<PAGE> 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, 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)
23041 AVENIDA DE LA CARLOTA, SUITE 400, LAGUNA HILLS, CA 92653
(Address of principal executive offices) (Zip Code)
(714) 462-7399
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
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<PAGE> 2
INDEX
-----
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
<S> <C>
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1996 (Unaudited) and
December 31, 1995 3
Statements of Income for the three and nine months ended
September 30, 1996 and 1995 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 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 12
SIGNATURES 13
- ----------
</TABLE>
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<PAGE> 3
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 194,486 $ 184,497
Receivable from General Partner (Note 5) 54,183 60,034
Deposits 1,000 1,000
---------- ----------
Total current assets 249,669 245,531
---------- ----------
RESTRICTED CASH (NOTE 2) 110,617 126,277
REAL ESTATE HELD FOR SALE (NOTE 7) 274,500 -
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 4,405,966 4,613,613
Buildings and improvements 2,954,959 3,188,900
Machinery and equipment 1,522,922 1,668,310
---------- ----------
8,883,847 9,470,823
Less--accumulated depreciation 2,105,650 2,100,693
---------- ----------
6,778,197 7,370,130
---------- ----------
$7,412,983 $7,741,938
========== ==========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
Payable to Limited Partners $ 5,277 $ 3,248
Accounts Payable 731 1,424
---------- ----------
Total current liabilities 6,008 4,672
---------- ----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
---------- ----------
PARTNERS' EQUITY
Limited Partners 6,859,667 7,186,807
General Partner-Del Taco, Inc. (30,202) (27,051)
---------- ----------
6,829,465 7,159,756
---------- ----------
$7,412,983 $7,741,938
========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements
-3-
<PAGE> 4
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
STATEMENTS OF INCOME
--------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 4 and 5) $190,182 $190,358 $541,377 $543,957
Interest 2,279 2,027 6,556 6,108
Other 250 125 575 675
-------- -------- -------- --------
192,711 192,510 548,508 550,740
-------- -------- -------- --------
EXPENSES:
General and administrative 14,461 9,515 48,505 44,056
Depreciation 71,687 71,688 215,063 215,067
Writedown of real estate
held for resale (Note 7) 102,369 - 102,369 -
-------- -------- -------- --------
188,517 81,203 365,937 259,123
-------- -------- -------- --------
Net income $ 4,194 $111,307 $182,571 $291,617
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $ 0.08 $ 2.32 $ 3.80 $ 6.08
======== ======== ======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-4-
<PAGE> 5
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $182,571 $291,617
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 215,063 215,067
Writedown of real estate held for sale 102,369 -
Increase (decrease)in payable to Limited Partners 2,029 (2,302)
Decrease in receivable from General Partner 5,851 3,193
Increase (decrease) in accounts payable (691) 5,155
-------- --------
Net cash provided by operating activities 507,192 512,730
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 15,659 5,985
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Limited Partnership Units (15,659) (5,985)
Cash distribution to partners 497,203 495,202
-------- --------
Increase in cash 9,989 17,528
Beginning cash balance 184,497 181,855
-------- --------
Ending cash balance $194,486 $199,383
======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-5-
<PAGE> 6
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996
------------------
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements, some of which are unaudited, have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should therefore be read in conjunction
with the financial statements and notes thereto contained in the Registrant's
annual report on Form 10-K for the year ended December 31, 1995. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) necessary to present fairly the partnership's financial position at
September 30, 1996, the results of operations and cash flows for the nine month
periods ended September 30, 1996 and 1995 have been included. Operating
results for the three and nine months ended September 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 September 30, 1996 the partnership had a restricted cash balance of
$110,617. 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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<PAGE> 7
DEL TACO RESTAURANT PROPERTIES III
- ----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------
SEPTEMBER 30, 1996
- ------------------
NOTE 3 - NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per Limited Partnership Unit is based upon the weighted average
number of Units outstanding during the periods presented which amounted to
47,472 in 1996 and 47,518 in 1995. The decrease is due to redemptions during
the period ended September 30, 1996.
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
September 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. On July 22, 1996, the subleasee ceased
operation at the Twentynine Palms location. (see note 7)
-7-
<PAGE> 8
DEL TACO RESTAURANT PROPERTIES III
- ----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------
SEPTEMBER 30, 1996
- ------------------
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 11, 1996.
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants, and four
partnerships which were formed for the purpose of acquiring real property in
California for construction of Mexican-American restaurants for lease under
long-term agreements to Del Taco, Inc. for operation under the Del Taco trade
name.
In addition, see Note 6 with respect to certain distributions to the General
Partner.
NOTE 6 - DISTRIBUTIONS
On October 14, 1996, a distribution to the Limited Partners of $176,858 or
approximately $3.72 per Limited Partnership Unit, was approved. Such
distribution was paid on October 15, 1996. The General Partner also received a
distribution of $1,786 with respect to its 1% partnership interest.
NOTE 7 - 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 it its net realizable value. Accordingly, the carrying value of the
Twentynine Palms property was adjusted down to $274,500 generating a write down
of 102,369 in the third quarter of 1996.
-8-
<PAGE> 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 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 September 30, 1996 restricted cash balance is a death and disability
redemption fund totaling $110,617. 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
-9-
<PAGE> 10
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. On July 22, 1996, the
subleasee ceased operation at the Twentynine Palms location. 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 it its net
realizable value. Accordingly, the carrying value of the Twentynine Palms
property was adjusted down to $274,500 generating a write down of 102,369 in
the third quarter of 1996.
The Registrant receives rental revenues equal to 12 percent of restaurant
sales. The Registrant had rental revenue of $190,182 for the three months
ended September 30, 1996, representing a decrease from the rental revenues of
$190,358 during the same period in 1995. The Registrant had rental revenues of
$541,377 for the nine months ended September 30, 1996, representing a decrease
from the rental revenues of $543,957 during the same period in 1995. Such
decrease is directly attributable to decreased sales at the restaurants.
-10-
<PAGE> 11
The following table sets forth the percentage relationship to total general and
administrative expenses of items included in the Registrant's Statements of
Income:
<TABLE>
<CAPTION>
Percentage of Total
General & Administrative Expense
--------------------------------
Nine Months Ended
September 30
1996 1995
------ -------
<S> <C> <C>
Accounting fees 32.06% 35.01%
Distribution of
information to
Limited Partners 64.75 61.69
Other 3.19 3.30
------ ------
100.00% 100.00%
====== ======
</TABLE>
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 $9,515 in 1995 to $14,461 in 1996. The
increase in general and administrative expense was caused primarily by printing
costs for new checks, envelopes, stationary and an appraisal fee for the
Twentynine Palms restaurant. For the nine months ended September 30, general
and administrative expenses increased from $44,056 in 1995 to $48,505 in 1996.
The Registrant incurred depreciation expense in the amount of $71,687 and
$71,688 for the three months ended September 30, 1996 and 1995 respectively.
The Registrant incurred depreciation expense in the amount of $215,063 and
$215,067 for the nine months ended September 30, 1996 and 1995 respectively.
As a result of the increase in revenues totaling $201 for the three months
ended September 30, 1996 as compared to the corresponding period in 1995, and
the increase in expenses totaling $107,314, primarily due to the writedown of
real estate held for sale, the Registrant's net income decreased from $111,307
for the three months ended September 30, 1995 to $4,194 for the corresponding
period in 1996. As a result of the decrease in revenues totaling $2,232 for the
nine months ended
-11-
<PAGE> 12
September 30, 1996 as compared to the corresponding period in 1995, and the
increase in expenses totaling $106,814, the Registrant's net income decreased
from $291,617 for the nine months ended September 30, 1995 to $182,571 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 nine months ended
September 30, 1996.
(c) Exhibit 27 - Financial Data Schedule.
-12-
<PAGE> 13
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, 1996 /s/ Robert J. Terrano
----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 30, 1996 /s/ C. Douglas Mitchell
----------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 194,486
<SECURITIES> 1,000
<RECEIVABLES> 54,183
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 249,669
<PP&E> 9,158,347
<DEPRECIATION> 2,105,650
<TOTAL-ASSETS> 7,412,983
<CURRENT-LIABILITIES> 6,008
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,829,465
<TOTAL-LIABILITY-AND-EQUITY> 7,412,983
<SALES> 0
<TOTAL-REVENUES> 192,711
<CGS> 0
<TOTAL-COSTS> 188,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,194
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,194
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
