United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
or
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 33-1624
CERTIFICATES OF PARTICIPATION
BK I REALTY INC.
BK III RESTAURANTS INC.
Exact Name of Registrant as Specified in its Charter
13-3100473
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
(212) 526-3237
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
BK I REALTY INC.
Balance Sheets At June 30, At December 31,
1997 1996
Assets
Investment in Burger
King Limited Partnership I $ (72,373) $(48,060)
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable 1,448 40,763
Accrued expenses 26,750 10,000
Total Liabilities 28,198 50,763
Stockholder's Deficit:
Common Stock, $1.00 par value authorized,
issued and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 419,879 419,879
Accumulated deficit (521,450) (519,702)
Total Stockholder's Deficit (100,571) (98,823)
Total Liabilities and
Stockholder's Deficit $ (72,373) $(48,060)
Statement of Changes in Stockholder's Deficit
For the six months ended June 30, 1997 Additional
Common Paid-in Accumulated
Total Stock Capital Deficit
Balance at December 31, 1996 $(98,823) $1,000 $419,879 $(519,702)
Distributions (1,448) _ _ (1,448)
Net loss (300) _ _ (300)
Balance at June 30, 1997 $(100,571) $1,000 $419,879 $(521,450)
Statements of Operations
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Income (Loss)
Equity in earnings of
Burger King Limited
Partnership I $9,300 $11,803 $16,450 $20,886
General and administrative
expenses (8,375) _ (16,750) _
Income taxes _ 858 _ (1,929)
Net Income (Loss) $ 925 $12,661 $(300) $18,957
Per COPs unit
(3,084 outstanding) $.24 $3.28 $(.08) $4.92
Statements of Cash Flows
For the six months ended June 30, 1997 1996
Cash Flows From Operating Activities
Net income (loss) $ (300) $ 18,957
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
Equity in earnings of Burger
King Limited Partnership I (16,450) (20,886)
Accrued expenses 16,750 _
Contributions to capital _ 1,929
Net cash provided by operating activities _ _
Cash Flows From Financing Activities
Distributions from Burger King Limited
Partnership I 40,763 24,703
Cash distributions paid (40,763) (24,703)
Net cash provided by financing activities _ _
Net change in cash _ _
Cash, beginning of period _ _
Cash, end of period $ _ $ _
Notes to the Financial Statements
These unaudited financial statements should be read in
conjunction with Certificates of Participation's ("COPs") annual
1996 audited financial statements within Form 10-K.
These unaudited financial statements include all normal and
reoccurring adjustments which are, in the opinion of management,
necessary to present a fair statement of financial position as of
June 30, 1997 and the results of operations for the three- and
six-month periods ended June 30, 1997 and 1996, cash flows for
the six-month period ended June 30, 1997 and 1996 and the
statement of changes in stockholders' deficit for the six-month
period ended June 30, 1997. Results of operations for the six-
month period ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
Reclassification. Certain prior year amounts have been
reclassified in order to conform to the current year's
presentation.
No significant events have occurred subsequent to fiscal year
1996, and no material contingencies exist which would require
disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
BK III RESTAURANTS INC.
Balance Sheets At June 30, At December 31,
1997 1996
Assets
Investment in Burger King
Limited Partnership III $ (10,124) $ 878
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable 27,573 25,648
Accrued expenses 26,750 10,000
Total Liabilities 54,323 35,648
Stockholder's Deficit:
Common Stock, $1.00 par value authorized,
issued and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 362,275 352,993
Accumulated deficit (407,474) (388,763)
Total Stockholder's Deficit (44,199) (34,770)
Total Liabilities and
Stockholder's Deficit $ (10,124) $ 878
Statement of Changes in Stockholder's Deficit
For the six months ended June 30, 1997
Additional
Common Paid-in Accumulated
Total Stock Capital Deficit
Balance at December 31, 1996 $(34,770) $1,000 $352,993 $(388,763)
Distributions (39,683) _ _ (39,683)
Capital contribution 9,282 _ 9,282 _
Net income 20,972 _ _ 20,972
Balance at June 30, 1997 $(44,199) $1,000 $362,275 $(407,474)
Statements of Operations
Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Income
Equity in earnings of
Burger King Limited
Partnership III $28,412 $22,852 $ 47,004 $42,647
General and administrative
expenses (8,375) _ (16,750) _
Income taxes (6,147) 2,134 (9,282) (3,939)
Net Income $13,890 $24,986 $20,972 $38,708
Per COPs unit
(3,084 outstanding) $3.60 $6.48 $5.44 $10.04
Statements of Cash Flows
For the six months ended June 30, 1997 1996
Cash Flows From Operating Activities
Net income $20,972 $38,708
Adjustments to reconcile net
income to net cash
provided by operating activities:
Equity in earnings of Burger King
Limited Partnership III (47,004) (42,647)
Accrued expenses 16,750 _
Contributions to capital 9,282 3,939
Net cash provided by operating activities _ _
Cash Flows From Financing Activities
Distributions from Burger King
Limited Partnership III 37,758 42,467
Cash distributions paid (37,758) (42,467)
Net cash provided by financing activities _ _
Net change in cash _ _
Cash, beginning of period _ _
Cash, end of period $ _ $ _
Notes to the Financial Statements
These unaudited financial statements should be read in
conjunction with COPs' annual 1996 audited financial statements
within Form 10-K.
These unaudited financial statements include all normal and
reoccurring adjustments which are, in the opinion of management,
necessary to present a fair statement of financial position as of
June 30, 1997 and the results of operations for the three- and
six-month periods ended June 30, 1997 and 1996, cash flows for
the six-month period ended June 30, 1997 and 1996 and the
statement of changes in stockholders' deficit for the six-month
period ended June 30, 1997. Results of operations for the six-
month period ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
Reclassification. Certain prior year amounts have been
reclassified in order to conform to the current year's
presentation.
No significant events have occurred subsequent to fiscal year
1996, and no material contingencies exist which would require
disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
COPs represents an assignment by 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 ("BK-I") and Burger King Limited
Partnership III ("BK-III") (BK-I and BK-III are collectively
referred to herein as the "Partnerships"). Each of the
Partnerships is a New York limited partnership. The issuing
general partners are BK I Realty Inc. ("GP-I"), which is the
general partner of BK-I; and BK III Restaurants Inc. ("GP-III"),
which is the general partner of BK-III (collectively, the
"General Partners"). Each of the General Partners is a New York
corporation. Each COPs unit consists of one BK-I COPs unit and
one BK-III COPs unit. COPs commenced operations on January 17,
1986, and the COPs units were assigned as of December 1, 1985.
The Partnerships were formed to acquire and hold Burger Kingr
restaurants (the "Properties"), including the buildings and, in
some cases, the underlying land. The Properties are net leased
to franchisees of Burger King Corporation ("BKC").
The General Partners do not engage in the sale of goods or
services. The General Partners' only assets are their respective
investments in the Partnerships.
GP-I has held discussions with a number of institutions and other
third parties interested in purchasing BK-I's nine remaining
Properties. During the second quarter, GP-I engaged the services
of Jones Lang Wootton, a nationally recognized real estate
broker, to assist its efforts to market BK-I's nine properties
for sale.
As previously reported, an environmental issue has been
identified at a Property located in Greenfield Wisconsin (the
"Greenfield Property"). GP-I believes that the potential
environmental remediation costs associated with the Greenfield
Property should not exceed approximately $300,000 and, therefore,
in accordance with BK-I's Partnership Agreement, such amount has
been set aside from BK-I's net cash flow from operations to fund
these costs. If the proposed site-specific standards are
approved by the Wisconsin Department of Natural Resources prior
to the sale of the Greenfield Property, it is expected that any
of such reserves spent on the environmental remediation should be
recovered from the proceeds of the eventual sale of the
Greenfield Property. Therefore, any remediation costs incurred
prior to a sale of the Greenfield Property will be capitalized
and included in the carrying value of the Greenfield Property.
Alternatively, if the sale occurs prior to the receipt of such
approval, it is likely that any buyer will attribute a discount
to the value of the Greenfield Property in determining an
acceptable purchase price.
GP-I believes that BK-I should have sufficient assets with which
to pay any potential remediation costs on the Greenfield
Property. In the unlikely event that BK-I does not have
sufficient assets with which to pay such costs, GP-I is unaware
of any Federal or State of Wisconsin environmental law
potentially imposing any personal liability on the Unitholders of
BK-I for their pro-rata share of BK-I's remediation costs.
Therefore, except as otherwise provided for in BK-I's Partnership
Agreement, Unitholders of BK-I may be liable for BK-I's
obligations only to the extent of their respective capital
contributions.
On June 12, 1997, BK-III completed the sale of a Property located
in Frankfort, Kentucky (the "Frankfort Property") to the
franchisee operating such property. COPs' portion of the net
proceeds from this sale were distributed along with the second
quarter distribution on July 30, 1997. In addition, BK-III has
also begun efforts to sell its 22 Properties and has also engaged
the services of Jones Lang Wootton.
Until all of BK-I's and BK-III's remaining Properties are sold,
both BK-I and BK-III will continue to operate the Properties and
will distribute net cash flow from operations to the partners.
Upon the completion of the sale of all of BK-I's and BK-III's
Properties, GP-I and GP-III intend to distribute the net sales
proceeds and liquidate the partnerships in accordance with the
terms of their respective partnership agreements. In accordance
with the terms of COPs' partnership agreement, a portion of the
net proceeds of the sale of these Properties will be distributed
to COPs Holders. Although GP-I and GP-III are hopeful that a
sale of all of the Properties can be completed during 1997, there
can be no assurances that such efforts will be successful within
this time frame, or that any particular price will be obtained.
As a result of BK-I's and BK-III's intention to pursue a sale of
their respective Properties, the Properties have been
reclassified on the Partnerships' respective balance sheets as
real estate held for sale and are carried at the lower of cost or
fair value less any estimated selling costs, including any
estimated environmental remediation costs.
At June 30, 1997, GP-I's investment in BK-I was $(72,373) and GP-
III's investment in BK-III was $(10,124), reflecting
distributions in excess of equity in earnings plus the initial
investments.
COPs Holders receive their pro-rata share of the cash
distributions assigned by GP-III on a quarterly basis and their
pro-rata share of the cash distributions assigned by GP-I on an
annual basis in accordance with the respective partnership
agreements. On July 30, 1997, COPs paid a quarterly cash
distribution in the amount of $7.16 per Unit, which represented
COPs' share of BK-III's net cash flow from operations for the
second quarter of 1997, in the amount of $4.93 per Unit, and the
distribution of the net proceeds from the sale of the Frankfort
Property in the amount of $2.23 per Unit. Including this
distribution, COPs Unitholders have received total cash
distributions of $983.28 per original $1,000.00 Unit since the
inception of COPs. This total includes distributions of net cash
flow from operations in the amount of $772.97 per Unit and
distributions of net proceeds from the sales of the Properties in
the amount of $210.31 per Unit. Distributions of net sales
proceeds represent returns of capital which have reduced the size
of each Unit from $1,000.00 to $789.69.
Results of Operations
The results of operations for the three- and six-month periods
ended June 30, 1997 are primarily attributable to the General
Partners' respective investments in the Partnerships.
For the three- and six-month periods ended June 30, 1997, GP-I
generated net income of $925 and a net loss of $300,
respectively, compared to $12,661 and $18,957 for the
corresponding periods in 1996. The change from net income to net
loss in the three-month period and the lower net income for the
six-month period is mainly attributable to an increase in general
and administrative expenses and a decrease in rental income at BK-
I's Properties as a result of the sale of a Property located in
Wichita, Kansas in the fourth quarter of 1996.
For the three- and six-month periods ended June 30, 1997, GP-III
generated net income of $13,890 and $20,972, respectively,
compared to $24,986 and $38,708 for the corresponding periods in
1996. The decreases are primarily attributable to an increase in
general and administrative expenses.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27.1) Financial Data Schedule for BK I Realty Inc.
(27.2) Financial Data Schedule for BK III Restaurants Inc.
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended June 30,
1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CERTIFICATES OF PARTICIPATION
BK I REALTY INC.
BK III RESTAURANTS INC.
BY: BK I REALTY INC.
BK III RESTAURANTS INC.
Registrant
Date: August 14, 1997
BY: /s/ Kenneth F. Boyle
Name: Kenneth F. Boyle
Title: President, Director and
Chief Financial Officer