UNITED STATES
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2001.
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. 33-13437
DEL TACO INCOME PROPERTIES IV
California | 33-0241855 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
23041 Avenida De La Carlota, Laguna Hills, California | 92653 | |
(Address of principal executive offices) | (Zip Code) | |
(949) 462-9300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
INDEX
DEL TACO INCOME PROPERTIES IV
| PART I. FINANCIAL INFORMATION | PAGE NUMBER | |||
| Item 1. Financial Statements and Supplementary Data | ||||
| Balance Sheets at September 30, 2001 (Unaudited) and December 31, 2000 | 3 | |||
| Statements of Income for the three and nine months ended September 30, 2001 and 2000 (Unaudited) | 4 | |||
| Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (Unaudited) | 5 | |||
| Notes to Financial Statements | 6 | |||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8 | |||
| PART II. OTHER INFORMATION | ||||
| Item 6. Exhibits and Reports on Form 8-K | 10 | |||
| SIGNATURES | 11 | |||
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DEL TACO INCOME PROPERTIES IV
BALANCE SHEETS
| September 30, | December 31, | |||||||||
| 2001 | 2000 | |||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS: | ||||||||||
| Cash | $ | 123,785 | $ | 108,643 | ||||||
| Receivable from General Partner | 30,324 | 108,105 | ||||||||
| Deposits | 400 | 476 | ||||||||
| Total current assets | 154,509 | 217,224 | ||||||||
PROPERTY AND EQUIPMENT, at cost: | ||||||||||
| 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 | 1,125,611 | 1,084,160 | ||||||||
| 1,885,738 | 1,927,189 | |||||||||
| $ | 2,040,247 | $ | 2,144,413 | |||||||
| LIABILITIES AND PARTNERS’ EQUITY | ||||||||||
CURRENT LIABILITIES: | ||||||||||
| Payable to Limited Partners | $ | 29,790 | $ | 24,200 | ||||||
| Accounts payable | 7,272 | 10,080 | ||||||||
| Total current liabilities | 37,062 | 34,280 | ||||||||
OBLIGATION TO GENERAL PARTNER | 137,953 | 137,953 | ||||||||
PARTNERS’ EQUITY: | ||||||||||
| Limited Partners | 1,877,713 | 1,983,592 | ||||||||
| General Partner-Del Taco, Inc. | (12,481 | ) | (11,412 | ) | ||||||
| 1,865,232 | 1,972,180 | |||||||||
| $ | 2,040,247 | $ | 2,144,413 | |||||||
The accompanying notes are an
integral part of these financial statements.
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DEL TACO INCOME PROPERTIES IV
STATEMENTS OF INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2001 | 2000 | 2001 | 2000 | |||||||||||||||
REVENUES: | ||||||||||||||||||
| Rent | $ | 94,811 | $ | 89,620 | $ | 264,998 | $ | 252,336 | ||||||||||
| Interest | 683 | 667 | 3,104 | 2,852 | ||||||||||||||
| Other | 250 | 199 | 450 | 775 | ||||||||||||||
| 95,744 | 90,486 | 268,552 | 255,963 | |||||||||||||||
EXPENSES: | ||||||||||||||||||
| General and administrative | 5,965 | 7,329 | 36,348 | 35,056 | ||||||||||||||
| Depreciation | 13,817 | 13,817 | 41,451 | 45,668 | ||||||||||||||
| 19,782 | 21,146 | 77,799 | 80,724 | |||||||||||||||
| Net income | $ | 75,962 | $ | 69,340 | $ | 190,753 | $ | 175,239 | ||||||||||
| Net income per limited partnership unit | $ | 0.45 | $ | 0.42 | $ | 1.14 | $ | 1.05 | ||||||||||
The accompanying notes are an
integral part of these financial statements.
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DEL TACO INCOME PROPERTIES IV
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||||
| September 30, | ||||||||||
| 2001 | 2000 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||
| Net income | $ | 190,753 | $ | 175,239 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||
| Depreciation | 41,451 | 45,668 | ||||||||
| Decrease in receivable from General Partner | 77,781 | 82,340 | ||||||||
| Decrease in deposits | 76 | — | ||||||||
| Increase in accounts payable and payable to limited partners | 2,782 | 7,075 | ||||||||
| Net cash provided by operating activities | 312,843 | 310,322 | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||
| Cash distributions to partners | (297,701 | ) | (293,256 | ) | ||||||
| Net increase in cash | 15,142 | 17,066 | ||||||||
| Beginning cash balance | 108,643 | 100,224 | ||||||||
| Ending cash balance | $ | 123,785 | $ | 117,290 | ||||||
The accompanying notes are an
integral part of these financial statements.
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DEL TACO INCOME PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 — BASIS OF PRESENTATION
The accompanying financial statements, some of which are unaudited, have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements and should therefore be read in conjunction with the financial statements and notes thereto contained in the partnership’s annual report on Form 10-K for the year ended December 31, 2000. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the partnership’s financial position at September 30, 2001, the results of operations and cash flows for the nine month periods ended September 30, 2001 and 2000 have been included. Operating results for the three and nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.
NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per limited partnership unit is based upon the weighted average number of units outstanding during the periods presented which amounted to 165,375 in 2001 and 2000.
Pursuant to the partnership agreement, annual partnership income or loss is 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, 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, Inc. 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. There is no minimum rental under any of the leases.
For the three months ended September 30, 2001, the two restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $486,304 and net income of $38,494 as compared to $469,260 and $33,696 respectively, for the corresponding period in 2000. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense. For the three months ended September 30, 2001, the one restaurant operated by a Del Taco franchisee, for which the partnership is the lessor, had unaudited sales of $303,788 as compared with $277,573 during the same period in 2000.
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DEL TACO INCOME PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS — CONTINUED
SEPTEMBER 30, 2001
NOTE 3 — LEASING ACTIVITIES — continued
For the nine months ended September 30, 2001, the two restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $1,358,070 and net income of $93,007 as compared to $1,327,171 and $87,599 respectively, for the corresponding period in 2000. For the nine months ended September 30, 2001, the one restaurant operated by a Del Taco franchisee, for which the partnership is the lessor, had unaudited sales of $850,245 as compared with $775,632 during the same period in 2000.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from the General Partner consists primarily of rent accrued for the month of September. The September rent was collected on October 12, 2001.
Del Taco, Inc. 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, Inc. for operation under the Del Taco trade name.
In addition, see Note 5 with respect to certain distributions to the General Partner.
NOTE 5 — DISTRIBUTIONS
On October 16, 2001, a distribution to the limited partners of $88,105 or approximately $.53 per limited partnership unit, was approved. Such distribution was paid October 23, 2001. The General Partner also received a distribution of $890 with respect to its 1% partnership interest.
NOTE 6 — RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for business combinations and is effective for all business combinations after June 30, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and is effective for fiscal years beginning after December 15, 2001.
In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for long-lived assets to be disposed of and is effective for fiscal years beginning after December 15, 2001.
The adoption of these standards is not expected to have a material impact on the Company’s financial position or results of operations.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Liquidity and Capital Resources
The partnership offered limited partnership units for sale between June 1987 and June 1988. 14.5% of the $4.135 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse the General Partner for offering costs incurred. Approximately $3 million of the remaining funds were used to acquire sites and build three restaurants. 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 almost all of the income producing assets of the partnership. Therefore, the business of the partnership is almost 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, 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 year:
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2001 | 2000 | 2001 | 2000 | ||||||||||||||
| Orangethorpe Ave., Placentia, CA | $ | 38,630 | $ | 38,296 | $ | 108,078 | $ | 107,448 | |||||||||
| Lakeshore Drive, Lake Elsinore, CA | 36,454 | 33,309 | 102,029 | 93,076 | |||||||||||||
| Highland Ave., San Bernardino, CA | 19,727 | 18,015 | 54,891 | 51,812 | |||||||||||||
| Total | $ | 94,811 | $ | 89,620 | $ | 264,998 | $ | 252,336 | |||||||||
The partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The partnership earned rental revenue of $94,811 during the three month period ended September 30, 2001, which represents an increase of $5,191 from 2000. The partnership earned rental revenue of $264,998 during the nine month period ended September 30, 2001, which represents an increase of $12,662 from 2000. The changes in rental revenue between 2001 and 2000 are directly attributable to changes in sales levels at the restaurants under lease.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued |
The following table breaks down general and administrative expenses by type of expense:
| Percentage of Total | ||||||||
| General & Administrative Expense | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2001 | 2000 | |||||||
| Accounting fees | 71.24 | % | 62.89 | % | ||||
| Distribution of information to Limited Partners | 28.76 | 37.11 | ||||||
| 100.00 | % | 100.00 | % | |||||
Depreciation decreased in 2001 because certain equipment became fully depreciated during 2000.
For the three months ended September 30, 2001, net income increased by $6,622 from 2000 to 2001 due to the increase in revenues of $5,258 and the $1,364 decrease in general and administrative expenses. For the nine months ended September 30, 2001, net income increased by $15,514 from 2000 to 2001 due to the increase in revenues of $12,589 and the $4,217 decrease in depreciation expense which was partially offset by the $1,292 increase in general and administrative expenses.
In accordance with recent U.S. Government regulations, the partnership is required to file annual K-1 income tax forms with the Internal Revenue Service electronically beginning in 2002 for the year ending December 31, 2001. In order to comply with this regulation, the partnership will incur additional costs to lease software to 1) prepare the tax forms electronically and 2) maintain the underlying partnership database.
The General Partner and outside consultants evaluated available software and selected a software package in the third calendar quarter of 2001. Estimates of additional general and administrative costs to lease the software range from $1,000 to $2,000 in 2001 (the conversion year) and range from $2,500 to $3,500 in each subsequent year.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the nine months ended September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: October 31, 2001 | DEL TACO INCOME PROPERTIES IV (a California limited partnership) Registrant Del Taco, Inc. General Partner /s/ Robert J. Terrano Robert J. Terrano Executive Vice President, Chief Financial Officer |
| Date: October 31, 2001 | /s/ C. Douglas Mitchell C. Douglas Mitchell Vice President and Corporate Controller |
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