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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 September 30, 2011

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. 0-16851

DEL TACO RESTAURANT PROPERTIES III

(A California limited partnership)

(Exact name of registrant as specified in its charter)

 

California   33-0139247

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

25521 Commercentre Drive

Lake Forest, California

 

92630

(Zip Code)

(Address of principal executive offices)  

(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   Smaller reporting company  ¨
    (Do not check if a 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 III

 

     PAGE NUMBER  

PART I. FINANCIAL INFORMATION

  

Item 1. Financial Statements

  

Condensed Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010

     3   

Condensed Statements of Income for the three and nine months ended September  30, 2011 and 2010 (Unaudited)

     4   

Condensed Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)

     5   

Notes to Condensed Financial Statements (Unaudited)

     6   

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

     10   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     12   

Item 4. Controls and Procedures

     12   

PART II. OTHER INFORMATION

  

Item 6. Exhibits

     14   

SIGNATURE

     15   

 

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Table of Contents

PART I.    FINANCIAL INFORMATION

ITEM I.    FINANCIAL STATEMENTS

DEL TACO RESTAURANT PROPERTIES III

CONDENSED BALANCE SHEETS

 

     September 30,
2011
    December 31,
2010
 
     (Unaudited)        
ASSETS   

CURRENT ASSETS:

    

Cash

   $ 313,520      $ 309,131   

Receivable from Del Taco LLC

     75,024        88,135   

Insurance receivable

     140,683        —     

Asset held for sale

     545,064        —     

Other current assets

     1,799        2,440   
  

 

 

   

 

 

 

Total current assets

     1,076,090        399,706   
  

 

 

   

 

 

 

RESTRICTED CASH

     86,017        86,017   
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

    

Land

     3,284,629        3,829,693   

Land improvements

     494,254        576,273   

Buildings and improvements

     2,534,393        2,954,959   

Machinery and equipment

     1,306,171        1,522,922   
  

 

 

   

 

 

 
     7,619,447        8,883,847   

Less—accumulated depreciation

     3,517,283        4,037,633   
  

 

 

   

 

 

 
     4,102,164        4,846,214   
  

 

 

   

 

 

 
   $ 5,264,271      $ 5,331,937   
  

 

 

   

 

 

 
LIABILITIES AND PARTNERS’ EQUITY   

CURRENT LIABILITIES:

    

Payable to limited partners

   $ 68,378      $ 62,605   

Accounts payable

     35,672        14,543   
  

 

 

   

 

 

 

Total current liabilities

     104,050        77,148   
  

 

 

   

 

 

 

OBLIGATION TO GENERAL PARTNER

     577,510        577,510   
  

 

 

   

 

 

 

PARTNERS’ EQUITY:

    

Limited partners; 47,261 units outstanding at September 30, 2011and December 31, 2010

     4,632,297        4,725,920   

General partner-Del Taco LLC

     (49,586     (48,641
  

 

 

   

 

 

 
     4,582,711        4,677,279   
  

 

 

   

 

 

 
   $ 5,264,271      $ 5,331,937   
  

 

 

   

 

 

 

See accompanying notes to condensed financial statements.

 

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Table of Contents

DEL TACO RESTAURANT PROPERTIES III

CONDENSED STATEMENTS OF INCOME

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

RENTAL REVENUES

   $ 254,668       $ 267,525       $ 760,029       $ 777,287   
  

 

 

    

 

 

    

 

 

    

 

 

 

EXPENSES:

           

General and administrative

     52,578         13,673         107,017         64,243   

Depreciation

     18,103         28,310         58,303         84,930   
  

 

 

    

 

 

    

 

 

    

 

 

 
     70,681         41,983         165,320         149,173   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     183,987         225,542         594,709         628,114   

OTHER INCOME (EXPENSE):

           

Interest

     124         130         370         387   

Other

     1,450         425         3,225         2,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 185,561       $ 226,097       $ 598,304       $ 630,501   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per limited partnership unit (Note 3)

   $ 3.89       $ 4.74       $ 12.53       $ 13.21   
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of units used in computing per unit amounts

     47,261         47,261         47,261         47,261   
  

 

 

    

 

 

    

 

 

    

 

 

 

See accompanying notes to condensed financial statements.

 

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Table of Contents

DEL TACO RESTAURANT PROPERTIES III

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 598,304      $ 630,501   

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

    

Depreciation

     58,303        84,930   

Changes in operating assets and liabilities:

    

Receivable from Del Taco LLC

     13,111        700   

Other current assets

     641        (411

Payable to limited partners

     5,773        (7,737

Accounts payable

     21,129        5,188   
  

 

 

   

 

 

 

Net cash provided by operating activities

     697,261        713,171   

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Cash distributions to partners

     (692,872     (704,838
  

 

 

   

 

 

 

Net decrease in cash

     4,389        8,333   

Beginning cash balance

     309,131        321,805   
  

 

 

   

 

 

 

Ending cash balance

   $ 313,520      $ 330,138   
  

 

 

   

 

 

 

Supplemental disclosure of noncash investing activities:

In connection with the total casualty loss of a restaurant (see Note 9), property and equipment of $719,336 and accumulated depreciation of $578,653 were written off and a corresponding insurance receivable of $140,683 was recorded. Additionally, $545,064 of property and equipment was reclassified as asset held for sale.

See accompanying notes to condensed financial statements.

 

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Table of Contents

DEL TACO RESTAURANT PROPERTIES III

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

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, 2010 for Del Taco Restaurant Properties III (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 September 30, 2011, the results of operations for the three and nine month periods ended September 30, 2011 and 2010 and cash flows for the nine month periods ended September 30, 2011 and 2010 have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. Amounts related to disclosure of December 31, 2010 balances within these condensed financial statements were derived from the audited 2010 financial statements.

Management has evaluated events subsequent to September 30, 2011 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 – RESTRICTED CASH

At September 30, 2011 and December 31, 2010, the Partnership had a restricted cash balance of $86,017. The restricted cash results from a death and disability fund that the Company is required to maintain under the terms of the Partnership agreement. 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 on net income attributable to the limited partners (after 1% allocation to the general partner) using the weighted average number of units outstanding during the periods presented which amounted to 47,261 in 2011 and 2010.

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

 

-6-


Table of Contents

DEL TACO RESTAURANT PROPERTIES III

NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

UNAUDITED

 

NOTE 3 – NET INCOME PER LIMITED PARTNERSHIP UNIT – Continued

 

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.

NOTE 4 – 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 2022 to 2024. Pursuant to the lease agreements, minimum rentals of $3,500 per month are due to the Partnership during the first nine months of any non-operating period caused by an insured casualty loss (see Note 9).

For the three months ended September 30, 2011, the nine restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $2,034,740 and unaudited net income of $15,197, as compared to $2,229,375 and unaudited net income of $25,363 for the corresponding period in 2010. 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. The decrease in net income from the corresponding period of the prior year primarily relates to the decrease in sales partially offset by the decrease in operating expenses both of which were primarily due to the loss of Unit 218 (see Note 9).

For the nine months ended September 30, 2011, the nine restaurants operated by Del Taco, for which the Partnership is the lessor, had combined, unaudited sales of $6,189,625 and unaudited net losses of $16,452, as compared to $6,477,390 and unaudited net losses of $30,825 for the corresponding period in 2010. 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. The decrease in net losses from the corresponding period of the prior year primarily relates to a decrease in operating expenses compared to the prior year, partially offset by the decrease in sales due to the loss of Unit 218 (see Note 9).

NOTE 5 – TRANSACTIONS WITH DEL TACO

The receivable from Del Taco consists primarily of rent accrued for the month of September 2011. The September rent receivable was collected in October 2011.

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 6 with respect to certain distributions to the General Partner.

 

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Table of Contents

DEL TACO RESTAURANT PROPERTIES III

NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

UNAUDITED

 

NOTE 6 – DISTRIBUTIONS

Total cash distributions declared and paid in January, April and August 2011 were $241,842, $222,968 and $228,062, respectively. On October 25, 2011, a distribution to the limited partners of $238,052, or approximately $5.03 per limited partnership unit, was declared. Such distribution was paid on November 3, 2011. The General Partner also received a distribution of $2,405 with respect to its 1% partnership interest.

NOTE 7 – 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 8 – CONCENTRATION OF RISK

The nine 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 nine months ended September 30, 2011 and 2010. 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. The cash balance is in excess of the Federal Depository Insurance Corporation’s limits. At September 30, 2011 and December 31, 2010, the Partnership had approximately $422,000 and $411,000, respectively, on deposit at one financial institution.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

On May 3, 2011, an automobile accident and ensuing fire resulted in a total casualty loss of the Plaza at Puente Hills restaurant in Industry, California (Unit 218). The restaurant has not conducted any operations since that date. Unit 218 is operated by Del Taco on real property and improvements owned by the Partnership and leased to Del Taco under a standard lease dated February 24, 1988 between Del Taco and the Partnership, as amended (the Lease). The Lease provides for rental payments equal to 12% of the gross sales (as defined in the Lease) at Unit 218. During the nine months ended September 30, 2011, and the years 2010, 2009 and 2008, the annual 12% rental paid to the Partnership was $42,127, $74,052, $78,647, $81,273 or $0.891, $1.551, $1.647, $1.702 per Partnership unit (unaudited), respectively. The Lease does not provide for any minimum rent, except for rental value insurance of $3,500 per month for six months in the event of casualty loss and loss of rental income. The Lease expires on February 28, 2023.

 

-8-


Table of Contents

DEL TACO RESTAURANT PROPERTIES III

NOTES TO CONDENSED FINANCIAL STATEMENTS – CONTINUED

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011

UNAUDITED

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES – Continued

 

As required by the Lease, Del Taco maintained fire and casualty insurance covering Unit 218 with Commonwealth Insurance. The carrier has confirmed coverage. In the case of total destruction of the improvements from any cause covered by the insurance (as occurred here), the Lease provides that Del Taco is obligated to repair the improvements upon receipt of the net insurance proceeds. Del Taco’s obligation to repair is not limited to the net insurance proceeds.

Del Taco, as the General Partner, with certain exceptions, has the sole and exclusive right to manage the business of the Partnership. This right includes, specifically, the right to operate, construct or sell any personal and real property owned by the Partnership. Due to Unit 218’s historical financial underperformance relative to an average Del Taco unit and Del Taco’s obligation to repair the improvements above and beyond the net insurance proceeds, Del Taco, as the lessee under the Lease and as the operator of Unit 218, has a material financial interest in the disposition of that restaurant. Due to the presence of such material financial interest, it appears that Del Taco has a conflict of interest in the determination of the ultimate course of action.

Section 5.8.3 of the Partnership Agreement provides that, if the General Partner believes it is unable to resolve a conflict of interest, it is authorized to describe the relevant facts and submit alternatives to the Limited Partners for their vote, who may then vote on the alternatives or choose another alternative.

As such, the General Partner requested a vote on a proposal to sell the land, retain the net insurance proceeds and distribute all such proceeds in a special distribution to the limited partners. If the proposal was not adopted, the General Partner would be required to rebuild and continue operating the unit. Based on an analysis performed by management, the General Partner recommended that the financial interests of the Partnership and the Limited Partners would be best served to sell the land, retain the net insurance proceeds and distribute all such proceeds in a special distribution to the limited partners.

As such, Del Taco filed a definitive proxy statement with the Securities and Exchange Commission (the SEC) on August 29, 2011. The result of such vote was determined in September 2011 and authorized the General Partner to sell the land, retain the net insurance proceeds and distribute all such proceeds in a special distribution to the limited Partners. A broker has been retained and the property is being actively marketed. As such, the carrying value of the property has been classified as asset held for sale at September 30, 2011.

The Partnership has impaired the property and equipment associated with Unit 218, which resulted in a $140,683 impairment loss in the financial statements. This loss was entirely offset by expected insurance proceeds for a net impairment loss of zero. Any remaining net insurance proceeds represent a potential gain contingency and will be recorded as those contingencies are resolved.

The operating results of Unit 218 were not deemed significant to the overall financials to qualify for discontinued operations reporting.

NOTE 10 – COMMUNICATION FROM CERTAIN LIMITED PARTNERS

During the third quarter several limited partners communicated to the General Partner their desire to sell all of the properties and then dissolve the Partnership. Pursuant to the Partnership agreement, any decision to sell all of the properties and to dissolve the Partnership would require approval from a majority in interest of limited partners. The General Partner will consider what action is appropriate under the circumstances.

 

-9-


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

Communication from Certain Limited Partners

During the third quarter several limited partners communicated to the General Partner their desire to sell all of the properties and then dissolve the Partnership. Pursuant to the Partnership agreement, any decision to sell all of the properties and to dissolve the Partnership would require approval from a majority in interest of limited partners. The General Partner will consider what action is appropriate under the circumstances.

Liquidity and Capital Resources

Del Taco Restaurant Properties III (the Partnership or the Company) offered limited partnership units for sale between February 1986 and June 1987. $12 million was raised through the sale of limited partnership units and used to acquire sites and build ten restaurants and also to pay commissions to brokers and to reimburse Del Taco LLC (the General Partner or Del Taco) for offering costs incurred. 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 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.

As described in Note 2 to the Notes to the Financial Statements, the Partnership has a death and disability redemption fund totaling $86,017 at September 30, 2011. 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 (unaudited):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Rancho California Plaza, Rancho California, CA

   $ 43,751       $ 44,258       $ 127,943       $ 129,436   

East Vista Way, Vista, CA

     27,130         26,393         79,433         76,580   

Plaza at Puente Hills, Industry, CA

     10,500         19,043         42,127         55,199   

4th Street, Perris, CA

     28,621         31,413         85,678         91,288   

Foothill Blvd., Upland, CA

     30,016         31,637         89,008         91,414   

East Valley Blvd., Walnut, CA

     19,194         19,276         55,570         56,682   

Lassen Street, Chatsworth, CA

     37,879         37,616         109,246         110,116   

Hesperia Road, Victorville, CA

     35,491         36,007         105,927         103,676   

W. Sepulveda Blvd., Los Angeles, CA

     22,086         21,882         65,097         62,896   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 254,668       $ 267,525       $ 760,029       $ 777,287   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

-10-


Table of Contents
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 $254,668 during the three month period ended September 30, 2011, which represents a decrease of $12,857 from the corresponding period in 2010. The Partnership earned rental revenue of $760,029 during the nine month period ended September 30, 2011, which represents a decrease of $17,258 from the corresponding period in 2010. The changes in rental revenues between 2010 and 2011 are directly attributable to changes in sales levels at the restaurants under lease due to local competitive and industry factors and the loss of Unit 218 (see Note 9).

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

 

     Percent of Total  
     General & Administrative Expense  
     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Accounting fees

     29.11     55.75     50.21     68.83

Distribution of information to limited partners

     61.38     44.25     45.12     31.17

Appraisal cost on Unit 218

     9.51     0.00     4.67     0.00
  

 

 

   

 

 

   

 

 

   

 

 

 
     100.00     100.00     100.00     100.00
  

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative costs increased during the three month and nine month periods from 2010 to 2011 primarily due to direct costs related to the fire at Unit 218 and the resulting definitive proxy statement, (see Note 9), including the cost of an appraisal, accounting, audit, legal and printing and distribution costs, as well as additional printing costs related to a new filing process known as XBRL. Depreciation expense decreased as certain buildings and improvements became fully depreciated as well as due to the loss of unit 218 (see Note 9).

For the three month period ended September 30, 2011, net income decreased by $40,536 from 2010 to 2011 due to the decrease in revenues of $12,857 and the increase in general and administrative expenses of $38,905, offset by the increase in interest and other income of $1,019 and the decrease in depreciation expense of $10,207. For the nine month period ended September 30, 2011, net income decreased by $32,197 from 2010 to 2011 due to the decrease in revenues of $17,258 and the increase in general and administrative expenses of $42,774, offset by the increase in interest and other income of $1,208 and the decrease in depreciation expense of $26,627.

Recent Accounting Pronouncements

None

Off-Balance Sheet Arrangements

None

 

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Table of Contents
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, 2010 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.

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.

 

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Item 4. Controls and Procedures – continued

 

  (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

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.

 

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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 III
      (a California limited partnership)
      Registrant
      Del Taco LLC
      General Partner
Date: November 14, 2011       /s/ Steven L. Brake
      Steven L. Brake
      Chief Financial Officer
      (Principal Financial Officer)

 

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