-----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, TIBSllEu94GlDsczPVAtJWED7OZK/UkpCstyV527IyyNoHcu8OW+xDoR7QukdsrF Ny+x+7p4e/rbGqtXDpTKEQ== 0000086759-01-500021.txt : 20020410 0000086759-01-500021.hdr.sgml : 20020410 ACCESSION NUMBER: 0000086759-01-500021 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 001-10324 FILM NUMBER: 1791014 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 ig10q93001.txt THE INTERGROUP CORPORATION FORM 10-QSB 9/30/01 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 September 30, 2001 [ ] 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 November 9, 2001 were 1,886,132 shares. Transitional Small Business Disclosure Format: YES [ ] NO [X] Page 1 of 14 THE INTERGROUP CORPORATION INDEX TO FORM 10-QSB PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements: Consolidated Balance Sheet (unaudited) As Of September 30, 2001 3 Consolidated Statements of Operations (unaudited) For the Three Months Ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows (unaudited) For the Three Months Ended September 30, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 14 Page 2 of 14 THE INTERGROUP CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) As of September 30, 2001 ----------- Assets Investment in real estate, at cost: Land $ 25,271,000 Buildings, improvements and equipment 51,435,000 Property held for sale or development 808,000 ----------- 77,514,000 Less: accumulated depreciation (14,071,000) ----------- 63,443,000 Cash and cash equivalents 7,176,000 Restricted cash 1,092,000 Investment in marketable securities 25,644,000 Investment in Justice Investors 11,347,000 Other investments 887,000 Prepaid expenses and other assets 2,131,000 ----------- Total assets $111,720,000 =========== Liabilities and Shareholders' Equity Liabilities Mortgage notes payable $ 56,082,000 Obligation for securities sold 13,411,000 Accounts payable and accrued expenses 4,820,000 Deferred income taxes 7,178,000 ----------- Total liabilities 81,491,000 ----------- Minority interest 11,260,000 ----------- 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, 1,886,232 outstanding 21,000 Common stock, class A $.01 par value, 2,500,000 shares authorized; none issued - Additional paid-in capital 8,686,000 Retained earnings 15,332,000 Note receivable - stock options (1,438,000) Treasury stock, at cost, 243,056 shares (3,632,000) ----------- Total shareholders' equity 18,969,000 ----------- Total liabilities and shareholders' equity $111,720,000 =========== The accompanying notes are an integral part of the consolidated financial statements. Page 3 of 14 THE INTERGROUP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months ended September 30, 2001 2000 ----------- ----------- Real estate operations: Rental income $ 3,303,000 $ 3,141,000 Rental expenses: Mortgage interest expense (900,000) (863,000) Property operating expenses (1,533,000) (1,264,000) Real estate taxes (283,000) (235,000) Depreciation (597,000) (552,000) ----------- ----------- (10,000) 227,000 Gain on sale of real estate 10,277,000 - ----------- ----------- Income from real estate operations 10,267,000 227,000 ----------- ----------- Equity in net income of Justice Investors 1,088,000 1,206,000 ----------- ----------- Investment transactions: Net investment (losses)gains (10,051,000) 1,663,000 Dividend and interest income 128,000 551,000 Margin interest, trading & management expenses (565,000) (951,000) ----------- ----------- Income(loss) from investment transactions (10,488,000) 1,263,000 ----------- ----------- Other income(expense): General and administrative expenses (365,000) (422,000) Other (expense)income (11,000) 147,000 ----------- ----------- Other expense (376,000) (275,000) ----------- ----------- Income before provision for income taxes and minority interest 491,000 2,421,000 Provision for income tax expense (200,000) (618,000) ----------- ----------- Income before minority interest 291,000 1,803,000 Minority interest 1,742,000 (939,000) ----------- ----------- Net income $ 2,033,000 $ 864,000 =========== =========== Basic earnings per share $ 1.08 $ 0.45 =========== =========== Weighted average number of shares outstanding 1,886,627 1,929,237 =========== =========== Diluted earnings per share $ 0.98 $ 0.42 =========== =========== Diluted weighted average number of shares outstanding 2,084,627 2,078,937 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. Page 4 of 14 THE INTEGROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended September, 2001 2000 ----------- ----------- Cash flows from operating activities: Net income $ 2,033,000 $ 864,000 Adjustments to reconcile net income to cash used in operating activities: Depreciation of real estate 597,000 552,000 Gain on sale of real estate (10,278,000) - Net unrealized losses(gains) on investments 8,973,000 (2,879,000) Equity in net income from Justice Investors (1,088,000) (1,206,000) Minority interest (1,742,000) 939,000 Changes in assets and liabilities: Restricted cash 50,000 (238,000) Investment in marketable securities 9,173,000 10,555,000 Other investments 6,000 (385,000) Prepaid expenses and other assets (486,000) 3,000 Accounts payable and other liabilities (777,000) 529,000 Due to broker (2,867,000) (12,197,000) Obligations for securities sold (5,266,000) 3,060,000 Deferred income taxes 1,193,000 215,000 ----------- ----------- Net cash used in operating activities (479,000) (188,000) ----------- ----------- Cash flows from investing activities: Additions to buildings, improvements and equipment (1,172,000) (538,000) Investment in real estate (4,018,000) (10,557,000) Proceeds from sale of real estate 13,862,000 - Distributions from Justice Investors 627,000 627,000 Investment in Portsmouth Stock - (1,000) ----------- ----------- Net cash provided by (used in) investing activities 9,299,000 (10,469,000) ----------- ----------- Cash flows from financing activities: Principal payments on mortgage notes payable (4,719,000) (3,915,000) Borrowings from mortgage notes payable 2,269,000 10,949,000 Increase in line of credit borrowings - 4,000,000 Purchase of treasury stock (9,000) - Dividends paid to minority shareholders (63,000) (63,000) ----------- ----------- Net cash (used in) provided by financing activities (2,522,000) 10,971,000 ----------- ----------- Net increase in cash and cash equivalents 6,298,000 314,000 Cash and cash equivalents at beginning of period 878,000 660,000 ----------- ----------- Cash and cash equivalents at end of period $ 7,176,000 $ 974,000 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. Page 5 of 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General The consolidated financial statements included herein are unaudited; however, in the opinion of The InterGroup Corporation ("InterGroup" or 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, 2001 audited consolidated financial statements and notes thereto. As of September 30, 2001, the Company had the power to vote 55.0% 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 the management of its 68.8% owned subsidiary, Portsmouth Square, Inc. ("Portsmouth"), which derives its revenue primarily as a general partner and a 49.8% limited partner 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 September 30, 2000 and for the three months then ended to conform to the financial statements as of and for the three months ended September 30, 2001 presentation. The results of operations for the three months ended September 30, 2001 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2002. 2. Investment in Real Estate In September 2001, the Company purchased an apartment complex located in Austin, Texas for $3,824,000. As part of the purchase, the Company assumed a $2,269,000 mortgage note. On August 2, 2001, the Company was awarded $13,862,000 from the Circuit court of St. Louis County, Missouri, which granted the City of St. Louis permission to take possession of the 176-unit St. Louis, Missouri apartment complex in a condemnation action filed by the City of St. Louis. The Company realized a gain of $10,277,000 and received net proceeds of $9,255,000 after payment of the mortgage on the property, costs and attorneys' fees. On August 10, 2001, the City of St. Louis filed Exceptions to the Commissioners' Report challenging the amount of the award to the Company and requesting a jury trial on the matter. In July 2001, the Company purchased a property held for development or sale located in Austin, Texas for $194,000. Page 6 of 14 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. Marketable securities are classified as trading with net unrealized gains or losses included in earnings. Included in the net losses on marketable securities of $10,051,000 for the three months ended September 30, 2001, are net unrealized losses of $8,973,000 and net realized losses of $1,078,000. Included in net gains on marketable securities of $1,663,000 for the three months ended September 30, 2000, are net unrealized gains of $2,880,000 and net realized losses of $1,217,000. 4. Investment in Justice Investors: The consolidated accounts include a 49.8% interest in Justice Investors. Portsmouth serves as one of the two general partners. The other general partner, Evon Garage Corporation ("Evon"), serves as the managing general partner. As a general and limited partner, Portsmouth has significant control over the management and operation of the assets of Justice Investors. All significant partnership decisions require the active participation and approval of both general partners. The Company and Evon jointly consult and determine the amount of partnership reserves and the amount of cash to be distributed to the limited partners. The partnership derives most of its income from a lease of its San Francisco, California hotel property to Felcor Lodging Trust, Inc. ("Felcor") and from a lease of the garage portion of the property to Evon. The Company and its subsidiaries jointly oversee the operations and share management responsibilities of the hotel and the parking garage. Pursuant to the terms of the partnership agreement, voting rights of the partners are determined according to the partners' entitlement to share in the net profit and loss of the partnership. The Company is not entitled to any additional voting rights by virtue of its position as a general partner. The partnership agreement also provides that no portion of the partnership real property can be sold without the written consent of the general and limited partners entitled to more than 72% of the net profit. Condensed financial statements for Justice Investors are as follows: JUSTICE INVESTORS CONDENSED BALANCE SHEET As of September 30, 2001 ---------- Assets Total current assets $ 2,526,634 Property, plant and equipment, net of accumulated depreciation of $12,012,843 4,562,841 Loan fees and deferred lease costs, net of accumulated amortization of $202,518 107,894 ---------- Total assets $ 7,197,369 ========== Page 7 of 14 Liabilities and partners' capital Total current liabilities $ 17,249 Partners' capital 7,180,120 ---------- Total liabilities and partners' capital $ 7,197,369 ========== JUSTICE INVESTORS CONDENSED STATEMENTS OF OPERATIONS For the three months ended September 30, 2001 2000 ---------- ---------- Revenues $ 2,384,501 $ 2,627,850 Costs and expenses (198,959) (206,903) ---------- ---------- Net income $ 2,185,542 $ 2,420,947 ========== ========== 5. Commitments and Contingencies: On August 2, 2001, the Company was awarded $13,862,000 from the Circuit court of St. Louis County, Missouri, which granted the City of St. Louis permission to take possession of the 176-unit St. Louis, Missouri apartment complex in a condemnation action filed by the City of St. Louis. On August 10, 2001, the City of St. Louis filed Exceptions to the Commissioners' Report challenging the amount of the award to the Company and requested a jury trial on the matter. The Company believes that the Commissioner's award was supported by the evidence presented and the Company will vigorously oppose any attempts to reduce the amount of that award. If the matter does go to trial and a jury returns a verdict for less then the Commissioner's award, the Company would be obligated to pay back the difference together with interest of 6% per annum up to the date of any such verdict and 9% per annum thereafter. Management does not anticipate that the resolution of this matter will have a material effect on the Company's consolidated financial position. 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 Parties John V. Winfield serves as Chief Executive Officer and Chairman of the Company, Portsmouth, and Santa Fe. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Portsmouth and Santa Fe 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. On June 28, 2001, the Company, Portsmouth and Santa Fe entered into an agreement with an investment advisory company for the management of its securities investments. Page 8 of 14 In May 1996, the Company's Chairman and President exercised options to purchase 187,500 shares of Common Stock at a price of $7.67 per share through a full recourse note due to the Company on demand with due date of May 16, 2003. The note bears interest floating at the lower of 10% or the prime rate (6% at September 30, 2001) with interest payable quarterly. The balance of the note receivable of $1,438,000 is reflected as a reduction of shareholders' equity at September 30, 2001. During the three months ended September 30, 2001, the President of the Company made interest payments of approximately $24,000 on the note. 7. Earnings Per Share Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of common 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 September 30, 2001 are 198,000 stock options. 8. Segment Information The Company operates in three reportable segments, the operations of its multi-family residential properties, the operation of Justice Investors, and the investment of its cash and securities assets. These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment's performance. Management also makes operational and strategic decisions based on this same information. Information below represents reported segments for the three months ended September 30, 2001 and the three months ended September 30, 2000. Operating income for rental properties consist of rental income. Operating income from Justice Investors consists of the operations of the hotel and garage included in the equity in net income of Justice Investors. Operating income(losses) for investment transactions consist of net investment gains(losses)and dividend and interest income. Page 9 of 14
Real Estate ------------------------- Three months ended Rental Justice Investment September 30, 2001 Properties Investors Transactions Other Total ----------- ----------- ----------- ----------- ------------ Operating income(loss) $ 3,303,000 $ 1,088,000 $ (9,923,000) $ - $ (5,532,000) Operating expenses (1,533,000) - (565,000) - (2,098,000) Real estate taxes (283,000) - - - (283,000) ----------- ----------- ----------- ----------- ------------ Income(loss) before mortgage interest and depreciation 1,487,000 1,088,000 (10,488,000) - (7,913,000) ----------- ----------- ----------- ----------- ------------ Mortgage interest expenses (900,000) - - - (900,000) Depreciation (597,000) - - - (597,000) General and administrative expenses - - - (365,000) (365,000) Gain on sale of real estate 10,277,000 - - - 10,277,000 Other losses - - - (11,000) (11,000) Income tax expense - - - (200,000) (200,000) Minority interest - - - 1,742,000 1,742,000 ----------- ----------- ----------- ----------- ------------ Net income(loss) $10,267,000 $ 1,088,000 $(10,488,000) $ 1,166,000 $ 2,033,000 =========== =========== =========== =========== ============ Total Assets $63,443,000 $11,347,000 $ 26,531,000 $10,399,000 $111,720,000 =========== =========== =========== =========== ============
Real Estate ------------------------- Three months ended Rental Justice Investment September 30, 2000 Properties Investors Transactions Other Total ----------- ----------- ----------- ----------- ------------ Operating income $ 3,141,000 $ 1,206,000 $ 2,214,000 $ - $ 6,561,000 Operating expenses (1,264,000) - (951,000) - (2,215,000) Real estate taxes (235,000) - - - (235,000) ----------- ----------- ----------- ----------- ------------ Income before mortgage interest and depreciation 1,642,000 1,206,000 1,263,000 - 4,111,000 ----------- ----------- ----------- ----------- ------------ Mortgage interest expenses (863,000) - - - (863,000) Depreciation (552,000) - - - (552,000) General and administrative expenses - - - (422,000) (422,000) Other income - - - 147,000 147,000 Income tax expense - - - (618,000) (618,000) Minority interest - - - (939,000) (939,000) ----------- ----------- ----------- ----------- ------------ Net income(losses) $ 227,000 $ 1,206,000 $ 1,263,000 $(1,832,000) $ 864,000 =========== =========== =========== =========== ============ Total Assets $52,459,000 $11,246,000 $80,582,000 $ 4,254,000 $148,541,000 =========== =========== =========== =========== ============
9. Subsequent Event On November 7, 2001, the Securities Investment Committee of the Board of Directors elected to terminate the Company's agreement with the investment advisory company. Effective November 8, 2001, the Company resumed management of its securities portfolio. Page 10 of 14 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 the 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 the impact of terrorism and war on the national and international economies, including tourism and the securities markets, 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, 2001 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 September 30, 2001 Compared to the Three Months Ended September 30, 2000 Income from real estate operations increased to $10,267,000 for the three months ended September 30, 2001 as compared to income of $227,000 for the three months ended September 30, 2000. This was primarily due to the $10,277,000 gain on sale of real estate during the quarter ended September 30, 2001. In addition, rental income increased to $3,303,000 from $3,141,000, which was partially offset by the increase in property operating expense to $1,533,000 from $1,264,000. The increase in rental income was primarily due to the $257,000 rental income generated by additional apartment complexes during the quarter ended September 30, 2001, which were purchased subsequent to September 30, 2000. In addition, apartment complexes in Santa Monica California and Austin Texas generated a $124,000 increase in rental income. These apartment complexes had higher rents and reduced vacancies during the quarter ended September 30, 2001. These increases were partially offset by a $237,000 decrease in rental income from the apartment complex in St. Louis Missouri, which was sold on August 2, 2001. The increase in property operating expenses was primarily due to increases in salaries, pre-paid insurance amortization expense, and cleaning and repairs expenses. Salaries increased by $106,000 mainly due to a merit bonus given out during the current quarter. Pre-paid insurance amortization expense increased by $80,000 mainly due to the amortization of earthquake insurance for all California properties purchased during January 2001, and additional insurance related to the new properties purchased. Cleaning expenses increased by $32,000 and maintenance expenses increased by $33,000 due to new properties purchased. Page 11 of 14 The decrease in equity in net income of Justice Investors to $1,088,400 from $1,205,632 was primarily attributable to a 32% decrease in hotel and garage revenue. This was primarily due to the decrease in occupancy of the hotel during the current quarter as a result of a slow down in the economy and the impact that the terrorist attacks of September 11, 2001 have had on tourism and the hospitality industry. The decrease in hotel revenue was partially offset by an increase in other income of approximately $600,000 to Justice Investors as a result of an arbitration settlement payment from the hotel Lessee during the current quarter. On June 28, 2001, the Company, Santa Fe, and Portsmouth entered into an agreement with an investment advisory company, which assumed responsibility for the performance of the investment portfolios of the Company, Santa Fe, and Portsmouth as of March 5, 2001. Net gains(losses) on marketable securities changed to net losses of $10,051,000 for the three months ended September 30, 2001 from net gains of $1,663,000 for the three months ended September 30, 2000. This was due to the significant decline in the market value of the Company's investment portfolio during the current quarter. Like many others, the Company's investment portfolio was significantly affected by the impact that the terrorist attacks of September 11, 2001 have had on the national and global economies including securities markets. On November 7, 2001, the Securities Investment Committee of the Board of Directors elected to terminate its agreement with the investment advisory company and the Company resumed management of the Company's securities investments as of November 8, 2001. For the three months ended September 30, 2001, the Company had net unrealized losses of $8,973,000 and net realized losses of $1,078,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net income. However, the amount of gain or loss 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. Dividend and interest income decreased to $128,000 from $551,000 as a result of the management investing in less income yielding securities. Margin interest, trading and management expenses decreased to $565,000 from $951,000, which were primarily due to the maintenance of lower average daily margin balances during the current quarter. Margin interest expense decreased to $133,000 for the three months ended September 30, 2001 from $675,000 for the three months ended September 30, 2000. This decrease was partially offset by the $70,000 investment advisory fees paid during the three months ended September 30 2001, which the Company did not have during the three months ended September 30, 2000. Other income(loss) changed to expense of $11,000 from income of $147,000, which was primarily due to the receipt of approximately $121,000 in legal reimbursements from our insurance carriers during the three months ended September 30, 2000. Income taxes expense decreased to $200,000 from $618,000 due to a 75% decrease in net income before tax and minority interest. Minority interest changed to minority benefit of $1,742,000 from minority expense of $939,000 as a result of a net loss generated by the Company's subsidiary, Santa Fe, during the current quarter. Page 12 of 14 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. During the three months ended September 30, 2001, the Company used net cash flow of $479,000 from operating activities, generated net cash flow of $9,299,000 from investing activities, and used net cash flow of $2,522,000 from financing activities. During the three months ended September 30, 2001, the Company made property improvements in the aggregate amount of $1,172,000. Management believes the improvements to its properties will 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 has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the statement of operations. Effective March 5, 2001, the Company implemented certain procedures and investment strategies, such as reducing the amounts due securities broker, which management believes increase efficiencies in the management of its securities investments. 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 three months ended September 30, 2001, the Company purchased 500 shares of treasury stock for total of $10,000. The events of September 11, 2001 had a dramatic impact on the domestic and global economies resulting in a significant decline in securities markets. Although the Company's investment portfolio felt part of that impact, management anticipates that its net cash flow from real estate operations, securities transactions and real estate financing activities will be sufficient to fund any property acquisitions, property improvements, debt service requirements and operating expenses in fiscal year 2002. 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, 2001. City of St. Louis, Missouri v. The InterGroup Corporation, Intergroup Bridgeton, Inc., et al., Circuit Court of St. Louis County, State of Missouri, Cause No. 01CC000945. This is a condemnation action filed on April 17, 2001, whereby the City of St. Louis is seeking to acquire the Company's 176 units apartment complex located in St. Louis, Missouri by eminent domain for an airport expansion. On August 2, 2001, the Company was awarded $13,862,000 from the Circuit court of St. Louis County, Missouri, which granted the City Page 13 of 14 of St. Louis permission to take possession of the 176-unit St. Louis, Missouri apartment complex. On August 10, 2001, the City of St. Louis filed Exceptions to the Commissioners' Report challenging the amount of the award to the Company and requested a jury trial on the matter. If the matter does go to trial and a jury returns a verdict for less then the Commissioner's award, the Company would be obligated to pay back the difference together with interest of 6% per annum up to the date of any such verdict and 9% per annum thereafter. The Company believes that the Commissioner's award was supported by the evidence presented and the Company will vigorously oppose any attempts to reduce the amount of that award. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None. (b) Registrant filed no reports on Form 8-K during the period covered by this report. 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: November 9, 2001 by /s/ John V. Winfield ---------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: November 9, 2001 by /s/ Gregory C. McPherson ----------------------------- Gregory C. McPherson, Executive Vice President Date: November 9, 2001 by /s/ Michael G. Zybala ----------------------------- Michael G. Zybala Vice President Operations and Date: November 9, 2001 by /s/ Randy Du ----------------------------- Randy Du, Controller (Principal Accounting Officer) Page 14 of 14 10 -----END PRIVACY-ENHANCED MESSAGE-----