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, 2001.
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)
<Table>
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)
</Table>
(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 [ ]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
INDEX
DEL TACO RESTAURANT PROPERTIES III
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
Balance Sheets at June 30, 2001 (Unaudited) and
December 31, 2000 3
Statements of Income for the three and six months ended
June 30, 2001 and 2000 (Unaudited) 4
Statements of Cash Flows for the six months ended
June 30, 2001 and 2000 (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
JUNE 30, December 31,
2001 2000
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 229,839 $ 230,275
Receivable from General Partner 70,188 69,017
Deposits 1,000 1,622
----------- -----------
Total current assets 301,027 300,914
----------- -----------
RESTRICTED CASH 97,291 97,291
----------- -----------
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 2,962,356 2,905,737
----------- -----------
5,921,491 5,978,110
----------- -----------
$ 6,319,809 $ 6,376,315
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 39,627 $ 34,067
Accounts payable 15,059 15,979
----------- -----------
Total current liabilities 54,686 50,046
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY:
Limited Partners 5,726,265 5,786,836
General Partner-Del Taco, Inc. (38,652) (38,077)
----------- -----------
5,687,613 5,748,759
----------- -----------
$ 6,319,809 $ 6,376,315
=========== ===========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
REVENUES:
Rent $203,933 $192,383 $396,910 $370,965
Interest 2,383 3,049 5,867 5,360
Other 450 475 1,125 1,083
-------- -------- -------- --------
206,766 195,907 403,902 377,408
-------- -------- -------- --------
EXPENSES:
General and administrative 14,836 12,464 38,766 35,460
Depreciation 28,311 28,311 56,621 56,621
-------- -------- -------- --------
43,147 40,775 95,387 92,081
-------- -------- -------- --------
Net income $163,619 $155,132 $308,515 $285,327
======== ======== ======== ========
Net income per limited
partnership unit $ 3.42 $ 3.24 $ 6.45 $ 5.97
======== ======== ======== ========
The accompanying notes are an
integral part of these financial statements.
-4-
5
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 308,515 $ 285,327
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 56,621 56,621
Increase in receivable from General Partner (1,173) (5,938)
Decrease in deposits 622 --
Increase in accounts payable and
payable to limited partners 4,640 1,410
--------- ---------
Net cash provided by operating activities 369,225 337,420
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (369,661) (343,238)
--------- ---------
Net decrease in cash (436) (5,818)
Beginning cash balance 230,275 208,334
--------- ---------
Ending cash balance $ 229,839 $ 202,516
========= =========
The accompanying notes are an
integral part of these financial statements.
-5-
6
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
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, 2000. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at June 30, 2001, the
results of operations and cash flows for the six month periods ended June 30,
2001 and 2000 have been included. Operating results for the three and six months
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.
NOTE 2 - RESTRICTED CASH
At June 30, 2001, the partnership had a restricted cash balance of $97,291. 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 partnership 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.
-6-
7
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2001
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
47,331 in 2001 and 2000.
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 partnership leases certain properties for operation of restaurants to Del
Taco, Inc. 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.
For the three months ended June 30, 2001, the nine restaurants operated by Del
Taco, for which the partnership is the lessor, had combined, unaudited sales of
$1,699,436 and net income of $94,528, as compared to $1,603,188 and $73,485,
respectively, for the corresponding period in 2000. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense.
For the six months ended June 30, 2001, the nine restaurants operated by Del
Taco, for which the partnership is the lessor, had combined, unaudited sales of
$3,307,581 and net income of $182,471, as compared to $3,091,375 and $100,526,
respectively, for the corresponding period in 2000.
-7-
8
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2001
NOTE 4 - LEASING ACTIVITIES - CONTINUED
For the three months and six months ended June 30, 2001, the East Valley Blvd.
restaurant in Walnut, California reported net income of $35 and a net loss of
$2,352 as compared to net losses of $425 and $2,830 for the corresponding period
in 2000.
For the three months and six months ended June 30, 2001, the East Gale Blvd.
restaurant in Puente Hills, California reported net losses of $2,032 and $3,768
as compared to net losses of $2,856 and $6,529 for the corresponding period in
2000.
For the three months and six months ended June 30, 2001, the West Sepulveda
Blvd. restaurant in Los Angeles, California reported net income of $651 and
$1,122 as compared to net losses of $1,750 and $9,203 for the corresponding
period in 2000.
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 10, 2001.
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.
In addition, see Note 6 with respect to certain distributions to the General
Partner.
NOTE 6 - DISTRIBUTIONS
On July 18, 2001, a distribution to the limited partners of $183,600, or
approximately $3.88 per limited partnership unit, was approved. Such
distribution was paid on July 20, 2001. The General Partner also received a
distribution of $1,855 with respect to its 1% partnership interest.
-8-
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The partnership offered limited partnership units for sale between February 1986
and June 1987. 14.7% of the $12 million raised through sale of limited
partnership units was used to pay commissions to brokers and to reimburse the
General Partner for offering costs incurred. Approximately $9.5 million of the
remaining funds were used to acquire sites and build ten restaurants. In
February of 1992, approximately $281,000 raised during the offering but not
required to acquire sites and build restaurants was distributed to the limited
partners. One restaurant was sold in November 1997.
The nine restaurants leased to Del Taco make up almost all of the income
producing assets of the partnership. Therefore, the business of the partnership
is almost entirely dependent on the success of the Del Taco trade name
restaurants that lease the properties. The success of the restaurants 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.
As described in Note 2 to the Notes to the Financial Statements, the partnership
has a death and disability redemption fund totaling $97,291 at June 30, 2001.
Investors should contact the General Partner with all questions regarding the
eligibility of a limited partner or the estate of a deceased limited partner to
participate in the redemption fund.
Results of Operations
The partnership owns nine properties that are under long-term lease to Del Taco
for restaurant operations.
The following table sets forth rental revenue earned by restaurant for the three
and six months ended June 30, 2001 and 2000:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
Rancho California Plaza, Rancho California, CA $ 32,193 $ 31,494 $ 61,512 $ 60,405
East Vista Way, Vista, CA 19,223 19,675 37,716 37,691
Plaza at Puente Hills, Industry, CA 12,992 12,333 25,619 23,993
4th Street, Perris, CA 28,131 26,705 53,899 50,654
Foothill Blvd., Upland, CA 24,333 23,836 48,977 45,897
East Valley Blvd., Walnut, CA 12,588 11,664 24,676 23,038
Lassen Street, Chatsworth, CA 29,809 27,417 58,232 53,002
Hesperia Road, Victorville, CA 27,831 24,125 53,385 47,100
W. Sepulveda Blvd., Los Angeles, CA 16,833 15,134 32,894 29,185
-------- -------- -------- --------
Total $203,933 $192,383 $396,910 $370,965
======== ======== ======== ========
-9-
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
The partnership receives rental revenues equal to 12 percent of gross sales from
the restaurants. The partnership earned rental revenue of $203,933 during the
three month period ended June 30, 2001, which represents an increase of $11,550
from 2000. The partnership earned rental revenue of $396,910 during the six
month period ended June 30, 2001, which represents an increase of $25,945 from
2000. The increases in rental revenue are directly attributable to changes in
sales levels at the restaurants under lease.
The following table breaks down general and administrative expenses by type of
expense:
Percentage of Total
General & Administrative Expense
Six Months Ended
June 30,
2001 2000
---------- ----------
Accounting fees 65.07 % 60.17 %
Distribution of information
to Limited Partners 34.93 39.83
---------- ----------
100.00 % 100.00 %
========== ==========
General and administrative costs for the six month period ended June 30,
increased from 2000 to 2001 due to increased costs for income tax preparation
and annual audit fees.
For the three month period ended June 30, 2001, net income increased by $8,487
from 2000 to 2001 due to the increase in revenues of $10,859 which was partially
offset by the increase in general and administrative expenses of $2,372. For the
six month period ended June 30, 2001, net income increased by $23,188 from 2000
to 2001 due to an increase in revenues of $26,494 which was partially offset by
an increase in general and administrative expenses of $3,306.
In accordance with recent U.S. Government regulations, the partnership is
required to file annual K-1 income tax forms with the Internal Revenue Service
electronically beginning in 2002 for the year ending December 31, 2001. In order
to comply with this regulation, the partnership will incur additional costs to
lease software to 1) prepare the tax forms electronically and 2) maintain the
underlying partnership database.
The General Partner and outside consultants are evaluating available software
and expect to select a software package in the third calendar quarter of 2001.
Estimates of additional general and administrative costs to lease the software
range from $2,000 to $9,000 in 2001 (the conversion year) and range from $4,500
to $7,500 in each subsequent year.
-10-
11
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, 2001.
-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: July 31, 2001 /s/ Robert J. Terrano
-------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: July 31, 2001 /s/ C. Douglas Mitchell
-------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
-12-