SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993 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: 1-9586
THE CENTENNIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
33-0242912
(I.R.S. Employer Identification No.)
282 SOUTH ANITA DRIVE, ORANGE, CALIFORNIA 92668
(Address of principal executive office) (Zip Code)
(714) 634-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the 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 the number of shares of stock of
the registrant outstanding:
26,195,675* SHARES OF COMMON STOCK AS OF January 1, 1994
* Net of 423,330 shares of stock held in treasury.
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
December 31, June 30,
1993 1993
ASSETS
Properties under development and held for
investment or sale (notes 2, 3 and 4) $ 87,950 $ 123,943
Cash and cash equivalents 848 3,710
Short-term investments --- 1,000
Accounts and note receivable, net 353 345
Due from affiliates, net 735 724
Property and equipment, net of accumulated
depreciation of $1,387 and $1,335 as of
December 31, 1993 and June 30, 1993,
respectively 1,093 1,143
Other assets 359 350
_________ _________
Total assets $ 91,338 $ 131,215
_________ _________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable $ 29,429 $ 43,278
Notes payable and amounts due to affiliates 10,652 10,652
Accrued interest on notes and bonds payable 5,970 11,739
Accrued real estate taxes payable 7,020 8,936
Accounts payable and other accrued liabilities 4,270 3,700
_________ _________
Subtotal 57,341 78,305
_________ _________
Consolidated Balance Sheets (Unaudited)
(Continued)
December 31, June 30,
1993 1993
LIABILITIES SUBJECT TO COMPROMISE:
Notes payable $ 15,395 $ 15,377
Other amounts due to affiliates 246 259
Accrued interest payable 7,951 7,854
Accounts payable and other accrued liabilities 5,743 3,993
_________ _________
Subtotal 29,335 27,483
_________ _________
Total liabilities 86,676 105,788
_________ _________
MINORITY INTEREST 3,156 3,157
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000
shares authorized; no shares issued or outstanding
Common stock, $.01 par value; 50,000,000
shares authorized; issued and
outstanding 26,619,005 shares at
at December 31, 1993 and June 30, 1993 266 266
Additional paid-in capital 136,312 136,312
Accumulated deficit (132,562) (111,798)
Treasury stock at cost; 423,330 shares at
December 31, 1993 and June 30, 1993 (2,510) (2,510)
_________ _________
Total stockholders' equity 1,506 22,270
_________ _________
Total liabilities, minority interest
and stockholders' equity $ 91,338 $ 131,215
_________ _________
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Operations (Unaudited)
For the three and six months ended December 31, 1993 and 1992
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
Revenues
Sales of:
Development and operating
properties $ 1,915 $ 190 $ 1,915 $ 388
Single-family homes 128 --- 272 163
Construction --- 8 --- 152
Interest 22 55 53 150
Rental, fee and other 227 266 484 565
________ ________ ________ ________
Total revenue 2,292 519 2,724 1,418
________ ________ ________ ________
Costs and expenses:
Cost of sales:
Development and operating
properties 1,914 189 1,914 409
Single-family homes 144 --- 309 175
Construction expenses --- 8 --- 64
Property operating expenses 152 160 277 316
Provision for losses on real
estate investments 12,000 35,000 12,000 40,100
General & administrative (note 2) 954 1,207 1,921 2,002
Real Estate Taxes (note 1) 220 --- 501 391
Interest expense (notes 1 and 4) 713 151 1,558 456
________ ________ ________ ________
Total costs and expenses 16,097 36,715 18,480 43,913
________ ________ ________ ________
Consolidated Statement of Operations (Unaudited) (Continued)
For the three and six months ended December 31, 1993 and 1992
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
Loss before minority interest,
income taxes and
extraordinary item $(13,805) $(36,196) $(15,756) $(42,495)
Minority interest in earnings --- 9 --- 17
________ ________ ________ ________
Loss before income taxes
and extraordinary item (13,805) (36,205) (15,756) (42,512)
Income tax expense 1 --- 8 8
________ ________ ________ ________
Loss before extraordinary
item (13,806) (36,205) (15,764) (42,520)
________ ________ ________ ________
Extraordinary charge related to
settlement of litigation (note 2) (5,000) --- (5,000) ---
________ ________ ________ ________
Net loss $(18,806) $(36,205) $(20,764) $(42,520)
Net loss per common
share (note 1) $ (.72) $ (1.38) $ ( .79) $ (1.62)
________ ________ ________ ________
Weighted average shares
outstanding (note 1) 26,195,675 26,195,675 26,195,675 26,195,675
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Stockholders' Equity (Unaudited)
(dollars in thousands)
Additional Total
Common Paid-in Accumulated Treasury Stockholder's
Stock Capital Deficit Stock Equity
Balance, June 30, 1993 $ 266 $ 136,312 $(111,798) $ (2,510) $ 22,270
Net loss --- --- (20,764) --- (20,764)
_________ _________ _________ _________ _________
Balance, December 31, 1993 $ 266 $ 136,312 $(132,562) $ (2,510) $ 1,506
_________ _________ _________ _________ _________
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended December 31, 1993 and 1992
(dollars in thousands)
December 31, December 31,
1993 1992
CASH FLOW FROM OPERATING ACTIVITIES:
Net proceeds from sales of property $ 726 $ 546
Cash payments on notes receivable from
sales of property --- 2,296
Construction revenues, fees and rents received 451 502
Interest received 53 151
Other income received 7 37
Property development costs paid (159) (939)
Principal reductions on seller provided financing
secured by properties (730) (1,603)
Interest paid (403) (768)
Other payments to suppliers and payroll costs paid (3,805) (2,445)
Income taxes paid (8) (8)
_________ _________
Net cash used by operating activities (3,868) (2,231)
_________ _________
CASH FLOW FROM INVESTING ACTIVITIES:
Collections (increase) on other non-trade receivables 18 (24)
Cash received from short-term investments 1,000 ---
Cash received from (advanced to) affiliates (15) 76
Cash received from other assets 24 5
Purchase of property and equipment (2) (2)
_________ _________
Net cash flows from investing activities 1,025 55
_________ _________
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the six months ended December 31, 1993 and 1992
(dollars in thousands)
December 31, December 31,
1993 1992
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new notes payable $ --- $ 138
Principal payments on notes payable (13) (12)
Proceeds (reductions) from/in notes
payable to affiliates (5) 51
Receipts against non-operating other accruals --- 12
Cash distributions to minority interest (1) (5)
_________ _________
Net cash flows provided from
(used by) financing activities (19) 184
_________ _________
Net decrease in cash and cash equivalents (2,862) (1,992)
Cash and cash equivalents at beginning of period 3,710 6,901
_________ _________
Cash and cash equivalents at end of period $ 848 $ 4,909
_________ _________
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the three months ended December 31, 1993 and 1992
(dollars in thousands)
December 31, December 31,
1993 1992
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net loss $ (20,764) $ (42,520)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 148 162
Amortization of note payable discounts 20 157
Provision for losses on real estate investments 12,000 40,100
Decrease (increase) in properties under development
and held for investment or sale 176 (4,634)
Decrease in notes receivable from property sales --- 2,296
Increase in other receivables, net (27) (56)
Decrease (increase) in other assets (29) 61
Decrease in seller provided financing, net (730) (1,603)
Increase in accrued interest payable 1,904 2,410
Increase in accrued real estate taxes payable 1,099 1,515
Decrease in accounts payable and accrued liabilities 2,343 (128)
Other (8) 9
_________ _________
Net cash used by operating activities $ (3,868) $ (2,231)
_________ _________
The following table summarizes the effects of the foreclosure of Property No. 6 in fiscal
1994 ( see note 2 ) and the reacquistion of Property No. 23 in fiscal 1993:
Net (increase) decrease in properties under development
and held for investment or sale 23,721 (15,922)
Decrease in accounts and notes receivable --- 15,549
Decrease in notes payable (13,108) ---
Increase (decrease) in accrued interest payable (7,575) ---
Increase (decrease) in accrued real estate taxes (3,038) 373
/TABLE
THE CENTENNIAL GROUP, INC. (Debtor-in-Possession)
Notes to Consolidated Financial Statements (Unaudited)
For December 31, 1993 and June 30, 1993
1. GENERAL
In the opinion of management, the unuaudited financial
information reflects all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation thereof.
The results of operations for the three and six months ended
December 31, 1993 and 1992 are not necessarily indicative of
those expected for a full year. Information pertaining to the
three and six month periods ended December 31, 1993 and 1992 is
unaudited and condensed inasmuch as it does not include all
related footnote disclosures.
The condensed consolidated financial statements do not include
all information and footnotes necessary for fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Notes
to consolidated financial statements included in Form 10-K for
the year ended June 30, 1993 on file with the Securities and
Exchange Commission, provide additional disclosures and a further
description of accounting policies. The following notes refer to
certain properties by number. These numbers correspond to
property numbers used in the Company's Form 10-K for the year
ended June 30, 1993.
Net Loss Per Share
Net loss per common share is computed based on the weighted
average number of common shares outstanding during the periods
presented reduced by the average number of shares of stock held
in treasury. Employee stock options were not included in the
loss per share computation as the effect would have been
antidilutive.
Reclassifications
Certain amounts in the June 30, 1993 and December 31, 1992
consolidated financial statements have been reclassified to
conform with the December 31, 1993 presentation.
Nonaccrued Interest and Taxes
Effective July 1, 1993, the Company ceased accruing real
estate taxes and interest on debt secured by its Property Nos. 5,
15, 16 and 23. This accounting treatment was considered
appropriate since the Company is in the final stages of
negotiations to execute deeds-in-lieu of foreclosures or consent
to lift of stay motions to allow the lenders to foreclose on
- 10 -
these properties in full satisfaction of their debt and the
repayment of these taxes and interest is considered improbable.
The total of nonaccrued interest and real estate taxes on these
four properties during the six months ended December 31, 1993 was
$1,488,000 and $421,000, respectively.
2. REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
As a result of its deteriorating liquidity position and to
avoid the loss of certain of its properties through foreclosure,
The Centennial Group, Inc. ("CGI") filed a voluntary petition for
relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the Central District of
California on December 13, 1991. The petition did not include
any of the operating subsidiaries of CGI. However, one of CGI's
subsidiaries, Arizona Commercial Property Development, Inc.
("ACPDI") had previously filed a voluntary petition for relief
under Chapter 11 with the United States Bankruptcy Court for the
District of Arizona on February 20, 1991. In Feburary 1993, the
Bankruptcy Court granted ACPDI's motion to dismiss its Chapter 11
proceedings. ACPDI filed this motion because of the lack of any
significant remaining equity in any of ACPDI's assets.
Under Chapter 11, ongoing foreclosure proceedings and
enforcement of other claims against a debtor in existence prior
to the filing of the petition are stayed while the debtor
operates its business as debtor-in-possession and formulates its
plan of reorganization under the jurisdiction and supervision of
the Bankruptcy Court. However, creditors holding secured claims
against a debtor may file motions with the Bankruptcy Court for
relief from the automatic stay. Such motions for relief from
stay may be granted by the Bankruptcy Court for a number of
reasons. Certain secured creditors of CGI and ACPDI have filed
motions for relief from stay and have been granted such relief by
the Bankruptcy Courts.
During CGI's bankruptcy proceedings, creditors of CGI holding
notes secured by Property No. 6 and another creditor holding
notes secured by the Property No. 23 filed motions for relief
from stay. CGI executed agreements with these creditors through
Bankruptcy Court approved stipulations which provided for
consensual reliefs from stay in the event CGI had not confirmed a
plan of reorganization prior to August 1993. On December 14,
1994, one of the creditors holding a note secured by a junior
trust deed on Property No. 6 completed its foreclosure of the
property. As of the date of this report, the creditor holding
notes secured by Property No. 23 had not yet completed its
foreclosure. Two other creditors of ACPDI and CGI holding notes
secured by Property Nos. 11 and 13 have also filed motions for
relief from stay which were consented to by ACPDI and CGI and/or
approved by the Bankruptcy Court. The creditor on Property No.
11 completed its foreclosure on April 5, 1993 while the creditor
- 11 -
on Property No. 13 is proceeding with its foreclosure process.
CGI has also consented to stipulations providing creditors on
Property Nos. 3, 4 and 5 with relief from stay. Management
believes that the "Allowance for Losses on Real Estate
Investments" as of December 31, 1993, is sufficient to absorb any
losses which have or will be incurred as a result of foreclosures
on all of the properties discussed above.
CGI filed a plan of reorganization and disclosure statement
with the Bankruptcy Court on April 1, 1993 and has filed two
subsequent amendments thereto (the "Plan"). Generally, a debtor
operating under Chapter 11 has the exclusive right to file a plan
of reorganization for 120 days after the commencement of a case
and up to 180 days to solicit acceptances thereto. CGI's
exclusivity period to file a plan was extended to and expired on
December 7, 1992. As a result, any party in interest may now
file a competing plan of reorganization with the Bankruptcy
Court, although no competing plan has been filed as of the date
of this report. A hearing was held on September 13, 1993 at
which time the Bankruptcy Court approved the adequacy of the
disclosure statement. As a result, CGI is now proceeding with
soliciting acceptances of the Plan by its creditors. Another
hearing had been scheduled for December 8, 1993, at which time
the Bankruptcy Court was to have considered the confirmation of
the Plan. This confirmation hearing has been postponed until
February 23, 1994.
The Plan which was filed by CGI provides for 32 separate
classes of secured creditors and unsecured creditors and
stockholders. In general, the Plan provides for the extension of
the maturity dates of notes payable secured by real estate until
up to seven years after the effective date of the Plan and for
the adjustment of the interest rates on certain notes to a fixed
rate equal to three percentage points over the yield on seven
year United States Treasury Bonds as of the confirmation date of
the Plan, if approved. Interest will generally be payable in
quarterly installments. Since the repayment terms of this debt
has been proposed to be modified by the Plan, these creditors are
considered to be impaired by the Plan. As of December 31, 1993,
Property Nos. 3, 4, 5, 13 and 23 were expected to be lost in
foreclosure pursuant to the Plan. Property Nos. 13, 15, 16 and
22 which are owned by CGI's subsidiaries are also expected to be
lost in foreclosure. The Plan also provides for three separate
classes of unsecured claims: settled claims under $25,000 are to
be paid on or before the effective date of the Plan while the
remaining unsecured creditors, both affiliated and non-
affiliated, who comprise the remaining classes, will be paid in
quarterly installments with interest at 7% per annum. The
Company will not be required to make the quarterly payments
unless its cash on hand is equal to a twelve month reserve for
future operations. However, in any event, the Company will be
required to make minimum annual payments of $1,000,000 by
- 12 -
December 31, 1994 and $2,000,000 each year thereafter until 1997
when any remaining unpaid balance is due. All pre-petition
unsecured creditors are considered impaired under the Plan. The
Company's stockholders are not impaired pursuant to the Plan.
As a part of its Plan, the Company, offered for sale and
issuance to the beneficial owners of common stock of the Company
as of July 15, 1993, and other accredited investors, up to
$35,000,000 in "Certificates of Participation" in nonrecourse
note proceeds from notes to be issued by the Company and secured
by mortgages on certain of its real estate assets. The proceeds
from this offering were principally to be used to payoff existing
debt and establish interest and tax payment reserves for the
properties to be encumbered and also, to a lesser extent, to
provide the Company with some unrestricted working capital. The
new notes were to mature December 31, 1996 and bear interest at
25% per annum and were to provide for quarterly interest payments
equal to 10% per annum with the balance of accruing interest
payable at maturity or upon early payoff. An offering memorandum
was distributed in late September 1993 to all holders of record
of the Company's common stock as of July 15, 1993. The offering
memorandum provided that at least $2,000,000 in subscriptions to
the offering were to be received by the Company or all
subscriptions received would be returned to the investors. This
offering was pursued by the Company until early January 1994 when
it became apparent that insufficient proceeds were being raised
to justify continuing incurring the costs associated with the
offering. As a result, management terminated the offering and
returned the proceeds which had been received.
As discussed above, the Company has been soliciting the
acceptance of the Plan by its creditors. All impaired classes of
creditors are entitled to vote for or against the Plan. If the
Plan is rejected by one or more impaired classes of creditors,
the Plan or modifications thereof may still be confirmed by the
Bankruptcy Court if the Court determines, among other
requirements, that the Plan does not discriminate unfairly and is
fair and equitable with respect to the rejecting class or classes
of creditors impaired by the Plan. The Company intends to
request such a determination (commonly referred to as a "cram-
down") if the Plan or modifications thereof is not accepted by
all of the impaired classes of creditors.
In the event that CGI is unable to obtain approval for the
Plan or modifications thereof, it is likely that the Chapter 11
case could be dismissed or a trustee could be appointed to
liquidate the assets of the Company. Additionally, even if the
Plan is approved, CGI must be successful in raising a significant
amount of cash from property sales, joint ventures or from other
sources or face the loss of one or more of its properties to
foreclosure beyond those discussed above. The consolidated
financial statements of the Company as of December 31, 1993
- 13 -
contemplate the successful approval of the Plan and receipt of a
significant amount of cash from property sales, joint ventures or
from other sources.
Since the certificate of participation offering has now been
terminated, the prospects for the Company to generate sufficient
cash to retain all of its remaining properties have been
substantially reduced. As a result, the loss of Property Nos. 3
and 4 in foreclosure now appears likely. In light of these
developments, the Company has recorded an additional $12.0
million provision for losses during the three months ended
December 31, 1993 to establish a sufficient allowance for losses
to absorb the chargeoff of these assets if they are lost in
foreclosure.
As discussed above, the Plan and the Consolidated Balance
Sheet of the Company as of December 31, 1993 contemplate the loss
of Property Nos. 3, 4, 5, 13, 15, 16, 22 and 23 in foreclosure
and the retention or near term sale of Property Nos. 1, 2, 7, 9,
10, 17, 18, 19, and 20. Property No. 21 was sold during the six
months ended December 31, 1993. The Company could be liable for
deficiency judgements totalling up to $2.5 million on the
properties expected to be lost in foreclosure. The Company's net
carrying value in excess of secured debt on Property Nos. 2 and 7
totalled approximately $13.8 million while the secured debt on
the remaining properties exceeded their net carrying value by
approximately $3.8 million. The carrying values of Property Nos.
2 and 7 assumes that these properties will be sold in subdivided
parcels over several years. The Company has been able to place a
number of parcels at these two properties in escrow to be sold
since September 30, 1993; however, only three of the transactions
have actually been consummated as of the date of this report.
In connection with CGI's bankruptcy proceedings, certain
creditors have submitted claims to the Bankruptcy Court for
amounts which the Company disputes and which had either not been
recorded in the consolidated financial statements or had been
recorded at amounts less than the claims submitted. Certain of
these claims are discussed in note 5. As of the date of this
report, the Company had reached tentative agreements with two of
the largest of such claims, including the Daniel's class action
litigation, for a combined total of approximately $4.8 million.
The Company recorded a $5.0 million extraordinary charge to
earnings to cover the expected total costs of such claims
settlements during the three months ended December 31, 1993. CGI
intends to contest the balance of disputed claims in the
Bankruptcy Court (or other courts as applicable).
During the six months ended December 31, 1993 and 1992, CGI
paid $193,000 and $77,000, respectively, in fees to professionals
in connection with the bankruptcy proceedings and was billed
$251,000 and $230,000, respectively, for professional services
- 14 -
related to the bankruptcy proceedings. These charges have been
included in general and administrative expense in the
consolidated statements of operations. CGI has not incurred any
other material expenses directly associated with the bankruptcy
proceedings during these periods.
As discussed above, under Chapter 11, enforcement of certain
claims against CGI in existence prior to the filing of the
petitions were stayed until a reorganization plan is approved.
Unsecured and undersecured claims which have been stayed by the
bankruptcy proceedings are reflected as "Liabilities Subject to
Compromise" in the accompanying consolidated balance sheets as of
December 31, 1993 and June 30, 1993.
3. CARRYING VALUE OF ASSETS
As discussed in note 1, the Company anticipates that a portion
of several of its properties may be liquidated at current
depressed market values or lost in foreclosure. Management
believed that the Company's allowance for losses as of September
30, 1993 was sufficient to cover losses which were expected to be
incurred as a result of the anticipated sales and foreclosures of
properties; however, the allowance for losses on real estate
investments did not reflect possible losses which might be
incurred as a result of foreclosure of Property Nos. 2, 3, 4 and
7 or losses which might be incurred if the Company were forced to
liquidate a substantial amount of its property in a short period.
As discussed in note 1, events occurring subsequent to September
30, 1993 have changed management's expectations and it now
appears likely that Property Nos. 3 and 4 will be lost in
foreclosure. As a result, the Company recorded an additional
provision for losses totalling $12.0 million during the three
months ended December 31, 1993 to increase its total allowance
for losses on real estate investments to an amount which
management believes is sufficient to absorb the losses which will
be incurred if Property No.'s 3 and 4 are lost in foreclosure.
The amount of cash which the Company is able to generate from
property sales and and other sources will have a significant
impact on the level of success of the Company's proposed plan of
reorganization. In the event the Company is unable to generate
adequate cash, additional properties are likely to be lost in
foreclosure. The nature and extent of changes in the Company's
business operations and financial position caused by the
bankruptcy proceedings, the Company's cash position and future
economic and real estate market conditions are still subject to
numerous uncertainties. The outcome of these uncertainties could
result in the loss of certain properties through foreclosure or
the Company being required to sell the majority of all of its
real estate assets below current carrying values. The
consolidated financial statements do not reflect all adjustments
which might result from the outcome of these uncertainties.
- 15 -
4. PROPERTIES UNDER DEVELOPMENT AND HELD FOR INVESTMENT OR SALE
Properties under development and held for investment or sale
consist of the following:
December 31, June 30,
1993 1993
(dollars in thousands)
Development and income-producing
property:
Land and offsite improvements
under development and held
for investments or sale:
Owned by the Company $ 153,692 $ 201,756
Owned by consolidated joint
venture 8,737 8,551
_________ _________
Subtotal 162,429 210,307
Operating properties, net of
accumulated depreciation and
amortization of $1,677,000 and
$1,581,000 as of December 31, 1993
and June 30, 1993, respectively 5,022 5,104
Single-family home projects 160 466
_________ _________
Subtotal 167,611 215,877
Less provision for losses on
real estate investments (79,661) (91,934)
_________ _________
Total $ 87,950 $ 123,943
_________ _________
Capitalized interest is expensed to "Cost of Property Sold" as
the Company sells properties. Interest incurred, capitalized and
expensed for the six months ended December 31, 1993 is summarized
as follows:
(dollars in
thousands)
Interest capitalized, June 30, 1993 $ 63,958
Interest incurred and capitalized 779
Interest expensed (included in Cost of
Property Sold) (2,528)
Chargeoff of interest in connection with
foreclosure of Property No. 6 (14,500)
_________
Interest capitalized, December 31, 1993 $ 47,709
_________
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5. CONTINGENCIES
As of December 31, 1993, a subsidiary of the Company was
contingently liable for $6,156,000 in performance bonds. During
the quarter ended September 30, 1993, the Company's bonding
company drew upon $1,000,000 of letters of credit issued on
behalf of the Company to cover development costs incurred by the
bonding company. As of December 31, 1993, over 62% of the work
required under these bonds had been completed, leaving an
estimated cost of completion of approximately $2.4 million. More
than $1,500,000 of these costs to complete relates to property
owned by an unrelated financial institution who acquired the
property through foreclosure from a developer which has filed for
protection under Chapter 11 of the United States Bankruptcy Code.
This developer had indemnified the Company against any losses
resulting from these bonds when it acquired the property from the
Company. The Company could be required to complete this work in
which event it would be difficult for the Company to recover the
costs. The Company has indemnified the Principals for any
liability or losses incurred by them as a result of any personal
guarantees of Company indebtedness or as a result of their
secondary liability for Company indebtedness as former general
partners of certain predecessor partnerships consolidated into
the Company. This indemnification could be secured by certain of
the Company's properties; however, it was unsecured at December
31, 1993 and cannot be secured without Bankruptcy Court approval.
Certain of the Company's subsidiaries are general partners in
various partnerships. As general partners, these subsidiaries
could be subject to unlimited liability for the obligations and
actions of these partnerships. One of these partnerships,
Centennial Real Estate Investment Fund ("CREIF"), filed a
petition with the United States Bankruptcy Court in Phoenix,
Arizona, to seek protection under Chapter 11 of the federal
bankruptcy laws. CREIF's principal creditor who held a
$2,218,000 note secured by a deed of trust on CREIF's principal
asset, a shopping center in Gilbert, Arizona, has foreclosed on
the shopping center and has commenced legal action against CCI
for collection of an asserted deficiency of approximately
$1,600,000. The Company disputes the amount of deficiency and
does not believe it will suffer a material loss from this legal
action.
In November 1991, ACPDI lost its Val Vista/Broadway,
Southern/Higley and Island Galleria properties in foreclosure by
a single lender. The principal and accrued interest balances on
the note secured by these properties were $5,977,000 and
$1,062,000, respectively, at the time of foreclosure. The
properties were also encumbered by $350,000 in accrued real
estate taxes. The lender has filed a claim with the Bankruptcy
Court in CGI's bankruptcy proceedings for a deficiency judgement
in the amount of $4,740,000. The Company has entered into
- 17 -
Bankruptcy Court approved settlement of this claim for
$2,800,000. The Company and its subsidiaries have accrued
approximately $3,700,000 to cover this contingency and the
potential deficiency related to the North Pima Center foreclosure
discussed below.
In November 1990, ACPDI lost its North Pima Center property in
foreclosure. This property was a 69,000 square foot neighborhood
shopping center and automotive center in Tucson, Arizona which
had experienced significant vacancy problems because of depressed
market conditions. The carrying value of the property at the
time of foreclosure was approximately $6,455,000. Upon
foreclosure, ACPDI charged the difference between the property's
cost basis and the debt secured by the property, which totaled
approximately $4,104,000 plus $204,000 in other accrued
liabilities against its allowance for losses on real estate
investments, which had been recorded in prior years. No revenues
were recorded in connection with this transaction. The lender
had commenced legal action against CGI for an asserted $933,000
deficiency plus other costs resulting from the foreclosure prior
to the commencement of CGI's bankruptcy proceedings.
Subsequently, the lender has filed an amended claim with the
Bankruptcy Court in CGI's bankruptcy proceedings in the amount of
$504,000.
As discussed in note 1, several creditors have submitted
claims to the Bankruptcy Court for amounts which have not been
accrued in the consolidated financial statements and which CGI
intends to contest. The Bankruptcy Court may ultimately
determine that some of these claims are valid.
Legal proceedings also include a class action complaint
against the Company and other persons, including certain
officer/directors of the Company. The complaint alleges, among
other things, violations of state and federal securities laws and
breach of fiduciary duties in connection with the consolidation
of the Company in 1987. As discussed in note 2 to the financial
statements, the Company has reached a tentative settlement
agreement with the plaintiffs in the case, however, the agreement
is still being documented and will require the approval of the
State Court in which the action has been filed. The Company
believes it has now recorded a sufficient provision for the
settlement of this case pursuant to the tentative agreement.
- 18 -
THE CENTENNIAL GROUP, INC. AND SUBSIDIARIES (Debtor-in-
Possession)
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The following discussion compares operating results for the
three and six months ended December 31, 1993 and 1992. Total
revenues increased from $519,000 to $2,292,000 during the three
month periods ended December 31, 1992 and 1993, respectively, and
from $1,418,000 to $2,724,000 for the six month periods ended
December 31, 1993, respectively. However, these increased
revenues did not generate any gross profits for the Company.
Additionally, the Company recorded provisions for losses on real
estate investments of $35,000,000 and $12,000,000 for the same
three month periods, respectively, and $40,100,000 and
$12,000,000 for the same six month periods, respectively. As a
result, the Company has continued to report substantial net
losses totalling $18,806,000 and $20,764,000 during the three and
six months ended December 31, 1993 as compared with net losses of
$36,205,000 and $42,520,000 for the three and six month periods
ended December 31, 1992 , respectively.
Reference is made to Item 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1993 on file with the Securities and
Exchange Commission.
Gross profits, as used above and in the following discussions,
represent gross revenues less selling expenses less costs
directly associated with the asset sold or the services
performed. Gross profits have not been reduced by general and
administrative costs of the Company or its subsidiaries.
The following discussions refer to certain properties by
number. These numbers correspond to property numbers used in the
Company's Form 10-K for the fiscal year ended June 30, 1993.
REAL ESTATE DEVELOPMENT
There were only two sales of development and operating
property during the three months ended December 31, 1993 while
there were no sales of development and operating property
consummated during the three months ended September 30, 1993.
Similarly, there was only one transaction in each of the first
two quarters of fiscal 1993. The Company believes that this lack
of sales is principally the result of the shortage of available
financing and/or capital for the real estate industry coupled
with concerns of other developers about certain unresolved
entitlement issues involving the Company's properties and real
estate market conditions in general.
- 19 -
One of the current year sales was the second part of a staged
transaction to two auto dealerships involving a total of 16.4
acres of the Company's Property No. 2 which was originally
entered into in fiscal 1991 ( See note 3 to the consolidated
financial statements for the year ended June 30, 1993). The
Company has rezoned this property for development as a freeway
oriented auto mall. This transaction had originally been
accounted for using the deposit method and the fiscal 1994
revenues of $1,776,000 represent the revenues generated from the
entire transaction. This all-cash transaction did not result in
any gross profits or losses, however, the Company did apply
$5,545,000 of its previously recorded allowance for losses on
real estate investments against the cost basis of this property
at the time of sale. As a result of debt reductions required in
order to provide the buyer with clear title to the property, this
transaction actually required the Company to expend approximately
$498,000 more than the cash it received from the buyer. The
Company is hopeful that the commencement of construction of these
two auto dealerships at the property will generate significant
interest from other auto dealers who may wish to relocate to the
site. The same buyers also closed escrow on an addtional 6.44
acres of this property in January 1994. This second transaction
involved no down payment by the buyer and required the Company to
carry back approximately $836,000 in financing. However, the
Company was able to generated approximately $390,000 in net cash
proceeds from this second transaction as a result of financing
obtained by the buyer from Centennial Mortgage Income Fund II, an
affiliate of the Company who had originally provided financing on
the first transaction discussed above.
The Company also sold its Property No. 21 in the most recent
quarter for an all net cash price of $139,000. The Company
applied $312,000 of its previously recorded allowance for losses
on real estate investments to the cost basis of the property at
the time of sale and the transaction resulted in no gain or loss.
In addition to the sales discussed above, the Company lost its
Property No. 6 in foreclosure during December 1993. The Company
recorded this transaction at no gain or loss and applied
$18,416,000 of its previously established allowance for losses on
real estate investments to the cost basis of this property at the
time of foreclosure.
The sale in the first quarter of fiscal 1993 involved the
Company's Property No. 14 which was zoned for residential
purposes and consisted of approximately 9.6 acres. The cash
transaction generated revenues of $198,000, net of selling
expenses of $22,000, and resulted in a loss of $22,000. The
Company applied $116,000 of its previously recorded allowance for
losses against the cost basis of this property at the time of the
sale. The sale in the second quarter of fiscal 1993 involved the
Company's Property No. 12 which was rezoned to residential zoning
-20 -
by the buyer and consisted of approximately 4.5 acres. The all-
cash transaction generated revenues of $190,000, net of selling
expenses of $10,000, and resulted in a loss of $1,000. The
Company applied $272,000 of its previously recorded allowance for
losses on real estate investments against the cost basis of this
property at the time of sale.
Although the Company has had minimal sales activity during the
past two years, it has continued its efforts to obtain zoning and
other entitlement changes approvals on a number of its Sacramento
area properties. As referred to above, the Company was
successful during fiscal 1993 in obtaining approvals for zoning
changes which will allow the Company to develop an auto mall at
its Property No. 2. As a result of this approval, the Company
was able to close escrow in December 1993 and January 1994 a
total of 22.9 acres of the property. The Company was also
successful in obtaining certain zoning changes on a portion of
its Property No. 7 in August 1993 and was subsequently able to
place approximately 65 acres of this property into two separate
sales escrows which are scheduled to be consummated in the
quarter ending March 31, 1994. The Company is hopeful that these
transactions will general additional activity at these
properties. Although these developments are encouraging, there
can be no assurance that the escrows which have not yet closed
will ever close or that any additional transactions will be
consummated. Additionally, the transactions discussed above are
not expected to generate any significant cash flow to the Company
due to required debt payments and development costs. Finally,
the Company continues to experience issues and delays in its
efforts to obtain entitlement changes on its remaining Sacramento
properties. Until such time as economic conditions improve
and/or these entitlement changes can be obtained, the Company
believes the marketability of these remaining properties will
continue to be impaired.
HOMEBUILDING
The following table summarizes selected financial data of the
Company's residential construction activities:
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
Revenues
Sales of
single-family homes $ 128 $ --- $ 272 $ 163
Gross profit (loss) (16) --- (37) (12)
Gross profit (loss)
percentage (12.5)% --- (13.6)% (7.4)%
Units sold 1 --- 2 1
- 21 -
All of the units sold during the first quarters of fiscal 1994
and 1993 were at the Company's single family home project in
Fontana, California. The current losses have resulted from
reduced sales prices caused by depressed market conditions as
well as increased carrying and marketing costs on the units sold.
CONSTRUCTION
The Company earned $152,000 in construction revenues related
to its Lancaster project infrastructure contracts during the six
months ended December 31, 1992. Gross profits of $88,000, were
recorded on these revenues. The gross profit margin in fiscal
1993 resulted from the settlement of certain disputed costs for
an amount less than that which had previously been accrued. No
comparable revenues were earned during the six months ended
December 31, 1993.
INTEREST INCOME
Interest income decreased from $55,000 and $150,000 during the
three and six months ended December 31, 1992 to $22,000 and
$53,000 during the three and six months ended December 31, 1993.
The decrease in interest income is principally due to a decrease
in the average balance of interest bearing deposits during fiscal
1994 as well as a decline in average interest rates.
RENTAL, FEE AND OTHER INCOME
A breakdown of rental, fee and other income is shown below:
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
Fee income $ 64 $ 83 $ 137 $ 149
Rental and other income 163 183 347 416
_______ _______ _______ _______
Total $ 227 $ 266 $ 484 $ 565
_______ _______ _______ _______
Fee income represents consulting fees earned from public
partnerships in which Centennial Capital, Inc. or CMIF, Inc. are
general partners, loan origination fees, property management fees
and brokerage fees. The decrease in rental and other income from
fiscal 1993 to fiscal 1994 is attributable to increased vacancy
at Property No. 20 and the receipt of a non-recurring $32,000
legal settlement during the first quarter of fiscal 1993.
- 22 -
PROVISION FOR LOSSES ON REAL ESTATE INVESTMENTS
As discussed in note 1 to the consolidated financial
statements, the prospects for the Company to generated sufficient
cash to retain all of the properties which it previously believed
it could retain pursuant to its Plan of Reorganization have now
been substantially reduced as a result of the termination of the
Certificate of Particpation offering. As a result, it now
appears likely that the Company will lose its Property No.'s 3
and 4 in foreclosure. Accordingly, the Company recorded an
additional $12,000,000 provision for losses on real estate during
the three months ended December 31, 1993.
The Company increased its allowance for losses on real estate
investments by $40,100,000 and $5,100,000 during the three and
six months ended December 31, 1992. The Company recorded these
provisions to reserve certain development and carrying costs
incurred during the first quarter of fiscal 1993 on properties
whose value has not clearly increased and to reflect additional
anticipated losses on a number of the Company's properties whose
near-term disposition at depressed market values appeared
probable as a result of the Company's declining cash reserves.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following table summarizes the significant components of
these expenses: (dollars in thousands)
Six Months Ended
December 31,
1993 1992
Number of employees 29 42
Square footage under lease 1,599 5,544
Selling, general and administrative
expenses:
Salaries and related expenses $ 851 $ 1,263
Rent and facilities expenses 115 144
Legal fees 631 391
Insurance 166 203
Depreciation 53 65
Expense recoveries from affiliates (177) (229)
Auto and travel 43 69
Accounting and audit fees 106 89
Investor mailings 103 63
Overhead capitalized to development
properties (99) (217)
Other 129 161
_________ _________
$ 1,921 $ 2,002
_________ _________
- 23 -
The Company has continued to reduce its general and
administrative costs through staff reductions, downsizing
facilities and the reduction of certain executive officers'
compensation. Legal fees during the six months ended December
31, 1993 and 1992 include $251,000 and $230,000, respectively, in
insolvency counsel fees. Other legal fees have increased
substantially during fiscal 1994 due to litigation involving
certain claims submitted in the bankruptcy proceedings as well as
fees associated with the "Certificates of Participation"
offering.
REAL ESTATE TAXES
Real estate tax expense increased from $391,000 for the six
months ended December 31, 1992 to $501,000 for the six months
ended December 31, 1993, while total real estate taxes incurred
increased by $88,000 as a result of late charges being assessed
on unpaid balances. The change in total real estate taxes
incurred is summarized as follows:
Six Months Ended
December 31,
1993 1992
(dollars in thousands)
Real estate tax expense $ 501 $ 391
Real estate taxes capitalized
to properties under development 834 1,277
Real estate taxes not accrued
(See note 1) 421 ---
_________ _________
Total real estate taxes incurred $ 1,756 $ 1,668
_________ _________
The decreased amount of taxes capitalized is due to the
declining level of development activities being conducted by the
Company due to the lack of available capital.
INTEREST EXPENSE
Although interest expense increased from $456,000 for the six
months ended December 31, 1992 to $1,558,000 for the six months
ended December 31, 1993, total interest incurred actually
increased by only $489,000. The increase in total interest
incurred is attributable to the reacquisition of Property No. 23
in December 1992 and the resulting interest incurred in the
current year for which there were no comparable amounts during
the first five months of fiscal 1993. The change in expense
resulted from differing accrual and capitalization treatments
during the two periods which are summarized as follows:
- 24 -
Six Months Ended
December 31,
1993 1992
(dollars in thousands)
Interest expense $ 1,558 $ 456
Interest capitalized to
properties under development 779 2,880
Interest not accrued
(See note 1) 1,488 ---
_________ _________
Total Interest incurred $ 3,825 $ 3,336
_________ _________
LIQUIDITY AND CAPITAL RESOURCES
Introduction
As discussed in note 2 to the consolidated financial
statements, CGI is operating under Chapter 11 of the United
States Bankruptcy Code.
The following paragraphs discuss the liquidity and capital
resources of CGI, ACPDI, CEI and the other subsidiaries of CGI
separately since the ability of the Company to transfer capital
between the companies in the consolidated group has been severely
restricted by the bankruptcy proceedings. Reference is made to
the consolidating balance sheet included below which shows the
assets and liabilities of each group separately.
CGI
CGI was in default on substantially all of its secured notes
payable as a result of payments which were past due immediately
prior to CGI's filing of its voluntary petition for relief under
Chapter 11. A number of CGI's secured creditors had commenced
foreclosure proceedings which were stayed by the bankruptcy
proceedings. However, as discussed previously, these and other
creditors already have filed or may file motions in the future
with the Bankruptcy Court to have such stays lifted. Two
properties have already been lost in foreclosure, including
Property No. 6 which was lost on December 14, 1993 (see note 2 to
the consolidated financial statements). CGI has presently
stopped making payments on all of its debt secured by real estate
assets except for debt secured by operating properties and by
CGI's corporate headquarters. However, CGI will be required to
resume making payments at various times in the future as part of
its proposed Plan which has been filed with the Bankruptcy Court.
Interest is accruing at the rate of approximately $478,000 per
month pursuant to existing note terms and will accrue at the rate
- 25 -
of approximately $161,000 pursuant to the restructured terms
proposed in the Plan on CGI's remaining notes payable secured by
real estate assets after the anticipated foreclosures on Property
Nos. 5 and 23.
In addition to note payments, CGI has suspended making
virtually all of its real property tax payments. Therefore, it
will also be necessary for CGI to resume making real property tax
payments in the future as a part of its Plan. Real property
taxes are currently accruing at the rate of approximately
$162,000 per month on CGI's properties and will decline to
$70,000 after the anticipated foreclosures and estimated
assessment valuation appeals.
As previously discussed, CGI has continued to reduce its
general and administrative overhead. Based on current reduced
levels, these expenses are still expected to require the outlay
of approximately $95,000 per month before legal and professional
fees. The amount of ongoing legal and professional fees cannot
be reasonably forecasted at this time due to the uncertainties
created by the bankruptcy proceedings; however, these costs could
be significant.
In order to enhance the value and marketability of CGI's
properties, CGI intends to continue seeking certain entitlements
and to continue using consultants on certain projects. CGI's
ability to incur such costs will be limited by the amount of
capital resources it presently has or is able to generate in the
future.
As of December 31, 1993, CGI had $630,000 in unrestricted
cash. CGI's unrestricted cash had increased to $949,000 as of
January 31, 1994. CGI's principal potential capital resources
include the sale or joint venture of properties, new debtor-in-
possession financing, and the repayment of amounts due from
certain affiliated entities, including CEI. As previously
discussed, market conditions, delays in obtaining entitlements
and the lack of financing for CGI's potential customers have
severely restricted the ability of the Company to sell property
in the near term. CGI has engaged in preliminary discussions
with certain parties regarding joint ventures and/or debtor-in-
possession financing; however, none of these discussions are
ongoing as of the date of this report. The amount and timing of
cash generated from the sources discussed above will have a
significant impact on the success of the Company's proposed Plan.
Based upon current cash flow forecasts, the Company's cash will
be completely depleted by the fourth quarter of fiscal 1994 if no
net cash is generated from the property sales, joint ventures or
other sources. If the Company's cash is completely depleted, it
could be forced to liquidate its assets and it is unlikely that
the proceeds from such liquidation will be sufficient to repay
all of the Company's liabilities.
- 26 -
ACPDI
ACPDI's capital resources are extremely limited. As of
December 31, 1993 it had only $1,000 in cash. It is anticipated
that approximately $1,121,000 of its $1,345,000 carrying value of
properties under development and held for investment or sale will
be lost through foreclosures or deed in lieu of foreclosure
transactions. The note payable, accrued interest and accrued
real estate taxes on the properties anticipated to be lost are
$1,824,000, $781,000 and $263,000, respectively. ACPDI's
receivables are not expected to be converted to cash in the near
term. It is expected that ACPDI's remaining assets will be
liquidated and that its remaining creditors will receive only a
partial, if any, recovery of their debt. Three creditors holding
notes payable secured by real estate with combined principal and
interest balances of $1,865,000 may have recourse against CGI for
deficiencies after they complete their foreclosures.
CEI
As of December 31, 1993, CEI had $11,000 in unrestricted cash.
Its $310,000 in receivables are principally comprised of non-
current refundable utility deposits. Thus, CEI's only
significant potential source of cash in the near term is from the
sale of property. However, the combined current market values of
CEI's Lancaster and Bakersfield projects are currently estimated
to have declined to the point that CEI has minimal, if any,
equity in the properties. Accordingly, as of December 31, 1993,
CEI's only probable source of cash in the near term was from the
sale of its 1 remaining home at its Fontana project. This home
closed escrow in January 1994. It is expected that CEI will lose
its remaining real estate assets in foreclosure and will cease
active operations.
OTHER SUBSIDIARIES
CGI's other subsidiaries include a joint venture which has
negotiated an extension of a $1.4 million note payable secured by
the Property No. 9 until April 1994. This joint venture does not
have sufficient capital resources to repay the note when it
matures; however, it is in escrow to sell a large portion of the
property and, if consummated, the sale would provide cash to
repay the loan. The other subsidiaries in this group all are
expected to have sufficient resources to fund their operations
other than the potential contingent claims discussed in note 5 to
the consolidated financial statements.
OTHER INFORMATION
During the six months ended December 31, 1993, the principal
sources of cash for the Company were as follows: $726,000 in
proceeds from sales of property; $1,000,000 in proceeds from the
- 27 -
liquidation of short-term investments; and $451,000 in
construction revenues, fees and rents. The principal uses of
cash for the Company were: $730,000 in principal payments on
notes payable secured by properties sold; $403,000 in interest
payments; and $3,805,000 in construction, property operating
costs and general and administrative costs. The $1,000,000
proceeds from the liquidation of short-term investments were paid
to the Company's bonding company for the work they performed in
connection with performance bonds which they had issued on behalf
of the Company. See note 5 to the consolidated financial
statements. This payment has been included in construction,
property operating costs and general and administrative costs.
The Company's principal sources of capital during the past
several years have been cash generated from the sale of
development property and funds generated from the refinance or
extension of existing debt as it matured. As discussed above,
the Company believes that the increasing scarcity of financing
available to the real estate industry has restricted the
Company's ability to generate cash from the sale of development
property in the near term. Other less significant sources of
cash for the Company include the sale of its single-family home
in Fontana, interest income on short-term investments, cash on
hand and fee income.
- 28 -
CONSOLIDATING BALANCE SHEETS
December 31, 1993
(Unaudited)
(in thousands)
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
ASSETS
Properties under
development and
held for
investment or sale $ 65,083 $ 1,345 $ 16,728 $ 4,794 $ --- $ 87,950
Cash and cash
equivalents 630 1 11 206 --- 848
Short-term
investments --- --- --- --- --- ---
Accounts and notes
receivable 33 1 310 9 --- 353
Due from affiliates 567 57 --- 111 --- 735
Intercompany
receivables 2,917 --- --- 7,744 (10,661)a ---
Investment in
subsidiaries 5,475 --- --- 56 (5,531)b ---
Other assets 1,357 4 80 11 --- 1,452
Deferred income tax
benefits --- --- --- 1,362 (1,362)c ---
_________ _________ _________ _________ _________ _________
Total assets $ 76,062 $ 1,408 $ 17,129 $ 14,293 $ (17,554) $ 91,338
_________ _________ _________ _________ _________ _________
- 29 -
CONSOLIDATING BALANCE SHEETS (Unaudited) (Continued)
December 31, 1993
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
LIABILITIES AND
STOCKHOLDERS EQUITY
LIABILITIES NOT
SUBJECT TO
COMPROMISE:
Secured notes
payable $ 22,439 $ --- $ 5,578 $ 1,412 $ --- $ 29,429
Secured notes
payable to
affiliate 11 --- 10,591 50 --- 10,652
Accrued interest
on secured notes 5,535 --- 349 86 --- 5,970
Accrued real
estate taxes
payable 6,119 317 443 141 --- 7,020
Accounts payable
and other accrued
liabilities 615 48 230 3,377 --- 4,270
Income taxes payable
(refundable) (18) 2 (386) 402 --- ---
Intercompany
payables --- 949 1,680 (2,629)a ---
Deferred income
taxes 1,362 --- --- --- (1,362)c ---
_________ _________ _________ _________ _________ _________
Subtotal 36,063 367 17,754 7,148 (3,991) 57,341
_________ _________ _________ _________ _________ _________
- 30 -
CONSOLIDATING BALANCE SHEETS (Unaudited) (Continued)
December 31, 1993
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
LIABILITIES SUBJECT
TO COMPROMISE:
Notes payable
(undersecured) 13,565 1,830 --- --- --- 15,395
Other amounts due
to affiliates 246 --- --- --- --- 246
Accrued interest
payable 7,170 781 --- --- --- 7,951
Accrued real
estate taxes
payable --- --- --- --- --- ---
Accounts payable
and other accrued
liabilities 5,739 4 --- --- --- 5,743
Intercompany
payables 6,883 1,149 --- --- (8,032)a ---
_________ _________ _________ _________ _________ _________
Subtotal 33,603 3,764 --- --- (8,032)a 29,335
_________ _________ _________ _________ _________ _________
Minority Interest --- --- --- 3,187 (31)b 3,156
Stockholders'
equity 6,396 (2,723) (625) 3,958 (5,500)b 1,506
Total
liabilities and
stockholders'
equity $ 76,062 $ 1,408 $ 17,129 $ 14,293 $ (17,554) $ 91,338
_________ _________ _________ _________ _________ _________
a. Eliminates intercompany receivables and payables. b. Eliminates investment in
subsidiaries. c. Reclassifies deferred tax benefits as reductions in deferred tax
liability.
- 31 -
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material developments have occurred regarding ongoing legal
proceedings since the Company filed its Form 10-K for the year
ended June 30, 1993 other than those discussed below:
SHIRLEY DANIELS, ET AL. VS. THE CENTENNIAL GROUP, INC. ET AL.
SUPERIOR COURT COUNTY OF ORANGE, STATE OF CALIFORNIA, CASE NO. 52
67 08 ("DANIELS I"). In June, 1987, a class action complaint was
filed against CGI and certain of its subsidiaries, Ronald R.
White, John B. Joseph, E.F. Hutton & Company, Inc., PaineWebber
Inc., Valuation Research Corporation and predecessor entities
owned by White and Joseph (collectively, the "Defendants"). The
action was brought on behalf of a class of persons or entities
who were limited partners in certain predecessor publicly-held
real estate partnerships as of April 30, 1987, the record date
for limited partners of the limited partnerships who were
entitled to consent to the consolidation of these predecessor
publicly-held limited partnerships and several entities owned by
White and Joseph in June 1987 (the "Consolidation"). The
plaintiffs alleged that the defendants violated various state and
federal securities laws and breached fiduciary duties in
connection with the Consolidation and the solicitation of
consents for the Consolidation.
In the action, the plaintiffs sought to recover compensatory
and punitive damages in unspecified amounts. They also sought
recission and invalidation of the Consolidation and the
imposition of a constructive trust upon the shares of CGI
distributed to White and Joseph, the imposition of a constructive
trust upon all fees, commissions and the other monies paid by the
Company to defendants E.F. Hutton & Company, Inc. and PaineWebber
Inc., and reimbursement to the predecessor publicly-held real
estate partnerships for all expenses incurred in connection with
the consent solicitation and the Consolidation.
The Defendants answered the Plaintiff's complaint, and denied
any liability to the plaintiffs. The plaintiffs made four
motions for an order certifying the case as a class action. Each
of these motions was denied by the Superior Court. Following the
denial of its fourth motion, the plaintiffs filed an appeal from
this decision with the Court of Appeal. The Court of Appeal
subsequently reversed the Superior Court ruling denying the
motion for class certification. On January 5, 1994, the Superior
Court issued an order, which certified the action as a class
action.
- 32 -
In recent months, the parties have conducted extensive
settlement negotiations. As a result of these negotiations,
defendants Valuation Research Corporation, E.F. Hutton & Company,
Inc. and PaineWebber, Inc. reached a separate settlement with the
plaintiffs. In addition, the remaining defendants, including
CGI, Joseph and White (hereinafter, collectively, the "Centennial
Defendants") have now reached a prospective settlement with the
plaintiffs.
By the terms of the this prospective settlement, Centennial
Community Developers, Inc. and Centennial Capital, Inc. shall
assign for the benefit of the plaintiff class their claims in the
CGI Chapter XI bankruptcy proceeding in the approximate amount of
$3,325,000, and (2) White and Joseph shall assign for the benefit
of the plaintiff class their "stock appreciation rights" in the
common stock received by them as a result of the Consolidation.
Pursuant to the terms of the prospective settlement, if the
Centennial stock received by White and Joseph in the
Consolidation increases in price to a value above $1.50 per
share, the plaintiffs will receive 50% of any such increase
between $1.51 and $5.00 per share.
Settlement of the action will be subject to the Superior Court
entering a judgment approving the settlement terms following
notice of the settlement to members of the class and a hearing to
determine whether the settlement should be approved.
The parties are currently completing the documentation of the
prospective settlement, and procedures for notifying the members
of the class of the settlement terms, and scheduling the hearing
referred to above have not yet been finalized.
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference in made to Note 2 to the consolidated financial
statements on page 11.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
- 33 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NONE
(b) Reports on Form 8-K.
NONE
- 34 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE CENTENNIAL GROUP, INC.
By: /s/Ronald R. White February 23, 1994
_________________________ _________________
Ronald R. White Date
Chairman of the Board,
President
By: /s/Joel H. Miner February 23, 1994
_________________________ _________________
Joel H. Miner Date
Chief Financial Officer,
Vice President