<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, 1998
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
COMMISSION FILE NO. 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)
(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 [ ]
-1-
<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, 1998 (Unaudited) and
December 31, 1997 3
Statements of Income for the three and nine months ended
September 30, 1998 and 1997 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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<PAGE> 3
DEL TACO RESTAURANT PROPERTIES II
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 143,641 $ 119,687
Receivable from General Partner (Note 4) 39,583 38,332
Deposits 1,937 1,000
----------- -----------
Total current assets 185,161 159,019
----------- -----------
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 1,530,906 1,490,271
----------- -----------
2,412,929 2,453,564
----------- -----------
$ 2,598,090 $ 2,612,583
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 11,858 $ 6,608
Accounts Payable 2,921 7,365
----------- -----------
Total current liabilities 14,779 13,973
----------- -----------
PARTNERS' EQUITY:
Limited Partners 2,606,528 2,621,674
General Partner-Del Taco, Inc. (23,217) (23,064)
----------- -----------
2,583,311 2,598,610
----------- -----------
$ 2,598,090 $ 2,612,583
=========== ===========
</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
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 3 and 4) $127,142 $117,027 $357,330 $333,692
Interest 870 673 1,658 2,245
Other 1,225 1,900 2,175 2,150
-------- -------- -------- --------
129,237 119,600 361,163 338,087
-------- -------- -------- --------
EXPENSES:
General and administrative 8,602 7,393 42,093 38,810
Depreciation 13,545 13,545 40,635 85,583
-------- -------- -------- --------
22,147 20,938 82,728 124,393
-------- -------- -------- --------
Net income $107,090 $ 98,662 $278,435 $213,694
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 2) $ 3.93 $ 3.62 $ 10.21 $ 7.83
======== ======== ======== ========
</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
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 278,435 $ 213,694
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 40,635 85,583
Increase in payable to Limited Partners 5,250 408
(Increase) decrease in receivable from
General Partner (1,251) 316
(Decrease) increase in accounts payable (4,444) 184
Increase in deposits (937) --
--------- ---------
Net cash provided by operating activities 317,688 300,185
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (293,734) (293,160)
--------- ---------
Net increase in cash 23,954 7,025
Beginning cash balance 119,687 117,357
--------- ---------
Ending cash balance $ 143,641 $ 124,382
========= =========
</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, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements, some of which are unaudited, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should therefore be read in conjunction with the
financial statements and notes thereto contained in the Registrant's annual
report on Form 10-K for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1998,
the results of operations and cash flows for the nine month periods ended
September 30, 1998 and 1997 have been included. Operating results for the three
and nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
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 1998 and 1997.
Pursuant to the Partnership Agreement, annual partnership income or loss is
allocated one percent to the General Partner and 99 percent to the Limited
Partners. Partnership gains from any sale or refinancing will be allocated one
percent to the General Partner and 99 percent to the Limited Partners until
allocated gains and profits equal losses, distributions and syndication costs
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, 1998 and 1997.
-6-
<PAGE> 7
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
NOTE 3 - LEASING ACTIVITIES - (Continued)
For the three months ended September 30, 1998, the five restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $1,059,512 and net income of $80,355 as compared to $975,227 and $56,754
respectively, for the corresponding period in 1997. Net income by restaurant
includes charges for general & administrative expenses incurred in connection
with supervision of restaurant operations and interest expense.
For the nine months ended September 30, 1998, the five restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $2,977,753 and net income of $186,142 as compared to $2,780,771 and $137,227
respectively, for the corresponding period in 1997.
For the three months and nine months ended September 30, 1998, the Clay Street
restaurant in Pedley (Riverside), California reported net income of $2,592 and
$6,602 as compared to net income of $155 and a net loss of $1,127 respectively,
for the corresponding period in 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 13, 1998.
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants and four partnerships
which were formed for the purpose of acquiring real property in California for
construction of Mexican-American restaurants for lease under long-term
agreements to Del Taco, Inc. for operation under the Del Taco trade name.
In addition, see Note 5 with respect to certain distributions to the General
Partner.
NOTE 5 - DISTRIBUTIONS
On October 12, 1998, a distribution to the Limited Partners of $123,565 or
approximately $4.58 per Limited Partnership Unit, was approved. Such
distribution was paid on October 15, 1998. The General Partner also received a
distribution of $1,248 with respect to its 1% partnership interest.
-7-
<PAGE> 8
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.
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 $117,027
in 1997 to $127,142 in 1998. The Registrant had rental revenues of $333,692 for
the nine months ended September 30, 1997, and the rental revenue increased to
$357,330 in 1998. The increase in revenues is directly attributable to increased
sales at the restaurants.
-8-
<PAGE> 9
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
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Bear Valley Rd., Victorville, CA $ 25,471 $ 22,836 $ 70,744 $ 65,684
West Valley Blvd., Colton, CA 28,092 26,604 76,241 70,707
Palmdale Blvd., Palmdale, CA 21,980 21,270 61,210 67,478
DeAnza Country Shopping Center, 17,047 14,315 47,855 40,487
Pedley, CA
Varner Road, Thousand Palms, CA 34,552 32,002 101,280 89,336
-------- -------- -------- --------
Total $127,142 $117,027 $357,330 $333,692
======== ======== ======== ========
</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
1998 1997
------- -------
<S> <C> <C>
Accounting fees 57.46% 57.23%
Distribution of
information to
Limited Partners 40.48 40.87
Other 2.06 1.90
------- -------
100.00% 100.00%
======= =======
</TABLE>
Certain reclassifications have been made to the fiscal year 1997 general and
administrative expenses to conform to the fiscal year 1998 presentation.
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 $7,393 in 1997 to $8,602 in 1998. For the nine
months ended September 30, general and administrative expenses increased from
$38,810 in 1997 to $42,093 in 1998. General and administrative expenses
increased due to increased costs of printing and distribution. Depreciation
expense was $13,545 for the three months ended September 30, 1998 and 1997,
respectively. The Registrant incurred depreciation expense in the amount of
$40,635 for the nine months ended September 30, 1998 and $85,583 for the nine
months ended September 30, 1997. The decrease in depreciation expense is a
result of certain equipment becoming fully depreciated.
-9-
<PAGE> 10
For the three months ended September 30, 1998 revenues increased $9,637 and
expenses increased $1,209, creating an increase in net income from $98,662 in
1997 to $107,090 in 1998. As a result of increased revenues totaling $23,076 for
the nine months ended September 30, 1998 and decreased expenses totaling $41,665
for the nine months ended September 30, 1998, the net income of the Registrant
increased from $213,694 for the nine months ended September 30, 1997 to $278,435
for the corresponding period in 1998.
For the reasons stated under "Liquidity and Capital Resources" above, the
Registrant's results of operations in the future will depend primarily upon the
gross revenues of the restaurants located on the Properties leased to Del Taco
as well as upon Del Taco's financial condition and results of operations
generally.
Management does not believe the operations of the Company will be significantly
impacted by the year 2000 software issue and does not believe the year 2000
software issue will materially effect the Company's operations, financial
position or cash flows.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the nine months ended
September 30, 1998.
-10-
<PAGE> 11
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, 1998 /s/ Robert J. Terrano
-----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 30, 1998 /s/ C. Douglas Mitchell
-----------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
-11-
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 143,641
<SECURITIES> 1,937
<RECEIVABLES> 39,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 185,161
<PP&E> 3,943,835
<DEPRECIATION> 1,530,906
<TOTAL-ASSETS> 2,598,090
<CURRENT-LIABILITIES> 14,779
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,583,311
<TOTAL-LIABILITY-AND-EQUITY> 2,598,090
<SALES> 0
<TOTAL-REVENUES> 361,163
<CGS> 0
<TOTAL-COSTS> 87,728
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 278,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 278,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278,435
<EPS-PRIMARY> 10.21
<EPS-DILUTED> 10.21
</TABLE>
