<PAGE>
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 March 31, 1994 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 May 13, 1994
* Net of 423,330 shares of stock held in treasury.
<PAGE>
<TABLE>
THE CENTENNIAL GROUP, INC.
Consolidated Balance Sheets (Unaudited)
(dollars in thousands)
<CAPTION>
March 31, June 30,
1994 1993
<S> <C> <C>
ASSETS
Properties under development and held for
investment or sale (notes 2, 3 and 4) $ 76,487 $ 123,943
Cash and cash equivalents 1,939 3,710
Short-term investments --- 1,000
Accounts and note receivable, net 357 345
Due from affiliates, net 768 724
Property and equipment, net of accumulated
depreciation of $1,409 and $1,335 as of
March 31, 1994 and June 30, 1993,
respectively 1,072 1,143
Other assets 312 350
_________ _________
Total assets $ 80,935 $ 131,215
_________ _________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES NOT SUBJECT TO COMPROMISE:
Notes payable $ 42,599 $ 43,278
Notes payable and amounts due to affiliates 6,980 10,652
Accrued interest on notes and bonds payable 10,823 11,739
Accrued real estate taxes payable 7,230 8,936
Accounts payable and other accrued liabilities 1,415 3,700
Accrued class 29 claims (note 2) 5,700 ---
Accrued class 30 claims (note 2) 3,324 ---
_________ _________
Subtotal 78,071 78,305
_________ _________
<PAGE>
Consolidated Balance Sheets (Unaudited)
(Continued)
<CAPTION>
March 31, June 30,
1994 1993
<S> <C> <C>
LIABILITIES SUBJECT TO COMPROMISE:
Notes payable $ --- $ 15,377
Other amounts due to affiliates --- 259
Accrued interest payable --- 7,854
Accounts payable and other accrued liabilities --- 3,993
_________ _________
Subtotal --- 27,483
_________ _________
Total liabilities 78,071 105,788
_________ _________
MINORITY INTEREST 2,987 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 March 31, 1994 and June 30, 1993 266 266
Additional paid-in capital 136,312 136,312
Accumulated deficit (134,191) (111,798)
Treasury stock at cost; 423,330 shares at
March 31, 1994 and June 30, 1993 (2,510) (2,510)
_________ _________
Total stockholders' equity (deficit) (123) 22,270
_________ _________
Total liabilities, minority interest
and stockholders' equity $ 80,935 $ 131,215
_________ _________
<PAGE>
THE CENTENNIAL GROUP, INC.
Consolidated Statements of Operations (Unaudited)
For the three and nine months ended March 31, 1994 and 1993
(dollars in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenues
Sales of:
Development and operating
properties $ 3,619 $ --- $ 5,534 $ 388
Single-family homes 137 464 409 627
Construction --- --- --- 152
Interest 9 49 62 199
Rental, fee and other 272 267 756 832
________ ________ ________ ________
Total revenue 4,037 780 6,761 2,198
________ ________ ________ ________
Costs and expenses:
Cost of sales:
Development and operating
properties 4,175 --- 6,089 409
Single-family homes 169 488 478 663
Construction expenses --- (21) --- 43
Property operating expenses 110 139 387 455
Provision for losses on real
estate investments --- --- 12,000 40,100
General & administrative (note 2) 694 1,220 2,615 3,222
Real Estate Taxes (note 1) 143 813 644 1,204
Interest expense (notes 1 and 4) 458 1,724 2,016 2,180
________ ________ ________ ________
Total costs and expenses 5,749 4,363 24,229 48,276
________ ________ ________ ________
<PAGE>
Consolidated Statements of Operations (Unaudited)
For the three and nine months ended March 31, 1994 and 1993
(dollars in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Loss before minority interest,
income taxes and
extraordinary item $ (1,712) $ (3,583) $(17,468) $(46,078)
Minority interest in earnings (157) 7 (157) 24
________ ________ ________ ________
Loss before income taxes
and extraordinary item (1,555) (3,590) (17,311) (46,102)
Income tax expense --- --- 8 8
________ ________ ________ ________
Loss before extraordinary
item (1,555) (3,590) (17,319) (46,110)
Extraordinary charge related to
settlement of litigation (note 2) (74) --- (5,074) ---
________ ________ ________ ________
Net loss $ (1,629) $ (3,590) $(22,393) $(46,110)
________ ________ ________ ________
Net loss per common
share (note 1) $ (.06) $ (.14) $ ( .85) $ (1.76)
________ ________ ________ ________
Weighted average shares
outstanding (note 1) 26,195,675 26,195,675 26,195,675 26,195,675
<PAGE>
THE CENTENNIAL GROUP, INC.
Consolidated Statements of Stockholders' Equity (Unaudited)
(dollars in thousands)
<CAPTION>
Total
Additional Stockholder's
Common Paid-in Accumulated Treasury Equity
Stock Capital Deficit Stock (Deficit)
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $ 266 $ 136,312 $(111,798) $ (2,510) $ 22,270
Net loss --- --- (22,393) --- (22,393)
_________ _________ _________ _________ _________
Balance, March 31, 1994 $ 266 $ 136,312 $(134,191) $ (2,510) $ (123)
_________ _________ _________ _________ _________
<PAGE>
THE CENTENNIAL GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended March 31, 1994 and 1993
(dollars in thousands)
<CAPTION>
March 31, March 31,
1994 1993
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net proceeds from sales of property $ 4,582 $ 1,014
Cash payments on notes receivable from
sales of property --- 2,296
Construction revenues, fees and rents received 681 763
Interest received 62 200
Other income received 23 52
Income taxes paid (8) (8)
Property development costs paid (584) (1,270)
Principal reductions on seller provided financing
secured by properties (997) (1,603)
Interest paid (638) (841)
Other payments to suppliers and payroll costs paid (4,435) (3,298)
_________ _________
Net cash used by operating activities (1,314) (2,695)
_________ _________
CASH FLOW FROM INVESTING ACTIVITIES:
Collections (increase) on other non-trade receivables 25 29
Cash received from short-term investments 1,000 150
Cash received from (advanced to) affiliates (44) (6)
Cash received from other assets 4 5
Purchase of property and equipment (2) (2)
_________ _________
Net cash flows from investing activities 983 176
_________ _________
<PAGE>
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the nine months ended March 31, 1994 and 1993
(dollars in thousands)
<CAPTION>
March 31, March 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new notes payable $ --- $ 103
Principal payments on notes payable (1,424) (20)
Proceeds (reductions) from/in notes
payable to affiliates (4) 54
Receipts against non-operating other accruals 1 2
Cash distributions to minority interest (13) (9)
_________ _________
Net cash flows provided from
(used by) financing activities (1,440) 130
_________ _________
Net decrease in cash and cash equivalents (1,771) (2,389)
Cash and cash equivalents at beginning of period 3,710 6,901
_________ _________
Cash and cash equivalents at end of period $ 1,939 $ 4,512
_________ _________
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the nine months ended March 31, 1994 and 1993 (dollars in thousands)
<CAPTION>
March 31, March 31,
1994 1993
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net loss $ (22,393) $ (46,111)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 217 241
Amortization of note payable discounts 14 187
Provision for losses on real estate investments 12,000 40,100
Minority interest in earnings (157) 24
Decrease (increase) in properties under development
and held for investment or sale 3,466 (4,377)
Decrease in notes receivable from property sales --- 2,296
Increase in other receivables, net (52) (616)
Decrease in seller provided financing, net (997) (1,603)
Increase in accrued interest payable 2,521 4,459
Increase in accrued real estate taxes payable 2,544 2,427
Decrease in accounts payable and accrued liabilities 1,484 373
Other 39 (95)
_________ _________
Net cash used by operating activities $ (1,314) $ (2,695)
_________ _________
The following table summarizes the effects of the foreclosure of Property Nos. 6 & 15 in
fiscal 1994 ( see note 2 ) and the reacquisition of Property No. 23 in fiscal 1993:
Net (increase) decrease in properties under development
and held for investment or sale 31,846 (14,868)
Decrease in accounts and notes receivable --- ---
Increase (decrease) in notes payable (17,169) 10,802
Increase (decrease) in accrued interest payable (7,816) 3,066
Increase (decrease) in accrued real estate taxes (3,189) 1,000
Decrease in notes payable to affiliates (3,672) ---
</TABLE>
THE CENTENNIAL GROUP, INC.
Notes to Consolidated Financial Statements (Unaudited)
For March 31, 1994 and June 30, 1993
1. GENERAL
In the opinion of management, the unaudited 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 nine months ended
March 31, 1994 and 1993 are not necessarily indicative of those
expected for a full year. Information pertaining to the three
and nine month periods ended March 31, 1994 and 1993 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 March 31, 1993
consolidated financial statements have been reclassified to
conform with the March 31, 1994 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 was 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 nine months ended March 31, 1994 was
$1,923,000 and $529,000 respectively.
2. REORGANIZATION PROCEEDINGS UNDER CHAPTER 11
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 February 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,
1993, 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
on Property No. 13 is proceeding with its foreclosure process.
CGI also consented to stipulations providing creditors on
-11-
Property Nos. 3, 4 and 5 with relief from stay. Management
believes that the "Allowance for Losses on Real Estate
Investments" as of March 31, 1994, is sufficient to absorb any
losses which have or will be incurred as a result of foreclosures
on all of the properties discussed above.
On March 4, 1994 ( the "Confirmation Date" ) the United States
Bankruptcy Court for the Central District of California entered
an order confirming the Second Amended Plan of Reorganization as
Modified ( the "Plan" ) which had been filed by The Centennial
Group, Inc. ( the "Company" ). The Plan will become effective (
the "Effective Date") 90 days after the Confirmation Date,
although several aspects of the Plan have been implemented and/or
taken affect.
The Plan provides for thirty-two separate classes of creditors
as follows: i) Classes one through twenty-seven are comprised of
claims secured by liens against the Company's real properties and
include principally mortgage notes, governmental bond assessments
and real property taxes; ii) Class twenty-eight claims are
comprised of prepetition allowed unsecured claims that are less
than or equal to $25,000; iii) Class twenty-nine claims are
comprised of prepetition allowed unsecured claims other than
claims included in class twenty-eight; iv) Class thirty claims
are comprised of prepetition unsecured claims of certain
subsidiaries of the Company; v) Class thirty-one claims are
comprised of the members of the class represented by the Daniel's
Plaintiffs in the Daniels litigation and all other claims related
thereto; and vi) Class thirty-two which is comprised of the
Stockholders of the Company.
The following discussion provides information about the
treatment of these various classes of creditors and the expected
impact on the properties currently owned by the Company. These
properties are referred to by numbers which correspond with
numbers used in the Company's Form 10-K for the year ended June
30, 1993 on file with the Securities and Exchange Commission. A
separate balance sheet for The Centennial Group, Inc. as of March
31, 1994 is included in the consolidating balance sheets
beginning on page 31.
UNIMPAIRED CLAIMS
Creditors holding notes and other liens secured by Property
No.s 3, 4, 5, 13 and 23 are unimpaired pursuant to the Plan and
may complete their foreclosure of these properties if they elect
to do so. The Company expects these creditors to complete
foreclosure proceedings on these properties in the next several
months. The principal, accrued interest and accrued real estate
taxes included in the Company's balance sheet for these claims as
of March 31, 1994 totalled approximately $21,098,000 , $9,566,000
and $1,957,000 , respectively. The Company's net carrying value
-12-
for these properties was approximately $30,953,000. Upon
foreclosure, the Company expects that its liabilities and assets
will be reduced by these amounts with no significant gain or loss
recorded upon foreclosure.
Classes thirty-one and thirty-two are also unimpaired
pursuant to the Plan. Four other classes of secured claims,
including three classes with claims which were secured by
Property No. 6 which was lost in foreclosure during December
1993, were also unimpaired by the Plan. The Company does not
believe it has any further liability under these four classes of
secured claims.
The Plan requires that administrative claims which have been
incurred after the Petition Date will be paid in cash by the
Effective Date, unless the holders of the particular claims agree
otherwise. These claims totalled approximately $700,000 as of
March 31, 1994.
IMPAIRED CLAIMS
Although a substantial portion of the claims against the
Company as of the Petition Date are considered to be impaired by
the Plan, the Plan has not reduced the amount owed as of the
Petition Date nor the interest which has accrued thereon from the
Petition Date through the Confirmation Date pursuant to contracts
in existence as of the Petition Date. These claims are
considered to be impaired as a result of the modification of
repayment terms and in certain cases, modifications of interest
rates subsequent to the Confirmation Date pursuant to the Plan.
Unsecured claims against the Company as of the Petition Date will
not accrue any interest from the Petition Date through the
Effective Date. A brief discussion of the major types of
impaired claims is provided in the following paragraphs.
Delinquent property taxes which had accrued as of the
Petition Date and have accrued from the Petition Date through the
Confirmation Date will generally be repaid in five equal annual
installments together with interest at a fixed annual rate
determined by adding 3% to the yield on five year United States
Treasury Bonds as of the Confirmation Date. These annual
payments are to commence on either June 30,1994 or December 31,
1994. Delinquent Mello Roos District bond assessments will
either be repaid in a single installment within twelve months or
in monthly installments over 84 months with interest at a fixed
rate determined by adding 3% to the yield on seven year United
States Treasury Bonds as of the Confirmation Date. Post
Confirmation Date taxes and bond assessments will continue to
accrue and become payable pursuant to existing tax codes.
Interest had generally been accruing on the unpaid taxes and bond
assessments at the rate of 18% per annum from the Petition Date
through the Confirmation Date.
-13-
The maturity dates on notes secured by the remaining
properties have generally been extended for either five or seven
years pursuant to the Plan. Certain notes will require monthly
principal and interest payments while other notes will require
quarterly or annual interest only payments. Interest will accrue
at rates ranging from the Prime rate plus 2% to a fixed rate of
10% with the exception of one note secured by Property No. 2 .
This note, which had a balance of approximately $1.2 million as
of March 31, 1994 , will bear interest at 24% per annum unless
paid prior to eighteen months after the Confirmation Date in
which event the interest in excess of 9% will be waived. One of
the notes secured by Property No. 7 , which had a balance of
approximately $8.9 million as of March 31, 1994 , will provide
for certain discounted payoff amounts for principal reductions
made prior to maturity. These discounts range from 26% for
payments made during 1994 down to 5% for payments made during
1998, after which no discounts are available.
Class twenty-eight claims will be paid in full in cash on or
before the Effective Date of the Plan. These claims are expected
to total less than $200,000.
Class twenty-nine claims shall receive future quarterly
distributions by the Company. Additionally, it could be
determined that the Company is liable for up to $1,995,000 of
certain secured liabilities of Arizona Commercial Property
Development, Inc. which totalled $2,652,000 and are shown on the
consolidating balance sheet as of March 31, 1994 on page 31.
All of these class twenty-nine claims will bear interest at the
rate of 7% per annum after the Effective Date. Payments will be
made out of cash on hand after deducting on a quarterly basis a
reserve for 12 months' future operations by the Company, which
reserve shall include amounts necessary to pay anticipated
interest and property tax and bond obligations relating to the
Company's retained properties. The balance owing to Class
twenty-nine claimants will be paid in full by no later than four
years after the Effective Date. A minimum payment of $1,000,000
shall have been paid by December 31, 1994; an additional minimum
payment of $2,000,000 shall have been paid by December 31, 1995;
an additional minimum payment of $2,000,000 shall have been paid
by December 31, 1996.
Class thirty claims shall be paid in future quarterly
distributions by the Company after the members of Class 28 and 29
have been paid in full. These claims will bear interest at the
rate of 7% per annum after the Effective Date and be payable in
quarterly installments out of cash on hand after deducting a
reserve for 12 months' future operations by the Company as
discussed above.
As part of its Plan, the Company, offered for sale and
issuance to the beneficial owners of common stock of the Company
-14-
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.
Although the Plan has been approved, CGI must still 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 March 31, 1994 contemplate the receipt of a
significant amount of cash from property sales, joint ventures or
from other sources.
Since the certificate of participation offering was terminated
in January 1994, the prospects for the Company to generate
sufficient cash to retain all of its remaining properties were
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 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 March 31, 1994 contemplate the loss of
Property Nos. 3, 4, 5, 13, 16, 22 and 23 in foreclosure and the
retention or near term sale of Property Nos. 1, 2, 7, 9, 10, 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 $11.0 million while the secured debt on
-15-
the remaining properties exceeded their net carrying value by
approximately $4.0 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. As
a part of the Daniel's settlement, certain of CGI's subsidiaries
have agreed to assign approximately $3.2 million of their Class
30 claims to the plaintiffs. CGI intends to contest the balance
of disputed claims in the Bankruptcy Court (or other courts as
applicable).
During the nine months ended March 31, 1994 and 1993, CGI paid
$193,000 and $77,000, respectively, in fees to professionals in
connection with the bankruptcy proceedings and was billed
$358,000 and $402,000, respectively, for professional services
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 the reorganization plan was approved.
Unsecured and undersecured claims which were stayed by the
bankruptcy proceedings are reflected as "Liabilities Subject to
Compromise" in the accompanying consolidated balance sheets as of
June 30, 1993 but have been reclassified as of March 31, 1994
based upon their treatment under the Plan.
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
-16-
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 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 other sources will have a significant impact
on the level of success of the Company's 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.
4. PROPERTIES UNDER DEVELOPMENT AND HELD FOR INVESTMENT OR SALE
Properties under development and held for investment or sale
consist of the following:
March 31, June 30,
1994 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 $ 138,377 $ 201,756
Owned by consolidated joint
venture 2,567 8,551
_________ _________
Subtotal 140,944 210,307
-17-
Operating properties, net of
accumulated depreciation and
amortization of $1,725,000 and
$1,581,000 as of March 31, 1994
and June 30, 1993, respectively 4,987 5,104
Single-family home projects --- 466
_________ _________
Subtotal 145,931 215,877
Less provision for losses on
real estate investments (69,444) (91,934)
_________ _________
Total $ 76,487 $ 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 March 31, 1994 is summarized as
follows:
(dollars in
thousands)
Interest capitalized, June 30, 1993 $ 63,958
Interest incurred and capitalized 1,191
Interest expensed (included in Cost of
Property Sold) (6,229)
Chargeoff of interest in connection with
foreclosure of Property Nos. 6 & 15 (17,053)
_________
Interest capitalized, March 31, 1994 $ 41,867
_________
5. CONTINGENCIES
As of March 31, 1994, 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 March 31, 1994, 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
-18-
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.
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. Recently an arbitration board found that the
creditor had a claim for deficiency and costs totalling
$1,099,000 against CREIF and its general partners. This ruling
cannot be appealed.
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
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 as well as certain other substantially smaller
claims which may become payable as a part of Class 29 creditors.
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 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.
-19-
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.
- 20 -
<PAGE>
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 nine months ended March 31, 1994 and 1993. Total
revenues increased from $780,000 to $4,037,000 during the three
month periods ended March 31, 1993 and 1994, respectively, and
from $2,198,000 to $6,761,000 for the nine month periods ended
March 31, 1993 and 1994, 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 $40,100,000 and $12,000,000 for the same
nine month periods, respectively. As a result, the Company has
continued to report substantial net losses totalling $1,629,000
and $22,393,000 during the three and nine months ended March 31,
1994 as compared with net losses of $3,590,000 and $46,110,000
for the three and nine month periods ended March 31, 1993 ,
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 four sales of development and operating
property during the nine months ended March 31, 1994. 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.
One of the current year sales was the second part of a staged
-21-
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 additional 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 generate 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 did not record
the $836,000 note it received in connection with this transaction
due to the uncertainty of collection. However, the Company did
record $700,000 in revenues. The transaction resulted in a net
loss of $320,000 after the Company applied $1,935,000 of its
previously recorded provision for losses on real estate
investments against the cost basis of the property at the time of
sale.
The Company also sold its Property No. 21 in the quarter ended
December 31, 1993 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.
The joint venture in which a subsidiary of the Company is a
general partner sold 19.5 acres of its property in an all cash
transaction which generated revenues of $2,919,000 during the
quarter ended March 31, 1994. This transaction resulted in a net
loss of $236,000 after the joint venture applied $3,348,000 of
its previously recorded provision for losses on real estate
investments.
In addition to the sales discussed above, the Company and one
-22-
of its subsidiaries lost their Property Nos. 6 and 15 in
foreclosure during the nine months ended March 1994. The Company
and its subsidiary recorded these transactions at no gain or loss
and applied $23,359,000 of their previously established allowance
for losses on real estate investments to the cost basis of these
property at the time of foreclosure. One of the creditors who
foreclosed on Property No. 15 was an affiliate of the Company.
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 $20,000. 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
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 on 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 72 acres of this property into six separate
sales escrows which are scheduled to be consummated in the
quarters ending June 30, 1994 and September 30, 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.
-23-
HOMEBUILDING
The following table summarizes selected financial data of the
Company's residential construction activities:
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1994
Revenues
Sales of
single-family homes $ 137 $ 464 $ 409 $ 627
Gross profit (loss) (32) (24) (69) (36)
Gross profit (loss)
percentage (23.3)% (5.2)% (16.9)% (5.7)%
Units sold 1 3 3 4
All of the units sold during the 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. The project is now sold out
and there is no remaining inventory of homes available for sale.
CONSTRUCTION
The Company earned $152,000 in construction revenues related
to its Lancaster project infrastructure contracts during the nine
months ended March 31, 1993. Gross profits of $109,000, 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 nine months ended
March 31, 1994.
INTEREST INCOME
Interest income decreased from $49,000 and $199,000 during the
three and nine months ended March 31, 1993 to $9,000 and $62,000
during the three and nine months ended March 31, 1994. 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.
-24-
RENTAL, FEE AND OTHER INCOME
A breakdown of rental, fee and other income is shown below:
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
Fee income $ 36 $ 65 $ 173 $ 214
Rental and other income 236 202 583 618
_______ _______ _______ _______
Total $ 272 $ 267 $ 756 $ 832
_______ _______ _______ _______
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 the receipt of a
non-recurring $32,000 legal settlement during the first quarter
of fiscal 1993.
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 Participation 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 during the nine months ended March 31,
1993. The Company recorded this provision 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.
-25-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following table summarizes the significant components of
these expenses: (dollars in thousands)
Nine Months Ended
March 31,
1994 1993
Number of employees 25 30
Square footage under lease 1,599 1,599
Selling, general and administrative
expenses:
Salaries and related expenses $ 1,179 $ 1,886
Rent and facilities expenses 155 198
Legal fees 876 734
Insurance 240 313
Depreciation 72 97
Expense recoveries from affiliates (279) (361)
Auto and travel 49 92
Accounting and audit fees 120 206
Investor mailings 133 69
Overhead capitalized to development
properties (128) (271)
Other 198 259
_________ _________
$ 2,615 $ 3,222
_________ _________
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 nine months ended March 31,
1994 and 1993 include $358,000 and $402,000, 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 decreased from $1,204,000 for the nine
months ended March 31, 1993 to $658,000 for the nine months ended
March 31, 1994, while total real estate taxes incurred decreased
by $292,000. The decreases can be attributed to the sales and
foreclosures of property. The change in total real estate taxes
incurred is summarized as follows:
-26-
Nine Months Ended
March 31,
1994 1993
(dollars in thousands)
Real estate tax expense $ 501 $ 1,204
Real estate taxes capitalized
to properties under development 1,214 1,359
Real estate taxes not accrued
(See note 1) 529 ---
_________ _________
Total real estate taxes incurred $ 2,244 $ 2,536
_________ _________
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 only decreased from $2,180,000 for
the nine months ended March 31, 1993 to $2,016,000 for the nine
months ended March 31, 1994, total interest incurred actually
decreased by $823,000. The decrease in total interest incurred
is attributable to the sales and foreclosures of properties in
the current year. The change in expense resulted from differing
accrual and capitalization treatments during the two periods
which are summarized as follows:
Nine Months Ended
March 31,
1994 1993
(dollars in thousands)
Interest expense $ 1,558 $ 2,180
Interest capitalized to
properties under development 1,191 3,315
Interest not accrued
(See note 1) 1,923 ---
_________ _________
Total Interest incurred $ 4,672 $ 5,495
_________ _________
-27-
LIQUIDITY AND CAPITAL RESOURCES
Introduction
As discussed in note 2 to the consolidated financial
statements, CGI has been 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
Although CGI was successful in obtaining confirmation of its
plan of reorganization during the quarter ended March 31, 1994,
its liquidity challenges remain significant. As discussed in
note 2 to the consolidated financial statements, it is
contemplated that Property Nos. 3, 4, 5, 13, 16, 22 and 23 will
be lost in foreclosure. The following discussion excludes any
cash requirements needed to retain those properties.
As of March 31, 1994, CGI had $766,000 in unrestricted cash
which was available to enable the Company to carry out its Plan.
At the same time, approximately $800,000 of its $1,021,000 in
accounts payable and accrued liabilities represented
administrative claims and Class 28 claims which will be required
to be paid by the Effective Date of the Plan in June 1994.
Additionally, CGI is now required to commence making interest and
delinquent property tax payments pursuant to the restructured
terms in the Plan. These payments are estimated to total
approximately $119,000 and $649,000 , respectively, prior to June
1994. Future payments will be dependent upon the amount and
timing of property sales. Notes payable by CGI after the
expected foreclosures will be reduced to approximately $18.1
million with interest accruing at an average rate of
approximately 9% or $135,000 per month. CGI will also be
required to begin making real property tax payments as they come
due. The first of such payments will come due in December 1994
and could be as much as $900,000 if no sales are completed prior
to then. In addition to the cash requirements discussed above,
CGI will need to pay its general and administrative expenses
which are currently forecasted to average approximately $75,000
per month.
CGI was able to collect $350,000 in amounts owed by
subsidiaries during April 1994 and closed escrow on Property No.
1 which generated an additional $165,000 in May 1994. In order
-28-
to fully implement its Plan, the Company must be successful in
consummating a number of sales at its Property Nos. 2 and 7. The
Company has opened six different escrows involving the sale of
approximately 72 acres of its Property No. 7. However, there is
no assurance that any of these escrows will actually close and
even if they do close, the net cash proceeds from these sales
after repaying secured debt will not provide the Company with
sufficient cash to meet all of its obligations. CGI may also be
able to generate some cash through the collection of a portion of
its receivables from affiliates and subsidiaries, although such
collections are not expected to be substantial. It is therefore
critical for the Company to find additional buyers for portions
of its Property Nos. 2 and 7.
ACPDI
ACPDI's capital resources are extremely limited. As of March
31, 1994 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
$1,822,000, $830,000 and $278,000, 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 $1,995,000 may have recourse against CGI for
deficiencies after they complete their foreclosures.
CEI
As of March 31, 1994, CEI had $31,000 in unrestricted cash.
Its $312,000 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, CEI's only remaining projects are its
Property Nos. 16 and 19, both of which have current market values
which are estimated to have declined to the point that CEI has
minimal, if any, equity in them. Accordingly, as of March 31,
1994, CEI had no significant near term source of cash. CEI has
ceased active operations and it is expected that CEI will lose
its remaining real estate assets in foreclosure.
OTHER SUBSIDIARIES
CGI's other subsidiaries include a joint venture which had
approximately $1.0 million in cash as of March 31, 1994 which was
generated from the sale of a large portion of its Property No. 9
in March 1994. Approximately $350,000 of this cash was paid to
-29-
CGI to reimburse CGI for costs incurred in connection with the
joint venture. The remaining cash is expected to be required to
fund the joint venture operations. The other subsidiaries in
this group have all ceased active operations.
OTHER INFORMATION
During the nine months ended March 31, 1994, the principal
sources of cash for the Company were as follows: $4,582,000 in
proceeds from sales of property; $1,000,000 in proceeds from the
liquidation of short-term investments; and $681,000 in
construction revenues, fees and rents. The principal uses of
cash for the Company were: $2,421,000 in principal payments on
notes payable secured by properties sold; $638,000 in interest
payments; and $4,435,000 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.
- 30 -<PAGE>
<TABLE>
CONSOLIDATING BALANCE SHEETS
March 31, 1994
(Unaudited)
(in thousands)
<CAPTION>
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Properties under
development and
held for
investment or sale $ 64,705 $ 1,345 $ 8,470 $ 1,967 $ --- $ 76,487
Cash and cash
equivalents 766 1 31 1,141 --- 1,939
Accounts and notes
receivable 41 1 312 3 --- 357
Due from affiliates 637 57 --- 74 --- 768
Intercompany
receivables 3,823 --- --- 4,479 (8,302)a ---
Investment in
subsidiaries 5,475 --- --- 56 (5,531)b ---
Other assets 1,273 4 100 7 --- 1,384
Deferred income tax
benefits --- --- --- 1,362 (1,362)c ---
_________ _________ _________ _________ _________ _________
Total assets $ 76,720 $ 1,408 $ 8,913 $ 9,089 $ (15,195) $ 80,935
_________ _________ _________ _________ _________ _________
- 31 -<PAGE>
CONSOLIDATING BALANCE SHEETS (Unaudited) (Continued)
March 31, 1994
<CAPTION>
ELIM- CONSOLIDATED
CGI ACPDI CEI OTHERS INATIONS TOTALS
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
Notes payable $ 39,260 $ 1,822 $ 1,517 $ --- $ --- $ 42,599
Amounts due to
affiliates 11 --- 6,919 50 --- 6,980
Accrued interest 9,836 830 156 1 --- 10,823
Accrued real
estate taxes 6,576 335 274 45 --- 7,230
Accounts payable &
accrued liabilities 1,021 52 234 108 --- 1,415
Accrued class 29
claims 5,700 --- --- --- --- 5,700
Accrued class 30
claims 3,324 --- --- --- --- 3,324
Income taxes 916 2 (386) (532) --- ---
Intercompany
payables 4,463 1,149 947 1,743 (8,302)a ---
Deferred income
taxes 1,362 --- --- --- (1,362)c ---
_________ _________ _________ _________ _________ _________
Subtotal 72,469 4,190 9,661 1,415 (9,664) 78,071
Minority Interest --- --- --- 3,018 (31)b 2,987
Stockholders' equity 4,251 (2,782) (748) 4,656 (5,500)b (123)
--------- --------- --------- --------- --------- ---------
Total liabilities
and stockholders'
equity $ 76,720 $ 1,408 $ 8,913 $ 9,089 $ (15,195) $ 80,935
_________ _________ _________ _________ _________ _________
a. Eliminates intercompany receivables and payables. b. Eliminates investment in
subsidiaries. c. Reclassifies deferred tax benefits as reductions in deferred tax
liability.
- 32 -
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
recision 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.
- 33 -
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
$3,324,000, 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
- 34 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
NONE
(b) Reports on Form 8-K.
On March 18, 1994 the registrant filed a report on Form 8-K which
disclosed the fact that CGI had obtained confirmation of its
proposed plan of reorganization and that certain of the members
of the registrant's board of directors had resigned in
conjunction with such approval.
- 35 -
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 May 15, 1994
_________________________ _________________
Ronald R. White Date
Chairman of the Board,
President
By: /s/Joel H. Miner May 15, 1994
_________________________ _________________
Joel H. Miner Date
Chief Financial Officer,
Vice President
</TABLE>
