FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal year ended December 31, 2003 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) 1-800-225-6328 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Units 1,306,890 Units Outstanding 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No --- At March 28, 2004, 1,306,890 Class A units had been subscribed and issued. INDEX Item No. Description Page - ------ -------------------------------------------------------------- ---- PART I 1. Business 1 2. Properties 3 3. Legal Proceedings 3 4. Submission of Matters to a Vote of Security Holders 3 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters 3 6. Selected Financial Data 4 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 7A. Quantitative and Qualitative Disclosure About Market Risk 6 8. Financial Statements and Supplementary Data 6 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 6 PART III 10. Directors and Executive Officers of the Partnership 7 11. Executive Compensation 7 12. Security Ownership of Certain Beneficial Owners and Management 8 13. Certain Relationships and Related Transactions 8 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 8 PART I 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. 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. 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) defer $50,000 of such payment until 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 $50,000 payment was made in January 2002 and the $300,000 payment to Greenaway Consultants will be accrued after the $2,613,780 of distributions or net asset value is accumulated on the balance sheet of 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 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 has claimed that all payments made to creditors during the ninety days prior to the bankruptcy are preference items that 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. 1 Such settlement agreement provided for a payment by the Partnership of $40,000, which was paid in January 2002 to settle such claim. In December 2001, following the Sale Transaction, Ameriserve notified the Partnership that Ameriserve discovered what it believed were overpayments to the Partnership for prior purchases in the approximate amount of $189,000. Ameriserve notified the Partnership that if payment of the alleged overpayment was not received, Ameriserve would file a lawsuit to reflect the amount allegedly owed. The Partnership investigated the alleged overpayments and the potential liability, if any, for alleged overpayments. During the third quarter of 2002, 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 paid during the third quarter of 2002. B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS Prior to the Sale Transaction, the Partnership operated principally in the food processing and distribution business. The Partnership is presently holding and managing the proceeds of sale and related assets. 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. Prior to the Sale Transaction, the Partnership operated a further processing and meat production operation at one location--Versailles, Ohio. Versailles, Ohio Plant Operation Prior to the Sale Transaction, Whiteford's was a further processor and distributor of meat products to major fast food restaurants and regional chains and food distributors. The Partnership served major metropolitan areas such as Chicago, Cincinnati, Cleveland, Columbus, Detroit, Indianapolis, Louisville and St. Louis. Whiteford's principal products were fresh frozen hamburger patties; precooked and uncooked ground beef, taco meat and roast beef; marinated beef entrees; and other items processed to customers' specifications. Prior to the Sale Transaction, Whiteford's purchased products principally from major domestic packers and regional distributors. Prior to the Sale Transaction and for the period ended November 11, 2001, Whiteford's processed and sold 28.9 million pounds of products ($31.9 million) through its further processing and distribution operations. Whitefords had no sales of meat products in 2002 or 2003. Marketing and Sales Whitefords has no sales of meat products in 2002 or 2003. Prior to the Sale Transaction, Whiteford's customers consisted primarily of fast food retail chains in addition to HRI (Hotel, Restaurant, Institutional) customers and food products distributors. Sales operations were 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, prior to the Sale Transaction, for the period ended November 11, 2001: Gordon Food Service, 37.8%; and Harkers, 11.304%. Historically, a significant portion of Whiteford's business had been lodged with relatively few major national and regional accounts. During the year 2000, a significant customer eliminated Whiteford's as one of its suppliers as a result of a reduction of its distribution system after a bankruptcy filing by its major distributor. Prior to the Sale Transaction, all of Whiteford's sales are to customers in the United States and Canada. Regulatory Matters Prior to the Sale Transaction in 2001, all of Whiteford's meat production operations were subject to ongoing inspection and regulation by the United States Department of Agriculture ("USDA"). Whiteford's plant and facilities were 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. Prior to the Sale Transaction in 2001, Whiteford's was 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 was in substantial compliance with such laws and regulations prior to the Sale Transaction. 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. Prior to the Sale Transaction in 2001, Whiteford Foods was subject to various other federal, state and local regulations, none of which imposed material restrictions on its operations. 2 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 as needed for certain administrative services. The Whiteford's operation at Versailles, Ohio employed 175 personnel at November 11, 2001, the date of the Sale Transaction and no employees as of December 31, 2002 or December 31, 2003. The General Partner believes there will be sufficient personnel available to adequately manage the Partnership's business affairs. 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 November 11, 2001, immediately prior to the Sale Transaction. As of December 31, 2002, and December 31, 2001, the Partnership owns no operational facilities. Estimated Annual Tons of Production ------------------ General 2001 Location Character Size Capacity Actual - ---------------- ---------- ------------------------------------------------------- -------- ------ Versailles, Ohio Meat Two separate facilities (1) 71,400 and(1) 33,000 square 40,000 19,000 Processing feet on 20 acres of land, (8) hamburger/specialty lines, Plant (2) grinding lines, (1) precooked line, (3) smoke houses, freezers, coolers, dry storage and office space. All Whiteford's facilities were subject to a mortgage with two banks, prior to the Sale Transaction. ITEM 3. LEGAL PROCEEDINGS 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 that required a payment of $40,000 by the Partnership. A payment of $40,000 was made in January 2002 pursuant to the Settlement Agreement. The Partnership recorded a liability of $40,000 in connection with the Ameriserve action. The Partnership, prior to the Settlement Agreement, had agreed to escrow proceeds from the sale of its assets to defend or satisfy the Ameriserve potential claims until such claims were settled or otherwise compromised. In December 2001, following the Sale Transaction, Ameriserve notified the Partnership that Ameriserve discovered what it believed were 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 were not received, Ameriserve would 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. During the third quarter of 2002, the Partnership entered into a settlement agreement with Ameriserve and paid $70,000. There are no other material pending or threatened legal proceedings involving the Partnership, known to either the Partnership or the General Partner. 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 2002. PART II 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. 3 The following table sets forth the amounts and dates of distributions to holders of Limited Partnership Units in 1998 and 1999 and 2002. No distributions were issued during 2000, 2001 or 2003. Amount Per Limited Date Aggregate Amount Partnership Unit ---- ---------------- ---------------- February 25, 1998 $65,344.50 $0.05 May 29, 1998 65,344.50 0.05 August 25, 1998 65,344.50 0.05 November 27, 1998 65,344.50 0.05 March 2, 1999 65,344.50 0.05 May 31, 1999 65,344.50 0.05 June 30, 2002 980,167.50 0.75 Prior to the Sale Transaction, certain of the Partnership's loans with its lender contained restrictive covenants. One of the covenants restricted the Partnership from declaring or paying any distributions to its partners without the prior consent of the bank. Such loans were paid in full in 2001 as the result of the Sale Transaction. The following table sets forth the approximate number of holders of record of the equity securities of the Partnership as of December 31, 2003: Title of Class Number of Record Holders -------------- ------------------------ Limited Partnership Units 1,314 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. Year Ended December 31 --------------------------------------------------------------------------- 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS DATA: Revenues: Sale of meat products $ 0 $ 0 $ 31,705,599 $ 40,158,449 $ 51,549,748 Interest and other 130,981 143,878 231,103 158,450 166,680 ------------ ------------ ------------ ------------ ------------ Total revenues 130,981 143,878 31,936,702 40,316,899 51,716,428 Cost of sales 0 0 30,659,496 37,024,111 48,705,602 ------------ ------------ ------------ ------------ ------------ Gross profit Meat products 1,046,103 3,134,338 2,844,146 Other 231,103 158,450 166,680 ------------ ------------ ------------ ------------ ------------ Total gross profit 130,981 143,878 1,277,206 3,292,788 3,010,826 ------------ ------------ ------------ ------------ ------------ Selling and administrative expenses 145,009 129,022 1,436,690 1,688,685 2,266,593 Depreciation, amortization and interest 0 0 1,474,437 2,007,919 1,915,768 Write-off of goodwill 0 0 2,350,550 0 0 Loss on sale of assets 0 0 1,972,651 0 0 ------------ ------------ ------------ ------------ ------------ 145,009 129,022 7,234,328 3,696,604 4,182,361 ------------ ------------ ------------ ------------ ------------ Net (loss) income $ (14,028) $ 14,856 $ (5,957,122) $ (403,816) $ (1,171,535) ============ ============ ============ ============ ============ (Loss) income per unit of Limited Partners' Capital $ (.01) $ 0.01 $ (4.51) $ (0.31) $ (0.90) ============ ============ ============ ============ ============ Weighted average units outstanding 1,306,890 1,306,890 1,306,890 1,306,890 1,306,890 ========= ========= ========= ========= ========= 4 BALANCE SHEET DATA (December 31): 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- Working capital (deficit) $ 325,466 $ 225,336 $ 1,190,648 $ (246,226) $ (1,372,016) Total assets 1,708,984 1,610,512 2,686,919 16,755,410 19,620,720 Long-term debt, less current maturities 114,158 0 0 4,050,711 3,527,128 Total partners' capital 1,561,308 1,575,336 2,540,648 8,497,770 8,901,586 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Application of Critical Accounting Policies (See also Notes to Consolidated Financial Statements.) The Partnership's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The Partnership believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements. Revenue Recognition The Partnership records revenue when earned. Information Regarding and Factors Affecting Forward-Looking Statements: The Partnership is including the following cautionary statement in this Annual Report on Form 10-K 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 the ability of the Partnership 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 Whiteford Foods' 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. Results of Operations Year Ended December 31, 2003, Compared to Year Ended December 31, 2002 The Partnership sold substantially all of its assets on November 11, 2001, and as such, the results for the years ended December 31, 2003 and 2002, do not include the sale of meat products or the costs related thereto. For the year ended December 31, 2003, the Partnership received interest income on the subordinated note receivable, cash investments and other miscellaneous income aggregating $130,981. Also, during 2003, the Partnership incurred general and administrative expenses associated with the audit and tax return preparation, transfer agent fees, and other general and administrative expenses (including the Greenaway Consultant fee accrued of $114,158) aggregating $145,009. During the year ended December 31, 2002, the Partnership received interest income of $143,878 and incurred general and administrative expenses associated with the audit and tax return property, transfer agent fees, litigation expense and other administrative expense aggregating $129,022. 5 Year Ended December 31, 2002, Compared to Year Ended December 31, 2001 During the year ended December 31, 2001, the Partnership realized revenues for the sale of meat products prior to the Sale Transaction of $31,705,599 and miscellaneous income of $231,103. The Partnership incurred costs of goods sold ($30,659,496), selling and administrative expenses ($1,436,690), depreciation and amortization expenses ($1,034,873), interest expenses ($439,564), write-off of goodwill ($2,350,550) and a loss on sale of assets ($1,972,651). The Partnership reported net income (loss) for the years ended December 31, 2001 ($5,957,122). The loss for the 2001 period related pursuant to the write-off of goodwill and the loss on the Sale Transaction. Gross margins on meat sales were 3.3% for the year ended December 31, 2001. This decrease in gross margins were impacted by: i) increase in raw material costs and ii) the semi-variable nature of certain costs of meat products sold such as labor, packaging and utilities. Selling and administrative expenses were $1,436,690 during the year ended December 31, 2001. The decrease is primarily attributable to reduction in volume. Depreciation and amortization expense for the year ended December 31, 2001 was $1,034,873. Interest expense for the year ended December 31, 2001 was $439,564. The decrease of $265,914 primarily relates to the decrease in the average debt outstanding during 2001 as the result of the Sale Transaction. The Partnership reported a net loss of $5,957,122 for the year ended December 31, 2001 reflecting the aforementioned change in operations, a loss on sale of assets and write-off of goodwill. The loss on the sale of assets was taken in the third quarter to reflect the expected transaction to occur with Rochester Meat Company, in the amount of $1,972,651. The assets were written down to their net realizable value in accordance with Financial Accounting Standards Board Statement No. 121. The decline in value was attributed to the declining economic conditions and the events of September 11, 2001. Goodwill was removed in the third quarter in the amount of $2,354,550 to reflect the proposed sales transaction to Rochester Meat Company. The goodwill was written down to $0 in accordance with Financial Accounting Standards Board Statement No. 121. The write down was attributed to the declining economic conditions and the events of September 11, 2001. Liquidity and Capital Resources At December 31, 2003, and December 31, 2002, the Partnership had a working capital position of $325,466 and $225,336, respectively. Working capital increased due to the receipt of interest income. The Limited Partnership Agreement provides for the General Partner to receive an annual administrative fee. The fee is equal to 2% (adjusted for changes in the Consumer Price Index after 1989) of net business investment (defined as $8.50 multiplied by Partnership units outstanding). However, such amounts payable to the General Partner are limited to 10% of aggregate distributions to all Partners from "Cash Available for Distributions." As defined in the Limited Partnership Agreement, that portion of the management fee in excess of such 10% limitation is suspended, and future payment is contingent. The Administrative Management Fees paid to the General Partner and recorded by the Partnership were $0 in 2002, $0 in 2001, $0 in 2000, $13,069 in 1999, $26,138 in 1998, $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 2001, 2000, 1999, 1998, 1997, 1996, 1995, 1994, 1993 and 1992 respectively, are $300,000, $300,000, $300,000, $300,000, $287,000, $274,000, $287,000, $300,000, $290,000, $222,000, $229,000, and $228,000, respectively. The General Partner has agreed to subordinate payment of such fees to the distribution of $2.00 per unit to Limited Partners and the payment of deferred payments to Greenaway Consultants, Inc. During the second quarter of 2002, the Partnership made a distribution of excess working capital. The amount of such distribu-tion was $980,168 or $0.75 per unit. ITEM 7A. QUANTATATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In the normal operation, the Company has market risk exposure to interest rates on its cash investments and subordinated note. At December 31, 2001, the Company had $1,350,000 in interest bearing investments that are subject to market risk exposure to change in interest rates. The Company holds a Subordinated Note with interest fixed at 9 1/2% for the life of the note that comes due June 30, 2007. The remaining amount is subject to normal economic risk associated with fluctuating money markets. 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. 6 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROL AND PROCEDURES The Company's management, with the participation of the Company's Chief Executive Officer, has evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Company's Chief Executive Office concluded that the Company's disclosure controls and procedures were effective as of December 31, 2003. There were no material changes in the Company's internal control over financial reporting during the fourth quarter of 2003. PART III 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, 2003, are as follows: Kevin T. Gannon, age 47, sole director, President and sole stockholder of Gannon Group, Inc. Mr. Gannon is a private investor and a Managing Director of Robert A. Stanger & Co., Inc., a New Jersey based investment banking, investment research and consulting firm. 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. 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, 2003 or 2002. Remuneration to the General Partner is pursuant to Article 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 2003. 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 the Partnership's assets. 7 During calendar year 2002, the Partnership made one distribution to the Limited Partners ($980,167.50, or $0.75 per unit). As a result, in 2002, the Partnership suspended payment to the General Partner of $300,000 of such management fee. The cumulative amount of annual management fees that have been suspended is $3,317,000. Other Compensation Arrangements There is no plan provided for or contributed to by the Partnership or the General Partner that 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 that 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, 2002. No options were held to purchase securities of the Partnership as of December 31, 2002, 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 was extended to December 31, 2002, and modified pursuant to the Sale Transaction. 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. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. PART IV ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Ernst & Young LLP served as the independent auditor for the Partnership for the year ending December 31, 2003. The following sets forth the fees for the Partnership for the year ended December 31, 2003 and 2003 provided by the Partnership accounting firm, Ernst & Young LLP. 2003 2002 ---- ---- Audit Fees $20,000 $ 3,500 Tax Fees 5,000 6,500 ------- ------- Total $25,000 $10,000 ======= ======= All fees were pre-approved. There were no Form 8-K's filed during the quarter. ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K All schedules to the consolidated financial statements are omitted, because the required information is inapplicable or has been presented in the financial statements or related notes thereto. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Whiteford Partners L.P. ----------------------- (Registrant) By Gannon Group, Inc. Its General Partner Date: March 28, 2004 /s/ Kevin T. Gannon - -------------------- ------------------- Chief Executive Officer And President Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signatures Title Date ---------- ----- ---- Chief Executive officer, President, March 30, 2004 /s/Kevin T. Gannon Chairman of the Board and Sole -------------- - ------------------ Director (Principal Executive Officer), Kevin T. Gannon Chief Financial Officer, and Chief Accounting Officer 9 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, 2002 WHITEFORD PARTNERS, L.P. 10 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, 2003, and 2002. Consolidated Statements of Operations - for the years ended December 31, 2003, 2002, and 2001. Consolidated Statements of Changes in Partners' Capital - for the years ended December 31, 2003, 2002, and 2001. Consolidated Statements of Cash Flows - for the years ended December 31, 2003, 2002, and 2001. Notes to Consolidated Financial Statements Report of Independent Auditors (a) 2. See Index to Exhibits immediately following the financial statement schedules. 11 Whiteford Partners, L.P. CONSOLIDATED BALANCE SHEETS Year Ended December 31 ----------------------------- ASSETS 2003 2002 ------------- ------------ CURRENT ASSETS: Cash and cash equivalents $ 348,296 $ 249,824 Interest Receivable 10,688 10,688 ------------ ------------ TOTAL CURRENT ASSETS 358,984 260,512 SUBORDINATED NOTE RECEIVABLE 1,350,000 1,350,000 ------------ ------------ TOTAL ASSETS $ 1,708,984 $ 1,610,512 ============ ============ LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES: Accrued expenses and other liabilities $ 33,518 $ 35,176 ------------ ------------ TOTAL CURRENT LIABILITIES 33,518 35,176 Subordinated consulting fee payable 114,158 -- PARTNERS' CAPITAL: General Partner: Capital contributions 132,931 132,931 Capital transfers to Limited Partners (117,800) (117,800) Interest in net (loss) (49,266) (49,126) Distributions (38,171) (38,171) ------------ ------------ (72,306) (72,166) ------------ ------------ Class A Limited Partners: Capital contributions, net of organization and offering costs of $2,010,082 11,172,274 11,172,274 Capital transfers from the General Partner 116,554 116,554 Interest in net (loss) (4,888,448) (4,874,560) Distributions (4,766,766) (4,766,766) ------------ ------------ 1,633,614 1,647,502 ------------ ------------ TOTAL PARTNERS' CAPITAL 1,561,308 1,575,336 ------------ ------------ TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 1,708,984 $ 1,610,512 ============ ============ See notes to consolidated financial statements. F-1 Whiteford Partners, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 -------------------------------------------- 2003 2002 2001 ------------ ------------ ------------ REVENUE Sales of meat products $ -- $ -- $ 31,705,599 Interest and other 130,981 143,878 231,103 ------------ ------------ ------------ 130,981 143,878 31,936,702 COST AND EXPENSES Cost of meat products sold 0 0 30,659,496 Selling and administrative 145,009 129,022 1,436,690 Administrative fee - General Partner 0 0 0 Depreciation and amortization 0 0 1,034,873 Interest 0 0 439,564 Write-off of goodwill 0 0 2,350,550 Loss on sale of assets 0 0 1,972,651 ------------ ------------ ------------ 145,009 129,022 37,893,824 ------------ ------------ ------------ NET (LOSS) INCOME $ (14,028) $ 14,856 $ (5,957,122) ============ ============ ============ Summary of net (loss) income allocated to: General Partner $ (140) $ 148 $ (59,571) Class A Limited Partners (13,888) 14,708 $ (5,897,551) ------------ ------------ ------------ $ (14,028) $ 14,856 $ (5,957,122) ============ ============ ============ Net (loss) income per unit of Limited Partner Capital $ (0.01) $ 0.01 $ (4.51) ============ ============ ============ Weighted average units issued and outstanding 1,306,890 1,306,890 1,306,890 ============ ============ ============ See notes to consolidated financial statements. F-2 Whiteford Partners, L.P. Consolidated Statements of Changes in Partners' Capital General Partner Class A Limited Partners ------------------------------------------------- ---------------------------------------------------- Capital Capital Transfers Transfers Interest from Interest Capital to Limited in Net Capital General in Net Contributions Partners (Loss) Distributions Contributions Partner (Loss) Distributions ------------- -------- ------ ------------- ------------- ------- ------ ------------- Balance, January 1, 1998 $ 132,931 $ (117,800) $ 18,684 $ (34,251) $ 11,172,274 $ 116,554 $ 1,838,686 $ (3,394,531) Balance, December 31, 2000 $ 132,931 $ (117,800) $ 10,297 $ (38,171) $ 11,172,274 $ 116,554 $ 1,008,283 $ (3,786,598) Net Loss (59,571) (5,897,551) ------------------------------------------------------------------------------------------------------- Balance, December 31, 2001 132,931 (117,800) (49,274) (38,171) 11,172,274 116,554 (4,889,268) (3,786,598) Net Income/Distribution 148 14,708 ($980,168) ------------------------------------------------------------------------------------------------------- Balance, December 31, 2002 132,931 (117,800) (49,126) (38,171) 11,172,274 116,554 (4,874,560) (4,766,766) Net Loss (140) (13,888) ------------------------------------------------------------------------------------------------------- Balance December 31, 2003 $ 132,931 $ (117,800) $ (49,266) $ (38,171) $ 11,172,274 $ 116,554 ($4,888,448) $ (4,766,766) ======================================================================================================= See notes to consolidated financial statements. F-3 Whiteford Partners, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, ----------------------------------------- 2003 2002 2001 ----------------------------------------- OPERATING ACTIVITIES: Net (loss) income $ (14,028) $ 14,856 $(5,957,122) Adjustments to reconcile net (loss) income to net cash used provided by operating activities: Depreciation and amortization 0 0 1,034,873 Loss on sale of assets 0 0 1,972,651 Write-off of goodwill 0 0 2,350,550 Changes in operating assets and liabilities: Accounts receivable - trade 0 0 1,061,960 Inventories 0 0 2,501,717 Prepaid expenses 0 0 67,715 Interest receivable 0 356 (11,044) Accounts payable - trade 0 0 (1,453,765) Accrued expenses and subordinated 112,500 (111,095) (183,953) consulting fee payable ----------------------------------------- NET CASH PROVIDED (USED) BY OPERATING 98,472 (95,883) 1,383,582 ACTIVITIES INVESTING ACTIVITIES: Purchase of property and equipment 0 0 (301,572) Proceeds from disposal of property and equipment 0 0 6,388,205 ----------------------------------------- NET CASH PROVIDED INVESTING 0 0 6,086,633 ACTIVITIES FINANCING ACTIVITIES: Proceeds from notes payable and long-term debt 0 0 0 Payments on notes payable and long-term debt 0 0 (6,473,651) Distributions to Limited and General Partners 0 (980,168) 0 ----------------------------------------- NET CASH USED BY FINANCING 0 (980,168) (6,473,651) ACTIVITIES ----------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 98,472 (1,076,051) 996,564 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 249,824 1,325,875 329,311 ----------------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 348,296 $ 249,824 $ 1,325,875 ========================================= See notes to consolidated financial statements. F-4 WHITEFORD PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 - -------------------------------------------------------------------------------- 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 and Whiteford's have operated in the food business segment only. 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. At December 31, 2003, and at December 31, 2002, the Partnership had 1,306,890 Class A limited partnership units issued and outstanding. On November 11, 2001, the Partnership sold (the "Sale Transaction") substantially all its assets 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. 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) defer $50,000 of such payment until January 2002 (which was paid 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 $50,000 payment was made in January 2002 and the $300,000 subordinated payment to Greenaway Consultants is being accrued after distributions and limited partner net asset values exceed $2.00 per unit. 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 liabilities 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. . In December 2001, following the Sale Transaction, Ameriserve notified the Partnership that Ameriserve discovered what it believed were overpayments to the Partnership for prior purchases in the approximate amount of $189,000. Ameriserve notified the Partnership that if payment of the alleged overpayment was not received, Ameriserve would file a lawsuit to reflect the amount allegedly owed. The Partnership investigated the alleged overpayments and the potential liability, if any, for alleged overpayments. During the third quarter of 2002, 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 paid during the third quarter of 2002. F-5 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. 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 $0, $0, and $896,438 in years 2003, 2002, and 2001, respectively. The costs of ordinary repairs and maintenance are charged to expense, while betterment and major replacements were 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. was amortized on a straight-line basis over a thirty-year period, until September 2001, at which time Goodwill was written off. The loss on the sale of assets was taken in the third quarter of 2001 to reflect the expected transaction to occur with Rochester Meat Company, in the amount of $1,972,651. Goodwill was impaired in the third quarter of 2001 in the amount of $2,354,550. Revenue Recognition. Revenue is generally recognized when title passes which is generally at the time of shipment or when earned. 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 $0, $980,168, and $0 to Limited Partners were recorded in 2003, 2002, and 2001, respectively. Income Taxes. The Partnership files an information tax return. The items of income and expense are allocated to the partners pursuant to the terms of the Partnership Agreement. Income taxes applicable to the Partnership's results of operations are the responsibility of the individual partners and have not been provided for in the accounts of the Partnership. Cash, 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 $0, $0, and $439, for 2003, 2002, and 2001, respectively. Net (Loss) Income Per Unit of Limited Partners Capital. The net (loss) income per unit of limited partners capital is calculated by dividing the net (loss) income allocated to limited partners by the weighted average units outstanding. Concentrations. Financial instruments which potentially expose the Partnership 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 with Concentrations of Credit Risk, consist primarily of a subordinated note receivable from the buyer of the Partnership's assets. The Partnership's subordinated note receivable is concentrated in the food processing business. Use of Estimates. The preparation of the financial statements in accordance with accounting principles generally accepted in the United States 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. Fair Value. The fair value of the subordinated note receivable as determined by similar instruments in the marketplace is estimated at $1,350,000. 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 $0 in 2003, $0 in 2002, and $0 in 2001. Suspended fees as of December 31, 2003, for which no accrual had been recorded, total $3,317,000 ($3,017,000 as of December 31, 2002). 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 was extended for five years expiring December 31, 2001, and provides minimum consulting fees of approximately $250,000 per annum. During 2000, 1999 and 1998 the minimum was paid. GCI was due a payment of $500,000 upon a sale of F-6 substantially all of the assets of the Partnership. However, GCI and the Partnership modified such agreement at the time of the Sale Transaction to provide for a payment of $50,000 in January 2002 and the payment of up to $300,000, subordinated to total distributions of $2 per unit to limited partner investors. The remaining balance due under such agreement ($150,000) was forgiven. The $300,000 amount has commenced accruing in 2003 as a result of its subordination to the partnership. NOTE D - LONG TERM DEBT The Partnership had no long-term debt outstanding as of December 31, 2003, or 2002. Prior to the Sale Transaction, the revolving credit agreement permitted borrowings based on a percentage of eligible accounts receivable and inventories. Prior to the Sale Transaction, long-term debt and borrowing under the revolving credit agreement were collateralized by substantially all of the Partnership's property and equipment, inventory and accounts receivable. During 2003, 2002, and 2001, the weighted average interest rate on short-term borrowing was 0%, 0%, and 8.8%, respectively, while the weighted-average month-end amount outstanding was $0, $0, and $2,251,250, respectively. Interest paid in 2001 was $439,564. No interest was paid in 2003 or 2002. NOTE E - LEASES Lease Commitments. Prior to the Sale Transaction, the Partnership's leased buildings and equipment under various noncancelable operating lease agreements. Lease rental expense for 2001 was $479,908. There are no future minimum lease payments. NOTE F - EMPLOYEE BENEFIT PLAN The Partnership had a 401(k) Plan that covered substantially all employees who have completed one year of service. The Partnership matched a percentage up to 25% of the participant's contributions up to 6% of employee eligible compensation. Contributions to the Plan were $14,130 in 2001. No contributions were required for 2003 or 2002. NOTE G - MAJOR CUSTOMERS Prior to the Sale Transaction, Whiteford's facility, located in Versailles, Ohio, operated as a further processor and distributor of beef products to fast food restaurants and regional chains and food distribution in the Midwest of the United States. Whiteford's principal products were 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. Sales of meat products to major customers are summarized as follows for the years ended December 31, 2002 and 2001. CUSTOMER 2003 2002 2001 -------- ---- ---- ---- A $ 0 $ 0 $12,066,165 B 0 0 3,608,757 C 0 0 2,878,506 D 0 0 1,915,872 E 0 0 1,216,533 F 0 0 1,180,525 ---- ---- ----------- $ 0 $ 0 $22,866,358 F-7 NOTE I - QUARTERLY DATA (UNAUDITED) 2003 Quarters - --------------------------------------------------------------------------------------- Sales -- -- -- -- -- Gross profit -- -- -- -- -- Net income (loss) 25,833 24,226 22,556 (86,843) (14,028) Income (loss) per unit of Limited Partners' Capital $ .02 $ .02 $ (.07) $ .01 $ .02 Weighted average units outstanding 1,306,890 1,306,890 1,306,890 1,306,890 1,306,890 2002 Quarters - -------------------------------------------------------------------------------------- Sales 0 0 0 0 0 Gross profit 0 0 0 0 0 Net income (loss) 93 (6,962) (1,482) 23,207 14,856 Income (loss) per unit of Limited Partners' Capital $ .00 $ (.01) $ (.00) $ .02 $ .01 Weighted average units outstanding 1,306,890 1,306,890 1,306,890 1,306,890 1,306,890 F-8 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, 2003 and 2002 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, 2003. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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, 2003 and 2002 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Dayton, Ohio March 30, 2004 F-9 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. 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. F-10 INDEX TO ATTACHED EXHIBITS (CONT.) 10.11 Loan Agreement dated May 5, 1992, between Greenaway Consultant, Inc. and Whiteford FoodsVenture, 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. 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. F-11 INDEX TO ATTACHED EXHIBITS (CONT.) 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 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. 10.37 Seventh Amendment to Credit Agreement dated March 26, 1998, incorporated by reference to Exhibit 10.37 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1998. 10.38 Eighth Amendment to Credit Agreement dated July 1, 1998, incorporated by reference to Exhibit 10.38 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1998. 10.39 Third Amendment to Revolving Note dated July 1, 1998, incorporated by reference to Exhibit 10.39 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1998. F-12 INDEX TO ATTACHED EXHIBITS (CONT.) 10.40 Fourth Amendment to Revolving Note dated May 3, 1999, incorporated by reference to Exhibit 10.40 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1999. 10.41 Ninth Amendment to Credit Agreement dated May 3, 1999, incorporated by reference to Exhibit 10.41 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1999. 10.42 Tenth Amendment to Credit Agreement dated November 1, 1999, incorporated by reference to Exhibit 10.42 to the Partnership's Annual Report on Form 10K for the year ended December 31, 1999. 10.43 Third Amendment to Construction and Term Note dated March 1, 2000, incorporated by reference to Exhibit 10.43 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.44 Fifth Amendment to Revolving Note dated March 24, 2000, incorporated by reference to Exhibit 10.44 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.45 Eleventh Amendment to Credit Agreement dated January 1, 2000, incorporated by reference to Exhibit 10.45 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.46 Twelfth Amendment to Credit Agreement dated March 24, 2000, incorporated by reference to Exhibit 10.46 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.47 Amended and Restated Credit Agreement dated September 5, 2000, incorporated by reference to Exhibit 10.47 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.48 Amended and Restated Revolving Credit Note dated September 5, 2000, incorporated by reference to Exhibit 10.48 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.49 Amended and Restated Term Note A dated September 5, 2000, incorporated by reference to Exhibit 10.49 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.50 Amended and Restated Term Loan B dated September 5, 2000, incorporated by reference to Exhibit 10.50 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.51 Term Note C. dated September 5, 2000, incorporated by reference to Exhibit 10.51 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.52 Amended and Restated Security Agreement dated September 5, 2000, incorporated by reference to Exhibit 10.52 to the Partnership's Annual Report on Form 10K for the year ended December 31, 2000. 10.53 Promissory Note from Whiteford Food Products, Inc. to Whiteford Foods Venture, L.P., dated November 16, 2001. 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. 14.1 Code of Ethics. 14.2 Certificate. 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