SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT UNDER SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 0-16720
Commission file number 0-16721
PARTICIPATING INCOME PROPERTIES 1986, L.P.
AND
FFCA INVESTOR SERVICES CORPORATION 86-B
---------------------------------------
(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0570015
----------------------------------- -------------------------
(Partnership State of Organization) (Partnership IRS Employer
Identification No.)
Delaware 86-0557949
------------------------------------ -------------------------
(Corporation State of Incorporation) (Corporation IRS Employer
Identification No.)
The Perimeter Center 85255
17207 North Perimeter Drive ----------
Scottsdale, Arizona (Zip Code)
- ----------------------------------------
(Address of Principal Executive Offices)
Co-Registrants' telephone number, including area code: (602) 585-4500
<PAGE>
PART I
Item 1. Business.
Participating Income Properties 1986, L.P., a Delaware limited
partnership (the "Partnership"), was organized on June 23, 1986 under the
Delaware Revised Uniform Limited Partnership Act. The Partnership serves as a
co-general partner of FFCA/PIP 1986 Property Company, a Delaware general
partnership (the "Company"), which was organized to acquire new and existing
travel plazas, including land, buildings and equipment, to be leased to Flying J
Inc. and to franchisees of Flying J Franchise Inc. The other co-general partner
of the Company is Perimeter Center Management Company ("PCMC"). The Partnership
invests in the travel plazas through the Company to avoid burdensome state
filing requirements. The Partnership is entitled to 99.9% of all of the profits,
losses and disbursable cash of the Company. Under the terms of the First
Restated Agreement of Partnership of the Company, PCMC is entitled to the
remaining 0.1% of the profits, losses and disbursable cash of the Company. The
general partner of the Partnership is FFCA Management Company Limited
Partnership, a Delaware limited partnership (the "General Partner").
FFCA Investor Services Corporation 86-B, a Delaware corporation and
wholly-owned subsidiary of PCMC, which is the corporate general partner of the
General Partner, was incorporated on June 23, 1986, to serve as the assignor and
initial limited partner of the Partnership and the owner of record of the
limited partnership interests in the Partnership. The limited partnership
interests are assigned by FFCA Investor Services Corporation 86-B to investors
in the Partnership. FFCA Investor Services Corporation 86-B conducts no other
business activity. The Partnership and FFCA Investor Services Corporation 86-B
are referred to collectively as the "Co-Registrants."
The statements contained in this report, if not historical, are
forward-looking statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated" or "expected". Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results or occurrences.
On October 10, 1986, the Co-Registrants commenced a public offering of
$75,000,000 in limited partnership depository units (the "Units") in the
Partnership pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended. The Co-Registrants sold a total of 51,687
Units to investors at $1,000 per Unit for a total of $51,687,000. Purchasers of
the Units (the "Holders") acquired the following number of Units from FFCA
Investor Services Corporation 86-B on each of the following dates: 19,865 Units
on January 15, 1987; and 31,822 Units on April 16, 1987. Subsequent to that
date, no Holder has made any additional capital contribution. The Holders share
in the benefits of ownership of the Partnership's assets,
<PAGE>
including its interest in the Company's real and personal property investments,
according to the number of Units held, in substantially the same manner as
limited partners of the Partnership.
After deducting organizational and offering expenses, including sales
commissions, the net proceeds of the offering of the Units, $45,613,778, were
fully invested by the Partnership, through its investment in the Company, as of
September 1988, in eleven "Flying J Travel Plazas" located in nine states.
"Flying J Travel Plaza" facilities offer a full-service operation, generally
including fuel facilities, a restaurant, convenience store and other amenities
for use by the trucking industry and traveling public in general. As of August
25, 1997, eight of the travel plazas owned by the Partnership were leased to CFJ
Properties, a general partnership formed pursuant to a joint venture between
Flying J Inc., through its subsidiary, Big West Oil Company ("Big West"), and
Douglas Oil Company of California, a subsidiary of Conoco Inc. ("Douglas Oil"),
one of the travel plazas was leased to Flying J Inc. and the remaining two were
leased to franchisees of Flying J Franchise Inc. ("FJFI"), a subsidiary of
Flying J Inc. and the franchisor of Flying J Travel Plazas. The Partnership and
the Company are not affiliated with CFJ Properties, Flying J Inc. or FJFI.
The Partnership's principal objectives through its investment in the
Company are to (i) preserve, protect and enhance Partnership capital, (ii)
provide partially tax-sheltered cash distributions to investors, (iii) provide
the potential for increased income and protection against inflation through
participation in the gross revenues of Flying J Travel Plaza facilities and (iv)
obtain long-term appreciation in the value of its properties through real estate
ownership.
Real estate owned by the Company is generally leased for a term of 20
years. Equipment is generally leased for a term of eight years. Of the two
equipment leases remaining at December 31, 1996, one will expire and the related
equipment is anticipated to be sold to the lessee in January 1998 and the other
lease is not subject to a purchase option. Lessees must generally pay the
Company annual rental payments (in monthly installments) equal to 10% of the
Company's total investment in properties. As additional rent under the terms of
the lease, the Company is entitled to receive a portion of the operating
revenues of the lessees equal to (i) 4% of annual gross receipts derived from
the travel plaza facility, excluding fuel sales, (ii) 3/10 of $.01 per gallon of
fuel sold and (iii) 4% of all amounts received by the lessee for any lease year
pursuant to any sublease by the lessee of any part of its leased premises.
Reference is made to Note (3) of the Notes to Financial Statements filed with
this Report for a schedule of the minimum future lease payments to be received
by the Company on its properties.
The Partnership is dependent upon CFJ Properties, its principal lessee,
since an adverse change in its financial condition could materially affect its
ability to make lease payments. During 1996, CFJ Properties and Flying J Inc.
together contributed approximately 88% of the Company's total rental and
participating rental revenue for the year and are expected to contribute a
similar percentage of revenue in 1997.
2
<PAGE>
On February 1, 1991, Flying J Inc., through its subsidiary Big West,
entered into a joint venture with Douglas Oil to form CFJ Properties. Flying J
Inc. (and subsidiaries) is a fully integrated oil and gas company that is
engaged in the production, refining, transportation, wholesaling and retail
marketing of petroleum products and other services through its travel plazas and
gasoline stations. CFJ Properties is the franchisor and operator of the Flying J
Inc. network of interstate travel plazas, which included 72 properties as of
January 31, 1997. The Company owns eight of these properties. Under the terms of
the joint venture, Big West sold to Douglas Oil certain Flying J Travel Plazas,
which Douglas Oil contributed back to CFJ Properties. In addition to this
initial contribution, Douglas Oil also made additional contributions to CFJ
Properties. As its initial contribution, Big West transferred to CFJ Properties
certain leasehold interests and Flying J Travel Plazas, and subsequently
contributed to CFJ Properties various assets including working capital,
inventories and future development sites. With the exception of the Butte,
Montana travel plaza, Flying J Inc. assigned its leasehold interests in the
travel plazas owned by the Company to CFJ Properties and was released by the
Company with respect to its obligations under those leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constitutes a default on all other leases to the same
lessee by the Partnership and two other partnerships sponsored by affiliates of
the General Partner, all of whose travel plazas are leased to CFJ Properties,
Flying J Inc. or franchisees of FJFI.
For the fiscal year ended January 31, 1997, CFJ Properties reported net
income of $1.8 million on revenues of $1.2 billion. Revenues rose 25% from
$937.4 million the prior year. The higher revenues resulted from the opening of
six new units and increases in fuel prices. Net income decreased from $17.2
million in the prior year due to higher interest expense and lower gross profit
margins.
During the fiscal year ended January 31, 1997, CFJ Properties reported
$22.3 million in net cash provided by operating activities. This cash, along
with the cash provided by financing activities, was used to make capital
expenditures. As of January 31, 1997, CFJ Properties reported cash balances of
approximately $2.1 million, with liquidity supported by net cash provided by
operating activities and a $150 million revolving line of credit with a bank. As
of January 31, 1997, CFJ Properties reported partners' capital of $139.5 million
and total assets of $412.9 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which expire at various dates over the next 10 to 16 years.
Payments under these leases were $17.3 million in 1997 and $17.6 million in
1996, including percentage lease payments. Future minimum annual rent
obligations under non-cancelable leases, as projected through 2002, remain
comparable to 1997 expense amounts.
3
<PAGE>
The nine properties operated by CFJ Properties and Flying J Inc.
generated a combined fuel and non-fuel gross profit (including other income) of
approximately $24.4 million during the fiscal year ended January 31, 1997 as
compared to $26.8 million in 1996. Total travel plaza unit-level income for
these nine properties (before depreciation and allocated corporate overhead)
totaled approximately $700,000 in 1997 with three of the nine properties
reporting positive unit-level income. The remaining six properties reported net
losses primarily due to lower total gross profits. The combined result of the
travel plaza unit-level income before depreciation and allocated corporate
overhead was down from $2.8 million in the prior year due largely to CFJ's
curtailment of its relationship with Comdata on June 1, 1996. Comdata, a large
third party billing company for the trucking industry, requested changes to its
contract which were unacceptable to CFJ's management due to the significant
long-term ramifications of Comdata's proposed change on CFJ's future business.
CFJ's management believes that CFJ's profitability will stabilize within the
next few months. For CFJ Properties' fiscal year ended January 31, 1997, the
average unit-level base and participating rents approximated 14.1% of the
original cost of these properties.
Those properties that each represent over 10% of the Partnership's
total assets are located in Amarillo, Texas; Clive, Iowa and Cheyenne, Wyoming.
The travel plaza/truckstop industry, although highly fragmented, is
highly competitive. The Partnership's lessees are competing with, among others,
National Auto/Truckstops, Petro and Pilot Corporation, as well as other
national, regional and local truckstop operators, some of which may have
substantially greater financial resources than the lessees. The Partnership's
lessees also compete with other entities which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the Company offer a full-service operation, generally including fuel
facilities, a restaurant, a convenience store and other amenities for use by the
trucking industry and traveling public in general. Flying J Inc. reports that
the Flying J Travel Plaza network consists of more than 100 facilities across
the U.S. interstate highway system. The travel plaza sites have been selected
based on traffic patterns and volumes, and access to interstate highways, among
other criteria.
According to the American Trucking Association, the trucking industry
grosses more than $340 billion annually, representing 78% of the nation's
freight bill. The 20 million commercial trucks registered in the United States
consume approximately 39 billion gallons of fuel annually. The Partnership
believes that the trucking industry is sensitive to certain aspects of the
general economic environment, such as retail sales; the level, direction and
rate of change in inventories; international trade; vendor performance; the cost
and availability of fuel; labor issues; and technology. The trucking industry is
also affected by various government policies, including economic regulations;
vehicle size and weight regulations; and health, safety and
4
<PAGE>
environmental protection regulations. These factors also may influence the
competitive posture of one mode of transportation compared to others; however,
the trucking industry has presented itself as an affordable and timely
alternative to other methods of transportation such as air freight and rail,
particularly for short hauls.
Through ownership of the travel plazas, the Partnership and the Company
are subject to the risks associated with the underground storage of petroleum
products such as gasoline. In this regard, the Partnership's lessees are subject
to various federal, state and local regulations and environmental laws. These
laws and regulations affect the storing, dispensing and discharge of petroleum
and other wastes and affect the lessees both in the securing of permits for
fueling operations and in the ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("UST's") that require the Partnership's
lessees to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act requires the
Environmental Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection, prevention and cleanup of leaking UST's. Regulations
enacted by the EPA in 1988 established requirements for (i) installing UST
systems; (ii) upgrading UST systems; (iii) taking corrective action in response
to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi)
maintaining evidence of financial responsibility for taking corrective action
and compensating third parties for bodily injury and property damage resulting
from releases. These regulations permit states to develop, administer and
enforce their own regulatory programs, incorporating requirements which are at
least as stringent as the federal standards. By 1998, all UST's must be
corrosion protected, overfill/spill protected and have leak detection. These
environmental laws impose strict liability for owners and operators of faulty
and leaking storage tanks resulting in damage to the environment or third
parties.
The General Partner has taken steps to (i) ensure that the lessees
comply with applicable rules and regulations; (ii) mitigate any potential
liabilities, including the establishment of storage tank monitoring procedures;
and (iii) require that lessees indemnify the Partnership for all such
liabilities and obtain liability insurance, if reasonably available. The General
Partner requires each lessee to obtain an annual environmental audit, performed
by an environmental consulting and engineering firm, which includes the
following procedures, among others: month-end cumulative fuel inventory variance
analysis; tank tightness tests; automatic tank gauging and leak detection system
operation and calibration tests; UST excavation zone groundwater and/or soil
vapor monitoring well analysis; piping system tightness tests; piping excavation
zone ground water and/or soil vapor monitoring well analysis; pipe leak detector
inspection and calibration tests; corrosion protection system tests; on-site
sanitary sewer treatment plant effluent analysis; and oil/water separator
inspections. The consulting and engineering firm hired by the General Partner to
conduct such audits also reviews on-site environmental correspondence; visually
inspects the UST system, tank and piping excavation zone monitoring wells, areas
adjacent to all
5
<PAGE>
petroleum above-ground tanks, the stormwater and wastewater control systems, and
the travel plaza facility; and discusses employee training procedures, recent
significant environmental events (if any), repair and maintenance activities,
and regulatory compliance with travel plaza personnel.
The Partnership believes that its lessees are in compliance with all
applicable regulatory requirements and that its lessees have all governmental
licenses and permits required for their business operations. Management knows of
no pending or threatened proceedings or investigations under federal or state
environmental laws; however, management cannot predict the impact on the
Partnership's lessees of new governmental regulations and requirements. Although
the General Partner has taken necessary steps, as discussed above, to ensure
lessee compliance with environmental regulations, there can be no assurance that
significant cleanup or compliance costs may not be incurred which may affect the
lessees' ability to make their scheduled lease payments to the Partnership.
The Partnership, through its investment in the Company, has invested in
real estate located in nine states in the western and central portions of the
United States, and no real estate investments are located outside of the United
States. A presentation of revenues or assets by geographic region is not
applicable and would not be material to an understanding of the Partnership's
business taken as a whole.
The Partnership does not believe that any aspect of its business is
significantly seasonal in nature.
No portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States Government. The Partnership does not manufacture any products and
therefore does not require any raw materials in order to conduct its business.
The Partnership is managed by the General Partner and therefore has no
employees of its own. FFCA Investor Services Corporation 86-B has no employees
because it does not conduct any business operations.
6
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements.
The Partnership and the Company
Report of independent public accountants
Consolidated Balance Sheets as of December 31, 1996
and 1995
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Partners'
Capital for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
FFCA Investor Services Corporation 86-B
Report of independent public accountants
Balance Sheet as of December 31, 1996
Notes to Balance Sheet
CFJ Properties
(A General Partnership)
Independent Auditors' Report
Balance Sheets as of January 31, 1997 and 1996
Statements of Income and Partners' Capital for the
years ended January 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended January 31, 1997,
1996 and 1995
Notes to Financial Statements
Clive Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1997, 1996 and 1995
7
<PAGE>
Statements of Cash Flows for the years ended January 31, 1997,
1996 and 1995
Note to Financial Statements
Amarillo Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended January 31, 1997,
1996 and 1995
Note to Financial Statements
Cheyenne Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended January 31, 1997,
1996 and 1995
Note to Financial Statements
2. Financial Statement Schedules.
Schedule III-Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1996
All other schedules are omitted since they are not
required, are inapplicable, or the required
information is included in the financial
statements or notes thereto.
3. Exhibits.
99. Annual Portfolio Valuation of Cushman & Wakefield as
of December 31, 1996.
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following document, filed with
the Securities and Exchange Commission as Exhibit 4 to the
Co-Registrants' Form 10-K for the fiscal year ended December
31, 1989, is incorporated herein by this reference.
8
<PAGE>
Second Amended and Restated Certificate and Agreement
of Limited Partnership which governs the Partnership,
as filed with the Secretary of State of Delaware on
April 16, 1987.
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following documents, filed with
the Securities and Exchange Commission as exhibits to the
Co-Registrants' Form 10-K for the fiscal year ended December
31, 1986, are incorporated herein by this reference.
<TABLE>
<CAPTION>
1986 Form 10-K
Exhibit No.
-----------
<S> <C> <C>
Depository Agreement of the Partnership. 3-C
The Certificate of Incorporation which governs FFCA
Investor Services Corporation 86-B, as filed with the 3-D
Secretary of State of Delaware on June 23, 1986.
Bylaws of FFCA Investor Services Corporation 86-B. 3-E
</TABLE>
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following document, filed with
the Securities and Exchange Commission on October 8, 1986 as
Exhibit 10(e) to the Co-Registrants' Pre-Effective Amendment
No. 1 to the Registration Statement, is incorporated herein by
this reference.
Operating Agreement, dated October 7, 1986, by and
among FFCA Management Company, L.P., FFCA/PIP 1986
Property Company, Flying J Inc. and Flying J
Franchise Inc.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the
Co-Registrants during the last quarter of the fiscal
year ended December 31, 1996.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the co-registrants have duly caused this amendment to be signed on their behalf
by the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES 1986, L.P.
By: FFCA MANAGEMENT COMPANY LIMITED
PARTNERSHIP, General Partner
Date: September 17, 1997 By: /s/ Morton H. Fleischer
--------------------------------------
Morton H. Fleischer, General Partner
By: PERIMETER CENTER MANAGEMENT
COMPANY, Corporate General Partner
Date: September 17, 1997 By: /s/ Morton H. Fleischer
--------------------------------------
Morton H. Fleischer, President and
Chief Executive Officer
FFCA INVESTOR SERVICES CORPORATION 86-B
Date: September 17, 1997 By: /s/ John Barravecchia
--------------------------------------
John Barravecchia, President,
Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer
<PAGE>
Independent Auditors' Report
================================================================================
The Board of Directors
CFJ Properties:
We have audited the accompanying balance sheets of CFJ Properties (a general
partnership) as of January 31, 1997 and 1996, and the related statements of
income and partners' capital and cash flows for each of the years in the
three-year period ended January 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CFJ Properties as of January
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 31, 1997
1
<PAGE>
Balance Sheets
CFJ PROPERTIES
(A General Partnership)
January 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,138 $ 2,314
Trade receivables, net of allowance for doubtful accounts of
of $129 in 1997 and $165 in 1996 (note 8) 11,400 11,836
Inventories (note 2) 20,308 15,832
Prepaid expenses 2,141 2,229
-------- --------
Total current assets 35,987 32,211
-------- --------
Land, buildings, and equipment:
Land and improvements 129,270 111,053
Buildings 145,875 119,632
Equipment 105,561 86,939
Leasehold improvements 24,317 24,494
Construction-in-progress 29,454 33,687
-------- --------
434,477 375,805
Less accumulated depreciation and amortization 58,932 40,095
-------- --------
Net land, buildings, and equipment 375,545 335,710
Long-term notes receivable 395 535
Other assets (note 3) 957 930
-------- --------
$412,884 $369,386
======== ========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable (note 8) $ 58,395 $ 48,313
Accrued liabilities (notes 4 and 8) 20,995 23,466
-------- --------
Total current liabilities 79,390 71,779
Long-term debt (note 5) 190,000 156,500
Other liabilities 4,016 3,409
-------- --------
Total liabilities 273,406 231,688
-------- --------
Partners' capital 139,478 137,698
Commitments and contingencies (notes 5, 6 and 10)
-------- --------
$412,884 $369,386
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Statements of Income and Partners' Capital
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Sales (note 1(f)) $ 1,171,813 $ 937,370 $ 703,430
Cost of sales 985,377 755,852 563,519
----------- ----------- -----------
Gross profit 186,436 181,518 139,911
----------- ----------- -----------
Operating, general, and administrative expense:
Operating 162,236 145,959 112,882
General and administrative 11,732 11,753 9,533
----------- ----------- -----------
173,968 157,712 122,415
----------- ----------- -----------
Income from operations 12,468 23,806 17,496
----------- ----------- -----------
Other income (expense):
Interest income 134 93 147
Interest expense, net (10,659) (6,642) (1,483)
Loss on sale of fixed assets, net (163) (52) (19)
----------- ----------- -----------
(10,688) (6,601) (1,355)
----------- ----------- -----------
Net income 1,780 17,205 16,141
Partners' capital, beginning of year 137,698 120,493 104,352
----------- ----------- -----------
Partners' capital, end of year $ 139,478 $ 137,698 $ 120,493
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Statements of Cash Flows
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,780 $ 17,205 $ 16,141
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,080 14,933 9,827
Provision for losses on accounts receivable 0 0 51
Loss on sale of fixed assets 163 52 19
Change in assets and liabilities:
Receivables 436 (3,803) (1,302)
Inventories (4,476) (3,034) (4,065)
Prepaid expenses 88 (1,025) (164)
Other assets (106) (128) 1,636
Accounts payable and accrued liabilities 4,723 8,817 16,713
Other liabilities 607 2,739 268
--------- --------- ---------
Net cash provided by operating activities 22,295 35,756 39,124
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (note 8) (56,111) (104,107) (90,258)
Note receivable funded 140 (535) 0
--------- --------- ---------
Net cash used in investing activities (55,971) (104,642) (90,258)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable 0 25,000 75,000
Net proceeds (payments) under line of credit agreements 33,500 44,500 (29,000)
--------- --------- ---------
Net cash provided by financing activities 33,500 69,500 46,000
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (176) 614 (5,134)
Cash and cash equivalents, beginning of year 2,314 1,700 6,834
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,138 $ 2,314 $ 1,700
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of capitalized amounts $ 10,854 $ 6,387 $ 916
Supplemental Disclosure of Noncash Investing Activities
The capital expenditures noted above are net of accounts
payable increases (decreases) related to the acquisiton of
building and equipment of $2,888, ($4,403), and $2,477 in
1997, 1996, and 1995, respectively.
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Notes to Financial Statements
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
The following significant accounting policies are followed by CFJ Properties
(the Partnership) in preparing and presenting its financial statements:
(a) Organization and Line of Business - The Partnership is a Utah general
partnership with its principal business being the development and operation of a
national network of interstate travel plazas in North America. A typical travel
plaza offers a 24-hour service operation which includes fuel facilities, a
restaurant or deli, convenience store, and other amenities designed to meet the
needs of the trucking industry and traveling public. Some travel plazas include
lodging and truck service centers. The Partnership operated 72, 66 and 54 travel
plazas, as of January 31, 1997, 1996 and 1995, respectively.
(b) Cash Equivalents - For purposes of the statements of cash flows, the
Partnership considers all investments with original maturities of three months
or less to be cash equivalents.
(c) Inventories - Inventories include gasoline, diesel, ready-to-use additives,
related petroleum products, food and miscellaneous merchandise. Inventories are
stated at the lower of cost or market value as determined by the first-in,
first-out (FIFO) method.
(d) Land, Buildings, and Equipment - Land, buildings and equipment are stated at
cost for constructed and purchased assets and fair market value at the date
contributed for contributions from the general partners. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the related assets.
Interest is capitalized in connection with the construction of travel plazas.
The interest capitalized is recorded as part of the asset to which it relates
and is amortized over the lesser of its useful life or lease term. Interest of
$1,634,000, $2,925,000, and $2,993,000 was capitalized for 1997, 1996, and 1995
respectively.
(e) Income Taxes - The Partnership is not directly subject to income taxes. Each
partner is responsible for any income tax related to their portion of taxable
income.
(f) Retail Fuel Sales - The Partnership does not include related federal or
state excise taxes in petroleum product retail sales or cost of sales. Such
taxes amounted to approximately $516,381,000, $475,900,000 and $361,243,000 for
1997, 1996 and 1995, respectively.
(g) New Plaza Opening Costs - Opening costs are expensed when incurred. The
costs associated with new travel plaza openings were approximately $2,100,000,
$4,000,000 and $4,100,000 in 1997, 1996 and 1995, respectively.
(h) Concentration of Credit Risk - Financial instruments which potentially
subject the Partnership to concentrations of credit risk consist principally of
cash and cash equivalents, and trade receivables. The Partnership places its
cash and cash equivalent investments with high quality credit financial
institutions and limits the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Partnership's
customer base, and their dispersion across many different geographical regions.
The Partnership routinely performs credit evaluations of its customers and
maintains allowances for potential credit losses.
(i) Use of Estimates - The Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) Inventories
Inventories are summarized as follows (in thousands):
1997 1996
---- ----
Store merchandise and restaurant food $16,368 $13,002
Petroleum products 3,940 2,830
------- -------
$20,308 $15,832
======= =======
5
<PAGE>
(3) Other Assets
Other assets consist of the following (in thousands):
1997 1996
---- ----
Land deposits $630 $590
Lease deposits 232 232
Loan origination fees, net 95 108
---- ----
$957 $930
==== ====
(4) Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
1997 1996
---- ----
Fuel taxes $14,285 $15,078
Expense incurred by
Operator (note 8) 4,222 5,677
Other 2,488 2,711
------- -------
$20,995 $23,466
======= =======
(5) Long-term Debt
Subsequent to year-end, the Partnership replaced its line-of-credit agreement.
Under the new revolving line of credit the Partnership may borrow up to
$150,000,000. Interest is computed at the Partnership's option, at the Libor
rate plus plus .5 to 1 percent, or the higher of the federal funds rate plus .5
percent and the administrative agent bank's prime rate. The agreement requires a
commitment fee. The Partnership had $90,000,000 and $56,500,000 in outstanding
borrowings under a revolving line of credit as of January 31, 1997 and 1996,
respectively. Interest rates on outstanding borrowings range from 6.04 to 8.25
percent. In addition to the borrowings under the line of credit, the Partnership
had letters of credit totaling $5,177,000 outstanding as of January 31, 1997.
Under a fiscal 1995 Master Shelf Agreement, the Partnership issued $100,000,000
in long-term notes payable to an insurance company. The notes bear interest from
7.37 to 9.45 percent and require quarterly interest payments. Annual principal
payments are required beginning March 1998 with the final payment in January
2005. In addition to the $100,000,000, the Partnership has an option to issue an
additional $25,000,000 in long-term notes payable to the same insurance company
contingent upon meeting certain conditions.
Aggregate maturities of long-term debt are summarized as follows (in thousands):
1998 $ 0
1999 10,000
2000 15,000
2001 17,000
2002 16,000
Thereafter 132,000
--------
Total $190,000
========
(6) Lease Commitments
The Partnership leases travel plazas and equipment under noncancelable operating
leases, which expire at various dates over the next 10 to 16 years. The leases
are obligations of the Partnership without recourse to the general partners. The
operating leases include minimum and percentage (contingent) lease payments.
Contingent rents are based upon gallons sold, restaurant and merchandise sales,
and other revenues.
Minimum lease payments under noncancelable operating leases were $13,173,000,
$13,266,000 and $13,277,000 for the years ended January 31, 1997, 1996 and 1995,
respectively. Percentage lease payments under noncancelable operating leases
were $4,105,000, $4,348,000 and $4,213,000 for the years ended January 31, 1997,
1996 and 1995, respectively.
Future minimum payments under noncancelable operating leases as of January 31,
1997 are as follows (in thousands):
1998 $ 12,696
1999 12,432
2000 12,250
2001 12,156
2002 12,142
Thereafter 92,608
-------
Total $ 154,284
=======
(7) Pension and Profit Sharing Plans
Currently, the Partnership has chosen to have all eligible employees participate
in the noncontributory defined contribution pension and profit sharing plans of
Flying J Inc. (Flying J), the parent company of one of the general partners.
Contributions to these plans, which are made at the discretion of Flying J's
Board of Directors, may be in cash or qualifying common stock of Flying J. The
Partnership's expenses related to these plans amounted to $1,591,000, $1,212,000
and $998,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
6
<PAGE>
(8) Related Party Transactions
Flying J operates all travel plazas and related facilities for the Partnership.
Under the terms of the operations agreement, the Partnership reimburses Flying J
for the cost of operations plus a monthly amount for overhead costs. The
overhead cost reimbursements amounted to $960,000, $916,000 and $801,000 for
1997, 1996 and 1995, respectively. Flying J paid the Partnership $686,000,
$668,000 and $651,000 during 1997, 1996 and 1995, respectively, for services
performed by the Partnership for certain franchisees of Flying J.
During its normal course of business, the Partnership purchases petroleum
products from the general partners under supply agreements. It is the general
partners' opinion that such agreements are under terms similar to those which
could be received under arms-length contracts. Purchases from the partners'
amounted to approximately $882,884,000, $662,900,000 and $494,800,000 for 1997,
1996 and 1995, respectively.
Included in accounts receivable at January 31, 1997 and 1996 is $1,827,000 and
$1,317,000, respectively, due from affiliates.
Included in accounts payable and accrued liabilities is $38,256,000 and
$31,250,000 as of January 31, 1997 and 1996, respectively, due the general
partners and their affiliates resulting from petroleum product purchases and
management services.
The Partnership periodically contracts with Flying J for the development and
construction of travel plazas. Capitalized expenditures under these agreements
were $45,326,000 and $70,326,000 in 1997 and 1996, respectively. It is the
general partners' opinion that such purchases are under terms similar to those
which could be received under arms-length contracts.
(9) Disclosure About the Fair Value of Financial Instruments
The carrying value for certain short-term financial instruments that mature or
reprice frequently at market rate, approximates their fair value. Such financial
instruments include: cash and cash equivalents, trade receivables, revolving
line of credit, accounts payable, and accrued liabilities. The carrying value of
the long-term notes payable also approximates fair market value.
(10) Commitments and Contingencies
(a) Environmental Laws and Regulations - In connection with the operation of its
network of fuel facilities, the Partnership has become subject to increasingly
demanding environmental standards imposed by federal, state, and local
environmental laws and regulations. It is the policy of the Partnership to
comply with applicable environmental laws and regulations.
An estimated amount related to the remediation of environmental issues has been
accrued as management's best estimate of the cost. However, governmental
regulations covering environmental issues are highly complex and are subject to
change. Accordingly, changes in the regulations or interpretations thereof could
result in future costs to the Partnership in excess of the amounts accrued.
Management believes that preventative measures in addition to proper attention
to these regulations will minimize costs related to compliance to such
regulations. Furthermore, the Partnership routinely succeeds in recovering a
significant portion of the cost of remediation from the states which administer
environmental clean up funds for in-state fuel retailers.
(b) Litigation - The Partnership is involved in legal actions resulting from the
ordinary course of business. Such actions relate to routine travel plaza
operations and other general matters. Management believes that the Partnership
has adequate legal defenses or insurance coverage and reserves and, accordingly,
the ultimate outcome of such actions will not have a material adverse effect on
the Partnership's financial position.
7
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1997, of the Clive Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Clive Travel Plaza's statements
of operations and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Clive Travel Plaza for each of
the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 18,076 $ 17,336 $ 17,471
- ----------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 15,234 14,167 13,730
Labor costs 1,288 1,217 1,290
Controllable operating expenses 675 716 762
Occupancy expenses 1,241 1,260 1,228
- ----------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess (deficient) of direct operating costs
and expenses $ (362) $ (24) $ 461
======================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess (deficient) of direct operating costs
and expenses $(362) $ (24) $ 461
Add amortization of leasehold improvements 145 139 124
- -------------------------------------------------------------------------------------------------
Cash provided by (used in) direct Travel Plaza operations $(217) $ 115 $ 585
=================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Clive Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Clive, Iowa,
commenced operations in March 1989 and is operated by CFJ Properties (CFJ). The
land and related plaza facilities are leased by CFJ from Participating Income
Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1997, of the Amarillo Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Amarillo Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Amarillo Travel Plaza for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 21,706 $ 22,525 $ 23,449
- ------------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 19,188 19,152 19,973
Labor costs 1,069 1,095 1,062
Controllable operating expenses 638 583 567
Occupancy expenses 962 974 971
- ------------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess (deficient) of direct operating costs and expenses $ (151) $ 721 $ 876
========================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess (deficient) of direct operating costs and expenses $(151) $ 721 $ 876
Add amortization of leasehold improvements 159 133 123
- -------------------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $ 8 $ 854 $ 999
=============================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Amarillo Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Amarillo, Texas,
commenced operations in May 1989 and is operated by CFJ Properties (CFJ). The
land and related plaza facilities are leased by CFJ from Participating Income
Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1997, of the Cheyenne Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Cheyenne Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Cheyenne Travel Plaza for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $28,793 $24,733 $23,676
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 23,216 19,214 18,583
Labor costs 1,478 1,326 1,334
Controllable operating expenses 950 872 871
Occupancy expenses 1,206 1,176 1,154
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 1,943 $ 2,145 $ 1,734
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $1,943 $2,145 $1,734
Add amortization of leasehold improvements 321 290 276
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $2,264 $2,435 $2,010
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Cheyenne Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store, motel and other amenities designed to meet the needs of the trucking
industry and traveling public in general. The Travel Plaza, located in Cheyenne,
Wyoming, commenced operations in July 1988 and is operated by CFJ Properties
(CFJ). The land and related plaza facilities are leased by CFJ from
Participating Income Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
