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 [Fee Required] For the fiscal year ended December 31, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No fee Required] For the transition period from to
Commission file number: 33-1624
CERTIFICATES OF PARTICIPATION
BK I REALTY INC.
(formerly Shearson\BK Realty, Inc.)
BK II PROPERTIES INC.
(formerly Shearson\BK Properties, Inc.)
BK III RESTAURANTS INC.
(formerly Shearson\BK Restaurants, Inc.)
Exact name of registrant as specified in its charter
13-3100473
13-3143115
New York 13-3178423
State or other jurisdiction
of incorporation I.R.S. Employer 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: None
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 interests exists and therefore a market
value for the interests 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 COP holders for the year ended December 31, 1995 (Portions of
parts I, II, III and IV)
PART I
Item 1. Business.
(a) General Development of Business
Certificates of Participation ("COPs") represent an assignment from the issuing
general partners of some, but not all, of their rights to participate in the
profits, losses and gains of, and to receive distributions from Burger King
Limited Partnership I, Burger King Limited Partnership II, and Burger King
Limited Partnership III. The issuing general partners and their respective
partnerships are BK I Realty Inc. (formerly Shearson/BK Realty, Inc.) ("GP-I"),
a New York corporation and the general partner of Burger King Limited
Partnership I ("BK-I"), a New York limited partnership; BK II Properties Inc.
(formerly Shearson/BK Properties, Inc.) ("GP-II"), a New York corporation and
the general partner of Burger King Limited Partnership II ("BK-II"), a New York
limited partnership; and BK III Restaurants Inc. (formerly Shearson/BK
Restaurants, Inc.) ("GP-III"), a New York corporation and general partner of
Burger King Limited Partnership III ("BK-III"), a New York limited partnership.
(G P-I, GP-II, and GP-III are collectively referred to herein as the "General
Partners". BK-I, BK-II, and BK-III are collectively referred to herein as the
"Partnerships".) All the General Partners are affiliates of Lehman Brothers
Inc. ("Lehman") (formerly Shearson Lehman Brothers, Inc. ("Shearson"), (see
Item 10).
COPs includes an assignment from GP-I of some, but not all, of GP-I's rights to
participate in the profits, losses and gains of, and to receive distributions
from BK-I (the "BK-I COPs"). More specifically, BK-I COPs represent, in the
aggregate, an assignment to the holders of the BK-I COPs ("BK-I COPs Holders")
as defined under the terms of the partnership agreement of BK-I (the "BK-I
Partnership Agreement"), the rights of GP-I to receive (i) as distributions
from BK-I, up to an additional 4% of BK-I net cash flow from operations for
each year that the BK-I limited partners have received cash distributions equal
to 12 1/2% per annum of their BK-I remaining invested capital, and, after BK-I
Payout, as defined in the BK-I Partnership Agreement, (BK-I "Payout"), 8.89% of
BK-I net property disposition proceeds; and (ii) as allocations by BK-I, 4% of
any excess of net taxable income over BK-I net cash flow from operations; after
BK-I Payout, 10.11% of losses; and after BK-I Payout, 10.11% of gain on
disposition of BK-I's properties (collectively, the "BK-I Assigned Interest").
The BK-I Assigned Interest has been assigned in equal parts to the BK-I COPs
Holders. The unassigned portion of the rights of GP-I to receive distributions
and allocations from BK-I represents GP-I's retained interest.
COPs also includes an assignment from GP-II of some, but not all, of GP-II's
rights to participate in the profits, losses and gains of, and to receive
distributions from BK-II (the "BK-II COPs"). More specifically, BK-II COPs
represent, in the aggregate, an assignment to the holders of the BK-II COPs
("BK-II COPs Holders") as defined under the terms of the partnership agreement
of BK-II (the "BK-II Partnership Agreement"), the rights of GP-II to receive
distributions from, and allocations by, BK-II in amounts identical to those for
the BK-I Assigned Interest (collectively, the "BK-II Assigned Interest"). The
BK-II Assigned Interest has been assigned in equal parts to the BK-II COPs
Holders. The unassigned portion of the rights of GP-II to receive
distributions and allocations from BK-II represents GP-II's retained interest.
Finally, COPs includes an assignment from GP-III of some, but not all, of
GP-III's rights to participate in the profits, losses and gains of, and to
receive distributions from BK-III (the "BK-III COPs"). More specifically,
BK-III COPs represent, in the aggregate, an assignment to the holders of the
BK-III COPs ("BK-III COPs Holders") as defined under the terms of the
partnership agreement of BK-III (the "BK-III Partnership
Agreement")(collectively, the BK-I Partnership Agreement, the BK-II Partnership
Agreement and the BK-III Partnership Agreement are defined as the "Partnership
Agreements"), the rights of GP-III to receive (i) as distributions from BK-III,
4% of BK-III net cash flow from operations for each year and, after BK-III
Payout, as defined in the BK-III Partnership Agreement, (BK-III "Payout"), 4.7%
of BK-III net property disposition proceeds; and (ii) as allocations by BK-III,
4% of net taxable income; after BK-III Payout, 4.88% of losses; and, after
BK-III Payout, 4.88% of gain on disposition of the BK-III's properties
(collectively, the "BK-III Assigned Interest"). The BK-III Assigned Interest
has been assigned in equal parts to the BK-III COPs Holders. The unassigned
portion of the rights of BK-III represents GP-III's retained interest.
BK-I COPs Holders, BK-II COPs Holders and BK-III COPs Holders are collectively
referred to as "COPs Holders."
The Partnerships originally acquired or ground leased, the sites for, and
constructed, 32, 33, and 27, respectively, free-standing Burger King fast food
restaurants (each referred to as the "Property", collectively, the
"Properties") which are leased on a long-term net basis to franchisees of
Burger King Corporation ("Burger King"). Prior to the Partnerships'
acquisition of each Property, Burger King proposed the site for approval by
each respective General Partner. The sites are geographically diversified
throughout the United States. No further site acquisitions are anticipated.
The General Partners do not manage or operate any Property nor do they acquire
or finance the acquisition of the equipment necessary to operate the
Properties. Reference is made to Item 2 captioned "Properties" for information
concerning the Properties.
The Partnerships' 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.
Burger King had the option to purchase any or all of the Properties at fair
market value, determined by an independent appraisal at any time during the
eighth through tenth years following the date of completion of the offering of
limited partnership interests in each Partnership. The offering of Interests
in BK-I, BK-II and BK-III occurred in 1982, 1983 and 1984, respectively.
Burger King did not exercise its option for any of the Properties and the
option has since expired. During late 1991 and early 1992, GP-I performed an
analysis of the various options available to BK-I regarding its Properties
which included marketing the Properties for sale, the continued ownership of
the Properties, or financing the portfolio and distributing the loan proceeds
to the partners. After a detailed analysis of each option, GP-I determined
that it would be in the best interest of the partners to market BK-I Properties
for sale. GP-I began the sale of BK-I's Properties in June 1992. Through
December 31, 1995, BK-I had sold 22 of the original 32 properties.
Upon expiration of Burger King's option, GP-II began marketing all of BK-II's
remaining Properties for sale. BK-II has agreed to sell 17 of the Properties
owned in fee simple and to assign all of its rights in 11 of the Properties
subject to ground leases to U.S. Restaurant Properties Operating L.P., a
Delaware limited partnership (the "Buyer"), pursuant to an Agreement of
Purchase and Sale, dated as of October 11, 1995, as amended as of January 9,
1996 (the "Purchase Agreement"). Pursuant to the terms of the Purchase
Agreement, the Buyer agreed to acquire the Properties for consideration in the
amount of $17,025,000 in cash (the "Purchase Price"), subject to adjustments
and prorations for base and percentage rents, as well as certain other charges
payable in respect of the Properties, and adjustments in respect of certain
closing costs. The Purchase Price is also subject to an increase of $200,000
to an aggregate of $17,225,000 if the Partnership elects to include a
restaurant located in Marietta, Georgia (the "Marietta Property") in the
Proposed Sale. GP-II is pursuing parties that may have an interest in
purchasing the Marietta Property for a price in excess of $200,000. If GP-II
is unable to locate a potential purchaser at an appropriate price, BK-II would,
in all likelihood, include the Marietta Property in the Proposed Sale. (see
Item 7)
GP-III is currently evaluating market conditions to determine when BK-III's
remaining 24 Properties should be marketed for sale. Reference is made to Item
2 captioned "Properties" for information concerning Property sales since each
Partnership's inception.
There can be no assurance that GP-I, GP-II or GP-III will be successful in
completing their respective Partnerships' marketing plans during 1996. As long
as Properties remain unsold, the Partnerships will continue to operate the
Properties and intend to make distributions to the partners in accordance with
the terms of the respective Partnership Agreements. Reference is made to Item
7 captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the "Message to Investors" of the COPs 1995 Annual
Report to COPs Holders, regarding efforts to sell each Partnership's
Properties. The COPs 1995 Annual Report to COP Holders is filed as an exhibit
under Item 14 and incorporated herein by reference.
Employees
COPs has no employees.
Competition
Percentage rents received by the Partnership from 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 1996, the primary source of revenue growth is
projected 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.
(b) Financial Information About Industry Segments
The Partnerships' businesses consist of only one segment, the investment in the
Properties. The General Partners do not engage in sales of goods or services.
(c) Narrative Description of Business
(1) See Paragraphs (a) and (b) above.
(i) through (xii)- Not Applicable.
(xi) through (xii)- Not Applicable.
(xiii) See Paragraph (a) above.
Item 2. Properties.
The following tables set forth the location of sites which the Partnerships
have acquired or ground leased as of December 31, 1995. The Partnerships own
the completed improvements in fee ownership and either have a fee ownership in
the land or a ground leasehold interest in the land as indicated. Also
included is the location of sites which the Partnerships have sold as of
December 31, 1995, the acquisition date, and the date of sale. Financial
information regarding sales includes book value, selling price and gain on the
sale.
In the event one of the Properties defaults on its rent obligations, Burger
King is required to pay to the respective Partnership the minimum rent due
under the Property's lease. If a Property remains in default for 12 months,
Burger King can either declare economic abandonment of the Property and
supervise its sale to a third party or purchase the Property from the
Partnership at a purchase price which is equal to the greater of the fair
market value of the Property or the minimum guaranteed price as set forth in
the management agreements between Burger King and the Partnerships.
BK-I Properties owned as of December 31, 1995
Atlanta, Georgia* Klamath Falls, Oregon*
Decatur, Alabama Springdale, Arkansas
Fairfield, Ohio Springfield, Massachusetts*
Greenfield, Wisconsin Statesville, North Carolina
Greenville, South Carolina Wichita, Kansas
* Subject to a ground lease.
BK-I Properties Sold as of December 31, 1995
Site Acquisition Sale Net Adjusted Gain
Location Date Date Book Value Selling Price on Sale
1. Altus, Oklahoma 11/10/82 12/30/91 $ 259,954 $ 290,164 $ 30,210
2. Grand Island,
Nebraska 05/07/82 10/01/92 218,064 686,000 467,936
3. Marion,
Virginia 11/24/82 10/01/92 119,207 229,900 110,693
4. Sunnyvale,
California 02/03/83 10/01/92 151,063 348,000 196,937
5. Greenbelt,
Maryland 10/12/82 11/23/92 127,217 478,500 351,283
6. Guilderland,
New York 05/20/82 12/23/92 440,742 853,000 412,258
7. Atlantic
Highlands,
New Jersey 04/08/83 03/04/93 129,381 158,002 28,621
8. Rohnert Park,
California 10/11/82 03/23/93 111,445 206,500 95,055
9. Dothan,
Alabama 11/11/82 03/26/93 298,067 725,000 426,933
10.Madison
Heights,
Virginia 02/23/83 07/01/94 274,271 369,218 94,947
11.Pearl,
Mississippi 06/29/82 08/01/94 257,672 427,108 169,436
12.Falmouth,
Massachusetts 09/24/82 08/01/9 289,187 568,353 279,166
13.Tucson,
Arizona 10/07/82 08/01/94 74,146 161,163 87,017
14.W. Springfield,
Massachusetts 10/18/82 08/01/94 104,977 151,391 46,414
15.Jackson,
Mississippi 02/06/85 08/01/94 332,299 503,149 170,850
16.Kansas City,
Missouri 01/10/83 12/02/94 290,626 536,691 246,065
17.Salem,
Massachusetts 09/23/82 12/09/94 335,664 590,264 254,600
18.Pasco,
Washington 06/01/82 12/15/94 271,444 618,487 347,043
19.West Allis,
Wisconsin 10/07/82 12/15/94 366,838 711,987 345,149
20.Washington,
North Carolina 08/20/82 03/08/95 180,837 619,944 439,107
21.Big Spring,
Texas 07/01/84 03/31/95 130,499 455,898 325,399
22.Carlsbad,
New Mexico 05/12/84 03/31/95 240,175 728,684 488,509
BK-II Properties owned as of December 31, 1995
Ceres, California Orange, California*
Columbus, Mississippi Pelham, Alabama
Corpus Christi, Texas Phoenix, Arizona
Erlanger, Kentucky* Plano, Texas*
Garland, Texas Redlands, California
Glendale, Arizona* Riverdale, Georgia
Greenville, Mississippi Rocky Mt., North Carolina
Greenville, North Carolina South Bend, Indiana
Hot Springs, Arkansas Springfield, Massachusetts*
Kansas City, Kansas* St. Peters, Missouri
Marietta, Georgia Statesboro, Georgia*
Marietta/Johnson, Georgia Tucson, Arizona*
Milan, Tennessee Vernon, Connecticut*
Mt. Clemens, Michigan* Wilmington, North Carolina*
Nederland, Texas
* Subject to a ground lease.
BK-II Properties Sold as of December 31, 1995
Site Acquisition Sale Net Adjusted Gain
Location Date Date Book Value Selling Price on Sale
1. Westminster,
Colorado 7/06/83 08/21/89 $401,261 $446,034 $ 44,773
2. Mt. Pleasant,
Wisconsin 3/11/83 10/31/90 293,113 754,394 461,281
3. Downey,
California 4/15/83 02/25/93 87,952 132,059 44,107
4. Ferguson,
Missouri 7/02/84 06/30/95 101,873 151,691 49,818
BK-III Properties owned as of December 31, 1995
Albuquerque, New Mexico* Gary, Indiana
Atlanta, Georgia Gallatin, Tennessee
Brooklyn Park, Maryland* Largo, Florida
Chattanooga, Tennessee Memphis, Tennessee
Cleburne, Texas Montgomery, Alabama*
Columbus, Indiana Mounds View, Minnesota
Covina, California Nashville, Tennessee
Delhi Township, Ohio* North Augusta, South Carolina
Edison, New Jersey San Bernardino, California*
Fayetteville, North Carolina* Shelbyville, Tennessee
Federal Heights, Colorado* Sulphur Springs, Texas
Frankfort, Kentucky Wilson, North Carolina
* Subject to a ground lease.
BK-III Properties Sold as of December 31, 1995
Site Acquisition Sale Net Adjusted Gain
Location Date Date Book Value Selling Price on Sale
1. Woodstock,
Georgia 7/19/84 4/12/91 $304,047 $380,059 $ 76,012
2. Kansas City,
Missouri 5/05/86 2/10/93 336,807 398,189 61,382
3. Waterford
Township,
Michigan 3/21/86 3/08/93 430,678 531,809 101,131
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnerships' are a party
or to which any of their assets are subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Units and Related Security Holder Matters.
(a) Market Information
No public market for the COPs units (the "Units") presently
exists. Each Unit consists of one BK-I COPs, one BK-II COPs
and one BK-III COPs.
(b) Holders
The number of COPs Holders as of December 31, 1995 was 608.
(c) Distributions
The following table illustrates the per Unit quarterly cash
distributions paid to COPs Holders during the past two years.
Quarter Declared 1995 1994
First Quarter $ 11.70 (1) $ 6.72
Second Quarter 5.31 (2) 4.83
Third Quarter 5.46 10.41 (3)
Fourth Quarter 37.92 51.88 (4)
Total Cash
Distributions $ 60.39 $ 73.84
(1) Includes a $5.05 distribution of proceeds received from Property
sales paid on April 28, 1995.
(2) Includes a $0.39 distribution of proceeds received from a Property
sale paid on August 1, 1995.
(3) Includes a $5.49 distribution of proceeds received from Property
sales paid on October 28, 1994.
(4) Includes a $5.53 distribution of proceeds received from Property
sales paid on January 30, 1995.
Reference is also made to the "Message to Investors" of COPs
1995 Annual Report to COPs Holders, which is filed as an
exhibit under Item 14, 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included elsewhere herein.
GP-I
1995 1994 1993 1992 1991
Equity in earnings
of BK-I $ 49,322 $ 89,234 $ 78,707 $105,527 $ 98,191
Net income 34,190 59,579 53,140 68,549 64,601
Net income attributable
to COPs Unitholders 27,352 47,663 42,512 54,839 51,681
Net income per Unit(1)(2) 8.87 15.45 13.78 17.78 16.76
Total Assets
at year end (62,210) (15,052) (11,408) 37,777 38,126
GP-II
1995 1994 1993 1992 1991
Equity in earnings
of BK-II $ 94,130 $ 97,210 $ 94,704 $ 89,576 $ 93,863
Net income 62,415 64,073 62,724 59,788 62,271
Net income attributable
to COPs Unitholders 49,932 51,258 50,179 47,830 49,817
Net income per Unit(1)(2) 16.19 16.62 16.27 15.51 16.15
Total Assets
at year end 23,371 28,304 21,033 25,596 23,507
GP-III
1995 1994 1993 1992 1991
Equity in earnings
of BK-III $ 80,307 $ 84,786 $ 83,386 $ 88,879 $ 91,823
Net income 54,119 56,858 56,002 59,362 61,163
Net income attributable
to COPs Unitholders 43,295 45,486 44,802 47,490 48,930
Net income per Unit(1)(2) 14.04 14.75 14.53 15.40 15.87
Total Assets
at year end (2,424) 2,945 211 14,915 10,595
(1) Net income per COPs Unit represents 80% of the net income of
GP-I, GP-II and GP-III, respectively, divided by the total number of
COPs' units outstanding.
(2) 3,084 COP Units outstanding.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
The General Partners do not engage in the sale of goods or services. Their
only assets are the investments in the Partnerships.
The Partnerships' prospectuses specify that Burger King had the option to
purchase any or all of the restaurants at fair market value, determined by an
independent appraisal, at any time during the eighth through tenth years
following the date of completion of the offering of limited partnership
interests in each Partnership. The offering of interests in BK-I, BK-II and
BK-III occurred in 1982, 1983 and 1984, respectively. As of December 31, 1994,
Burger King's options to purchase the Properties had expired.
On September 23, 1994, BK-I notified the Wisconsin Department of Natural
Resources (the "WDNR") that petroleum and chlorinated compounds were discovered
at its Greenfield, Wisconsin Property (the "Greenfield Property"). The WDNR
has indicated that under Wisconsin state law, BK-I is responsible for
remediating the site. On May 26, 1995, BK-I proposed site-specific soil
clean-up standards ("Clean-up Standards") on the Greenfield Property for the
WDNR's approval. To date, BK-I has not received a response from the WDNR to
the proposal. Until the WDNR approves the Clean-up Standards and the costs of
the remediation can be assessed, it is extremely difficult to move forward with
the sale of BK-I's remaining 10 restaurant Properties. In accordance with
BK-I's Partnership Agreement, BK-I has set aside $300,000 from net cash flow
from operations to fund potential environmental remediation costs in connection
with the Greenfield Property. GP-I currently anticipates that the cost of the
environmental remediation should be recovered from the proceeds to be received
from the eventual sale of the Greenfield Property. Until all of BK-I's
Properties are sold, BK-I will continue to operate its Properties, and it is
intended that cash flow from operations will be distributed to the partners in
accordance with the terms of the BK-I Partnership Agreement.
BK-II has agreed to sell 17 of the Partnership's Properties owned in fee simple
and to assign all of its rights in 11 of the Partnership's Properties subject
to ground leases to the Buyer, pursuant to the Purchase Agreement. Pursuant to
the terms of the Purchase Agreement, the Buyer agreed to acquire the Properties
for the Purchase Price, subject to adjustments and prorations for base and
percentage rents as well as certain other charges payable in respect of the
Leased Properties and adjustments in respect of certain closing costs. The
Purchase Price is also subject to an increase of $200,000 to an aggregate of
$17,225,000 if the Partnership elects to include the Marietta Property in the
Proposed Sale. GP-II is pursuing parties that may have an interest in
purchasing the Marietta Property for a price in excess of $200,000. If GP-II
is unable to locate a potential purchaser at an appropriate price, BK-II would,
in all likelihood, include the Marietta Property in the Proposed Sale.
Pursuant to the BK-II Partnership Agreement, the unitholders of BK-II ("BK-II
Unitholders") have the right to vote (assuming certain conditions described in
the BK-II Partnership Agreement are met) only upon certain matters, and BK-II
Unitholders voting a majority in interest may, without the concurrence of
GP-II, cause, among other things, the disapproval of any sale of all or
substantially all of the assets of BK-II in a single sale. The Proposed Sale
would constitute a sale of all or substantially all of the BK-II's assets.
Accordingly, BK-II Unitholders have the right to disapprove the Proposed Sale.
A proxy statement was mailed to the BK-II Unitholders on March 25, 1996 (the
"Proxy") describing the terms of the Proposed Sale and presenting the BK-II
Unitholders with the opportunity to call a meeting to consider whether to
disapprove of the Proposed Sale. In order to effect a vote to disapprove the
Proposed Sale, BK-II Unitholders holding 10% or more in interest of the
outstanding limited partnership units of BK-II (the "BK-II Units") must submit
written requests for a meeting of BK-II Unitholders pursuant to the BK-II
Partnership Agreement. While GP-II may call a meeting of the BK-II Unitholders
for any purpose, GP-II believes that the Proposed Sale is in the best interest
of the BK-II Unitholders and has, therefore, determined not to call a meeting
for the purpose of considering the disapproval of the Proposed Sale. However,
if BK-II receives written requests from BK-II Unitholders holding 10% or more
in interest of the BK-II Units on or before April 30, 1996, GP-II will be
required to call a meeting of the BK-II Unitholders to consider the disapproval
of the Proposed Sale. If a meeting of the BK-II Unitholders is called, and the
Proposed Sale is disapproved by a majority in interest of the BK-II
Unitholders, the Purchase Agreement will be terminated pursuant to its terms,
and BK-II will continue to operate the Properties and distribute the cash flow
from operations to the partners of BK-II in accordance with the BK-II
Partnership Agreement. If, however, a meeting of BK-II Unitholders is called,
and BK-II Unitholders holding less than a majority in interest vote to
disapprove the Proposed Sale, the Proposed Sale will be consummated pursuant to
the terms and subject to the conditions set forth in the Purchase Agreement.
BK-III is currently analyzing market conditions to determine when BK-III's
remaining Properties should be marketed for sale. Until BK-III's remaining
Properties are sold, BK-III intends to continue operating the Properties and
distributing cash flow from operations to the partners of BK-III in accordance
with the terms of the BK-III Partnership Agreement.
At December 31, 1995, GP-I's investment in BK-I was $(62,210) and GP-III's
investment in BK-III was $(2,424), reflecting distributions in excess of equity
in earnings plus the initial investments. GP-II's investment in BK-II was
$23,371 at December 31, 1995, compared to $28,304 at December 31, 1994. The
decrease in GP-II's investment in BK-II was a result of cash distributions in
excess of the allocation of equity in earnings during 1995.
Results of Operations
The results of operations for the 1995, 1994, and 1993 fiscal years are
primarily attributable to the investments in BK-I, BK-II and BK-III.
For the years ended December 31, 1995, 1994 and 1993, GP-I's net income was
$34,190, $59,579 and $53,140, respectively. For the years ended December 31,
1995, 1994 and 1993, GP-II's net income was $62,415, $64,073 and $62,724,
respectively. For the years ended December 31, 1995, 1994 and 1993, GP-III's
net income was $54,119, $56,858 and $56,002, respectively. The net income
fluctuated each year primarily as a result of the sales of Properties, reduced
levels of depreciation expense, reduced rental income as a result of the sale
of Properties, and increases and decreases in percentage rents received from
the franchisees operating each of the Properties. During 1995, BK-I sold three
Properties, realizing a total gain of $1,253,015. During 1995, BK-II sold one
Property, realizing a total gain of $49,818. BK-III did not sell any
Properties during 1995. During 1994, BK-I sold 10 Properties, realizing a
total gain of $2,040,687. BK-II and BK-III did not sell any properties during
19 94. During 1993, BK-I sold three Properties realizing a total gain of
$550,609; BK-II sold one Property realizing a total gain of $44,107; and BK-III
sold two Properties realizing a total gain of $162,513.
Item 8. Financial Statements and Supplementary Data.
Incorporated by reference to COPs 1995 Annual Report to COPs Holders, included
as an exhibit under Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
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 Partnerships
or the General Partners. However, the assets acquired by Smith Barney included
the name "Shearson." Consequently, effective January 24, 1994, Shearson/BK
Realty, Inc., Shearson/BK Properties, Inc. and Shearson/BK Restaurants, Inc.
changed their names to delete any reference to "Shearson."
COPs has no officers or directors. The General Partners of the Partnerships
manage and control the affairs of the Partnerships and have general
responsibility and authority in all matters affecting its business. Certain
officers and the director of the General Partners 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 market 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 Partners as of December 31,
1995, 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 37 Director, President and Chief Financial
Officer
Kenneth Boyle 32 Vice President
Mark J. Marcucci 33 Vice President
Timothy E. Needham 27 Vice President
The foregoing director has been elected to serve as director until the next
annual meeting of the General Partners.
Rocco F. Andriola is a Senior Vice President of Lehman in its Diversified Asset
Group. Since joining Lehman 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 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, Mr. Andriola
practiced corporate and securities law at Donovan Leisure Newton & Irvine in
New York. Mr. Andriola received a B.A. degree from Fordham University, a J.D.
degree from New York University School of Law, and an LL.M degree in Corporate
Law from New York University's Graduate School of Law.
Kenneth Boyle is a Vice President of Lehman in its 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.
Mark J. Marcucci is a Vice President of Lehman Brothers in its Diversified
Asset Group. Since joining Lehman Brothers in 1988, Mr. Marcucci's
responsibilities have been concentrated in the restructuring, asset management,
leasing, financing, refinancing and disposition of commercial office and
residential real estate. Prior to joining Lehman Brothers, Mr. Marcucci was
employed in a corporate lending capacity at Republic National Bank of New York.
Mr. Marcucci received a B.B.A. degree in Finance from Hofstra University and a
Master of Science in Real Estate degree from New York University. In addition,
Mr. Marcucci holds both Series 7 and Series 63 securities licenses.
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
M.B.A. from the American Graduate School of International Management in
December 1993. Previous to entering graduate school, Mr. Needham worked in
Tokyo for approximately one year doing market research for a Japanese firm. In
addition, Mr. Needham is a candidate for the designation of Chartered Financial
Analyst.
Item 11. Executive Compensation.
Officers and the director of the General Partners are employees of Lehman
Brothers and are not compensated by the Partnerships or the General Partners
for services rendered in connection with the Partnerships.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners
The Registrant knows of no person who beneficially owns more
than 5% of the Units.
(b) Security ownership of management
GP-I, GP-II, and GP-III, under the terms of the Partnership
Agreements of BK-I, BK-II and BK-III, respectively, manage the
affairs of BK-I, BK-II, and BK-III, respectively. The General
Partners retained 20% of their allocations of distribution and
disposition proceeds (profit, loss) from BK-I, BK-II, and
BK-III. Neither the director nor the officers of the General
Partners own any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others
Reference is made to Note 6 of the Notes to Financial
Statements for each General Partner as part of COPs 1995 Annual
Report to COPs Holders, filed as an exhibit under Item 14.
(b) Certain Business Relationships
There have been no business transactions between the director
and officers of the General Partners and the Partnerships.
(c) Indebtedness of Management
No management person is indebted in any amount to the
Partnerships.
(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) (1) Financial Statements and Supplementary Data:
GP-I:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Stockholder's Deficit for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
GP-II:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Stockholder's Deficit for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
GP-III:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Changes in Stockholder's Deficit for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
The financial statements for GP-I, GP-II and GP-III are incorporated by
reference to COPs' Annual Report to COPs Holders for the year ended December
31, 1995.
(2) Financial Statement Schedules:
No other schedules are presented because the information is not
applicable or is included in the financial statements or notes
thereto.
(3) Exhibits:
3.1 BK-I:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital (Deficit) for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
3.2 BK-II:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital (Deficit) for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
3.3 BK-III:
Independent Auditors' Report
Financial Statements:
Balance Sheets at December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital (Deficit) for the years
ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
13.1 Annual Report to COPs Holders for the year ended December
31, 1995.
27.1 Financial Data Schedule for BK I Realty Inc.
27.2 Financial Data Schedule for BK II Properties Inc.
27.3 Financial Data Schedule for BK III Restaurants Inc.
(b) Reports on Form 8-K:
(1) There have been no reports filed on Form 8-K during the
last quarter of the period covered by this report.
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 29, 1996
CERTIFICATES OF PARTICIPATION
BK I REALTY, INC.
BK II PROPERTIES, INC.
BK III RESTAURANTS, INC.
BY: BK I Realty, Inc.
BK II Properties, Inc.
BK III Restaurants, Inc.
Registrant
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.
BK II PROPERTIES, INC.
BK III RESTAURANTS, INC.
Registrant
Date: March 29, 1996
BY: /s/Rocco F. Andriola
Rocco F. Andriola
Director, President and
Chief Financial Officer
Date: March 29, 1996
BY: /s/Kenneth Boyle
Kenneth Boyle
Vice President
Date: March 29, 1996
BY: /s/Mark J. Marcucci
Mark J. Marcucci
Vice President
Date: March 29, 1996
BY: /s/Timothy Needham
Timothy Needham
Vice President
EXHIBIT 3.1
__________ 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, 1995 and
1994, 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,
1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 2, 1996
Burger King Limited Partnership I
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ 1,113,406 $ 1,415,906
Buildings 2,210,836 2,896,441
Fixtures and equipment 485,306 635,649
3,809,548 4,947,996
Less - accumulated depreciation (1,961,780) (2,430,394)
1,847,768 2,517,602
Cash and cash equivalents 973,641 3,128,790
Settlement escrow receivable --- 95,260
Rent receivable 65,023 99,980
Total Assets $ 2,886,432 $ 5,841,632
Liabilities and Partners' Capital
Liabilities:
Accounts payable
and accrued expenses $ 138,118 $ 250,273
Due to affiliates 1,300 1,749
Distributions payable 180,645 2,418,232
Total Liabilities 320,063 2,670,254
Partners' Capital (Deficit):
General Partner (85,088) (88,437)
Limited Partners
(15,000 interests outstanding) 2,651,457 3,259,815
Total Partners' Capital 2,566,369 3,171,378
Total Liabilities
and Partners' Capital $ 2,886,432 $ 5,841,632
Burger King Limited Partnership I
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $6,353,528 $ (68,447) $6,285,081
Net income 1,655,740 78,707 1,734,447
Distributions to partners (Note 7) (2,457,318) (83,459) (2,540,777)
Balance at December 31, 1993 5,551,950 (73,199) 5,478,751
Net income 3,090,619 89,234 3,179,853
Distributions to partners (Note 7) (5,382,754) (104,472) (5,487,226)
Balance at December 31, 1994 3,259,815 (88,437) 3,171,378
Net income 1,821,210 49,322 1,870,532
Distributions to partners (Note 7) (2,429,568) (45,973) (2,475,541)
Balance at December 31, 1995 $2,651,457 $ (85,088) $2,566,369
Burger King Limited Partnership I
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $ 1,004,195 $ 1,820,012 $ 1,907,913
Interest income 75,276 40,987 14,955
Miscellaneous income 1,905 2,828 4,262
Total Income 1,081,376 1,863,827 1,927,130
Expenses
Depreciation 118,323 237,368 280,182
Ground lease rent (Note 4) 112,914 171,976 216,777
Management fee (Note 5) 89,129 164,912 169,369
General and administrative 143,493 150,405 76,964
Total Expenses 463,859 724,661 743,292
Income from operations 617,517 1,139,166 1,183,838
Other Income
Gain on sales
of properties (Note 4) 1,253,015 2,040,687 550,609
Net Income $ 1,870,532 $ 3,179,853 $ 1,734,447
Net Income Allocated:
To the General Partner $ 49,322 $ 89,234 $ 78,707
To the Limited Partners 1,821,210 3,090,619 1,655,740
$ 1,870,532 $ 3,179,853 $ 1,734,447
Per limited partnership
interest (15,000 outstanding) $ 121.41 $ 206.04 $ 110.38
Burger King Limited Partnership I
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from
Operating Activities: 1995 1994 1993
Net income $ 1,870,532 $ 3,179,853 $ 1,734,447
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation 118,323 237,368 280,182
Gain on sales of properties (1,253,015) (2,040,687) (550,609)
Increase (decrease) in cash
arising from changes in
operating assets and liabilities:
Settlement escrow receivable 95,260 (95,260) ---
Rent receivable 34,957 (28,796) (15,621)
Accounts payable
and accrued expenses (112,155) 205,764 4,909
Due to affiliates (449) (2,116) 2,265
Net cash provided
by operating activities 753,453 1,456,126 1,455,573
Cash Flows from Investing Activities:
Proceeds from
sales of properties 1,804,526 4,637,811 1,089,502
Net cash provided
by investing activities 1,804,526 4,637,811 1,089,502
Cash Flows from Financing Activities:
Cash distributions
to partners (4,713,128) (3,486,043) (2,748,653)
Net cash used for
financing activities (4,713,128) (3,486,043) (2,748,653)
Net increase (decrease)
in cash and cash equivalents (2,155,149) 2,607,894 (203,578)
Cash and cash equivalents
at beginning of period 3,128,790 520,896 724,474
Cash and cash equivalents
at end of period $ 973,641 $ 3,128,790 $ 520,896
Burger King Limited Partnership I
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
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 long-term net
basis to franchisees of Burger King Corporation ("Burger King").
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."
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's revenue is realized from
base and percentage rents received on each individual property. Base rents on
the leased properties increase in an amount equal to corresponding increases in
expenses incurred pursuant to the underlying ground leases. Accordingly, the
net base rents that the Partnership receives do not change during the lease
terms.
Real Estate Investments - Real estate investments, which consist of buildings,
fixtures and improvements and, in some cases, the underlying land are recorded
at cost less accumulated depreciation. Cost includes the initial purchase
price of the Properties plus closing costs, acquisition and legal fees and
original capital improvements. Depreciation of buildings is 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.
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 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
adoption of FAS 121 had no impact on the Partnership's financial statements.
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 interests owned by
each limited partner on the last day of the month bears to the total number of
interests owned by the General Partner and all the limited partners as of that
date. At December 31, 1995, 1994 and 1993 and during the years then ended,
there were 15,000 units of limited partnership interests outstanding (the
"Interests").
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, 1995, 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, Burger King 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, 1995, Payout had not occurred.
4. Real Estate
As of December 31, 1995, 1994 and 1993, the Partnership owned 10, 13 and 23
Properties, respectively, consisting of the restaurant buildings, fixtures and
improvements, and in some cases, the underlying land.
The leases between the Partnership and the franchisees (the "Leases") had an
initial term of 20 years with no renewal options. With respect to those
Properties in which the Partnership does not own the underlying land, there is
a ground lease between the Partnership and Burger King (collectively, the
"Ground Leases"). The Ground Leases had an initial term of 10 years with a
minimum of two five-year renewal options. All of the Leases expire in the year
2002 or 2003. Minimum future rentals on the noncancelable term of the Leases
and the related Ground Leases as of December 31, 1995 are as follows:
Minimum Ground
Years ending Rental Lease
December 31, Income Obligations
1996 $ 671,142 $ 112,914
1997 671,563 113,224
1998 690,489 132,260
1999 693,611 135,382
2000 693,611 135,382
Thereafter 1,291,469 287,494
$4,711,885 $ 916,656
Leases are on a net basis whereby the franchisees are required 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, 1995, 1994 and 1993 was $296,408, $360,257 and $230,089,
respectively.
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
$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
$4,637,811 $2,597,124 $2,040,687
During the year ended December 31, 1993, the Partnership sold the following
Properties:
Dates Adjusted Net Gains
of Selling Book on
Stores Sales Prices Values Sales
Atlantic Highlands, NJ 3/04/93 $ 158,002 $ 129,381 $ 28,621
Rohnert Park, CA 3/23/93 206,500 111,445 95,055
Dothan, AL 3/24/93 725,000 298,067 426,933
$1,089,502 $ 538,893 $ 550,609
5. Management Agreement
The Partnership has entered into agreements with Burger King for the management
of the Properties. These agreements provide for a fee equal to 10% of all
rental income received by the Partnership from the Properties, as defined in
the Partnership Agreement. To the extent the annual rental income from the
Properties is less than 15% of the Partnership's investments in the Properties,
Burger King 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, 1995, 1994 and 1993, no such amounts were due from Burger King.
Pursuant to an indemnity agreement, Burger King is obligated to contribute
minimum monthly rent payments in the event of a default under the leases up to
an 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 $1,301,325. 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 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 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 31,1995, the indemnity amount was approximately $520,608.
6. Transactions with Affiliates
The amount of fees received for services performed and reimbursements for
expenses incurred on the Partnership's behalf by affiliates as of December 31,
1995, 1994 and 1993 was $7,036, $3,375 and $6,762, respectively, of which
$1,300 and $1,749 were unpaid at December 31, 1995 and 1994, respectively.
Cash and cash equivalents reflected on the Partnership's balance sheets at
December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
7. Distributions
Distributions paid or payable to the limited partners and the General Partner
for the years ended December 31 1995, 1994, and 1993 aggregated:
------1995------ ------1994------ ------1993------
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow
from operations $ 503,909 $ 33.59 $1,177,999 $ 78.54 $1,378,711 $ 91.91
Net property
disposition
proceeds 1,925,659 128.37 4,204,755 280.31 1,078,607 71.91
Total
Limited
Partners $2,429,568 $161.96 $5,382,754 $358.85 $2,457,318 $163.82
General Partner
Cash flow
from operations $ 26,522 --- $ 62,000 --- $ 72,564 ---
Net property
disposition
proceeds 19,451 --- 42,472 --- $ 10,895 ---
Total
General Partner $ 45,973 --- $104,472 --- $ 83,459 ---
As of December 31, 1995, the Partnership declared a distribution of $166,071,
of which $157,767 ($10.52 per unit) was paid to limited partners and $1,661 was
paid to the General Partner on January 30, 1996. The remaining $6,643 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, 1995, the unitholders received their priority return, and all
amounts retained in 1995 were paid to the General Partner on January 30, 1996
in a distribution which amounted to $21,217 and included $6,643 for the fourth
quarter of 1995.
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. On May 26, 1995, the Partnership proposed site-specific
soil clean-up standards ("Clean-up Standards") on the Greenfield Property for
the WDNR's approval. To date, the Partnership has not received a response from
the WDNR to the proposal. Until the WDNR approves the Clean-up Standards and
the costs of the remediation can be assessed, it is extremely difficult to move
forward with the sale of the Partnership's remaining 10 Properties. Given the
amount of time the WDNR is taking to review the Partnership's proposal, BK I
Realty Inc. ("the General Partner") does not expect the sale of the Properties
to be concluded during the first half of 1996. In accordance with the
Partnership Agreement, the Partnership has set aside $300,000 from net cash
flow from operations to fund potential environmental remediation costs in
connection with the Greenfield Property. The General Partner currently
anticipates that the cost of the environmental remediation will be recovered
from the proceeds of the eventual sale of the Greenfield Property.
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,
1995 1994 1993
Financial statement
net income $1,870,532 $3,179,853 $1,734,447
Tax basis depreciation
over financial statement
depreciation (36,099) (61,143) (177,904)
Financial statement gain
on sales of Properties
under tax basis gain
on sales of Properties 79,771 453,235 102,136
Federal income tax
basis net income $1,914,204 $3,571,945 $1,658,679
Reconciliation of financial statement basis partners' capital to federal income
tax basis partners' capital:
Years Ended December 31,
1995 1994 1993
Financial statement
basis partners' capital $2,566,369 $3,171,378 $5,478,751
Current year financial
statement net income
under (over) federal
income tax basis
net income 43,672 392,092 (75,768)
Cumulative federal
income tax basis
net income over
cumulative financial
statement net income 1,193,207 801,115 876,883
Federal income tax basis
partners' capital $3,803,248 $4,364,585 $6,279,866
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.
EXHIBIT 3.2
_______________________ INDEPENDENT AUDITORS' REPORT ________________________
The Partners
Burger King Limited Partnership II:
We have audited the accompanying balance sheets of Burger King Limited
Partnership II (a New York limited partnership) as of December 31, 1995 and
1994, 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,
1995. 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 II as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 2, 1996, except as to Note 5,
which is as of March 25, 1996
Burger King Limited Partnership II
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ - $3,576,544
Building - 5,431,714
Fixtures and equipment - 2,675,310
- 11,683,568
Less - accumulated depreciation - (5,762,960)
- 5,920,608
Real estate held for sale - 5,617,793
Cash and cash equivalents 653,171 680,377
Rent receivable and other assets 232,047 121,417
Total Assets $6,503,011 $6,722,402
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 271,548 $ 44,073
Due to affiliates 1,300 1,397
Distributions payable (Note 8) 553,173 580,378
Total Liabilities 826,021 625,848
Partners' Capital (Deficit):
General Partner (61,128) (54,272)
Limited Partners
(15,000 interests outstanding) 5,738,118 6,150,826
Total Partners' Capital 5,676,990 6,096,554
Total Liabilities and
Partners' Capital $6,503,011 $6,722,402
Burger King Limited Partnership II
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $ 6,669,624 $ (59,324) $6,610,300
Net income 1,561,823 94,704 1,656,527
Distributions to partners
(Note 8) (1,819,297) (90,192) (1,909,489)
Balance at December 31, 1993 6,412,150 (54,812) 6,357,338
Net income 1,575,396 97,210 1,672,606
Distributions to partners
(Note 8) (1,836,720) (96,670) (1,933,390)
Balance at December 31, 1994 6,150,826 (54,272) 6,096,554
Net income 1,627,390 94,130 1,721,520
Distributions to partners
(Note 8) (2,040,098) (100,986) (2,141,084)
Balance at December 31, 1995 $ 5,738,118 $ (61,128) $5,676,990
Burger King Limited Partnership II
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $2,685,255 $2,611,183 $2,501,191
Interest income 32,828 19,959 14,934
Miscellaneous income 1,830 1,800 2,182
Total Income 2,719,913 2,632,942 2,518,307
Expenses
Depreciation 200,942 271,586 272,833
Ground lease rent (Note 4) 359,430 365,772 344,570
Management fee (Note 6) 232,571 224,540 215,660
General and administrative 255,268 98,438 72,824
Total Expenses 1,048,211 960,336 905,887
Income from operations 1,671,702 1,672,606 1,612,420
Other Income
Gain on sale of property
(Notes 4 and 6) 49,818 - 44,107
Net Income $1,721,520 $1,672,606 $1,656,527
Net Income Allocated:
To the General Partner $ 94,130 $ 97,210 $ 94,704
To the Limited Partners 1,627,390 1,575,396 1,561,823
$1,721,520 $1,672,606 $1,656,527
Per limited partnership
interest
(15,000 outstanding) $108.49 $105.03 $104.12
Burger King Limited Partnership II
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net income $ 1,721,520 $ 1,672,606 $ 1,656,527
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 200,942 271,586 272,833
Gain on sale of property (49,818) - (44,107)
Increase (decrease) in
cash arising from changes
in operating assets and
liabilities:
Rent receivable and
other assets (110,630) (5,899) (33,142)
Accounts payable and
accrued expenses 227,475 (3,406) 5,979
Due to affiliates (97) (1,498) 1,295
Net cash provided by
operating activities 1,989,392 1,933,389 1,859,385
Cash Flows from Investing Activities:
Proceeds from sale
of property 151,691 - 132,058
Net cash provided by
investing activities 151,691 - 132,058
Cash Flows from Financing Activities:
Cash distributions to partners (2,168,289) (1,879,872) (2,202,098)
Net cash used for
financing activities (2,168,289) (1,879,872) (2,202,098)
Net increase (decrease) in
cash and cash equivalents (27,206) 53,517 (210,655)
Cash and cash equivalents
at beginning of year 680,377 626,860 837,515
Cash and cash equivalents
at end of year $ 653,171 $ 680,377 $ 626,860
Burger King Limited Partnership II
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Burger King Limited Partnership II (the "Partnership") was formed as a New York
limited partnership on August 23, 1982. The Partnership was formed for the
purpose of acquiring, constructing, improving, holding, and maintaining Burger
King restaurants (the "Properties"). The Properties are leased on a long-term
net basis to franchisees of Burger King Corporation ("Burger King").
The general partner is BK II Properties Inc. (the "General Partner"), formerly
Shearson/BK Properties, 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."
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's revenue is realized from
base and percentage rents received on each individual property. Base rents on
the leased properties increase in an amount equal to corresponding increases in
expenses incurred pursuant to the underlying ground leases. Accordingly, the
net base rents that the Partnership receives do not change during the lease
terms.
Real Estate Investments. Real estate investments, which consist of buildings,
fixtures and improvements and, in some cases, the underlying land are recorded
at cost less accumulated depreciation. Cost includes the initial purchase
price of the Properties plus closing costs, acquisition and legal fees and
original capital improvements. Depreciation of buildings is 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. The Partnership's Properties held
for sale are recorded at the lower of amortized cost or fair market value.
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 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
adoption of FAS 121 had no impact on the Partnership's financial statements.
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 August 23, 1982 (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 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 interests owned by
each limited partner on the last day of the month bears to the total number of
interests owned by the General Partner and all the limited partners as of that
date. At December 31, 1995, 1994 and 1993 and for the years then ended, there
were 15,000 units of limited partnership interests outstanding (the
"Interests").
Gains with respect to disposition 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 his 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, 1995, 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, Burger King 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, 1995, Payout had not occurred.
4. Real Estate
As of December 31, 1995, the Partnership owned 29 Properties, and as of
December 31, 1994 and 1993, the Partnership owned 30 Properties, consisting of
the restaurant buildings, fixtures and improvements, and in some cases, the
underlying land.
The leases between the Partnership and the franchisees (the "Leases") had an
initial term of 20 years with no renewal options. With respect to those
Properties in which the Partnership does not own the underlying land, there is
a ground lease between the Partnership and Burger King (collectively, the
"Ground Leases"). The Ground Leases had an initial term of 10 years with a
minimum of two five-year renewal options. All of the Leases expire in the year
2003 or 2004. Minimum future rentals on the noncancelable term of the Leases
and the related Ground Leases as of December 31, 1995 are as follows:
Minimum Ground
Year ending Rental Lease
December 31, Income Obligation
1996 $ 2,029,175 $ 355,992
1997 2,029,175 355,992
1998 2,043,609 373,417
1999 2,088,812 418,979
2000 2,092,366 422,757
Thereafter 5,557,306 1,160,619
$15,840,443 $3,087,756
The Leases are on a net basis and the franchisees are required to pay all
taxes, assessments, maintenance costs, insurance premiums and other impositions
against the premises. The lessee is also required to make percentage rental
payments to the extent that 8.5% of such lessee's gross sales exceed the
minimum base rent paid by the lessee. Percentage rental income for the years
ended December 31, 1995, 1994, and 1993 was $634,378, $529,695 and $432,053,
respectively.
During the year ended December 31, 1995, the Partnership sold the following
Property:
Date Adjusted Net Gain
of Selling Book on
Store Sale Price Value Sale
Ferguson, MO 6/30/95 $151,691 $101,873 $49,818
5. Proposed Sale of Real Estate
The Partnership has agreed, subject to the satisfaction of certain conditions,
to sell 17 of the Partnership's Properties owned in fee simple and to assign
all of its rights in 11 of the Partnership's Properties subject to ground
leases (the "Leased to U.S. Restaurant Properties Operating L.P., a Delaware
limited partnership (the "Buyer"), pursuant to an Agreement of Purchase and
Sale, dated as of October 11, 1995, as amended as of January 9, 1996 (the
"Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, subject to the satisfaction of
certain conditions, the Buyer agreed to acquire the Properties for
consideration in the amount of $17,025,00 in cash (the "Purchase Price"),
subject to adjustments and prorations for base and percentage rents as well as
certain other charges payable in respect of the Properties and adjustments in
respect of certain closing costs (the "Proposed Sale"). The Purchase Price is
also subject to an increase of $200,000 to an aggregate of $17,225,000 if the
Partnership elects to include a restaurant located in Marietta, Georgia (the
"Marietta Property") in the Proposed Sale. The General Partner is pursuing
parties that may have an interest in purchasing the Marietta Property for a
price in excess of $200,000. If the General Partner is unsuccessful in
locating a potential purchaser, the Partnership would, in all likelihood,
include the Marietta Property in the Proposed Sale.
Pursuant to Section 8.3 of the Agreement of Limited Partnership dated as of
August 23, 1982, as amended as of October 19, 1982 (the "Partnership
Agreement"), the limited partners of the Partnership (the "Unitholders") have
the right to vote (assuming certain conditions described in the Partnership
Agreement are met) only upon certain matters and Unitholders voting a majority
in interest may, without the concurrence of the General Partner, cause, among
other things, the disapproval of any sale of all or substantially all of the
assets of the Partnership in a single sale. The Proposed Sale would constitute
a sale of all or substantially all of the Partnership's assets. Accordingly,
Unitholders have the right to disapprove the Proposed Sale.
On March 25,1996, a proxy statement was mailed to the Unitholders which
describes the terms of the Proposed Sale and presents the Unitholders with the
opportunity to call a meeting to consider whether to disapprove the Proposed
Sale. In order to effect a vote to disapprove the Proposed Sale, Unitholders
holding 10% or more in interest of the outstanding limited partnership
interests (the "Units") must submit written requests for a meeting of the
Unitholders pursuant to the Partnership Agreement. While the General Partner
may call a meeting of the Unitholders for any purpose, the General Partner
believes that the Proposed Sale is in the best interest of the Unitholders and
has, therefore, determined not to call a meeting for the purpose of considering
the disapproval of the Proposed Sale.
If the Partnership receives written requests from Unitholders holding 10% or
more in interest of the outstanding Units on or before April 30, 1996, the
General Partner will be required to call a meeting of the Unitholders to
consider the disapproval of the Proposed Sale. If a meeting of the Unitholders
is called, and the Proposed Sale is disapproved by a majority in interest of
the Unitholders, the Purchase Agreement will be terminated pursuant to its
terms, and the Partnership will continue to operate the Properties and
distribute the cash flow from operations to the Unitholders in accordance with
the Partnership Agreement. If, however, a meeting of the Unitholders is
called, and Unitholders holding less than a majority in interest vote to
disapprove the Proposed Sale, the Proposed Sale will be consummated pursuant to
the terms and subject to the conditions set forth in the Purchase Agreement.
6. Management Agreement
The Partnership has entered into agreements with Burger King for the management
of the Properties. These agreements provide for a fee equal to 10% of the
rents received by the Partnership from the Properties, as defined in the
Partnership Agreement. To the extent the annual rental income from the
Properties is less than 15% of the Partnership's investments in the Properties,
Burger King 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, 1995 and 1994, no such amounts were due from Burger King.
Pursuant to an indemnity agreement, Burger King is obligated to contribute
minimum monthly rent payments in the event of a default under the Leases 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 $1,295,797. 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 1988 and
subsequent years, the indemnity amount was 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, 1995, the indemnity amount was
approximately $518,396.
The Property located in Milan, Tennessee ceased operations on September 9, 1994
and re-opened on April 10, 1995. Burger King funded the minimum monthly rent
payments to the Partnership during the interim period in accordance with the
indemnity agreement.
During 1990, a Property located in Downey, California ceased operations and
subsequently defaulted on its minimum rent obligations. Burger King funded
minimum monthly rent payments to the Partnership in accordance with the
indemnity agreement, and in February 1993, the Partnership sold the Property
located in Downey, California to a third-party. The restaurant, at the date
of sale, had a net book value of $87,951, resulting in a gain on sale of
$44,107.
7. Transactions with Affiliates
The amount of fees received for services performed and reimbursements for
expenses incurred on the Partnership's behalf by affiliates as of December 31,
1995, 1994 and 1993 was $5,805, $3,185 and $5,787, respectively, of which
$1,300 and $1,397 were unpaid at December 31, 1995 and 1994, respectively.
Cash and cash equivalents reflected on the Partnership's balance sheets at
December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
8. Distributions
Distributions paid or payable to limited partners and the General Partner for
the years ended December 31, 1995, 1994 and 1993, aggregated:
1995 1994 1993
------------------- ------------------- -------------------
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow from $1,889,924 $125.99 $1,836,720 $122.45 $1,688,559 $112.57
operations
Net property
disposition 150,174 10.01 - - 130,738 8.72
proceeds
Total Limited
Partners $2,040,098 $136.00 $1,836,720 $122.45 $1,819,297 $121.29
General Partner
Cash flow from $ 99,469 - $ 96,670 - $ 88,872 -
operations
Net property
disposition 1,517 - - - 1,320 -
proceeds
Total General
Partner $ 100,986 - $ 96,670 - $ 90,192 -
As of December 31, 1995, the Partnership had declared distributions of
$492,380, of which $467,761 ($31.18 per unit) was paid to limited partners and
$4,924 was paid to the General Partner on January 30, 1996. The remaining
portion in the amount of $19,695 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, 1995, the Unitholders had received their priority return, and all
amounts retained during 1995 were paid to the General Partner on January 30,
1996 in a distribution which amounted to $79,575, which included $19,695 for
the fourth quarter of 1995.
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,
1995 1994 1993
Financial statement net income $1,721,520 $1,672,606 $1,656,527
Tax basis depreciation over
financial statement depreciation (235,055) (264,175) (275,980)
Tax basis gain on sales of
Properties over financial
statement gain on sales
of Properties 9,959 - 14,625
Other 61,962 - -
Federal income tax
basis net income $1,558,386 $1,408,431 $1,395,172
Reconciliation of financial statement basis partners' capital to federal income
tax basis partners' capital:
Years Ended December 31,
1995 1994 1993
Financial statement
basis partners' capital $5,676,990 $6,096,554 $6,357,338
Current year financial
statement net income
over federal income tax
basis net income (163,134) (264,175) (261,355)
Cumulative federal income
tax basis net income
over cumulative financial
statement net income 1,005,129 1,269,304 1,530,659
Federal income tax basis
partners' capital $6,518,985 $7,101,683 $7,626,642
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.
EXHIBIT 3.3
_____________________ 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, 1995 and
1994, 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,
1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 15, 1996
Burger King Limited Partnership III
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ 2,981,088 $ 2,981,088
Buildings 5,552,773 5,552,773
Fixtures and equipment 2,744,188 2,744,188
11,278,049 11,278,049
Less - accumulated depreciation (5,702,818) (5,425,179)
5,575,231 5,852,870
Cash and cash equivalents 502,341 500,420
Rent receivable 50,447 34,238
Due from affiliates (Note 7) 13,054 12,889
Due from Burger King Corporation (Note 5) 50,977 176,963
Total Assets $ 6,192,050 $ 6,577,380
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 40,838 $ 41,160
Distributions payable (Note 6) 404,096 400,420
Total Liabilities 444,934 441,580
Partners' Capital (Deficit):
General Partner (22,629) (17,076)
Limited Partners
(15,000 interests outstanding) 5,769,745 6,152,876
Total Partners' Capital 5,747,116 6,135,800
Total Liabilities and
Partners' Capital $ 6,192,050 $ 6,577,380
Burger King Limited Partnership III
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $ 7,309,706 $ (19,490) $ 7,290,216
Net income 1,403,287 83,386 1,486,673
Distributions to partners (Note 6) (2,306,572) (82,241) (2,388,813)
Balance at December 31, 1993 6,406,421 (18,345) 6,388,076
Net income 1,333,287 84,786 1,418,073
Distributions to partners (Note 6) (1,586,832) (83,517) (1,670,349)
Balance at December 31, 1994 6,152,876 (17,076) 6,135,800
Net income 1,248,202 80,307 1,328,509
Distributions to partners (Note 6) (1,631,333) (85,860) (1,717,193)
Balance at December 31, 1995 $ 5,769,745$ (22,629) $ 5,747,116
Burger King Limited Partnership III
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $ 2,159,733 $ 2,044,028 $ 1,941,005
Interest income 26,299 16,366 16,646
Miscellaneous income 2,165 3,776 2,436
Total Income 2,188,197 2,064,170 1,960,087
Expenses
Depreciation 277,639 277,639 311,064
Ground lease rent (Note 4) 279,546 257,583 255,866
Management fee (Note 5) 211,958 21,464 --
General and administrative 90,545 89,411 68,997
Total Expenses 859,688 646,097 635,927
Income from operations 1,328,509 1,418,073 1,324,160
Other Income
Gain on sales of properties (Note 4) -- -- 162,513
Net Income $ 1,328,509 $ 1,418,073 $ 1,486,673
Net Income Allocated:
To the General Partner $ 80,307 $ 84,786 $ 83,386
To the Limited Partners 1,248,202 1,333,287 1,403,287
$ 1,328,509 $ 1,418,073 $ 1,486,673
Per limited partnership
interest (15,000 outstanding) $83.21 $88.89 $93.55
Burger King Limited Partnership III
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net income $ 1,328,509 $ 1,418,073 $ 1,486,673
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 277,639 277,639 311,064
Gain on sales of properties -- -- (162,513)
Increase (decrease) in cash
arising from changes in
operating assets and liabilities:
Rent receivable (16,209) (19,161) (4,199)
Due from affiliates, net (165) (609) 1,473
Due from Burger King
Corporation 125,986 (3,103) 13,279
Accounts payable and
accrued expenses (322) (2,233) (543)
Net cash provided by operating
activities 1,715,438 1,670,606 1,645,234
Cash Flows from Investing Activities:
Proceeds from sales of properties -- -- 929,998
Net cash provided by investing activities -- -- 929,998
Cash Flows from Financing Activities:
Cash distributions to
partners (1,713,517) (1,641,042) (2,705,805)
Net cash used for financing
activities (1,713,517) (1,641,042) (2,705,805)
Net increase (decrease) in cash
and cash equivalents 1,921 29,564 (130,573)
Cash and cash equivalents at
beginning of year 500,420 470,856 601,429
Cash and cash equivalents at
end of year $ 502,341 $ 500,420 $ 470,856
Burger King Limited Partnership III
Notes to Financial Statements
December 31, 1995, 1994 and 1993
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 King restaurants (the "Properties"). The Properties are leased on a
long-term net basis to franchisees of Burger King Corporation ("Burger King").
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
Partnership's 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.
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's revenue is realized from
base and percentage rents received on each individual property. Base rents on
the leased properties increase in an amount equal to corresponding increases in
expenses incurred pursuant to the underlying ground leases. Accordingly, the
net base rents that the Partnership receives do not change during the lease
terms.
Real Estate Investments - Real estate investments, which consist of buildings,
fixtures and improvements and, in some cases, the underlying land are recorded
at cost less accumulated depreciation. Cost includes the initial purchase
price of the Properties plus closing costs, acquisition and legal fees and
original capital improvements. Depreciation of buildings is 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.
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 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
adoption of FAS 121 had no impact on the Partnership's financial statements.
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 interests owned by
each limited partner on the last day of the month bears to the total number of
interests owned by the General Partner and all the limited partners as of that
date. At December 31, 1995, 1994 and 1993 and for the years then ended, there
were 15,000 units of limited partnership interests outstanding (the
"Interests").
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 Burger King and
the remainder is distributed 94.12% to the limited partners and 5.88% to the
General Partner. As of December 31, 1995, Payout had not occurred.
4. Real Estate
As of December 31, 1995, 1994 and 1993, the Partnership owned 24 Properties,
consisting of the restaurant buildings, fixtures and improvements, and in some
cases, the underlying land.
The leases between the Partnership and the franchisees (the "Leases") had an
initial term of 20 years with no renewal options. With respect to those
Properties in which the Partnership does not own the underlying land, there is
a ground lease between the Partnership and Burger King (collectively, the
"Ground Leases"). The Ground Leases had an initial term of 10 years with a
minimum of two five-year renewal options. All of the Leases expire in the year
2003 or 2004. Minimum future rentals on the noncancelable terms of the Leases
and the related Ground Leases as of December 31, 1995 are as follows:
Minimum Ground
Years ending Rental Lease
December 31, Income Obligations
1996 $ 1,907,327 $ 296,001
1997 1,908,472 297,146
1998 1,909,617 298,291
1999 1,914,514 303,188
2000 1,939,537 328,210
Later years 8,689,166 1,565,214
$ 18,268,633 $ 3,088,050
The Leases are on a net basis and the franchisees are required to pay all
taxes, assessments, maintenance costs, insurance premiums and other impositions
against the premises. The lessee is also required to make percentage rental
payments to the extent that 8.5% of such lessee's gross sales exceed the
minimum base rent paid by the lessee. Percentage rental income for December
31, 1995, 1994 and 1993 was $268,846, $175,104, and $41,173, respectively.
The General Partner is currently formulating a strategy for the sale of the
properties that will maximize their value.
5. Management Agreement
The Partnership has entered into agreements with Burger King 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, as defined in the Partnership Agreement. To the extent that the
Partnership does not receive annual rents from the Properties equal to a 15.5%
return on its investment in the Properties, Burger King will refund all or a
portion of the management fee received to provide the Partnership with such a
return. At December 31, 1995, 1994 and 1993, $50,977, $128,924 and $173,860,
respectively, were due from Burger King for such refunds.
Pursuant to an indemnity agreement, Burger King is obligated to contribute
minimum monthly rent payments in the event of a default under any 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, 1995, the indemnity
amount was approximately $673,031.
The property located in Memphis, Tennessee ceased operations on September 9,
1994. Burger King funded the minimum monthly rent payments 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 Burger King declared economic abandonment of the Properties. Burger King
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 in
accordance with the terms and conditions of the Partnership Agreement. 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, 1995, 1994 and 1993 aggregated:
1995 1994 1993
-------------------- ------------------- ---------------
Total Per Unit Total Per Unit Total Per Unit
Limited Partners
Cash flow from $1,631,333 $108.76 $1,586,832 $105.79 $1,385,874 $ 92.39
operations
Net property
disposition
proceeds -- -- -- -- 920,698 61.38
Total Limited
Partners $1,631,333 $108.76 $1,586,832 $105.79 $2,306,572 $153.77
General Partner
Cash flow from $ 85,860 -- $ 83,517 -- $ 72,947 --
operations
Net property
disposition
proceeds -- -- -- -- 9,300 --
Total General
Partner $ 85,860 -- $ 83,517 -- $ 82,247 --
As of December 31, 1995, the Partnership had declared distributions of
$404,096, of which $383,891 ($25.59 per Unit) was paid to the limited partners
and $20,204.80 was paid to the General Partner on January 30, 1996.
7. Transactions with Affiliates
The amount of fees received for services performed and reimbursements for
expenses incurred on the Partnership's behalf by affiliates as of December 31,
1995, 1994 and 1993 was $5,276, $3,508 and $4,371, respectively, of which
$1,185 and $1,350 was unpaid at December 31, 1995 and 1994, respectively.
Cash and cash equivalents reflected on the Partnership's balance sheets at
December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
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,
1995 1994 1993
Financial statement net income $ 1,328,509 $ 1,418,073 $ 1,486,673
Tax basis depreciation over financial
statement depreciation (219,940) (226,948) (226,837)
Tax basis gain on sales of Properties
under financial statement gain on
sales of Properties -- -- (130,711)
Other (21,462) 21,462 --
Federal income tax basis net income $ 1,087,107 $ 1,212,587 $ 1,129,125
Reconciliation of financial statement basis partners' capital to federal income
tax basis partners' capital:
Years Ended December 31,
1995 1994 1993
Financial statement basis partners'
capital $ 5,747,116 $ 6,135,800 $ 6,388,076
Current year financial statement net
income over federal income tax basis
net income (241,402) (205,486) (357,548)
Cumulative federal income tax basis
net income over cumulative financial
statement net income 1,876,267 2,081,753 2,439,301
Federal income tax basis partners'
capital $ 7,381,981 $ 8,012,067 $ 8,469,829
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.
EXHIBIT 13.1
CERTIFICATES OF PARTICIPATION
1995 ANNUAL REPORT
Certificates of Participation ("COPs"), formed in 1985, is an assignment
by the respective general partners of Burger King Limited Partnerships
I, II and III ("BK-I", "BK-II" and "BK-III", respectively, or,
collectively, the "Partnerships") of some of the rights to participate
in the profits, losses and gains of, and to receive distributions from
the Partnerships. BK-I, BK-II and BK-III are public limited
partnerships that have been in operation since April 1982, January 1983
and May 1984, respectively. At December 31, 1995, the Partnerships
owned a total of 63 Burger King restaurants (the "Properties"), located
throughout the United States, which are leased on a long-term net lease
basis to franchisees of Burger King Corporation ("Burger King"). The
Partnerships' principal investment objectives are to make regular cash
distributions and to realize long-term appreciation from the sale of the
Properties.
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 (select option 1) (800) 223-3464 (select option 2)
Contents
1 Message to Investors
BK I Realty Inc.
4 Independent Auditors' Report
5 Balance Sheets
5 Statements of Changes in Stockholder's Deficit
6 Statements of Operations
6 Statements of Cash Flows
7 Notes to Financial Statements
BK II Properties Inc.
11 Independent Auditors' Report
12 Balance Sheets
12 Statements of Changes in Stockholder's Deficit
13 Statements of Operations
13 Statements of Cash Flows
14 Notes to Financial Statements
BK III Restaurants Inc.
18 Independent Auditors' Report
19 Balance Sheets
19 Statements of Changes in Stockholder's Deficit
20 Statements of Operations
20 Statements of Cash Flows
21 Notes to Financial Statements
_________________________ MESSAGE TO INVESTORS __________________________
Presented for your review is the 1995 Annual Report for Certificates of
Participation ("COPs"). This report includes an overview of the Partnerships'
cash distributions and financial performance, a sales update on each of the
Partnerships, and the audited financial statements for the years ended December
31, 1995, 1994 and 1993.
Cash Distributions
COPs holders receive their pro rata share of the cash distributions assigned by
BK III Restaurants Inc. ("GP-III"), the general partner of BK-III, on a
quarterly basis in accordance with BK-III's partnership agreement (the "BK-III
Partnership Agreement"). Their pro rata share of the cash distributions
assigned by BK I Realty Inc. ("GP-I") and BK II Properties Inc. ("GP-II"), the
general partners of BK-I and BK-II, respectively, are distributed on an annual
basis in accordance with their respective partnership agreements (the "BK-I
Partnership Agreement" and the "BK-II Partnership Agreement," respectively).
COPs holders have received aggregate distributions of $60.39 per Unit for 1995,
including the 1995 fourth quarter distribution in the amount of $37.92 per Unit
which was paid on February 7, 1996. The 1995 fourth quarter COPs distribution
represented your share of the annual net cash flow from operations for BK-I and
BK-II, and net cash flow from operations during the fourth quarter of 1995 for
BK-III. Distributions for the year included a distribution of net proceeds
from the sale of three of BK-I's Properties in the first quarter of 1995
totalling $5.05 and net proceeds from the sale of one of BK-II's Properties in
the second quarter of 1995 totalling $0.39 per Unit.
It is important to note that net proceeds from the sales of Properties
represent a return of capital and consequently reduce your COPs Unit size.
Since the inception of COPs, cumulative cash distributions have totaled $752.20
per original $1,000 Unit, including $33.90 per Unit received as a return of
capital. Consequently, each COPs Holder's Unit has been reduced to $966.10.
Sales Update
GP-I has been pursuing efforts to market BK-I's remaining 10 Properties for
sale. While GP-I has had discussions with a number of institutions and other
third parties interested in purchasing the Properties, an environmental issue
at a restaurant located in Greenfield, Wisconsin (the "Greenfield Property")
has delayed efforts to effect a sale. BK-I has proposed site-specific clean-up
standards for the site to the Wisconsin Department of Natural Resources and is
currently awaiting their response, which is taking longer than originally
anticipated. The sale of BK-I's remaining Properties will be delayed until the
costs associated with an approved remediation plan can be determined. Once the
remediation issue is resolved, GP-I will attempt to sell BK-I's remaining
Properties and intends to distribute the net proceeds from the sale of the
Properties to the partners in accordance with the terms of the BK-I Partnership
Agreement.
BK-II has agreed to sell 17 of BK-II's Properties owned in fee simple and to
assign all of its rights in 11 of BK-II's Properties subject to ground leases
to U.S. Restaurant Properties Operating L.P., a Delaware limited partnership
(the "Buyer"), pursuant to an Agreement of Purchase and Sale, dated as of
October 11, 1995, as amended as of January 9, 1996 (the "Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, the Buyer agreed to acquire
the Properties for consideration in the amount of $17,025,000 in cash (the
"Purchase Price"), subject to adjustments and prorations for base and
percentage rents as well as certain other charges payable in respect of the
Properties and adjustments in respect of certain closing costs (the "Proposed
Sale"). The Purchase Price is also subject to an increase of $200,000 to an
aggregate of $17,225,000 if the Partnership elects to include a Property
located in Marietta, Georgia (the "Marietta Property") in the Proposed Sale.
GP-II is pursuing parties that may have an interest in purchasing the Marietta
Property for a price in excess of $200,000. If GP-II is unable to locate a
potential buyer to purchase the Marietta Property on appropriate terms, BK-II
would, in all likelihood, include the Marietta Property in the Proposed Sale.
Pursuant to the BK-II Partnership Agreement, the unitholders of BK-II ("BK-II
Unitholders") have the right to vote (assuming certain conditions described in
the BK-II Partnership Agreement are met) only upon certain matters, and BK-II's
Unitholders voting a majority in interest may, without the concurrence of
GP-II, cause, among other things, the disapproval of any sale of all or
substantially all of the assets of BK-II in a single sale. The Proposed Sale
would constitute a sale of all or substantially all of BK-II's assets.
Accordingly, BK-II's Unitholders have the right to disapprove the Proposed
Sale.
A proxy statement was mailed to the BK-II Unitholders on March 25, 1996 (the
"Proxy") which describes the terms of the Proposed Sale and presents the BK-II
Unitholders with the opportunity to call a meeting to consider whether to
disapprove the Proposed Sale. In order to effect a vote to disapprove the
Proposed Sale, BK-II Unitholders holding 10% or more in interest of the
outstanding limited partnership units of BK-II (the "BK-II Units") must submit
written requests for a meeting of the BK-II Unitholders pursuant to the BK-II
Partnership Agreement. While GP-II may call a meeting of the BK-II Unitholders
for any purpose, GP-II believes that the Proposed Sale is in the best interest
of the BK-II Unitholders and has, therefore, determined not to call a meeting
for the purpose of considering the disapproval of the Proposed Sale. However,
if BK-II receives written requests from BK-II Unitholders holding 10% or more
in interest of the BK-II Units on or before April 30, 1996, GP-II will b e
required to call a meeting of the BK-II Unitholders to consider the disapproval
of the Proposed Sale. If a meeting of the BK-II Unitholders is called, and the
Proposed Sale is disapproved by a majority in interest of the BK-II
Unitholders, the Purchase Agreement will be terminated pursuant to its terms,
and BK-II will continue to operate the Properties and distribute the cash flow
from operations to the partners of BK-II in accordance with the BK-II
Partnership Agreement. If, however, a meeting of the BK-II Unitholders is
called, and the BK-II Unitholders holding less than a majority in interest vote
to disapprove the Proposed Sale, the Proposed Sale will be consummated pursuant
to the terms and subject to the conditions set forth in the Purchase Agreement.
BK-III is currently analyzing market conditions to determine when BK-III's
remaining Properties should be marketed for sale. Until all of BK-III's
Properties are sold, BK-III intends to continue operating the Properties and
distributing cash flow from operations to the partners of BK-III in accordance
with the terms of the BK-III Partnership Agreement.
Financial Highlights
For the years ended December 31,
1995 1994
BK I Realty Inc.
Equity in earnings of BK-I $ 49,322 $ 89,234
Net Income 34,190 59,579
Net Income attributable
to COPs Unitholders 27,352 47,663
Net Income per COPs Unit(1)(2) 8.87 15.45
BK II Properties Inc.
Equity in earnings of BK-II $ 94,130 $ 97,210
Net Income 62,415 64,073
Net Income attributable
to COPs Unitholders 49,932 51,258
Net Income per COPs Unit(1)(2) 16.19 16.62
BK III Restaurants Inc.
Equity in earnings of BK-III $ 80,307 $ 84,786
Net Income 54,119 56,858
Net Income attributable
to COPs Unitholders 43,295 45,486
Net Income per COPs Unit(1) (2) 14.04 14.75
(1) Net income per COPs Unit represents 80% of the net income of GP-I,
GP-II and GP-III, respectively, divided by the total number of COPs' Units
outstanding.
(2) 3,084 COPs Units outstanding.
Property Operations
We are pleased to report that the same-store sales for the Properties for the
year ended December 31, 1995 increased from 1994. Same-store sales results are
an important statistic since they eliminate the effect of Property dispositions
and allow for an accurate comparison of sales from year-to-year. Furthermore,
growth in same-store sales measures the ability of mature stores, like those
owned by the Partnerships, to withstand competition and to increase existing
sales through efficient operations and advertising. Rental income received by
the Partnerships from the franchisees of the Properties is the greater of a
minimum annual base rent or 8.5% of the Properties' annual food and beverage
sales.
Sales at the Properties have increased as a result of Burger King's aggressive
marketing efforts, such as the .99 cent Whopper promotion and the tie-in
promotions with The Walt Disney Company, which have generally contributed to
increases in the volume of sales at participating restaurants.
Summary
The ultimate performance of COPs is dependent on a number of variables,
including the future operating performance of the Properties and the net
proceeds realized from the sale of the Properties. Although we have been
relatively pleased with the operating performance of the Properties and will
attempt to continue to maximize future cash distributions, based on the
projected resale values of the Properties and estimated cash flow from
operations, it is possible that COPs Unitholders may not ultimately receive
total cash distributions equal to their initial $1,000 per Unit investment. As
previously mentioned, since the inception of COPs, cumulative cash
distributions to COPs Unitholders have totaled $752.20 per original $1,000
Unit. We will provide you with an update on the status of the Partnerships'
operations in future correspondence.
Very truly yours,
Certificates of Participation
By: BK I Realty Inc.
BK II Properties Inc.
BK III Restaurants Inc.
General Partners
/s/Rocco F. Andriola
By: Rocco F. Andriola
President
March 29, 1996
_____________________________ BK I REALTY INC. ______________________________
INDEPENDENT AUDITORS' REPORT
The Stockholders
BK I Realty Inc.:
We have audited the financial statements of BK I Realty Inc. as listed in the
accompanying index. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 BK I Realty Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 9, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Investment in Burger King
Limited Partnership I (Note 2) $ (62,210) $ (15,052)
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable (Note 5) $ 22,878 $ 73,385
Total Liabilities 22,878 73,385
Stockholder's Deficit:
Common stock, $1.00 par value:
authorized, issued and
outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 409,699 394,567
Accumulated deficit (495,787) (484,004)
Total Stockholder's Deficit (85,088) (88,437)
Total Liabilities
and Stockholder's Deficit $ (62,210) $ (15,052)
Statements of Changes in Stockholder's Deficit
For the years ended December 31, 1995, 1994 and 1993
Additional
Common Paid-in Accumulated
Total Stock Capital Deficit
Stockholder's deficit at
December 31, 1992 $ (68,447) $1,000 $339,345 $(408,792)
Net income 53,140 - - 53,140
Distributions (Note 5) (83,459) - - (83,459)
Capital contribution
(Note 3) 25,567 - 25,567 -
Stockholder's deficit at
December 31, 1993 (73,199) 1,000 364,912 (439,111)
Net income 59,579 - - 59,579
Distributions (Note 5) (104,472) - - (104,472)
Capital contribution
(Note 3) 29,655 - 29,655 -
Stockholder's deficit at
December 31, 1994 (88,437) 1,000 394,567 (484,004)
Net income 34,190 - - 34,190
Distributions (Note 5) (45,973) - - (45,973)
Capital contribution
(Note 3) 15,132 - 15,132 -
Stockholder's deficit at
December 31, 1995 $(85,088) $1,000 $409,699 $(495,787)
See accompanying notes to the financial statements.
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Equity in earnings of Burger King Limited
Partnership I (Note 2) $49,322 $89,234 $78,707
Income taxes (Note 3) 15,132 29,655 25,567
Net Income $34,190 $59,579 $53,140
Net Income per COP unit
(3,084 outstanding) $ 8.87 $ 15.45 $ 13.78
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net income $ 34,190 $ 59,579 $ 53,140
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in earnings
of Burger King Limited
Partnership I (49,322) (89,234) (78,707)
Contributions to capital 15,132 29,655 25,567
Net cash provided by
operating activities - - -
Cash Flows from
Financing Activities:
Distributions from
Burger King Limited
Partnership I 96,480 92,878 127,892
Cash distributions paid (96,480) (92,878) (127,892)
Net cash provided by
financing activities - - -
Net change in cash - - -
Cash at beginning of year - - -
Cash at end of year $ - $ - $ -
See accompanying notes to the financial statements.
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
BK I Realty Inc. ("GP-I"), formerly Shearson/BK Realty, Inc., is an affiliate
of Lehman Brothers Inc ("Lehman"). GP-I was incorporated on November 24, 1981
and was organized solely to serve as general partner of Burger King Limited
Partnership I ("BK-I"). 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, GP-I's name was changed to delete any reference to
"Shearson."
The financial statements of GP-I have been prepared on the accrual basis of
accounting.
GP-I's investment in BK-I is accounted for by the equity method. The carrying
amount of this investment is increased (decreased) by the GP-I's share of the
earnings (losses) of BK-I and decreased by distributions received from BK-I.
Net income per COP's unit represents 80% of GP-I's net income divided by the
total number of COP's units outstanding. For the years ended December 31,
1995, 1994 and 1993, there were 3,084 COP's units outstanding.
2. Investment in Burger King Limited Partnership I
BK-I was formed on December 14, 1981, for the purpose of acquiring,
constructing, improving, holding, and maintaining Burger King restaurants (the
"Properties"). The Properties are leased on a long-term net basis to
franchisees of Burger King Corporation. BK-I owned 10, 13 and 23 restaurants
at December 31, 1995, 1994 and 1993, respectively. GP-I purchased the general
partnership interest for $1,000.
Following is a summary of BK-I's balance sheets as of December 31, 1995 and
1994, and statements of operations for the years ended December 31, 1995, 1994
and 1993:
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ 1,113,406 $ 1,415,906
Buildings 2,210,836 2,896,441
Fixtures and equipment 485,306 635,649
3,809,548 4,947,996
Less - accumulated depreciation (1,961,780) (2,430,394)
1,847,768 2,517,602
Cash and cash equivalents 973,641 3,128,790
Settlement escrow receivable --- 95,260
Rent receivable 65,023 99,980
Total Assets $ 2,886,432 $ 5,841,632
Liabilities and Partners' Capital
Liabilities:
Accounts payable
and accrued expenses $ 138,118 $ 250,273
Due to affiliates 1,300 1,749
Distributions payable 180,645 2,418,232
Total Liabilities 320,063 2,670,254
Partners' Capital (Deficit):
General Partner (85,088) (88,437)
Limited Partners
(15,000 interests outstanding) 2,651,457 3,259,815
Total Partners' Capital 2,566,369 3,171,378
Total Liabilities
and Partners' Capital $ 2,886,432 $ 5,841,632
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $ 1,004,195 $ 1,820,012 $ 1,907,913
Interest income 75,276 40,987 14,955
Miscellaneous income 1,905 2,828 4,262
Total Income 1,081,376 1,863,827 1,927,130
Expenses
Depreciation 118,323 237,368 280,182
Ground lease rent (Note 4) 112,914 171,976 216,777
Management fee (Note 5) 89,129 164,912 169,369
General and administrative 143,493 150,405 76,964
Total Expenses 463,859 724,661 743,292
Income from operations 617,517 1,139,166 1,183,838
Other Income
Gains on sales
of properties (Note 4) 1,253,015 2,040,687 550,609
Net Income $ 1,870,532 $ 3,179,853 $ 1,734,447
Net Income Allocated:
To the General Partner $ 49,322 $ 89,234 $ 78,707
To the Limited Partners 1,821,210 3,090,619 1,655,740
$ 1,870,532 $ 3,179,853 $ 1,734,447
Per limited partnership
interest (15,000 outstanding) $ 121.41 $ 206.04 $ 110.38
3. Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109."). Statement 109 requires a change from the deferred method
of accounting for income taxes, as previously required under APB Opinion 11, to
the asset and liability method of accounting for income taxes. GP-I adopted
Statement 109 as of January 1, 1993. There is no current or cumulative effect
of the change in accounting method.
GP-I is included in consolidated Federal, state and local income tax returns of
Lehman, its parent corporation. The tax sharing arrangement provides that any
taxes attributable to GP-I's portion of Lehman's consolidated tax liability
will be reflected as a capital contribution or dividend to GP-I. For financial
reporting purposes, income tax expense has been reflected as if GP-I had filed
separate income tax returns.
The tax effects of temporary differences are not material at December 31, 1995
and 1994.
Federal, state and local income taxes included on GP-I's financial statements
were $15,132, $29,655 and $25,567 for the years ended December 31, 1995, 1994
and 1993, respectively. The effective Federal income tax rate is 15% which is
lower than the expected rate of 35% principally due to the deductibility of
state, local taxes and the surtax exemption.
4. Note Receivable
The GP-I was partially capitalized by the stockholder issuing a Senior
Subordinated Note (the "Note") in the amount of $1,529,951 which bore interest
at the rate of 15.25% through maturity on December 1, 1990. In June 1990, the
Note was amended and the maturity extended through December 1, 1991, at a rate
equal to the bond equivalent yield of the most recently issued one-year United
States Treasury bill plus sixty basis points or 7.91%. Additionally, on its
anniversary date, the Note is automatically extended for an additional one-year
term, at a rate equal to the bond equivalent yield of the most recently issued
one-year United States Treasury bill plus 60 basis points. In accordance with
the June 1990 amendment, the maturity date was automatically extended to
December 1, 1996. At December 31, 1995 and 1994, the interest rate was 5.74%
and 6.69%, respectively.
Since no amounts are payable until maturity, for financial reporting purposes,
the Note and accrued and unpaid interest, which would be reflected as a
reduction in stockholder's equity resulting in no net change in stockholder's
equity, has not been recorded in the accompanying financial statements.
5. Distributions
Distributions paid or declared to the GP-I by BK-I aggregated $45,973, $104,472
and $83,459 for the years ended December 31, 1995, 1994 and 1993, respectively.
The GP-I distributed $22,878, $73,385 and $61,791 in January 1996, January 1995
and February 1994 for the years ended December 31, 1995, 1994 and 1993,
respectively. Of these amounts, $21,217 ($6.88 per COP's unit), $66,648
($21.61 per COP's unit) and $58,051 ($18.82 per COP's unit) were distributed to
COP's holders. Distributions of net proceeds from the sales of Properties
amounted to $15,561 ($5.05 per COP's unit), $33,978 ($11.02 per COP's unit) and
$8,716 ($2.83 per COP's unit) for the years ended December 31, 1995, 1994 and
1993, respectively.
6. Related Party Transactions
First Data Investor Services Group, Inc., formerly The Shareholder Services
Group, an unaffiliated third party, provides GP-I's accounting and investor
relations services. Prior to May 1993, these services were provided by an
affiliate of GP-I.
7. Real Estate
A. During the first quarter of 1995, BK-I sold three Properties as follows:
Dates Adjusted Net Gain
of Selling Book on
Stores Sale Prices* Values Sales
Washington, NC 3/8/95 $ 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
$1,804,526 $551,511 $1,253,015
* Purchase price of the Properties less estimated legal costs related
to the sales of the Properties.
B. On September 23, 1994, BK-I notified the Wisconsin Department of Natural
Resources ("WDNR") that petroleum and chlorinated compounds were discovered at
one of BK-I's Properties located in Greenfield, Wisconsin (the "Greenfield
Property"). The WDNR has indicated that under Wisconsin state law, BK-I will
be responsible for remediating the site. BK-I has obtained a preliminary cost
estimate to remediate the site from an environmental consulting firm. Based on
this estimate and in accordance with BK-I's respective Partnership Agreement,
BK-I set aside $300,000 from net cash flow from operations to fund the
potential environmental remediation costs. On May 26, 1995, BK-I proposed site
specific clean-up standards ("Clean-up Standards") on the Greenfield Property
for the WDNR's approval. Until the WDNR approves the Clean-up Standards and
the costs of the remediation can be assessed, it is extremely difficult for
GP-I to move forward with the sale of BK-I's remaining 10 Properties. A s a
result, there can be no assurance that the BK-I Properties will be sold during
1996. GP-I currently anticipates that the cost of the environmental
remediation should be recovered from the proceeds to be received from the
eventual sale of the Greenfield Property.
_________________ BK II PROPERTIES INC.______________________________
INDEPENDENT AUDITORS' REPORT
The Stockholders
BK II Properties Inc.:
We have audited the financial statements of BK II Properties Inc. as listed in
the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with 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 BK II Properties Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 9, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Investment in Burger King
Limited Partnership II (Note 2) $ 23,371 $ 28,304
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable (Note 5) $ 84,499 $ 82,576
Total Liabilities 84,499 82,576
Stockholder's Deficit:
Common stock, $1.00 par value:
authorized, issued and
outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 443,147 411,432
Accumulated deficit (505,275) (466,704)
Total Stockholder's Deficit (61,128) (54,272)
Total Liabilities and
Stockholder's Deficit $ 23,371 $ 28,304
Statements of Changes in Stockholder's Deficit
For the years ended December 31, 1995, 1994 and 1993
Additional
Common Paid-in Accumulated
Total Stock Capital Deficit
Stockholder's deficit at
December 31, 1992 $ (59,324) $1,000 $346,315 $(406,639)
Net income 62,724 - - 62,724
Distributions (Note 5) (90,192) - - (90,192)
Capital contribution (Note 3) 31,980 - 31,980 -
Stockholder's deficit at
December 31, 1993 (54,812) 1,000 378,295 (434,107)
Net income 64,073 - - 64,073
Distributions (Note 5) (96,670) - - (96,670)
Capital contribution (Note 3) 33,137 - 33,137 -
Stockholder's deficit at
December 31, 1994 (54,272) 1,000 411,432 (466,704)
Net income 62,415 - - 62,415
Distributions (Note 5) (100,986) - - (100,986)
Capital contribution (Note 3) 31,715 - 31,715 -
Stockholder's deficit at
December 31, 1995 $ (61,128) $1,000 $443,147 $(505,275)
See accompanying notes to the financial statements.
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Equity in earnings of
Burger King Limited
Partnership II (Note 2) $ 94,130 $ 97,210 $ 94,704
Income taxes (Note 3) 31,715 33,137 31,980
Net Income $ 62,415 $ 64,073 $ 62,724
Net Income per COP unit
(3,084 outstanding) $ 16.19 $ 16.62 $ 16.27
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from
Operating Activities: 1995 1994 1993
Net income $ 62,415 $ 64,073 $ 62,724
Adjustments to reconcile
net income to net cash
provided by
operating activities:
Equity in earnings of
Burger King Limited
Partnership II (94,130) (97,210) (94,704)
Contributions to capital 31,715 33,137 31,980
Net cash provided by
operating activities - - -
Cash Flows from Financing Activities:
Distributions from Burger King
Limited Partnership II 99,063 89,939 99,267
Cash distributions paid (99,063) (89,939) (99,267)
Net cash provided by
financing activities - - -
Net change in cash - - -
Cash at beginning of year - - -
Cash at end of year $ - $ - $ -
See accompanying notes to the financial statements.
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
BK II Properties Inc. ("GP-II"), formerly Shearson/BK Properties, Inc., is an
affiliate of Lehman Brothers Inc. ("Lehman"). GP-II was incorporated on August
17, 1982 and was organized solely to serve as general partner in Burger King
Limited Partnership II ("BK-II"). 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, GP-II's name was changed to delete any reference to
"Shearson."
The financial statements of GP-II have been prepared on the accrual basis of
accounting.
GP-II's investment in BK-II is accounted for by the equity method. The
carrying amount of this investment is increased (decreased) by GP-II's share of
the earnings (losses) of BK-II and decreased by distributions received from
BK-II.
Net income per COP's unit represents 80% of GP-II's net income divided by the
total number of COP's units outstanding. For the years ended December 31,
1995, 1994 and 1993, there were 3,084 COP's units outstanding.
2. Investment in Burger King Limited Partnership II
BK-II was formed on August 23, 1982, for the purpose of acquiring,
constructing, improving, holding, and maintaining Burger King restaurants (the
"Properties"). The Properties are leased on a long-term net basis to
franchisees of Burger King Corporation. BK-II owned 29, 30 and 30 restaurants
at December 31, 1995, 1994 and 1993, respectively. GP-II purchased the general
partnership interest for $1,000.
Following is a summary of BK-II's balance sheets as of December 31, 1995 and
1994 and statements of operations for the years ended December 31, 1995, 1994
and 1993:
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ - $3,576,544
Building - 5,431,714
Fixtures and equipment - 2,675,310
- 11,683,568
Less - accumulated depreciation - (5,762,960)
- 5,920,608
Real estate held for sale - 5,617,793
Cash and cash equivalents 653,171 680,377
Rent receivable and other assets 232,047 121,417
Total Assets $6,503,011 $6,722,402
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 271,548 $ 44,073
Due to affiliates 1,300 1,397
Distributions payable (Note 8) 553,173 580,378
Total Liabilities 826,021 625,848
Partners' Capital (Deficit):
General Partner (61,128) (54,272)
Limited Partners
(15,000 interests outstanding) 5,738,118 6,150,826
Total Partners' Capital 5,676,990 6,096,554
Total Liabilities and
Partners' Capital $6,503,011 $6,722,402
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $2,685,255 $2,611,183 $2,501,191
Interest income 32,828 19,959 14,934
Miscellaneous income 1,830 1,800 2,182
Total Income 2,719,913 2,632,942 2,518,307
Expenses
Depreciation 200,942 271,586 272,833
Ground lease rent (Note 4) 359,430 365,772 344,570
Management fee (Note 6) 232,571 224,540 215,660
General and administrative 255,268 98,438 72,824
Total Expenses 1,048,211 960,336 905,887
Income from operations 1,671,702 1,672,606 1,612,420
Other Income
Gain on sale of property
(Notes 4 and 6) 49,818 - 44,107
Net Income $1,721,520 $1,672,606 $1,656,527
Net Income Allocated:
To the General Partner $ 94,130 $ 97,210 $ 94,704
To the Limited Partners 1,627,390 1,575,396 1,561,823
$1,721,520 $1,672,606 $1,656,527
Per limited partnership
interest
(15,000 outstanding) $108.49 $105.03 $104.12
3. Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109.") Statement 109 requires a change from the deferred method of
accounting for income taxes, as previously required under APB Opinion 11, to
the asset and liability method of accounting for income taxes. GP-II adopted
Statement 109 as of January 1, 1993. There is no current or cumulative effect
of the change in accounting method.
GP-II is included in consolidated Federal, state and local income tax returns
of Lehman, its parent corporation. The tax sharing arrangement provides that
any taxes attributable to GP-II's portion of Lehman's consolidated tax
liability will be reflected as a capital contribution or dividend to GP-II.
For financial reporting purposes, income tax expense has been reflected as if
GP-II had filed separate income tax returns.
The tax effects of temporary differences are not material at December 31, 1995
and 1994.
Federal, state and local income taxes included on GP-II's financial statements
were $31,715, $33,137 and $31,980 for the years ended December 31, 1995, 1994
and 1993, respectively. The effective Federal income tax rate is 15% which is
lower than the expected rate of 35% principally due to the deductibility of
state, local taxes and the surtax exemption.
4. Note Receivable
GP-II was partially capitalized by the stockholder issuing a Senior
Subordinated Note (the "Note") in the amount of $1,654,853 which bore interest
at the rate of 15.25% through maturity on December 1, 1990. In June 1990, the
Note was amended and the maturity extended through December 1, 1991 at a rate
equal to the bond equivalent yield of the most recently issued one-year United
States Treasury bill plus 60 basis points or 7.91%. Additionally, on its
anniversary date, the Note is automatically extended for an additional one-year
term, at a rate equal to the bond equivalent yield of the most recently issued
one-year United States Treasury bill plus 60 basis points. In accordance with
the June 1990 amendment, the maturity date was automatically extended to
December 1, 1996. At December 31, 1995 and 1994, the interest rate was 5.74%
and 6.69%, respectively.
Since no amounts are payable until maturity, for financial reporting purposes,
the Note and accrued and unpaid interest, which would be reflected as a
reduction in stockholder's equity resulting in no net change in stockholder's
equity, has not been recorded in the accompanying financial statements.
5. Distributions
Distributions paid or declared to GP-II by BK-II aggregated $100,986, $96,670
and $90,192 for the years ended December 31, 1995, 1994 and 1993, respectively.
GP-II distributed $84,499, $82,576 and $75,845 in January 1996, January 1995
and February 1994 for the years ended December 31, 1995, 1994 and 1993,
respectively. Of these amounts, $79,576 ($25.80 per COP's unit), $77,336
($25.08 per COP's unit) and $71,097 ($23.05 per COP's unit) were distributed to
COP's holders. Distributions of net proceeds from the sale of Properties
amounted to $1,214 ($0.39 per COP's unit) and $1,056 ($0.34 per COP's unit) for
the years ended December 31, 1995 and 1993, respectively.
6. Related Party Transactions
First Data Investor Services Group, Inc., formerly The Shareholder Services
Group, an unaffiliated third party, provides accounting and investor relations
services. Prior to May 1993, these services were provided by an affiliate of
GP-II.
7. Real Estate
During the year ended December 31, 1995, BK-II sold the following Property:
Date Adjusted Net Gain
of Selling Book on
Store Sale Price Value Sale
Ferguson, MO 6/30/95 $151,691 $101,873 $49,818
8. Proposed Sale of Real Estate
BK-II has agreed to sell 17 of its Properties owned in fee simple and to assign
all of its rights in 11 of its Properties subject to ground leases to U.S.
Restaurant Properties Operating L.P., a Delaware limited partnership (the
"Buyer"), pursuant to an Agreement of Purchase and Sale, dated as of October
11, 1995, as amended as of January 9, 1996 (the "Purchase Agreement").
Pursuant to the terms of the Purchase Agreement, the Buyer agreed to acquire
the Properties for consideration in the amount of $17,025,000 in cash (the
"Purchase Price"), subject to adjustments and prorations for base and
percentage rents as well as certain other charges payable in respect of the
Properties and adjustments in respect of certain closing costs (the "Proposed
Sale"). The Purchase Price is also subject to an increase of $200,000 to an
aggregate of $17,225,000 if BK-II elects to include a Property located in
Marietta, Georgia (the "Marietta Property") in the Proposed Sale. GP-II is
pursuing parties that may have an interest in purchasing the Marietta Property
for a price in excess of $200,000. If GP-II is unsuccessful in locating a
potential purchaser, BK-II would, in all likelihood, include the Marietta
Property in the Proposed Sale.
Pursuant to the BK-II Partnership Agreement, the unitholders of BK-II ("BK-II
Unitholders") have the right to vote (assuming certain conditions described in
the BK-II Partnership Agreement are met) only upon certain matters, and BK-II
Unitholders voting a majority in interest may, without the concurrence of
GP-II, cause, among other things, the disapproval of any sale of all or
substantially all of the assets of BK-II in a single sale. The Proposed Sale
would constitute a sale of all or substantially all of the BK-II's assets.
Accordingly, BK-II Unitholders have the right to disapprove the Proposed Sale.
In order to effect a vote to disapprove the Proposed Sale, BK-II Unitholders
holding 10% or more in interest of the outstanding limited partnership units
of BK-II (the "BK-II Units") must submit written requests for a meeting of
BK-II Unitholders pursuant to the BK-II Partnership Agreement. While GP-II
may call a meeting of the BK-II Unitholders for any purpose, GP-II believes
that the Proposed Sale is in the best interest of the BK-II Unitholders and
has, therefore, determined not to call a meeting for the purpose of
considering the disapproval of the Proposed Sale. However, if BK-II receives
written requests from BK-II Unitholders holding 10% or more in interest of the
BK-II Units on or before April 30, 1996, GP-II will be required to call a
meeting of the BK-II Unitholders to consider the disapproval of the Proposed
Sale. If a meeting of the BK-II Unitholders is called, and the Proposed Sale
is disapproved by a majority in interest of the BK-II Unitholders, the
Purchase Agreement will be terminated pursuant to its terms, and BK-II will
continue to operate the Properties and distribute the cash flow from
operations to the partners of BK-II in accordance with the BK-II Partnership
Agreement. If, however, a meeting of BK-II Unitholders is called, and BK-II
Unitholders holding less than a majority in interest vote to disapprove the
Proposed Sale, the Proposed Sale will be consummated pursuant to the terms and
subject to the conditions set forth in the Purchase Agreement.
_______________________ BK III RESTAURANTS INC. ____________________________
INDEPENDENT AUDITORS' REPORT
The Stockholders
BK III Restaurants Inc.:
We have audited the financial statements of BK III Restaurants Inc. as listed
in the accompanying index. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with 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 BK III Restaurants Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
February 9, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Investment in Burger King
Limited Partnership III (Note 2) $ (2,424) $ 2,945
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable (Note 5) $ 20,205 $ 20,021
Total Liabilities 20,205 20,021
Stockholder's Deficit:
Common stock, $1.00 par value;
authorized, issued and
outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 327,758 301,570
Accumulated deficit (351,387) (319,646)
Total Stockholder's Deficit (22,629) (17,076)
Total Liabilities and
Stockholder's Deficit $ (2,424) $ 2,945
Statements of Changes in Stockholder's Deficit
For the years ended December 31, 1995, 1994 and 1993
Additional
Common Paid-in Accumulated
Total Stock Capital Deficit
Stockholder's deficit at
December 31, 1992 $(19,490) $1,000 $246,258 $(266,748)
Net income 56,002 - - 56,002
Distributions (Note 5) (82,241) - - (82,241)
Capital contribution (Note 3) 27,384 - 27,384 -
Stockholder's deficit at
December 31, 1993 (18,345) 1,000 273,642 (292,987)
Net income 56,858 - - 56,858
Distributions (Note 5) (83,517) - - (83,517)
Capital contribution (Note 3) 27,928 - 27,928 -
Stockholder's deficit at
December 31, 1994 (17,076) 1,000 301,570 (319,646)
Net income 54,119 - - 54,119
Distributions (Note 5) (85,860) - - (85,860)
Capital contribution (Note 3) 26,188 - 26,188 -
Stockholder's deficit at
December 31, 1995 $(22,629) $1,000 $327,758 $(351,387)
See accompanying notes to the financial statements.
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Equity in earnings of Burger
King Limited
Partnership III (Note 2) $80,307 $84,786 $83,386
Income taxes (Note 3) 26,188 27,928 27,384
Net Income $54,119 $56,858 $56,002
Net Income per COP unit
(3,084 outstanding) $ 14.04 $ 14.75 $ 14.53
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net income $ 54,119 $ 56,858 $ 56,002
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Equity in earnings of
Burger King Limited
Partnership III (80,307) (84,786) (83,386)
Contributions to capital 26,188 27,928 27,384
Net cash provided by
operating activities - - -
Cash Flows from
Financing Activities:
Distributions from
Burger King Limited
Partnership III 85,676 82,052 98,090
Cash distributions paid (85,676) (82,052) (98,090)
Net cash provided by
financing activities - - -
Net change in cash - - -
Cash at beginning of year - - -
Cash at end of year $ - $ - $ -
See accompanying notes to the financial statements.
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Summary of Significant Accounting Policies
BK III Restaurants Inc. ("GP-III"), formerly Shearson/BK Restaurants, Inc., is
an affiliate of Lehman Brothers Inc. ("Lehman"). GP-III was incorporated on
October 25, 1983 and was organized solely to serve as general partner in Burger
King Limited Partnership III ("BK-III"). 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, GP-III's name was changed to delete any
reference to "Shearson."
The financial statements of GP-III have been prepared on the accrual basis of
accounting.
GP-III's investment in BK-III is accounted for by the equity method. The
carrying amount of this investment is increased (decreased) by the GP-III's
share of the earnings (losses) of BK-III and decreased by distributions
received from BK-III.
Net income per COP's unit represents 80% of GP-III's net income divided by the
total number of COP's units outstanding. For the years ended December 31,
1995, 1994 and 1993, there were 3,084 COP's units outstanding.
2. Investment in Burger King Limited Partnership III
BK-III was formed on November 22, 1983, for the purpose of acquiring,
constructing, improving, holding, and maintaining Burger King restaurants (the
"Properties"). The Properties are leased on a long-term net basis to
franchisees of Burger King Corporation. BK-III owned 24 restaurants at
December 31, 1995, 1994 and 1993, respectively. GP-III purchased the general
partnership interest for $1,000.
Following is a summary of BK-III's balance sheets as of December 31, 1995 and
1994, and statements of operations for the years ended December 31, 1995, 1994
and 1993:
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate at cost (Note 4):
Land $ 2,981,088 $ 2,981,088
Buildings 5,552,773 5,552,773
Fixtures and equipment 2,744,188 2,744,188
11,278,049 11,278,049
Less - accumulated depreciation (5,702,818) (5,425,179)
5,575,231 5,852,870
Cash and cash equivalents 502,341 500,420
Rent receivable 50,447 34,238
Due from affiliates (Note 7) 13,054 12,889
Due from Burger King Corporation (Note 5) 50,977 176,963
Total Assets $ 6,192,050 $ 6,577,380
Liabilities and Partners' Capital
Liabilities:
Accounts payable and
accrued expenses $ 40,838 $ 41,160
Distributions payable (Note 6) 404,096 400,420
Total Liabilities 444,934 441,580
Partners' Capital (Deficit):
General Partner (22,629) (17,076)
Limited Partners
(15,000 interests outstanding) 5,769,745 6,152,876
Total Partners' Capital 5,747,116 6,135,800
Total Liabilities and
Partners' Capital $ 6,192,050 $ 6,577,380
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Note 4) $ 2,159,733 $ 2,044,028 $ 1,941,005
Interest income 26,299 16,366 16,646
Miscellaneous income 2,165 3,776 2,436
Total Income 2,188,197 2,064,170 1,960,087
Expenses
Depreciation 277,639 277,639 311,064
Ground lease rent (Note 4) 279,546 257,583 255,866
Management fee (Note 5) 211,958 21,464 --
General and administrative 90,545 89,411 68,997
Total Expenses 859,688 646,097 635,927
Income from operations 1,328,509 1,418,073 1,324,160
Other Income
Gain on sales of properties (Note 4) -- -- 162,513
Net Income $ 1,328,509 $ 1,418,073 $ 1,486,673
Net Income Allocated:
To the General Partner $ 80,307 $ 84,786 $ 83,386
To the Limited Partners 1,248,202 1,333,287 1,403,287
$ 1,328,509 $ 1,418,073 $ 1,486,673
Per limited partnership
interest (15,000 outstanding) $83.21 $88.89 $93.55
3. Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109.") Statement 109 requires a change from the deferred method of
accounting for income taxes, as previously required under APB Opinion 11, to
the asset and liability method of accounting for income taxes. GP-III adopted
Statement 109 as of January 1, 1993. There is no current or cumulative effect
of the change in accounting method.
GP-III is included in consolidated Federal, state and local income tax returns
of Lehman, its parent corporation. The tax sharing arrangement provides that
any taxes attributable to GP-III's portion of Lehman's consolidated tax
liability will be reflected as a capital contribution or dividend to GP-III.
For financial reporting purposes, income tax expense has been reflected as if
GP-III had filed separate income tax returns.
The tax effects of temporary differences are not material at December 31, 1995
and 1994.
Federal, state and local income taxes included on GP-III's financial statements
were $26,188, 27,928 and $27,384 for the years ended December 31, 1995, 1994
and 1993, respectively. The effective Federal income tax rate is 15% which is
lower than the expected rate of 35% principally due to the deductibility of
state, local taxes and the surtax exemption.
4. Note Receivable
GP-III was partially capitalized by the stockholder issuing a Senior
Subordinated Note (the "Note") in the amount of $1,696,257 which bore interest
at the rate of 15.25% through maturity on December 1, 1990. In June 1990, the
Note was amended and the maturity extended through December 1, 1991 at a rate
equal to the bond equivalent yield of the most recently issued one-year United
States Treasury bill plus 60 basis points or 7.91%. Additionally, on its
anniversary date, the Note is automatically extended for an additional one-year
term, at a rate equal to the bond equivalent yield of the most recently issued
one-year United States Treasury bill plus 60 basis points. In accordance with
the June 1990 amendment, the maturity date was automatically extended to
December 1, 1996. At December 31, 1995 and 1994, the interest rate was 5.74%
and 6.69%, respectively.
Since no amounts are payable until maturity, for financial reporting purposes,
the Note and accrued and unpaid interest, which would be reflected as a
reduction in stockholder's equity resulting in no net change in stockholder's
equity, has not been recorded in the accompanying financial statements.
5. Distributions
Distributions paid or declared to GP-III by BK-III aggregated $85,860, $83,517
and $82,241 for the years ended December 31, 1995, 1994 and 1993, respectively,
of which GP-III distributed $68,688 ($22.27 per COP's unit), $66,814 ($21.67
per COP's unit) and $58,353 ($18.92 per COP's unit) for 1995, 1994 and 1993,
respectively, to COP's holders. Additionally, in April 1993, GP-III
distributed $7,440 ($2.41 per COP's unit) representing net proceeds from the
sale of BK-III's Properties. In January 1996, GP-III distributed the fourth
quarter 1995 distribution of $20,205, of which $16,164 ($5.24 per COP's unit)
was paid to COP's holders.
6. Related Party Transactions
First Data Investor Services Group, Inc., formerly The Shareholder Services
Group, an unaffiliated third party, provides accounting and investor relations
services. Prior to May 1993, these services were provided by an affiliate of
GP-III.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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