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 September 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
New York 13-3100473
State or Other Jurisdiction 13-3178423
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 September 30, At December 31,
1997 1996
Assets
Investment in Burger King
Limited Partnership I $ (68,082) $ (48,060)
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable 21,456 40,763
Accrued expenses 35,125 10,000
Total Liabilities 56,581 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 (545,542) (519,702)
Total Stockholder's Deficit (124,663) (98,823)
Total Liabilities and Stockholder's
Deficit $ (68,082) $ (48,060)
BK I Realty Inc.
Statement of Changes in Stockholder's Deficit
For the nine months ended September 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 (24,515) _ _ (24,515)
Net loss (1,325) _ _ (1,325)
Balance at September 30, 1997 $(124,663) $ 1,000 $ 419,879 $ (545,542)
BK I Realty Inc.
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income (Loss)
Equity in earnings of Burger King
Limited Partnership I $ 7,350 $ 9,707 $ 23,800 $ 30,593
General and administrative expenses (8,375) _ (25,125) _
Income taxes _ (896) _ (2,825)
Net Income (Loss) $(1,025) $ 8,811 $ (1,325) $ 27,768
Per COPs unit (3,084 outstanding) $(.26) $2.28 $(.34) $7.20
BK I Realty Inc.
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities
Net income (loss) $ (1,325) $ 27,768
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Equity in earnings of Burger King
Limited Partnership I (23,800) (30,593)
Accrued expenses 25,125 _
Contributions to capital _ 2,825
Net cash provided by operating activities _ _
Cash Flows From Financing Activities
Distributions from Burger King
Limited Partnership I 43,822 26,451
Cash distributions paid (43,822) (26,451)
Net cash provided by financing activities _ _
Net change in cash _ _
Cash, beginning of period _ _
Cash, end of period $ _ $ _
BK I Realty Inc.
Notes to the Financial Statements
These interim unaudited financial statements should be read in
conjunction with Certificates of Participation's ("COPs") annual
1996 audited financial statements within Form 10-K.
These interim 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 September 30, 1997 and the results of operations
for the three- and nine-month periods ended September 30, 1997
and 1996, cash flows for the nine-month period ended September
30, 1997 and 1996 and the statement of changes in stockholders
deficit for the nine-month period ended September 30, 1997.
Results of operations for the nine-month period ended
September 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.
The following significant event has occurred subsequent to fiscal
year 1996 which requires disclosure in this interim report per
Regulation S-X, Rule 10-01, Paragraph (a)(5):
The Partnership has entered into a non-binding letter of intent
("LOI") with a third party for the sale of the Partnership's
remaining nine properties (the "Properties") for a purchase price
of $6,400,000. Any sale of the Properties to this potential
buyer is subject to, among other things, the potential buyer's
review and inspection of the Properties and the execution of a
definitive contract of sale. Accordingly, there can be no
assurance that the Properties will be sold to this potential
buyer or, if sold to it, that the actual purchase price will not
be renegotiated.
BK III Restaurants Inc.
Balance Sheets At September 30, At December 31,
1997 1996
Assets
Investment in Burger King Limited
Partnership III $ (8,713) $ 878
Liabilities and Stockholder's Deficit
Liabilities:
Distributions payable 20,406 25,648
Accrued expenses 35,125 10,000
Total Liabilities 55,531 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 365,040 352,993
Accumulated deficit (430,284) (388,763)
Total Stockholder's Deficit (64,244) (34,770)
Total Liabilities and Stockholder's
Deficit $ (8,713) $ 878
BK III Restaurants Inc.
Statement of Changes in Stockholder's Deficit
For the nine months ended September 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 (68,741) _ _ (68,741)
Capital contribution 12,047 _ 12,047 _
Net income 27,220 _ _ 27,220
Balance at September 30, 1997 $(64,244) $ 1,000 $ 365,040 $ (430,284)
BK III Restaurants Inc.
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Income
Equity in earnings of Burger King
Limited Partnership III $ 17,388 $ 21,371 $ 64,392 $ 64,018
General and administrative expenses (8,375) _ (25,125) _
Income taxes (2,765) (1,973) (12,047) (5,912)
Net Income $ 6,248 $ 19,398 $ 27,220 $ 58,106
Per COPs unit (3,084 outstanding) $1.62 $5.03 $7.06 $15.07
BK III Restaurants Inc.
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities
Net income $ 27,220 $ 58,106
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of Burger King Limited
Partnership III (64,392) (64,018)
Accrued expenses 25,125 _
Contributions to capital 12,047 5,912
Net cash provided by operating activities _ _
Cash Flows From Financing Activities
Distributions from Burger King Limited
Partnership III 73,983 64,346
Cash distributions paid (73,983) (64,346)
Net cash provided by financing activities _ _
Net change in cash _ _
Cash, beginning of period _ _
Cash, end of period $ _ $ _
BK III Restaurants Inc.
Notes to the Financial Statements
These interim unaudited interim financial statements should be
read in conjunction with COPs' annual 1996 audited financial
statements within Form 10-K.
These interim unaudited interim 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 September 30, 1997 and the results of operations
for the three- and nine-month periods ended September 30, 1997
and 1996, cash flows for the nine-month period ended September
30, 1997 and 1996 and the statement of changes in stockholders
deficit for the nine-month period ended September 30, 1997.
Results of operations for the nine-month period ended
September 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.
On June 12, 1997, Burger King Limited Partnership III sold a
property located in Frankfort, Kentucky to the franchisee
operating such property for net proceeds of $858,339 resulting in
a gain of $559,519.
The Partnership has entered into a non-binding letter of intent
("LOI") with a third party for the sale of the Partnership's
remaining 22 properties (the "Properties") for a purchase price
of $16,000,000. Any sale of the Properties to this potential
buyer is subject to, among other things, the potential buyer's
review and inspection of the Properties and the execution of a
definitive contract of sale. Accordingly, there can be no
assurance that the Properties will be sold to this potential
buyer or, if sold to it, that the actual purchase price will not
be renegotiated.
BK I Realty Inc.
BK III Restaurants Inc.
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.
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.
GP-I and GP-III have held discussions with a number of third
parties interested in purchasing the remaining Properties of BK-I
and BK-III. During the second quarter of 1997, the services of
Jones Lang Wootton, a nationally recognized real estate broker,
were engaged to assist in efforts to market the remaining
properties for sale. During the third quarter, the GP-I and GP-
III received competitive bids from a number of third parties.
Following an evaluation of these bids, BK-I and BK-III each
entered into a non-binding letter of intent ("LOI") with a third
party for the sale of its properties for a purchase price of
$6,400,000 for BK-I's nine properties, and $16,000,000 for BK-
III's 22 properties. Any sale of either partnership's properties
to this potential buyer is subject to, among other things, the
potential buyer's review and inspection of the Properties and the
execution of a definitive contract of sale. Accordingly, there
can be no assurance that the Properties will be sold to this
potential buyer or, if sold to it, that the actual purchase price
will not be renegotiated. Pursuant to the terms of the
respective partnership agreements, a majority in interest of the
limited partners in BK-I and BK-III have the right to disapprove
of the sale of all or substantially all of each partnership's
assets in a single sale. In anticipation of a sale, proxies will
be mailed to the limited partners of each partnership notifying
them of their right to call a meeting to vote on the sale.
As previously reported, an environmental issue has been
identified at a Property located in Greenfield, Wisconsin (the
"Greenfield Property") owned by BK-I. 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.
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 September 30, 1997, GP-I's investment in BK-I was $(68,082)
and GP-III's investment in BK-III was $(8,713), 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 October 30, 1997, COPs paid a quarterly cash
distribution in the amount of $5.29 per Unit, which represented
COPs' share of BK-III's net cash flow from operations for the
third quarter of 1997. Including this distribution, COPs
Unitholders have received total cash distributions of $988.57 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 $778.26 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 nine-month periods
ended September 30, 1997 are primarily attributable to the
General Partners' respective investments in the Partnerships.
For the three- and nine-month periods ended September 30, 1997,
GP-I generated net losses of $1,025 and a $1,325, respectively,
compared to net income of $8,811 and $27,768 for the
corresponding periods in 1996. The change from net income to net
losses in both periods is mainly attributable to an increase in
general and administrative expenses, and for the nine-month
period, is also a result of the sale of a Property located in
Wichita, Kansas in the fourth quarter of 1996.
For the three- and nine-month periods ended September 30, 1997,
GP-III generated net income of $6,248 and $27,220, respectively,
compared to $19,398 and $58,106 for the corresponding periods in
1996. The decreases in both periods are primarily attributable
to an increase in general and administrative expenses. The
decrease for the three-month period is also due to the June 1997
sale of the Frankfort Property.
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 September 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: November 13, 1997 BY: /s/ Kenneth F. Boyle
Name: Kenneth F. Boyle
Title:President, Director and Chief
Financial Officer