SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT UNDER SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number 0-20151
PARTICIPATING INCOME PROPERTIES III
LIMITED PARTNERSHIP
AND
FFCA/PIP III INVESTOR SERVICES CORPORATION
----------------------------------------------
(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0665681
---------------------- ------------------------
(Partnership State of Organization) (Partnership IRS Employer
Identification No.)
Delaware 86-0555605
---------------------- ------------------------
(Corporation State of Incorporation) (Corporation IRS Employer
Identification No.)
The Perimeter Center 85255
17207 North Perimeter Drive --------
Scottsdale, Arizona (Zip Code)
----------------------------------
(Address of Principal Executive Offices)
Co-Registrants' telephone number, including area code: (602) 585-4500
<PAGE>
PART I
Item 1. Business.
Participating Income Properties III Limited Partnership, a Delaware
limited partnership (the "Partnership"), was organized on July 9, 1990 under the
Delaware Revised Uniform Limited Partnership Act. The Partnership was organized
primarily to purchase new but also existing travel plaza facilities, including
land, buildings and equipment, and to lease such facilities on a net basis to
one or more qualified operators. The general partner of the Partnership is FFCA
Participating Management Company Limited Partnership, a Delaware limited
partnership (the "General Partner"). The managing general partner of the General
Partner is Franchise Finance Corporation of America III, a Delaware corporation
("FFCA III"). Travel Plaza Management, Inc. ("TMI"), a subsidiary of PaineWebber
Group, Inc., and M. H. Fleischer and Paul Bagley are general partners of the
General Partner.
FFCA/PIP III Investor Services Corporation, a Delaware corporation was
incorporated on June 23, 1986, 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/PIP III
Investor Services Corporation to investors in the Partnership. FFCA/PIP III
Investor Services Corporation conducts no other business activity. The
Partnership and FFCA/PIP III Investor Services Corporation are referred to
collectively as the "Co-Registrants."
On April 10, 1991, the Co-Registrants commenced a public offering of
$100,000,000 of limited partnership assignment 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 26,709
Units to investors at $1,000 per Unit for a total of $26,709,000. Purchasers of
the Units (the "Holders") acquired the following number of Units from FFCA/PIP
III Investor Services Corporation on each of the following dates: 14,119 Units
on August 30, 1991 and 12,590 Units on February 28, 1992. 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 totaled $23,236,830.
During the fiscal years ended December 31, 1993, 1992 and 1991, the Partnership
distributed cash to the limited partners aggregating $957,268, which represents
a partial return of the limited partners' initial $1,000 per unit capital
contribution. After deducting this return of capital from the net proceeds of
the offering of units, the remaining cash proceeds were fully invested by the
Partnership in three "Flying J Travel Plazas," one located in Wytheville,
Virginia, one located in Bakersfield, California and one located in Ehrenberg,
Arizona. "Flying J Travel Plaza" facilities offer a full-service operation,
generally including fuel facilities, a restaurant, convenience store and other
<PAGE>
amenities for use by the trucking industry and traveling public in general. The
Wytheville property was acquired in December 1991, the Bakersfield property was
acquired in January 1993 and the Ehrenberg property was acquired in June 1993.
With respect to the Ehrenberg property, the travel plaza was acquired by
purchasing the land and making a loan to the franchisee for financing the travel
plaza building.
The Partnership's principal objectives are to (i) preserve, protect and
enhance Partnership capital, (ii) provide partially tax-deferred cash
distributions to investors, (iii) provide the potential for increased income and
protection against inflation through participation in the operating revenues of
travel plaza facilities owned by the Partnership, and (iv) to provide potential
long-term appreciation in the value of its properties through real estate
ownership.
Real estate owned by the Partnership is leased for a term of 20 years.
If a franchisee-lessee, however, ceases to be a franchisee of Flying J Inc.
prior to the expiration of its 20-year lease term, the Partnership is entitled
in its sole discretion to terminate the lease with such franchisee-lessee. Two
of the travel plazas also lease equipment for a term of eight years. Lessees
must pay the Partnership annual rental payments (in monthly installments) equal
to a percentage of the Partnership's total investment in the property. With
respect to the property located in Ehrenberg, the Partnership leases the land to
the travel plaza operator and made a loan for the travel plaza building. The
loan provides for monthly installments of interest at a rate of 7% per annum
until June 30, 2003 at which time the entire principal balance is due. The loan
may not be prepaid in full or in part, except upon exercise of the purchase
option on the related travel plaza land. As additional rent under the terms of
the lease, the Partnership is entitled to receive a portion of the operating
revenues from the travel plazas subject to the lease equal to (i) up to 3.5% of
annual gross receipts derived from the non-fuel sales of such travel plaza
facility and (ii) up to 3/10 of $.01 per gallon of fuel sold. Reference is made
to Note (6) 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 leases to CFJ Properties and franchisees of Flying J
Inc., the General Partner granted to the lessee and to Flying J Inc. an option
(the "Option Agreement") to purchase the leased equipment and real estate. The
Option Agreement generally provides that upon expiration of its equipment lease,
and if the lessee is not in default under its lease, a lessee will have an
option to purchase its leased equipment at its appraised fair market value. In
addition, provided that the lessee is not in default under its lease at the time
of exercise, a lessee will have an option exercisable from the end of the tenth
year until the end of the fifteenth year of the lease term to purchase its
leased real estate at the greater of (i) the appraised fair market value of
land, building and equipment, or (ii) the Partnership's total investment in the
property plus a pro rata portion of certain fees and less any amounts paid by
such lessee to the Partnership for equipment under the Option Agreement.
2
<PAGE>
As of June 30, 1996, two of the travel plazas owned by the Partnership
were leased to CFJ Properties, a general partnership formed pursuant to a joint
venture between Flying J Inc., through its subsidiary Big West Oil Company ("Big
West"), and Douglas Oil Company of California, a subsidiary of Conoco Inc.
("Douglas Oil"). With respect to the remaining travel plaza, the land is leased
to TFJ, a Utah general partnership. In addition, the Partnership made a loan to
TFJ to finance the travel plaza building. TFJ is a partnership owned 49.9% by
Flying J and 50.1% by Pacific Sunstone, Inc., an affiliate of Flying J. The
operation of this travel plaza represents TFJ's sole business activity. The
Partnership is not affiliated with CFJ Properties, TFJ, Flying J Inc. or Flying
J Franchise Inc. ("FJFI"), a subsidiary of Flying J Inc.
The Partnership is dependent upon CFJ Properties and TFJ, its lessees,
since an adverse change in the financial condition of CFJ Properties and TFJ
could materially affect their ability to make lease and loan payments.
On February 1, 1991, Flying J Inc., through its subsidiary Big West,
entered into a joint venture with Douglas Oil to form CFJ Properties. Flying J
Inc. (and subsidiaries) is a fully integrated oil and gas company that is
engaged in the production, refining, transportation, wholesaling and retail
marketing of petroleum products and other services through its travel plazas and
gasoline stations. CFJ Properties is the franchisor and operator of the Flying J
Inc. network of interstate travel plazas, which included 66 properties as of
January 31, 1996. The Partnership owns two 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 obligations
under those leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constitutes a default on all other leases to the same
lessee by the Partnership and two prior partnerships sponsored by affiliates of
the General Partner, all of whose travel plazas are leased to Flying J Inc., CFJ
Properties or franchisees of FJFI. These three properties comprise substantially
all of the Partnership's assets, and therefore their unit-level operating
performance and economic fundamentals are important.
For the fiscal year ended January 31, 1996, CFJ Properties reported
earnings of $17.2 million on revenues of $937.4 million. Revenues rose 33.3%
from $703.4 million the prior year. The higher revenues resulted from the
opening of twelve new units and increases in
3
<PAGE>
average unit volumes. As a result of higher revenues, net income increased to
$17.2 million from $16.1 million in the fiscal year ended January 31, 1995.
During the fiscal year ended January 31, 1996, CFJ Properties reported
$35.8 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, 1996, CFJ Properties reported cash balances of
approximately $2.3 million, with liquidity supported by net cash provided by
operating activities and a $70 million revolving line of credit with a bank. As
of January 31, 1996, CFJ Properties reported partners' capital of $137.7 million
and total assets of $369.4 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which expire at various dates over the next 15 to 20 years.
Payments under these leases were $13.3 million in both 1996 and 1995. Future
minimum annual rent obligations under non-cancelable leases, as projected
through 2001, remain comparable to 1996 expense amounts.
The two travel plaza properties operated by CFJ Properties and Flying J
Inc. generated a combined fuel and non-fuel gross profit (including other
income) of approximately $7.4 million during the year ended January 31, 1996 as
compared to $7.6 million in 1995. Total travel plaza unit-level income for these
two properties (before depreciation and allocated corporate overhead) totaled
approximately $1.4 million in 1996 with both of these properties reporting
positive unit-level income. The combined result of the travel plaza unit-level
income before depreciation and allocated corporate overhead was down from $1.5
million the prior year due to a decrease in fuel sales volume at the
Bakersfield, California travel plaza and decreased fuel gross profit margins at
the Wytheville, Virginia travel plaza. For CFJ Properties' fiscal year ended
January 31, 1996, the average unit-level base and participating rents
approximated 13.2% of the original cost of these properties.
The Partnership's third property, which is operated by TFJ, had an
increase in fuel and non-fuel gross profits and other income to $6.4 million in
1996 from $6.3 million in 1995 due to increased fuel and non-fuel sales volume.
The property's income before depreciation and allocated corporate overhead for
1996 remained comparable to 1995 at $1.3 million. Base and participating rents
remained comparable to 1995 at approximately 9% of the original cost of the
property during TFJ's fiscal year ended January 31, 1996.
The travel plaza/truck stop industry, although highly fragmented, is
highly competitive. The Partnership's lessees are competing with, among others,
National Auto/Truckstops, Union, 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
4
<PAGE>
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 the American Trucking Association, the trucking industry
grosses more than $290 billion annually, representing 78% of the nation's
freight bill. The 15 million commercial trucks registered in the United States
consume approximately 35 billion gallons of fuel annually. The Partnership
believes that the trucking industry is sensitive to certain aspects of the
general economic environment, such as retail sales; the level, direction and
rate of change in inventories; international trade; vendor performance; the cost
and availability of fuel; labor issues; and technology. The trucking industry is
also affected by various government policies, including economic regulations;
vehicle size and weight regulations; and health, safety and environmental
protection regulations. These factors also may influence the competitive posture
of one mode of transportation compared to others; however, the trucking industry
has presented itself as an affordable and timely alternative to other methods of
transportation such as air freight and rail, particularly for short hauls.
Through ownership of the travel plazas, the Partnership 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 ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("UST's") that require the Partnership's
lessees to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act requires the
Environmental Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection, prevention and cleanup of leaking UST's. Regulations
enacted by the EPA in 1988 established requirements for (i) installing UST
systems; (ii) upgrading UST systems; (iii) taking corrective action in response
to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi)
maintaining evidence of financial responsibility for taking corrective action
and compensating third parties for bodily injury and property damage resulting
from releases. These regulations permit states to develop, administer and
enforce their own regulatory programs, incorporating requirements which are at
least as stringent as the federal standards. By 1998, all UST's must be
corrosion protected, overfill/spill protected and have leak detection. These
environmental laws impose strict liability for owners
5
<PAGE>
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 (i) ensure that the
lessees comply with applicable rules and regulations, (ii) mitigate any
potential liabilities, including the establishment of storage tank monitoring
procedures, and (iii) require that lessees indemnify the Partnership for all
such liabilities and obtain liability insurance, if reasonably available. The
General Partner requires each lessee to obtain an annual environmental audit,
performed by an environmental consulting and engineering firm, which includes
the following procedures, among others: month-end cumulative fuel inventory
variance analysis; tank tightness tests, automatic tank gauging and leak
detection system operation and calibration tests; UST excavation zone
groundwater and/or soil vapor monitoring well analysis; piping system tightness
tests; piping excavation zone groundwater and/or soil vapor monitoring well
analysis; pipe leak detector inspection and calibration tests; corrosion
protection system tests; on-site sanitary sewer treatment plant effluent
analysis; and oil/water separator inspections. The consulting and engineering
firm hired by the General Partner to conduct such audits also reviews on-site
environmental correspondence; visually inspects the UST system, tank and piping
excavation zone monitoring wells, areas adjacent to all petroleum above-ground
tanks, the stormwater and wastewater control systems, and the travel plaza
facility; and discusses employee training procedures, recent significant
environmental events (if any), repair and maintenance activities, and regulatory
compliance with travel plaza personnel.
The Partnership believes that its lessees are in compliance with all
applicable regulatory requirements and that its lessees have all governmental
licenses and permits required for their business operations. Management knows of
no pending or threatened proceedings or investigations under federal or state
environmental laws; however, management cannot predict the impact on the
Partnership's lessees of new governmental regulations and requirements. Although
the General Partner has taken necessary steps 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 June 30, 1996, the Partnership has invested in real estate
located in one state in the southeastern portion of the United States and two
states in the western United States, and no real estate investments are located
outside of the United States. The Partnership does not segregate revenues or
assets by geographic region, and such a presentation 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.
6
<PAGE>
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 and FFCA/PIP III Investor Services Corporation have no
employees.
7
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements. The following financial
statements are included in the response to item 8 of
this report:
The Partnership
Report of independent public accountants
Balance Sheets as of December 31, 1995 and 1994
Statements of Income for the year ended
December 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital for the
years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Financial Statements
FFCA/PIP III Investor Services Corporation
Report of independent public accountants
Balance Sheet as of December 31, 1995
Notes to Balance Sheet
CFJ Properties
(A General Partnership)
Independent Auditors' Report
Balance Sheets as of January 31, 1996 and 1995
Statements of Income and Partners' Capital for the
years ended January 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
January 31, 1996, 1995 and 1994
Wytheville Travel Plaza
Statements of Revenues and Direct Operating Costs and
Expenses and Statements of Cash Flows from Direct
Travel Plaza
8
<PAGE>
Operations for the years ended January 31, 1996,
1995 and 1994 (with independent auditors' report
thereon)
Bakersfield Travel Plaza
Statements of Revenues and Direct Operating Costs and
Expenses and Statements of Cash Flows from Direct
Travel Plaza Operations for the year ended January
31, 1996, 1995 and 1994 (with independent auditors'
report thereon)
Ehrenberg Travel Plaza
Statement of Revenues and Direct Operating Costs and
Expenses and Statement of Cash Flows from Direct
Travel Plaza Operations for the year ended January
31, 1996, 1995 and 1994 (with independent auditors'
report thereon)
2. Financial Statement Schedules.
Schedule III--Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1995
All other schedules are omitted since they are not
required, are inapplicable, or the required
information is included in the financial statements
or notes thereto.
3. Exhibits.
28. Annual Portfolio Valuation of Cushman &
Wakefield as of December 31, 1995
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following documents, filed with
the Securities and Exchange Commission as exhibits to the
Co-Registrants' Form 10-K for the fiscal year ended December
31, 1991, are incorporated herein by this reference.
<TABLE>
<CAPTION>
1991 Form 10-K
Exhibit No.
-----------
<S> <C>
The Agreement of Limited Partnership of the General 3-A
Partner
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
The Certificate of Incorporation of FFCA/PIP III 3-B
Investor Services Corporation, as filed with the
Secretary of State Delaware on December 5, 1988
Bylaws of FFCA/PIP III Investor Services Corporation 3-C
</TABLE>
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following documents, filed with
the Securities and Exchange Commission, is incorporated herein
by this reference.
The Amended and Restated Agreement of Limited
Partnership of the Partnership.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Co-Registrants during
the last quarter of the fiscal year ended December 31, 1995
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the co-registrants have duly caused this amendment to be signed on their behalf
by the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES III
LIMITED PARTNERSHIP
By: FFCA PARTICIPATING MANAGEMENT COMPANY
LIMITED PARTNERSHIP, Managing General
Partner
By: FRANCHISE FINANCE CORPORATION OF
AMERICA III, Managing General
Partner
Date: September 12, 1996 By: /s/ M.H. Fleischer
----------------------------------
M.H. Fleischer, President and
Chief Executive Officer
FFCA/PIP III INVESTOR SERVICES CORPORATION
Date: September 12, 1996 By: /s/ John R. Barravecchia
-----------------------------------------------
John R. Barravecchia, President, Secretary,
Treasurer, Principal Financial Officer and
Principal Accounting Officer
<PAGE>
Independent Auditors' Report
================================================================================
The Board of Directors
CFJ Properties:
We have audited the accompanying balance sheets of CFJ Properties (a general
partnership) as of January 31, 1996 and 1995, and the related statements of
income and partners' capital and cash flows for each of the years in the
three-year period ended January 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CFJ Properties as of January
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended January 31, 1996, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 22, 1996
1
<PAGE>
Balance Sheets
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Assets 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,314 $ 1,700
Trade receivables, net of allowance for doubtful accounts of
of $165 in 1996 and $219 in 1995 (note 8) 11,836 8,012
Inventories (note 2) 15,832 12,798
Prepaid expenses 2,229 1,204
- --------------------------------------------------------------------------------
Total current assets 32,211 23,714
- --------------------------------------------------------------------------------
Land, buildings, and equipment:
Land and improvements 111,053 72,270
Buildings 119,632 78,349
Equipment 86,939 58,860
Leasehold improvements 24,494 24,078
Construction-in-progress 33,687 42,853
- --------------------------------------------------------------------------------
375,805 276,410
Less accumulated depreciation and amortization 40,095 25,384
- --------------------------------------------------------------------------------
Net land, buildings, and equipment 335,710 251,026
- --------------------------------------------------------------------------------
Long-term notes receivable 535 0
Other assets (note 3) 930 848
- --------------------------------------------------------------------------------
$369,386 $275,588
================================================================================
Liabilities and Partners' Capital
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable (note 8) $ 48,313 $ 45,036
Accrued liabilities (notes 4 and 8) 23,466 22,329
- --------------------------------------------------------------------------------
Total current liabilities 71,779 67,365
Long-term debt (note 5) 156,500 87,000
Other liabilities 3,409 730
- --------------------------------------------------------------------------------
Total liabilities 231,688 155,095
- --------------------------------------------------------------------------------
Partners' capital 137,698 120,493
Commitments and contingencies (notes 5, 6 and 10)
- --------------------------------------------------------------------------------
$369,386 $275,588
================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Statements of Income and Partners' Capital
================================================================================
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales (note 1(f)) $ 937,370 $ 703,430 $ 564,627
Cost of sales 755,852 563,519 458,840
- ----------------------------------------------------------------------------------------------
Gross profit 181,518 139,911 105,787
- ----------------------------------------------------------------------------------------------
Operating, general, and administrative expense (note 7):
Operating 145,959 112,882 88,970
General and administrative 11,753 9,533 7,323
- ----------------------------------------------------------------------------------------------
157,712 122,415 96,293
- ----------------------------------------------------------------------------------------------
Income from operations 23,806 17,496 9,494
- ----------------------------------------------------------------------------------------------
Other income (expense):
Interest income 93 147 91
Interest expense (6,642) (1,483) 0
Loss on sale of fixed assets, net (52) (19) (28)
- ----------------------------------------------------------------------------------------------
(6,601) (1,355) 63
- ----------------------------------------------------------------------------------------------
Net income 17,205 16,141 9,557
Partners' capital, beginning of year 120,493 104,352 94,795
- ----------------------------------------------------------------------------------------------
Partners' capital, end of year $ 137,698 $ 120,493 $ 104,352
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Statements of Cash Flows
================================================================================
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 17,205 $ 16,141 $ 9,557
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14,933 9,827 6,793
Provision for losses on accounts receivable 0 51 21
Loss on sale of fixed assets 52 19 28
Change in assets and liabilities:
Receivables (3,803) (1,302) (179)
Inventories (3,034) (4,065) (1,318)
Prepaid expenses (1,025) (164) (248)
Other assets (128) 1,636 (124)
Accounts payable and accrued liabilities 8,817 16,713 6,799
Other liabilities 2,739 268 (563)
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 35,756 39,124 20,766
- ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from insurance coverage 0 0 423
Capital expenditures (note 8) (104,107) (90,258) (57,943)
Note receivable funded (535) 0 0
- ---------------------------------------------------------------------------------------------------
Net cash used in investing activities (104,642) (90,258) (57,520)
- ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 25,000 75,000 0
Net proceeds (payments) under line of credit agreements 44,500 (29,000) 36,000
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 69,500 46,000 36,000
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 614 (5,134) (754)
Cash and cash equivalents, beginning of year 1,700 6,834 7,588
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,314 $ 1,700 $ 6,834
- ---------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of capitalized amounts $ 6,387 $ 916 $ 0
</TABLE>
Supplemental Disclosure of Noncash Investing Activities
TheCapital expenditures noted above are net of accounts payable increases
(decreases) related to the acquisiton of building and equipment of
($4,403), $2,477, and $4,735 in 1996, 1995, and 1994, respectively.
See accompanying notes to financial statements.
4
<PAGE>
Notes to Financial Statements
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
The following significant accounting policies are followed by CFJ Properties
(the Partnership) in preparing and presenting its financial statements:
(a) Organization and Line of Business - The Partnership is a Utah general
partnership with its principal business being the development and operation of a
national network of interstate travel plazas in North America. A typical travel
plaza offers a 24-hour service operation which includes fuel facilities, a
restaurant or deli, convenience store, and other amenities designed to meet the
needs of the trucking industry and traveling public. Some travel plazas include
lodging and truck service centers. The Partnership operated 66, 54 and 41 travel
plazas, as of January 31, 1996, 1995 and 1994, respectively.
(b) Cash Equivalents - For purposes of the statements of cash flows, the
Partnership considers all investments with original maturities of three months
or less to be cash equivalents.
(c) Inventories - Inventories include gasoline, diesel, ready-to-use additives,
related petroleum products, food and miscellaneous merchandise. Inventories are
stated at the lower of cost or market value as determined by the first-in,
first-out (FIFO) method.
(d) Land, Buildings, and Equipment - Land, buildings and equipment are stated at
cost for constructed and purchased assets and fair market value at the date
contributed for contributions from the general partners. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the related assets.
Interest is capitalized in connection with the construction of travel plazas.
The interest capitalized is recorded as part of the asset to which it relates
and is amortized over the lesser of its useful life or the lease term. Interest
of $2,925,000, $2,993,000, and $791,000 was capitalized for 1996, 1995, and 1994
respectively.
(e) Income Taxes - The Partnership is not directly subject to income taxes. Each
partner is responsible for any income tax related to their portion of taxable
income.
(f) Retail Fuel Sales - The Partnership does not include related federal or
state excise taxes in petroleum product retail sales or cost of sales. Such
taxes amounted to approximately $475,900,000, $361,243,000 and $253,062,000 for
1996, 1995 and 1994, respectively.
(g) New Plaza Opening Costs - Opening costs are expensed when incurred. The
costs associated with new travel plaza openings were approximately $4,000,000,
$4,100,000 and $1,100,000 in 1996, 1995 and 1994, respectively.
(h) Concentration of Credit Risk - Financial instruments which potentially
subject the Partnership to concentrations of credit risk consist principally of
cash and cash equivalents, and trade receivables. The Partnership places its
cash and cash equivalent investments with high quality credit financial
institutions and limits the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Partnership's
customer base, and their dispersion across many different geographical regions.
The Partnership routinely performs credit evaluations of its customers and
maintains allowances for potential credit losses.
(I) Use of Estimates - The Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) Inventories
Inventories are summarized as follows (in thousands):
1996 1995
--------- ------
Store merchandise and restaurant food $ 13,002 10,590
Petroleum products 2,830 2,208
--------- ------
$ 15,832 12,798
========= ======
5
<PAGE>
(3) Other Assets
Other assets consist of the following (in thousands):
1996 1995
------- ----
Land deposits $ 590 562
Lease deposits 232 232
Loan origination fees 108 54
------- ---
$ 930 848
======= ===
(4) Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
1996 1995
---- ----
Fuel taxes $ 15,078 13,285
Expense incurred by
Operator (note 8) 5,677 6,550
Other 2,711 2,494
---------- ------
$ 23,466 22,329
========== ======
(5) Long-term Debt
Under a revolving line of credit agreement with a bank, the Partnership may
borrow up to $70,000,000 at the bank's prime, adjusted certificate of deposit,
or adjusted Libor rate at the Partnership's option. Under the agreement,
outstanding borrowings on July 13, 1999, convert to a term loan and are payable
in quarterly installments through April 2003. The agreement requires a
commitment fee. The Partnership had $56,500,000 and $12,000,000 in outstanding
borrowings as of January 31, 1996 and 1995, respectively. Interest rates on
outstanding borrowings range from 6.23 to 8.50 percent. In addition to the
$70,000,000 line of credit, the Partnership had letters of credit totaling
$5,177,000 outstanding as of January 31, 1996.
Under a fiscal 1995 Master Shelf Agreement, the Partnership issued $100,000,000
in long-term notes payable to an insurance company. The notes bear interest at
7.88, 9.35, and 7.27 percent and require quarterly interest payments. Annual
principal payments are required beginning March 1998 with the final payment in
January 2005. In addition to the $100,000,000, the Partnership has an option to
issue an additional $25,000,000 in long-term notes payable to the same insurance
company contingent upon meeting certain conditions.
The following aggregate maturities of long-term debt (in thousands) reflect the
Partnership's intent and ability (subject to bank approval) to defer the first
quarterly installment on its $70,000,000 line of credit one year to July 13,
1999:
1997 $ 0
1998 0
1999 10,000
2000 25,594
2001 31,125
Thereafter 89,781
-----------
Total $ 156,500
===========
(6) Lease Commitments
The Partnership leases travel plazas and equipment under noncancelable operating
leases, which expire at various dates over the next 15 to 20 years. The leases
are obligations of the Partnership without recourse to the general partners. The
operating leases include minimum and percentage (contingent) lease payments.
Contingent rents are based upon gallons sold, restaurant and merchandise sales,
and other revenues.
Minimum lease payments under noncancelable operating leases were $13,266,000,
$13,277,000 and $13,426,000 for the years ended January 31, 1996, 1995 and 1994,
respectively. Percentage lease payments under noncancelable operating leases
were $4,348,000, $4,213,000 and $3,710,000 for the years ended January
31, 1996, 1995 and 1994, respectively.
Future minimum payments under noncancelable operating leases as of January 31,
1996 are as follows (in thousands):
1997 $ 13,182
1998 12,630
1999 12,288
2000 12,221
2001 12,166
Thereafter 106,573
-----------
Total $ 169,060
===========
6
<PAGE>
(7) Pension and Profit Sharing Plans
Currently, the Partnership has chosen to have all eligible employees participate
in the noncontributory defined contribution pension and profit sharing plans of
Flying J Inc. (Flying J), the parent company of one of the general partners.
Contributions to these plans, which are made at the discretion of Flying J's
Board of Directors, may be in cash or qualifying common stock of Flying J. The
Partnership's expenses related to these plans amounted to $1,212,000, $998,000,
and $753,000 for the years ended January 31, 1996, 1995, and 1994, respectively.
(8) Related Party Transactions
The parent company (the Operator) of one of the general partners, operates all
travel plazas and related facilities for the Partnership. Under the terms of the
operations agreement, the Partnership reimburses the Operator for the cost of
operations plus a monthly amount for overhead costs. The overhead cost
reimbursements amounted to $916,000, $801,000 and $697,000 for 1996, 1995 and
1994, respectively. The Operator paid the Partnership $668,000, $651,000 and
$634,000 during 1996, 1995 and 1994, respectively, for services performed by the
Partnership for certain franchises of the Operator.
During its normal course of business, the Partnership purchases petroleum
products from the general partners under supply agreements. It is the general
partners' opinion that such agreements are under terms similar to those which
could be received under arms-length contracts. Purchases from the partners'
amounted to approximately $662,900,000, $494,800,000 and $409,481,000 for 1996,
1995 and 1994, respectively.
Included in accounts receivable is $729,000 and $616,000 as of January 31, 1996
and 1995, respectively, from affiliates.
Included in accounts payable and accrued liabilities is $31,250,000 and
$24,020,000 as of January 31, 1996 and 1995, respectively, due the general
partners and their affiliates resulting from petroleum product purchases and
management services.
The Partnership periodically contracts with the Operator for the development and
construction of travel plazas. Capitalized expenditures under these agreements
were $70,326,000 and $73,576,000 in 1996 and 1995, respectively. It is the
general partners' opinion that such purchases are under terms similar to those
which could be received under arms-length contracts.
(9) Disclosure About the Fair Value of Financial Instruments
The carrying value for certain short-term financial instruments that mature or
reprice frequently at market rate, approximates their fair value. Such financial
instruments include: cash and cash equivalents, trade receivables, revolving
lines of credit, accounts payable, and accrued liabilities. The carrying value
of the long-term debt approximates its fair market value.
(10) Commitments and Contingencies
(a) Environmental Laws and Regulations - In connection with the operation of its
network of fuel facilities, the Partnership has become subject to increasingly
demanding environmental standards imposed by federal, state, and local
environmental laws and regulations. It is the policy of the Partnership to
comply with applicable environmental laws and regulations.
An estimated amount related to the remediation of environmental issues has been
accrued as managements's best estimate of the cost. However, governmental
regulations covering environmental issues are highly complex and are subject to
change. Accordingly, changes in the regulations or interpretations thereof could
result in future costs to the Partnership in excess of the amounts accrued.
Management believes that preventative measures in addition to proper attention
to these regulations will minimize costs related to compliance to such
regulations. Furthermore, the Partnership routinely succeeds in recovering a
significant portion of the cost of remediation from the states which administer
environmental clean up funds for in-state fuel retailers.
(b) Litigation - The Partnership is involved in legal actions resulting from the
ordinary course of business. Such actions relate to travel plaza operations and
other general matters. Management believes that the Partnership has adequate
legal defenses or insurance coverage and reserves and that the ultimate outcome
of such actions will not have a material adverse effect on the Partnership's
financial position.
7
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1996, of the Wytheville Travel Plaza operated by CFJ Properties (see note 1).
The land and related plaza facilities are owned by Participating Income
Properties III L. P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Wytheville Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Wytheville Travel Plaza for
each of the years in the three-year period ended January 31, 1996, in conformity
with generally accepted accounting principles
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 14, 1996
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $20,007 $18,958 $16,067
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 16,241 15,143 13,343
Labor costs 1,013 1,064 966
Controllable operating expenses 555 502 444
Occupancy expenses 1,142 1,128 1,081
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 1,056 $ 1,121 $ 233
==================================================================================================================
</TABLE>
See accompanying note to financial statemtents.
2
<PAGE>
Statements of Cash Flows
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $1,056 $1,121 $ 233
Add amortization of leasehold improvements and depreciation 68 64 47
- ----------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $1,124 $1,185 $ 280
====================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Wytheville Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Wytheville,
Virginia, commenced operations in April 1991 and is operated by CFJ Properties
(CFJ). The land and related plaza facilities are leased by CFJ from
Participating Income Properties III, L.P. (PIP III) .
The accompanying statements have been prepared to facilitate PIP III's
compliance with the rules and regulations of the Securities and Exchange
Commission. The statements include only direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
expenses costs and expenses and the statements of cash flows from direct travel
plaza operations for each of the years in the three-year period ended January
31, 1996, of the Bakersfield Travel Plaza operated by CFJ Properties (see note
1). The land and related plaza facilities are owned by Participating Income
Properties III L.P. These statements are the responsibility of management. Our
responsibility is to express an opinion on these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Bakersfield Travel plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Bakersfield Travel Plaza for
each of the years in the three-year period ended January 31, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 14, 1996
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $17,486 $18,319 $18,779
- -------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 13,814 14,553 14,909
Labor costs 1,226 1,264 1,220
Controllable operating expenses 624 583 518
Occupancy expenses 1,039 1,031 1,018
- -------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 783 $ 888 $ 1,114
===================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $ 783 $ 888 $1,114
Add amortization of leasehold improvements 93 82 71
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $ 876 $ 970 $1,185
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Bakersfield Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, convenience
store and other amenities designed to meet the needs of the trucking industry
and traveling public in general. The Travel Plaza, located in Bakersfield,
California, commenced operations in February 1992 and is operated by CFJ
Properties (CFJ). The land and related plaza facilities are leased by CFJ from
Participating Income Properties III, L.P. (PIP III).
The accompanying statements have been prepared to facilitate PIP III's
compliance with the rules and regulations of the Securities and Exchange
Commission. The statements include only direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
TFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1996, of the Ehrenberg Travel Plaza operated by FJ Properties (see note 1). The
land is owned by Participating Income Properties III L.P. These statements are
the responsibility of management. Our responsibility is to express an opinion on
these statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
The statements referred to above were prepared for the purpose of complying with
the rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete representation of the Ehrenberg Travel Plaza's
statements of income and cash flows.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and direct operating costs and expenses and the cash
flows from direct travel plaza operations of the Ehrenberg Travel Plaza for each
of the years in the three-year period ended January 31, 1996, in conformity with
generally accepted accounting principles
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 14, 1996
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $26,922 $23,976 $20,895
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 20,545 17,665 15,591
Labor costs 2,292 2,280 2,157
Controllable operating expenses 1,198 1,190 946
Occupancy expenses 1,170 868 861
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 1,717 $ 1,973 $ 1,340
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $1,717 $1,973 $1,340
Add amortization of leasehold improvements and depreciation 472 441 421
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $2,189 $2,414 $1,761
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Organization and Business - The Ehrenberg Travel Plaza (Travel Plaza) is a
24-hour service operation and includes fuel facilities, restaurant, motel, truck
service center, convenience store and other amenities designed to meet the needs
of the trucking industry and traveling public in general. The Travel Plaza,
located in Ehrenberg, Arizona, commenced operations in May 1988 and is operated
by FJ Properties. The land is leased by TFJ Properties from Participating Income
Properties III, L.P. (PIP III).
The accompanying statements have been prepared to facilitate PIP III's
compliance with the rules and regulations of the Securities and Exchange
Commission. The statements include only direct operating costs and expenses.
Certain overhead costs such as corporate administrative allocations are
excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP III.
(d) Leasehold Improvements Amortization - Leasehold improvements are amortized
using the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
(e) Federal and State Income Taxes - Federal and state income taxes have not
been allocated to the Travel Plaza.
4
