10-Q 1 a11735e10vq.htm FORM 10-Q e10vq
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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, 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. 0-16191
DEL TACO RESTAURANT PROPERTIES I
a California limited partnership
(Exact name of registrant as specified in its charter)
     
California
   95-3852699
(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
 
 

INDEX
DEL TACO RESTAURANT PROPERTIES I
         
    PAGE NUMBER  
PART I. FINANCIAL INFORMATION
        
 
        
Item 1. Financial Statements
        
 
        
    3  
 
        
    4  
 
        
    5  
 
        
    6  
 
        
    8  
 
        
    10  
 
        
    11  
 
        
       
 
        
    12  
 
        
    13  
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1

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DEL TACO RESTAURANT PROPERTIES I
CONDENSED BALANCE SHEETS
(Unaudited)
                 
    June 30,     December 31,  
    2005     2004  
ASSETS
                
CURRENT ASSETS:
                
Cash
   $ 243,605     $ 251,606  
Receivable from Del Taco, Inc.
     65,289       64,831  
Deposits
     949       1,299  
 
                
Total current assets
     309,843       317,736  
 
                
 
                
PROPERTY AND EQUIPMENT:
                
Land and improvements
     1,852,482       1,852,482  
Buildings and improvements
     1,013,134       1,013,134  
Machinery and equipment
     1,136,026       1,136,026  
 
                
 
     4,001,642       4,001,642  
Less—accumulated depreciation
     2,000,605       1,978,719  
 
                
 
     2,001,037       2,022,923  
 
                
 
                
 
   $ 2,310,880     $ 2,340,659  
 
                
LIABILITIES AND PARTNERS’ EQUITY
                
CURRENT LIABILITIES:
                
Payable to limited partners
   $ 68,825     $ 64,634  
Accounts payable
     8,173       10,481  
 
                
Total current liabilities
     76,998       75,115  
 
                
PARTNERS’ EQUITY:
                
Limited partners; 8,751 units outstanding at June 30, 2005 and December 31, 2004
     1,971,446       2,002,791  
General partner-Del Taco, Inc.
     262,436       262,753  
 
                
 
     2,233,882       2,265,544  
 
                
 
                
 
   $ 2,310,880     $ 2,340,659  
 
                
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF INCOME
(Unaudited)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
RENTAL REVENUES
   $ 201,377     $ 194,675     $ 392,442     $ 383,422  
 
                                
 
                                
EXPENSES:
                                
General and administrative
     11,009       12,028       48,279       47,286  
Depreciation
     10,943       10,943       21,886       21,886  
 
                                
 
     21,952       22,971       70,165       69,172  
 
                                
 
                                
Operating income
     179,425       171,704       322,277       314,250  
 
                                
OTHER INCOME:
                                
Interest
     887       611       1,679       1,155  
Other
     275       450       700       850  
 
                                
 
                                
Net income
   $ 180,587     $ 172,765     $ 324,656     $ 316,255  
 
                                
 
                                
Net income per limited partnership unit (note 2)
   $ 20.43     $ 19.54     $ 36.73     $ 35.78  
 
                                
 
                                
Number of units used in computing per unit amounts
     8,751       8,751       8,751       8,751  
 
                                
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six Months Ended  
    June 30,  
    2005     2004  
CASH FLOWS FROM OPERATING ACTIVITIES:
                
 
                
Net income
   $ 324,656     $ 316,255  
Adjustments to reconcile net income to net cash provided by operating activities:
                
Depreciation
     21,886       21,886  
Changes in operating assets and liabilities:
                
(Increase) decrease in receivable from Del Taco, Inc.
     (458 )     175  
Decrease (increase) in deposits
     350       (152 )
Increase in accounts payable and payable to limited partners
     1,883       11,109  
 
                
 
                
Net cash provided by operating activities
     348,317       349,273  
 
                
CASH FLOWS FROM FINANCING ACTIVITIES:
                
 
                
Cash distributions to partners
     (356,318 )     (337,553 )
 
                
 
                
Net (decrease) increase in cash
     (8,001 )     11,720  
 
                
Beginning cash balance
     251,606       259,810  
 
                
 
                
Ending cash balance
   $ 243,605     $ 271,530  
 
                
See accompanying notes to condensed financial statements.

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DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2005
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 Restaurant Properties I (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 June 30, 2005, the results of operations for the three and six month periods ended June 30, 2005 and 2004 and cash flows for the six month periods ended June 30, 2005 and 2004 have been included. Operating results for the three and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.
NOTE 2 — NET INCOME PER LIMITED PARTNERSHIP UNIT
Net income per limited partnership unit is based upon the limited partners 99 percent share of net income divided by the weighted average number of units outstanding during the periods presented, which amounted to 8,751 in 2005 and 2004.
Pursuant to the partnership agreement, annual partnership net income is allocated one percent to Del Taco, Inc. (Del Taco or the General Partner) and 99 percent to the limited partners. A partnership net loss in any year will be allocated 24 percent to the General Partner and 76 percent to the limited partners until the losses so allocated equal income previously allocated. Any additional losses will be 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. Additional gains will be allocated 24 percent to the General Partner and 76 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 35 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 2019 to 2020. There is no minimum rental under any of the leases.

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DEL TACO RESTAURANT PROPERTIES I
NOTES TO CONDENSED FINANCIAL STATEMENTS — CONTINUED
JUNE 30, 2005
NOTE 3 — LEASING ACTIVITIES — continued
For the three months ended June 30, 2005, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,392,646 and unaudited net income of $107,383 as compared to $1,336,138 and $98,673, respectively, for the corresponding period in 2004. 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 June 30, 2005, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $285,500 as compared with $286,150 during the same period in 2004.
For the six months ended June 30, 2005, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $2,703,091 and unaudited net income of $200,783 as compared to $2,633,072 and $198,719, respectively, for the corresponding period in 2004. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense. For the six months ended June 30, 2005, the one restaurant operated by a Del Taco franchisee, for which the Partnership is the lessor, had unaudited sales of $567,258 as compared with $562,109 during the same period in 2004.
NOTE 4 — TRANSACTIONS WITH DEL TACO
The receivable from Del Taco consists primarily of rent accrued for the month of June. The June rent receivable was collected in July 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 July 19, 2005, a distribution to the limited partners of $168,082, or approximately $19.21 per limited partnership unit, was approved. Such distribution was paid on July 29, 2005. The General Partner also received a distribution of $1,698 with respect to its 1% partnership interest. Total cash distributions paid in January and April 2005 were $181,973 and $174,345, respectively.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
Del Taco Restaurant Properties I (the Partnership or the Company) offered limited partnership units for sale between March 1983 and March 1984. 15% of the $4.375 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse Del Taco, Inc. (the General Partner or Del Taco) for offering costs incurred. Approximately $4 million of the remaining funds were used to acquire sites and build six restaurants.
The six 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 six properties that are under long-term lease to Del Taco for restaurant operations (Del Taco, in turn, has subleased one of the restaurants to a Del Taco franchisee).
The following table sets forth rental revenue earned by restaurant for the three and six months ended June 30, 2005 and 2004:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Riverside Avenue, Rialto, CA
   $ 30,244     $ 30,114     $ 58,741     $ 59,420  
Elden Avenue, Moreno Valley, CA
     37,170       33,911       70,997       66,484  
Foothill Boulevard, La Verne, CA
     44,646       42,123       85,535       82,125  
Baseline & Archibald, Rancho Cucamonga, CA
     34,260       34,338       68,071       67,453  
Elkhorn Boulevard, Sacramento, CA
     17,390       19,456       34,752       38,947  
Haven Avenue, Rancho Cucamonga, CA
     37,667       34,733       74,346       68,993  
 
                                
Total
   $ 201,377     $ 194,675     $ 392,442     $ 383,422  
 
                                
The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $201,377 during the three month period ended June 30, 2005, which represents an increase of $6,702 from the corresponding period in 2004. The Partnership earned rental revenue of $392,442 during the six month period ended June 30, 2005, which represents an increase of $9,020 from the corresponding period in 2004. The change in rental revenues between 2005 and 2004 is directly attributable to increases 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:
                                 
    Percent of Total  
    General & Administrative Expense  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2005     2004     2005     2004  
Accounting fees
     48.59 %     34.44 %     66.10 %     69.69 %
Distribution of information to Limited Partners
     51.41 %     65.56 %     33.90 %     30.31 %
 
                        
 
                                
 
     100.00 %     100.00 %     100.00 %     100.00 %
 
                        
General and administrative costs for the three month period ended June 30, 2005 decreased from the corresponding period in the previous year primarily due to decreased printing and distribution of information costs, partially offset by increased accounting and audit costs which increased the percentage of general and administrative expense related to accounting fees and lowered the percent related to distribution of information to limited partners. General and administrative costs for the six month period ended June 30, 2005 increased from the corresponding period in the previous year due to increased audit, accounting and software licensing costs, partially offset by decreased costs for printing and distribution of information which increased the percentage of general and administrative expense related to accounting fees and lowered the percent related to distribution of information to limited partners.
For the three month period ended June 30, 2005, net income increased $7,822 from 2004 to 2005 due to the increase in revenues of $6,702, the increase in interest and other income of $101 and the $1,019 decrease in general and administrative expenses. For the six month period ended June 30, 2005, net income increased by $8,401 from 2004 to 2005 due to an increase in revenues of $9,020, the increase in interest and other income of $374, partially offset by an increase in general and administrative expenses of $993.
Recent Accounting Pronouncements
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 (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 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 RESTAURANT PROPERTIES I
 
  (a California limited partnership)
 
  Registrant
 
    
 
  Del Taco, Inc.
General Partner
 
    
Date: August 15, 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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