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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended June 30, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period from ______ to ______
Commission file number 1-10324
THE INTERGROUP CORPORATION
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(Name of small business issuer in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
13-3293645
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(I.R.S. Employer Identification No.)
2121 Avenue of the Stars, Suite 2020
Los Angeles, California 90067
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number: (310) 556-1999
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock - Par Value $.01 Per Share
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(Title of class)
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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $15,192,316
The aggregate market value of the voting stock held by non-affiliates of the
registrant at June 30, 1996, was $23,414,000 (based on the price at which the
stock closed on such date). Solely for purposes of this calculation affiliates
of the registrant have been deemed to include only directors, executive
officers and the Employee Stock Ownership Plan and Trust of the registrant.
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of August 31, 1996 was 959,349 shares.
Documents incorporated by reference: Proxy Statement, Part III, Items 9 through
12. Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
PART I
Items 1. DESCRIPTION OF BUSINESS 3
Items 2. DESCRIPTION OF PROPERTIES 4
Items 3. LEGAL PROCEEDINGS 8
Items 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
PART II
Items 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTER 9
Items 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 9
Items 7. FINANCIAL STATEMENTS 13
Items 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 26
PART III
Items 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 26
Items 10. EXECUTIVE COMPENSATION 26
Items 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 26
Items 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 26
Items 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K 26
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PART I
Item 1. Description of Business.
GENERAL
THE INTERGROUP CORPORATION ("Intergroup" or the "Company") is a Delaware
corporation formed in 1985, as the successor to Mutual Real Estate Investment
Trust ("M-REIT"), a New York real estate investment trust created in 1965. The
Company has been a publicly-held company since M-REIT's first public offering
of shares in 1966 and has been a reporting company pursuant to Section 12(g)
of the Securities Exchange Act of 1934 from that time.
The Company was organized to buy, develop, operate, rehabilitate and dispose
of real property of various types and descriptions, and to engage in such
other business and investment activities as would benefit the Company and its
shareholders. The Company was founded upon, and remains committed to, social
responsibility. Such social responsibility was originally defined as
providing decent and affordable housing to people without regard to race. In
1985, after examining the impact of federal, state and local equal housing
laws, the Company determined to broaden its definition of social
responsibility. The Company changed its form from a REIT to a corporation so
that it could pursue a variety of investments beyond real estate and broadened
its social impact to engage in any opportunity which would offer the
potential to increase shareholder value within the Company's underlying
commitment to social responsibility which it redefined to encompass investments
in any area which can have a socially redeeming value and can lead to the
establishment of a fair, equal and better society.
See Item 2 for a description of the Company's current investments in and
investment policies concerning real property.
A portion of the Company's funds are invested under the direction of John V.
Winfield, the Company's chairman and president, in securities, joint ventures
and partnerships. The Company will consider investing in equity and debt
securities of companies which are either publicly or privately held if such an
investment will offer growth or profit potential and not conflict with
management's perception of social responsibility. The Company's general
investment strategy regarding marketable securities is to seek out companies
which are considered by management to be currently out of favor or undervalued,
because management believes it is misunderstood by the general investing
community, and companies that potentially could go through restructuring or
reorganization. The Company will also invest in start up entities,
especially those involved in high technology, and initial public offerings
where potential for growth is perceived. Although most of the
Company's marketable securities investments are in New York and
American Stock Exchange listed companies, the overall investment portfolio
and the Company's investment strategies could be viewed as highly
risky and the market values of the portfolio may be subject
to large fluctuations.
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The Company may realize gains and losses in its overall investment portfolio
from time to time to take advantage of market conditions and/or manage the
portfolio's resources and the Company's tax liability. The Company may also
assume short positions in marketable securities. Short sales are used by the
Company to potentially offset normal market risks undertaken in the course of
its investing activities or to provide additional return opportunities. In
addition, the Company utilizes margin for its marketable securities purchases
through the use of standard margin agreements with national brokerage firms.
The use of available leverage is guided by the business judgment of management.
The Company acquires its investments in real estate and other investments
utilizing cash, securities or debt, subject to approval or guidelines of the
Board of Directors.
The Company has invested in Santa Fe Financial Corporation ("Santa Fe") which
derives its revenue primarily through an indirect interest in a 566-room
Holiday Inn in San Francisco, California. For further information see Notes
to Consolidated Financial Statements.
COMPETITION
All of the properties owned by the Company are in areas with substantial
competition. However, management believes that the apartments are in a
competitive position in their respective communities. The Company intends,
where appropriate, to continue to upgrade and improve the physical condition
of its properties to remain competitive.
EMPLOYEES
As of June 30, 1996, the Company had a total of 7 full-time employees. The
employees and the Company are not party to any collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.
Item 2. Description of Properties.
PROPERTIES
At June 30, 1996, the Company's investment in real estate consisted of
properties located throughout the United States. These properties include
twelve directly owned apartment complexes which are completed operating
properties. The Company also owns approximately 22.4 acres primarily comprised
of unimproved real estate in St. Louis, Missouri. In the opinion of
management, each of these properties is adequately covered by insurance. None
of these properties is subject to foreclosure proceedings or litigation other
than that incurred in the normal course of business. The Company's rental
properties enter into short term leases, with no lease extending beyond one
year.
Morris County, New Jersey. The Morris County property is a two-story garden
apartment complex which was completed in June 1964 and contains 151 units on
approximately 8 acres of land. The complex was acquired by the Company on
September 15, 1967 at an initial cost of approximately $1,600,000. Real
estate property taxes for the year ended June 30, 1996 were approximately
$154,000. Depreciation is recorded on the straight-line method, based upon
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an estimated useful life of 40 years. The outstanding mortgage balance was
approximately $5,304,000 at June 30, 1996.
St. Louis, Missouri. The Company's St. Louis properties consist of three
properties, two of which are apartment complexes and one is primarily
unimproved land. The first apartment complex is a two-story project
containing 264 units on approximately 17.5 acres. The Company acquired the
complex on November 1, 1968 at an initial cost of $2,328,000. For the year
ended June 30, 1996, real estate property taxes were approximately $70,000.
Depreciation is recorded on the straight-line method, based upon an estimated
useful life of 35 years. The outstanding mortgage balance was approximately
$3,242,000 at June 30, 1996. The second apartment complex is a two-story
project containing 176 units on approximately 14 acres. The Company
reacquired the complex through foreclosure on May 11, 1989, and recorded the
asset at $3,480,000 representing the Company's total cost of the mortgage
note receivable. For the year ended June 30, 1996, real estate property taxes
were approximately $46,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 30 years. The outstanding
mortgage balance was approximately $3,522,000 at June 30, 1996. The Company
also owns approximately 22.4 acres of land adjacent to the first apartment
complex, which was acquired by the Company in March 1974 with additional
acquisitions in June and July 1995 for the aggregate price of approximately
$840,841. At June 30, 1996, the outstanding mortgage balance was $839,000.
The property taxes for the year ended June 30, 1996 were approximately
$40,000. The additional parcels were acquired to provide better access to the
larger parcel. The site is in the process of being rezoned to enhance the
value and salability. The Company intends to sell all or a portion of its
unimproved land.
Middletown, Ohio. The Middletown property is a two-story apartment complex
which contains 150 units on approximately 5.5 acres. The complex was
acquired by the Company on May 31, 1972 at an initial cost of approximately
$1,670,000. For the year ended June 30, 1996, real estate property taxes
were approximately $40,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 35 years. The outstanding
mortgage balance was approximately $2,572,000 at June 30, 1996.
Cincinnati, Ohio. The Cincinnati property is a three-story apartment complex
which contains 100 units on approximately 5.8 acres. The Company acquired
the complex on October 20, 1972 at an initial cost of approximately
$1,416,000. For the year ended June 30, 1996, real estate property taxes
were approximately $48,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 40 years. The outstanding
mortgage balance was approximately $1,272,000 at June 30, 1996.
Florence, Kentucky. The Florence property is a three-story apartment complex
which contains 157 units on approximately 6.0 acres. The property was
acquired by the Company on December 20, 1972 at an initial cost of
approximately $1,995,000. For the year ended June 30, 1996, real estate
property taxes were approximately $28,000. Depreciation is recorded on the
straight-line method, based upon an estimated useful life of 40 years. The
outstanding mortgage balance was approximately $3,048,000 at June 30, 1996.
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Atlanta, Georgia. The Atlanta property is a two-story apartment complex
which contains 104 units on approximately 5.0 acres. The Company reacquired
the complex through foreclosure on August 7, 1990 and recorded the asset at
its estimated fair market value of $1,100,000. For the year ended June 30,
1996, real estate property taxes were approximately $26,000. Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
30 years. There was no outstanding mortgage at June 30, 1996.
Harrisburg, Pennsylvania. The Harrisburg property is a two-story apartment
complex which contains 150 units on approximately 6.0 acres. The Company
reacquired the complex by a deed in lieu of foreclosure on July 1, 1992, and
reclassified the mortgage note receivable and closing costs of approximately
$1,386,000 to investment in real estate. For the year ended June 30, 1996,
real estate property taxes were approximately $65,000. Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
30 years. The outstanding mortgage balance at June 30, 1996 was approximately
$1,815,000.
Irving, Texas. The Irving property is a two-story apartment complex
which contains 224 units on approximately 9.9 acres. The property was
acquired by the Company on September 16, 1994 at an initial cost of
approximately $4,150,000. For the year ended June 30, 1996, real estate
property taxes were approximately $112,000. Depreciation is recorded on the
straight-line method, based upon an estimated useful life of 30 years. The
outstanding mortgage balance was approximately $2,962,000 at June 30, 1996.
San Antonio, Texas. The San Antonio properties include three apartment
complexes. The first apartment complex is a two-story project containing 228
units on approximately 23.8 acres. The Company acquired the complex on
December 3, 1992 at an initial cost of $2,300,000. For the year ended June
30, 1996, real estate taxes were approximately $124,000. Depreciation is
recorded on the straight-line method, based upon an estimated useful life of
30 years. The outstanding mortgage balance was approximately $1,966,000 at
June 30, 1996. The second apartment complex is a two-story project
containing 132 units on approximately 4.3 acres. The Company acquired the
complex on June 29, 1993 for $2,752,000. For the year ended June 30, 1996,
real estate taxes were approximately $88,000. Depreciation is recorded on
the straight-line method, based upon an estimated useful life of 30 years.
The outstanding mortgage balance was approximately $2,259,000 at June 30,
1996. The third apartment complex is a two-story project containing 160
units on approximately 5.6 acres. The Company acquired the complex on June
27, 1994 for $3,500,000. For the year ended June 30, 1996, real estate taxes
were approximately $104,000. Depreciation is recorded on the straight-line
method, based upon an estimated useful life of 27.5 years. The outstanding
mortgage balance was approximately $2,385,000 at June 30, 1996.
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REAL ESTATE INVESTMENT POLICY
The most significant investment activity of the Company has been to acquire,
operate and, when appropriate, sell income-producing residential real estate.
The Company has, in the past, concentrated on owning and operating integrated
multi-family apartment buildings. The Company has indirectly invested in,
through acquisition of securities, and will consider additional real estate
related investments such as hotels, office buildings, and shopping centers
where financial benefit could inure to its shareholders.
The Company is presently looking for new real estate investment opportunities
and plans to continue to concentrate its real estate investments in developed
properties. The acquisition of new real estate investments will depend on the
Company's ability to find suitable investment opportunities and the
availability of sufficient financing to acquire such investments. The Company
plans to borrow funds to leverage its investment capital. The amount of this
mortgage debt will depend on a number of factors including, but not limited
to, the availability of financing and the sufficiency of the projects'
projected cash flows to support the operations and debt service.
Additionally, the Company may make investments and loans in connection with
real property owned by partnerships, corporations or individuals.
MORTGAGES
Information with respect to mortgage notes payable of the Company is set
forth in Note 6 of the Notes to Consolidated Financial Statements.
POTENTIAL RENTAL RATES AND PHYSICAL OCCUPANCY RATES
The Company leases units in its residential rental properties on a short term
basis, with no lease extending beyond one year. The effective rental rates
per rental unit of the Company's properties for fiscal year ended June 30,
1996 (i.e., gross rental revenues based on 100% occupancy per year divided by
the total number of apartment units at the property); and the occupancy rates
for fiscal year ended June 30, 1996 (i.e., occupied days divided by total
days) are as follows:
Effective Physical
Rental Occupancy
Rates for Rates for
1996 1996
Location of Property -----------------------
Morris County, NJ $8,782 97%
Harrisburg, PA 6,019 94%
Middletown, OH 5,672 94%
Cincinnati, OH 6,101 94%
Florence, KY 5,359 96%
Atlanta, GA 6,236 95%
St. Louis County, MO I 4,705 94%
St. Louis County, MO II 6,901 91%
Irving, TX 5,314 97%
San Antonio, TX I 6,023 88%
San Antonio, TX II 5,761 95%
San Antonio, TX III 5,335 83%
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MANAGEMENT OF THE PROPERTIES
The Company's property management division managed the Company's properties
from fiscal 1988 to March 31, 1995. Effective April 1, 1995, the Company
entered into a property management agreement with a third party management
company, which has national operations, to manage all of the Company's
properties.
Item 3. Legal Proceedings.
On March 27, 1996, a complaint was filed in the Superior Court of the State of
California, Riverside County, by 7709 Lankershim Ltd., a California Limited
Partnership, against the Company in which it claimed damages in excess of
$2,000,000 arising out of latent construction defects discovered in the two
Indio, California properties, formerly owned by the Company. The case is in
its very early stages, discovery has not as yet taken place, and it is not
possible to assess what the Company's exposure is at this time. It is
management's preliminary belief, however, that any action with regard to one
of the Indio, California properties is legally barred. The action will be
vigorously defended.
On February 22, 1995, a complaint was filed in the Superior Court of
California, County of San Diego, by Guinness Peat Group plc and its
subsidiary, Allied Mutual Insurance Services Ltd., in the form of a
shareholders derivative action against Robert Gould, Janice Braly Nelson,
Richard O'Conner (Directors of Santa Fe) and the Company. In such complaint,
the Company was charged with aiding and abetting a breach of fiduciary duty on
the part of Santa Fe's Board of Directors. Recision of the purchase and
unspecified money damages are sought. Such claim was dismissed by the Court,
as to the Company, in April 1996, on the Company's motion for Summary
Judgment. The plaintiff subsequently amended its complaint, as to the Company,
to bring a claim based on the theory that the Company defrauded Santa Fe's
management into approving the Company's purchase. Management of the Company
believes this new claim is also without legal or factual basis and has filed a
demurrer and motion for summary judgment challenging it. The Court is
currently considering the issues and has in the interim, directed plaintiff to
file no further amendments to its complaint without the Court's permission.
Discovery in this action is continuing and the trial date is scheduled for
November 1996. The action has been and will be vigorously defended.
The Company is a defendant or co-defendant in various legal actions incident
to the conduct of its business. Management does not expect the Company to
suffer any material liability by reason of such actions.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of fiscal 1996.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
MARKET
As of June 30, 1996, there were 1,466 shareholders of record. The Company's
Common Stock is traded on The NASDAQ Stock Market and is listed on The
Pacific Stock Exchange. The following table sets forth the high and low bid
prices for the shares for the fiscal quarters indicated as reported by the
National Quotation Bureau Incorporated or NASDAQ, Inc. The prices are quoted
by dealers to each other and do not include retail markups, markdowns or
commissions and may not represent actual transactions.
1996 High Low
First Quarter 7/1 - 9/30 $56.75 $40.00
Second Quarter 10/1 - 12/31 $63.25 $40.00
Third Quarter 1/1 - 3/31 $51.00 $36.00
Fourth Quarter 4/1 - 6/30 $60.00 $36.75
1995
First Quarter 7/1 - 9/30 $25.50 $17.00
Second Quarter 10/1 - 12/31 $27.50 $24.00
Third Quarter 1/1 - 3/31 $51.00 $26.50
Fourth Quarter 4/1 - 6/30 $47.50 $38.00
DIVIDENDS
At the present time, a no dividend policy has been adopted by the Company and
no dividends have ever been paid. The Company may elect in the future to
declare dividends or continue to retain, as do many publicly-held
corporations, all or a portion of the annual earnings to finance expansions
or acquisitions or to establish a reserve for unexpected contingencies,
capital requirements and operating expenses.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may from time to time make forward-looking statements and
projections concerning future expectations. 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 that could cause actual results to
differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as to the
date hereof. 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.
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RESULTS OF OPERATIONS
For the Year Ended June 30, 1996 vs. 1995
Income from real estate operations for the year ended June 30, 1996, as
compared to the year ended June 30, 1995, was impacted primarily by increased
revenues and reduced costs achieved through the economies of scale and added
on-site management attention brought about by transferring the property
management to an unaffiliated national property management company on April 1,
1995. This increase was partially offset by the costs of closing the
Company's property management division. Income from real estate operations
was also positively impacted by two factors: (i) the transfer by the Company
of its Indio, California properties to the mortgage lender in March 1995 which
eliminated the continuing negative cash flow and depreciation of the Indio
properties and (ii) a full year of operating results of a 224-unit property in
Irving, Texas purchased in September 1994.
Rental income from real estate operations increased by 1% to $11,136,328 from
$10,999,933. The increase was primarily due to the full year of operations of
the Irving, Texas property and an increase in the overall average rental
rates which together more than offset an increase in vacancy rates, some of
which was planned to upgrade tenant profiles.
Mortgage interest expense decreased to $2,827,879 from $2,837,036 primarily
due to the lower interest rates accomplished through refinancing two loans
from a variable rate of 2.5% over the Federal Home Loan Bank of San Francisco
to a fixed rate of 7.925%, and from a fixed rate of 9.25% to a fixed rate of
7.335%, offset by additional mortgage interest associated with the full year
of interest on the mortgage relating to the Irving, Texas property, higher
loan balances on the two refinancings and the amortization of the previous
loans' origination costs.
Property operating expenses decreased by 2% to $5,285,297 from $5,410,135
primarily due to cessation of expenses related to the Indio properties, lower
insurance costs and the closing of the Company's property management division,
partially offset by expenditures associated with the Irving, Texas property
and by over $145,000 in higher utility and snow removal expenses due to this
year's severe winter.
Real estate taxes increased 14% to $944,752 from $827,233 primarily due to
real estate taxes on the Irving, Texas property, increased taxes on the other
three Texas properties due to reassessments and a refund of taxes on the
Harrisburg property received in the prior year, partially offset by reduced
taxes on the St. Louis properties.
Depreciation decreased 5% to $1,594,990 from $1,674,842 due primarily to the
lack of depreciation expense in 1996 relating to the Indio, California
properties dispositions in 1995.
Investment gains increased 22% to $6,315,661 from $5,188,267 and investment
losses decreased 42% to $2,407,876 from $4,153,095 which in the prior year
included the recognition of an unrealized loss of $624,978 relating to short
sales compared to $4,167 in the current year and a $750,000 reserve relating
to an investment in Aura Systems, Inc., which was subsequently reversed in the
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fourth quarter of 1996 as a result of a settlement of the arbitration
proceeding brought by the Company in fiscal 1995. Realized investment gains
and losses may fluctuate significantly from period to period, with a
meaningful effect upon the Company's net earnings. However, the amount of
realized investment gain or loss for any given period has no predictive value,
and variations in amount from period to period have no practical analytical
value, particularly in view of the net unrealized gain in the Company's
overall investment portfolio. Margin interest, trading, and management expenses
increased 79% to $1,540,102 from $862,301 due to increased margin interest
expense of $164,570, and increased trading related expenses and management
expenses of $513,231 relating primarily to additional personnel and related
expenses, travel expenses, administrative costs, and increased litigation
costs associated with investments. The Company has initiated a cost savings
program in this area to reduce the management expenses through reduction in
personnel and overhead expenses. Management believes that the Company will
realize substantial savings in future periods. The overall investment
portfolio, which includes marketable securities, investment in Santa Fe and
other investments, had a positive return of 21.3% for the year ended June 30,
1996 and a negative return of 21.1% for the previous year, based on the net
realized and unrealized gains and losses and after expenses over the monthly
average investment balance of the overall investment portfolio. For the five
years ended June 30, 1996, the overall investment portfolio achieved a
positive average annual compounded return of 13.1%. It should be noted that
other investments are investments that are not traded on any exchange and,
accordingly, the return calculations do not reflect any increases or decreases
in value of other investments until such gains or losses are realized or there
is an other than temporary decline in value below the cost of the investment.
General and administrative expenses decreased 34% to $1,026,333 from $1,557,041
as a result of a cost savings and efficiency plan to lower aggregate office
expenses, travel expenses and reduce personnel.
Miscellaneous expense increased to $1,067,131 from $208,141 primarily due to
the costs of litigation and settlement expenses related to the Golden West
Entertainment lawsuit.
Income tax expense of $358,828 and income tax benefit of $436,879 were
provided for the years ended June 30, 1996 and 1995, respectively. The change
to expense from benefit results from the change to income from loss before
provisions for income taxes and extraordinary item.
In Fiscal 1995, the Company recorded an extraordinary gain of $1,030,436 on
the extinguishment of $10,356,404 of debt related to the Indio properties, net
of taxes of $678,794 and the properties depreciated cost of $8,647,174.
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 generated net cash flow of $3,299,136 from operating activities,
used net cash flow of $1,511,545 for investing activities and used net cash
flow of $916,945 for financing activities, which included proceeds from the
sale of $907,500 of the Company's common stock, during the year ended June 30,
1996.
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The Company intends to sell all or a portion of its unimproved land. Should
the Company consummate a sale, all or a portion of the proceeds may be
utilized to provide additional funds to take advantage of other investment
opportunities.
During the year ended June 30, 1996, the Company improved properties in the
aggregate amount of $1,260,191. The Company has budgeted approximately
$800,000 for improvements in 1997. 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.
During the year ended June 30, 1996, marketable equity securities decreased
approximately 43% to $8,468,418 from $14,751,444 primarily due to sales of
securities to fund additional investment in Santa Fe, other investments and
to reduce margin debt. Net unrealized gains decreased 3% to $5,301,307 from
$5,479,578 due to realization of gains and market fluctuations. As of June 30,
1996, the Company had no naked short positions.
The Company's outstanding indebtedness is comprised of mortgages on real
estate which amounted to $31,187,391 as of June 30, 1996. During the year
ended June 30, 1996, the Company refinanced its Parsippany, New Jersey
property for a total of $5,325,000, and its Florence, Kentucky property for a
total of $3,050,000. During fiscal 1996, the Company also borrowed $595,000
in mortgage debt to acquire a land parcel in St. Louis, Missouri adjacent to
the Company's existing land parcel. Management will pursue additional
refinancing activities as considered necessary or when deemed economically
favorable to the Company.
The increase in accounts payable and other liabilities of $1,251,468 resulted
primarily from accrued litigation and settlement costs.
For fiscal 1997, 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. Management
also anticipates that the net cash flow generated from future operating
activities will be sufficient to meet its long-term debt service requirements.
IMPACT OF INFLATION
The Company's residential rental properties provide income from short-term
operating leases and no lease extends beyond one year. Rental increases are
expected to offset anticipated increased property operating expenses.
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Item 7. Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page
Report of Independent Accountants 14
Consolidated Balance Sheet at June 30, 1996 15
Consolidated Statement of Operations
for the two years ended June 30, 1996 16
Consolidated Statement of Cash Flows
for the two years ended June 30, 1996 17
Consolidated Statement of Shareholders' Equity
for the two years ended June 30, 1996 18
Notes to Consolidated Financial Statements 19
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
The Intergroup Corporation
In our opinion, the accompanying consolidated financial statements listed in
the index appearing under Item 7 present fairly, in all material
respects, the financial position of The Intergroup Corporation and its
subsidiaries at June 30, 1996, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Los Angeles, California
September 6, 1996
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
June 30,
1996
-------------
ASSETS
Investment in real estate, at cost:
Land $4,585,808
Buildings, improvements and equipment 31,004,959
Property held for sale or development 1,627,148
-------------
37,217,915
Less: accumulated depreciation (12,166,166)
-------------
25,051,749
Marketable equity securities, at market value 8,468,418
Investment in Santa Fe Financial Corporation 5,531,706
Other investments 4,281,790
Cash and cash equivalents 933,936
Restricted cash 2,167,330
Rent and other receivables 269,059
Prepaid expenses 1,011,050
Other assets 166,888
-------------
Total Assets $47,881,926
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $31,187,391
Due to securities broker 3,473,279
Accounts payable and other liabilities 3,163,446
Deferred income taxes 931,952
-------------
Total Liabilities 38,756,068
-------------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.10 par - 100,000 shares authorized;
none issued
Common stock, $.01 par - 1,500,000 shares authorized;
1,494,824 shares issued; 959,349 shares outstanding 14,948
Paid-in capital 13,658,449
Retained Earnings 77,655
Unrealized gain on marketable securities, net of deferred taxes 3,229,800
Note receivable - stock options (1,452,121)
Treasury stock, at cost, 535,475 shares (6,402,873)
-------------
Total Shareholders' Equity 9,125,858
-------------
Total Liabilities and Shareholders' Equity $47,881,926
=============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996 1995
-------------------------
Real estate operations:
Rental income $11,136,328 $10,999,933
Rental expenses:
Mortgage interest expense 2,827,879 2,837,036
Property operating expenses 5,285,297 5,410,135
Real estate taxes 944,752 827,233
Depreciation 1,594,990 1,674,842
--------------------------
Income from real estate operations 483,410 250,687
--------------------------
Investment transactions:
Dividend and interest income 148,203 365,608
Investment gains 6,315,661 5,188,267
Investment losses (2,407,876) (4,153,095)
Margin interest, trading and management expenses (1,540,102) (862,301)
--------------------------
Income from investment transactions 2,515,886 538,479
--------------------------
Other expense:
General and administrative expenses (1,026,333) (1,557,041)
Miscellaneous expense (1,067,131) (208,141)
--------------------------
Other expense (2,093,464) (1,765,182)
--------------------------
Income (Loss) before provision for income taxes
and extraordinary item 905,832 (976,016)
Provision for income taxes (benefit) 358,828 (436,879)
--------------------------
Income (Loss) before extraordinary item 547,004 (539,137)
Extraordinary item - Extinguishment of debt 0 1,030,436
--------------------------
Net Income $547,004 $491,299
==========================
Net Income per share:
Income (Loss) before extraordinary item $0.65 ($0.61)
Extraordinary item - Extinguishment of debt 0.00 1.17
--------------------------
Net Income per share $0.65 $0.56
==========================
Weighted average number of shares outstanding 844,223 883,544
==========================
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended June 30, 1996 1995
--------------------------
Cash flows from operating activities:
Net Income $547,004 $491,299
Adjustments to reconcile net income to cash
provided by operating activities:
Extraordinary item - Extinguishment of debt 0 (1,030,436)
Depreciation of real estate 1,594,990 1,674,842
Amortization of investments and other assets 227,267 501,384
Investment allowance (reversal) (750,000) 750,000
Decrease (increase) in receivables, net (54,133) 124,234
Decrease in prepaid expenses 115,941 140,472
Decrease (increase) in other assets 28,112 (69,853)
Increase in accounts payable
and other liabilities 785,655 155,143
Increase (decrease) in income taxes 804,300 (473,393)
--------------------------
Net cash provided by operating activities 3,299,136 2,263,692
--------------------------
Cash flows from investing activities:
Additions to buildings, improvements and equipment (1,260,191) (1,039,873)
Investment in real estate (596,841) (4,458,543)
Investment in Santa Fe Financial Corporation (2,862,308) (2,669,399)
Reduction (investment) in marketable securities 6,104,755 (1,909,233)
Investment in other investments (2,896,960) (7,838)
--------------------------
Net cash used for investing activities (1,511,545) (10,084,886)
--------------------------
Cash flows from financing activities:
Principal payments on mortgage notes payable (315,216) (330,482)
Proceeds from real estate refinancing 985,172 1,622,045
Increase in mortgage notes payable due
to real estate acquisition 595,000 3,244,193
Decrease (increase) in restricted cash (607,522) 305,858
Increase (decrease) in due to securities broker (3,331,807) 4,144,468
Increase (decrease) in accounts payable related to
other investments and short positions 465,814 (2,869,880)
Sale of common stock 907,500 1,000,000
Decrease (increase) on note receivable-stock options (613,173) 211,612
Purchase of treasury stock (440,214) (60,643)
Issuance of treasury stock - stock options exercise 1,437,500 0
--------------------------
Net cash provided by (used for) financing activities (916,945) 7,267,171
--------------------------
Net increase (decrease) in cash and cash equivalents 870,645 (554,023)
Cash and cash equivalents at beginning of period 63,291 617,314
--------------------------
Cash and cash equivalents at end of period $933,936 $63,291
==========================
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Unrealized Note
Gain on Receivable
Common Paid-in Retained Marketable Treasury - Stock
Stock Capital Earnings Securities Stock Options Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
June 30, 1994 $14,533 $10,847,369 ($960,648) $5,167,089 ($7,339,517) ($1,067,715) $6,661,111
Net Income 491,299 491,299
Purchase of
treasury stock (60,643) (60,643)
Sale of
common stock 250 999,750 1,000,000
Accrued interest
and payments
relating to
Note receivable
- -Stock Options 273,821 273,821
Decrease in
unrealized gain
on marketable
securities, net
of tax (1,828,678) (1,828,678)
---------------------------------------------------------------------------------------
Balance at
June 30, 1995 14,783 11,847,119 (469,349) 3,338,411 (7,400,160) (793,894) 6,536,910
Net Income 547,004 547,004
Purchase of
treasury stock (440,213) (440,213)
Sale of
common stock 165 907,335 907,500
Accrued interest
and payments
relating to
Note receivable
- -Stock Options 793,894 793,894
Note receivable,
accrued interest
and tax benefit
relating to
exercise of Stock
Options 903,995 1,437,500 (1,452,121) 889,374
Decrease in
unrealized gain
on marketable
securities, net
of tax (108,611) (108,611)
-------------------------------------------------------------------------------------
Balance at
June 30, 1996 $14,948 $13,658,449 $77,655 $3,229,800 ($6,402,873) ($1,452,121) $9,125,858
====================================================================================
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
THE INTERGROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies and Practices:
Consolidation
The accompanying consolidated financial statements include the accounts of
The Intergroup Corporation ("Intergroup" or the "Company") and all of its
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain reclassifications have been made to
conform the fiscal 1995 presentation to the fiscal 1996 presentation.
Real Estate and Depreciation
Investments in real estate are stated at cost. Depreciation of buildings,
improvements and equipment is provided on the straight-line method based upon
estimated useful lives of 5 to 40 years for buildings and improvements and 5
to 10 years for equipment. Expenditures for repairs and maintenance are
charged to expense as incurred and major improvements are capitalized.
The carrying value of real estate is assessed regularly by management based on
the operating performance of each property, including the review of occupancy
levels, operating budgets, estimated useful life and estimated future cash
flows.
Effective July 1, 1995, the Company adopted Statement of Financial Accounting
Standard No. 121, ("Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of"). The adoption of the new standard had no
effect on the consolidated financial statements as of June 30, 1996.
Marketable Securities
Marketable securities are carried at market value and are accounted for on a
first-in, first-out basis. Realized investment gains and losses are
recognized based on the trade date of the transaction. Unrealized gains or
losses on short sales are recognized in earnings in the current period.
Dividends on short positions are recorded on the ex-dividend date.
When, in the judgment of management, a permanent or other than temporary
decline in the value of a security occurs, the carrying value of such
security is written down to its estimated realizable value and the amount of
the impairment is charged to investment losses.
Revenue Recognition
Rental income is recognized as earned. Revenue recognition from apartment
rentals commences when an apartment unit is placed in service and occupied by
a rent-paying tenant.
<PAGE>
Income Taxes
Provision is made for the tax effects of temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The temporary differences relate principally to depreciation,
unrealized gains or losses on short sales, non deductible reserves, the
payment of state income taxes and differences in the basis of real property
reported for tax purposes.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the reporting period.
Actual results could differ from those estimates.
Earnings Per Share
Income per share is calculated based upon the weighted average number of
common shares outstanding during each fiscal year.
<PAGE>
Cash Equivalents and Restricted Cash
For purposes of the statement of cash flows, the Company considers all highly
liquid financial instruments purchased with an original maturity of three months
or less to be cash equivalents. Restricted cash is comprised of amounts held
by lenders for payment of real estate taxes, insurance, repairs and
replacements of the operating properties and tenant security deposits which
are invested in certificates of deposit.
2. Investment in Real Estate:
At June 30, 1996, investments in real estate consisted of twelve multi-family
apartment projects located throughout the United States and approximately 22.4
acres of primarily unimproved land held for sale or development. All of the
projects are completed operating properties which are directly owned.
3. Marketable Equity Securities:
All securities are equity securities classified as available-for-sale except
short positions, which represent obligations of the Company and are classified
as trading activity. At June 30, 1996, the aggregate market value of
marketable equity securities exceeded the aggregate cost by $5,301,307. The net
unrealized gain is comprised of gross unrealized gains of $5,966,757 reduced by
gross unrealized losses of $665,450. The net unrealized gain, net of
deferred taxes of $2,071,507, is included as a separate item in shareholders'
equity. During the year ended June 30, 1996, proceeds from sales of securities
were $33,103,718 and gross realized gains and losses, determined using FIFO
<PAGE>
costs, were $6,315,661 and $2,407,876, respectively. Any unrealized gains or
losses relating to naked short positions are recognized in earnings in the
current period. The Company recognized unrealized losses of approximately
$4,167 and $624,978 related to naked short positions for the year ended June
30, 1996 and 1995, respectively. There were no naked short positions as of
June 30, 1996.
4. Investment in Santa Fe Financial:
In March 1996, the Company exercised warrants to purchase additional shares of
common stock of Santa Fe Financial Corporation ("Santa Fe") and a second of
the Company's officers was nominated and elected to the three member Board of
Directors of Santa Fe. In April 1996, the Company's chairman and president
became chairman and chief executive officer of Santa Fe. As of June 30, 1996,
the Company owned 33.1% and the Company's chairman and president owned an
additional 3.9% of the outstanding common stock of Santa Fe. The Company
records its investment in Santa Fe on the equity basis and recorded earnings
of $119,949 for the year ended June 30, 1996. Condensed financial statements
for Santa Fe are as follows:
Condensed Balance Sheet as of June 30, 1996
Cash and cash equivalents $8,481,825
Investment in marketable securities 874,515
Investment in Justice Investors 4,548,270
Receivable and other assets 276,294
-------------
Total Assets $14,180,904
=============
Other Liabilities $121,765
Minority interest 3,062,575
Shareholders' equity 10,996,564
-------------
Total Liabilities and Shareholders' Equity $14,180,904
=============
Condensed Results of Operations for the
year ended June 30, 1996 1995
---------- ----------
Revenues $2,172,830 $2,053,757
Net Income 470,882 663,680
Santa Fe's revenue is primarily generated through its 64.1% 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 Financial
District Holiday Inn, a 556-room hotel in San Francisco, California. PSI is
both a limited and general partner in Justice and records its investment in
Justice on the equity basis.
<PAGE>
5. Other Investments:
Other investments primarily consists of investments in corporations and joint
ventures accounted for using the equity method, partnership interests accounted
for on the cost basis and securities that are not traded on any exchange.
6. Mortgage Notes Payable:
At June 30, 1996, the Company had $31,187,391 of mortgage debt outstanding.
Mortgage debt included amortizing first mortgages maturing from May 2000
through December 2008 of $30,124,891 at fixed rates ranging from 7.335% to
10.375%, a first mortgage of $839,193 requiring interest only payments
maturing in June 1998 at a rate floating at prime plus 0.5%, and a second
mortgage of $223,307 requiring interest only payments maturing March 2001 at a
fixed rate of 7.165%. Each mortgage is secured by its respective project and
land. The Company made interest payments of $2,727,443 and $2,523,193 during
the fiscal years ended June 30, 1996 and 1995, respectively. The annual
aggregate principal payments on the mortgage notes payable for the five-year
period commencing July 1, 1996 are as follows:
Year Ending June 30, Amount
-------------------- -----------
1997 $355,203
1998 1,226,849
1999 423,107
2000 2,281,308
2001 3,650,770
Thereafter 23,250,154
-------------
Total $31,187,391
=============
7. Due to Securities Broker:
Various security brokers have advanced funds for the purchase of, and secured
by, marketable securities under standard margin agreements in accordance with
and subject to the limitations of 17CFR Section 240.15c3-3 under the
Securities Exchange Act of 1934 and Section #220.6 of Regulation T issued by
the Board of Governors of the Federal Reserve System. The interest rate on
advances or cash on deposit can vary daily with money market rates. The
interest rate on advances is based on the Federal Funds rate plus 1% (6.5% at
June 30, 1996). The interest rate on cash on deposit is based on the Federal
Funds rate less 0.5% (5.0% at June 30, 1996).
8. Income Taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The components of the deferred tax liability as of June 30, 1996, are as
follows:
<PAGE>
Marketable securities basis differences $1,906,262
Depreciation and fixed asset basis differences 647,154
Minority interests 157,913
-------------
Total deferred tax credits 2,711,329
-------------
State income taxes (157,243)
NOL and credit carryovers (1,581,076)
Miscellaneous (41,058)
-------------
Total deferred tax debits (1,779,377)
-------------
Net deferred taxes $931,952
=============
The valuation allowance decreased by $145,977 during the year ended June 30,
1996.
The provision for income taxes is comprised of the following:
Current tax expense $829,421
Deferred taxes benefit (470,593)
-------------
Total income tax expense $358,828
=============
Income tax expense differs from the amount computed by multiplying the
statutory federal income tax rate times income (loss) before taxes,
cumulative effect of accounting change and extraordinary item as follows:
Federal statutory tax $307,982
State income taxes, net of federal benefit 86,227
Change in valuation allowance and restatement
of deferred liabilities (22,885)
Other (12,496)
-------------
Total income tax expense $358,828
=============
9. Employee Stock Ownership Plan and Trust:
In April 1986, the Company established an Employee Stock Ownership Plan and
Trust ("ESOP" or the "Plan"), effective July 1985, which enabled eligible
employees to receive an ownership interest in stock of the Company. The
Company did not make ESOP contributions during fiscal 1996 or 1995. Due to a
partial termination of the Plan in March 1995, the Company issued 11,197
shares to terminated employees during fiscal 1995. The Company distributed
7,233 shares to terminated employees during fiscal 1996.
<PAGE>
10. Extraordinary Item - Extinguishment of Debt:
During September 1994, the Company offered the lender deeds in lieu of
foreclosure on its Indio, California properties due to the properties'
continued negative cash flow and management's assessment of the area's market
conditions. The lender filed suit alleging that a portion of one of the
mortgages was a recourse obligation. The matter has been settled and the debt
extinguished. As a result, during fiscal year 1995 the Company recorded an
extraordinary gain of $1,030,436 on the extinguishment of $10,356,404 of debt,
net of taxes of $678,794 and the properties depreciated cost of $8,647,174.
11. Commitments and Contingencies:
The lease on the Company's corporate headquarters is through May 31, 1998.
Rent expense was approximately $194,000 in 1996 and $200,000 in 1995. Minimum
annual rentals under all leases are as follows:
Year Ending June 30, Amount
-------------------- ---------
1997 $164,484
1998 150,777
In April 1993, a claim seeking in excess of $800,000, was filed in the State
Superior Court for the County of Los Angeles by Dennis Hawk, Lucas Devenn and
Golden West Entertainment ("GWE") against Intergroup, John V. Winfield and
GWE. Such action charged Intergroup and/or John V. Winfield with breach of
contract, fraud, conspiracy to defraud, negligent misrepresentation, assault,
battery, economic duress, and breach of fiduciary duty. The high cost of this
litigation caused the Company to settle the litigation. The costs of
litigation and settlement aggregated approximately $1,036,000 and is reflected
in Miscellaneous Expense for the year ended June 30, 1996.
On February 22, 1995, a complaint was filed in the Superior Court of
California, County of San Diego, by Guinness Peat Group plc against the
Company arising out of the Company's acquisition of 90,000 shares and a like
number of warrants of Santa Fe Financial Corporation. The Company was charged
with aiding and abetting Santa Fe's Directors to breach their fiduciary duty
to Santa Fe's shareholders by selling control of Santa Fe for a sum below its
value in order to maintain their management positions. Such action was
dismissed on the Company's motion for Summary Judgment in April 1996,
because the Company had no duty to Santa Fe's shareholders and so could not,
under California law, be charged with aiding and abetting a breach of such
duty. Plaintiff however, has filed an amended complaint which the Company
believes is baseless. Discovery in this action is still continuing and the
trial date is scheduled for November 1996. These actions will be vigorously
defended, and in management's opinion, the Company will not suffer any
material liability relating to such actions.
<PAGE>
On March 27, 1996, a complaint was filed in the Superior Court of the State
of California, Riverside County, by 7709 Lankershim Ltd., a California Limited
Partnership, against the Company in which it claimed damages in excess of
$2,000,000 arising out of alleged latent construction defects discovered in
the two Indio, California properties, formerly owned by the Company. The case
is in its very early stages, discovery has not as yet taken place, and it is
not possible to assess what the exposure is at this time. It is management's
preliminary belief, however, that any action with regard to one of the Indio,
California properties is legally barred. Moreover, there may be insurance
coverage, covering liability, if any, on the second property. The action will
be vigorously defended.
The Company is a defendant or co-defendant in various legal actions involving
various claims incident to the conduct of its businesses. Management does
not expect the Company to suffer any material liability by reason of such
actions.
In the fourth quarter of fiscal 1996, an arbitration proceeding with Aura
Systems, Inc., was satisfactorily resolved and the Company reversed the prior
year's reserve of $750,000. Such amount is reflected in investment gains for
the year ended June 30, 1996.
The Company maintains a "phantom" stock program which provides for the
issuance of 40,000 units with each unit equivalent to one share of common
stock. Participating members of the program are credited with the
incremental value in shares of common stock and dividend equivalents over a
five year period from the date of award. One-fifth of such credits in the
participants' accounts will vest on the first anniversary date of the award
and an additional one-fifth vest on each of the next four anniversary dates.
As of June 30, 1996, no granted units are outstanding.
During 1987, the Board of Directors approved a Stock Incentive Plan providing
for the issuance of up to 125,000 shares of the Company's common stock
pursuant to the exercise of stock options granted under the plan. The plan
also provided for the issuance of Stock Appreciation Rights which may be
granted in connection with or without relation to the stock options. In
conjunction with the stock incentive plan, the Board approved the grant of an
option to the Company's president for the purchase of 125,000 shares of common
stock at an exercise price of $11.50 and Stock Appreciation rights in
connection with the option. This action was also approved by the shareholders
in 1988 meeting. In the fourth quarter of fiscal 1996, all options were
exercised.
As part of an ongoing stock repurchase program, the Company acquired 8,851 and
2,500 shares during the years ended June 30, 1996 and 1995, respectively.
12. Related Party Transactions:
In March 1996, the Company's president paid in full the $830,173 outstanding
balance of the note relating to his 1986 exercise of stock options.
In May 1996, the Company's president exercised an option to purchase 125,000
shares of common stock at a price of $11.50 per share through a full recourse
note due the Company on demand, but in no event later than May 2001. The note
<PAGE>
bears interest floating at the lower of 10% or the prime rate (8.25% at June
30, 1996) with interest payable quarterly. The balance of the note receivable
of $1,437,500 and accrued interest receivable of $14,621 is reflected as a
reduction of shareholders' equity at June 30, 1996. As a result of the
exercise the Company received a tax benefit of $903,995 credited directly to
paid-in capital.
The Company's president is the trustee of the Employee Stock Ownership Plan.
In his role as trustee, the president has the power to vote the shares of
stock allocated to participants' accounts when directions are not provided to
the trustee on a timely basis.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
The information for Part III, Items 9 through 12 are hereby incorporated by
reference from the Company's Proxy Statement, which will be filed with the
commission within one hundred twenty days (120) of the close of the fiscal year
pursuant to regulation 14A.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits:
3. Certificate of Incorporation and By-Laws **
4. Instruments defining the rights of security holders, including
indentures **
10. Material Contracts
(a) Stock Option Agreement dated December 19, 1984 between the
Trust and John V. Winfield *
(b) Share of Beneficial Interest Unit Plan ("phantom stock program")
as approved by the shareholders on February 11, 1985 *
(c) Employee Stock Ownership Plan and Trust Agreement ***
(d) Stock Appreciation Rights Agreement dated April 22, 1987 as
approved by shareholders on August 1, 1988 ****
(e) Note and Exercise Agreement from Mr. John V. Winfield dated May 17, 1996
21. Subsidiaries:
(1) Intergroup Summit Hills, Inc. (incorporated on August 12, 1993 in TX)
(2) Intergroup Mariposa, Inc. (incorporated on June 23, 1994 in TX)
(3) Intergroup Arlington Arms, Inc. (incorporated on August 5, 1993 in OH)
<PAGE>
(4) Intergroup Woodland Village, Inc. (incorporated on August 5, 1993 in OH)
(5) Intergroup Cross Keys, Inc. (incorporated on April 1, 1994 in MO)
(6) Intergroup Bridgeton, Inc. (incorporated on May 12, 1994 in MO)
(7) Intergroup Whisperwood, Inc. (incorporated on June 20, 1994 in PA)
(8) Intergroup Eagle Creek, Inc. (incorporated on April 15, 1994 in TX)
(9) Intergroup Entertainment Corp. (incorporated on December 23, 1993 in DE)
(10) Mutual Real Estate Corp. (incorporated on March 10, 1994 in TX)
(11) WinGroup Capital (incorporated on September 21, 1994 in CA)
(12) Broadview Enterprises, Inc. (incorporated April 14, 1995 in MO)
(13) Wayward, Inc. (incorporated April 18, 1995 in MO)
(14) Golden West Entertainment, Inc. (incorporated February 15, 1990 in CA)
(15) Golden West Television Productions, Inc. (incorporated September 17, 1991
in CA)
(16) Golden West Television Productions, Inc. (incorporated March 17, 1986 in
NY)
(17) Intergroup The Trails, Inc. (incorporated on September 14, 1994 in TX)
(18) Intergroup Meadowbrook Gardens, Inc. (incorporated on June 23, 1994 in NJ)
(19) Intergroup Pine Lake, Inc. (incorporated on February 9, 1996 in KY)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
* All Exhibits marked by an asterisk are incorporated herein by reference to
the Trust's Form 10-K Annual Report filed with the Securities and Exchange
Commission on September 20, 1985.
** All Exhibits marked by two asterisks are incorporated herein by reference
to the Trust's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on September 6, 1985, Amendment No. 1 to
Form S-4 as filed with the Securities and Exchange Commission on October 23,
1985, Exhibit 14 to Form 8 Amendment No. 1 to Form 8 filed with the
Securities & Exchange Commission November 1987 and Form 8 Amendment No. 1
Item 4 filed with the Securities & Exchange Commission October 1988.
*** All Exhibits marked by three asterisks are incorporated herein by
reference to the Company's Form 10-K Annual Report filed with the Securities
and Exchange Commission on September 26, 1986.
**** All Exhibits marked by four asterisks are incorporated herein by
reference to the Company's Form 10-K Annual Report filed with the Securities
and Exchange Commission on September 28, 1988.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE INTERGROUP CORPORATION
(Registrant)
Date: September 16, 1996
By /s/ John V. Winfield
- -------------------------------------------------------------------
John V. Winfield, Chairman of the Board;
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: September 16, 1996
By /s/ John V. Winfield
- -------------------------------------------------------------------
John V. Winfield, Chairman of the Board;
President and Chief Executive Officer
Date: September 16, 1996
By /s/ Howard A. Jaffe
- -------------------------------------------------------------------
Howard A. Jaffe, Vice Chairman of the Board;
Chief Operating Officer and Secretary
Date: September 16, 1996
By /s/ William J. Nance
- -------------------------------------------------------------------
William J. Nance
Director and Treasurer
Date: September 16, 1996
By /s/ Gregory C. McPherson
- -------------------------------------------------------------------
Gregory C. McPherson
Executive Vice President, Assistant Treasurer
and Assistant Secretary
Date: September 16, 1996
By /s/ David C. Gonzalez
- -------------------------------------------------------------------
David C. Gonzalez
Controller
<PAGE>
EXHIBIT 10 (e)
NOTE AND EXERCISE AGREEMENT
WHEREAS, John V. Winfield has, on May 17, 1996, exercised his warrants to
purchase 125,000 shares of Intergroup Common Stock issued to him under The
Intergroup Corporation 1987 Stock Incentive Plan (the "Plan") at $11.50 per
share; and
WHEREAS, John V. Winfield has offered to pay for such shares through issuance
of a $1,437,500 recourse demand note; and
WHEREAS, Intergroup and the Committee established to administer the Plan is
prepared to accept such note in payment and retain the shares as security for
payment of such note, as permitted under Section 6 of the 1987 Stock Incentive
Plan upon the terms and conditions set forth herein.
NOW, THEREFORE, it is agreed:
1. The treasury shares issuable upon exercise of the stock options
together with a stock power endorsed in blank by Mr. Winfield will be held by
the Treasurer of the Corporation for and on behalf of John. V. Winfield as
security for payment of the note. Until such time as the shares are paid, any
cash dividends issued by Intergroup with regard to the shares will be applied
towards payment of the interest on the note and any stock dividends relating
to the shares will be held by the Treasurer for future release to Mr.
Winfield; provided, however, that shares will be released from such
Treasurer's custody at the rate of $11.50 per share upon payment of the sum
in cash or certified check by Mr. Winfield.
2. John V. Winfield by these premises hereby agrees to personally pay,
this full recourse note on demand, but no later than May 16, 2001, to the
order of The Intergroup Corporation the sum of $1,437,500 together with
interest payable quarterly, commencing on June 30, 1996, at the rate of the
lower of 10% or the prime rate charged by the Bank of America to its best
commercial customers.
3. The shares, when delivered to Mr. Winfield, shall bear such
restrictive legends as may be required by law to reflect that they are
unregistered with state or federal authorities. In addition, an appropriate
stop transfer order shall be put in place with the transfer agent.
IN WITNESS WHEREOF the undersigned have hereunto set their hand and seal.
Administrative & Compensation Committee
/s/ Josef A. Grunwald /s/ Mildred Bond Roxborough
- ---------------------------- --------------------------
Joseph A. Grunwald Mildred Bond Roxborough
/s/ William J. Nance
- ----------------------------
William J. Nance
<PAGE>
THE INTERGROUP CORPORATION Agreed and accepted:
By: /s/ Howard A. Jaffe By: /s/ John V. Winfield
- ---------------------------- --------------------------
Howard A. Jaffe, Secretary John V. Winfield
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-KSB FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 933,936
<SECURITIES> 12,750,208
<RECEIVABLES> 2,167,330
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,830,178
<PP&E> 37,217,915
<DEPRECIATION> 12,166,166
<TOTAL-ASSETS> 47,881,926
<CURRENT-LIABILITIES> 7,568,678
<BONDS> 31,187,391
<COMMON> 14,948
0
0
<OTHER-SE> 9,110,909
<TOTAL-LIABILITY-AND-EQUITY> 47,881,926
<SALES> 0
<TOTAL-REVENUES> 15,192,316
<CGS> 0
<TOTAL-COSTS> 9,365,142
<OTHER-EXPENSES> 2,093,464
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,827,879
<INCOME-PRETAX> 905,832
<INCOME-TAX> 358,828
<INCOME-CONTINUING> 547,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 547,004
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
