FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1999
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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
0-23974
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CNL Income Fund XIV, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3143096
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1999 1998
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<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on building $ 26,345,787 $ 26,509,264
Net investment in direct financing leases 7,276,175 7,300,102
Investment in joint ventures 3,863,338 3,813,175
Cash and cash equivalents 763,678 949,056
Receivables, less allowance for doubtful accounts
of $1,105 in 1999 and 1998 36,238 62,824
Prepaid expenses 18,775 8,389
Lease costs, less accumulated amortization of
$1,073 in 1999 31,927 --
Accrued rental income, less allowance for doubtful
accounts of $12,622 in 1999 and 1998 1,987,635 1,895,349
------------------- -------------------
$ 40,323,553 $ 40,538,159
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 34,464 $ 2,577
Accrued and escrowed real estate taxes payable 10,703 18,198
Distributions payable 928,130 928,130
Due to related party 24,708 25,432
Rents paid in advance and deposits 66,659 88,098
------------------- -------------------
Total liabilities 1,064,664 1,062,435
Commitment (Note 4)
Partners' capital 39,258,889 39,475,724
------------------- -------------------
$ 40,323,553 $ 40,538,159
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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<S> <C>
Revenues:
Rental income from operating leases $ 706,805 $ 717,277
Earned income from direct financing leases 199,166 242,219
Interest and other income 10,520 20,979
--------------- --------------
916,491 980,475
--------------- --------------
Expenses:
General operating and administrative 48,343 36,303
Professional services 7,784 6,182
Management fees to related party 9,544 9,506
Real estate taxes 4,874 3,450
State and other taxes 30,354 20,996
Depreciation and amortization 103,926 85,053
Transaction costs 33,175 --
--------------- --------------
238,000 161,490
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Income Before Equity in Earnings of Joint
Ventures, Gain on Sale of Land, and Provision
for Loss on Building 678,491 818,985
Equity in Earnings of Joint Ventures 93,686 82,505
Gain on Sale of Land -- 70,798
Provision for Loss on Building (60,882 ) --
--------------- --------------
Net Income $ 711,295 $ 972,288
=============== ==============
Allocation of Net Income:
General partners $ 7,468 $ 9,014
Limited partners 703,827 963,274
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$ 711,295 $ 972,288
=============== ==============
Net Income Per Limited Partner Unit $ 0.16 $ 0.21
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 4,500,000 4,500,000
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
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<S> <C>
General partners:
Beginning balance $ 177,733 $ 146,640
Net income 7,468 31,093
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185,201 177,733
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Limited partners:
Beginning balance 39,297,991 39,842,517
Net income 703,827 3,167,994
Distributions ($0.21 and $0.83 per
limited partner unit, respectively) (928,130 ) (3,712,520 )
------------------- ------------------
39,073,688 39,297,991
------------------- ------------------
Total partners' capital $ 39,258,889 $ 39,475,724
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $819,872 $1,050,016
--------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building -- 1,208,732
Investment in joint ventures (44,120 ) (84,992 )
Increase in restricted cash -- (1,208,732 )
Payment of lease costs (33,000 ) --
--------------- --------------
Net cash used in investing activities (77,120 ) (84,992 )
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Cash Flows from Financing Activities:
Distributions to limited partners (928,130 ) (928,130 )
--------------- --------------
Net cash used in financing activities (928,130 ) (928,130 )
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Net Increase (Decrease) in Cash and Cash Equivalents (185,378 ) 36,894
Cash and Cash Equivalents at Beginning of Quarter 949,056 1,285,777
--------------- --------------
Cash and Cash Equivalents at End of Quarter $ 763,678 $1,322,671
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 928,130 $ 928,130
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XIV, Ltd. (the "Partnership") for the year ended December
31, 1998.
2. Land and Building on Operating Leases:
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------- --------------------
<S> <C>
Land $ 16,195,936 $ 16,195,936
Buildings 12,024,577 12,024,577
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28,220,513 28,220,513
Less accumulated
depreciation (1,776,689 ) (1,674,094 )
--------------------- --------------------
26,443,824 26,546,419
Less allowance for
loss on building (98,037 ) (37,155 )
--------------------- --------------------
$ 26,345,787 $ 26,509,264
===================== ====================
</TABLE>
At December 31, 1998, the Partnership recorded a provision for loss on
building in the amount of $37,155 for financial reporting purposes
relating to the Long John Silver's property in Shelby, North Carolina.
The tenant of this property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement. The allowance represents
the difference between the carrying value of the property at December
31, 1998 and the estimated net realizable value for the property.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
2. Land and Building on Operating Leases - Continued:
In addition, at March 31, 1999, the Partnership recorded a provision
for loss on building in the amount of $60,882 for financial reporting
purposes relating to the Long John Silver's property in Stockbridge,
Georgia. The tenant of this property filed for bankruptcy and ceased
payment of rents under the terms of its lease agreement. The allowance
represents the difference between the carrying value of the Property at
March 31, 1999 and the estimated net sales proceeds from the sale of
the property based on a purchase and sales contract with an unrelated
third party (see Note 4).
3. Merger Transaction:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 4,313,041 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous offerings, the most
recent of which was completed in December 1998. In order to assist the
general partners in evaluating the proposed merger consideration, the
general partners retained Valuation Associates, a nationally recognized
real estate appraisal firm, to appraise the Partnership's restaurant
property portfolio. Based on Valuation Associates' appraisal, the
Partnership's property portfolio and other assets were valued on a
going concern basis (meaning the Partnership continues unchanged) at
$42,435,559 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. If the limited partners at the
special meeting approve the Merger, APF will own the properties and
other assets of the Partnership. The general partners intend to
recommend that the limited partners of the Partnership approve the
Merger. In connection with their recommendation, the general partners
will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
<PAGE>
CNL INCOME FUND XIV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Merger Transaction - Continued:
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
4. Commitment:
In February 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in
Stockbridge, Georgia. At March 31, 1999, the Partnership established a
provision for loss on building related to the anticipated sale of this
property (see Note 2). As of May 13, 1999, the sale had not occurred.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CNL Income Fund XIV, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on September 25, 1992, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
generally are triple-net leases, with the lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of March 31, 1999, the
Partnership owned 57 Properties, which included interests in ten Properties
owned by joint ventures in which the Partnership is a co-venturer.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 1999 and 1998, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $819,872 and
$1,050,016 for the quarters ended March 31, 1999 and 1998, respectively. The
decrease in cash from operations for the quarter ended March 31, 1999, as
compared to the quarter ended March 31, 1998, is primarily a result of changes
in income and expenses as described in "Results of Operations" below and changes
in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
In April 1998, the Partnership reinvested a portion of the net sales
proceeds from the 1998 sale of the Property in Madison, Alabama, in a joint
venture arrangement, Melbourne Joint Venture, with an affiliate of the general
partners, to construct and hold one restaurant Property. As of March 31, 1999,
the Partnership had contributed approximately $539,100, of which approximately
$44,100 was contributed during the quarter ended March 31, 1999, to the joint
venture to purchase land and pay for construction costs relating to the joint
venture. As of March 31, 1999 the Partnership owned a 50 percent interest in the
profits and losses of the joint venture.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At March 31, 1999, the Partnership had $763,678
invested in such short-term investments, as compared to $949,056 at December 31,
1998. The funds remaining at March 31, 1999 will be used to pay distributions
and other liabilities.
<PAGE>
Liquidity and Capital Resources - Continued
Total liabilities of the Partnership, including distributions payable,
increased to $1,034,664 at March 31, 1999, from $1,062,435 at December 31, 1998.
Total liabilities at March 31, 1999, to the extent they exceed cash and cash
equivalents at March 31, 1999, will be paid from future cash from operations,
and in the event the general partners elect to make additional contributions,
from future general partner contributions.
In February 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's Property in Stockbridge,
Georgia. At March 31, 1999, the Partnership established a provision for loss on
building related to the anticipated sale of this Property. As of May 13, 1999,
the sale had not occurred.
Based on cash from operations and for the quarter ended March 31, 1999,
future cash from operations, the Partnership declared distributions to the
limited partners of $928,130 for each of the quarters ended March 31, 1999 and
1998. This represents distributions for each applicable quarter of $0.21 per
unit. No distributions were made to the general partners for the quarters ended
March 31, 1999 and 1998. No amounts distributed to the limited partners for the
quarters ended March 31, 1999 and 1998, are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
limited partners' return on their adjusted capital contribution. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. APF has agreed to issue 4,313,041 APF Shares which, for the purposes
of valuing the merger consideration, have been valued by APF at $10.00 per APF
Share, the price paid by APF investors in three previous offerings, the most
recent of which was completed in December 1998. In order to assist the general
partners in evaluating the proposed merger consideration, the general partners
retained Valuation Associates, a nationally recognized real estate appraisal
firm,
<PAGE>
Liquidity and Capital Resources - Continued
to appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $42,435,559 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share consideration,
payable by APF, is fair to the Partnership from a financial point of view. The
APF Shares are expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and therefore, would be freely
tradable at the option of the former limited partners. At a special meeting of
the partners that is expected to be held in the third quarter of 1999, limited
partners holding in excess of 50% of the Partnership's outstanding limited
partnership interests must approve the Merger prior to consummation of the
transaction. If the limited partners at the special meeting approve the Merger,
APF will own the Properties and other assets of the Partnership. The general
partners intend to recommend that the limited partners of the Partnership
approve the Merger. In connection with their recommendation, the general
partners will solicit the consent of the limited partners at the special
meeting. If the limited partners reject the Merger, the Partnership will bear
the portion of the transaction costs based upon the percentage of "For" votes
and the general partners will bear the portion of such transaction costs based
upon the percentage of "Against" votes and abstentions.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarter ended March 31, 1998, the Partnership owned and
leased 49 wholly owned Properties (which included three Properties which were
sold during 1998), and during the quarter ended March 31, 1999, the Partnership
owned and leased 47 wholly owned Properties to operators of fast-food and
family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 1999 and 1998, the Partnership earned $905,972 and $959,496,
respectively, in rental income from operating leases and earned income from
direct financing leases from these Properties. The decrease in rental and earned
income during the quarter ended March 31, 1999, as compared to the quarter ended
March 31, 1998, is primarily attributable to a decrease of approximately $91,200
due to the fact that in June 1998, Long John Silver's, Inc. filed for bankruptcy
and rejected the leases relating to four of the nine Properties leased by Long
John Silver's, Inc. As a result, this tenant ceased making rental payments on
the four rejected leases. The Partnership has continued receiving rental
payments relating to the leases not rejected by the tenant. The Partnership has
entered into new leases, each with a new tenant, for two of the four vacant
Properties. In connection therewith, the tenant for each Property has agreed to
pay for all costs necessary to convert these Properties into different
restaurant concepts. Conversion of one of these Properties was completed in
March 1999, at which time rental payments commenced, and conversion of the
second Property is expected to be completed
<PAGE>
Results of Operations - Continued
during the second quarter of 1999, at which time rental payments are expected to
commence for that Property. The Partnership will not recognize any rental and
earned income from these two remaining vacant Properties until replacement
tenants for these Properties are located, or until the Properties are sold and
proceeds from such sales are reinvested in additional Properties. The general
partners are currently seeking either replacement tenants or purchasers for the
two remaining, vacant Properties. While Long John Silver's, Inc. has not
rejected or affirmed the remaining five leases, there can be no assurance that
some or all of these leases will not be rejected in the future. The lost
revenues resulting from the two remaining vacant Properties, as described above,
and the possible rejection of the remaining five leases could have an adverse
effect on the results of operations of the Partnership, if the Partnership is
not able to re-lease these Properties in a timely manner.
In addition, rental and earned income decreased by approximately
$16,100 during the quarter ended March 31, 1999, as compared to the quarter
ended March 31, 1998, as a result of the 1998 sales of the Properties in
Madison, Alabama and Richmond, Virginia. The decrease in rental and earned
income was partially offset by the fact in October 1998, the Partnership
reinvested the majority of the net sales proceeds from the sale of the above
Properties in a Property in Fayetteville, North Carolina. The Partnership
reinvested the remaining net sales proceeds from the sale of the above
Properties in Melbourne Joint Venture, as described below.
In addition, during the quarters ended March 31, 1999 and 1998, the
Partnership owned and leased ten and nine Properties indirectly through joint
venture arrangements, respectively. In connection therewith, during the quarters
ended March 31, 1999 and 1998, the Partnership earned $93,686 and $82,505,
respectively, attributable to net income earned by these joint ventures. The
increase in net income earned by joint ventures during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, is primarily
attributable to the Partnership investing in Melbourne Joint Venture in April
1998.
In addition, during the quarters ended March 31, 1999 and 1998, the
Partnership earned $10,520 and $20,979, respectively in interest and other
income. Interest and other income during the quarter ended March 31, 1998 was
higher than that earned during the quarter ended March 31, 1999, primarily due
to the fact that the Partnership earned interest on the net sales proceeds
relating to the sales of two Properties during 1998, as described above, pending
the reinvestment of the net sales proceeds in additional Properties. These net
sales proceeds were reinvested in October 1998.
Operating expenses, including depreciation and amortization expense,
were $238,000 and $161,490 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, is primarily
attributable to the fact that during the quarter ended March 31, 1999, the
Partnership accrued insurance and real estate tax expenses as a result of Long
John Silver's, Inc. filing for bankruptcy and rejecting the leases relating to
four Properties in June 1998, as described above. In addition, the increase in
operating expenses during the quarter ended March 31, 1999, is partially
attributable to an increase in depreciation expense due to the
<PAGE>
Results of Operations - Continued
fact that during 1998, the Partnership reclassified these assets from net
investment in direct financing leases to land and buildings on operating leases.
The Partnership has entered into new leases, each with a new tenant, for two of
the four rejected Properties, as described above. The new tenants are
responsible for real estate taxes, insurance, and maintenance relating to the
respective Properties; therefore, the general partners do not anticipate the
Partnership will incur these expenses for these two Properties in the future.
However, the Partnership will continue to incur certain expenses, such as real
estate taxes, insurance and maintenance relating to the two remaining, vacant
Properties until new tenants or purchasers are located. The Partnership is
currently seeking either new tenants or purchasers for these Properties. In
addition, the Partnership will incur certain expenses such as real estate taxes,
insurance, and maintenance relating to one or more of the five Properties still
leased by Long John Silver's, Inc. if one or more of the leases are rejected.
In addition, the increase in operating expenses during the quarter
ended March 31, 1999, as compared to the quarter ended March 31, 1998, is also
partially due to the fact that the Partnership incurred $33,175 in transaction
costs related to the general partners retaining financial and legal advisors to
assist them in evaluating and negotiating the proposed Merger with APF, as
described above in "Liquidity and Capital Resources." If the limited partners
reject the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners will
bear the portion of such transaction costs based upon the percentage of
"Against" votes and abstentions.
In addition, the increase in operating expenses during the quarter
ended March 31, 1999 is partially attributable to an increase in state taxes due
to the Partnership incurring additional state taxes due to changes in tax laws
of a state in which the Partnership conducts business.
At March 31, 1999, the Partnership recorded a provision for loss on
building in the amount of $60,882 for financial reporting purposes relating to a
Long John Silver's Property in Stockbridge, Georgia whose lease was rejected by
the tenant, as described above. The tenant of this Property filed for bankruptcy
and ceased payment of rents under the terms of its lease agreement. The
allowance represents the difference between the carrying value of the Property
at March 31, 1999 and the estimated net sales proceeds from the sale of the
Property based on a purchase and sales contract with an unrelated third party.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. The Partnership does not have any
information or non-information technology systems. The general partners and
affiliates of the general partners provide all services requiring the use of
information and non-information technology systems pursuant to a management
agreement with the Partnership. The information technology system of the
affiliates of the general partners consists of a network of personal computers
and servers built using hardware and software from
<PAGE>
Year 2000 Readiness Disclosure - Continued
mainstream suppliers. The non-information technology systems of the affiliates
of the general partners are primarily facility related and include building
security systems, elevators, fire suppressions, HVAC, electrical systems and
other utilities. The affiliates of the general partners have no internally
generated programmed software coding to correct, because substantially all of
the software utilized by the general partners and affiliates is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Partnership's Properties is the responsibility of the tenants of
the Properties in accordance with the terms of the Partnership's leases.
In early 1998, the general partners and affiliates formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the Year 2000 problem. The Y2K
Team consists of the general partners and members from the affiliates of the
general partners, including representatives from senior management, information
systems, telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the Companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect all of these upgrades, as well as any other necessary remedial measures
on the information technology systems used in the business activities and
<PAGE>
Year 2000 Readiness Disclosure - Continued
operations of the Partnership, to be completed by September 30, 1999, although,
the general partners cannot be assured that the upgrade solutions provided by
the vendors have addressed all possible Year 2000 issues. The general partners
do not expect the aggregate cost of the Year 2000 remedial measures to be
material to the results of operations of the Partnership.
The general partners and affiliates have received certification from
the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates would have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and affiliates have made
in addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, they have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIV, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-53672-01 on Form S-11 and incorporated herein
by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XIV, Ltd. (Included as
Exhibit 3.2 to Registration Statement No.
33-53672-01 on Form S-11 and incorporated herein
by reference.)
<PAGE>
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XIV, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on April
13, 1994, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund
XIV, Ltd. and CNL Investment Company (Included
as Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on April 13,
1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors,
Inc. (Included as Exhibit 10.2 to Form 10-K
filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors,
Inc. (Included as Exhibit 10.3 to Form 10-K
filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed Merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 1999
CNL INCOME FUND XIV, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund XIV, Ltd. at March 31, 1999, and its statement of
income for the three months then ended and is qualified in its entirety by
reference to the Form 10Q of CNL Income Fund XIV, Ltd. for the three months
ended March 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 763,678
<SECURITIES> 0
<RECEIVABLES> 37,343
<ALLOWANCES> 1,105
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 28,122,476
<DEPRECIATION> 1,776,689
<TOTAL-ASSETS> 40,323,553
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,258,889
<TOTAL-LIABILITY-AND-EQUITY> 40,323,553
<SALES> 0
<TOTAL-REVENUES> 916,491
<CGS> 0
<TOTAL-COSTS> 238,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 711,295
<INCOME-TAX> 0
<INCOME-CONTINUING> 711,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 711,295
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XIV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
