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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
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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 NO. 33-2462
DEL TACO RESTAURANT PROPERTIES III
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0139247
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1800 W. KATELLA AVENUE, ORANGE, CALIFORNIA 92667
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 744-4334
(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
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INDEX
DEL TACO RESTAURANT PROPERTIES III
PART I. FINANCIAL INFORMATION PAGE NUMBER
------------
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1995 (Unaudited) and
December 31, 1994 3
Statements of Income for the three and nine months ended
September 30, 1995 and 1994 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
1995 1994
(UNAUDITED)
------------ -----------
ASSETS
CURRENT ASSETS:
Cash $ 199,383 $ 181,855
Receivable from General Partner (Note 5) 59,883 63,076
Deposits 1,000 1,000
----------- -----------
Total current assets 260,266 245,931
----------- -----------
RESTRICTED CASH (NOTE 2) 126,277 132,262
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 4,613,613 4,613,613
Buildings and improvements 3,188,900 3,188,900
Machinery and equipment 1,668,310 1,668,310
----------- -----------
9,470,823 9,470,823
Less--accumulated depreciation 2,029,004 1,813,937
----------- -----------
7,441,819 7,656,886
----------- -----------
$ 7,828,362 $ 8,035,079
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 3,441 $ 5,743
Accounts Payable 5,155 --
----------- -----------
Total current liabilities 8,596 5,743
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY
Limited Partners 7,268,482 7,476,016
General Partner-Del Taco, Inc. (26,226) (24,190)
----------- -----------
7,242,256 7,451,826
----------- -----------
$ 7,828,362 $ 8,035,079
=========== ===========
The accompanying notes are an
integral part of these financial statements
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
-------- -------- -------- --------
REVENUES:
Rent (Notes 4 and 5) $190,358 $188,949 $543,957 $520,203
Interest 2,027 1,621 6,108 5,289
Other 125 50 675 600
-------- -------- -------- --------
192,510 190,620 550,740 526,092
-------- -------- -------- --------
EXPENSES:
General and administrative 9,515 8,584 44,056 48,012
Depreciation 71,688 71,691 215,067 215,069
-------- -------- -------- --------
81,203 80,275 259,123 263,081
-------- -------- -------- --------
Net income $111,307 $110,345 $291,617 $263,011
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $ 2.32 $ 2.29 $ 6.08 $ 5.47
======== ======== ======== ========
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
-------- ----------
SOURCE OF CASH:
From operations:
Net income $291,617 $ 263,011
Depreciation 215,067 215,069
-------- ---------
Total cash provided from operations 506,684 478,080
Cash distributions 495,202 696,431
-------- ---------
Excess (deficiency) of cash generated
over distributions 11,482 (218,351)
Decrease in restricted cash 5,985 17,102
Decrease in receivable from General Partner 3,193 --
Increase in accounts payable 5,155 1,436
-------- ---------
25,815 (199,813)
-------- ---------
USE OF CASH:
Increase in receivable from General Partner -- 4,724
Redemption of Limited Partnership Units 5,985 17,102
Decrease in payable to Limited Partners 2,302 194
-------- ---------
8,287 22,020
-------- ---------
Increase (decrease) in cash during period 17,528 (221,833)
Beginning cash balance 181,855 412,596
-------- ---------
Ending cash balance $199,383 $ 190,763
======== =========
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements, some of which are unaudited, have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should therefore be read in conjunction
with the financial statements and notes thereto contained in the Registrant's
annual report on Form 10-K for the year ended December 31, 1994. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the partnership's financial position at
September 30, 1995, the results of operations and cash flows for the nine month
periods ended September 30, 1995 and 1994 have been included. Operating
results for the three and nine months ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1995.
NOTE 2 - RESTRICTED CASH
At September 30, 1995 the partnership had a restricted cash balance of
$126,277. The restricted cash is a death and disability redemption fund. Such
fund is maintained in an interest bearing account at a major commercial bank.
A Limited Partner has the right, under certain circumstances involving such
Limited Partner's death or disability, to tender to the Registrant for
redemption all of the Units owned of record by such Limited Partner. The
redemption price will be equal to the partners capital account balance as of
the redemption date. The death and disability fund was established in 1987.
The fund was limited to two percent of the gross proceeds from sale of the
limited partnership units. Requests for redemption made after the funds in the
death and disability fund are depleted will not be accepted.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1995
NOTE 3 - NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per Limited Partnership Unit is based upon the weighted average
number of Units outstanding during the periods presented which amounted to
47,518 in 1995 and 47,528 in 1994. Such decrease is due to the redemption of
30 units during the period ended September 30, 1995.
Pursuant to the Partnership agreement, annual partnership income or loss is
allocated one percent to the General Partner and 99 percent to the Limited
Partners. Partnership gains from any sale or refinancing will be allocated one
percent to the General Partner and 99 percent to the Limited Partners until
allocated gains and profits equal losses, distributions and syndication costs,
and until each class of Limited Partners receive their priority return as
defined in the Partnership Agreement. Additional gains will be allocated 15
percent to the General Partner and 85 percent to the Limited Partners.
NOTE 4 - LEASING ACTIVITIES
The Registrant leases (the "Leases") certain properties (the "Properties") for
operation of restaurants to Del Taco, Inc. ("General Partner") on a triple net
basis. The Registrant had a total of ten Properties leased to Del Taco as of
September 30, 1995 (Del Taco, in turn, has subleased two of the restaurants).
The Leases are for terms of 35 years commencing with the completion of the
restaurant facility located on each Property and require monthly rentals equal
to 12 percent of the gross sales of the restaurants. There is no minimum
rental under any of the Leases, except for the restaurant location in
Twentynine Palms, California. In accordance with an agreement entered into
November 30, 1993, effective February 1, 1994, the Del Taco restaurant in
Twentynine Palms, California ceased operation as a Del Taco and reopened on
February 3, 1994 under the trade name of Bobby Lyle's Incredible Edibles. In
connection with the agreement, the lease agreement has been amended to reflect
a base rent of $3,333.33 per month and overage rent of 12% of sales for annual
sales greater than $333,333. In September 1994, the restaurant located in
Twentynine Palms, California (Bobby Lyle's Incredible Edibles) ceased
operation. The subleasee continues to pay rent of $3,333.33 per month to Del
Taco, Inc. which was, in turn, paid to the Registrant. On March 14, 1995, the
subleasee re-opened the Twentynine Palms restaurant.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1995
NOTE 5 - TRANSACTIONS WITH DEL TACO
The receivable from General Partner consists primarily of rent accrued for the
month of September. The September rent was collected on October 20, 1995.
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants, and four
partnerships which were formed for the purpose of acquiring real property in
California for construction of Mexican-American restaurants for lease under
long-term agreements to Del Taco, Inc. for operation under the Del Taco trade
name.
In addition, see Note 6 with respect to certain distributions to the General
Partner.
NOTE 6 - DISTRIBUTIONS
On October 10, 1995, a distribution to the Limited Partners of $183,531, or
approximately $3.86 per Limited Partnership Unit, was approved. Such
distribution was paid on October 16, 1995. The General Partner also received a
distribution of $1,854 with respect to its 1% partnership interest.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Registrant commenced offering of Limited Partnership Units on February 21,
1986. By June 1, 1987, the sale of such Units provided a total capitalization
for the Registrant of $12,001,000 including $1,000 attributable to the Original
Limited Partner. 14.7 percent of the cash received from the sale of Limited
Partnership Units was used to pay commissions to brokers and to reimburse the
General Partner for offering costs incurred. Approximately $9,500,000 of the
remaining funds were expended for the acquisition of sites and construction of
ten restaurants. During 1987, the first three restaurants opened for business.
Four additional restaurants opened in 1988, two additional restaurants opened
in 1989, and the tenth restaurant opened in 1990. In February 1992, the
Registrant distributed to Limited Partners of record on December 31, 1991
$280,553 of net proceeds not utilized as reserves and not invested in
Properties.
Since the ten restaurants owned by the Registrant opened, cash flow from Lease
payments received from Del Taco, the Registrant's General Partner, which leases
all ten restaurants (two of which have been subleased), have provided adequate
liquidity for operation of the Registrant. However, the Registrant's
overwhelmingly predominant source of income to meet its expenses and fund
distributions to its Limited Partners is payments from Del Taco under the
Leases, comprising primarily rent calculated on the basis of the gross sales of
the restaurants operated on the Properties, as to which, except for the
restaurant located in Twentynine Palms, there are no contractually specified
minimum or guaranteed amounts. Thus, the adequacy of the Registrant's
liquidity and capital resources in the future will depend primarily upon the
gross revenues of such restaurants as well as upon Del Taco's financial
condition and results of operations generally.
The September 30, 1995 restricted cash balance is a death and disability
redemption fund totaling $126,227. Such fund is maintained in an interest
bearing account at a major commercial bank. A Limited Partner has the right,
under certain circumstances involving such Limited Partner's death or
disability, to tender to the Registrant for redemption all of the Units owned
of record by such Limited Partner. The redemption price will be equal to the
partners capital account balance as of the redemption date. The death and
disability fund was established in 1987. The fund was limited to two percent
of the gross proceeds from sale of the limited partnership units. Requests for
redemption made after the funds in the death and disability fund are
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depleted will not be accepted. All questions regarding the eligibility of a
Limited Partner or the estate of a deceased Limited Partner to participate in
the redemption fund are determined by the Special Limited Partner.
Results of Operations
The Registrant owns ten Properties that are under long-term lease to Del Taco
for restaurant operations (Del Taco, in turn, has subleased two of the
restaurants). In accordance with an agreement entered into November 30, 1993,
effective February 1, 1994, the Del Taco restaurant in Twentynine Palms,
California ceased operation as a Del Taco franchise and reopened February 3,
1994 under the trade name of Bobby Lyle's Incredible Edibles. In September
1994, the restaurant located in Twentynine Palms, California (Bobby Lyle's
Incredible Edibles) ceased operation. The subleasee continues to pay rent of
$3,333.33 per month to Del Taco, Inc. which was, in turn, paid to the
Registrant. On March 14, 1995 the subleasee re-opened the Twentynine Palms
restaurant. The Registrant receives rental revenues equal to 12 percent of
restaurant sales. The Registrant had rental revenue of $190,358 for the three
months ended September 30, 1995, representing an increase from the rental
revenues of $188,949 during the same period in 1994. The Registrant had rental
revenue of $543,957 for the nine months ended September 30, 1995, representing
an increase from the rental revenues of $520,203 during the same period in
1994. Such increase is directly attributable to increased sales at the
restaurants.
The following table sets forth the percentage relationship to total general and
administrative expenses of items included in the Registrant's Statements of
Income:
PERCENTAGE OF TOTAL
GENERAL & ADMINISTRATIVE EXPENSE
--------------------------------
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
------- -------
Accounting fees 35.01% 40.13%
Distribution of
information to
Limited Partners 61.69 56.69
Other 3.30 3.18
------ ------
100.00% 100.00%
====== ======
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Operating expenses include general and administrative expenses which consist
primarily of accounting fees and costs of distribution of information to the
Limited Partners. For the three months ended September 30, general and
administrative expenses increased from $8,584 in 1994 to $9,515 in 1995. For
the nine months ended September 30, general and administrative expenses
decreased from $48,012 in 1994 to $44,056 in 1995. The Registrant incurred
depreciation expense in the amount of $71,688 and $71,691 for the three months
ended September 30, 1995 and 1994 respectively. The Registrant incurred
depreciation expense in the amount of $215,067 and $215,069 for the nine months
ended September 30, 1995 and 1994 respectively.
As a result of the increase in revenues totaling $1,890 for the three months
ended September 30, 1995 as compared to the corresponding period in 1994, and
the increase in general and administrative expenses totaling $928, the
Registrant's net income increased from $110,345 for the three months ended
September 30, 1994 to $111,307 for the corresponding period in 1995. As a
result of the increase in revenues totaling $24,648 for the nine months ended
September 30, 1995 as compared to the corresponding period in 1994, and the
decrease in general and administrative expenses totaling $3,958, the
Registrant's net income increased from $263,011 for the nine months ended
September 30, 1994 to $291,617 for the corresponding period in 1995.
For the reasons stated under "Liquidity and Capital Resources" above, the
Registrant's results of operations in the future will depend primarily upon the
gross revenues of the restaurants located on the Properties leased to Del Taco
as well as upon Del Taco's financial condition and results of operations
generally.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the nine months ended
September 30, 1995.
(C) Exhibit 27 - Financial Data Schedule
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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.
DEL TACO RESTAURANT PROPERTIES III
(a California limited partnership)
Registrant
Del Taco, Inc.
General Partner
Date: October 24, 1995 /s/ Robert J. Terrano
----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
(duly authorized to sign on
behalf of the Registrant)
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