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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 endedJune 30, 2008.
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 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” inRule 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 inRule 12b-2 of the Exchange Act). Yes o No þ
INDEX
DEL TACO RESTAURANT PROPERTIES I
PAGE NUMBER | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
9 | ||||||||
11 | ||||||||
11 | ||||||||
12 | ||||||||
12 | ||||||||
13 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 |
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DEL TACO RESTAURANT PROPERTIES I
CONDENSED BALANCE SHEETS
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 209,064 | $ | 218,140 | ||||
Receivable from Del Taco LLC | 62,015 | 62,093 | ||||||
Deposits | 1,235 | 986 | ||||||
Total current assets | 272,314 | 281,219 | ||||||
PROPERTY AND EQUIPMENT: | ||||||||
Land and improvements | 1,922,482 | 1,852,482 | ||||||
Buildings and improvements | 1,013,134 | 1,013,134 | ||||||
Machinery and equipment | 1,136,026 | 1,136,026 | ||||||
4,071,642 | 4,001,642 | |||||||
Less—accumulated depreciation | 2,091,509 | 2,077,035 | ||||||
1,980,133 | 1,924,607 | |||||||
$ | 2,252,447 | $ | 2,205,826 | |||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Payable to limited partners | $ | 30,239 | $ | 39,157 | ||||
Accounts payable | 13,870 | 6,859 | ||||||
Total current liabilities | 44,109 | 46,016 | ||||||
PARTNERS’ EQUITY: | ||||||||
Limited partners; 8,751 units outstanding at June 30, 2008 and December 31, 2007 | 1,946,158 | 1,898,115 | ||||||
General partner-Del Taco LLC | 262,180 | 261,695 | ||||||
2,208,338 | 2,159,810 | |||||||
$ | 2,252,447 | $ | 2,205,826 | |||||
See accompanying notes to condensed financial statements.
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DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
RENTAL REVENUES | $ | 185,959 | $ | 181,721 | $ | 369,864 | $ | 355,055 | ||||||||
EXPENSES: | ||||||||||||||||
General and administrative | 10,461 | 13,075 | 51,344 | 53,442 | ||||||||||||
Depreciation | 7,237 | 7,237 | 14,474 | 14,474 | ||||||||||||
17,698 | 20,312 | 65,818 | 67,916 | |||||||||||||
Operating income | 168,261 | 161,409 | 304,046 | 287,139 | ||||||||||||
OTHER INCOME: | ||||||||||||||||
Interest | 415 | 1,201 | 1,069 | 2,410 | ||||||||||||
Other | 1,775 | 675 | 2,250 | 1,250 | ||||||||||||
Net income | $ | 170,451 | $ | 163,285 | $ | 307,365 | $ | 290,799 | ||||||||
Net income per limited partnership unit (Note 2) | $ | 19.28 | $ | 18.47 | $ | 34.77 | $ | 32.90 | ||||||||
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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DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2008 | 2007 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 307,365 | $ | 290,799 | ||||
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 | 78 | (106 | ) | |||||
Deposits | (249 | ) | 145 | |||||
Payable to limited partners | (8,918 | ) | (36,892 | ) | ||||
Accounts payable | 7,011 | (5,222 | ) | |||||
Net cash provided by operating activities | 319,761 | 263,198 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of land and improvements | (70,000 | ) | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Cash distributions to partners | (258,837 | ) | (326,329 | ) | ||||
Net decrease in cash | (9,076 | ) | (63,131 | ) | ||||
Beginning cash balance | 218,140 | 259,468 | ||||||
Ending cash balance | $ | 209,064 | $ | 196,337 | ||||
See accompanying notes to condensed financial statements.
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DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008
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, 2007 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, 2008, the results of operations for the three and six month periods ended June 30, 2008 and 2007 and cash flows for the six month periods ended June 30, 2008 and 2007 have been included. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. Amounts related to disclosure of December 31, 2007 balances within these condensed financial statements were derived from the audited 2007 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 2008 and 2007.
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 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.
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DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008
UNAUDITED
NOTE 3 - - LEASING ACTIVITIES - continued
For the three months ended June 30, 2008, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,301,383 and unaudited net losses of $51,283 as compared to unaudited sales of $1,256,131 and unaudited net income of $547, respectively, for the corresponding period in 2007. 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 income from the corresponding period of the prior year primarily relates to food, labor and operating expense increases that exceeded the growth in restaurant revenues. For the three months ended June 30, 2008, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $248,276 as compared with $258,210 during the same period in 2007.
For the six months ended June 30, 2008, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $2,591,709 and unaudited net losses of $69,455 as compared to $2,460,368 and unaudited net income of $4,011 for the corresponding period in 2007. 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 income from the corresponding period of the prior year primarily relates to food, labor and operating expense increases that exceeded the growth in restaurant revenues. For the six months ended June 30, 2008, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $490,489 as compared with $498,425 during the same period in 2007.
NOTE 4 - - TRANSACTIONS WITH DEL TACO
The receivable from Del Taco consists primarily of rent accrued for the month of June 2008. The June rent receivable was collected in July 2008.
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 and April 2008 were $173,984 and $84,853, respectively. On July 20, 2008, a distribution to the limited partners of $172,087, or approximately $19.66 per limited partnership unit, was declared. Such distribution was paid on July 25, 2008. The General Partner also received a distribution of $1,738 with respect to its 1% partnership interest in July 2008.
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DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008
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. The reduction in payable to limited partners from December 31, 2007 to June 30, 2008 is due to reissuing outstanding distribution checks to limited partners who were located in connection with the Partnership’s review of unclaimed property.
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, 2008 and 2007. 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 cash balance is in excess of the Federal Depository Insurance Commission’s limits. At June 30, 2008 and December 31, 2007, the Partnership had approximately $216,000 and $239,000, respectively, on deposit at one financial institution.
NOTE 8 - - COMMITMENTS AND CONTINGENCIES
On February 21, 2008, the General Partner settled a property encroachment lawsuit regarding the Partnership’s restaurant on Haven Avenue in Rancho Cucamonga, California. To settle the case, the General Partner agreed in principal to have the Partnership purchase the encroachment area for $70,000 and obtain a full release of both parties’ claims. On May 23, 2008, a release and sale agreement was finalized.
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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. $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 for the three and six months ended June 30, 2008 and 2007 (unaudited):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Riverside Avenue, Rialto, CA | $ | 28,663 | $ | 28,558 | $ | 56,467 | $ | 57,339 | ||||||||
Elden Avenue, Moreno Valley, CA | 25,185 | 26,333 | 49,509 | 51,931 | ||||||||||||
Foothill Boulevard, La Verne, CA | 43,950 | 43,491 | 88,256 | 85,246 | ||||||||||||
Baseline & Archibald, Rancho Cucamonga, CA | 29,793 | 30,985 | 58,859 | 59,811 | ||||||||||||
Elkhorn Boulevard, Sacramento, CA | 22,401 | 20,035 | 44,084 | 38,446 | ||||||||||||
Haven Avenue, Rancho Cucamonga, CA | 35,967 | 32,319 | 72,689 | 62,282 | ||||||||||||
Total | $ | 185,959 | $ | 181,721 | $ | 369,864 | $ | 355,055 | ||||||||
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $185,959 during the three month period ended June 30, 2008, which represents an increase of $4,238 from the corresponding period in 2007. The Partnership earned rental revenue of $369,864 during the six month period ended June 30, 2008, which represents an increase of $14,809 from the corresponding period in 2007. The change in rental revenues between 2008 and 2007 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:
Percent of Total | ||||||||||||||||
General & Administrative Expense | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Accounting fees | 49.88 | % | 45.99 | % | 77.78 | % | 72.94 | % | ||||||||
Distribution of information to limited partners | 50.12 | % | 54.01 | % | 22.22 | % | 27.06 | % | ||||||||
100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||
General and administrative costs for the three month and six month periods ended June 30, 2008 decreased from the corresponding period in 2007 primarily due to decreases in costs for accounting fees and printing costs.
For the three month period ended June 30, 2008, net income increased by $7,166 from 2007 to 2008 due to the increase in revenues of $4,238, the decrease in general and administrative expenses of $2,614 and the increase in interest and other income of $314. For the six month period ended June 30, 2008, net income increased $16,566 from 2007 to 2008 due to the increase in revenues of $14,809 and decrease in general and administrative expenses of $2,098, partially offset by the decrease in interest and other income of $341.
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, 2007 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.
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Item 2. | Management’s 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 (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.
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 President and Treasurer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the President 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.
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PART II. OTHER INFORMATION
There is no information required to be reported for any items under Part II, except as follows:
Item 1. Legal Proceedings
On February 21, 2008, the General Partner settled a property encroachment lawsuit regarding the Partnership’s restaurant on Haven Avenue in Rancho Cucamonga, California. To settle the case, the General Partner agreed in principal to have the Partnership purchase the encroachment area for $70,000 and obtain a full release of both parties’ claims. On May 23, 2008, a release and sale agreement was finalized.
Item 6. Exhibits
(a) | Exhibits |
31.1 | Shirlene Lopez’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 |
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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 14, 2008 | /s/ Steven L. Brake | |||
Steven L. Brake | ||||
Treasurer |
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EXHIBIT INDEX
Exhibits | Description | |
31.1 | Shirlene Lopez’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 |