-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUtneKkGGgbYXe5kvnRxrlYZw9fZs1vaTvmMbmLXPJx38I7x88tm6+NtLkc+14yP g/9KaVlwiag0r3Y3QkYHQw== 0000086759-00-000004.txt : 20000515 0000086759-00-000004.hdr.sgml : 20000515 ACCESSION NUMBER: 0000086759-00-000004 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGROUP CORP CENTRAL INDEX KEY: 0000069422 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 133293645 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-10324 FILM NUMBER: 627089 BUSINESS ADDRESS: STREET 1: 820 MORAGA DRIVE STREET 2: STE 2020 CITY: LOS ANGELES, STATE: CA ZIP: 90049-1632 BUSINESS PHONE: (310) 889-2500 MAIL ADDRESS: STREET 1: 820 MORAGA DRIVE CITY: LOS ANGELES STATE: CA ZIP: 90049-1632 FORMER COMPANY: FORMER CONFORMED NAME: MUTUAL REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19860408 10QSB 1 THE INTERGROUP CORPORATION FORM 10-QSB 3/31/00 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 Or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 [ ] Transition Report Under Section 13 Or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ______ to _____ Commission file number 1-10324 THE INTERGROUP CORPORATION - ------------------------------------------------------------------------------ (Exact Name of Small Business Issuer as Specified in Its Charter) DELAWARE 13-3293645 - ------------------------------- ------------------ (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 820 Moraga Drive Los Angeles, CA 90049 - ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (310) 889-2500 - ------------------------------------------------------------------------------ (Issuer's Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] The number of shares outstanding of the issuer's Common Stock, $.01 par value, as of May 10, 2000 was 1,932,987 shares. Transitional Small Business Disclosure Format: YES [ ] NO [X] 2 THE INTERGROUP CORPORATION INDEX TO FORM 10-QSB PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheet (unaudited) As of March 31, 2000 3 Consolidated Statements of Operations (unaudited) Three Months Ended March 31, 2000 and 1999 4 Consolidated Statements of Operations (unaudited) Nine Months Ended March 31, 2000 and 1999 5 Consolidated Statements of Cash Flows (unaudited) Nine Months Ended March 31, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information 13 Item 1. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 3
THE INTERGROUP CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) As of March 31, 2000 --------- Assets Investment in real estate, at cost: Land $ 11,763,000 Buildings, improvements and equipment 38,985,000 Property held for sale or development 318,000 ----------- 51,066,000 Less: accumulated depreciation (14,169,000) ----------- 36,897,000 Cash and cash equivalents 1,151,000 Restricted cash 1,214,000 Investment in marketable securities 86,068,000 Investment in Justice Investors 10,320,000 Other investments 1,764,000 Rent and other receivables 260,000 Prepaid expenses and other assets 1,545,000 ----------- Total assets $139,219,000 =========== Liabilities and Shareholders' Equity Liabilities Mortgage notes payable $ 40,907,000 Obligation for securities sold 27,155,000 Due to securities broker 24,572,000 Accounts payable and accrued expenses 3,026,000 Deferred income taxes 7,896,000 ----------- Total liabilities 103,556,000 ----------- Minority interest 13,914,000 ----------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 2,500,000 shares authorized; none issued - Common stock, $.01 par value, 4,000,000 shares authorized; 2,129,288 issued, 1,952,087 outstanding 21,000 Common stock, class A $.01 par value, 2,500,000 authorized; none issued - Additional paid-in capital 8,686,000 Retained earnings 16,804,000 Note receivable - stock options ( 1,438,000) Treasury stock, at cost, 177,201 shares ( 2,324,000) ----------- Total shareholders' equity 21,749,000 ----------- Total liabilities & shareholders' equity $139,219,000 ===========
The accompanying notes are an integral part of the consolidated financial statements. 4
THE INTERGROUP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months ended March 31, 2000 1999 ---------- --------- Real estate operations: Rental income $ 3,027,000 $ 3,192,000 Rental expenses: Mortgage interest expense (747,000) (765,000) Property operating expenses (1,397,000) (1,533,000) Real estate taxes (202,000) (238,000) Depreciation (528,000) (520,000) ---------- --------- Income from real estate operations 153,000 136,000 ---------- --------- Investment transactions: Dividend and interest income 486,000 390,000 Net investment gains(losses) 10,982,000 (2,276,000) Margin interest, trading & management expenses ( 715,000) ( 608,000) Equity in net income of Justice Investors 891,000 564,000 ---------- ---------- Income(loss) from investment transactions 11,644,000 (1,930,000) ---------- ---------- Other income(expense): General and administrative expenses ( 466,000) ( 395,000) Miscellaneous income(expense) 118,000 ( 311,000) ---------- ---------- Other expense ( 348,000) ( 706,000) ---------- ---------- Income(loss) before provision for income taxes and minority interest 11,449,000 (2,500,000) Provision for income tax (expense)benefit (3,387,000) 998,000 ---------- --------- Income(loss) before minority interest 8,062,000 (1,502,000) Minority interest (1,413,000) 16,000 ---------- --------- Net income(loss) $ 6,649,000 $(1,486,000) ========== ========== Basic earnings(loss) per share $ 3.38 $( .71) ========== ========== Weighted average number of shares outstanding 1,965,047 2,099,423 ========== ========== Diluted earnings(loss) per share $ 3.14 $( .71) ========== ========== Diluted weighted average number of shares outstanding 2,114,747 2,099,423 ========== ========== Comprehensive Income: Net income(loss) $ 6,649,000 $(1,486,000) Unrealized loss on securities arising during period - (2,114,000) Reclassification adjustment for holding loss included in net earnings - 2,276,000 Income tax benefit related to other comprehensive income - 604,000 ---------- --------- Total comprehensive income(loss) $6,649,000 $ (720,000) ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 5
THE INTERGROUP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Nine Months ended March 31, 2000 1999 -------- -------- Real estate operations: Rental income $ 8,826,000 $ 9,718,000 Rental expenses: Mortgage interest expense (2,055,000) (2,297,000) Property operating expenses (3,960,000) (4,757,000) Real estate taxes (606,000) (669,000) Depreciation (1,464,000) (1,568,000) ---------- ---------- 741,000 427,000 Gain on sale of real estate 7,628,000 2,266,000 ---------- ---------- Income from real estate operations 8,369,000 2,693,000 ---------- ---------- Investment transactions: Dividend and interest income 1,424,000 621,000 Net investment gains (losses) 24,064,000 (5,129,000) Margin interest, trading & management expenses ( 2,153,000) (1,079,000) Equity in net income from Justice Investors 2,825,000 2,132,000 ---------- ---------- Income(loss) from investment transactions 26,160,000 (3,455,000) ---------- ---------- Other income(expense): General and administrative expenses (1,256,000) (1,256,000) Miscellaneous income (expense) 1,164,000 (333,000) ---------- ---------- Other expense (92,000) (1,589,000) ---------- ---------- Income(loss) before provision for income taxes and minority interest 34,437,000 (2,351,000) Provision for income tax (expense)benefit (13,023,000) 940,000 ---------- ---------- Income(loss) before minority interest 21,414,000 (1,411,000) Minority interest ( 3,167,000) ( 127,000) ---------- ---------- Income(loss) before extraordinary item 18,247,000 (1,538,000) Extraordinary loss due to early extinguishment of debt less applicable income tax benefit of $199,000 for March 31, 1999 - ( 298,000) ---------- ---------- Net income(loss) $18,247,000 $(1,836,000) ========== ========== Basic earnings(loss) per share $ 9.18 $ (.88) ========== ========== Weighted average number of shares outstanding 1,988,521 2,089,687 ========== ========== Diluted earnings(loss) per share $ 8.53 $ (.88) ========== ========== Diluted weighted average number of shares outstanding 2,138,221 2,089,687 ========== ========== Comprehensive Income: Net income(loss) $18,247,000 $(1,836,000) Unrealized loss on securities arising during period - (8,641,000) Reclassification adjustment for holding loss included in net earnings - 5,129,000 Income tax benefit related to other comprehensive income 5,387,000 2,469,000 Adjustment for reclassification of the accumulated unrealized holding gains prior to July 1, 1999 to current earnings (13,467,000) - ---------- --------- Total comprehensive income(loss) $10,167,000 $(2,879,000) ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 6
THE INTEGROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended March 31, 2000 1999 ------------- ------------ Cash flows from operating activities: Net income(loss) $ 18,247,000 $ (1,836,000) Adjustments to reconcile net income (loss) to cash used in operating activities: Depreciation of real estate 1,464,000 1,568,000 Gain on sale of real estate ( 7,628,000) ( 2,266,000) Equity in net income from Justice Investors ( 2,825,000) ( 2,132,000) Net unrealized (gain)loss on investments (17,201,000) 5,129,000 Changes in assets and liabilities: Restricted cash 245,000 303,000 Investment in marketable securities (22,853,000) - Other investments 1,247,000 - Prepaid expenses and other assets 1,835,000 ( 2,032,000) Accounts payable and other liabilities ( 397,000) ( 140,000) Due to broker 6,816,000 - Obligations for securities sold 13,207,000 - Deferred income taxes 4,401,000 (1,396,000) Minority interest 3,167,000 127,000 ------------ ------------ Net cash used in operating activities (275,000) ( 2,675,000) ------------ ------------ Cash flows from investing activities: Additions to buildings, improvements and equipment ( 1,046,000) ( 1,560,000) Investment in real estate (13,418,000) ( 1,876,000) Proceeds from sale of real estate 11,524,000 3,547,000 Increase in other investments - ( 108,000) Distributions from Justice Investors 2,789,000 2,191,000 Investment in marketable securities - (26,001,000) ---------- ---------- Net cash used in investing activities (151,000) (23,807,000) ---------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable ( 4,009,000) ( 4,297,000) Borrowings from mortgage notes payable 8,041,000 4,580,000 Increase(decrease) in line of credit (2,000,000) 2,000,000 Increase in obligations for securities sold - 5,487,000 Increase in due to brokers - 14,593,000 Purchase of treasury stock ( 969,000) ( 427,000) ---------- ---------- Net cash provided by financing activities 1,063,000 21,936,000 ---------- ---------- Net increase(decrease) in cash and cash equivalents 637,000 ( 4,546,000) Cash and cash equivalents at beginning of period 514,000 5,313,000 ---------- ----------- Cash and cash equivalents at end of period $ 1,151,000 $ 767,000 ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General: The consolidated financial statements included herein are unaudited; however, in the opinion of The InterGroup Corporation (the "Company"), the interim financial information contains all adjustments, including normal recurring adjustments, necessary to present fairly the results for the interim period. These consolidated financial statements include the accounts of the Company and its subsidiaries and should be read in conjunction with the Company's June 30, 1999 audited consolidated financial statements and notes thereto. The Company has the power to vote 53.6% of the voting shares of Santa Fe Financial Corporation ("Santa Fe"), a public company (Nasdaq SmallCap: SFEF). Santa Fe's revenue is primarily generated through its 68.1% interest in Portsmouth Square, Inc. ("PSI"), which derives its revenue primarily through its 49.8% interest in Justice Investors ("Justice"), a California limited partnership. Justice owns the land, improvements and leaseholds known as the Holiday Inn Financial District/Chinatown, a 566-room hotel in San Francisco, California. Certain reclassifications have been made to the financial statements as of March 31, 1999 and for the three and nine months then ended to conform with the current quarter presentation. 2. Investment in Real Estate In February 2000, InterGroup entered into a contract to sell the two-story, 228-unit apartment complex located in San Antonio, Texas for $6.5 million. The sale is expected to close in May 2000. In March 2000, the Company entered into a contract to purchase a 31-unit apartment complex located in Los Angeles, California for $7.5 million in connection with the 1031 tax-deferred exchange with the San Antonio, Texas property. The transaction is expected to close in May 2000. In March 2000, the Company entered into a contract to purchase a 30-unit apartment complex located in Los Angeles, California for $4,325,000. The transaction is expected to close in May 2000. 3. Marketable Securities: Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. During the year, the Company increased the turnover of its investment portfolio and engaged in increased trading activities designed to maximize the overall return on investment activities in the near term. This resulted in portions of the Company's investments in marketable securities being classified as "trading" as defined by generally accepted accounting principles. After consultation with the Investment Committee of the Board of Directors, management determined that the classification of the entire portfolio as trading beginning July 1, 1999 would be more consistent with Company's overall investment objectives and activities. As a result, beginning with its first quarter ending September 30, 1999, all unrealized gains and losses on the Company's investment portfolio were recorded through the income statement. For the nine months ended March 31, 2000, net unrealized gains on trading securities included in earnings were $17,201,000. 8 4. Investment in Justice Investors: The consolidated accounts include a 49.8% interest in Justice Investors ("Justice"), a limited partnership. Justice owns the land, improvements and leasehold known as the Financial District Holiday Inn, a 566-room hotel in San Francisco, California. Portsmouth is both a limited and general partner in Justice and records its investment in Justice on the equity basis. Condensed financial statements for Justice Investors are as follows: JUSTICE INVESTORS CONDENSED BALANCE SHEET March 31, 2000 -------------- Assets Total current assets $1,055,000 Property, plant and equipment, net of accumulated depreciation of $11,466,000 5,109,000 Loan fees and deferred lease costs, net of accumulated amortization of $156,000 155,000 --------- Total assets $6,319,000 ========= Liabilities and partners' capital Total current liabilities $ 59,000 Partners' capital 6,260,000 --------- Total liabilities and partners' capital $6,319,000 ========= JUSTICE INVESTORS CONDENSED STATEMENTS OF OPERATIONS For the nine months ended March 31, 2000 1999 ---------- ---------- Revenues $6,303,000 $4,966,000 Costs and expenses 631,000 685,000 --------- --------- Net income $5,672,000 $4,281,000 ========= ========= 5. Commitments and Contingencies: On February 22, 1995, the Company was named as a defendant in a shareholders' derivative suit filed against Santa Fe and certain directors of Santa Fe, arising out of the Company's investment in Santa Fe. On December 31, 1996, a final judgment was entered in favor of the Company. On June 9, 1997, the Company was awarded $296,000 in attorneys' fees and costs as a prevailing party in that litigation. That award was made effective as of April 25, 1997 and bears interest at the statutory rate of 10%. On December 15, 1998, the California Supreme Court entered an order denying review of the Court of Appeal's Opinion affirming the award of attorneys' fees in favor of the Company. Company made further application to the trial court for an award of attorneys' fees and costs expended in its successful defense of that judgment 9 on appeal, which was granted in the approximate amount of $78,000. On January 21, 2000, the Court of Appeal also affirmed an award of attorneys' fees and costs in favor of the director defendants and Santa Fe in the amount of $936,000, plus interest. On March 1, 2000, the plaintiffs filed a Petition for Review of that decision with the California Supreme Court. On April 12, 2000, the California Supreme Court granted the Petition for Review, but deferred further action pending consideration and disposition of a related issue in another case before the Court, or pending further order of the Court. The Company is a defendant or co-defendant in various other legal actions involving various claims incident to the conduct of its business. Most of these claims are covered by insurance. Management does not anticipate the Company to suffer any material liability by reason of such actions. 6. Related Party Transactions: The Company's President and Chief Executive Officer, John V. Winfield, directs the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer of Santa Fe and Portsmouth and directs the investment activity of those companies. Effective April 1, 1998, an employee of InterGroup was assigned to manage the portfolios of Santa Fe and Portsmouth in consultation with Mr. Winfield. Santa Fe and Portsmouth reimburse InterGroup for an allocated portion of the compensation and benefits of such employee. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Santa Fe and Portsmouth may, at times, invest in the same companies in which the Company invests. The Company encourages such investments because it places personal resources of the Chief Executive Officer and his family members, and the resources of Portsmouth and Santa Fe, at risk in connection with investment decisions made on behalf of the Company. Three of the Company's Directors serve as directors of Santa Fe and four of the Company's Directors serve on the Board of Portsmouth. 7. Earnings Per Share Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of commons shares outstanding. The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the weighted-average number of common shares is increased to include the number of additional common shares that would have been outstanding if potential dilutive common shares had been issued. The Company's only potentially dilutive common shares are stock options. Stock options are included in diluted earnings per share by application of the treasury stock method. Included in the diluted weighted average number of common shares outstanding as of March 31, 2000 are 149,700 stock options. 10 Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND PROJECTIONS The discussion below and elsewhere in this report includes forward-looking statements about the future business results and activities of the Company, which, by their very nature, involve a number of risks and uncertainties. When used in this discussion, the words "estimate", "project", "anticipate" and similar expressions, are subject to certain risks and uncertainties, such as changes in general economic conditions, local real estate markets, and competition, as well as uncertainties relating to uninsured losses, securities markets, and litigation, including those discussed below and in the Company's Form 10-KSB for the fiscal year ended June 30, 1999, that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. RESULTS OF OPERATIONS For the Three Months Ended March 31, 2000 Compared to the Three Months Ended March 31, 1999 Income from real estate operations was $153,000 for the three months ended March 31, 2000 as compared to $136,000 for the three months ended March 31, 1999. Income from operations remained consistent. However, rental income decreased to $3,027,000 from $3,192,000 and property expenses decreased to $1,397,000 from $1,533,000 as a result of the sale of two properties in the quarter ended September 1999 and the purchase of smaller properties in Los Angeles, California and a property in Austin, Texas. Property operating expenses also decreased as a result of managing the properties in-house. Income from investment transactions was $11,644,000 for the three months ended March 31, 2000 as compared to a loss of $1,930,000 for the three months ended March 31, 1999. The increase in income from investment transactions is due to the change in investment gains/(losses) to net investment gains of $10,982,000 from net investment losses of $2,276,000, the increase in dividend and interest income to $486,000 from $390,000 and the increase in equity income from Justice to $891,000 from $564,000. The increases are partially offset by the increase in margin interest and trading related expenses to $715,000 from $608,000. The increase in net investment gains is due to the inclusion of net unrealized gains on trading securities of $8,026,000 in earnings for the quarter ended March 31, 2000 and management's efforts to reposition the investment portfolio. Investment gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a meaningful effect on the Company's net earnings. However, the amount of investment gains or losses on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. The increase in dividend and interest income reflects management's efforts to reposition the investment portfolio towards income yielding investments. The increase in partnership income is primarily attributable to a 48% increase in hotel rental income as a result of the renovation of the common areas of the hotel during first quarter of 1999, which reduced occupancy and other revenues generated by the hotel, and an increase in the average daily room rate for the quarter ended March 31, 2000. 11 General and administrative expenses increased to $466,000 from $395,000 due to the increase in accounting expenses, personnel costs and other expenses. Miscellaneous income/(loss) changed to income of $118,000 from a loss of $311,000 is primary due to the reduction in legal costs and other miscellaneous expenses. The provision for income taxes changed to an expense of $3,387,000 from a tax benefit of $998,000 for the period due to the increase in income. Minority interest to $1,413,000 from $16,000 due to greater income generated by Santa Fe. For the Nine Months Ended March 31, 2000 Compared to the Nine Months Ended March 31, 1999 Income from real estate operations was $8,369,000 for the nine months ended March 31, 2000 as compared to $2,693,000 for the nine months ended March 31, 1999. The increase was primarily attributable to the sale of three properties located in St. Louis, Missouri, Middletown, Ohio and Cincinnati, Ohio, respectively, for a cumulative net gain of $7,628,000. The decrease in the rental revenue to $8,826,000 from $9,718,000 and the decrease in rental expenses to $8,085,000 from $9,291,000 was primarily due to the sales of the three properties in the quarter ended September 30, 1999 and the sale of two properties located in Harrisburg, Pennsylvania and San Antonio, Texas, in October 1998 and April 1999, respectively. The decrease in rental revenue and operating expenses was partially offset by the acquisition of three significantly smaller apartment complexes located in Los Angeles, California and an apartment complex located in Austin Texas during the nine months ended March 31, 2000. Property operating expenses also decreased due to the reduction of management costs as a result of managing the properties in-house. Income from investment transactions was $26,160,000 for the nine months ended March 31, 2000 as compared to a loss of $3,455,000 for the nine months ended March 31, 1999. The increase in income from investment transactions is due to the change in investment gains(losses) to net investment gains of $24,064,000 from net investment losses of $5,129,000, the increase in dividend and interest income to $1,424,000 from $621,000 and the increase in equity income from Justice to $2,825,000 from $2,132,000. The increases are partially offset by the increase in margin interest and trading related expenses to $2,153,000 from $1,079,000. The increase in net investment gains is primary due to the inclusion of net unrealized gains on trading securities of $17,201,000 in earnings for the nine months ended March 31, 2000 and management's efforts to reposition the investment portfolio. Investment gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a meaningful effect on the Company's net earnings. However, the amount of investment gains or losses on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. The increase in dividend and interest income reflects management's efforts to reposition the investment portfolio towards income yielding investments. The increase in margin interest, trading and management expenses to $2,153,000 from $1,079,000 is due to the maintenance of a larger margin balance and the increased size of the Company's portfolio. The increase in partnership income is primarily attributable to a 27% increase in hotel rental income as a result of the renovation of the common areas of the hotel during first quarter of 1999, which reduced occupancy and other revenues generated by the hotel, and an increase in the average daily room rate for the nine months ended March 31, 2000. 12 Miscellaneous income(loss) changed to income of $1,164,000 from a loss of $333,000 primarily due to a $1,000,000 settlement received in December 1999 related to a disputed claim pertaining to certain royalty rights held by a wholly subsidiary of the Company. The change is also a result of the reduction in legal costs and other miscellaneous expenses. The provision for income taxes changed to an expense of $13,023,000 from a tax benefit of $940,000 for the period due to the increase in income. Minority interest increased to $3,167,000 from $127,000 due to greater income generated by Santa Fe. FINANCIAL CONDITION AND LIQUIDITY The Company's cash flows are generated primarily from its real estate activities, sales of investment securities and borrowings related to both. The Company used net cash flow of $275,000 from operating activities, used net cash flow of $151,000 from investing activities and generated net cash flow of $1,063,000 from financing activities during the nine months ended March 31, 2000. During the nine months ended March 31, 2000, the Company received proceeds from the sale of real estate of $11,524,000 from the sale of 22.4 acres of unimproved land located in Missouri and two apartment complexes located in Ohio. The majority of the proceeds from the sale of real estate were used to purchase three multi-family apartment complexes in Los Angeles, California and one apartment complex in Austin, Texas totaling $13,418,000. Related to the purchases of real estate, the Company obtained mortgages totaling $8,041,000. The Company also made principal payments of $4,009,000 and paid-off a $2,000,000 line of credit during the nine months ended March 31, 2000. Management will pursue refinancing activities as considered necessary or when deemed economically favorable to the Company. During the nine months ended March 31, 2000, the Company made property improvements in the aggregate amount of $1,046,000. Management believes the improvements to the properties should enhance market values, maintain the competitiveness of the Company's properties and potentially enable the Company to obtain a higher yield through higher rents. The Company's Board of Directors has given the Company the authority to repurchase, from time to time, up to a total of 333,000 shares(adjusted for two stock splits) of its Common Stock. Such repurchases may be made at the discretion of management and depending upon market conditions. During the nine months ended March 31, 2000, the Company acquired 70,800 shares of its Common Stock for $969,000. At March 31, 2000, the Company had current assets of $90,238,000 and current liabilities of $54,753,000. Current assets consist of cash, marketable securities, rent and other receivables, prepaid expenses and other assets. Current liabilities consist of due to securities broker, obligations for securities sold, and accounts payable and accrued expenses. The Company remains liquid and management believes that its capital resources are currently adequate to meet its short and long-term obligations. YEAR 2000 ISSUES As of March 31, 2000, all of the Company's critical computer software and hardware were year 2000 compliant. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings. The following is furnished to update information previously reported in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1999 and its Quarterly Reports on Form 10-QSB for the quarterly periods ended September 30, 1999 and December 31, 1999. Guinness Peat Group plc, et al. v. Robert N. Gould, et al., Case No. 685760, filed on February 22, 1995 in the Superior Court of the State of California for the County of San Diego. As previously reported, the trial court entered summary judgment in favor of the Company on December 31, 1996. That summary judgment, including a subsequent award of attorneys' fees and costs in favor of the Company in the amount of $296,000, plus interest at the statutory rate of 10%, was appealed by plaintiffs. On December 15, 1999, the California Supreme Court entered an order denying review of the Court of Appeal's Opinion affirming the award of attorneys' fees in favor of the Company. On March 3, 2000, the Company was awarded an additional $78,000 by the trial court for the attorneys' fees and costs expended in its successful defense of that judgment on appeal. On January 21, 2000, the Court of Appeal also affirmed an award of attorneys' fees and costs in favor of the director defendants and Santa Fe in the amount of $936,000, plus interest. On March 1, 2000, the plaintiffs filed a Petition for Review of that decision with the California Supreme Court. On April 12, 2000, the California Supreme Court granted the Petition for Review, but deferred further action pending consideration and disposition of a related issue in another case before the Court, or pending further order of the Court. The Company is a defendant or co-defendant in various other legal actions involving various claims incident to the conduct of its business. Most of these claims are covered by insurance. Management does not anticipate the Company to suffer any material liability by reason of such actions. Item 4. Submission of Matters to a Vote of Security Holders The 1999 Annual Meeting of the Shareholders of the Company was held on January 26, 2000, at the Luxe Summit Hotel Bel-Air, 11461 Sunset Blvd., Los Angeles, California. At that Meeting, Mildred Bond Roxborough and John C. Love were elected Class C Directors of the Company to serve until the 2002 Annual Meeting, with each nominee receiving in excess of 99% of the shares voted. At that Meeting, the shareholders also voted in favor of the ratification of PricewaterhouseCoopers LLP as the independent accountants of the Company for the fiscal year ending June 30, 2000. A tabulation of the vote was set forth in Company's Form 10-QSB Report for the quarterly period ended December 31, 1999. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit No. 27, Financial Data Schedule (b) Form 8-K - There were no Form 8-K filings during the quarter ended March 31, 2000. 14 SIGNATURES Pursuant to the requirements 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 INTERGROUP CORPORATION (Registrant) Date: May 10, 2000 by /s/ John V. Winfield ---------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: May 10, 2000 by /s/ Gregory C. McPherson ----------------------------- Gregory C. McPherson,Executive Vice President and Assistant Treasurer Date: May 10, 2000 by /s/ Michael G. Zybala ----------------------------- Michael G. Zybala Vice President Operations and Assistant Secretary Date: May 10, 2000 by /s/ David Nguyen ----------------------------- David Nguyen, Controller (Principal Accounting Officer) EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME OF THE INTERGROUP CORPORATION AND SUBSIDIARIES SET FORTH IN ITS FORM 10-QSB REPORT FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB REPORT. 0000069422 THE INTERGROUP CORPORATION 1 9-Mos Jun-30-2000 Jan-01-2000 Mar-31-2000 2365000 86068000 0 0 0 90238000 51066000 14169000 139219000 54753000 0 0 0 21000 22680000 139219000 0 44767000 0 10238000 92000 0 0 34437000 13023000 19200000 0 0 0 19200000 9.66 8.98
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