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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 MARCH 31, 1996
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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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DEL TACO RESTAURANT PROPERTIES III
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements and Supplementary Data
Balance Sheets at March 31, 1996 (Unaudited) and
December 31, 1995 3
Statements of Income for the three months ended
March 31, 1996 and 1995 (Unaudited) 4
Statements of Cash Flows for the three months ended
March 31, 1996 and 1995 (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
MARCH 31 December 31
1996 1995
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(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 170,739 $ 184,497
Receivable from General Partner (Note 5) 58,527 60,034
Deposits 1,000 1,000
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Total current assets 230,266 245,531
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RESTRICTED CASH (NOTE 2) 126,277 126,277
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
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9,470,823 9,470,823
Less--accumulated depreciation 2,172,377 2,100,693
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7,298,446 7,370,130
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$ 7,654,989 $ 7,741,938
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LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 2,920 $ 3,248
Accounts Payable 12,795 1,424
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Total current liabilities 15,715 4,672
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OBLIGATION TO GENERAL PARTNER 577,510 577,510
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PARTNERS' EQUITY
Limited Partners 7,089,795 7,186,807
General Partner-Del Taco, Inc. (28,031) (27,051)
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7,061,764 7,159,756
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$ 7,654,989 $ 7,741,938
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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
MARCH 31
1996 1995
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REVENUES:
Rent (Notes 4 and 5) $170,189 $168,867
Interest 2,184 1,983
Other 50 150
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172,423 171,000
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EXPENSES:
General and administrative 24,315 24,102
Depreciation 71,684 71,688
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95,999 95,790
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Net income $ 76,424 $ 75,210
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Net income per Limited
Partnership Unit (Note 3) $1.59 $1.57
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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)
THREE MONTHS ENDED
MARCH 31
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 76,424 $ 75,210
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 71,684 71,688
Decrease in payable to Limited Partners (328) (78)
Decrease in receivable from General Partner 1,507 1,563
Increase in accounts payable 11,371 12,751
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Net cash provided by operating activities 160,658 161,134
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distribution to partners 174,416 170,926
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Net decrease in cash (13,758) (9,792)
Beginning cash balance 184,497 181,855
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Ending cash balance $ 170,739 $ 172,063
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The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
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, 1995. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at March 31, 1996, the
results of operations and cash flows for the three month periods ended March 31,
1996 and 1995 have been included. Operating results for the three months ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
NOTE 2 - RESTRICTED CASH
At March 31, 1996 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
MARCH 31, 1996
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
47,498 in 1996 and 47,528 in 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
March 31, 1996 (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
MARCH 31, 1996
NOTE 5 - TRANSACTIONS WITH DEL TACO
The receivable from General Partner consists primarily of rent accrued for the
month of March. The March rent was collected on April 11, 1996.
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 April 9, 1996, a distribution to the Limited Partners of $157,316, or
approximately $3.31 per Limited Partnership Unit, was approved. Such
distribution was paid on April 16, 1996. The General Partner also received a
distribution of $1,589 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 March 31, 1996 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 $170,189 for the three months ended March 31, 1996,
representing an increase from the rental revenues of $168,867 during the same
period in 1995. 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
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Three Months Ended
March 31
1996 1995
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Accounting fees 61.91% 64.00%
Distribution of
information to
Limited Partners 33.90 32.64
Other 4.19 3.36
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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 March 31, 1996, general and
administrative expenses increased from $24,102 in 1995 to $24,315 in 1996. The
Registrant incurred depreciation expense in the amount of $71,684 and $71,688
for the three months ended March 31, 1996 and 1995 respectively.
As a result of the increase in revenues totaling $1,423 for the three months
ended March 31, 1996 as compared to the corresponding period in 1995, and the
increase in general and administrative expenses totaling $213, the Registrant's
net income increased from $75,210 for the three months ended March 31, 1995 to
$76,424 for the corresponding period in 1996.
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 three months ended March 31,
1996.
(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: April 30, 1996 /s/ Robert J. Terrano
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Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: April 30, 1996 /s/ C. Douglas Mitchell
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C. Douglas Mitchell
Vice President and Corporate
Controller
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