<PAGE>
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 September 30, 1999
---------------------------------------------
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
0-26216
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CNL Income Fund XV, Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3198888
- --------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------
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
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<PAGE>
CONTENTS
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Part II
Other Information 16-18
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<TABLE>
<CAPTION>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
1999 1998
--------------- ---------------
ASSETS
------
<S> <C> <C>
Land and buildings on operating leases, less accumulated depreciation of
$1,291,496 and $1,080,652 in 1999 and 1998, respectively, and allowance for
loss on land and building of $269,078 and $280,907 in 1999 and 1998,
respectively $ 22,625,732 $ 23,173,909
Net investment in direct financing leases 7,696,331 7,589,694
Investment in joint ventures 2,742,927 2,743,450
Cash and cash equivalents 1,011,581 1,214,444
Receivables, less allowance for doubtful
accounts of $217 and $849 in 1999 and 1998,
respectively 28,041 62,465
Prepaid expenses 14,743 9,627
Organization costs, less accumulated
amortization of $10,000 and $9,549 in 1999 and
1998, respectively -- 451
Accrued rental income 1,808,073 1,565,014
--------------- ---------------
$ 35,927,428 $ 36,359,054
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable $ 122,308 $ 592
Accrued and escrowed real estate taxes payable 28,467 16,019
Distributions payable 800,000 800,000
Due to related party 10,627 23,337
Rents paid in advance and deposits 23,743 53,206
--------------- ---------------
Total liabilities 985,145 893,154
Commitments and Contingencies (Note 4)
Partners' capital 34,942,283 35,465,900
--------------- ---------------
$ 35,927,428 $ 36,359,054
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from operating leases $ 596,269 $ 613,294 $ 1,784,734 $ 1,849,278
Adjustments to accrued rental income -- -- -- (250,631)
Earned income from direct financing leases 214,027 219,480 633,755 726,544
Interest and other income 9,591 12,045 29,705 51,682
---------- ---------- ----------- -----------
819,887 844,819 2,448,194 2,376,873
---------- ---------- ----------- -----------
Expenses:
General operating and administrative 35,006 40,231 109,688 107,194
Professional services 9,431 5,358 31,652 18,867
Management fees to related party 8,366 8,180 24,510 25,475
Real estate taxes 7,507 28,562 24,227 31,208
State and other taxes -- -- 30,305 27,763
Depreciation and amortization 72,598 80,468 223,145 204,668
Transaction costs 56,015 -- 163,312 --
---------- ---------- ----------- -----------
188,923 162,799 606,839 415,175
---------- ---------- ----------- -----------
Income Before Equity in Earnings of Joint
Ventures and Provision for Loss on
Building 630,964 682,020 1,841,355 1,961,698
Equity in Earnings of Joint Ventures 66,796 59,208 190,724 179,502
Provision for Loss on Building (23,250) -- (155,696) --
---------- ---------- ----------- -----------
Net Income $ 674,510 $ 741,228 $ 1,876,383 $ 2,141,200
========== ========== =========== ===========
Allocation of Net Income:
General partners $ 6,881 $ 7,412 $ 19,698 $ 21,412
Limited partners 667,629 733,816 1,856,685 2,119,788
---------- ---------- ----------- -----------
$ 674,510 $ 741,228 $ 1,876,383 $ 2,141,200
========== ========== =========== ===========
Net Income Per Limited Partner Unit $ 0.17 $ 0.18 $ 0.46 $ 0.53
========== ========== =========== ===========
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
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<TABLE>
<CAPTION>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
General partners:
Beginning balance $ 145,629 $ 117,411
Net income 19,698 28,218
-------------------- --------------------
165,327 145,629
-------------------- --------------------
Limited partners:
Beginning balance 35,320,271 36,105,992
Net income 1,856,685 2,614,279
Distributions ($0.60 and $0.85 per
limited partner unit, respectively) (2,400,000) (3,400,000)
-------------------- --------------------
34,776,956 35,320,271
-------------------- --------------------
Total partners' capital $ 34,942,283 $ 35,465,900
==================== ====================
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
<S> <C> <C>
Net Cash Provided by Operating Activities $2,197,137 $2,415,807
------------- -------------
Cash Flows from Investing Activities:
Investment in joint venture -- (207,986)
------------- -------------
Net cash used in investing activities -- (207,986)
------------- -------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,400,000) (2,600,000)
------------- -------------
Net cash used in financing activities (2,400,000) (2,600,000)
------------- -------------
Net Decrease in Cash and Cash Equivalents (202,863) (392,179)
Cash and Cash Equivalents at Beginning of Period 1,214,444 1,614,708
------------- -------------
Cash and Cash Equivalents at End of Period $1,011,581 $1,222,529
============= =============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 800,000 $ 800,000
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 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 and nine months ended September 30, 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 XV, Ltd. (the "Partnership") for the year ended December 31,
1998.
2. Land and Building on Operating Leases:
--------------------------------------
As of September 30, 1999, the Partnership had recorded a provision for
loss on building in the amount of $155,696 for financial reporting
purposes relating the Long John Silver's property in Gastonia, North
Carolina. The tenant of this property filed for bankruptcy during 1998
and ceased payment of rents under the terms of its lease agreement. The
total allowance represents the difference between the carrying value of
the property at September 30, 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 3).
During the nine months ended September 30, 1999, the Partnership's
property in Lancaster, South Carolina was re-leased to a new operator.
In accordance with Statement of Financial Accounting Standards #13,
"Accounting for Leases," the Partnership classified the land portion of
this property as an operating lease while the building was classified as
net investment in direct financing lease.
3. Related Party Transactions:
---------------------------
On September 1, 1999, CNL American Properties Fund, Inc. ("APF"), an
affiliate of the general partners, acquired CNL Fund Advisors, Inc.
("CFA"), an affiliate who provides certain services relating to
management of the Partnership and its properties pursuant to a
management agreement with the Partnership. As a result of this
acquisition, CFA became a wholly owned subsidiary of APF; however, the
terms of the management agreement between the Partnership and CFA remain
unchanged and in effect.
5
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1999 and 1998
4. Commitments and Contingencies:
------------------------------
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
1,866,951 shares of its common stock, par value $0.01 per share (the
"APF Shares"). 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 fair value of the Partnership's
property portfolio and other assets was $36,726,950 as of December 31,
1998. 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 first quarter of 2000, 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in certain
of the CNL Income Funds served a lawsuit against the general partners,
APF, CNL Fund Advisors, Inc. and certain of its affiliates in connection
with the proposed Merger. On September 23, 1999, the judge assigned to
the two lawsuits entered an order consolidating the two cases. Pursuant
to this order, the plaintiffs in these cases filed a consolidated and
amended complaint on November 8, 1999. The various defendants, including
the general partners, have 45 days to respond to that consolidated
complaint. The general partners and APF believe that the lawsuits are
without merit and intend to defend vigorously against the claims. See
Part II - Item 1. Legal Proceedings.
6
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1999 and 1998
4. Commitments and Contingencies - Continued:
------------------------------------------
In June 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in
Gastonia, North Carolina. As of September 30, 1999, the Partnership had
established a provision for loss on building in the amount of $155,696
related to the anticipated sale of this property (see Note 2). As of
November 5, 1999, the sale had not occurred.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XV, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on September 2, 1993, 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 September 30, 1999,
the Partnership owned 50 Properties, which included interests in six Properties
owned by a joint venture in which the Partnership is a co-venturer and two
Properties owned with affiliates of the general partners as tenants-in-common.
Capital Resources
- -----------------
The Partnership's primary source of capital for the nine months ended
September 30, 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
$2,197,137 and $2,415,807 for the nine months ended September 30, 1999 and 1998,
respectively. The decrease in cash from operations for the nine months ended
September 30, 1999, as compared to the nine months ended September 30, 1998, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Currently, cash reserves and rental income from the Partnership's
Properties are invested in money market accounts or other short-term, highly
liquid investments such as demand deposits at commercial banks, certificates of
deposit, and money market accounts with less than a 30-day maturity date,
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At September 30, 1999, the Partnership had
$1,011,581 invested in such short-term investments, as compared to $1,214,444 at
December 31, 1998. The funds remaining at September 30, 1999, after payment of
distributions and other liabilities, will be used meet the Partnership's working
capital and other needs.
Short-Term Liquidity
- --------------------
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
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.
8
<PAGE>
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, and for the nine
months ended September 30, 1998, accumulated excess operating reserves, the
Partnership declared distributions to limited partners of $2,400,000 and
$2,600,000 for the nine months ended September 30, 1999 and 1998, respectively
($800,000 for each of the quarters ended September 30, 1999 and 1998). This
represents distributions of $0.60 and $0.65 per unit for the nine months ended
September 30, 1999 and 1998, respectively ($0.20 for each of the quarters ended
September 30, 1999 and 1998). No distributions were made to the general partners
for the quarters and nine months ended September 30, 1999 and 1998. No amounts
distributed to the limited partners for the nine months ended September 30, 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 contributions. The Partnership intends to continue to make
distributions of cash available for distribution to the limited partners on a
quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $985,145 at September 30, 1999, from $893,154 at December 31, 1998,
primarily as a result of the Partnership accruing transaction costs relating to
the proposed merger with CNL American Properties Fund, Inc. ("APF"), as
described below. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
In June 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's Property in Gastonia, North
Carolina. As of November 5, 1999, the sale had not occurred.
Long-Term Liquidity
- -------------------
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
- ---------------------
During each of the nine months ended September 30, 1999 and 1998, the
Partnership owned and leased 42 wholly owned Properties to operators of
fast-food and family-style restaurant chains. During the nine months ended
September 30, 1999 and 1998, the Partnership earned $2,418,489 and $2,325,191,
respectively, in rental income from operating leases (net of adjustments to
accrued rental income) and earned income from direct financing leases from these
Properties, $810,296 and $832,774 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively. Rental and earned income was lower
during the nine months ended September 30, 1998, as compared to the nine months
ended September 30, 1999, primarily 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 eight Properties it leased. As a result, during the nine months ended
September 30, 1998, the Partnership wrote off $250,631 in accrued rental income
(non-cash accounting adjustment relating to the straight-lining of future
scheduled rent increases over the lease term in accordance with generally
accepted accounting principles) relating to these Properties. No amounts were
written off during the nine months ended September 30, 1999.
9
<PAGE>
The effect from the write-off of accrued rental income was partially offset by
the fact that the Partnership recorded rental and earned income during the nine
months ended September 30, 1998, prior to the tenant vacating the Properties in
June 1998. In May 1999, the Partnership re-leased one of the Properties with a
rejected lease and rental payments commenced in July 1999. The Partnership will
not recognize rental and earned income from the three remaining Properties with
rejected leases until new tenants for these Properties are located or until the
Properties are sold and the proceeds from such sales are reinvested in
additional Properties. In August 1999, Long John Silver's, Inc. assumed and
affirmed its four remaining leases, and the Partnership has continued receiving
rental payments relating to these four leases.
For the quarter and nine months ended September 30, 1999 and 1998, the
Partnership also owned and leased six Properties indirectly through one joint
venture arrangement and two Properties as tenants-in-common with affiliates of
the general partners. In connection therewith, during the nine months ended
September 30, 1999 and 1998, the Partnership earned $190,724 and $179,502,
respectively, $66,796 and $59,208 of which was earned during the quarters ended
September 30, 1999 and 1998, respectively.
Operating expenses, including depreciation and amortization expense,
were $606,839 and $415,175 for the nine months ended September 30, 1999 and
1998, respectively, $188,923 and $162,799 of which was incurred during the
quarters ended September 30, 1999 and 1998, respectively. The increase in
operating expenses during the nine months ended September 30, 1999, as compared
to the nine months ended September 30, 1998, was partially attributable to an
increase in depreciation expense due to the fact that during the quarter ended
June 30, 1998 the Partnership reclassified assets from net investment in direct
financing leases to land and buildings on operating leases as a result of Long
John Silver's, Inc. filing for bankruptcy and rejecting the leases relating to
four Properties. In May 1999, the Partnership re-leased one of the Properties
with a rejected lease. During the nine months ended September 30, 1999 and 1998,
the Partnership incurred certain expenses, such as real estate taxes, insurance,
and maintenance relating to the four Properties whose leases were rejected by
the tenant, as described above. The Partnership will continue to incur certain
expenses, such as real estate taxes, insurance and maintenance relating to the
Properties with rejected leases until replacement tenants or purchasers are
located. Due to the fact that Long John Silver's, Inc. assumed and affirmed its
four remaining leases, as described above, Long John Silver's, Inc. will be
responsible for such expenses relating to these Properties; therefore, the
general partners do not anticipate that the Partnership will incur these
expenses, for these Properties, in the future.
The increase in operating expenses for the quarter and nine months ended
September 30, 1999 was also partially due to the fact that the Partnership
incurred $56,015 and $163,312 in transaction costs for the quarter and nine
months ended September 30, 1999, respectively, related to the general partners
retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed merger with APF, as described below. 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.
10
<PAGE>
During the six months ended June 30, 1999, the Partnership recorded a
provision for loss on building by $132,446 for financial reporting purposes
relating to a Long John Silver's Property in Gastonia, North Carolina, the lease
for which was rejected by the tenant in June 1998, as described above. At
September 30, 1999, the Partnership increased the provision for loss on building
by $23,250 for this Property. The impairment represents the difference between
the carrying value of the Property at September 30, 1999 and the estimated net
sales proceeds of the Property based on a purchase and pending sales contract
with an unrelated third party as described in "Short-Term Liquidity". No such
provision for loss was recorded for quarter and nine months ended September 30,
1998.
Proposed Merger
- ---------------
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with 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 1,866,951 shares of its common stock, par value $0.01 per share
(the "APF Shares"). 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 fair value of the Partnership's property portfolio and other
assets was $36,726,950 as of December 31, 1998. 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 first quarter of 2000, 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF, CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. On September 23, 1999, the
judge assigned to the two lawsuits entered an order consolidating the two cases.
Pursuant to this order, the plaintiffs in these cases filed a consolidated and
amended complaint on November 8, 1999. The various defendants, including the
general partners, have 45 days to respond to that consolidated complaint. The
general partners and APF believe that the lawsuits are without merit and intend
to defend vigorously against the claims. See Part II - Item 1. Legal
Proceedings.
11
<PAGE>
Year 2000 Readiness Disclosure
- ------------------------------
Overview of Year 2000 Problem
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 failure to accurately
recognize the year 2000 could result in a variety of problems from data
miscalculations to the failure of entire systems.
Information and Non-Information Technology Systems
The Partnership does not have any information or non-information
technology systems. The general partners and their affiliates 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 general partners' affiliates consists of a network of
personal computers and servers built using hardware and software from mainstream
suppliers. The non-information technology systems of the affiliates are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
have no internally generated programmed software coding to correct, because
substantially all of the software utilized by the affiliates is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Partnership's restaurant properties is the responsibility of the
tenants of such properties in accordance with the terms of the Partnership's
leases.
The Y2K Team
In early 1998, the general partners and their 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 their affiliates,
including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management.
Assessing Year 2000 Readiness
The Y2K Team's initial step in assessing year 2000 readiness consisted
of identifying any systems that are date-sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections, interviews
and tests to identify which of the systems used by the Partnership could have a
potential year 2000 problem.
The information system of the general partners' affiliates is comprised
of hardware and software applications from mainstream suppliers. Accordingly,
the Y2K Team has contacted and is evaluating documentation from the respective
vendors and manufacturers to verify the year 2000 compliance of their products.
The Y2K Team has also requested and is evaluating documentation from the
non-information technology systems providers of the affiliates.
12
<PAGE>
In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Partnership has material third party
relationships. Such third parties, in addition to the providers of information
and non-information technology systems, consist of the Partnership's transfer
agent and financial institutions. The Partnership depends on its transfer agent
to maintain and track investor information and its financial institutions for
availability of cash.
As of September 30, 1999, the Y2K Team had received responses from
approximately 62 percent of the third parties. All of the responses were in
writing. Of the third parties responding, all indicated that they are currently
year 2000 compliant or will be year 2000 compliant prior to the year 2000.
Although the Y2K Team continues 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 third parties
have adequately considered the impact of the year 2000.
In addition, the Y2K Team has requested documentation from the
Partnership's tenants. As of September 30, 1999, the Y2K Team had received
responses from approximately 80 percent of the tenants. All of the responses
were in writing. Of the tenant's responding, all indicated that they are
currently year 2000 compliant or will be year 2000 compliant prior to the year
2000. The general partners cannot be assured that the tenants have adequately
considered the impact of the year 2000. The Partnership has also instituted a
policy of requiring any new tenants to indicate that their systems are year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Achieving Year 2000 Compliance
The Y2K Team has identified and completed upgrades for its hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the general partners cannot be assured that the
upgrade solutions provided by the vendors have addressed all possible year 2000
issues.
The cost for these upgrades and other remedial measures is the
responsibility of the general partners and their affiliates. The general
partners do not expect that the Partnership will incur any costs in connection
with year 2000 remedial measures.
Assessing the Risks to the Partnership of Non-Compliance and Developing
Contingency Plans
Risk of Failure of Information and Non-Information Technology Systems Used by
the Partnership
The general partners believe that the reasonably likely worst case
scenario with regard to the information and non-information technology systems
used by the Partnership is the failure of one or more of these systems as a
result of year 2000 problems. Because the Partnership's major source of income
is rental payments under long-term triple-net leases, any failure of information
or non-information technology systems used by the Partnership is not expected to
have a material
13
<PAGE>
impact on the results of operations of the Partnership. Even if such systems
failed, the payment of rent under the Partnership's leases would not be
affected. In addition, the Y2K Team is expected to correct any Y2K problems
within the control of the general partners and their affiliates before the year
2000.
The Y2K Team has determined that a contingency plan to address this risk
is not necessary at this time. However, if the Y2K Team identifies additional
risks associated with the year 2000 compliance of the information or
non-information technology systems used by the Partnership, the Y2K Team will
develop a contingency plan if deemed necessary at that time.
Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records
The general partners believe that the reasonably likely worst case
scenario with regard to the Partnership's transfer agent is that the transfer
agent will fail to achieve year 2000 compliance of its systems and will not be
able to accurately maintain the records of the Partnership. This could result in
the inability of the Partnership to accurately identify its limited partners for
purposes of distributions, delivery of disclosure materials and transfer of
units. The Y2K Team has received certification from the Partnership's transfer
agent of its year 2000 compliance. Despite the positive response from the
transfer agent, the general partners cannot be assured that the transfer agent
has addressed all possible year 2000 issues.
The Y2K Team has developed a contingency plan pursuant to which the
general partners and their affiliates would maintain the records of the
Partnership manually, 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 results of operations of the
Partnership.
Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance
The general partners believe that the reasonably likely worst case
scenario with regard to the Partnership's financial institutions is that some or
all of its funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 93% of the Partnership's
financial institutions indicating that their systems are currently year 2000
compliant or are expected to be year 2000 compliant prior to the year 2000.
Despite the positive responses from the financial institutions, the general
partners cannot be assured that the financial institutions have addressed all
possible year 2000 issues. The loss of short-term liquidity could affect the
Partnership's ability to pay its expenses on a current basis. The general
partners do not anticipate that a loss of short-term liquidity would have a
material impact on the results of operations of the Partnership.
Based upon the responses received from the Partnership's financial
institutions and the inability of the Y2K Team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.
14
<PAGE>
Risks of Late Payment or Non-Payment of Rent by Tenants
The general partners believe that the reasonably likely worst case
scenario with regard to the Partnership's tenants is that some of the tenants
may make rental payments late as the result of the failure of the tenants to
achieve year 2000 compliance of their systems used in the payment of rent, the
failure of the tenant's financial institutions to achieve year 2000 compliance,
or the temporary disruption of the tenants' businesses. The Y2K Team is in the
process of requesting responses from the Partnership's tenants indicating the
extent to which their systems are currently year 2000 compliant or are expected
to be year 2000 compliant prior to the year 2000. The general partners cannot be
assured that the tenants have addressed all possible year 2000 issues. The late
payment of rent by one or more tenants would affect the results of operations of
the Partnership in the short-term.
The general partners are also aware of predictions that the year 2000
problem, if uncorrected, may result in a global economic crisis. The general
partners are not able to determine if such predictions are true. A widespread
disruption of the economy could affect the ability of the Partnership's tenants
to pay rent and, accordingly, could have a material impact on the results of
operations of the Partnership.
Because payment of rent is under the control of the Partnership's
tenants, the Y2K Team is not able to develop a contingency plan to address these
risks. In the event of late payment or non-payment of rent, the general partners
will assess the remedies available to the Partnership under its lease
agreements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
On May 11, 1999, four limited partners in several CNL Income
Funds served a derivative and purported class action lawsuit
filed April 22, 1999 against the general partners and APF in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL
Income Fund partnership agreements in connection with the
proposed Merger. The plaintiffs are seeking unspecified damages
and equitable relief. On July 8, 1999, the plaintiffs filed an
amended complaint which, in addition to naming three additional
plaintiffs, includes allegations of aiding and abetting and
conspiring to breach fiduciary duties, negligence and breach of
duty of good faith against certain of the defendants and seeks
additional equitable relief. As amended, the caption of the case
is Jon Hale, Mary J. Hewitt, Charles A. Hewitt, Gretchen M.
--------------------------------------------------------
Hewitt Bernard J. Schulte, Edward M. and Margaret Berol Trust,
--------------------------------------------------------------
and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL
--------------------------------------------------------------
Realty Corporation, and CNL American Properties Fund, Inc., Case
-----------------------------------------------------------
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually
------------------------
and on behalf of a class of persons similarly situated, v. CNL
--------------------------------------------------------------
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
---------------------------------------------------------------
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc. CNL
-----------------------------------------------------------
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
--------------------------------------------------------------
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
-----------------------------------
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
-----------------
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
----------------------------------
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999, and the various defendants,
including the general partners, have 45 days to respond to that
consolidated complaint.
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.
---------------------------------------------------
16
<PAGE>
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,
as amended June 4, 1999, and as amended October 27, 1999 (filed
as Appendix B to the Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 3 to the Registration
Statement of APF on Form S-4, File No. 333-74329.)
3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XV, Ltd. (Included as Exhibit 3.1 to Registration Statement
No. 33-69968 on Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XV, Ltd. (Included as Exhibit 3.1 to Registration Statement
No. 33-69968 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XV, Ltd. (Included as Exhibit 4.2 to Form 10-K filed
with the Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XV, Ltd. and CNL
Investment Company (Included as Exhibit 10.1 to Form 10-K filed
with the Securities and Exchange Commission on March 30, 1996,
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.)
17
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1999.
18
<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 10th day of November, 1999.
CNL INCOME FUND XV, 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)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET OF CNL INCOME FUND XV, LTD. AT SEPTEMBER 30, 1999, AND ITS STATEMENT OF
INCOME FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM 10-Q OF CNL INCOME FUND XV, LTD. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,011,581
<SECURITIES> 0
<RECEIVABLES> 28,258
<ALLOWANCES> 217
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,917,228
<DEPRECIATION> 1,291,496
<TOTAL-ASSETS> 35,927,428
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,942,283
<TOTAL-LIABILITY-AND-EQUITY> 35,927,428
<SALES> 0
<TOTAL-REVENUES> 2,448,194
<CGS> 0
<TOTAL-COSTS> 606,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,876,383
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,876,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,876,383
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>DUE TO THE NATURE OF ITS INDUSTRY, CNL INCOME FUND XV, LTD. HAS AN UNCLASSIFIED
BALANCE SHEET; THEREFORE, NO VALUES ARE SHOWN ABOVE FOR CURRENT ASSETS AND
CURRENT LIABILITIES.
</FN>
</TABLE>
