<PAGE> 1
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, 1998
--------------------------------
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. 33-13437
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 (I.R.S. Employer
incorporation or organization) Identification Number)
23041 AVENIDA DE LA CARLOTA, SUITE 400, LAGUNA HILLS, CA 92653
(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 [ ]
-1-
<PAGE> 2
INDEX
DEL TACO INCOME PROPERTIES IV
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
<S> <C>
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 1998 (Unaudited) and
December 31, 1997 3
Statements of Income for the three and nine months ended
September 30, 1998 and 1997 (Unaudited) 4
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (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
</TABLE>
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<PAGE> 3
DEL TACO INCOME PROPERTIES IV
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 104,243 $ 75,411
Receivable from General Partner (Note 4) 27,008 65,132
Deposits 608 400
----------- -----------
Total current assets 131,859 140,943
----------- -----------
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
----------- -----------
3,011,349 3,011,349
Less--accumulated depreciation 895,357 817,546
----------- -----------
2,115,992 2,193,803
----------- -----------
$ 2,247,851 $ 2,334,746
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Payable to Limited Partners $ 18,853 $ 2,503
Accounts Payable 2,835 6,130
----------- -----------
Total current liabilities 21,688 8,633
----------- -----------
OBLIGATION TO GENERAL PARTNER 137,953 137,953
----------- -----------
PARTNERS' EQUITY:
Limited Partners 2,098,463 2,197,413
General Partner-Del Taco, Inc. (10,253) (9,253)
----------- -----------
2,088,210 2,188,160
----------- -----------
$ 2,247,851 $ 2,334,746
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these financial statements
-3-
<PAGE> 4
DEL TACO INCOME PROPERTIES IV
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rent (Notes 3 and 4) $ 83,729 $ 75,161 $236,540 $212,911
Interest 447 311 1,102 1,409
Other 200 225 825 300
-------- -------- -------- --------
84,376 75,697 238,467 214,620
-------- -------- -------- --------
EXPENSES:
General and administrative 6,923 4,360 34,757 29,367
Depreciation 25,937 25,937 77,811 77,811
-------- -------- -------- --------
32,860 30,297 112,568 107,178
-------- -------- -------- --------
Net income $ 51,516 $ 45,400 $125,899 $107,442
======== ======== ======== ========
Net income per Limited
Partnership Unit (Note 2) $ 0.31 $ 0.27 $ 0.75 $ 0.64
======== ======== ======== ========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-4-
<PAGE> 5
DEL TACO INCOME PROPERTIES IV
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 125,899 $ 107,442
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 77,811 77,811
Increase (decrease)in payable
to Limited Partners 16,350 (535)
Decrease in receivable from
General Partner 38,123 27,160
(Decrease) increase in accounts payable (3,295) 566
Increase in deposits (208) --
--------- ---------
Net cash provided by operating activities 254,680 212,444
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (225,848) (213,150)
--------- ---------
Net increase (decrease) in cash 28,832 (706)
Beginning cash balance 75,411 79,857
--------- ---------
Ending cash balance $ 104,243 $ 79,151
========= =========
</TABLE>
The accompanying notes are an
integral part of these financial statements.
-5-
<PAGE> 6
DEL TACO INCOME PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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, 1997. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
to present fairly the partnership's financial position at September 30, 1998,
the results of operations and cash flows for the nine month periods ended
September 30, 1998 and 1997 have been included. Operating results for the three
and nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
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 1998 and 1997.
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.
-6-
<PAGE> 7
DEL TACO INCOME PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
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 September 30, 1998 and 1997, one of which has been subleased to a
Del Taco franchisee.
For the three months ended September 30, 1998, the two restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $443,637 and net income of $33,419 as compared to $400,106 and $22,772
respectively, for the corresponding period in 1997. Net income by restaurant
includes charges for general & administrative expenses incurred in connection
with supervision of restaurant operations and interest expense. For the three
months ended September 30, 1998, the one restaurant operated by a Del Taco
franchisee, for which the Registrant is the lessor, had unaudited sales of
$254,096 as compared with $226,231 during the same period in 1997.
For the nine months ended September 30, 1998, the two restaurants operated by
Del Taco, for which the Registrant is the lessor, had combined, unaudited sales
of $1,251,044 and net income of $80,268 as compared to $1,123,008 and $48,204
respectively, for the corresponding period in 1997. For the nine months ended
September 30, 1998, the one restaurant operated by a Del Taco franchisee, for
which the Registrant is the lessor, had unaudited sales of $720,128 as compared
with $651,250 during the same period in 1997.
For the three months and nine months ended September 30, 1998, the Highland
Avenue restaurant in Highland (San Bernardino), California reported net income
of $4,084 and $5,985 as compared to net income of $350 and a net loss of $6,805
respectively, for the corresponding period in 1997.
-7-
<PAGE> 8
DEL TACO INCOME PROPERTIES IV
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1998
NOTE 4 - TRANSACTIONS WITH DEL TACO
The receivable from the General Partner consists primarily of rent accrued for
the month of September. The September rent was collected on October 13, 1998.
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 October 12, 1998, a distribution to the Limited Partners of $79,342, or
approximately $0.48 per Limited Partnership Unit, was approved. Such
distribution was paid October 15, 1998. The General Partner also received a
distribution of $801 with respect to its 1% partnership interest.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Registrant commenced an 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. 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
$83,729 for the three months ended September 30, 1998 representing an increase
from the rental revenues of $75,161 in 1997. The Registrant had rental revenue
of $236,540 for the nine months ended September 30, 1998 representing a increase
from the rental revenues of $212,911 in 1997. Such increase is directly
attributable to increased sales at the restaurants during the three and nine
months ended September 30, 1998.
-9-
<PAGE> 10
The following table sets forth rental revenue earned by restaurant for the
quarter and year to date:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Orangethorpe Ave., Placentia, CA $ 36,025 $ 32,897 $102,047 $ 92,840
Lakeshore Dr., Lake Elsinore, CA 30,492 27,148 86,415 78,150
Highland Ave., San Bernardino, CA 17,212 15,116 48,078 41,921
-------- -------- -------- --------
Total $ 83,729 $ 75,161 $236,540 $212,911
======== ======== ======== ========
</TABLE>
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
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1998 1997
------- -------
<S> <C> <C>
Accounting fees 64.40% 65.55%
Distribution of
information to
Limited Partners 33.30 31.73
Other 2.30 2.72
------- -------
100.00% 100.00%
======= =======
</TABLE>
Certain reclassifications have been made to the fiscal year 1997 general and
administrative expenses to conform to the fiscal year 1998 presentation.
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 September 30, general and
administrative expenses increased from $4,360 in 1997 to $6,923 in 1998. For the
nine months ended September 30, general and administrative expenses increased
from $29,367 in 1997 to $34,757 in 1998. General and administrative expenses
increased due to increased costs of printing and distribution. The Registrant
incurred depreciation expense in the amount of $25,937 for the three month
periods ended September 30, 1998 and 1997, respectively. The Registrant incurred
depreciation expense in the amount of $77,811 for the nine months ended
September 30, 1998 and 1997, respectively.
-10-
<PAGE> 11
As a result of increased revenues totaling $8,679 for the three months ended
September 30, 1998 and increased expenses totaling $2,563 for the three months
ended September 30, 1998, the net income of the Registrant increased from
$45,400 for the three months ended September 30, 1997 to $51,516 for the
corresponding period in 1998. As a result of increased revenues totaling $23,847
for the nine months ended September 30, 1998 and increased expenses totaling
$5,390 for the nine months ended September 30, 1998, the net income of the
Registrant increased from $107,442 for the nine months ended September 30, 1997
to $125,899 for the corresponding period in 1998.
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.
Management does not believe the operations of the Company will be significantly
impacted by the year 2000 software issue and does not believe the year 2000
software issue will materially effect the Company's operations, financial
position or cash flows.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the nine months ended
September 30, 1998.
-11-
<PAGE> 12
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: October 30, 1998 /s/ Robert J. Terrano
-----------------------------------
Robert J. Terrano
Executive Vice President,
Chief Financial Officer
Date: October 30, 1998 /s/ C. Douglas Mitchell
-----------------------------------
C. Douglas Mitchell
Vice President and Corporate
Controller
-12-
<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 104,243
<SECURITIES> 808
<RECEIVABLES> 27,008
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 131,859
<PP&E> 3,011,349
<DEPRECIATION> 895,357
<TOTAL-ASSETS> 2,247,851
<CURRENT-LIABILITIES> 21,688
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,088,210
<TOTAL-LIABILITY-AND-EQUITY> 2,247,851
<SALES> 0
<TOTAL-REVENUES> 238,467
<CGS> 0
<TOTAL-COSTS> 112,568
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 125,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 125,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,899
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
