<PAGE> 1
================================================================================
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, 1997
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 NUMBER: 2-92121
DEL TACO RESTAURANT PROPERTIES II
(A CALIFORNIA LIMITED PARTNERSHIP)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
23041 AVENIDA DE LA CARLOTA
LAGUNA HILLS, CALIFORNIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
33-0064245
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
92653
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 462-9300
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 July
10, 1984 are incorporated by reference into Part IV of this report.
================================================================================
<PAGE> 2
PART I
ITEM 1. BUSINESS
The Registrant is a publicly-held Limited Partnership organized under the
California Uniform Limited Partnership Act. In accordance with the Partnership
Agreement, the Registrant's General Partner is Del Taco, Inc., a California
corporation ("General Partner"). The Registrant sold 27,006 Units aggregating
$6,751,500 through offering of Limited Partnership Units from September 11, 1984
through December 31, 1985.
The Registrant has engaged in the business of acquiring sites in California for
the construction of seven Mexican-American restaurants for long-term lease to
Del Taco, Inc. for operation under the Del Taco trade name. Two of the seven
restaurants are no longer operating and were sold by the Registrant during 1994.
Each Property is leased for 35 years on a triple-net basis for a rent equal to
twelve percent of gross sales of the restaurant constructed thereon. The
activities of the Registrant relating to acquisition and development of the
Properties is presented under Item 2 below. The term of the Partnership
Agreement is until April 30, 2025, unless terminated earlier by means provided
therein.
Because the five Properties owned by the Registrant constitute virtually all of
the Registrant's income producing assets, the business of the Registrant is
almost entirely dependent on the success of the Del Taco trade name restaurants
which lease those Properties. In turn, the success of those restaurants, which
are not operated by the Registrant, is dependent on a larger variety of factors,
including, but not limited to, consumer demand and preference for fast food, in
general, and Mexican- American food in particular.
The Registrant has no full time employees. The General Partner is vested with
full authority as to the general management and supervision of the business and
affairs of the Registrant, and has a one percent interest in the profits or
losses and distributions of the Registrant. Limited Partners have no right to
participate in the management or conduct of such business and affairs.
2
<PAGE> 3
ITEM 2. PROPERTIES
The Registrant acquired seven Properties with proceeds obtained from the sale of
Limited Partnership Units:
<TABLE>
<CAPTION>
Date of
Date of Restaurant Commencement
Address City, State Acquisition Constructed of Operation (1)
- ------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Bear Valley Road Victorville, CA February 4, 1986 60 seat with drive June 13,
through service 1986
window
West Valley Colton, March 11, 1986 60 seat with drive June 24,
Boulevard CA through service 1986
window
Palmdale Boulevard Palmdale, December 12, 1986 60 seat with drive May 7,
CA through service 1987
window
South Gate Town South Gate, January 28, 1987 60 seat with drive May 28,
Center CA through service 1987 (2)
window
Main Avenue Fallbrook, March 10, 1987 60 seat with drive August 19,
CA through service 1987 (3)
window
De Anza Country Pedley, April 13, 1987 60 seat with drive October 28,
Shopping Center CA through service 1987
window
Varner Road Thousand Palms, CA October 14, 1987 60 seat with drive April 28,
through service 1988
window
</TABLE>
(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 May 1994, the South Gate property was sold yielding net proceeds to the
Registrant of $497,202.
(3) In November 1994, the Fallbrook property was sold yielding net proceeds to
the Registrant of $357,531.
3
<PAGE> 4
PART II
ITEM 3. LEGAL PROCEEDINGS
The Registrant 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 REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Registrant, a publicly-held Limited Partnership, sold 27,006 ($6,751,500)
Limited Partnership Units during the offering period ended December 31, 1985 and
currently has 1,484 Limited Partners of record. There is no public market for
the trading of the Units. Distributions made by the Registrant to the Limited
Partners during the past three fiscal years are described in Note 7 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,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rental Revenue $ 448,625 $ 431,906 $ 439,055 $ 467,568 $ 480,017
Interest and
other income 5,523 2,810 2,799 4,815 4,555
Net income (loss) 315,041 239,807 250,634 198,359 (111,128)
Net income (loss)
per limited
Partnership
Unit (1) 11.55 8.79 9.19 7.27 (4.07)
Cash Distributions
per Limited
Partnership
Unit (2)(3)(4)(5)(6)
From Operations 14.92 13.86 14.89 22.18 7.39
Sale of Land -- -- -- 31.65 --
Total Assets 2,612,583 2,698,704 2,833,273 3,001,469 4,255,885
Long-term
Obligations None None None None None
</TABLE>
(1) The net income (loss) per Limited Partnership Unit was calculated based
upon 27,006 weighted average Units outstanding for all years presented.
(2) Two quarterly distributions were disbursed during the year ended December
31, 1993. Cash distributions for the quarters ended September 30, 1993 and
December 31, 1993 amounted to $9.56 and were paid January 31, 1994 and
February 2, 1994 respectively.
(3) Cash distributions for the quarter ended December 31, 1994 amounted to
$4.07 per Limited Partnership Unit and were paid January 17, 1995. Seven
distributions were disbursed during the year ended December 31, 1994.
(4) Cash distributions for the quarter ended December 31, 1995 amounted to
$3.68 per Limited Partnership Unit and were paid January 15, 1995. Four
distributions were disbursed during the year ended December 31, 1995.
(5) Cash distributions for the quarter ended December 31, 1996 amounted to
$3.82 per Limited Partnership Unit and were paid January 31, 1996. Four
distributions were disbursed during the year ended December 31, 1996.
5
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA - CONTINUED
(6) Cash distributions for the quarter ended December 31, 1997 amounted to
$3.39 per Limited Partnership Unit and were paid January 31, 1998. Four
distributions were disbursed during the year ended December 31, 1997.
ITEM 7. 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.
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. 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 agreement to sell the Fallbrook
property. 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 (notwithstanding the sale of two of the restaurants,
as noted above). 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.
6
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
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.
The following table sets forth rental revenue earned by restaurant for the year:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Bear Valley Rd., Victorville, CA $ 88,858 $ 90,392 $112,503
West Valley Blvd., Colton, CA 95,315 85,203 79,368
Palmdale Blvd., Palmdale, CA 88,048 101,290 99,777
DeAnza Country Shopping Center, Pedley, CA 55,595 50,211 45,444
Varner Road, Thousand Palms, CA 120,809 104,810 101,963
-------- -------- --------
Total $448,625 $431,906 $439,055
======== ======== ========
</TABLE>
The Registrant had rental revenues of $448,625 for the year ended December 31,
1997, representing an increase from the rental revenues of $431,906 in 1996.
Such increase is directly attributable to increased sales at the remaining
restaurants.
The following table sets forth, for the periods indicated, the percentage
relationship to total general and administrative expenses of items included in
the Registrant's Statements of Income:
PERCENTAGE OF TOTAL GENERAL & ADMIN. EXPENSE
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Accounting fees 29.84% 32.56% 31.66%
Distribution of
information to
Limited Partners 68.55 64.81 65.28
Other 1.61% 2.63 3.06
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======
</TABLE>
7
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
Operating expenses include general and administrative expenses which consist
primarily of accounting fees and costs of distribution of information to the
Limited Partners. For the years ended December 31, general and administrative
expenses decreased from $50,834 in 1996 to $49,595 in 1997 reflecting lower
costs for accounting and distribution of information to the Limited Partners.
The Registrant incurred depreciation expense in the amount of $89,512, $144,075
and $144,075 for the years ended December 31, 1997, 1996 and 1995, respectively.
The decrease in depreciation expense during 1997 was a result of certain
equipment becoming fully depreciated during the year.
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.
8
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS
PART I. INFORMATION
<TABLE>
<CAPTION>
INDEX PAGE NUMBER
----- -----------
<S> <C>
Report of Independent Public Accountants 10
Balance Sheets at December 31, 1997 and 1996 11
Statements of Income for the years ended
December 31, 1997, 1996 and 1995 12
Statement of Changes in Partners' Equity for
the three years ended December 31, 1997 13
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 14
Notes to Financial Statements 15-19
</TABLE>
9
<PAGE> 10
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Del Taco Restaurant Properties, II:
We have audited the accompanying balance sheets of DEL TACO RESTAURANT
PROPERTIES II (a California limited partnership) as of December 31, 1997 and
1996, and the related statements of income, changes in partners' equity and
cash flows for each of three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
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
II as of December 31, 1997 and 1996, and the results of its operations and its
cash flows, for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule in the index of financial statements
is presented for purposes of complying with the Securities and Exchange
Commissions rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit 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 10, 1998
10
<PAGE> 11
DEL TACO RESTAURANT PROPERTIES II
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 119,687 $ 117,357
Receivable from Del Taco, Inc. (Note 5) 38,332 37,271
Deposits 1,000 1,000
----------- -----------
Total current assets 159,019 155,628
----------- -----------
PROPERTY AND EQUIPMENT, AT COST (NOTE 1)
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 1,490,271 1,400,759
----------- -----------
2,453,564 2,543,076
----------- -----------
$ 2,612,583 $ 2,698,704
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 6,608 $ 5,047
Accounts Payable 7,365 3,000
----------- -----------
Total current liabilities 13,973 8,047
----------- -----------
PARTNERS' EQUITY (NOTE 2)
Limited Partners 2,621,674 2,712,800
General Partner - Del Taco, Inc. (23,064) (22,143)
----------- -----------
2,598,610 2,690,657
----------- -----------
$ 2,612,583 $ 2,698,704
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
11
<PAGE> 12
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Rent (Note 4) $ 448,625 $ 431,906 $ 439,055
Interest 2,848 2,120 2,299
Other 2,675 690 500
------------ ------------ ------------
454,148 434,716 441,854
------------ ------------ ------------
EXPENSES:
General and administrative 49,595 50,834 47,145
Depreciation 89,512 144,075 144,075
------------ ------------ ------------
139,107 194,909 191,220
------------ ------------ ------------
Net income $ 315,041 $ 239,807 $ 250,634
============ ============ ============
Net income per Limited
Partnership Unit (Note 1) $ 11.55 $ 8.79 $ 9.19
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
12
<PAGE> 13
DEL TACO RESTAURANT PROPERTIES II
STATEMENT OF CHANGES IN PARTNERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Limited Partners
------------------------------ General
Units Amount Partner Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 27,006 $ 3,003,242 $ (19,209) $ 2,984,033
Net income 248,128 2,506 250,634
Cash distributions (Note 7) (401,946) (4,060) (406,006)
----------- -------------------------------------------------
Balance, December 31, 1995 27,006 2,849,424 (20,763) 2,828,661
Net income 237,409 2,398 239,807
Cash distributions (Note 7) (374,033) (3,778) (377,811)
----------- -------------------------------------------------
Balance, December 31, 1996 27,006 2,712,800 (22,143) 2,690,657
Net income 311,891 3,150 315,041
Cash distributions (Note 7) (403,017) (4,071) (407,088)
----------- -------------------------------------------------
Balance, December 31, 1997 27,006 $ 2,621,674 $ (23,064) $ 2,598,610
=========== =================================================
</TABLE>
The accompanying notes are an integral
part of these financial statements.
13
<PAGE> 14
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 315,041 $ 239,807 $ 250,634
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 89,512 144,075 144,075
Increase (decrease) in payable to
Limited Partners 1,561 1,485 (13,874)
(Increase) in receivable
from General Partner (1,061) (1,103) (294)
Increase in accounts payable 4,365 1,950 1,050
------------ ------------ ------------
Net cash provided by operating
activities 409,418 386,214 381,591
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (407,088) (377,811) (406,006)
------------ ------------ ------------
Net increase (decrease) in cash 2,330 8,403 (24,415)
Beginning cash balance 117,357 108,954 133,369
------------ ------------ ------------
Ending cash balance $ 119,687 $ 117,357 $ 108,954
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements.
14
<PAGE> 15
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE PARTNERSHIP: Del Taco Restaurant Properties II (a California limited
partnership) was formed on June 20, 1984, for the purpose of acquiring real
property in California for construction of seven 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 April 28, 1988, all seven
restaurants had commenced operation on acquired properties. The South Gate and
Fallbrook properties were sold on May 18, 1994 and November 30, 1994,
respectively.
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 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.
15
<PAGE> 16
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
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 6).
NET INCOME PER LIMITED PARTNERSHIP UNIT: Net income per Limited Partnership Unit
is based upon the weighted average number of Units outstanding during the period
which amounted to 27,006 for all years presented.
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
previously allocated. 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 site acquisition and development fee in an amount equal to the lesser
of five percent of the cost of the related property or $35,000. The fee shall be
for service rendered in connection with site selection and the design and
supervision of construction of improvements to acquired properties. No site
acquisition and development fees were paid in 1997, 1996 and 1995.
16
<PAGE> 17
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 4 - 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 December 31, 1997, 1996 and 1995.
The five restaurants operated by Del Taco, for which the Registrant is the
lessor, had combined, unaudited sales of $3,738,542, $3,599,217, $3,658,792 and
unaudited net income of $194,001, $162,868 and $195,392 for the years ended
December 31, 1997, 1996 and 1995, respectively. Net income by restaurant
includes charges for general and administrative expenses incurred in connection
with supervision of restaurant operations and interest expense.
The Clay Street restaurant in Pedley (Riverside), California had unaudited net
income of $2,641 and net losses of $1,636 and $4,854 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NOTE 5 - RELATED PARTIES
The receivable from Del Taco consists of rent accrued for the month of December
1997. The rent receivable was collected on January 17, 1998.
The General Partner received $4,071 in distributions during 1997 relating to its
one percent interest in the Registrant.
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.
17
<PAGE> 18
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 6 - INCOME TAXES
A reconciliation of financial statement net income to taxable income for each of
the periods is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income per financial statements $315,042 $239,807 $250,634
Excess book depreciation 43,573 98,136 90,287
-------- -------- --------
Taxable income $358,615 $337,943 $340,921
======== ======== ========
</TABLE>
A reconciliation of partnership equity per the financial statements to net worth
for tax purposes as of December 31, 1997, is as follows:
<TABLE>
<S> <C>
Partners' equity per financial
statements $2,598,610
Issue costs of Limited Partnership
Units capitalized for tax purposes 986,745
Excess tax depreciation 9,789
Writedown of Real Estate held for Sale 161,963
Other 5,465
----------
Net worth for tax purposes $3,762,572
==========
</TABLE>
18
<PAGE> 19
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1997
NOTE 7 - CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cash distributions to Limited Partners were as follows:
<TABLE>
<CAPTION>
Weighted Number of
Average Units
Distributions per Number of Outstanding
Limited Partnership Units at the End
Quarter Ended Unit Outstanding of Quarter
------------- ------------------- ----------- -----------
<S> <C> <C> <C>
December 31, 1994 $ 4.07 27,006 27,006
March 31, 1995 3.41 27,006 27,006
June 30, 1995 3.34 27,006 27,006
September 30, 1995 4.07 27,006 27,006
-------
Total paid in 1995 $ 14.89
=======
December 31, 1995 $ 3.68 27,006 27,006
March 31, 1996 3.49 27,006 27,006
June 30, 1996 2.85 27,006 27,006
September 30, 1996 3.83 27,006 27,006
-------
Total paid in 1996 $ 13.85
=======
December 31, 1996 $ 3.82 27,006 27,006
March 31, 1997 3.38 27,006 27,006
June 30, 1997 3.54 27,006 27,006
September 30, 1997 4.18 27,006 27,006
-------
Total paid in 1997 $ 14.92
=======
</TABLE>
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, 1997 amounted
to $3.39 per Limited Partnership Unit and were paid January 31, 1998.
19
<PAGE> 20
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'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 51
Paul W. Hitzelberger Executive Vice President, Brand Strategy and
Franchise Relations/Development 53
Robert Terrano Executive Vice President and
Chief Financial Officer 42
James D. Stoops Executive Vice President, Operations 45
Janet D. Simmons Senior Vice President, Purchasing 41
Michael L. Annis Vice President, Secretary and General Counsel 51
C. Douglas Mitchell Vice President and Corporate Controller 47
</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 1998.
(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:
20
<PAGE> 21
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.
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. Previously, Mr. Hitzelberger was Executive Vice President,
Marketing from February 1991 and Vice President, Marketing from 1989 to 1991.
Mr. Hitzelberger has responsibility for franchise development, relations and
training and will oversee public relations and training for the corporation.
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.
21
<PAGE> 22
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.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The Registrant has no executive officers or directors and pays no direct
remuneration to any executive officer or director of its General Partner. The
Registrant has not issued any options or stock appreciation rights to any
executive officer or director of its General Partner, nor does the Registrant
propose to pay any annuity, pension or retirement benefits to any executive
officer or director of its General Partner. The Registrant has no plan, nor does
the Registrant 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.
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 Registrant, nor was any person known of by the
Registrant 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 Registrant.
(c) The Registrant 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 Registrant, 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.
22
<PAGE> 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) No transactions have occurred between the Registrant and any executive
officer or director of its General Partner.
During 1997, the following transactions occurred between the Registrant
and the General Partner pursuant to the terms of the Partnership
Agreement.
(1) The General Partner earned $3,150 as its one percent share of the
net income of the Registrant.
(2) The General Partner received $4,071 in distributions relating to its
one percent interest in the Registrant.
(b) During 1997, the Registrant 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
Registrant at any time during 1997 for any amount in excess of $60,000.
(d) Not applicable.
23
<PAGE> 24
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 1997.
(c) Exhibits required by Item 601 of Regulation S-K:
1. Incorporated herein by reference, Agreement of Limited Partnership
of Del Taco Restaurant Properties II filed as Exhibit 3.01 to
Registrant's Registration Statement on Form S-11 as filed with the
Securities and Exchange Commission on July 10, 1984.
2. Incorporated herein by reference, Amendment to Agreement of Limited
Partnership of Del Taco Restaurant Properties II.
3. Incorporated herein by reference, Form of Standard Lease to be
entered into by Registrant and Del Taco, Inc., as lessee, filed as
Exhibit 10.02 to Registrant's Registration Statement on Form S-11 as
filed with the Securities and Exchange Commission on July 10, 1984.
24
<PAGE> 25
DEL TACO II - SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Cost capitalized Gross amount at
Initial cost subsequent to which carried at
to company acquisition close of period
Description Encumbrances ------------------------------------------------------------------------
Buildings Buildings & land
(All Restaurants) & land Improve- Carrying improvements
improvements ments costs Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Victorville, CA $ -- $ 327,770 $ 224,843 $ -- $ 552,613
Colton, CA -- 262,661 180,179 -- 442,840
Palmdale, CA -- 404,791 277,677 -- 682,468
Pedley, CA -- 364,334 249,925 -- 614,259
Thousand Palms, CA -- 446,450 306,255 -- 752,705
------------------------------------------------------------------------------------------
$ -- $1,806,006 $1,238,879 $ -- $3,044,885
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life on which
Description Accumulated Date of Date depreciation in latest
depreciation construction acquired income statement
(All Restaurants) is computed
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Victorville, CA $ 107,318 1986 1986 20 (LI), 35 (BI)
Colton, CA 86,000 1986 1986 20 (LI), 35 (BI)
Palmdale, CA 132,536 1986 1986 20 (LI), 35 (BI)
Pedley, CA 119,290 1987 1987 20 (LI), 35 (BI)
Thousand Palms, CA 146,176 1987 1987 20 (LI), 35 (BI)
---------
$ 591,320
=========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Restaurants Depreciation
-------------- ------------
<S> <C> <C>
Balances at December 31, 1994: $ 3,044,885 $ 428,780
Acquisitions -- 54,180
Sales -- --
----------- ---------
Balances at December 31, 1995: 3,044,885 482,960
Acquisitions -- 54,180
Sales -- --
----------- ---------
Balances at December 31, 1996: 3,044,885 537,140
Acquisitions -- 54,180
Sales -- --
----------- ---------
Balances at December 31, 1997: $ 3,044,885 $ 591,320
=========== =========
</TABLE>
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 07, 1998 Kevin K. Moriarty
-------------- -----------------
Kevin K. Moriarty
Director, Chairman and Chief
Executive Officer
Date March 07, 1998 Michael L. Annis
-------------- ----------------
Michael L. Annis
Vice President, Secretary and
General Counsel
Date March 07, 1998 Robert J. Terrano
-------------- -----------------
Robert J. Terrano
Executive Vice President and
Chief Financial Officer
Date March 07, 1998 C. Douglas Mitchell
-------------- -------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 119,687
<SECURITIES> 1,000
<RECEIVABLES> 38,332
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 159,019
<PP&E> 3,943,835
<DEPRECIATION> 1,490,271
<TOTAL-ASSETS> 2,612,583
<CURRENT-LIABILITIES> 13,973
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,598,610
<TOTAL-LIABILITY-AND-EQUITY> 2,612,583
<SALES> 0
<TOTAL-REVENUES> 454,148
<CGS> 0
<TOTAL-COSTS> 139,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 315,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 315,041
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,041
<EPS-PRIMARY> 11.55
<EPS-DILUTED> 11.55
</TABLE>
