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.
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 Cracker Barrel.
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, 1997, 1996 and 1995 Whiteford's processed and sold 66.7 million pounds of products ($62.2 million), 64.8 million pounds of products ($59.0 million) and 59.8 million pounds of products ($57.6 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, 1997: Gordon Food Service, 20.77%; Kings Provision, 19.21%; Maines Paper and Food Service, 16.95%; I Supply, 11.32%, and Sygma Network of Ohio, Inc., 11.26%.
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 1998. 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 243 personnel at December 31, 1997. 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, 1997.
All Whiteford's facilities are subject to a mortgage with two banks.
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 1997.
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 1995 and 1997. There were no distributions during 1996.
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 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, 1997:
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, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues for the year ended December 31, 1997 were $62,480,526 versus $59,366,563 for the year ended December 31, 1996, an increase of 5.2%. During the 1997 period, 66,752,355 pounds of meat products were sold versus 64,788,156 pounds during the 1996 period, an increase of 1,964,199 pounds or 3.0%. The increase in pounds of meat products sold is primarily attributable to the increased sales effort and production capabilities at the Versailles plant.
Costs of meat products sold for the year ended December 31, 1997 were $57,846,006 versus $54,188,228 for the year ended December 31, 1996, an increase of 6.8% During the 1997 period, 66,752,355 pounds of meat products were sold versus 64,788,156 pounds during the 1996 period, an increase of 3.0%. The average cost of meat products sold for 1997 was $.867 versus $.836 in the 1996 period, an increase of 3.7%. The increase in the cost per pound is primarily attributable to general composition of the product. The General Partner expects general commodity prices to increase slightly during 1998.
Gross margins on meat sales were 7.0% for the year ended December 31, 1997 and 8.2% for the 1996 period. This decrease in gross margins is primarily attributable to: i) increase in raw material costs and decrease in sales price; and ii) the semi-variable nature of certain costs in the costs of meat products sold such as labor, packaging, and utilities.
Selling and administrative expenses increased to $2,447,303 during the year ended December 31, 1997 versus $2,211,351 for the same period in 1996. The increase is primarily attributable to normal expense increases and volume.
Depreciation and amortization expense for the year ended December 31, 1997 was $1,204,975 versus $1,146,951 for the same period in 1996, an increase of 5.1%. Such increase is primarily due to the expansion of the freezer space and the employee welfare room at the Versailles plant. The 1400 square foot employee welfare room was completed in August 1997.
Interest expense for the year ended December 31, 1997 was $727,861 versus interest expense of $839,198 for the same period in 1996. This decrease of $111,337 primarily relates to the decrease in the average debt outstanding during 1997.
The Partnership reported net income of $254,381 for the year ended December 31, 1997 versus $817,678 for the 1996 period. This decrease in operating profit is primarily attributable to: i) the additional labor cost to produce excess pounds for a major customer during the fourth quarter of 1997; and ii) reduced sales leads related to Rally's Corporate business during the fourth quarter of 1997. This reduction in sales represents less than 5% for 1997 and is not expected to have a material impact on future revenues. These two major actions created higher than normal inventories during a declining market.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. Any of Whiteford Food's internal use computer programs and its software products that are data sensitive may recognize a date using "00" as the Year 1900 rather than the Year 2000. This could result is a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions or engage in normal business activities.
Based on preliminary assessment, Whiteford Foods has determined that it will be required to modify or replace some of its internal use software so that it will function properly with respect to dates in the Year 2000 and thereafter. Whiteford's presently believes that with modifications to its existing software and/or conversions to new internal use software, the Year 2000 issue will not pose significant operational problems for Whiteford Foods or its customers.
Whiteford Foods will utilize both internal and external resources to reprogram, or replace and test its software products for the Year 2000 modifications. Whiteford Foods anticipates completing the Year 2000 project as soon as practical but not later than June, 1999, which is prior to any anticipated impact. The total cost of the Year 2000 project has currently not been determined, but will be funded through operating cash flows. The requirements for the correction of Year 2000 issue and the date on which Whiteford Foods believes it will complete the Year 2000 modifications are based on Management's best estimates which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that may cause such material differences include, but are not limited to, the availability of personnel trained in this area, the ability to locate and collect all relevant computer codes and similar uncertainties.
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 1995, an increase of 2.7% over the revenues for the prior period. This increase was primarily attributable to the increased sales effort and production capabilities at the Versailles plant.
Gross profit from the sale of meat products increased to $4,838,404 in 1996 from $3,910,226 in 1995, reflecting an increase of pounds sold. Gross margins for 1996 were 8.2% versus 6.8% in 1995.
Selling and administrative expenses increased to $2,211,351 in 1996 from $2,197,506 in 1995, a total increase of $13,845 or 0.6% over 1995 amounts. This increase was primarily attributable to increased poundage. Selling and administrative expenses represented 3.7% of sales in 1996 versus 3.8% of revenue during 1995.
Depreciation and amortization increased to $1,146,951 in 1996 from $1,052,213 in 1995, a total increase of $94,738, due primarily to the expansion of the Versailles, Ohio facility and equipment used therein.
Interest expense increased to $839,198 in 1996 from $799,494 in 1995. The increase was primarily attributable to an increase in the average debt outstanding during 1996 due primarily to the $3.8 million expansion of the Versailles plant.
The Partnership reported a net income of $817,678 for 1996 versus a net income of $20,544 for 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Partnership had a negative working capital position of $397,866, versus a positive working capital of $156,933 at December 31, 1996.
Cash provided by operating activities was $1,535,529 for the year ended December 31, 1997 reflecting net income of $254,381, depreciation and amortization of $1,204,975, and other net operating assets of $76,173. Cash provided by operating activities for the year ended December 31, 1996 was $1,289,705, with a 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 used in investing activities was $886,589 for 1997 versus $335,936 for 1996. The increase in cash used in investing activities is primarily attributable to the construction of a 1400 square foot employee welfare room at the Versailles plant. Cash provided by financing activities for 1997 consisted of net decreases in bank debt of $373,859 and distributions.
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 $13,069 in 1997, -0- in 1996, $10,455 in 1995, $13,069 in 1994, $2,614 in 1993, and -0- in 1992. Suspended fees during 1997, 1996, 1995, 1994, 1993 and 1992 respectively, are $287,000, $300,000, $290,000, $222,000, $229,000, and $228,000.
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 $2,600,000 outstanding at December 31, 1997), (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"); and (e) a five year credit facility of $500,000, (the "Third Term Loan")(collectively, the "Loans"). The final payment on the credit facility with Greenaway Consultant, Inc. was made in December 1997.
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 8.99%. The Second Term Loan bears an interest rate of prime plus 1/2%. 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 Partnership's 1998 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 1998.
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, 1997, are as follows:
KEVIN T. GANNON, age 41, 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, 1997. 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 1997. 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 1997, the Partnership made aggregate distributions of $130,689 to the Partners. During calendar year 1996, the Partnership made no distributions to the Partners. During calendar year 1995, the Partnership made aggregate distributions to Partners from Cash Available for Distribution in the amounts of $104,551. As a result in 1997, the Partnership paid the General Partner 10% of such amount or $13,069, and suspended payment of approximately $287,000 of such management fee. The cumulative amount of annual management fees that have been suspended is $1,556,0000.
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, 1997. No options were held to purchase securities of the Partnership as of December 31, 1997, 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. This agreement has been extended to December 31, 2002.
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 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. The final payment of the Installment Loan with GCI was made in December 1997.
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 30, 1998 /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:
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, 1997
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, 1997, and 1996.
CONSOLIDATED STATEMENTS OF OPERATIONS - for the years ended December 31, 1997, 1996, and 1995.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL - for the years ended December 31, 1997, 1996, and 1995.
CONSOLIDATED STATEMENTS OF CASH FLOWS - for the years ended December 31, 1997, 1996, and 1995.
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
See notes to consolidated financial statements.
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements.
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
$.10 weighted average outstanding units of Limited Capital in 1997, 1996 and 1995 respectively.
See notes to consolidated financial statements.
WHITEFORD PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements.
WHITEFORD PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 - ------------------------------------------------------------------------------- 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. The final installment was paid in July, 1997.
At December 31, 1997 and at December 31, 1996, 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:
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 $1,077,482, $1,019,458 and $924,719 in years 1997, 1996 and 1995, 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. Related accumulated amortization at December 31, 1997, 1996, and 1995, was $960,214, $839,345 and $718,476, 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 $130,689 and $104,551 to Limited Partners were recorded in 1997 and 1995 respectively. No distributions were paid in 1996.
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, 1997, the book basis of assets exceeds the tax basis of such assets by approximately $46,927 primarily due to the use of accelerated depreciation methods utilized for tax reporting purposes.
CASH AND CASH EQUIVALENTS AND CASH FLOWS. Cash and cash equivalent amounts approximate fair value. 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 $733,733, $859,393 and $749,059 for 1997, 1996 and 1995, 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.
CONCENTRATIONS. Financial instruments which potentially expose the Company to concentrations of credit risk, as defined by Statement of Financial Accounting Standards No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISKS, consist primarily of accounts receivable. The Partnership's accounts receivable are concentrated in major fast food restaurants and regional chains.
To date, the Partnership has relied on a limited number of customers for a substantial portion of its total sales. The Partnership expects that a significant portion of its future revenues will continue to be generated by a limited number of customers. The failure to obtain new customers, the loss of existing customers or the reduction in sales from existing customers could materially adversely affect the Partnership's operating results (see Note G).
The Partnership currently buys its meat and necessary supplies from a few vendors. Although there are a limited number of vendors capable of supplying these items, management believes that other suppliers could provide the products on comparable terms. A change in suppliers, however, could cause delay in delivery and a possible loss of sales, which would adversely affect operating results.
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 $13,069 in 1997 and $10,455 in 1995. There were no administrative fees paid to the General Partner in 1996. Suspended fees as of December 31, 1997, for which no accrual has been recorded, total $1,556,000 ($1,269,000 as of December 31, 1996). This only becomes an obligation of the Partnership upon a change of control or sale of substantially all of the assets of the Partnership. 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 has been extended for five years expiring December 31, 2002, and provides minimum consulting fees of approximately $250,000 per annum. During 1997, 1996, and 1995 the minimum was paid. GCI will receive payment of $500,000 upon a change of control or sale of substantially all of the assets of the Partnership.
NOTE D - LONG TERM DEBT
The following schedule summarizes long-term debt at December 31:
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. 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 three years subsequent to 1998 are: $683,430, $675,756, and $3,372,981.
During 1997, 1996 and 1995, the weighted average interest rate on short-term borrowing was 9.1%, 9.1% and 9.4% respectively, while the weighted average month end amount outstanding was $3,179,441, $3,145,390 and $2,812,838 respectively. The largest outstanding month end balance was $3,425,625 in 1997, $3,285,690 during 1996 and $3,245,938 during 1995.
NOTE E - LEASES
LEASE COMMITMENTS. The Partnership's leases, buildings and equipment, are under various noncancelable operating lease agreements. Lease rental expense for 1997, 1996 and 1995 was $724,984, $749,132 and $375,963, respectively. The future minimum lease payments under the leases are as follows:
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 $24,368 in 1997, $12,152 in 1996, and $10,900 in 1995.
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, 1997, and 1996.
The total amounts receivable from these customers on December 31, 1997, and 1996, were $3,112,082 and $2,460,860, respectively.
[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, 1997 and 1996 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, 1997. 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, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
March 20, 1998
INDEX TO ATTACHED EXHIBITS
EXHIBIT - -------- ---------------------------------------------------------
3. & 4. Limited Partnership Agreement of the Partnership incorporated by reference to Exhibit "A" to Prospectus (pages A 1 - A 40) included in the Partnership's Registration Statement on Form S-1 (File No. 33-15962).
10.1 Consulting Agreement between the Partnership and Granada Acquisitions, Inc. incorporated by reference to Exhibit 10.2 to the Partnership's Registration Statement on Form S-1 (File No. 33-15962).
10.2 Asset Purchase Agreement between Granada/Whiteford Foods Venture, L.P., Whiteford's Inc. and Albert D. Greenaway, incorporated by reference to Exhibit 2 to the Partnership's Form 8-K filing dated May 10, 1990, as amended (File No. 33-15962).
10.3 Services Agreement between Granada/Whiteford Foods Venture, L.P., Granada Cincinnati Multifoods, Inc. and Greenaway Consultants, Inc. to engage Greenaway Consultants, Inc. to perform management services for the operations of Granada/Whiteford Foods Venture, L.P. and CMF, a joint venture, incorporated by reference to Exhibit 10.3 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.4 Agreement of Limited Partnership dated March 27, 1990, between the Registrant as limited partner, and G/W Foods, Inc. as General Partner, to acquire the assets, certain liabilities, and meat purveying operations of Whiteford's Inc., incorporated by reference to Exhibit 10.4 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.5 Joint Venture Agreement dated July 1, 1990, between Granada/Whiteford Foods Venture, L.P., North American Agrisystems, Inc. and Cincinnati Multifoods, Inc. for the formation of a joint venture for Granada/Whiteford Foods Venture, L.P. to operate meat production facilities of North American Agrisystems, Inc., incorporated by reference to Exhibit 10.5 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.6 Promissory Note payable by Granada/Whiteford Foods Venture to Fifth Third Bank of Miami Valley, N.A. in the face amount of $3,000,000, dated July 19, 1991, together with Hypothecation Agreement, incorporated by reference to Exhibit 10.6 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.7 Promissory Note payable by Granada/Whiteford Foods Venture to Fifth Third Bank of Miami Valley, N.A. in the face amount of $280,000 dated June 21, 1991, together with Hypothecation Agreement, incorporated by reference to Exhibit 10.7 to the Partnership's Annual Report on form 10K for the year ended December 31, 1990.
10.8 Agreement dated November 6, 1991, between G/W Foods, Inc. and Fifth Third Bank of Miami Valley, N.A. amending terms of Promissory Note dated July 19, 1991, incorporated by reference to Exhibit 10.8 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
INDEX TO ATTACHED EXHIBITS (CONT.)
10.9 Memorandum of Agreement -- Dissolution of CMF (a Texas joint venture) effective October 1, 1991, stipulating terms and conditions of dissolution and wind-up of operations of CMF., incorporated by reference to Exhibit 10.9 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.10 Amendment to Certificate of Limited Partnership of Granada/Whiteford Foods Venture, L.P., State of Ohio Certificate of Amendment of Foreign Limited Partnership and Trade Name Registration, all dated April 30, 1992, and amending Name of Granada/Whiteford Foods Venture, L.P. to Whiteford Foods Venture, L.P., incorporated by reference to Exhibit 10.10 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.11 Loan Agreement dated May 5, 1992, between Greenaway Consultant, Inc. and Whiteford Foods Venture, L.P., providing for $750,000 revolving credit facility, incorporated by reference to Exhibit 10.11 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.12 Stock Purchase Agreement and Assignment of Partnership Interest dated May 4, 1992, by and between Granada Management Corporation and Gannon Group, Inc., incorporated by reference to Exhibit 10.12 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.
10.13 Loan Agreement dated December 23, 1992 between Whiteford Foods Venture, L.P. and The Fifth Third Bank of Western Ohio, N.A. for a credit facility of $2,300,000, incorporated by reference to Exhibit 10.13 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1992.
10.14 Letter of Agreement dated February 23, 1993 by and between Greenaway Consultants, Inc. and Whiteford Foods Venture, L.P., proceeding for (i) the termination of the revolving credit facility, (ii) the issuance of a term promissory note in the amount of $750,000, (iii) the termination of the Services Agreement between Whiteford Partners, L.P. and Greenaway Consultants, Inc., and (iv) an agreement regarding a new Services Agreement, incorporated by reference to Exhibit 10.14 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1993.
10.15 Loan Agreement dated August 27, 1993 between Whiteford Foods Venture, L.P. and PNC Bank, Ohio, N.A., incorporated by reference to Exhibit 10.15 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1993.
10.16 Services Agreement dated October 1, 1993 between Whiteford Foods Venture, L.P., Greenaway Consultant, Inc. and Albert D. Greenaway to engage Greenaway Consultant, Inc., to perform management services for the operation of Whiteford Foods Venture, L.P., incorporated by reference to Exhibit 10.16 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1993.
10.17 Loan Agreement dated October 1, 1993 between Whiteford Foods Venture, L.P. and Greenaway Consultant, Inc. authorizing November 8, 1993 promissory note and certain security therefor, incorporated by reference to Exhibit 10.17 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1993.
INDEX TO ATTACHED EXHIBITS (CONT.)
10.18 Promissory note dated November 8, 1993 between Greenaway Consultant, Inc. and Whiteford Foods Venture, L.P., incorporated by reference to Exhibit 10.18 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1993.
10.19 Credit agreement dated June 13, 1994 between Whiteford Foods Venture, L.P. and PNC Bank, Ohio, National Association and Fifth Third Bank of Western Ohio, incorporated by reference to Exhibit 10.19 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1994.
10.20 Construction loan agreement dated June 13, 1994 between Whiteford Foods Venture, L.P. and PNC Bank, Ohio, National Association, incorporated by reference to Exhibit 10.20 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1994.
10.21 Lease agreement dated December 15, 1994 between Whiteford Foods Venture, L.P. and Star Bank, National Association, incorporated by reference to Exhibit 10.21 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1994.
10.22 Term note B dated April 14, 1995, between Whiteford Foods Venture, L.P. and PNC Bank, Ohio, National Association, incorporated by reference to Exhibit 10.22 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.23 Note payable dated September 18, 1995, between Whiteford Foods Venture, L.P. and PNC Bank, Ohio, National Association, incorporated by reference to Exhibit 10.23 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.24 Second amendment to Revolving Note dated July 11, 1995, incorporated by reference to Exhibit 10.24 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.25 Second amendment to Credit agreement dated July 11, 1995, incorporated by reference to Exhibit 10.25 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.26 Third amendment to Credit agreement dated July 11, 1995, incorporated by reference to Exhibit 10.26 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.27 Guarantee Compensation agreement dated September 18, 1995 between Whiteford Foods Venture, L.P. and Albert D. Greenaway, incorporated by reference to Exhibit 10.27 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.28 Mortgage granted to Albert D. Greenaway by Whiteford Foods Venture, L.P., incorporated by reference to Exhibit 10.28 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
INDEX TO ATTACHED EXHIBITS (CONT.)
10.29 Mortgage granted to Albert D. Greenaway by Whiteford Foods Venture, L.P., incorporated by reference to Exhibit 10.29 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.30 Security agreement dated September 18, 1995 between Whiteford Foods Venture, L.P. and Albert D. Greenaway, incorporated by reference to Exhibit 10.30 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1995.
10.31 Fifth Amendment to Credit Agreement dated May 9, 1996, incorporated by reference to Exhibit 10.31 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1996.
10.32 Lease agreement dated October 8, 1996 between Whiteford Foods Venture, L.P. and Fifth Third Leasing, incorporated by reference to Exhibit 10.32 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1996.
10.33 Lease agreement dated November 1, 1996 between Whiteford Foods Venture, L.P. and PNC Leasing Corporation, incorporated by reference to Exhibit 10.33 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1996.
10.34 Second Amendment to Term Note dated March 31, 1997.
10.35 Sixth Amendment to Credit Agreement dated June 30, 1997.
10.36 Lease agreement dated December 22, 1997 between Whiteford Foods Venture, L.P. and PNC Leasing.
13. 1990 Annual Report to Limited Partners, incorporated by reference to Exhibit 13 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1990.