-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pd0MHHfCVd7IMn4vkQlpEBKiU5dA1NA6HfBGR2HULj9xzIPO0iN7BK1cyz8FVcIV rB5DKHfiix7cfMoaedcHSw== 0000950147-98-000246.txt : 19980401 0000950147-98-000246.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950147-98-000246 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARTICIPATING INCOME PROPERTIES 1986 LP CENTRAL INDEX KEY: 0000797977 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 860570015 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16720 FILM NUMBER: 98581746 BUSINESS ADDRESS: STREET 1: 17207 N PERIMETER DR STREET 2: THE PERIMETER CENTER CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 6025854500 MAIL ADDRESS: STREET 1: 17207 N PERIMETER DR CITY: SCOTTSDALE STATE: AZ ZIP: 85255-5402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FFCA INVESTOR SERVICES CORP 86-B CENTRAL INDEX KEY: 0000797978 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 860557949 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16721 FILM NUMBER: 98581747 BUSINESS ADDRESS: STREET 1: 17207 N PERIMETER DR STREET 2: C/O FINANCIAL CTR CITY: SCOTTSDALE STATE: AZ ZIP: 85255 BUSINESS PHONE: 6025854500 MAIL ADDRESS: STREET 1: 17207 N PERIMETER DR CITY: SCOTTSDALE STATE: AZ ZIP: 85255-5402 10-K405 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ Commission File Number 0-16720 Commission File Number 0-16721 PARTICIPATING INCOME PROPERTIES 1986, L.P. and FFCA INVESTOR SERVICES CORPORATION 86-B --------------------------------------- (Exact Name of Co-Registrants as Specified in Their Organizational Documents) Delaware 86-0570015 -------- ---------- (Partnership State of (Partnership I.R.S. Organization) Employer Identification No.) Delaware 86-0557949 -------- ---------- (Corporation State of (Corporation I.R.S. Incorporation) Employer Identification No.) The Perimeter Center 17207 North Perimeter Drive Scottsdale, Arizona 85255 - --------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Co-Registrants' telephone number, including area code: (602) 585-4500 Securities registered Pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests ----------------------------- (Title of Class) Limited Partnership Depository Units ------------------------------------ (Title of Class) Indicate by check mark whether the Co-Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Co-Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Co-Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the Co-Registrants: Not applicable. The limited partnership depository units (the "Units") are not currently traded in any market. Therefore, there is no market price or average bid and asked price for the Units within 60 days prior to the date of this filing. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Business. Participating Income Properties 1986, L.P., a Delaware limited partnership (the "Partnership"), was organized on June 23, 1986 under the Delaware Revised Uniform Limited Partnership Act. The Partnership serves as a co-general partner of FFCA/PIP 1986 Property Company, a Delaware general partnership (the "Company"), which was organized to acquire new and existing travel plazas, including land, buildings and equipment, to be leased to Flying J Inc. and to franchisees of Flying J Franchise Inc. The other co-general partner of the Company is Perimeter Center Management Company ("PCMC"). The Partnership invests in the travel plazas through the Company to avoid burdensome state filing requirements. The Partnership is entitled to 99.9% of all of the profits, losses and disbursable cash of the Company. Under the terms of the First Restated Agreement of Partnership of the Company, PCMC is entitled to the remaining 0.1% of the profits, losses and disbursable cash of the Company. The general partner of the Partnership is FFCA Management Company Limited Partnership, a Delaware limited partnership (the "General Partner"). FFCA Investor Services Corporation 86-B, a Delaware corporation and wholly-owned subsidiary of PCMC, which is the corporate general partner of the General Partner, was incorporated on June 23, 1986, to serve as the assignor and initial limited partner of the Partnership and the owner of record of the limited partnership interests in the Partnership. The limited partnership interests are assigned by FFCA Investor Services Corporation 86-B to investors in the Partnership. FFCA Investor Services Corporation 86-B conducts no other business activity. The Partnership and FFCA Investor Services Corporation 86-B are referred to collectively as the "Co-Registrants." On October 10, 1986, the Co-Registrants commenced a public offering of $75,000,000 in limited partnership depository units (the "Units") in the Partnership pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as amended. The Co-Registrants sold a total of 51,687 Units to investors at $1,000 per Unit for a total of $51,687,000. Purchasers of the Units (the "Holders") acquired the following number of Units from FFCA Investor Services Corporation 86-B on each of the following dates: 19,865 Units on January 15, 1987; and 31,822 Units on April 16, 1987. Subsequent to that date, no Holder has made any additional capital contribution. The Holders share in the benefits of ownership of the Partnership's assets, including its interest in the Company's real and personal property investments, according to the number of Units held, in substantially the same manner as limited partners of the Partnership. After deducting organizational and offering expenses, including sales commissions, the net proceeds of the offering of the Units, $45,613,778, were fully invested by the Partnership, through its investment in the Company, as of September 1988, in eleven "Flying J Travel Plazas" located in nine states. "Flying J Travel Plaza" facilities offer a full-service operation, generally including fuel facilities, a restaurant, convenience store and other amenities for use by the trucking industry and traveling public in general. As of December 31, 1997, eight of the travel plazas owned by the Partnership were leased to CFJ Properties, a general partnership formed pursuant to a joint venture between Flying J Inc., through its subsidiary, Big West Oil Company ("Big West"), and Douglas Oil Company of California, a subsidiary of Conoco Inc. ("Douglas Oil"), one of the travel plazas was leased to Flying J Inc. and the remaining two were leased to franchisees of Flying J Franchise Inc. ("FJFI"), a subsidiary of Flying J Inc. and the franchisor of Flying J Travel Plazas. The Partnership and the Company are not affiliated with CFJ Properties, Flying J Inc. or FJFI. The Partnership's principal objectives through its investment in the Company are to (a) preserve, protect and enhance Partnership capital; (b) provide partially tax-sheltered cash distributions to investors; (c) provide the potential for increased income and protection against inflation through participation in the gross revenues of Flying J Travel Plaza facilities; and (d) obtain long-term appreciation in the value of its properties through real estate ownership. Real estate owned by the Company is generally leased for a term of 20 years. Equipment is generally leased for a term of eight years. Of the two equipment leases remaining at December 31, 1997, one will expire in 1998 and the other lease is not subject to a purchase option. Lessees must generally pay the Company annual rental payments (in monthly installments) equal to 10% of the Company's total investment in properties. As additional rent under the terms of the lease, the Company is entitled to receive a portion of the operating revenues of the lessees equal to (a) 4% of annual gross receipts derived from the travel plaza facility, excluding fuel sales; (b) 3/10 of $.01 per gallon of fuel sold; and (c) 4% of all amounts received by the lessee for any lease year pursuant to any sublease by the lessee of any part of its leased premises. Reference is made to Note (3) of the Notes to Financial Statements filed with this Report for a schedule of the minimum future lease payments to be received by the Company on its properties. The Partnership is dependent upon CFJ Properties, its principal lessee, since an adverse change in its financial condition could materially affect its ability to make lease payments. During 1997, CFJ Properties and Flying J Inc. together contributed approximately 88% of the Company's total rental and participating rental revenue for the year. On February 1, 1991, Flying J Inc., through its subsidiary Big West, entered into a joint venture with Douglas Oil to form CFJ Properties. Flying J Inc. (and subsidiaries) is a fully integrated oil and gas company that is engaged in the production, refining, transportation, wholesaling and retail marketing of petroleum products and other services through its travel plazas and gasoline stations. Flying J Inc. operates all of CFJ Properties' travel plazas and related facilities, which included 72 interstate travel plaza properties as of January 31, 1997. The Company owns eight of these properties. Under the terms of the joint venture, Big West sold to Douglas Oil certain Flying J Travel Plazas, which Douglas Oil contributed back to CFJ Properties. In addition to this initial contribution, Douglas Oil also made additional contributions to CFJ Properties. As its initial contribution, Big West transferred to CFJ Properties certain leasehold interests and Flying J Travel Plazas, and subsequently contributed to CFJ Properties various assets including working capital, inventories and future development sites. With the exception of the Butte, Montana travel plaza, Flying J Inc. assigned its leasehold interests in the travel plazas owned by the Company to CFJ Properties and was released by the Company with respect to its obligations under those leases. The Partnership's leases with CFJ Properties are with full recourse to the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A default on one lease constitutes a default on all other leases to the same lessee by the Partnership and two other partnerships sponsored by affiliates of the General Partner, all of whose travel plazas are leased to CFJ Properties, Flying J Inc. or franchisees of FJFI. 2 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 generally expire at various dates over the next 10 to 16 years. Payments under these leases were $17.3 million in 1997 and $17.6 million in 1996, including percentage lease payments. Future minimum annual rent obligations under non-cancelable leases, as projected through 2002, remain comparable to 1997 expense amounts. The nine properties operated by CFJ Properties and Flying J Inc., and leased from the Partnership, generated a combined fuel and non-fuel gross profit (including other income) of approximately $24.4 million during the fiscal year ended January 31, 1997 as compared to $26.8 million in fiscal year 1996. Total travel plaza unit-level income for these nine properties (before depreciation and allocated corporate overhead) totaled approximately $700,000 in 1997 with three of the nine properties reporting positive unit-level income. The remaining six properties reported net losses primarily due to lower total gross profits. The combined result of the travel plaza unit-level income before depreciation and allocated corporate overhead was down from $2.8 million in the prior year due largely to CFJ's curtailment of its relationship with Comdata on June 1, 1996. Comdata, a large third party billing company for the trucking industry, requested changes to its contract which were unacceptable to CFJ's management due to the significant long-term ramifications of Comdata's proposed change on CFJ's future business. For CFJ Properties' fiscal year ended January 31, 1997, the average unit-level base and participating rents approximated 14.1% of the original cost of these properties. Those properties that each represent over 10% of the Partnership's total assets are located in Clive, Iowa, Amarillo, Texas and Cheyenne, Wyoming. On February 2, 1998, the Partnership entered into a letter of intent with Flying J Inc. to sell substantially all of the Partnership's assets for cash of approximately $52 million. The sale is subject to certain conditions specified in the letter of intent, including the negotiation and execution of definitive sale and financing agreements with respect to the assets of the Partnership and the approval, by vote, of a majority of the limited partner interests. In accordance with the Partnership's limited partnership agreement (the "Partnership Agreement"), sale of substantially all of the assets will result in dissolution of the Partnership and liquidation of remaining Partnership assets, net of liabilities. There can be no assurance as to the final terms of the proposed transaction, that the conditions will be satisfied or that the proposed transaction will be consummated. 3 The negotiated sale price of approximately $52 million would have resulted in an estimated book gain of $27 million had the proposed sale taken place at December 31, 1997. Subsequent to the proposed asset sale and conversion of other Partnership assets into cash upon liquidation, a liquidating cash distribution will be made to investors in accordance with the Partnership Agreement. Had the sale (as proposed) occurred at December 31, 1997, it is estimated that the liquidating cash distribution would have been in the range of $965 to $990 per limited partnership unit. The actual liquidating distribution to be received by investors will depend upon the actual date and terms of the sale and the actual costs of liquidating the Partnership. In February 1998, the Partnership sold its Boise, Idaho travel plaza to CFJ Properties for approximately $3,386,000 in cash. The Boise travel plaza was a full-service travel plaza, built on a parcel consisting of approximately 21 acres. The above negotiated sale price of approximately $52 million did include the Boise, Idaho travel plaza as if the proposed sale of the Partnership's assets had taken place at December 31, 1997. The travel plaza/truckstop industry, although highly fragmented, is also highly competitive. The Partnership's lessees are competing with, among others, National Auto/Truckstops, Petro and Pilot Corporation, as well as other national, regional and local truckstop operators, some of which may have substantially greater financial resources than the lessees. The Partnership's lessees also compete with other entities that provide hospitality goods and services to the trucking industry and traveling public in general. The major competitive factors include, among others, location, ease of access, brand identification, pricing, product and service selections, customer service, store appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned by the Company offer a full-service operation, generally including fuel facilities, a restaurant, a convenience store and other amenities for use by the trucking industry and traveling public in general. Flying J Inc. reports that the Flying J Travel Plaza network consists of more than 100 facilities across the U.S. interstate highway system. The travel plaza sites have been selected based on traffic patterns and volumes, and access to interstate highways, among other criteria. According to the American Trucking Association, the trucking industry generated more than $345 billion in gross freight revenues, representing 82% of the nation's freight bill in 1996. This was up 4% from the prior year. Over 21 million trucks registered in the United States for business purposes consumed approximately 41 billion gallons of fuel and transported over 60% of all primary shipments made in 1996. Through ownership of the travel plazas, the Partnership and the Company are subject to the risks associated with the underground storage of petroleum products such as gasoline. In this regard, the Partnership's lessees are subject to various federal, state and local regulations and environmental laws. These laws and regulations affect the storing, dispensing and discharge of petroleum and other wastes and affect the lessees both in the securing of permits for fueling operations and in the ongoing conduct of such operations. Federal, state and local regulatory agencies have adopted regulations governing underground storage tanks ("USTs") that require the Partnership's lessees to make certain expenditures for compliance. In particular, at the federal level, the Resource Conservation and Recovery Act requires the Environmental Protection Agency ("EPA") to establish a 4 comprehensive regulatory program for the detection, prevention and cleanup of leaking USTs. Regulations enacted by the EPA in 1988 established requirements for (a) installing UST systems; (b) upgrading UST systems; (c) taking corrective action in response to releases; (d) closing UST systems; (e) keeping appropriate records; and (f) maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases. These regulations permit states to develop, administer and enforce their own regulatory programs, incorporating requirements which are at least as stringent as the federal standards. By the end of 1998, all USTs must be corrosion protected, overfill/spill protected and have leak detection. These environmental laws impose strict liability for owners and operators of faulty and leaking storage tanks resulting in damage to the environment or third parties. The General Partner has taken steps to (a) ensure that the lessees comply with applicable rules and regulations; (b) mitigate any potential liabilities, including the establishment of storage tank monitoring procedures; and (c) require that lessees indemnify the Partnership for all such liabilities and obtain liability insurance, if reasonably available. The General Partner requires each lessee to obtain an annual environmental audit, performed by an environmental consulting and engineering firm, which includes the following procedures, among others: month-end cumulative fuel inventory variance analysis; tank tightness tests; automatic tank gauging and leak detection system operation and calibration tests; UST excavation zone groundwater and/or soil vapor monitoring well analysis; piping system tightness tests; piping excavation zone ground water and/or soil vapor monitoring well analysis; pipe leak detector inspection and calibration tests; corrosion protection system tests; on-site sanitary sewer treatment plant effluent analysis; and oil/water separator inspections. The consulting and engineering firm hired by the General Partner to conduct such audits also reviews on-site environmental correspondence; visually inspects the UST system, tank and piping excavation zone monitoring wells, areas adjacent to all petroleum above-ground tanks, the stormwater and wastewater control systems, and the travel plaza facility; and discusses employee training procedures, recent significant environmental events (if any), repair and maintenance activities, and regulatory compliance with travel plaza personnel. The most recent annual environmental audits of the travel plazas indicate that some remediation is necessary at one or more of the travel plazas. Under each travel plaza lease, the lessee is responsible for all costs associated with correcting problems identified by such audits and is obligated to indemnify the Partnership and the Company for all liabilities related to the operation of the travel plazas, including those related to remediation. The lessees are in the process of reviewing such environmental audits and have commenced appropriate corrective actions. The General Partner does not believe that the corrective actions recommended in the audits will affect the lessees' ability to make their scheduled lease payments to the Partnership or have a material adverse effect upon the Partnership. The Partnership believes that its lessees are in compliance with all applicable regulatory requirements, except as discussed above and that its lessees have all governmental licenses and permits required for their business operations. Management knows of no pending or threatened proceedings or investigations under federal or state environmental laws; however, management cannot predict the impact on the Partnership's lessees of new governmental regulations and requirements. Although the General Partner has taken necessary steps, as discussed above, to ensure lessee compliance with environmental regulations, there can be no assurance that significant cleanup or compliance costs may not be incurred which may affect the lessees' ability 5 to make their scheduled lease payments to the Partnership. As of December 31, 1997, the Partnership, through its investment in the Company, has invested in real estate located in nine states in the western and central portions of the United States, and no real estate investments are located outside of the United States. A presentation of revenues or assets by geographic region is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. The Partnership does not believe that any aspect of its business is significantly seasonal in nature. No portion of the Partnership's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the United States Government. The Partnership does not manufacture any products and therefore does not require any raw materials in order to conduct its business. The Partnership is managed by the General Partner and therefore has no employees of its own. FFCA Investor Services Corporation 86-B has no employees because it does not conduct any business operations. The Partnership pays an affiliate of the General Partner for the maintenance of the books and records of the Partnership and for computer, investor and legal services performed for the Partnership. During 1997, this affiliate of the General Partner completed the design of a new accounting information system that was begun in 1996 and was implemented on January 1, 1998. The new system is "Year 2000" compliant which means that the system will be able to handle any dates that refer to the 21st century. By the end of 1998, all of the affiliate's significant information systems that would impact the Partnership will be "Year 2000" compliant. The affiliate is in the process of assessing the key suppliers that it relies upon in addition to any other systems that are sensitive to dates (such as the telephone and power systems, elevators, security systems, and so on), and has developed a plan for any such systems that are found to be noncompliant. A five-phase process was adopted by the affiliate to address the issues associated with the year 2000 including: (1) an inventory and assessment of the systems and electronic devices that may be at risk; (2) the identification of potential solutions; (3) the implementation of upgrades or replacements to affected systems or devices; (4) the verification of compliance and testing of the revised systems; and (5) the training of users on the new systems. To date, the inventory and assessment phase of all critical computer hardware has been completed, as have the operating system and database software, and statements of "Year 2000" compliance have been received from the related vendors. The verification of "Year 2000" compliance through testing of these systems and training of users is nearly complete. As discussed previously, the Partnership entered into a letter of intent with Flying J Inc. to sell substantially all of the Partnership's assets. In accordance with the Partnership Agreement, sale of substantially all of the assets will result in dissolution of the Partnership and liquidation of remaining Partnership assets, net of liabilities. Under these circumstances, the "Year 2000" issue is not anticipated to have any effect on the Partnership. 6 Factors Affecting Future Operating Results The provisions of the Private Securities Litigation Reform Act of 1995 (the "Act"), became effective in December 1995. The Act provides a "safe harbor" for companies that make forward-looking statements providing prospective information. The "safe harbor" under the Act relates to protection for companies with respect to litigation filed on the basis of such forward-looking statements. The Partnership wishes to take advantage of the "safe harbor" provisions of the Act and is therefore including this section. The statements contained herein, if not historical, are forward-looking statements and involve risks and uncertainties which are described below that could cause actual results to differ materially from the results, financial or otherwise, or other expectations described in such forward-looking statements. These statements are identified with the words "anticipated," "expected," "intends," or "plans," or words of similar meaning. Therefore, forward-looking statements should not be relied upon as a prediction of actual future results or occurrences. The Partnership's future results may be subject to certain risks and uncertainties including the following: o On February 2, 1998, the Partnership entered into a letter of intent with Flying J Inc. to sell substantially all of the Partnership's assets for cash of approximately $52 million. The sale is subject to certain conditions specified in the letter of intent, including the negotiation and execution of definitive sale and financing agreements with respect to the assets of the Partnership and the approval, by vote, of a majority of the limited partner interests. In accordance with the Partnership Agreement, sale of substantially all of the assets will result in dissolution of the Partnership and liquidation of remaining Partnership assets, net of liabilities. There can be no assurance as to the final terms of the proposed transaction, that the conditions will be satisfied or that the proposed transaction will be consummated. o Adverse changes in general or local economic or market conditions may decrease demand for products and services sold at the Partnership's travel plazas. o Competition in the travel plaza industry (see discussion in "Business" above), as well as competition with established entities and private investors in connection with the acquisition, sale and leasing of similar properties may decrease sales at the Partnership's travel plazas and decrease profit margins. o Material or substantial restrictions on travel plaza facilities imposed by federal, state and local laws and regulations may result in increased operating expenses and capital expenditures for the operators of the Partnership's travel plazas. o The Partnership is dependent upon the financial condition of CFJ Properties and its ability to properly operate the travel plaza facilities. If CFJ Properties fails to operate the travel plaza facilities properly, the Partnership's revenue stream may be adversely affected. 7 o The Partnership is dependent upon petroleum products and factors affecting the petroleum industry, including the following: governmental policies and programs regarding oil exploration, production and marketing; federal, state and local environmental laws, rules and regulations regarding the ownership, operation and maintenance of oil production facilities, refineries and petroleum product storage and marketing facilities; unrest in the Middle East; worldwide and domestic economic conditions; oil import quotas; trade embargoes; the imposition of gasoline or other energy taxes; the supply and price of oil; and effects of all of the foregoing on the transportation and travel industries, which could result in smaller profit margins and volumes of sales of petroleum products as well as smaller base rental income revenues from lessees of the properties. This dependency may decrease the availability, and increase the price of, products and services sold at the Partnership's travel plazas which may adversely affect its revenue stream. o Condemnation or uninsured losses may adversely affect the ability of the travel plazas to profitably operate. o Changing demographics and changing transport, traffic and travel patterns may result in a decrease in sales at the Partnership's travel plazas. o Relocation and construction of highways may substantially decrease consumer demand and adversely affect the operations of the Partnership's travel plaza. o Increased costs of food products would decrease profit margins on food products. o Failure of lessees to remediate environmental problems identified in recent environmental audits may affect the marketability of the travel plazas to third parties. Item 2. Properties. As of December 31, 1997, the Partnership, through its investment in the Company, had acquired 11 travel plaza properties located in nine states, without borrowings by the Company or the Partnership. As discussed under "Item 1. Business," the Boise, Idaho travel plaza was sold in February 1998. The properties were acquired by the Company during 1987 and 1988 with the net proceeds received by the Partnership from the public offering of the Units. 8 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. Three of the Company's properties represent over 10% of the Partnership's total assets at December 31, 1997, as follows: Approximate % of Location Total Assets -------- ------------ Clive, Iowa 15% Amarillo, Texas 11% Cheyenne, Wyoming 10% The following is a description of the properties acquired by the Company. Boise, Idaho. The Boise travel plaza is a completely renovated full-service travel plaza, built on a parcel consisting of approximately 21 acres approximately 1/5 of a mile south of Interstate 84. During 1994, the lessee of this travel plaza exercised its option to purchase the motel portion of the travel plaza comprising two and one-half acres of land, the motel building and motel equipment. In addition, approximately one-half acre of land was sold to the State of Idaho Transportation Department, leaving the Boise travel plaza with approximately 18 acres, which was sold to CFJ Properties in February 1998. Post Falls, Idaho. The Post Falls travel plaza is a full-service travel plaza, built on a parcel consisting of approximately 8 acres of land, located at the northeast off-ramp of Interstate Highway 90. Butte, Montana. The Butte travel plaza was a pre-existing Husky truck stop, renovated in 1988, and is located on a parcel consisting of approximately 9.01 acres of land along the north side of I-15 and I-90. Ellensburg, Washington. The Ellensburg travel plaza was a pre-existing Husky truck stop, renovated in 1987, and is located on a parcel consisting of approximately 8.06 acres of land just south of I-90 and one mile west of I-82. Amarillo, Texas. The Amarillo travel plaza was a pre-existing Husky truck stop, renovated in 1989, and is located on a parcel consisting of 16.32 acres of land five miles west of the I-27 and I-40 interchange and four miles east of downtown Amarillo. Clive, Iowa. The Clive travel plaza is a full-service travel plaza, built on a parcel consisting of 26.6 acres of land, located at the southwest corner of I-35/80. Clive, Iowa is located northwest of Des Moines. Eloy, Arizona. The Eloy travel plaza is a full-service travel plaza, built on a 15-acre parcel of land, located three miles south of the I-8 and I-10 junction. Eloy, Arizona is located 60 miles south of Phoenix and 53 miles north of Tucson. Thousand Palms, California. The Thousand Palms travel 9 plaza is a full-service travel plaza, built on a 5.01-acre parcel of land north of I-10. Thousand Palms is situated midway between the Arizona/California border and Los Angeles. Truxton, Missouri. The Truxton travel plaza is a full-service travel plaza, built on a parcel of land of approximately 15 acres located south of the I-70 and Highway B junction. Truxton, Missouri is located 55 miles northwest of St. Louis. Cheyenne, Wyoming. The Cheyenne travel plaza is a full-service travel plaza, built on a 15.2-acre parcel of land west of I-25. Downtown Cheyenne is located three miles north of the site. Evanston, Wyoming. The Evanston travel plaza is located on a 5.42-acre parcel of land along the north side of Highway 30 and north of I-80. Evanston is approximately two miles from the Utah border. Reference is made to the Annual Portfolio Valuation prepared by Cushman & Wakefield which is filed with this Report as an exhibit for the properties' appraised value as of December 31, 1997. FFCA Investor Services Corporation 86-B has no interest in any real or personal property independent of the Partnership. 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. No matter was submitted to a vote of the Holders through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended December 31, 1997. PART II Item 5. Market for Registrant's Units and Related Security Holder Matters. Market Information. During 1997, there was no established public trading market for the Units, and it is not anticipated that an established public trading market for the Units will develop. Holders. As of March 2, 1998, there were 4,099 record holders of the Units. 10 Distributions. For the two most recent fiscal years, the Partnership made the following cash distributions to the Holders: 1997
Per Unit Distribution Total Annualized -------------------- ---------------------- Cash Date of Number Cash from Cash from Yield from Distribution of Units Operations Capital Operations Capital Operations ------------ -------- ---------- ------- ---------- ------- ---------- December 31 51,687 $ 26.43 -- $1,366,087 -- 11.0% September 30 51,687 27.68 -- 1,430,696 -- 11.5% June 30 51,687 26.81 -- 1,385,728 -- 11.2% March 31 51,687 25.47 -- 1,316,468 -- 10.6%
1996
Per Unit Distribution Total Annualized -------------------- ---------------------- Cash Date of Number Cash from Cash from Yield from Distribution of Units Operations Capital Operations Capital Operations ------------ -------- ---------- ------- ---------- ------- ---------- December 31 51,687 $25.56 -- $1,321,120 -- 10.6% September 30 51,687 26.92 -- 1,391,414 -- 11.2% June 30 51,687 26.30 -- 1,359,368 -- 11.0% March 31 51,687 25.49 -- 1,369,189 -- 11.0%
Cash from operations, defined as disbursable cash in the agreement of limited partnership which governs the Partnership, is distributed to the Holders. Any variations in the amount of distributions from quarter to quarter are due to fluctuations in net cash provided by operating activities. Reference is made to Item 7 below for a discussion and analysis of such fluctuations. The annualized cash yield from operations represents the annualized cash distribution from operations as a percentage of the Adjusted Capital Contribution, as defined. Cash proceeds from the sale of property, when distributed, represent a partial return of the limited partners' initial $1,000 per unit capital contribution. The Adjusted Capital Contribution of a Holder is generally the Holder's initial capital contribution reduced by the cash distributions to the Holders of proceeds from the sale of Partnership properties and reduced by any other cash distributions other than from operations. The Adjusted Capital Contribution per Unit of the Holders, as defined in the agreement of limited partnership which governs the Partnership, was $960.34 as of December 31, 1997. At December 31, 1995, the Partnership declared a return of capital of $2,050,000 ($39.66 per Unit) related to the 1994 sale of the Boise, Idaho lodging premises and equipment, which was distributed in January 1996. Any differences in the amounts of distributions set forth in the above tables from the information contained in Item 6 below are due to rounding the amount of distributions payable per Unit down to the nearest whole cent and carrying any fractional cents forward from one period to the next. The Partnership expects to continue making cash distributions to the Holders 11 pursuant to the provisions of the agreement of limited partnership which governs the Partnership. The General Partner knows of no material restrictions that would limit the Partnership's ability to pay distributions to the Holders in the future. Item 6. Selected Financial Data. The following selected financial data should be read in conjunction with the Consolidated Financial Statements and the related notes attached as an exhibit to this Report.
Year Ended December 31, ----------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Revenues $ 6,297,173 $ 6,289,831 $ 6,563,996 $ 7,179,846 $ 6,397,242 Net Income 4,239,903 4,013,518 3,944,780 4,375,249 3,606,158 Net Income Per Unit 81.21 76.87 75.56 83.80 69.07 Total Assets 27,480,329 28,759,012 32,378,912 34,094,240 36,048,390 Distributions of Cash from Operations to Holders 5,499,084 5,440,957 5,592,710 5,674,532 5,546,729 Distributions of Cash from Operations Per Unit 106.39 105.27 108.20 109.79 107.31 Return of Capital to Holders -- -- 2,050,000 -- -- Return of Capital Per Unit -- -- 39.66 -- --
The 1994 results of operations include gains totaling $653,477 on the sale of the motel portion of the Boise, Idaho travel plaza and the sale of approximately one-half acre of land at this travel plaza to the State of Idaho Transportation Department, which is not necessarily indicative of the Partnership's future results of operations. Due to the sale, in February 1998, of the remaining assets of the Boise, Idaho travel plaza, rental revenues in 1998 are expected to be lower than in 1997. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources The Partnership received $51,687,000 in gross proceeds from its public offering of the Units. After deducting organizational and offering expenses, including sales commissions, the Partnership, through the Company, invested the net offering proceeds of $45,613,778 in 11 travel plazas. The rental payments from lessees of the properties are the Partnership's primary source of income. As of December 31, 1997, the Partnership had cash and marketable securities with a maturity of three months or less generally collateralized by United States government obligations aggregating $2,402,680 of which $1,366,087 was paid out to the Holders in January 1998 as 12 their fourth quarter distribution for 1997, and the remainder of which will be held by the Partnership for reserves. The Partnership uses the rental revenues from the Company's properties to meet its cash needs and those of the Company, and it is anticipated that such revenues will be sufficient to meet all of the Partnership's expenses and provide cash for distribution to the Holders. On February 2, 1998, the Partnership entered into a letter of intent with Flying J Inc. to sell substantially all of the Partnership's assets for cash of approximately $52 million. The sale is subject to certain conditions specified in the letter of intent, including the negotiation and execution of definitive sale and financing agreements with respect to the assets of the Partnership and the approval, by vote, of a majority of the limited partner interests. In accordance with the Partnership Agreement, sale of substantially all of the assets will result in dissolution of the Partnership and liquidation of remaining Partnership assets, net of liabilities. There can be no assurance as to the final terms of the proposed transaction, that the conditions will be satisfied or that the proposed transaction will be consummated. The negotiated sale price of approximately $52 million would have resulted in an estimated book gain of $27 million had the proposed sale taken place at December 31, 1997. Subsequent to the proposed asset sale and conversion of other Partnership assets into cash upon liquidation, a liquidating cash distribution will be made to investors in accordance with the Partnership Agreement. Had the sale (as proposed) occurred at December 31, 1997, it is estimated that the liquidating cash distribution would have been in the range of $965 to $990 per limited partnership unit. The actual liquidating distribution to be received by investors will depend upon the actual date and terms of the sale and the actual costs of liquidating the Partnership. In February 1998, the Partnership sold the Boise, Idaho travel plaza to CFJ Properties for approximately $3,386,000 in cash. The above negotiated sale price of approximately $52 million did include the Boise, Idaho travel plaza as if the proposed sale of the Partnership's assets had taken place at December 31, 1997. Proceeds from the sale on October 6, 1994 of the Boise, Idaho travel plaza lodging premises of $2,050,000 were distributed by the Partnership in January 1996 as a return of capital. The Partnership pays an affiliate of the General Partner for the maintenance of the books and records of the Partnership and for computer, investor and legal services performed for the Partnership. During 1997, this affiliate of the General Partner completed the design of a new accounting information system that was begun in 1996 and was implemented on January 1, 1998. The new system is "Year 2000" compliant which means that the system will be able to handle any dates that refer to the 21st century. By the end of 1998, all of the affiliate's significant information systems that would impact the Partnership will be "Year 2000" compliant. As discussed previously, the Partnership entered into a letter of intent with Flying J Inc. to sell substantially all of the Partnership's assets. In accordance with the partnership agreement, sale of substantially all of the assets will result in dissolution of the partnership and liquidation of remaining Partnership assets, net of liabilities. Under these circumstances, the "Year 2000" issue is not anticipated to have any effect on the Partnership. FFCA Investor Services Corporation 86-B serves as the initial limited partner of the 13 Partnership and the owner of record of the limited partner interests in the Partnership, the rights and benefits of which are assigned by FFCA Investor Services Corporation 86-B to investors in the Partnership. FFCA Investor Services Corporation 86-B has no other business activity and has no capital resources. Results of Operations The Partnership, through the Company, began acquiring travel plaza properties using the net proceeds of the offering in 1987 and continued to purchase properties until becoming fully invested in September 1988. The Company received or accrued 100% of the lease payments due it from its lessees in 1997, 1996 and 1995. Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31, 1996 The Partnership's total revenues increased to $6,297,173 for the year ended December 31, 1997 from $6,289,831 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 $1,897,489 in 1997 from $1,818,632 in 1996 due to higher travel plaza sales volumes. On June 1, 1996, CFJ Properties (lessee of eight of the Registrant's travel plazas) curtailed its relationship with a large third party billing company for the trucking industry. The billing company requested changes to its contract that were unacceptable to CFJ Properties' management due to the significant long-term ramifications of the proposed change on CFJ Properties' future business. This resulted in reduced volume and margins, which contributed to lower participating rental revenues in 1996 as compared to 1997. Partially offsetting the increase in participating rentals, was a decrease in rental revenues due to a partial land sale in the first quarter of 1996, which resulted in a monthly reduction of $2,128 in rental revenue. Total Partnership expenses for 1997 were $2,052,340, representing a decrease of approximately 10% from $2,271,611 in 1996, primarily resulting from a decrease in depreciation expense of $243,800 related to the sale of travel plaza equipment in 1996. Net income for 1997 was $4,239,903 as compared to $4,013,518 for 1996, representing an increase of approximately 6%. Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended December 31, 1995 The Partnership's total revenues decreased to $6,289,831 for the year ended December 31, 1996 from $6,563,996 for the year ended December 31, 1995. Of this decrease, $81,328 was attributable to lower gains on the sale of property in 1996 and $97,407 in lower interest income resulted from a lower average cash balance invested since the proceeds from the sale of the Boise travel plaza lodging facility (which were invested in temporary investment securities in 1995) were returned to the limited partners in January 1996. In addition, participating rental revenue decreased $76,279 due to decreased overall travel plaza sales related to the curtailment in June 1996 by CFJ Properties of its relationship with a third party billing company. Also contributing to the decrease was a decrease in rental revenue of $19,151 relating to the partial land sale in the first quarter of 1996. Total Partnership expenses for 1996 were $2,271,611, representing a decrease of 14 approximately 13.1% from $2,614,608 in 1995, primarily resulting from a decrease in depreciation expense of $303,569 related to the sale of travel plaza equipment in 1996 and 1995. Also contributing to the decrease in total expenses is a general decrease in operating expenses of approximately $24,000. Net income for 1996 was $4,013,518 as compared to $3,944,780 for 1995, representing a difference of less than 2%. Inflation Inflation may cause an increase in each travel plaza's gross revenues due to price increases. This may cause an increase in rental income because a portion of the lessees' lease payments are computed as a percentage of the lessees' gross revenues. Thus, as gross sales increase the lease payments will also increase. Inflation may also tend to increase the rate of capital appreciation of the Company's properties over a period of time as gross rental income from the properties continues to increase. Inflation may, however, have an adverse impact on the profitability of the lessees because of increases in operating expenses. Inflation has no impact on FFCA Investor Services Corporation 86-B's activities. Item 8. Financial Statements and Supplementary Data. The financial statements and supporting schedules 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, the General Partner and the Company have no directors or executive officers. PCMC is the managing general partner and Morton H. Fleischer is the individual general partner of the General Partner. PCMC, through the General Partner, has responsibility for all of the Partnership's operations. The directors and executive officers of PCMC and FFCA Investor Services Corporation 86-B are as follows: 15 PCMC Director Name Position Held Since ---- ------------------- Morton H. Fleischer 1993 Officers
Associated With PCMC Name Positions Held Since ---- -------------- ----- Morton H. Fleischer President and Chief Executive Officer 1993 John R. Barravecchia Executive Vice President, Chief Financial Officer, 1993 Treasurer and Assistant Secretary Christopher H. Volk Executive Vice President, Chief Operating Officer, 1993 Secretary and Assistant Treasurer Dennis L. Ruben Executive Vice President, General Counsel and Assistant 1994 Secretary Stephen G. Schmitz Executive Vice President, Chief Investment Officer and 1995 Assistant Secretary Catherine F. Long Senior Vice President-Finance, Principal Accounting 1993 Officer, Assistant Secretary and Assistant Treasurer
FFCA INVESTOR SERVICES CORPORATION 86-B Director Name Position Held Since ---- ------------------- Morton H. Fleischer, Chairman 1986 Officers
Position Held Name Positions 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 executive 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. 16 Business Experience The business experience during the past five years of each of the above directors and executive officers is as follows: Morton H. Fleischer, age 61, has served as a director, President and Chief Executive Officer of PCMC since 1993, and as Chairman of the Board of FFCA Investor Services Corporation 86-B since 1986. Mr. Fleischer also serves as President, Chief Executive Officer and Chairman of the Board of Franchise Finance Corporation of America, a Delaware corporation ("FFCA") having previously served as a director, President and Chief Executive Officer of Franchise Finance Corporation of America I ("FFCA I"), a predecessor of FFCA, from 1980 to 1994. Mr. Fleischer is an individual general partner of the General Partner, and is a general partner (or general partner of a general partner) of the following public limited partnerships: Participating Income Properties II, L.P.; Participating Income Properties III Limited Partnership; and Scottsdale Land Trust Limited Partnership. John R. Barravecchia, age 42, has served as President, Secretary and Treasurer of FFCA Investor Services Corporation 86-B since 1990. He has served as Chief Financial Officer of PCMC since 1993 and as Senior Vice President and Treasurer since 1994. In 1995, Mr. Barravecchia was named Executive Vice President of PCMC. Mr. Barravecchia currently serves as Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary of FFCA and served in various capacities for FFCA I from 1984 to 1994. He was appointed Vice President and Chief Financial Officer of FFCA I in December 1986, and Senior Vice President in October 1989. Mr. Barravecchia was elected as a director of FFCA I in March 1993 and Treasurer in December 1993. Prior to joining FFCA I, Mr. Barravecchia was associated with the international public accounting firm of Arthur Andersen LLP. Christopher H. Volk, age 41, has served as Vice President, Assistant Secretary and Assistant Treasurer of FFCA Investor Services Corporation 86-B since 1994, and has served as Secretary of PCMC since 1993 and Senior Vice President-Underwriting and Research since 1994. In 1995, Mr. Volk was named Executive Vice President and Chief Operating Officer of PCMC. Mr. Volk currently serves as Executive Vice President, Chief Operating Officer, Secretary and Assistant Treasurer of FFCA. He joined FFCA I in 1986 and served in various capacities in FFCA I's capital preservation and underwriting areas prior to being named Vice President-Research in October 1989. In December 1993, he was appointed Secretary and Senior Vice President-Underwriting and Research of FFCA I, and he was elected as a director of FFCA I in March 1993. Prior to joining FFCA I, Mr. Volk was employed for six years with the National Bank of Georgia, where his last position was Assistant Vice President and Senior Correspondent Banking Credit Officer. Mr. Volk is a member of the Association for Investment Management and Research and the Phoenix Society of Financial Analysts. Dennis L. Ruben, age 45, has served as Senior Vice President and General Counsel for PCMC since 1994. Mr. Ruben was named Executive Vice President, General Counsel and Assistant Secretary of PCMC in February 1997. He currently serves in the same capacity for FFCA and served as attorney and counsel for FFCA I from 1991 to 1994. In December 1993, he was appointed Senior Vice President and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben was associated with the law firm of Kutak Rock from 1980 until March 1991. Mr. Ruben became a partner of Kutak Rock in 1984. Mr. Ruben has been 17 admitted to the Iowa, Nebraska and Colorado bars. Stephen G. Schmitz, age 43, has served as Senior Vice President-Corporate Finance of PCMC since January 1996. He was named Executive Vice President, Chief Investment Officer and Assistant Secretary of PCMC in February 1997. He currently serves in the same capacity for FFCA. Mr. Schmitz served in various positions as an officer of FFCA I from 1986 to June 1, 1994. Prior to joining FFCA I, Mr. Schmitz was a commercial lender with Mellon Bank in Pittsburgh, where his last position was Vice-President and Section Manager. Catherine F. Long, age 41, has served as Vice President-Finance and Principal Accounting Officer of PCMC since 1994, and Vice President from 1993 to 1994. In February 1997 she was named Senior Vice President-Finance of PCMC. She currently serves as Senior Vice President-Finance, Principal Accounting Officer, Assistant Secretary and Assistant Treasurer of FFCA and served as Vice President-Finance of FFCA I from 1990 to 1993. In December 1993, she was appointed Principal Accounting Officer of FFCA I. From December 1978 to May 1990, Ms. Long was associated with the international public accounting firm of Arthur Andersen LLP. Ms. Long is a certified public accountant and is a member of the Arizona Society of Certified Public Accountants. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Co-Registrants during fiscal year 1997 and Forms 5 and amendments thereto furnished to the Co-Registrants with respect to fiscal year ended December 31, 1997 (the "Forms"), and any written representations by the directors and executive officers of FFCA Investor Services Corporation 86-B and PCMC, the Co-Registrants have not identified herein any such person that failed to file on a timely basis the Forms required by Section 16(a) of the Securities Exchange Act of 1934 for fiscal year 1997. Item 11. Executive Compensation. The Partnership is required to pay an acquisition fee and a subordinated real estate disposition fee to the General Partner, 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 (5) of the Notes to Consolidated Financial Statements of the Partnership and the Company which are filed with this Report for a description of the fees and distributions paid in 1997. FFCA Investor Services Corporation 86-B serves as assignor and initial limited partner without compensation from the Partnership. It is not entitled to any share of the profits, losses or cash distributions of the Partnership. The director and officers of FFCA Investor Services Corporation 86-B serve without compensation from FFCA Investor Services Corporation 86-B or the Partnership. PCMC is entitled to a one-tenth of one percent share of the profits and losses of the Company. 18 Item 12. Security Ownership of Certain Beneficial Owners and Management. As of March 2, 1998, no person or group was known by the Partnership to own directly or beneficially more than 5% of the outstanding Units of the Partnership. The General Partner of the Partnership and its general partners owned no Units as of March 2, 1998. None of the directors and officers of the General Partner's corporate general partner, PCMC, owned any Units as of March 2, 1998. PCMC is owned by Morton H. Fleischer. FFCA Investor Services Corporation 86-B 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, FFCA Investor Services Corporation 86-B has no right to vote its interest on any matter and it must vote the assigned interests as directed by the Holders. FFCA Investor Services Corporation 86-B is a wholly-owned subsidiary of PCMC. Item 13. Certain Relationships and Related Transactions. Since the beginning of the Co-Registrants' last fiscal year, there have been no significant transactions or business relationships among the Co-Registrants, the Company, and PCMC 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 Partnership and the Company Report of independent public accountants Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes In Partners' Capital for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements FFCA Investor Services Corporation 86-B Report of independent public accountants Balance Sheet as of December 31, 1997 Notes to Balance Sheet 19 2. Financial Statement Schedules. Schedule III-Schedule of Real Estate and Accumulated Depreciation as of December 31, 1997 All other schedules are omitted since they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto. 3. Exhibits. The following is a complete list of exhibits filed as part of this Form 10-K. For electronic filing purposes only, this report contains Exhibit 27, the Financial Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. 99. Annual Portfolio Valuation of Cushman & Wakefield as of December 31, 1997. Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following document, filed with the Securities and Exchange Commission as Exhibit 4 to the Co-Registrants' Form 10-K for the fiscal year ended December 31, 1989, Commission File No. 0-16720, is incorporated herein by this reference. Second Amended and Restated Certificate and Agreement of Limited Partnership which governs the Partnership, as filed with the Secretary of State of Delaware on April 16, 1987. Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following documents, filed with the Securities and Exchange Commission as exhibits to the Co-Registrants' Form 10-K for the fiscal year ended December 31, 1986, Commission File No. 0-16720, are incorporated herein by this reference.
1986 Form 10-K Exhibit No. ----------- Depositary Agreement of the Partnership. 3-C The Certificate of Incorporation which governs 3-D FFCA Investor Services Corporation 86-B, as filed with the Secretary of State of Delaware on June 23, 1986. Bylaws of FFCA Investor Services Corporation 86-B. 3-E
20 Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following document, filed with the Securities and Exchange Commission on October 8, 1986 as Exhibit 10(e) to the Co-Registrants' Registration Statement on Form S-11, Registration No. 33-7502, is incorporated herein by this reference. Operating Agreement, dated October 7, 1986, by and among FFCA Management Company, L.P., FFCA/PIP 1986 Property Company, Flying J Inc. and Flying J Franchise Inc. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Co-Registrants during the last quarter of the fiscal year ended December 31, 1997. 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Partnership has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. PARTICIPATING INCOME PROPERTIES 1986, L.P. By: FFCA MANAGEMENT COMPANY LIMITED PARTNERSHIP, General Partner Date: March 27, 1998 By /s/ Morton H. Fleischer --------------------------------- Morton H. Fleischer, General Partner By: PERIMETER CENTER MANAGEMENT COMPANY, Corporate General Partner Date: March 27, 1998 By /s/ Morton H. Fleischer --------------------------------- Morton H. Fleischer, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated. SIGNATURES OF REQUIRED OFFICERS AND DIRECTORS OF PERIMETER CENTER MANAGEMENT COMPANY, CORPORATE GENERAL PARTNER OF FFCA MANAGEMENT COMPANY LIMITED PARTNERSHIP, GENERAL PARTNER OF PARTICIPATING INCOME PROPERTIES 1986, L.P. Date: March 27, 1998 By /s/ Morton H. Fleischer --------------------------------------- Morton H. Fleischer, President, Chief Executive Officer and Director Date: March 27, 1998 By /s/ John Barravecchia --------------------------------------- John Barravecchia, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary Date: March 27, 1998 By /s/ Catherine F. Long --------------------------------------- Catherine F. Long, Senior Vice President-Finance, Principal Accounting Officer, Assistant Secretary and Assistant Treasurer Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Co-Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. FFCA INVESTOR SERVICES CORPORATION 86-B Date: March 27, 1998 By /s/ Morton H. Fleischer --------------------------------------- Morton H. Fleischer, Sole Director Date: March 27, 1998 By /s/ John Barravecchia --------------------------------------- John Barravecchia, President, Secretary, Treasurer, Principal Financial Officer and Principal Accounting Officer ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Participating Income Properties 1986, L.P.: We have audited the accompanying consolidated balance sheets of PARTICIPATING INCOME PROPERTIES 1986, L.P. (a Delaware limited partnership) and affiliate as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in partners' capital and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedule referred to below are the responsibility of the partnership's 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 1986, L.P. and affiliate as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule for Real Estate and Accumulated Depreciation is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Phoenix, Arizona, January 6, 1998, (except with respect to the matter discussed in Note 6, as to which the date is February 3, 1998). PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996 --------------------------------------------------------
1997 1996 ---------------- ---------------- ASSETS ------ CASH AND CASH EQUIVALENTS $ 2,402,680 $ 2,346,371 RECEIVABLES FROM LESSEES 161,608 149,803 SECURED NOTES RECEIVABLE 100,569 131,323 PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 24,815,472 26,131,515 ------------ ------------ Total assets $ 27,480,329 $ 28,759,012 ============ ============ LIABILITIES AND PARTNERS' CAPITAL --------------------------------- DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 1,366,497 $ 1,321,426 PAYABLE TO GENERAL PARTNER - 10,304 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 52,297 49,704 RENTAL DEPOSITS 114,400 114,400 ------------ ------------ Total liabilities 1,533,194 1,495,834 ------------ ------------ MINORITY INTEREST (Note 1) (16,239) (14,923) ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General partner (171,205) (158,058) Limited partners 26,134,579 27,436,159 ------------ ------------ Total partners' capital 25,963,374 27,278,101 ------------ ------------ Total liabilities and partners' capital $ 27,480,329 $ 28,759,012 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
1997 1996 1995 ---------- ---------- ---------- REVENUES: Rental $4,288,989 $4,295,373 $4,314,524 Participating rentals 1,897,489 1,818,632 1,894,911 Interest and other 110,695 99,868 197,275 Gain on sale of property - 75,958 157,286 ---------- ---------- ---------- 6,297,173 6,289,831 6,563,996 ----------- ----------- ----------- EXPENSES: General partner fees (Note 5) 549,359 543,553 558,712 Depreciation 1,316,043 1,559,843 1,863,412 Operating 186,938 168,215 192,484 ---------- ---------- ---------- 2,052,340 2,271,611 2,614,608 ---------- ---------- ---------- MINORITY INTEREST IN INCOME (Note 1) 4,930 4,702 4,608 ---------- ---------- ---------- NET INCOME $4,239,903 $4,013,518 $3,944,780 ========== ========== ========== NET INCOME ALLOCATED TO (Note 1): General partner $ 42,399 $ 40,135 $ 39,448 Limited partners 4,197,504 3,973,383 3,905,332 ---------- ---------- ---------- $4,239,903 $4,013,518 $3,944,780 ========== ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT (based on 51,687 units held by limited partners) $81.21 $76.87 $75.56 ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL ------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
General Limited Partner Partners Total --------- ----------- ----------- BALANCE, December 31, 1994 $(126,190) $32,641,111 $32,514,921 Net income 39,448 3,905,332 3,944,780 Distributions to partners, cash from operations (56,492) (5,592,710) (5,649,202) Return of capital to limited partners (Note 1) - (2,050,000) (2,050,000) --------- ----------- ----------- BALANCE, December 31, 1995 (143,234) 28,903,733 28,760,499 Net income 40,135 3,973,383 4,013,518 Distributions to partners, cash from operations (54,959) (5,440,957) (5,495,916) --------- ----------- ----------- BALANCE, December 31, 1996 (158,058) 27,436,159 27,278,101 Net income 42,399 4,197,504 4,239,903 Distributions to partners, cash from operations (55,546) (5,499,084) (5,554,630) --------- ----------- ----------- BALANCE, December 31, 1997 $(171,205) $26,134,579 $25,963,374 ========= =========== ===========
The accompanying notes are an integral part of these consolidated statements. PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 ----------------------------------------------------
1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,239,903 $ 4,013,518 $ 3,944,780 Adjustments to net income: Depreciation 1,316,043 1,559,843 1,863,412 Gain on sale of property - (75,958) (157,286) Minority interest in income 4,930 4,702 4,608 Change in assets and liabilities: Decrease (increase) in receivables from lessees (11,805) (5,620) 10,817 Increase (decrease) in payable to general partner (10,304) (7,401) 17,705 Increase (decrease) in accounts payable and accrued liabilities 2,593 (11,384) (49,309) ----------- ----------- ----------- Net cash provided by operating activities 5,541,360 5,477,700 5,634,727 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property - 811,441 207,818 Principal collections on secured notes receivable 30,754 26,588 7,412 ----------- ----------- ----------- Net cash provided by investing activities 30,754 838,029 215,230 ----------- ----------- ----------- CASH FLOWS FOR FINANCING ACTIVITIES: Partner distributions declared (Note 1) (5,554,630) (5,495,916) (5,649,202) Return of capital to limited partners declared (Note 1) - - (2,050,000) Increase (decrease) in distribution payable 45,071 (2,117,230) 2,072,402 Distributions to minority interest (6,246) (6,189) (6,312) ----------- ----------- ----------- Net cash used in financing activities (5,515,805) (7,619,335) (5,633,112) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 56,309 (1,303,606) 216,845 CASH AND CASH EQUIVALENTS, beginning of year 2,346,371 3,649,977 3,433,132 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 2,402,680 $ 2,346,371 $ 3,649,977 =========== =========== ===========
Supplemental Disclosure of Noncash Investing Activity: In 1995, the Partnership sold equipment, received a secured note in the amount of $65,341, and deferred a gain of $1,251 on the sale. The accompanying notes are an integral part of these consolidated statements. PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- Notes to Consolidated Financial Statements ------------------------------------------ December 31, 1997 and 1996 -------------------------- 1) ORGANIZATION: ------------- Participating Income Properties 1986, L.P. (the Partnership) was formed on June 23, 1986 under the Delaware Revised Uniform Limited Partnership Act. The Partnership invests as a co-general partner with Perimeter Center Management Company (PCMC) in FFCA/PIP 1986 Property Company, a Delaware general partnership (the Property Company). The general partner of the Partnership is FFCA Management Company Limited Partnership (the General Partner) of which PCMC is a general partner. The Property Company was organized to purchase new and existing "Flying J Travel Plaza" facilities, including land, buildings and equipment to be leased on a net basis to Flying J Inc. and certain franchisees of Flying J Franchise Inc. At December 31, 1997 and 1996, eight of the eleven travel plazas owned by the Partnership were leased to CFJ Properties (CFJ), an affiliate of Flying J Inc., one of the travel plazas was leased to Flying J Inc. and the remaining two were leased to franchisees that operate Flying J Travel Plazas. "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 Partnership and the Property Company will expire December 31, 2029 and 2028, respectively, or sooner, in accordance with the terms of their respective agreements. Investors acquired units of assigned limited partnership interest (the limited partnership units) in the Partnership from FFCA Investor Services Corporation 86-B (the Initial Limited Partner), a Delaware corporation wholly-owned by PCMC. 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. Cash proceeds from the sale of property are not considered cash from operations but, when distributed, represent a partial return of the limited partners' initial $1,000 per unit capital contribution. There has been one such distribution to date, therefore, the limited partner Adjusted Capital Contribution, as defined in the Partnership agreement, at December 31, 1997 is $960.34 per unit. The following is a reconciliation of net income to cash distributions from operations as defined in the Partnership agreement:
1997 1996 1995 ---------- ---------- ---------- Net income $4,239,903 $4,013,518 $3,944,780 Adjustments to reconcile net income to cash distributions declared: Depreciation 1,316,043 1,559,843 1,863,412 Gain on sale of property - (75,958) (157,286) Change in minority interest (1,316) (1,487) (1,704) ---------- ---------- ---------- Cash distributions declared from operations $5,554,630 $5,495,916 $5,649,202 ========== ========== ==========
The Property Company agreement provides for allocation of profits and losses and cash distributions among its partners as follows: Profits and Losses: Allocated 99.9% to the Partnership and .1% to PCMC. Cash Distributions: All cash from operations, as defined, is allocated 99.9% to the Partnership and .1% to PCMC. 2) SIGNIFICANT ACCOUNTING POLICIES: -------------------------------- Consolidation and Financial Statements - The accompanying consolidated financial statements include the accounts of the Partnership and the Property Company in which the Partnership holds a substantial interest, as discussed in Note 1. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements 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 $2,091,603 and $2,210,317 at December 31, 1997 and 1996, respectively. 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 24 years. Equipment is depreciated over an estimated useful life of eight years, assuming a 10% salvage value at the end of its useful life. The cost of properties includes miscellaneous acquisition and closing costs. 3) PROPERTY SUBJECT TO OPERATING LEASES: ------------------------------------- The following is an analysis of the Partnership's investment, at cost, in property subject to operating leases by major class at December 31, 1997 and 1996: 1997 1996 ------------ ------------ Land $ 6,773,272 $ 6,773,272 Buildings 29,669,322 29,669,322 Equipment 626,781 626,781 ------------ ------------ 37,069,375 37,069,375 Less - Accumulated depreciation 12,253,903 10,937,860 ------------ ------------ $24,815,472 $26,131,515 ============ ============ Lease agreements provide for monthly base rentals equal to a percentage of the property's cost. As additional rent, the Property Company 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 terms of the leases are eight years for equipment and 20 years for land and buildings. Generally, the lessee has the option to purchase equipment (at fair market value) at the end of the lease term and land and buildings (at the greater of fair market value or cost) at any time after the first ten years of the lease. Of the two equipment leases remaining at December 31, 1997, one will expire in 1998 and the other lease is not subject to a purchase option. During the year ended December 31, 1997, CFJ and Flying J Inc., accounting for 88% of total rental and participating rental revenue, operated a total of nine Partnership properties in Idaho, Montana, California, Arizona, Iowa, Missouri, Texas and Wyoming. The Partnership is the beneficiary of a letter of credit from CFJ in the amount of $634,300 to be used as security for CFJ's lease payments. Minimum future rentals (excluding participating rentals) under noncancellable operating leases as of December 31, 1997, are as follows: Year Ending December 31, ------------------------ 1998 $ 4,289,000 1999 4,289,000 2000 4,289,000 2001 4,289,000 2002 4,289,000 Thereafter 22,504,000 ------------ Total minimum future rentals $43,949,000 ==== ============ The General Partner, the Property Company, Flying J Inc. and Flying J Franchise Inc. have entered into an operating agreement. In the event of a default in the payment of any amount due and payable under the lease agreements, and upon the General Partner's written request and delivery of the defaulting lessee's property to Flying J Inc., Flying J Inc. has agreed to operate such defaulted lessee's property for the maximum potential lease term. 4) INCOME TAXES: ------------- The Partnership is not directly subject to income taxes; rather, each partner is subject to income taxes on his distributable share of taxable income. The Partnership tax returns and the amount of distributable partnership profits or losses are subject to examination by Federal and state taxing authorities. If examinations by taxing authorities result in changes to distributable partnership profits or losses, the tax liabilities of the partners could be changed accordingly. The following is a reconciliation of net income for financial reporting purposes to income reported for Federal income tax purposes for the years ended December 31, 1997, 1996 and 1995:
1997 1996 1995 ---------- ---------- ---------- Net income for financial reporting purposes $4,239,903 $4,013,518 $3,944,780 Differences for tax purposes in: Depreciation 554,950 765,189 965,142 Gain on sale and other - 17,534 (375,409) ---------- ---------- ---------- Taxable income to partners $4,794,853 $4,796,241 $4,534,513 ========== ========== ==========
For Federal income tax reporting purposes, taxable income to partners is reported on the accrual basis of accounting and is classified as ordinary income. At December 31, 1997, the tax bases of the Partnership's assets and liabilities exceed the amounts recorded for financial reporting purposes by $4,688,426. This difference results primarily from the use of different depreciation methods for financial reporting and tax reporting purposes. 5) 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 1997, 1996 and 1995, fees paid to the General Partner were as follows: 1997 1996 1995 -------- -------- -------- Disbursable cash fee $549,359 $543,553 $558,712 ======== ======== ======== The disbursable cash fee equals 9% of all cash received by the Partnership (excluding sale proceeds) less Partnership operating expenses, only to the extent the limited partners have received an annual return of 9% (calculated quarterly) on their Adjusted Capital Contribution, as defined. A subordinated real estate disposition fee equal to three percent of the selling price on the disposition of any real property (subject to certain limitations) is payable only after the limited partners have received an amount equal to their Adjusted Capital Contribution and a cumulative, non-compounded return of 10% per annum on their Adjusted Capital Contribution. 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 $35,018 in 1997, $30,001 in 1996 and $29,301 in 1995 for such expenses. 6) SUBSEQUENT EVENT - POSSIBLE SALE OF SUBSTANTIALLY ALL ASSETS: ------------------------------------------------------------- On February 2, 1998, the Partnership entered into a letter of intent with Flying J. Inc. to sell substantially all of the Partnership's assets for cash of approximately $52 million. The sale is subject to certain conditions specified in the letter of intent, including the negotiation and execution of definitive sale and financing agreements with respect to the assets of the Partnership and the approval, by vote, of a majority of the limited partner interests. In accordance with the partnership agreement, sale of substantially all of the assets will result in dissolution of the partnership and liquidation of remaining Partnership assets, net of liabilities. There can be no assurance as to the final terms of the proposed transaction, that the conditions will be satisfied or that the proposed transaction will be consummated. The negotiated sale price of approximately $52 million, net of book value of the assets to be sold, would have resulted in an estimated gain of $27 million had the proposed sale taken place at December 31, 1997. Subsequent to the proposed asset sale and conversion of other Partnership assets into cash upon liquidation, a liquidating cash distribution will be made to investors in accordance with the Partnership agreement. Had the sale (as proposed) occurred at December 31, 1997, it is estimated that the liquidating cash distribution would have been in the range of $965 to $990 per limited partnership unit. The actual liquidating distribution to be received by investors will depend upon the actual date and terms of the sale and the actual costs of liquidating the Partnership. SCHEDULE III Page 1 of 2 PARTICIPATION INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION ---------------------------------------------------- AS OF DECEMBER 31, 1997 -----------------------
Initial Cost to Partnership and Gross Amount at December 31, 1997 ------------------------------------------------------ Travel Plaza Location Land Buildings Equipment Total --------------------- ---------- ----------- --------- ----------- ELOY, ARIZONA $ 458,740 $ 3,558,260 $ -- $ 4,017,000 THOUSAND PALMS, CALIFORNIA 809,050 2,757,950 -- 3,567,000 BOISE, IDAHO 1,007,082 1,213,244 -- 2,220,326 POST FALLS, IDAHO 351,320 1,818,680 -- 2,170,000 CLIVE, IOWA 307,250 6,191,750 -- 6,499,000 TRUXTON, MISSOURI 403,600 3,803,400 -- 4,207,000 BUTTE, MONTANA 242,710 1,631,290 259,000 2,133,000 AMARILLO, TEXAS 1,326,000 2,814,000 -- 4,140,000 ELLENSBURG, WASHINGTON 533,040 1,266,113 -- 1,799,153 EVANSTON, WYOMING 622,640 1,188,475 367,781 2,178,896 CHEYENNE, WYOMING 711,840 3,426,160 -- 4,138,000 ---------- ----------- --------- ----------- TOTAL $6,773,272 $29,669,322 $ 626,781 $37,069,375 ========== =========== ========= =========== Accumulated Depreciation ----------------------------------------- Date Travel Plaza Location Buildings Equipment Total Acquired --------------------- ----------- --------- ----------- ---------- ELOY, ARIZONA $ 1,396,123 $ -- $ 1,396,123 Aug. 1988 THOUSAND PALMS, CALIFORNIA 1,091,689 -- 1,091,689 July 1988 BOISE, IDAHO 556,070 -- 556,070 Jan. 1987 POST FALLS, IDAHO 833,562 -- 833,562 Jan. 1987 CLIVE, IOWA 2,450,901 -- 2,450,901 July 1988 TRUXTON, MISSOURI 1,505,513 -- 1,505,513 July 1988 BUTTE, MONTANA 676,609 233,099 909,708 July 1987 AMARILLO, TEXAS 991,571 -- 991,571 June 1988 ELLENSBURG, WASHINGTON 509,575 -- 509,575 Sept. 1987 EVANSTON, WYOMING 297,119 367,781 664,900 Dec. 1987* CHEYENNE, WYOMING 1,344,291 -- 1,344,291 Aug. 1988 ----------- --------- ----------- TOTAL $11,653,023 $ 600,880 $12,253,903 =========== ========= ===========
* Restaurant reconstructed during 1991 SCHEDULE III Page 2 of 2 PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE -------------------------------------------------------- SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION ---------------------------------------------------- AS OF DECEMBER 31, 1997 ----------------------- NOTES: (1) There are no encumbrances on properties. (2) Cost for Federal income tax purposes is the same as cost for financial reporting purposes. (3) All buildings and equipment are depreciated over estimated useful lives of 24 and eight years, respectively. Substantially all of the buildings and equipment were purchased as new properties. (4) Transactions in real estate, equipment and accumulated depreciation during 1997, 1996 and 1995 are summarized as follows: Accumulated Cost Depreciation ----------- ------------ Balance, December 31, 1994 $42,845,802 $12,440,927 Cost of equipment sold (2,185,260) (2,070,638) Depreciation expense - 1,863,412 ----------- ----------- Balance, December 31, 1995 40,660,542 12,233,701 Cost of land sold (248,645) - Cost of equipment sold (3,342,522) (2,855,684) Depreciation expense - 1,559,843 ----------- ----------- Balance, December 31, 1996 37,069,375 10,937,860 Depreciation expense - 1,316,043 ----------- ----------- Balance, December 31, 1997 $37,069,375 $12,253,903 =========== =========== REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To FFCA Investor Services Corporation 86-B: We have audited the accompanying balance sheet of FFCA INVESTOR SERVICES CORPORATION 86-B (a Delaware corporation) as of December 31, 1997. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of FFCA Investor Services Corporation 86-B as of December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Phoenix, Arizona, January 6, 1998. FFCA INVESTOR SERVICES CORPORATION 86-B --------------------------------------- BALANCE SHEET - DECEMBER 31, 1997 --------------------------------- ASSETS Cash $100 Investment in Participating Income Properties 1986, L.P., at cost 100 ---- Total Assets $200 ==== LIABILITY Payable to Parent (Note 2) $100 ---- STOCKHOLDER'S EQUITY Common Stock; $l par value; 100 shares authorized, issued and outstanding 100 ---- Liability and Stockholder's Equity $200 ==== The accompanying notes are an integral part of this balance sheet. FFCA INVESTOR SERVICES CORPORATION 86-B --------------------------------------- NOTES TO BALANCE SHEET ---------------------- DECEMBER 3l, l997 ----------------- (l) Operations: FFCA Investor Services Corporation 86-B (a Delaware corporation) (86-B) was organized on June 23, l986 to act as the assignor limited partner in Participating Income Properties 1986, L.P. (PIP-86). The assignor limited partner is the owner of record of the limited partnership units of PIP-86. All rights and powers of 86-B have been assigned to the holders, who are the registered and beneficial owners of the units. Other than to serve as assignor limited partner, 86-B has no other business purpose and will not engage in any other activity or incur any debt. (2) Related Parties: Perimeter Center Management Company (a Delaware corporation) (PCMC) is the sole stockholder of 86-B. The general partner of PIP-86 is an affiliate of PCMC. PARTICIPATING INCOME PROPERTIES 1986, L.P. and FFCA INVESTOR SERVICES CORPORATION 86-B -------------------------------- Exhibit Index The following is a complete list of exhibits filed as part of this Form 10-K. For electronic filing purposes only, this report contains Exhibit 27, the Financial Data Schedule. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. -------------------------------- Sequentially Exhibit Numbered Page ------- ------------- 99. Annual Portfolio Valuation of Cushman & Wakefield as of December 31, 1997. Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following document, filed with the Securities and Exchange Commission as Exhibit 4 to the Co-Registrants' Form 10-K for the fiscal year ended December 31, 1989, Commission File No. 0-16720, is incorporated herein by this reference. Second Amended and Restated Certificate and Agreement of Limited Partnership which governs the Partnership, as filed with the Secretary of State of Delaware on April 16, 1987. Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following documents, filed with the Securities and Exchange Commission as exhibits to the Co-Registrants' Form 10-K for the fiscal year ended December 31, 1986, Commission File No. 0-16720, are incorporated herein by this reference.
1986 Form 10-K Exhibit No. ----------- Depositary Agreement of the Partnership. 3-C The Certificate of Incorporation which governs 3-D FFCA Investor Services Corporation 86-B, as filed with the Secretary of State of Delaware on June 23, 1986. Bylaws of FFCA Investor Services Corporation 86-B. 3-E
Pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, the following document, filed with the Securities and Exchange Commission on October 8, 1986 as Exhibit 10(e) to the Co-Registrants' Registration Statement on Form S-11, Registration No. 33-7502, is incorporated herein by this reference. Operating Agreement, dated October 7, 1986, by and among FFCA Management Company, L.P., FFCA/PIP 1986 Property Company, Flying J Inc. and Flying J Franchise Inc. EX-27.1 2 FINANCIAL DATA SCHEDULE FOR 1997 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 797977 PARTICIPATING INCOME PROPERTIES 1986, L.P. 1 U.S. DOLLARS YEAR DEC-31-1997 DEC-31-1997 1 2,402,680 0 262,177 0 0 0 37,069,375 12,253,903 27,480,329 0 0 0 0 0 25,963,374 27,480,329 0 6,297,173 0 2,052,340 0 0 0 4,239,903 0 4,239,903 0 0 0 4,239,903 81.21 0
EX-27.2 3 FINANCIAL DATA SCHEDULE FOR 1997 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET. 797978 FFCA INVESTOR SERVICES CORPORATION 86-B 1 U.S. DOLLARS YEAR DEC-31-1997 DEC-31-1997 1 100 0 0 0 0 0 0 0 200 0 0 0 0 100 0 200 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-99 4 ANNUAL PORTFOLIO VALUATION [CUSHMAN & WAKEFIELD, INC. LETTERHEAD] February 4, 1998 FFCA/PIP 1986 Property Company FFCA Management Company, L.P. 17207 North Perimeter Drive Scottsdale, Arizona 85255 Attn: Morton H. Fleischer General Partner Re: Annual Portfolio Valuation FFCA/PIP 1986 Property Company Gentlemen: Pursuant to your request, we have completed our analysis of properties contained in FFCA/PIP 1986 Property Company. The purpose of our analysis is twofold: to report on the physical condition of the premises and determine the lessee's compliance with the terms of the net lease agreement; and to estimate the market value of the various properties on a going concern basis subject to existing lease encumbrances for the purpose of determining the value of the leased fee interest. The valuation includes equipment lease income for most of the properties. Our opinion of value for the real properties will then be adjusted for cash on hand, notes receivable, net receivables, distributions payable and other liabilities, which information is provided by the General Partner. It should be noted that Cushman & Wakefield's opinion is restricted to the market value of the Partnership's interest in the real properties; we are not opining as to the value of the other assets or liabilities of the Partnership. Furthermore, our opinion is subject to the attached Certification and Assumptions and Limiting Conditions which have been retained in our files. The date of value was December 31, 1997. According to The Dictionary of Real Estate Appraisal, Third Edition, published by the Appraisal Institute, market value may be defined as: "The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress." The real properties that are the subject of this valuation have been inspected by members of Cushman & Wakefield's Valuation Advisory Services Group operating under the supervision of the undersigned. Overall, the properties were viewed to be in good physical condition and generally in compliance with net lease requirements. Individual property data relating to our reinspections will be delivered to you under separate cover and is part of our valuation. Our valuation addresses the market value of the leased fee interest in these properties as a going concern and considers the various net leases in effect. The vast majority of the data used for this analysis has been supplied to us by FFCA Management Company, L.P., and we have relied upon their database input, various reports and financial statements. We have visited their offices in Scottsdale, Arizona and have had complete and unrestricted access to all pertinent information, and have assumed all such information to be accurate and complete. We have verified certain data and resolved any discrepancies by reconciling to Cushman & Wakefield's database. The individual property-by-property database and cash flow projections have been delivered under separate cover and are a part of our valuation. For the purposes of our valuation, we have determined that the highest and best use of the real properties is their continued use as travel plazas. The Income Approach to value is relied upon as the primary appraisal technique based upon the properties' capabilities to generate net income and to be bought and sold in the investment marketplace. Neither the Cost Approach nor the Sales Comparison Approach were considered directly relevant in Cushman & Wakefield, Inc. Mr. Morton H. Fleischer General Partner -2- February 4, 1998 the analysis of a travel plaza under long term lease. Within the Income Approach, the discounted cash flow method was employed, whereby anticipated future income streams over a 10 year holding period and a reversionary value (sale at the end of the tenth year) are discounted via a market derived rate to a net present value estimate utilizing a proprietary cash flow model. Anticipated rental income as well as deductions for management fees and administrative expenses are analyzed over the holding period. Consideration has also been given to direct capitalization of estimated 1998 net income. FFCA/PIP 1986 Property Company contains 11 travel plaza properties that are net leased to CFJ Properties, Flying J. Inc., or franchisees that operate Flying J Travel Plazas. Gross proceeds originally raised by this Partnership amounted to $51,687,000 (51,687 units @ $1,000 per unit). As of December 31, 1997, $2,050,000 of capital was returned to the partners, maintaining the adjusted gross proceeds raised at $49,637,000 or $960.34 per unit. Of this amount, adjusted net proceeds invested in the properties contained in this Partnership amounted to $37,069,375 after adjusting for organization costs and sales commissions. The Partnership was fully invested in September 1988. Considering all of the above factors, it is our opinion that the market value of the leased fee interest in the 11 properties on a going concern basis subject to existing lease encumbrances, as of December 31, 1997, was: FIFTY TWO MILLION ONE HUNDRED THIRTY EIGHT THOUSAND DOLLARS $52,138,000 The aggregate market value of the leased fee interest in the 11 properties is $52,138,000 as adjusted by cash on hand, net receivables and notes receivable of $2,664,857 less distributions payable and other liabilities of $1,533,194 as provided by the General Partner resulting in a total of $53,269,663. This total as of December 31, 1997 represents a 43.70 percent increase above the adjusted net proceeds. Dividing the total value by the 51,687 outstanding units results in an indicated value per unit investment of $1,030.62 which represents an increase of 7.32 percent from the adjusted unit investment of $960.34. The continued favorable performance of the Partnership, in our opinion, is directly attributable to the quality of management and the numerous safeguards built into the acquisition and management program. Our due diligence has revealed that when problems arise, management has acted prudently in avoiding defaults and delinquent rent payments, working effectively with franchisees and franchisors. We certify that neither Cushman & Wakefield, Inc. nor the undersigned have any present or prospective interest in the Partnership's properties, and we have no personal interest or bias with respect to the parties involved. To the best of our knowledge and belief, the facts upon which the analysis and conclusions were based are materially true and correct. No one other than the undersigned assisted by members of our staff who performed inspections of the properties, performed the analyses and reached the conclusions resulting in the opinion expressed in this letter. Our fee for this assignment was not contingent on any action or event resulting from the analysis, opinions or conclusions in, or the use of, this analysis. Our analysis has been prepared subject to the Departure Provision of the Uniform Standards of Professional Practice of the Appraisal Foundation and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. The use of this restricted appraisal report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. As of the date of this report, the undersigned have completed the requirements of the continuing education program of the Appraisal Institute. Respectfully submitted, Cushman & Wakefield, Inc. /s/ Matthew C. Mondanile /s/ Brian R. Corcoran /s/ Frank P. Liantonio Matthew C. Mondanile, MAI Brian R. Corcoran, MAI, CRE Frank P. Liantonio, MAI, CRE Senior Director Executive Managing Director Executive Managing Director Valuation Advisory Services Valuation Advisory Services Valuation Advisory Services
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