UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

 

Commission file no. 33-13437

 

DEL TACO INCOME PROPERTIES IV

(A California limited partnership)

(Exact name of registrant as specified in its charter)

 

 

(949) 462-9300

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

 

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

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Form S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ     

 

INDEX

DEL TACO INCOME PROPERTIES IV

		PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2009 (Unaudited) and December 31, 2008			3
Condensed Statements of Income for the three and nine months ended September 30, 2009 and 2008 (Unaudited)			4
Condensed Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (Unaudited)			5
Notes to Condensed Financial Statements (Unaudited)			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 3. Quantitative and Qualitative Disclosures About Market Risk			11
Item 4T. Controls and Procedures			12
PART II. OTHER INFORMATION
Item 6. Exhibits			13
SIGNATURE			14
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION

ITEM I.		FINANCIAL STATEMENTS

DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	127,721			$	120,448
Receivable from Del Taco LLC			35,902				37,461
Deposits			704				608
Total current assets			164,327				158,517
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			1,567,755				1,526,304
			1,443,594				1,485,045
		$	1,607,921			$	1,643,562
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners		$	15,736			$	13,898
Accounts payable			18,982				10,540
Total current liabilities			34,718				24,438
OBLIGATION TO GENERAL PARTNER			137,953				137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at September 30, 2009 and December 31, 2008			1,452,030				1,497,493
General partner-Del Taco LLC			(16,780	)			(16,322	)
			1,435,250				1,481,171
		$	1,607,921			$	1,643,562

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF INCOME

(UNAUDITED)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
RENTAL REVENUES		$	109,092			$	113,926			$	326,680			$	331,635
EXPENSES:
General and administrative			12,731				8,484				56,001				55,160
Depreciation			13,817				13,817				41,451				41,451
			26,548				22,301				97,452				96,611
Operating income			82,544				91,625				229,228				235,024
OTHER INCOME:
Interest			24				135				85				508
Other			125				75				325				1,000
Net income		$	82,693			$	91,835			$	229,638			$	236,532
Net income per limited partnership unit (note 2)		$	0.50			$	0.55			$	1.37			$	1.42
Number of units used in computing per unit amounts			165,375				165,375				165,375				165,375

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		Nine Months Ended
		September 30,
		2009				2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	229,638			$	236,532
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			41,451				41,451
Changes in operating assets and liabilities:
Receivable from Del Taco LLC			1,559				(928	)
Deposits			(96	)			(86	)
Payable to limited partners			1,838				2,160
Accounts payable			8,442				(207	)
Net cash provided by operating activities			282,832				278,922
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners			(275,559	)			(274,473	)
Net increase in cash			7,273				4,449
Beginning cash balance			120,448				115,922
Ending cash balance		$	127,721			$	120,371

See accompanying notes to condensed financial statements.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

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, 2008 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, 2009, the results of operations for the three and nine month periods ended September 30, 2009 and 2008 and cash flows for the nine month periods ended September 30, 2009 and 2008 have been included. Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. Amounts related to disclosure of December 31, 2008 balances within these condensed financial statements were derived from the audited 2008 financial statements. Management has evaluated subsequent events through November 16, 2009, which is the date the financial statements were issued.

NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT

Net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 165,375 in 2009 and 2008.

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to Del Taco LLC, formerly known as Del Taco Inc., (Del Taco or the General Partner) and 99 percent to the limited partners. Partnership gains from any sale or refinancing will be allocated one percent to the General Partner and 99 percent to the limited partners until allocated gains and profits equal losses, distributions and syndication costs, and until each class of limited partners receive their priority return as defined in the partnership agreement. Additional gains will be allocated 12 percent to the General Partner and 88 percent to the limited partners.

NOTE 3 — LEASING ACTIVITIES

The Partnership leases 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.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

UNAUDITED

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended September 30, 2009, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $583,287 and unaudited net losses of $1,356 as compared to $616,726 and unaudited net income of $4,138 for the corresponding period in 2008. Net income or loss of each restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the reduction in net income from the corresponding period of the prior year primarily relates to decreased sales compared to the prior year. For the three months ended September 30, 2009, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $325,817 as compared with $332,656 during the same period in 2008.

For the nine months ended September 30, 2009, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,772,395 and unaudited net income of $18,773 as compared to $1,797,651 and unaudited net income of $4,376 for the corresponding period in 2008. Net income or loss of each restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the increase in net income from the corresponding period of the prior year primarily relates to reduced operating expenses, partially offset by reduced sales compared to the prior year. For the nine months ended September 30, 2009, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $949,936 as compared with $965,974 during the same period in 2008.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of September 2009. The September rent was collected in October 2009.

Del Taco serves in the capacity of general partner in other partnerships which are engaged in the business of operating restaurants, and three other partnerships which were formed for the purpose of acquiring real property in California for construction of Mexican-American restaurants for lease under long-term agreements to Del Taco for operation under the Del Taco trade name.

In addition, see Note 5 with respect to certain distributions to the General Partner.

NOTE 5 — DISTRIBUTIONS

Total cash distributions declared and paid in January, April and July 2009 were $101,551, $90,259 and $83,749, respectively. On October 27, 2009, a distribution to the limited partners of $105,915, or approximately $0.64 per limited partnership unit, was declared. Such distribution was paid October 30, 2009. The General Partner also received a distribution of $1,070 with respect to its 1% partnership interest in October 2009.

DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

UNAUDITED

NOTE 6 — PAYABLE TO LIMITED PARTNERS

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

NOTE 7 — CONCENTRATION OF RISK

The three restaurants leased to Del Taco make up all of the income producing assets of the Partnership and contributed all of the Partnership’s rental revenues during the three and nine months ended September 30, 2009 and 2008. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.

The Partnership maintains substantially all of its cash and cash equivalents at one major commercial bank. The Federal Depository Insurance Commission’s limit was $250,000 at September 30, 2009 and December 31, 2008. At September 30, 2009 and December 31, 2008, the Partnership had approximately $130,000 and $127,000, respectively, on deposit at one financial institution.

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

Liquidity and Capital Resources

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

The three restaurants leased to Del Taco make up all of the income producing assets of the Partnership. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties. The success of the restaurants is dependent on a large variety of factors, including, but not limited to, competition, consumer demand and preference for fast food, in general, and for Mexican-American food in particular.

Results of Operations

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

The following table sets forth rental revenue earned by restaurant for the three and nine months ended September 30, 2009 and 2008 (unaudited):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Orangethorpe Ave., Placentia, CA		$	48,894			$	48,708			$	141,183			$	142,825
Lakeshore Drive, Lake Elsinore, CA			39,098				39,919				113,992				115,917
Highland Ave., San Bernardino, CA			21,100				25,299				71,505				72,893
Total		$	109,092			$	113,926			$	326,680			$	331,635

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $109,092 during the three month period ended September 30, 2009, which represents a decrease of $4,834 from the corresponding period in 2008. The Partnership earned rental revenue of $326,680 during the nine month period ended September 30, 2009, which represents a decrease of $4,955 from the corresponding period in 2008. The changes in rental revenues between 2008 and 2009 are directly attributable to decreases in sales levels at the restaurants under lease due to local competitive and industry factors.

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

The following table breaks down general and administrative expenses by type of expense:

		Percent of Total
		General & Administrative Expense
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Accounting fees			40.61	%			64.91	%			72.01	%			78.16	%
Distribution of information to limited partners			59.39	%			35.09	%			27.99	%			21.84	%
			100.00	%			100.00	%			100.00	%			100.00	%

General and administrative costs for the three month period ended September 30, 2009 increased from the corresponding period in 2008 primarily due to increased printing costs and bank charges, partially offset by reduced accounting costs. General and administrative costs for the nine month period ended September 30, 2009 increased from the corresponding period in 2008 primarily due to increased bank charges, partially offset by reduced accounting and tax preparation costs.

For the three month period ended September 30, 2009, net income decreased by $9,142 from 2008 to 2009 due to the decrease in revenues of $4,834, the decrease in interest and other income of $61 and the increase in general and administrative expenses of $4,247. For the nine month period ended September 30, 2009, net income decreased by $6,894 from 2008 to 2009 due to a decrease in revenues of $4,955, the decrease in interest and other income of $1,098 and the increase in general and administrative expenses of $841.

Recent Accounting Pronouncements

None

Off-Balance Sheet Arrangements

None

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

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-Q are based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in the Partnership’s December 31, 2008 Form 10-K.

Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.

Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment.

The partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk.

None.

Item 4T.		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 Treasurer, 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 Treasurer 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.

PART II. OTHER INFORMATION

There is no information required to be reported for any items under Part II, except as follows:

Item 6.		Exhibits

(a)

Exhibits

31.1		Paul J. B. Murphy, III’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Steven L. Brake’s Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

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

		DEL TACO INCOME PROPERTIES IV (a California limited partnership) Registrant
		Del Taco LLC General Partner
Date: November 16, 2009		/s/ Steven L. Brake   Steven L. Brake
		Treasurer

EXHIBIT INDEX

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