SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
ANNUAL REPORT UNDER SECTION 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 0-20151
Commission file number 33-35868-01
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 Morton 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."
The statements contained in this report, if not historical, are
forward-looking statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated" or "expected". Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results or occurrences.
On 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
<PAGE>
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 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.
As of August 25, 1997, 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'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 (3) of the
3
<PAGE>
notes to the financial statements filed with this Report for a schedule of the
minimum future lease payments to be received by the Partnership 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.
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 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. CFJ Properties is the franchisor and operator of the Flying J network
of interstate travel plazas, which included 72 properties as of January 31,
1997. 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 CFJ Properties,
Flying J Inc. or franchisees of FJFI.
4
<PAGE>
For the fiscal year ended January 31, 1997, CFJ Properties reported net
income of $1.8 million on revenues of $1.2 billion. Revenues rose 25% from
$937.4 million the prior year. The higher revenues resulted from the opening of
six new units and increases in fuel prices. Net income decreased from $17.2
million in the prior year due to higher interest expense and lower gross profit
margins.
During the fiscal year ended January 31, 1997, CFJ Properties reported
$22.3 million in net cash provided by operating activities. This cash, along
with the cash provided by financing activities, was used to make capital
expenditures. As of January 31, 1997, CFJ Properties reported cash balances of
approximately $2.1 million, with liquidity supported by net cash provided by
operating activities and a $150 million revolving line of credit with a bank. As
of January 31, 1997, CFJ Properties reported partners' capital of $139.5 million
and total assets of $412.9 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which expire at various dates over the next 10 to 16 years.
Payments under these leases were $17.3 million in 1997 and $17.6 million in
1996, including percentage lease payments. Future minimum annual rent
obligations under non-cancelable leases, as projected through 2002, remain
comparable to 1997 expense amounts.
The two travel plaza properties operated by CFJ Properties generated a
combined fuel and non-fuel gross profit (including other income) of
approximately $6.8 million during the year ended January 31, 1997 as compared to
$7.4 million in 1996. Total travel plaza unit-level income for these two
properties (before depreciation and allocated corporate overhead) totaled
approximately $844,000 in 1997 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 decreased from $1.4 million
in the prior year. This is primarily 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 due to increases in fuel costs while
maintaining competitive market prices. For CFJ Properties' fiscal year ended
January 31, 1997, the average unit-level base and participating rents
approximated 13.0% of the original cost of these properties.
The Partnership's third property is operated by TFJ. Fuel and non-fuel
gross profits and other income generated by this property decreased to $6.2
million in 1997 from $6.4 million in 1996 due to reduced fuel margins caused
from increased fuel costs while maintaining competitive market prices. The
property's income before depreciation and allocated corporate overhead for 1997
was $1.2 million as compared to $1.3 million in 1996. Base and participating
rents remained comparable to 1996 at approximately 9% of the original cost of
the property during TFJ's fiscal year ended January 31, 1997.
5
<PAGE>
The travel plaza/truckstop industry, although highly fragmented, is
highly competitive. The Partnership's lessees are competing with, among others,
National Auto/Truckstops, Petro and Pilot Corporation, as well as other
national, regional and local truckstop operators, some of which may have
substantially greater financial resources than the lessees. The Partnership's
lessees also compete with other entities which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the 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
grosses more than $340 billion annually, representing 78% of the nation's
freight bill. The 20 million commercial trucks registered in the United States
consume approximately 39 billion gallons of fuel annually. The Partnership
believes that the trucking industry is sensitive to certain aspects of the
general economic environment, such as retail sales; the level, direction and
rate of change in inventories; international trade; vendor performance; the cost
and availability of fuel; labor issues; and technology. The trucking industry is
also affected by various government policies, including economic regulations;
vehicle size and weight regulations; and health, safety and 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 the ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("UST's") that require the Partnership's
lessees to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act requires the
Environmental Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection, prevention and cleanup of leaking UST's. Regulations
enacted by the EPA in 1988 established requirements for (i) installing UST
systems; (ii) upgrading UST systems; (iii) taking corrective action in response
to releases; (iv) closing
6
<PAGE>
UST systems; (v) keeping appropriate records; and (vi) maintaining evidence of
financial responsibility for taking corrective action and compensating third
parties for bodily injury and property damage resulting from releases. These
regulations permit states to develop, administer and enforce their own
regulatory programs, incorporating requirements which are at least as stringent
as the federal standards. By 1998, all UST's must be corrosion protected,
overfill/spill protected and have leak detection. These environmental laws
impose strict liability for owners and operators of faulty and leaking storage
tanks resulting in damage to the environment or third parties.
The General Partner has taken 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, 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 August 25, 1997, 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. A presentation of revenues or
7
<PAGE>
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 do 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/PIP III Investor Services Corporation has no
employees because it does not conduct any business operations.
8
<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, 1996 and 1995
Statements of Income for the year ended December 31, 1996,
1995 and 1994
Statements of Changes in Partners' Capital for the
years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
FFCA/PIP III Investor Services Corporation
Report of independent public accountants
Balance Sheet as of December 31, 1996
Notes to Balance Sheet
CFJ Properties
(A General Partnership)
Independent Auditors' Report
Balance Sheets as of January 31, 1997 and 1996
Statements of Income and Partners' Capital for the
years ended January 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended
January 31, 1997, 1996 and 1995
Notes to Financial Statements
Wytheville Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and
Expenses for the years ended January 31, 1997, 1996 and
1995
9
<PAGE>
Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Note to Finacial Statements
Bakersfield Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and
Expenses for the years ended January 31, 1997, 1996 and
1995
Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Note to Finacial Statements
Ehrenberg Travel Plaza
Independent Auditors' Report
Statements of Revenues and Direct Operating Costs and
Expenses for the years ended January 31, 1997, 1996 and
1995
Statements of Cash Flows for the years ended January 31,
1997, 1996 and 1995
Note to Finacial Statements
2. Financial Statement Schedules.
Schedule III-Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1996
All other schedules are omitted since they are not
required, are inapplicable, or the required information
is included in the financial statements or notes thereto.
3. Exhibits.
99. Annual Portfolio Valuation of Cushman & Wakefield
as of December 31, 1996
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following 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
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Partner
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 document, 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, 1996.
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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 17, 1997 By: /s/ Morton H. Fleischer
------------------------
Morton H. Fleischer, President and
Chief Executive Officer
FFCA/PIP III INVESTOR SERVICES CORPORATION
Date: September 17, 1997 By: /s/ John Barravecchia
--------------------------
John Barravecchia, President, Secretary,
Treasurer, Principal Financial Officer and
Principal Accounting Officer
<PAGE>
Independent Auditors' Report
================================================================================
The Board of Directors
CFJ Properties:
We have audited the accompanying balance sheets of CFJ Properties (a general
partnership) as of January 31, 1997 and 1996, and the related statements of
income and partners' capital and cash flows for each of the years in the
three-year period ended January 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CFJ Properties as of January
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the years in the three-year period ended January 31, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 31, 1997
1
<PAGE>
Balance Sheets
CFJ PROPERTIES
(A General Partnership)
January 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 2,138 $ 2,314
Trade receivables, net of allowance for doubtful accounts of
of $129 in 1997 and $165 in 1996 (note 8) 11,400 11,836
Inventories (note 2) 20,308 15,832
Prepaid expenses 2,141 2,229
-------- --------
Total current assets 35,987 32,211
-------- --------
Land, buildings, and equipment:
Land and improvements 129,270 111,053
Buildings 145,875 119,632
Equipment 105,561 86,939
Leasehold improvements 24,317 24,494
Construction-in-progress 29,454 33,687
-------- --------
434,477 375,805
Less accumulated depreciation and amortization 58,932 40,095
-------- --------
Net land, buildings, and equipment 375,545 335,710
Long-term notes receivable 395 535
Other assets (note 3) 957 930
-------- --------
$412,884 $369,386
======== ========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable (note 8) $ 58,395 $ 48,313
Accrued liabilities (notes 4 and 8) 20,995 23,466
-------- --------
Total current liabilities 79,390 71,779
Long-term debt (note 5) 190,000 156,500
Other liabilities 4,016 3,409
-------- --------
Total liabilities 273,406 231,688
-------- --------
Partners' capital 139,478 137,698
Commitments and contingencies (notes 5, 6 and 10)
-------- --------
$412,884 $369,386
======== ========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Statements of Income and Partners' Capital
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Sales (note 1(f)) $ 1,171,813 $ 937,370 $ 703,430
Cost of sales 985,377 755,852 563,519
----------- ----------- -----------
Gross profit 186,436 181,518 139,911
----------- ----------- -----------
Operating, general, and administrative expense:
Operating 162,236 145,959 112,882
General and administrative 11,732 11,753 9,533
----------- ----------- -----------
173,968 157,712 122,415
----------- ----------- -----------
Income from operations 12,468 23,806 17,496
----------- ----------- -----------
Other income (expense):
Interest income 134 93 147
Interest expense, net (10,659) (6,642) (1,483)
Loss on sale of fixed assets, net (163) (52) (19)
----------- ----------- -----------
(10,688) (6,601) (1,355)
----------- ----------- -----------
Net income 1,780 17,205 16,141
Partners' capital, beginning of year 137,698 120,493 104,352
----------- ----------- -----------
Partners' capital, end of year $ 139,478 $ 137,698 $ 120,493
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Statements of Cash Flows
CFJ PROPERTIES
(A General Partnership)
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,780 $ 17,205 $ 16,141
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,080 14,933 9,827
Provision for losses on accounts receivable 0 0 51
Loss on sale of fixed assets 163 52 19
Change in assets and liabilities:
Receivables 436 (3,803) (1,302)
Inventories (4,476) (3,034) (4,065)
Prepaid expenses 88 (1,025) (164)
Other assets (106) (128) 1,636
Accounts payable and accrued liabilities 4,723 8,817 16,713
Other liabilities 607 2,739 268
--------- --------- ---------
Net cash provided by operating activities 22,295 35,756 39,124
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (note 8) (56,111) (104,107) (90,258)
Note receivable funded 140 (535) 0
--------- --------- ---------
Net cash used in investing activities (55,971) (104,642) (90,258)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable 0 25,000 75,000
Net proceeds (payments) under line of credit agreements 33,500 44,500 (29,000)
--------- --------- ---------
Net cash provided by financing activities 33,500 69,500 46,000
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (176) 614 (5,134)
Cash and cash equivalents, beginning of year 2,314 1,700 6,834
--------- --------- ---------
Cash and cash equivalents, end of year $ 2,138 $ 2,314 $ 1,700
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest, net of capitalized amounts $ 10,854 $ 6,387 $ 916
Supplemental Disclosure of Noncash Investing Activities
The capital expenditures noted above are net of accounts
payable increases (decreases) related to the acquisiton of
building and equipment of $2,888, ($4,403), and $2,477 in
1997, 1996, and 1995, respectively.
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Notes to Financial Statements
================================================================================
CFJ PROPERTIES
(A General Partnership)
January 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
The following significant accounting policies are followed by CFJ Properties
(the Partnership) in preparing and presenting its financial statements:
(a) Organization and Line of Business - The Partnership is a Utah general
partnership with its principal business being the development and operation of a
national network of interstate travel plazas in North America. A typical travel
plaza offers a 24-hour service operation which includes fuel facilities, a
restaurant or deli, convenience store, and other amenities designed to meet the
needs of the trucking industry and traveling public. Some travel plazas include
lodging and truck service centers. The Partnership operated 72, 66 and 54 travel
plazas, as of January 31, 1997, 1996 and 1995, respectively.
(b) Cash Equivalents - For purposes of the statements of cash flows, the
Partnership considers all investments with original maturities of three months
or less to be cash equivalents.
(c) Inventories - Inventories include gasoline, diesel, ready-to-use additives,
related petroleum products, food and miscellaneous merchandise. Inventories are
stated at the lower of cost or market value as determined by the first-in,
first-out (FIFO) method.
(d) Land, Buildings, and Equipment - Land, buildings and equipment are stated at
cost for constructed and purchased assets and fair market value at the date
contributed for contributions from the general partners. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the related assets.
Interest is capitalized in connection with the construction of travel plazas.
The interest capitalized is recorded as part of the asset to which it relates
and is amortized over the lesser of its useful life or lease term. Interest of
$1,634,000, $2,925,000, and $2,993,000 was capitalized for 1997, 1996, and 1995
respectively.
(e) Income Taxes - The Partnership is not directly subject to income taxes. Each
partner is responsible for any income tax related to their portion of taxable
income.
(f) Retail Fuel Sales - The Partnership does not include related federal or
state excise taxes in petroleum product retail sales or cost of sales. Such
taxes amounted to approximately $516,381,000, $475,900,000 and $361,243,000 for
1997, 1996 and 1995, respectively.
(g) New Plaza Opening Costs - Opening costs are expensed when incurred. The
costs associated with new travel plaza openings were approximately $2,100,000,
$4,000,000 and $4,100,000 in 1997, 1996 and 1995, respectively.
(h) Concentration of Credit Risk - Financial instruments which potentially
subject the Partnership to concentrations of credit risk consist principally of
cash and cash equivalents, and trade receivables. The Partnership places its
cash and cash equivalent investments with high quality credit financial
institutions and limits the amount of credit exposure to any one financial
institution. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Partnership's
customer base, and their dispersion across many different geographical regions.
The Partnership routinely performs credit evaluations of its customers and
maintains allowances for potential credit losses.
(i) Use of Estimates - The Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) Inventories
Inventories are summarized as follows (in thousands):
1997 1996
---- ----
Store merchandise and restaurant food $16,368 $13,002
Petroleum products 3,940 2,830
------- -------
$20,308 $15,832
======= =======
5
<PAGE>
(3) Other Assets
Other assets consist of the following (in thousands):
1997 1996
---- ----
Land deposits $630 $590
Lease deposits 232 232
Loan origination fees, net 95 108
---- ----
$957 $930
==== ====
(4) Accrued Liabilities
Accrued liabilities are summarized as follows (in thousands):
1997 1996
---- ----
Fuel taxes $14,285 $15,078
Expense incurred by
Operator (note 8) 4,222 5,677
Other 2,488 2,711
------- -------
$20,995 $23,466
======= =======
(5) Long-term Debt
Subsequent to year-end, the Partnership replaced its line-of-credit agreement.
Under the new revolving line of credit the Partnership may borrow up to
$150,000,000. Interest is computed at the Partnership's option, at the Libor
rate plus plus .5 to 1 percent, or the higher of the federal funds rate plus .5
percent and the administrative agent bank's prime rate. The agreement requires a
commitment fee. The Partnership had $90,000,000 and $56,500,000 in outstanding
borrowings under a revolving line of credit as of January 31, 1997 and 1996,
respectively. Interest rates on outstanding borrowings range from 6.04 to 8.25
percent. In addition to the borrowings under the line of credit, the Partnership
had letters of credit totaling $5,177,000 outstanding as of January 31, 1997.
Under a fiscal 1995 Master Shelf Agreement, the Partnership issued $100,000,000
in long-term notes payable to an insurance company. The notes bear interest from
7.37 to 9.45 percent and require quarterly interest payments. Annual principal
payments are required beginning March 1998 with the final payment in January
2005. In addition to the $100,000,000, the Partnership has an option to issue an
additional $25,000,000 in long-term notes payable to the same insurance company
contingent upon meeting certain conditions.
Aggregate maturities of long-term debt are summarized as follows (in thousands):
1998 $ 0
1999 10,000
2000 15,000
2001 17,000
2002 16,000
Thereafter 132,000
--------
Total $190,000
========
(6) Lease Commitments
The Partnership leases travel plazas and equipment under noncancelable operating
leases, which expire at various dates over the next 10 to 16 years. The leases
are obligations of the Partnership without recourse to the general partners. The
operating leases include minimum and percentage (contingent) lease payments.
Contingent rents are based upon gallons sold, restaurant and merchandise sales,
and other revenues.
Minimum lease payments under noncancelable operating leases were $13,173,000,
$13,266,000 and $13,277,000 for the years ended January 31, 1997, 1996 and 1995,
respectively. Percentage lease payments under noncancelable operating leases
were $4,105,000, $4,348,000 and $4,213,000 for the years ended January 31, 1997,
1996 and 1995, respectively.
Future minimum payments under noncancelable operating leases as of January 31,
1997 are as follows (in thousands):
1998 $ 12,696
1999 12,432
2000 12,250
2001 12,156
2002 12,142
Thereafter 92,608
-------
Total $ 154,284
=======
(7) Pension and Profit Sharing Plans
Currently, the Partnership has chosen to have all eligible employees participate
in the noncontributory defined contribution pension and profit sharing plans of
Flying J Inc. (Flying J), the parent company of one of the general partners.
Contributions to these plans, which are made at the discretion of Flying J's
Board of Directors, may be in cash or qualifying common stock of Flying J. The
Partnership's expenses related to these plans amounted to $1,591,000, $1,212,000
and $998,000 for the years ended January 31, 1997, 1996 and 1995, respectively.
6
<PAGE>
(8) Related Party Transactions
Flying J operates all travel plazas and related facilities for the Partnership.
Under the terms of the operations agreement, the Partnership reimburses Flying J
for the cost of operations plus a monthly amount for overhead costs. The
overhead cost reimbursements amounted to $960,000, $916,000 and $801,000 for
1997, 1996 and 1995, respectively. Flying J paid the Partnership $686,000,
$668,000 and $651,000 during 1997, 1996 and 1995, respectively, for services
performed by the Partnership for certain franchisees of Flying J.
During its normal course of business, the Partnership purchases petroleum
products from the general partners under supply agreements. It is the general
partners' opinion that such agreements are under terms similar to those which
could be received under arms-length contracts. Purchases from the partners'
amounted to approximately $882,884,000, $662,900,000 and $494,800,000 for 1997,
1996 and 1995, respectively.
Included in accounts receivable at January 31, 1997 and 1996 is $1,827,000 and
$1,317,000, respectively, due from affiliates.
Included in accounts payable and accrued liabilities is $38,256,000 and
$31,250,000 as of January 31, 1997 and 1996, respectively, due the general
partners and their affiliates resulting from petroleum product purchases and
management services.
The Partnership periodically contracts with Flying J for the development and
construction of travel plazas. Capitalized expenditures under these agreements
were $45,326,000 and $70,326,000 in 1997 and 1996, respectively. It is the
general partners' opinion that such purchases are under terms similar to those
which could be received under arms-length contracts.
(9) Disclosure About the Fair Value of Financial Instruments
The carrying value for certain short-term financial instruments that mature or
reprice frequently at market rate, approximates their fair value. Such financial
instruments include: cash and cash equivalents, trade receivables, revolving
line of credit, accounts payable, and accrued liabilities. The carrying value of
the long-term notes payable also approximates fair market value.
(10) Commitments and Contingencies
(a) Environmental Laws and Regulations - In connection with the operation of its
network of fuel facilities, the Partnership has become subject to increasingly
demanding environmental standards imposed by federal, state, and local
environmental laws and regulations. It is the policy of the Partnership to
comply with applicable environmental laws and regulations.
An estimated amount related to the remediation of environmental issues has been
accrued as management's best estimate of the cost. However, governmental
regulations covering environmental issues are highly complex and are subject to
change. Accordingly, changes in the regulations or interpretations thereof could
result in future costs to the Partnership in excess of the amounts accrued.
Management believes that preventative measures in addition to proper attention
to these regulations will minimize costs related to compliance to such
regulations. Furthermore, the Partnership routinely succeeds in recovering a
significant portion of the cost of remediation from the states which administer
environmental clean up funds for in-state fuel retailers.
(b) Litigation - The Partnership is involved in legal actions resulting from the
ordinary course of business. Such actions relate to routine travel plaza
operations and other general matters. Management believes that the Partnership
has adequate legal defenses or insurance coverage and reserves and, accordingly,
the ultimate outcome of such actions will not have a material adverse effect on
the Partnership's financial position.
7
<PAGE>
Independent Auditors' Report
================================================================================
To the General Partners
CFJ Properties:
We have audited the accompanying statements of revenues and direct operating
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1997, of the 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, 1997, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $22,151 $20,007 $18,958
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 18,748 16,241 15,143
Labor costs 1,023 1,013 1,064
Controllable operating expenses 509 555 502
Occupancy expenses 1,144 1,142 1,128
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 727 $ 1,056 $ 1,121
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $ 727 $1,056 $1,121
Add amortization of leasehold improvements and depreciation 74 68 64
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $ 801 $1,124 $1,185
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
WYTHEVILLE TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(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 revenues and direct operating costs and
expenses. Certain overhead costs such as corporate administrative allocations
are excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 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
costs and expenses and the statements of cash flows from direct travel plaza
operations for each of the years in the three-year period ended January 31,
1997, of the 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, 1997, in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $16,936 $17,486 $18,319
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 13,540 13,814 14,553
Labor costs 1,166 1,226 1,264
Controllable operating expenses 641 624 583
Occupancy expenses 1,028 1,039 1,031
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 561 $ 783 $ 888
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $561 $783 $888
Add amortization of leasehold improvements 100 93 82
- ---------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $661 $876 $970
=============================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
BAKERSFIELD TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(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 revenues and direct operating costs and
expenses. Certain overhead costs such as corporate administrative allocations
are excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 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,
1997, 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, 1997, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 20, 1997
1
<PAGE>
Statements of Revenues and Direct Operating Costs and Expenses
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $31,786 $26,922 $23,976
- ------------------------------------------------------------------------------------------------------------------
Direct operating costs and expenses:
Cost of sales 25,624 20,545 17,665
Labor costs 2,278 2,292 2,280
Controllable operating expenses 946 1,198 1,190
Occupancy expenses 1,340 1,170 868
- ------------------------------------------------------------------------------------------------------------------
Travel Plaza revenues in excess of direct operating costs and expenses $ 1,598 $ 1,717 $ 1,973
==================================================================================================================
</TABLE>
See accompanying note to financial statements.
2
<PAGE>
Statements of Cash Flows
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Travel Plaza revenues in excess of direct operating costs and expenses $1,598 $1,717 $1,973
Add amortization of leasehold improvements and depreciation 576 472 441
- ---------------------------------------------------------------------------------------------------
Cash provided by direct Travel Plaza operations $2,174 $2,189 $2,414
===================================================================================================
</TABLE>
See accompanying note to financial statements.
3
<PAGE>
Note to Financial Statements
================================================================================
EHRENBERG TRAVEL PLAZA
Years ended January 31, 1997, 1996 and 1995
(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 revenues and direct operating costs and
expenses. Certain overhead costs such as corporate administrative allocations
are excluded.
(b) Controllable Operating Expenses - Controllable operating expenses consist of
supplies, repairs and maintenance, cleaning, advertising and promotion,
telephone and utilities, insurance, credit card charges and travel incurred at
the Travel Plaza level.
(c) Occupancy Expenses - Occupancy expenses consist of taxes, insurance and rent
paid to PIP 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
