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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 JUNE 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NO. 33-13437
DEL TACO RESTAURANT PROPERTIES IV
A CALIFORNIA LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0241855
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
23041 AVENIDA DE LA CARLOTA, LAGUNA HILLS, CALIFORNIA 92653
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 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 ___
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INDEX
DEL TACO INCOME PROPERTIES IV
-----------------------------
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. Financial Statements and Supplementary Data
Balance Sheets at June 30, 1997 (Unaudited) and
December 31, 1996 3
Statements of Income for the three and six months ended
June 30, 1997 and 1996 (Unaudited) 4
Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (Unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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DEL TACO INCOME PROPERTIES IV
-----------------------------
BALANCE SHEETS
--------------
JUNE 30 December 31
1997 1996
----------- -----------
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash $ 69,782 $ 79,857
Receivable from General Partner (Note 4) 24,481 51,558
Deposits 400 400
----------- -----------
Total current assets 94,663 131,815
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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
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3,011,349 3,011,349
Less--accumulated depreciation 765,672 713,798
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2,245,677 2,297,551
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$ 2,340,340 $ 2,429,366
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
--------------------------------
CURRENT LIABILITIES:
Payable to Limited Partners $ 2,503 $ 3,038
Accounts Payable 3,338 3,000
----------- -----------
Total current liabilities 5,841 6,038
----------- -----------
OBLIGATION TO GENERAL PARTNER 137,953 137,953
----------- -----------
PARTNERS' EQUITY
Limited Partners 2,205,715 2,293,656
General Partner-Del Taco, Inc. (9,169) (8,281)
----------- -----------
2,196,546 2,285,375
----------- -----------
$ 2,340,340 $ 2,429,366
=========== ===========
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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
-------- -------- -------- --------
REVENUES:
Rent (Notes 3 and 4) $ 72,202 $126,726 $137,750 $191,682
Interest 364 185 1,098 491
Other 25 -- 75 --
-------- -------- -------- --------
72,591 126,911 138,923 192,173
-------- -------- -------- --------
EXPENSES:
General and administrative 5,915 6,851 25,007 26,728
Depreciation 25,937 25,939 51,874 51,876
-------- -------- -------- --------
31,852 32,790 76,881 78,604
-------- -------- -------- --------
Net income $ 40,739 $ 94,121 $ 62,042 $113,569
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 2) $ 0.24 $ 0.56 $ 0.37 $ 0.68
======== ======== ======== ========
The accompanying notes are an
integral part of these financial statements.
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DEL TACO INCOME PROPERTIES IV
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STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
SIX MONTHS ENDED
JUNE 30
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 62,042 $ 113,569
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 51,874 51,876
(Decrease) increase in payable to
Limited Partner (535) 822
Decrease (increase) in receivable
from General Partner 27,077 (61,310)
Increase (decrease) in accounts payable 338 (825)
--------- ---------
Net cash provided by
operating activities 140,796 104,132
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (150,871) (119,322)
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Net decrease in cash (10,075) (15,190)
Beginning cash balance 79,857 73,542
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Ending cash balance $ 69,782 $ 58,352
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The accompanying notes are an
integral part of these financial statements.
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DEL TACO INCOME PROPERTIES IV
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NOTES TO FINANCIAL STATEMENTS
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JUNE 30, 1997
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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 Registrant's annual
report on Form 10-K for the year ended December 31, 1996. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at June 30, 1997, the
results of operations and cash flows for the six month periods ended June 30,
1997 and 1996 have been included. Operating results for the three and six months
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
In fiscal 1996, the Registrant adopted Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long Lived Assets
and for Long Lived Assets to be Disposed of." SFAS 121 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 of fair value less cost to sell.
The adoption of SFAS No. 121 did not have a material effect on the Registrant's
financial statements.
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DEL TACO INCOME PROPERTIES IV
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1997
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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
165,415 in 1997 and 1996.
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 Registrant leases (the "Leases") certain properties (the "Properties") for
operation of restaurants to Del Taco, Inc. ("General Partner") 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. The Registrant had a total of three Properties
leased as of June 30, 1997 and 1996, one of which has been subleased to a Del
Taco franchisee.
Rental revenue for the three and six month periods ended June 30, 1996 was
higher than the corresponding period in 1997 due to the earning of supplemental
rent, as provided for in the lease agreements, based on the operating results of
the individual restaurants. Supplemental rent due for 1997 will be based on
earnings, as defined in the partnerships agreement for the full year ending
December 31, 1997. Supplemental rent earned by the Registrant for 1997, if any,
will be determined and recorded in the fourth quarter of 1997.
For the three months ended June 30, 1997, the two restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$377,174 and net income of $14,444 as compared to $355,623 and $17,399
respectively, for the corresponding period in 1996. 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
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DEL TACO INCOME PROPERTIES IV
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NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
JUNE 30, 1997
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NOTE 3 - LEASING ACTIVITIES - (CONTINUED)
ended June 30, 1997, the one restaurant operated by a Del Taco franchisee, for
which the Registrant is the lessor, had unaudited sales of $224,509 as compared
with $214,790 during the same period in 1996.
For the six months ended June 30, 1997, the two restaurants operated by Del
Taco, for which the Registrant is the lessor, had combined, unaudited sales of
$722,898 and net income of $25,432 as compared to $698,390 and $33,024
respectively, for the corresponding period in 1996. For the six months ended
June 30, 1997, the one restaurant operated by a Del Taco franchisee, for which
the Registrant is the lessor, had unaudited sales of $425,019 as compared with
$413,323 during the same period in 1996.
For the three months and six months ended June 30, 1997, the Highland Avenue
restaurant in Highland, California reported net losses of $3,731 and $7,155 as
compared to net losses of $5,603 and $9,510 respectively, for the corresponding
period in 1996.
NOTE 4 - TRANSACTIONS WITH DEL TACO
The receivable from the General Partner consists primarily of rent accrued for
the month of June. The June rent was collected on July 10, 1997.
Del Taco, Inc. serves in the capacity of general partner in other partnerships
which are engaged in the business of operating restaurants, and four
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 July 12, 1997, a distribution to the Limited Partners of $61,656, or
approximately $.37 per Limited Partnership Unit, was approved. Such distribution
was paid July 23, 1997. The General Partner also received a distribution of $623
with respect to its 1% partnership interest.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Registrant commenced offering of Limited Partnership Units on June 5, 1987.
By June 1, 1988, the sale of such Units provided a total capitalization for the
Registrant of $4,135,375 including $1,000 attributable to the Special Limited
Partner. 14.5 percent of the cash received from the sale of Limited Partnership
Units was used to pay commissions to brokers and to reimburse the General
Partner for offering costs incurred. Approximately $3,000,000 of the remaining
funds were expended for the acquisition of sites and construction of three
restaurants. During 1989, the first restaurant opened for business. The two
additional restaurants commenced operation in 1990. In February 1992, the
Registrant distributed to Limited Partners of record on December 31, 1991
$442,270 of net proceeds not utilized as reserves and not invested in
properties.
Since the three restaurants owned by the Registrant opened, cash flow from Lease
payments received from Del Taco, the Registrant's General Partner, which leases
all three restaurants, has provided adequate liquidity for operation of the
Registrant. However, the Registrant's overwhelmingly predominant source of
income to meet its expenses and fund distributions to its Limited Partners is
payments from Del Taco under the Leases, comprising primarily rent calculated on
the basis of the gross sales of the restaurants operated on the Properties, as
to which there are no contractually specified minimum or guaranteed amounts.
Thus, the adequacy of the Registrant's liquidity and capital resources in the
future will depend primarily upon the gross revenues of such restaurants as well
as upon Del Taco's financial condition and results of operations generally.
Results of Operations
- ---------------------
The Registrant 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 Registrant receives rental revenues
equal to 12 percent of restaurant sales. The Registrant had rental revenue of
$72,202 for the three months ended June 30, 1997 representing a decrease from
the rental revenues of $126,726 in 1996. The Registrant had rental revenue of
$137,750 for the six months ended June 30, 1997 representing a decrease from the
rental revenues of $191,682 in 1996. Rental revenue for the three and six month
periods ended June 30, 1996 was higher than the corresponding period in 1997 due
to the earning of supplemental rent, as provided for in the lease agreements,
based on the operating results of the individual restaurants. Supplemental rent
due for 1997 will be based on earnings, as defined in the partnerships agreement
for the full year ending December 31, 1997. Supplemental rent earned by the
Registrant for 1997, if any, will be determined and recorded in the fourth
quarter of 1997.
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The following table sets forth rental revenue earned by restaurant for the
quarter and year to date:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
---- ---- ---- ----
Orangethorpe Ave., Placentia, CA $ 31,032 $ 57,430 $ 59,943 $ 87,008
Lakeshore Dr., Lake Elsinore, CA 26,941 45,612 51,002 69,436
Highland Ave., San Bernardino, CA 14,229 23,684 26,805 35,238
-------- -------- -------- --------
Total $ 72,202 $126,726 $137,750 $191,682
======== ======== ======== ========
The following table sets forth the percentage relationship to total general and
administrative expenses of items included in the Registrant's Statements of
Income:
Percentage of Total
General & Administrative Expense
--------------------------------
Six Months Ended
June 30
1997 1996
------ ------
Accounting fees 65.43% 58.18%
Distribution of
information to
Limited Partners 31.38 37.67
Other 3.19 4.15
------ ------
100.00% 100.00%
====== ======
Operating expenses include general and administrative expenses which consist
primarily of accounting fees and costs of distribution of information to the
Limited Partners. For the three months ended June 30, general and administrative
expenses decreased from $6,851 in 1996 to $5,915 in 1997. For the six months
ended June 30, general and administrative expenses decreased from $26,728 in
1996 to $25,007 in 1997. The Registrant incurred depreciation expense in the
amount of $25,937 and $25,939 for the three months ended June 30, 1997 and 1996
respectively. The Registrant incurred depreciation expense in the amount of
$51,874 and $51,876 for the six months ended June 30, 1997 and 1996,
respectively.
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As a result of decreased revenues totaling $54,320 for the three months ended
June 30, 1997 and decreased expenses totaling $938 for the three months ended
June 30, 1997, the net income of the Registrant decreased from $94,121 for the
three months ended June 30, 1996 to $40,739 for the corresponding period in
1997. As a result of decreased revenues totaling $53,250 for the six months
ended June 30, 1997 and decreased expenses totaling $1,723 for the six months
ended June 30, 1997, the net income of the Registrant decreased from $113,569
for the six months ended June 30, 1996 to $62,042 for the corresponding period
in 1997.
For the reasons stated under "Liquidity and Capital Resources" above, the
Registrant's results of operations in the future will depend primarily upon the
gross revenues of the restaurants located on the Properties leased to Del Taco
as well as upon Del Taco's financial condition and results of operations
generally.
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the six months ended
June 30, 1997.
27 Financial Data Schedule.
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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.
DEL TACO INCOME PROPERTIES IV
(a California limited partnership)
Registrant
Del Taco, Inc.
General Partner
Date: July 30, 1997 /s/ Robert J. Terrano
-------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: July 30, 1997 /s/ C. Douglas Mitchell
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C. Douglas Mitchell
Vice President and Corporate
Controller
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