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 March 31, 2003.
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) |
|
25521 Commercentre Drive, Lake Forest,
California
|
92630 | |
(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 |
||||
Condensed Balance Sheets at March 31, 2003 and
December 31, 2002 (Unaudited) |
3 | |||
Condensed Statements of Income for the three months ended
March 31, 2003 and 2002 (Unaudited) |
4 | |||
Condensed Statements of Cash Flows for the three months ended
March 31, 2003 and 2002 (Unaudited) |
5 | |||
Notes to Condensed Financial Statements |
6 | |||
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
8 | |||
Item 4. Controls and Procedures |
11 | |||
PART II. OTHER INFORMATION |
||||
Item 6. Exhibits and Reports on Form 8-K |
12 | |||
SIGNATURE |
13 |
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DEL TACO INCOME PROPERTIES IV
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, | December 31, | |||||||||||||
2003 | 2002 | |||||||||||||
ASSETS | ||||||||||||||
CURRENT ASSETS: |
||||||||||||||
Cash |
$ | 170,774 | $ | 117,957 | ||||||||||
Receivable from Del Taco, Inc. |
31,692 | 104,597 | ||||||||||||
Deposits |
688 | 510 | ||||||||||||
Total current assets |
203,154 | 223,064 | ||||||||||||
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 |
1,208,513 | 1,194,696 | ||||||||||||
1,802,836 | 1,816,653 | |||||||||||||
$ | 2,005,990 | $ | 2,039,717 | |||||||||||
LIABILITIES AND PARTNERS’ EQUITY | ||||||||||||||
CURRENT LIABILITIES: |
||||||||||||||
Payable to limited partners |
$ | 28,827 | $ | 29,087 | ||||||||||
Accounts payable |
7,574 | 3,509 | ||||||||||||
Total current liabilities |
36,401 | 32,596 | ||||||||||||
OBLIGATION TO GENERAL PARTNER |
137,953 | 137,953 | ||||||||||||
PARTNERS’ EQUITY: |
||||||||||||||
Limited partners |
1,844,453 | 1,881,610 | ||||||||||||
General partner-Del Taco, Inc. |
(12,817 | ) | (12,442 | ) | ||||||||||
1,831,636 | 1,869,168 | |||||||||||||
$ | 2,005,990 | $ | 2,039,717 | |||||||||||
See accompanying notes to condensed financial statements.
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DEL TACO INCOME PROPERTIES IV
CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended | ||||||||||
March 31, | ||||||||||
2003 | 2002 | |||||||||
RENTAL REVENUE |
$ | 89,788 | $ | 85,194 | ||||||
EXPENSES: |
||||||||||
General and administrative |
30,241 | 21,293 | ||||||||
Depreciation |
13,817 | 13,817 | ||||||||
44,058 | 35,110 | |||||||||
Operating income |
45,730 | 50,084 | ||||||||
OTHER INCOME: |
||||||||||
Interest |
483 | 605 | ||||||||
Other |
125 | 275 | ||||||||
Net income |
$ | 46,338 | $ | 50,964 | ||||||
Net income per limited
partnership unit |
$ | 0.28 | $ | 0.31 | ||||||
Number of units used in computing per unit amounts |
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)
Three Months Ended | ||||||||||
March 31, | ||||||||||
2003 | 2002 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||
Net income |
$ | 46,338 | $ | 50,964 | ||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||
Depreciation |
13,817 | 13,817 | ||||||||
Decrease in receivable from Del Taco, Inc. |
72,905 | 81,195 | ||||||||
Increase in deposits |
(178 | ) | (126 | ) | ||||||
Increase (decrease) in accounts payable and
payable to limited partners |
3,805 | (4,642 | ) | |||||||
Net cash provided by operating activities |
136,687 | 141,208 | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||
Cash distributions to partners |
(83,870 | ) | (84,503 | ) | ||||||
Net increase in cash |
52,817 | 56,705 | ||||||||
Beginning cash balance |
117,957 | 117,445 | ||||||||
Ending cash balance |
$ | 170,774 | $ | 174,150 | ||||||
See accompanying notes to condensed financial statements.
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DEL TACO INCOME PROPERTIES IV
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 — BASIS OF PRESENTATION
The accompanying condensed financial statements 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 annual report on Form 10-K for the year ended December 31, 2002 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 March 31, 2003 and December 31, 2002, the results of operations and cash flows for the three month periods ended March 31, 2003 and 2002 have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.
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 2003 and 2002.
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.
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DEL TACO INCOME PROPERTIES IV
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
MARCH 31, 2003
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. There is no minimum rental under any of the Leases.
For the three months ended March 31, 2003, the two restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $448,210 and net income of $24,942 as compared to $422,709 and $25,450, respectively, for the corresponding period in 2002. 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 March 31, 2003, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $300,024 as compared with $287,239 during the same period in 2002.
For the three months ended March 31, 2003, the E. Highland Avenue restaurant in San Bernardino, California reported an unaudited net loss of $666 as compared to unaudited net income of $148 for the corresponding period in 2002.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from the General Partner consists primarily of rent accrued for the month of March. The March rent was collected in April, 2003.
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 April 11, 2003, a distribution to the limited partners of $135,578, or approximately $.82 per limited partnership unit, was approved. Such distribution was paid April 28, 2003. The General Partner also received a distribution of $1,369 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
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 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:
Three Months Ended | |||||||||
March 31, | |||||||||
2003 | 2002 | ||||||||
Orangethorpe Ave., Placentia, CA |
$ | 36,073 | $ | 33,620 | |||||
Lakeshore Drive, Lake Elsinore, CA |
36,003 | 34,469 | |||||||
Highland Ave., San Bernardino, CA |
17,712 | 17,105 | |||||||
Total |
$ | 89,788 | $ | 85,194 | |||||
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $89,788 during the three month period ended March 31, 2003, which represents an increase of $4,594 from 2002. The increase in rental revenue was caused by an increase in sales 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 | ||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2003 | 2002 | |||||||
Accounting fees |
80.27 | % | 71.92 | % | ||||
Distribution of information
to limited partners |
19.73 | 28.08 | ||||||
100.00 | % | 100.00 | % | |||||
General and administrative costs increased from 2002 to 2003 due to increased quarterly costs for income tax preparation and printing costs. The increase in income tax preparation fees was caused by the timing of services by the income tax preparer.
For the three months ended March 31, 2003, net income decreased by $4,626 from 2002 to 2003 due to the increase in expenses of $8,948 and the decrease in interest and other income of $272, which were partially offset by the $4,594 increase in revenues.
Recent Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“Interpretation45”), an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34. Interpretation 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Interpretation 45’s initial recognition and initial measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted the disclosure requirements of Interpretation 45 effective December 31, 2002 and has not entered into any guarantees since December 31, 2002.
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“Interpretation 46”), an interpretation of ARB No. 51. Interpretation 46 addresses consolidation by business enterprises of variable interest entities. Interpretation 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company believes it has no variable interest entities to which Interpretation 46 would apply.
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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 Partnerships 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, 2002 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 Statements 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 2a. Quantitative and Qualitative Disclosures About Market Risk.
None.
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Item 4. Controls and Procedures
(a) | Evaluation of disclosure controls and procedures: |
Within the 90 days prior to the date of this report, the Company 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 (including its consolidated subsidiaries) 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 or in other factors that could significantly affect these controls subsequent to the date of their evaluation. |
(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 | ||
99.1 | Kevin K. Moriarty’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
99.2 | Robert J. Terrano’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
99.3 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
(b) | Reports | ||
No reports on Form 8-K were filed during the three months ended March 31, 2003. |
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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 |
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Del Taco, Inc. General Partner |
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Date: May 14, 2003 | /s/ Robert J. Terrano Robert J. Terrano Executive Vice President, Chief Financial Officer |
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EXHIBIT INDEX
Exhibits | Description | |
99.1 | Kevin K. Moriarty’s Certification Persuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
99.2 | Robert J. Terrano’s Certification Persuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
99.3 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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