UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-20151 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 (Partnership I.R.S.
Organization) Employer Identification No.)
Delaware 86-0555605
(Corporation State of (Corporation I.R.S.
Incorporation) Employer Identification No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
(Address of Principal Executive Offices) (Zip Code)
Co-Registrants' telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Limited Partnership Assignment Units
(Title of Class)
Indicate by check mark whether the Co-Registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Co-Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Co-Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Co-Registrants: Not applicable.
The limited partnership assignment units (the "Units") are not
currently traded in any market. Therefore, there is no market price or average
bid and asked price for the Units within 60 days prior to the date of this
filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
<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., 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."
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
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.
2
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As of December 31, 1998, 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 entered into purchase agreements with Flying J Inc. on
September 4, 1998 to sell substantially all of the Partnership's assets (those
assets comprising the travel plazas) for cash of $25,482,518 (the original sales
price of $27,220,000 less the partial pay down of the mortgage loan received by
the Partnership in December 1998). The limited partners received a consent
solicitation statement describing the proposed transaction and an affirmative
vote of investors holding a majority of the partnership units was achieved on
October 26, 1998. The sale transaction was completed on March 22, 1999 and the
Partnership recognized a gain of approximately $7.8 million on the sale. The net
cash proceeds from this sale are being held in U.S. government securities
pending distribution to investors. The sale of the travel plazas represents the
disposition of substantially all of the Partnership's assets and the Partnership
has no further liability in connection with any of the travel plazas. The
General Partner has begun the process of winding down the affairs of the
Partnership that includes liquidation and distribution of assets to the
investors in accordance with the Partnership agreement. The liquidation of the
Partnership is expected to be completed in June 1999.
As part of the sale of the travel plazas, approximately $165,000
(representing less than one percent of the aggregate sales price) may, at the
General Partner's discretion, be deposited in a trust (the "Trust Fund") with a
bank. The Trust Fund, including interest income, would be available to satisfy
claims made directly or indirectly with respect to the liquidation, dissolution
and winding up of the affairs of the Partnership during a period of up to 36
months following the liquidation date. At the end of this period, final
decisions will be made in settlement of all disputed claims, if any, and the
remaining balance of the Trust Fund will be disbursed to the investors.
Real estate owned by the Partnership at December 31, 1998 was leased
for a term of 20 years. Two of the travel plazas also had equipment leases for a
term of eight years. Lessees paid 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 leased the land to the travel plaza operator and made a loan for
the travel plaza building. The loan provided for monthly installments of
interest at a rate of 7% per annum. In December 1998, the Partnership received a
partial prepayment on the mortgage loan in the amount of approximately $1.7
million and on March 22, 1999 the Partnership received the balance due on the
mortgage loan. As additional rent under the terms of the lease, the Partnership
was entitled to receive a portion of the operating revenues from the travel
plazas subject to the lease equal to (a) up to 3.5% of annual gross receipts
derived from the non-fuel sales of such travel plaza facility and (b) up to 3/10
of $.01 per gallon of fuel sold. All leases were terminated on March 22, 1999
upon sale of the related travel plazas.
3
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Flying J Inc., through its subsidiary Big West, entered into a joint
venture with Douglas Oil to form CFJ Properties in February 1991. 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. Flying J Inc. operates all of CFJ Properties' travel plazas and
related facilities, which included 78 interstate travel plaza properties as of
January 31, 1998. At December 31, 1998, the Partnership owned two of these
properties. 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 were with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constituted 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 were leased to CFJ Properties,
Flying J Inc. or franchisees of FJFI.
For the fiscal year ended January 31, 1998, CFJ Properties reported net
income of $16 million on revenues of $1.3 billion. Revenues rose 7% from $1.2
billion in the prior year. The higher revenues resulted from the opening of six
new units and increases in fuel prices. Net income increased from $1.8 million
in the prior year due to higher gross profit margins.
During the fiscal year ended January 31, 1998, CFJ Properties reported
$41.7 million in net cash provided by operating activities. This cash, along
with the cash provided by financing activities, was used to make capital
expenditures. As of January 31, 1998, CFJ Properties reported cash balances of
approximately $3.8 million, with liquidity supported by net cash provided by
operating activities and a $150 million revolving line of credit with a bank. As
of January 31, 1998, CFJ Properties reported partners' capital of $155.5 million
and total assets of $463.7 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which generally expire at various dates over the next 9 to 15
years. Payments under these leases were $17.5 million in fiscal 1998 and $17.3
million in fiscal 1997, including percentage lease payments.
The two travel plaza properties leased by CFJ Properties from the
Partnership generated a combined fuel and non-fuel gross profit (including other
income) of approximately $7.7 million during the year ended January 31, 1998 as
compared to $6.8 million in fiscal year 1997. Total travel plaza unit-level
income for these two properties (before depreciation and allocated corporate
overhead) totaled approximately $1.5 million in 1998 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 increased from $844,000 in the prior year. This is primarily due to an
increase in fuel and non-fuel sales volumes and an increase in fuel prices.
Volumes and margins were reduced in 1997 due to CFJ's curtailment of its
relationship with a third party billing company in June 1996. For CFJ
Properties' fiscal year ended January 31, 1998, the average unit-level base and
participating rents approximated 13.4% of the original cost of these properties.
4
<PAGE>
The Partnership's third property is operated by TFJ. Fuel and non-fuel
gross profits and other income generated by this property increased to $6.3
million in 1998 from $6.2 million in 1997 due to an increase in fuel and
non-fuel sales volumes and an increase in fuel prices. The property's income
before depreciation and allocated corporate overhead for 1998 was $1.1 million
as compared to $1.2 million in 1997. Base and participating rents remained
comparable to 1997 at approximately 9% of the original cost of the property
during TFJ's fiscal year ended January 31, 1998.
As of December 31, 1998, the Partnership had 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 assets by geographic
region is not applicable and would not be material to an understanding of the
Partnership's business taken as a whole.
The Partnership does not believe that any aspect of its business is
significantly seasonal in nature. No portion of the Partnership's business is
subject to renegotiation of profits or termination of contracts or subcontracts
at the election of the United States Government. The Partnership does not
manufacture any products and therefore does not require any raw materials in
order to conduct its business.
The Partnership is managed by the General Partner and therefore has no
employees of its own. FFCA/PIP III Investor Services Corporation has no
employees because it does not conduct any business operations.
The Partnership has completed its assessment of its Year 2000
preparedness and has determined that any potential consequences of Year 2000
issues will not have a material effect on the partnership's business, results of
operation or financial condition. On March 22, 1999, the Partnership sold
substantially all of its assets to a third party. The sale of substantially all
of its assets will lead to the prompt liquidation of the partnership and the
distribution of net assets to the limited partners. The General Partner
anticipates that the partnership liquidation will be accomplished during 1999
and, accordingly, does not expect the Partnership to be in existence when the
year 2000 arrives.
The statements contained in this Annual Report on Form 10-K, regarding
the planned dissolution and liquidation of the Partnership, 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 the forward-looking statements. Although the General
Partner believes that the estimated timing and amounts of the liquidating
distributions are reasonable, the actual costs of the liquidation and
dissolution of the Partnership may vary from the estimates and that variation
could be material. In addition, the actual timing of the liquidating
distribution could vary from the estimate; therefore, forward-looking statements
should not be relied upon as a prediction of actual future results or
occurrences.
ITEM 2. PROPERTIES.
As of December 31, 1998, the Partnership had acquired or financed three
travel plaza properties: one located in Wytheville, Virginia which was acquired
in 1991, one located in Bakersfield, California which was acquired in January
1993, and one located in Ehrenberg, Arizona which was acquired in June 1993. On
June 30, 1993, the Partnership became fully invested in travel plazas.
5
<PAGE>
On September 4, 1998, the Partnership entered into purchase agreements
with Flying J Inc. to sell substantially all of the Partnership's assets (those
assets comprising the travel plazas) for cash of $25,482,518 (the original sales
price of $27,220,000 less the partial pay down of the mortgage loan received by
the Partnership in December 1998). The limited partners received a consent
solicitation statement describing the proposed transaction and an affirmative
vote of investors holding a majority of the partnership units was achieved in
October 1998. The sale transaction was completed on March 22, 1999. The sale of
the travel plazas represents the disposition of substantially all of the
Partnership's assets and the Partnership has no further liability in connection
with any of the travel plazas.
The Partnership's travel plazas, divided into sections which serve both
the commercial and non-commercial traveler, generally offer a multi-use, full
service operation including fuel facilities for the storage and sale of
automotive and diesel fuels, a 24-hour restaurant, a convenience store, restroom
facilities with private showers, and other amenities designed to meet the needs
of the trucking industry and the traveling public in general. All three of the
Partnership's properties represented over 10% of the Partnership's total assets
at December 31, 1998:
Location Approximate % of Total Assets
-------- -----------------------------
Wytheville, Virginia 30%
Bakersfield, California 22%
Ehrenberg, Arizona 36%
The following is a description of each of the properties owned or financed by
the Partnership at December 31, 1998:
WYTHEVILLE, VIRGINIA. The Wytheville travel plaza is a full-service
travel plaza, built on a parcel consisting of approximately 16.831 acres located
at the interchange of Frontage Road and Interstates 81 and 77.
BAKERSFIELD, CALIFORNIA. The Bakersfield travel plaza is an existing
full-service travel plaza, opened in January 1992, located on a parcel
consisting of approximately 15.4 acres at the Merced Avenue exit of California
Highway 99.
EHRENBERG, ARIZONA. Located at the Arizona/California border on
Interstate 10, the Ehrenberg travel plaza is an existing operation opened in May
1988. The two-story travel plaza is situated on an approximate 11.7 acre tract
of land in the County of La Paz (formerly Yuma), Arizona.
Independent of the Partnership, FFCA/PIP III Investor Services
Corporation has no interest in any real or personal property.
6
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ITEM 3. LEGAL PROCEEDINGS.
Neither the Co-Registrants nor their properties are parties to, or
subject to, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
A proposal to sell substantially all of the Partnership's assets was
submitted to a vote of the security holders during the fourth quarter of fiscal
year 1998. A Consent Solicitation Statement dated September 11, 1998 relating to
the proposal was sent to the security holders. Voting was completed on October
26, 1998 without a meeting. The results of the voting are as follows: FOR,
16,193 votes; AGAINST, 1,470 votes, and ABSTAIN, 377 votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED SECURITY HOLDER MATTERS.
MARKET INFORMATION. During 1998, there was no established public
trading market for the Units, and it is not anticipated that an established
public trading market for the Units will develop.
HOLDERS. As of March 4, 1999, there were 1,524 record holders of the
Units.
DISTRIBUTIONS. For the two most recent fiscal years, the Partnership
made the following cash distributions to the Holders:
1998
Per Unit Distribution Total
--------------------- ---------------------
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
March 31 26,709 $21.70 -- $579,585 --
June 30 26,709 21.69 -- 579,318 --
September 30 26,709 21.70 -- 579,585 --
December 31 26,709 21.69 -- 579,318 --
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1997
Per Unit Distribution Total
--------------------- ---------------------
Date of Number Cash From Cash From
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
March 31 26,709 $21.69 -- $579,318 --
June 30 26,709 21.70 -- 579,585 --
September 30 26,709 21.69 -- 579,318 --
December 31 26,709 21.69 -- 579,318 --
Cash from operations, defined as disbursable cash in the agreement of
limited partnership that governs the Partnership, is distributed to the Holders.
Cash proceeds from the sale of property are distributed to the Holders as a
return of capital. The Adjusted Capital Contribution of a Holder is generally
the Holder's initial capital contribution reduced by the cash distributions to
the Holders of proceeds from the sale of Partnership properties and reduced by
any other cash distributions other than from operations. The Adjusted Capital
Contribution per Unit of the Holders, as defined in the agreement of limited
partnership that governs the Partnership, was $964.16 as of December 31, 1998.
Any differences in the amounts of distributions set forth in the above tables
from the information contained in Item 6 below are due to rounding the amount of
distributions payable per Unit down to the nearest whole cent and carrying any
fractional cents forward from one period to the next.
The Partnership expects to make cash distributions from operations to
the Holders through the date of the sale of the travel plazas on March 22, 1999.
The liquidation of the Partnership is expected to be completed in June 1999. The
General Partner estimates that the liquidating distribution will approximate
$1,004 per limited partnership unit. Although the General Partner believes that
the amount of the liquidating distribution is reasonable, the actual costs of
the liquidation and dissolution of the Partnership may vary from the estimates
and that variation could be material. As part of the sale of the travel plazas,
a portion of the aggregate sales price of the travel plazas may, at the General
Partner's discretion, be deposited in a trust (the "Trust Fund") with a bank.
The Trust Fund, including interest income, would be available to satisfy claims
made directly or indirectly arising from the liquidation, dissolution and
winding up of the affairs of the Partnership during a period of up to 36 months
following the liquidation date. If, at the end of this period, no claims have
been made or if final decisions have been rendered for all disputed claims, the
remaining balance of the Trust Fund will be disbursed to the Holders.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction
with the Financial Statements and related notes attached as an exhibit to this
Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 2,739,353 $ 2,681,670 $ 2,636,853 $ 2,648,938 $ 2,634,461
Net Income 1,893,343 1,893,355 1,891,905 1,889,914 1,889,998
Net Income Per Unit 70.18 70.18 70.13 70.05 70.05
Total Assets 20,214,504 20,620,916 21,078,466 21,516,076 21,985,630
Distributions of Cash from
Operations to Holders 2,317,667 2,317,679 2,317,702 2,317,771 2,317,855
Distributions of Cash from
Operations Per Unit 86.77 86.77 86.78 86.78 86.78
Return of Capital to Holders -- -- -- -- --
Return of Capital Per Unit -- -- -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership received $26,709,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership had $23,012,902 in net proceeds for
investment in properties. As of June 30, 1993, the Partnership had used
approximately $22,390,000 to acquire or finance three travel plazas. The rental
and mortgage interest payments from lessees of the travel plazas have been the
Partnership's primary sources of income. As of December 31, 1998, the
Partnership had cash and marketable securities aggregating $2,243,462 of which
$579,318 was paid out to the Holders in January 1999 as their fourth quarter
distribution for fiscal year 1998.
The Partnership entered into purchase agreements with Flying J Inc. on
September 4, 1998 to sell substantially all of the Partnership's assets (those
assets comprising the travel plazas) for cash of $25,482,518 (the original sales
price of $27,220,000 less the partial pay down of the mortgage loan received by
the Partnership in December 1998). The limited partners received a consent
solicitation statement describing the proposed transaction and an affirmative
vote of investors holding a majority of the partnership units was achieved on
October 26, 1998. The sale transaction was completed on March 22, 1999 and the
Partnership recognized a gain of approximately $7.8 million on the sale. The net
cash proceeds from this sale are being held in U.S. government securities
9
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pending distribution to investors. The sale of the travel plazas represents the
disposition of substantially all of the Partnership's assets and the Partnership
has no further liability in connection with any of the travel plazas. The
General Partner has begun the process of winding down the affairs of the
Partnership that includes liquidation and distribution of assets to the
investors in accordance with the Partnership agreement. The liquidation of the
Partnership is expected to be completed in June 1999.
As part of the sale of the travel plazas, approximately $165,000
(representing less than one percent of the aggregate sales price) may, at the
General Partner's discretion, be deposited in a trust (the "Trust Fund") with a
bank. The Trust Fund, including interest income, would be available to satisfy
claims made directly or indirectly with respect to the liquidation, dissolution
and winding up of the affairs of the Partnership during a period of up to 36
months following the liquidation date. At the end of this period, final
decisions will be made in settlement of all disputed claims, if any, and the
remaining balance of the Trust Fund will be disbursed to the investors.
FFCA/PIP III Investor Services Corporation serves as the initial
limited partner of the Partnership and the owner of record of the limited
partner 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 has no other business
activity and has no capital resources.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 1997
The Partnership's total revenues for the year ended December 31, 1998
increased to $2,739,353 from $2,681,670 for the year ended December 31, 1997.
The overall increase in revenues is due to an increase in participating rentals.
Participating rental revenues increased to $595,857 in 1997 from $536,509 in
1996 due to higher fuel and non-fuel travel plaza sales volumes. In December
1998, the Partnership received a $1.7 million partial prepayment of the mortgage
loan.
Total Partnership expenses in 1998 were $846,010, representing an
increase from $788,315 in 1997. The increase was primarily a result of an
increase in general partner fees of $30,783 and an increase in operating
expenses of $26,912. As described more fully in the Partnership agreement, the
General Partner's management fee is subordinated to a 9% return to the Holders
on their Adjusted Capital Contribution, as defined. The increase in the General
Partner's Management fee resulted directly from the increase in the
Partnership's disbursable cash (generally, cash receipts from operations less
cash operating expenses). The increase in operating expenses primarily resulted
from increased administrative expenses (such as legal and accounting) as
compared to the prior year.
Net income for the year ended December 31, 1998 amounted to $1,893,343
as compared to $1,893,355 for year ended December 31, 1997.
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FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 1996
The Partnership's total revenues for the year ended December 31, 1997
increased to $2,681,670 from $2,636,853 for the year ended December 31, 1996.
The overall increase in revenues is due to an increase in participating rentals.
Participating rental revenues increased to $536,509 in 1997 from $492,391 in
1996 due to higher travel plaza sales volumes.
Total Partnership expenses in 1997 were $788,315, representing an
increase from $744,948 in 1996. The increase was primarily a result of an
increase in general partner fees of $33,288. The increase in the General
Partner's Management fee resulted directly from the increase in the
Partnership's disbursable cash.
Net income for the year ended December 31, 1997 amounted to $1,893,355
as compared to $1,891,905 for year ended December 31, 1996.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The financial instruments held by the Partnership at December 31, 1998
consist of cash equivalents (primarily investments in U.S. Treasury securities
or repurchase agreements that are collateralized by U.S. Treasury and government
obligations) and receivables from lessees that are short- term in nature and do
not subject the Partnership to a material exposure to changes in interest rates.
The Partnership also has a mortgage loan receivable at December 31, 1998 that
was paid off on March 22, 1999; therefore, this financial instrument does not
subject the Partnership to a material exposure to changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Co-Registrants required by Regulation
S-X are attached to this Report. Reference is made to Item 14 below for an index
to the financial statements and financial statement schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
The Partnership has no directors or executive officers. 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., Morton H. Fleischer and Paul
Bagley are general partners of the General Partner. FFCA III was organized in
Delaware in July 1990 for the purpose of sponsoring limited partnerships such as
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the Partnership. Set forth below are the directors and executive officers of
FFCA III, TMI and FFCA/PIP III Investor Services Corporation, and the year that
they were elected or appointed to their respective offices:
FFCA III
DIRECTORS
Name Position Held Since
---- -------------------
Morton H. Fleischer, Chairman 1990
Paul Bagley 1990
John R. Barravecchia 1993
Christopher H. Volk 1993
OFFICERS
Associated With
Name Positions Held FFCA III Since
---- -------------- --------------
Morton H. Fleischer Chairman of the Board, President and 1990
Chief Executive Officer
John R. Barravecchia Executive Vice President, Chief Financial 1990
Officer, Treasurer and Assistant Secretary
Christopher H. Volk Executive Vice President, Chief Operating 1990
Officer, Secretary and Assistant Treasurer
Dennis L. Ruben Executive Vice President, General Counsel 1993
and Assistant Secretary
Stephen G. Schmitz Executive Vice President, Chief Investment 1995
Officer and Assistant Secretary
Catherine F. Long Senior Vice President-Finance, Principal 1990
Accounting Officer, Assistant Secretary
and Assistant Treasurer
TRAVEL PLAZA MANAGEMENT, INC.
DIRECTORS
Name Position Held Since
---- -------------------
Gerald F. Goertz, Jr. 1994
Stephen R. Dyer 1994
Carmine Fusco 1998
12
<PAGE>
OFFICERS
Name Positions Held Position Held Since
---- -------------- -------------------
Gerald F. Goertz, Jr. President 1994
Stephen R. Dyer Vice President and Secretary 1994
Carmine Fusco Vice President, Treasurer, Assistant 1998
Secretary and Chief Financial and
Accounting Officer
FFCA/PIP III INVESTOR SERVICES CORPORATION
DIRECTOR
Name Position Held Since
---- -------------------
Morton H. Fleischer 1986
OFFICERS
Name Positions Held Position Held Since
---- -------------- -------------------
Morton H. Fleischer Chairman of the Board of Directors 1986
John R. Barravecchia President, Secretary and Treasurer 1990
Christopher H. Volk Vice President, Assistant Secretary and 1994
Assistant Treasurer
All of the foregoing directors and officers have been elected to serve
a one year term and until their successors are elected and qualified. There are
no arrangements or understandings between or among any of the officers or
directors and any other person pursuant to which any officer or director was
selected as such. There are no family relationships among any directors and
officers.
BUSINESS EXPERIENCE
The business experience during the past five years of each of the above
directors and officers is as follows:
FFCA III AND FFCA/PIP III INVESTOR SERVICES CORPORATION
Paul Bagley, age 56, has served as a director of FFCA III since 1990.
Mr. Bagley is a founding partner of Stone Pine Capital LLC (1994), and is
chairman of FCM Fiduciary Management Co. LLC (1989 to date), the advisor to a
mezzanine and private equity fund. For more than twenty years prior to 1990, Mr.
Bagley was engaged in investment banking activities with Shearson Lehman Hutton
Inc. and its predecessor, E.F. Hutton & Company Inc., where he was responsible
for the creation and management of over $5 billion of direct investment
13
<PAGE>
activities. Mr. Bagley has served on the boards of a number of public and
private companies. Currently he is on the boards of Fiduciary Capital,
Hollis-Eden Pharmaceuticals, Consolidated Capital of North America, and LMC
Corporation.
MORTON H. FLEISCHER, age 62, has served as the Chairman of the Board of
FFCA Investor Services Corporation 88-C since 1987 and has served as President,
Chief Executive Officer and a Director of FFCA II since its formation in 1988.
Mr. Fleischer was appointed Chairman of the Board of FFCA II in February of 1994
and currently serves as President, Chief Executive Officer and Chairman of the
Board of Franchise Finance Corporation of America, a Delaware corporation
("FFCA"). He served as President, Chief Executive Officer and a Director of
Franchise Finance Corporation of America I ("FFCA I"), a predecessor of FFCA,
from 1980 to 1994. Mr. Fleischer is also an individual general partner of the
Partnership and is a general partner (or general partner of a general partner)
of the following public limited partnerships: Participating Income Properties
1986, L.P.; Participating Income Properties III Limited Partnership; and
Scottsdale Land Trust Limited Partnership.
JOHN R. BARRAVECCHIA, age 43, has served as President, Secretary and
Treasurer of FFCA Investor Services Corporation 88-C since 1990. He has served
as Senior Vice President and Chief Financial Officer of FFCA II since 1989, was
named Treasurer in December 1993 and was named Assistant Secretary in 1994. In
1995, Mr. Barravecchia was named Executive Vice President of FFCA II. Mr.
Barravecchia currently serves as Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary of FFCA and served in various
capacities for FFCA I from 1984 to 1994. He was appointed Vice President and
Chief Financial Officer of FFCA I in December 1986, and Senior Vice President in
October 1989. Mr. Barravecchia was elected as a Director of FFCA I in March 1993
and Treasurer in December 1993. Prior to joining FFCA I, Mr. Barravecchia was
associated with the international public accounting firm of Arthur Andersen LLP.
CHRISTOPHER H. VOLK, age 42, has served as Vice President, Assistant
Secretary and Assistant Treasurer of FFCA Investor Services Corporation 88-C
since 1994 and served as Vice President-Research of FFCA II from 1989 to 1993.
Mr. Volk was named Senior Vice President-Underwriting and Research and Secretary
of FFCA II in December 1993. In 1995, he was named Chief Operating Officer and
Executive Vice President of FFCA II. He currently serves as Executive Vice
President, Chief Operating Officer, Secretary and Assistant Treasurer of FFCA.
He joined FFCA I in 1986 and has served in various capacities in FFCA I's
capital preservation and underwriting areas prior to being named Vice
President-Research in October 1989. In December 1993, he was appointed Secretary
and Senior Vice President-Underwriting and Research of FFCA I, and he was
elected as a Director of FFCA I in March 1993.
DENNIS L. RUBEN, age 46, served as Senior Vice President and General
Counsel of FFCA II from December 1994 and was named Executive Vice President,
General Counsel and Assistant Secretary of FFCA II in February 1997. He
currently serves in the same capacity for FFCA. In 1991, he joined FFCA I as
attorney and counsel. In December 1993, he was appointed Senior Vice President
and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben was associated
with the law firm of Kutak Rock from 1980 until March 1991. Mr. Ruben became a
partner of Kutak Rock in 1984.
14
<PAGE>
STEPHEN G. SCHMITZ, age 44, served as Senior Vice President-Corporate
Finance of FFCA II from January 1996 and was named Executive Vice President,
Chief Investment Officer and Assistant Secretary of FFCA II in February 1997. He
currently serves in the same capacity for FFCA. Mr. Schmitz served in various
positions as an officer of FFCA I from 1986 to June 1, 1994.
CATHERINE F. LONG, age 42, was named Senior Vice President-Finance of
FFCA in February 1997, was named Principal Accounting Officer in December 1993
and was named Assistant Secretary and Assistant Treasurer in 1994. She currently
serves in the same capacities for FFCA. In June 1990, she joined FFCA I as Vice
President-Finance. In December 1993, she was appointed Principal Accounting
Officer of FFCA I. Prior to joining FFCA I, Ms. Long was associated with the
international public accounting firm of Arthur Andersen LLP.
TRAVEL PLAZA MANAGEMENT, INC.
GERALD F. GOERTZ, JR., age 41, is President and a Director of Travel
Plaza Management, Inc. Mr. Goertz joined PaineWebber Incorporated in December
1990 and holds the position of Senior Vice President and Director of Specialized
Investment Services. Prior to joining PaineWebber Incorporated, Mr. Goertz was
associated with CG Realty Advisors and The Freeman Company.
STEPHEN R. DYER, age 39, is a Vice President, Secretary and Director of
Travel Plaza Management, Inc. He joined PaineWebber Incorporated in June 1988
and is currently a Senior Vice President and Director of Private Investments.
Mr. Dyer is a Certified Public Accountant.
CARMINE FUSCO, age 30, is a Vice President, Treasurer, Assistant
Secretary, Chief Financial Officer, Chief Accounting Officer and Director of
Travel Plaza Management, Inc. He joined PaineWebber Incorporated in August 1998
as Assistant Vice President within their Private Investments Department. Prior
to joining PaineWebber Incorporated, Mr. Fusco was affiliated with Deloitte &
Touche, LLP in their Business Valuation Group from January 1997 to August 1998.
He was associated with Dean Witter Reynolds Incorporated from October 1994 to
November 1995 as Commodity Fund Analyst in the Managed Futures Department.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Co-Registrants during fiscal year 1998 and Forms 5 and
amendments thereto furnished to the Co-Registrants with respect to the fiscal
year ended December 31, 1998 (the "Forms"), and any written representations by
the directors and executive officers of FFCA/PIP III Investor Services
Corporation, and FFCA III, the Co-Registrants have not identified herein any
such person that failed to file on a timely basis the Forms required by Section
16(a) of the Securities Exchange Act of 1934 for fiscal year 1998.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The Partnership is required to pay an acquisition fee and a
subordinated real estate disposition fee to the General Partner or its
affiliate, and the General Partner is entitled to receive a share of cash
distributions, when and as made to the Holders, a share of profits and losses
and a subordinated share of any sale proceeds. Reference is made to Note (1) and
Note (6) of the Notes to Financial Statements that are filed with this report
for a description of the fees and distributions paid in 1998.
FFCA/PIP III Investor Services Corporation serves as assignor and
initial limited partner without compensation from the Partnership. It is not
entitled to any share of the profits, losses or cash distributions of the
Partnership. The director and officers of FFCA/PIP III Investor Services
Corporation serve without compensation from FFCA/PIP III Investor Services
Corporation or the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of March 4, 1999, no person or group was known by the Partnership to
own directly or beneficially more than 5% of the outstanding Units of the
Partnership.
Neither the General Partner, the general partners of the General
Partner, FFCA/PIP III Investor Services Corporation nor any director or officer
of FFCA/PIP III Investor Services Corporation owned any Units as of March 4,
1999. The directors and officers of FFCA III, as a group, owned less than 1% of
the Units as of March 4, 1999.
FFCA/PIP III Investor Services Corporation has an interest in the
Partnership as a limited partner and it serves as the owner of record of all of
the limited partnership interests assigned by it to the Holders; however, it has
no right to vote its interest on any matter and it must vote the assigned
interests as directed by the Holders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since the beginning of the last fiscal year of both of the
Co-Registrants, there have been no significant transactions or business
relationships among the Co-Registrants, the General Partners or their affiliates
or their management, other than as described in Items 1, 10 and 11 above.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. FINANCIAL STATEMENTS. The following financial statements are
included in the response to item 8 of this report:
THE PARTNERSHIP
Report of independent public accountants
Balance Sheets as of December 31, 1998 and
1997
Statements of Income for the year ended
December 31, 1998 1997 and 1996
16
<PAGE>
Statements of Changes In Partners' Capital for
the years ended December 31, 1998, 1997 and
1996
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Financial Statements
FFCA/PIP III INVESTOR SERVICES CORPORATION
Report of independent public accountants
Balance Sheet as of December 31, 1998
Notes to Balance Sheet
2. FINANCIAL STATEMENT SCHEDULES.
Schedule III-Schedule of Real Estate and
Accumulated Depreciation as of December 31,
1998
All other schedules are omitted since they are not required, are
inapplicable, or the required information is included in the
financial statements or notes thereto.
3. EXHIBITS.
The following is a complete list of exhibits filed as part of this
Form 10-K. For electronic filing purposes only, this report
contains Exhibit 27, the Financial Data Schedule. Exhibit numbers
correspond to the numbers in the Exhibit Table of Item 601 of
Regulation S-K.
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, Commission File No. 0-20151, are incorporated herein by this
reference.
1991 FORM 10-K
EXHIBIT NO.
-----------
The Agreement of Limited Partnership of the
General Partner 3-A
The Certificate of Incorporation of FFCA/PIP
III Investor Services Corporation, as filed
with the Secretary of State of Delaware on
December 5, 1988 3-B
Bylaws of FFCA/PIP III Investor Services
Corporation 3-C
17
<PAGE>
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following document, filed with the
Securities and Exchange Commission with the Co-Registrants'
Registration Statement on Form S-11, Registration No. 33-35868, is
incorporated herein by this reference.
The Amended and Restated Agreement of Limited
Partnership of the Partnership.
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-Registrant's Form 8-K dated March 22, 1999, Commission File
No. 0-20151, are incorporated herein by this reference.
March 22, 1999,
Form 8-K
Exhibit No.
-----------
Purchase Agreement dated as of September 4, 1998, 10.01
between Participating Income Properties III Limited
Partnership and CFJ Plaza Company I LLC, including the
First Amendment thereto dated as of March 22, 1999
Purchase Agreement dated as of September 4, 1998, 10.02
between Participating Income Properties III Limited
Partnership and FJI Plaza Company LLC
Extension Agreement dated March 22, 1999 10.03
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, 1998.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Partnership has duly caused this Report to
be signed on its behalf of the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES III LIMITED
PARTNERSHIP
By: FFCA PARTICIPATING MANAGEMENT COMPANY
LIMITED PARTNERSHIP, General Partner
By: FRANCHISE FINANCE CORPORATION OF
AMERICA III, Managing General Partner
Date: April 8, 1999 By /s/ Morton H. Fleischer
-------------------------------------------
Morton H. Fleischer, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Partnership and in the capacities and on the dates indicated.
SIGNATURES OF REQUIRED OFFICERS AND DIRECTORS OF FRANCHISE
FINANCE CORPORATION OF AMERICA III, MANAGING GENERAL PARTNER OF
FFCA PARTICIPATING MANAGEMENT COMPANY LIMITED PARTNERSHIP,
GENERAL PARTNER OF PARTICIPATING INCOME PROPERTIES III LIMITED
PARTNERSHIP.
Date: April 8, 1999 By /s/ Morton H. Fleischer
---------------------------------------
Morton H. Fleischer, President, Chief
Executive Officer and Director
Date: April 8, 1999 By
----------------------------------------
Paul Bagley, Director
Date: April 8, 1999 By /s/ John Barravecchia
---------------------------------------
John Barravecchia, Executive Vice
President, Chief Financial Officer,
Treasurer, Assistant Secretary and
Director
Date: April 8, 1999 By /s/ Christopher H. Volk
---------------------------------------
Christopher H. Volk, Executive Vice
President, Chief Operating Officer,
Secretary, Assistant Treasurer and
Director
Date: April 8, 1999 By /s/ Catherine F. Long
---------------------------------------
Catherine F. Long, Senior Vice President-
Finance, Principal Accounting Officer,
Assistant Secretary and Assistant
Treasurer
19
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Co-Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FFCA/PIP III INVESTOR SERVICES CORPORATION
Date: April 8, 1999 By /s/ Morton H. Fleischer
---------------------------------------
Morton H. Fleischer, Sole Director
Date: April 8, 1999 By /s/ John Barravecchia
---------------------------------------
John Barravecchia, President, Secretary,
Treasurer, Principal Financial Officer
and Principal Accounting Officer
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Participating Income Properties III Limited Partnership:
We have audited the accompanying balance sheets of PARTICIPATING INCOME
PROPERTIES III LIMITED PARTNERSHIP (a Delaware limited partnership) as of
December 31, 1998 and 1997, and the related statements of income, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements and the schedule referred to below
are the responsibility of the partnership's general partner. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Participating Income Properties
III Limited Partnership as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Real Estate and
Accumulated Depreciation is presented for purposes of complying with the
Securities and Exchange Commission's rule and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 22, 1999.
21
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
CASH AND CASH EQUIVALENTS $ 2,243,462 $ 635,446
RECEIVABLES FROM LESSEES 45,242 44,000
DEFERRED COSTS (Note 7) 169,547 --
MORTGAGE LOAN INTEREST RECEIVABLE 45,208 45,208
MORTGAGE LOAN RECEIVABLE (Note 4) 6,012,518 7,750,000
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 11,698,527 12,146,262
------------ ------------
Total assets $ 20,214,504 $ 20,620,916
============ ============
LIABILITIES AND PARTNERS' CAPITAL
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 579,451 $ 579,590
PAYABLE TO GENERAL PARTNER 46,750 --
RENTAL DEPOSITS AND OTHER 247,981 253,269
------------ ------------
Total liabilities 874,182 832,859
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (26,165) (21,687)
Limited partners 19,366,487 19,809,744
------------ ------------
Total partners' capital 19,340,322 19,788,057
------------ ------------
Total liabilities and partners' capital $ 20,214,504 $ 20,620,916
============ ============
The accompanying notes are an integral part of these balance sheets.
22
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
---------- ---------- ----------
REVENUES:
Rental $1,579,480 $1,579,480 $1,579,480
Participating rentals 595,857 536,509 492,391
Mortgage loan interest 542,500 542,500 542,500
Interest and other 21,516 23,181 22,482
---------- ---------- ----------
2,739,353 2,681,670 2,636,853
---------- ---------- ----------
EXPENSES:
General partner fees (Note 6) 273,606 242,823 209,535
Depreciation 447,735 447,735 449,208
Operating 124,669 97,757 86,205
---------- ---------- ----------
846,010 788,315 744,948
---------- ---------- ----------
NET INCOME $1,893,343 $1,893,355 $1,891,905
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partner $ 18,933 $ 18,934 $ 18,919
Limited partners 1,874,410 1,874,421 1,872,986
---------- ---------- ----------
$1,893,343 $1,893,355 $1,891,905
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 26,709 units held by
limited partners) $ 70.18 $ 70.18 $ 70.13
========== ========== ==========
The accompanying notes are an integral part of these statements.
23
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
General Limited
Partner Partners Total
------------ ------------ ------------
BALANCE, December 31, 1995 $ (12,718) $20,697,718 $20,685,000
Net income 18,919 1,872,986 1,891,905
Distributions to partners (23,411) (2,317,702) (2,341,113)
--------- ----------- -----------
BALANCE, December 31, 1996 (17,210) 20,253,002 20,235,792
Net income 18,934 1,874,421 1,893,355
Distributions to partners (23,411) (2,317,679) (2,341,090)
--------- ----------- -----------
BALANCE, December 31, 1997 (21,687) 19,809,744 19,788,057
Net income 18,933 1,874,410 1,893,343
Distributions to partners (23,411) (2,317,667) (2,341,078)
--------- ----------- -----------
BALANCE, December 31, 1998 $ (26,165) $19,366,487 $19,340,322
========= =========== ===========
The accompanying notes are an integral part of these statements.
24
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,893,343 $ 1,893,355 $ 1,891,905
Adjustments to net income:
Depreciation 447,735 447,735 449,208
Change in assets and liabilities:
Decrease (increase) in receivables
from lessees (1,242) (6,000) 1,257
Increase in deferred costs (169,547) -- --
Increase (decrease) in payable to
general partner 46,750 (7,720) 7,720
Increase (decrease) in rental
deposits and other (5,288) (2,235) 3,984
----------- ----------- -----------
Net cash provided by operating
activities 2,211,751 2,325,135 2,354,074
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipt of mortgage loan paydown 1,737,482 -- --
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared
(Note 1) (2,341,078) (2,341,090) (2,341,113)
Increase (decrease) in distribution
payable (139) 140 (106)
----------- ----------- -----------
Net cash used in financing
activities (2,341,217) (2,340,950) (2,341,219)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,608,016 (15,815) 12,855
CASH AND CASH EQUIVALENTS,
beginning of year 635,446 651,261 638,406
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
end of year $ 2,243,462 $ 635,446 $ 651,261
=========== =========== ===========
The accompanying notes are an integral part of these statements.
25
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
1) ORGANIZATION:
Participating Income Properties III Limited Partnership (the
Partnership) was formed on July 9, 1990 under the Delaware Revised Uniform
Limited Partnership Act to purchase new and existing "Flying J Travel Plaza"
facilities, including land, buildings and equipment to be leased on a net basis
to affiliates of Flying J Inc. The Partnership has also made a loan to an
affiliate of Flying J Inc. to provide financing for a travel plaza building and
equipment (the underlying land is owned by the Partnership and leased to the
affiliate). The "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 general partner of the Partnership is FFCA Participating Management
Company Limited Partnership, a Delaware limited partnership (the General
Partner). The Partnership will expire December 31, 2030, or sooner (see Note 7),
in accordance with the terms of the Partnership agreement.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA/PIP III Investor
Services Corporation (the Initial Limited Partner), a Delaware corporation
wholly-owned by an affiliate of the General Partner. Holders of the units have
all of the economic benefits and substantially the same rights and powers of
limited partners; therefore, they are referred to herein as "limited partners."
The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:
Profits and Losses: Allocated 99% to the limited partners and 1% to the
General Partner.
Cash Distributions: All cash from operations, as defined, after payment
of fees to the General Partner is allocated 99% to the limited partners
and 1% to the General Partner. In addition to cash distributed from
operations, a portion of the limited partners' initial capital
contributions has been distributed as return of capital, therefore, the
limited partner Adjusted Capital Contribution, as defined in the
Partnership agreement, at December 31, 1998 is $964.16 per unit.
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
1998 1997 1996
---------- ---------- ----------
Net income $1,893,343 $1,893,355 $1,891,905
Adjustment to reconcile net income
to cash distributions declared:
Depreciation 447,735 447,735 449,208
---------- ---------- ----------
Cash distributions declared
from operations $2,341,078 $2,341,090 $2,341,113
========== ========== ==========
26
<PAGE>
2) SIGNIFICANT ACCOUNTING POLICIES:
FINANCIAL STATEMENTS - The financial statements of the Partnership are
prepared on the accrual basis of accounting. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the
reporting period. Although management believes its estimates are reasonable,
actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $224,876 and $451,567 at December 31, 1998 and 1997, respectively,
and bank repurchase agreements (which are collateralized by United States
Treasury and Government obligations) of $1,900,033 at December 31, 1998.
Short-term investments are recorded at cost plus accrued interest, which
approximates market value.
LEASES - The Partnership leases its property under long-term net leases
which are classified as operating leases. Rental revenue from operating leases
is recognized as it is earned.
DEPRECIATION - Depreciation on buildings is provided using the
straight-line method based upon an estimated useful life of 32 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 12.5%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
3) PROPERTY SUBJECT TO OPERATING LEASES:
The following is an analysis of the Partnership's investment, at cost,
in property subject to operating leases by major class at December 31, 1998 and
1997:
1998 1997
----------- -----------
Land $ 2,684,138 $ 2,684,138
Buildings 11,010,862 11,010,862
Equipment 947,838 947,838
----------- -----------
14,642,838 14,642,838
Less - Accumulated depreciation 2,944,311 2,496,576
----------- -----------
$11,698,527 $12,146,262
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Partnership receives a portion
of the operating revenues of the lessee equal to a percentage of gross receipts
(participating rentals) from travel plaza facilities and fuel sales. The term of
the leases is eight years for equipment and 20 years for land and buildings. All
Partnership property is leased to affiliates of Flying J Inc. Scheduled minimum
future rentals (excluding participating rentals) under noncancellable operating
leases as of December 31, 1998, are $1.6 million per year through the year 2011.
All of the Partnership's property comprising the travel plazas is
subject to agreements entered into with Flying J Inc. on September 4, 1998 in
which Flying J Inc. agreed to buy the property (subject to certain conditions)
for cash totaling approximately $27 million (see Note 7).
4) MORTGAGE LOAN RECEIVABLE:
At December 31, 1998, the Partnership had a first mortgage loan on the
building and equipment of a Partnership travel plaza located in Ehrenberg,
Arizona. 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 or except with the approval of
the Partnership. In December 1998, the Partnership approved the approximate $1.7
million partial prepayment of the mortgage loan. The cost of the mortgage for
Federal income tax purposes is the same as the cost for financial reporting
purposes.
27
<PAGE>
The fair value of the first mortgage loan is estimated by discounting
the future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. The fair value at December 31, 1998, exceeds the carrying amount by
$260,000; however, the fair value of the loan will not result in any additional
cash beyond face amount unless that loan were to be sold (refer to Note 7 for
possible sale of the Partnership's assets to Flying J. Inc.).
5) INCOME TAXES:
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income reported for Federal income tax purposes for the years ended
December 31, 1998, 1997 and 1996:
1998 1997 1996
---------- ---------- ----------
Net income for financial reporting
purposes $1,893,343 $1,893,355 $1,891,905
Differences for tax purposes in:
Depreciation 135,293 110,017 67,797
Organization cost amortization
and other (7,750) (7,901) (10,719)
---------- ---------- ----------
Taxable income to partners $2,020,886 $1,995,471 $1,948,983
========== ========== ==========
For Federal income tax reporting purposes, taxable income to partners is
reported on the accrual basis of accounting and is classified as ordinary
income.
At December 31, 1998, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$357,842. This difference results primarily from differences in depreciation
methods and the treatment of property acquisition costs for financial reporting
and tax reporting purposes.
6) TRANSACTIONS WITH RELATED PARTIES:
Under the terms of the Partnership agreement, the General Partner is
entitled to compensation for certain services performed in connection with
managing the affairs of the Partnership. During 1998, 1997 and 1996, fees paid
to the General Partner were as follows:
1998 1997 1996
-------- -------- --------
Disbursable cash fee $164,893 $136,483 $104,960
Property management fee (4% of the
Partnership's gross annual
property revenues) 108,713 106,340 104,575
-------- -------- --------
$273,606 $242,823 $209,535
======== ======== ========
28
<PAGE>
The General Partner is entitled to a disbursable cash fee equal to nine
percent of all revenues received by the Partnership less Partnership operating
expenses, only to the extent the limited partners have received an annual return
of nine percent on their Adjusted Capital Contribution, as defined. The General
Partner or its affiliate may also be entitled to a subordinated real estate
disposition fee and an incentive share of sale proceeds, as defined in the
Partnership agreement.
An affiliate of the General Partner incurs expenses on behalf of the
Partnership for maintenance of the books and records and for computer, investor
and legal services performed for the Partnership. These expenses are
reimbursable in accordance with the Partnership agreement and are less than the
amount which the Partnership would have paid to independent parties for
comparable services. The Partnership reimbursed the affiliate $61,670 in 1998,
$28,113 in 1997 and $22,689 in 1996 for such expenses.
7) SUBSEQUENT EVENT - SALE OF SUBSTANTIALLY ALL ASSETS:
The Partnership entered into purchase agreements with Flying J Inc. on
September 4, 1998 to sell substantially all of the Partnership's assets (those
assets comprising the travel plazas) for cash of $25,482,518 (the original sales
price of $27,220,000 less the partial pay down of the mortgage loan received by
the Partnership in December 1998). The limited partners received a consent
solicitation statement describing the proposed transaction and an affirmative
vote of investors holding a majority of the partnership units was achieved on
October 26, 1998. The sale transaction was completed on March 22, 1999 and the
Partnership recognized a gain of approximately $7.8 million on the sale. The net
cash proceeds from this sale are being held in U.S. government securities
pending distribution to investors. The sale of the travel plazas represents the
disposition of substantially all of the Partnership's assets and the Partnership
has no further liability in connection with any of the travel plazas. The
General Partner has begun the process of winding down the affairs of the
Partnership that includes liquidation and distribution of assets to the
investors in accordance with the Partnership agreement. The liquidation of the
Partnership is expected to be completed in June 1999.
As part of the sale of the travel plazas, approximately $165,000
(representing less than one percent of the aggregate sales price) may, at the
General Partner's discretion, be deposited in a trust (the "Trust Fund") with a
bank. The Trust Fund, including interest income, would be available to satisfy
claims made directly or indirectly with respect to the liquidation, dissolution
and winding up of the affairs of the Partnership during a period of up to 36
months following the liquidation date. At the end of this period, final
decisions will be made in settlement of all disputed claims, if any, and the
remaining balance of the Trust Fund will be disbursed to the limited partners.
29
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
Initial Cost to Partnership and
Gross Amount At December 31, 1998
-----------------------------------------------
Travel Plaza Location Land Buildings Equipment Total
- --------------------- ---- --------- --------- -----
Ehrenberg, Arizona $1,250,000 $ -- $ -- $ 1,250,000
Bakersfield, California 101,050 5,195,950 495,838 5,792,838
Wytheville, Virginia 1,333,088 5,814,912 452,000 7,600,000
---------- ----------- --------- -----------
TOTAL $2,684,138 $11,010,862 $ 947,838 $14,642,838
========== =========== ========= ===========
Accumulated Depreciation
-------------------------------------
Date
Travel Plaza Location Buildings Equipment Total Acquired
- --------------------- --------- --------- ----- --------
Ehrenberg, Arizona $ -- $ -- $ -- Jun. 1993
Bakersfield, California 974,241 337,728 1,311,969 Jan. 1993
Wytheville, Virginia 1,287,154 345,188 1,632,342 Dec. 1991
---------- --------- ----------
TOTAL $2,261,395 $ 682,916 $2,944,311
========== ========= ==========
30
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
NOTES:
(1) There are no encumbrances on properties.
(2) Cost for Federal income tax purposes is the same as cost for financial
reporting purposes.
(3) All buildings and equipment are depreciated over estimated useful lives
of 32 and eight years, respectively. The buildings and equipment were
purchased as new properties.
(4) Transactions in real estate, equipment and accumulated depreciation
during 1998, 1997 and 1996 are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Balance, December 31, 1995 $14,642,838 $ 1,599,633
Depreciation expense -- 449,208
----------- ------------
Balance, December 31, 1996 14,642,838 2,048,841
Depreciation expense -- 447,735
----------- ------------
Balance, December 31, 1997 14,642,838 2,496,576
Depreciation expense -- 447,735
----------- ------------
Balance, December 31, 1998 $14,642,838 $ 2,944,311
=========== ============
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FFCA/PIP III Investor Services Corporation:
We have audited the accompanying balance sheet of FFCA/PIP III INVESTOR SERVICES
CORPORATION (a Delaware corporation) as of December 31, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FFCA/PIP III Investor Services
Corporation as of December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
March 22, 1999.
32
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
BALANCE SHEET - DECEMBER 31, 1998
ASSETS
Cash $100
Investment in Participating Income Properties III
Limited Partnership, at cost 100
----
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
The accompanying notes are an integral part of this balance sheet.
33
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 3l, l998
(l) Operations:
FFCA/PIP III Investor Services Corporation (a Delaware corporation)
(the Corporation) was incorporated on December 5, 1988, and amended on July 9,
l990 to act as the assignor limited partner in Participating Income Properties
III Limited Partnership (PIP III).
The assignor limited partner is the owner of record of the limited
partnership units of PIP III. All rights and powers of the Corporation have been
assigned to the holders, who are the registered and beneficial owners of the
units. Other than to serve as assignor limited partner, the Corporation has no
other business purpose and will not engage in any other activity or incur any
debt.
(2) Related Parties:
Morton H. Fleischer is the sole stockholder of the Corporation.
34
<PAGE>
PARTICIPATING INCOME PROPERTIES III
LIMITED PARTNERSHIP
AND
FFCA/PIP III INVESTOR SERVICES CORPORATION
EXHIBIT INDEX
The following is a complete list of exhibits filed as part of this Form
10-K. For electronic filing purposes only, this report contains Exhibit 27, the
Financial Data Schedule. Exhibit numbers correspond to the numbers in the
Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT
-------
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, Commission File
No.0-20151, are incorporated herein by this reference.
1991 FORM 10-K
EXHIBIT NO.
-----------
The Agreement of Limited Partnership of the General
Partner 3-A
The Certificate of Incorporation of FFCA/PIP III
Investor Services Corporation, as filed with the
Secretary of State of Delaware on December 5, 1988 3-B
Bylaws of FFCA/PIP III Investor Services
Corporation 3-C
Pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended, the following documents, filed with the Securities
and Exchange Commission with the Co-Registrants' Registration
Statement on Form S-11, Registration No. 33-35868, is incorporated
herein by this reference.
The Amended and Restated Agreement of Limited
Partnership of the Partnership.
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-Registrant's Form 8-K dated March 22, 1999, Commission File
No. 0-20151, are incorporated herein by this reference.
MARCH 22, 1999,
FORM 8-K
EXHIBIT NO.
-----------
Purchase Agreement dated as of September 4, 1998, 10.01
between Participating Income Properties III Limited
Partnership and CFJ Plaza Company I LLC, including the
First Amendment thereto dated as of March 22, 1999
Purchase Agreement dated as of September 4, 1998, 10.02
between Participating Income Properties III Limited
Partnership and FJI Plaza Company LLC
Extension Agreement dated March 22, 1999 10.03
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 865828
<NAME> PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,243,462
<SECURITIES> 0
<RECEIVABLES> 45,242
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 14,642,838
<DEPRECIATION> 2,944,311
<TOTAL-ASSETS> 20,214,504
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,340,322
<TOTAL-LIABILITY-AND-EQUITY> 20,214,504
<SALES> 0
<TOTAL-REVENUES> 2,739,353
<CGS> 0
<TOTAL-COSTS> 846,010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,893,343
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,893,343
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,893,343
<EPS-PRIMARY> 70.18
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND IS QULAIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH BALANCE SHEET.
</LEGEND>
<CIK> 865829
<NAME> FFCA/PIP III INVESTOR SERVICES CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 200
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
