SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 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
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(Partnership State of (Partnership I.R.S.
Organization) Employer Identification
No.)
Delaware 86-0557949
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(Corporation State of (Corporation I.R.S.
Incorporation) Employer Identification
No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
- --------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Co-Registrants' telephone number, including area code: (602) 585-4500
Securities registered Pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of Class)
Limited Partnership Depository Units
------------------------------------
(Title of Class)
Indicate by check mark whether the Co-Registrants (1) have 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
Co-Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Co-Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Co-Registrants: Not applicable.
The limited partnership depository units (the "Units") are not
currently traded in any market. Therefore, there is no market price or average
bid and asked price for the Units within 60 days prior to the date of this
filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
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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."
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, 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 December 31, 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
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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 (a) preserve, protect and enhance Partnership capital; (b)
provide partially tax-sheltered cash distributions to investors; (c) provide the
potential for increased income and protection against inflation through
participation in the gross revenues of Flying J Travel Plaza facilities; and (d)
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, 1997, one will expire in 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 (a) 4% of annual gross receipts derived from
the travel plaza facility, excluding fuel sales; (b) 3/10 of $.01 per gallon of
fuel sold; and (c) 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 1997, CFJ Properties and Flying J Inc.
together contributed approximately 88% of the Company's total rental and
participating rental revenue for the year.
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. Flying J Inc. operates all of CFJ Properties' travel plazas
and related facilities, which included 72 interstate travel plaza 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.
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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 generally 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.
The nine properties operated by CFJ Properties and Flying J Inc., and
leased from the Partnership, 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 fiscal year 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. 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 Clive, Iowa, Amarillo, Texas and Cheyenne, Wyoming.
On February 2, 1998, the Partnership entered into a letter of intent
with Flying J Inc. to sell substantially all of the Partnership's assets for
cash of approximately $52 million. The sale is subject to certain conditions
specified in the letter of intent, including the negotiation and execution of
definitive sale and financing agreements with respect to the assets of the
Partnership and the approval, by vote, of a majority of the limited partner
interests. In accordance with the Partnership's limited partnership agreement
(the "Partnership Agreement"), sale of substantially all of the assets will
result in dissolution of the Partnership and liquidation of remaining
Partnership assets, net of liabilities. There can be no assurance as to the
final terms of the proposed transaction, that the conditions will be satisfied
or that the proposed transaction will be consummated.
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The negotiated sale price of approximately $52 million would have
resulted in an estimated book gain of $27 million had the proposed sale taken
place at December 31, 1997. Subsequent to the proposed asset sale and conversion
of other Partnership assets into cash upon liquidation, a liquidating cash
distribution will be made to investors in accordance with the Partnership
Agreement. Had the sale (as proposed) occurred at December 31, 1997, it is
estimated that the liquidating cash distribution would have been in the range of
$965 to $990 per limited partnership unit. The actual liquidating distribution
to be received by investors will depend upon the actual date and terms of the
sale and the actual costs of liquidating the Partnership.
In February 1998, the Partnership sold its Boise, Idaho travel plaza to
CFJ Properties for approximately $3,386,000 in cash. The Boise travel plaza was
a full-service travel plaza, built on a parcel consisting of approximately 21
acres. The above negotiated sale price of approximately $52 million did include
the Boise, Idaho travel plaza as if the proposed sale of the Partnership's
assets had taken place at December 31, 1997.
The travel plaza/truckstop industry, although highly fragmented, is
also 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 that 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
generated more than $345 billion in gross freight revenues, representing 82% of
the nation's freight bill in 1996. This was up 4% from the prior year. Over 21
million trucks registered in the United States for business purposes consumed
approximately 41 billion gallons of fuel and transported over 60% of all primary
shipments made in 1996.
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 ("USTs") 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
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comprehensive regulatory program for the detection, prevention and cleanup of
leaking USTs. Regulations enacted by the EPA in 1988 established requirements
for (a) installing UST systems; (b) upgrading UST systems; (c) taking corrective
action in response to releases; (d) closing UST systems; (e) keeping appropriate
records; and (f) 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 the end of 1998,
all USTs 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 (a) ensure that the lessees
comply with applicable rules and regulations; (b) mitigate any potential
liabilities, including the establishment of storage tank monitoring procedures;
and (c) 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 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 most recent annual environmental audits of the travel plazas
indicate that some remediation is necessary at one or more of the travel plazas.
Under each travel plaza lease, the lessee is responsible for all costs
associated with correcting problems identified by such audits and is obligated
to indemnify the Partnership and the Company for all liabilities related to the
operation of the travel plazas, including those related to remediation. The
lessees are in the process of reviewing such environmental audits and have
commenced appropriate corrective actions. The General Partner does not believe
that the corrective actions recommended in the audits will affect the lessees'
ability to make their scheduled lease payments to the Partnership or have a
material adverse effect upon the Partnership.
The Partnership believes that its lessees are in compliance with all
applicable regulatory requirements, except as discussed above 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
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to make their scheduled lease payments to the Partnership.
As of December 31, 1997, 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.
The Partnership pays an affiliate of the General Partner for the
maintenance of the books and records of the Partnership and for computer,
investor and legal services performed for the Partnership. During 1997, this
affiliate of the General Partner completed the design of a new accounting
information system that was begun in 1996 and was implemented on January 1,
1998. The new system is "Year 2000" compliant which means that the system will
be able to handle any dates that refer to the 21st century. By the end of 1998,
all of the affiliate's significant information systems that would impact the
Partnership will be "Year 2000" compliant. The affiliate is in the process of
assessing the key suppliers that it relies upon in addition to any other systems
that are sensitive to dates (such as the telephone and power systems, elevators,
security systems, and so on), and has developed a plan for any such systems that
are found to be noncompliant.
A five-phase process was adopted by the affiliate to address the issues
associated with the year 2000 including: (1) an inventory and assessment of the
systems and electronic devices that may be at risk; (2) the identification of
potential solutions; (3) the implementation of upgrades or replacements to
affected systems or devices; (4) the verification of compliance and testing of
the revised systems; and (5) the training of users on the new systems. To date,
the inventory and assessment phase of all critical computer hardware has been
completed, as have the operating system and database software, and statements of
"Year 2000" compliance have been received from the related vendors. The
verification of "Year 2000" compliance through testing of these systems and
training of users is nearly complete.
As discussed previously, the Partnership entered into a letter of
intent with Flying J Inc. to sell substantially all of the Partnership's assets.
In accordance with the Partnership Agreement, sale of substantially all of the
assets will result in dissolution of the Partnership and liquidation of
remaining Partnership assets, net of liabilities. Under these circumstances, the
"Year 2000" issue is not anticipated to have any effect on the Partnership.
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Factors Affecting Future Operating Results
The provisions of the Private Securities Litigation Reform Act of 1995
(the "Act"), became effective in December 1995. The Act provides a "safe harbor"
for companies that make forward-looking statements providing prospective
information. The "safe harbor" under the Act relates to protection for companies
with respect to litigation filed on the basis of such forward-looking
statements.
The Partnership wishes to take advantage of the "safe harbor"
provisions of the Act and is therefore including this section. The statements
contained herein, if not historical, are forward-looking statements and involve
risks and uncertainties which are described below 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," "expected," "intends," or "plans," or
words of similar meaning. Therefore, forward-looking statements should not be
relied upon as a prediction of actual future results or occurrences.
The Partnership's future results may be subject to certain risks and
uncertainties including the following:
o On February 2, 1998, the Partnership entered into a letter of
intent with Flying J Inc. to sell substantially all of the
Partnership's assets for cash of approximately $52 million.
The sale is subject to certain conditions specified in the
letter of intent, including the negotiation and execution of
definitive sale and financing agreements with respect to the
assets of the Partnership and the approval, by vote, of a
majority of the limited partner interests. In accordance with
the Partnership Agreement, sale of substantially all of the
assets will result in dissolution of the Partnership and
liquidation of remaining Partnership assets, net of
liabilities. There can be no assurance as to the final terms
of the proposed transaction, that the conditions will be
satisfied or that the proposed transaction will be
consummated.
o Adverse changes in general or local economic or market
conditions may decrease demand for products and services sold
at the Partnership's travel plazas.
o Competition in the travel plaza industry (see discussion in
"Business" above), as well as competition with established
entities and private investors in connection with the
acquisition, sale and leasing of similar properties may
decrease sales at the Partnership's travel plazas and decrease
profit margins.
o Material or substantial restrictions on travel plaza
facilities imposed by federal, state and local laws and
regulations may result in increased operating expenses and
capital expenditures for the operators of the Partnership's
travel plazas.
o The Partnership is dependent upon the financial condition of
CFJ Properties and its ability to properly operate the travel
plaza facilities. If CFJ Properties fails to operate the
travel plaza facilities properly, the Partnership's revenue
stream may be adversely affected.
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o The Partnership is dependent upon petroleum products and
factors affecting the petroleum industry, including the
following: governmental policies and programs regarding oil
exploration, production and marketing; federal, state and
local environmental laws, rules and regulations regarding the
ownership, operation and maintenance of oil production
facilities, refineries and petroleum product storage and
marketing facilities; unrest in the Middle East; worldwide and
domestic economic conditions; oil import quotas; trade
embargoes; the imposition of gasoline or other energy taxes;
the supply and price of oil; and effects of all of the
foregoing on the transportation and travel industries, which
could result in smaller profit margins and volumes of sales of
petroleum products as well as smaller base rental income
revenues from lessees of the properties. This dependency may
decrease the availability, and increase the price of, products
and services sold at the Partnership's travel plazas which may
adversely affect its revenue stream.
o Condemnation or uninsured losses may adversely affect the
ability of the travel plazas to profitably operate.
o Changing demographics and changing transport, traffic and
travel patterns may result in a decrease in sales at the
Partnership's travel plazas.
o Relocation and construction of highways may substantially
decrease consumer demand and adversely affect the operations
of the Partnership's travel plaza.
o Increased costs of food products would decrease profit margins
on food products.
o Failure of lessees to remediate environmental problems
identified in recent environmental audits may affect the
marketability of the travel plazas to third parties.
Item 2. Properties.
As of December 31, 1997, the Partnership, through its investment in the
Company, had acquired 11 travel plaza properties located in nine states, without
borrowings by the Company or the Partnership. As discussed under "Item 1.
Business," the Boise, Idaho travel plaza was sold in February 1998. The
properties were acquired by the Company during 1987 and 1988 with the net
proceeds received by the Partnership from the public offering of the Units.
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The Partnership's travel plazas, divided into sections which serve both
the commercial and non-commercial traveler, generally offer a multi-use,
full-service operation including fuel facilities for the storage and sale of
automotive and diesel fuels, a 24-hour restaurant, a convenience store, restroom
facilities with private showers, and other amenities designed to meet the needs
of the trucking industry and the traveling public in general. Three of the
Company's properties represent over 10% of the Partnership's total assets at
December 31, 1997, as follows:
Approximate % of
Location Total Assets
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Clive, Iowa 15%
Amarillo, Texas 11%
Cheyenne, Wyoming 10%
The following is a description of the properties acquired by the
Company.
Boise, Idaho. The Boise travel plaza is a completely renovated
full-service travel plaza, built on a parcel consisting of approximately 21
acres approximately 1/5 of a mile south of Interstate 84. During 1994, the
lessee of this travel plaza exercised its option to purchase the motel portion
of the travel plaza comprising two and one-half acres of land, the motel
building and motel equipment. In addition, approximately one-half acre of land
was sold to the State of Idaho Transportation Department, leaving the Boise
travel plaza with approximately 18 acres, which was sold to CFJ Properties in
February 1998.
Post Falls, Idaho. The Post Falls travel plaza is a full-service travel
plaza, built on a parcel consisting of approximately 8 acres of land, located at
the northeast off-ramp of Interstate Highway 90.
Butte, Montana. The Butte travel plaza was a pre-existing Husky truck
stop, renovated in 1988, and is located on a parcel consisting of approximately
9.01 acres of land along the north side of I-15 and I-90.
Ellensburg, Washington. The Ellensburg travel plaza was a pre-existing
Husky truck stop, renovated in 1987, and is located on a parcel consisting of
approximately 8.06 acres of land just south of I-90 and one mile west of I-82.
Amarillo, Texas. The Amarillo travel plaza was a pre-existing Husky
truck stop, renovated in 1989, and is located on a parcel consisting of 16.32
acres of land five miles west of the I-27 and I-40 interchange and four miles
east of downtown Amarillo.
Clive, Iowa. The Clive travel plaza is a full-service travel plaza,
built on a parcel consisting of 26.6 acres of land, located at the southwest
corner of I-35/80. Clive, Iowa is located northwest of Des Moines.
Eloy, Arizona. The Eloy travel plaza is a full-service travel plaza,
built on a 15-acre parcel of land, located three miles south of the I-8 and I-10
junction. Eloy, Arizona is located 60 miles south of Phoenix and 53 miles north
of Tucson.
Thousand Palms, California. The Thousand Palms travel
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plaza is a full-service travel plaza, built on a 5.01-acre parcel of land north
of I-10. Thousand Palms is situated midway between the Arizona/California border
and Los Angeles.
Truxton, Missouri. The Truxton travel plaza is a full-service travel
plaza, built on a parcel of land of approximately 15 acres located south of the
I-70 and Highway B junction. Truxton, Missouri is located 55 miles northwest of
St. Louis.
Cheyenne, Wyoming. The Cheyenne travel plaza is a full-service travel
plaza, built on a 15.2-acre parcel of land west of I-25. Downtown Cheyenne is
located three miles north of the site.
Evanston, Wyoming. The Evanston travel plaza is located on a 5.42-acre
parcel of land along the north side of Highway 30 and north of I-80. Evanston is
approximately two miles from the Utah border.
Reference is made to the Annual Portfolio Valuation prepared by Cushman
& Wakefield which is filed with this Report as an exhibit for the properties'
appraised value as of December 31, 1997.
FFCA Investor Services Corporation 86-B has no interest in any real or
personal property independent of the Partnership.
Item 3. Legal Proceedings.
Neither the Co-Registrants nor their properties are parties to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matter was submitted to a vote of the Holders through the
solicitation of proxies or otherwise during the fourth quarter of the fiscal
year ended December 31, 1997.
PART II
Item 5. Market for Registrant's Units and Related Security Holder Matters.
Market Information. During 1997, there was no established public
trading market for the Units, and it is not anticipated that an established
public trading market for the Units will develop.
Holders. As of March 2, 1998, there were 4,099 record holders of the
Units.
10
<PAGE>
Distributions. For the two most recent fiscal years, the Partnership
made the following cash distributions to the Holders:
1997
<TABLE>
<CAPTION>
Per Unit
Distribution Total Annualized
-------------------- ---------------------- Cash
Date of Number Cash from Cash from Yield from
Distribution of Units Operations Capital Operations Capital Operations
------------ -------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31 51,687 $ 26.43 -- $1,366,087 -- 11.0%
September 30 51,687 27.68 -- 1,430,696 -- 11.5%
June 30 51,687 26.81 -- 1,385,728 -- 11.2%
March 31 51,687 25.47 -- 1,316,468 -- 10.6%
</TABLE>
1996
<TABLE>
<CAPTION>
Per Unit
Distribution Total Annualized
-------------------- ---------------------- Cash
Date of Number Cash from Cash from Yield from
Distribution of Units Operations Capital Operations Capital Operations
------------ -------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31 51,687 $25.56 -- $1,321,120 -- 10.6%
September 30 51,687 26.92 -- 1,391,414 -- 11.2%
June 30 51,687 26.30 -- 1,359,368 -- 11.0%
March 31 51,687 25.49 -- 1,369,189 -- 11.0%
</TABLE>
Cash from operations, defined as disbursable cash in the agreement of
limited partnership which governs the Partnership, is distributed to the
Holders. Any variations in the amount of distributions from quarter to quarter
are due to fluctuations in net cash provided by operating activities. Reference
is made to Item 7 below for a discussion and analysis of such fluctuations. The
annualized cash yield from operations represents the annualized cash
distribution from operations as a percentage of the Adjusted Capital
Contribution, as defined. Cash proceeds from the sale of property, when
distributed, represent a partial return of the limited partners' initial $1,000
per unit capital contribution. The Adjusted Capital Contribution of a Holder is
generally the Holder's initial capital contribution reduced by the cash
distributions to the Holders of proceeds from the sale of Partnership properties
and reduced by any other cash distributions other than from operations. The
Adjusted Capital Contribution per Unit of the Holders, as defined in the
agreement of limited partnership which governs the Partnership, was $960.34 as
of December 31, 1997. At December 31, 1995, the Partnership declared a return of
capital of $2,050,000 ($39.66 per Unit) related to the 1994 sale of the Boise,
Idaho lodging premises and equipment, which was distributed in January 1996.
Any differences in the amounts of distributions set forth in the above
tables from the information contained in Item 6 below are due to rounding the
amount of distributions payable per Unit down to the nearest whole cent and
carrying any fractional cents forward from one period to the next. The
Partnership expects to continue making cash distributions to the Holders
11
<PAGE>
pursuant to the provisions of the agreement of limited partnership which governs
the Partnership. The General Partner knows of no material restrictions that
would limit the Partnership's ability to pay distributions to the Holders in the
future.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction
with the Consolidated Financial Statements and the related notes attached as an
exhibit to this Report.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 6,297,173 $ 6,289,831 $ 6,563,996 $ 7,179,846 $ 6,397,242
Net Income 4,239,903 4,013,518 3,944,780 4,375,249 3,606,158
Net Income Per Unit 81.21 76.87 75.56 83.80 69.07
Total Assets 27,480,329 28,759,012 32,378,912 34,094,240 36,048,390
Distributions of Cash from
Operations to Holders 5,499,084 5,440,957 5,592,710 5,674,532 5,546,729
Distributions of Cash from
Operations Per Unit 106.39 105.27 108.20 109.79 107.31
Return of Capital to
Holders -- -- 2,050,000 -- --
Return of Capital Per Unit -- -- 39.66 -- --
</TABLE>
The 1994 results of operations include gains totaling $653,477 on the
sale of the motel portion of the Boise, Idaho travel plaza and the sale of
approximately one-half acre of land at this travel plaza to the State of Idaho
Transportation Department, which is not necessarily indicative of the
Partnership's future results of operations. Due to the sale, in February 1998,
of the remaining assets of the Boise, Idaho travel plaza, rental revenues in
1998 are expected to be lower than in 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership received $51,687,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership, through the Company, invested the
net offering proceeds of $45,613,778 in 11 travel plazas. The rental payments
from lessees of the properties are the Partnership's primary source of income.
As of December 31, 1997, the Partnership had cash and marketable
securities with a maturity of three months or less generally collateralized by
United States government obligations aggregating $2,402,680 of which $1,366,087
was paid out to the Holders in January 1998 as
12
<PAGE>
their fourth quarter distribution for 1997, and the remainder of which will be
held by the Partnership for reserves. The Partnership uses the rental revenues
from the Company's properties to meet its cash needs and those of the Company,
and it is anticipated that such revenues will be sufficient to meet all of the
Partnership's expenses and provide cash for distribution to the Holders.
On February 2, 1998, the Partnership entered into a letter of intent
with Flying J Inc. to sell substantially all of the Partnership's assets for
cash of approximately $52 million. The sale is subject to certain conditions
specified in the letter of intent, including the negotiation and execution of
definitive sale and financing agreements with respect to the assets of the
Partnership and the approval, by vote, of a majority of the limited partner
interests. In accordance with the Partnership Agreement, sale of substantially
all of the assets will result in dissolution of the Partnership and liquidation
of remaining Partnership assets, net of liabilities. There can be no assurance
as to the final terms of the proposed transaction, that the conditions will be
satisfied or that the proposed transaction will be consummated.
The negotiated sale price of approximately $52 million would have
resulted in an estimated book gain of $27 million had the proposed sale taken
place at December 31, 1997. Subsequent to the proposed asset sale and conversion
of other Partnership assets into cash upon liquidation, a liquidating cash
distribution will be made to investors in accordance with the Partnership
Agreement. Had the sale (as proposed) occurred at December 31, 1997, it is
estimated that the liquidating cash distribution would have been in the range of
$965 to $990 per limited partnership unit. The actual liquidating distribution
to be received by investors will depend upon the actual date and terms of the
sale and the actual costs of liquidating the Partnership.
In February 1998, the Partnership sold the Boise, Idaho travel plaza to
CFJ Properties for approximately $3,386,000 in cash. The above negotiated sale
price of approximately $52 million did include the Boise, Idaho travel plaza as
if the proposed sale of the Partnership's assets had taken place at December 31,
1997. Proceeds from the sale on October 6, 1994 of the Boise, Idaho travel plaza
lodging premises of $2,050,000 were distributed by the Partnership in January
1996 as a return of capital.
The Partnership pays an affiliate of the General Partner for the
maintenance of the books and records of the Partnership and for computer,
investor and legal services performed for the Partnership. During 1997, this
affiliate of the General Partner completed the design of a new accounting
information system that was begun in 1996 and was implemented on January 1,
1998. The new system is "Year 2000" compliant which means that the system will
be able to handle any dates that refer to the 21st century. By the end of 1998,
all of the affiliate's significant information systems that would impact the
Partnership will be "Year 2000" compliant.
As discussed previously, the Partnership entered into a letter of
intent with Flying J Inc. to sell substantially all of the Partnership's assets.
In accordance with the partnership agreement, sale of substantially all of the
assets will result in dissolution of the partnership and liquidation of
remaining Partnership assets, net of liabilities. Under these circumstances, the
"Year 2000" issue is not anticipated to have any effect on the Partnership.
FFCA Investor Services Corporation 86-B serves as the initial limited
partner of the
13
<PAGE>
Partnership and the owner of record of the limited partner interests in the
Partnership, the rights and benefits of which are assigned by FFCA Investor
Services Corporation 86-B to investors in the Partnership. FFCA Investor
Services Corporation 86-B has no other business activity and has no capital
resources.
Results of Operations
The Partnership, through the Company, began acquiring travel plaza
properties using the net proceeds of the offering in 1987 and continued to
purchase properties until becoming fully invested in September 1988. The Company
received or accrued 100% of the lease payments due it from its lessees in 1997,
1996 and 1995.
Fiscal Year Ended December 31, 1997
Compared to Fiscal Year Ended December 31, 1996
The Partnership's total revenues increased to $6,297,173 for the year
ended December 31, 1997 from $6,289,831 for the year ended December 31, 1996.
The overall increase in revenues is due to an increase in participating rentals.
Participating rental revenues increased to $1,897,489 in 1997 from $1,818,632 in
1996 due to higher travel plaza sales volumes. On June 1, 1996, CFJ Properties
(lessee of eight of the Registrant's travel plazas) curtailed its relationship
with a large third party billing company for the trucking industry. The billing
company requested changes to its contract that were unacceptable to CFJ
Properties' management due to the significant long-term ramifications of the
proposed change on CFJ Properties' future business. This resulted in reduced
volume and margins, which contributed to lower participating rental revenues in
1996 as compared to 1997. Partially offsetting the increase in participating
rentals, was a decrease in rental revenues due to a partial land sale in the
first quarter of 1996, which resulted in a monthly reduction of $2,128 in rental
revenue.
Total Partnership expenses for 1997 were $2,052,340, representing a
decrease of approximately 10% from $2,271,611 in 1996, primarily resulting from
a decrease in depreciation expense of $243,800 related to the sale of travel
plaza equipment in 1996. Net income for 1997 was $4,239,903 as compared to
$4,013,518 for 1996, representing an increase of approximately 6%.
Fiscal Year Ended December 31, 1996
Compared to Fiscal Year Ended December 31, 1995
The Partnership's total revenues decreased to $6,289,831 for the year
ended December 31, 1996 from $6,563,996 for the year ended December 31, 1995. Of
this decrease, $81,328 was attributable to lower gains on the sale of property
in 1996 and $97,407 in lower interest income resulted from a lower average cash
balance invested since the proceeds from the sale of the Boise travel plaza
lodging facility (which were invested in temporary investment securities in
1995) were returned to the limited partners in January 1996. In addition,
participating rental revenue decreased $76,279 due to decreased overall travel
plaza sales related to the curtailment in June 1996 by CFJ Properties of its
relationship with a third party billing company. Also contributing to the
decrease was a decrease in rental revenue of $19,151 relating to the partial
land sale in the first quarter of 1996.
Total Partnership expenses for 1996 were $2,271,611, representing a
decrease of
14
<PAGE>
approximately 13.1% from $2,614,608 in 1995, primarily resulting from a decrease
in depreciation expense of $303,569 related to the sale of travel plaza
equipment in 1996 and 1995. Also contributing to the decrease in total expenses
is a general decrease in operating expenses of approximately $24,000. Net income
for 1996 was $4,013,518 as compared to $3,944,780 for 1995, representing a
difference of less than 2%.
Inflation
Inflation may cause an increase in each travel plaza's gross revenues
due to price increases. This may cause an increase in rental income because a
portion of the lessees' lease payments are computed as a percentage of the
lessees' gross revenues. Thus, as gross sales increase the lease payments will
also increase. Inflation may also tend to increase the rate of capital
appreciation of the Company's properties over a period of time as gross rental
income from the properties continues to increase. Inflation may, however, have
an adverse impact on the profitability of the lessees because of increases in
operating expenses. Inflation has no impact on FFCA Investor Services
Corporation 86-B's activities.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supporting schedules of the Co-Registrants
required by Regulation S-X are attached to this Report. Reference is made to
Item 14 below for an index to the financial statements and financial statement
schedules.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The Partnership, the General Partner and the Company have no directors
or executive officers. PCMC is the managing general partner and Morton H.
Fleischer is the individual general partner of the General Partner. PCMC,
through the General Partner, has responsibility for all of the Partnership's
operations. The directors and executive officers of PCMC and FFCA Investor
Services Corporation 86-B are as follows:
15
<PAGE>
PCMC
Director
Name Position Held Since
---- -------------------
Morton H. Fleischer 1993
Officers
<TABLE>
<CAPTION>
Associated With
PCMC
Name Positions Held Since
---- -------------- -----
<S> <C> <C>
Morton H. Fleischer President and Chief Executive Officer 1993
John R. Barravecchia Executive Vice President, Chief Financial Officer, 1993
Treasurer and Assistant Secretary
Christopher H. Volk Executive Vice President, Chief Operating Officer, 1993
Secretary and Assistant Treasurer
Dennis L. Ruben Executive Vice President, General Counsel and Assistant 1994
Secretary
Stephen G. Schmitz Executive Vice President, Chief Investment Officer and 1995
Assistant Secretary
Catherine F. Long Senior Vice President-Finance, Principal Accounting 1993
Officer, Assistant Secretary and Assistant Treasurer
</TABLE>
FFCA INVESTOR SERVICES CORPORATION 86-B
Director
Name Position Held Since
---- -------------------
Morton H. Fleischer, Chairman 1986
Officers
<TABLE>
<CAPTION>
Position Held
Name Positions Held Since
---- -------------- -----
<S> <C> <C>
Morton H. Fleischer Chairman of the Board of Directors 1986
John R. Barravecchia President, Secretary and Treasurer 1990
Christopher H. Volk Vice President, Assistant Secretary and 1994
Assistant Treasurer
</TABLE>
All of the foregoing directors and executive officers have been elected
to serve a one-year term and until their successors are elected and qualified.
There are no arrangements or understandings between or among any of the officers
or directors and any other person pursuant to which any officer or director was
selected as such. There are no family relationships among any directors and
officers.
16
<PAGE>
Business Experience
The business experience during the past five years of each of the above
directors and executive officers is as follows:
Morton H. Fleischer, age 61, has served as a director, President and
Chief Executive Officer of PCMC since 1993, and as Chairman of the Board of FFCA
Investor Services Corporation 86-B since 1986. Mr. Fleischer also serves as
President, Chief Executive Officer and Chairman of the Board of Franchise
Finance Corporation of America, a Delaware corporation ("FFCA") having
previously served as a director, President and Chief Executive Officer of
Franchise Finance Corporation of America I ("FFCA I"), a predecessor of FFCA,
from 1980 to 1994. Mr. Fleischer is an individual general partner of the General
Partner, and is a general partner (or general partner of a general partner) of
the following public limited partnerships: Participating Income Properties II,
L.P.; Participating Income Properties III Limited Partnership; and Scottsdale
Land Trust Limited Partnership.
John R. Barravecchia, age 42, has served as President, Secretary and
Treasurer of FFCA Investor Services Corporation 86-B since 1990. He has served
as Chief Financial Officer of PCMC since 1993 and as Senior Vice President and
Treasurer since 1994. In 1995, Mr. Barravecchia was named Executive Vice
President of PCMC. Mr. Barravecchia currently serves as Executive Vice
President, Chief Financial Officer, Treasurer and Assistant Secretary of FFCA
and served in various capacities for FFCA I from 1984 to 1994. He was appointed
Vice President and Chief Financial Officer of FFCA I in December 1986, and
Senior Vice President in October 1989. Mr. Barravecchia was elected as a
director of FFCA I in March 1993 and Treasurer in December 1993. Prior to
joining FFCA I, Mr. Barravecchia was associated with the international public
accounting firm of Arthur Andersen LLP.
Christopher H. Volk, age 41, has served as Vice President, Assistant
Secretary and Assistant Treasurer of FFCA Investor Services Corporation 86-B
since 1994, and has served as Secretary of PCMC since 1993 and Senior Vice
President-Underwriting and Research since 1994. In 1995, Mr. Volk was named
Executive Vice President and Chief Operating Officer of PCMC. Mr. Volk currently
serves as Executive Vice President, Chief Operating Officer, Secretary and
Assistant Treasurer of FFCA. He joined FFCA I in 1986 and served in various
capacities in FFCA I's capital preservation and underwriting areas prior to
being named Vice President-Research in October 1989. In December 1993, he was
appointed Secretary and Senior Vice President-Underwriting and Research of FFCA
I, and he was elected as a director of FFCA I in March 1993. Prior to joining
FFCA I, Mr. Volk was employed for six years with the National Bank of Georgia,
where his last position was Assistant Vice President and Senior Correspondent
Banking Credit Officer. Mr. Volk is a member of the Association for Investment
Management and Research and the Phoenix Society of Financial Analysts.
Dennis L. Ruben, age 45, has served as Senior Vice President and
General Counsel for PCMC since 1994. Mr. Ruben was named Executive Vice
President, General Counsel and Assistant Secretary of PCMC in February 1997. He
currently serves in the same capacity for FFCA and served as attorney and
counsel for FFCA I from 1991 to 1994. In December 1993, he was appointed Senior
Vice President and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben
was associated with the law firm of Kutak Rock from 1980 until March 1991. Mr.
Ruben became a partner of Kutak Rock in 1984. Mr. Ruben has been
17
<PAGE>
admitted to the Iowa, Nebraska and Colorado bars.
Stephen G. Schmitz, age 43, has served as Senior Vice
President-Corporate Finance of PCMC since January 1996. He was named Executive
Vice President, Chief Investment Officer and Assistant Secretary of PCMC in
February 1997. He currently serves in the same capacity for FFCA. Mr. Schmitz
served in various positions as an officer of FFCA I from 1986 to June 1, 1994.
Prior to joining FFCA I, Mr. Schmitz was a commercial lender with Mellon Bank in
Pittsburgh, where his last position was Vice-President and Section Manager.
Catherine F. Long, age 41, has served as Vice President-Finance and
Principal Accounting Officer of PCMC since 1994, and Vice President from 1993 to
1994. In February 1997 she was named Senior Vice President-Finance of PCMC. She
currently serves as Senior Vice President-Finance, Principal Accounting Officer,
Assistant Secretary and Assistant Treasurer of FFCA and served as Vice
President-Finance of FFCA I from 1990 to 1993. In December 1993, she was
appointed Principal Accounting Officer of FFCA I. From December 1978 to May
1990, Ms. Long was associated with the international public accounting firm of
Arthur Andersen LLP. Ms. Long is a certified public accountant and is a member
of the Arizona Society of Certified Public Accountants.
Compliance with Section 16(a)
of the Securities Exchange Act of 1934
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Co-Registrants during fiscal year 1997 and Forms 5 and
amendments thereto furnished to the Co-Registrants with respect to fiscal year
ended December 31, 1997 (the "Forms"), and any written representations by the
directors and executive officers of FFCA Investor Services Corporation 86-B and
PCMC, the Co-Registrants have not identified herein any such person that failed
to file on a timely basis the Forms required by Section 16(a) of the Securities
Exchange Act of 1934 for fiscal year 1997.
Item 11. Executive Compensation.
The Partnership is required to pay an acquisition fee and a
subordinated real estate disposition fee to the General Partner, and the General
Partner is entitled to receive a share of cash distributions, when and as made
to the Holders, a share of profits and losses and a subordinated share of any
sale proceeds. Reference is made to Note (1) and Note (5) of the Notes to
Consolidated Financial Statements of the Partnership and the Company which are
filed with this Report for a description of the fees and distributions paid in
1997.
FFCA Investor Services Corporation 86-B serves as assignor and initial
limited partner without compensation from the Partnership. It is not entitled to
any share of the profits, losses or cash distributions of the Partnership. The
director and officers of FFCA Investor Services Corporation 86-B serve without
compensation from FFCA Investor Services Corporation 86-B or the Partnership.
PCMC is entitled to a one-tenth of one percent share of the profits and
losses of the Company.
18
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 2, 1998, no person or group was known by the Partnership to
own directly or beneficially more than 5% of the outstanding Units of the
Partnership.
The General Partner of the Partnership and its general partners owned
no Units as of March 2, 1998. None of the directors and officers of the General
Partner's corporate general partner, PCMC, owned any Units as of March 2, 1998.
PCMC is owned by Morton H. Fleischer.
FFCA Investor Services Corporation 86-B has an interest in the
Partnership as a limited partner and it serves as the owner of record of all of
the limited partnership interests assigned by it to the Holders. However, FFCA
Investor Services Corporation 86-B has no right to vote its interest on any
matter and it must vote the assigned interests as directed by the Holders. FFCA
Investor Services Corporation 86-B is a wholly-owned subsidiary of PCMC.
Item 13. Certain Relationships and Related Transactions.
Since the beginning of the Co-Registrants' last fiscal year, there have
been no significant transactions or business relationships among the
Co-Registrants, the Company, and PCMC or their affiliates or their management,
other than as described in Items 1, 10 and 11 above.
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, 1997
and 1996
Consolidated Statements of Income for the years
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes In Partners' Capital for
the years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
FFCA Investor Services Corporation 86-B
Report of independent public accountants
Balance Sheet as of December 31, 1997
Notes to Balance Sheet
19
<PAGE>
2. Financial Statement Schedules.
Schedule III-Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1997
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.
The following is a complete list of exhibits filed as part of
this Form 10-K. For electronic filing purposes only, this
report contains Exhibit 27, the Financial Data Schedule.
Exhibit numbers correspond to the numbers in the Exhibit Table
of Item 601 of Regulation S-K.
99. Annual Portfolio Valuation of Cushman & Wakefield as
of December 31, 1997.
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, Commission File No. 0-16720, is incorporated herein
by this reference.
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, Commission File No. 0-16720, are incorporated herein
by this reference.
<TABLE>
<CAPTION>
1986 Form 10-K
Exhibit No.
-----------
<S> <C>
Depositary Agreement of the Partnership. 3-C
The Certificate of Incorporation which governs 3-D
FFCA Investor Services Corporation 86-B, as filed
with the Secretary of State of Delaware on June 23,
1986.
Bylaws of FFCA Investor Services
Corporation 86-B. 3-E
</TABLE>
20
<PAGE>
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' Registration Statement on
Form S-11, Registration No.
33-7502, 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, 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Partnership has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES 1986, L.P.
By: FFCA MANAGEMENT COMPANY
LIMITED PARTNERSHIP, General Partner
Date: March 27, 1998 By /s/ Morton H. Fleischer
---------------------------------
Morton H. Fleischer,
General Partner
By: PERIMETER CENTER MANAGEMENT
COMPANY, Corporate General Partner
Date: March 27, 1998 By /s/ Morton H. Fleischer
---------------------------------
Morton H. Fleischer,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Partnership and in the capacities and on the dates indicated.
SIGNATURES OF REQUIRED OFFICERS AND DIRECTORS OF PERIMETER CENTER
MANAGEMENT COMPANY, CORPORATE GENERAL PARTNER OF FFCA MANAGEMENT
COMPANY LIMITED PARTNERSHIP, GENERAL PARTNER OF PARTICIPATING INCOME
PROPERTIES 1986, L.P.
Date: March 27, 1998 By /s/ Morton H. Fleischer
---------------------------------------
Morton H. Fleischer, President, Chief
Executive Officer and Director
Date: March 27, 1998 By /s/ John Barravecchia
---------------------------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer,
Treasurer and Assistant Secretary
<PAGE>
Date: March 27, 1998 By /s/ Catherine F. Long
---------------------------------------
Catherine F. Long, Senior Vice
President-Finance, Principal Accounting
Officer, Assistant Secretary and
Assistant Treasurer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Co-Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FFCA INVESTOR SERVICES CORPORATION 86-B
Date: March 27, 1998 By /s/ Morton H. Fleischer
---------------------------------------
Morton H. Fleischer, Sole Director
Date: March 27, 1998 By /s/ John Barravecchia
---------------------------------------
John Barravecchia, President,
Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Participating Income Properties 1986, L.P.:
We have audited the accompanying consolidated balance sheets of PARTICIPATING
INCOME PROPERTIES 1986, L.P. (a Delaware limited partnership) and affiliate as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in partners' capital and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements and the
schedule referred to below are the responsibility of the partnership's general
partner. Our responsibility is to express an opinion on these financial
statements and schedule 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 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 Participating Income Properties
1986, L.P. and affiliate as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule for Real Estate and
Accumulated Depreciation is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 6, 1998, (except with respect to the matter discussed
in Note 6, as to which the date is February 3, 1998).
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
--------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS $ 2,402,680 $ 2,346,371
RECEIVABLES FROM LESSEES 161,608 149,803
SECURED NOTES RECEIVABLE 100,569 131,323
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 24,815,472 26,131,515
------------ ------------
Total assets $ 27,480,329 $ 28,759,012
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 1,366,497 $ 1,321,426
PAYABLE TO GENERAL PARTNER - 10,304
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 52,297 49,704
RENTAL DEPOSITS 114,400 114,400
------------ ------------
Total liabilities 1,533,194 1,495,834
------------ ------------
MINORITY INTEREST (Note 1) (16,239) (14,923)
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (171,205) (158,058)
Limited partners 26,134,579 27,436,159
------------ ------------
Total partners' capital 25,963,374 27,278,101
------------ ------------
Total liabilities and partners' capital $ 27,480,329 $ 28,759,012
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental $4,288,989 $4,295,373 $4,314,524
Participating rentals 1,897,489 1,818,632 1,894,911
Interest and other 110,695 99,868 197,275
Gain on sale of property - 75,958 157,286
---------- ---------- ----------
6,297,173 6,289,831 6,563,996
----------- ----------- -----------
EXPENSES:
General partner fees (Note 5) 549,359 543,553 558,712
Depreciation 1,316,043 1,559,843 1,863,412
Operating 186,938 168,215 192,484
---------- ---------- ----------
2,052,340 2,271,611 2,614,608
---------- ---------- ----------
MINORITY INTEREST IN INCOME (Note 1) 4,930 4,702 4,608
---------- ---------- ----------
NET INCOME $4,239,903 $4,013,518 $3,944,780
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partner $ 42,399 $ 40,135 $ 39,448
Limited partners 4,197,504 3,973,383 3,905,332
---------- ---------- ----------
$4,239,903 $4,013,518 $3,944,780
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 51,687 units held by
limited partners) $81.21 $76.87 $75.56
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1994 $(126,190) $32,641,111 $32,514,921
Net income 39,448 3,905,332 3,944,780
Distributions to partners,
cash from operations (56,492) (5,592,710) (5,649,202)
Return of capital to limited partners (Note 1) - (2,050,000) (2,050,000)
--------- ----------- -----------
BALANCE, December 31, 1995 (143,234) 28,903,733 28,760,499
Net income 40,135 3,973,383 4,013,518
Distributions to partners,
cash from operations (54,959) (5,440,957) (5,495,916)
--------- ----------- -----------
BALANCE, December 31, 1996 (158,058) 27,436,159 27,278,101
Net income 42,399 4,197,504 4,239,903
Distributions to partners,
cash from operations (55,546) (5,499,084) (5,554,630)
--------- ----------- -----------
BALANCE, December 31, 1997 $(171,205) $26,134,579 $25,963,374
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,239,903 $ 4,013,518 $ 3,944,780
Adjustments to net income:
Depreciation 1,316,043 1,559,843 1,863,412
Gain on sale of property - (75,958) (157,286)
Minority interest in income 4,930 4,702 4,608
Change in assets and liabilities:
Decrease (increase) in receivables from lessees (11,805) (5,620) 10,817
Increase (decrease) in payable to general partner (10,304) (7,401) 17,705
Increase (decrease) in accounts payable
and accrued liabilities 2,593 (11,384) (49,309)
----------- ----------- -----------
Net cash provided by operating activities 5,541,360 5,477,700 5,634,727
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - 811,441 207,818
Principal collections on secured notes receivable 30,754 26,588 7,412
----------- ----------- -----------
Net cash provided by investing activities 30,754 838,029 215,230
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (5,554,630) (5,495,916) (5,649,202)
Return of capital to limited partners declared (Note 1) - - (2,050,000)
Increase (decrease) in distribution payable 45,071 (2,117,230) 2,072,402
Distributions to minority interest (6,246) (6,189) (6,312)
----------- ----------- -----------
Net cash used in financing activities (5,515,805) (7,619,335) (5,633,112)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 56,309 (1,303,606) 216,845
CASH AND CASH EQUIVALENTS, beginning of year 2,346,371 3,649,977 3,433,132
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,402,680 $ 2,346,371 $ 3,649,977
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Noncash Investing Activity: In 1995, the Partnership
sold equipment, received a secured note in the amount of $65,341, and
deferred a gain of $1,251 on the sale.
The accompanying notes are an integral part of these
consolidated statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
Notes to Consolidated Financial Statements
------------------------------------------
December 31, 1997 and 1996
--------------------------
1) ORGANIZATION:
-------------
Participating Income Properties 1986, L.P. (the Partnership) was formed
on June 23, 1986 under the Delaware Revised Uniform Limited Partnership Act. The
Partnership invests as a co-general partner with Perimeter Center Management
Company (PCMC) in FFCA/PIP 1986 Property Company, a Delaware general partnership
(the Property Company). The general partner of the Partnership is FFCA
Management Company Limited Partnership (the General Partner) of which PCMC is a
general partner. The Property Company was organized to purchase new and existing
"Flying J Travel Plaza" facilities, including land, buildings and equipment to
be leased on a net basis to Flying J Inc. and certain franchisees of Flying J
Franchise Inc. At December 31, 1997 and 1996, eight of the eleven travel plazas
owned by the Partnership were leased to CFJ Properties (CFJ), an affiliate of
Flying J Inc., one of the travel plazas was leased to Flying J Inc. and the
remaining two were leased to franchisees that operate Flying J Travel Plazas.
"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. The
Partnership and the Property Company will expire December 31, 2029 and 2028,
respectively, or sooner, in accordance with the terms of their respective
agreements.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA Investor Services
Corporation 86-B (the Initial Limited Partner), a Delaware corporation
wholly-owned by PCMC. Holders of the units have all of the economic benefits and
substantially the same rights and powers of limited partners; therefore, they
are referred to herein as "limited partners."
The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:
Profits and Losses: Allocated 99% to the limited partners and 1% to the
General Partner.
Cash Distributions: All cash from operations, as defined, after payment
of fees to the General Partner is allocated 99% to the limited partners
and 1% to the General Partner. Cash proceeds from the sale of property
are not considered cash from operations but, when distributed,
represent a partial return of the limited partners' initial $1,000 per
unit capital contribution. There has been one such distribution to
date, therefore, the limited partner Adjusted Capital Contribution, as
defined in the Partnership agreement, at December 31, 1997 is $960.34
per unit.
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $4,239,903 $4,013,518 $3,944,780
Adjustments to reconcile net income to
cash distributions declared:
Depreciation 1,316,043 1,559,843 1,863,412
Gain on sale of property - (75,958) (157,286)
Change in minority interest (1,316) (1,487) (1,704)
---------- ---------- ----------
Cash distributions declared
from operations $5,554,630 $5,495,916 $5,649,202
========== ========== ==========
</TABLE>
The Property Company agreement provides for allocation of profits and
losses and cash distributions among its partners as follows:
Profits and Losses: Allocated 99.9% to the Partnership and .1% to PCMC.
Cash Distributions: All cash from operations, as defined, is allocated
99.9% to the Partnership and .1% to PCMC.
2) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Consolidation and Financial Statements - The accompanying consolidated
financial statements include the accounts of the Partnership and the Property
Company in which the Partnership holds a substantial interest, as discussed in
Note 1. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements are prepared
on the accrual basis of accounting. The preparation of the financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although management believes
its estimates are reasonable, actual results could differ from those estimates.
Cash and Cash Equivalents - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $2,091,603 and $2,210,317 at December 31, 1997 and 1996,
respectively. Short-term investments are recorded at cost plus accrued interest,
which approximates market value.
Leases - The Partnership leases its property under long-term net leases
which are classified as operating leases. Rental revenue from operating leases
is recognized as it is earned.
Depreciation - Depreciation on buildings is provided using the
straight-line method based upon an estimated useful life of 24 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 10%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
3) PROPERTY SUBJECT TO OPERATING LEASES:
-------------------------------------
The following is an analysis of the Partnership's investment, at cost,
in property subject to operating leases by major class at December 31, 1997 and
1996:
1997 1996
------------ ------------
Land $ 6,773,272 $ 6,773,272
Buildings 29,669,322 29,669,322
Equipment 626,781 626,781
------------ ------------
37,069,375 37,069,375
Less - Accumulated depreciation 12,253,903 10,937,860
------------ ------------
$24,815,472 $26,131,515
============ ============
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Property Company receives a
portion of the operating revenues of the lessee equal to a percentage of gross
receipts (participating rentals) from travel plaza facilities and fuel sales.
The terms of the leases are eight years for equipment and 20 years for land and
buildings. Generally, the lessee has the option to purchase equipment (at fair
market value) at the end of the lease term and land and buildings (at the
greater of fair market value or cost) at any time after the first ten years of
the lease. Of the two equipment leases remaining at December 31, 1997, one will
expire in 1998 and the other lease is not subject to a purchase option. During
the year ended December 31, 1997, CFJ and Flying J Inc., accounting for 88% of
total rental and participating rental revenue, operated a total of nine
Partnership properties in Idaho, Montana, California, Arizona, Iowa, Missouri,
<PAGE>
Texas and Wyoming. The Partnership is the beneficiary of a letter of credit from
CFJ in the amount of $634,300 to be used as security for CFJ's lease payments.
Minimum future rentals (excluding participating rentals) under
noncancellable operating leases as of December 31, 1997, are as follows:
Year Ending December 31,
------------------------
1998 $ 4,289,000
1999 4,289,000
2000 4,289,000
2001 4,289,000
2002 4,289,000
Thereafter 22,504,000
------------
Total minimum future rentals $43,949,000
==== ============
The General Partner, the Property Company, Flying J Inc. and Flying J
Franchise Inc. have entered into an operating agreement. In the event of a
default in the payment of any amount due and payable under the lease agreements,
and upon the General Partner's written request and delivery of the defaulting
lessee's property to Flying J Inc., Flying J Inc. has agreed to operate such
defaulted lessee's property for the maximum potential lease term.
4) INCOME TAXES:
-------------
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income reported for Federal income tax purposes for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income for financial reporting purposes $4,239,903 $4,013,518 $3,944,780
Differences for tax purposes in:
Depreciation 554,950 765,189 965,142
Gain on sale and other - 17,534 (375,409)
---------- ---------- ----------
Taxable income to partners $4,794,853 $4,796,241 $4,534,513
========== ========== ==========
</TABLE>
For Federal income tax reporting purposes, taxable income to partners is
reported on the accrual basis of accounting and is classified as ordinary
income.
At December 31, 1997, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$4,688,426. This difference results primarily from the use of different
depreciation methods for financial reporting and tax reporting purposes.
5) TRANSACTIONS WITH RELATED PARTIES:
----------------------------------
Under the terms of the Partnership agreement, the General Partner is
entitled to compensation for certain services performed in connection with
managing the affairs of the Partnership. During 1997, 1996 and 1995, fees paid
to the General Partner were as follows:
<PAGE>
1997 1996 1995
-------- -------- --------
Disbursable cash fee $549,359 $543,553 $558,712
======== ======== ========
The disbursable cash fee equals 9% of all cash received by the
Partnership (excluding sale proceeds) less Partnership operating expenses, only
to the extent the limited partners have received an annual return of 9%
(calculated quarterly) on their Adjusted Capital Contribution, as defined. A
subordinated real estate disposition fee equal to three percent of the selling
price on the disposition of any real property (subject to certain limitations)
is payable only after the limited partners have received an amount equal to
their Adjusted Capital Contribution and a cumulative, non-compounded return of
10% per annum on their Adjusted Capital Contribution.
An affiliate of the General Partner incurs expenses on behalf of the
Partnership for maintenance of the books and records and for computer, investor
and legal services performed for the Partnership. These expenses are
reimbursable in accordance with the Partnership agreement and are less than the
amount which the Partnership would have paid to independent parties for
comparable services. The Partnership reimbursed the affiliate $35,018 in 1997,
$30,001 in 1996 and $29,301 in 1995 for such expenses.
6) SUBSEQUENT EVENT - POSSIBLE SALE OF SUBSTANTIALLY ALL ASSETS:
-------------------------------------------------------------
On February 2, 1998, the Partnership entered into a letter of intent
with Flying J. Inc. to sell substantially all of the Partnership's assets for
cash of approximately $52 million. The sale is subject to certain conditions
specified in the letter of intent, including the negotiation and execution of
definitive sale and financing agreements with respect to the assets of the
Partnership and the approval, by vote, of a majority of the limited partner
interests. In accordance with the partnership agreement, sale of substantially
all of the assets will result in dissolution of the partnership and liquidation
of remaining Partnership assets, net of liabilities. There can be no assurance
as to the final terms of the proposed transaction, that the conditions will be
satisfied or that the proposed transaction will be consummated.
The negotiated sale price of approximately $52 million, net of book
value of the assets to be sold, would have resulted in an estimated gain of $27
million had the proposed sale taken place at December 31, 1997. Subsequent to
the proposed asset sale and conversion of other Partnership assets into cash
upon liquidation, a liquidating cash distribution will be made to investors in
accordance with the Partnership agreement. Had the sale (as proposed) occurred
at December 31, 1997, it is estimated that the liquidating cash distribution
would have been in the range of $965 to $990 per limited partnership unit. The
actual liquidating distribution to be received by investors will depend upon the
actual date and terms of the sale and the actual costs of liquidating the
Partnership.
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATION INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1997
-----------------------
<TABLE>
<CAPTION>
Initial Cost to Partnership and
Gross Amount at December 31, 1997
------------------------------------------------------
Travel Plaza Location Land Buildings Equipment Total
--------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
ELOY, ARIZONA $ 458,740 $ 3,558,260 $ -- $ 4,017,000
THOUSAND PALMS, CALIFORNIA 809,050 2,757,950 -- 3,567,000
BOISE, IDAHO 1,007,082 1,213,244 -- 2,220,326
POST FALLS, IDAHO 351,320 1,818,680 -- 2,170,000
CLIVE, IOWA 307,250 6,191,750 -- 6,499,000
TRUXTON, MISSOURI 403,600 3,803,400 -- 4,207,000
BUTTE, MONTANA 242,710 1,631,290 259,000 2,133,000
AMARILLO, TEXAS 1,326,000 2,814,000 -- 4,140,000
ELLENSBURG, WASHINGTON 533,040 1,266,113 -- 1,799,153
EVANSTON, WYOMING 622,640 1,188,475 367,781 2,178,896
CHEYENNE, WYOMING 711,840 3,426,160 -- 4,138,000
---------- ----------- --------- -----------
TOTAL $6,773,272 $29,669,322 $ 626,781 $37,069,375
========== =========== ========= ===========
<CAPTION>
Accumulated Depreciation
-----------------------------------------
Date
Travel Plaza Location Buildings Equipment Total Acquired
--------------------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ELOY, ARIZONA $ 1,396,123 $ -- $ 1,396,123 Aug. 1988
THOUSAND PALMS, CALIFORNIA 1,091,689 -- 1,091,689 July 1988
BOISE, IDAHO 556,070 -- 556,070 Jan. 1987
POST FALLS, IDAHO 833,562 -- 833,562 Jan. 1987
CLIVE, IOWA 2,450,901 -- 2,450,901 July 1988
TRUXTON, MISSOURI 1,505,513 -- 1,505,513 July 1988
BUTTE, MONTANA 676,609 233,099 909,708 July 1987
AMARILLO, TEXAS 991,571 -- 991,571 June 1988
ELLENSBURG, WASHINGTON 509,575 -- 509,575 Sept. 1987
EVANSTON, WYOMING 297,119 367,781 664,900 Dec. 1987*
CHEYENNE, WYOMING 1,344,291 -- 1,344,291 Aug. 1988
----------- --------- -----------
TOTAL $11,653,023 $ 600,880 $12,253,903
=========== ========= ===========
</TABLE>
* Restaurant reconstructed during 1991
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
--------------------------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1997
-----------------------
NOTES:
(1) There are no encumbrances on properties.
(2) Cost for Federal income tax purposes is the same as cost for financial
reporting purposes.
(3) All buildings and equipment are depreciated over estimated useful lives
of 24 and eight years, respectively. Substantially all of the buildings
and equipment were purchased as new properties.
(4) Transactions in real estate, equipment and accumulated depreciation
during 1997, 1996 and 1995 are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Balance, December 31, 1994 $42,845,802 $12,440,927
Cost of equipment sold (2,185,260) (2,070,638)
Depreciation expense - 1,863,412
----------- -----------
Balance, December 31, 1995 40,660,542 12,233,701
Cost of land sold (248,645) -
Cost of equipment sold (3,342,522) (2,855,684)
Depreciation expense - 1,559,843
----------- -----------
Balance, December 31, 1996 37,069,375 10,937,860
Depreciation expense - 1,316,043
----------- -----------
Balance, December 31, 1997 $37,069,375 $12,253,903
=========== ===========
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FFCA Investor Services Corporation 86-B:
We have audited the accompanying balance sheet of FFCA INVESTOR SERVICES
CORPORATION 86-B (a Delaware corporation) as of December 31, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FFCA Investor Services Corporation
86-B as of December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 6, 1998.
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 86-B
---------------------------------------
BALANCE SHEET - DECEMBER 31, 1997
---------------------------------
ASSETS
Cash $100
Investment in Participating Income Properties 1986, L.P.,
at cost
100
----
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
The accompanying notes are an integral part of this
balance sheet.
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 86-B
---------------------------------------
NOTES TO BALANCE SHEET
----------------------
DECEMBER 3l, l997
-----------------
(l) Operations:
FFCA Investor Services Corporation 86-B (a Delaware corporation)
(86-B) was organized on June 23, l986 to act as the assignor limited partner in
Participating Income Properties 1986, L.P. (PIP-86).
The assignor limited partner is the owner of record of the limited
partnership units of PIP-86. All rights and powers of 86-B have been assigned to
the holders, who are the registered and beneficial owners of the units. Other
than to serve as assignor limited partner, 86-B has no other business purpose
and will not engage in any other activity or incur any debt.
(2) Related Parties:
Perimeter Center Management Company (a Delaware corporation) (PCMC)
is the sole stockholder of 86-B. The general partner of PIP-86 is an affiliate
of PCMC.
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P.
and
FFCA INVESTOR SERVICES CORPORATION 86-B
--------------------------------
Exhibit Index
The following is a complete list of exhibits filed as part of this Form
10-K. For electronic filing purposes only, this report contains Exhibit
27, the Financial Data Schedule. Exhibit numbers correspond to the
numbers in the Exhibit Table of Item 601 of Regulation S-K.
--------------------------------
Sequentially
Exhibit Numbered Page
------- -------------
99. Annual Portfolio Valuation of Cushman
& Wakefield as of December 31, 1997.
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, Commission File No. 0-16720,
is incorporated herein by this reference.
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, Commission File No.
0-16720, are incorporated herein by this reference.
<TABLE>
<CAPTION>
1986 Form 10-K
Exhibit No.
-----------
<S> <C>
Depositary Agreement of the Partnership. 3-C
The Certificate of Incorporation which governs 3-D
FFCA Investor Services Corporation 86-B, as filed
with the Secretary of State of Delaware on June 23,
1986.
Bylaws of FFCA Investor Services Corporation 86-B. 3-E
</TABLE>
<PAGE>
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' Registration Statement on Form S-11, Registration No.
33-7502, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997 AND
THE STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 797977
<NAME> PARTICIPATING INCOME PROPERTIES 1986, L.P.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,402,680
<SECURITIES> 0
<RECEIVABLES> 262,177
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,069,375
<DEPRECIATION> 12,253,903
<TOTAL-ASSETS> 27,480,329
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,963,374
<TOTAL-LIABILITY-AND-EQUITY> 27,480,329
<SALES> 0
<TOTAL-REVENUES> 6,297,173
<CGS> 0
<TOTAL-COSTS> 2,052,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,239,903
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,239,903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,239,903
<EPS-PRIMARY> 81.21
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
BALANCE SHEET.
</LEGEND>
<CIK> 797978
<NAME> FFCA INVESTOR SERVICES CORPORATION 86-B
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 200
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
[CUSHMAN & WAKEFIELD, INC. LETTERHEAD]
February 4, 1998
FFCA/PIP 1986 Property Company
FFCA Management Company, L.P.
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Attn: Morton H. Fleischer
General Partner
Re: Annual Portfolio Valuation
FFCA/PIP 1986 Property Company
Gentlemen:
Pursuant to your request, we have completed our analysis of properties
contained in FFCA/PIP 1986 Property Company. The purpose of our analysis is
twofold: to report on the physical condition of the premises and determine the
lessee's compliance with the terms of the net lease agreement; and to estimate
the market value of the various properties on a going concern basis subject to
existing lease encumbrances for the purpose of determining the value of the
leased fee interest. The valuation includes equipment lease income for most of
the properties. Our opinion of value for the real properties will then be
adjusted for cash on hand, notes receivable, net receivables, distributions
payable and other liabilities, which information is provided by the General
Partner. It should be noted that Cushman & Wakefield's opinion is restricted to
the market value of the Partnership's interest in the real properties; we are
not opining as to the value of the other assets or liabilities of the
Partnership. Furthermore, our opinion is subject to the attached Certification
and Assumptions and Limiting Conditions which have been retained in our files.
The date of value was December 31, 1997.
According to The Dictionary of Real Estate Appraisal, Third Edition,
published by the Appraisal Institute, market value may be defined as:
"The most probable price, as of a specified date, in cash, or in terms
equivalent to cash, or in other precisely revealed terms for which the specified
property rights should sell after reasonable exposure in a competitive market
under all conditions requisite to a fair sale, with the buyer and seller each
acting prudently, knowledgeably, and for self-interest, and assuming that
neither is under undue duress."
The real properties that are the subject of this valuation have been
inspected by members of Cushman & Wakefield's Valuation Advisory Services Group
operating under the supervision of the undersigned. Overall, the properties were
viewed to be in good physical condition and generally in compliance with net
lease requirements. Individual property data relating to our reinspections will
be delivered to you under separate cover and is part of our valuation.
Our valuation addresses the market value of the leased fee interest in
these properties as a going concern and considers the various net leases in
effect. The vast majority of the data used for this analysis has been supplied
to us by FFCA Management Company, L.P., and we have relied upon their database
input, various reports and financial statements. We have visited their offices
in Scottsdale, Arizona and have had complete and unrestricted access to all
pertinent information, and have assumed all such information to be accurate and
complete. We have verified certain data and resolved any discrepancies by
reconciling to Cushman & Wakefield's database. The individual
property-by-property database and cash flow projections have been delivered
under separate cover and are a part of our valuation.
For the purposes of our valuation, we have determined that the highest
and best use of the real properties is their continued use as travel plazas. The
Income Approach to value is relied upon as the primary appraisal technique based
upon the properties' capabilities to generate net income and to be bought and
sold in the investment marketplace. Neither the Cost Approach nor the Sales
Comparison Approach were considered directly relevant in
<PAGE>
Cushman & Wakefield, Inc.
Mr. Morton H. Fleischer
General Partner
-2-
February 4, 1998
the analysis of a travel plaza under long term lease. Within the Income
Approach, the discounted cash flow method was employed, whereby anticipated
future income streams over a 10 year holding period and a reversionary value
(sale at the end of the tenth year) are discounted via a market derived rate to
a net present value estimate utilizing a proprietary cash flow model.
Anticipated rental income as well as deductions for management fees and
administrative expenses are analyzed over the holding period. Consideration has
also been given to direct capitalization of estimated 1998 net income.
FFCA/PIP 1986 Property Company contains 11 travel plaza properties that
are net leased to CFJ Properties, Flying J. Inc., or franchisees that operate
Flying J Travel Plazas. Gross proceeds originally raised by this Partnership
amounted to $51,687,000 (51,687 units @ $1,000 per unit). As of December 31,
1997, $2,050,000 of capital was returned to the partners, maintaining the
adjusted gross proceeds raised at $49,637,000 or $960.34 per unit. Of this
amount, adjusted net proceeds invested in the properties contained in this
Partnership amounted to $37,069,375 after adjusting for organization costs and
sales commissions. The Partnership was fully invested in September 1988.
Considering all of the above factors, it is our opinion that the market
value of the leased fee interest in the 11 properties on a going concern basis
subject to existing lease encumbrances, as of December 31, 1997, was:
FIFTY TWO MILLION ONE HUNDRED THIRTY EIGHT THOUSAND DOLLARS
$52,138,000
The aggregate market value of the leased fee interest in the 11
properties is $52,138,000 as adjusted by cash on hand, net receivables and notes
receivable of $2,664,857 less distributions payable and other liabilities of
$1,533,194 as provided by the General Partner resulting in a total of
$53,269,663. This total as of December 31, 1997 represents a 43.70 percent
increase above the adjusted net proceeds. Dividing the total value by the 51,687
outstanding units results in an indicated value per unit investment of $1,030.62
which represents an increase of 7.32 percent from the adjusted unit investment
of $960.34.
The continued favorable performance of the Partnership, in our opinion,
is directly attributable to the quality of management and the numerous
safeguards built into the acquisition and management program. Our due diligence
has revealed that when problems arise, management has acted prudently in
avoiding defaults and delinquent rent payments, working effectively with
franchisees and franchisors.
We certify that neither Cushman & Wakefield, Inc. nor the undersigned
have any present or prospective interest in the Partnership's properties, and we
have no personal interest or bias with respect to the parties involved. To the
best of our knowledge and belief, the facts upon which the analysis and
conclusions were based are materially true and correct. No one other than the
undersigned assisted by members of our staff who performed inspections of the
properties, performed the analyses and reached the conclusions resulting in the
opinion expressed in this letter. Our fee for this assignment was not contingent
on any action or event resulting from the analysis, opinions or conclusions in,
or the use of, this analysis. Our analysis has been prepared subject to the
Departure Provision of the Uniform Standards of Professional Practice of the
Appraisal Foundation and the Code of Professional Ethics and the Standards of
Professional Appraisal Practice of the Appraisal Institute. The use of this
restricted appraisal report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives. As of the
date of this report, the undersigned have completed the requirements of the
continuing education program of the Appraisal Institute.
Respectfully submitted,
Cushman & Wakefield, Inc.
<TABLE>
<S> <C> <C>
/s/ Matthew C. Mondanile /s/ Brian R. Corcoran /s/ Frank P. Liantonio
Matthew C. Mondanile, MAI Brian R. Corcoran, MAI, CRE Frank P. Liantonio, MAI, CRE
Senior Director Executive Managing Director Executive Managing Director
Valuation Advisory Services Valuation Advisory Services Valuation Advisory Services
</TABLE>
