<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 ___
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S FORM S-11 REGISTRATION STATEMENT FILED
DECEMBER 30, 1985 ARE INCORPORATED BY REFERENCE INTO PART IV OF THIS REPORT.
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<PAGE> 2
PART I
ITEM 1. BUSINESS
The partnership is a publicly-held limited partnership organized under the
California Uniform Limited Partnership Act. The partnership's General Partner is
Del Taco, Inc., a California corporation ("General Partner"). The partnership
sold 48,000 units totaling $12 million through an offering of limited
partnership units from February 1986 through June 1987. The term of the
partnership agreement is until December 31, 2025 unless terminated earlier by
means provided in the partnership agreement.
The business of the partnership is ownership and leasing of restaurants in
California to Del Taco, Inc. The partnership acquired land and constructed ten
Mexican-American restaurants for long-term lease to Del Taco, Inc. Each property
is leased for 35 years on a triple net basis. Rent is equal to twelve percent of
gross sales of the restaurants. The restaurant originally built in Twentynine
Palms was sold in November 1997 and net proceeds from the sale were distributed
to the partners. As of December 31, 1998, the partnership had a total of nine
properties leased to Del Taco.
The partnership has no full time employees. The partnership agreement assigns
full authority for general management and supervision of the business affairs of
the partnership to the General Partner. The General Partner has a one percent
interest in the profits or losses and distributions of the partnership. Limited
partners have no right to participate in the management or conduct of the
partnership's business affairs.
2
<PAGE> 3
ITEM 2. PROPERTIES
The partnership acquired ten properties with proceeds obtained from the sale of
limited partnership units:
<TABLE>
<CAPTION>
Date of
Restaurant Commencement
Address City, State Date of Acquisition Constructed of Operation(1)
- ------- ----------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Rancho California Rancho California, CA December 23, 1986 60 seat with drive July 14, 1987
Plaza through service
window
East Vista Way Vista, CA February 24, 1987 60 seat with drive September 10, 1987
through service
window
4th Street Perris, CA June 24, 1987 60 seat with drive December 16, 1987
through service
window
Foothill Boulevard Upland, CA August 3, 1987 60 seat with drive January 12, 1988
through service
window
Plaza at Puente Industry, CA May 12, 1987 60 seat with drive February 24, 1988
Hills through service
window
Twentynine Palms Twentynine Palms, CA December 14, 1987 60 seat with drive May 17, 1988(2)
Highway through service
window
East Valley Walnut, CA April 29, 1988 60 seat with drive August 31, 1988
Boulevard through service
window
West Sepulveda Los Angeles, CA July 8, 1988 60 seat with drive January 12, 1989(3)
Boulevard through service
window
Lassen Street Chatsworth, CA January 27, 1989 60 seat with drive August 21, 1989
through service
window
Hesperia Road Victorville, CA December 29, 1989 100 seat with drive July 5, 1990
through service
window
</TABLE>
3
<PAGE> 4
- -------------
(1) Commencement of operation is the first date Del Taco, Inc., as lessee,
operated the facility on the site as a Del Taco restaurant.
(2) In November 1997, the Twentynine Palms property was sold yielding net
proceeds to the partnership of $278,612.
(3) The restaurant was subleased to a franchisee of Del Taco, Inc. and the
restaurant operated as a Del Taco restaurant. On December 29, 1998 the
franchise agreement for this restaurant expired. Del Taco began operation of
this restaurant as a company-managed facility on December 29, 1998.
PART II
ITEM 3. LEGAL PROCEEDINGS
The partnership is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The partnership sold 48,000 ($12,000,000) limited partnership units during the
public offering period ended June 1, 1987 and currently has 1,537 limited
partners of record. There is no public market for the trading of the units.
Distributions made by the partnership to the limited partners during the past
three fiscal years are described in Note 8 to the Notes to the Financial
Statements contained under Item 8.
4
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rental revenue $728,690 $725,397 $722,856 $724,382 $701,039
Interest and
other income 12,450 13,152 9,464 9,087 8,090
Net income 442,863 422,201 292,257 394,502 368,343
Net income
per limited
partnership
unit (1) 9.26 8.82 6.10 8.22 7.66
Cash distributions
per limited
partnership
unit (2)(3)(4)(5)(6)
From operations 14.10 14.38 14.09 14.18 18.30
Return of
capital 5.88
Total assets 6,589,673 6,803,782 7,345,412 7,741,938 8,035,079
Long-term obligations 577,510 577,510 577,510 577,510 577,510
</TABLE>
- ------------
(1) The net income per limited partnership unit was calculated based upon
47,370, 47,398, 47,461, 47,513 and 47,573 weighted average units outstanding
for years 1998, 1997, 1996, 1995 and 1994, respectively.
(2) Cash distributions for the quarter ended December 31, 1994 amounted to $3.56
per limited partnership unit and were paid January 17, 1995. Five
distributions were disbursed during the year ended December 31, 1994.
(3) Cash distributions for the quarter ended December 31, 1995 amounted to $3.64
per limited partnership unit and were paid January 17, 1996. Four
distributions were disbursed during the year ended December 31, 1995.
(4) Cash distributions for the quarter ended December 31, 1996 amounted to $3.63
per limited partnership unit and were paid January 31, 1997. Four
distributions were disbursed during the year ended December 31, 1996.
5
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
(5) Cash distributions for the quarter ended December 31, 1997 amounted to $3.71
per limited partnership unit and were paid January 31, 1998. Five
distributions were disbursed during the year ended December 31, 1997. One of
the distributions was the proceeds from the sale of the Twentynine Palms
property.
(6) Cash distributions for the quarter ended December 31, 1998 amounted to $3.82
per limited partnership unit and were paid January 31, 1999. Four
distributions were disbursed during the year ended December 31, 1998.
ITEM 7. 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.
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 6 to the Notes to the Financial Statements contained under
Item 8, the partnership has a death and disability redemption fund totaling
$99,896 at December 31, 1998. 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.
6
<PAGE> 7
Results of Operations
The partnership owns nine properties that are under long-term lease to Del Taco
for restaurant operations. In November 1997, the Twentynine Palms property was
sold yielding net proceeds of $278,612.
The following table sets forth rental revenue earned by restaurant for the year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rancho California Plaza, Rancho Calif., CA $113,412 $112,285 $126,262
East Vista Way, Vista, CA 61,460 58,517 59,497
4th Street, Perris, CA 117,303 105,274 101,463
Foothill Blvd., Upland, CA 85,121 76,897 72,446
Plaza at Puente Hills, Industry, CA 55,176 55,947 54,231
Twentynine Palms Hwy., Twentynine Palms, CA - 33,663 40,000
East Valley Blvd., Walnut, CA 45,705 42,274 40,064
W. Sepulveda Blvd., Los Angeles, CA 51,768 49,061 46,704
Lassen Street, Chatsworth, CA 112,348 108,711 101,374
Hesperia Road, Victorville, CA 86,397 82,768 80,815
-------- -------- --------
Total $728,690 $725,397 $722,856
======== ======== ========
</TABLE>
The partnership receives rental revenues equal to 12 percent of gross sales from
the restaurants. The partnership earned rental revenue of $728,690 during the
year ended December 31, 1998, which represents an increase of $3,293 from 1997.
The increase in rental revenue was caused by an increase in sales at the
restaurants under lease.
The following table breaks down general and administrative expenses by type of
expense:
PERCENTAGE OF TOTAL GENERAL & ADMIN. EXPENSE
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Accounting fees 29.25% 26.94% 29.42%
Distribution of
information to
limited partners 69.34% 71.60% 67.83%
Other 1.41 1.46 2.75
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
7
<PAGE> 8
Results of Operations - Continued
General and administrative costs increased from 1997 to 1998 due to increased
costs for printing and distribution of documents. Depreciation decreased in 1998
and 1997 because certain equipment became fully depreciated during 1997.
Net income increased by $20,662 from 1997 to 1998 due mostly to the decrease in
depreciation expense of $23,834 which was partially offset by the $1,651
increase in general and administrative expenses.
The General Partner does not believe the operations of the partnership will be
significantly impacted by the year 2000 software issue and does not believe the
year 2000 software issue will materially effect the partnerships operations,
financial position or cash flows.
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.
8
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS
PART I. INFORMATION
INDEX PAGE NUMBER
----- -----------
Report of Independent Public Accountants 10
Balance Sheets at December 31, 1998 and 1997 11
Statements of Income for the years ended
December 31, 1998, 1997 and 1996 12
Statement of Changes in Partners' Equity for
the three years ended December 31, 1998 13
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 14
Notes to Financial Statements 15-20
9
<PAGE> 10
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Del Taco Restaurant Properties, III:
We have audited the accompanying balance sheets of Del Taco Restaurant
Properties III (a California Limited Partnership) as of December 31, 1998 and
1997, and the related statements of income, changes in partners' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Del Taco Restaurant Properties
III as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule in the index of the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Orange County, California
February 12, 1999
10
<PAGE> 11
DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 219,876 $ 189,315
Receivable from Del Taco, Inc. (Note 5) 63,803 59,368
Deposits 1,506 1,000
----------- -----------
Total current assets 285,185 249,683
----------- -----------
RESTRICTED CASH (NOTE 6) 99,896 107,809
----------- -----------
PROPERTY AND EQUIPMENT, AT COST (NOTE 1):
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 2,679,255 2,437,557
----------- -----------
6,204,592 6,446,290
----------- -----------
$ 6,589,673 $ 6,803,782
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to limited partners $ 31,604 $ 4,006
Accounts payable 7,628 9,938
----------- -----------
Total current liabilities 39,232 13,944
----------- -----------
OBLIGATION TO GENERAL PARTNER (NOTE 3) 577,510 577,510
----------- -----------
PARTNERS' EQUITY (NOTE 2):
Limited partners 6,008,797 6,245,880
General Partner - Del Taco, Inc. (35,866) (33,552)
----------- -----------
5,972,931 6,212,328
----------- -----------
$ 6,589,673 $ 6,803,782
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
11
<PAGE> 12
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Rent (Note 4) $728,690 $725,397 $722,856
Interest 9,007 10,227 8,689
Other 3,443 2,925 775
Gain on sale of property (Note 9) -- 4,112 --
-------- -------- --------
741,140 742,661 732,320
-------- -------- --------
EXPENSES:
General and administrative 56,579 54,928 56,247
Depreciation 241,698 265,532 281,447
Writedown of real estate held
for resale (Note 9) -- -- 102,369
-------- -------- --------
298,277 320,460 440,063
-------- -------- --------
Net income $442,863 $422,201 $292,257
======== ======== ========
Net income per limited
partnership unit (Note 1) $ 9.26 $ 8.82 $ 6.10
======== -------- ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
12
<PAGE> 13
DEL TACO RESTAURANT PROPERTIES III
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Limited Partners
------------------------ General
Units Amount Partner Total
------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 47,498 $ 7,186,807 (27,051) $ 7,159,756
Net income -- 289,335 2,922 292,257
Redemption of units (88) (15,659) -- (15,659)
Cash distributions (Note 8) -- (668,877) (6,756) (675,633)
------ ----------- ----------- -----------
Balance, December 31, 1996 47,410 6,791,606 (30,885) 6,760,721
Net income -- 417,979 4,222 422,201
Redemption of units (16) (2,808) -- (2,808)
Cash distributions (Note 8) -- (960,897) (6,889) (967,786)
------ ----------- ----------- -----------
Balance, December 31, 1997 47,394 6,245,880 (33,552) 6,212,328
Net income -- 438,434 4,429 442,863
Redemption of units (48) (7,913) -- (7,913)
Cash distributions (Note 8) -- (667,604) (6,743) (674,347)
------ ----------- ----------- -----------
Balance, December 31, 1998 47,346 $ 6,008,797 $ (35,866) $ 5,972,931
====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
13
<PAGE> 14
DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 442,863 $ 422,201 $ 292,257
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 241,698 265,532 281,447
Gain on sale of property -- (4,112) --
Writedown of real estate held for resale -- -- 102,369
Increase (decrease) in payable to limited partners 27,598 (175) 933
(Increase) decrease in receivable from General Partner (4,435) (2,080) 2,746
(Decrease) increase in accounts payable (2,310) 6,938 1,569
Increase in deposits (506) -- --
--------- --------- ---------
Net cash provided by operating activities 704,908 688,304 681,321
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property -- 278,612 --
Decrease in restricted cash 7,913 2,808 15,659
--------- --------- ---------
Net cash provided by investing activities 7,913 281,420 15,659
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of limited partnership units (7,913) (2,808) (15,659)
Cash distribution to partners (674,347) (967,786) (675,633)
--------- --------- ---------
Net cash used by financing activities (682,260) (970,594) (691,292)
--------- --------- ---------
INCREASE (DECREASE) IN CASH 30,561 (870) 5,688
BEGINNING CASH BALANCE 189,315 190,185 184,497
--------- --------- ---------
ENDING CASH BALANCE $ 219,876 $ 189,315 $ 190,185
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
14
<PAGE> 15
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE PARTNERSHIP: Del Taco Restaurant Properties III (a California limited
partnership) was formed on December 19, 1985, for the purpose of acquiring real
property in California for construction of ten Mexican-American restaurants to
be leased under long-term agreements to Del Taco, Inc. (General Partner for
operation under the Del Taco trade name). As of July 5, 1990, all ten
restaurants had commenced operation on acquired properties. In November 1997,
the Twentynine Palms property was sold yielding net proceeds of $278,612. As of
December 31, 1998, Del Taco Restaurant Properties III had nine properties in
operation.
BASIS OF ACCOUNTING: The partnership utilizes the accrual method of accounting
for transactions relating to the business of the partnership. Distributions are
made to the General and limited partners in accordance with the provisions of
the partnership agreement (see Note 2).
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation
is computed using the straight-line method over estimated useful lives which are
20 years for land improvements, 35 years for buildings and improvements, and 10
years for machinery and equipment.
In fiscal 1996, the partnership 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 or fair value less cost to sell.
The adoption of SFAS No. 121 did not have a material effect on the partnership's
financial statements.
INCOME TAXES: No provision has been made for federal or state income taxes on
partnership net income, since the partnership is not subject to income tax.
Partnership income is includable in the taxable income of the individual
partners as required under applicable income tax laws. Certain items, primarily
related to depreciation methods, are accounted for differently for income tax
reporting purposes (see Note 7).
15
<PAGE> 16
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NET INCOME PER LIMITED PARTNERSHIP UNIT: The net income per limited partnership
unit was calculated based upon 47,370, 47,398 and 47,461 weighted average units
outstanding in 1998, 1997, and 1996, respectively.
USE OF ESTIMATES: The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2 - PARTNERS' EQUITY
Pursuant to the partnership agreement, annual partnership net 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 3 - SITE ACQUISITION AND DEVELOPMENT FEE
Under terms of the partnership agreement, the General Partner is entitled to
receive a fee in an amount equal to five percent of aggregate capital
contributions. The fee shall be for services rendered in connection with site
selection and the design and supervision of construction of improvements to
acquired properties. This fee shall be earned at the time the services are
rendered, but shall not be paid and shall be subordinated to the limited
partners' interests until all restaurants have opened and the limited partners
have received certain minimum returns on their investment, as required by the
partnership agreement. It is the policy of the partnership to accrue the site
acquisition and development fee as an obligation to the General Partner. No fees
were earned for such services during 1998, 1997 and 1996.
16
<PAGE> 17
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
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, except for
the restaurant which was located in Twentynine Palms, California. Prior to the
sale of this property in November 1997, the subleasee paid a base rent of
$3,333.33 per month.
The partnership had a total of nine properties leased to Del Taco as of December
31, 1998.
The eight restaurants operated by Del Taco, for which the partnership is the
lessor, had combined, unaudited sales of $5,641,018, $5,355,612, and $5,301,274
and unaudited net income of $273,544, $206,143 and $154,989 for the years ended
December 31, 1998, 1997 and 1996, respectively. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense. The one
restaurant operated by a Del Taco franchisee from January 1, 1998 to December
29, 1998, for which the partnership is the lessor, had unaudited sales of
$431,400, $408,841 and $389,198 for the years ended December 31, 1998, 1997 and
1996, respectively.
The East Valley Blvd. Restaurant in Walnut, California had unaudited net losses
of $5,076, $18,594 and $19,991 for the years ended December 31, 1998, 1997 and
1996, respectively. The Vista Way Restaurant in Vista, California had an
unaudited net loss of $1,899 for the year ended December 31, 1998 and unaudited
net income of $1,546 and $5,968 for the years ended December 31, 1997 and 1996,
respectively.
NOTE 5 - RELATED PARTIES
The receivable from Del Taco consists of rent accrued for the month of December
1998. The rent receivable was collected on January 17, 1999.
The General Partner received $6,743 in distributions relating to its one percent
interest in the partnership for the year ended December 31, 1998.
17
<PAGE> 18
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 5 - RELATED PARTIES - CONTINUED
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.
NOTE 6 - RESTRICTED CASH
At December 31, 1998 and 1997 the partnership had restricted cash balances of
$99,896 and $107,809, respectively. 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.
NOTE 7 - INCOME TAXES
A reconciliation of financial statement net income to taxable income for each of
the periods is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income per financial statements $442,863 $422,201 $292,257
Tax loss on sale of asset -- (107,920) --
Write down of real estate -- -- 102,368
Excess book depreciation 145,232 164,586 154,745
-------- -------- --------
Taxable income $588,095 $478,867 $549,370
======== ======== ========
</TABLE>
18
<PAGE> 19
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 7 - INCOME TAXES - CONTINUED
A reconciliation of partnership equity per the financial statements to net worth
for tax purposes as of December 31, 1998, is as follows:
Partners' equity per financial statements $5,972,931
Issue costs of limited partnership
units capitalized for tax purposes 1,741,676
Excess tax depreciation 396,658
Tax loss on sale of assets (107,920)
Other 83
----------
Net worth for tax purposes $8,003,428
==========
NOTE 8 - CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cash distributions paid to limited partners for the three years ended December
31, 1998 were as follows:
<TABLE>
<CAPTION>
Weighted Number of
Cash Average Units
Distributions Number of Outstanding at
per Limited Units the End of
Quarter Ended Partnership Unit Outstanding Quarter
- ------------- ---------------- ----------- --------------
<S> <C> <C> <C>
December 31, 1995 $ 3.64 47,498 47,498
March 31, 1996 3.31 47,498 47,498
June 30, 1996 3.42 47,498 47,498
September 30, 1996 3.72 47,472 47,410
------
Total paid in 1996 $14.09
======
December 31, 1996 $ 3.63 47,410 47,410
March 31, 1997 3.39 47,410 47,410
June 30, 1997 3.47 47,394 47,394
September 30, 1997 3.89 47,394 47,394
------
Amount from operations 14.38
Return of capital (December 1997) 5.88 47,398
------
Total paid in 1997 $20.26
======
December 31, 1997 $3.71 47,394 47,394
March 31, 1998 2.97 47,394 47,394
June 30, 1998 3.47 47,378 47,346
September 30, 1998 3.95 47,370 47,346
------
Total paid in 1998 $14.10
======
</TABLE>
19
<PAGE> 20
DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998
NOTE 8 - CASH DISTRIBUTIONS TO LIMITED PARTNERS - CONTINUED
Cash distributions per limited partnership unit were calculated based upon the
weighted average number of units outstanding for each quarter and were paid from
operations. Cash distributions for the quarter ended December 31, 1998 amounted
to $3.82 per limited partnership unit and were paid January 31, 1999.
NOTE 9 - 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 generating a writedown
of $102,369 in the third quarter of 1996.
In November 1997, the Twentynine Palms property was sold yielding net proceeds
of $278,612, resulting in a gain of $4,112.
20
<PAGE> 21
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP'S GENERAL PARTNER
(a) & (b) The executive officers and directors of the General Partner and their
ages are set forth below:
<TABLE>
<CAPTION>
Name Title Age
- ---- ----- ---
<S> <C> <C>
Kevin K. Moriarty Director, Chairman and Chief Executive Officer 52
C. Ronald Petty President 54
Paul W. Hitzelberger Executive Vice President, Brand Strategy and
Franchise Relations/Development 54
Robert J. Terrano Executive Vice President and
Chief Financial Officer 43
James D. Stoops Executive Vice President, Operations 46
Janet D. Simmons Senior Vice President, Purchasing 42
Michael L. Annis Vice President, Secretary and General Counsel 52
C. Douglas Mitchell Vice President and Corporate Controller 48
Annette D. Shehan Vice President, Marketing 37
Shirlene Lopez Vice President, Corporate Development 34
</TABLE>
The above referenced executive officers and directors of the General Partner
will hold office until the annual meeting of its shareholders and directors,
which is scheduled for the later part of 1999.
(c) None
(d) No family relationship exists between any such director or executive officer
of the General Partner.
(e) The following is an account of the business experience during the past five
years of each such director and executive officer:
21
<PAGE> 22
KEVIN K. MORIARTY, Director, Chairman and Chief Executive Officer of Del Taco,
Inc. Mr. Moriarty began his career with Burger King Corporation in 1974 in
Operations Unit Management. In 1983, he was promoted to Area Manager in New
York, and was subsequently promoted to the Regional Vice President, Chicago
Region in 1985. In 1988, he became Executive Vice President and General Manager
of the North Central Division. Mr. Moriarty served in that position until 1990
when he joined Del Taco, Inc. as President and Chief Executive Officer on July
31, 1990. Mr. Moriarty has served as a Director of the General Partner since
1990.
C. RONALD PETTY, President of Del Taco, Inc. Mr. Petty began his career in the
restaurant business in 1973 with McDonald's Corporation. He was employed by
McDonald's in a real estate capacity until 1978. For the next 12 years, Mr.
Petty was in various officer positions with Burger King. These positions
included Vice President of Real Estate, Sr. Vice President of Development,
Region Vice President, Sr. Vice President European Operations, President of
International and President of U.S. Mr. Petty served as President of Miami Subs
from 1990-1992; President and CEO of Denny's 1993-1996; President and CEO of
Peter Piper Pizza 1996-1998; President of Del Taco December 1998-present.
PAUL W. HITZELBERGER, Executive Vice President, Brand Strategy and Franchise
Relations/Development of Del Taco, Inc. He was appointed to his current position
in December 1995. Mr. Hitzelberger has responsibility for franchise development,
relations and training and will oversee public relations and training for the
corporation. From 1991 to 1995, Mr. Hitzelberger was Executive Vice President,
Marketing of Del Taco, Inc. From September 1988 through September 1989, Mr.
Hitzelberger was Chief Executive Officer of Environmental Marketing Group. Prior
to that, Mr. Hitzelberger was a Vice President of Del Taco, Inc. Prior to
joining Del Taco, Inc., he served as Vice President - Marketing at the
department store division of Lucky Stores, Inc., a major supermarket retailer.
Prior to his position with Lucky, Mr. Hitzelberger held various positions in
marketing and retailing at Wallpapers to Go, Inc., a division of General Mills,
Inc., and Coast to Coast Stores, Inc. a subsidiary of Household Merchandising,
Inc. Mr. Hitzelberger received a Master of Business Administration degree from
Loyola University in Chicago, Illinois.
ROBERT J. TERRANO, Executive Vice President and Chief Financial Officer of Del
Taco, Inc. From May 1994 to April 1995, Mr. Terrano served as Chief Financial
Officer for Denny's, Inc. in Spartanburg, S.C. From August 1983 to May 1994, he
served with Burger King Corporation, Miami Florida, in a variety of positions,
most recently as Division Controller. Mr. Terrano joined Del Taco, Inc. in April
1995.
JAMES D. STOOPS, Executive Vice President, Operations of Del Taco, Inc. From
1968 to 1991, Mr. Stoops served in a wide variety of Operations positions with
Burger King Corporation with increasing levels of responsibility. In 1985, Mr.
Stoops was appointed Region Vice President/General Manager for the New York
region and served in that position until October of 1990. In January of 1991, he
joined Del Taco, Inc. in his current post.
JANET D. SIMMONS, Senior Vice President, Purchasing of Del Taco, Inc. From 1979
to 1986, Ms. Simmons was with Denny's Incorporated. She served in the Research
and Development department in a variety of positions until 1982 when she was
promoted to the position of Purchasing Agent. Ms. Simmons was hired in 1986 as
Manager of Contract Purchasing with Carl Karcher Enterprises, a post she held
until March 1990 when she became Vice President, Purchasing for Del Taco, Inc.
Ms. Simmons has a Bachelor of Science degree in Foods and Nutrition from Cal
State Polytechnic University in Pomona, California.
22
<PAGE> 23
MICHAEL L. ANNIS, Vice President, Secretary and General Counsel of Del Taco,
Inc. From 1981 to 1986 Mr. Annis served as Regional Real Estate Manager and
Director of Real Estate Services with Taco Bell, Inc. In 1986 he served as
Regional General Manager with Quaker State Minit Lube. In January of 1987 Mr.
Annis joined Red Robin International, Inc. as General Counsel and was
subsequently promoted to Vice President/Secretary and later Vice President Real
Estate Development/Secretary and General Counsel, the position he held until
joining Del Taco, Inc. in December of 1993. Mr. Annis received his J.D. Degree
from Whittier College.
C. DOUGLAS MITCHELL, Vice President and Corporate Controller. Mr. Mitchell
joined Del Taco, Inc. in August of 1994 as Controller and was promoted to his
current position in January 1996. From 1990 to 1994, Mr. Mitchell was a Senior
Audit Manager with Coopers & Lybrand. Prior to 1990, Mr. Mitchell held various
positions in finance and accounting with the Geneva Companies (a subsidiary of
Chemical Bank), Zaremba Corporation (a real estate developer) and The Dexter
Corporation (an international manufacturer of specialty materials). Mr. Mitchell
has a Bachelor of Science degree with a major in accounting from the University
of Southern California.
ANNETTE D. SHEHAN, Vice President, Marketing of Del Taco, Inc. From 1984-1994
Ms. Shehan was with Jack In The Box Restaurants where she held various positions
in Research & Development, Product Marketing and Advertising/Media. Ms. Shehan
was hired in 1994 as Manager of Broadcast Advertising with HomeBase, Inc. a home
improvement retailer, a post she held until 1998 when she became Vice President,
Marketing for Del Taco, Inc. Ms. Shehan has a Bachelor of Science Degree in Food
Science from California Polytechnic University, San Luis Obispo and a Master of
Business Administration from San Diego State University.
SHIRLENE LOPEZ, Vice President, Corporate Development & Design of Del Taco, Inc.
Ms. Lopez began her career with Del Taco in 1978 as an hourly employee and
advanced through the ranks to General Manager in 1984. Ms. Lopez was promoted to
the corporate office in 1989 as Human Resource Manager in support of the field
and office manager. In 1994, she was promoted to Executive Project Manager of
reporting to the CEO and in 1996, to Director of Corporate Development in charge
of all interior image and design. Ms. Lopez has held her current position since
August 1997.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The partnership has no executive officers or directors and pays no direct
remuneration to any executive officer or director of its General Partner. The
partnership has not issued any options or stock appreciation rights to any
executive officer or director of its General Partner, nor does the partnership
propose to pay any annuity, pension or retirement benefits to any executive
officer or director of its General Partner. The partnership has no plan, nor
does the partnership presently propose a plan, which will result in any
remuneration being paid to any executive officer or director of the General
Partner upon termination of employment.
23
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person of record currently owns more than five percent of limited
partnership units of the partnership, nor was any person known of by the
partnership to own of record and beneficially, or beneficially only,
more than five percent of such securities.
(b) Neither Del Taco, Inc., nor any executive officer or director of Del
Taco, Inc. owns any limited partnership units of the partnership.
(c) The partnership knows of no contractual arrangements, the operation or
the terms of which may at a subsequent date result in a change in
control of the partnership, except for provisions in the partnership
agreement providing for removal of the General Partner by holders of a
majority of the limited partnership units and if a material event of
default occurs under the financing agreements of the General Partner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) No transactions have occurred between the partnership and any executive
officer or director of its General Partner.
During 1998, the following transactions occurred between the partnership
and the General Partner pursuant to the terms of the partnership
agreement.
(1) The General Partner earned $4,429 as its one percent share of the
net income of the partnership.
(2) The General Partner received $6,743 in distributions relating to its
one percent interest in the partnership.
(b) During 1998, the partnership had no business relationships with any
entity of a type required to be reported under this item.
(c) Neither the General Partner, any director or officer of the General
Partner or any associate of any such person, was indebted to the
partnership at any time during 1998 for any amount in excess of $60,000.
(d) Not applicable.
24
<PAGE> 25
PART IV
ITEM 14(A)(1) AND (2). EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON
FORM 8-K
Financial statement schedules:
Schedule III - Real Estate and Accumulated Depreciation
Financial statement schedules other than those referred to above have
been omitted because they are not applicable or not required.
(b) No reports on Form 8-K were filed during the last quarter of 1998.
(c) Exhibits required by Item 601 of Regulation S-K:
1. Incorporated herein by reference, Restated Agreement of Limited
Partnership of Del Taco Restaurant Properties III filed as
Exhibit 3.01 to Partnership's Registration Statement on Form S-11
as filed with the Securities and Exchange Commission on December
30, 1985.
2. Incorporated herein by reference, Amendment to Restated Agreement
of Limited Partnership of Del Taco Restaurant Properties III.
3. Incorporated herein by reference, Form of Standard Lease to be
entered into by partnership and Del Taco, Inc., as lessee, filed
as Exhibit 10.02 to Partnership's Registration Statement on Form
S-11 as filed with the Securities and Exchange Commission on
December 30, 1985.
25
<PAGE> 26
DEL TACO RESTAURANT PROPERTIES III - SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cost capitalized Gross amount at
Initial cost subsequent to which carried at
to company acquisition close of period
--------------------------- ---------------- ----------------
Land Buildings & Land, buildings
Description & land Improve- Carrying & improvements Accumulated
(All Restaurants) Encumbrances improvements ments costs Total depreciation
- ----------------- ------------ ------------ ----------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rancho California, CA $ -- $ 384,400 $ 257,807 $ -- $ 642,207 $ 100,885
Vista, CA -- 512,130 343,471 -- 855,601 134,407
Industry, CA -- 627,082 420,566 -- 1,047,648 164,576
Perris, Ca -- 437,522 293,434 -- 730,956 114,826
Upland, CA -- 281,827 189,014 -- 470,841 73,964
Walnut, CA -- 340,848 228,597 -- 569,445 89,454
Los Angeles, CA -- 674,283 452,223 -- 1,126,506 176,964
Chatsworth, CA -- 642,475 430,890 -- 1,073,365 168,615
Victorville, CA -- 505,399 338,957 -- 844,356 132,643
--------------------------------------------------------------------------------------------
$ -- $4,405,966 $2,954,959 $ -- $7,360,925 $1,156,334
============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life on which
depreciation in latest
Description Date of Date income statement
(All Restaurants) construction acquired is computed
- ----------------- ------------ -------- ----------------------
<S> <C> <C> <C>
Rancho California, CA 1986 1986 20 (LI), 35 (BI)
Vista, CA 1987 1987 20 (LI), 35 (BI)
Industry, CA 1987 1987 20 (LI), 35 (BI)
Perris, Ca 1987 1987 20 (LI), 35 (BI)
Upland, CA 1987 1987 20 (LI), 35 (BI)
Walnut, CA 1988 1988 20 (LI), 35 (BI)
Los Angeles, CA 1988 1988 20 (LI), 35 (BI)
Chatsworth, CA 1989 1989 20 (LI), 35 (BI)
Victorville, CA 1989 1989 20 (LI), 35 (BI)
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Restaurants Depreciation
----------- ------------
<S> <C> <C>
Balances at December 31, 1995: $ 7,802,513 $ 910,410
Acquisitions -- 113,240
Sales -- --
Writedown of property (441,588) (93,796)
--------------------------
Balances at December 31, 1996: 7,360,925 929,854
Acquisitions -- 113,240
Sales -- --
--------------------------
Balances at December 31, 1997: 7,360,925 1,043,094
Acquisitions -- 113,240
Sales -- --
--------------------------
Balances at December 31, 1998: $ 7,360,925 $ 1,156,334
==========================
</TABLE>
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the partnership 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
Del Taco, Inc.
General Partner
Date March 07, 1999 Kevin K. Moriarty
-------------- -----------------
Kevin K. Moriarty
Director, Chairman and Chief
Executive Officer
Date March 07, 1999 Michael L. Annis
-------------- ----------------
Michael L. Annis
Vice President, Secretary and
General Counsel
Date March 07, 1999 Robert J. Terrano
-------------- -----------------
Robert J. Terrano
Executive Vice President and
Chief Financial Officer
Date March 07, 1999 C. Douglas Mitchell
-------------- -------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
27
<PAGE> 28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 219,876
<SECURITIES> 1,506
<RECEIVABLES> 63,803
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 285,185
<PP&E> 8,883,847
<DEPRECIATION> 2,679,255
<TOTAL-ASSETS> 6,589,673
<CURRENT-LIABILITIES> 39,232
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,972,931
<TOTAL-LIABILITY-AND-EQUITY> 5,972,931
<SALES> 0
<TOTAL-REVENUES> 741,140
<CGS> 0
<TOTAL-COSTS> 298,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 442,863
<INCOME-TAX> 0
<INCOME-CONTINUING> 442,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,863
<EPS-PRIMARY> 9.26
<EPS-DILUTED> 9.26
</TABLE>
