SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT UNDER SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission File Number 0-16720
Commission File Number 0-16721
PARTICIPATING INCOME PROPERTIES 1986, L.P.
AND
FFCA INVESTOR SERVICES CORPORATION 86-B
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(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0570015
- ----------------------------------- -------------------------
(Partnership State of Organization) (Partnership IRS Employer
Identification No.)
Delaware 86-0557949
- ------------------------------------ -------------------------
(Corporation State of Incorporation) (Corporation IRS Employer
Identification No.)
The Perimeter Center 85255
17207 North Perimeter Drive ---------
Scottsdale, Arizona (Zip Code)
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(Address of Principal Executive Offices)
Co-Registrants' telephone number, including area code: (602) 585-4500
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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,
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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 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 78 interstate travel plaza properties as
of January 31, 1998.
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The Company owned eight of these properties at December 31, 1997. Under the
terms of the joint venture, Big West sold to Douglas Oil certain Flying J Travel
Plazas, which Douglas Oil contributed back to CFJ Properties. In addition to
this initial contribution, Douglas Oil also made additional contributions to CFJ
Properties. As its initial contribution, Big West transferred to CFJ Properties
certain leasehold interests and Flying J Travel Plazas, and subsequently
contributed to CFJ Properties various assets including working capital,
inventories and future development sites. With the exception of the Butte,
Montana travel plaza, Flying J Inc. assigned its leasehold interests in the
travel plazas owned by the Company to CFJ Properties and was released by the
Company with respect to its obligations under those leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constitutes a default on all other leases to the same
lessee by the Partnership and two other partnerships sponsored by affiliates of
the General Partner, all of whose travel plazas are leased to CFJ Properties,
Flying J Inc. or franchisees of FJFI.
For the fiscal year ended January 31, 1998, CFJ Properties reported net
income of $16 million on revenues of $1.3 billion. Revenues rose 7% from $1.2
billion in the prior year. The higher revenues resulted from the opening of six
new units and increases in fuel prices. Net income increased from $1.8 million
in the prior year due to higher gross profit margins.
During the fiscal year ended January 31, 1998, CFJ Properties reported
$41.7 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, 1998, CFJ Properties reported cash balances of
approximately $3.8 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, 1998, CFJ Properties reported partners' capital of $155.5 million
and total assets of $463.7 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which generally expire at various dates over the next 9 to 15
years. Payments under these leases were $17.5 million in fiscal 1998 and $17.3
million in fiscal 1997, including percentage lease payments. Future minimum
annual rent obligations under non-cancelable leases, as projected through 2003,
remain comparable to 1998 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 $27.5 million during the fiscal year
ended January 31, 1998 as compared to $24.4 million in fiscal year 1997. Total
travel plaza unit-level income for these nine properties (before depreciation
and allocated corporate overhead) totaled approximately $2.8 million in 1998
with five of the nine properties reporting positive unit-level income. The
remaining four properties reported net losses primarily due to higher expenses.
The combined result of the travel plaza
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unit-level income before depreciation and allocated corporate overhead was up
from $700,000 in the prior year due largely to an increase in fuel and non-fuel
sales volumes and an increase in fuel prices. Volumes and margins were reduced
in 1997 due to CFJ's curtailment of its relationship with a third party billing
company in June 1996. For CFJ Properties' fiscal year ended January 31, 1998,
the average unit-level base and participating rents approximated 14.4% of the
original cost of these properties.
Those properties that each represent over 10% of the Partnership's
total assets at December 31, 1997 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. The limited partners will
receive a proxy statement containing a complete description of the proposed
transaction when the sale and financing agreements are finalized.
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
(the Boise Plaza) to CFJ Properties for a cash sale price of $3,385,784. The
Boise Plaza was a full-service travel plaza, built on a parcel consisting of
approximately 21 acres. The negotiated sale price of approximately $52 million
referenced above originally included the Boise Plaza and since this travel plaza
was sold, the $52 million sale price will be reduced by approximately $3.4
million. Proceeds from the Boise Plaza sale were $65.50 per limited partnership
unit and were distributed to the limited partners in April 1998 as a partial
return of their adjusted capital contribution. The Partnership accrued a
subordinated real estate disposition fee equal to three percent of the selling
price of the Boise Plaza (amounting to $101,574) payable to the General Partner
of the Partnership.
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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 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
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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 to make their
scheduled lease payments to the Partnership.
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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
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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.
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
(including the Boise Plaza). 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
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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.
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.
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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
CFJ Properties
(A General Partnership)
Independent Auditors' Report
Balance Sheets as of January 31, 1998 and 1997
Statements of Income and Partners' Capital for the
years ended January 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended January 31, 1998,
1997 and 1996
Notes to Financial Statements
Clive Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1998, 1997 and 1996
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Statements of Cash Flows for the years ended January 31, 1998,
1997 and 1996
Note to Financial Statements
Amarillo Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended January 31, 1998,
1997 and 1996
Note to Financial Statements
Cheyenne Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and Expenses
for the years ended January 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended January 31, 1998,
1997 and 1996
Note to Financial Statements
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
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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.
1986 Form 10-K
Exhibit No.
-----------
Depositary Agreement of the Partnership. 3-C
The Certificate of Incorporation which 3-D
governs FFCA Investor Services
Corporation 86-B, as filed with the
Secretary of State of Delaware on
June 23, 1986.
Bylaws of FFCA Investor Services 3-E
Corporation 86-B.
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.
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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: June 24, 1998 By /s/ Morton H. Fleischer
-----------------------
Morton H. Fleischer, General Partner
By: PERIMETER CENTER MANAGEMENT COMPANY,
Corporate General Partner
Date: June 24, 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: June 24, 1998 By /s/ Morton H. Fleischer
-----------------------
Morton H. Fleischer, President, Chief
Executive Officer and Director
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Date: June 24, 1998 By /s/ John Barravecchia
---------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer,
Treasurer and Assistant Secretary
Date: June 24, 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: June 24, 1998 By /s/ Morton H. Fleischer
-----------------------
Morton H. Fleischer, Sole Director
Date: June 24, 1998 By /s/ John Barravecchia
---------------------
John Barravecchia, President, Secretary,
Treasurer, Principal Financial Officer
and Principal Accounting Officer
<PAGE>
Independent Auditors' Report
================================================================================
The Board of Directors
CFJ Properties:
We have audited the accompanying balance sheets of CFJ Properties (a general
partnership) as of January 31, 1998 and 1997, and the related statements of
income and partners' capital, and cash flows for each of the years in the
three-year period ended January 31, 1998. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CFJ Properties as of January
31, 1998 and 1997, and the results of its operations and its cash flows for each
of the years in the three-year period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 31, 1998
<PAGE>
Balance Sheets
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Assets 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,778 $ 2,138
Trade receivables, net of allowance for doubtful accounts
of $114 in 1998 and $129 in 1997 (note 8) 15,392 11,400
Inventories (note 2) 18,647 20,308
Prepaid expenses 3,321 2,141
- --------------------------------------------------------------------------------------------------
Total current assets 41,138 35,987
- --------------------------------------------------------------------------------------------------
Land, buildings, and equipment:
Land and improvements 151,572 129,270
Buildings 169,203 145,875
Equipment 124,325 105,561
Leasehold improvements 24,330 24,317
Construction-in-progress 30,983 29,454
- --------------------------------------------------------------------------------------------------
500,413 434,477
Less accumulated depreciation and amortization 79,177 58,932
- --------------------------------------------------------------------------------------------------
Net land, buildings, and equipment 421,236 375,545
- --------------------------------------------------------------------------------------------------
Long-term notes receivable 35 395
Other assets (note 3) 1,339 957
- --------------------------------------------------------------------------------------------------
$ 463,748 $ 412,884
==================================================================================================
Liabilities and Partners' Capital
- --------------------------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt (note 5) $ 10,000 $ 0
Accounts payable (note 8) 56,901 58,395
Accrued liabilities (notes 4 and 8) 27,863 20,995
- --------------------------------------------------------------------------------------------------
Total current liabilities 94,764 79,390
Long-term debt, excluding current installments (note 5) 209,300 190,000
Other liabilities 4,206 4,016
- --------------------------------------------------------------------------------------------------
Total liabilities 308,270 273,406
- --------------------------------------------------------------------------------------------------
Partners' capital 155,478 139,478
Commitments and contingencies (notes 6 and 10)
- --------------------------------------------------------------------------------------------------
$ 463,748 $ 412,884
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Statements of Income and Partners' Capital
================================================================================
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (note 1(f)) $ 1,864,637 $ 1,688,194 $ 1,413,270
Cost of sales 1,638,532 1,501,758 1,231,752
- -------------------------------------------------------------------------------------------
Gross profit 226,105 186,436 181,518
- -------------------------------------------------------------------------------------------
Operating, general, and administrative expense:
Operating 183,569 162,236 145,959
General and administrative 14,215 11,732 11,753
- -------------------------------------------------------------------------------------------
197,784 173,968 157,712
- -------------------------------------------------------------------------------------------
Income from operations 28,321 12,468 23,806
- -------------------------------------------------------------------------------------------
Other income (expense):
Interest income 106 134 93
Interest expense, net (12,311) (10,659) (6,642)
Loss on sale of fixed assets, net (116) (163) (52)
- -------------------------------------------------------------------------------------------
(12,321) (10,688) (6,601)
- -------------------------------------------------------------------------------------------
Net income 16,000 1,780 17,205
Partners' capital, beginning of year 139,478 137,698 120,493
- -------------------------------------------------------------------------------------------
Partners' capital, end of year $ 155,478 $ 139,478 $ 137,698
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Statements of Cash Flows
================================================================================
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 16,000 $ 1,780 $ 17,205
Adjustments to reconcile net income to net cash provided by
operating activites:
Depreciation and amortization 22,067 19,080 14,933
Provision for losses on accounts receivable 137 84 35
Loss on sale of fixed assets 116 163 52
Changes in assets and liabilities:
Trade receivables (4,129) 352 (3,838)
Inventories 1,661 (4,476) (3,034)
Prepaid expenses (1,180) 88 (1,025)
Other assets (575) (106) (128)
Accounts payable and accrued liabilities 7,382 4,723 8,817
Other liabilities 190 607 2,739
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 41,669 22,295 35,756
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (note 8) (69,689) (56,111) (104,107)
Note receivable 360 140 (535)
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (69,329) (55,971) (104,642)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 25,000 0 25,000
Net proceeds under line of credit agreements 4,300 33,500 44,500
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 29,300 33,500 69,500
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,640 (176) 614
Cash and cash equivalents, beginning of year 2,138 2,314 1,700
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3,778 $ 2,138 $ 2,314
===================================================================================================
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid for interest, net of capitalized amounts $ 11,530 $ 10,854 $ 6,387
Supplemental Disclosure of Noncash Investing Activities
- -------------------------------------------------------
The capital expenditures noted above are net of accounts payable
increases (decreases) related to the acquisition of building and
equipment of ($2,008), $2,888, and ($4,403) in 1998, 1997, and 1996,
respectively.
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Notes to Financial Statements
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1998, 1997, and 1996
1) Summary of Significant Accounting Policies
The following significant accounting policies are followed by CFJ Properties
(the Partnership) in preparing and presenting its financial statements:
(a) Organization and Line of Business - The Partnership is a Utah general
partnership with its principal business being the development and operation of a
national network of interstate travel plazas in North America. A typical travel
plaza offers a 24-hour service operation which includes fuel facilities, a
restaurant or deli, convenience store, and other amenities designed to meet the
needs of the trucking industry and traveling public. Some travel plazas include
lodging and truck service centers. The Partnership operated 78, 72, and 66
travel plazas, as of January 31, 1998, 1997, and 1996, respectively.
(b) Cash Equivalents - The Partnership considers all investments with original
maturities of three months or less to be cash equivalents.
(c) Inventories - Inventories include gasoline, diesel, ready-to-use additives,
related petroleum products, food, and miscellaneous merchandise. Inventories are
stated at the lower of cost or market value as determined by the first-in,
first-out method.
(d) Land, Buildings, and Equipment - Land, buildings, and equipment are stated
at cost for constructed and purchased assets and fair market value at the date
contributed for contributions from the general partners. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the related assets.
Interest is capitalized in connection with the construction of travel plazas.
The interest capitalized is recorded as part of the asset to which it relates
and is amortized over the asset's useful life. Interest of $2,284,000,
$1,634,000, and $2,925,000, was capitalized for 1998, 1997, and 1996,
respectively.
(e) Income Taxes - The Partnership is not directly subject to income taxes. Each
partner is responsible for income taxes related to their portion of taxable
income.
(f) Retail Fuel Sales - The Partnership includes related federal and state
excise taxes in petroleum product retail sales and cost of sales. Such taxes
amounted to approximately $605,751,000, $516,381,000, and $475,900,000 for 1998,
1997, and 1996, respectively.
(g) New Plaza Opening Costs - Opening costs are expensed when incurred. The
costs associated with new travel plaza openings were approximately $1,923,000,
$2,100,000, and $4,000,000 in 1998, 1997, and 1996, respectively.
(h) Concentration of Credit Risk - Financial instruments which potentially
subject the Partnership to concentrations of credit risk consist principally of
cash and cash equivalents and trade receivables. The Partnership places its cash
and cash equivalent investments with high quality credit financial institutions
and limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Partnership's customer base, and
their dispersion across many different geographical regions. The Partnership
routinely performs credit evaluations of its customers and maintains allowances
for potential credit losses.
(i) Use of Estimates - The Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(j) Reclassifications - Certain amounts in 1997 and 1996 have been reclassified
to conform with the 1998 presentation.
(2) Inventories
Inventories are summarized as follows (in thousands):
1998 1997
--------- --------
Store merchandise and restaurant food $ 15,164 16,368
Petroleum products 3,483 3,940
--------- --------
$ 18,647 20,308
========= ========
5
<PAGE>
================================================================================
(3) Other Assets
Other assets consist of the following (in thousands):
1998 1997
--------- --------
Land deposits $ 908 630
Lease deposits 232 232
Loan origination fees, net 199 95
--------- --------
$ 1,339 957
========= ========
(4) Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
1998 1997
--------- --------
Fuel, property, and sales taxes $ 17,301 14,285
Expense incurred by
operator (note 8) 5,914 4,222
Frequent fueler incentive program 2,668 1,473
Interest 1,664 883
Other 316 132
--------- --------
$ 27,863 20,995
========= ========
(5) Long-term Debt
Under a revolving line of credit agreement with the banks, the Partnership may
borrow up to $150,000,000. Interest is computed at the Partnership's option, at
the LIBOR rate plus plus .5 to 1 percent, or the higher of the federal funds
rate plus .5 percent and the administrative agent bank's prime rate. The
agreement matures February 1, 2002 and requires letter of credit and committment
fees. The Partnership had $94,300,000 and $90,000,000 in outstanding borrowings
under the agreement as of January 31, 1998 and 1997, respectively. Interest
rates on outstanding borrowings range from 6.38 to 8.5 percent. In addition to
the borrowings under the agreement, the Partnership had letters of credit
totaling $3,315,000 outstanding as of January 31, 1998.
Under a fiscal 1995 Master Shelf Agreement, the Partnership issued $125,000,000
in long-term notes payable to an insurance company. The notes bear interest from
7.37 to 9.45 percent and require quarterly interest payments. Annual principal
payments are required beginning March 1998 with the final payment in November
2006.
Aggregate maturities of long-term debt are summarized as follows (in thousands):
1999 $ 10,000
2000 15,000
2001 17,000
2002 16,000
2003 108,300
Thereafter 53,000
-------------
Total $ 219,300
=============
(6) Lease Commitments
The Partnership leases travel plazas and equipment under noncancelable operating
leases, which expire at various dates over the next 9 to 15 years. The leases
are obligations of the Partnership without recourse to the general partners. The
operating leases include minimum and percentage (contingent) lease payments.
Contingent lease payments are based upon gallons sold, restaurant and
merchandise sales, and other revenues.
Minimum lease payments under noncancelable operating leases were $13,120,000,
$13,173,000, and $13,266,000 for the years ended January 31, 1998, 1997, and
1996, respectively. Contingent lease payments under noncancelable operating
leases were $4,390,000, $4,105,000, and $4,348,000 for the years ended January
31, 1998, 1997, and 1996, respectively.
Future minimum payments under noncancelable operating leases as of January 31,
1998 are as follows (in thousands):
1999 $ 13,099
2000 12,832
2001 12,217
2002 12,165
2003 12,144
Thereafter 74,458
-------------
Total $ 136,915
=============
6
<PAGE>
================================================================================
(7) Pension and Profit Sharing Plan
Currently, the Partnership has chosen to have all eligible employees participate
in the noncontributory, defined contribution pension and profit sharing plan of
Flying J Inc. (Flying J), the parent company of one of the general partners.
Flying J's contributions to the plan, which are made at the discretion of the
Board of Directors, may be in cash or qualifying common stock of Flying J. The
Partnership's expenses related to the plan amounted to $1,972,000, $1,591,000,
and $1,212,000 for the years ended January 31, 1998, 1997, and 1996,
respectively.
(8) Related Party Transactions
Flying J operates all travel plazas and related facilities for the Partnership.
Under the terms of the operations agreement, the Partnership reimburses Flying J
for the cost of operations plus a monthly amount for overhead costs. The
overhead cost reimbursements amounted to $1,022,000, $960,000, and $916,000 for
1998, 1997, and 1996, respectively. Flying J paid the Partnership $706,000,
$686,000, and $668,000 during 1998, 1997, and 1996, respectively, for services
performed by the Partnership for certain franchisees of Flying J.
During its normal course of business, the Partnership purchases petroleum
products from the general partners under supply agreements. It is the general
partners' opinion that such agreements are under terms similar to those which
could be received under arms-length contracts. Purchases from the partners'
amounted to approximately $1,517,297,000, $1,399,265,000, and $1,138,800,000 for
1998, 1997, and 1996, respectively.
Included in accounts receivable at January 31, 1998 and 1997, is $1,522,000, and
$1,827,000, respectively, due from affiliates.
Included in accounts payable and accrued liabilities is $38,325,000 and
$38,256,000 as of January 31, 1998 and 1997, respectively, due to the general
partners and their affiliates resulting from petroleum product purchases.
The Partnership periodically contracts with Flying J for the development and
construction of travel plazas. Capitalized expenditures under these agreements
totaled $49,883,000 and $45,326,000 in 1998 and 1997, respectively. It is the
general partners' opinion that such purchases are under terms similar to those
which could be received under arms-length contracts.
Included in accounts payable is $5,868,000 and $7,761,000 as of January 31, 1998
and 1997, respectively, due to Flying J for construction costs.
(9) Disclosure About the Fair Value of Financial Instruments
The carrying value for certain short-term financial instruments that mature or
reprice frequently at market rate, approximates their fair market value. Such
financial instruments include: cash and cash equivalents, trade receivables,
revolving line of credit, accounts payable, and accrued liabilities. The
carrying value of the long-term notes payable also approximates fair market
value.
(10) Commitments and Contingencies
(a) Environmental Laws and Regulations - In connection with the operation of its
network of fuel facilities, the Partnership has become subject to increasingly
demanding environmental standards imposed by federal, state, and local
environmental laws and regulations. It is the policy of the Partnership to
comply with applicable environmental laws and regulations.
An estimated amount related to the remediation of environmental issues has been
accrued as management's best estimate of the cost. However, governmental
regulations covering environmental issues are highly complex and are subject to
change. Accordingly, changes in the regulations or interpretations thereof could
result in future costs to the Partnership in excess of the amounts accrued.
Management believes that preventative measures, in addition to proper attention
to these regulations, will minimize costs related to compliance to such
regulations. Furthermore, the Partnership routinely succeeds in recovering a
significant portion of the cost of remediation from the states which administer
environmental clean-up funds for in-state fuel retailers.
(b) Litigation - The Partnership is involved in legal actions resulting from the
ordinary course of business. Such actions relate to routine travel plaza
operations and other general matters. Management believes that the Partnership
has adequate legal defenses or insurance coverage and, accordingly, the ultimate
outcome of such actions will not have a material adverse effect on the
Partnership's financial position or results of operations.
7
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1998, of the Clive Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Clive Travel Plaza's statements
of operations and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Clive Travel Plaza for each of
the years in the three-year period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 5, 1998
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 17,467 $ 18,076 $ 17,336
- ----------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 14,516 15,234 14,167
Labor costs 1,271 1,288 1,217
Controllable operating expenses 651 675 716
Occupancy expenses 1,245 1,241 1,260
- ----------------------------------------------------------------------------------------------
Travel Plaza direct operating cost and expenses in excess
of revenues $ (216) $ (362) $ (24)
==============================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza direct operating costs and expenses in excess
of revenues $(216) $(362) (24)
Add amortization of leasehold improvements 144 145 139
- -------------------------------------------------------------------------------------------------
Cash provided by (used in) direct Travel Plaza operations $ (72) $(217) 115
=================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
CLIVE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Clive Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Clive, Iowa,
commenced operations in March 1989 and is operated by CFJ Properties (CFJ). The
land and related plaza facilities are leased by CFJ from Participating Income
Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges, travel and other
operaing expenses incurred at the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance,
amortization and rent paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1998, of the Amarillo Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Amarillo Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Amarillo Travel Plaza for each
of the years in the three-year period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KMPG Peat Marwick LLP
Salt Lake City, Utah
March 5, 1998
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 21,762 $ 21,706 $ 22,525
- ------------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 18,838 19,188 19,152
Labor costs 1,098 1,069 1,095
Controllable operating expenses 533 638 583
Occupancy expenses 1,004 962 974
- ------------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess (deficient) of direct operating costs and expenses $ 289 $ (151) $ 721
========================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess (deficient) of direct operating costs and expenses $ 289 $(151) $ 721
Add amortization of leasehold improvements 185 159 133
- -------------------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $ 474 $ 8 $ 854
=============================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
AMARILLO TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Amarillo Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Amarillo, Texas,
commenced operations in May 1989 and is operated by CFJ Properties (CFJ). The
land and related plaza facilities are leased by CFJ from Participating Income
Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges, travel and other
operating expenses incurred at the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance,
amortizaion and rent paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1998, of the Cheyenne Travel Plaza operated by CFJ Properties (see note 1). The
land and related plaza facilities are owned by Participating Income Properties
1986, L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Cheyenne Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Cheyenne Travel Plaza for each
of the years in the three-year period ended January 31, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 5, 1998
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $28,909 $28,793 $24,733
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 22,313 23,216 19,214
Labor costs 1,664 1,478 1,326
Controllable operating expenses 1,024 950 872
Occupancy expenses 1,257 1,206 1,176
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 2,651 $ 1,943 $ 2,145
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $2,651 $1,943 $2,145
Add amortization of leasehold improvements 365 321 290
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $3,016 $2,264 $2,435
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
CHEYENNE TRAVEL PLAZA
Years ended January 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Cheyenne Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store, motel and other amenities designed to meet the needs of the trucking
industry and traveling public in general. The Travel Plaza, located in Cheyenne,
Wyoming, commenced operations in July 1988 and is operated by CFJ Properties
(CFJ). The land and related plaza facilities are leased by CFJ from
Participating Income Properties 1986, L.P. (PIP 86).
The accompanying statements have been prepared to facilitate PIP 86's compliance
with the rules and regulations of the Securities and Exchange Commission. The
statements include only revenues and direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges, travel and other
operating expenses incurred at the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance,
amortization and rent paid to PIP 86.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
