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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 September 30, 2010 | ||
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 fileno. 0-16190
DEL TACO RESTAURANT PROPERTIES II
a California limited partnership
(Exact name of registrant as specified in its charter)
California | 33-0064245 | |
(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 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 ofRegulation 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 o 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 Rule12b-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
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’sForm S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
DEL TACO RESTAURANT PROPERTIES II
CONDENSED BALANCE SHEETS
September 30, | December 31, | |||||||
2010 | 2009 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 183,115 | $ | 156,281 | ||||
Receivable from Del Taco LLC | 44,704 | 45,681 | ||||||
Deposits | 2,143 | 1,913 | ||||||
Total current assets | 229,962 | 203,875 | ||||||
PROPERTY AND EQUIPMENT: | ||||||||
Land and improvements | 1,806,006 | 1,806,006 | ||||||
Buildings and improvements | 1,238,879 | 1,238,879 | ||||||
Machinery and equipment | 898,950 | 898,950 | ||||||
3,943,835 | 3,943,835 | |||||||
Less—accumulated depreciation | 2,113,287 | 2,086,740 | ||||||
1,830,548 | 1,857,095 | |||||||
$ | 2,060,510 | $ | 2,060,970 | |||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Payable to limited partners | $ | 39,030 | $ | 37,360 | ||||
Accounts payable | 19,918 | 15,171 | ||||||
Total current liabilities | 58,948 | 52,531 | ||||||
PARTNERS’ EQUITY: | ||||||||
Limited partners; 27,006 units outstanding at September 30, 2010 and December 31, 2009 | 2,030,598 | 2,037,407 | ||||||
General partner-Del Taco LLC | (29,036 | ) | (28,968 | ) | ||||
2,001,562 | 2,008,439 | |||||||
$ | 2,060,510 | $ | 2,060,970 | |||||
See accompanying notes to condensed financial statements.
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DEL TACO RESTAURANT PROPERTIES II
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
RENTAL REVENUES | $ | 141,801 | $ | 137,739 | $ | 410,775 | $ | 402,814 | ||||||||
EXPENSES: | ||||||||||||||||
General and administrative | 12,571 | 17,380 | 60,518 | 68,174 | ||||||||||||
Depreciation | 8,849 | 8,849 | 26,547 | 26,547 | ||||||||||||
21,420 | 26,229 | 87,065 | 94,721 | |||||||||||||
Operating income | 120,381 | 111,510 | 323,710 | 308,093 | ||||||||||||
OTHER INCOME: | ||||||||||||||||
Interest | 53 | 48 | 142 | 150 | ||||||||||||
Other | 300 | 325 | 1,275 | 1,200 | ||||||||||||
Net income | $ | 120,734 | $ | 111,883 | $ | 325,127 | $ | 309,443 | ||||||||
Net income per limited partnership unit (note 2) | $ | 4.43 | $ | 4.10 | $ | 11.92 | $ | 11.34 | ||||||||
Number of units used in computing per unit amounts | 27,006 | 27,006 | 27,006 | 27,006 | ||||||||||||
See accompanying notes to condensed financial statements.
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DEL TACO RESTAURANT PROPERTIES II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 325,127 | $ | 309,443 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 26,547 | 26,547 | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivable from Del Taco LLC | 977 | (959 | ) | |||||
Deposits | (230 | ) | (264 | ) | ||||
Payable to limited partners | 1,670 | 728 | ||||||
Accounts payable | 4,747 | 12,439 | ||||||
Net cash provided by operating activities | 358,838 | 347,934 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Cash distributions to partners | (332,004 | ) | (333,429 | ) | ||||
Net change in cash | 26,834 | 14,505 | ||||||
Beginning cash balance | 156,281 | 160,340 | ||||||
Ending cash balance | $ | 183,115 | $ | 174,845 | ||||
See accompanying notes to condensed financial statements.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
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, 2009 for Del Taco Restaurant Properties II (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, 2010, the results of operations for the three and nine month periods ended September 30, 2010 and 2009 and cash flows for the nine month periods ended September 30, 2010 and 2009 have been included. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. Amounts related to disclosure of December 31, 2009 balances within these condensed financial statements were derived from the audited 2009 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 27,006 in 2010 and 2009.
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 previously allocated. Additional gains will be allocated 15 percent to the General Partner and 85 percent to the limited partners.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
UNAUDITED
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 terminate in the years 2021 to 2022. There is no minimum rental under any of the leases.
For the three months ended September 30, 2010, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,181,678 and unaudited net losses of $42,588 as compared to unaudited sales of $1,147,828 and unaudited net losses of $110,806 for the corresponding period in 2009. 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 reduced interest charges due to a decrease in debt and related interest rate.
For the nine months ended September 30, 2010, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $3,423,121 and unaudited net losses of $274,097 as compared to unaudited sales of $3,356,787 and unaudited net losses of $367,478 for the corresponding period in 2009. 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 reduced interest charges due to a decrease in debt and related interest rate and an increase in restaurant revenues.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from Del Taco consists primarily of rent accrued for the month of September 2010. The September rent was collected in October 2010.
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.
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DEL TACO RESTAURANT PROPERTIES II
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
UNAUDITED
NOTE 5 — DISTRIBUTIONS
Total cash distributions declared and paid in January, April and July 2010 were $113,921, $94,854 and $123,229, respectively. On October 27, 2010, a distribution to the limited partners of $137,635, or approximately $5.10 per limited partnership unit, was declared. Such distribution was paid on November 3, 2010. The General Partner also received a distribution of $1,390 with respect to its 1% partnership interest in November 2010.
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 five 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, 2010 and 2009. 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, 2010 and December 31, 2009. At September 30, 2010 and December 31, 2009, the Partnership had approximately $191,000 and $167,000, respectively, on deposit at one financial institution.
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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 II (the Partnership or the Company) offered limited partnership units for sale between September 1984 and December 1985. $6.751 million was raised through the sale of limited partnership units and used to acquire sites and build seven restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. Two restaurants were sold in 1994.
The five 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 owned seven properties that were under long-term lease to Del Taco for restaurant operations. Two restaurants were sold in 1994 and five are currently operating.
The following table sets forth rental revenue earned by restaurant for the three and nine months ended September 30, 2010 and 2009 (unaudited):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Bear Valley Rd., Victorville, CA | $ | 25,188 | $ | 25,315 | $ | 72,452 | $ | 72,528 | ||||||||
West Valley Blvd., Colton, CA | 35,616 | 34,706 | 100,170 | 100,520 | ||||||||||||
Palmdale Blvd., Palmdale, CA | 17,405 | 16,278 | 49,501 | 48,044 | ||||||||||||
DeAnza Country Shopping Center, Pedley, CA | 31,638 | 30,159 | 88,587 | 88,448 | ||||||||||||
Varner Road, Thousand Palms, CA | 31,954 | 31,281 | 100,065 | 93,274 | ||||||||||||
Total | $ | 141,801 | $ | 137,739 | $ | 410,775 | $ | 402,814 | ||||||||
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $141,801 during the three month period ended September 30, 2010, which represents an increase of $4,062 from the corresponding period in 2009. The Partnership earned rental revenue of $410,775 during the nine month period ended September 30, 2010, which represents an increase of $7,961 from the corresponding period in 2009. The changes in rental revenues between 2010 and 2009 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.
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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 | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Accounting fees | 58.62 | % | 32.80 | % | 71.36 | % | 65.22 | % | ||||||||
Distribution of information to limited partners | 41.38 | % | 67.20 | % | 28.64 | % | 34.78 | % | ||||||||
100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | |||||||||
General and administrative costs for the three month period ended September 30, 2010 decreased from the corresponding period in 2009 primarily due to decreased printing costs, bank charges and appraisal costs, partially offset by increased accounting costs and software licensing fees. General and administrative costs for the nine month period ended September 30, 2010 decreased from the corresponding period in 2009 primarily due to decreased printing costs, bank charges and appraisal costs.
For the three month period ended September 30, 2010, net income increased by $8,851 from 2009 to 2010 due to the increase in revenues of $4,062 and the decrease in general and administrative expenses of $4,809, partially offset by the decrease in interest and other income of $20. For the nine month period ended September 30, 2010, net income increased by $15,684 from 2009 to 2010 due to the increase in revenues of $7,961, the increase in interest and other income of $67 and the decrease in general and administrative expenses of $7,656.
Significant Recent Accounting Pronouncements
None
Off —Balance Sheet Arrangements
None
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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, 2009 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.
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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 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
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 |
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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 II (a California limited partnership) Registrant Del Taco LLC General Partner | ||||
Date: November 15, 2010 | /s/ Steven L. Brake | |||
Steven L. Brake | ||||
Chief Financial Officer |
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EXHIBIT INDEX
Exhibit | 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 |
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