10-Q 1 whiteford10q_09-02.txt SEPTEMBER 30, 2002 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, 2002 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 incorporation or organization) Identification No.) 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 10, 2002 ------------------------------------- Limited Partnership Class A $10 Units 1,306,890 This document contains 10 pages WHITEFORD PARTNERS, L.P. INDEX TO FORM 10-Q NINE MONTHS ENDED SEPTEMBER 30, 2002 and 2001 -------------------------------------------------------------------------------- Page Number Part I. FINANCIAL INFORMATION Item 1.Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2002 (Unaudited) and December 31, 2001...............................3 Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2002 and 2001 (Unaudited)...................4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (Unaudited)............5 Notes to Condensed Consolidated Financial Statements (Unaudited)....6 Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations......................................8 PART II. OTHER INFORMATION....................................................9 2 of 10 CONDENSED CONSOLIDATED BALANCE SHEETS WHITEFORD PARTNERS, L.P. --------------------------------------------------------------------------------

NOTE: The condensed balance sheet at December 31, 2001 has been taken from the audited financial statements at such date. 3 of 10 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS WHITEFORD PARTNERS, L.P. (Unaudited) --------------------------------------------------------------------------------

4 of 10 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS WHITEFORD PARTNERS, L.P. (Unaudited) --------------------------------------------------------------------------------

5 of 10 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS WHITEFORD PARTNERS, L.P. September 30, 2002 (Unaudited) NOTE A - ORGANIZATION, BUSINESS AND ACQUISITIONS 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 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. The Partnership sold (the "Sale Transaction") substantially all its assets on November 11, 2001, to an affiliate of Rochester Meat Company ("Rochester Meat"), an unaffiliated company, pursuant to an Asset Purchase Agreement (the "Agreement"). The purchase price was $7,950,000, including the assumption or payment of certain liabilities. The purchase price was 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 $1,350,000 (as adjusted) with the balance of the purchase price paid by the assumption of certain liabilities net of other assets. The Subordinated Note bears 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. 6 of 10 In connection with the transaction with Rochester Meat, the Partnership was obligated to pay up to $500,000 to Greenaway Consultants, Inc. pursuant to a 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. agreed to: (i) a $50,000 payment made in January 2002, (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 wholly owned by Albert Greenaway. Neither Mr. Greenaway nor Greenaway Consultants, Inc. owns any interest in the general partner of the Partnership. The $300,000 obligation to Greenaway Consultants has not been accrued as a result of its subordination to the partnership. Upon completion of the transaction, the Partnership's assets included the net cash proceeds and the Subordinated Note, subject to the then remaining obligations to Greenaway Consultants, Inc. and the General Partner, other closing costs and potential liabilities, if any, associated with pending litigation with Ameriserve, Inc., a former customer and a major national distributor of food and related products, which filed for protection under bankruptcy proceedings in January, 2000. As a debtor in bankruptcy, Ameriserve 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 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 approximated $800,000. The Partnership filed a response to their motion and entered into a settlement agreement with Ameriserve in January 2002. Such settlement agreement provided for a payment by the Partnership of $40,000, which was paid in January 2002 to settle such claim. At September 30, 2002 and December 31, 2001, 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 included in the Partnership's most recent annual report for the year ended December 31, 2001. 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 2002. In the opinion of management, the unaudited information includes all adjustments (all of which are of a normal recurring nature) which are necessary for a fair presentation of the condensed consolidated financial position of the Partnership at September 30, 2002 and the condensed consolidated results of its operations for the three and nine months ending September 30, 2002 and 2001 and the condensed consolidated cash flows for the nine months ending September 30, 2002 and 2001. Operating results for the period ending September 30, 2002 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2002. 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. 7 of 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Partnership is including the following cautionary statement in this Report on Form 10Q to make applicable and take advantage of the safe harbor provision of the Private Securities Litigation Reform Act of 1995 for any forward looking statements made by, or on behalf of the Partnership. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical facts. Certain statements contained herein are forward-looking statements and, accordingly, involve risk and uncertainties, which could cause actual results to differ materially from those expressed in the forward-looking statements. The Partnership's expectations, beliefs and projections are expressed in good faith and are believed by the Partnership to have reasonable basis, including without limitation, Management's examination of historical operating trends, data contained in the Partnership's records, and other data available from third parties, but there can be no assurance that Management's expectations, beliefs, or projections would result or be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, important factors that, in the view of the Partnership, could cause actual results to differ materially from those discussed in the forward-looking statements include demand for Rochester Meats (as the obligor on the Subordinated Note) products, the ability of Rochester Meats to obtain widespread market acceptance of its products, the ability of Rochester Meats to obtain acceptable forms and amounts of financing, competitive factors, regulatory approvals and developments, economic conditions, the impact of competition and pricing, and other factors affecting the Partnership and Rochester Meats' business that is beyond the Partnership's control. The Partnership has no obligation to update or revise these forward-looking statements to reflect the occurrence of future events or circumstances. 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 . Management's discussion and analysis set forth below should be read in conjunction with the accompanying condensed consolidated financial statements. Results of Operations --------------------- Three and Nine Months ended September 30, 2002 Compared to Three and Nine Months -------------------------------------------------------------------------------- ended September 30, 2001 ------------------------ The Partnership sold substantially all of its operating assets on November 11, 2001 and as such, the three and nine months ended September 30, 2002 do not include the sale of meat products or the costs related thereto. For the three and nine months ended September 30, 2002, the Partnership received interest income on the subordinated note receivable and cash investments and other income aggregating $39,141 and $111,218, respectively and incurred operating expenses of $40,623 and $119,662, respectively. Such operating expenses include primarily general and administrative expenses associated with audit fees, tax return preparation fees and transfer agent fees, litigating expenses, and other general and administrative expenses. The net loss for the three and nine month periods were $(1,482) and $(8,444), respectively. For the three and nine months ended September 30, 2001, the Partnership was operating a meat processing facility in Versailles, Ohio. Revenues for such period consisted of sales of meat products of $12,340,036 and $27,988,196, respectively and interest and other income of $119,144 and $182,413 respectively. The net loss for the three and nine months ended September 30, 2001 was $(5,334,275) and $(5,956,296), respectively, as the result of valuation reserves and the write-off of goodwill during such periods. Liquidity and Capital Resources ------------------------------- At September 30, 2002, the Partnership had working capital of $202,038 versus working capital of $1,190,647 at December 31, 2001. The Partnership paid a distribution to limited partners aggregating $980,168 ($0.75 per unit) during June 2002. Subsequent to the sale of assets to Rochester Meats, the Partnership has no interest bearing debt outstanding. 8 of 10 Market Risk ----------- There have been no significant changes in market risk since December 31, 2001. 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 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 approximated $800,000. The Partnership filed a response to their action. In January 2002, the Partnership entered into a settlement agreement with Ameriserve, which required a payment of $40,000 by the Partnership. A payment of $40,000 was made in January 2002 pursuant to the Settlement Agreement. In December 2001, following the Sale Transaction, Ameriserve notified the Partnership that Ameriserve discovered what it believes are overpayments to the Partnership for prior purchases in the approximate amount of $189,000. Ameriserve subsequently notified the Partnership that if payment of the alleged overpayment is not received, Ameriserve will file a lawsuit to collect the amount allegedly owing. The Partnership investigated the alleged overpayments and the potential liability, if any, for such alleged overpayments. Subsequent to the close of the second quarter, the Partnership entered into a settlement agreement with Ameriserve regarding the alleged overpayment. The settlement agreement provided for the payment to Ameriserve of $70,000. Such payment was mailed during the third quarter. There are no other material pending or threatened legal proceedings involving the Partnership, known to either the Partnership or the General Partner. 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 9 of 10 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 11, 2002 By /s/ Kevin T. Gannon ------------------- Kevin T. Gannon, President Chief Executive Officer Chief Financial Officer Gannon Group, Inc. General Partner 10 of 10

WHITEFORD PARTNERS L P 10-Q