Del Taco Income Properties Iv (DTIPIV) 10-Q 2008 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, 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. 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 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 INCOME PROPERTIES IV

	PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2008 (Unaudited) and December 31, 2007	3
Condensed Statements of Income for the three and nine months ended September 30, 2008 and 2007 (Unaudited)	4
Condensed Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (Unaudited)	5
Notes to Condensed Financial Statements (Unaudited)	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	11
Item 4T. Controls and Procedures	12
PART II. OTHER INFORMATION
Item 6. Exhibits	13
SIGNATURE	14
EX-31.1
EX-31.2
EX-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,
	2008			2007
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	120,371		$	115,922
Receivable from Del Taco LLC		36,643			35,715
Deposits		637			551
Total current assets		157,651			152,188
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		1,512,487			1,471,036
		1,498,862			1,540,313
	$	1,656,513		$	1,692,501
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners	$	14,662		$	12,502
Accounts payable		10,612			10,819
Total current liabilities		25,274			23,321
OBLIGATION TO GENERAL PARTNER		137,953			137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at September 30, 2008 and December 31, 2007		1,509,486			1,547,048
General partner-Del Taco LLC		(16,200	)		(15,821	)
		1,493,286			1,531,227
	$	1,656,513		$	1,692,501

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,
	2008		2007		2008		2007
RENTAL REVENUES	$	113,926	$	112,025	$	331,635	$	326,557
EXPENSES:
General and administrative		8,484		10,331		55,160		56,184
Depreciation		13,817		13,817		41,451		41,451
		22,301		24,148		96,611		97,635
Operating income		91,625		87,877		235,024		228,922
OTHER INCOME:
Interest		135		558		508		1,585
Other		75		175		1,000		300
Net income	$	91,835	$	88,610	$	236,532	$	230,807
Net income per limited partnership unit (note2)	$	0.55	$	0.53	$	1.42	$	1.38
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,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	236,532		$	230,807
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		41,451			41,451
Changes in operating assets and liabilities:
Receivable from Del Taco LLC		(928	)		489
Deposits		(86	)		64
Payable to limited partners		2,160			(22,913	)
Accounts payable		(207	)		1,078
Net cash provided by operating activities		278,922			250,976
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners		(274,473	)		(269,372	)
Net increase (decrease) in cash		4,449			(18,396	)
Beginning cash balance		115,922			144,397
Ending cash balance	$	120,371		$	126,001

See accompanying notes to condensed financial statements.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 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, 2008, the results of operations for the three and nine month periods ended September 30, 2008 and 2007 and cash flows for the nine month periods ended September 30, 2008 and 2007 have been included. Operating results for the three and nine months ended September 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 165,375 in 2008 and 2007.

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, 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. The leases terminate in the years 2023 to 2024. There is no minimum rental under any of the leases.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008

UNAUDITED

NOTE 3 — LEASING ACTIVITIES — continued

For the three months ended September 30, 2008, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $616,726 and unaudited net income of $4,138 as compared to $591,590 and unaudited net income of $19,040 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 September 30, 2008, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $332,656 as compared with $341,948 during the same period in 2007.

For the nine months ended September 30, 2008, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,797,651 and unaudited net income of $4,376 as compared to $1,719,001 and unaudited net income of $53,942 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 nine months ended September 30, 2008, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $965,974 as compared with $1,002,303 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 September 2008. The September rent was collected in October 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, April and July 2008 were $98,420, $75,763 and $100,290, respectively. On October 23, 2008, a distribution to the limited partners of $99,702, or approximately $0.60 per limited partnership unit, was declared. Such distribution was paid October 30, 2008. The General Partner also received a distribution of $1,007 with respect to its 1% partnership interest in October 2008.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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.

NOTE 7 – CONCENTRATION OF RISK

The three 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, 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 September 30, 2008 and December 31, 2007, the Partnership had approximately $131,000 and $126,000, 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 Income Properties IV (the Partnership or the Company) offered limited partnership units for sale between June 1987 and June 1988. $4.135 million was raised through the sale of limited partnership units and used to acquire sites and build three restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (Del Taco or the General Partner) for offering costs incurred. 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, 2008 and 2007 (unaudited):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Orangethorpe Ave., Placentia, CA	$	48,708	$	47,529	$	142,825	$	137,650
Lakeshore Drive, Lake Elsinore, CA		39,919		41,034		115,917		120,277
Highland Ave., San Bernardino, CA		25,299		23,462		72,893		68,630
Total	$	113,926	$	112,025	$	331,635	$	326,557

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $113,926 during the three month period ended September 30, 2008, which represents an increase of $1,901 from the corresponding period in 2007. The Partnership earned rental revenue of $331,635 during the nine month period ended September 30, 2008, which represents an increase of $5,078 from the corresponding period in 2007. The changes in rental revenue between 2008 and 2007 are directly attributable to increases 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,
	2008			2007			2008			2007
Accounting fees		64.91	%		52.13	%		78.16	%		76.46	%
Distribution of information to limited partners		35.09	%		47.87	%		21.84	%		23.54	%
		100.00	%		100.00	%		100.00	%		100.00	%

General and administrative costs decreased during the three month period from 2007 to 2008 primarily due to decreased printing costs. General and administrative costs for the nine month period ended September 30, 2008 decreased from the corresponding period in 2007 due to decreased accounting, printing and distribution costs, partially offset by increased audit and tax preparation fees.

For the three month period ended September 30, 2008, net income increased by $3,225 from 2007 to 2008 due to the increase in revenues of $1,901 and the decrease in general and administrative expenses of $1,847, partially offset by the decrease in interest and other income of $523. For the nine month period ended September 30, 2008, net income increased by $5,725 from 2007 to 2008 due to an increase in revenues of $5,078 and the decrease in general and administrative expenses of $1,024, partially offset by the decrease in interest and other income of $377.

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, 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.

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.

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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 Treasurer, 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 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 6. Exhibits

(a) Exhibits

31.1	Nick Shepherd’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 INCOME PROPERTIES IV
	(a California limited partnership)
	Registrant
	Del Taco LLC
	General Partner
Date:November 14, 2008	/s/ Steven L. Brake
	Steven L. Brake
	Treasurer

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EXHIBIT INDEX

Exhibit	Description
31.1	Nick Shepherd’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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