ITEM 1. BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
Whiteford Partners, L.P. (the ``Partnership'') was formed on June 30, 1987, as a Delaware limited partnership. The Partnership consists of a General Partner ,Gannon Group, Inc., and Limited Partners. The offering period of the Partnership terminated on November 10, 1989, with $13,557,550 of Limited Partner gross subscriptions received in the form of Class A Units. Pursuant to the terms of the Prospectus, offering proceeds in the amount of $140,365 were returned to certain Ohio residents when the Partnership's business acquisition program was not substantially completed by December, 1989. The Partnership was organized principally to form, acquire, own and operate businesses engaged in the development, production, processing, marketing, distribution and sale of food and related products (the ``Food Businesses'').
In the first quarter of 1990, the Partnership entered into a limited partnership, Whiteford Foods Venture, L.P. ("Whiteford's") which was formerly named Granada/Whiteford Foods Venture, L.P., with a wholly-owned subsidiary of the former General Partner, G/W Foods, Inc., for the purpose of acquiring the assets, certain liabilities and the operations of Whiteford's Inc., a further processor and distributor of beef products to major fast food restaurants and regional chains, which was located in Versailles, Ohio. The acquisition, which was made with Partnership funds, was closed March 26, 1990, with the Partnership's resultant equity interest in Whiteford's being in excess of 99%. On April 23, 1990, all outstanding and contingent items were resolved and completed, and the acquisition of the assets was funded on April 24, 1990.
Effective July 1, 1990, the Partnership, acting through Whiteford's and North American Agrisystems, Inc. (``NAAS''), an affiliate of the former General Partner of the Partnership, ("Granada") entered into a Texas Joint venture named CMF. The principal activity of CMF was the operation of a beef and chicken further processing facility specializing in cooked products, which was owned by NAAS and located in Cincinnati, Ohio. Whiteford's contributed cash to permit CMF to place cash on deposit for facilities usage and provide working capital and capital expenditure funding for CMF. Whiteford's sharing ratio throughout the venture's operation was 50%. In September of 1991, Granada Management Corporation determined that the continued operation of CMF would no longer be in the best interest of the Partnership due to insufficient sales to cover operating costs. A wind down of the operation of CMF began in October 1991 and was completed in April 1992. Operations subsequent to September 30, 1991, were allocated to Whiteford's under the plan of CMF dissolution. Subsequent to September 30, 1991, Granada Management Corporation advised the Partnership that NAAS and its affiliates would be unable to contribute cash to fully satisfy NAAS's negative capital account in the CMF joint venture and other receivables. Effective October 1, 1991, NAAS assigned its economic interest in the CMF plant and equipment, subject to an existing first mortgage encumbrance of approximately $150,000, to the Partnership. On December 30, 1992, the partnership sold the CMF Plant and remaining equipment for $162,975. All net proceeds realizable from these sales were assigned to Whiteford's and the Partnership.
On May 4, 1992, the outstanding shares of G/W Foods, Inc. were assigned by the former General Partner to Gannon Group, Inc., a corporation owned by Kevin T. Gannon, a Director and Vice President of G/W Foods, Inc. At that time, Mr. Gannon was also a former Vice President of Granada Corporation and certain of its affiliates. Also on May 4, 1992, Granada Management Corporation assigned its sole general partnership interest in the Partnership to Gannon Group, Inc. The effect of these assignments is for Gannon Group, Inc. to have general partnership authority and responsibility with respect to the Partnership and, through G/W Foods, Inc., of Whiteford's.
Subject to the availability of capital resources and/or financing, the Partnership Agreement permits the acquisition of additional Food Businesses that produce, process or distribute specialty food products including businesses that possess technology or special processes which could increase the productivity or processing capability of the Partnership's current Food Business or which enhance the marketability or resale value of the Partnership's Food Business products. At the present time, no acquisitions are contemplated.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership operates principally in the food processing and distribution business.
C. DESCRIPTION OF BUSINESS
The Partnership was organized to form, acquire, own and operate businesses engaged in the development, production, processing, marketing, distribution and sale of food and related products. The Partnership presently operates further processing and meat production operations at one location--Versailles, Ohio.
VERSAILLES, OHIO PLANT OPERATION
Whiteford's is a further processor and distributor of meat products to major fast food restaurants and regional chains. It serves major metropolitan areas such as Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Louisville and St. Louis. Whiteford's principal products are fresh frozen hamburger patties; precooked and uncooked ground beef, taco meat and roast beef; marinated beef entrees; and other items processed to customers' specifications. Major food chains served include Burger King, Rally's and Crackerbarrel.
Whiteford's purchases products principally from major domestic packers and regional distributors. However, it also utilizes imported beef. The General Partner believes its sources of supply are adequate for the foreseeable future.
For the years ended December 31, 1996, 1995 and 1994, Whiteford's processed and sold 64.8 million pounds of products ($59.0 million), 59.8 million pounds of products ($57.6 million) and 58.9 million pounds of products ($64.1 million) respectfully, through its further processing and distribution operations.
MARKETING AND SALES
Whiteford's customers consist primarily of major national and regional fast food retail chains in addition to HRI (Hotel, Restaurant, Institutional) customers and food products distributors. Sales operations are conducted locally by sales representatives from the Versailles location and through unaffiliated food products distributors and food brokers.
The following customers contributed more than 10% of Whiteford's revenues for the fiscal year ended December 31, 1996: Gordon Food Service, 20.69%; Prosource Distribution Service, 18.80%; Maines Paper and Food Service, 15.38%; Sygma Network of Ohio, Inc., 14.00%; and I Supply, 13.71%.
Historically, a significant portion of Whiteford's business has been lodged with relatively few major national and regional accounts. Whiteford's believes that its relationships with its current significant customers are satisfactory. In the past, Whiteford's has been able to obtain additional orders for products from existing accounts or obtain orders for products from new accounts when a significant account diminishes or terminates its purchases with Whiteford's.
All of Whiteford's sales are to customers in the United States and Canada.
REGULATORY MATTERS
All of Whiteford's meat production operations are subject to ongoing inspection and regulation by the United States Department of Agriculture (``USDA''). Whiteford's plant and facilities are subject to periodic or continuous inspection, without advance notice, by USDA employees to ensure compliance with USDA standards of sanitation, product composition, packaging and labeling. All producers of meat and other food products must comply with substantially similar standards. Compliance with these standards is not expected to have a significant effect on Whiteford's competitive position.
Whiteford's is subject to federal, state and local laws and regulations governing environmental protection, compliance with which has required capital and operating expenditures. The General Partner believes Whiteford's is in substantial compliance with such laws and regulations and does not anticipate making additional capital expenditures for such compliance in 1997. The General Partner is not aware of any violations of, or pending changes in such laws and regulations that are likely to result in material penalties or material increases in compliance costs. Changes in the requirements or mode of enforcement of certain of these laws and regulations, however, could impose additional costs upon Whiteford's which could materially and adversely affect its cost of doing business.
Whiteford's is subject to various other federal, state and local regulations, none of which imposes material restrictions on its operations.
EMPLOYEES
The Partnership's operations have been managed by its general partner, Gannon Group, Inc. since May 4, 1992, and Granada Management Corporation from inception to May 4, 1992. Directly, the Partnership has no employees. The Partnership has utilized the services of employees of the General Partner and the former General Partner as needed for certain administrative services.
The Whiteford's operation at Versailles, Ohio employed 252 personnel at December 31, 1996. The General Partner believes there will be sufficient personnel available to adequately manage the Partnership's business affairs.
ITEM 2.
ITEM 2. PROPERTIES
PROPERTIES UTILIZED BY THE PARTNERSHIP
The Partnership's executive offices are those of the General Partner, located at 770 North Center Street, Versailles, Ohio 45380.
The following table sets forth Whiteford's operational facilities and approximate capacities as of December 31, 1996.
All Whiteford's facilities are subject to a mortgage with two banks and subordinated mortgage with Greenaway Consultant, Inc.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending or threatened legal proceedings involving the Partnership, known to either the Partnership or the General Partner.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Limited Partners of the Partnership during 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Partnership's Limited Partnership Units.
The following table sets forth the amounts and dates of distributions to holders of Limited Partnership Units in 1994 and 1995. There were no distributions during 1996.
Amount Per Limited Date Aggregate Amount Partnership Unit ---- ----------------- ------------------ March 15, 1994 $ 26,137.80 $ 0.02 June 15, 1994 26,137.80 0.02 September 15, 1994 26,137.80 0.02 December 15, 1994 52,275.60 0.04 March 15, 1995 52,275.60 0.04 June 15, 1995 52,275.60 0.04
Certain of the Partnership's loans with its lender contain restrictive covenants. One of the covenants restricts the Partnership from declaring or paying any distributions to its partners without the prior written consent of the bank, except for amounts already classified as reinvested distributions in the balance sheet.
The following table sets forth the approximate number of holders of record of the equity securities of the Partnership as of December 31, 1996:
Title of Class Number of Record Holders -------------- ------------------------ Limited Partnership Units 1,564
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction with the consolidated financial statements, the notes thereto and other financial information included elsewhere herein, including "Management's Discussion and Analysis of Results of Operations and Financial Condition." The table following reflects the results of operations of acquired businesses for periods subsequent to their respective acquisition dates.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Management's discussion and analysis set forth below should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere herein.
The Partnership was organized as a Limited Partnership with a maximum operating life of twenty years ending 2007. The source of its capital has been from the sale of Class A, $10 Limited Partnership units in a public offering that terminated on November 10, 1989.
RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues for the year ended December 31, 1996 were $59,366,563 versus $57,826,771 for the year ended December 31, 1995, an increase of 2.7%. During the 1996 period, 64,788,156 pounds of meat products were sold versus 59,776,527 pounds during the 1995 period, an increase of 5,011,629 pounds or 8.4%. The increase in pounds of meat products sold is primarily attributable to the increased sales effort and production capabilities at the Versailles plant. Sales revenues did not increase commensurately due to declining commodity prices during 1996. The average sales price per pound for 1996 was $.911 versus the average sales price per pound for 1995 of $.965.
Costs of meat products sold for the year ended December 31, 1996 were $54,188,228 versus $53,757,014 for the year ended December 31, 1995, an increase of 0.8% During the 1996 period, 64,788,156 pounds of meat products were sold versus 59,776,527 pounds during the 1995 period, an increase of 8.4%. The average cost of meat products sold for 1996 was $.836 versus $.899 in the 1995 period, a decrease of 7.0%. The decline in the cost per pound is primarily attributable to general commodity price declines. The General Partner expects general commodity prices to decline slightly during 1997.
Gross margins on meat sales were 8.2% for the year ended December 31, 1996 and 6.8% for the 1995 period. This increase is gross margins is primarily attributable to: i) decline in raw material costs associated with the general decline in meat prices during the 1996 period versus the 1995 period; ii) the semi-variable nature of certain costs in the costs of meat products sold such as labor, packaging, and utilities and iii) the increased efficiencies associated with the recently renovated Versailles plant whereby lower labor and utilities costs are realized in the manufacture and warehousing of products.
Selling and administrative expenses increased to $2,211,351 during the year ended December 31, 1996 versus $2,197,506 for the same period in 1995, an increase of 0.6%.
Depreciation and amortization expense for the year ended December 31, 1996 was $1,146,951 versus $1,052,213 for the same period in 1995, an increase of 9.0%. Such increase is primarily due to the expansion of the freezer space at the Versailles plant. Such construction project was completed during 1995 and the property was put into service in March 1995.
Interest expense for the year ended December 31, 1996 was $839,198 versus interest expense of $799,494 for the same period in 1995. This increase of $39,704 primarily relates to the increase in the average debt outstanding during 1996 due primarily to the $3.8 million expansion of the Versailles plant.
The Partnership reported net income of $817,678 for the year ended December 31, 1996 versus $20,544 for the 1995 period. This increase in operating profit is primarily attributable to the renovation of the fixed plant including the construction of freezer space and the installation of new equipment during 1995. The construction and installation disrupted the normal operations of the plant resulting in an inefficient production process during the first six months of 1995. Management estimates the loss due to their inefficiency amounted to $400,000.
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for the year ended December 31, 1995 were $57,826,771 versus $64,345,321 for 1994, a decrease of 10.1% over the revenues for the prior period. This decrease was primarily attributable to the general commodity price decline.
Gross profit from the sale of meat products increased to $3,910,226 in 1995 from $3,679,437 in 1994, reflecting an increase of pounds sold. Gross margins for 1995 were 6.8% versus 5.7% in 1994.
Selling and administrative expenses increased to $2,197,506 in 1995 from $1,963,623 in 1994, a total increase of $233,883 or 11.9% over 1994 amounts. This increase was primarily attributable to increased poundage. Selling and administrative expenses represented 3.8% of sales in 1995 versus 3.1% of revenue during 1994.
Depreciation and amortization increased to $1,052,213 in 1995 from $831,116 in 1994, a total increase of $221,097, due primarily to the expansion of the Versailles, Ohio facility and equipment used therein.
Interest expense increased to $799,494 in 1995 from $290,116 in 1994. The increase was primarily attributable to an increase in the average debt outstanding during 1995 due primarily to the $3.8 million expansion of the Versailles plant.
The Partnership reported a net income of $20,544 for 1995 versus a net income of $831,512 for 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Partnership had a positive working capital position of $156,933, versus a negative working capital of $525,037 at December 31, 1995. The increase in the working capital position is primarily attributable to the retention of profits for 1996.
Cash provided by operating activities was $1,289,705 for the year ended December 31, 1996 reflecting net income of $817,678, depreciation and amortization of $1,146,951, offset by net decreases in other net operating assets of $674,924. Cash provided by operating activities for the year ended December 31, 1995 was $849,003, with a net income of $20,544, depreciation and amortization of $1,052,213, offset by net decreases in other net operating assets of $223,754.
Cash used in investing activities was $335,936 for 1996 versus $3,155,430 for 1995. The decrease in cash used in investing activities is primarily attributable to the completion of the freezer expansion at the Versailles plant.
The Limited Partnership Agreement provides for the General Partner to receive an annual administrative fee. The fee is equal to 2% (adjusted for changes in the Consumer Price Index after 1989) of net business investment (defined as $8.50 multiplied by Partnership units outstanding). However, such amounts payable to the General Partner are limited to 10% of aggregate distributions to all Partners from "Cash Available for Distributions." As defined in the Limited Partnership Agreement, that portion of the management fee in excess of such 10% limitation is suspended, and future payment is contingent.
The Administrative Management Fees paid to the General Partner and recorded by the Partnership were -0- in 1996, $10,455 in 1995, $13,069 in 1994, $2,614 in 1993, and -0- in 1992. Suspended fees during 1996, 1995, 1994, 1993 and 1992 respectively, are $300,000, $290,000, $222,000, $229,000, and $228,000.
Cash provided by financing activities for 1996 consisted of net decreases in bank debt of $1,320,853.
Whiteford's working capital and equipment requirements are primarily met by (a) a revolving credit agreement with Whiteford's principal lender in the maximum amount of $2,600,000 (with $2,053,347 outstanding at December 31, 1996), (the "Principal Revolver"); (b) a five year term credit facility of $2,200,000 (the "Principal Term Loan"); (c) a five year credit facility of $4,165,000 (the "Principal Mortgage Loan"); (d) a two year credit facility of $700,000, (the "Second Term Loan"); (e) a five year credit facility of $500,000, (the "Third Term Loan") and (f) a credit facility with Greenaway Consultant, Inc. for $420,000, with $105,000 outstanding as of December 31, 1996 (the "GCI Loan"),(collectively, the "Loans").
The Principal Revolver bears interest at prime plus 1/2%. The Principal Term Loan bears an interest rate of 8.717%. The Principal Mortgage Loan bears an interest rate of 9.89%. The Second Term Loan bears an interest rate of prime plus 1.00%. The Third Term Loan bears an interest rate of 9.42%. The Loans require the Partnership to meet certain financial covenants and restrict the ability of the Partnership to make distributions to Limited Partners without the consent of the principal lender. The Principal Revolver and the Principal Term Loan (together with the Principal Mortgage Loan provided by the principal lender) are secured by real property, fixed assets, equipment, inventory, receivables and intangibles of Whiteford's.
The GCI Loan bears interest at a rate equal to 1-1/2% above the prime rate established from time to time by the Company's financial institution lender having the highest outstanding credit balance. The GCI Loan is secured by real property, fixed assets, equipment, inventory and intangibles and is subordinated to the Principal Revolver, the Principal Term Loan, and the Principal Mortgage Loan.
The Partnership's 1997 capital budget calls for the expenditure of approximately $800,000 for building, plant, and equipment modifications and additions. The General Partner believes Whiteford's is in compliance with environmental protection laws and regulations, and does not anticipate making additional capital expenditures for such compliance in 1997. Such amounts are expected to be funded by internally generated cash flow. The General Partner believes that the above credit facilities along with cash flow from operations will be sufficient to meet the Partnerships' working capital and credit requirements for 1997.
The nature of the Partnership's business activities (primarily meat processing) are such that should annual inflation rates increase materially in the foreseeable future, the Partnership would experience increased costs for personnel and raw materials; however, it is believed that increased costs could substantially be passed on in the sales prices of its products.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Partnership are included in this report after the signature page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
MANAGEMENT
The Partnership has no officers or directors. The affairs of the Partnership are managed by the Gannon Group, Inc., the General Partner. The directors, executive officers and key employees of the General Partner as of December 31, 1996, are as follows:
KEVIN T. GANNON, age 40, sole director, President and sole stockholder of Gannon Group, Inc.
Mr. Gannon is a Managing Director of Robert A. Stanger & Co., Inc., a New Jersey based investment banking, investment research and consulting firm. Mr. Gannon was formerly a Vice President - Corporate Development of Granada Corporation and Director and Vice President of Granada BioSciences, Inc. and Granada Foods Corporation, former affiliate of the Partnership. From August 1983 to April 1988, Mr. Gannon was employed by Robert A. Stanger & Co. Ltd. Mr. Gannon is a Certified Public Accountant.
No director or officer of the General Partner was, during the last five (5) years, the subject (directly, or indirectly as a general partner of a partnership or as an executive officer of a corporation) of a bankruptcy or insolvency petition, of any criminal proceeding (excluding traffic violations and other minor offenses), or restrictive orders, judgments or decrees enjoining him from or otherwise limiting him from acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, engaging in any business activity, or engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws, or was the subject of any existing order of a federal or state authority barring or suspending for more than sixty (60) days the right of such person to be engaged in such activity.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
CURRENT YEAR REMUNERATION
The Partnership has no officers or directors. Accordingly, no direct remuneration was paid to officers and directors of the Partnership for the year ended December 31, 1996. Remuneration to the General Partner is pursuant to Articles VI of the LIMITED PARTNERSHIP AGREEMENT (filed as Exhibit A to the Prospectus included in the Partnership's Registration Statement on Form S-1 [File No. 2-98273]) and incorporated herein by reference.
Pursuant to Section 6.4(c) of the Limited Partnership Agreement, the general partner is entitled to receive a management fee of approximately $300,000 for the calendar year 1996. However, Section 6.4(c)(v) limits all amounts payable to the General Partner pursuant to Section 6.4(c) to an amount which does not exceed 10% of aggregate distributions to Partners from "Cash Available for Distributions". Under the Limited Partnership Agreement, Cash Available for Distributions is comprised of cash funds from operations (after all expenses, debt repayments, capital improvements and replacements, but before depreciation) less amounts set aside for restoration or reserves. That portion of the management fee in excess of such 10% limitation is suspended, and future payment is delayed until such payment may be made without exceeding such limit.
On dissolution of the Partnership, Section 15.3(a)(ii) of the Limited Partnership Agreement generally provides for the payment of creditors, and then pro rata payment to record holders for loans or other amounts owed to them by the Partnership, including without limitation any amounts owed to the General Partner pursuant to Section 6.4. Any amounts payable to the General Partner under Section 15.3(a)(ii) will be dependent upon the funds available for distribution on the dissolution of the partnership.
Section 6.4(e) of the Limited Partnership Agreement also provides the General Partner a subordinated special allocation equal to 15% of any gain on the sale of partnership assets or food businesses. Among other things, this special allocation is subordinated to payments to the limited partners for certain distributions. any payment pursuant to Section 6.4(e) will be dependent upon the ultimate sale price of such partnership assets or food businesses.
During calendar year 1996, the Partnership made no distributions to the Partners. During calendar year 1995 and 1994, the Partnership made aggregate distributions to Partners from Cash Available for Distribution in the amounts of $104,551 and $130,689. As a result in 1995, the Partnership paid the General Partner 10% of such amount or $10,455, and suspended payment of approximately $290,000 of such management fee. The cumulative amount of annual management fees that have been suspended is $1,269,000. Suspended fees during 1996, 1995, 1994, 1993, and 1992, respectively, are $300,000, $290,000, $222,000, $229,000, and $228,000.
OTHER COMPENSATION ARRANGEMENTS
There is no plan provided for or contributed to by the Partnership or the General Partner which provides annuity, pension or retirement benefits for the General Partner or the officers and directors of the General Partner. There is no existing plan provided for or contributed to by the General Partner which provides annuity, pension or benefits for its officers or directors. There are no arrangements for remuneration covering services as a director between the Partnership and any director of the General Partner. No options to purchase any securities of the General Partner were granted or exercised during its fiscal year ended December 31, 1996. No options were held to purchase securities of the Partnership as of December 31, 1996, and as of the date hereof.
After the Partnership acquired the assets of Whiteford's, Inc., Whiteford's entered into a Services Agreement with Greenaway Consultant, Inc. ("GCI") under which GCI managed Whiteford's. GCI is owned by one of Whiteford's, Inc.'s former principal shareholders.
Subsequent to the Services Agreement, Whiteford's determined that it was desirable to lessen the cash flow burden resulting from the Installment Loan and the tax payment obligation. Whiteford's determined it was in a position to refinance $250,000 of the Installment Loan on a more favorable amortization basis and at a more favorable interest rate. As a result, Whiteford's consulted with GCI about GCI's willingness to accept a partial payment of the Installment Loan, extend the payments under the Installment Loan and to accept a right to receive payments in the future in lieu of being awarded part of the limited partnership units. As a result , Whiteford's and GCI entered into a "1993 Services Agreement" which (i) rescinds the original Services Agreement and the Letter Agreement, (ii) reaffirms the covenant not to compete for GCI and its shareholder, (iii) provides for the remaining principal balance of the Installment Loan ($420,000) to be payable over a four year period with quarterly principal payments of $26,250 plus interest, (the first quarterly payment beginning March 31, 1994), (iv) restricts GCI's equity interest in the limited partnership units to 1.00% (all of which has been delivered to GCI effective
January 1, 1994), (v) provides for Whiteford's payment to GCI of approximately $250,000 per year for its management services, and $500,000 upon a change of control or the sale of substantially all Whiteford's assets.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
The General Partner owns the entire general partnership interest, which interest controls the Partnership. The General Partner does not beneficially own, either directly or indirectly, any equity security in the Partnership, other than the general partner interest.
CONTRACTUAL ARRANGEMENTS AFFECTING CONTROL
On May 4, 1992, the outstanding shares of G/W Foods, Inc. were assigned by Granada Management Corporation to Gannon Group, Inc., a corporation owned by Kevin T. Gannon, a Director and Vice President of G/W Foods, Inc. and also a former Vice President of Granada Corporation and certain of its affiliates. Also on May 4, 1992, Granada Management Corporation assigned its sole general partnership interest in the Partnership to Gannon Group, Inc. The effect of these assignments is for Gannon Group, Inc. to have general partnership authority and responsibility with respect to the Partnership and, through G/W Foods, Inc., of Whiteford's.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
None.
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, thereunto duly authorized.
Whiteford Partners L.P. ----------------------------- (Registrant) By Gannon Group, Inc. Its General Partner
Date: March 28, 1997 /s/ Kevin T. Gannon -------------- ----------------------------- Chief Executive Officer and President
Pursuant to the requirements of the Securities 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:
SIGNATURES TITLE DATE - ---------------------- ---------------------------- --------------
/s/ Kevin T. Gannon Chief Executive Officer, March 28, 1997 - ------------------- President, Chairman of the Board Kevin T. Gannon and Sole Director (Principal Executive Officer), Chief Financial Officer, and Chief Accounting Officer
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
WHITEFORD PARTNERS, L.P.
FORM 10-K -- ITEM 8, ITEM 14 (a) (1) AND (2), (c) AND (d)
The following financial statements and financial statement schedules of the Partnership are included as part of this report at Item 8:
(a) 1. Financial Statements
CONSOLIDATED BALANCE SHEETS - December 31, 1996, and 1995.
CONSOLIDATED STATEMENTS OF OPERATIONS - for the years ended December 31, 1996, 1995, and 1994.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL - for the years ended December 31, 1996, 1995, and 1994.
CONSOLIDATED STATEMENTS OF CASH FLOWS - for the years ended December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. See Index to Exhibits immediately following the financial statement schedules.
WHITEFORD PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS
December 31, ------------------------- 1996 1995 ---------- ---------- ASSETS
CURRENT ASSETS: Cash and cash equivalents $ 121,163 $ 488,247 Accounts receivable - trade 3,196,376 2,545,169 Inventories 2,612,515 2,419,466 Prepaid expenses 479,031 755,515 ------------ ----------- TOTAL CURRENT ASSETS 6,409,085 6,208,397
PROPERTY AND EQUIPMENT: Land and improvements 86,700 86,700 Buildings 7,169,342 7,029,646 Machinery and equipment 9,096,286 9,183,329 Accumulated depreciation (4,154,597) (3,315,265) ------------- ----------- TOTAL PROPERTY AND EQUIPMENT 12,197,731 12,984,410
OTHER ASSETS - NET OF AMORTIZATION 2,960,144 3,087,637 ------------- ----------- TOTAL ASSETS $21,566,960 $22,280,444 ------------- ----------- ------------- ----------- LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES: Accounts payable - trade $ 2,685,099 $ 2,700,444 Notes payable and current maturities on long-term debt 2,827,006 3,097,979 Accrued expenses and other liabilities 740,047 935,011 ------------- ----------- TOTAL CURRENT LIABILITIES 6,252,152 6,733,434
LONG-TERM DEBT 5,704,645 6,754,525
PARTNERS' CAPITAL: General Partner: Capital contributions 132,931 132,931 Capital transfers to Limited Partners (117,800) (117,800) Interest in Partnership net income 16,140 7,963 Distributions (32,943) (32,943) ------------- ---------- (1,672) (9,849)
Class A Limited Partners: Capital contributions, net of organization and offering costs of $2,010,082 11,172,274 11,172,274 Capital transfers from the General Partner 116,554 116,554 Interest in Partnership net income 1,586,849 777,348 Distributions (3,263,842) (3,263,842) ------------ ----------- 9,611,835 8,802,334 ------------ ----------- TOTAL PARTNERS' CAPITAL 9,610,163 8,792,485 ------------ -----------
TOTAL LIABILITIES & PARTNERS' CAPITAL $ 21,566,960 $22,280,444 ------------ ----------- ------------ -----------
See notes to consolidated financial statements.
F - 1
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements.
F - 2
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
See notes to consolidated financial statements. F - 3
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements. F - 4
WHITEFORD PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 - ------------------------------------------------------------------------------ NOTE A - ORGANIZATION, BUSINESS AND ACQUISITIONS
Whiteford Partners, L.P., (the Partnership), formerly Granada Foods, L.P., was formed on June 30, 1987, as a Delaware limited partnership. Prior to May 4, 1992, the Partnership consisted of a General Partner, Granada Management Corporation, (Granada), and the Limited Partners. On May 4, 1992, Granada assigned its sole general partner interest in the Partnership to Gannon Group, Inc. and the Partnership was renamed Whiteford Partners, L.P.
The operational objectives of the Partnership are to own and operate businesses engaged in the development, production, processing, marketing, distribution and sale of food and related products (Food Businesses) for the purpose of providing quarterly cash distributions to the partners while providing capital appreciation through the potential appreciation of the Partnership's Food Businesses. The Partnership expects to operate for twenty years from inception, or for such shorter period as the General Partner may determine is in the best interest of the Partnership, or for such shorter period as determined by the majority of the Limited Partners.
The Partnership Agreement provides that a maximum of 7,500,000 Class A, $10 partnership units can be issued to Limited Partners. Generally, Class A units have a preference as to cumulative quarterly cash distributions of $.25 per unit. The sharing of income and loss from the Partnership operations is 99% to the Class A and 1% to the General Partner. Amounts and frequency of distributions are determinable by the General Partner.
On March 26, 1990, the Partnership, through Whiteford Foods Venture, (Whiteford's) L.P. (formerly Granada/Whiteford Foods Venture, L.P.), a joint venture with an affiliate of the then General Partner, acquired the business assets of Whiteford's Inc., a meat processing and distribution company. The Partnership's interest in the operations and equity of Whiteford's is greater than 99.9%. The cash purchase price of the assets was $8,275,000 with liabilities of $3,776,806 assumed. The excess of the purchase price over the estimated fair value of the net tangible assets acquired of approximately $3,825,000 was recorded as goodwill. The acquisition was accounted for using the purchase method of accounting and, accordingly, the financial statements include the operations of Whiteford's from the date of acquisition.
In 1993, the Partnership entered into a settlement agreement with certain participants in the Partnership's Distribution Reinvestment and Unit Acquisition Plan under which the Partnership repurchased 33,165 class A Units for a total purchase price of $218,194 payable over a five year period. The first installment in the amount of $62,049 was paid in 1993 with four subsequent annual installments of $39,036.25.
At December 31, 1996 and at December 31, 1995, the Partnership had 1,306,890 Class A limited partnership units issued and outstanding.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the Partnership and Whiteford's, from the date of acquisition (March 26, 1990). Significant intercompany account balances and transactions have been eliminated in consolidation.
INVENTORIES. Inventories of meat, meat products and packaging supplies are stated at the lower of first-in, first-out (FIFO) cost or market. The major components of inventories are as follows at December 31:
1996 1995 ------------- ------------ Finished products $ 721,949 $ 920,800 Raw materials 793,511 621,548 Packaging supplies and other 1,097,055 877,118 ---------- ----------- $2,612,515 $2,419,466 ---------- ----------- ---------- -----------
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PROPERTY AND EQUIPMENT. Property and equipment is stated at cost. Depreciation, computed using the straight-line method on the basis of the estimated useful lives of the depreciable assets, was $1,019,458, $924,719 and $703,623 in years 1996, 1995 and 1994, respectively. The costs of ordinary repairs and maintenance are charged to expense, while betterment and major replacements are capitalized.
The carrying value of property and equipment and other long lived assets is reviewed if the facts and circumstances suggest it may be impaired. If this review indicates the carrying value of the assets may not be recoverable, based on estimates of their undiscounted cash flows, the carrying value will be reduced to the asset's fair market value.
OTHER ASSETS. Goodwill associated with the acquisition of Whiteford's Inc. is being amortized on a straight-line basis over a thirty-year period. Accumulated amortization at December 31, 1996, 1995, and 1994, was $839,345, $718,476 and $597,606, respectively.
DISTRIBUTIONS. The Partnership records distributions of income and/or return of capital to the General Partner and Limited Partners when paid. Special transfers of equity, as determined by the General Partner, from the General Partner to the Limited Partners are recorded in the period of determination. Distributions of $104,551 and $130,869 to Limited Partners were recorded in 1995 and 1994 respectively.
INCOME TAXES. The Partnership files an information tax return. The items of income and expense are allocated to the partners pursuant to the terms of the Partnership Agreement. Income taxes applicable to the Partnership's results of operations are the responsibility of the individual partners and have not been provided for in the accounts of the Partnership. At December 31, 1996, the book basis of assets exceeds the tax basis of such assets by approximately $235,185 primarily due to the use of accelerated depreciation methods utilized for tax reporting purposes.
CASH, CASH EQUIVALENTS AND CASH FLOWS. For the purpose of the statement of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Total interest paid was $859,393, $747,059 and $394,766 for 1996, 1995 and 1994, respectively.
NET INCOME PER UNIT OF LIMITED PARTNERS CAPITAL. The net income per unit of limited partners capital is calculated by dividing the net income allocated to limited partners by the weighted average units outstanding.
USE OF ESTIMATES. The preparation of the financial statements in accordance 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 could differ from those results.
NOTE C - RELATED PARTY TRANSACTIONS
The Limited Partnership Agreement provides for the General Partner to receive an annual administrative fee. The fee is equal to 2% (adjusted for changes in the consumer price index after 1989) of net business investment (defined as $8.50 multiplied by Partnership units outstanding). However, such amounts payable to the General Partner are limited to 10% of aggregate distributions to all Partners from "Cash Available for Distributions". As defined in the Limited Partnership Agreement, that portion of the management fee in excess of such 10% limitation is suspended, and future payment is contingent.
The Administrative Management Fees paid to the General Partner and recorded by the Partnership were $10,455 in 1995, $13,069 in 1994 and $2,614 in 1993. There were no adminstrative fees paid to the General Partner in 1996. Suspended fees during 1996, 1995, 1994 and 1993 respectively are $300,000, $290,000, $222,000 and $229,000. The Partnership also has a service agreement with Greenaway Consultant, Inc. (GCI), which provides for the former principal owner of Whiteford's to provide consulting services to the Partnership. The agreement is for approximately five years expiring December 31, 1997, and provides minimum consulting fees of approximately $250,000 per annum. During 1996, 1995, 1994 and 1993 the minimum was paid. In addition, GCI will receive limited partnership units ultimately representing 1.0%, (all of which was received as of December 31, 1994) of all outstanding limited partnership units of Whiteford's. GCI will receive payment of $500,000 upon a change of control or sale of substantially all of the assets of the Partnership.
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NOTE D - LONG TERM DEBT
The following schedule summarizes long-term debt at December 31:
The Note payable to Greenaway Consultant, Inc. represents amounts due to a consulting company owned by a former owner of Whiteford's Inc., (see Note C). This debt is subordinated to the bank notes.
The notes payable and the revolving credit agreement with the bank contain restrictive covenants. The covenants restrict the Partnership from declaring or paying any distributions to its partners without the prior written consent of the bank, except for amounts already classified as reinvested distributions in the balance sheet; limit the level of capital expenditures the Partnership may make in any fiscal year and require the Partnership to maintain certain financial ratios. In addition, the Partnership must maintain a monthly average of $100,000 on deposit with the bank as a compensating balance.
The revolving credit agreement permits borrowing of up to $2,600,000 of which $546,653 was available at December 31, 1996. Long-term debt and borrowing under the revolving credit agreement are collateralized by substantially all of the Partnership's property and equipment, inventory and accounts receivable.
The aggregate annual maturities on the long-term debt for the Partnership for the four years subsequent to 1997 are: $625,288, $683,430, $675,756, and $3,720,171.
During 1996, 1995 and 1994, the weighted average interest rate on short-term borrowing was 9.1%, 9.4% and 8.3% respectively, while the weighted average month end amount outstanding was $3,145,390, $2,812,838 and $1,541,883 respectively. The largest outstanding month end balance was $3,285,690 in 1996, $3,245,938 during 1995 and $2,294,073 during 1994.
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NOTE E - LEASES
LEASE COMMITMENTS. The Partnership's leases, buildings and equipment, are under various noncancelable operating lease agreements. Lease rental expense for 1996, 1995 and 1994 was $749,132, $375,963 and $215,574, respectively. The future minimum lease payments under the leases are as follows:
1997 $ 784,443 1998 754,474 1999 719,196 2000 688,775 2001 519,406 Thereafter 136,349 ----------- $ 3,602,643 ----------- -----------
NOTE F - EMPLOYEE BENEFIT PLAN
The Partnership has a 401K Plan which covers substantially all employees who have completed one year of service. The Partnership matches a percentage up to 25% of the participant's contributions up to 6% of employee eligible compensation. Contributions to the Plan were $12,152 in 1996, $10,900 in 1995, and $8,200 in 1994.
NOTE G - MAJOR CUSTOMERS
Whiteford's facility, located in Versailles, Ohio, operates as a further processor and distributor of beef products to major fast food restaurants and regional chains. Whiteford's principal products are fresh frozen hamburger patties; precooked and uncooked ground beef taco meat and roast beef, marinated beef entrees; and other items processed to the customers' specifications. Major food chains served include Burger King, Rally's and Cracker Barrel.
Sales of meat products to major customers are summarized as follows for the fiscal years ended December 31, 1996, and 1995.
CUSTOMER 1996 1995 -------- ----------- ------------ A $12,280,924 $11,621,477 B 11,163,393 9,803,698 C 9,133,022 7,345,095 D 8,307,416 7,233,692 E 8,140,374 5,836,108 F 1,893,490 5,140,614 ----------- ----------- $50,918,619 $46,980,684 ----------- ----------- ----------- -----------
The total amounts receivable from these customers on December 31, 1996, and 1995, were $2,460,866 and $2,008,659, respectively.
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[LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Limited and General Partners Whiteford Partners, L.P.
We have audited the accompanying consolidated balance sheets of Whiteford Partners, L.P. (a Delaware limited partnership) and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Whiteford Partners, L.P. and subsidiary at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
January 31, 1997
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INDEX TO ATTACHED EXHIBITS
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