10-Q 1 whiteford10q_09-01.txt SEPTEMBER 30, 2001 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 33-15962 WHITEFORD PARTNERS, L.P. (Exact name of registrant as specified in its charter) Delaware 76-0222842 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 770 North Center Street, Versailles, Ohio 45380 (Address of principal executive offices) (Zip Code) 937-526-5172 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes_X_ No___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Units Outstanding at November 12, 2001 ------------------------------------- -------------------------------------- Limited Partnership Class A $10 Units 1,306,890 This document contains 11 pages WHITEFORD PARTNERS, L.P. INDEX TO FORM 10-Q NINE MONTHS ENDED SEPTEMBER 30, 2001 and 2000 --------------------------------------------- Page Number Part I. FINANCIAL INFORMATION Item 1.Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000................................3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2001 and 2000 (Unaudited)....................4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited).............5 Notes to Condensed Consolidated Financial Statements (Unaudited).....6 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................7 PART II. OTHER INFORMATION..............................................10 2 of 11 CONDENSED CONSOLIDATED BALANCE SHEETS WHITEFORD PARTNERS, L.P. ------------------------

3 of 11 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS WHITEFORD PARTNERS, L.P. (Unaudited) -----------

4 of 11 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS WHITEFORD PARTNERS, L.P. (Unaudited) -----------

5 of 11 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHITEFORD PARTNERS, L.P. September 30, 2001 (Unaudited) ----------- 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. At September 30, 2001 and December 31, 2000 the Partnership had 1,306,890 Class A limited partnership units issued and outstanding. 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 determinations. The accompanying unaudited financial statements have been prepared in accordance with the instructions of Form 10-Q and therefore do not include all information and footnotes for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States. While the Partnership believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes in the Partnership's most recent annual report for the year ended December 31, 2000. A summary of the Partnership's significant accounting policies is presented on page F-5 of the Partnership's most recent annual report. There have been no material changes in the accounting policies followed by the Partnership during 2001. In the opinion of management, the unaudited information includes all adjustments (consisting of normal accruals) which are necessary for a fair presentation of the condensed consolidated financial position of the Partnership at September 30, 2001 and the condensed consolidated results of its operations for the three and nine months ending September 30, 2001 and 2000 and the condensed consolidated cash flows for the nine months ending September 30, 2001 and 2000. Operating results for the period ended September 30, 2001, are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2001. NOTE B - INCOME TAXES The Partnership files an information tax return, the items of income and expense being 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. NOTE C - SUBSEQUENT EVENT The Partnership has entered into a Letter of Intent with an affiliate of Rochester Meat Company ("Rochester Meat"), an unaffiliated company, for the purchase of the assets of the Partnership. Pursuant to the Letter of Intent, the purchase price is $7,950,000, including the assumption or payment of certain liabilities, subject to adjustments through the closing date. The purchase price at closing will be paid $1,500,000 in cash and the issuance of a subordinated note (the "Subordinated Note") due June 30, 2007 in the principal amount of $1,750,000, subject to adjustment at closing, with the balance of the purchase price paid by the assumption of certain liabilities net of other assets. The Subordinated Note shall bear interest at 9.5% and is prepayable under certain conditions. Additionally, the principal balance of the Subordinated Note may be adjusted downward under certain circumstances. In connection with the transaction with Rochester Meat, the Partnership is obligated to pay up to $500,000 to Greenaway Consultants, Inc. pursuant to the consulting agreement. Greenaway Consultants, Inc. acquired the right to such payment in connection with its provision of management services and financing to the Partnership. The Partnership and Greenaway Consultants, Inc. have agreed to: (i) defer $50,000 of such payment until December 15, 2001, (ii) subordinate 6 of 11 $300,000 of such payment to the distribution by the Partnership of $2.00 per limited partner unit (an aggregate of $2,613,780) and (iii) forgive $150,000 of such payment. Greenaway Consultants, Inc. is a wholly owned subsidiary of Albert Greenaway. Neither Mr. Greenaway nor Greenaway Consultants, Inc. owns any interest in the general partner of the Partnership. Based upon the purchase price of $7,950,000, expected adjustments, transaction costs and the payments due to Greenaway Consultants, Inc., the Partnership has recorded a valuation impairment of $2,887,868 and a write off of goodwill of $2,354,550, resulting in a limited partner capital balance of $2,613,780 or a $2.00 per limited partnership unit outstanding. Although there can be no assurance that the Partnership and Rochester Meat will consummate the transaction contemplated herein, the Partnership anticipates that a transaction will close prior to December 5, 2001. Upon completion of the transaction, the Partnerships assets will include the net cash proceeds and the Subordinated Note, subject to the then remaining obligations to Greenaway Consultants, Inc., other closing costs and potential liabilities, if any, associated with the Ameriserve litigation, described under legal proceedings. The Partnership is considering the contribution of the net assets of the Partnership to a liquidating trust, which will defend or settle the Ameriserve, Inc. litigation, then collect the Subordinated Note and pay excess amounts to the limited partners and Greenaway Consultants, Inc. as available. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Statements contained in this discussion and elsewhere in this report are not historical facts but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forwarding-looking statements are based on current expectations, estimates and projections about the industry and markets in which the Partnership operates, management's beliefs and assumptions made by management. Words such as "expects," "intends," "plans," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed or suggested by such forward-looking statements. The Partnership undertakes no obligation to update publicly and forward-looking statements, whether as a result of new information, future events or otherwise. The Partnership's operating results depend primarily on income from the sale of meat products, which may be affected by various factors, including changes in national and local economic conditions, competitive market conditions, uncertainties and costs related to and the imposition of conditions on receipt of governmental approvals and costs of material and labor, all of which may cause actual results to differ materially from what is expressed herein. Capital and credit market conditions, which affect the Partnership's cost of capital, also influence operating results. Management's discussion and analysis set forth below should be read in conjunction with the accompanying condensed consolidated financial statements. Results of Operations --------------------- Three months ended September 30, 2001 Compared to Three Months ended September 30, 2000 ------------------ Revenues for the three months ended September 30, 2001 were $12,459,180 versus $9,246,873 for the comparable period in 2000, an increase of 34.7%. During the 2001 period 11,210,034 pounds of meat products were sold versus 9,188,036 pounds during the 2000 period. The increase in sales of meat products sold is primarily attributable to an increase in orders by customers. Costs of meat products sold for the three months ended September 30, 2001 were $11,682,109 versus $8,292,446 for the comparable period ended September 30, 2000, an increase of 40.9%. The increase in the costs is primarily attributable to the increase in pounds produced and sold. Gross margins on sales were 6.2% for the three months ended September 30, 2001 and 10.3% for the comparable period in 2000. The decrease in gross margins is attributable to the semi-variable nature of certain costs of meat products sold such as labor, packaging and utilities. 7 of 11 Selling and administrative expenses were $391,947 for the 2001 period versus $408,015 for the 2000 period. Selling and administration expenses represented 3.1% of revenue for the three months ended September 30, 2001 and 4.4% the period ended September 30, 2000. Depreciation and amortization expense for the three months ended September 30, 2001 was $338,171 versus $330,139 for the same period in 2000, an increase of 2.4%. Interest expense for the three months ended September 30, 2001 was $138,810 versus interest expense of $185,561 for the same period in 2000. This decrease of $46,751 primarily relates to the average debt balance outstanding and lower interest rates. A net loss before the write off of goodwill and a valuation reserve was $91,857 in the 2001 period compared to net income of $30,712 in the comparable period in 2000. The Partnership recorded a valuation reserve and write off of goodwill in the aggregate amount of $5,242,418 for the period ended September 30, 2001, based upon the Partnership's estimate of the amounts to be recovered upon liquidation of the operating business of the Partnership. (See Subsequent Events Footnote Below.) Nine months ended September 30, 2001 Compared to Nine Months ended September 30, 2000 ------------------ Revenues for the nine months ended September 30, 2001 were $28,170,609 versus $33,599,803 for the comparable period in 2000, a decrease of 16.2%. During the 2001 period 25,376,281 pounds of meat products were sold versus 33,128,282 pounds during the 2000 period. The decrease in sales of meat products sold is primarily attributable to a reduction in orders by customers. Costs of meat products sold for the nine months ended September 30, 2001 were $26,275,737 versus $31,015,724 for the comparable period ended September 30, 2000, a decrease of 15.3%. The decrease in the costs is primarily attributable to a decline in pounds produced and sold. Gross margins on sales were 6.7% for the nine months ended September 30, 2001 and 7.7% for the comparable period in 2000. The decrease in gross margins is attributable to the semi-variable nature of certain costs of meat products sold such as labor, packaging and utilities. Selling and administrative expenses were $1,157,710 for the 2001 period versus $1,280,254 for the 2000 period. Selling and administration expenses represented 4.1% of revenue for the nine months ended September 30, 2001 and 3.8% the period ended September 30, 2000. Depreciation and amortization expense for the nine months ended September 30, 2001 was $1,002,396 versus $985,687 for the same period in 2000, an increase of 1.7%. Interest expense for the nine months ended September 30, 2001 was $439,065 versus interest expense of $535,637 for the same period in 2000. This decrease of $96,572 primarily relates to the average debt balance outstanding and lower interest rates. A net loss of $704,299, before the write off of goodwill and a valuation reserve as more fully described below, was realized in the 2001 period compared to net operating loss of $217,499 in the comparable period in 2000. Liquidity and Capital Resources ------------------------------- At September 30, 2001 the Partnership had a negative working capital of $570,066 versus a negative working capital of $246,226 at December 31, 2000. Cash used from operating activities was $231,914 in 2001 versus cash provided by operating activities was $1,615,042 in the 2000 period. 8 of 11 Cash used in investing activities was $268,733 in 2001 as compared to $145,930 in 2000. The Partnership provided $230,348 from financing activities during 2001. For the comparable period in 2000, the Partnership used $1,449,360. 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 $2,500,000 (with $2,499,071 outstanding at September 30, 2001), (the "Principal Revolver"); (b) a term credit facility of $3,177,804, (with $3,034,007 outstanding at September 30, 2001)(the " Term A Loan"); (c) a term credit facility of $574,605, (with $218,897 outstanding at September 30, 2001) (the " Term B Loan"); and (d) a term credit facility of $1,000,000, (with $868,000 outstanding at September 30, 2001) (the "Term C Loan"), (collectively, the "Loans"). During 2000, the Partnership amended its Credit Agreement with the Bank. The Principal Revolver bears an interest rate of prime plus 2%. The Term A Loan bears an interest rate of prime plus 1%. The Term B Loan bears interest of the Euro-Rate plus 3%. The Term C Loan bears an interest rate of prime plus 2%. 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 Loans are secured by real property, fixed assets, equipment, inventory, receivables and intangibles of the Partnership. The Partnership's 2001 capital budget calls for the expenditure of $200,000 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 2001. 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 Partnership's working capital and credit requirements for 2001. 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 price of its products. Market Risk ----------- There have been no significant changes in market risk since December 31, 2000. Subsequent Event ---------------- The Partnership has entered into a Letter of Intent with an affiliate of Rochester Meat Company ("Rochester Meat"), an unaffiliated company, for the purchase of the assets of the Partnership. Pursuant to the Letter of Intent, the purchase price is $7,950,000, including the assumption or payment of certain liabilities, subject to adjustments through the closing date. The purchase price at closing will be paid $1,500,000 in cash and the issuance of a subordinated note (the "Subordinated Note") due June 30, 2007 in the principal amount of $1,750,000, subject to adjustment at closing, with the balance of the purchase price paid by the assumption of certain liabilities net of other assets. The Subordinated Note shall bear interest at 9.5% and is prepayable under certain conditions. Additionally, the principal balance of the Subordinated Note may be adjusted downward under certain circumstances. In connection with the transaction with Rochester Meat, the Partnership is obligated to pay up to $500,000 to Greenaway Consultants, Inc. pursuant to the consulting agreement. Greenaway Consultants, Inc. acquired the right to such payment in connection with its provision of management services and financing to the Partnership. The Partnership and Greenaway Consultants, Inc. have agreed to: (i) defer $50,000 of such payment until December 15, 2001, (ii) subordinate $300,000 of such payment to the distribution by the Partnership of $2.00 per limited partner unit (an aggregate of $2,613,780) and (iii) forgive $150,000 of such payment. Greenaway Consultants, Inc. is a wholly owned subsidiary of Albert Greenaway. Neither Mr. Greenaway nor Greenaway Consultants, Inc. owns any interest in the general partner of the Partnership. Based upon the purchase price of $7,950,000, expected adjustments, transaction costs and the payments due to Greenaway Consultants, Inc., the Partnership has recorded a valuation impairment of $2,887,868 and a write off of goodwill of $2,354,550, resulting in a limited partner capital balance of $2,613,780 or a $2.00 per limited partnership unit outstanding. 9 of 11 Although there can be no assurance that the Partnership and Rochester Meat will consummate the transaction contemplated herein, the Partnership anticipates that a transaction will close prior to December 5, 2001. Upon completion of the transaction, the Partnerships assets will include the net cash proceeds and the Subordinated Note, subject to the then remaining obligations to Greenaway Consultants, Inc., other closing costs and potential liabilities, if any, associated with the Ameriserve litigation, described under legal proceedings. The Partnership is considering the contribution of the net assets of the Partnership to a liquidating trust, which will defend or settle the Ameriserve, Inc. litigation, then collect the Subordinated Note and pay excess amounts to the limited partners and Greenaway Consultants, Inc. as available. PART II. OTHER INFORMATION Item 1. Legal Proceeding Ameriserve, Inc., a former customer and a major national distributor of food and related products, filed for protection under bankruptcy proceedings in January, 2000. As a debtor in bankruptcy, Ameriserve has claimed that all payments made to creditors during the ninety days prior to the bankruptcy are preference items which Ameriserve may recover from its creditors. As a result, Ameriserve has instituted a lawsuit against the Partnership and other suppliers to recover its estimate of the preference amounts. The amount sought by Ameriserve in the lawsuit approximates $800,000. The Partnership has filed a response to their action but is unable to estimate the amount, if any, which it will ultimately be required to repay to Ameriserve by the court in the Ameriserve bankruptcy court action. The Partnership has not recorded a reserve in connection with the Ameriserve action. The Partnership has agreed to escrow proceeds from the sale of its assets to defend or satisfy the Ameriserve potential claims until such claims are settled or otherwise compromised. Item 2. Change in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Materially Important Events None Item 6. Exhibits and Reports on Form 8-K a. Exhibits - None b. Reports on Form 8-K - None 10 of 11 SIGNATURES Pursuant to the requirements 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. Date: November 12, 2001 By /s/ Kevin T. Gannon ------------------------- Kevin T. Gannon, Chairman Chief Financial Officer Gannon Group, Inc. General Partner 11 of 11 WHITEFORD PARTNERS, L.P. THIRD QUARTER REPORT 2001

WHITEFORD PARTNERS L P 10-Q