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
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(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
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(Address of Principal Executive Offices, Including Area Code)
(310) 889-2500
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(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
<PAGE> 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
<PAGE> 3
<TABLE>
<CAPTION>
THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1999
-----------
<S> <C>
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
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
<TABLE>
<CAPTION>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, 1999 1998
---------- ---------
<S> <C> <C>
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)
========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended September 30, 1999 1998
----------- -----------
<TABLE> <C> <C>
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
========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 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.
<PAGE> 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
=========
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<PAGE> 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<CIK> 0000069422
<NAME> THE INTERGROUP CORPORATION
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-START> Jul-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 5571000
<SECURITIES> 55273000
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0
0
<COMMON> 21000
<OTHER-SE> 22600000
<TOTAL-LIABILITY-AND-EQUITY> 105106000
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