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 June 30, 2003
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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
0-16824
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CNL Income Fund II, Ltd.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2733859
- ---------------------------------- -----------------------------
(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 _____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Page
Part I.
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 8-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 11
Part II.
Other Information 12-13
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2003 2002
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 6,656,020 $ 6,752,686
Investment in joint ventures 3,930,970 4,000,984
Cash and cash equivalents 684,359 1,193,910
Certificate of deposit 60,140 61,824
Receivables 12,818 43,505
Accrued rental income 185,499 182,640
Other assets 8,288 7,045
------------------- -------------------
$ 11,538,094 $ 12,242,594
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 77,875 $ 71,100
Real estate taxes payable 19,182 8,720
Distributions payable 334,380 834,380
Due to related parties 197,974 200,536
Rents paid in advance and deposits 85,552 79,229
------------------- -------------------
Total liabilities 714,963 1,193,965
Commitments and Contingencies (Note 5)
Partners' capital 10,823,131 11,048,629
------------------- -------------------
$ 11,538,094 $ 12,242,594
=================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
------------- ------------ -------------- --------------
Revenues:
Rental income from operating leases $ 249,204 $ 268,010 $ 497,688 $ 538,130
Contingent rental income 11,070 -- 13,326 10,299
Interest and other income 2,148 3,129 3,011 4,797
------------- ------------ -------------- --------------
262,422 271,139 514,025 553,226
------------- ------------ -------------- --------------
Expenses:
General operating and administrative 43,607 54,571 101,425 120,583
Property related 1,822 9,770 4,852 13,638
State and other taxes 2,112 1,277 8,275 14,946
Depreciation and amortization 45,570 47,711 96,924 96,491
------------- ------------ -------------- --------------
93,111 113,329 211,476 245,658
------------- ------------ -------------- --------------
Income Before Gain on Sale of Assets and
Equity in Earnings of Joint Ventures 169,311 157,810 302,549 307,568
Gain on Sale of Assets -- 133,604 -- 133,604
Equity in Earnings of Joint Ventures 52,157 83,130 140,713 177,465
------------- ------------ -------------- --------------
Income from Continuing Operations 221,468 374,544 443,262 618,637
------------- ------------ -------------- --------------
Discontinued Operations:
Loss from discontinued operations -- (252,832 ) -- (225,385 )
------------- ------------ -------------- --------------
Net Income $ 221,468 $ 121,712 $ 443,262 $ 393,252
============= ============ ============== ==============
Income (Loss) Per Limited Partner Unit:
Continuing Operations $ 4.43 $ 7.49 $ 8.87 $ 12.38
Discontinued Operations -- (5.06 ) -- (4.51 )
------------- ------------ -------------- --------------
$ 4.43 $ 2.43 $ 8.87 $ 7.87
============= ============ ============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 50,000 50,000 50,000 50,000
============= ============ ============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2003 2002
-------------------- ------------------
General partners:
Beginning balance $ 405,788 $ 405,788
Net income -- --
-------------------- ------------------
405,788 405,788
-------------------- ------------------
Limited partners:
Beginning balance 10,642,841 13,089,704
Net income 443,262 678,046
Distributions ($13.38 and $62.50 per
limited partner unit, respectively) (668,760 ) (3,124,909 )
-------------------- ------------------
10,417,343 10,642,841
-------------------- ------------------
Total partners' capital $ 10,823,131 $ 11,048,629
==================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2003 2002
--------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 659,209 $ 694,811
--------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties -- 747,508
Insurance proceeds for casualty loss on building -- 227,579
--------------- --------------
Net cash provided by investing activities -- 975,087
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,168,760 ) (846,992 )
--------------- --------------
Net cash used in financing activities (1,168,760 ) (846,992 )
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (509,551 ) 822,906
Cash and Cash Equivalents at Beginning of Period 1,193,910 559,886
--------------- --------------
Cash and Cash Equivalents at End of Period $ 684,359 $ 1,382,792
=============== ==============
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Deferred real estate disposition fee incurred and unpaid at
end of period $ -- $ 22,500
=============== ==============
Distributions declared and unpaid at end of period $ 334,380 $ 1,123,496
=============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2003 and 2002
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 the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and six months ended June 30, 2003, may not be
indicative of the results that may be expected for the year ending
December 31, 2003. Amounts as of December 31, 2002, 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 II, Ltd. (the "Partnership") for the year ended December
31, 2002.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities (more commonly
referred to as special-purpose entities or off-balance sheet
structures), FIN 46 requires that a variable interest entity be
consolidated by a company if that company is subject to a majority risk
of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. Prior to
FIN 46, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting
interests. The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31, 2003, and to
older entities, in the first fiscal year or interim period beginning
after June 15, 2003. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
2. Reclassification:
Certain items in the prior year's financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Investment in Joint Ventures:
In June 2003, Show Low Joint Venture entered into an agreement with a
third party to sell the property in Greensboro, North Carolina, in
which the Partnership owns a 64% interest. In connection with the
anticipated sale of this property, the joint venture increased the
provision for write-down of assets recorded in the previous year for
this property by $55,500. The provision represented the difference
between the carrying value of the property and its estimated fair
value. The property was vacant because in January 2002, Houlihan's
Restaurant, Inc., which leased this property, filed for bankruptcy and
rejected the lease relating to this property. As a result of the
contract, the joint venture reclassified the assets relating to this
property from real estate properties with operating leases to real
estate held for sale. The property was recorded at the lower of its
carrying amount or fair value less cost to sell. In addition, the joint
venture stopped recording depreciation once the property was identified
for sale.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2003 and 2002
3. Investment in Joint Ventures - Continued:
The financial results relating to this property in Greensboro, North
Carolina are reflected as Discontinued Operations in the condensed
financial information presented below.
As of June 30, 2003, Kirkman Road Joint Venture, Holland Joint Venture,
Show Low Joint Venture, and the Partnership and affiliates, as
tenants-in-common in six separate tenancy-in-common arrangements, each
own one property.
The following presents the combined, condensed financial information
for the joint ventures and the properties held as tenants-in-common
with affiliates at:
June 30, December 31,
2003 2002
------------------ -----------------
Real estate properties with operating
leases, net $ 6,787,801 $ 6,869,725
Net investment in direct financing leases 2,162,913 2,172,748
Real estate held for sale 497,260 562,600
Cash 44,274 28,744
Receivables 1,072 --
Accrued rental income 472,978 453,453
Liabilities 37,505 20,985
Partners' capital 9,928,793 10,066,285
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
------------- ------------- ------------- ---------------
Revenues $ 288,293 $ 286,545 $ 578,096 $ 573,597
Expenses (44,060 ) (50,445 ) (87,580 ) (92,903 )
------------- ------------- ------------- ---------------
Income from continuing operations 244,233 236,100 490,516 480,694
------------- ------------- ------------- ---------------
Discontinued operations:
Loss from discontinued operations (66,559 ) (11,501 ) (77,251 ) (13,565 )
------------- ------------- ------------- ---------------
Net income $ 177,674 $ 224,599 $ 413,265 $ 467,129
============= ============= ============= ===============
The Partnership recognized income of $140,713 and $177,465 during the
six months ended June 30, 2003 and 2002, respectively, of which $52,157
and $83,130 were earned during the quarters ended June 30, 2003 and
2002, respectively, from these joint ventures and tenants-in-common
arrangements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2003 and 2002
4. Concentration of Credit Risk:
The following schedule presents total rental revenues from individual
lessees, each representing more than ten percent of rental revenues
(including the Partnership's share of rental revenues from the joint
ventures and the properties held as tenants-in-common with affiliates
of the general partners), for each of the six months ended June 30:
2003 2002
----------- -----------
Wend Vail Partnership, Ltd. $ 75,000 N/A
Golden Corral Corporation N/A $ 158,772
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than ten percent
of rental revenues (including the Partnership's share of rental
revenues from the joint ventures and the properties held as
tenants-in-common with affiliates of the general partners), for each of
the six months ended June 30:
2003 2002
------------ ---------------
Wendy's Old Fashioned
Hamburger Restaurants $ 106,596 $ 106,596
Golden Corral Family
Steakhouse Restaurants 79,669 158,772
The information denoted by N/A indicates that for each period
presented, the tenant did not represent more than ten percent of the
Partnership's total rental revenues.
Although the Partnership's properties have some geographical diversity
in the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any of these lessees or restaurant
chains will significantly impact the results of operations of the
Partnership if the Partnership is not able to re-lease the properties
in a timely manner.
5. Commitments and Contingencies:
Underground petroleum contamination was discovered in 2000 relating to
a property in Ocala, Florida. The Partnership applied to and qualified
for assistance from a state funded clean-up program. Under this
program, the Partnership is responsible for 25% of the actual clean-up
costs and is receiving assistance for the remaining 75% of the costs.
The Partnership anticipated that future clean-up costs would be
approximately $300,000 and accrued in 2000, as a liability, the $75,000
of the estimated clean-up costs. The project is expected to be
completed in five phases. During the year ended December 31, 2002,
phase one of the clean-up work commenced at the site and payment of the
first installment was made. The work for this phase was finalized, and
the Department of Environmental Protection approved the conclusions.
During the first quarter of 2003, phase two of the clean-up work
commenced.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 13, 1986 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. The Partnership owned
17 and 21 Properties directly as of June 30, 2003 and 2002, respectively. The
Partnership also owned nine Properties indirectly through joint venture or
tenancy in common arrangements as of June 30, 2003 and 2002.
Capital Resources
Cash from operating activities was $659,209 and $694,811 for the six
months ended June 30, 2003 and 2002, respectively. At June 30, 2003, these funds
were held in a demand deposit account at a commercial bank. Cash and cash
equivalents of the Partnership decreased to $684,359 at June 30, 2003, from
$1,193,910 at December 31, 2002 primarily as a result of the Partnership paying
a special distribution to the limited partners during the six months ended June
30, 2003, which was accrued at December 31, 2002, of sales proceeds that were
held at December 31, 2002. The funds remaining at June 30, 2003 will be used to
pay distributions and other liabilities of the Partnership.
Short-Term Liquidity
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 generate net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
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 six
months ended June 30, 2002, sales proceeds and insurance proceeds, the
Partnership declared distributions to limited partners $668,760 and $1,546,992,
for the six months ended June 30, 2003 and 2002, respectively ($334,380 and
$1,123,496 for the quarters ended June 30, 2003 and 2002, respectively.) This
represents distributions of $13.38 and $30.94 per unit for the six months ended
June 30, 2003 and 2002, respectively ($6.69 and $22.47 per unit for each
applicable quarter.) Distributions for the six months ended June 30, 2002
included $700,000 in a special distribution as a result of the distribution of
net sales proceeds from the sale of the Property in San Antonio, Texas. The
special distribution was effectively a return of a portion of the limited
partners' investment, although, in accordance with the Partnership agreement,
$481,914 was applied toward the limited partners' 10% Preferred Return and the
balance of $218,086 was treated as a return of capital for purposes of
calculating the limited partners' 10% Preferred Return. As a result of the
return of capital, the amount of the limited partners' invested capital
contributions (which generally is the limited partners' capital contributions,
less distributions from the sale of a Property that are considered to be a
return of capital) was decreased; therefore, the amount of the limited partners'
invested capital contributions on which the 10% Preferred Return is calculated
was lowered. As a result of the sales of Properties in 2002, the Partnership's
total revenues have declined and are expected to remain reduced in subsequent
periods, while the majority of the Partnership's operating expenses have
remained and are expected to remain fixed. Due to the sales of Properties
mentioned above, and due to current and anticipated cash from operations,
distributions of net cash flow have been adjusted during the quarters ended
September 30 and December 31, 2002. No distributions were made to the general
partners for the quarters and six months ended June 30, 2003 and 2002. 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,
decreased to $714,963 at June 30, 2003 from $1,193,965 at December 31, 2002,
primarily as a result of the Partnership paying a special distribution to the
limited partners that had been accrued at December 31, 2002. Total liabilities
at June 30, 2003, to the extent they exceed cash and cash equivalents, will be
paid from anticipated future cash from operations, or in the event the general
partners elect to make additional capital contributions or loans, from the
future general partners' capital contributions or loans.
Underground petroleum contamination was discovered in 2000 relating to
a Property in Ocala, Florida. The Partnership applied to and qualified for
assistance from a state funded clean-up program. Under this program, the
Partnership is responsible for 25% of the actual clean-up costs and is receiving
assistance for the remaining 75% of the costs. The Partnership anticipated that
future clean-up costs would be approximately $300,000 and accrued in 2000, as a
liability, the $75,000 of the estimated clean-up costs. The project is expected
to be completed in five phases. Phase one of the clean-up work was finalized in
the previous year, and the Department of Environmental Protection approved the
findings. During the first quarter of 2003, phase two of the clean-up work
commenced.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $497,688 for the six months ended June 30,
2003 as compared to $538,130 in the same period in 2002, of which $249,204 and
$268,010 were earned during the second quarter of 2003 and 2002, respectively.
The decrease in rental revenues during the quarter and six months ended June 30,
2003 was primarily due to the 2002 sale of the Property in San Antonio, Texas.
Rental revenues earned from wholly owned Properties are expected to remain at
reduced amounts as a result of the Partnership distributing to the limited
partners during 2002 net sales proceeds relating to this Property.
During the six months ended June 30, 2003 and 2002, the Partnership
also earned $13,326 and $10,299, respectively, in contingent rental revenues, of
which $11,070 was earned during the second quarter of 2003. No such amounts were
earned during the second quarter of 2002. The increase during the quarter ended
June 30, 2003, was primarily attributable to an increase in the reported gross
sales of the restaurants as compared to the same period in 2002.
During the six months ended June 30, 2003 and 2002, the Partnership
earned $140,713 and $177,465, respectively, attributable to net income earned by
joint ventures, of which $52,157 and $83,130 were earned during the second
quarter of 2003 and 2002, respectively. The decrease in net income earned by
joint ventures during the six months ended June 30, 2003 was primarily due to
the fact that, Houlihan's Restaurant, Inc., which leases the Property owned by
Show Low Joint Venture, in which the Partnership owns an approximate 64%
interest, was experiencing financial difficulties and in January 2002, filed for
bankruptcy and rejected the lease relating to this Property. As a result, the
joint venture stopped recording rental revenues relating to this Property. In
addition, during the quarter and six months ended June 30, 2003, Show Low Joint
Venture recorded a provision for write-down of assets of $55,500 relating to
this Property. The provision represented the difference between the Property's
net carrying value and its estimated fair value. During the quarter ended June
30, 2003, Show Low Joint Venture entered into an agreement to sell the Property
to a third party. The lost revenues resulting from the vacant Property will
continue to have an adverse effect on the equity in earnings of joint ventures,
if the joint venture is not able to sell the Property.
During the six months ended June 30, 2003, one of the Partnership's
lessees, Wend Vail Partnership, Ltd., contributed more than 10% of the
Partnership's total rental revenues (including the Partnership's share of rental
revenues from Properties owned by joint ventures and Properties owned with
affiliates of the general partners as tenants-in-common). It is anticipated that
based on the minimum annual rental payments required by the leases, this lessee
will continue to contribute more than ten percent of the Partnership's total
rental revenues. In addition, during the six months ended June 30, 2003, two
restaurant chains, Wendy's and Golden Corral, each accounted for more than 10%
of the Partnership's total rental revenues (including the Partnership's share of
the rental revenues from Properties owned by joint ventures and Properties owned
with affiliates of the general partners as tenants-in-common). It is anticipated
that these two restaurant chains each will continue to account for more than 10%
of the total rental revenues to which the Partnership is entitled under the
terms of its leases. A failure of this lessee or these two restaurant chains
will materially affect the Partnership's operating results if the Partnership is
not able to re-lease the Properties in a timely manner.
Operating expenses, including depreciation and amortization, were
$211,476 and $245,658 for the six months ended June 30, 2003 and 2002,
respectively, of which $93,111 and $113,329 were incurred during the second
quarter of 2003 and 2002, respectively. The decrease in operating expenses
during the six months ended June 30, 2003, as compared to the same period in
2002, was partially due to a decrease in the costs incurred for administrative
expenses for servicing the Partnership and its Properties and a decrease in
state tax expense relating to several states in which the Partnership conducts
business.
In June 2002, the Partnership sold its Burger King Property in San
Antonio, Texas resulting in a gain of approximately $133,600. This Property was
identified for sale as of December 31, 2001, and therefore, was not subject to
classification as Discontinued Operations.
During the year ended December 31, 2002, the Partnership identified and
sold four Properties, which were classified as Discontinued Operations in the
accompanying financial statements. The Partnership recognized a net rental loss
(rental revenues less Property related expenses and provisions for write-down of
assets) of $252,832 and $225,385 during the quarter and six months ended June
30, 2002 relating to the Properties in Pineville, Louisiana; Tomball, Texas; and
Casper and Rock Springs, Wyoming. In June 2002, in connection with the
anticipated sale of the Property in Rock Springs, Wyoming, the Partnership
increased the provision for write-down of assets recorded in the previous year
for this Property by $113,615. The Property was vacant because in 2001, Phoenix
Restaurant Group, Inc., the tenant of this Property, filed for Chapter 11
bankruptcy protection and rejected the lease related to this Property. In June
2002, the Partnership also recorded a provision for write-down of assets of
$181,231 relating to the Property in Pineville, Louisiana since the tenant opted
to not renew its lease, which expired in June 2002, and vacated the Property.
The provisions represented the difference between the carrying value of the
Properties and their estimated fair value. The Partnership sold these four
Properties subsequent to June 30, 2002. The Partnership has not sold any
Properties during 2003.
During the quarter ended June 30, 2003, Show Low Joint Venture, in
which the Partnership owns a 64% interest, entered into an agreement to sell its
Property in Greensboro, North Carolina, as described above. The financial
results relating to this Property were classified as Discontinued Operations in
the combined, condensed financial information reported in the footnotes to the
accompanying financial statements for the joint ventures and the Properties held
as tenants-in-common with affiliates. The Partnership's pro-rata share of these
amounts was included in equity in earnings of unconsolidated joint ventures in
the accompanying financial statements.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be consolidated by a company if that company is subject to a majority risk of
loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. Prior to FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003, and to older entities, in the first fiscal year or
interim period beginning after June 15, 2003. The general partners believe
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures, which are currently accounted for under the equity method. However,
such consolidation is not expected to significantly impact the Partnership's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults 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
3.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 2, 1993, and incorporated
herein by reference.)
10.2 Assignment of Property 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 Property 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.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein be reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2002, and
incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 2003.
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 8th day of August, 2003.
CNL INCOME FUND II, 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)
EXHIBIT INDEX
Exhibit Number
(c) Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 2, 1993, and incorporated
herein by reference.)
10.2 Assignment of Property 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 Property 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.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein be reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2002, and
incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2