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, 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. 2-80930 DEL TACO RESTAURANT PROPERTIES I a California limited partnership (Exact name of registrant as specified in its charter) CALIFORNIA 95-3852699 (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 --- --- =============================================================================== 2 INDEX DEL TACO RESTAURANT PROPERTIES I PART I. FINANCIAL INFORMATION PAGE NUMBER 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 -2- 3 DEL TACO RESTAURANT PROPERTIES I BALANCE SHEETS September 30 December 31 1997 1996 ---------- ---------- (Unaudited) ASSETS CURRENT ASSETS: Cash $139,752 $130,996 Receivable from General Partner (Note 4) 44,442 38,478 Deposits 600 600 ---------- ---------- Total current assets 184,794 170,074 ---------- ---------- PROPERTY AND EQUIPMENT, AT COST Land and improvements 1,852,482 1,852,482 Buildings and improvements 1,013,134 1,013,134 Machinery and equipment 1,136,026 1,136,026 ---------- ---------- 4,001,642 4,001,642 Less--accumulated depreciation 1,661,372 1,628,543 ---------- ---------- 2,340,270 2,373,099 ---------- ---------- $2,525,064 $2,543,173 ========== ========== LIABILITIES AND PARTNERS' EQUITY CURRENT LIABILITIES: Payable to Limited Partners $12,204 $11,319 Accounts payable 1,633 3,000 ---------- ---------- Total current liabilities 13,837 14,319 ---------- ---------- PARTNERS' EQUITY Limited Partners 2,246,128 2,263,579 General Partner-Del Taco, Inc. 265,099 265,275 ---------- ---------- 2,511,227 2,528,854 ---------- ---------- $2,525,064 $2,543,173 ========== ========== The accompanying notes are an integral part of these financial statements -3- 4 DEL TACO RESTAURANT PROPERTIES I STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 -------- -------- --------- -------- REVENUES: Rent (Notes 3 and 4) $126,241 $120,783 $359,312 $334,752 Interest 814 705 2,595 1,823 Other 1,125 25 1,600 375 -------- -------- -------- -------- 128,180 121,513 363,507 336,950 -------- -------- -------- -------- EXPENSES: General and administrative 5,664 9,705 35,231 39,020 Depreciation 10,943 10,944 32,829 32,829 -------- -------- -------- -------- 16,607 20,649 68,060 71,849 -------- -------- -------- -------- Net income $111,573 $100,864 $295,447 $265,101 ======== ======== ======== ======== Net income per Limited Partnership Unit (Note 2) $12.62 $11.41 $33.42 $29.99 ======== ======== ======== ======== The accompanying notes are an integral part of these financial statements. -4- 5 DEL TACO RESTAURANT PROPERTIES I STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30 1997 1996 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $295,447 $265,101 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 32,829 32,829 Increase in payable to Limited Partners 885 2,265 Increase in receivable from General Partner (5,964) (1,135) Decrease in accounts payable (1,366) (355) --------- --------- Net cash provided by operating activities 321,831 298,705 CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions to partners (313,075) (285,678) --------- --------- Net increase in cash 8,756 13,027 Beginning cash balance 130,996 115,012 --------- --------- Ending cash balance $139,752 $128,039 ========= ========= The accompanying notes are an integral part of these financial statements. -5- 6 DEL TACO RESTAURANT PROPERTIES I 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. -6- 7 DEL TACO RESTAURANT PROPERTIES I NOTES TO FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1997 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 8,751 in 1997 and 1996. Pursuant to the Partnership Agreement, annual partnership net income is allocated one percent to the General Partner and 99 percent to the Limited Partners. A Partnership net loss in any year will be allocated 24 percent to the General Partner and 76 percent to the Limited Partners until the losses so allocated equal income previously allocated. Any additional losses will be 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. Additional gains will be allocated 24 percent to the General Partner and 76 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 six Properties leased as of September 30, 1997 and 1996, two of which have been subleased to Del Taco franchisees (one of which is affiliated with Del Taco, Inc.) 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 $891,056 and net income of $36,149 as compared to $866,137 and $36,213 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 three months ended September 30, 1997, the one restaurant operated by a Del Taco franchisee, for which the Registrant is the lessor, had unaudited sales of $160,958 as compared with $140,410 during the same period in 1996. -7- 8 DEL TACO RESTAURANT PROPERTIES I NOTES TO FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1997 NOTE 3 - LEASING ACTIVITIES - (Continued) 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 $2,549,509 and net income of $87,122 as compared to $2,391,303 and $49,774 respectively, for the corresponding period in 1996. For the nine months ended September 30, 1997, the one restaurant operated by a Del Taco franchisee, for which the Registrant is the lessor, had unaudited sales of $444,767 as compared with $398,309 during the same period in 1996. For the three months and nine months ended September 30, 1997, the Elkhorn Boulevard restaurant in Sacramento, California reported net losses of $2,619 and $12,579 as compared to net losses of $3,710 and $11,925 respectively, for the corresponding period in 1996. NOTE 4 - TRANSACTIONS WITH DEL TACO The receivable from General Partner consists primarily of rent accrued for the month of September. The September rent receivable 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 $121,323 or approximately $13.87 per Limited Partnership Unit, was approved. Such distribution was paid on October 16, 1997. The General Partner also received a distribution of $1,225 with respect to its 1% partnership interest. -8- 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 March 21, 1983. By March 20, 1984, the sale of such Units provided a total capitalization for the Registrant of $4,375,500. 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 six restaurants. In 1985, the first four restaurants opened for business and two additional restaurants were opened in 1986. Approximately $4,002,000 was expended for such purposes. Since the six restaurants owned by the Registrant opened, cash flow from Lease payments received from Del Taco, the Registrant's General Partner, which leases all six 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. -9- 10 Results of Operations The Registrant owns six Mexican-American restaurants that are under long-term lease to its General Partner for operation under the Del Taco trade name. The Registrant receives rental revenues equal to 12 percent of restaurant sales. For the three months ended September 30, rental revenues increased from $120,783 in 1996 to $126,241 in 1997. For the nine months ended September 30, rental revenues increased from $334,752 in 1996 to $359,312 in 1997. Such changes in rental revenue are directly attributable to changes in sales at the restaurants. The following table sets forth rental revenue earned by restaurant for the quarter and year to date: THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1997 1996 1997 1996 ---- ---- ---- ---- Riverside Avenue, Rialto, CA $ 21,458 $ 18,471 $ 59,580 $ 49,038 Elden Avenue, Moreno Valley, CA 18,588 19,092 55,331 54,651 Foothill Boulevard, La Verne, CA 26,865 26,481 77,744 74,136 Baseline & Archibald, Rancho 19,315 16,847 53,372 47,797 Cucamonga, CA Elkhorn Boulevard, Sacramento, CA 12,957 12,153 35,911 33,997 Haven Avenue, Rancho 27,088 27,739 77,374 75,133 Cucamonga, CA ------- ------- ------- ------- Total $126,241 $120,783 $359,312 $334,752 ======= ======= ======= ======= The following table sets forth the percentage relationship to total general and administrative expenses of items included in the Registrant's Statements of Income: Percentage of Total General & Administrative Expense Nine Months Ended September 30 1997 1996 ---- ---- Accounting fees 40.62% 39.85% Distribution of information to Limited Partners 57.11 57.15 Other 2.27 3.00 ------ ------ 100.00% 100.00% -10- 11 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 three months ended September 30, general and administrative expenses decreased from $9,705 in 1996 to $5,664 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 $39,020 in 1996 to $35,231 in 1997. For the three months ended September 30, the Registrant incurred depreciation expense in the amount of $10,943 in 1997 and $10,944 in 1996. The Registrant incurred depreciation expense of $32,829 for nine months ended September 30, 1997 and 1996,respectively. For the three months ended September 30, revenues increased by $6,667 while expenses decreased by $4,042 resulting in an increase in net income from $100,864 in 1996 to $111,573 in 1997. For the nine months ended September 30, revenues increased by $26,557 while expenses decreased by $3,789 resulting in an increase in the Registrant's net income from $265,101 for the nine months ended September 30, 1996 to $295,447 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. -11- 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 I (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 -12-