PINX:XXNCB Del Taco Restaurant Properties II Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark one)

 

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

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. 0-16190

 

 

DEL TACO RESTAURANT PROPERTIES II

(A California limited partnership)

(Exact name of registrant as specified in its charter)

 

California   33-0064245

(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  ¨

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  þ    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   þ   (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  þ

 

 

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.

 

 

 


Table of Contents

INDEX

DEL TACO RESTAURANT PROPERTIES II

 

     PAGE NUMBER  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Condensed Balance Sheets at June 30, 2012 (Unaudited) and December 31, 2011

     3   

Condensed Statements of Income for the three and six months ended June 30, 2012 and 2011 (Unaudited)

     4   

Condensed Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (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   

 

-2-


Table of Contents
PART I. FINANCIAL INFORMATION

 

ITEM I. FINANCIAL STATEMENTS

DEL TACO RESTAURANT PROPERTIES II

CONDENSED BALANCE SHEETS

 

     June 30,
2012
    December 31,
2011
 
     (Unaudited)        

ASSETS

    

CURRENT ASSETS:

    

Cash

   $ 168,783      $ 169,872   

Receivable from Del Taco LLC

     44,549        44,281   

Other current assets

     1,713        1,534   
  

 

 

   

 

 

 

Total current assets

     215,045        215,687   
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

    

Land

     1,430,345        1,430,345   

Land improvements

     375,661        375,661   

Buildings and improvements

     1,238,879        1,238,879   

Machinery and equipment

     898,950        898,950   
  

 

 

   

 

 

 
     3,943,835        3,943,835   

Less-accumulated depreciation

     2,175,230        2,157,532   
  

 

 

   

 

 

 
     1,768,605        1,786,303   
  

 

 

   

 

 

 
   $ 1,983,650      $ 2,001,990   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ EQUITY

    

CURRENT LIABILITIES:

    

Payable to limited partners

   $ 45,058      $ 44,363   

Accounts payable

     23,741        27,697   
  

 

 

   

 

 

 

Total current liabilities

     68,799        72,060   
  

 

 

   

 

 

 

PARTNERS’ EQUITY:

    

Limited partners; 27,006 units outstanding at June 30, 2012 and December 31, 2011

     1,944,754        1,959,682   

General partner-Del Taco LLC

     (29,903     (29,752
  

 

 

   

 

 

 
     1,914,851        1,929,930   
  

 

 

   

 

 

 
   $ 1,983,650      $ 2,001,990   
  

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

-3-


Table of Contents

DEL TACO RESTAURANT PROPERTIES II

CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

RENTAL REVENUES

   $ 134,791       $ 137,060       $ 264,849       $ 267,629   
  

 

 

    

 

 

    

 

 

    

 

 

 

EXPENSES:

           

General and administrative

     17,570         13,237         56,664         51,439   

Depreciation

     8,849         8,849         17,698         17,698   
  

 

 

    

 

 

    

 

 

    

 

 

 
     26,419         22,086         74,362         69,137   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     108,372         114,974         190,487         198,492   

OTHER INCOME:

           

Interest

     48         45         94         90   

Other

     450         800         975         1,300   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 108,870       $ 115,819       $ 191,556       $ 199,882   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per limited partnership unit (note 2)

   $ 3.99       $ 4.25       $ 7.02       $ 7.33   
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of units used in computing per unit amounts

     27,006         27,006         27,006         27,006   
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to condensed financial statements.

 

-4-


Table of Contents

DEL TACO RESTAURANT PROPERTIES II

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Six Months Ended
June 30,
 
     2012     2011  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 191,556      $ 199,882   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation

     17,698        17,698   

Changes in operating assets and liabilities:

    

Receivable from Del Taco LLC

     (268     2,023   

Other current assets

     (179     304   

Payable to limited partners

     695        3,840   

Accounts payable

     (3,956     (4,673
  

 

 

   

 

 

 

Net cash provided by operating activities

     205,546        219,074   

CASH FLOWS FROM FINANCING ACTIVITIES -

    

Cash distributions to partners

     (206,635     (223,627
  

 

 

   

 

 

 

Net change in cash

     (1,089     (4,553

Beginning cash balance

     169,872        162,482   
  

 

 

   

 

 

 

Ending cash balance

   $ 168,783      $ 157,929   
  

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

-5-


Table of Contents

DEL TACO RESTAURANT PROPERTIES II

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012

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, 2011 for Del Taco Restaurant Properties II (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, 2012, the results of operations for the three and six month periods ended June 30, 2012 and 2011 and cash flows for the six month periods ended June 30, 2012 and 2011 have been included. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. Amounts related to disclosure of December 31, 2011 balances within these condensed financial statements were derived from the audited 2011 financial statements.

Management has evaluated events subsequent to June 30, 2012 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 one percent allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 27,006 in 2012 and 2011.

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 previously allocated. Additional gains will be allocated 15 percent to the General Partner and 85 percent to the limited partners.

NOTE 3 - LEASING ACTIVITIES

The Partnership leases five 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 terminate in the years 2021 to 2023. 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 June 30, 2012, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $1,123,261 and unaudited net losses of $32,510 as compared to unaudited sales of $1,142,163 and unaudited net losses of $25,006 for the corresponding period in 2011. 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 increase in net loss from the corresponding period of the prior year relates to an increase in operating costs.

For the six months ended June 30, 2012, the five restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $2,207,077 and unaudited net losses of $79,466 as compared to unaudited sales of $2,230,244 and unaudited net losses of $88,467 for the corresponding period in 2011. 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 loss from the corresponding period of the prior year relates to a decrease in operating costs.

 

-6-


Table of Contents

DEL TACO RESTAURANT PROPERTIES II

NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012

UNAUDITED

 

NOTE 4 - TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of June 2012. The June rent receivable was collected in July 2012.

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 and May 2012 were $102,510 and $104,125, respectively. On July 24, 2012, a distribution to the limited partners of $117,538, or approximately $4.35 per limited partnership unit, was declared. Such distribution was paid on August 3, 2012. The General Partner also received a distribution of $1,187 with respect to its one percent partnership interest in August 2012.

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 five 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 six months ended June 30, 2012 and 2011. 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.

 

-7-


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Del Taco Restaurant Properties II (the “Partnership” or the “Company”) offered limited partnership units for sale between September 1984 and December 1985. $6.751 million was raised through the sale of limited partnership units and used to acquire sites and build seven restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. Two restaurants were sold in 1994.

The five 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 owned seven properties that were under long-term lease to Del Taco for restaurant operations. Two restaurants were sold in 1994 and five are currently operating.

The following table sets forth rental revenue earned by restaurant (unaudited):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2012      2011      2012      2011  

Bear Valley Rd., Victorville, CA

   $ 21,583       $ 23,616       $ 43,252       $ 46,677   

West Valley Blvd., Colton, CA

     34,081         33,040         67,032         65,140   

Palmdale Blvd., Palmdale, CA

     17,193         17,638         34,338         34,568   

DeAnza Country Shopping Center, Pedley, CA

     31,964         29,951         63,229         58,680   

Varner Road, Thousand Palms, CA

     29,970         32,815         56,998         62,564   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 134,791       $ 137,060       $ 264,849       $ 267,629   
  

 

 

    

 

 

    

 

 

    

 

 

 

The Partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The Partnership earned rental revenue of $134,791 during the three month period ended June 30, 2012, which represents a decrease of $2,269 from the corresponding period in 2011. The Partnership earned rental revenue of $264,849 during the six month period ended June 30, 2012, which represents a decrease of $2,780 from the corresponding period in 2011. The changes in rental revenues between 2012 and 2011 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors.

 

-8-


Table of Contents
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
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Accounting fees

     43.98     46.50     68.88     73.19

Distribution of information to limited partners

     56.02     53.50     31.12     26.81
  

 

 

   

 

 

   

 

 

   

 

 

 
     100.00     100.00     100.00     100.00
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative costs increased during the three and six month periods primarily due to increased costs for printing primarily related to a mandatory new filing process known as XBRL and software licensing fees that were incurred in a different quarter than the previous year.

For the three month period ended June 30, 2012, net income decreased by $6,949 from 2011 to 2012 due to the decrease in revenues of $2,269, the decrease in interest and other income of $347, and the increase in general and administrative expenses of $4,333. For the six month period ended June 30, 2012, net income decreased by $8,326 from 2011 to 2012 due to the decrease in revenues of $2,780, the decrease in interest and other income of $321 and the increase in general and administrative expenses of $5,225.

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, 2011 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.

 

-9-


Table of Contents
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.

 

-10-


Table of Contents

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.LAB    XBRL Taxonomy Extension Label Linkbase Document*
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document*

 

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

 

-11-


Table of Contents

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 RESTAURANT PROPERTIES II
      (a California limited partnership)
      Registrant
      Del Taco LLC
      General Partner
Date: August 14, 2012       /s/ Steven L. Brake
      Steven L. Brake
      Chief Financial Officer
      (Principal Financial Officer)

 

-12-

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