UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934.
For the period ended September 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number 0-15802
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QSR Income Properties, Ltd., a California Limited Partnership
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(Exact name of registrant as specified in its charter)
California 95-4084042
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
701 Western Avenue, Glendale, California 91201
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(Address of principal executive officer) (Zip Code)
Registrant's telephone number, including area code: (818) 244-8080
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Indicate by check mark whether the registrant (1) had 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.
X
--- ---
Yes No
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QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Balance Sheets at September 30, 1996
and December 31, 1995 2
Condensed Statements of Operations for the three
and nine month periods ended September 30, 1996 and 1995 3
Condensed Statement of Partners' Equity for the
nine months ended September 30, 1996 4
Condensed Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION 9
<PAGE>
<TABLE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
1996 1995
------------------- --------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,775,000 $ 1,630,000
Rent and other receivables 13,000 10,000
Notes receivable 212,000 234,000
Facilities, at net realizable value 7,335,000 9,743,000
------------------- --------------------
Total assets $ 9,335,000 $ 11,617,000
=================== ====================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $ 141,000 $ 148,000
Partners' equity:
Limited partners' equity, $500 per
unit, 52,004 units authorized,
issued and outstanding 9,126,000 11,378,000
General partner's equity 68,000 91,000
------------------- --------------------
Total partners' equity 9,194,000 11,469,000
------------------- --------------------
Total liabilities and partners' equity $ 9,335,000 $ 11,617,000
=================== ====================
See accompanying notes to Condensed Financial Statements.
2
</TABLE>
<PAGE>
<TABLE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------------- ---------------------------------------
1996 1995 1996 1995
------------------- ------------------ ------------------ ------------------
REVENUE:
<S> <C> <C> <C> <C>
Lease income $ 267,000 $ 257,000 $ 820,000 $ 795,000
Interest income 26,000 20,000 77,000 64,000
------------------- ------------------ ------------------ ------------------
293,000 277,000 897,000 859,000
------------------- ------------------ ------------------ ------------------
COSTS AND EXPENSES:
Cost of operations 34,000 35,000 106,000 104,000
Depreciation and amortization - 62,000 58,000 187,000
Idle facility costs 14,000 10,000 27,000 31,000
Partnership administrative expenses 25,000 18,000 75,000 71,000
------------------- ------------------ ------------------ ------------------
73,000 125,000 266,000 393,000
------------------- ------------------ ------------------ ------------------
Net income before valuation provision 220,000 152,000 631,000 466,000
Valuation provision to record facilities
at net realizable value - - (2,350,000) -
------------------- ------------------ ------------------ ------------------
NET INCOME (LOSS) $ 220,000 $ 152,000 $ (1,719,000) $ 466,000
=================== ================== ================== ==================
Allocation of net income (loss)
Limited partners $ 203,000 $ 135,000 $ (1,746,000) $ 417,000
General partner 17,000 17,000 27,000 49,000
------------------- ------------------ ------------------ ------------------
$ 220,000 $ 152,000 $ (1,719,000) $ 466,000
=================== ================== ================== ==================
Limited partners' allocation per unit $ 3.90 $ 2.60 $ (33.57) $ 8.02
=================== ================== ================== ==================
Limited partners' allocation per unit
before valuation provision $ 3.90 $ 2.60 $ 11.16 $ 8.02
=================== ================== ================== ==================
</TABLE>
See accompanying notes to Condensed Financial Statements.
3
<PAGE>
<TABLE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
CONDENSED STATEMENTS OF PARTNERS' EQUITY
(Unaudited)
<CAPTION>
Limited General
Partners Partners Total
--------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $11,378,000 $91,000 $11,469,000
Net (loss) income (1,746,000) 27,000 (1,719,000)
Distributions (506,000) (50,000) (556,000)
------------------ ----------------- ----------------
Balance at September 30, 1996 $9,126,000 $68,000 $9,194,000
================== ================= ================
</TABLE>
See accompanying notes to Condensed Financial Statements.
4
<PAGE>
<TABLE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
CONDENSED STATEMENTS OF CASH FLOWS
For the nine month periods ended September 30, 1996 and 1995
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------------------------
1996 1995
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income $ (1,719,000) $ 466,000
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation and amortization 58,000 187,000
Provision to record facilities at net realizable value 2,350,000 -
(Increase) decrease in accounts receivable (3,000) 7,000
(Decrease) increase in accounts payable (7,000) 17,000
------------------- ------------------
Total adjustments 2,398,000 211,000
------------------- ------------------
Net cash provided by operating activities 679,000 677,000
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable 22,000 28,000
Distributions paid to partners (556,000) (557,000)
------------------- ------------------
Net cash used in financing activities (534,000) (529,000)
------------------- ------------------
Net increase in cash and cash equivalents 145,000 148,000
Cash and cash equivalents at the beginning of the period 1,630,000 1,115,000
------------------- ------------------
Cash and cash equivalents at the end of the period $ 1,775,000 $ 1,263,000
=================== =================
</TABLE>
See accompanying notes to Condensed Financial Statements.
5
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although management believes that the
disclosures contained herein are adequate to make the information presented
not misleading. These unaudited condensed financial statements should be
read in conjunction with the financial statements and related notes
appearing in the Partnership's Form 10-K for the year ended December 31,
1995.
2. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
accruals, necessary to present fairly the Partnership's financial position
at September 30, 1996 and December 31, 1995, the results of its operations
for the three and nine months ended September 30, 1996 and 1995, and its
cash flows for the nine months then ended.
3. The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the full
year.
4. In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the
assets and solicit offers. Based on offers to buy the assets received in
the second quarter of 1996, the general partner determined that the
carrying value of the assets needs to be reduced by $2,350,000 to present
the value of such assets at their net realizable value. Such valuation
assumes costs to be incurred in the ordinary course of sale.
5. In September 1996, the general partner entered into an agreement to sell
the assets of the Partnership for $7,721,000 to US Restaurants Properties
Operating Partnership ("USV"). The transaction, which is subject to
adjustment and certain contingencies, including, but not limited to, the
approval of the transaction by a majority of the limited partners of the
Partnership, is expected to close in the fourth quarter of 1996 or the
first quarter of 1997. As consideration for the sale, the limited partners
of the Partnership will receive a distribution of the publicly traded
partnership units of USV in a liquidating distribution upon close of the
transaction.
6
<PAGE>
QSR INCOME PROPERTIES, LTD.,
a California Limited Partnership
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1996
The Partnership was formed to acquire and operate pizza restaurants. All
twenty-three of the Partnership's restaurants were closed because of
disappointing operating results. Of the twenty-three restaurants closed, four
have been sold, three lease commitments have been terminated and fifteen
facilities have been leased to unaffiliated third parties. The Partnership is
continuing efforts to lease or sell its final closed restaurant (located in Coon
Rapids, Minnesota) that has not yet been redeployed. This property may not be
redeployable in the foreseeable future because of current market conditions.
RESULTS OF OPERATIONS
- ---------------------
The Partnership's net loss of $1,719,000 for the nine months ended
September 30, 1996 represents a decrease in income of $2,185,000 compared to the
net income for the nine months ended September 30, 1995. This decrease is
primarily attributable to a provision made in the second quarter of 1996 to
record the carrying value of the Partnership's facility assets at their net
realizable value. Excluding the valuation adjustment, the Partnership's net
income for the three and nine months ended September 30, 1996 increased $68,000
and $165,000, respectively, over the same periods in 1995. These increases are
primarily attributable to increases in lease income and interest income,
combined with a decrease in depreciation expense, partially offset by an
increase in administrative expense.
Lease income for the three and nine months ended September 30, 1996
increased $10,000 and $25,000, respectively, over the same periods in 1995, as a
result of scheduled escalations in lease income. Included in lease income for
the nine month periods ended September 30, 1996 and 1995 is approximately
$28,000 and $26,000, respectively, of additional lease income under a percentage
rent feature with respect to incremental sales above specified levels.
Cost of operations increased $2,000 for the nine month period ended
September 30, 1996 over the same period in 1995, due primarily to an increase in
office expenses associated in operating the Partnership's leased properties.
Cost of operations for the three month period ended September 30, 1996 decreased
$1,000 compared to the same period in 1995.
Idle facility costs decreased $4,000 for the nine month period ended
September 30, 1996 compared to the same period in 1995. The decrease is
primarily attributable to the sale of the Partnership's Iliff, Colorado property
in November 1995. Idle facility costs increased $4,000 for the three month
period ended September 30, 1996 compared to the same period in 1995. This
increase is primarily attributable to an increase in repairs and maintenance
expense.
Depreciation expense decreased $62,000 and $129,000, respectively, for the
three and nine month periods ended September 30, 1996 compared to the same
periods in 1995. The decreases are the result of the Partnership's properties
being presented at net realizable value and the discontinuation of provisions
for depreciation.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the nine month period ended September 30, 1996, the Partnership's
activities generated cash flow of $679,000. This represents a $2,000 increase
compared to the cash flow of $677,000 generated by the Partnership for the nine
7
<PAGE>
month period ended September 30, 1995. Cash flow from the Partnership's
operations have been sufficient to meet all current obligations of the Company.
For the three month period ended September 30, 1996, the Partnership's
distribution paid remained stable at $3.25 per Partnership unit, compared to the
three months ended September 30, 1995.
In November 1995, the general partner decided to place the facility assets
for sale and hired an investment banker to determine the valuation of the assets
and solicit offers. Based on offers to buy the assets received in the second
quarter of 1996, the general partner determined that the carrying value of the
assets needs to be reduced by $2,350,000 to present the value of such assets at
their net realizable value. Such valuation assumes costs to be incurred in the
ordinary course of sale.
In September 1996, the general partner entered into an agreement to sell
the assets of the Partnership for $7,721,000 to US Restaurants Properties
Operating Partnership ("USV"). The transaction, which is subject to adjustment
and certain contingencies, including, but not limited to, the approval of the
transaction by a majority of the limited partners of the Partnership, is
expected to close in the fourth quarter of 1996 or the first quarter of 1997. As
consideration for the sale, the limited partners of the Partnership will receive
a distribution of the publicly traded partnership units of USV in a liquidating
distribution upon close of the transaction.
8
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable.
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits - the following exhibit is included herein:
(27) Financial Data Schedule
b) Reports on 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 14, 1996
QSR Income Properties, Ltd.,
a California Limited Partnership
BY: /s/ B. Wayne Hughes
-------------------
B. Wayne Hughes
General Partner
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000783287
<NAME> QSR Income Properties, Ltd.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,775,000
<SECURITIES> 0
<RECEIVABLES> 13,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,788,000
<PP&E> 10,591,000
<DEPRECIATION> (3,256,000)
<TOTAL-ASSETS> 9,335,000
<CURRENT-LIABILITIES> 141,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,194,000
<TOTAL-LIABILITY-AND-EQUITY> 9,335,000
<SALES> 0
<TOTAL-REVENUES> 897,000
<CGS> 0
<TOTAL-COSTS> 106,000
<OTHER-EXPENSES> 160,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,719,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,719,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,719,000)
<EPS-PRIMARY> (33.57)
<EPS-DILUTED> (33.57)
</TABLE>
