UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

 

Commission file no. 33-13437

 

DEL TACO INCOME PROPERTIES IV

(A California limited partnership)

(Exact name of registrant as specified in its charter)

 

 

(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 þ     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):

 

(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 INCOME PROPERTIES IV

		PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at June 30, 2011 (Unaudited) and December 31, 2010			3
Condensed Statements of Income for the three and six months ended June 30, 2011 and 2010 (Unaudited)			4
Condensed Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)			5
Notes to Condensed Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 3. Quantitative and Qualitative Disclosures About Market Risk			11
Item 4. Controls and Procedures			12
PART II. OTHER INFORMATION
Item 6. Exhibits			13
SIGNATURE			14
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

		June 30,				December 31,
		2011				2010
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	102,408			$	111,469
Receivable from Del Taco LLC			34,547				34,544
Other current assets			603				704
Total current assets			137,558				146,717
PROPERTY AND EQUIPMENT:
Land			868,344				868,344
Land improvements			368,356				368,356
Buildings and improvements			1,289,860				1,289,860
Machinery and equipment			484,789				484,789
			3,011,349				3,011,349
Less—accumulated depreciation			1,637,463				1,619,037
			1,373,886				1,392,312
		$	1,511,444			$	1,539,029
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners		$	16,953			$	16,581
Accounts payable			7,250				10,477
Total current liabilities			24,203				27,058
OBLIGATION TO GENERAL PARTNER			137,953				137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at June 30, 2010 and December 31, 2009			1,366,928				1,391,411
General partner-Del Taco LLC			(17,640	)			(17,393	)
			1,349,288				1,374,018
		$	1,511,444			$	1,539,029

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
RENTAL REVENUES		$	104,653			$	102,420			$	204,340			$	202,166
EXPENSES:
General and administrative			10,162				7,667				44,476				41,411
Depreciation			9,213				9,213				18,426				19,039
			19,375				16,880				62,902				60,450
Operating income			85,278				85,540				141,438				141,716
OTHER INCOME:
Interest			21				20				41				46
Other			125				150				375				225
Net income		$	85,424			$	85,710			$	141,854			$	141,987
Net income per limited partnership unit (note 2)		$	0.51			$	0.51			$	0.85			$	0.85
Number of units used in computing per unit amounts			165,375				165,375				165,375				165,375

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Six Months Ended
		June 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	141,854			$	141,987
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			18,426				19,039
Changes in operating assets and liabilities:
Receivable from Del Taco LLC			(3	)			1,013
Other current assets			101				52
Payable to limited partners			372				1,367
Accounts payable			(3,227	)			(2,990	)
Net cash provided by operating activities			157,523				160,468
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners			(166,584	)			(160,478	)
Net change in cash			(9,061	)			(10	)
Beginning cash balance			111,469				112,034
Ending cash balance		$	102,408			$	112,024

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 Income Properties IV (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 June 30, 2011, the results of operations for the three and six month periods ended June 30, 2011 and 2010 and cash flows for the six month periods ended June 30, 2011 and 2010 have been included. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Amounts related to disclosure of December 31, 2010 balances within these condensed financial statements were derived from the audited 2010 financial statements.

Management has evaluated events subsequent to June 30, 2011 through the date that the accompanying condensed financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustment of and/or disclosure in such 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 165,375 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, and until each class of limited partners receive their priority return as defined in the partnership agreement. Additional gains will be allocated 12 percent to the General Partner and 88 percent to the limited partners.

NOTE 3 — LEASING ACTIVITIES

The Partnership leases three properties for operation of restaurants to Del Taco on a triple net basis. One property has been subleased to a Del Taco franchisee. The leases are for terms of 32 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 expire in the years 2021 to 2022. 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.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011

UNAUDITED

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended June 30, 2011, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $549,003 and unaudited net losses of $3,358 as compared to unaudited sales of $547,301 and unaudited net losses of $25 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 increase in net losses from the corresponding period of the prior year primarily relates to an increase in operating costs. For the three months ended June 30, 2011, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $323,103 as compared with $306,198 during the same period in 2010.

For the six months ended June 30, 2011, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,081,904 and unaudited net losses of $4,490 as compared to unaudited sales of $1,086,578 and unaudited net losses of $10,193 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 losses from the corresponding period of the prior year primarily relates to a decrease in operating costs. For the six months ended June 30, 2011, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $620,932 as compared with $598,139 during the same period in 2010.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of June 2011. The June rent was collected in July 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 and April 2011 were $89,888 and $76,696, respectively. On July 25, 2011, a distribution to the limited partners of $80,007, or approximately $0.48 per limited partnership unit, was declared. Such distribution was paid August 2, 2011. The General Partner also received a distribution of $808 with respect to its 1% partnership interest.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 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 three 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 and six months ended June 30, 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 Corporation’s limits were $250,000 at June 30, 2011 and December 31, 2010. At June 30, 2011 and December 31, 2010, the Partnership had approximately $111,000 and $113,000, respectively, on deposit at one financial institution.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Del Taco Income Properties IV (the Partnership or the Company) offered limited partnership units for sale between June 1987 and June 1988. $4.135 million was raised through the sale of limited partnership units and used to acquire sites and build three restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (Del Taco or the General Partner) for offering costs incurred. In February of 1992, approximately $442,000 raised during the offering but not required to acquire sites and build restaurants was distributed to the limited partners.

The three 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 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 owns three properties that are under long-term lease to Del Taco for restaurant operations (Del Taco, in turn, has sub-leased one of the restaurants to a Del Taco franchisee).

The following table sets forth rental revenue earned by restaurant (unaudited):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Orangethorpe Ave., Placentia, CA		$	45,748			$	45,446			$	89,737			$	89,607
Lakeshore Drive, Lake Elsinore, CA			38,772				36,744				74,512				71,777
Highland Ave., San Bernardino, CA			20,133				20,230				40,091				40,782
Total		$	104,653			$	102,420			$	204,340			$	202,166

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $104,653 during the three month period ended June 30, 2011, which represents an increase of $2,233 from the corresponding period in 2010. The Partnership earned rental revenue of $204,340 during the six month period ended June 30, 2011, which represents an increase of $2,174 from the corresponding period in 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.

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								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Accounting fees			55.80	%			58.18	%			78.54	%			79.71	%
Distribution of information to limited partners			44.20	%			41.82	%			21.46	%			20.29	%
			100.00	%			100.00	%			100.00	%			100.00	%

General and administrative costs increased during the three month and six month periods from 2010 to 2011 primarily due to increased audit fees, accounting and legal fees, bank charges and costs for printing and the distribution of information to limited partners.

For the three month period ended June 30, 2011, net income decreased by $286 from 2010 to 2011 due to the increase in general and administrative expenses of $2,495 and the decrease in interest and other income of $24, partially offset by the increase in revenues of $2,233. For the six month period ended June 30, 2011, net income decreased by $133 from 2010 to 2011 due to the increase in general and administrative expenses of $3,065, partially offset by the increase in revenues of $2,174, the increase in interest and other income of $145 and the decrease of depreciation expense of $613.

Recent Accounting Pronouncements

None

Off-Balance Sheet Arrangements

None

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued

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.

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.

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.