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 0-18504
Commission File Number 0-18512
PARTICIPATING INCOME PROPERTIES II, L.P.
and
FFCA INVESTOR SERVICES CORPORATION 88-C
(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0588505
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(Partnership State of (Partnership I.R.S.
Organization) Employer Identification
No.)
Delaware 86-0588507
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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 Depositary 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 the 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 II, L.P., a Delaware limited
partnership (the "Partnership"), was organized on August 12, 1987 under the
Delaware Revised Uniform Limited Partnership Act. The Partnership was organized
primarily to purchase new and existing "Flying J Travel Plaza" facilities,
including land, buildings and equipment, to be leased on a net basis to
franchisees of Flying J Franchise Inc. and to Flying J Inc. The managing general
partner of the Partnership is Franchise Finance Corporation of America II, a
Delaware corporation (the "Managing General Partner"). Morton H. Fleischer and
Paul Bagley are the individual general partners of the Partnership. (The
Managing General Partner, Morton H. Fleischer and Paul Bagley are sometimes
referred to collectively herein as the "General Partners.")
Morton H. Fleischer is the sole stockholder of FFCA Investor Services
Corporation 88-C, a Delaware corporation, which was incorporated on August 11,
1987, to serve as the initial limited partner of the Partnership and the owner
of record of the limited partnership interests in the Partnership, the rights
and benefits of which are assigned by FFCA Investor Services Corporation 88-C to
investors in the Partnership. FFCA Investor Services Corporation 88-C conducts
no other business activity. The Partnership and FFCA Investor Services
Corporation 88-C are referred to collectively as the "Co-Registrants."
On December 12, 1988, the Co-Registrants commenced a public offering of
$100,000,000 of 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 82,834
Units to investors at $1,000 per Unit for a total of $82,834,000. Purchasers of
the Units (the "Holders") acquired the following number of Units from FFCA
Investor Services Corporation 88-C on each of the following dates: 24,735 Units
on May 11, 1989; 16,700 Units on July 13, 1989; 24,806 Units on October 19,
1989; and 16,593 Units on December 11, 1989. 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 real and personal
property investments, according to the number of Units held in substantially the
same manner as limited partners in the Partnership.
After deducting organizational and offering expenses, including sales
commissions, the net proceeds of the offering of the Units, $71,956,541, were
fully invested by the Partnership in thirteen travel plazas located in eleven
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. One
of the properties was acquired in 1988, five were acquired during 1989, five
were acquired during 1990, and two were acquired during 1991. As of December 31,
1997, all thirteen travel plazas which are 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"). The Partnership is not affiliated with CFJ Properties, Flying J Inc. or
Flying J Franchise Inc. ("FJFI"), a subsidiary of Flying J Inc. and the
franchisor of Flying J Travel Plazas.
The Partnership's principal objectives are to (a) preserve, protect and
enhance
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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) to obtain long-term appreciation in the value of its
properties through real estate ownership.
Real estate owned by the Partnership is generally leased for a term of
20 years. Equipment is generally leased for a term of eight years. Equipment
leases are scheduled to expire at various dates through 1999. Lessees must
generally pay the Partnership annual rental payments (in monthly installments)
equal to 10% of the Partnership's total investment in properties. As additional
rent under the terms of the lease, the Partnership is entitled to receive a
portion of the operating revenues of the lessees equal to (a) 3.5% 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) 3.5% 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.
In connection with entering into a lease, the General Partner required
each lessee to pay a rent enhancement fee to the Partnership at the inception of
the lease in an amount equal to approximately four percent of the Partnership's
total cost of the land, building and equipment comprising the property leased to
the lessee, including certain capitalized acquisition expenses. This amount was
advanced by the Partnership and included in the cost of the property leased to
the lessee for the purpose of determining the lease payments. The Partnership,
by including this amount in the cost of property, receives an additional amount
of lease payments with respect to the property. The funds representing the
aggregate rent enhancement fees were used to maintain cash distributions to the
Holders in quarters when lease payments received by the Partnership were reduced
due to the failure of any of the Partnership's lessees to meet all of their
payment obligations. In addition, recognition of the rent enhancement fees
provides additional income to the Partnership. The rent enhancement fee is
amortized to rental income on a straight-line basis over a ten-year period from
the inception of the lease.
The General Partner, the Partnership and Flying J Inc. entered into an
operating agreement (the "Operating Agreement"). Pursuant to the terms of the
Operating Agreement, in the event a lessee defaults in payment of any minimum
rent or other monetary sum when due and payable under the lease and fails to
cure such default within five days after receipt of notice of such default from
the Partnership, Flying J Inc. has agreed to operate such lessee's leased travel
plaza for the maximum potential lease term as a full-service travel plaza and to
provide adequate working capital for the operations of such property. A
defaulting lessee and any personal guarantor of such defaulting lessee will
remain liable under the lease and guaranty, respectively, to the extent
permitted by law.
The Partnership is also dependent upon CFJ Properties, its sole lessee,
since an adverse change in its financial condition could materially affect its
ability to make lease payments. During 1997, CFJ Properties contributed 100% 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
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integrated oil and gas company and 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 Partnership owns
thirteen of these properties. Under the terms of the joint venture agreement,
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. Flying J Inc. assigned its leasehold interests in the travel plazas owned
by the Partnership to CFJ Properties and was released by the Partnership with
respect to its obligation 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 Managing General Partner, all of whose travel plazas are leased to CFJ
Properties, Flying J Inc. or franchisees of FJFI.
For the fiscal year ended January 31, 1997, CFJ Properties reported net
income of $1.8 million on revenues of $1.2 billion. Revenues rose 25% from
$937.4 million in 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 thirteen travel plaza properties leased by CFJ Properties from the
Partnership generated a combined fuel and non-fuel gross profit (including other
income) of approximately $31.9 million during the fiscal year ended January 31,
1997 as compared to $37.2 million in fiscal year 1996. This decrease was due to
lower volumes of fuel sales and lower fuel gross profits during fiscal year 1997
as compared to fiscal year 1996. Total travel plaza unit-level loss for these
thirteen properties (before depreciation and allocated corporate overhead)
totaled approximately $1.6 million in 1997 with four of the thirteen properties
reporting positive unit-level income. The remaining nine properties reported
losses primarily due to lower total
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gross profits. The combined result of the travel plaza unit-level net loss
before depreciation and allocated corporate overhead was down from $3.1 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 13.8% of the original cost of these properties. None of the
thirteen travel plaza properties operated by CFJ Properties represent over 10%
of the Partnership's total assets in fiscal year 1997.
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 $80 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 negotiated sales price of approximately $80 million would have
resulted in an estimated book gain of $31 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
$970 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.
The travel plaza/truck stop 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 which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the Partnership 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
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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 is 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 and operators of faulty
and leaking storage tanks resulting in damage to the environment or third
parties.
The General Partner has taken various 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 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 regulator 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
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lessee is responsible for all costs associated with correcting problems
identified by such audits and is obligated to indemnify the Partnership 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.
As of December 31, 1997, the Partnership has invested in real estate
located in eleven states in the western, central and southeastern 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 88-C 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.
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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 affect 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 which 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 $80 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.
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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.
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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Item 2. Properties.
As of December 31, 1997, the Partnership had acquired thirteen travel
plaza properties located in 11 states. The properties were acquired by the
Partnership during 1988, 1989, 1990 and 1991 with the net proceeds received by
the Partnership from the public offering of the Units.
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. No one property is
a principal property of the Partnership because each property represents less
than 10% of the Partnership's total assets. The following is a description of
each of the properties acquired by the Partnership.
Pecos, Texas
The Pecos travel plaza was acquired as a new full-service travel plaza,
built on a parcel consisting of approximately 14.11 acres located at the
interchange of Interstate 20 and US 285.
Dillon, South Carolina
The Dillon travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 20.64 acres, located at the
interchange of Interstate 95 and State Route 38. Within an 85-mile radius of the
property are the markets of Columbia and Florence, South Carolina and Lumberton
and Fayetteville, North Carolina.
Graham, North Carolina
The Graham travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 20 acres, located at the
interchange of Interstate 40/85 and State Route 1928.
Knoxville, Tennessee
The Knoxville travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 14.05 acres, located
parallel to Interstate 40.
Kingman, Arizona
The Kingman travel plaza was built on the site of an existing Husky
truck stop which was razed and replaced with a new full-service travel plaza.
The site consists of approximately 7.45 acres located 1/8 of a mile north of the
Interstate 40/US 90 interchange.
Jackson, Georgia
The Jackson travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 42.2 acres of which 27
acres are developed, located at the
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interchange of Interstate 75 and Star Route 36.
Texarkana, Arkansas
The Texarkana travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 28 acres, located at Exit 7
of Interstate 30. On March 7, 1993, the Texarkana travel plaza sustained
substantial damage due to a fire. The property was insured and the lessee of the
travel plaza used the insurance proceeds to rebuild the travel plaza. During
1994, the Partnership made an additional investment of $595,000 in the Texarkana
travel plaza to enlarge the property to conform to the new Flying J travel plaza
prototype. The lessee of the travel plaza continued to make monthly base rental
payments during the reconstruction of the travel plaza. The travel plaza
reopened in March 1994.
Resaca, Georgia
The Resaca travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 39.65 acres, situated at
the southeast corner of Resaca Road and Interstate 75.
Walton, Kentucky
The Walton travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 19.63 acres, situated at
the southwest corner of Stephenson Mill Road and Kentucky Highway 14 and 16 just
west of the Interstate 75 exit ramp with 1,200 feet of primary frontage.
San Antonio, Texas
The San Antonio travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 19.94 acres, located at the
northwest corner of Foster Road and Interstate 10.
Rock Springs, Wyoming
The Rock Springs travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 9.57 acres, situated at the
northwest corner of Elk Street and Stagecoach Drive at the Elk Street exit off
Interstate 80.
Troutdale, Oregon
The Troutdale travel plaza was acquired as a new, full-service (with
limited restaurant facilities) travel plaza, built on a parcel consisting of
approximately 7.45 acres, located at the southwest corner of Northwest Frontage
Road at Interstate 84 and Graham Road.
Winnemucca, Nevada
The Winnemucca travel plaza was acquired as a new, full-service (with
limited restaurant facilities) travel plaza, built on a parcel consisting of
approximately 8.29 acres, located on the
10
<PAGE>
northwest side of West Winnemucca Boulevard at the interchange of Interstate 80
and West Winnemucca Boulevard.
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.
Independent of the Partnership, FFCA Investor Services Corporation 88-C
has no interest in any real or personal property.
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 Security Holders.
No matter was submitted to a vote of the Holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1997.
PART II
Item 5. Market for Registrant's Units and Related Security Holders 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 6,527 record holders of the
Units.
Distributions. For the two most recent fiscal years, the Partnership
made the following cash distributions to the Holders:
1997
Per Unit
Distribution Total
------------------- ----------------------
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
March 31 82,834 $ 25.27 -- $2,093,215 --
June 30 82,834 26.25 -- 2,174,393 --
September 30 82,834 26.15 -- 2,166,109 --
December 31 82,834 25.74 -- 2,132,147 --
11
<PAGE>
1996
Per Unit
Distribution Total
------------------- ----------------------
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
March 31 82,834 $ 25.51 -- $2,113,095 --
June 30 82,834 26.05 -- 2,157,826 --
September 30 82,834 25.53 -- 2,114,752 --
December 31 82,834 25.05 -- 2,074,992 --
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. Cash
proceeds from the sale of property are distributed to the Holders as a return of
capital. 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 $1,000 as of December 31, 1997.
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
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 Financial Statements and the related Notes attached as an exhibit to
this Report.
12
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $10,034,660 $ 9,857,290 $ 9,985,844 $ 9,895,376 $ 9,364,420
Net Income 5,974,380 5,831,607 6,002,622 5,926,437 5,558,318
Net Income Per Unit 71.40 69.70 71.74 70.83 66.43
Total Assets 52,913,688 55,827,780 58,932,231 61,749,194 65,255,222
Distributions of Cash from
Operations to Holders 8,565,908 8,460,157 8,537,458 8,258,384 7,940,289
Distributions of Cash from
Operations Per Unit 103.41 102.14 103.07 99.70 95.86
Return of Capital to -- -- -- -- --
Holders
Return of Capital Per Unit -- -- -- -- --
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
The Partnership received $82,834,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership invested the net offering proceeds
of $71,956,541 in thirteen 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 aggregating $3,984,265, of which $2,132,147 was paid out to the
Holders in January 1998 as their fourth quarter distribution for fiscal year
1997, and the remainder of which will be held by the Partnership for reserves.
The Partnership uses the rental revenues from its properties to meet its cash
needs, and it is anticipated that such rental payments will be sufficient to
meet all of the Partnership's expenses and provide cash for distributions to the
Limited Partners.
As of December 31, 1997, the balance sheet of the Partnership reflected
as a liability $594,251 in deferred income. This amount represents cash received
by the Partnership as rent enhancement fees. Each year approximately 10% of the
original amount is recognized as income by the Partnership and the amount of
deferred income is decreased by a corresponding amount.
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 $80 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
13
<PAGE>
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 sales price of approximately $80 million would have
resulted in an estimated book gain of $31 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
$970 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.
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
know how 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 affect on the Partnership.
FFCA Investor Services Corporation 88-C has no capital resources and
conducted no operations in 1997.
Results of Operations
The Partnership purchased its properties beginning in 1988 until
becoming fully invested in June 1991. The Partnership 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 for the year ended December 31, 1997
increased to $10,034,660 from $9,857,290 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 $2,352,826 in 1997 from $2,237,456 in
1996 due to higher travel plaza sales volumes. On June 1, 1996, CFJ Properties
(the Partnership's only lessee) 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-
14
<PAGE>
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. During 1997, the
Partnership sold four equipment packages for an aggregate gain of $29,488, with
the remaining equipment leases scheduled to expire at various dates through
1999. Base rental revenue for 1997 includes the recognition of approximately
$274,000 of income previously deferred.
Total Partnership expenses in 1997 were $4,060,280, representing an
increase from $4,025,683 in 1996. The increase, resulting from an increase in
operating expenses of $35,192, primarily related to higher legal fees in 1997.
Net income for 1997 amounted to $5,974,380 as compared to $5,831,607 for 1996.
Fiscal Year Ended December 31, 1996 Compared to
Fiscal Year Ended December 31, 1995
The Partnership's total revenues for the year ended December 31, 1996
declined slightly to $9,857,290 from $9,985,844 for the year ended December 31,
1995. Revenues decreased between years as a result of a decrease in
participating rentals amounting to $116,838, or 5%, which is attributable 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. Base
rental revenue for 1996 includes the recognition of approximately $274,000 of
income previously deferred.
Total Partnership expenses in 1996 were $4,025,683, representing a
nominal increase from $3,983,222 in 1995. The increase was the result of an
increase in depreciation expense from $2,895,293 in 1995 to $2,988,226 in 1996,
partially offset by a decrease of $12,411 in general partner and affiliate fees
and a decrease of $38,061 in operating expenses. Net income for 1996 amounted to
$5,831,607 as compared to $6,002,622 for 1995.
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 Partnership'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 88-C's activities.
Item 8. Financial Statements and Supplementary Data.
The financial statements 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.
15
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers.
The Partnership has no directors or executive officers. Franchise
Finance Corporation of America II ("FFCA II"), as the Managing General Partner,
has responsibility for all of the Partnership's operations. FFCA II was
organized in Delaware in October of 1988 for the purpose of sponsoring limited
partnerships such as the Partnership. The directors and executive officers of
FFCA II and FFCA Investor Services Corporation 88-C, and the year they were
elected or appointed to their respective offices, are as follows:
FFCA II
Directors
Name Position Held Since
---- -------------------
Paul Bagley 1988
Morton H. Fleischer, Chairman 1988
John R. Barravecchia 1993
Christopher H. Volk 1993
Officers
<TABLE>
<CAPTION>
Associated
With
FFCA II
Name Positions Held Since
---- -------------- -----
<S> <C> <C>
Morton H. Fleischer Chairman of the Board, President and Chief Executive 1988
Officer
John R. Barravecchia Executive Vice President, Chief Financial Officer, 1989
Treasurer and Assistant Secretary
Christopher H. Volk Executive Vice President, Chief Operating Officer, 1989
Secretary and Assistant Treasurer
Dennis L. Ruben Executive Vice President, General Counsel and Assistant 1993
Secretary
Stephen G. Schmitz Executive Vice President, Chief Investment Officer and 1995
Assistant Secretary
Catherine F. Long Senior Vice President-Finance, Principal Accounting 1990
Officer, Assistant Secretary and Assistant Treasurer
</TABLE>
16
<PAGE>
FFCA Investor Services Corporation 88-C
Director
Associated with the
Corporation
Name Since
---- -----
Morton H. Fleischer 1987
Officers
<TABLE>
<CAPTION>
Associated with the
Name Positions Held Corporation Since
---- -------------- -----------------
<S> <C> <C>
Morton H. Fleischer Chairman of the Board 1987
John R. Barravecchia President, Secretary and Treasurer 1990
Christopher H. Volk Vice President, Assistant Secretary 1994
and Assistant Treasurer
</TABLE>
All of the foregoing directors and 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.
Business Experience
The business experience during the past five years of each of the above
directors and executive officers is as follows:
Paul Bagley, age 55, has served as a director of FFCA II since 1988.
Mr. Bagley is a founding partner of Stone Pine Capital LLC (1994), and is
chairman of FCM Fiduciary Management Co. LLC (1989 to date), the advisor to a
mezzanine and private equity fund. For more than twenty years prior to 1988, Mr.
Bagley was engaged in investment banking activities with Shearson Lehman Hutton
Inc. and its predecessor, E.F. Hutton & Company Inc., where he was responsible
for the creation and management of over $5 billion of direct investment
activities. Mr. Bagley has served on the boards of a number of public and
private companies. Currently he is on the boards of Fiduciary Capital,
Hollis-Eden Pharmaceuticals, Consolidated Capital, Logan Machinery Corp. and
Pacific Consumer Funding.
Morton H. Fleischer, age 61, has served as the Chairman of the Board of
FFCA Investor Services Corporation 88-C since 1987 and has served as President,
Chief Executive Officer and a Director of FFCA II since its formation in 1988.
Mr. Fleischer was appointed Chairman of the Board of FFCA II in February of 1994
and currently serves as President, Chief Executive Officer and Chairman of the
Board of Franchise Finance Corporation of America, a Delaware
17
<PAGE>
corporation ("FFCA"). He served as President, Chief Executive Officer and a
Director of Franchise Finance Corporation of America I ("FFCA I"), a predecessor
of FFCA, from 1980 to 1994. Mr. Fleischer is also an individual general partner
of the Partnership and is a general partner (or general partner of a general
partner) of the following public limited partnerships: Participating Income
Properties 1986, 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 88-C since 1990. He has served
as Senior Vice President and Chief Financial Officer of FFCA II since 1989, was
named Treasurer in December 1993 and was named Assistant Secretary in 1994. In
1995, Mr. Barravecchia was named Executive Vice President of FFCA II. 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 88-C
since 1994 and served as Vice President-Research of FFCA II from 1989 to 1993.
Mr. Volk was named Senior Vice President-Underwriting and Research and Secretary
of FFCA II in December 1993. In 1995, he was named Chief Operating Officer and
Executive Vice President of FFCA II. He currently serves as Executive Vice
President, Chief Operating Officer, Secretary and Assistant Treasurer of FFCA.
He joined FFCA I in 1986 and has 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 44, served as Senior Vice President and General
Counsel of FFCA II from December 1994 and was named Executive Vice President,
General Counsel and Assistant Secretary of FFCA II in February 1997. He
currently serves in the same capacity for FFCA. In 1991, he joined FFCA I as
attorney and counsel. 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 admitted to the Iowa, Nebraska
and Colorado bars.
Stephen G. Schmitz, age 43, served as Senior Vice President-Corporate
Finance of FFCA II from January 1996 and was named Executive Vice President,
Chief Investment Officer and Assistant Secretary of FFCA II 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
18
<PAGE>
in Pittsburgh, where his last position was Vice-President and Section Manager.
Catherine F. Long, age 41, was named Senior Vice President-Finance of
FFCA in February 1997, was named Principal Accounting Officer in December 1993
and was named Assistant Secretary and Assistant Treasurer in 1994. She currently
serves in the same capacities for FFCA. In June 1990, she joined FFCA I as Vice
President-Finance. 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, where her last
position was senior audit manager. 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 88-C and
the Managing General Partner, 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 Managing General Partner, and
the General Partners are 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 Financial Statements which are filed with this Report for a description
of the fees and distributions paid in 1997.
FFCA Investor Services Corporation 88-C 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 88-C serve without
compensation from FFCA Investor Services Corporation 88-C or the Partnership.
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.
None of the General Partners of the Partnership owned any Units as of
March 2, 1998. The directors and officers of the Managing General Partner,
individually and as a group, owned less than 1% of the Units as of March 2,
1998. The Managing General Partner is owned 51% by Morton H. Fleischer and 49%
by Paul Bagley.
FFCA Investor Services Corporation 88-C 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
19
<PAGE>
it to the Holders. However, FFCA Investor Services Corporation 88-C 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 88-C is a wholly
owned subsidiary of the Managing General Partner.
Item 13. Certain Relationships and Related Transactions.
Since the beginning of the last fiscal year of both of the
Co-Registrants, there have been no significant transactions or business
relationships among the Co-Registrants, the General Partners 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 following financial statements are
filed as part of this Report:
The Partnership
Report of independent public accountants
Balance Sheets as of December 31, 1997 and 1996
Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Statements of Changes In Partners' Capital for
the years ended December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
FFCA Investor Services Corporation 88-C
Report of independent public accountants
Balance Sheet as of December 31, 1997
Notes to Balance Sheet
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.
20
<PAGE>
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 1989,
Commission File No. 0-18504, is incorporated herein by this
reference.
Fifth Amended and Restated Certificate and Agreement
of Limited Partnership which governs the Partnership,
as filed with the Secretary of State of Delaware on
December 11, 1989.
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' Registration Statement on Form S-11,
Registration No. 33-16849, are incorporated herein by this
reference.
<TABLE>
<CAPTION>
<S> <C>
Form of Depository Agreement. 4(d)
The Certificate of Incorporation which governs 4(b)
FFCA Investor Services Corporation 88-C, as filed
with the Secretary of State of Delaware on August 11,
1987.
Bylaws of FFCA Investor Services Corporation 88-C. 4(c)
Operating Agreement, dated November 14, 1988, by 10(c)
and among Participating Income Properties II,
L.P., Franchise Finance Corporation of America II,
Flying J Inc. and Flying J Franchise Inc.
</TABLE>
(b) Reports on Form 8-K.
The Co-Registrants did not file any reports on Form
8-K during the fourth quarter of fiscal year 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 II, L.P.
By FRANCHISE FINANCE CORPORATION
OF AMERICA II, Managing 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 FRANCHISE
FINANCE CORPORATION OF AMERICA II, MANAGING GENERAL PARTNER OF
PARTICIPATING INCOME PROPERTIES II, L.P.
Date: March __, 1998 By
--------------------------------
Paul Bagley, Director
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, Assistant
Secretary and Director
<PAGE>
Date: March 27, 1998 By /s/ Christopher H. Volk
--------------------------------
Christopher H. Volk, Executive
Vice President, Chief Operating
Officer, Secretary, Assistant
Treasurer and Director
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 88-C
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 II, L.P.:
We have audited the accompanying balance sheets of PARTICIPATING INCOME
PROPERTIES II, L.P. (a Delaware limited partnership) as of December 31, 1997 and
1996, and the related 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 managing 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
II, L.P. as of December 31, 1997 and 1996, and the results of its operations and
its 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 of 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 II, L.P.
----------------------------------------
BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
-------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS $ 3,984,265 $ 3,790,885
RECEIVABLES FROM LESSEES 197,300 173,000
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 48,732,123 51,863,895
------------ ------------
Total assets $ 52,913,688 $ 55,827,780
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 2,132,357 $ 2,075,158
PAYABLE TO GENERAL PARTNERS -- 18,239
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 72,006 72,787
DEFERRED INCOME (Note 2) 594,251 868,470
------------ ------------
Total liabilities 2,798,614 3,034,654
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partners (217,427) (190,647)
Limited partners 50,332,501 52,983,773
------------ ------------
Total partners' capital 50,115,074 52,793,126
------------ ------------
Total liabilities and partners' capital $ 52,913,688 $ 55,827,780
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental $ 7,463,620 $ 7,463,620 $ 7,463,620
Participating rentals 2,352,826 2,237,456 2,354,294
Interest and other 188,726 156,214 167,930
Gain on sale of equipment 29,488 -- --
----------- ----------- -----------
10,034,660 9,857,290 9,985,844
----------- ----------- -----------
EXPENSES:
General partner and affiliate fees (Note 5) 855,735 849,864 862,275
Depreciation 2,981,760 2,988,226 2,895,293
Operating 222,785 187,593 225,654
----------- ----------- -----------
4,060,280 4,025,683 3,983,222
----------- ----------- -----------
NET INCOME $ 5,974,380 $ 5,831,607 $ 6,002,622
=========== =========== ===========
NET INCOME ALLOCATED TO (Note 1):
General partners $ 59,744 $ 58,316 $ 60,026
Limited partners 5,914,636 5,773,291 5,942,596
----------- ----------- -----------
$ 5,974,380 $ 5,831,607 $ 6,002,622
=========== =========== ===========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 82,834 units held by
limited partners) $ 71.40 $ 69.70 $ 71.74
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
General Limited
Partners Partners Total
------------ ------------ ------------
BALANCE, December 31, 1994 $ (137,296) $ 58,265,501 $ 58,128,205
Net income 60,026 5,942,596 6,002,622
Distributions to partners (86,237) (8,537,458) (8,623,695)
------------ ------------ ------------
BALANCE, December 31, 1995 (163,507) 55,670,639 55,507,132
Net income 58,316 5,773,291 5,831,607
Distributions to partners (85,456) (8,460,157) (8,545,613)
------------ ------------ ------------
BALANCE, December 31, 1996 (190,647) 52,983,773 52,793,126
Net income 59,744 5,914,636 5,974,380
Distributions to partners (86,524) (8,565,908) (8,652,432)
------------ ------------ ------------
BALANCE, December 31, 1997 $ (217,427) $ 50,332,501 $ 50,115,074
============ ============ ============
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
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 $ 5,974,380 $ 5,831,607 $ 6,002,622
Adjustments to net income:
Depreciation 2,981,760 2,988,226 2,895,293
Gain on sale of equipment (29,488) -- --
Change in assets and liabilities:
Decrease (increase) in receivables from lessees (24,300) 8,433 (1,433)
Increase (decrease) in payable to general partners (18,239) 18,239 --
Increase (decrease) in accounts payable
and accrued liabilities (781) 10,091 (70,444)
Decrease in deferred income (274,219) (392,589) (155,852)
----------- ----------- -----------
Net cash provided by operating activities 8,609,113 8,464,007 8,670,186
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 179,500 79,750 --
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (8,652,432) (8,545,613) (8,623,695)
Increase (decrease) in distribution payable
to limited partners 57,199 (26,186) 30,406
----------- ----------- -----------
Net cash used in financing activities (8,595,233) (8,571,799) (8,593,289)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 193,380 (28,042) 76,897
CASH AND CASH EQUIVALENTS, beginning of year 3,790,885 3,818,927 3,742,030
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,984,265 $ 3,790,885 $ 3,818,927
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
Notes to Financial Statements
-----------------------------
December 31, 1997 and 1996
--------------------------
1) ORGANIZATION:
------------
Participating Income Properties II, L.P. (the Partnership) was formed
on August 12, 1987 under the Delaware Revised Uniform Limited Partnership Act to
purchase new and existing "Flying J Travel Plaza" facilities, including land,
buildings and equipment to be leased on a net basis to certain franchisees of
Flying J Franchise Inc. and to Flying J Inc. As of December 31, 1997, all
thirteen travel plazas owned by the Partnership were leased to CFJ Properties
(CFJ), an affiliate of Flying J Inc. "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. Franchise Finance Corporation of America II (FFCA
II), a Delaware corporation, is the managing general partner of the Partnership.
The Partnership will expire December 31, 2047, or sooner, in accordance with the
terms of the Partnership agreement.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA Investor Services
Corporation 88-C (the Initial Limited Partner), a Delaware corporation
wholly-owned by an affiliate of FFCA II. 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 partners.
Cash Distributions: All cash from operations, as defined, after payment
of fees to the managing general partner is allocated 99% to the limited
partners and 1% to the general partners. 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 have been no such distributions,
therefore, the limited partner Adjusted Capital Contribution, as
defined in the Partnership agreement, at December 31, 1997 is $1,000
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 $ 5,974,380 $ 5,831,607 $ 6,002,622
Adjustments to reconcile net income to
cash distributions declared:
Depreciation 2,981,760 2,988,226 2,895,293
Gain on sale of equipment (29,488) -- --
Rental enhancement accretion (274,220) (274,220) (274,220)
----------- ----------- -----------
Cash distributions declared from operations $ 8,652,432 $ 8,545,613 $ 8,623,695
=========== =========== ===========
</TABLE>
2) SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
Financial Statements - The financial statements of the Partnership 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
<PAGE>
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 $3,704,718 and $3,496,028 at December 31, 1997 and 1996,
respectively, and bank repurchase agreements (which are collateralized by United
States Treasury and Government obligations) of $175,139 at December 31, 1996.
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.
Deferred Income - The Partnership required certain lessees to pay to
the Partnership, at the inception of the lease, an amount equal to 4% of the
property's cost (rental enhancements). This amount is deferred and accreted to
revenue on a straight-line basis over ten years. The cash from rental
enhancements and interest accrued thereon was used to supplement limited
partners' cash distributions during 1992 and prior years.
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 $11,709,570 $11,709,570
Buildings 54,004,577 54,004,577
Equipment 3,832,921 5,268,921
----------- -----------
69,547,068 70,983,068
Less - Accumulated depreciation 20,814,945 19,119,173
----------- -----------
$48,732,123 $51,863,895
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Partnership 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 term of
the leases is 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.
The equipment leases are scheduled to expire at various dates through 1999.
During the year ended December 31, 1997, all thirteen travel plazas owned by the
Partnership were leased to CFJ. The Partnership is the beneficiary of a letter
of credit from CFJ in the amount of $952,483 to be used as security for CFJ's
lease payments.
<PAGE>
Minimum future rentals (excluding participating rentals) under
noncancellable operating leases as of December 31, 1997, are as follows:
Year Ending December 31,
-----------------------
1998 $ 7,189,000
1999 7,189,000
2000 7,189,000
2001 7,189,000
2002 7,189,000
Thereafter 50,879,000
-----------
Total minimum future rentals $86,824,000
===========
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 $ 5,974,380 $ 5,831,607 $ 6,002,622
Differences for tax purposes in:
Depreciation 1,466,095 1,382,631 1,092,026
Adjustment to deferred rental revenue (274,220) (274,220) (274,220)
Deferred income -- (118,368) 118,368
Gain on sale 53,509 (35,758) --
----------- ----------- -----------
Taxable income to partners $ 7,219,764 $ 6,785,892 $ 6,938,796
=========== =========== ===========
</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
$8,018,705. This difference results primarily from differences in depreciation
methods and the treatment of deferred rental revenue for tax reporting and
financial reporting purposes.
<PAGE>
5) TRANSACTIONS WITH RELATED PARTIES:
---------------------------------
Under the terms of the Partnership agreement, FFCA II is entitled to
compensation for certain services performed in connection with managing the
affairs of the Partnership. Additionally, during 1996 and prior years, an
affiliate of FFCA II was entitled to a fee for investment banking and asset
management services (investment banking fee). During 1997, 1996 and 1995, fees
paid to FFCA II and the affiliate were as follows:
1997 1996 1995
-------- -------- --------
FFCA II - disbursable cash fee $855,735 $845,593 $853,738
Affiliate - investment banking fee -- 4,271 8,537
-------- -------- --------
$855,735 $849,864 $862,275
======== ======== ========
FFCA II is entitled to a disbursable cash fee equal to 9% of all cash
received by the Partnership 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. The investment
banking fee payable to the affiliate was equal to .09% of disbursable cash as
described in the Partnership agreement and was limited in total by the
Partnership agreement. This limit was reached during 1996. FFCA II may also be
entitled to a subordinated real estate disposition fee and an incentive share of
sale proceeds, as defined in the Partnership agreement.
An affiliate of FFCA II 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 $34,897 in 1997, $28,364 in 1996 and
$27,414 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 $80 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 sales price of approximately $80 million, net of book
value of the assets to be sold, would have resulted in an estimated gain of $31
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 $970 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 II, L.P.
----------------------------------------
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>
KINGMAN, ARIZONA $ 843,681 $ 3,731,319 $ -- $ 4,575,000
TEXARKANA, ARKANSAS 63,243 4,866,904 765,921 5,696,068
RESACA, GEORGIA 1,145,422 4,555,578 600,000 6,301,000
JACKSON, GEORGIA 284,661 5,523,339 492,000 6,300,000
WALTON, KENTUCKY 1,216,623 4,529,377 454,000 6,200,000
WINNEMUCCA, NEVADA 1,489,004 3,098,996 287,000 4,875,000
GRAHAM, NORTH CAROLINA 1,153,847 5,566,153 -- 6,720,000
TROUTDALE, OREGON 738,474 3,647,526 267,000 4,653,000
DILLON, SOUTH CAROLINA 1,052,840 5,625,160 -- 6,678,000
KNOXVILLE, TENNESSEE 1,058,958 4,241,042 -- 5,300,000
PECOS, TEXAS 170,990 1,999,010 -- 2,170,000
SAN ANTONIO, TEXAS 1,566,238 3,612,762 600,000 5,779,000
ROCK SPRINGS, WYOMING 925,589 3,007,411 367,000 4,300,000
---------- ----------- ---------- -----------
TOTAL $11,709,570 $54,004,577 $3,832,921 $69,547,068
========== =========== ========== ===========
<CAPTION>
Accumulated Depreciation
-----------------------------------------
Date
Travel Plaza Location Buildings Equipment Total Acquired
--------------------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
KINGMAN, ARIZONA $ 1,295,597 $ -- $ 1,295,597 Sept. 1989
TEXARKANA, ARKANSAS 1,169,434 670,181 1,839,615 Jan. 1990
RESACA, GEORGIA 1,518,526 540,040 2,058,566 Jan. 1990
JACKSON, GEORGIA 1,879,470 442,800 2,322,270 Nov. 1989
WALTON, KENTUCKY 1,462,611 395,831 1,858,442 April 1990
WINNEMUCCA, NEVADA 850,072 212,559 1,062,631 June 1991
GRAHAM, NORTH CAROLINA 1,990,673 -- 1,990,673 June 1989
TROUTDALE, OREGON 1,038,532 205,256 1,243,788 Mar. 1991
DILLON, SOUTH CAROLINA 2,031,308 -- 2,031,308 Feb. 1989
KNOXVILLE, TENNESSEE 1,487,310 -- 1,487,310 Aug. 1989
PECOS, TEXAS 721,865 -- 721,865 Nov. 1988
SAN ANTONIO, TEXAS 1,141,532 511,875 1,653,407 June 1990
ROCK SPRINGS, WYOMING 939,815 309,658 1,249,473 July 1990
----------- ---------- -----------
TOTAL $17,526,745 $3,288,200 $20,814,945
=========== ========== ===========
</TABLE>
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
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 $ 71,621,068 $ 13,793,904
Depreciation expense -- 2,895,293
------------ ------------
Balance, December 31, 1995 71,621,068 16,689,197
Cost of equipment sold (638,000) (558,250)
Depreciation expense -- 2,988,226
------------ ------------
Balance, December 31, 1996 70,983,068 19,119,173
Cost of equipment sold (1,436,000) (1,285,988)
Depreciation expense -- 2,981,760
------------ ------------
Balance, December 31, 1997 $ 69,547,068 $ 20,814,945
============ ============
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FFCA Investor Services Corporation 88-C:
We have audited the accompanying balance sheet of FFCA INVESTOR SERVICES
CORPORATION 88-C (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
88-C 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 88-C
---------------------------------------
BALANCE SHEET - DECEMBER 31, 1997
---------------------------------
ASSETS
Cash $100
Investment in Participating Income Properties II, 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 88-C
---------------------------------------
NOTES TO BALANCE SHEET
----------------------
DECEMBER 3l, l997
-----------------
(l) Operations:
FFCA Investor Services Corporation 88-C (a Delaware corporation) (88-C)
was organized on August 11, l987 to act as the assignor limited partner in
Participating Income Properties II, L.P. (PIP-II).
The assignor limited partner is the owner of record of the limited
partnership units of PIP-II. All rights and powers of 88-C have been assigned to
the holders, who are the registered and beneficial owners of the units. Other
than to serve as assignor limited partner, 88-C has no other business purpose
and will not engage in any other activity or incur any debt.
(2) Related Parties:
Morton H. Fleischer is the sole stockholder of 88-C. Mr. Fleischer is
also a general partner of PIP-II.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
and
FFCA INVESTOR SERVICES CORPORATION 88-C
------------------------------
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 1989, Commission File No. 0-18504, is
incorporated herein by this reference.
Fifth Amended and Restated Certificate of Limited Partnership
which governs the Partnership, as filed with the Secretary of
State of Delaware on December 11, 1989.
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' Registration
Statement on Form S-11, Registration No. 33-16849, are incorporated
herein by this reference.
<TABLE>
<CAPTION>
Pre-Effective Amendment
No. 3 Exhibit No.
<S> <C>
Form of Depository Agreement. 4(d)
The Certificate of Incorporation which governs 4(b)
FFCA Investor Services Corporation 88-C, as filed
with the Secretary of State of Delaware on August 11,
1987.
Bylaws of FFCA Investor Services Corporation 88-C. 4(c)
Operating Agreement, dated as of 10(c) 10(c)
November 14, 1988, by and among Participating
Income Properties II, L.P., Franchise Finance
Corporation of America II, Flying J Inc. and
Flying J Franchise Inc.
</TABLE>
<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> 820806
<NAME> PARTICIPATING INCOME PROPERTIES II, 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> 3,984,265
<SECURITIES> 0
<RECEIVABLES> 197,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 69,547,068
<DEPRECIATION> 20,814,945
<TOTAL-ASSETS> 52,913,688
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 50,115,074
<TOTAL-LIABILITY-AND-EQUITY> 52,913,688
<SALES> 0
<TOTAL-REVENUES> 10,034,660
<CGS> 0
<TOTAL-COSTS> 4,060,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,974,380
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,974,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,974,380
<EPS-PRIMARY> 71.40
<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> 820807
<NAME> FFCA INVESTOR SERVICES CORPORATION 88-C
<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
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</TABLE>
[CUSHMAN & WAKEFIELD, INC. LLP LETTERHEAD]
February 4, 1998
Participating Income Properties II, L.P.
Franchise Finance Corporation of America II
Scottsdale Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Attn: Morton H. Fleischer
General Partner
Re: Annual Portfolio Valuation
Participating Income Properties II, L.P.
Gentlemen:
Pursuant to your request, we have completed our analysis of properties
contained in Participating Income Properties II, L.P. 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, 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 Franchise Finance Corporation of America II, 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 the
<PAGE>
Cushman & Wakefield, Inc.
Mr. Morton H. Fleischer
General Partner
-2-
February 4, 1998
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.
Participating Income Properties II, L.P. contains 13 travel plaza
properties that are net leased to CFJ Properties that operate Flying J Travel
Plazas. Gross proceeds originally raised by this Partnership amounted to
$82,834,000 (82,834 units @ $1,000 per unit). As of December 31, 1997, no
capital was returned to the partners, maintaining the adjusted gross proceeds
raised at $82,834,000 or $1,000 per unit. Of this amount, adjusted net proceeds
invested in the properties contained in this Partnership amounted to $69,547,068
after adjusting for organization costs and sales commissions. The Partnership
was fully invested in June 1991.
Considering all of the above factors, it is our opinion that the market
value of the leased fee interest in the 13 properties on a going concern basis
subject to existing lease encumbrances, as of December 31, 1997, was:
EIGHTY ONE MILLION SIX HUNDRED EIGHTY NINE THOUSAND DOLLARS
$81,689,000
The aggregate market value of the leased fee interest in the 13
properties is $81,689,000 as adjusted by cash on hand and net receivables of
$4,181,565 less distributions payable and other liabilities of $2,204,363 as
provided by the General Partner resulting in a total of $83,666,202. This total
as of December 31, 1997 represents an 20.30 percent increase above the adjusted
net proceeds. Dividing the total value by the 82,834 outstanding units results
in an indicated value per unit investment of $1,010.05 which represents an
increase of 1.00 percent from the adjusted unit investment of $1,000.
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. Our investigation reveals that in cases of default
the management has acted judiciously to correct the problem.
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>
