10-Q

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, 2002.

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. 0-16851

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)
25521 Commercentre Drive, Lake Forest, California (Address of principal executive offices)	92630 (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
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
EXHIBIT INDEX
EXHIBIT 99.1
EXHIBIT 99.2
EXHIBIT 99.3

INDEX

DEL TACO RESTAURANT PROPERTIES III

	PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data
Balance Sheets at September 30, 2002 and December 31, 2001 (Unaudited)		3
Statements of Income for the three and nine months ended September 30, 2002 and 2001 (Unaudited)		4
Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (Unaudited)		5
Notes to 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 RESTAURANT PROPERTIES III

BALANCE SHEETS

(Unaudited)

			September 30,			December 31,
			2002			2001
ASSETS
CURRENT ASSETS:
	Cash		$	271,412		$	248,445
	Receivable from General Partner			72,089			71,282
	Deposits			1,467			1,000
		Total current assets		344,968			320,727
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			3,103,906			3,018,978
				5,779,941			5,864,869
			$	6,222,200		$	6,282,887
LIABILITIES AND PARTNERS’ EQUITY
CURRENT LIABILITIES:
	Payable to Limited Partners		$	45,468		$	38,961
	Accounts payable			7,256			15,258
		Total current liabilities		52,724			54,219
OBLIGATION TO GENERAL PARTNER				577,510			577,510
PARTNERS’ EQUITY:
	Limited Partners			5,631,557			5,690,174
	General Partner-Del Taco, Inc.			(39,591	)		(39,016	)
				5,591,966			5,651,158
			$	6,222,200		$	6,282,887

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,
			2002		2001		2002		2001
REVENUES:
	Rent		$	225,608	$	212,463	$	657,691	$	609,373
	Interest			1,226		2,185		3,488		8,052
	Other			900		875		1,975		2,000
				227,734		215,523		663,154		619,425
EXPENSES:
	General and administrative			8,852		8,129		51,318		46,895
	Depreciation			28,310		28,310		84,931		84,931
				37,162		36,439		136,249		131,826
		Net income	$	190,572	$	179,084	$	526,905	$	487,599
	Net income per limited partnership unit		$	3.99	$	3.75	$	11.02	$	10.20

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,
			2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	526,905		$	487,599
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation			84,931			84,931
	Increase in receivable from General Partner			(807	)		(434	)
	(Increase) decrease in deposits			(467	)		622
	(Decrease) increase in accounts payable and payable to limited partners			(1,495	)		5,397
		Net cash provided by operating activities		609,067			578,115
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners				(586,100	)		(555,116	)
Net increase in cash				22,967			22,999
Beginning cash balance				248,445			230,275
Ending cash balance			$	271,412		$	253,274

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, 2002

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, 2001. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the partnership’s financial position at September 30, 2002, the results of operations and cash flows for the nine month periods ended September 30, 2002 and 2001 have been included. Operating results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

NOTE 2 — RESTRICTED CASH

At September 30, 2002 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 2002 and 2001.

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, 2002

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, 2002, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $1,880,067 and net income of $124,836, as compared to $1,770,529 and $96,505 respectively, for the corresponding period in 2001. 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, 2002, the nine restaurants operated by Del Taco, for which the partnership is the lessor, had combined, unaudited sales of $5,480,760 and net income of $345,850, as compared to $5,078,110 and $278,976 respectively, for the corresponding period in 2001.

For the three months and nine months ended September 30, 2002, the East Valley Blvd. restaurant in Walnut, California reported net income of $3,339 and $10,933 respectively, as compared to net income of $1,916 and a net loss of $436 for the corresponding period in 2001.

For the three months and nine months ended September 30, 2002, the East Gale Blvd. restaurant in Puente Hills, California reported net income of $1,116 and a net loss of $603 as compared to net losses of $942 and $4,710 for the corresponding period in 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 14, 2002.

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 15, 2002, a distribution to the limited partners of $219,021, or approximately $4.63 per limited partnership unit, was approved. Such distribution was paid on October 24, 2002. The General Partner also received a distribution of $2,212 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

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, 2002. 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:

		September 30,				September 30,
		2002		2001		2002		2001
Rancho California Plaza, Temecula, CA		$	35,514	$	32,338	$	99,677	$	93,850
East Vista Way, Vista, CA			20,723		20,709		62,396		58,425
Plaza at Puente Hills, Industry, CA			16,041		13,208		45,575		38,827
4th Street, Perris, CA			31,957		29,647		93,609		83,546
Foothill Blvd., Upland, CA			26,189		25,548		76,069		74,525
East Valley Blvd., Walnut, CA			14,012		13,419		43,092		38,096
Lassen Street, Chatsworth, CA			34,248		31,561		99,293		89,793
Hesperia Road, Victorville, CA			28,543		28,368		85,490		81,753
W. Sepulveda Blvd., Los Angeles, CA			18,381		17,665		52,490		50,558
	Total	$	225,608	$	212,463	$	657,691	$	609,373

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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 $225,608 during the three month period ended September 30, 2002, which represents an increase of $13,145 from 2001. The partnership earned rental revenue of $657,691 during the nine month period ended September 30, 2002, which represents an increase of $48,318 from 2001. The changes in rental revenue between 2002 and 2001 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,
	2002			2001
Accounting fees		57.75	%		59.66	%
Distribution of information to Limited Partners		42.25			40.34
		100.00	%		100.00	%

General and administrative costs for the nine month period ended September 30, increased from 2001 to 2002 due to increased costs for income tax preparation, annual audit fees and costs associated with leasing software.

For the three month period ended September 30, 2002 net income increased by $11,488 from 2001 to 2002 due to the increase in revenues of $12,211 which was partially offset by the increase in general and administrative expenses of $723. For the nine month period ended September 30, 2002 net income increased by $39,306 from 2001 to 2002 due to the increase in revenues of $43,729 which was partially offset by the increase in general and administrative expenses of $4,423.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30. It addresses financial accounting and reporting for the impairment of long-lived assets to be disposed of. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Management adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on the Company’s results of operations or financial condition.

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

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3 “Liability Recognition for Certain Employee Terminations Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred as opposed to the date of an entity’s commitment to an exit plan as required under EITF Issue No. 94-3. SFAS 146 also requires that measurement of the liability associated with exit or disposal activities be at fair value. SFAS 146 is effective for the Company for exit or disposal activities that are initiated after December 31, 2002. The implementation of SFAS 146 is not expected to have a material impact on the Company’s financial statements.

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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
	A Form 8-K was filed on July 31, 2002 to note a change in registrant’s independent certifying accountant.

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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 III
(a California limited partnership)
Registrant

Del Taco, Inc.
General Partner

Date: November 14, 2002 /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 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

-14- EX-99.1 3 a85963exv99w1.htm EXHIBIT 99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin K. Moriarty, Director, Chairman and Chief Executive Officer of Del Taco Restaurant Properties III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Del Taco Restaurant Properties III;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002   /s/ Kevin K. Moriarty
Kevin K. Moriarty
Director, Chairman and
Chief Executive Officer

-2- EX-99.2 4 a85963exv99w2.htm EXHIBIT 99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert J. Terrano, Executive Vice President and Chief Financial Officer of Del Taco Restaurant Properties III, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Del Taco Restaurant Properties III;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

d)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
e)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
f)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

c)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
d)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 /s/ Robert J. Terrano
Robert J. Terrano
Executive Vice President,
Chief Financial Officer

-2- EX-99.3 5 a85963exv99w3.htm EXHIBIT 99.3

Exhibit 99.3

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18,
UNITED STATES CODE)

In connection with the Quarterly Report of Del Taco Restaurant Properties III (the “Company”) on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2002 /s/ Kevin K. Moriarty
Kevin K. Moriarty
Director, Chairman and
Chief Executive Officer

Date: November 14, 2002 /s/ Robert J. Terrano
Robert J. Terrano
Executive Vice President,
Chief Financial Officer

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EX-99.1

Exhibit 99.1

EX-99.2

Exhibit 99.2

EX-99.3

Exhibit 99.3