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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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)
23041 AVENIDA DE LA CARLOTA,
LAGUNA HILLS, CALIFORNIA 92653
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 462-9300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 ___
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S FORM S-11 REGISTRATION STATEMENT FILED
DECEMBER 30, 1985 ARE INCORPORATED BY REFERENCE INTO PART IV OF THIS REPORT.
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PART I
ITEM 1. BUSINESS
The Registrant is a publicly-held Limited Partnership organized under the
California Uniform Limited Partnership Act. In accordance with the Partnership
Agreement, the Registrant's General Partner is Del Taco, Inc., a California
corporation ("General Partner"). The Registrant sold 48,000 Units aggregating
$12,000,000 through an offering of Limited Partnership Units from February 26,
1986 through June 1, 1987. The term of the Partnership Agreement is until
December 31, 2025 unless terminated earlier by means provided therein.
The Registrant has engaged in the business of acquiring sites in California for
the construction of ten Mexican-American restaurants for long-term lease to Del
Taco, Inc. for operation under the Del Taco trade name. Each property is leased
for 35 years on a triple-net basis for a rent equal to twelve percent of gross
sales of each restaurant constructed thereon. The Twentynine Palms property was
sold in November 1997, yielding net proceeds of $278,612. The proceeds were
distributed in December 1997 to all limited partners of record as of October 31,
1997. The Registrant had a total of nine Properties leased to Del Taco as of
December 31, 1997 (Del Taco, in turn has subleased one of the restaurants).
Because the nine Properties owned by the Registrant constitute virtually all of
the Registrant's income producing assets, the business of the Registrant is
almost entirely dependent on the success of the Del Taco trade name restaurants
which lease those Properties. In turn, the success of those restaurants, which
are not operated by the Registrant, is dependent on a large variety of factors,
including, but not limited to, consumer demand and preference for fast food, in
general, and for Mexican-American food in particular.
The Registrant has no full time employees. The General Partner is vested with
full authority as to the general management and supervision of the business and
affairs of the Registrant, and has a one percent interest in the profits or
losses and distributions of the Registrant. Limited Partners have no right to
participate in the management or conduct of such business and affairs.
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ITEM 2. PROPERTIES
The Registrant acquired ten Properties with proceeds obtained from the sale of
Limited Partnership Units:
Date of
Date of Restaurant Commencement of
Address City, State Acquisition Constructed Operation (1)
- ------- ----------- ----------- ----------- -------------
Rancho California Rancho California, December 23, 1986 60 seat with drive July 14,
Plaza CA through service 1987
window
East Vista Way Vista, CA February 24, 1987 60 seat with drive September 10,
through service 1987
window
4th Street Perris, CA June 24, 60 seat with drive December 16, 1987
1987 through service
window
Foothill Boulevard Upland, CA August 3, 1987 60 seat with drive January 12, 1988
through service
window
Plaza at Puente Industry, CA May 12, 60 seat with drive February 24, 1988
Hills 1987 through service
window
Twentynine Palms Twentynine Palms, December 14, 1987 60 seat with drive May 17, (2)
Highway CA through service 1988
window
East Walnut, CA April 29, 1988 60 seat with drive August 31,
Valley through service 1988
Boulevard window
West Los Angeles, CA July 8, 60 seat with drive January 12, (3)
Sepulveda 1988 through service 1989
Boulevard window
Lassen Chatsworth, CA January 27, 1989 60 seat with drive August 21,
Street through service 1989
window
Hesperia Road Victorville, CA December 29, 1989 100 seat with drive July 5, 1990
through service
window
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(1) Commencement of operation is the first date Del Taco, Inc., as lessee,
operated the facility on the site as a Del Taco restaurant.
(2) In November 1997, the Twentynine Palms property was sold yielding net
proceeds to the Registrant of $278,612.
(3) The restaurant is subleased to a franchisee of Del Taco, Inc. and the
restaurant operates as a Del Taco restaurant.
PART II
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
The Registrant, a publicly-held Limited Partnership, sold 48,000 ($12,000,000)
Limited Partnership Units during the offering period ended June 1, 1987 and
currently has 1,786 Limited Partners of record. There is no public market for
the trading of the Units. Distributions made by the Registrant to the Limited
Partners during the past three fiscal years are described in Note 8 to the Notes
to the Financial Statements contained under Item 8.
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ITEM 6. SELECTED FINANCIAL DATA
FOR THE YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Rental Revenue $ 725,397 $ 722,856 $ 724,382 $ 701,039 $ 654,694
Interest and
other income 13,152 9,464 9,087 8,090 9,974
Net income 422,201 292,257 394,502 368,343 334,980
Net income
per Limited
Partnership
Unit (1) 8.82 6.10 8.22 7.66 6.96
Cash Distributions
per Limited
Partnership
Unit (2)(3)(4)(5)(6)
From operations 14.38 14.09 14.18 18.30 6.03
Return of
capital 5.88
Total Assets 6,803,782 7,345,412 7,741,938 8,035,079 8,561,063
Long-term
Obligations 577,510 577,510 577,510 577,510 577,510
(1) The net income per Limited Partnership Unit was calculated based upon
47,398, 47,461 and 47,513 weighted average Units outstanding for years
1997, 1996 and 1995, respectively.
(2) Two quarterly distributions were disbursed during the year ended
December 31, 1993. Cash distributions for the quarters ended September
30, 1993 and December 31, 1993 amounted to $7.70 and were paid January
31, 1994 and February 2, 1994 respectively.
(3) Cash distributions for the quarter ended December 31, 1994 amounted to
$3.56 per Limited Partnership Unit and were paid January 17, 1995. Five
distributions were disbursed during the year ended December 31, 1994.
(4) Cash distributions for the quarter ended December 31, 1995 amounted to
$3.86 per Limited Partnership Unit and were paid January 17, 1996. Four
distributions were disbursed during the year ended December 31, 1995.
(5) Cash distributions for the quarter ended December 31, 1996 amounted to
$3.64 per Limited Partnership Unit and were paid January 31, 1997. Four
distributions were disbursed during the year ended December 31, 1996.
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ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
(6) Cash distributions for the quarter ended December 31, 1997 amounted to
$3.71 per Limited Partnership Unit and were paid January 31, 1998. Five
distributions were disbursed during the year ended December 31, 1997.
One of the distributions was the proceeds from the sale of the
Twentynine Palms property.
ITEM 7. 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 restaurants owned by the Registrant opened, cash flow from Lease
payments received from Del Taco, the Registrant's General Partner, which leases
all nine remaining restaurants (one of which has 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 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 December 31, 1997 restricted cash balance is a death and disability
redemption fund totaling $107,809. 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. 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.
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Results of Operations
The Registrant owns nine Properties that are under long-term lease to Del Taco
for restaurant operations (Del Taco, in turn, has subleased one of the
restaurants). In November 1997, the Twentynine Palms property was sold yielding
net proceeds of $278,612.
The following table sets forth rental revenue earned by restaurant for the year:
YEAR ENDED
DECEMBER 31,
1997 1996 1995
-------- -------- --------
Rancho California Plaza, Rancho Calif., CA $112,285 $126,262 $129,015
East Vista Way, Vista, CA 58,517 59,497 65,824
4th Street, Perris, CA 105,274 101,463 102,233
Foothill Blvd., Upland, CA 76,897 72,446 68,358
Plaza at Puente Hills, Industry, CA 55,947 54,231 56,372
Twentynine Palms Hwy., Twentynine Palms, CA 33,663 40,000 40,000
East Valley Blvd., Walnut, CA 42,274 40,064 39,533
W. Sepulveda Blvd., Los Angeles, CA 49,061 46,704 47,445
Lassen Street, Chatsworth, CA 108,711 101,374 95,767
Hesperia Road, Victorville, CA 82,768 80,815 79,835
-------- -------- --------
Total $725,397 $722,856 $724,382
======== ======== ========
The Registrant receives rental revenues equal to 12 percent of restaurant sales.
The Registrant had rental revenue of $725,397 for the year ended December 31,
1997, representing an increase from the rental revenues of $722,856 in 1996.
Such increase is directly attributable to increased sales at the restaurants.
The following table sets forth, for the periods indicated, the percentage
relationship to total general and administrative expenses of items included in
the Registrant's Statements of Income:
Percentage of Total General & Admin. Expense
Year Ended
December 31,
1997 1996 1995
------- ------- -------
Accounting fees 26.94% 29.42% 29.54%
Distribution of
information to
Limited Partners 71.60 67.83% 66.97
Other 1.46 2.75 3.49
------- ------- -------
100.00% 100.00% 100.00%
======= ======= =======
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Results of Operations - Continued
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 years ended December 31, general and administrative
expenses decreased from $56,247 in 1996 to $54,928 in 1997 reflecting lower
costs for accounting and reporting to the Limited Partner's. The Registrant
incurred depreciation expense in the amount of $265,532, $281,447 and $286,756
for the years ended December 31, 1997, 1996 and 1995, respectively. Depreciation
expense decreased in 1997 as a result of certain equipment becoming fully
depreciated during the year. Depreciation expense decreased in 1996 due to the
writedown in connection with the Twentynine Palms property.
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.
Management does not believe the operations of the Company will be significantly
impacted by the year 2000 software issue and does not believe the year 2000
software issue will materially effect the Company's operations, financial
position or cash flows.
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ITEM 8. FINANCIAL STATEMENTS
PART I. INFORMATION
INDEX PAGE NUMBER
----- -----------
Report of Independent Public Accountants 10
Balance Sheets at December 31, 1997 and 1996 11
Statements of Income for the years ended
December 31, 1997, 1996 and 1995 12
Statement of Changes in Partners' Equity for
the three years ended December 31, 1997 13
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 14
Notes to Financial Statements 15-20
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[ ARTHUR ANDERSEN LLP LETTERHEAD ]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Del Taco Restaurant Properties, III:
We have audited the accompanying balance sheets of DEL TACO RESTAURANT
PROPERTIES III (a California limited partnership) as of December 31, 1997 and
1996, and the related statements of income, changes in partners' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Del Taco Restaurant Properties
III as of December 31, 1997 and 1996, and the results of its operations and its
cash flows, for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule in the index of financial statements
is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
---------------------------
ARTHUR ANDERSON LLP
Orange County, California
February 10, 1998
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DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
DECEMBER 31,
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 189,315 $ 190,185
Receivable from Del Taco, Inc. (Note 5) 59,368 57,288
Deposits 1,000 1,000
----------- -----------
Total current assets 249,683 248,473
----------- -----------
RESTRICTED CASH (NOTE 6) 107,809 110,617
----------- -----------
REAL ESTATE HELD FOR SALE (NOTE 9) -- 274,500
----------- -----------
PROPERTY AND EQUIPMENT, AT COST (NOTE 1)
Land and improvements 4,405,966 4,405,966
Buildings and improvements 2,954,959 2,954,959
Machinery and equipment 1,522,922 1,522,922
----------- -----------
8,883,847 8,883,847
Less: accumulated depreciation 2,437,557 2,172,025
----------- -----------
6,446,290 6,711,822
----------- -----------
$ 6,803,782 $ 7,345,412
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 4,006 $ 4,181
Accounts Payable 9,938 3,000
----------- -----------
Total current liabilities 13,944 7,181
----------- -----------
OBLIGATION TO GENERAL PARTNER (NOTE 3) 577,510 577,510
PARTNERS' EQUITY (NOTE 2)
Limited Partners 6,245,880 6,791,606
General Partner - Del Taco, Inc. (33,552) (30,885)
----------- -----------
6,212,328 6,760,721
----------- -----------
$ 6,803,782 $ 7,345,412
=========== ===========
The accompanying notes are an integral
part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
YEAR ENDED
DECEMBER 31,
1997 1996 1995
-------- -------- --------
REVENUES:
Rent (Note 4) $725,397 $722,856 $724,382
Interest 10,227 8,689 8,187
Other 2,925 775 900
Gain on sale of property (Note 9) 4,112 -- --
-------- -------- --------
742,661 732,320 733,469
-------- -------- --------
EXPENSES:
General and administrative 54,928 56,247 52,211
Depreciation 265,532 281,447 286,756
Writedown of real estate held
for resale (Note 9) -- 102,369 --
-------- -------- --------
320,460 440,063 338,967
-------- -------- --------
Net Income $422,201 $292,257 $394,502
======== ======== ========
Net Income per Limited
Partnership Unit (Note 1) $ 8.82 $ 6.10 $ 8.22
-------- ======== ========
The accompanying notes are an integral
part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
Limited Partners
---------------------------- General
Units Amount Partner Total
----------- ----------- ----------- -----------
Balance, December 31, 1994 47,528 $ 7,476,016 $ (24,190) $ 7,451,826
Net income 390,557 3,945 394,502
Redemption of units (30) (5,985) (5,985)
Cash distributions (Note 8) (673,781) (6,806) (680,587)
----------- ----------- ----------- -----------
Balance, December 31, 1995 47,498 7,186,807 (27,051) 7,159,756
Net income 289,335 2,922 292,257
Redemption of units (88) (15,659) (15,659)
Cash distributions (Note 8) (668,877) (6,756) (675,633)
----------- ----------- ----------- -----------
Balance, December 31, 1996 47,410 6,791,606 (30,885) 6,760,721
Net income 417,979 4,222 422,201
Redemption of units (16) (2,808) (2,808)
Cash distributions (Note 8) (960,897) (6,889) (967,786)
----------- ----------- ----------- -----------
Balance, December 31, 1997 47,394 $ 6,245,880 $ (33,552) $ 6,212,328
=========== =========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
1997 1996 1995
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 422,201 $ 292,257 $ 394,502
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 265,532 281,447 286,756
Gain on sale of property (4,112) -- --
Writedown of real estate held for sale -- 102,369 --
Increase (decrease) in payable to
Limited Partner (175) 933 (2,495)
(Increase) decrease in receivable from
General Partner (2,080) 2,746 3,042
Increase in accounts payable 6,938 1,569 1,424
--------- --------- ---------
Net cash provided by operating
activities 688,304 681,321 683,229
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property 278,612 -- --
Decrease in restricted cash 2,808 15,659 5,985
--------- --------- ---------
Net cash provided by investing
activities 281,420 15,659 5,985
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Limited Partnership Units (2,808) (15,659) (5,985)
Cash distribution to partners (967,786) (675,633) (680,587)
--------- --------- ---------
Net cash used by financing
activities (970,594) (691,292) (686,572)
--------- --------- ---------
Increase (decrease) in cash (870) 5,688 2,642
Beginning cash balance 190,185 184,497 181,855
--------- --------- ---------
Ending cash balance $ 189,315 $ 190,185 $ 184,497
========= ========= =========
The accompanying notes are an integral
part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE PARTNERSHIP: Del Taco Restaurant Properties III (a California limited
partnership) was formed on December 19, 1985, for the purpose of acquiring real
property in California for construction of ten Mexican-American restaurants to
be leased under long-term agreements to Del Taco, Inc. (General Partner for
operation under the Del Taco trade name). As of July 5, 1990, all ten
restaurants had commenced operation on acquired properties. In November 1997,
the Twentynine Palms property was sold yielding net proceeds of $278,612. As of
December 31, 1997, Del Taco Restaurant Properties III had nine properties in
operation.
BASIS OF ACCOUNTING: The Partnership utilizes the accrual method of accounting
for transactions relating to the business of the Partnership. Distributions are
made to the General and Limited Partners in accordance with the provisions of
the Partnership Agreement (see Note 2).
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation
is computed using the straight-line method over estimated useful lives which are
20 years for land improvements, 35 years for buildings and improvements, and 10
years for machinery and equipment.
In fiscal 1996, the Registrant adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed of." SFAS 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. In
evaluating long-lived assets held for use, an impairment loss is recognized if
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying value of the asset. Once a determination has
been made that an impairment loss should be recognized for long-lived assets,
various assumptions and estimates are used to determine fair value including,
among others, estimated costs of construction and development, recent sales of
comparable properties and the opinions of fair value prepared by independent
real estate appraisers. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
The adoption of SFAS No. 121 did not have a material effect on the Registrant's
financial statements.
INCOME TAXES: No provision has been made for federal or state income taxes on
Partnership net income, since the Partnership is not subject to income tax.
Partnership income is includable in the taxable income of the individual
partners as required under applicable income tax laws. Certain items, primarily
related to depreciation methods, are accounted for differently for income tax
reporting purposes (see Note 7).
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
NET INCOME PER LIMITED PARTNERSHIP UNIT: The net income per Limited Partnership
Unit was calculated based upon 47,398, 47,461 and 47,513 weighted average Units
outstanding in 1997, 1996, and 1995, respectively.
USE OF ESTIMATES: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - PARTNERS' EQUITY
Pursuant to the Partnership Agreement, annual partnership net 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 3 - SITE ACQUISITION AND DEVELOPMENT FEE
Under terms of the Partnership Agreement, the General Partner is entitled to
receive a fee in an amount equal to five percent of aggregate capital
contributions. The fee shall be for services rendered in connection with site
selection and the design and supervision of construction of improvements to
acquired properties. This fee shall be earned at the time the services are
rendered, but shall not be paid and shall be subordinated to the Limited
Partners' interests until all restaurants have opened and the Limited Partners
have received certain minimum returns on their investment, as required by the
Partnership Agreement. It is the policy of the Partnership to accrue the site
acquisition and development fee as an obligation to the General Partner. No fees
were earned for such services during 1997, 1996 and 1995.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 4 - LEASING ACTIVITIES
The Registrant leases certain properties for operation of restaurants to Del
Taco, Inc. (General Partner) on a triple net basis. 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 which was located in Twentynine Palms, California. Prior to
the sale of this property in November 1997, the subleasee paid a base rent of
$3,333.33 per month.
The Registrant had a total of nine Properties leased to Del Taco as of December
31, 1997 (Del Taco, in turn has subleased one of the restaurants).
The eight restaurants operated by Del Taco, for which the Registrant is the
lessor, had combined, unaudited sales of $5,355,612, $5,301,274, $5,307,698 and
unaudited net income of $206,143, $154,989 and $166,375 for the years ended
December 31, 1997, 1996 and 1995, respectively. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense. The one
restaurant operated by a Del Taco franchisee, for which the Registrant is the
lessor, had unaudited sales of $408,841, $389,198 and $395,372 for the years
ended December 31, 1997, 1996 and 1995, respectively.
The East Valley Blvd. Restaurant in Walnut, California had unaudited net losses
of $18,594, $19,991 and $16,599 for the year ended December 31, 1997, 1996 and
1995, respectively. The Puente Hills Plaza restaurant in Industry, California
had unaudited net income of $5,638 and net losses of $8,542 and $1,049 for the
years ended December 31, 1997, 1996 and 1995, respectively. The Hesperia Road
restaurant in Victorville, California had unaudited net income of $8,203 and net
losses of $604 and $7,346 for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 5 - RELATED PARTIES
The receivable from Del Taco consists of rent accrued for the month of December
1997. The rent receivable was collected on January 17, 1998.
The General Partner received $6,889 in distributions relating to its one percent
interest in the Registrant for the year ended December 31, 1997.
17
18
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 5 - RELATED PARTIES - CONTINUED
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants, and three other
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.
Partners Network Corp., a California corporation ("PNC"), which is wholly-owned
by the same principals who own the Dealer Manager, who was primarily responsible
for selling Limited Partnership Units, is the Special Limited Partner of the
Partnership, as defined in the Partnership Agreement. PNC will monitor the
Partnership investments and perform services in connection with the disposition
of properties in the future. In return for such services, PNC will be entitled
to receive certain subordinated distributions and payments.
NOTE 6 - RESTRICTED CASH
At December 31, 1997 and 1996 the partnership had restricted cash balances of
$107,809 and $110,617, respectively. 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.
NOTE 7 - INCOME TAXES
A reconciliation of financial statement net income to taxable income for each of
the periods is as follows:
1997 1996 1995
--------- --------- ---------
Net income per financial statements $ 422,201 $ 292,257 $ 394,502
Tax loss on sale of asset (107,920) -- --
Write down of real estate -- 102,368 --
Excess book depreciation 164,586 154,745 118,201
--------- --------- ---------
Taxable income $ 478,867 $ 549,370 $ 512,703
========= ========= =========
18
19
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 7 - INCOME TAXES - CONTINUED
A reconciliation of partnership equity per the financial statements to net worth
for tax purposes as of December 31, 1997, is as follows:
Partners' equity per financial
statements $6,212,329
Issue costs of Limited Partnership
Units capitalized for tax purposes 1,741,676
Excess tax depreciation 251,426
Tax loss on sale of assets (107,920)
Other 83
----------
Net worth for tax purposes $8,097,594
==========
NOTE 8 - CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cash distributions paid to Limited Partners for the three years ended December
31, 1997 were as follows:
Weighted Number of
Distribution Average Units
per Limited Number of Outstanding at
Partnership Units the End of
Quarter Ended Unit Outstanding Quarter
------------- ------------- -------------
December 31, 1994 $ 3.56 47,528 47,528
March 31, 1995 3.00 47,528 47,528
June 30, 1995 3.76 47,518 47,518
September 30, 1995 3.86 47,498 47,498
-------------
Total paid in 1995 $ 14.18
=============
December 31, 1995 $ 3.64 47,498 47,498
March 31, 1996 3.31 47,498 47,498
June 30, 1996 3.42 47,498 47,498
September 30, 1996 3.72 47,472 47,410
-------------
Total paid in 1996 $ 14.09
=============
December 31, 1996 $ 3.63 47,410 47,410
March 31, 1997 3.39 47,410 47,410
June 30, 1997 3.47 47,394 47,394
September 30, 1997 3.89 47,394 47,394
-------------
Amount from operations 14.38
Return of capital (December 1997) 5.88 47,398
-------------
Total paid in 1997 $ 20.26
=============
19
20
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 8 - CASH DISTRIBUTIONS TO LIMITED PARTNERS - CONTINUED
Cash distributions per Limited Partnership Unit were calculated based upon the
weighted average number of units outstanding for each quarter and were paid from
operations. Cash distributions for the quarter ended December 31, 1997 amounted
to $3.71 per Limited Partnership Unit and were paid January 31, 1998.
NOTE 9 - REAL ESTATE HELD FOR SALE
In the third quarter of 1996, the Twentynine Palms location was reviewed for
suitability as a continuing partnership property and it was concluded that the
site is no longer suitable for operation of a Del Taco restaurant or as a
partnership investment under a sublease arrangement. After the review of the
site suitability, an estimate of current market value was prepared by an
independent real estate appraiser. As a result of the review, the Twentynine
Palms location was listed for sale with a broker and the property was written
down to its estimated fair value. Accordingly, the carrying value of the
Twentynine Palms property was adjusted down to $274,500 generating a writedown
of $102,369 in the third quarter of 1996.
In November 1997, the Twentynine Palms property was sold yielding net proceeds
of $278,612, resulting in a gain of $4,112.
20
21
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER
(a) & (b) The executive officers and directors of the General Partner and their
ages are set forth below:
Name Title Age
- ---- ----- ---
Kevin K. Moriarty Director, Chairman and Chief Executive Officer 51
Paul W. Hitzelberger Executive Vice President, Brand Strategy and
Franchise Relations/Development 53
Robert J. Terrano Executive Vice President and
Chief Financial Officer 42
James D. Stoops Executive Vice President, Operations 45
Janet D. Simmons Senior Vice President, Purchasing 41
Michael L. Annis Vice President, Secretary and General Counsel 51
C. Douglas Mitchell Vice President and Corporate Controller 47
The above referenced executive officers and directors of the General Partner
will hold office until the annual meeting of its shareholders and directors,
which is scheduled for the later part of 1998.
(c) None
(d) No family relationship exists between any such director or executive
officer of the General Partner.
(e) The following is an account of the business experience during the past
five years of each such director and executive officer:
21
22
Kevin K. Moriarty, Director, Chairman and Chief Executive Officer of Del Taco,
Inc. Mr. Moriarty began his career with Burger King Corporation in 1974 in
Operations Unit Management. In 1983, he was promoted to Area Manager in New
York, and was subsequently promoted to the Regional Vice President, Chicago
Region in 1985. In 1988, he became Executive Vice President and General Manager
of the North Central Division. Mr. Moriarty served in that position until 1990
when he joined Del Taco, Inc. as President and Chief Executive Officer on July
31, 1990. Mr. Moriarty has served as a Director of the General Partner since
1990.
Paul W. Hitzelberger, Executive Vice President, Brand Strategy and Franchise
Relations/Development of Del Taco, Inc. He was appointed to his current position
in December 1995. Mr. Hitzelberger has responsibility for franchise development,
relations and training and will oversee public relations and training for the
corporation. From 1991 to 1995, Mr. Hitzelberger was Executive Vice President,
Marketing of Del Taco, Inc. From September 1988 through September 1989, Mr.
Hitzelberger was Chief Executive Officer of Environmental Marketing Group. Prior
to that, Mr. Hitzelberger was a Vice President of Del Taco, Inc. Prior to
joining Del Taco, Inc., he served as Vice President - Marketing at the
department store division of Lucky Stores, Inc., a major supermarket retailer.
Prior to his position with Lucky, Mr. Hitzelberger held various positions in
marketing and retailing at Wallpapers to Go, Inc., a division of General Mills,
Inc., and Coast to Coast Stores, Inc. a subsidiary of Household Merchandising,
Inc. Mr. Hitzelberger received a Master of Business Administration degree from
Loyola University in Chicago, Illinois.
Robert J. Terrano, Executive Vice President and Chief Financial Officer of Del
Taco, Inc. From May 1994 to April 1995, Mr. Terrano served as Chief Financial
Officer for Denny's, Inc. in Spartanburg, S.C. From August 1983 to May 1994, he
served with Burger King Corporation, Miami Florida, in a variety of positions,
most recently as Division Controller. Mr. Terrano joined Del Taco, Inc. in April
1995.
James D. Stoops, Executive Vice President, Operations of Del Taco, Inc. From
1968 to 1991, Mr. Stoops served in a wide variety of Operations positions with
Burger King Corporation with increasing levels of responsibility. In 1985, Mr.
Stoops was appointed Region Vice President/General Manager for the New York
region and served in that position until October of 1990. In January of 1991, he
joined Del Taco, Inc. in his current post.
Janet D. Simmons, Senior Vice President, Purchasing of Del Taco, Inc. From 1979
to 1986, Ms. Simmons was with Denny's Incorporated. She served in the Research
and Development department in a variety of positions until 1982 when she was
promoted to the position of Purchasing Agent. Ms. Simmons was hired in 1986 as
Manager of Contract Purchasing with Carl Karcher Enterprises, a post she held
until March 1990 when she became Vice President, Purchasing for Del Taco, Inc.
Ms. Simmons has a Bachelor of Science degree in Foods and Nutrition from Cal
State Polytechnic University in Pomona, California.
22
23
Michael L. Annis, Vice President, Secretary and General Counsel of Del Taco,
Inc. From 1981 to 1986 Mr. Annis served as Regional Real Estate Manager and
Director of Real Estate Services with Taco Bell, Inc. In 1986 he served as
Regional General Manager with Quaker State Minit Lube. In January of 1987 Mr.
Annis joined Red Robin International, Inc. as General Counsel and was
subsequently promoted to Vice President/Secretary and later Vice President Real
Estate Development/Secretary and General Counsel, the position he held until
joining Del Taco, Inc. in December of 1993. Mr. Annis received his J.D. Degree
from Whittier College.
C. Douglas Mitchell, Vice President and Corporate Controller. Mr. Mitchell
joined Del Taco, Inc. in August of 1994 as Controller and was promoted to his
current position in January 1996. From 1990 to 1994, Mr. Mitchell was a Senior
Audit Manager with Coopers & Lybrand. Prior to 1990, Mr. Mitchell held various
positions in finance and accounting with the Geneva Companies (a subsidiary of
Chemical Bank), Zaremba Corporation (a real estate developer) and The Dexter
Corporation (an international manufacturer of specialty materials). Mr. Mitchell
has a Bachelor of Science degree with a major in accounting from the University
of Southern California.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The Registrant has no executive officers or directors and pays no direct
remuneration to any executive officer or director of its General Partner. The
Registrant has not issued any options or stock appreciation rights to any
executive officer or director of its General Partner, nor does the Registrant
propose to pay any annuity, pension or retirement benefits to any executive
officer or director of its General Partner. The Registrant has no plan, nor does
the Registrant presently propose a plan, which will result in any remuneration
being paid to any executive officer or director of the General Partner upon
termination of employment.
23
24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person of record currently owns more than five percent of Limited
Partnership Units of the Registrant, nor was any person known of by the
Registrant to own of record and beneficially, or beneficially only, more
than five percent of such securities.
(b) Neither Del Taco, Inc., nor any executive officer or director of Del
Taco, Inc. owns any Limited Partnership Units of the Registrant.
(c) The Registrant knows of no contractual arrangements, the operation or
the terms of which may at a subsequent date result in a change in
control of the Registrant, except for provisions in the Partnership
Agreement providing for removal of the General Partner by holders of a
majority of the Limited Partnership Units and if a material event of
default occurs under the financing agreements of the General Partner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) No transactions have occurred between the Registrant and any executive
officer or director of its General Partner.
During 1997, the following transactions occurred between the Registrant
and the General Partner pursuant to the terms of the Partnership
Agreement.
(1) The General Partner earned $4,222 as its one percent share of
the net income of the Registrant.
(2) The General Partner received $6,889 in distributions relating to
its one percent interest in the Registrant.
(b) During 1997, the Registrant had no business relationships with any
entity of a type required to be reported under this item.
(c) Neither the General Partner, any director or officer of the General
Partner or any associate of any such person, was indebted to the
Registrant at any time during 1997 for any amount in excess of $60,000.
(d) Not applicable.
24
25
PART IV
ITEM 14(a)(1) AND (2). EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
REPORTS ON FORM 8-K
Financial statement schedules:
Schedule III - Real Estate and Accumulated Depreciation
Financial statement schedules other than those referred to above have
been omitted because they are not applicable or not required.
(b) No reports on Form 8-K were filed during the last quarter of 1997.
(c) Exhibits required by Item 601 of Regulation S-K:
1. Incorporated herein by reference, Restated Agreement of Limited
Partnership of Del Taco Restaurant Properties III filed as
Exhibit 3.01 to Registrant's Registration Statement on Form S-11
as filed with the Securities and Exchange Commission on December
30, 1985.
2. Incorporated herein by reference, Amendment to Restated
Agreement of Limited Partnership of Del Taco Restaurant
Properties III.
3. Incorporated herein by reference, Form of Standard Lease to be
entered into by Registrant and Del Taco, Inc., as lessee, filed
as Exhibit 10.02 to Registrant's Registration Statement on Form
S-11 as filed with the Securities and Exchange Commission on
December 30, 1985.
25
26
DEL TACO III - SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
Cost capitalized Gross amount at
Initial cost subsequent to which carried at
Description Encumbrances to company acquisition close of period
------------------------------------------------------------------------------------
Buildings Buildings & land
(All Restaurants) & land Improve- Carrying improvements
improvements ments costs Total
- -----------------------------------------------------------------------------------------------------------------------------------
Rancho California, CA $ -- $ 384,400 $ 257,807 $ -- $ 642,207
Vista, CA -- 512,130 343,471 -- 855,601
Industry, CA -- 627,082 420,566 -- 1,047,648
Perris, Ca -- 437,522 293,434 -- 730,956
Upland, CA -- 281,827 189,014 -- 470,841
Walnut, CA -- 340,848 228,597 -- 569,445
Los Angeles, CA -- 674,283 452,223 -- 1,126,506
Chatsworth, CA -- 642,475 430,890 -- 1,073,365
Victorville, CA -- 505,399 338,957 -- 844,356
---------------- ---------------- ---------------- ---------------- ----------------
$ -- $ 4,405,966 $ 2,954,959 $ -- $ 7,360,925
================ ================ ================ ================ ================
0
Description Life on which
Accumulated Date of Date depreciation in latest
depreciation construction acquired income statement
(All Restaurants) is computed
- ---------------------------------------------------------------------------------------------------------
Rancho California, CA $ 91,005 1986 1986 20 (LI), 35 (BI)
Vista, CA 121,245 1987 1987 20 (LI), 35 (BI)
Industry, CA 148,459 1987 1987 20 (LI), 35 (BI)
Perris, Ca 103,581 1987 1987 20 (LI), 35 (BI)
Upland, CA 66,721 1987 1987 20 (LI), 35 (BI)
Walnut, CA 80,694 1988 1988 20 (LI), 35 (BI)
Los Angeles, CA 159,634 1988 1988 20 (LI), 35 (BI)
Chatsworth, CA 152,103 1989 1989 20 (LI), 35 (BI)
Victorville, CA 119,652 1989 1989 20 (LI), 35 (BI)
---------------- ---------------- ---------------- ----------------
$ 1,043,094
================
Accumulated
Restaurants Depreciation
----------- -----------
Balances at December 31, 1994: $ 7,802,513 $ 780,104
Acquisitions -- 130,306
Sales -- --
----------- -----------
Balances at December 31, 1995: 7,802,513 910,410
Acquisitions -- 113,240
Sales -- --
Writedown of property (441,588) (93,796)
----------- -----------
Balances at December 31, 1996: 7,360,925 929,854
Acquisitions -- 113,240
Sales -- --
----------- -----------
Balances at December 31, 1997: $ 7,360,925 $ 1,043,094
=========== ===========
Page 26
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 07, 1998 Kevin K. Moriarty
-------------- -----------------
Kevin K. Moriarty
Director, Chairman and Chief
Executive Officer
Date March 07, 1998 Michael L. Annis
-------------- ----------------
Michael L. Annis
Vice President, Secretary and
General Counsel
Date March 07, 1998 Robert J. Terrano
-------------- -----------------
Robert J. Terrano
Executive Vice President and
Chief Financial Officer
Date March 07, 1998 C. Douglas Mitchell
-------------- -------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
27