Del Taco Income Properties Iv (DTIPIV) 10-Q 2005 Q3 Quarterly report

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 endedSeptember 30, 2005.

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

a California limited partnership

(Exact name of registrant as specified in its charter)

California	33-0241855
(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 x  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 x

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

INDEX

DEL TACO INCOME PROPERTIES IV

	PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2005 (Unaudited) and December 31, 2004	3
Condensed Statements of Income for the three and nine months ended September 30, 2005 and 2004 (Unaudited)	4
Condensed Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 (Unaudited)	5
Notes to Condensed Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3. Quantitative and Qualitative Disclosures About Market Risk	10
Item 4. Controls and Procedures	11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K	12
SIGNATURE	13
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

	September 30,			December 31,
	2005			2004
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	147,803		$	140,285
Receivable from Del Taco, Inc.		38,244			45,765
Deposits		400			600
Total current assets		186,447			186,650
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		1,346,683			1,305,232
		1,664,666			1,706,117
	$	1,851,113		$	1,892,767
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners	$	37,123		$	36,913
Accounts payable		6,322			10,567
Total current liabilities		43,445			47,480
OBLIGATION TO GENERAL PARTNER		137,953			137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at September 30, 2005 and December 31, 2004		1,684,151			1,721,394
General partner-Del Taco, Inc.		(14,436	)		(14,060	)
		1,669,715			1,707,334
	$	1,851,113		$	1,892,767

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
RENTAL REVENUES	$	117,490	$	112,574	$	341,415	$	323,762
EXPENSES:
General and administrative		9,814		9,441		53,524		51,842
Depreciation		13,817		13,817		41,451		41,451
		23,631		23,258		94,975		93,293
Operating income		93,859		89,316		246,440		230,469
OTHER INCOME:
Interest		419		294		1,380		994
Other		75		125		350		550
Net income	$	94,353	$	89,735	$	248,170	$	232,013
Net income per limited partnership unit (note 2)	$	0.56	$	0.54	$	1.49	$	1.39
Number of units used in computing per unit amounts		165,375		165,375		165,375		165,375

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	248,170		$	232,013
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		41,451			41,451
Changes in operating assets and liabilities:
Decrease in receivable from Del Taco, Inc.		7,521			49,674
Decrease in deposits		200			74
(Decrease) increase in accounts payable and payable to limited partners		(4,035	)		9,190
Net cash provided by operating activities		293,307			332,402
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners		(285,789	)		(310,023	)
Net increase in cash		7,518			22,379
Beginning cash balance		140,285			127,447
Ending cash balance	$	147,803		$	149,826

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2005

(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, 2004 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, 2005, the results of operations for the three and nine month periods ended September 30, 2005 and 2004 and cash flows for the nine month periods ended September 30, 2005 and 2004 have been included. Operating results for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

NOTE 2 — ALLOCATION OF NET INCOME OR LOSS 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 units.

Pursuant to the partnership agreement, annual partnership income or loss is allocated one percent to 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. Supplemental rent is calculated on an annual basis and recorded in the fourth quarter since the amount of supplemental rent, if any, is contingent upon the amount of annual gross sales and pretax profits of the restaurants which are not known until the end of the year. The leases terminate in the years 2023 to 2024. There is no minimum rental payments required under any of the leases.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

SEPTEMBER 30, 2005

(Unaudited)

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended September 30, 2005, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $581,947 and unaudited net income of $52,512 as compared to $561,609 and $48,420, respectively, for the corresponding period in 2004. Net income by restaurant includes corporate charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest. For the three months ended September 30, 2005, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $397,142 as compared with $376,509 during the same period in 2004.

For the nine months ended September 30, 2005, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,694,389 and unaudited net income of $153,905 as compared to $1,613,244 and $128,318 respectively, for the corresponding period in 2004. For the nine months ended September 30, 2005, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $1,150,736 as compared with $1,084,775 during the same period in 2004.

NOTE 4 — TRANSACTIONS WITH DEL TACO

The receivable from Del Taco, Inc. consists primarily of rent accrued for the month of September. The September rent was collected in October 2005.

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

On October 20, 2005, a distribution to the limited partners of $104,623 or approximately $.63 per limited partnership unit, was approved. Such distribution was paid October 25, 2005. The General Partner also received a distribution of $1,057 with respect to its 1% partnership interest. Total cash distributions made in January, April and July 2005 were $98,372, $105,302 and $82,115, respectively.

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 6 months or longer.

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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. 14.5% of the $4.135 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse Del Taco, Inc. (Del Taco or 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 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, 2005 and 2004:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2005		2004		2005		2004
Orangethorpe Ave., Placentia, CA	$	45,360	$	43,192	$	131,649	$	125,092
Lakeshore Drive, Lake Elsinore, CA		47,657		45,181		138,088		130,173
Highland Ave., San Bernardino, CA		24,473		24,201		71,678		68,497
Total	$	117,490	$	112,574	$	341,415	$	323,762

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants plus supplemental rent as required by the Partnership agreement. The Partnership earned rental revenue of $117,491 during the three month period ended September 30, 2005, which represents an increase of $4,917 from the corresponding period in 2004. The Partnership earned rental revenue of $341,415 during the nine month period ended September 30, 2005, which represents an increase of $17,653 from the corresponding period in 2004. The changes in rental revenue between 2005 and 2004 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:

				Percent of Total
	General & Administrative Expense
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Accounting fees		53.70	%		38.19	%		72.83	%		67.14	%
Distribution of information to Limited Partners		46.30	%		61.81	%		27.17	%		32.86	%
		100.00	%		100.00	%		100.00	%		100.00	%

General and administrative costs for the three month period ended September 30, 2005 were essentially the same as the corresponding period in the previous year. General and administrative costs for the nine month period ended September 30, 2005 increased from the corresponding period in the previous year due to increased audit and accounting costs, partially offset by decreased printing costs.

For the three month period ended September 30, 2005, net income increased by $4,618 from 2004 to 2005 due to the increase in revenues of $4,916, the increase in interest and other income of $75, partially offset by the $373 increase in general and administrative expenses. For the nine month period ended September 30, 2005, net income increased by $16,157 from 2004 to 2005 due to an increase in revenues of $17,653, the increase in interest and other income of $186, partially offset by the increase in general and administrative expenses of $1,682.

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, 2004 Form 10-K.

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 No. (SFAS) 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.

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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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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)	Exhibits
		31.1	Kevin K. Moriarty’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		31.2	Robert J. Terrano’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b)	Reports
	None.

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SIGNATURE

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.

	DEL TACO INCOME PROPERTIES IV (a California limited partnership) Registrant Del Taco, Inc. General Partner
Date: November 14, 2005	/s/ Robert J. Terrano
	Robert J. Terrano
	Executive Vice President, Chief Financial Officer

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EXHIBIT INDEX

Exhibits	Description
31.1	Kevin K. Moriarty’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Robert J. Terrano’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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