UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
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: 0-11058
BURGER KING LIMITED PARTNERSHIP I
Exact name of registrant as specified in its charter
New York 13-3110947
State or other jurisdiction I.R.S Employer
of incorporation or organization Identification No.
Attn: Andre Anderson
3 World Financial Center, 29th Floor, New York, NY 10285-2900
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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 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
No market for the limited partnership units exists and therefore a market value
for the units cannot be determined.
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 the 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. X
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Unitholders for the year ended December 31, 1996 (Portions of
parts I, II, III and IV)
PART I
Item 1. Business.
(a) General Development of Business
Burger King Limited Partnership I (the "Partnership") was formed as a limited
partnership on December 14, 1981, under the partnership laws of the State of
New York. The general partner of the Partnership is BK I Realty Inc. (formerly
Shearson/BK Realty, Inc.), a New York corporation (the "General Partner") and
an affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman
Brothers, Inc. ("Shearson") (see Item 10). The Partnership engages in the
business of acquiring, constructing, improving, holding and maintaining Burger
King restaurants (each referred to as a "Property", collectively, the
"Properties"). The Properties are leased on a net basis to franchisees of
Burger King Corporation ("BKC").
(b) Financial Information About Industry Segment
The Partnership's sole business is leasing the Properties to franchisees of
BKC. All of the Partnership's revenues, operating profit or losses and assets
relate solely to such industry segment.
(c) Narrative Description of Business
The Properties consist of the buildings, the fixtures and improvements, and, in
some cases, the underlying land. The Properties are net leased to franchisees
of BKC. For a Property located on land owned by the Partnership, the annual
rent is the greater of (i) 14.5% of the Partnership's investment (which equals
the cost of land acquisition plus construction costs, as estimated at the date
the lease was executed, and capitalized interest) or (ii) 8.5% of the
Property's annual gross sales. For a Property located on land leased by the
Partnership, the annual rent is the greater of (i) 14.5% of the Partnership's
investment plus the annual ground rent paid by the Partnership to BKC, which,
in turn, pays rent to the owner of the underlying land or (ii) 8.5% of the
Property's annual gross sales.
The Partnership's principal investment objectives are to:
(1) provide regular cash distributions, a portion of which will be "tax
sheltered"; and
(2) provide realization of the long-term appreciation in the value of the
Properties, consistent in all cases with the preservation of partners'
capital.
BKC had an option to purchase any or all of the Properties at fair market value
through May 31, 1992, at which time the option expired unexercised. As a
result of BKC's decision not to exercise its option to purchase the Properties,
the General Partner initially commenced efforts to market the Properties for
sale in June 1992. As of December 31, 1996, the Partnership had sold 23
Properties. Please refer to Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-K, and Note 4 in
the Notes to the Financial Statements of the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which is filed as an exhibit
under Item 14 and incorporated herein by reference, for additional information
regarding Property sales to third parties. Reference is also made to Item 7
and the Message to Investors section of the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996 for a discussion of the
General Partner's efforts to market the Partnership's nine remaining Properties
for sale.
Employees
The Partnership has no employees.
Competition
Percentage rents received by the Partnership from the leases with the
franchisees at the Properties are based on food and beverage sales generated by
the Properties. Competition in the fast food industry has generally become more
intense as the number of chains competing for the consumer's business has
increased. For most chains, in 1997, the primary source of revenue growth will
continue to be the development of new restaurants or the acquisition of
existing restaurants. As a result, intense price competition and aggressive
marketing promotions have become essential ingredients in the effort to
increase sales from existing restaurants. Other factors which influence sales
include, but are not limited to, product quality, customer service, and the
diversity of menu offerings.
Item 2. Properties.
For the year ended December 31, 1996, the Properties located in Statesville
(NC), Decatur (AL), Springdale (AR), Atlanta (GA) and Klamath Falls (OR)
generated 11%, 14%, 10%, 13% and 13%, respectively, of the Partnership's rental
revenues. No individual Property represented 10% or more of the Partnership's
total assets for the year ended December 31, 1996.
For additional information concerning the Partnership's Properties, reference
is made to the section captioned "Partnership's Restaurants" on the Table of
Contents page and Note 4 captioned "Real Estate" in the Notes to the Financial
Statements of the Partnership's 1996 Annual Report to Unitholders, and Schedule
III on pages F-2 through F-3 following the signature pages of this Form 10-K.
Item 3. Legal Proceedings.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters.
(a) Market Information
There is no established trading market for the limited partnership units of
the Partnership (the "Units").
(b) Holders
As of December 31, 1996, there were 2,534 holders of record (the
"Unitholders") of the Units.
(c) Distributions
The following table illustrates the per Unit quarterly cash distributions
paid to Unitholders during the past two years:
Quarter Declared 1996 1995
First Quarter $11.56 $134.87 (1)
Second Quarter 11.07 4.73
Third Quarter 16.33 11.84
Fourth Quarter 51.42 (2) 10.52
Total Cash Distributions $90.38 $161.96
(1) Includes a distribution of $128.37 from the sale of three of the
Properties.
(2) Includes a distribution of $38.31 from the sale of one of the
Properties.
Reference is also made to the Message to Investors, Note 3 captioned
"Partnership Allocations" and Note 7 captioned "Distributions" of the Notes to
the Financial Statements in the Partnership's 1996 Annual Report to Unitholders
for additional information concerning cash distributions paid by the
Partnership.
Item 6. Selected Financial Data.
The information set forth below should be read in conjunction with the
Partnership's Financial Statements and notes thereto and Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
1996 1995 1994 1993 1992
Rental income $ 994,879 $1,004,195 $1,820,012 $1,907,913 $2,415,894
Gain on sales
of Properties 338,595 1,253,015 2,040,687 550,609 1,539,107
Net income 1,026,350 1,870,532 3,179,853 1,734,447 2,981,876
Net income per Unit 65.54 121.41 206.04 110.38 191.76
Total assets at
year-end 3,052,291 2,886,432 5,841,632 5,944,174 6,961,206
Cash Distributions
per Unit 90.38(a) 161.96(b) 358.85(c) 163.82(d) 289.78(e)
(a) Includes a $38.31 per Unit distribution from the sale of a Property located
in Wichita, KS.
(b) Includes a $128.37 per Unit distribution from the
sale of three Properties located, respectively, in Washington, NC;
Carlsbad, NM; and Big Spring, TX.
(c) Includes a $139.66 per Unit distribution from the sale of six Properties
located in, respectively, Madison Heights, VA; Pearl, MS; Falmouth, MA;
Tucson, AZ; West Springfield, MA; and Jackson, MS and a $140.65 per Unit
distribution from the sale of four Properties located, respectively, in
Kansas City, MO; Pasco, WA; Salem, MA; and West Allis, WI.
(d) Includes a $71.91 per Unit distribution from the sale of three Properties
located, respectively, in Atlantic Highlands, NJ; Rohnert Park, CA; and
Dothan, AL.
(e) Includes a $171.30 per Unit distribution from the sale of five Properties
located, respectively, in Grand Island, NE; Marion, VA; Sunnyvale, CA;
Greenbelt, MD; and Guilderland, NY.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
At December 31, 1996, the Partnership had a cash and cash equivalents balance
of $1,478,513, compared to $973,641 at December 31, 1995. The increase is
primarily due to net proceeds in the amount of $580,500 which were received
from the sale of a Property located in Wichita, Kansas on October 1, 1996. The
net proceeds from this sale were distributed to the partners of the Partnership
on January 30, 1997. As a result of the sale, the Partnership currently has
nine remaining Properties. The remaining balance of the Partnership's cash and
cash equivalents consisted primarily of the Partnership's working capital, cash
flow from operations for the fourth quarter of 1996, and a reserve established
to fund potential environmental remediation costs with respect to one of the
Properties located in Greenfield, Wisconsin (the "Greenfield Property").
The General Partner has had discussions with a number of institutions and other
third parties interested in purchasing the Partnership's nine remaining
Properties. However, the environmental issue at the Greenfield Property has
delayed the Partnership's efforts to complete a bulk sale of the remaining
Properties. The Partnership had previously proposed site-specific, clean-up
standards for the Greenfield Property to the Wisconsin Department of Natural
Resources ("WDNR"), whose response has taken significantly longer than
originally anticipated. In light of this unanticipated lengthy delay, the
General Partner has decided to move forward with its efforts to market the
Properties for a bulk sale during 1997. Upon the sale of the Properties, the
General Partner intends to distribute the net sales proceeds in accordance with
the terms of the partnership agreement dated December 14, 1981 (the
"Partnership Agreement"). While the General Partner is hopeful that a sale of
the Properties can be completed during 1997, there can be no assurances that
such efforts will be successful. As a result of the Partnership's intention to
pursue a sale of the Properties, the Properties have been reclassified on the
Partnership's balance sheet as real estate held for sale.
The General Partner believes that the potential environmental remediation costs
associated with the Greenfield Property will not exceed approximately $300,000
and, therefore, in accordance with the Partnership Agreement, such amount has
been set aside from the Partnership's net cash flow from operations to fund
these costs. If the proposed site-specific standards are approved by the WDNR
prior to any sale of the Properties, it is expected that any of such reserves
spent on the environmental remediation will be recovered from the proceeds of
the eventual sale of the Greenfield Property. Therefore, any remediation costs
incurred prior to a sale of the Greenfield Property will be capitalized and
included in the carrying value of the Properties. Alternatively, if the sale
occurs prior to the receipt of such approval, it is likely that any buyer will
attribute a discount to the value of the Greenfield Property in determining an
acceptable purchase price.
The General Partner believes that the Partnership will have sufficient assets
with which to pay any potential remediation costs on the Greenfield Property.
In the unlikely event that the Partnership does not have sufficient assets with
which to pay such costs, the General Partner is unaware of any Federal or State
of Wisconsin environmental law imposing any personal liability on the
Unitholders for their pro-rata share of the Partnership's remediation costs.
Therefore, except as otherwise provided for in the Partnership Agreement,
Unitholders may be liable for Partnership obligations only to the extent of
their respective capital contributions.
Rent receivable increased from $65,023 at December 31, 1995 to $76,042 at
December 31, 1996. The increase is primarily attributable to the timing of
receipt of rents paid to the Partnership.
Accounts payable and accrued expenses decreased from $139,418 at December 31,
1995 to $36,025 at December 31, 1996. The decrease is primarily attributable
to the payment of legal fees incurred by the Partnership in connection with
sales of Properties in 1994.
Due to BKC totaled $14,152 at December 31, 1996, compared to $0 at December 31,
1995. The balance at the end of 1996 represents rent that was erroneously paid
to the Partnership and was returned to BKC during the first quarter of 1997.
Distributions payable, which totaled $812,096 at December 31, 1996, represents
cash flow from operations for the fourth quarter of 1996 and net proceeds of
$580,500 from the aforementioned sale of the Wichita, Kansas store on October
1, 1996. These amounts were distributed on January 30, 1997.
Unitholders received distributions of $90.38 per Unit for 1996, including the
Partnership's fourth quarter distribution in the amount of $51.42 per Unit
which was paid on January 30, 1997. This distribution included net proceeds of
$38.31 per Unit from the sale of the Wichita Property.
Since the inception of the Partnership, cumulative cash distributions to
Unitholders have totaled $2,319.70 per original $1,000 Unit. This total
includes distributions of net cash flow from operations in the amount of
$1,610.34 per Unit and distributions of net proceeds from the sale of
Properties in the amount of $709.36 per Unit. Distributions of net proceeds
from the sale of Properties represent a return of capital, which has reduced
each Unit from $1,000 to $290.64.
Results of Operations
1996 vs. 1995
The Partnership generated net income for the year ended December 31, 1996 of
$1,026,350, compared to $1,870,532 for the prior year. The decrease in net
income is primarily due to a reduction in gain on sales which, for the year
ended December 31, 1995, included the sales of three Properties totaling
$1,253,015, as compared to a gain on the sale of one Property totaling $338,595
during the year ended December 31, 1996. Excluding the gain on sales of
Properties, the Partnership generated income from operations totaling $687,755
for the year ended December 31, 1996, compared to $617,517 for the year ended
December 31, 1995. The increase in income from operations from 1995 to 1996 is
primarily attributable a decrease in general and administrative expenses.
Rental income for the year ended December 31, 1996 totaled $994,879, largely
unchanged from $1,004,195 for the year ended December 31, 1995.
Interest income for the year ended December 31, 1996 totaled $58,248, compared
to $75,276 for the year ended December 31, 1995. The decrease is primarily
attributable to a decrease in the cash invested by the Partnership during 1996.
During the first and second quarters of 1995, the Partnership received interest
income on the net proceeds from the sales of four Properties in December 1994
and three Properties in March 1995. These proceeds were subsequently
distributed to the partners on January 30, 1995 and April 28, 1995,
respectively.
Depreciation expense for the year ended December 31, 1996 totaled $108,127,
compared to $118,323 for the year ended December 31, 1995. The decrease in
depreciation expense is primarily due to the sale of three Properties in March
1995, and, to a lesser extent, the sale of one Property in October 1996.
General and administrative expenses totaled $57,870 for the year ended December
31, 1996, compared to $143,493 for the year ended December 31, 1995. The
decrease in general and administrative expense is primarily attributable to a
decrease in environmental consulting costs and other professional fees incurred
by the Partnership in connection with the Greenfield Property.
1995 vs. 1994
The Partnership generated net income for the year ended December 31, 1995 of
$1,870,532 compared to $3,179,853 for the year ended December 31, 1994. The
decrease in net income was primarily attributable to (i) a decrease in the gain
on the sales of Properties from $2,040,687 recognized on the sales of 10
Properties during 1994 as compared to a gain of $1,253,015 recognized on the
sales of three Properties during 1995, and (ii) a decrease in rental income as
a result of the Partnership owning fewer Properties during 1995.
Rental income for the year ended December 31, 1995 totaled $1,004,195 compared
to $1,820,012 for the year ended December 31, 1994. The decrease was due to
the fact that there were fewer stores paying rent as a result of the sales of
10 Properties during the second half of 1994 and three Properties in the first
quarter of 1995. This was partially offset by an increase in percentage rents
from the remaining 10 Properties owned by the Partnership. Percentage rent
increased from $235,921 for the year ended December 31, 1994 to $292,707 for
the year ended December 31, 1995 primarily attributable to higher sales at
these Properties during 1995.
Interest income for the year ended December 31, 1995 totaled $75,276 compared
to $40,987 for the year ended December 31, 1994. The increase was due to
higher interest rates and a larger invested cash balance as a result of
proceeds received from the sales of three Properties during the first quarter
of 1995.
Depreciation, ground lease rent and management fees all decreased for the year
ended December 31, 1995 compared to the year ended December 31, 1994, primarily
due to the sales of 10 Properties in the second half of 1994 and three
Properties in the first quarter of 1995.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference to the Partnership's 1996 Annual Report to
Unitholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Partnership.
The General Partner is a New York corporation and an affiliate of Lehman.
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham & Co. Incorporated
("Smith Barney"). Subsequent to this sale, Shearson changed its name to Lehman
Brothers Inc. The transaction did not affect the ownership of the Partnership
or the General Partner. However, the assets acquired by Smith Barney included
the name "Shearson." Consequently, effective January 24, 1994, the General
Partner changed its name from Shearson/BK Realty, Inc. to BK I Realty Inc. to
delete any reference to "Shearson."
The Partnership has no officers and directors. The General Partner manages and
controls the affairs of the Partnership and has general responsibility and
authority in all matters affecting its business. Certain officers and the
director of the General Partner are now serving (or in the past have served) as
officers or directors of entities which act as general partners of a number of
real estate limited partnerships which have sought protection under the
provisions of the Federal Bankruptcy Code. The partnerships which have filed
bankruptcy petitions own real estate which has been adversely affected by the
economic conditions in the markets in which that real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The director and executive officers of the General Partner as of December 31,
1996 are set forth below. There are no family relationships between or among
any officer and any other officer or director.
Name Age Office
Rocco F. Andriola 38 Director, President and
Chief Financial Officer
Kenneth F. Boyle 33 Vice President
Timothy E. Needham 28 Vice President
The foregoing director has been elected to serve as director until the annual
meeting of the General Partner to be held in October 1997. The business
experience of the director and each of the officers of the General Partner is
as follows:
Rocco F. Andriola is a Managing Director of Lehman Brothers in its Diversified
Asset Group and has held such position since October 1996. Since joining
Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position
of First Vice President in Lehman's Capital Preservation and Restructuring
Group. From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. from Fordham University, a J.D. from New York University School
of Law, and an LL.M in Corporate Law from New York University's Graduate School
of Law.
Kenneth F. Boyle is a Vice President of Lehman's Diversified Asset Group. Mr.
Boyle joined Lehman in January 1991. Mr. Boyle is a Certified Public
Accountant and was employed by the accounting firm of KPMG Peat Marwick LLP
from 1985 to 1990. Mr. Boyle graduated from the State University of New York
at Binghamton with a B.S. degree in Accounting.
Timothy E. Needham is an Associate of Lehman Brothers and assists in the
management of commercial real estate in the Diversified Asset Group. Mr.
Needham joined Lehman Brothers in September 1995. Prior to joining Lehman
Brothers Mr. Needham was a consultant with KPMG Peat Marwick LLP in the Banking
and Investment Services Group from 1994-1995. Mr. Needham received his
master's degree in international management from the American Graduate School
of International Management in December of 1993. Previous to entering graduate
school, Mr. Needham worked in Tokyo, for approximately one year doing market
research for a Japanese firm (1991). In addition, Mr. Needham is currently a
candidate for the designation of Chartered Financial Analyst, Level III.
Item 11. Executive Compensation.
Officers and the director of the General Partner are employees of Lehman and
are not compensated by the Partnership or the General Partner for services
rendered in connection with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners
The Partnership knows of no person who beneficially owns more than 5% of
the Units.
(b) Security ownership of management
Under the terms of the Partnership Agreement, the Partnership's affairs are
managed by the General Partner. The General Partner owns the equivalent of
one Unit. Neither the director nor the officers of the General Partner own
any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others
Amounts reimbursed to the General Partner and its affiliates for out of
pocket expenses during the years ended December 31, 1996, 1995 and 1994
were $402, $1,382 and $7,072, respectively.
(b) Certain Business Relationships
There have been no business transactions between the director and officers
of the General Partner and the Partnership.
(c) Indebtedness of Management
No management person is indebted in any amount to the Partnership.
(d) Transactions with Promoters
There have been no transactions with promoters.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following are filed as part of this report:
1. Financial Statements
BURGER KING LIMITED PARTNERSHIP I
(a New York limited partnership)
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report (1)
Balance Sheets at December 31, 1996 and 1995 (1)
Statements of Partners' Capital (Deficit) for
the years ended December 31, 1996, 1995 and 1994 (1)
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 (1)
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
(1) Incorporated by reference to the Partnership's 1996 Annual Report to
Unitholders filed as an exhibit to the Form 10-K.
2. Financial Statement Schedule
Independent Auditors' Report on Schedule III (F-1)
Schedule III - Real Estate and Accumulated Depreciation (F-2)
3. Exhibits
(13) 1996 Annual Report to Unitholders
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the year ended
December 31, 1996.
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.
Dated: March 31, 1997
BURGER KING LIMITED PARTNERSHIP I
BY: BK I Realty Inc.
General Partner
BY: /s/ Rocco F. Andriola
Name: Rocco F. Andriola
Title: Director, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
BK I REALTY INC.
General Partner
Date: March 31, 1997
BY: /s/ Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Date: March 31, 1997
BY: /s/ Kenneth F. Boyle
Kenneth F. Boyle
Vice President
Date: March 31, 1997
BY: /s/ Timothy E. Needham
Timothy E. Needham
Vice President
INDEPENDENT AUDITORS' REPORT
The Partners
Burger King Limited Partnership I:
Under date of January 31, 1997 we reported on the balance sheets of Burger King
Limited Partnership I (a New York limited partnership) as of December 31, 1996
and 1995, and the related statements of operations, partners' capital (deficit)
and cash flows for each of the years in the three-year period ended December
31, 1996, as contained in the 1996 Annual Report to Unitholders. These
financial statements and our report thereon are incorporated by reference in
the annual report on Form 10-K for the year 1996. In connection with our
audits of the aforementioned financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion of the financial
statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 31, 1997
BURGER KING LIMITED PARTNERSHIP I
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Costs Capitalized
Subsequent
Initial Costs To Acquisition
Buildings and Buildings and
Description (A) Encumbrances and Land Improvements Improvements
Statesville, NC $ -- $ 200,000 $ 267,561 $ --
Fairfield, OH -- 150,000 294,882 --
Decatur, AL -- 135,000 293,270 --
Springdale, AR -- 183,000 267,438 --
Greenville, SC -- 118,000 249,251 --
Springfield, MA -- (B) 289,241 --
Greenfield, WI -- 140,906 314,090 --
Atlanta, GA -- (B) 247,838 --
Klamath Falls, OR -- (B) 236,961 --
- -------------------------------------------------------------------------
$ -- $ 926,906 $2,460,532 $ --
BURGER KING LIMITED PARTNERSHIP I
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Cost Basis at December 31, 1996
Buildings and Accumulated
Description (A) Land Improvements Totals Depreciation
Statesville, NC $200,000 $267,561 $467,561 $207,209
Fairfield, OH 150,000 294,882 444,882 228,387
Decatur, AL 135,000 293,270 428,270 227,050
Springdale, AR 183,000 267,438 450,438 207,091
Greenville, SC 118,000 249,251 367,251 193,080
Springfield, MA (B) 289,241 289,241 224,362
Greenfield, WI 140,906 314,090 454,996 236,834
Atlanta, GA (B) 247,838 247,838 186,917
Klamath Falls, OR (B) 236,961 236,961 178,772
- --------------------------------------------------------------------
$926,906 $2,460,532 $3,387,438(D) $1,889,702(C)
BURGER KING LIMITED PARTNERSHIP I
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Years of Dates Estimated
Description (A) Construction Acquired Useful Lives
Statesville, NC 1982 05/10/82 7 - 20 years
Fairfield, OH 1982 05/07/82 7 - 20 years
Decatur, AL 1982 04/30/82 7 - 20 years
Springdale, AR 1982 06/10/82 7 - 20 years
Greenville, SC 1982 09/03/82 7 - 20 years
Springfield, MA 1982 10/18/82 7 - 20 years
Greenfield, WI 1982 12/08/82 7 - 20 years
Atlanta, GA 1982 12/30/82 7 - 20 years
Klamath Falls, OR 1983 01/03/83 7 - 20 years
(A) Represents Burger King Restaurants.
(B) Properties operated under a ground lease.
(C) Depreciation is computed under the straight-line method.
(D) Federal income tax basis of the real estate is $3,387,442 at
December 31, 1996.
BURGER KING LIMITED PARTNERSHIP I
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
A summary of real estate held for investment and corresponding accumulated
depreciation for the three years ended December 31, 1996, 1995 and 1994 is as
follows:
Real Estate investments: 1996 1995 1994
Beginning of year $3,809,548 $4,947,996 $9,579,310
Deduct: real estate sold 422,110 1,138,448 4,631,314
End of year $3,387,438 $3,809,548 $4,947,996
Accumulated Depreciation:
Beginning of year $1,961,780 $2,430,394 $4,227,216
Add: depreciation expense 108,127 118,323 237,368
Deduct: real estate sold 180,205 586,937 2,034,190
End of year $1,889,702 $1,961,780 $2,430,394
BURGER KING LIMITED PARTNERSHIP I
1996 ANNUAL REPORT
Burger King Limited Partnership I
Burger King Limited Partnership I commenced operations in 1982 and was formed
to acquire Burger King restaurants which are leased to franchisees of Burger
King Corporation. The Partnership's principal investment objectives are to
make regular cash distributions and realize long-term appreciation from the
sale of the restaurants.
Partnership's Restaurants (as of December 31, 1996) *
Atlanta, Georgia Klamath Falls, Oregon
Decatur, Alabama Springdale, Arkansas
Fairfield, Ohio Springfield, Massachusetts
Greenfield, Wisconsin Statesville, North Carolina
Greenville, South Carolina
* This list does not include 23 restaurants sold prior to December 31, 1996.
Please refer to the Notes to the Financial Statements for information
regarding restaurants sold prior to December 31, 1996.
Contents
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
12 Independent Auditors' Report
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for Burger King Limited
Partnership I (the "Partnership"). Included in this letter is an update on the
status of the General Partner's efforts to sell the Partnership's remaining
nine restaurant properties (the "Properties"), a discussion of operations at
the Properties, and an overview of the Partnership's cash distributions and
financial performance. Attached to this letter are the Partnership's 1996
audited financial statements.
Sales Update
We are pleased to report that, during the fourth quarter of 1996, the
Partnership sold the Property located in Wichita, Kansas (the "Wichita
Property") for net proceeds of $580,500. As discussed below, the net sales
proceeds were distributed to the partners on January 30, 1997. As previously
reported, the General Partner has had discussions with a number of institutions
and other third parties interested in purchasing the Partnership's nine
remaining Properties in a bulk sale. However, an environmental issue at one of
the Properties located in Greenfield, Wisconsin (the "Greenfield Property") has
delayed our efforts to complete a bulk sale of the remaining Properties. The
Partnership had previously proposed site-specific, clean-up standards for the
Greenfield Property to the Wisconsin Department of Natural Resources ("WDNR"),
whose response has taken significantly longer than originally anticipated. In
light of this unanticipated lengthy delay, the General Partner has decided to
move forward with its efforts to market the Properties for a bulk sale during
1997.
Property Operations
Same-store sales for the remaining Properties during 1996 were $11,654,459
compared to $11,138,721 for 1995, representing an increase of approximately
4.5%. The increase in same-store sales is primarily attributable to Burger
King Corporation's aggressive marketing efforts. Rental income received by the
Partnership from the franchisees at the Properties is equal to the greater of a
minimum annual base rent or 8.5% of the Properties annual food and beverage
sales. Therefore, an increase in a Property's sales volume will often result
in an increase in rent received by the Partnership from an individual Property.
Cash Distributions
Limited partners received distributions of $90.38 per Unit for 1996, including
the Partnership's fourth quarter distribution in the amount of $51.42 per Unit
which was paid on January 30, 1997. This distribution included net proceeds of
$38.31 per Unit from the sale of the Wichita Property.
Since the inception of the Partnership, cumulative cash distributions to
limited partners have totaled $2,319.70 per original $1,000 Unit. This total
includes distributions of net cash flow from operations in the amount of
$1,610.34 per Unit and distributions of net proceeds from the sale of
Properties in the amount of $709.36 per Unit. Distributions of net proceeds
from the sale of Properties represent a return of capital, which has reduced
each Unit from $1,000 to $290.64.
Financial Highlights
For the years ended December 31,
1996 1995
Rental income $ 994,879 $ 1,004,195
Gain on sales of Properties 338,595 1,253,015
Total expenses 366,512 463,859
Net income 1,026,350 1,870,532
* Rental income for 1996 decreased less than 1% from the previous year
primarily because there were fewer Properties paying rent during 1996 as a
result of the sale of three Properties in March 1995 and, to a lesser extent,
the sale of the Wichita Property. This reduction in rental income was almost
entirely offset by an increase in rents received from the remaining
Properties due to an increase in food and beverage sales.
* Gain on sales of Properties for 1995 in the amount of $1,253,015 was
recognized as a result of the sale of three Properties in March 1995,
compared to the gain on sales of Properties for 1996 in the amount of
$338,595 as a result of the sale of the Wichita Property. The decline in
gain on sales of Properties in 1996 was the primary reason for the decrease
in net income. Excluding gains on sales of Properties, the Partnership
generated net income totaling $687,755 for 1996, compared to $617,517 for the
prior year. This increase is primarily attributable to a decrease in the
Partnership's total expenses and the increase in same-store sales.
* Total expenses for 1996 decreased by 21% from the prior year primarily due to
a decrease in depreciation expense attributable to the sales of Properties,
and a reduction in general and administrative expenses due primarily to lower
environmental consulting costs and other professional fees incurred in
connection with the Greenfield Property.
Net Asset Value
The Partnership's net asset value ("NAV") at year-end 1996 was $474.23 per Unit
as compared to $410.91 per Unit at year-end 1995. The Partnership's NAV
represents the estimated value of each Unit if the Partnership sold the
remaining Properties at appraised values as of that date. The increase in NAV
from the prior year is primarily attributable to an increase in the appraised
value of the Properties. Limited partners should note that appraisals are only
estimates of current value and actual values realizable upon sale may differ.
As a result of these factors and the illiquid nature of an investment in the
Units, the variation between the appraised value of the Properties and the
price at which Units could be sold is likely to be significant. Fiduciaries of
limited partners which are subject to ERISA or other provisions of law
requiring valuation of Units should consider all relevant factors, including
but not limited to NAV per Unit, in determining the fair market value of the
investment in the Partnership for such purposes.
General Information
As you may be aware, there have been recent attempts by third parties, for
their own benefit, to purchase units of limited partnerships similar to your
Partnership. Frequently, these third parties use partial tender offers to
purchase units at grossly inadequate prices that do not reflect the underlying
value of the partnership's assets. According to published industry sources, in
the overwhelming majority of such offers, most unitholders have rejected them
due to their inadequacy and have not tendered their units. Please be assured
that if any tender offer is made for your units, we will endeavor to provide
you with our position regarding that offer on a timely basis.
Summary
As discussed above, the General Partner will pursue efforts to market the
Partnership's nine remaining Properties for a bulk sale during 1997. Upon the
sale of the Properties, the General Partner intends to distribute the net sales
proceeds in accordance with the terms of the Partnership Agreement. While we
are hopeful that a sale of the Properties can be completed during 1997, there
can be no assurance that such efforts will be successful. Until all of the
Properties are sold, the Partnership intends to continue operating the
Properties and distributing cash flow from operations to the partners in
accordance with the terms of the Partnership Agreement. We will update you on
developments in future correspondence.
Very truly yours,
BK I Realty Inc.
General Partner
/S/ Rocco F. Andriola
Rocco F. Andriola
President
March 31, 1997
Balance Sheets At December 31, At December 31,
1996 1995
Assets
Real estate held for sale $1,497,736 $ --
Real estate at cost:
Land -- 1,113,406
Buildings -- 2,210,836
Fixtures and equipment -- 485,306
-- 3,809,548
Less accumulated depreciation -- (1,961,780)
-- 1,847,768
Cash and cash equivalents 1,478,513 973,641
Rent receivable 76,042 65,023
Total Assets $3,052,291 $2,886,432
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 36,025 $ 139,418
Due to Burger King Corporation 14,152 --
Distributions payable 812,096 180,645
Total Liabilities 862,273 320,063
Partners' Capital (Deficit):
General Partner (88,823) (85,088)
Limited Partners (15,000 units outstanding) 2,278,841 2,651,457
Total Partners' Capital 2,190,018 2,566,369
Total Liabilities and Partners' Capital $3,052,291 $2,886,432
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partner Partners Total
Balance at December 31, 1993 $(73,199) $5,551,950 $5,478,751
Net Income 89,234 3,090,619 3,179,853
Distributions to partners (Note 7) (104,472) (5,382,754) (5,487,226)
Balance at December 31, 1994 (88,437) 3,259,815 3,171,378
Net Income 49,322 1,821,210 1,870,532
Distributions to partners (Note 7) (45,973) (2,429,568) (2,475,541)
Balance at December 31, 1995 (85,088) 2,651,457 2,566,369
Net Income 43,180 983,170 1,026,350
Distributions to partners (Note 7) (46,915) (1,355,786) (1,402,701)
Balance at December 31, 1996 $(88,823) $2,278,841 $2,190,018
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rent (Note 4) $ 994,879 $1,004,195 $1,820,012
Interest 58,248 75,276 40,987
Other 1,140 1,905 2,828
Total Income 1,054,267 1,081,376 1,863,827
Expenses
Depreciation 108,127 118,323 237,368
Ground lease rent (Note 4) 112,914 112,914 171,976
Management fee (Note 5) 87,601 89,129 164,912
General and administrative 57,870 143,493 150,405
Total Expenses 366,512 463,859 724,661
Income from operations 687,755 617,517 1,139,166
Other Income
Gains on sales of properties (Note 4) 338,595 1,253,015 2,040,687
Net Income $1,026,350 $1,870,532 $3,179,853
Net Income Allocated:
To the General Partner $ 43,180 $ 49,322 $ 89,234
To the Limited Partners 983,170 1,821,210 3,090,619
$1,026,350 $1,870,532 $3,179,853
Per limited partnership unit
(15,000 outstanding) $65.54 $121.41 $206.04
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income $1,026,350 $1,870,532 $3,179,853
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 108,127 118,323 237,368
Gains on sales of properties (338,595) (1,253,015) (2,040,687)
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Settlement escrow receivable -- 95,260 (95,260)
Rent receivable (11,019) 34,957 (28,796)
Accounts payable and accrued expenses (103,393) (112,604) 203,648
Due to Burger King Corporation 14,152 -- --
Net cash provided by operating activities 695,622 753,453 1,456,126
Cash Flows From Investing Activities
Proceeds from sales of properties 580,500 1,804,526 4,637,811
Net cash provided by investing activities 580,500 1,804,526 4,637,811
Cash Flows From Financing Activities
Cash distributions to partners (771,250) (4,713,128) (3,486,043)
Net cash used for financing activities (771,250) (4,713,128) (3,486,043)
Net increase (decrease) in cash and
cash equivalents 504,872 (2,155,149) 2,607,894
Cash and cash equivalents, beginning
of period 973,641 3,128,790 520,896
Cash and cash equivalents, end of period $1,478,513 $ 973,641 $3,128,790
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Burger King Limited Partnership I (the "Partnership") was formed as a New York
limited partnership on December 14, 1981. The Partnership was formed for the
purpose of acquiring, constructing, improving, holding, and maintaining Burger
King restaurant properties (the "Properties") to be leased on a net basis to
franchisees of Burger King Corporation ("BKC").
The general partner is BK I Realty Inc. (the "General Partner"), formerly
Shearson/BK Realty, Inc., an affiliate of Lehman Brothers Inc. On July 31,
1993, certain of Shearson Lehman Brothers Inc.'s domestic retail brokerage and
management businesses were sold to Smith Barney, Harris Upham & Co. Inc.
Included in the purchase was the name "Shearson." Consequently, the General
Partner's name was changed to delete any reference to "Shearson."
The General Partner has had discussions with a number of institutions and other
third parties interested in purchasing the Partnership's nine remaining
Properties. However, an environmental issue at the Greenfield Property has, to
date, delayed efforts to complete a bulk sale of the remaining Properties. In
light of this unanticipated lengthy delay the Partnership has encountered
during the past two years in its efforts to reach an agreement for a
remediation plan for the site, the General Partner has decided to move forward
with efforts to market the Properties for a bulk sale during 1997. Until all of
the Properties are sold, the Partnership will continue to operate the
Properties, and it is intended that cash flow from operations will be
distributed to the partners of the Partnership in accordance with the terms of
the Partnership Agreement. As a result of the Partnership's intention to
pursue a sale of the Properties, the Properties have been reclassified on the
Partnership's balance sheet as real estate held for sale (See Note 8).
2. Significant Accounting Policies
Basis of Accounting -- The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred. Partnership revenue is realized from
base and percentage rents received on each individual Property. Minimum base
rents on the leased properties increase in an amount equal to corresponding
increases in expenses incurred pursuant to the underlying ground leases.
Accounting for Impairment -- In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, " Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 requires that assets held for
sale or disposal be carried at the lower of carrying amount or fair value less
cost to sell and prohibits depreciation from being recorded during the periods
which the asset is being held for sale or disposal. The Partnership adopted
FAS 121 in the fourth quarter of 1995.
Real Estate Held for Sale -- Prior to December 31, 1996, the Partnership's real
estate investments, which consist of buildings, fixtures and improvements and,
in some cases, the underlying land were recorded at cost less accumulated
depreciation. Cost included the initial purchase price of the Properties plus
closing costs, acquisition and legal fees and original capital improvements.
The General Partner has decided to move forward with efforts to sell the
Properties during 1997. As of December 31, 1996, the Partnership's real estate
investments (as discussed in Note 4), which had a carrying value of $1,497,736,
were reclassified as "Real Estate Held for Sale" and are carried at the lower
of cost or fair value less any estimated costs to sell the Properties,
including any estimated environmental remediation costs. Depreciation will be
suspended in accordance with FAS 121. Depreciation of buildings was computed
using the straight-line method over an estimated useful life of 20 years.
Depreciation of the fixtures and improvements was computed under the
straight-line method over an estimated useful life of 7 years.
Reclassifications -- Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
Cash Equivalents -- Cash equivalents consist of short-term highly liquid
investments which have maturities of three months or less from the date of
purchase. The carrying value approximates fair value because of the short
maturity of these instruments.
Concentration of Credit Risk -- Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Income Taxes -- No provision for income taxes has been made in the financial
statements of the Partnership since such taxes are the responsibility of the
individual partners rather than of the Partnership.
Use of Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Partnership Allocations
Allocation of Income and Loss -- In accordance with the partnership agreement
dated December 14, 1981 (the "Partnership Agreement"), credits and income or
gain from the Partnership's operations are allocated, without regard to
depreciation, in proportion to distributions of net cash flow from operations
made to the partners. To the extent that any such income or gain exceeds
distributions in any year, such excess shall be allocated 95% to the limited
partners and 5% to the General Partner. Depreciation shall be allocated
annually in proportion to the partners' respective capital accounts as of the
beginning of the year.
Net income is allocated monthly and is apportioned to the limited partners of
the Partnership in the pro rata basis in which the number of units owned by
each limited partner on the last day of the month bears to the total number of
units owned by the General Partner and all the limited partners as of that
date. At December 31, 1996, 1995 and 1994 and during the years then ended,
there were 15,000 units of limited partnership units outstanding (the "Units").
Gains with respect to dispositions of the Properties shall be allocated as
follows: first, 99% to the limited partners and 1% to the General Partner until
the limited partners achieve payout as defined in the Partnership Agreement
("Payout"); second, to any partner in an amount sufficient to increase his
negative capital account to zero; and third, 88.89% to the limited partners and
11.11% to the General Partner. Subsequent to Payout, gains shall be allocated
to the General Partner until their capital account equals 11.11% of the
aggregate outstanding capital balances of all the partners and any remaining
gain shall be allocated 88.89% to the limited partners and 11.11% to the
General Partner.
Prior to Payout, losses shall be allocated 99% to the limited partners and 1%
to the General Partner. Subsequent to Payout, losses shall be allocated 88.89%
to the limited partners and 11.11% to the General Partner.
Cash Distributions -- Distributions of net cash flows from operations are made
quarterly and are allocated 95% to the limited partners and 1% to the General
Partner, with the remaining 4% distributed to the limited partners to the
extent that cash distributions to the limited partners for the Partnership's
fiscal year do not equal at least 12.5% of their remaining invested capital and
the remainder, if any, is distributed to the General Partner. For the year
ended December 31, 1996, distributions to the limited partners were in excess
of a 12.5% return on their remaining invested capital as defined in the
Partnership Agreement.
Distributions of net property disposition proceeds are made quarterly and are
allocated 99% to the limited partners and 1% to the General Partner until
Payout. After Payout, BKC receives an additional management fee equal to 10%
of the net property disposition proceeds, and the remainder is distributed
88.89% to the limited partners and 11.11% to the General Partner. As of
December 31, 1996, Payout had not occurred.
4. Real Estate
As of December 31, 1996, 1995 and 1994, the Partnership owned 9, 10 and 13
Properties, respectively, consisting of the restaurant buildings, fixtures and
improvements, and in some cases, the underlying land.
The Properties are leased on a net basis to franchisees of BKC. The leases
between the Partnership and the franchisees (the "Leases") had an initial term
of 20 years with no renewal options. All of the Leases expire in the year 2002
or 2003. With respect to those Properties in which the Partnership does not own
the underlying land, there is a ground lease between the Partnership and BKC
(collectively, the "Ground Leases"). The Ground Leases had an initial term of
10 years with a minimum of two five-year renewal options. Minimum future
rentals on the noncancelable term of the Leases and the related Ground Leases
as of December 31, 1996 are as follows:
Minimum Ground
Years ending Rental Lease
December 31, Income Obligations
1997 $ 608,667 $113,224
1998 627,593 132,260
1999 630,715 135,382
2000 630,715 135,382
2001 630,715 135,382
Thereafter 543,698 152,112
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$3,672,103 $803,742
Leases are on a net basis requiring the franchisees to pay all taxes,
assessments, maintenance costs, insurance premiums and other impositions
against the premises. The franchisee is also required to make percentage
rental payments to the extent that 8.5% of such franchisee's annual gross sales
exceed the minimum base rent. Percentage rental income for the years ended
December 31, 1996, 1995 and 1994 was $339,461, $296,408 and $360,257,
respectively.
During the year ended December 31, 1996, the Partnership sold the following
Property:
Date Adjusted Net Gain
of Selling Book on
Store Sale Price Value Sale
Wichita, KS 10/01/96 $580,500 $241,905 $338,595
During the year ended December 31, 1995, the Partnership sold the following
Properties:
Dates Adjusted Net Gains
of Selling Book on
Stores Sales Prices Values Sales
Washington, NC 3/08/95 $ 619,944 $180,837 $ 439,107
Carlsbad, NM 3/31/95 728,684 240,175 488,509
Big Spring, TX 3/31/95 455,898 130,499 325,399
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$1,804,526 $551,511 $1,253,015
During the year ended December 31, 1994, the Partnership sold the following
Properties:
Dates Adjusted Net Gains
of Selling Book on
Stores Sales Prices Values Sales
Madison Heights, VA 7/01/94 $ 369,218 $ 274,271 $ 94,947
Pearl, MS 8/01/94 427,108 257,672 169,436
Falmouth, MA 8/01/94 568,353 289,187 279,166
Tucson, AZ 8/01/94 161,163 74,146 87,017
W. Springfield, MA 8/01/94 151,391 104,977 46,414
Jackson, MS 8/01/94 503,149 332,299 170,850
Kansas City, MO 12/02/94 536,691 290,626 246,065
Salem, MA 12/09/94 590,264 335,664 254,600
Pasco, WA 12/15/94 618,487 271,444 347,043
West Allis, WI 12/15/94 711,987 366,838 345,149
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$4,637,811 $2,597,124 $2,040,687
For the year ended December 31, 1996, the Properties located in Statesville
(NC), Decatur (AL), Springdale (AR), Atlanta (GA) and Klamath Falls (OR)
generated 11%, 14%, 10%, 13% and 13%, respectively, of the Partnership's rental
revenues. No individual Property represented 10% or more of the Partnership's
total assets for the year ended December 31, 1996.
5. Management Agreement
The Partnership has entered into an agreement (the "Agreement") with BKC for
the management of the Properties. The Agreement provides for a fee equal to 10%
of all rental income received by the Partnership from the Properties. To the
extent the annual rental income from the Properties is less than 15% of the
Partnership's investments in the Properties, as defined in the Agreement, BKC
is required to refund all or a portion of such management fee to provide the
Partnership with a 15% return on funds invested in the Properties. At December
31, 1996, 1995 and 1994, no such amounts were due from BKC.
Pursuant to an indemnity agreement between BKC and the Partnership (the
"Indemnity Agreement"), in the event of a default under the Leases, BKC is
obligated to pay the minimum monthly rent due under the Lease for the period
that the Lease is in default. The cumulative payments made by BKC pursuant to
the Indemnity Agreement are limited to an indemnity amount which was originally
10% of the Partnership's original investment in the Properties as defined in
the Indemnity Agreement, or $1,301,325. The indemnity amount may be decreased
by the amount of the minimum monthly rent payments made by BKC to the
Partnership pursuant to the Indemnity Agreement. In 1987 and subsequent years,
the indemnity amount was decreased on an annual basis by an amount equal to the
greater of (1) payments made by BKC pursuant to the Indemnity Agreement or (2)
6-2/3% of the fifth year amount of the indemnity until it is reduced to zero.
On December 31, 1996, the indemnity amount was approximately $433,862.
6. Transactions with Affiliates
Amounts reimbursed to the General Partner and its affiliates for out-of-pocket
expenses during the years ended December 31, 1996, 1995 and 1994 were as
follows:
Unpaid at Earned
December 31,
1996 1996 1995 1994
BK I Realty Inc. and affiliates
Out-of-pocket expenses $ -- $ 402 $1,382 $7,072
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$ -- $ 402 $1,382 $7,072
Cash and cash equivalents reflected on the Partnership's balance sheet at
December 31, 1995 were on deposit with an affiliate of the General Partner. As
of December 31, 1996, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
7. Distributions
Distributions paid or payable to the limited partners and the General Partner
for the years ended December 31 1996, 1995, and 1994 are aggregated as follows:
1996 1995 1994
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow from $ 781,090 $52.07 $503,909 $33.59 $1,177,999 $ 78.54
operations
Net property
disposition
proceeds 574,695 38.31 1,925,659 128.37 4,204,755 280.31
Total Limited
Partners $1,355,785 $90.38 $2,429,568 $161.96 $5,382,754 $358.85
General Partner
Cash flow from $ 41,110 $ -- $ 26,522 $ -- $ 62,000 $ --
operations
Net property
disposition 5,805 -- 19,451 -- 42,472 --
proceeds
Total General
Partner $ 46,915 $ -- $ 45,973 $ -- $ 104,472 $ --
As of December 31, 1996, the Partnership declared a distribution of $787,488,
of which $771,333 ($51.42 per unit) was paid to limited partners and $3,231 was
paid to the General Partner on January 30, 1997. The remaining $12,924 was
distributed to the General Partner in accordance with the Partnership
Agreement.
Pursuant to the terms of the Partnership Agreement, 80% of the General
Partner's quarterly distributions from operations are retained by the
Partnership, until it is determined that the unitholders have received their
priority return as defined in the Partnership Agreement. For the year ended
December 31, 1996, the unitholders received their priority return, and all
amounts retained in 1996 were paid to the General Partner on January 30, 1997
in a distribution which amounted to $37,532 and included $12,924 for the fourth
quarter of 1996.
8. Contingency
On September 23, 1994, the Partnership notified the State of Wisconsin
Department of Natural Resources ("WDNR") that petroleum and chlorinated
compounds were discovered at one of the Partnership's restaurant properties
located in Greenfield, Wisconsin (the "Greenfield Property"). The WDNR has
indicated that under Wisconsin state law, the Partnership is responsible for
remediating the site. The Partnership had previously proposed site-specific,
clean-up standards for the Greenfield Property to the WDNR, whose response has
taken significantly longer than originally anticipated. In light of this
unanticipated lengthy delay, the General Partner has decided to move forward
with its efforts to market the Properties for a bulk sale during 1997. Upon
the sale of the Properties, the General Partner intends to distribute the net
sales proceeds in accordance with the terms of the Partnership Agreement. While
we are hopeful that a sale of the Properties can be completed during 1997,
there can be no assurances that such efforts will be successful.
The General Partner believes that the potential environmental remediation costs
associated with the Greenfield Property will not exceed approximately $300,000
and, therefore, in accordance with the Partnership Agreement, such amount has
been set aside from the Partnership's net cash flow from operations to fund
these costs. If the proposed site-specific standards are approved by the WDNR
prior to any sale, it is expected that any of such reserves spent on the
environmental remediation will be recovered from the proceeds of the eventual
sale of the Greenfield Property. Therefore, any remediation costs incurred
prior to a sale of the Greenfield Property will be capitalized and included in
the carrying value of the Properties. Alternatively, if the sale occurs prior
to the receipt of such approval, it is likely that any buyer will attribute a
discount to the value of the Greenfield Property in determining an acceptable
purchase price.
9. Reconciliation of Financial Statement Net Income and Partners' Capital to
Federal Income Tax Basis Net Income and Partners' Capital
Reconciliation of financial statement net income to federal
income tax basis net income:
Years Ended December 31,
1996 1995 1994
Financial statement net income $1,026,350 $1,870,532 $3,179,853
Tax basis depreciation over
financial statement depreciation (21,624) (36,099) (61,143)
Financial statement gain on sales
of Properties under tax basis gain
on sales of Properties 46,713 79,771 453,235
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Federal income tax basis net income $1,051,439 $1,914,204 $3,571,945
Reconciliation of financial statement basis partners' capital to federal income
tax basis partners' capital:
Years Ended December 31,
1996 1995 1994
Financial statement basis partners'
capital $2,190,018 $2,566,369 $3,171,378
Current year financial statement
net income under federal income
tax basis net income 25,089 43,672 392,092
Cumulative financial statement net
income under cumulative federal
income tax basis net income 1,236,879 1,193,207 801,115
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Federal income tax basis partners'
capital $3,451,986 $3,803,248 $4,364,585
Because many types of transactions are susceptible to varying interpretations
under Federal and state tax laws and regulations, the amounts reported above
may be subject to change at a later date upon final determination by the taxing
authorities.
INDEPENDENT AUDITORS' REPORT
The Partners
Burger King Limited Partnership I:
We have audited the accompanying balance sheets of Burger King Limited
Partnership I (a New York limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' capital (deficit) and
cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Burger King Limited
Partnership I as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
January 31, 1997
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 1,478,513
<SECURITIES> 0
<RECEIVABLES> 76,042
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,052,291
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,052,291
<CURRENT-LIABILITIES> 862,273
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,190,018
<TOTAL-LIABILITY-AND-EQUITY> 3,052,291
<SALES> 0
<TOTAL-REVENUES> 1,054,267
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 366,512
<GAIN-PROVISION> 338,595
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,026,350
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,026,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,026,350
<EPS-PRIMARY> 65.54
<EPS-DILUTED> 65.54
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