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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004.

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. 33-13437

DEL TACO INCOME PROPERTIES IV

a California limited partnership
(Exact name of registrant as specified in its charter)
     
California
  33-0241855
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)
 
25521 Commercentre Drive, Lake Forest, California
  92630
(Address of principal executive offices)
  (Zip Code)

(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 x  No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)  Yes o  No x




INDEX

DEL TACO INCOME PROPERTIES IV

         
PART I. FINANCIAL INFORMATION
  PAGE NUMBER
Item 1. Financial Statements
       
    3  
    4  
    5  
    6  
    8  
    10  
    11  
       
    12  
    13  
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1

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DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

(Unaudited)

                 
    September 30,   December 31,
    2004
  2003
ASSETS
CURRENT ASSETS:
               
Cash
  $ 149,826     $ 127,447  
Receivable from Del Taco, Inc.
    36,173       85,847  
Deposits
    400       474  
 
   
 
     
 
 
Total current assets
    186,399       213,768  
 
   
 
     
 
 
PROPERTY AND EQUIPMENT:
               
Land and improvements
    1,236,700       1,236,700  
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
    1,291,415       1,249,964  
 
   
 
     
 
 
 
    1,719,934       1,761,385  
 
   
 
     
 
 
 
  $ 1,906,333     $ 1,975,153  
 
   
 
     
 
 
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
               
Payable to limited partners
  $ 34,200     $ 31,690  
Accounts payable
    9,715       3,035  
 
   
 
     
 
 
Total current liabilities
    43,915       34,725  
 
   
 
     
 
 
OBLIGATION TO GENERAL PARTNER
    137,953       137,953  
 
   
 
     
 
 
PARTNERS’ EQUITY:
               
Limited partners; 165,375 units outstanding at September 30, 2004 and December 31, 2003
    1,738,354       1,815,584  
General partner-Del Taco, Inc.
    (13,889 )     (13,109 )
 
   
 
     
 
 
 
    1,724,465       1,802,475  
 
   
 
     
 
 
 
  $ 1,906,333     $ 1,975,153  
 
   
 
     
 
 

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF INCOME

(Unaudited)

                                 
    Three Months Ended   Nine Months Ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
RENTAL REVENUES
  $ 112,574     $ 99,812     $ 323,762     $ 286,226  
 
   
 
     
 
     
 
     
 
 
EXPENSES:
                               
General and administrative
    9,441       10,109       51,842       53,434  
Depreciation
    13,817       13,817       41,451       41,451  
 
   
 
     
 
     
 
     
 
 
 
    23,258       23,926       93,293       94,885  
 
   
 
     
 
     
 
     
 
 
Operating income
    89,316       75,886       230,469       191,341  
OTHER INCOME:
                               
Interest
    294       226       994       1,009  
Other
    125       325       550       600  
 
   
 
     
 
     
 
     
 
 
Net income
  $ 89,735     $ 76,437     $ 232,013     $ 192,950  
 
   
 
     
 
     
 
     
 
 
Net income per limited partnership unit (note 2)
  $ 0.54     $ 0.46     $ 1.39     $ 1.16  
 
   
 
     
 
     
 
     
 
 
Number of units used in computing per unit amounts
    165,375       165,375       165,375       165,375  
 
   
 
     
 
     
 
     
 
 

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

                 
    Nine Months Ended
    September 30,
    2004
  2003
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 232,013     $ 192,950  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    41,451       41,451  
Changes in operating assets and liabilities:
               
Decrease in receivable from Del Taco, Inc.
    49,674       72,247  
Decrease (increase) in deposits
    74       (20 )
Increase in accounts payable and payable to limited partners
    9,190       563  
 
   
 
     
 
 
Net cash provided by operating activities
    332,402       307,191  
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Cash distributions to partners
    (310,023 )     (300,711 )
 
   
 
     
 
 
Net increase in cash
    22,379       6,480  
Beginning cash balance
    127,447       117,957  
 
   
 
     
 
 
Ending cash balance
  $ 149,826     $ 124,437  
 
   
 
     
 
 

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2004

(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, 2003 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 September 30, 2004, the results of operations for the three and nine month periods ended September 30, 2004 and 2003 and cash flows for the nine month periods ended September 30, 2004 and 2003 have been included. Operating results for the three and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT

Net income per limited partnership unit is based upon the weighted average number of units outstanding during the periods presented which amounted to 165,375 in the periods presented.

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to 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 certain properties for operation of restaurants to Del Taco on a triple net basis. 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 terminate in the years 2023 to 2024. There is no minimum rental under any of the leases.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

SEPTEMBER 30, 2004

(Unaudited)

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended September 30, 2004, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $561,609 and unaudited net income of $48,420 as compared to $497,422 and $34,952, respectively, for the corresponding period in 2003. Net income by restaurant includes corporate charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest. For the three months ended September 30, 2004, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $376,509 as compared with $333,846 during the same period in 2003.

For the nine months ended September 30, 2004, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,613,244 and unaudited net income of $128,318 as compared to $1,430,427 and $99,344 respectively, for the corresponding period in 2003. For the nine months ended September 30, 2004, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $1,084,775 as compared with $954,787 during the same period in 2003.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from Del Taco, Inc. consists primarily of rent accrued for the month of September. The September rent was collected in October 2004.

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

On October 26, 2004, a distribution to the limited partners of $109,519 or approximately $.66 per limited partnership unit, was approved. Such distribution was paid October 28, 2004. The General Partner also received a distribution of $1,106 with respect to its 1% partnership interest. Total cash distributions made in January, April and July 2004 were $90,757, $125,089 and $94,177, respectively.

NOTE 6 – PAYABLE TO LIMITED PARTNERS

Payable to limited partners represents a reclassification from cash for distribution checks to limited partners that have remained outstanding for 6 months or longer.

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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. 14.5% of the $4.135 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse Del Taco, Inc. (Del Taco or the General Partner) for offering costs incurred. Approximately $3 million of the remaining funds were used to acquire sites and build three restaurants. 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 for the three and nine months ended September 30, 2004 and 2003:

                                 
    Three Months Ended   Nine Months Ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
Orangethorpe Ave., Placentia, CA
  $ 43,192     $ 39,606     $ 125,092     $ 114,280  
Lakeshore Drive, Lake Elsinore, CA
    45,181       40,061       130,173       114,574  
Highland Ave., San Bernardino, CA
    24,201       20,145       68,497       57,372  
 
   
 
     
 
     
 
     
 
 
Total
  $ 112,574     $ 99,812     $ 323,762     $ 286,226  
 
   
 
     
 
     
 
     
 
 

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants plus supplemental rent as required by the Partnership agreement. The Partnership earned rental revenue of $112,574 during the three month period ended September 30, 2004, which represents an increase of $12,762 from the corresponding period in 2003. The Partnership earned rental revenue of $323,762 during the nine month period ended September 30, 2004, which represents an increase of $37,536 from the corresponding period in 2003. The changes in rental revenue between 2004 and 2003 are directly attributable to changes in sales levels at the restaurants under lease.

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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   Nine Months Ended
    September 30,
  September 30,
    2004
  2003
  2004
  2003
Accounting fees
    38.19 %     33.21 %     67.14 %     66.19 %
Distribution of information to Limited Partners
    61.81 %     66.79 %     32.86 %     33.81 %
 
   
 
     
 
     
 
     
 
 
 
    100.00 %     100.00 %     100.00 %     100.00 %
 
   
 
     
 
     
 
     
 
 

General and administrative costs for the three month period ended September 30, 2004 decreased from the corresponding period in the previous year due to decreased printing costs. General and administrative costs for the nine month period ended September 30, 2004 decreased from the corresponding period in the previous year due to decreased accounting and printing costs.

For the three month period ended September 30, 2004, net income increased by $13,298 from 2003 to 2004 due to the increase in revenues of $12,762, the decrease in interest and other income of $132 and the $668 decrease in general and administrative expenses. For the nine month period ended September 30, 2004, net income increased by $39,063 from 2003 to 2004 due to an increase in revenues of $37,536, the decrease in interest and other income of $65 and the decrease in general and administrative expenses of $1,592.

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.

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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, 2003 Form 10-K.

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 3. Quantitative and Qualitative Disclosures About Market Risk.

None.

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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

Item 6. Exhibits and Reports on Form 8-K

  (a)   Exhibits

 31.1 Kevin K. Moriarty’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 31.2 Robert J. Terrano’s 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

  (b)   Reports
 
      None.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

         
      DEL TACO INCOME PROPERTIES IV
(a California limited partnership)
Registrant
 
       
      Del Taco, Inc.
General Partner
 
       
Date:
  November 12, 2004   /s/ Robert J. Terrano
 
 
 
 
      Robert J. Terrano
Executive Vice President,
Chief Financial Officer

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Exhibit Index

     
Exhibit 31.1
  Kevin K. Moriarty’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
Exhibit 31.2
  Robert J. Terrano’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
   
Exhibit 32.1
  Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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