-----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, LYEoJRIqvecybN9bDUfCbxn/lAlwPJtMHVYNOo9mXJHylo57a0xZsK7Hu+ekC4gW 3XUr3eawzJfhi4MtNy3XLw== 0000086759-99-000013.txt : 19991115 0000086759-99-000013.hdr.sgml : 19991115 ACCESSION NUMBER: 0000086759-99-000013 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748519 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 10-QSB 9/30/99 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, 1999 [ ] 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, Including Area Code) (310) 889-2500 - ------------------------------------------------------------------------------ (Issuer's Telephone Number, Including Area Code) 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 October 31, 1999 was 1,986,687 shares. Transitional Small Business Disclosure Format: YES__ NO X 2 THE INTERGROUP CORPORATION INDEX TO FORM 10-QSB PAGE PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements: Consolidated Balance Sheet (unaudited) September 30, 1999 3 Consolidated Statements of Operations (unaudited) and Comprehensive Income for Three Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows (unaudited) for Three Months Ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. Other Information 12 Item 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 14 3
THE INTERGROUP CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) September 30, 1999 ----------- ASSETS Investment in real estate, at cost: Land $ 9,776,000 Buildings, improvements and equipment 32,174,000 Property held for sale or development 286,000 ----------- 42,236,000 Less: accumulated depreciation (13,159,000) ----------- 29,077,000 Cash and cash equivalents 4,082,000 Restricted cash 1,489,000 Investment in marketable securities 55,273,000 Investment in Justice Investors 10,575,000 Other investments 2,717,000 Prepaid expenses and other assets 1,893,000 ----------- Total Assets $ 105,106,000 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgage notes payable $35,837,000 Due to securities broker 19,977,000 Obligations for securities sold 14,459,000 Accounts payable and other liabilities 1,569,000 Deferred income taxes 6,831,000 ----------- Total Liabilities 78,673,000 ----------- Minority interest 10,892,000 ----------- Commitments and Contingencies Shareholders' Equity: Preferred stock, $.01 par - 2,500,000 shares authorized; none issued - Common stock, $.01 par - 4,000,000 shares authorized; 2,129,288 shares issued; 1,976,987 shares 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 9,863,000 Note receivable - stock options (1,438,000) Treasury stock, at cost, 152,301 shares (1,591,000) ----------- Total Shareholders' Equity 15,541,000 ----------- Total Liabilities and Shareholders' Equity $ 105,106,000 ===========
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 September 30, 1999 1998 ---------- --------- Real estate operations: Rental revenue $2,842,000 $ 3,335,000 Rental expenses: Mortgage interest expense (632,000) (789,000) Property operating expenses (1,219,000) (1,669,000) Real estate taxes (185,000) (270,000) Depreciation (458,000) (529,000) ---------- ---------- 348,000 78,000 Gain on sale of real estate 7,628,000 - ---------- ---------- Income from real estate operations 7,976,000 78,000 ---------- ---------- Investment transactions: Dividend and interest income 348,000 74,000 Net investment gains(losses) on marketable securities 13,227,000 (503,000) Margin interest, trading and management expenses (626,000) (186,000) Equity in net income from Justice Investors 1,063,000 781,000 ------------ --------- Income from investment transactions 14,012,000 166,000 ----------- --------- Other expenses: General and administrative expenses (406,000) (394,000) Miscellaneous expense (22,000) ( 98,000) ----------- --------- Other expenses (428,000) (492,000) ----------- --------- Income(loss) before provision for income taxes and minority interest 21,560,000 (248,000) Provision for income tax (expense)benefit (9,062,000) 338,000 ---------- ---------- Income before minority interest 12,498,000 90,000 Minority interest (1,191,000) (89,000) ---------- ---------- Net income $11,307,000 $ 1,000 ========== ========== Basic earnings per share $ 5.62 $ .00 ========== ========== Weighted average number of shares outstanding 2,011,587 2,120,663 ========== ========== Diluted earnings per share $ 5.42 $ .00 ========== ========== Diluted weighted average number of shares outstanding 2,086,587 2,120,663 ========== ========== Comprehensive income: Net income $11,307,000 $ 1,000 Unrealized loss on securities arising during period - (5,002,000) Reclassification adjustment for holding loss included in net earnings - 503,000 Income tax benefit related to other comprehensive income 5,387,000 1,428,000 Adjustment for reclassification of the accumulated unrealized holding gains prior to July 1, 1999 to current earnings (13,467,000) - ---------- --------- Total comprehensive income(loss) $ 3,227,000 $(3,070,000) ========== =========
The accompanying notes are an integral part of the consolidated financial statements. 5 THE INTERGROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Three Months Ended September 30, 1999 1998 ----------- ----------- Cash flows from operating activities: Net income $11,307,000 $ 1,000 Adjustments to reconcile net income to cash used in operating activities: Depreciation of real estate 458,000 529,000 Other amortization 23,000 26,000 Gain on sale of real estate (7,628,000) Net investment (gains)losses on marketable securities (13,227,000) 503,000 Equity in net income from Justice Investors (1,063,000) (781,000) Minority interest 1,191,000 89,000 Changes in assets and liabilities: Prepaid expenses and other assets 1,724,000 (688,000) Accounts payable and other liabilities (1,854,000) 25,000 Deferred income taxes payable 3,336,000 - ---------- ----------- Net cash used in operating activities (5,733,000) (296,000) ---------- ---------- Cash flows from investing activities: Additions to buildings, improvements and equipment (226,000) (519,000) Investment in real estate (5,387,000) ( 8,000) Proceeds from sale of real estate 11,524,000 - Purchase of investment securities (18,850,000) (6,128,000) Proceeds from sale of investment securities 22,515,000 9,119,000 Decrease in other investments - ( 49,000) Distributions from Justice Investors 488,000 418,000 Investment in Santa Fe - ( 49,000) Investment in Portsmouth (130,000) (125,000) ---------- ---------- Net cash provided by investing activities 9,934,000 2,659,000 ---------- ---------- Cash flows from financing activities: Principal payments on mortgage notes payable (3,771,000) (1,546,000) Borrowings from mortgage notes payable 2,733,000 - Repayment of letter of credit (2,000,000) - (Increase)decrease in restricted cash (30,000) 83,000 Increase in obligations for securities sold 511,000 - Increase(decrease) in due to securities brokers 2,221,000 (3,273,000) Dividends paid to minority shareholders (61,000) ( 63,000) Purchase of treasury stock (236,000) ( 154,000) ---------- ---------- Net cash used in financing activities (633,000) (4,953,000) ---------- ---------- Net increase(decrease) in cash and cash equivalents 3,568,000 (2,590,000) Cash and cash equivalents at beginning of period 514,000 5,313,000 ---------- ----------- Cash and cash equivalents at end of period $ 4,082,000 $ 2,723,000 ========== ===========
The accompanying notes are an integral part of the consolidated financial statements. 6 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 owns 53.6% of the common stock of Santa Fe Financial Corporation ("Santa Fe"), a public company (Nasdaq SmallCap: SFEF) and has the power to vote 57.4% of the voting shares of Santa Fe due to the voting trust agreement with the Company's Chairman, which gives the Company the power to vote his shares of Santa Fe's common stock. 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 limited partnership. Justice owns the land, improvements and leasehold 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, 1998 and for the three months then ended to conform with the current quarter presentation. 2. 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. In recent months, the Company has 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 has 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 has 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 ended September 30, 1999, all unrealized gains and losses on the Company's investment portfolio will be recorded through the statement of operations. For the three months ended September 30, 1999, the Company recognized a net unrealized gain of $13,467,000 related to the reclassification of all available-for-sale securities to trading securities. 3. Investment in Real Estate In December 1998, the Company entered into a contract to sell the 22.4 acres of land located in St. Louis, Missouri for $5,450,000. The sale was completed in September 1999 and the Company realized a gain of approximately $3,329,000. The Company received net proceeds of $3,185,000 after the repayment of a $2,000,000 letter of credit. In October 1999, the Company completed the purchase of a 14-unit multi-family apartment complex for $2,150,000 in connection with a 1031 tax-deferred exchange. Additionally, in September 1999, the Company entered into a contract to purchase a 9-unit multi-family apartment complex for $1,675,000 in connection with another 1031 tax-deferred exchange. This purchase was completed in November 1999. Both properties are located in Los Angeles, California. 7 In April 1999, the Company entered into a contract to sell the two-story, 150- unit apartment complex located in Middletown, Ohio for $3,425,000. The sale was completed in July 1999 and the Company realized a gain of approximately $2,374,000. The Company received net proceeds of $815,000 after the repayment of the underlying mortgage of $2,440,000. Net proceeds of $815,000 are being held in escrow pending a 1031 tax-deferred exchange. In August 1999, the Company entered into a contract to purchase a 190-unit multi-family apartment complex located in Austin, Texas for $4,150,000 in connection with the 1031 tax- deferred exchange. The purchase is expected to close in November 1999. In April 1999, the Company entered into a contract to sell the three-story, 100- unit apartment complex located in Cincinnati, Ohio for $3,125,000. The sale was completed in July 1999 and the Company realized a gain of approximately $2,130,000. The Company received net proceeds of $1,736,000 after the repayment of the underlying mortgage of $1,216,000. In July 1999, the Company entered into a contract to purchase a 27-unit multi-family apartment complex located in Los Angeles, California for $4,075,000 in connection with the 1031 tax-deferred exchange. The purchase was completed in September 1999. In June 1999, the Company entered into a contract to purchase a 12-unit multi- family apartment complex located in Los Angeles, California for $1,305,000. The purchase was completed in July 1999. 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 September 30, 1999 ------------------ Assets Total current assets $1,927,830 Property, plant and equipment, net of accumulated depreciation of $11,280,079 5,295,603 Loan fees and deferred lease costs, net of accumulated amortization of $140,065 170,348 --------- $7,393,781 ========= Liabilities and partners' capital Total current liabilities $ 50,810 Partners' capital 7,342,971 Total liabilities and --------- partners' capital $7,393,781 ========= 8 JUSTICE INVESTORS CONDENSED STATEMENTS OF OPERATIONS For the three months ended September 30, 1999 1998 ---------- ---------- Revenues $2,344,000 $1,802,000 Costs and expenses (210,000) (233,000) --------- --------- Net income $2,134,000 $1,569,000 ========= ========= 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%. That judgment and the award of attorneys' fees were appealed. On August 27, 1999, the Court of Appeal filed its opinion affirming the judgment and award of attorneys' fees and costs in favor of InterGroup. On September 13, 1999, plaintiffs filed a Petition for Rehearing of that appeal which was denied. On October 6, 1999, plaintiffs filed a Petition for Review with the California Supreme Court only of the award of attorneys' fees and costs. That Petition is currently pending. Oral argument on the appeal of an award of attorneys' fees and costs in favor of the director defendants and Santa Fe in the amount of $936,000, plus interest, is scheduled for November 10, 1999. 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 Portsmouth and Santa Fe 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. All of the Company's Directors serve as directors of Santa Fe and all three of the Company's Directors serve on the Board of Portsmouth. 9 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 September 30, 1999 are 75,000 stock options. 8. Subsequent Event In September 1999, the Company entered into a contract to purchase a 14-unit multi-family apartment complex located in Los Angeles, California for $2,150,000 in connection with a 1031 tax-deferred exchange. The purchase was completed in October 1999. In August 1999, the Company entered into a contract to purchase a 190-unit multi-family apartment complex located in Austin, Texas for $4,150,000 in connection with a 1031 tax-deferred exchange. The purchase is expected to close in November 1999. In September 1999, the Company entered into a contract to purchase a 9-unit multi-family apartment complex located in Los Angeles, California for $1,675,000 in connection with a 1031 tax-deferred exchange. The purchase completed in November 1999. 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. 10 RESULTS OF OPERATIONS Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998. Income from real estate operations for the three months ended September 30, 1999 was $7,976,000 compared to $78,000 for the three months ended September 30, 1998. That increase was primarily attributable to the sale of three real estate 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 $2,842,000 from $3,335,000 and the decrease in rental expense to $2,494,000 from $3,257,000 is 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. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. In recent months, the Company has 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. After consultation with the Investment Committee of the Board of Directors, management has 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 ended September 30, 1999, all unrealized gains and losses on the Company's investment portfolio will be recorded through the statement of operations. For the three months ended September 30, 1999, the Company recognized a net unrealized gain of $13,467,000 related to the reclassification of all available- for-sale securities to trading securities. The increase in net gains from marketable securities to $13,227,000 compared to the net loss of $503,000 is primarily due to the reclassification discussed above. 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 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 income to $348,000 from $74,000 reflects management's efforts to reposition the Company's investment portfolio. Margin interest, trading and management expenses increased to $626,000 from $186,000 primarily due to an increase in margin interest expense and trading expenses as a result of an increase in the size of the Company's portfolio. The increase in partnership income to $1,063,000 from $781,000 was primarily attributable to an increase in hotel rental and garage rental income and a decrease in partnership operating expenses. Minority interest increased to $1,191,000 from $89,000 due to significantly greater income generated by Santa Fe. For the three months ended September 30, 1999, Santa Fe had net income of $2,285,375 compared to a net loss of $68,000 for the three months ended September 30, 1998. The increase in net income from Santa Fe is primarily due to the recognition of a net unrealized gain of $4,114,000 related to the reclassification of all available-for-sale securities to trading securities. 11 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 $5,733,000 in operating activities, generated net cash flow of $9,934,000 from investing activities and used net cash flow of $633,000 in financing activities during the three months ended September 30, 1999. During the three months ended September 30, 1999, the Company received net proceeds from the sale of real estate of $5,736,000 after the repayment of mortgage notes of $3,656,000 and the $2,000,000 letter of credit. A portion of the net proceeds was used to purchase a 27-unit multi-family apartment complex located in Los Angeles, California for $4,075,000 in connection with the 1031 tax-deferred exchange. Additional net proceeds of $3,147,000 are being held in escrow pending three 1031 tax-deferred exchanges. In September 1999, the Company entered into contracts to purchase a 14-unit multi-family apartment complex for $2,150,000 and a 9-unit multi-family apartment complex for $1,675,000 in connection with the 1031 tax-deferred exchanges. The purchase of the 14-unit apartment complex was completed in October 1999 and the purchase of the 9-unit apartment complex is expected to close in November 1999. Both properties are located in Los Angeles, California. Additionally, in August 1999, the Company entered into a contract to purchase a 190-unit multi-family apartment complex located in Austin, Texas for $4,150,000 in connection with the 1031 tax-deferred exchange. The purchase is expected to be completed in November 1999. In June 1999, the Company entered into a contract to purchase a 12-unit multi- family apartment complex located in Los Angeles, California for $1,305,000. The purchase was completed in July 1999. During the three months ended September 30, 1999, the Company made property improvements in the aggregate amount of $226,000. 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. Marketable securities increased $1,526,000 during the three months ended September 30, 1999. The increase was primarily financed through the use of margin and proceeds received from the writing of options. The Company's outstanding indebtedness represents mortgages on real estate, which amounted to $35,837,000 as of September 30, 1999. During the year, the Company paid-off two mortgages aggregating $3,661,000 related to the sale of two Ohio properties. The Company also borrowed $2,733,000 related to the purchase of two new real estate properties. Management will pursue refinancing activities as considered necessary or when deemed economically favorable to the Company. On January 13, 1998 the Company's Board of Directors approved the repurchase, from time to time, of up to 150,000 shares of its Common Stock. Such repurchases, together with previously authorized repurchases of up to 72,000 shares which remain under a prior repurchase program, may be made at the discretion of management and depending upon market conditions. During the three months ended September 30, 1999, the Company acquired 19,900 shares of its Common Stock for $236,000. At September 30, 1999, the Company's had current assets of $62,737,000, which consists of cash, marketable securities, prepaid expenses and other assets. The Company remains liquid and management believes that its capital resources are currently adequate to meet its short and long-term obligations. 12 YEAR 2000 ISSUES The Company is aware of the potential implications that the year 2000 ("Y2K") issue could have on its business and, as a result, is in the process of determining what, if any, steps the Company must take to cure any potential computer software or hardware problems associated with the year 2000. The Company has hired professional outside consultants to assist it in addressing its Y2K needs. The Company's plan includes upgrading existing software applications to make them Y2K compliant, replacing some hardware required by the software upgrades, purchasing new computer hardware and upgrading its computer network and communication systems. The Company has also contacted suppliers of various services and materials regarding their readiness and plans for Y2K. The cost incurred by the Company to date for consultants, software and hardware applications has been approximately $50,000. Management does not believe the remaining costs to complete the Y2K compliance will have a material effect on the Company's financial position. Based on discussions with its outside consultants, service providers and software and hardware vendors, the Company has determined that its systems, both information technology and non-information technology, are not reasonably likely to be impacted by Y2K and the Company anticipates that it will be Y2K compliant by November 15, 1999. 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. 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 August 27, 1999, the Court of Appeal, Fourth Appellate District Division One of the Sate of California filed its opinion affirming the summary judgment and award of attorneys' fees and costs in favor of InterGroup. On September 13, 1999, plaintiffs filed a Petition for Rehearing of that appeal which was denied. On October 6, 1999, plaintiffs filed a Petition for Review with the California Supreme Court only of the award of attorneys' fees and costs. That Petition is currently pending. Oral argument on the appeal of the award of attorneys' fees and costs in favor of the director defendants and Santa Fe in the amount of $936,000, plus interest, is scheduled for November 10, 1999. Howard A. Jaffe v. The InterGroup Corporation, et al., Case No. BC188323, filed on March 28, 1998 in the Los Angeles County Superior Court. As previously reported, plaintiff filed an appeal from an order denying his motion to disqualify the law firm representing the Company and its Chairman and President. The filing of that appeal resulted in a stay of all trial court proceedings in that wrongful termination action. Oral argument on that appeal has been scheduled for November 23, 1999. 13 7709 Lankershim Ltd. v. Carreon Villa Apartments I, et al., Riverside County Superior Court Case No. 088325 was filed on March 27, 1996 against the Company and others. Mediation has been scheduled for December 14, 1999 and February 17, 2000 in that construction defect action. The Company continues in its efforts to secure insurance coverage for all or part of the defense of this action and for all or part of any liability that may be imposed on the Company. Woodlake Management, Inc., et al. v. Intergroup Whisperwood, Inc. et al., Pennsylvania Court of Common Pleas, Philadelphia County, Case No. 001642. As previously reported, on June 16, 1999, a complaint was filed against the Company's wholly-owned subsidiary Intergroup Whisperwood, Inc. ("Whisperwood") and the Company's former property manager, Pinnacle Realty Management Company ("Pinnacle") alleging breach of contract, misrepresentation and fraud in connection with the sale of the Whisperwood Apartments. The complaint prays for an award of compensatory, consequential and special damages in excess of $50,000, punitive damages and an award of costs and attorneys' fees. Whisperwood's preliminary objections to the complaint seeking dismissal of the action were denied in October 1999. Whisperwood has requested indemnification from its former third-party property management company respecting this action. Since the case is in its very early stages, it is not possible to predict the outcome of this action at this time. Wayne Prosser, Matthew Prosser and Rodney John Young v. Intergroup Cross Keys, Inc., The InterGroup Corporation and Pinnacle Realty Management Company, State of Missouri Department of Labor and Industrial Relations, Division of Workers' Compensation, Claims Nos. 98-036816, 98-171801 and 98-171806. In April 1999, three Workers' Compensation claims were filed with the Missouri Department of Labor and Industrial Relations for injuries suffered by claimants while performing work at the Cross Keys Apartments owned by the Company's wholly- owned subsidiary, Intergroup Cross Keys, Inc. ("Cross-Keys"). Also named as a defendant in that action is the Company's former property manager, Pinnacle. Claimants allege that they have suffered permanent and total disability as a result of receiving electrical shock from coming in contact with power lines on the property. On September 22, 1999, the Company's Workers' Compensation carrier accepted the Company's tender of defense respecting those claims, but denied coverage respecting Cross-Keys. The Company will continue to vigorously defend these claims and take all actions necessary to insure that these claims are covered by insurance. As previously reported, claimants have also filed a separate civil action against Union Electric in the Circuit Court of St. Louis, Missouri as Case No. 98-209048. To date, InterGroup, Cross Keys and Pinnacle have not been named in that action. If named as defendants, InterGroup and Cross Keys believe that they have sufficient liability insurance to cover such claims. 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. 14 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 September 30, 1999. 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 2, 1999 by /s/ John V. Winfield ---------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: November 2, 1999 by /s/ Gregory C. McPherson ----------------------------- Gregory C. McPherson, Executive Vice President and Assistant Treasurer Date: November 2, 1999 by /s/ Michael G. Zybala ----------------------------- Michael G. Zybala Vice President Operations and Assistant Secretary Date: November 2, 1999 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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB REPORT. 0000069422 THE INTERGROUP CORPORATION 1 3-Mos Jun-30-2000 Jul-01-1999 Sep-30-1999 5571000 55273000 0 0 0 62737000 42236000 13159000 105106000 36005000 0 0 0 21000 22600000 105106000 0 21988000 0 3120000 428000 0 1258000 21560000 9062000 12498000 0 0 0 11307000 5.62 5.42
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