1
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 JUNE 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 ____________________
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 Number)
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
--- ---
INDEX
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DEL TACO RESTAURANT PROPERTIES III
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PART I. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements and Supplementary Data
Balance Sheets at June 30, 1996 (Unaudited) and
December 31, 1995 3
Statements of Income for the three and six months ended
June 30, 1996 and 1995 (Unaudited) 4
Statements of Cash Flows for the six months ended
June 30, 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
27 Financial Data Schedule
SIGNATURES 12
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DEL TACO RESTAURANT PROPERTIES III
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BALANCE SHEETS
--------------
JUNE 30 December 31
1996 1995
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(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash $ 175,966 $ 184,497
Receivable from General Partner (Note 5) 57,014 60,034
Deposits 1,000 1,000
---------- ----------
Total current assets 233,980 245,531
---------- ----------
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
---------- ----------
9,470,823 9,470,823
Less--accumulated depreciation 2,244,069 2,100,693
---------- ----------
7,226,754 7,370,130
---------- ----------
$7,587,011 $7,741,938
========== ==========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
Payable to Limited Partners $ 4,275 $ 3,248
Accounts Payable -- 1,424
---------- ----------
Total current liabilities 4,275 4,672
---------- ----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
---------- ----------
PARTNERS' EQUITY
Limited Partners 7,033,826 7,186,807
General Partner-Del Taco, Inc. (28,600) (27,051)
---------- ----------
7,005,226 7,159,756
---------- ----------
$7,587,011 $7,741,938
========== ==========
The accompanying notes are an
integral part of these financial statements
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DEL TACO RESTAURANT PROPERTIES III
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STATEMENTS OF INCOME
--------------------
(UNAUDITED)
-----------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
Rent (Notes 4 and 5) $181,006 $184,732 $351,195 $353,599
Interest 2,093 2,098 4,277 4,081
Other 275 400 325 550
-------- -------- -------- --------
183,374 187,230 355,797 358,230
-------- -------- -------- --------
EXPENSES:
General and administrative 9,729 10,439 34,044 34,541
Depreciation 71,692 71,691 143,376 143,379
-------- -------- -------- --------
81,421 82,130 177,420 177,920
-------- -------- -------- --------
Net income $101,953 $105,100 $178,377 $180,310
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $2.13 $2.19 $3.72 $3.76
===== ===== ===== =====
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
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STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
SIX MONTHS ENDED
JUNE 30
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $178,377 $180,310
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 143,376 143,379
Increase (decrease)in payable to Limited Partners 1,027 (1,026)
Decrease in receivable from General Partner 3,020 726
Increase (decrease) in accounts payable (1,424) --
-------- --------
Net cash provided by operating activities 324,376 323,389
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash -- 2,145
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Limited Partnership Units -- (2,145)
Cash distribution to partners 332,907 314,809
-------- --------
Increase (decrease) in cash (8,531) 8,580
Beginning cash balance 184,497 181,855
-------- --------
Ending cash balance $175,966 $190,435
======== ========
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 1996
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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
June 30, 1996, the results of operations and cash flows for the six month
periods ended June 30, 1996 and 1995 have been included. Operating results for
the three and six months ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1996.
NOTE 2 - RESTRICTED CASH
At June 30, 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
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------
JUNE 30, 1996
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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 47,518 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
June 30, 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
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
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JUNE 30, 1996
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NOTE 5 - TRANSACTIONS WITH DEL TACO
The receivable from General Partner consists primarily of rent accrued for the
month of June. The June rent was collected on July 12, 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 July 16, 1996, a distribution to the Limited Partners of $162,721, or
approximately $3.42 per Limited Partnership Unit, was approved. Such
distribution was paid on July 23, 1996. The General Partner also received a
distribution of $1,644 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 June 30, 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 $181,006 for the three
months ended June 30, 1996, representing an decrease from the rental revenues
of $184,732 during the same period in 1995. The Registrant had rental revenues
of $351,195 for the six months ended June 30, 1996, representing an decrease
from the rental revenues of $353,599 during the same period in 1995. Such
decrease is directly attributable to decreased 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
--------------------------------
Six Months Ended
June 30
1996 1995
------ ------
Accounting fees 45.68% 44.66%
Distribution of
information to
Limited Partners 49.78 53.00
Other 4.54 2.34
------ ------
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 June 30, general and
administrative expenses decreased from $10,439 in 1995 to $9,729 in 1996. For
the six months ended June 30, general and administrative expenses decreased
from $34,541 in 1995 to $34,044 in 1996. The Registrant incurred depreciation
expense in the amount of $71,692 and $71,691 for the three months ended June
30, 1996 and 1995 respectively. The Registrant incurred depreciation expense
in the amount of $143,376 and $143,379 for the six months ended June 30, 1996
and 1995 respectively.
As a result of the decrease in revenues totaling $3,856 for the three months
ended June 30, 1996 as compared to the corresponding period in 1995, and the
decrease in general and administrative expenses totaling $710, the Registrant's
net income decreased from $105,100 for the three months ended June 30, 1995 to
$101,953 for the corresponding period in 1996. As a result of the decrease in
revenues totaling $2,433 for the six months ended June 30, 1996 as compared to
the corresponding period in 1995, and the decrease in general and
administrative expenses totaling $497, the Registrant's net income decreased
from $180,310 for the six months ended June 30, 1995 to $178,377 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 six months ended June 30,
1996.
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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: July 30, 1996 /s/ Robert J. Terrano
----------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: July 30, 1996 /s/ C. Douglas Mitchell
----------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
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