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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 SEPTEMBER 30, 1999 .
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 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)
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
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<S> <C>
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1999 (Unaudited) and
December 31, 1998 3
Statements of Income for the three and nine months ended
September 30, 1999 and 1998 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
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DEL TACO RESTAURANT PROPERTIES III
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 208,606 $ 219,876
Receivable from General Partner (Note 5) 61,279 63,803
Deposits 1,044 1,506
----------- -----------
Total current assets 270,929 285,185
----------- -----------
RESTRICTED CASH (NOTE 2) 97,291 99,896
----------- -----------
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 2,764,186 2,679,255
----------- -----------
6,119,661 6,204,592
----------- -----------
$ 6,487,881 $ 6,589,673
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 20,179 $ 31,604
Accounts payable 6,222 7,628
----------- -----------
Total current liabilities 26,401 39,232
----------- -----------
OBLIGATION TO GENERAL PARTNER 577,510 577,510
----------- -----------
PARTNERS' EQUITY:
Limited Partners 5,920,700 6,008,797
General Partner-Del Taco, Inc. (36,730) (35,866)
----------- -----------
5,883,970 5,972,931
----------- -----------
$ 6,487,881 $ 6,589,673
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 4 and 5) $190,476 $193,195 $542,003 $540,983
Interest 2,574 2,645 7,087 6,798
Other 500 1,000 1,820 2,677
-------- -------- -------- --------
193,550 196,840 550,910 550,458
-------- -------- -------- --------
EXPENSES:
General and administrative 8,914 9,282 44,723 45,028
Depreciation 28,310 62,520 84,931 195,286
-------- -------- -------- --------
37,224 71,802 129,654 240,314
-------- -------- -------- --------
Net income $156,326 $125,038 $421,256 $310,144
======== ======== ======== ========
Net income per limited
partnership unit (Note 3) $ 3.27 $ 2.61 $ 8.81 $ 6.48
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 421,256 $ 310,144
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 84,931 195,286
Decrease (increase) in receivable from General Partner 2,524 (2,606)
Decrease (increase) in deposits 462 (1,011)
(Decrease) increase in accounts payable and
payable to limited partners (12,831) 7,241
--------- ---------
Net cash provided by operating activities 496,342 509,054
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash 2,605 7,913
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CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of limited partnership units (2,605) (7,913)
Cash distributions to partners (507,612) (485,724)
--------- ---------
Net cash used by financing activities (510,217) (493,637)
--------- ---------
Net increase (decrease) in cash (11,270) 23,330
Beginning cash balance 219,876 189,315
--------- ---------
Ending cash balance $ 208,606 $ 212,645
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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, 1998. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1999,
the results of operations and cash flows for the nine month periods ended
September 30, 1999 and 1998 have been included. Operating results for the three
and nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
NOTE 2 - RESTRICTED CASH
At September 30, 1999 the partnership had a restricted cash balance of $97,291.
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.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
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
47,331 in 1999 and 47,378 in 1998.
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 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.
On December 29, 1998, the franchise agreement for the West Sepulveda Boulevard
restaurant in Los Angeles expired. Del Taco began operation of this restaurant
as a company managed facility on December 29, 1998. For the three months ended
September 30, 1999, the nine restaurants operated by Del Taco, for which the
partnership is the lessor, had combined, unaudited sales of $1,587,297 and net
income of $72,043, as compared to $1,494,530 and $79,072 respectively, for the
corresponding period in 1998 which included eight restaurants operated by Del
Taco. 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 September 30, 1998, the one
restaurant operated by a Del Taco franchisee, for which the partnership was the
lessor, had unaudited sales of $115,438.
For the nine months ended September 30, 1999, the nine restaurants operated by
Del Taco, for which the partnership is the lessor, had combined, unaudited sales
of $4,516,692 and net income of $155,485, as compared to $4,183,655 and $186,422
respectively, for the corresponding period in 1998 which included eight
restaurants operated by Del Taco. For the nine months ended September 30, 1998,
the one restaurant operated by a Del Taco franchisee, for which the partnership
was the lessor, had unaudited sales of $324,541.
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DEL TACO RESTAURANT PROPERTIES III
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999
NOTE 4 - LEASING ACTIVITIES - CONTINUED
For the three months and nine months ended September 30, 1999, the East Valley
Blvd. restaurant in Walnut, California reported net losses of $1,203 and $4,717
as compared to net losses of $2,150 and $6,507 for the corresponding period in
1998.
For the three months and nine months ended September 30, 1999, the East Gale
Blvd. restaurant in Puente Hills, California reported net losses of $2,377 and
$6,300 as compared to a net loss of $1,286 and net income of $1,020 for the
corresponding period in 1998.
For the three months and nine months ended September 30, 1999, the West
Sepulveda Blvd. restaurant in Los Angeles, California reported net income of
$120 and a net loss of $13,535. This restaurant was operated by a franchisee
during the nine months ended September 30, 1998.
NOTE 5 - TRANSACTIONS WITH DEL TACO
The receivable from General Partner consists primarily of rent accrued for the
month of September. The September rent was collected on October 15, 1999.
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.
In addition, see Note 6 with respect to certain distributions to the General
Partner.
NOTE 6 - DISTRIBUTIONS
On October 12, 1999, a distribution to the limited partners of $181,989, or
approximately $3.84 per limited partnership unit, was approved. Such
distribution was paid on October 20, 1999. The General Partner also received a
distribution of $1,834 with respect to its 1% partnership interest.
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ITEM 2. 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. One restaurant was sold in November 1997.
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 2 to the Notes to the Financial Statements, the partnership
has a death and disability redemption fund totaling $97,291 at September 30,
1999. 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.
Results of Operations
The partnership owns nine properties that are under long-term lease to Del Taco
for restaurant operations.
The following table sets forth rental revenue earned by restaurant for the year:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rancho California Plaza, Rancho California CA $ 30,563 $ 30,064 $ 86,917 $ 84,188
East Vista Way, Vista, CA 16,911 16,205 47,805 45,234
Plaza at Puente Hills, Industry, CA 12,936 14,967 38,896 41,104
4th Street, Perris, CA 24,754 30,788 74,294 86,163
Foothill Blvd., Upland, CA 24,632 22,603 66,743 62,616
East Valley Blvd., Walnut, CA 11,686 12,463 33,502 33,995
Lassen Street, Chatsworth, CA 27,753 29,586 79,697 85,068
Hesperia Road, Victorville, CA 23,709 22,666 68,225 63,580
W. Sepulveda Blvd., Los Angeles, CA 17,532 13,853 45,924 38,945
-------- -------- -------- --------
Total $190,476 $193,195 $542,003 $540,893
======== ======== ======== ========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
The partnership receives rental revenues equal to 12 percent of gross sales from
the restaurants. The partnership earned rental revenue of $190,476 during the
three month period ended September 30, 1999, which represents a decrease of
$2,719 from 1998. The partnership earned rental revenue of $542,003 during the
nine month period ended September 30, 1999, which represents an increase of
$1,020 from 1998. The changes in rental revenue were caused by about a 1%
decrease in sales at the restaurants under lease for the three months ended
September 30, 1999 and an increase in sales for the nine months ended September
30, 1999.
The following table breaks down general and administrative expenses by type of
expense:
<TABLE>
<CAPTION>
Percentage of Total
General & Administrative Expense
--------------------------------
Nine Months Ended
September 30,
1999 1998
------- -------
<S> <C> <C>
Accounting fees 52.15% 53.91%
Distribution of information
to limited partners 47.85 46.09
------- -------
100.00% 100.00%
======= =======
</TABLE>
Depreciation decreased in 1999 because certain equipment became fully
depreciated during 1998.
For the three month period ended September 30, 1999 net income increased by
$31,288 from 1998 to 1999 due the decrease in depreciation expense of $34,210
and the $368 decrease in general and administrative expenses which was partially
offset by the decrease in revenues of $3,290. For the nine month period ended
September 30, 1999 net income increased by $111,112 from 1998 to 1999 due to the
increase in revenues of $452 and the decreases in depreciation expense of
$110,355 and general and administrative expenses of $305.
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.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the nine months ended September 30,
1999.
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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: October 29, 1999 /s/ Robert J. Terrano
-------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 29, 1999 /s/ C. Douglas Mitchell
-------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
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EXHIBIT INDEX
<TABLE>
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 305,897
<SECURITIES> 1,044
<RECEIVABLES> 61,279
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 368,220
<PP&E> 8,883,847
<DEPRECIATION> 7,764,186
<TOTAL-ASSETS> 6,487,881
<CURRENT-LIABILITIES> 26,401
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,883,970
<TOTAL-LIABILITY-AND-EQUITY> 6,487,881
<SALES> 0
<TOTAL-REVENUES> 550,910
<CGS> 0
<TOTAL-COSTS> 129,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 421,256
<INCOME-TAX> 0
<INCOME-CONTINUING> 421,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 421,256
<EPS-BASIC> 8.81
<EPS-DILUTED> 8.81
</TABLE>
