<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
----------------------------------------
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. 2-92121
DEL TACO RESTAURANT PROPERTIES II
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0064245
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1800 W. KATELLA AVENUE, ORANGE, CALIFORNIA 92667
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 744-4334
(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 II
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
<S> <C>
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1995 (Unaudited) and
December 31, 1994 3
Statements of Income for the three and nine months ended
September 30, 1995 and 1994 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1995 and 1994 (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 12
SIGNATURES 13
</TABLE>
-2-
<PAGE> 3
DEL TACO RESTAURANT PROPERTIES II
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
1995 1994
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 121,527 $ 133,369
Receivable from General Partner (Note 4) 35,992 35,871
Deposits 1,000 1,000
----------- -----------
Total current assets 158,519 170,240
----------- -----------
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 1,806,006 1,806,006
Buildings and improvements 1,238,879 1,238,879
Machinery and equipment 898,950 898,950
----------- -----------
3,943,835 3,943,835
Less--accumulated depreciation 1,220,662 1,112,606
----------- -----------
2,723,173 2,831,229
----------- -----------
$ 2,881,692 $ 3,001,469
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 3,831 $ 17,436
Accounts Payable 4,955 -
----------- -----------
Total current liabilities 8,786 17,436
----------- -----------
PARTNERS' EQUITY
Limited Partners 2,893,227 3,003,242
General Partner-Del Taco, Inc. (20,321) (19,209)
----------- -----------
2,872,906 2,984,033
----------- -----------
$ 2,881,692 $ 3,001,469
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
-3-
<PAGE> 4
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 3 and 4) $114,459 $119,813 $328,795 $351,336
Interest 547 643 1,802 2,774
Other 75 250 450 650
-------- -------- -------- --------
115,081 120,706 331,047 354,760
-------- -------- -------- --------
EXPENSES:
General and administrative 8,867 8,548 39,038 46,146
Depreciation 36,017 36,017 108,055 108,055
Writedown of real estate held
for sale (Note 6) - 74,797 - 74,797
-------- -------- -------- --------
44,884 119,362 147,093 228,998
-------- -------- -------- --------
Net income $ 70,197 $ 1,344 $183,954 $125,762
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 2) $ 2.57 $ .05 $ 6.74 $ 4.61
======== ======== ======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-4-
<PAGE> 5
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
-------- --------
<S> <C> <C>
SOURCE OF CASH:
From operations:
Net income $183,954 $125,762
Depreciation 108,055 108,055
Writedown of real estate held for sale (Note 6) - 74,797
-------- --------
Total cash provided from operations 292,009 308,614
Cash distributions 295,080 979,789
-------- --------
Excess (deficiency) of cash generated
over distributions (3,071) (671,175)
Proceeds from sale of land - 497,202
Decrease in receivable from General Partner - 3,865
Increase in payable to Limited Partners - 3,054
Increase in accounts payable 4,955 135
-------- --------
1,884 (166,919)
-------- --------
USE OF CASH:
Increase in receivable from General Partner 121 -
Decrease in payable to Limited Partners 13,605 -
-------- --------
13,726 -
-------- --------
Decrease in cash during period (11,842) (166,919)
Beginning cash balance 133,369 307,070
-------- --------
Ending cash balance $121,527 $140,151
======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-5-
<PAGE> 6
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
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, 1994. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1995,
the results of operations and cash flows for the nine month periods ended
September 30, 1995 and 1994 have been included. Operating results for the three
and nine months ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995.
NOTE 2 - 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
27,006 in 1995 and 1994.
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
previously allocated. Additional gains will be allocated 15 percent to the
General Partner and 85 percent to the Limited Partners.
-6-
<PAGE> 7
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1995
NOTE 3 - 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 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. The Registrant had a total of six Properties
leased as of September 30, 1994 and a total of five as of September 30, 1995.
On November 19 and 20, 1990, respectively, the restaurants located on the
Properties in South Gate and Fallbrook, California, respectively, (the "Closed
Properties") leased to Del Taco ceased operation. Pursuant to a Settlement
Agreement dated as of October 26, 1993 approved in connection with Del Taco's
voluntary bankruptcy case: (i) Del Taco was required to pay rent to the
Registrant in the amount of $2,248.87 per month for the South Gate Property and
$2,332.85 per month for the Fallbrook Property; (ii) on January 1 of each
calendar year commencing with January 1, 1994, the monthly base rent payable was
adjusted for any applicable Consumer Price Index increase; (iii) Del Taco was
required to market the Closed Properties and pay the Registrant, upon sale, the
difference between the most recent appraised value and the selling price; and
(iv) upon such sale, the relevant Leases were terminated. The South Gate and
Fallbrook properties were sold on May 18, 1994 and November 30, 1994,
respectively.
NOTE 4 - 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 20, 1995.
-7-
<PAGE> 8
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1995
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 5 with respect to certain distributions to the General
Partner.
NOTE 5 - DISTRIBUTIONS
On October 10, 1995, a distribution to the Limited Partners of $109,817, or
approximately $4.07 per Limited Partnership Unit, was approved. Such
distribution was paid on October 16, 1995. The General Partner also received a
distribution of $1,109 with respect to its 1% partnership interest.
NOTE 6 - WRITEDOWN OF REAL ESTATE HELD FOR SALE
In September 1994, the Registrant entered an agreement to sell the Fallbrook
property for a price which exceeded the appraised value but was less than the
net book value. Accordingly, the carrying value of the Fallbrook property was
adjusted down to the expected sale price generating a write down of $74,797 in
the third quarter of 1994.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Registrant commenced offering of Limited Partnership Units on September 11,
1984. By December 31, 1985, the sale of such Units provided a total
capitalization for the Registrant of $6,751,500. Fifteen 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. The
remaining funds were expended for the acquisition of sites and construction of
seven restaurants. In June 1986, the first two restaurants opened for business.
Four additional restaurants opened in 1987, and the seventh restaurant opened in
April of 1988. Approximately $5,600,000 was expended for such purposes.
As a result of continued lower-than-acceptable sales volumes, the South Gate and
Fallbrook restaurants ceased operation on November 19 and 20, 1990. Pursuant to
a Settlement Agreement dated as of October 26, 1993 approved in connection with
Del Taco's voluntary bankruptcy case: (i) Del Taco was required to pay rent to
the Registrant in the amount of $2,248.87 per month for the South Gate property
and $2,332.85 per month for the Fallbrook property; (ii) on January 1 of each
calendar year commencing with January 1, 1994, the monthly base rent payable was
adjusted for any applicable Consumer Price Index increase; (iii) Del Taco was
required to market the South Gate and Fallbrook properties and pay the
Registrant, upon sale, the difference between the most recent appraised value
and the selling price; and (iv) upon such sale, the relevant Leases were
terminated.
In February 1994, an escrow was opened pursuant to an agreement between the
Registrant and the City of South Gate for the sale of the South Gate property to
the City of South Gate for an amount which exceeded appraised value. Escrow
closed on May 18, 1994. The net proceeds of $497,202 were distributed by the
Partnership to Limited Partners of record as of May 31, 1994 and was paid June
1, 1994.
In September 1994, the Registrant entered into an agreement to sell the
Fallbrook property for a price which exceeded the appraised value but was less
than the net book value. Accordingly, the most recent carrying value of the
Fallbrook property was adjusted down to the expected sales price generating a
write down of $74,797 in the third
-9-
<PAGE> 10
quarter of 1994. Escrow closed on November 30, 1994. The net proceeds of
$357,531 were distributed by the Partnership to Limited Partners of record as of
November 30, 1994 and was paid December 12, 1994.
Since the restaurants owned by the Registrant commenced operation, cash flow
from Lease payments received from Del Taco, the Registrant's General Partner,
which leases all five remaining restaurants, has 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.
Results of Operations
The Registrant owned seven Properties that were under long-term lease to Del
Taco for restaurant operations. Two restaurants were sold in 1994 and five are
currently operating. For the five operating Del Taco restaurants, the Registrant
receives rental revenues equal to 12 percent of restaurant sales. For the two
restaurants which were sold in 1994, the Registrant received rental revenues of
approximately $2,000 per restaurant per month.
Rental revenues for the three months ended September 30 decreased from $119,813
in 1994 to $114,459 in 1995. The Registrant had rental revenues of $328,795 for
the nine months ended September 30, 1995, representing a decrease from the
rental revenues of $351,336 in 1994. Such decrease is directly attributable to
lost revenues due to the sale of the South Gate and Fallbrook stores. Rental
revenues from the five existing restaurants have increased for the three months
ended September 30 from $112,682 in 1994 to $114,459 in 1995 and for the nine
months ended September 30 from $320,861 in 1994 to $328,795 in 1995.
The following table sets forth the percentage relationship to total general and
administrative expenses of items included in the Registrant's Statements of
Income:
-10-
<PAGE> 11
<TABLE>
<CAPTION>
Percentage of Total
General & Administrative Expense
--------------------------------
Nine Months Ended
September 30
1995 1994
------ ------
<S> <C> <C>
Accounting fees 38.23% 38.03%
Distribution of
information to
Limited Partners 59.25 58.98
Other 2.52 2.99
------ ------
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. General and administrative expenses increased for the three
months ended September 30 from $8,548 in 1994 to $8,867 in 1995. For the nine
months ended September 30, general and administrative expenses decreased from
$46,146 in 1994 to $39,038 in 1995. Depreciation expense was $36,017 for the
three months ended September 30, 1995 and 1994. The Registrant incurred
depreciation expense in the amount of $108,055 for the nine months ended
September 30, 1995 and 1994.
For the three months ended September 30, 1995 revenues decreased $5,625 and
expenses decreased $74,478, creating a increase in net income from $1,344 in
1994 to $70,197 in 1995. The increase in net income was caused principally by
the writedown of real estate held for sale which was included in expenses in
1994. As a result of decreased revenues totaling $23,713 for the nine months
ended September 30, 1995 and decreased expenses totaling $81,905 for the nine
months ended September 30, 1995, the net income of the Registrant increased from
$125,762 for the nine months ended September 30, 1994 to $183,954 for the
corresponding period in 1995.
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
-11-
<PAGE> 12
Properties leased to Del Taco as well as upon Del Taco's financial condition and
results of operations generally.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the nine months ended September
30, 1995.
(C) Exhibit 27 - Financial Data Schedule
-12-
<PAGE> 13
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 II
(a California limited partnership)
Registrant
Del Taco, Inc.
General Partner
Date: October 24 1995 /s/ Robert J. Terrano
----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
(duly authorized to sign on
behalf of the Registrant)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 121,527
<SECURITIES> 0
<RECEIVABLES> 35,992
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 158,519
<PP&E> 3,943,835
<DEPRECIATION> 1,220,662
<TOTAL-ASSETS> 2,881,692
<CURRENT-LIABILITIES> 8,786
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,872,906
<TOTAL-LIABILITY-AND-EQUITY> 2,881,692
<SALES> 0
<TOTAL-REVENUES> 331,047
<CGS> 0
<TOTAL-COSTS> 147,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 183,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 183,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183,954
<EPS-PRIMARY> 6.74
<EPS-DILUTED> 6.74
</TABLE>
