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: 2-88051
BURGER KING LIMITED PARTNERSHIP III
Exact name of registrant as specified in its charter
New York 13-3178415
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 III (the "Partnership") was formed as a limited
partnership on November 22, 1983 under the partnership laws of the State of New
York. The general partner of the Partnership is BK III Restaurants Inc.
(formerly Shearson/BK Restaurants, 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, 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 is 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 the option to purchase any or all of the restaurants at fair market
value from May 17, 1991 through May 16, 1994 at which time the option expired
unexercised. After a careful evaluation of market conditions, the General
Partner has decided to commence efforts to market the Partnership's remaining
23 Properties for a bulk sale during 1997. Until the Properties are sold, the
Partnership will continue to operate, and it is intended that cash flow from
operations will be distributed to the partners in accordance with the terms of
the Agreement of Limited Partnership dated as of November 22, 1983 (the
"Partnership Agreement"). While the General Partner is hopeful that a sale of
the remaining Properties can be completed during 1997, there can be no
assurance that such efforts will be successful. Prior to December 31, 1996,
the Partnership sold or conveyed four Properties. Please refer to Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations of this Form 10-K, and Notes 4 and 5 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 or
conveyances to third parties.
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 the 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 increasing 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, no individual Property generated rental
revenues of 10% or more of the Partnership's total rental revenues.
Additionally, 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-5 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
(the "Units").
(b) Holders
As of December 31, 1996, there were 2,540 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 $ 28.20 $ 32.46
Second Quarter 26.02 24.02
Third Quarter 27.29 26.69
Fourth Quarter 59.53 (1) 25.59
Total Cash Distributions $141.04 $108.76
(1) Includes a distribution of $33.46 from the sale of one Property in
November 1996.
Reference is also made to Note 3, captioned "Partnership Allocations" and
Note 6 captioned "Distributions" of the Notes to 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 $2,257,335 $2,159,733 $2,044,028 $1,941,005 $2,082,814
Gain on sales
of Properties 383,193 -- -- 162,513 --
Net income 1,787,581 1,328,509 1,418,073 1,486,673 1,339,253
Net income per Unit 113.32 83.21 88.89 93.55 83.36
Total assets at
year-end 6,292,587 6,193,235 6,577,380 6,802,582 8,022,257
Cash distributions
per Unit 141.04(a) 108.76 105.79 153.77(b) 126.95(c)
(a) Includes a $33.46 per Unit distribution from the sale of a leasehold
interest in a Property located in Delhi Township, Ohio (the "Delhi
Property").
(b) Includes a $61.38 per Unit distribution from the sale of a Property located
in Kansas City, Missouri and the conveyance of a Property located in
Waterford Township, Michigan.
(c) Includes $.51 per Unit paid for foreign and state non- resident income tax
withholding in March 1992. Does not include $.17 per Unit of
non-recoupable withholding taxes.
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 $1,022,064, compared to $502,341 at December 31, 1995. The increase is
primarily due to net proceeds in the amount of $507,000 which were received
from the sale of the Partnership's leasehold interest in a Property located in
Delhi Township, Ohio on November 15, 1996. The net proceeds from this sale
were distributed to the partners of the Partnership on January 30, 1997. The
remaining balance of the Partnership's cash and cash equivalents consisted
primarily of the Partnership's working capital and cash flow from operations
for the fourth quarter of 1996.
Rent receivable totaled $80,880 at December 31, 1996, compared to $50,447 at
December 31, 1995. The increase is primarily attributable to the timing of
receipt of rents paid to the Partnership.
Due from BKC decreased from $50,977 at December 31, 1995 to $0 at December 31,
1996. The decrease is attributable to a refund of a portion of BKC's
management fees paid by the Partnership during 1995 which was received during
the first quarter of 1996. In accordance with the terms of the property
management agreement between BKC and the Partnership (the "Agreement"), BKC is
required to refund all or a portion of the annual management fee paid by the
Partnership if rents from the Properties do not provide an annual return of
15.5% on the Partnership's initial investment, as defined in the Agreement. For
the year ended December 31, 1996, rents received by the Partnership from the
Properties exceeded the annual return of 15.5% and, therefore, BKC was not
required to refund any of its management fee to the Partnership.
Distributions payable, which totaled $918,562 at December 31, 1996, were paid
on January 30, 1997. Such amount includes net proceeds of $507,000 from the
aforementioned sale of the leasehold interest in the Delhi Property on November
15, 1996.
Unitholders received distributions of $141.04 per Unit for 1996, including the
Partnership's fourth quarter distribution in the amount of $59.53 per Unit
which was paid on January 30, 1997. This distribution included net proceeds of
$33.46 per Unit from the sale of the leasehold interest in the Delhi Property.
Since the inception of the Partnership, cumulative cash distributions to the
Unitholders have totaled $1,470.16 per original $1,000 Unit. This total
includes distributions of net cash flow from operations in the amount of
$1,350.24 per Unit and distributions of net proceeds from the sale of
Properties in the amount of $119.92 per Unit. Distributions of net proceeds
from the sales of Properties represent a return of capital, which has reduced
each Unit from $1,000 to $880.08.
After a careful evaluation of market conditions, the General Partner has
decided to commence efforts to market the Partnership's remaining 23 Properties
for a bulk sale during 1997. 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. As a result of the Partnership's intention to market
the Properties for sale, the net amount of the land, building, and fixtures and
equipment less the related accumulated depreciation has been reclassified on
the Partnership's balance sheet as real estate held for sale.
On February 15, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner, and no partner will be entitled to receive any
distribution, until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
Results of Operations
1996 vs. 1995
The Partnership generated net income for the year ended December 31, 1996 of
$1,787,581, compared to $1,328,509 for the year ended December 31, 1995. The
increase in net income is primarily due to a gain on the sale of the leasehold
interest in the Delhi Property recognized by the Partnership during the fourth
quarter of 1996 totaling $383,193. Excluding this gain, the Partnership
generated income from operations totaling $1,404,388 for the year ended
December 31, 1996, compared to $1,328,509 for the year ended December 31, 1995.
The slight increase in income from operations from 1995 to 1996 is primarily
attributable to an increase in rental income received from the Properties.
Rental income for the year ended December 31, 1996 was $2,257,335, compared to
$2,159,733 for the corresponding period in 1995. The increase in rental income
is primarily attributable to an increase in food and beverage sales at the
Properties which resulted in an increase in percentage rental income and, to a
lesser extent, scheduled escalations in ground lease rents at the leasehold
Properties. Ground lease rent escalations which are included in the minimum
base rent amounts charged to the franchisees also result in a corresponding
increase in the ground lease rents paid by the Partnership to BKC. Management
fees, which are based on the amount of rental income received by the
Partnership, were higher for the year ended December 31, 1996 due to the
increase in percentage rental income. As discussed above, BKC was not required
to refund any management fees to the Partnership for the year ended December
31, 1996.
General and administrative expenses for the year ended December 31, 1996
totaled $82,159, compared to $90,545 for the corresponding period in 1995. The
decrease is primarily attributable to a decrease in environmental consulting
fees incurred by the Partnership during 1996.
1995 vs. 1994
The Partnership generated net income for the year ended December 31, 1995 of
$1,328,509 compared to $1,418,073 for the year ended December 31, 1994. The
decrease in net income was primarily attributable to an increase in management
fees paid to BKC.
Rental income for the year ended December 31, 1995 was $2,159,733 compared to
$2,044,028 for the year ended December 31, 1994. The increase was primarily a
result of increased food and beverage sales at the Properties resulting in an
increase in percentage rental income and, to a lesser extent, scheduled rent
escalations in the Partnership's ground leases. Ground lease rent escalations
are passed on to the franchisees in the form of higher minimum base rents.
Interest income for the year ended December 31, 1995 was $26,299 compared to
$16,366 for the year ended December 31, 1994. The increase in interest income
was primarily attributable to a rise in interest rates earned on the
Partnership's cash balances during the 1995 period.
Total expenses for the year ended December 31, 1995 were $859,688 compared to
$646,097 for the year ended December 31, 1994. The increase was primarily
attributable to an increase in the management fee paid to BKC which is
attributable to the increase in percentage rental income received by the
Partnership as a result of an increase in sales at the Properties. Also
contributing to the increase in expenses for the year ended December 31, 1995,
was higher ground lease rent resulting from scheduled rent escalations on three
of the Partnership's leased Properties.
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 Restaurants, Inc. to BK III
Restaurants 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 Brothers' Diversified Asset
Group. Mr. Boyle joined Lehman Brothers 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. No director or 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 $2,341, $80 and $53, 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 III
(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.
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 III
BY: BK III Restaurants 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 III RESTAURANTS INC.
General Partner
Dated: March 31, 1997
BY: /s/ Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Dated: March 31, 1997
BY: /s/ Kenneth F. Boyle
Kenneth F. Boyle
Vice President
Dated: March 31, 1997
BY: /s/ Timothy E. Needham
Timothy E. Needham
Vice President
INDEPENDENT AUDITORS' REPORT
The Partners
Burger King Limited Partnership III:
Under date of January 31, 1997 we reported on the balance sheets of Burger King
Limited Partnership III (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 III
(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 Land Improvements Improvements
Largo, FL $ _ $210,000 $276,604 $ _
Mounds View, MN _ 120,000 330,988 _
Sulphur Springs, TX _ 112,000 309,767 _
Atlanta, GA _ 250,000 362,443 _
Albuquerque, NM _ (B) 286,252 _
Montgomery, AL _ (B) 288,273 _
Covina, CA _ 270,000 346,210 _
Federal Heights, CO _ (B) 231,001 _
Gallatin, TN _ 131,500 270,748 _
Edison, NJ _ 150,000 534,340 _
Cleburne, TX _ 129,588 336,846 _
Chattanooga, TN _ 180,000 309,706 _
Shelbyville, TN _ 139,000 359,891 _
Gary, IN _ 207,000 409,521 _
Wilson, NC _ 135,000 381,867 _
Memphis, TN _ 225,000 398,988 _
North Augusta, SC _ 160,000 329,445 _
Columbus, IN _ 175,000 360,545 _
Brooklyn Park, MD _ (B) 289,307 _
Fayetteville, NC _ (B) 371,762 _
San Bernadino, CA _ (B) 325,297 _
Frankfort, KY _ 175,000 400,684 _
Nashville, TN _ 212,000 399,849 _
___________________________________________________
$ _ $2,981,088 $7,910,334 $ _
BURGER KING LIMITED PARTNERSHIP III
(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
Largo, FL $210,000 $276,604 $486,604 $206,985
Mounds View, MN 120,000 330,988 450,988 248,645
Sulphur Springs, TX 112,000 309,767 421,767 232,943
Atlanta, GA 250,000 362,443 612,443 268,830
Albuquerque, NM 286,252 286,252 212,140
Montgomery, AL 288,273 288,273 214,728
Covina, CA 270,000 346,210 616,210 254,465
Federal Heights, CO 231,001 231,001 171,532
Gallatin, TN 131,500 270,748 402,248 199,531
Edison, NJ 150,000 534,340 684,340 383,724
Cleburne, TX 129,588 336,846 466,434 246,383
Chattanooga, TN 180,000 309,706 489,706 224,623
Shelbyville, TN 139,000 359,891 498,891 260,746
Gary, IN 207,000 409,521 616,521 293,207
Wilson, NC 135,000 381,867 516,867 272,995
Memphis, TN 225,000 398,988 623,988 282,281
North Augusta, SC 160,000 329,445 489,445 233,139
Columbus, IN 175,000 360,545 535,545 255,823
Brooklyn Park, MD 289,307 289,307 214,067
Fayetteville, NC 371,762 371,762 262,808
San Bernadino, CA 325,297 325,297 226,912
Frankfort, KY 175,000 400,684 575,684 276,864
Nashville, TN 212,000 399,849 611,849 272,647
_______________________________________________________
$2,981,088 $7,910,334 $10,891,422 (D) $5,716,018 (C)
BURGER KING LIMITED PARTNERSHIP III
(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
Largo, FL 1984 04/03/84 7 - 20 years
Mounds View, MN 1984 04/13/84 7 - 20 years
Sulphur Springs, TX 1984 03/08/84 7 - 20 years
Atlanta, GA 1984 06/15/84 7 - 20 years
Albuquerque, NM 1984 07/10/84 7 - 20 years
Montgomery, AL 1984 07/16/84 7 - 20 years
Covina, CA 1984 05/31/84 7 - 20 years
Federal Heights, CO 1984 08/31/84 7 - 20 years
Gallatin, TN 1984 10/11/84 7 - 20 years
Edison, NJ 1984 10/31/84 7 - 20 years
Cleburne, TX 1984 10/18/84 7 - 20 years
Chattanooga, TN 1985 01/18/85 7 - 20 years
Shelbyville, TN 1985 02/07/85 7 - 20 years
Gary, IN 1985 05/09/85 7 - 20 years
Wilson, NC 1985 05/16/85 7 - 20 years
Memphis, TN 1985 08/01/85 7 - 20 years
North Augusta, SC 1985 08/02/85 7 - 20 years
Columbus, IN 1985 07/23/85 7 - 20 years
Brooklyn Park, MD 1985 02/20/85 7 - 20 years
Fayetteville, NC 1985 08/26/85 7 - 20 years
San Bernadino, CA 1985 12/11/85 7 - 20 years
Frankfort, KY 1986 02/27/86 7 - 20 years
Nashville, TN 1985 10/22/85 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 $10,845,640
at December 31, 1996.
BURGER KING LIMITED PARTNERSHIP III
(a New York limited partnership)
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
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 $11,278,049 $11,278,049 $11,278,049
Deduct: real estate sold 386,627 0 0
End of year $10,891,422 $11,278,049 $11,278,049
Accumulated depreciation:
Beginning of year $ 5,702,818 $ 5,425,179 $ 5,147,540
Add: depreciation expense 276,020 277,639 277,639
Deduct: real estate sold 262,820 0 0
End of year $ 5,716,018 $ 5,702,818 $ 5,425,179
As of December 31, 1996, the Partnership's real estate investments which had a
carrying value of $5,175,404, were reclassified as real estate held for sale
and depreciation will be suspended in accordance with FAS 121.
EXHIBIT 13
BURGER KING LIMITED PARTNERSHIP III
1996 ANNUAL REPORT
Burger King Limited Partnership III
Burger King Limited Partnership III commenced operations in 1984 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
sales of the restaurants.
Partnership's Restaurants (as of December 31, 1996)(1)
Albuquerque, New Mexico Gallatin, Tennessee
Atlanta, Georgia Largo, Florida
Brooklyn Park, Maryland Memphis, Tennessee
Chattanooga, Tennessee Montgomery, Alabama
Cleburne, Texas Mounds View, Minnesota
Columbus, Indiana Nashville, Tennessee
Covina, California North Augusta, South Carolina
Edison, New Jersey San Bernadino, California
Fayetteville, North Carolina Shelbyville, Tennessee
Federal Heights, Colorado Sulphur Springs, Texas
Frankfort, Kentucky Wilson, North Carolina
Gary, Indiana
(1) This list does not include four restaurants either sold or conveyed prior
to December 31, 1996. Please refer to the Message to Investors and Notes to
the Financial Statements for information regarding such restaurants.
Contents
1 Message to Investors
3 Financial Statements
6 Notes to the Financial Statements
11 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 III (the "Partnership"). Included in this letter is an update on
the status of the General Partner's efforts to sell the Partnership's remaining
23 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
After a careful evaluation of market conditions, the General Partner has
decided to commence efforts to market the Partnership's 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
remaining Properties can be completed during 1997, there can be no assurance
that such efforts will be successful. Until all of the Partnership's remaining
23 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. During the fourth
quarter of 1996, the Partnership sold its leasehold interest in the Property
located in Delhi Township, Ohio (the "Delhi Property") for net sales proceeds
of $507,000.
Property Operations
Same-store sales at the Properties during 1996 were $24,212,417 compared to
$23,384,120 for 1995, representing an increase of approximately 3.5%. 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, increases in sales at the Properties will often result in an
increase in the Partnership's rental income.
Cash Distributions
Limited partners received distributions of $141.04 per Unit for 1996, including
the Partnership's fourth quarter distribution in the amount of $59.53 per Unit
which was paid to the partners on January 30, 1997. This distribution included
net proceeds of $33.46 per Unit from the sale of the leasehold interest in the
Delhi Property.
Since the inception of the Partnership, cumulative cash distributions to the
limited partners have totaled $1,470.16 per original $1,000 Unit. This total
includes distributions of net cash flow from operations in the amount of
$1,350.24 per Unit and distributions of net proceeds from the sale of
Properties in the amount of $119.92 per Unit. Distributions of net proceeds
from the sales of Properties represent a return of capital, which has reduced
each Unit from $1,000 to $880.08.
Financial Highlights
For the years ended December 31,
1996 1995
Rental income $2,257,335 $2,159,733
Gain on sale of Property 383,193 --
Total expenses 879,774 859,688
Net income 1,787,581 1,328,509
* Rental income for 1996 increased 4.5% from the previous year due primarily to
higher food and beverage sales at the Properties. To a lesser extent, this
increase is also attributable to scheduled escalations of ground lease rents
at the leasehold Properties.
* Gain on sale of Property in the amount of $383,193 was recognized as a result
of the sale of the leasehold interest in the Delhi Property. No Properties
were sold during 1995.
* Net income for 1996 increased primarily due to the gain on the sale of the
leasehold interest in the Delhi Property. Excluding this gain, net income
from operations totalled $1,404,388 for 1996, compared to $1,328,509 for the
previous year. The remaining increase of $75,879 is primarily attributable
to the increase in rental income received from the Properties.
Net Asset Value
The Partnership's net asset value ("NAV") at year-end 1996 was $978.65 per Unit
as compared to $852.37 per Unit at year-end 1995. The Partnership's NAV
represents the estimated value of each Unit assuming the Partnership sold its
remaining 23 Properties at their 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 sale values 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 the 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 has decided to commence efforts to
market the Partnership's remaining Properties for a bulk sale during 1997. We
will update you on developments in future correspondence.
Very truly yours,
BK III Restaurants 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 $ 5,175,404 --
Real estate at cost (Note 4):
Land -- 2,981,088
Buildings -- 5,552,773
Fixtures and equipment -- 2,744,188
-- 11,278,049
Less accumulated depreciation -- (5,702,818)
-- 5,575,231
Cash and cash equivalents 1,022,064 502,341
Rent receivable 80,880 50,447
Due from affiliates 14,239 14,239
Due from Burger King Corporation (Note 5) -- 50,977
Total Assets $ 6,292,587 $ 6,193,235
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 44,811 $ 42,023
Distributions payable (Note 6) 918,562 404,096
Total Liabilities 963,373 446,119
Partners' Capital (Deficit):
General Partner (24,770) (22,629)
Limited Partners (15,000 units outstanding) 5,353,984 5,769,745
Total Partners' Capital 5,329,214 5,747,116
Total Liabilities and Partners' Capital $ 6,292,587 $ 6,193,235
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 $ (18,345) $ 6,406,421 $ 6,388,076
Net Income 84,786 1,333,287 1,418,073
Distributions to partners (Note 6) (83,517) (1,586,832) (1,670,349)
Balance at December 31, 1994 (17,076) 6,152,876 6,135,800
Net Income 80,307 1,248,202 1,328,509
Distributions to partners (Note 6) (85,860) (1,631,333) (1,717,193)
Balance at December 31, 1995 (22,629) 5,769,745 5,747,116
Net Income 87,852 1,699,729 1,787,581
Distributions to partners (Note 6) (89,993) (2,115,490) (2,205,483)
Balance at December 31, 1996 $ (24,770) $ 5,353,984 $ 5,329,214
Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rent (Note 4) $ 2,257,335 $ 2,159,733 $ 2,044,028
Interest 24,477 26,299 16,366
Other 2,350 2,165 3,776
Total Income 2,284,162 2,188,197 2,064,170
Expenses
Depreciation 276,020 277,639 277,639
Ground lease rent (Note 4) 287,544 279,546 257,583
Management fee (Note 5) 234,051 211,958 21,464
General and administrative 82,159 90,545 89,411
Total Expenses 879,774 859,688 646,097
Income from operations $ 1,404,388 $ 1,328,509 $ 1,418,073
Other Income
Gain on sale of property (Note 4) 383,193 -- --
Net Income $ 1,787,581 $ 1,328,509 $ 1,418,073
Net Income Allocated:
To the General Partner $ 87,852 $ 80,307 $ 84,786
To the Limited Partners 1,699,729 1,248,202 1,333,287
$ 1,787,581 $ 1,328,509 $ 1,418,073
Per limited partnership unit
(15,000 outstanding) $113.32 $83.21 $88.89
Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities
Net Income $ 1,787,581 $ 1,328,509 $ 1,418,073
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 276,020 277,639 277,639
Gain on sale of property (383,193) -- --
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (30,433) (16,209) (19,161)
Due from Burger King Corporation 50,977 125,986 (3,103)
Accounts payable and accrued expenses 2,788 (487) (2,842)
Net cash provided by operating activities 1,703,740 1,715,438 1,670,606
Cash Flows From Investing Activities
Proceeds from sale of property 507,000 -- --
Net cash provided by investing activities 507,000 -- --
Cash Flows From Financing Activities
Cash distributions to partners (1,691,017) (1,713,517) (1,641,042)
Net cash used for financing activities (1,691,017) (1,713,517) (1,641,042)
Net increase in cash and cash equivalents 519,723 1,921 29,564
Cash and cash equivalents, beginning
of period 502,341 500,420 470,856
Cash and cash equivalents, end
of period $ 1,022,064 $ 502,341 $ 500,420
Notes to the Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Burger King Limited Partnership III (the "Partnership") was formed as a New
York limited partnership on November 22, 1983. The Partnership was formed for
the purpose of acquiring, constructing, improving, holding and maintaining
Burger Kingr restaurants (the "Properties"). The Properties are leased on a
long-term net basis to franchisees of Burger King Corporation ("BKC").
The general partner is BK III Restaurants Inc. (the "General Partner"),
formerly Shearson/BK Restaurants, 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."
On February 15, 1996, based upon, among other things, the advice of legal
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partner adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partner may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change of
Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partner. In determining the
amount of the distribution, the General Partner may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner, and no partner will be entitled to receive any
distribution, until the General Partner has declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on February 29, 1996.
After a careful evaluation of market conditions, the General Partner has
decided to commence efforts to market the Partnership's remaining 23 Properties
for a bulk sale during 1997. Despite the possibility that sales of Properties
could occur in 1997, there can be no assurance that the General Partner will be
successful in selling any or all of the Partnership's Properties this year.
Until all of the Partnership's remaining 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.
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.
After a careful evaluation of market conditions, the General Partner has
decided to commence efforts to market the Partnership's remaining Properties
for sale. As of December 31, 1996, the Partnership's real estate investments
(as discussed in Note 4) which had a carrying value of $5,175,404, were
reclassified as Real Estate Held for Sale and 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 -- Pursuant to the terms of the partnership
agreement dated November 22, 1983 (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 flows 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 each 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 for 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, 94.12% to the limited partners and
5.88% to the General Partner. Subsequent to Payout, gains shall be allocated
to the General Partner until his capital account equals 5.88% of the aggregate
outstanding capital account balances of all partners, and any remaining gain
shall be allocated 94.12% to the limited partners and 5.88% 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 94.12% to
the limited partners and 5.88% 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 5% to the General
Partner.
Distributions of net property disposition proceeds will be allocated 99% to the
limited partners and 1% to the General Partner until Payout. After Payout, an
additional management fee of 15% of the excess of the net property disposition
proceeds over the amount required to reach Payout is paid to BKC and the
remainder is distributed 94.12% to the limited partners and 5.88% to the
General Partner. As of December 31, 1996, Payout had not occurred.
4. Real Estate
As of December 31, 1996, the Partnership owned 23 Properties and as of December
31, 1995 and 1994, the Partnership owned 24 Properties, consisting of the
restaurant buildings, fixtures and improvements, and in some cases, the
underlying land.
The Properties are net leased on a net lease 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 2003 or 2004. 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 terms 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 $ 1,805,880 $ 250,943
1998 1,805,880 250,943
1999 1,809,631 254,695
2000 1,833,510 278,572
2001 1,846,804 291,870
Later years 6,222,171 971,630
- -------------------------------------------------------------------
$15,323,876 $ 2,298,653
The Leases are on a net basis requiring franchisees to pay all taxes,
assessments, maintenance costs, insurance premiums and other impositions
against the premises. The franchisees are also required to make percentage
rental payments to the extent that 8.5% of such Property's gross sales exceed
the minimum base rent paid by the franchisee. Percentage rental income for
December 31, 1996, 1995 and 1994 was $365,499, $268,846, and $175,104,
respectively.
On November 15, 1996, the Partnership's leasehold interest in a Property
located in Delhi Township, OH (the "Delhi Property") was sold to the franchisee
at the Delhi Property for net proceeds of $507,000, resulting in a gain of
$383,193.
During the fourth quarter of 1996, the General Partner decided to commence
efforts to market the Partnership's remaining Properties for a bulk sale during
1997 and reclassified the Properties from Real Estate to Real Estate Held for
Sale (see Note 2).
For the year ended December 31, 1996, no individual Property generated rental
revenues of 10% or more of the Partnership's total rental revenues.
Additionally, 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 agreements (the "Agreements") with BKC for the
management of the Properties. These agreements provide for a fee equal to 10%
of all base rents and 20% of all percentage rent received by the Partnership
from the Properties. To the extent that the Partnership does not receive annual
rents from the Properties equal to a 15.5% return on its initial investment in
the Properties, as defined in the Agreements, BKC will refund all or a portion
of the management fee received in order to provide the Partnership with such a
return. At December 31, 1996, 1995 and 1994, $0, $50,977 and $128,924,
respectively, were due from BKC for such refunds.
Pursuant to an indemnity agreement between BKC and the Partnership, in the
event of a default by a franchisee under any Lease, BKC is obligated to pay the
minimum monthly rent due under the Lease, up to the indemnity amount, as
defined below. The indemnity amount was originally 10% of the Partnership's
original investment in the Properties as defined in the Partnership Agreement,
or $1,261,922. The indemnity amount may be decreased by the amount of the
minimum monthly rent payments made by Burger King to the Partnership pursuant
to the indemnity agreement. In 1989 and subsequent years, the indemnity amount
has been decreased on an annual basis by an amount equal to the greater of (1)
payments made by Burger King 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 $588,904.
The Property located in Memphis, Tennessee ceased operations on September 9,
1994. Since that time, BKC has continued to pay the minimum monthly rent to
the Partnership in accordance with the indemnity agreement.
Two Properties located in Kansas City, Missouri and Waterford Township,
Michigan ceased operations and subsequently defaulted on their minimum rent
obligations. These Properties remained in default on their rent obligations,
and BKC declared economic abandonment of the Properties. BKC funded monthly
rent payments to the Partnership in accordance with the indemnity agreement,
and on February 10 and March 8, 1993, the Partnership sold the stores for
$398,189 and $531,809, respectively, to a third party. The Property located in
Kansas City, Missouri, at the date of the sale, had a book value of $336,807,
resulting in a gain on the sale in the amount of $61,382. The Property located
in Waterford Township, Michigan, at the date of the sale, had a book value of
$430,678, resulting in a gain on the sale in the amount of $101,131. The net
proceeds of the sale were distributed to the partners pursuant to the
Partnership Agreement and were included in the Partnership's 1993 first quarter
distribution.
6. Distributions
Distributions paid or payable to 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
operations $1,613,560 $107.58 $1,631,333 $108.76 $1,586,832 $105.79
Net property
disposition
proceeds 501,930 33.46 -- -- -- --
Total Limited
Partners $2,115,490 $141.04 $1,631,333 $108.76 $1,586,832 $105.79
General Partner
Cash flow from $ 84,923 $ -- $ 85,860 $ -- $ 83,517 $ --
operations
Net property
disposition proceeds 5,070 -- -- -- -- --
Total General
Partner $ 89,993 $ -- $ 85,860 $ -- $ 83,517 $ --
As of December 31, 1996, the Partnership had declared distributions of
$918,562, of which $892,915 ($59.53 per Unit) was paid to the limited partners
and $25,647 was paid to the General Partner on January 30, 1997.
7. Transactions with Affiliates
Amounts reimbursed to the General Partner and their affiliates for
out-of-pocket expenses during the years ended December 31, 1996, 1995 and 1994
are as follows:
Unpaid at Earned
December 31,
1996 1996 1995 1994
BK III Restaurants Inc.
and affiliates
Out-of-pocket expenses $ -- $ 2,341 $ 80 $ 53
- --------------------------------------------------------------------------
$ -- $ 2,341 $ 80 $ 53
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.
8. 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 $1,787,581 $1,328,509 $1,418,073
Tax basis depreciation over financial
statement depreciation (179,924) (219,940) (226,948)
Tax basis gain on sales of Properties
under financial statement gain on
sales of Properties (20,030) -- --
Other -- (21,462) 21,462
Federal income tax basis net income $1,587,627 $1,087,107 $1,212,587
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 $5,329,214 $5,747,116 $6,135,800
Current year financial statement
net income under (over) federal
income tax basis net income (199,954) (241,402) (205,486)
Cumulative financial statement net income
under cumulative federal income tax
basis net income 1,634,865 1,876,267 2,081,753
Federal income tax basis partners'
capital $6,764,125 $7,381,981 $8,012,067
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 III:
We have audited the accompanying balance sheets of Burger King Limited
Partnership III (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 III 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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<PERIOD-END> Dec-31-1996
<CASH> 1,022,064
<SECURITIES> 0
<RECEIVABLES> 95,119
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,292,587
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0
0
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<CGS> 0
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<OTHER-EXPENSES> 879,774
<GAIN-PROVISION> 383,193
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<NET-INCOME> 1,787,581
<EPS-PRIMARY> 113.32
<EPS-DILUTED> 113.32
</TABLE>
