Del Taco Income Properties Iv (DTIPIV) 10-Q 2013 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 ended September 30, 2013

OR

¨ 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 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  ¨

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 of Regulation 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  x    No  ¨

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 Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Form S-11 Registration Statement filed December 17, 1982 are incorporated by reference into Part IV of this report.

INDEX

DEL TACO INCOME PROPERTIES IV

	PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2013 (Unaudited) and December 31, 2012		3
Condensed Statements of Income for the three and nine months ended September  30, 2013 and 2012 (Unaudited)		4
Condensed Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (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		10
PART II. OTHER INFORMATION
Item 6. Exhibits		11
SIGNATURE		12

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

DEL TACO INCOME PROPERTIES IV

CONDENSED BALANCE SHEETS

	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	121,249		$	127,651
Receivable from Del Taco LLC		36,007			35,761
Other current assets		702			552
Total current assets		157,958			163,964
PROPERTY AND EQUIPMENT:
Land		868,344			868,344
Land improvements		368,356			368,356
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		1,720,380			1,692,741
		1,290,969			1,318,608
	$	1,448,927		$	1,482,572
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
Payable to limited partners	$	19,483		$	18,165
Accounts payable		10,721			16,006
Total current liabilities		30,204			34,171
OBLIGATION TO GENERAL PARTNER		137,953			137,953
PARTNERS’ EQUITY:
Limited partners; 165,375 units outstanding at September 30, 2013 and December 31, 2012		1,299,096			1,328,477
General partner-Del Taco LLC		(18,326	)		(18,029	)
		1,280,770			1,310,448
	$	1,448,927		$	1,482,572

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,
	2013		2012		2013		2012
RENTAL REVENUES	$	110,873	$	108,509	$	325,238	$	316,555
EXPENSES:
General and administrative		10,022		10,332		59,622		56,777
Depreciation		9,213		9,213		27,639		27,639
		19,235		19,545		87,261		84,416
Operating income		91,638		88,964		237,977		232,139
OTHER INCOME:
Interest		30		28		85		78
Other		125		315		475		615
Net income	$	91,793	$	89,307	$	238,537	$	232,832
Net income per limited partnership unit (Note 2)	$	0.55	$	0.53	$	1.43	$	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,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	238,537		$	232,832
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		27,639			27,639
Changes in operating assets and liabilities:
Receivable from Del Taco LLC		(246	)		642
Other current assets		(150	)		(44	)
Payable to limited partners		1,318			640
Accounts payable		(5,285	)		(13,295	)
Net cash provided by operating activities		261,813			248,414
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners		(268,215	)		(253,449	)
Net change in cash		(6,402	)		(5,035	)
Beginning cash balance		127,651			118,245
Ending cash balance	$	121,249		$	113,210

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, 2013

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, 2012 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, 2013, the results of operations for the three and nine month periods ended September 30, 2013 and 2012 and cash flows for the nine month periods ended September 30, 2013 and 2012 have been included. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. Amounts related to disclosure of December 31, 2012 balances within these condensed financial statements were derived from the 2012 audited financial statements.

Management has evaluated events subsequent to September 30, 2013 through the date that the accompanying condensed financial statements were filed with the Securities and Exchange Commission for transactions and other events which may require adjustment of and/or disclosure in such 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 2013 and 2012.

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 three properties for operation of restaurants to Del Taco on a triple net basis. One property has been subleased to a Del Taco franchisee. 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 expire in the years 2021 to 2022.

Pursuant to the lease agreements, minimum rentals of $3,500 per month are due to the Partnership during the first six months of any non-operating period caused by an insured casualty loss.

For the three months ended September 30, 2013, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $586,926 and unaudited net losses of $5,195 as compared to unaudited sales of $568,310, and unaudited net income of $4,127, respectively, for the corresponding period in 2012. 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 increases in operating costs. For the three months ended September 30, 2013, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $337,015 as compared with $335,936 during the same period in 2012.

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DEL TACO INCOME PROPERTIES IV

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013

UNAUDITED

NOTE 3 - LEASING ACTIVITIES - continued

For the nine months ended September 30, 2013, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,716,457 and unaudited net losses of $5,700 as compared to $1,663,410 and unaudited net income of $1,170 for the corresponding period in 2012. 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 increases in operating costs. For the nine months ended September 30, 2013, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $993,862 as compared with $974,550 during the same period in 2012.

NOTE 4 - TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of September 2013. The September rent receivable was collected in October 2013.

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 February, June and August 2013 were $99,486, $78,585 and $90,144, respectively. On October 21, 2013, a distribution to the limited partners of $95,799, or approximately $0.58 per limited partnership unit, was approved. Such distribution was paid on November 6, 2013. The General Partner also received a distribution of $968 with respect to its 1% partnership interest in November 2013.

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, 2013 and 2012. 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. Although the Partnership at times maintains balances that exceed the federally insured limit, it has not experienced any losses related to these balances and management believes the credit risk to be minimal.

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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 (unaudited):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Orangethorpe Ave., Placentia, CA	$	48,179	$	46,872	$	140,427	$	136,472
Lakeshore Drive, Lake Elsinore, CA		40,442		40,312		119,263		116,946
Highland Ave., San Bernardino, CA		22,252		21,325		65,548		63,137
Total	$	110,873	$	108,509	$	325,238	$	316,555

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $110,873 during the three month period ended September 30, 2013, which represents an increase of $2,364 from the corresponding period in 2012. The Partnership earned rental revenue of $325,238 during the nine month period ended September 30, 2013, which represents an increase of $8,683 from the corresponding period in 2012. The changes in rental revenues between 2012 and 2013 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:

	Percent of Total
	General & Administrative Expense
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
Accounting fees		50.01	%		48.57	%		69.51	%		73.11	%
Distribution of information to limited partners		49.99	%		51.43	%		30.49	%		26.89	%
		100.00	%		100.00	%		100.00	%		100.00	%

General and administrative costs for the three month period decreased primarily due to a one-time decreased cost for mailings. General and administrative costs for the nine month period increased primarily due to increased costs for printing primarily related to a mandatory new filing process known as XBRL.

For the three month period ended September 30, 2013, net income increased by $2,486 from 2012 to 2013 due to the increase in revenues of $2,364 and the decrease in general and administrative expenses of $310, partially offset by the decrease in interest and other income of $188. For the nine month period ended September 30, 2013, net income increased $5,705 from 2012 to 2013 due to the increase in revenues of $8,683, partially offset by the increase in general and administrative expenses of $2,845 and the decrease in interest and other income of $133.

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, 2012 Form10-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 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.

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

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

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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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, 2013	/s/ Steven L. Brake
	Steven L. Brake
	Chief Financial Officer (Principal Financial Officer)

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