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Table of Contents

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
     
(Mark one)    
 
þ
  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended June 30, 2011
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
(Zip Code)
(Address of principal executive offices)    
 
(949) 462-9300
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s Form S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.
 


 

INDEX
DEL TACO RESTAURANT PROPERTIES I
         
    PAGE NUMBER
       
 
       
       
 
       
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    12  
 
       
    13  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT

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Table of Contents

PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DEL TACO RESTAURANT PROPERTIES I
CONDENSED BALANCE SHEETS
                 
    June 30,     December 31,  
    2011     2010  
    (Unaudited)        
ASSETS
 
               
CURRENT ASSETS:
               
Cash
  $ 204,736     $ 225,302  
Receivable from Del Taco LLC
    59,960       64,881  
Other current assets
    1,113       1,366  
 
           
Total current assets
    265,809       291,549  
 
           
 
               
PROPERTY AND EQUIPMENT:
               
Land
    1,633,188       1,633,188  
Land improvements
    296,497       296,497  
Buildings and improvements
    1,013,134       1,013,134  
Machinery and equipment
    1,136,026       1,136,026  
 
           
 
    4,078,845       4,078,845  
Less—accumulated depreciation
    2,178,353       2,163,879  
 
           
 
    1,900,492       1,914,966  
 
           
 
               
 
  $ 2,166,301     $ 2,206,515  
 
           
 
               
LIABILITIES AND PARTNERS’ EQUITY
 
               
CURRENT LIABILITIES:
               
Payable to limited partners
  $ 40,119     $ 44,368  
Accounts payable
    3,576       9,290  
 
           
Total current liabilities
    43,695       53,658  
 
           
 
               
PARTNERS’ EQUITY:
               
Limited partners; 8,751 units outstanding at June 30, 2011 and December 31, 2010
    1,861,284       1,891,231  
General partner-Del Taco LLC
    261,322       261,626  
 
           
 
    2,122,606       2,152,857  
 
           
 
               
 
  $ 2,166,301     $ 2,206,515  
 
           
See accompanying notes to condensed financial statements.

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Table of Contents

DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
RENTAL REVENUES
  $ 184,013     $ 186,091     $ 366,137     $ 365,853  
 
                       
 
                               
EXPENSES:
                               
General and administrative
    12,724       10,336       50,801       46,646  
Depreciation
    7,237       7,237       14,474       14,474  
 
                       
 
    19,961       17,573       65,275       61,120  
 
                       
 
                               
Operating income
    164,052       168,518       300,862       304,733  
 
                               
OTHER INCOME:
                               
Interest
    62       60       123       124  
Other
    675       500       1,075       625  
 
                       
 
                               
Net income
  $ 164,789     $ 169,078     $ 302,060     $ 305,482  
 
                       
 
                               
Net income per limited partnership unit (Note 2)
  $ 18.64     $ 19.13     $ 34.17     $ 34.56  
 
                       
 
                               
Number of units used in computing per unit amounts
    8,751       8,751       8,751       8,751  
 
                       
See accompanying notes to condensed financial statements.

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Table of Contents

DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30,  
    2011     2010  
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
               
Net income
  $ 302,060     $ 305,482  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    14,474       14,474  
Changes in operating assets and liabilities:
               
Receivable from Del Taco LLC
    4,921       1,596  
Other current assets
    253       132  
Payable to limited partners
    (4,249 )     3,524  
Accounts payable
    (5,714 )     (3,770 )
 
           
 
               
Net cash provided by operating activities
    311,745       321,438  
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
               
Cash distributions to partners
    (332,311 )     (319,164 )
 
           
 
               
Net change in cash
    (20,566 )     2,274  
 
               
Beginning cash balance
    225,302       218,535  
 
           
 
               
Ending cash balance
  $ 204,736     $ 220,809  
 
           
See accompanying notes to condensed financial statements.

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Table of Contents

DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
UNAUDITED
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should therefore be read in conjunction with the financial statements and notes thereto contained in the annual report on Form 10-K for the year ended December 31, 2010 for Del Taco 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 June 30, 2011, the results of operations for the three and six month periods ended June 30, 2011 and 2010 and cash flows for the six month periods ended June 30, 2011 and 2010 have been included. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Amounts related to disclosure of December 31, 2010 balances within these condensed financial statements were derived from the 2010 audited financial statements.
Management has evaluated events subsequent to June 30, 2011 through the date that the accompanying condensed financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustment of and/or disclosure in such financial statements.
NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per limited partnership unit is based on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented, which amounted to 8,751 in 2011 and 2010.
Pursuant to the partnership agreement, annual partnership net income 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. 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.
NOTE 3 — LEASING ACTIVITIES
The Partnership leases six properties for operation of restaurants to Del Taco on a triple net basis. One property has been subleased to a Del Taco franchisee. The leases are for terms of 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 2020 to 2021. Pursuant to the lease agreements, minimum rentals of $3,500 per month are due to the Partnership during the first six months of any non-operating period caused by an insured casualty loss.

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Table of Contents

DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
UNAUDITED
NOTE 3 — LEASING ACTIVITIES — continued
For the three months ended June 30, 2011, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,304,798 and unaudited net income of $2,335 as compared to unaudited sales of $1,316,196 and unaudited net losses of $7,280, respectively, for the corresponding period in 2010. Net income or loss of each restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net loss from the corresponding period of the prior year primarily relates to decreases in operating costs. For the three months ended June 30, 2011, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $228,642 as compared with $234,565 during the same period in 2010.
For the six months ended June 30, 2011, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $2,592,871 and unaudited net losses of $2,233 as compared to $2,583,778 and unaudited net losses of $51,853 for the corresponding period in 2010. Net income or loss of each restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense and the decrease in net loss from the corresponding period of the prior year primarily relates to decreases in operating costs. For the six months ended June 30, 2011, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $458,268 as compared with $465,000 during the same period in 2010.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from Del Taco consists primarily of rent accrued for the month of June 2011. The June rent receivable was collected in July 2011.
Del Taco serves in the capacity of general partner in other partnerships which are engaged in the business of operating restaurants, and three other partnerships which were formed for the purpose of acquiring real property in California for construction of Mexican-American restaurants for lease under long-term agreements to Del Taco for operation under the Del Taco trade name.
In addition, see Note 5 with respect to certain distributions to the General Partner.
NOTE 5 — DISTRIBUTIONS
Total cash distributions declared and paid in February and May 2011 were $175,933 and $156,378, respectively. On July 25, 2011, a distribution to the limited partners of $158,020, or approximately $18.06 per limited partnership unit, was approved. Such distribution was paid on August 2, 2011. The General Partner also received a distribution of $1,596 with respect to its 1% partnership interest in August 2011.

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Table of Contents

DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011
UNAUDITED
NOTE 6 — PAYABLE TO LIMITED PARTNERS
Payable to limited partners represents a reclassification from cash for distribution checks made to limited partners that have remained outstanding for six months or longer.
NOTE 7 — CONCENTRATION OF RISK
The six restaurants leased to Del Taco make up all of the income producing assets of the Partnership and contributed all of the Partnership’s rental revenues during the three and six months ended June 30, 2011 and 2010. Therefore, the business of the Partnership is entirely dependent on the success of the Del Taco trade name restaurants that lease the properties.
The Partnership maintains substantially all of its cash and cash equivalents at one major commercial bank. At various times, the cash balance is in excess of the Federal Depository Insurance Corporation’s limits. The Federal Depository Insurance Corporation’s limits were $250,000 at June 30, 2011 and 2010. At June 30, 2011 and December 31, 2010, the Partnership had approximately $227,000 and $236,000, respectively, on deposit at one financial institution.

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Table of Contents

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. $4.375 million was raised through the sale of limited partnership units and used to acquire sites and build six restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred.
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.
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 (unaudited):
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Riverside Avenue, Rialto, CA
  $ 28,771     $ 29,872     $ 58,973     $ 58,151  
Elden Avenue, Moreno Valley, CA
    24,081       25,516       47,536       50,058  
Foothill Boulevard, La Verne, CA
    42,234       42,263       83,044       82,898  
Baseline & Archibald, Rancho Cucamonga, CA
    27,437       28,148       54,992       55,800  
Elkhorn Boulevard, Sacramento, CA
    27,013       26,223       53,281       51,514  
Haven Avenue, Rancho Cucamonga, CA
    34,477       34,069       68,311       67,432  
 
                       
Total
  $ 184,013     $ 186,091     $ 366,137     $ 365,853  
 
                       
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $184,013 during the three month period ended June 30, 2011, which represents a decrease of $2,078 from the corresponding period in 2010. The Partnership earned rental revenue of $366,137 during the six month period ended June 30, 2011, which represents an increase of $284 from the corresponding period in 2010. The changes in rental revenues between 2010 and 2011 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued
The following table breaks down general and administrative expenses by type of expense:
                                 
    Percent of Total
    General & Administrative Expense
    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2011   2010   2011   2010
Accounting fees
    46.93 %     48.51 %     71.88 %     74.29 %
Distribution of information to limited partners
    53.07 %     51.49 %     28.12 %     25.71 %
 
                               
 
                               
 
    100.00 %     100.00 %     100.00 %     100.00 %
 
                               
General and administrative costs increased during the three month and six month periods from 2010 to 2011 primarily due to increased audit fees, accounting and legal fees, bank charges and costs for printing and the distribution of information to limited partners.
For the three month period ended June 30, 2011, net income decreased by $4,289 from 2010 to 2011 due to the decrease in revenues of $2,078 and the increase in general and administrative expenses of $2,388, partially offset by the increase in interest and other income of $177. For the six month period ended June 30, 2011, net income decreased $3,422 from 2010 to 2011 due to the increase in general and administrative expenses of $4,155, partially offset by the increase in revenues of $284 and the increase in interest and other income of $449.
Significant Recent Accounting Pronouncements
None.
Off-Balance Sheet Arrangements
None
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations, as well as disclosures included elsewhere in this report on Form 10-Q are based upon the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The Partnership believes the critical accounting policies that most impact the financial statements are described below. A summary of the significant accounting policies of the Partnership can be found in Note 1 to the Financial Statements which is included in the Partnership’s December 31, 2010 Form 10-K.

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued
Revenue Recognition: Rental revenue is recognized based on 12 percent of gross sales of the restaurants for the corresponding period, and is earned at the point of sale.
Property and Equipment: Property and equipment is stated at cost. Depreciation is computed using the straight-line method over estimated useful lives which are 20 years for land improvements, 35 years for buildings and improvements, and 10 years for machinery and equipment.
The Partnership accounts for property and equipment in accordance with authoritative guidance issued by the Financial Accounting Standards Board that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. In evaluating long-lived assets held for use, an impairment loss is recognized if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the asset. Once a determination has been made that an impairment loss should be recognized for long-lived assets, various assumptions and estimates are used to determine fair value including, among others, estimated costs of construction and development, recent sales of comparable properties and the opinions of fair value prepared by independent real estate appraisers. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
None.
Item 4. Controls and Procedures
  (a)   Evaluation of disclosure controls and procedures:
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s periodic Securities and Exchange Commission filings.
  (b)   Changes in internal controls:
There were no significant changes in the Company’s internal controls over financial reporting that occurred during our most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  (c)   Asset-backed issuers:
Not applicable.

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Table of Contents

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
 
  101.INS   XBRL Instance Document*
 
  101.SCH   XBRL Taxonomy Extension Schema Document*
 
  101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
 
  101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
 
  101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*
 
*   Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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Table of Contents

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 RESTAURANT PROPERTIES I
(a California limited partnership)
Registrant

Del Taco LLC
General Partner
 
 
Date: August 15, 2011  /s/ Steven L. Brake    
  Steven L. Brake   
  Chief Financial Officer 
(Principal Financial Officer)
 
 

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