UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
(Mark One)
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the fiscal year ended: December 31, 2004
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the transition period from to
Commission File Number: 0-16190
DEL TACO RESTAURANT PROPERTIES II
California (State or other jurisdiction of incorporation or organization) |
33-0064245 (I.R.S. Employer Identification Number) |
|
25521 Commercentre Drive Lake Forest, California (Address of principal executive offices) |
92630 (Zip Code) |
Registrants telephone number, including area code: (949) 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 registrants Form S-11 Registration Statement filed July 10, 1984 are incorporated by reference into Part IV of this report.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No X
PART I
Item 1. Business
Del Taco Restaurant Properties II, (the Partnership) is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act. The Partnerships General Partner is Del Taco, Inc., a California corporation (Del Taco or the General Partner). The Partnership sold 27,006 units totaling $6.751 million through an offering of limited partnership units from September 1984 through December 1985. The term of the partnership agreement is until April 30, 2025 unless terminated earlier by means provided in the partnership agreement.
The business of the Partnership is ownership and leasing of restaurants in California to Del Taco. The Partnership acquired land and constructed seven Mexican-American restaurants for long-term lease to Del Taco. Two restaurants were sold in 1994. Each property is leased for 35 years on a triple net basis. Rent is equal to twelve percent of gross sales of the restaurants. As of December 31, 2004, the Partnership had a total of five properties leased to Del Taco.
The Partnership has no full time employees. The Partnership agreement assigns full authority for general management and supervision of the business affairs of the Partnership to the General Partner. The General Partner has a one percent interest in the profits or losses and distributions of the Partnership. Limited partners have no right to participate in the management or conduct of the Partnerships business affairs.
2
Item 2. Properties
The Partnership acquired seven properties with proceeds obtained from the sale of partnership units:
Date of | ||||||||
Date of | Restaurant | Commencement | ||||||
Address |
City, State |
Acquisition |
Constructed |
of Operation (1) |
||||
Bear Valley Road
|
Victorville, CA | February 4, 1986 | 60 seat with drive through service window | June 13, 1986 | ||||
West Valley Boulevard
|
Colton, CA | March 11, 1986 | 60 seat with drive through service window | June 24, 1986 | ||||
Palmdale Boulevard
|
Palmdale, CA | December 12, 1986 | 60 seat with drive through service window | May 7, 1987 | ||||
South Gate TownCenter
|
South Gate, CA | January 28, 1987 | 60 seat with drive through service window | May 28, 1987 (2) | ||||
Main Avenue
|
Fallbrook, CA | March 10, 1987 | 60 seat with drive through service window | August 19, 1987 (3) | ||||
De Anza Country Shopping Center
|
Pedley, CA | April 13, 1987 | 60 seat with drive through service window | October 28, 1987 | ||||
Varner Road
|
Thousand Palms, CA | October 14, 1987 | 60 seat with drive through service window | April 28, 1988 |
(1) | Commencement of operation is the first date Del Taco, 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 Partnership of $497,202. | |||
(3) | In November 1994, the Fallbrook property was sold yielding net proceeds to the Partnership of $357,531. |
3
Item 3. Legal Proceedings
The Partnership is not a party to any material pending legal proceedings.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Partnerships Common Equity and Related Security Holder Matters
The Partnership sold 27,006 ($6,751,500) limited partnership units during the public offering period ended December 31, 1985 and currently has 1,072 limited partners of record. There is no public market for the trading of the units. Distributions made by the Partnership to the limited partners during the past three fiscal years are described in Note 6 to the Notes to the Financial Statements contained under Item 8.
Item 6. Selected Financial Data
The selected financial data presented as of and for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, has been derived from the audited financial statements and should be read in conjunction with the financial statements and related notes and Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.
For the Year Ended December 31, |
||||||||||||||||||||
2004 |
2003 |
2002 |
2001 |
2000 |
||||||||||||||||
Rental revenues |
$ | 665,398 | $ | 609,969 | $ | 594,685 | $ | 575,728 | $ | 527,732 | ||||||||||
General and administrative
expense |
71,316 | 71,175 | 56,748 | 53,498 | 51,511 | |||||||||||||||
Depreciation expense |
54,180 | 54,180 | 54,180 | 54,180 | 54,180 | |||||||||||||||
Interest and other income |
3,418 | 2,921 | 3,314 | 5,797 | 6,070 | |||||||||||||||
Net income |
543,320 | 487,535 | 487,071 | 473,847 | 428,111 | |||||||||||||||
Net income per limited
partnership unit |
19.92 | 17.87 | 17.86 | 17.37 | 15.69 | |||||||||||||||
Cash distributions per
limited partnership unit |
21.84 | 19.26 | 19.77 | 18.87 | 17.21 | |||||||||||||||
Total assets |
2,330,405 | 2,367,630 | 2,398,716 | 2,452,804 | 2,491,290 | |||||||||||||||
Long-term obligations |
None | None | None | None | None |
4
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements discussion and analysis of financial condition, results of operations, liquidity and capital resources, and off balance sheet arrangements and contractual obligations contained within this report on Form 10-K is more clearly understood when read in conjunction with the notes to the financial statements. The notes to the financial statements elaborate on certain terms that are used throughout this discussion and provide information about the Partnership and the basis of presentation used in this report on Form 10-K.
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 restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.
Liquidity and Capital Resources
The Partnership offered limited partnership units for sale between September 1984 and December 1985. 15% of the $6.751 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse the General Partner for offering costs incurred. Approximately $5.6 million of the remaining funds were used to acquire sites and build seven restaurants. Two restaurants were sold in 1994.
The Partnerships only source of cash flow is rental income from the properties from the triple net leases. Such operating income has historically been and is expected to continue to be sufficient to fund the Partnerships operating expenses. Net cash provided by operating activities in excess of the Partnerships ongoing needs is distributed to the partners.
Off Balance Sheet Arrangements and Contractual Obligations
None.
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.
5
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations - (Continued)
Results of Operations (Continued)
The following table sets forth rental revenues earned by restaurant for the year:
Year Ended December 31, |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
Bear Valley Rd., Victorville, CA |
$ | 123,424 | $ | 115,056 | $ | 106,781 | ||||||
West Valley Blvd., Colton, CA |
155,026 | 143,655 | 141,473 | |||||||||
Palmdale Blvd., Palmdale, CA |
83,539 | 78,128 | 80,728 | |||||||||
DeAnza Country Shopping Center, Pedley, CA |
128,722 | 114,764 | 105,911 | |||||||||
Varner Road, Thousand Palms, CA |
174,687 | 158,366 | 159,792 | |||||||||
Total |
$ | 665,398 | $ | 609,969 | $ | 594,685 | ||||||
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenues of $665,398 during the year ended December 31, 2004, which represents an increase of $55,429 from 2003. The increase in rental revenues was caused by an increase in sales at the restaurants under lease.
The Partnership earned rental revenues of $609,969 during the year ended December 31, 2003, which represents an increase of $15,284 from 2002. The increase in rental revenues was caused by an increase in sales at the restaurants under lease.
The following table breaks down general and administrative expenses by type of expense:
Percentage of Total General & Administrative Expense
Year Ended December 31, |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
Accounting fees |
55.79 | % | 52.09 | % | 55.85 | % | ||||||
Distribution of information
to limited partners |
42.55 | % | 46.63 | % | 41.06 | % | ||||||
Other |
1.66 | % | 1.28 | % | 3.09 | % | ||||||
100.00 | % | 100.00 | % | 100.00 | % | |||||||
General and administrative costs increased by $141 from 2003 to 2004. The increase was caused primarily by increased costs for annual audit fees and accounting services, partially offset by decreased costs for income tax preparation and printing and mailing costs.
General and administrative costs increased by $14,427 from 2002 to 2003. The increase was caused primarily by increased costs for income tax preparation, annual audit fees, accounting services and printing and mailing costs, as well as additional incremental costs incurred to change auditors and maintain regulatory compliance standards required of public registrants.
6
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations - (Continued)
Results of Operations (Continued)
Depreciation expense was the same in 2004, 2003 and 2002.
Net income increased by $55,785 from 2003 to 2004 due to the increases in revenues of $55,429 and other income of $497 offset by the $141 increase in general and administrative expenses.
Net income increased by $464 from 2002 to 2003 due to the increase in revenues of $15,284 offset by the $14,427 increase in general and administrative expenses and the decrease in other income of $393.
Recent Accounting Pronouncements
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company believes it has no variable interest entities to which FIN 46R applies.
Critical Accounting Policies and Estimates
Managements discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-K are based upon the Partnerships 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 Item 8 of this Form 10-K.
7
Item 7. Managements 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 Statement of Financial Accounting Standards No. (SFAS) 144, Accounting for the Impairment or Disposal of Long Lived Assets. SFAS 144 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
None.
8
Item 8. Financial Statements
PART I. INFORMATION
INDEX |
PAGE NUMBER |
|||
Report of Independent Registered Public Accounting Firm |
10 | |||
Report of Independent Registered Public Accounting Firm |
11 | |||
Balance Sheets at December 31, 2004 and 2003 |
12 | |||
Statements of Income for the years ended December 31, 2004, 2003 and 2002 |
13 | |||
Statements of Partners Equity for the years ended December 31, 2004, 2003 and 2002 |
14 | |||
Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002 |
15 | |||
Notes to Financial Statements |
16-19 |
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004 and 2003, and the related statements of income, partners equity, and cash flows for the years then ended. In connection with our audits of the financial statements, we have also audited the 2004 and 2003 information in the accompanying financial statement schedule. These financial statements and financial statement schedule are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the 2004 and 2003 information in the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Costa Mesa, California
March 4, 2005
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Del Taco Restaurant Properties II:
In our opinion, the statements of income, partners equity, and cash flows for the year ended December 31, 2002 present fairly, in all material respects, the results of operations and cash flows of Del Taco Restaurant Properties II (A California Limited Partnership) for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers
LLP
Orange County, California
January 22, 2003
11
DEL TACO RESTAURANT PROPERTIES II
BALANCE SHEETS
December 31, |
||||||||
2004 |
2003 |
|||||||
ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash |
$ | 197,784 | $ | 182,997 | ||||
Receivable from Del Taco, Inc. |
56,537 | 54,854 | ||||||
Deposits |
1,780 | 1,295 | ||||||
Total current assets |
256,101 | 239,146 | ||||||
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 | |||||||
Lessaccumulated depreciation |
1,869,531 | 1,815,351 | ||||||
2,074,304 | 2,128,484 | |||||||
$ | 2,330,405 | $ | 2,367,630 | |||||
LIABILITIES AND PARTNERS EQUITY |
||||||||
CURRENT
LIABILITIES: |
||||||||
Payable to limited partners |
$ | 37,207 | $ | 32,612 | ||||
Accounts payable |
15,138 | 4,608 | ||||||
Total current liabilities |
52,345 | 37,220 | ||||||
PARTNERS EQUITY |
||||||||
Limited partners |
2,304,328 | 2,356,155 | ||||||
General partner-Del Taco, Inc. |
(26,268 | ) | (25,745 | ) | ||||
2,278,060 | 2,330,410 | |||||||
$ | 2,330,405 | $ | 2,367,630 | |||||
See accompanying notes to financial statements.
12
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF INCOME
Year Ended December 31, |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
RENTAL REVENUES |
$ | 665,398 | $ | 609,969 | $ | 594,685 | ||||||
EXPENSES: |
||||||||||||
General and administrative |
71,316 | 71,175 | 56,748 | |||||||||
Depreciation |
54,180 | 54,180 | 54,180 | |||||||||
Operating income |
539,902 | 484,614 | 483,757 | |||||||||
OTHER INCOME |
||||||||||||
Interest |
1,793 | 1,496 | 2,014 | |||||||||
Other |
1,625 | 1,425 | 1,300 | |||||||||
Net income |
$ | 543,320 | $ | 487,535 | $ | 487,071 | ||||||
Net income per limited
partnership unit |
$ | 19.92 | $ | 17.87 | $ | 17.86 | ||||||
Number of units used in computing
per unit amounts |
27,006 | 27,006 | 27,006 | |||||||||
See accompanying notes to financial statements.
13
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF PARTNERS EQUITY
Years ended December 31, 2004, 2003 and 2002
Limited Partners |
General | |||||||||||||||
Units |
Amount |
Partner |
Total |
|||||||||||||
Balance, December 31, 2001 |
27,006 | $ | 2,445,145 | $ | (24,847 | ) | $ | 2,420,298 | ||||||||
Net income |
| 482,200 | 4,871 | 487,071 | ||||||||||||
Cash distributions |
| (533,789 | ) | (5,392 | ) | (539,181 | ) | |||||||||
Balance, December 31, 2002 |
27,006 | 2,393,556 | (25,368 | ) | 2,368,188 | |||||||||||
Net income |
| 482,659 | 4,876 | 487,535 | ||||||||||||
Cash distributions |
| (520,060 | ) | (5,253 | ) | (525,313 | ) | |||||||||
Balance, December 31, 2003 |
27,006 | 2,356,155 | (25,745 | ) | 2,330,410 | |||||||||||
Net income |
| 537,887 | 5,433 | 543,320 | ||||||||||||
Cash distributions |
| (589,714 | ) | (5,956 | ) | (595,670 | ) | |||||||||
Balance, December 31, 2004 |
27,006 | $ | 2,304,328 | $ | (26,268 | ) | $ | 2,278,060 | ||||||||
See accompanying notes to financial statements.
14
DEL TACO RESTAURANT PROPERTIES II
STATEMENTS OF CASH FLOWS
Year Ended December 31, |
||||||||||||
2004 |
2003 |
2002 |
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 543,320 | $ | 487,535 | $ | 487,071 | ||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||
Depreciation |
54,180 | 54,180 | 54,180 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
(Increase) decrease in receivable from
Del Taco, Inc. |
(1,683 | ) | (6,156 | ) | 851 | |||||||
Increase in deposits |
(485 | ) | (57 | ) | (238 | ) | ||||||
Increase in payable to limited partners |
4,595 | 6,635 | 5,039 | |||||||||
Increase (decrease) in accounts payable |
10,530 | 57 | (7,017 | ) | ||||||||
Net cash provided by operating activities |
610,457 | 542,194 | 539,886 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Cash distributions to partners |
(595,670 | ) | (525,313 | ) | (539,181 | ) | ||||||
Net increase in cash |
14,787 | 16,881 | 705 | |||||||||
Beginning cash balance |
182,997 | 166,116 | 165,411 | |||||||||
Ending cash balance |
$ | 197,784 | $ | 182,997 | $ | 166,116 | ||||||
See accompanying notes to financial statements.
15
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Partnership: Del Taco Restaurant Properties II, a California limited partnership (the 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 or Del Taco), 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.
The Partnership accounts for property and equipment in accordance with Statement of Financial Accounting Standards No. (SFAS) 144, Accounting for the Impairment or Disposal of Long Lived Assets. SFAS 144 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.
Recent Accounting Pronouncements: In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. The Company is required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the VIE. The Company believes it has no variable interest entities to which FIN 46R applies.
16
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS CONTINUED
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 5).
Net Income Per Limited Partnership Unit: Net income per limited partnership unit is based upon the limited partners 99 percent share of net income divided by 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 accounting principles generally accepted in the United States of America 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.
Revenue Recognition: Revenue is recognized based on 12 percent of gross sales of the restaurants which is recorded at the point of sale.
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 Partnerships rental revenues for the three years ended December 31, 2004. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.
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 are to 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 are to be allocated 15 percent to the General Partner and 85 percent to the limited partners.
NOTE 3 LEASING ACTIVITIES
The Partnership leases certain 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. There is no minimum rental under any of the leases. The Partnership had a total of five properties leased as of December 31, 2004, 2003 and 2002.
The five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $5,544,983, $5,083,073 and $4,955,708 and unaudited net income of $467,008, $418,345 and $382,117 for the years ended December 31, 2004, 2003 and 2002, respectively. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense.
17
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 4 RELATED PARTIES
The receivable from Del Taco consists of rent accrued for the month of December 2004. The rent receivable was collected in January 2005.
The General Partner received $5,956 in distributions during 2004 relating to its one percent interest in the Partnership.
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.
The General Partner provides certain minimal managerial and accounting services to the Partnership at no cost.
NOTE 5 INCOME TAXES
The Partnership is not subject to income taxes because its income is taxed directly to the General Partner and limited partners. The reconciling items presented in the table below are the only items that create a difference between the tax basis and reported amounts of the Partnerships assets and liabilities.
A reconciliation of financial statement net income to taxable income for each of the periods is as follows:
2004 |
2003 |
2002 |
||||||||||
Net income per financial
statements |
$ | 543,320 | $ | 487,535 | $ | 487,071 | ||||||
Excess book depreciation |
8,364 | 8,364 | 8,363 | |||||||||
Taxable income |
$ | 551,684 | $ | 495,899 | $ | 495,434 | ||||||
A reconciliation of partnership equity per the financial statements to partners equity for tax purposes as of December 31, 2004, is as follows (unaudited):
Partners equity per financial statements |
$ | 2,278,060 | ||
Issue costs of limited partnership units capitalized for tax purposes |
986,745 | |||
Excess book depreciation |
68,649 | |||
Writedown of real estate previously held for sale |
161,963 | |||
Other |
5,465 | |||
Partners equity for tax purposes |
$ | 3,500,882 | ||
18
DEL TACO RESTAURANT PROPERTIES II
NOTES TO FINANCIAL STATEMENTS CONTINUED
NOTE 6 CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cash distributions to limited partners were as follows:
Cash | Weighted | Number of Units | ||||||||||
Distribution per | Average Number | Outstanding at | ||||||||||
Limited Partnership | of Units | the End of | ||||||||||
Quarter Ended |
Unit |
Outstanding |
Quarter |
|||||||||
December 31, 2001 |
$ | 5.11 | 27,006 | 27,006 | ||||||||
March 31, 2002 |
4.43 | 27,006 | 27,006 | |||||||||
June 30, 2002 |
4.78 | 27,006 | 27,006 | |||||||||
September 30, 2002 |
5.45 | 27,006 | 27,006 | |||||||||
Total paid in 2002 |
$ | 19.77 | ||||||||||
December 31, 2002 |
$ | 4.95 | 27,006 | 27,006 | ||||||||
March 31, 2003 |
4.01 | 27,006 | 27,006 | |||||||||
June 30, 2003 |
4.87 | 27,006 | 27,006 | |||||||||
September 30, 2003 |
5.43 | 27,006 | 27,006 | |||||||||
Total paid in 2003 |
$ | 19.26 | ||||||||||
December 31, 2003 |
$ | 5.33 | 27,006 | 27,006 | ||||||||
March 31, 2004 |
4.60 | 27,006 | 27,006 | |||||||||
June 30, 2004 |
5.61 | 27,006 | 27,006 | |||||||||
September 30, 2004 |
6.30 | 27,006 | 27,006 | |||||||||
Total paid in 2004 |
$ | 21.84 | ||||||||||
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, 2004 amounted to $5.70 per limited partnership unit and were paid in January 2005.
NOTE 7 RESULTS BY QUARTER (UNAUDITED)
First | Second | Third | Fourth | |||||||||||||
Quarter |
Quarter |
Quarter |
Quarter |
|||||||||||||
Year ended December 31, 2004: |
||||||||||||||||
Rental revenues |
$ | 156,878 | $ | 168,159 | $ | 173,189 | $ | 167,172 | ||||||||
Net income |
107,739 | 143,283 | 149,523 | 142,775 | ||||||||||||
Net income per limited
partnership unit |
3.95 | 5.25 | 5.48 | 5.24 | ||||||||||||
Year ended December 31, 2003: |
||||||||||||||||
Rental revenues |
$ | 138,963 | $ | 152,056 | $ | 157,114 | $ | 161,836 | ||||||||
Net income |
92,284 | 123,774 | 134,556 | 136,921 | ||||||||||||
Net income per limited
partnership unit |
3.38 | 4.54 | 4.93 | 5.02 |
19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. 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 our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its subsidiaries) required to be included in our periodic Securities and Exchange Commission filings. |
(b) | Changes in internal controls: |
There were no significant changes in the Companys 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. |
(d) | Asset-Backed issuers: |
Not applicable. |
PART III
Item 10. Directors and Executive Officers of the Partnerships General Partner
(a) & (b) The executive officers and directors of the General Partner and their ages are set forth below:
Name |
Title |
Age |
||||
Kevin K. Moriarty
|
Director, Chairman and Chief Executive Officer | 58 | ||||
C. Ronald Petty
|
President | 60 | ||||
Robert J. Terrano
|
Executive Vice President and Chief Financial Officer | 49 | ||||
James D. Stoops
|
Executive Vice President, Operations | 52 | ||||
Janet D. Erickson
|
Executive Vice President, Purchasing | 48 | ||||
Shirlene Lopez
|
Executive Vice President, Operations Services | 40 | ||||
Michael L. Annis
|
Vice President, Secretary and General Counsel | 58 |
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 2005.
(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
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.
C. Ronald Petty, President of Del Taco, Inc. Mr. Petty began his career in the restaurant business in 1973 with McDonalds Corporation. He was employed by McDonalds in a real estate capacity until 1978. For the next 12 years, Mr. Petty was in various officer positions with Burger King. These positions included Vice President of Real Estate, Sr. Vice President of Development, Region Vice President, Sr. Vice President European Operations, President of International and President of U.S. Mr. Petty served as President of Miami Subs from 1990-1992; President and CEO of Dennys 1993-1996; President and CEO of Peter Piper Pizza 1996-1998; President of Del Taco December 1998-present.
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 Dennys, 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. Erickson, Executive Vice President, Purchasing of Del Taco, Inc. From 1979 to 1986, Ms. Erickson was with Dennys 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. Erickson 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. Erickson has a Bachelor of Science degree in Foods and Nutrition from Cal State Polytechnic University in Pomona, California.
Shirlene Lopez, Executive Vice President, Operations Services of Del Taco, Inc. Ms. Lopez began her career with Del Taco in 1978 as an hourly employee and advanced through the ranks to General Manager in 1984. Ms. Lopez was promoted to the corporate office in 1989 as Human Resource Manager. In 1994, she was promoted to Executive Project Manager reporting to the CEO and in 1996, to Director of Corporate Development in charge of all interior image and design and in 1997, to Vice President, Corporate Development & Design. Ms. Lopez has held her current position since February 2002.
21
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.
Item 11. Executive Compensation
The Partnership has no executive officers or directors and pays no direct remuneration to any executive officer or director of its General Partner. The Partnership has not issued any options or stock appreciation rights to any executive officer or director of its General Partner, nor does the Partnership propose to pay any annuity, pension or retirement benefits to any executive officer or director of its General Partner. The Partnership has no plan, nor does the Partnership 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 and Related Security Holder Matters
(a) | No person of record currently owns more than five percent of limited partnership units of the Partnership, nor was any person known of by the Partnership 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 Partnership. | |||
(c) | The Partnership 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 Partnership, 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
Item 13. Certain Relationships and Related Transactions
(a) | No transactions have occurred between the Partnership and any executive officer or director of its General Partner. | |||
During 2004, the following transactions occurred between the Partnership and the General Partner pursuant to the terms of the partnership agreement. |
(1) | The General Partner earned $5,433 as its one percent share of the net income of the Partnership. | |||
(2) | The General Partner received $5,956 in distributions relating to its one percent interest in the Partnership. |
(b) | During 2004, the Partnership 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 Partnership at any time during 2004 for any amount in excess of $55,000. | |||
(d) | Not applicable. |
Item 14. Principal Accountant Fees and Services
The following table presents fees for professional services rendered by KPMG LLP and PricewaterhouseCoopers for the audit of the Companys annual financial statements and other services for 2004 and 2003, respectively.
2004 |
2003 |
|||||||
Audit Fees |
$ | 13,425 | $ | 10,625 | ||||
Audit-Related Fees |
0 | 0 | ||||||
Tax Fees |
11,187 | 13,000 | ||||||
All Other Fees |
0 | 0 | ||||||
Total |
$ | 24,612 | $ | 21,375 | ||||
The General Partner has considered whether the independent auditors provision of tax services to the Company is compatible with the auditors independence. Additionally, the General Partner approves all the audit and non-audit services, and related fees, provided to the Partnership by the independent auditors prior to the services being rendered.
23
PART IV
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a)(1) | Financial Statements | |||
Included in Part II of this report: | ||||
Report of Independent Registered Public Accounting Firm Balance Sheets Statements of Income Statements of Partners Equity Statements of Cash Flows Notes to Financial Statements |
||||
(a)(2) | Financial Statement Schedules | |||
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule 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) | Reports on Form 8K | |||
No reports on Form 8-K were filed during the last quarter of 2004. | ||||
(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 Partnerships 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 partnership and Del Taco, Inc., as lessee, filed as Exhibit 10.02 to Partnerships Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984. | |||
31.1 | Kevin K. Moriartys Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
31.2 | Robert J. Terranos Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||
32.1 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
24
Report of Independent Registered Public Accounting Firm
on
Financial Statement Schedule
To the Partners of
Del Taco Restaurant Properties II:
Our audit of the financial statements referred to in our report dated January 22, 2003 appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements.
/s/ PricewaterhouseCoopers
LLP
Orange County, California
January 22, 2003
25
DEL TACO RESTAURANT PROPERTIES II SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2004
Gross amount at | ||||||||||||||||||||||||||||||
Initial cost | Cost capitalized | which carried at | ||||||||||||||||||||||||||||
to company | subsequent to | close of period | Life on which | |||||||||||||||||||||||||||
Land | Building & | acquisition | Land, buildings & | depreciation in latest | ||||||||||||||||||||||||||
Description | & land | Improve- | Carrying | improvements | Accumulated | Date of | Date | income statement | ||||||||||||||||||||||
(All Restaurants) | Encumbrances | improvements | ments | costs | Total | depreciation | construction | acquired | is computed | |||||||||||||||||||||
Victorville, CA |
$ | | $ | 327,770 | $ | 224,843 | $ | | $ | 552,613 | $ | 176,149 | 1986 | 1986 | 20 (LI), 35 (BI) | |||||||||||||||
Colton, CA |
| 262,661 | 180,179 | | 442,840 | 141,160 | 1986 | 1986 | 20 (LI), 35 (BI) | |||||||||||||||||||||
Palmdale, CA |
| 404,791 | 277,677 | | 682,468 | 217,544 | 1986 | 1986 | 20 (LI), 35 (BI) | |||||||||||||||||||||
Pedley, CA |
| 364,334 | 249,925 | | 614,259 | 195,800 | 1987 | 1987 | 20 (LI), 35 (BI) | |||||||||||||||||||||
Thousand Palms, CA |
| 446,450 | 306,255 | | 752,705 | 239,927 | 1987 | 1987 | 20 (LI), 35 (BI) | |||||||||||||||||||||
$ | | $ | 1,806,006 | $ | 1,238,879 | $ | | $ | 3,044,885 | $ | 970,580 | |||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||
Restaurants | Depreciation | |||||||||||||||||||||||||||||
Balances at December 31, 2001: |
$ | 3,044,885 | $ | 808,040 | ||||||||||||||||||||||||||
Additions |
| 54,180 | ||||||||||||||||||||||||||||
Retirements |
| | ||||||||||||||||||||||||||||
Balances at December 31, 2002: |
3,044,885 | 862,220 | ||||||||||||||||||||||||||||
Additions |
| 54,180 | ||||||||||||||||||||||||||||
Retirements |
| | ||||||||||||||||||||||||||||
Balances at December 31, 2003: |
3,044,885 | 916,400 | ||||||||||||||||||||||||||||
Additions |
| 54,180 | ||||||||||||||||||||||||||||
Retirements |
| | ||||||||||||||||||||||||||||
Balances at December 31, 2004: |
$ | 3,044,885 | $ | 970,580 | ||||||||||||||||||||||||||
The aggregate cost basis of Del Taco Restaurant Properties II real estate assets for Federal income tax purposes was $2,188,770 at December 31, 2004.
See accompanying report of independent registered public accounting firm.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership 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 | ||
Del Taco, Inc. | ||
General Partner | ||
Date March 25, 2005
|
Kevin K. Moriarty | |
Kevin K. Moriarty Director, Chairman and Chief Executive Officer |
||
Date March 25, 2005
|
Michael L. Annis | |
Michael L. Annis Vice President, Secretary and General Counsel |
||
Date March 25, 2005
|
Robert J. Terrano | |
Robert J. Terrano Executive Vice President and Chief Financial Officer |
27
Exhibit No. |
Description |
|
1.
|
Incorporated herein by reference, Agreement of Limited Partnership of Del Taco Restaurant Properties II filed as Exhibit 3.01 to Partnerships 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 partnership and Del Taco, Inc., as lessee, filed as Exhibit 10.02 to Partnerships Registration Statement on Form S-11 as filed with the Securities and Exchange Commission on July 10, 1984. | |
31.1
|
Kevin K. Moriartys Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2
|
Robert J. Terranos Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1
|
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |