<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 MARCH 31, 1997
-------------------------
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, LAGUNA HILLS, CALIFORNIA 92653
(Address of principal executive offices) (Zip Code)
(714) 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 [ ]
<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 March 31, 1997 (Unaudited) and
December 31, 1996 3
Statements of Income for the three months ended
March 31, 1997 and 1996 (Unaudited) 4
Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 (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
</TABLE>
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DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 December 31
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 167,528 $ 190,185
Receivable from General Partner (Note 5) 58,638 57,288
Deposits 1,000 1,000
----------- -----------
Total current assets 227,166 248,473
----------- -----------
RESTRICTED CASH (NOTE 2) 110,617 110,617
REAL ESTATE HELD FOR SALE (NOTE 7) 274,500 274,500
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 2,238,408 2,172,025
----------- -----------
6,645,439 6,711,822
----------- -----------
$ 7,257,722 $ 7,345,412
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 4,003 $ 4,181
Accounts Payable 4,823 3,000
----------- -----------
Total current liabilities 8,826 7,181
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY:
Limited Partners 6,703,164 6,791,606
General Partner-Del Taco, Inc. (31,778) (30,885)
----------- -----------
6,671,386 6,760,721
----------- -----------
$ 7,257,722 $ 7,345,412
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
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<PAGE> 4
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
-------- --------
<S> <C> <C>
REVENUES:
Rent (Notes 4 and 5) $170,593 $170,189
Interest 2,875 2,184
Other 250 50
-------- --------
173,718 172,423
-------- --------
EXPENSES:
General and administrative 22,580 24,315
Depreciation 66,383 71,684
-------- --------
88,963 95,999
-------- --------
Net income $ 84,755 $ 76,424
======== ========
Net income per Limited
Partnership Unit (Note 3) $ 1.77 $ 1.59
======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 84,755 $ 76,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 66,383 71,684
Decrease in payable to Limited Partners (178) (328)
(Increase) decrease in receivable from
General Partner (1,350) 1,507
Increase in accounts payable 1,823 11,371
--------- ---------
Net cash provided by operating activities 151,433 160,658
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distribution to partners 174,090 174,416
--------- ---------
Net decrease in cash (22,657) (13,758)
Beginning cash balance 190,185 184,497
--------- ---------
Ending cash balance $ 167,528 $ 170,739
========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE> 6
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
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, 1996. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at March 31, 1997, the
results of operations and cash flows for the three month periods ended March 31,
1997 and 1996 have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
NOTE 2 - RESTRICTED CASH
At March 31, 1997 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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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1997
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
47,410 in 1997 and 47,498 in 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
March 31, 1997 (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 property (see Note 7).
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1997
NOTE 5 - TRANSACTIONS WITH DEL TACO
The receivable from General Partner consists primarily of rent accrued for the
month of March. The March rent was collected on April 11, 1997.
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 April 9, 1997, a distribution to the Limited Partners of $160,903, or
approximately $3.39 per Limited Partnership Unit, was approved. Such
distribution was paid on April 18, 1997. The General Partner also received a
distribution of $1,625 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 to its estimated fair value. Accordingly, the carrying value of the
Twentynine Palms property was adjusted down to $274,500.
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<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 March 31, 1997 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 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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<PAGE> 10
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, one of which ceased operation as a Del Taco franchise February 1,
1994 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 was 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.
The Registrant receives rental revenues equal to 12 percent of restaurant sales.
The Registrant had rental revenue of $170,593 for the three months ended March
31, 1997, representing an increase from the rental revenues of $170,189 during
the same period in 1996. Such increase is directly attributable to increased
sales at the restaurants.
The following table sets forth the percentage relationship to total general and
administrative expenses of items included in the Registrant's Statements of
Income:
<TABLE>
<CAPTION>
Percentage of Total
General & Administrative Expense
--------------------------------
Three Months Ended
March 31
1997 1996
------ ------
<S> <C> <C>
Accounting fees 75.71% 61.91%
Distribution of information
to Limited Partners 24.29 33.90
Other -- 4.19
------ ------
100.00% 100.00%
====== ======
</TABLE>
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<PAGE> 11
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 March 31, 1997, general and
administrative expenses decreased from $24,315 in 1996 to $22,580 in 1997. The
Registrant incurred depreciation expense in the amount of $66,383 and $71,684
for the three months ended March 31, 1997 and 1996 respectively. The decrease in
depreciation expense is a direct result of the write down of the Twentynine
Palms property during the third quarter of 1996.
As a result of the increase in revenues totaling $1,295 for the three months
ended March 31, 1997 as compared to the corresponding period in 1996, and the
decreases in general and administrative expenses of $1,735 and depreciation
expense of $5,301, the Registrant's net income increased from $76,424 for the
three months ended March 31, 1996 to $84,755 for the corresponding period in
1997.
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 three months ended March 31,
1997.
27. Financial Data Schedule
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<PAGE> 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: April 30, 1997 /s/ Robert J. Terrano
-----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: April 30, 1997 /s/ C. Douglas Mitchell
-----------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 278,145
<SECURITIES> 1,000
<RECEIVABLES> 58,638
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 227,166
<PP&E> 9,158,347
<DEPRECIATION> 2,238,408
<TOTAL-ASSETS> 7,257,722
<CURRENT-LIABILITIES> 8,826
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,671,386
<TOTAL-LIABILITY-AND-EQUITY> 7,257,722
<SALES> 0
<TOTAL-REVENUES> 173,718
<CGS> 0
<TOTAL-COSTS> 88,963
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84,755
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,755
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
</TABLE>
