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EX-32.1 - EX-32.1 - DEL TACO RESTAURANT PROPERTIES IIa59497exv32w1.htm
EX-31.1 - EX-31.1 - DEL TACO RESTAURANT PROPERTIES IIa59497exv31w1.htm
EX-31.2 - EX-31.2 - DEL TACO RESTAURANT PROPERTIES IIa59497exv31w2.htm
Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
     
(Mark one)    
 
þ
  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2011
OR
o
  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. 0-16190
 
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
incorporation or organization)
  (I.R.S. Employer
Identification Number)
 
     
25521 Commercentre Drive
Lake Forest, California
  92630
(Zip Code)
(Address of principal executive offices)    
 
(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 þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s Form S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.
 


 

INDEX
DEL TACO RESTAURANT PROPERTIES II
         
    PAGE NUMBER
       
 
       
    3  
 
       
    3  
 
       
    4  
 
       
    5  
 
       
    6  
 
       
    9  
 
       
    11  
 
       
    11  
 
       
       
 
       
    12  
 
       
    13  
 EX-31.1
 EX-31.2
 EX-32.1

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PART I.   FINANCIAL INFORMATION
ITEM I.   FINANCIAL STATEMENTS
DEL TACO RESTAURANT PROPERTIES II
CONDENSED BALANCE SHEETS
                 
    March 31,     December 31,  
    2011     2010  
    (Unaudited)          
ASSETS
               
 
               
CURRENT ASSETS:
               
Cash
  $ 150,211     $ 162,482  
Receivable from Del Taco LLC
    47,753       46,950  
Deposits
    1,838       1,991  
 
           
Total current assets
    199,802       211,423  
 
           
 
               
PROPERTY AND EQUIPMENT:
               
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
    2,130,985       2,122,136  
 
           
 
    1,812,850       1,821,699  
 
           
 
               
 
  $ 2,012,652     $ 2,033,122  
 
           
 
               
LIABILITIES AND PARTNERS’ EQUITY
               
 
               
CURRENT LIABILITIES:
               
Payable to limited partners
  $ 40,231     $ 38,835  
Accounts payable
    27,691       14,973  
 
           
Total current liabilities
    67,922       53,808  
 
           
 
               
PARTNERS’ EQUITY:
               
Limited partners; 27,006 units outstanding at March 31, 2011 and December 31, 2010
    1,974,334       2,008,573  
General partner-Del Taco LLC
    (29,604 )     (29,259 )
 
           
 
    1,944,730       1,979,314  
 
           
 
               
 
  $ 2,012,652     $ 2,033,122  
 
           
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES II
CONDENSED STATEMENTS OF INCOME
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
 
           
RENTAL REVENUES
  $ 130,570     $ 129,334  
 
           
 
               
EXPENSES:
               
General and administrative
    38,202       36,945  
Depreciation
    8,849       8,849  
 
           
 
    47,051       45,794  
 
           
 
               
Operating income
    83,519       83,540  
 
               
OTHER INCOME:
               
Interest
    44       45  
Other
    500       225  
 
           
 
               
Net income
  $ 84,063     $ 83,810  
 
           
 
               
Net income per limited partnership unit (Note 2)
  $ 3.08     $ 3.07  
 
           
 
               
Number of units used in computing per unit amounts
    27,006       27,006  
 
           
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Three Months Ended  
    March 31,  
    2011     2010  
 
           
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
               
Net income
  $ 84,063     $ 83,810  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    8,849       8,849  
Changes in operating assets and liabilities:
               
Receivable from Del Taco LLC
    (803 )     (1,842 )
Deposits
    153       79  
Payable to limited partners
    1,396       609  
Accounts payable
    12,718       3,959  
 
           
 
               
Net cash provided by operating activities
    106,376       95,464  
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
Cash distributions to partners
    (118,647 )     (113,921 )
 
           
 
               
Net change in cash
    (12,271 )     (18,457 )
 
               
Beginning cash balance
    162,482       156,281  
 
           
 
               
Ending cash balance
  $ 150,211     $ 137,824  
 
           
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2011
UNAUDITED
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements and should therefore be read in conjunction with the financial statements and notes thereto contained in the annual report on Form 10-K for the year ended December 31, 2010 for Del Taco Restaurant Properties II (the Partnership or the Company). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Partnership’s financial position at March 31, 2011, the results of operations and cash flows for the three month periods ended March 31, 2011 and 2010 have been included. Operating results for the three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Amounts related to the disclosure of December 31, 2010 balances within these condensed financial statements were derived from the audited 2010 financial statements.
NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 27,006 in 2011 and 2010.
Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to Del Taco LLC, formerly known as Del Taco, Inc., (Del Taco or 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.

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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE MONTHS MARCH 31, 2011
UNAUDITED
NOTE 3 — LEASING ACTIVITIES
The Partnership leases five properties for operation of restaurants to Del Taco 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. The leases terminate in the years 2021 to 2023. Pursuant to the lease agreements, minimum rentals of $3,500 per month are due to the Partnership during the first six months of any non-operating period caused by an insured casualty loss.
For the three months ended March 31, 2011, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,088,082 and unaudited net losses of $63,461 as compared to the unaudited amounts of $1,077,786 and unaudited net losses of $139,273, respectively, for the corresponding period in 2010. Net income or loss of each restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net loss from the corresponding period of the prior year primarily relates to reduced interest charges due to a decrease in debt and related interest rate.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from Del Taco consists primarily of rent accrued for the month of March 2011. The March rent receivable was collected in April 2011.
Del Taco 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 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
Total cash distributions declared and paid in January 2011 were $118,647. On April 29, 2011, a distribution to the limited partners of $103,930, or approximately $3.85 per limited partnership unit, was declared. Such distribution was paid on May 6, 2011. The General Partner also received a distribution of $1,050 with respect to its 1% partnership interest in May 2011.

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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE MONTHS MARCH 31, 2011
UNAUDITED
NOTE 6 — PAYABLE TO LIMITED PARTNERS
Payable to limited partners represents a reclassification from cash for distribution checks made to limited partners that have remained outstanding for six months or longer.
NOTE 7 — CONCENTRATION OF RISK
The five restaurants leased to Del Taco make up all of the income producing assets of the Partnership and contributed all of the Partnership’s rental revenues during the three months ended March 31, 2011 and 2010. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.
The Partnership maintains substantially all of its cash and cash equivalents at one major commercial bank. The Federal Depository Insurance Commission’s limits were $250,000 at March 31, 2011 and 2010. At March 31, 2011 and December 31, 2010, the Partnership had approximately $163,000 and $172,000, respectively, on deposit at one financial institution.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Del Taco Restaurant Properties II (the Partnership or the Company) offered limited partnership units for sale between September 1984 and December 1985. $6.751 million was raised through the sale of limited partnership units and used to acquire sites and build seven restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (Del Taco or the General Partner) for offering costs incurred. Two restaurants were sold in 1994.
The five restaurants leased to Del Taco make up all of the income producing assets of the Partnership. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name and the restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, competition, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.
Results of Operations
The Partnership 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.
The following table sets forth rental revenue earned by restaurant for the three months ended March 31, 2011 (unaudited):
                 
    Three Months Ended  
    March 31,  
    2011     2010  
 
           
Bear Valley Rd., Victorville, CA
  $ 23,061     $ 23,078  
West Valley Blvd., Colton, CA
    32,100       31,070  
Palmdale Blvd., Palmdale, CA
    16,930       15,715  
DeAnza Country Shopping Center, Pedley, CA
    28,729       27,628  
Varner Road, Thousand Palms, CA
    29,750       31,843  
 
           
Total
  $ 130,570     $ 129,334  
 
           
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $130,570 during the three month period ended March 31, 2011, which represents an increase of $1,236 from 2010. The changes in rental revenues between 2010 and 2011 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.
The increase in accounts payable from December 31, 2010 is a seasonal increase due to the timing of payment for certain annual accounting, audit and tax services.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued
The following table breaks down general and administrative expenses by type of expense:
                 
    Percent of Total
    General & Administrative Expense
 
       
    Three Months Ended
    March 31,
    2011   2010
Accounting fees
    78.41 %     78.05 %
Distribution of information to limited partners
    21.59 %     21.95 %
 
               
 
               
 
    100.00 %     100.00 %
 
               
General and administrative costs increased from 2010 to 2011 primarily due to increased accounting fees and costs for printing and the distribution of information to limited partners.
Net income increased by $253 from 2010 to 2011 due to the increases in revenues of $1,236 and interest and other income of $274, partially offset by the increase in general and administrative expenses of $1,257.
Significant Recent Accounting Pronouncements
None
Off-Balance Sheet Arrangements
None
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-Q are based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in the Partnership’s December 31, 2010 Form 10-K.
Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued
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.
The Partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires 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.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk.
None.
Item 4.   Controls and Procedures
     (a) Evaluation of disclosure controls and procedures:
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic Securities and Exchange Commission filings.
     (b) Changes in internal controls:
There were no significant changes in the Company’s internal controls over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
     (c) Asset-Backed issuers:
Not applicable

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PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
Item 6.   Exhibits
  31.1   Paul J. B. Murphy, III’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
  31.2   Steven L. Brake’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
  32.1   Certification pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, 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 LLC
General Partner
 
 
Date: May 16, 2011  /s/ Steven L. Brake    
  Steven L. Brake   
  Chief Financial Officer   
 

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EXHIBIT INDEX
     
Exhibit No.   Description
 
   
31.1
  Paul J. B. Murphy, III’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
31.2
  Steven L. Brake’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
32.1
  Certification pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002