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