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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, 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 INCOME 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>
(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 [ ]
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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 June 30, 1998 (Unaudited) and
December 31, 1997 3
Statements of Income for the three and six months ended
June 30, 1998 and 1997 (Unaudited) 4
Statements of Cash Flows for the six months ended
June 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 10
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>
June 30 December 31,
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 175,258 $ 189,315
Receivable from General Partner (Note 5) 62,124 59,368
Deposits 2,516 1,000
---------- ----------
Total current assets 239,898 249,683
---------- ----------
RESTRICTED CASH (NOTE 2) 107,809 107,809
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 2,570,323 2,437,557
---------- ----------
6,313,524 6,446,290
---------- ----------
$6,661,231 $6,803,782
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 3,895 $ 4,006
Accounts Payable 2,258 9,938
---------- ----------
Total current liabilities 6,153 13,944
---------- ----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
---------- ----------
PARTNERS' EQUITY:
Limited Partners 6,112,468 6,245,880
General Partner-Del Taco, Inc. (34,900) (33,552)
---------- ----------
6,077,568 6,212,328
---------- ----------
$6,661,231 $6,803,782
========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements
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DEL TACO RESTAURANT PROPERTIES III
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STATEMENTS OF INCOME
--------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ ----------------------
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 4 and 5) $181,264 $185,614 $347,788 $356,207
Interest 2,045 2,502 4,153 5,377
Other 525 425 1,678 675
-------- -------- -------- -------
183,834 188,541 353,619 362,259
-------- -------- -------- -------
EXPENSES:
General and administrative 13,233 9,304 35,746 31,884
Depreciation 66,383 66,383 132,766 132,766
-------- -------- -------- -------
79,616 75,687 168,512 164,650
-------- -------- -------- -------
Net income $104,218 $112,854 $185,107 $197,609
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 3) $2.18 $2.36 $3.87 $4.13
===== ===== ===== =====
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE> 5
DEL TACO RESTAURANT PROPERTIES III
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STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1998 1997
-------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $185,107 $197,609
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 132,766 132,766
Increase in deposits (1,516) -
Decrease in payable to Limited Partners (111) (256)
Increase in receivable from General Partner (2,756) (4,618)
Decrease in accounts payable (7,680) (1,276)
-------- ----------
Net cash provided by operating activities 305,810 324,225
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 (319,867) (336,618)
-------- --------
Net cash used by financing activities (319,867) (339,426)
-------- --------
Net decrease in cash (14,057) (12,393)
Beginning cash balance 189,315 190,185
-------- --------
Ending cash balance $175,258 $177,792
======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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<PAGE> 6
DEL TACO RESTAURANT PROPERTIES III
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 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 June 30, 1998, the
results of operations and cash flows for the six month periods ended June 30,
1998 and 1997 have been included. Operating results for the three and six months
ended June 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 June 30, 1998 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.
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DEL TACO RESTAURANT PROPERTIES III
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1998
-------------
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
47,394 in 1998 and 47,410 in 1997.
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
June 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 June 30, 1998, the eight restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$1,400,577 and net income of $59,534 as compared to $1,361,911 and $41,624
respectively, for the corresponding period in 1997. 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, 1998, the one restaurant operated by a Del Taco
franchisee, for which the Registrant is the lessor, had unaudited sales of
$109,951 as compared with $101,539 during the same period in 1997.
For the six months ended June 30, 1998, the eight restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$2,689,125 and net income of $107,350 as compared to $2,609,029 and $76,982
respectively, for the corresponding period in 1997. For the six months ended
June 30, 1998, the one restaurant
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DEL TACO RESTAURANT PROPERTIES III
----------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1998
-------------
NOTE 4 - LEASING ACTIVITIES (CONTINUED)
operated by a Del Taco franchisee, for which the Registrant is the lessor, had
unaudited sales of $209,103 as compared with $192,696 during the same period in
1997.
For the three months and six months ended June 30, 1998, the East Valley Blvd.
Restaurant in Walnut, California reported net losses of $1,755 and $4,357 as
compared to net losses of $5,686 and $12,087 respectively, for the corresponding
period in 1997.
For the three months and six months ended June 30, 1998, the Puente Hills Plaza
restaurant in Industry, California reported net income of $943 and $506 as
compared to net losses of $12 and $1,345 respectively, for the corresponding
period in 1997.
For the three months and six months ended June 30, 1998, the Vista Way
restaurant in Vista, California reported net losses of $2,865 and $8,650 as
compared to a net loss of $1,026 and net income of $1,037 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 June. The June rent was collected on July 10, 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 July 15, 1998, a distribution to the Limited Partners of $164,201, or
approximately $3.46 per Limited Partnership Unit, was approved. Such
distribution was paid on August 5, 1998. The General Partner also received a
distribution of $1,659 with respect to its 1% partnership interest.
-8-
<PAGE> 9
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.
-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. 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 June 30, 1998 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
General Partner.
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<PAGE> 11
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 $181,264 for the three
months ended June 30, 1998, representing a decrease from the rental revenues of
$185,614 during the same period in 1997. The Registrant had rental revenues of
$347,788 for the six months ended June 30, 1998, representing a decrease from
the rental revenues of $356,207 during the same period in 1997. Such decreases
are attributable to the sale of the Twentynine Palms property in November 1997.
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
--------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rancho California Plaza, Rancho California, CA $ 27,799 $ 29,183 $ 54,125 $ 56,231
East Vista Way, Vista, CA 15,209 14,883 29,118 28,731
4th Street, Perris, CA 29,311 26,637 55,375 51,295
Foothill Blvd., Upland, CA 20,758 19,134 40,013 37,181
Plaza at Puente Hills, Industry, CA 13,844 14,493 26,137 27,181
Twentynine Palms Hwy., Twentynine Palms, CA - 10,000 - 20,000
East Valley Blvd., Walnut, CA 11,239 10,823 21,532 20,645
W. Sepulveda Blvd., Los Angeles, CA 13,194 12,185 25,092 23,124
Lassen Street, Chatsworth, CA 28,803 27,521 55,482 51,953
Hesperia Road, Victorville, CA 21,107 20,755 40,914 39,866
-------- -------- -------- --------
Total $181,264 $185,614 $347,788 $356,207
======== ======== ======== ========
</TABLE>
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<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
-----------------------
1998 1997
------ ------
<S> <C> <C>
Accounting fees 61.96% 70.63%
Distribution of information
to Limited Partners 38.04 29.37
------ ------
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 increased from $9,304 in 1997 to $13,233 in 1998. For the six months
ended June 30, general and administrative expenses increased from $31,884 in
1997 to $35,746 in 1998. General and administrative costs increased due to
increased costs of printing and distribution. The Registrant incurred
depreciation expense in the amount of $66,383 for the three months ended June
30, 1998 and 1997. The Registrant incurred depreciation expense in the amount of
$132,766 for the six months ended June 30, 1998 and 1997.
As a result of the decrease in revenues totaling $4,707 for the three months
ended June 30, 1998 as compared to the corresponding period in 1997, and the
increases in general and administrative expenses of $3,929, the Registrant's net
income decreased from $112,854 for the three months ended June 30, 1997 to
$104,218 for the corresponding period in 1998. As a result of the decrease in
revenues totaling $8,640 for the six months ended June 30, 1998 as compared to
the corresponding period in 1997, and the increase in general and administrative
expenses of $3,862, the Registrant's net income decreased from $197,609 for the
six months ended June 30, 1997 to $185,107 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.
On May 19, 1998, the Special Limited Partner resigned. Consistent with the
Partnership Agreement, the General Partner assumed the duties and
responsibilities of the Special Limited Partner.
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<PAGE> 13
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 six months ended June 30, 1998.
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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, 1998 /s/ Robert J. Terrano
---------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: July 31, 1998 /s/ C. Douglas Mitchell
-------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
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<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 283,067
<SECURITIES> 2,516
<RECEIVABLES> 62,124
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 239,898
<PP&E> 8,883,847
<DEPRECIATION> 2,570,323
<TOTAL-ASSETS> 6,661,231
<CURRENT-LIABILITIES> 6,153
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,077,568
<TOTAL-LIABILITY-AND-EQUITY> 6,661,231
<SALES> 0
<TOTAL-REVENUES> 353,619
<CGS> 0
<TOTAL-COSTS> 168,512
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 185,107
<INCOME-TAX> 0
<INCOME-CONTINUING> 185,107
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,107
<EPS-PRIMARY> 3.87
<EPS-DILUTED> 3.87
</TABLE>
