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 SEPTEMBER 30, 1998
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)
23041 AVENIDA DE LA CARLOTA,
SUITE 400, LAGUNA HILLS, CA 92653
(Address of principal executive offices) (Zip Code)
(949) 462-9300
(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 [ ]
-1-
2
INDEX
DEL TACO RESTAURANT PROPERTIES III
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1998 (Unaudited) and
December 31, 1997 3
Statements of Income for the three and nine months ended
September 30, 1998 and 1997 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (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
-2-
3
DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
SEPTEMBER 30 December 31
1998 1997
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 212,645 $ 189,315
Receivable from General Partner (Note 5) 61,974 59,368
Deposits 2,011 1,000
----------- -----------
Total current assets 276,630 249,683
----------- -----------
RESTRICTED CASH (NOTE 2) 99,895 107,809
----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
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 2,632,843 2,437,557
----------- -----------
6,251,004 6,446,290
----------- -----------
$ 6,627,529 $ 6,803,782
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 18,149 $ 4,006
Accounts Payable 3,035 9,938
----------- -----------
Total current liabilities 21,184 13,944
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY:
Limited Partners 6,064,143 6,245,880
General Partner-Del Taco, Inc. (35,308) (33,552)
----------- -----------
6,028,835 6,212,328
----------- -----------
$ 6,627,529 $ 6,803,782
=========== ===========
The accompanying notes are an
integral part of these financial statements
-3-
4
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
REVENUES:
Rent (Notes 4 and 5) $193,195 $187,675 $540,983 $543,882
Interest 2,645 2,497 6,798 7,874
Other 1,000 1,325 2,677 2,000
-------- -------- -------- --------
196,840 191,497 550,458 553,756
-------- -------- -------- --------
EXPENSES:
General and administrative 9,282 7,396 45,028 39,280
Depreciation 62,520 66,383 195,286 199,149
-------- -------- -------- --------
71,802 73,779 240,314 238,429
-------- -------- -------- --------
Net income $125,038 $117,718 $310,144 $315,327
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $ 2.61 $ 2.46 $ 6.48 $ 6.59
======== ======== ======== ========
The accompanying notes are an integral part of
these financial statements.
-4-
5
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 310,144 $ 315,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 195,286 199,149
Increase (decrease)in payable to
Limited Partners 14,143 (256)
Increase in receivable from
General Partner (2,606) (3,308)
Decrease in accounts payable (6,902) (488)
Increase in deposits (1,011) --
---------- ----------
Net cash provided by operating
activities 509,054 510,424
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 7,913 2,808
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Limited Partnership Units (7,913) (2,808)
Cash distribution to partners (485,724) (502,677)
---------- ----------
Net cash used in financing
activities (493,637) (505,485)
---------- ----------
Increase in cash 23,330 7,747
Beginning cash balance 189,315 190,185
---------- ----------
Ending cash balance $ 212,645 $ 197,932
========== ==========
The accompanying notes are an
integral part of these financial statements.
-5-
6
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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, 1997. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1998,
the results of operations and cash flows for the nine month periods ended
September 30, 1998 and 1997 have been included. Operating results for the three
and nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
NOTE 2 - RESTRICTED CASH
At September 30, 1998 the partnership had a restricted cash balance of $99,895.
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 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
47,378 in 1998 and 47,399 in 1997.
-6-
7
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
NOTE 3 - NET INCOME PER LIMITED PARTNERSHIP UNIT - (Continued)
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 nine Properties leased to Del Taco as of
September 30, 1998 (Del Taco, in turn, has subleased one 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.
For the three months ended September 30, 1998, the eight restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $1,494,530 and net income of $79,072 as compared to $1,371,159 and $49,770
respectively, for the corresponding period in 1997. Net income by restaurant
includes charges for general & administrative expenses incurred in connection
with supervision of restaurant operations and interest expense. For the three
months ended September 30, 1998, the one restaurant operated by a Del Taco
franchisee, for which the Registrant is the lessor, had unaudited sales of
$115,438 as compared with $109,463 during the same period in 1997.
For the nine months ended September 30, 1998, the eight restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $4,183,655 and net income of $186,422 as compared to $3,980,197 and $126,752
respectively, for the corresponding period in 1997. For the nine months ended
September 30, 1998, the one restaurant operated by a Del Taco franchisee, for
which the Registrant is the lessor, had unaudited sales of $324,541 as compared
with $302,159 during the same period in 1997.
-7-
8
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
NOTE 4 - LEASING ACTIVITIES - (Continued)
For the three months and nine months ended September 30, 1998, the East Valley
Blvd. restaurant in Walnut, California reported net losses of $2,150 and $6,507
as compared to net losses of $4,512 and $16,599 respectively, for the
corresponding period in 1997. For the three months and nine months ended
September 30, 1998, the Vista Way restaurant in Vista, California reported net
income of $1,355 and a net loss of $7,295 as compared to a net loss of $545 and
net income of $492 respectively, for the corresponding period in 1997.
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 13, 1998.
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 12, 1998, a distribution to the Limited Partners of $186,862 or
approximately $3.95 per Limited Partnership Unit, was approved. Such
distribution was paid on October 15, 1998. The General Partner also received a
distribution of $1,887 with respect to its 1% partnership interest.
NOTE 7 - SALE OF PROPERTY
In November 1997, the Twentynine Palms property was sold yielding net proceeds
of $278,612, resulting in a gain of $4,112.
-8-
9
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. 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. One restaurant was sold in November 1997.
Since the nine 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 September 30, 1998 restricted cash balance is a death and disability
redemption fund totaling $99,895. 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 General Partner.
-9-
10
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). The Registrant receives rental revenues equal to 12 percent of
restaurant sales. The Registrant had rental revenue of $193,195 for the three
months ended September 30, 1998, representing an increase from the rental
revenues of $187,675 during the same period in 1997. The Registrant had rental
revenues of $540,983 for the nine months ended September 30, 1998, representing
a decrease from the rental revenues of $543,882 during the same period in 1997.
The changes in rental revenues was caused by increased sales at most restaurants
and the sale of the Twentynine Palms restaurant.
The following table sets forth rental revenue earned by restaurant for the
quarter and year to date:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
Rancho California Plaza,
Rancho California, CA $ 30,064 $ 27,864 $ 84,188 $ 84,095
East Vista Way, Vista, CA 16,205 15,193 45,324 43,924
4th Street, Perris, CA 30,788 26,757 86,163 78,052
Foothill Blvd., Upland, CA 22,603 20,070 62,616 57,251
Plaza at Puente Hills, Industry, CA 14,967 14,712 41,104 41,893
Twentynine Palms Hwy., Twentynine Palms, CA -- 10,000 -- 30,000
East Valley Blvd., Walnut, CA 12,463 10,997 33,995 31,642
W. Sepulveda Blvd., Los Angeles, CA 13,853 13,136 38,945 36,259
Lassen Street, Chatsworth, CA 29,586 28,813 85,068 80,766
Hesperia Road, Victorville, CA 22,666 20,133 63,580 60,000
-------- -------- -------- --------
Total $193,195 $187,675 $540,983 $543,882
======== ======== ======== ========
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
---------------------
1998 1997
-------- --------
Accounting fees 53.91% 53.32%
Distribution of information
to Limited Partners 44.29 44.64
Other 1.80 2.04
-------- --------
100.00% 100.00%
======== ========
-10-
11
Certain reclassifications have been made to the fiscal year 1997 general and
administrative expenses to conform to the fiscal year 1998 presentation.
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 $7,396 in 1997 to $9,282 in 1998. For the
nine months ended September 30, general and administrative expenses increased
from $39,280 in 1997 to $45,028 in 1998. General and administrative expenses
increased due to increased costs of printing and distribution. The Registrant
incurred depreciation expense in the amount of $62,520 and $66,383 for the three
months ended September 30, 1998 and 1997, respectively. The Registrant incurred
depreciation expense in the amount of $195,286 and $199,149 for the nine months
ended September 30, 1998 and 1997, respectively. The decrease in depreciation
expense is a result of certain equipment becoming fully depreciated in 1998.
As a result of the increase in revenues totaling $5,343 for the three months
ended September 30, 1998 as compared to the corresponding period in 1997, and
the decrease in expenses totaling $1,977, the Registrant's net income increased
from $117,718 for the three months ended September 30, 1997 to $125,038 for the
corresponding period in 1998. As a result of the decrease in revenues totaling
$3,298 for the nine months ended September 30, 1998 as compared to the
corresponding period in 1997, and the increase in expenses totaling $1,885, the
Registrant's net income decreased from $315,327 for the nine months ended
September 30, 1997 to $310,144 for the corresponding period in 1998.
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the nine months ended
September 30, 1998.
-11-
12
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 30, 1998 /s/ Robert J. Terrano
----------------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 30, 1998 /s/ C. Douglas Mitchell
----------------------------------------
C. Douglas Mitchell
Vice President and Corporate Controller
-12-
13
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule.