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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 March 31, 2005.

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                to                                .

Commission file no. 0-16191

DEL TACO RESTAURANT PROPERTIES I

a California limited partnership
(Exact name of registrant as specified in its charter)
     
California
  95-3852699
(State or other jurisdiction of
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 RESTAURANT PROPERTIES I

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

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DEL TACO RESTAURANT PROPERTIES I

CONDENSED BALANCE SHEETS

(Unaudited)

                 
    March 31,     December 31,  
    2005     2004  
ASSETS
               
CURRENT ASSETS:
               
Cash
  $ 243,222     $ 251,606  
Receivable from Del Taco, Inc.
    70,818       64,831  
Deposits
    1,124       1,299  
 
           
Total current assets
    315,164       317,736  
 
           
 
               
PROPERTY AND EQUIPMENT:
               
Land and improvements
    1,852,482       1,852,482  
Buildings and improvements
    1,013,134       1,013,134  
Machinery and equipment
    1,136,026       1,136,026  
 
           
 
    4,001,642       4,001,642  
Less—accumulated depreciation
    1,989,662       1,978,719  
 
           
 
    2,011,980       2,022,923  
 
           
 
               
 
  $ 2,327,144     $ 2,340,659  
 
           
 
               
LIABILITIES AND PARTNERS’ EQUITY
               
 
               
CURRENT LIABILITIES:
               
Payable to limited partners
  $ 63,876     $ 64,634  
Accounts payable
    35,628       10,481  
 
           
Total current liabilities
    99,504       75,115  
 
           
 
               
PARTNERS’ EQUITY:
               
Limited partners; 8,751 units outstanding at March 31, 2005 and December 31, 2004
    1,965,266       2,002,791  
General partner-Del Taco, Inc.
    262,374       262,753  
 
           
 
    2,227,640       2,265,544  
 
           
 
               
 
  $ 2,327,144     $ 2,340,659  
 
           

See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I

CONDENSED STATEMENTS OF INCOME

(Unaudited)

                 
    Three Months Ended  
    March 31,  
    2005     2004  
RENTAL REVENUES
  $ 191,065     $ 188,747  
 
           
 
               
EXPENSES:
               
General and administrative
    37,270       35,258  
Depreciation
    10,943       10,943  
 
           
 
    48,213       46,201  
 
           
 
               
Operating income
    142,852       142,546  
 
               
OTHER INCOME:
               
Interest
    792       544  
Other
    425       400  
 
           
 
               
Net income
  $ 144,069     $ 143,490  
 
           
 
               
Net income per limited partnership unit
  $ 16.30     $ 16.23  
 
           
 
               
Number of units used in computing per unit amounts
    8,751       8,751  
 
           

See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

                 
    Three Months Ended  
    March 31,  
    2005     2004  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
               
Net income
  $ 144,069     $ 143,490  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    10,943       10,943  
Changes in operating assets and liabilities:
               
(Increase) decrease in receivable from Del Taco, Inc.
    (5,987 )     573  
Decrease in deposits
    175       104  
Increase in accounts payable and payable to limited partners
    24,389       39,081  
 
           
 
               
Net cash provided by operating activities
    173,589       194,191  
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
Cash distributions to partners
    (181,973 )     (179,295 )
 
           
 
               
Net increase (decrease) in cash
    (8,384 )     14,896  
 
               
Beginning cash balance
    251,606       259,810  
 
           
 
               
Ending cash balance
  $ 243,222     $ 274,706  
 
           

See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2005

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, 2004 for Del Taco Restaurant Properties I (the Partnership or the Company). In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Partnership’s financial position at March 31, 2005, the results of operations and cash flows for the three month periods ended March 31, 2005 and 2004 have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

NOTE 2 — 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 periods presented, which amounted to 8,751 in 2005 and 2004.

Pursuant to the partnership agreement, annual partnership net income is allocated one percent to Del Taco, Inc. (Del Taco or the General Partner) and 99 percent to the limited partners. A partnership net loss in any year will be allocated 24 percent to the General Partner and 76 percent to the limited partners until the losses so allocated equal income previously allocated. Any additional losses will be allocated one percent to the General Partner and 99 percent to the limited partners. Partnership gains from any sale or refinancing will be allocated one percent to the General Partner and 99 percent to the limited partners until allocated gains and profits equal losses. Additional gains will be allocated 24 percent to the General Partner and 76 percent to the limited partners.

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DEL TACO RESTAURANT PROPERTIES I

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

MARCH 31, 2005

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. The leases expire in the years 2019 to 2020. There is no minimum rental under any of the leases.

For the three months ended March 31, 2005, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,310,445 and net income of $93,400 as compared to $1,296,933 and $100,046, respectively, for the corresponding period in 2004. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense. For the three months ended March 31, 2005, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $281,763 as compared with $275,961 during the same period in 2004.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of March. The March rent receivable was collected in April 2005.

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 April 20, 2005, a distribution to the limited partners of $172,602, or approximately $19.72 per limited partnership unit, was approved. Such distribution was paid on April 29, 2005. The General Partner also received a distribution of $1,743 with respect to its 1% partnership interest. Total cash distributions paid in January 2005 were $181,973.

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

Liquidity and Capital Resources

Del Taco Restaurant Properties I (the Partnership or the Company) offered limited partnership units for sale between March 1983 and March 1984. 15% of the $4.375 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse Del Taco, Inc. (the General Partner or Del Taco) for offering costs incurred. Approximately $4 million of the remaining funds were used to acquire sites and build six restaurants.

The six 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.

The increase in accounts payable from December 31, 2004 is a seasonal increase due to the timing of certain accounting, audit and tax services.

Results of Operations

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

The following table sets forth rental revenue earned by restaurant:

                 
    Three Months Ended  
    March 31,  
    2005     2004  
 
               
Riverside Avenue, Rialto, CA
  $ 28,497     $ 29,306  
 
               
Elden Avenue, Moreno Valley, CA
    33,827       32,573  
 
               
Foothill Boulevard, La Verne, CA
    40,889       40,002  
 
               
Baseline & Archibald, Rancho Cucamonga, CA
    33,811       33,115  
 
               
Elkhorn Boulevard, Sacramento, CA
    17,361       19,491  
 
               
Haven Avenue, Rancho Cucamonga, CA
    36,680       34,260  
 
           
 
               
Total
  $ 191,065     $ 188,747  
 
           

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $191,065 during the three month period ended March 31, 2005, which represents an increase of $2,318 from 2004. The change in rental revenues between 2004 and 2005 is directly attributable to increases in sales 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:

                 
    Percentage of Total  
    General & Administrative Expense  
    Three Months Ended  
    March 31,  
    2005     2004  
Accounting fees
    72.95 %     76.65 %
Distribution of information to limited partners
    27.05       23.35  
 
           
 
               
 
    100.00 %     100.00 %
 
           

General and administrative costs increased from 2004 to 2005 primarily due to increased costs for software licensing fees which slightly increased the percentage of general and administrative expense related to distribution of information to limited partners as shown in the table above.

Net income increased by $579 from 2004 to 2005 due to the increases in revenues of $2,318 and interest and other income of $273 partially offset by the $2,012 increase in general and administrative expenses.

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, 2004 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 (SFAS) No. 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.

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

Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

None.

Item 4. Controls and Procedures

  (a)   Evaluation of disclosure controls and procedures:

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic Securities and Exchange Commission filings.

  (b)   Changes in internal controls:

There were no significant changes in the Company’s internal controls over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

  (c)   Asset-Backed issuers:

Not applicable.

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PART II. OTHER INFORMATION

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 RESTAURANT PROPERTIES I
  (a California limited partnership)
  Registrant
 
   
  Del Taco, Inc.
General Partner
 
   
Date: May 13, 2005
  /s/ Robert J. Terrano
   
  Robert J. Terrano
  Executive Vice President,
  Chief Financial Officer

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EXHIBIT INDEX

     
Exhibits   Description
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

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