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, 2001.

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. 33-2462

DEL TACO RESTAURANT PROPERTIES III

a California limited partnership

(Exact name of registrant as specified in its charter)

California (State or other jurisdiction of incorporation or organization)	33-0139247 (I.R.S. Employer Identification Number)
23041 Avenida De La Carlota, Laguna Hills, California (Address of principal executive offices)	92653 (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

TABLE OF CONTENTS

		BALANCE SHEETS
		STATEMENTS OF INCOME
		STATEMENTS OF CASH FLOWS
		NOTES TO FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES

INDEX
 
DEL TACO RESTAURANT PROPERTIES III

PART I. FINANCIAL INFORMATION	PAGE NUMBER
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 2001 (Unaudited) and December 31, 2000		3
Statements of Income for the three and nine months ended September 30, 2001 and 2000 (Unaudited)		4
Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (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 RESTAURANT PROPERTIES III
 
BALANCE SHEETS

			September 30,			December 31,
			2001			2000
			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash		$	253,274		$	230,275
	Receivable from General Partner			69,450			69,017
	Deposits			1,000			1,622
		Total current assets		323,724			300,914
RESTRICTED CASH				97,291			97,291
PROPERTY AND EQUIPMENT, at cost:
	Land and improvements			4,405,966			4,405,966
	Buildings and improvements			2,954,959			2,954,959
	Machinery and equipment			1,522,922			1,522,922
				8,883,847			8,883,847
	Less—accumulated depreciation			2,990,666			2,905,737
				5,893,181			5,978,110
			$	6,314,196		$	6,376,315
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
	Payable to Limited Partners		$	42,884		$	34,067
	Accounts payable			12,559			15,979
		Total current liabilities		55,443			50,046
OBLIGATION TO GENERAL PARTNER				577,510			577,510
PARTNERS’ EQUITY:
	Limited Partners			5,719,959			5,786,836
	General Partner-Del Taco, Inc.			(38,716	)		(38,077	)
				5,681,243			5,748,759
			$	6,314,196		$	6,376,315

The accompanying notes are an
integral part of these financial statements.

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DEL TACO RESTAURANT PROPERTIES III
 
STATEMENTS OF INCOME
 
(Unaudited)

			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2001		2000		2001		2000
REVENUES:
	Rent		$	212,463	$	204,427	$	609,373	$	575,391
	Interest			2,185		3,357		8,052		8,717
	Other			875		800		2,000		1,883
				215,523		208,584		619,425		585,991
EXPENSES:
	General and administrative			8,129		9,123		46,895		44,583
	Depreciation			28,310		28,310		84,931		84,931
				36,439		37,433		131,826		129,514
		Net income	$	179,084	$	171,151	$	487,599	$	456,477
	Net income per limited partnership unit		$	3.75	$	3.58	$	10.20	$	9.55

The accompanying notes are an
integral part of these financial statements.

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DEL TACO RESTAURANT PROPERTIES III
 
STATEMENTS OF CASH FLOWS
 
(Unaudited)

			Nine Months Ended
			September 30,
			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	487,599		$	456,477
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation			84,931			84,931
	Increase in receivable from General Partner			(434	)		(5,328	)
	Decrease in deposits			622			—
	Increase in accounts payable and payable to limited partners			5,397			11,084
		Net cash provided by operating activities		578,115			547,164
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners				(555,116	)		(511,561	)
Net increase in cash				22,999			35,603
Beginning cash balance				230,275			208,334
Ending cash balance			$	253,274		$	243,937

The accompanying notes are an
integral part of these financial statements.

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DEL TACO RESTAURANT PROPERTIES III
 
NOTES TO FINANCIAL STATEMENTS
 
SEPTEMBER 30, 2001

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, 2000. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the partnership’s financial position at September 30, 2001, the results of operations and cash flows for the nine month periods ended September 30, 2001 and 2000 have been included. Operating results for the three and nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001.

NOTE 2 — RESTRICTED CASH

At September 30, 2001 the partnership had a restricted cash balance of $97,291. The restricted cash is a death and disability redemption fund. Such fund is maintained in an interest bearing account at a major commercial bank. A limited partner has the right, under certain circumstances involving such limited partner’s death or disability, to tender to the partnership for redemption all of the units owned of record by such limited partner. The redemption price will be equal to the partners capital account balance as of the redemption date. The death and disability fund was established in 1987. The fund was limited to two percent of the gross proceeds from sale of the limited partnership units. Requests for redemption made after the funds in the death and disability fund are depleted will not be accepted.

NOTE 3 — 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 47,331 in 2001 and 2000.

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 15 percent to the General Partner and 85 percent to the limited partners.

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DEL TACO RESTAURANT PROPERTIES III
 
NOTES TO FINANCIAL STATEMENTS — CONTINUED
 
SEPTEMBER 30, 2001

NOTE 4 — LEASING ACTIVITIES

The partnership leases certain properties for operation of restaurants to Del Taco, Inc. 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. There is no minimum rental under any of the leases.

For the three months ended September 30, 2001, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $1,770,529 and net income of $96,505, as compared to $1,703,554 and $72,235 respectively, for the corresponding period in 2000. Net income by restaurant includes charges for general and administrative expenses incurred in connection with supervision of restaurant operations and interest expense.

For the nine months ended September 30, 2001, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $5,078,110 and net income of $278,976, as compared to $4,794,929 and $172,761 respectively, for the corresponding period in 2000.

For the three months and nine months ended September 30, 2001, the East Valley Blvd. restaurant in Walnut, California reported net income of $1,916 and a net loss of $436 as compared to net losses of $1,950 and $4,780 for the corresponding period in 2000.

For the three months and nine months ended September 30, 2001, the East Gale Blvd. restaurant in Puente Hills, California reported net losses of $942 and $4,710 as compared to net losses of $1,971 and $8,500 for the corresponding period in 2000.

For the three months and nine months ended September 30, 2001, the West Sepulveda Blvd. restaurant in Los Angeles, California reported net income of $1,485 and $2,607 as compared to net losses of $2,629 and $11,832 for the corresponding period in 2000.

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DEL TACO RESTAURANT PROPERTIES III
 
NOTES TO FINANCIAL STATEMENTS — CONTINUED
 
SEPTEMBER 30, 2001

NOTE 5 — TRANSACTIONS WITH DEL TACO

The receivable from General Partner consists primarily of rent accrued for the month of September. The September rent was collected on October 12, 2001.

Del Taco, Inc. 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, Inc. for operation under the Del Taco trade name.

In addition, see Note 6 with respect to certain distributions to the General Partner.

NOTE 6 — DISTRIBUTIONS

On October 16, 2001, a distribution to the limited partners of $203,602, or approximately $4.30 per limited partnership unit, was approved. Such distribution was paid on October 23, 2001. The General Partner also received a distribution of $2,057 with respect to its 1% partnership interest.

NOTE 7 — RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for business combinations and is effective for all business combinations after June 30, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and is effective for fiscal years beginning after December 15, 2001.

In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for long-lived assets to be disposed of and is effective for fiscal years beginning after December 15, 2001.

The adoption of these standards is not expected to have a material impact on the Company’s financial position or results of operations.

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

Liquidity and Capital Resources

The partnership offered limited partnership units for sale between February 1986 and June 1987. 14.7% of the $12 million raised through sale of limited partnership units was used to pay commissions to brokers and to reimburse the General Partner for offering costs incurred. Approximately $9.5 million of the remaining funds were used to acquire sites and build ten restaurants. In February of 1992, approximately $281,000 raised during the offering but not required to acquire sites and build restaurants was distributed to the limited partners. One restaurant was sold in November 1997.

The nine 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.

As described in Note 2 to the Notes to the Financial Statements, the partnership has a death and disability redemption fund totaling $97,291 at September 30, 2001. Investors should contact the General Partner with all questions regarding the eligibility of a limited partner or the estate of a deceased limited partner to participate in the redemption fund.

Results of Operations

The partnership owns nine properties that are under long-term lease to Del Taco for restaurant operations.

The following table sets forth rental revenue earned by restaurant for the year:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2001		2000		2001		2000
Rancho California Plaza, Rancho California, CA		$	32,338	$	32,275	$	93,850	$	92,679
East Vista Way, Vista, CA			20,709		20,513		58,425		58,205
Plaza at Puente Hills, Industry, CA			13,208		13,705		38,827		37,698
4th Street, Perris, CA			29,647		28,073		83,546		78,727
Foothill Blvd., Upland, CA			25,548		25,834		74,525		71,731
East Valley Blvd., Walnut, CA			13,419		12,618		38,096		35,656
Lassen Street, Chatsworth, CA			31,561		30,020		89,793		83,021
Hesperia Road, Victorville, CA			28,368		24,816		81,753		71,916
W. Sepulveda Blvd., Los Angeles, CA			17,665		16,573		50,558		45,758
	Total	$	212,463	$	204,427	$	609,373	$	575,391

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations — continued

The partnership receives rental revenues equal to 12 percent of gross sales from the restaurants. The partnership earned rental revenue of $212,463 during the three month period ended September 30, 2001, which represents an increase of $8,036 from 2000. The partnership earned rental revenue of $609,373 during the nine month period ended September 30, 2001, which represents an increase of $33,982 from 2000. The changes in rental revenue between 2001 and 2000 are directly attributable to increases in sales levels at the restaurants under lease.

The following table breaks down general and administrative expenses by type of expense:

	Percentage of Total
	General & Administrative Expense
	Nine Months Ended
	September 30,
	2001			2000
Accounting fees		59.66	%		53.74	%
Distribution of information to Limited Partners		40.34			46.26
		100.00	%		100.00	%

For the three month period ended September 30, 2001 net income increased by $7,933 from 2000 to 2001 due to the increase in revenues of $6,939 and the decrease in general and administrative expenses of $994. For the nine month period ended September 30, 2001 net income increased by $31,122 from 2000 to 2001 due to the increase in revenues of $33,434 which was partially offset by the increase in general and administrative expenses of $2,312.

In accordance with recent U.S. Government regulations, the partnership is required to file annual K-1 income tax forms with the Internal Revenue Service electronically beginning in 2002 for the year ending December 31, 2001. In order to comply with this regulation, the partnership will incur additional costs to lease software to 1) prepare the tax forms electronically and 2) maintain the underlying partnership database.

The General Partner and outside consultants evaluated available software and selected a software package in the third calendar quarter of 2001. Estimates of additional general and administrative costs to lease the software range from $2,000 to $6,000 in 2001 (the conversion year) and range from $8,500 to $9,500 in each subsequent year.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(b)  No reports on Form 8-K were filed during the nine months ended September 30, 2001.

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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.

 
 
 
 
 
 
 
 
Date: October 31, 2001  DEL TACO RESTAURANT PROPERTIES III
(a California limited partnership)
Registrant
 
Del Taco, Inc.
General Partner
 
 
/s/ Robert J. Terrano
Robert J. Terrano
Executive Vice President,
Chief Financial Officer

Date: October 31, 2001  /s/ C. Douglas Mitchell
C. Douglas Mitchell
Vice President and Corporate
Controller

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