<PAGE> 1
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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, 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)
<TABLE>
<S> <C>
CALIFORNIA 33-0139247
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23041 AVENIDA DE LA CARLOTA, LAGUNA HILLS, CALIFORNIA 92653
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(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
----------------------------------
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. Financial Statements and Supplementary Data
Balance Sheets at June 30, 1997 (Unaudited) and
December 31, 1996 3
Statements of Income for the three and six months ended
June 30, 1997 and 1996 (Unaudited) 4
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
- ----------
-2-
<PAGE> 3
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
JUNE 30 December 31,
1997 1996
----------- ------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 177,792 $ 190,185
Receivable from General Partner (Note 5) 61,906 57,288
Deposits 1,000 1,000
---------- ----------
Total current assets 240,698 248,473
---------- ----------
RESTRICTED CASH (NOTE 2) 107,809 110,617
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 2,304,791 2,172,025
---------- ----------
6,579,056 6,711,822
---------- ----------
$7,202,063 $7,345,412
========== ==========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
Payable to Limited Partners $ 3,925 $ 4,181
Accounts Payable 1,724 3,000
----------- -----------
Total current liabilities 5,649 7,181
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY
Limited Partners 6,651,179 6,791,606
General Partner-Del Taco, Inc. (32,275) (30,885)
----------- -----------
6,618,904 6,760,721
----------- -----------
$ 7,202,063 $ 7,345,412
=========== ===========
</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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 4 and 5) $185,614 $181,006 $356,207 $351,195
Interest 2,502 2,093 5,377 4,277
Other 425 275 675 325
-------- -------- -------- --------
188,541 183,374 362,259 355,797
-------- -------- -------- --------
EXPENSES:
General and administrative 9,304 9,729 31,884 34,044
Depreciation 66,383 71,692 132,766 143,376
-------- -------- -------- --------
75,687 81,421 164,650 177,420
-------- -------- -------- --------
Net income $112,854 $101,953 $197,609 $178,377
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $ 2.36 $ 2.13 $ 4.13 $ 3.72
======== ======== ======== ========
</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>
SIX MONTHS ENDED
JUNE 30
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 197,609 $ 178,377
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 132,766 143,376
Increase (decrease)in payable
to Limited Partners (256) 1,027
(Increase) decrease in receivable
from General Partner (4,618) 3,020
Decrease in accounts payable (1,276) (1,424)
--------- ---------
Net cash provided by
operating activities 324,225 324,376
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 2,808 --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Limited Partnership Units (2,808) --
Cash distribution to partners (336,618) (332,907)
--------- ---------
Net decrease in cash (12,393) (8,531)
Beginning cash balance 190,185 184,497
--------- ---------
Ending cash balance $ 177,792 $ 175,966
========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-5-
<PAGE> 6
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 30, 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 June 30, 1997, the
results of operations and cash flows for the six month periods ended June 30,
1997 and 1996 have been included. Operating results for the three and six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
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 of fair value less cost to sell.
The adoption of SFAS No. 121 did not have a material effect on the Registrant's
financial statements.
-6-
<PAGE> 7
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1997
-------------
NOTE 2 - RESTRICTED CASH
At June 30, 1997 the partnership had a restricted cash balance of $107,809. 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
47,402 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
June 30, 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
-7-
<PAGE> 8
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1997
-------------
NOTE 4 - LEASING ACTIVITIES - (CONTINUED)
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).
For the three months ended June 30, 1997, the eight restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$1,361,911 and net income of $41,624 as compared to $1,329,966 and $37,140
respectively, for the corresponding period in 1996. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense. For the three
months ended June 30, 1997, the one restaurant operated by a Del Taco
franchisee, for which the Registrant is the lessor, had unaudited sales of
$101,539 as compared with $95,084 during the same period in 1996.
For the six months ended June 30, 1997, the eight restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$2,609,029 and net income of $76,982 as compared to $2,577,119 and $61,462
respectively, for the corresponding period in 1996. For the six months ended
June 30, 1997, the one restaurant operated by a Del Taco franchisee, for which
the Registrant is the lessor, had unaudited sales of $192,696 as compared with
$182,839 during the same period in 1996.
For the three months and six months ended June 30, 1997, the East Valley Blvd.,
restaurant in Walnut, California reported net losses of $5,686 and $12,087 as
compared to net losses of $5,112 and $8,553 respectively, for the corresponding
period in 1996.
For the three months and six months ended June 30, 1997, the Puente Hills Plaza
restaurant in Industry, California reported net losses of $12 and $1,345 as
compared to net losses of $4,044 and $5,611 respectively, for the corresponding
period in 1996.
For the three months and six months ended June 30, 1997, the Hesperia Road
restaurant in Victorville, California reported net income of $1,098 and $2,608
as compared to net losses of $516 and $3,493 respectively, for the corresponding
period in 1996.
-8-
<PAGE> 9
DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1997
-------------
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, 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 July 12, 1997, a distribution to the Limited Partners of $164,398 or
approximately $3.47 per Limited Partnership Unit, was approved. Such
distribution was paid on July 23, 1997. The General Partner also received a
distribution of $1,661 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.
-9-
<PAGE> 10
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 June 30, 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.
-10-
<PAGE> 11
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 had rental revenue of $185,614 for the three months ended June
30, 1997, representing an increase from the rental revenues of $181,006 during
the same period in 1996. The Registrant had rental revenues of $356,207 for the
six months ended June 30, 1997, representing an increase from the rental
revenues of $351,195 during the same period in 1996. Such increases are directly
attributable to increased sales at the restaurants.
The following table sets forth rental revenue earned by restaurant for the
quarter and year to date:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rancho California Plaza, $ 29,183 $ 32,221 $ 56,231 $ 62,162
Rancho California, CA
East Vista Way, Vista, CA 14,883 15,339 28,731 29,900
4th Street, Perris, CA 26,637 25,750 51,295 50,393
Foothill Blvd., Upland, CA 19,134 17,811 37,181 34,284
Plaza at Puente Hills, 14,493 13,300 27,181 25,621
Industry, CA
Twentynine Palms Hwy, 10,000 10,000 20,000 20,000
Twentynine Palms, CA
East Valley Blvd., Walnut, CA 10,823 10,008 20,645 19,287
W. Sepulveda Blvd., 12,185 11,410 23,124 21,941
Los Angeles, CA
Lassen Street, Chatsworth, CA 27,521 25,086 51,953 48,551
Hesperia Road, Victorville, CA 20,755 20,081 39,866 39,056
-------- -------- -------- --------
Total $185,614 $181,006 $356,207 $351,195
======== ======== ======== ========
</TABLE>
-11-
<PAGE> 12
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
--------------------------------
Six Months Ended
June 30
1997 1996
-------- ---------
<S> <C> <C>
Accounting fees 62.79% 45.68%
Distribution of
information to
Limited Partners 34.69 49.78
Other 2.52 4.54
------ ------
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 June 30, general and administrative
expenses decreased from $9,729 in 1996 to $9,304 in 1997. For the six months
ended June 30, general and administrative expenses decreased from $34,044 in
1996 to $31,884 in 1997. The Registrant incurred depreciation expense in the
amount of $66,383 and $71,692 for the three months ended June 30, 1997 and 1996
respectively. The Registrant incurred depreciation expense in the amount of
$132,766 and $143,376 for the six months ended June 30, 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 $5,167 for the three months
ended June 30, 1997 as compared to the corresponding period in 1996, the
decrease in general and administrative expenses totaling $425 and the decrease
in depreciation expense of $5,309, the Registrant's net income increased from
$101,953 for the three months ended June 30, 1996 to $112,854 for the
corresponding period in 1997. As a result of the increase in revenues totaling
$6,462 for the six months ended June 30, 1997 as compared to the corresponding
period in 1996, and the decreases in general and administrative expenses of
$2,160 and depreciation expense of $10,610, the Registrant's net income
increased from $178,377 for the six months ended June 30, 1996 to $197,609 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.
-12-
<PAGE> 13
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, 1997.
27 Financial Data Schedule.
-13-
<PAGE> 14
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 30, 1997 /s/ Robert J. Terrano
-------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: July 30, 1997 /s/ C. Douglas Mitchell
-------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 285,601
<SECURITIES> 1,000
<RECEIVABLES> 61,906
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 348,507
<PP&E> 9,158,347
<DEPRECIATION> 2,304,791
<TOTAL-ASSETS> 7,202,063
<CURRENT-LIABILITIES> 5,649
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,618,904
<TOTAL-LIABILITY-AND-EQUITY> 7,202,063
<SALES> 0
<TOTAL-REVENUES> 362,259
<CGS> 0
<TOTAL-COSTS> 164,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 197,609
<INCOME-TAX> 0
<INCOME-CONTINUING> 197,609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,609
<EPS-PRIMARY> 4.13
<EPS-DILUTED> 4.13
</TABLE>
