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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, 1997
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to _____________________
Commission file no. 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 Number)
23041 Avenida De La Carlota, Suite 400, Laguna Hills, CA 92653
(Address of principal executive offices) (Zip Code)
(714) 462-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
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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, 1997 (Unaudited) and
December 31, 1996 3
Statements of Income for the three and nine months ended
September 30, 1997 and 1996 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 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 II
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $124,382 $117,357
Receivable from General Partner (Note 4) 36,955 37,271
Deposits 1,000 1,000
----------- -----------
Total current assets 162,337 155,628
----------- -----------
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 1,486,342 1,400,759
----------- -----------
2,457,493 2,543,076
----------- -----------
$2,619,830 $2,698,704
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $5,455 5,047
Accounts Payable 3,184 3,000
----------- -----------
Total current liabilities 8,639 8,047
----------- -----------
PARTNERS' EQUITY
Limited Partners 2,634,129 2,712,800
General Partner-Del Taco, Inc. (22,938) (22,143)
----------- -----------
2,611,191 2,690,657
----------- -----------
$2,619,830 $2,698,704
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
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DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 3 and 4) $117,027 $114,583 $333,692 $319,601
Interest 673 569 2,245 1,542
Other 1,900 275 2,150 665
------- ------- ------- -------
119,600 115,427 338,087 321,808
------- ------- ------- -------
EXPENSES:
General and administrative 7,393 10,726 38,810 42,734
Depreciation 13,545 36,017 85,583 108,054
------- ------- ------- -------
20,938 46,743 124,393 150,788
------- ------- ------- -------
Net income $ 98,662 $ 68,684 $213,694 $171,020
======= ======= ======= =======
Net income per Limited
Partnership Unit (Note 2) $3.62 $2.52 $7.83 $6.27
===== ===== ===== =====
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $213,694 $171,020
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 85,583 108,054
Increase in payable to Limited Partners 408 2,461
Decrease in receivable from
from General Partner 316 618
Increase (decrease) in accounts payable 184 (288)
------- -------
Net cash provided by operating activities 300,185 281,865
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (293,160) (273,662)
------- -------
Net increase in cash 7,025 8,203
Beginning cash balance 117,357 108,954
------- -------
Ending cash balance $124,382 $117,157
======= =======
</TABLE>
The accompanying notes are an
integral part of these financial statements.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements, some of which are unaudited, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should therefore be read in conjunction with the
financial statements and notes thereto contained in the Registrant's annual
report on Form 10-K for the year ended December 31, 1996. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1997,
the results of operations and cash flows for the nine month periods ended
September 30, 1997 and 1996 have been included. Operating results for the three
and nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
In fiscal 1996, the Registrant adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed of." SFAS 121 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value of the asset may not be recoverable. In
evaluating long-lived assets held for use, an impairment loss is recognized if
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying value of the asset. Once a determination has
been made that an impairment loss should be recognized for long-lived assets,
various assumptions and estimates are used to determine fair value including,
among others, estimated costs of construction and development, recent sales of
comparable properties and the opinions of fair value prepared by independent
real estate appraisers. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
The adoption of SFAS No. 121 did not have a material effect on the Registrant's
financial statements.
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 1997 and 1996.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1997
NOTE 2 - NET INCOME PER LIMITED PARTNERSHIP UNIT - (Continued)
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.
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 five Properties
leased as of September 30, 1997 and 1996.
For the three months ended September 30, 1997, the five restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $975,227 and net income of $56,754 as compared to $954,851 and $54,100
respectively, for the corresponding period in 1996. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense.
For the nine months ended September 30, 1997, the five restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $2,780,771 and net income of $137,227 as compared to $2,663,343 and $104,445
respectively, for the corresponding period in 1996.
For the three months and nine months ended September 30, 1997, the Clay Street
restaurant in Riverside, California reported net income of $155 and net loss of
$1,127 as compared to net income of $313 and net loss of $3,897 respectively,
for the corresponding period in 1996.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1997
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 11, 1997.
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants and four partnerships
which were formed for the purpose of acquiring real property in California for
construction of Mexican-American restaurants for lease under long-term
agreements to Del Taco, Inc.
for operation under the Del Taco trade name.
In addition, see Note 5 with respect to certain distributions to the General
Partner.
NOTE 5 - DISTRIBUTIONS
On October 15, 1997, a distribution to the Limited Partners of $112,788 or
approximately $4.18 per Limited Partnership Unit, was approved. Such
distribution was paid on October 16, 1997. The General Partner also received a
distribution of $1,139 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 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. Two
restaurants were sold in 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.
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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.
Rental revenues for the three months ended September 30, increased from $114,583
in 1996 to $117,027 in 1997. The Registrant had rental revenues of $319,601 for
the nine months ended September 30, 1996, and the rental revenue increased to
$333,692 in 1997. The increase in revenues is directly attributable to increased
sales at the restaurants.
The following table sets forth rental revenue earned by restaurant for the
quarter and year to date:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Bear Valley Rd., Victorville, CA $ 22,836 $ 23,974 $ 65,684 $ 66,400
West Valley Blvd., Colton, CA 26,604 23,841 70,707 63,177
Palmdale Blvd., Palmdale, CA 21,270 26,901 67,478 74,997
DeAnza Country Shopping Center, 14,315 13,420 40,487 36,905
Pedley, CA
Varner Road, Thousand Palms, CA 32,002 26,447 89,336 78,122
------- ------- ------- -------
Total $117,027 $114,583 $333,692 $319,601
======= ======= ======= =======
</TABLE>
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
--------------------------------
Nine Months Ended
September 30
1997 1996
------ ------
<S> <C> <C>
Accounting fees 36.90% 36.39%
Distribution of
information to
Limited Partners 61.04 60.49
Other 2.06 3.12
------ ------
100.00% 100.00%
</TABLE>
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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 decreased for the three
months ended September 30 from $10,726 in 1996 to $7,393 in 1997. The quarter
ended September 30, 1996 included printing costs for new checks, envelopes and
stationary. For the nine months ended September 30, general and administrative
expenses decreased from $42,734 in 1996 to $38,810 in 1997. Depreciation expense
was $13,545 and $36,017 for the three months ended September 30, 1997 and 1996,
respectively. The Registrant incurred depreciation expense in the amount of
$85,583 for the nine months ended September 30, 1997 and $108,054 for the nine
months ended September 30, 1996. The decrease in depreciation expense is a
result of certain equipment becoming fully depreciated.
For the three months ended September 30, 1997 revenues increased $4,173 and
expenses decreased $25,805, creating an increase in net income from $68,684 in
1996 to $98,662 in 1997. As a result of increased revenues totaling $16,279 for
the nine months ended September 30, 1997 and decreased expenses totaling $26,395
for the nine months ended September 30, 1997, the net income of the Registrant
increased from $171,020 for the nine months ended September 30, 1996 to $213,694
for the corresponding period in 1997.
For the reasons stated under "Liquidity and Capital Resources" above, the
Registrant's results of operations in the future will depend primarily upon the
gross revenues of the restaurants located on the Properties leased to Del Taco
as well as upon Del Taco's financial condition and results of operations
generally.
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, 1997.
27 Financial Data Schedule.
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<PAGE> 12
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 30, 1997 /s/ Robert J. Terrano
---------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 30, 1997 /s/ C. Douglas Mitchell
-----------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 124,382
<SECURITIES> 1,000
<RECEIVABLES> 36,955
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 162,337
<PP&E> 3,943,835
<DEPRECIATION> 1,486,342
<TOTAL-ASSETS> 2,619,830
<CURRENT-LIABILITIES> 8,639
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,611,191
<TOTAL-LIABILITY-AND-EQUITY> 2,619,830
<SALES> 0
<TOTAL-REVENUES> 338,087
<CGS> 0
<TOTAL-COSTS> 124,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 213,694
<INCOME-TAX> 0
<INCOME-CONTINUING> 213,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213,694
<EPS-PRIMARY> 7.83
<EPS-DILUTED> 7.83
</TABLE>
