired; formerly Executive Vice President 2001
of First Empire State Corporation and Manufacturers and
Traders Trust Company (2)
Thomas E. Clement (66) 1970 Partners - Nixon Peabody LLP, Attorneys 1999
Gary C. Geminn (56) 1986 Senior Vice President - Operations of Genesee 2000
Genesee Company
Samuel T. Hubbard, Jr. (49) 1992 President and Chief Operating Officer of the 2001
Corporation (3)
Charles S. Wehle (51) 1976 Senior Vice President of the Corporation (4) 2000
John L. Wehle, Jr. (53) 1976 Chairman of the Board and Chief Executive 1999
Officer of the Corporation (5)
</TABLE>
(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, Exeter Fund, Inc. and Manning & Napier Insurance
Fund, Inc.
<PAGE>
45
(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. Mr. Buckingham
is also a Director of Hahn Automotive Warehouse, Inc.
(3) Mr. Hubbard was elected President and Chief Operating Officer of the
Corporation on June 17, 1999. Prior to that, he served as President and
Chief Executive Officer of The Alling & Cory Company, a distributor of
paper and packaging products headquartered in Rochester, New York. Mr.
Hubbard is also a Director of M&T Bank Corporation and Rochester Gas and
Electric Corporation.
(4) See Note (3) to Item 10(b).
(5) Mr. Wehle is also a Director of M&T Bank 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>
Officer of the
Name Age Company Since Office
- -------------------------------------------------------------------------------------------------
John L. Wehle, Jr. 53 1970 Chairman of the Board and Chief Executive
Officer (1)
Samuel T. Hubbard, Jr. 49 1999 President & Chief Operating Office (2)
Charles S. Wehle 51 1988 Senior Vice President (3)
Gary C. Geminn 56 1985 Senior Vice President - Operations of
Genesee Brewing Company (4)
Karl D. Simonson 56 1994 Vice President - Planning & Development (5)
William A. Neilson 48 1986 Vice President - Human Resources (6)
Mark W. Leunig 44 1988 Vice President, Secretary and General
Counsel (7)
Michael C. Atseff 43 1992 Vice President and Controller (8)
Lloyd R. Theiss 39 1998 Vice President and Treasurer (9)
- ---------------------------------------------------------------------------------------------------
</TABLE>
(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 Chairman of
the Board of Genesee Brewing Company.
(2) Mr. Hubbard was elected President and Chief Operating Officer of the
Corporation on June 17, 1999. He is also a Director and Chief Executive
Officer of Genesee Brewing Company. Prior to being elected President and
Chief Operating Officer of the Corporation, Mr. Hubbard was President and
Chief Executive Officer of The Alling & Cory Company, positions he held for
more than five years.
<PAGE>
46
(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 for more than five years.
(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. Atseff was elected Vice President and Controller of the Corporation in
August 1998. Prior to that, he was Controller of the Corporation, a
position he held for more than five years.
(9) Mr. Theiss was elected Treasurer of the Corporation in October 1998. Prior
to that, he was Assistant Treasurer of the Corporation, a position he held
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 1, 1999.
Item 11. Executive Compensation
(a) Summary of Executive Compensation. The table below sets forth a summary
of compensation paid during the past three fiscal years for all services
rendered to the Corporation and its subsidiaries by the Chief Executive Officer
and the four other most highly compensated executive officers of the Corporation
whose total annual salary and bonus for the fiscal year ended May 1, 1999
exceeded $100,000.
<PAGE>
47
Summary Compensation Table
<TABLE>
ANNUAL COMPENSATION LONG TERM COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other
Annual Restricted All Other
Name and Compen- Stock Stock Compensa-
Principal Position Fiscal Year Salary($) Bonus($) sation($) Awards($)(6) Options(#) tion ($)
- ----------------------------------------------------------------------------------------------------------------------------------
John L. Wehle, Jr., 1999 $ 349,672 $2,828(1) $1,414 375 5,000 $40,696(7)
Chairman of the 1998 347,126 2,570(3) 1,285 0 5,000 39,903
Board and Chief 1997 337,016 3,180(5) 1,590 0 5,000 52,337
Executive Officer
Charles S. Wehle, 1999 188,833 2,595(1) $1,297 375 4,000 24,044(8)
Senior Vice 1998 204,500 1,928(3) 964 0 4,000 23,992
President 1997 192,500 2,385(5) 1,193 0 3,000 29,129
Karl D. Simonson 1999 139,000 38,064(2) $ 943 250 2,000 18,053(9)
Vice President - 1998 121,650 16,354(4) 884 0 2,000 14,931
Planning & 1997 112,475 2,186(5) 1,093 0 1,500 16,979
Development
Mark W. Leunig, 1999 110,000 32,498(2) $ 943 250 1,500 12,897(10)
Vice President, 1998 107,697 14,944(4) 884 0 1,500 11,717
General Counsel 1997 100,052 2,186(5) 1,093 0 1,500 13,713
and Secretary
Robert N. Latella, 1999 238,067 1,046(1) $ 523 0 4,000 35,384(11)
Former Executive 1998 236,334 64,939(4) 1,285 0 4,000 29,160
Vice President and 1997 229,450 3,180(5) 1,590 0 4,000 36,226
Chief Operating
Officer
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts reflect stock bonuses earned during fiscal 1999 under the
Corporation's 1992 Stock Plan that were paid to the named executive officer
in June 1999.
(2) Amounts reflect cash and stock bonus earned during fiscal 1999 under the
Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan that were paid
to the named executive officer in June 1999.
(3) Amounts reflect stock bonuses earned during fiscal 1998 under the
Corporation's 1992 Stock Plan that were paid to the named executive in June
1998.
(4) Amounts reflect cash and stock bonuses earned during fiscal 1998 under the
Corporation's 1986 Incentive Bonus Plan and 1992 Stock Plan that were paid
to the named executive officer in June 1998.
(5) Amounts reflect stock bonuses earned during fiscal 1997 under the
Corporation's 1992 Stock Plan that were paid to the named executive officer
in June 1997.
(6) As of May 1, 1999, the aggregate number of shares and corresponding value
of restricted stock held by each of the named individuals was as follows:
300 shares valued at $6,975 held by each of Messrs. J. L. Wehle, Jr. and C.
S. Wehle; and 200 shares valued at $4,650 held by each of Messrs. Leunig
and Simonson. No dividends are paid on the restricted stock.
<PAGE>
48
(7) Amount reflects $16,400 contribution under the Corporation's Profit Sharing
Retirement Plan, $21,128 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.
(8) Amount reflects $16,400 contribution under the Corporation's Profit Sharing
Retirement Plan, $5,559 contribution under the Corporation's Benefit
Restoration Plan and $2,085 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. C. S. Wehle.
(9) Amount reflects $16,316 contribution under the Corporation's Profit Sharing
Retirement Plan and $1,737 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. Simonson.
(10) Amount reflects $12,897 contribution under the Corporation's Profit Sharing
Retirement Plan for the benefit of Mr. Leunig.
(11) Amount reflects $16,400 contribution under the Corporation's Profit Sharing
Retirement Plan, $15,150 contribution under the Corporation's Benefit
Restoration Plan and $3,834 in premiums paid by the Corporation on life
insurance policies for the benefit of Mr. Latella.
(b) The table below sets forth information about options granted to the
named executive officers during the Corporation's fiscal year ended May 1, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Potential Realized
Individual Grants Value at Assumer
% of Total Annual Rates of Stock
Options Price Appreciation for
Options Granted to Option Term (2)
Granted Employees Exercise Price Expiration
Name (#)(1) Fiscal Year ($/SH) Date 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------
John L. Wehle, Jr. 5,000 14.9% $35.93 6/17/03 28,787 83,366
Robert N. Latella 4,000 11.9% $32.66 6/17/03 36,093 79,757
Charles S. Wehle 4,000 11.9% $35.93 6/17/03 23,029 66,693
Karl D. Simonson 2,000 6.0% $32.66 6/17/03 18,047 39,879
Mark W. Leunig 1,500 4.5% $32.66 6/17/03 13,535 29,909
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options to acquire shares of Class B Common Stock pursuant to the
Corporation's 1992 Stock Plan. Options are exercisable in their entirety
from and after the date of grant.
(2) The potential realizable value illustrates value that might be realized
upon exercise of the options immediately prior to the expiration of their
term, assuming the specified annual compound rates of appreciation on the
Corporation's Class B Common Stock over the term of the options.
(c) Exercise of Options by Executive Officers. The table below sets forth
information about the aggregate number of shares received and the value realized
by the named executive officer upon exercise of options exercised during the
Corporation's fiscal year ended May 1, 1999; and the aggregate number and value
of options held by the named executive officer at the end of the fiscal year:
<PAGE>
49
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares
Acquired Value $ Exercis Unexercis- Exercis- Unexercis-
Name on Realized able able able able
Exercise
- -------------------------------------------------------------------------------------------------
John L. Wehle, Jr. 0 0 20,000 0 0 0
Robert N. Latella 0 0 16,000 0 0 0
Charles S. Wehle 0 0 14,000 0 0 0
Karl D. Simonson 0 0 7,000 0 0 0
Mark W. Leunig 0 0 6,000 0 0 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. and Charles S. Wehle (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.
(3) Under an agreement with the Corporation, Robert N. Latella resigned all
positions that he held with the Corporation and its subsidiaries and
affiliates, effective June 30, 1999. Under this agreement, the Corporation
will pay Mr. Latella severance compensation in the amount of $400,000.
Provided that Mr. Latella has not revoked or breached the agreement, the
first $200,000 installment of the severance compensation will be paid in
August 1999 and the balance will be paid on the earlier of May 1, 2000 or
the occurrence of a "change of control" (as that term is defined in the
agreement). For stated durations, the Corporation will continue coverage
for Mr. Latella under certain health, disability and life insurance
policies and will provide certain other executive benefits to Mr. Latella.
(f) Compensation Committee Interlocks and Insider Participation. Stephen B.
Ashley, William A. Buckingham and Thomas E. Clement served during the fiscal
year ended May 1, 1999 as members of the Management Continuity Committee of the
<PAGE>
50
Corporation's Board of Directors. See description of relationship with Mr.
Clement at Item 13.
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 16, 1999,
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:
Percent of
Name and Address Amount Owned Class A Stock
John L. Wehle, Jr., as Trustee 73,845 (1) 35.2%
under the Will of Louis A. Wehle
P. O. Box 762
Rochester, New York 14603
John L. Wehle, Jr., Charles S. Wehle 41,957 (2) 20.0%
and Henry S. Wehle
P. O. Box 762
Rochester, New York 14603
John L. Wehle, Jr., as Trustee under 12,145 (3) 5.8%
Elizabeth R. Wehle Trust
P. O. Box 762
Rochester, New York 14603
Franklin Resources, Inc. 23,511 11.2%
777 Mariners Island Boulevard
San Mateo, California 94404
(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.
<PAGE>
51
(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 23, 1999 by each director and by all
directors and officers as a group are set forth in the following table:
<TABLE>
<S> <C> <C> <C> <C>
Shares of Percentage of Stocks of Percentage of
Name of Director Class A Class A Class B Class B
of Executive Officer Common Stock Common Stock Common Stock Common Stock
- -------------------------------------------------------------------------------------------------------------
John L. Wehle, Jr. 127,947 (1) 61.0% 98,198(3)(4) 6.9%
(5)(6)
Gary C. Geminn None - 10,204(7) (14)
Mark W. Leunig None - 6,325(8) (14)
Charles S. Wehle None - 16,375(9) 1.1%
Thomas E. Clement (2) (2) 5,104(4)(10) (14)
Stephen B. Ashley None - 5,200(11) (14)
Karl D. Simonson None - 7,325(12) (14)
William A. Buckingham 240 - 5,000(4)(13) (14)
Samuel T.Hubbard, Jr. None - 5,000(13) (14)
---------- ---------- ----------------- --------
All Directors 128,187 61.1% 170,226 11.4%
and Executive as a
Officers group (14 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 475 shares owned individually and 20,000 shares which may be
acquired pursuant to presently exercisable stock options.
(7) Includes 2,204 shares owned individually and 8,000 shares which may be
acquired pursuant to presently exercisable stock options.
(8) Includes 325 shares owned individually and 6,000 shares which may be
acquired pursuant to presently exercisable stock options.
(9) Includes 2,375 shares owned individually, 14,000 shares which may be
acquired pursuant to presently exercisable stock options.
<PAGE>
52
(10) Includes 104 shares owned individually and 5,000 shares which may be
acquired pursuant to presently exercisable stock options.
(11) Includes 200 shares owned individually and 5,000 shares which may be
acquired pursuant to presently exercisable stock options.
(12) Includes 325 shares owned individually and 7,000 shares which may be
acquired pursuant to presently exercisable stock options.
(13) Shares which may be acquired pursuant to presently exercisable stock
options.
(14) 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 Peabody LLP. During fiscal
1999, Nixon, Hargrave, Devans & Doyle, the predecessor of Nixon Peabody,
performed legal services for the Corporation. The Corporation intends to retain
Nixon Peabody to provide such services in fiscal 2000.
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 18 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 54 of this report.
(b) Reports on Form 8-K.
The Corporation filed a report on Form 8-K on June 25, 1999 to
report information under Item 5 (Other Events).
<PAGE>
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized. Genesee Corporation
July 22, 1999 By: /s/John L. Wehle, Jr.
(Date) John L. Wehle, Jr., Chairman and
Chief Executive Officer
July 22, 1999 By: /s/Michael C. Atseff
(Date) Michael C. Atseff, Vice
President and 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.
<TABLE>
<S> <C> <C> <C>
/s/Stephen B. Ashley July 22, 1999 Director
Stephen B. Ashley (Date)
/s/William A. Buckingham July 22, 1999 Director
William A. Buckingham (Date)
/s/ Thomas E. Clement July 22, 1999 Director
Thomas E. Clement (Date)
/s/ Gary C. Geminn July 22, 1999 Director
Gary C. Geminn (Date)
/s/ Samuel T. Hubbard, Jr. July 22, 1999 Director
Samuel T. Hubbard, Jr. (Date)
/s/ Charles S. Wehle July 22, 1999 Director
Charles S. Wehle (Date)
/s/John L. Wehle, Jr. July 22, 1999 Director
John L. Wehle, Jr. (Date)
</TABLE>
<PAGE>
54
SCHEDULE II
GENESEE CORPORATION
AND SUBSIDIARIES
Consolidated Valuation and Qualifying Accounts
Years ended May 1, 1999, May 2, 1998 and May 3, 1997
<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)
1999
Allowance for doubtful $ 433 100 55 478
receivables
Allowance for loss on idle 634 - 634 -
plant and equipment
Allowance for obsolete 387 127 364 150
inventory
-----------------------------------------------------------------------------------------
$ 1,454 227 1,053 628
=========================================================================================
1998
Allowance for doubtful $ 408 31 6 433
receivables
Allowance for loss on idle 487 152 5 634
plant and equipment
Allowance for obsolete 198 538 349 387
inventory
-----------------------------------------------------------------------------------------
$ 1,093 721 360 1,454
=========================================================================================
1997
Allowance for doubtful $ 433 (27) (2) 408
receivables
Allowance for loss on idle 448 39 - 487
plant and equipment
Allowance for obsolete 208 558 568 198
inventory
=========================================================================================
$ 1,089 570 566 1,093
=========================================================================================
</TABLE>
<PAGE>
55
Exhibit Index
<TABLE>
<S> <C> <C>
Number Document Page
- ------------------------------------------------------------------------------------------
3-1 Certificate of Incorporation. 56
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 --
restated in 1997 (incorporated by reference to Exhibit
10-1 to the Corporation's report on Form 10-K for the
fiscal year ended May 2, 1998). --
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 --
1997 (incorporated by reference to Exhibit 10-3 to the
Corporation's report on Form 10-K for the fiscal year
ended May 2, 1998).
10-4 Agreement with J. 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). A
substantially identical agreement was executed with C.
S. Wehle.
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).
10-8 Severance Agreement and General Release with R. N. 58
Latella dated July 22, 1999.
21 Subsidiaries of the Registrant 64
</TABLE>
<PAGE>
56
Exhibit 3-1
Restated Certificate of Incorporation
Of
The Genesee Brewing Co., Inc.
The undersigned officers of The Genesee Brewing Co., Inc. hereby certify that:
I. The name of the corporation is The Genesee Brewing Co., Inc.
II. The Certificate of Incorporation of the corporation was filed with the
Department of State of the State of New York on July 8, 1932.
III. The Certificate of Incorporation of the corporation, as heretofore
amended and restated, is hereby further amended to effect the following changes:
A. The name of the corporation in Paragraph 1 of the Certificate of
Incorporation is hereby changed to Genesee Corporation.
B. The address in Paragraph 5 of the Certificate of Incorporation to
which the Secretary of State shall mail a copy of any process
served upon him is hereby changed to: Genesee Corporation 445 St.
Paul Street Rochester, New York 14605
IV. The Certificate of Incorporation, as heretofore amended and restated,
and as further amended and changed hereby, is hereby restated in full to read as
follows:
Certificate of Incorporation
Of
Genesee Corporation
1. The name of the corporation is Genesee Corporation.
2. The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law, and to have and exercise all of the powers conferred
by the laws of New York upon corporations formed under the Business Corporation
Law. The corporation is not formed to engage in any act or activity requiring
the consent or approval of any state official, department, board, agency or
other body without such consent or approval first being obtain.
3. The amount of the corporation's authorized capital stock is two million
one hundred fifty thousand dollars ($2,150,000) and the number and par value of
the shares of which it is to consist shall be four hundred fifty thousand
(450,000) shares of Class A Common Stock of the par value of fifty cents ($.50)
per share and three million eight hundred fifty thousand (3,850,000) shares of
Class B Common Stock of the par value of fifty cents ($.50) per share.
The Class A Common Stock and the Class B Common Stock are entitled to the
same rights, powers and preferences, and there is no distinction between the
them, except that the Class A Common Stock is solely entitled to vote and the
Class B Common Stock has no vote except as provided by law.
4. The principal office of the corporation is to be located in the City of
Rochester, Monroe County, New York.
<PAGE>
57
5. The Secretary of State of the State of New York is hereby designated as
the agent of the corporation upon whom process in any action or proceeding
against it may be served. The post office address to which the Secretary of
State shall mail a copy of any such process served upon him is: Genesee
Corporation 445 St. Paul Street Rochester, New York 14605
6. Any one or more of the directors may be removed either with or without
cause at any time by vote of the stockholders holding a majority of the shares
of stock outstanding, at any special meeting of such stockholders, and thereupon
the term of the director or directors who shall have been so removed shall
forthwith terminate, and there shall be a vacancy or vacancies in the Board of
Directors to be filled in the manner provided by law and the by-laws of the
corporation.
7. No contract or other transaction between this corporation or any other
firm or corporation shall be affected or invalidated by the fact that any one or
more of the directors of this corporation is or are interested in, or is a
member, director or officer, or are members, directors or officers, of such firm
or corporation, and any director or directors, individually or jointly, may be a
party or parties to or may be interested in any contract or transaction of this
corporation or in which this corporation is interested; and no contract, act or
transaction of this corporation with any person, firm, corporation or
association shall be affected or invalidated by the fact that any director or
directors of this corporation is a party or are parties to or interested in such
contract, act or transaction, or in any way connected with such person, firm,
corporation or association, and each and every person who may become a director
of this corporation is hereby relieved from any liability that might otherwise
exist, from contracting with this corporation for the benefit of himself, or any
firm, corporation or association in which he may in any way be interested.
8. A director of the corporation shall not be liable to the corporation or
its stockholders for damages for any breach of duty in such capacity, except to
the extent that such exemption from liability or limitation thereof is not
permitted under the New York Business Corporation Law as the same exists or may
hereafter be amended. Any repeal or modification of the foregoing provision of
this Paragraph 8 shall not adversely affect any right or protection of a
director of the corporation existing hereunder with respect to any acts or
omissions occurring prior to or at the time of such repeal or modification.
9. The Board of Directors of the corporation shall be classified, with
respect to the time for which each class shall hold office, into three classes,
as nearly equal in number as possible as determined by the Board of Directors.
The first class of directors shall be initially elected to hold office until the
annual meeting of shareholders held in the first year following the year of
their election, the second class shall be initially elected to hold office until
the annual meeting of shareholders held in the second year following the year of
their election, and the third class shall be elected to hold office until the
annual meeting of shareholders held in the third year following the year of
their election. Thereafter, the successors of the class of directors whose term
expires at each annual meeting of shareholders held in the third year following
the year of their election.
V. The foregoing amendment and restatement of the Certificate of
Incorporation was authorized by the affirmative vote of the Board of Directors
of the corporation followed by the affirmative vote of the holders of a majority
of all outstanding shares of the corporation entitled to vote thereon.
In witness whereof, we have made and subscribed this Certificate and hereby
affirm under penalties of perjury that its contents are true this 18th day of
December, 1987.
/s/John L. Wehle, Jr.
John L. Wehle, Jr., President
/s/Robert N. Latella
Robert N. Latella, Secretary
<PAGE>
58
Exhibit 10-8
SEVERANCE AGREEMENT AND GENERAL RELEASE
In consideration of the promises and undertakings hereinafter set forth,
Genesee Corporation and its wholly owned subsidiaries The Genesee Brewing
Company, Inc., Ontario Foods, Inc., Freedom Foods, Inc. and Thompson Kitchens,
Inc. (hereinafter referred to collectively as "Genesee" or the "Company"), and
Robert N. Latella (the "Executive") agrees as follows.
I. Resignation.
The employment of the Executive with the company has ceased effective June
15, 1999. Immediately upon execution of this Agreement, he will resign from all
other positions he holds with Genesee and its affiliates, joint ventures, and
subsidiaries effective June 30,1999.
II. Compensation and Benefits.
A. Payment and Benefits. The following payments and benefits shall be
provided to Executive:
1. Severance Payment. The Company will pay to the Executive severance
in the amount of Four Hundred Thousand Dollars ($400,000.00), payable in
two equal payments of Two Hundred Thousand Dollars ($200,000.00) each less
all applicable taxes and deductions. So long as Executive does not revoke
or breach this Agreement, the first payment shall be made no later than 10
days after the Effective Date of this Agreement, and the second payment
shall be made on the earlier of: (a) May 1, 2000 or (b) the occurrence of a
"change in control" as that term is defined in an Executive Agreement
between Executive and the Company dated May 7, 1991. This payment is
consideration for the Executive's releases and promises contained in this
Agreement and for the cancellation of all employment contracts between the
Company and the Executive, including but not limited to the Executive
Agreement between the Executive and the Company dated May 7, 1991.
2. Medical and Dental Plans. The Company shall pay all premiums for
the Executive to participate in the same or equivalent Genesee medical and
dental insurance plans as if an active employee until the earlier of: (a)
July 1, 2001 or (b) the Executive has the same or equivalent medical and/or
dental insurance available to him through employment. Executive shall
immediately notify the Company if the same or equivalent insurance is
available to him through employment, including a partnership or
self-employment (defined as Executive earning annual income of $20,000.00
or more). Executive has participated in Genesee's Blue Cross and Blue
Shield Comprehensive Low Deductible Plan and in Genesee's Enhanced Dental
program. When the Company's payment of premiums for coverage under either
Plan ceases, Executive shall have the right to continue to participate in
that Plan at his own expense for eighteen months, so long as the insurance
carrier determines that continuation rights are available to him.
3. Life Insurance. Executive will continue to be covered by Life
Insurance under the Company plan currently in effect with the Hartford
until December 15, 1999, providing Life Insurance in the face amount of
$476,134.00.
4. Automobile. Upon the Effective Date of this Agreement, Executive
may purchase from the Company the company-owned SAAB he is currently using
for the purchase price of One Dollar ($1.00). Executive shall be solely
responsible for all automobile related costs, including but not limited to
insurance, registration and other such expenses.
5. Payment of Employment Related Expenses. During Executive's
employment and prior to Executive's termination of employment on June 15,
1999, Executive incurred certain expenses which the Company had agreed to
pay. These expenses include and are limited to: financial planning services
, Oak Hill Country Club membership fees through June 15, 1999, and a final
expense account report in the amount of $1174.75. The Company shall pay for
such expenses which were incurred on or before June 15, 1999 upon
presentation of proper statements and invoices.
6. Vacation Pay. Despite Executive's termination on June 15, 1999,
Executive has received salary payments through June 30, 1999. Executive had
also accrued 28 1/2 days of untaken vacation. After application of the
credit for additional salary payments, the Company shall pay Executive for
18 1/2 vacation days. Such payment shall be made upon the pay period next
following the Effective Date of this Agreement.
<PAGE>
59
B. Bonus. Executive participated in the Genesee Corporation 1986
Incentive Bonus Plan (the "Plan"). Participation in the Plan and the amount
of a bonus, if any, is to be determined in the sole discretion of the
Management Continuity Committee (the "Committee") of the Board of Directors
of the Corporation for fiscal 1999, pursuant to amendment of the Plan duly
adopted on September 15, 1998. Executive agrees that, other than as a
result of a decision by the Committee pursuant to this paragraph, he has no
entitlement to a Bonus pursuant to the Plan, and by this Agreement, waives
any and all right to require payment of a Bonus or any amount of Bonus, or
to challenge the decision of the Committee for fiscal 1999 on any ground,
including but not limited to lack of fairness or good faith.
Notwithstanding the foregoing, Executive shall be given the earliest
opportunity to meet alone with the Committee prior to its determination
concerning bonuses for fiscal 1999 for purposes of presenting to the
Committee the reasons why he believes that he should receive a bonus in
addition to the settlement provided for herein. The Company shall be given
a similar opportunity to meet alone with the Committee. Thereafter, the
declaration of a bonus or no bonus to Executive shall be within the
discretion of the Committee, and the decision shall not be challenged by
the Executive or by the Company.
C. Taxation. Executive acknowledges and agrees that all payments made
to Executive pursuant to this Agreement are gross amounts, subject to
applicable federal and state tax withholding and reporting, as required.
D. Other Payments. Except as is specifically provided herein,
Executive agrees that he has received all salary, benefits, bonuses,
vacation and sick pay, and all other wages and benefits to which he was
entitled by the Company, and he waives and releases any claim that he has
not received the foregoing payments or benefits.
E. Miscellaneous. The furniture currently in the office that Executive
formerly occupied at the Company belongs to the Company. In the event that
the Company no longer has any use for the furniture and wishes to dispose
of it, Executive shall be offered the first option to purchase the
furniture for One Dollar ($1.00).
III. Other Employee Benefit Plans.
This Agreement shall not affect the amount of Executive's vested benefits
under the employee benefit plans in which he participates. After June 15, 1999,
Executive shall be treated as a retired participant under the following benefit
plans, and he shall be entitled only to the rights of a retired participant
under the terms of those plans:
1. Genesee Corporation Stock Bonus Incentive Program ("Stock Bonus Plan);
2. Stock Option Plan.
3. The Executive shall receive the amounts held by M & T Bank in account
number 410064596 and due Executive as a result of the Genesee Corporation
Benefit Restoration Plan, salary deferred by the Executive and deferred
compensation awarded the Executive in lieu of contributions to the Genesee
Corporation Profit Sharing Retirement Plan. Immediately upon execution of this
Agreement, Genesee shall request that M & T Bank take the necessary action to
pay out the entire balance of the account to Executive in accordance with the
terms of the applicable plans.
The Executive shall participate in any employee benefit plan qualified
under section 401(a) of the Internal Revenue Code of 1986 in accordance with the
terms of the plan. Except as is expressly provided in this Agreement, Executive
will not participate in the Genesee Corporation Profit Sharing Retirement Plan
and Benefit Restoration Plan or any other employee benefit plan (as defined by
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"))
for the plan year ending April 30, 2000.
IV. ERISA Considerations.
A. The provisions of this Agreement are intended to constitute a severance
pay plan within the meaning of Labor Regulation 29 C.F.R. Section 2510.3-2(b)
and shall be construed and interpreted in a manner consistent with such
intention. To the extent that the provisions of this Agreement fail to
constitute a severance pay plan for any reason, then this Agreement is intended
to create an unfunded and non-qualified plan of deferred compensation for the
benefit of a highly compensated employee and member of management and shall be
construed and interpreted in a manner consistent with such intention.
B. In the event the Company fails to make any payments as agreed, to obtain
payment of the severance pay under this Agreement, the Executive must file a
written claim with the Company on such forms as shall be furnished to him by the
Company. If a claim for benefit is denied by the Company, in whole or in part,
the Company shall provide adequate notice in writing to the Executive within
ninety (90) days after receipt of the claim unless special circumstances require
an extension of time for processing the claim. If such an extension of time for
processing is required, written notice indicating the special circumstances and
<PAGE>
60
the date by which a final decision is expected to be rendered shall be furnished
to the Executive. In no event shall the period of extension exceed one hundred
eighty (180) days after receipt of the claim. The notice of denial of the claim
shall set forth (a) the specific reason or reasons for the denial; (b) specific
reference to pertinent provisions of the Agreement on which the denial is based;
(c) a description of any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or
information is necessary; and (d) a statement that any appeal of the denial must
be made by giving to the Company, within sixty (60) days after receipt of the
notice of the denial, written notice of such appeal, such notice to include a
full description of the pertinent issues and basis of the claim. The Executive
may review pertinent documents and submit issues and comments in writing to the
Company. If the Executive fails to appeal such action to the Company in writing
within the prescribed period of time, the Company's adverse determination shall
be final, binding and conclusive.
C.If the Executive appeals the denial of a claim for benefits within the
appropriate time, the Executive must submit the notice of appeal and all
relevant materials to the Company. The Company may hold a hearing or otherwise
ascertain such facts as it deems necessary and shall render a decision which
shall be binding upon both parties. The decision of the Company shall be made
within sixty (60) days after the receipt of the notice of appeal, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered as soon as possible but not later than one hundred
twenty (120) days after receipt of the request for review. If such an extension
of time is required, written notice of the extension shall be furnished to the
claimant prior to the commencement of the extension. The decision of the Company
shall be in writing, shall include specific reasons for the decision, written in
a manner calculated to be understood by the claimant, as well as specific
references to the provisions of the Agreement on which the decision is based and
shall be promptly furnished to the claimant.
D. Whether or not the Agreement is an employee benefit plan as defined in
Section 3(1) of ERISA, the parties agree that if the Company fails to make
timely payment of either or both of the Two Hundred Thousand Dollar
($200,000.00) severance payments set forth in Paragraph A. 1. of Section II of
this Agreement (the "Severance Payments"), the Executive may utilize the claims
procedure provided for in paragraphs B and C of this section of the Agreement,
or he may bring a claim in an appropriate court to enforce his rights under the
Agreement. In the event that the Executive chooses to bring a claim in an
appropriate court, the court claim shall be governed solely by the laws relating
to the interpretation and enforcement of contracts, and the Company further
agrees that it shall not claim that the decision of the Company or any Plan
Administrator is entitled to special deference by the trier of fact as a result
of the ERISA provisions contained herein.
V. Non-Competition.
Executive hereby covenants and agrees that from the date hereof until
January 1, 2001 (the "Restricted Period"):
(a) He will not, for himself or on behalf of any person, firm, partnership,
Company or corporation call upon any customer of the Company for the purpose of
soliciting or providing to such customer any products or services which are the
same as or substantially similar to those which were provided to customers by
the Company during the term of Executive's employment with the Company. For
purposes of this Agreement, "customer of the Company" shall include, but not be
limited to, all customers contacted or solicited by the Company or the Executive
for the purchase of goods or services during the term of his employment with the
Company;
(b) Executive will not, directly or through another person or entity, for
himself or on behalf of any other person, firm, partnership, company or
corporation, directly or indirectly, seek to persuade any director, officer, or
employee of the Company to discontinue that individual's status or employment
with the Company;
(c) Executive will not, directly or indirectly, alone or as an employee,
independent contractor of any type, partner, officer, director, manager,
creditor, stockholder (except as the owner of less than 1% of the stock of a
publicly traded corporation), member or holder of any option or right to become
a stockholder in any entity or organization, engage within the Company's
principal geographic area(s) of operation and in competition with any other
business operation conducted by the Company during the term of Executive's
employment with the Company, in any business pertaining to the sale,
distribution, marketing, production, consulting for or provision of products or
services similar to or in competition with any products or services produced,
designed, sold, distributed or rendered, as the case may be, by the Company
during the term of Executive's employment with the Company; nor for the same
period of time, within the same areas and under the same conditions as
previously set forth, shall the Executive advance credit, lend money, furnish
quarters or give advice, directly or indirectly, to any person, corporation or
business entity of any kind (other than the Company) which is engaged in any
such business or operation; and
(d) If any of the restrictions on competitive activities contained in this
Paragraph shall for any reason be held by a court of competent jurisdiction to
<PAGE>
61
be excessively broad as to duration, geographical scope, activity or subject,
such restrictions shall be construed so as to thereafter be limited or reduced
to be enforceable to the extent compatible with applicable law as it shall then
exist; it being understood that by the execution of this Agreement the parties
hereto regard such restrictions as reasonable and compatible with their
respective rights and expectations.
(e) Executive's engagement in the general practice of law for a law firm
shall not be deemed to constitute competition within the meaning of this
Agreement.
VI. General Release from the Executive to the Company.
In consideration of the promises and covenants contained herein, Executive
fully and completely releases the Company, its officers, directors, employees,
shareholders, successors, predecessors, subsidiaries, joint ventures, related
entities, attorneys (but not in relation to any ethical complaints made by
Executive to any attorney disciplinary committee), agents, and the Committee
("the Released Parties") from any and all claims, liabilities, demands, and
causes of action of any kind, in law or in equity, which Executive, his heirs,
executors, legal representatives, and assigns, ever had, now has or hereafter
can, shall, or may have against the Released Parties, for or by reason of any
matter, thing, or cause whatsoever from the beginning of time unto the date of
this Agreement and Release, including, but not limited to, any claims under
Title VII of the Civil Rights Act of 1964, as amended, the Family and Medical
Leave Act, the Americans With Disabilities Act, the Employee Retirement Income
Security Act, the Fair Labor Standards Act, the Age Discrimination in Employment
Act, the New York Human Rights Law, the New York Labor Law, or any other
federal, state, or local civil rights statute, ordinance, rule, or regulation,
claims for back pay, claims for front pay, claims for severance, wages, vacation
pay, bonus pay, pension or fringe benefits, claims for interest, claims for
attorneys' fees and costs, claims for wrongful discharge or unjust dismissal,
claims for breach of promise, claims for constructive discharge, claims for
retaliation, claims for defamation, claims for injury to reputation, claims for
intentional infliction of emotional distress, claims for breach or enforcement
of any alleged oral, written, or implied contract of employment, including but
not limited to the Executive Agreement between the Company and Executive dated
May 7, 1991, claims for humiliation, claims for pain and suffering, claims for
compensatory or punitive damages, claims for harassment, or claims for
injunctive relief, and any and all claims for other pay or benefits, except as
provided herein.
VII. General Release from the Company to the Executive.
In consideration of the promises and covenants contained herein, the
Company fully and completely releases the Executive, his immediate family,
estate, successors and assigns, from any and all claims, liabilities, demands,
and causes of action of any kind, in law or in equity, which the Company, its
successors and assigns, ever had, now has or hereafter can, shall, or may have
against the Executive, for or by reason of any matter, thing, or cause
whatsoever from the beginning of time unto the date of this Agreement and
Release, including, but not limited to, any claims for breach of contract,
except as provided herein.
VIII. Indemnification.
A. Right to Indemnification. Except as prohibited by law or as provided in
Paragraph (b) below, the Company shall indemnify Executive against all
reasonable expenses, including attorneys fees, and all judgments, fines,
penalties, amounts paid in settlement and any other liability paid or incurred
by Executive in connection with any actual or threatened claim, action, suit or
proceeding, whether civil, criminal, administrative, investigative, or other, or
whether brought by or in the right of the Company or otherwise, in which
Executive may be involved as a party or otherwise, solely by reason of the fact
that Executive is or was a director or officer of the Company. To the maximum
extent permitted by law, the Company shall make advances of expenses incurred by
Executive in connection with any such actual or threatened claim, action, suit
or proceeding prior to final disposition thereof, provided that the Company
receives an undertaking by or on behalf of the Executive to repay such advances
to the extent that the Executive is ultimately found not to be entitled to
indemnification.
B. Exclusions. No indemnification shall be made to or on behalf of
Executive if a judgment or other final adjudication adverse to Executive
establishes that either (i) Executive's acts were committed in bad faith, or
were the result of active or deliberate dishonesty, and were material to the
action, or (ii) Executive gained in fact a financial benefit or other economic
advantage to which the Executive was not legally entitled.
C. Indemnification of Company. In the event that an exclusion pursuant to
paragraph VIII.B applies, Executive shall indemnify the Company, and its
officers, directors, employees and agents against all reasonable expenses,
including attorneys fees, and all judgments, fines, penalties, amounts paid in
settlement and any other liability paid or incurred by the Company in connection
<PAGE>
62
with any actual or threatened claim, action, suit or proceeding, whether civil,
criminal, administrative, investigative, or other, or whether brought by or in
the right of the Company or otherwise, in which the Company may be involved,
arising from the Executive's conduct.
IX. Confidentiality.
As of the date of execution of this Agreement, Executive and the officers
of the Company agree that the contents of this Agreement and the consideration
therefor shall be kept confidential and neither the Executive nor the officers
of the Company shall disclose the contents of this Agreement and the
consideration therefor to any person or entity. Notwithstanding the foregoing,
Executive shall not be prohibited from disclosing the contents of this Agreement
and the consideration therefor to Executive's spouse, his attorney, and his
accountant or tax advisor, who in turn shall be advised of this confidentiality
provision and their responsibilities under it. The Company shall not be
prohibited from disclosing the contents of this Agreement and the consideration
therefor to Company employees and directors who have a need to know, its
attorneys, and its accountants or tax advisors, who in turn shall be advised of
this confidentiality provision and their responsibilities under it. The Company
and the Executive also may disclose the terms of this Agreement and the
consideration therefor to any federal, state, and/or local taxing authority in
connection with an audit of tax returns involving the consideration provided for
in this settlement or as otherwise required by law.
X. Nondisparagement.
Executive shall refrain from making any statement, including to any person
now or hereafter employed by or affiliated with the Company, whether oral or
written, which disparages the Company, its Directors, Officers, employees,
management, customers, consultants, agents, suppliers, products or services. The
Company's Officers shall refrain from making any statement, whether oral or
written, which disparages the Executive. In the event that any of the Company's
Directors disparage Executive, Executive's response to the disparaging
statement(s) shall not be deemed to violate this Agreement.
XI. Confidential Information.
By signing this Agreement, the Executive acknowledges and agrees that all
nonpublic information concerning the Company's business including, without
limitation, information relating to its products, customer lists, pricing, trade
secrets, business methods, financial and cost data, business plans and
strategies (collectively, the "Confidential Information") is and shall remain
the property of the Company. Executive recognizes and agrees that all of the
Confidential information, whether developed by the Executive or made available
to the Executive, other than information that is generally known to the public
other than as a result of Executive's breach of this Agreement, is a unique
asset of the business of the Company, the disclosure of which would be damaging
to the Company. Accordingly, the Executive agrees to hold such Confidential
Information in a fiduciary capacity for the benefit of the Company. The
Executive agrees that he will not at any time during or after employment with
the Company for any reason, directly or indirectly, disclose to any person any
Confidential Information of the Company, other than information that is already
known to the public, except as may be required by law. The Executive agrees to
promptly return to the Company all Company Property, including but not limited
to any and all documents, memoranda drawings, notes and other papers and items
(including all copies thereof, whether electronic or otherwise) embodying any
Confidential Information of the Company which are in his possession or control.
The Executive shall not at any time have or claim any right title or interest in
any trade name, trademark, copyright, or other similar rights belonging to or
used by the Company and shall not have or claim any rights, title or interest in
any material or matter of any sort prepared for or used in connection with the
business of the Company or promotion of the Company, whether produced, prepared
or published in whole or in part by the Executive. For purposes of this
paragraph, Company shall include all affiliates of the Company. Executive shall
be entitled to procure from the President of the Company reasonable amounts and
types of company information to prepare for the meeting referenced in paragraph
II.B above, but Executive shall keep such information confidential and shall
return it to the Company (including all copies, whether electronic or not and
all compilations or summaries containing Company information) immediately after
the aforesaid meeting.
XII. Other Terms of the Agreement.
<PAGE>
63
A. No admission. This Agreement shall not, in any way, be construed as an
admission by the Company that it has acted wrongfully with respect to Executive
or that Executive has any rights whatsoever against the Company except as
specified herein.
B. Public Remarks. Executive agrees not to make any remarks to the media or
representatives of the media regarding Genesee, its products, agents, or
employees other than to say that he has left the Company. The Executive and
Company Officers agree that neither party will advise the media of the
Executive's reasons for leaving the Company other than to state that "Mr.
Latella left the Company on mutually agreeable terms."
C. Entire Agreement. There are no understandings between the parties
regarding this Agreement, or its subject matter, other than as specifically set
forth in this Agreement. Any prior offers, understandings, and agreements
regarding the subject matter of this Agreement are superseded by this Agreement.
This Agreement shall not be amended except in a writing signed by Executive and
a duly authorized representative of Genesee.
D. Revocation. Executive may revoke this Agreement during the seven (7)
days following the execution of this Agreement. Unless revoked, this Agreement
shall become effective and enforceable on the eighth day after it is executed by
Executive (the "Effective Date" of the Agreement).
E. Attorney's Fees. In the event that either party breaches this Agreement
and suit is brought to enforce it, the prevailing party shall be entitled to be
paid reasonable costs and attorney's fees.
F. Acceleration. In the event that the highest Court of appropriate
jurisdiction to whom the matter is presented determines that the Company has
materially breached this Agreement, and Executive has not breached this
Agreement, then the second payment referred to in Paragraph II(A)1 of this
Agreement shall become immediately due and payable.
Executive acknowledges that he has been given twenty-one (21) days in which to
consider signing this Separation Agreement and Release. He further acknowledges
that he has had sufficient opportunity to consult with an attorney of his
choice. Executive further acknowledges that he has carefully read and fully
understands all of the provisions of this agreement and release and that he is
entering into this agreement and release voluntarily and knowingly, without
duress or coercion, and with full knowledge of its significance and consequences
and the rights relinquished hereunder. Executive further acknowledgest that the
consideration he is receiving in exchange for executing this agreement and
release is of value to him and is greater than that to which he may have been
entitled in the absence of this agreement and release. Executive further
acknowledges that he has not relied upon any representation or statement,
written or oral, not set forth in this agreement and release, that this
agreement and release sets forth the entire agreement between executive and the
company, that this agreement and release may not be changed orally, and that he
may revoke this agreement within seven (7) days of signing it.
WITNESS MY SIGNATURE THIS 22nd DAY OF July ,1999.
Date: 7/22/99 s/sRobert N. Latella
Robert N. Latella
Date: 7/21/99 GENESEE CORPORATION
By: s/s Samuel T. Hubbard, Jr.
Samuel T. Hubbard, Jr.
President, and Chief
Operating Officer
<PAGE>
64
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
TKI Foods, Inc. Illinois
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-01-1999
<PERIOD-END> MAY-01-1999
<CASH> 5,836
<SECURITIES> 7,964
<RECEIVABLES> 10,700
<ALLOWANCES> 478
<INVENTORY> 16,414
<CURRENT-ASSETS> 41,584
<PP&E> 125,208
<DEPRECIATION> 88,168
<TOTAL-ASSETS> 143,953
<CURRENT-LIABILITIES> 23,682
<BONDS> 0
<COMMON> 858
0
0
<OTHER-SE> 88,179
<TOTAL-LIABILITY-AND-EQUITY> 143,953
<SALES> 178,418
<TOTAL-REVENUES> 178,418
<CGS> 113,589
<TOTAL-COSTS> 28,411
<OTHER-EXPENSES> 36,070
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 873
<INCOME-PRETAX> 4,558
<INCOME-TAX> 2,095
<INCOME-CONTINUING> 2,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,463
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.52
</TABLE>
