<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 2, 1994
OR
- - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-9904
ARDEN GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3163136
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2020 South Central Avenue, Compton, California 90220
- - ---------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 638-2842
--------------
No Change
- - -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No______.
The number of shares outstanding of the registrant's classes of common stock as
of July 2, 1994 was:
1,269,405 of Class A common stock
343,316 of Class B common stock
This report contains a total of 12 pages.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
A S S E T S
July 2, January 1,
1994 1994
---------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $21,763 $39,526
Marketable securities 32,561 23,038
Notes and accounts receivable, net 7,203 9,007
Inventories 9,681 10,902
Prepaid and other 1,619 1,040
------------- ----------
Total current assets 72,827 83,513
Notes and contracts receivable 2,629 459
Property for resale or sublease, at
lower of cost or market 1,926 1,877
Property, plant and equipment, at cost less
accumulated depreciation and amortization
of $24,042 and $29,615, respectively 25,467 24,867
Other assets 1,751 1,755
------------- ----------
Total assets $104,600 $112,471
------------- ----------
------------- ----------
</TABLE>
See Notes to Financial Statements
2
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
July 2, January 1,
1994 1994
--------------- ------------
<S> <C> <C>
Current liabilities:
Accounts payable, trade $8,872 $13,221
Other current liabilities 12,139 12,242
Current portion of long-term debt 905 6,501
------------- -----------
Total current liabilities 21,916 31,964
Long-term debt, including obligations
under capital leases of $5,212
and $5,540, respectively 7,232 7,654
Deferred income taxes 1,704 1,926
Other liabilities 3,006 3,392
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Total liabilities 33,858 44,936
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Commitments and contingent
liabilities
Stockholders' equity:
Class A common stock 402 402
Class B common stock 86 86
Capital surplus 7,571 7,571
Notes receivable from
officer/director (509) (1,502)
Retained earnings 66,945 64,731
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74,495 71,288
Less: treasury stock, at cost 3,753 3,753
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Total stockholders' equity 70,742 67,535
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Total liabilities and
stockholders' equity $104,600 $112,471
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------------- -----------
</TABLE>
See Notes to Financial Statements
3
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands Except Per Share Date)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
-------------------- ---------------------
<S> <C> <C> <C> <C>
Sales $61,625 $61,869 $124,776 $122,130
Cost of sales 37,835 38,388 77,060 76,402
-------- -------- --------- --------
Gross profit 23,790 23,481 47,716 45,728
Delivery, selling,
general and
administrative expenses 20,915 21,561 43,257 42,640
-------- -------- --------- --------
Operating income 2,875 1,920 4,459 3,088
Interest, dividend and
other income (expense), net 321 (148) 543 (311)
Net unrealized loss on marketable
securities (411) (1,304)
-------- -------- --------- --------
Income from continuing
operations before
income taxes 2,785 1,772 3,698 2,777
Income tax provision 1,118 718 1,484 1,127
-------- -------- --------- --------
Income from continuing
operations
(net of income taxes) 1,667 1,054 2,214 1,650
Discontinued operations:
Income from operations (net of
income taxes of $356 and $677,
respectively) 525 1,001
-------- -------- --------- --------
Net income $1,667 $1,579 $2,214 $2,651
-------- -------- --------- --------
-------- -------- --------- --------
Income per common share
(computed on common shares
outstanding):
Income from continuing
operations $1.03 $ .65 $1.37 $1.02
Income from discontinued
operations .33 .62
-------- ------- --------- --------
Net income $1.03 $ .98 $1.37 $1.64
-------- ------- --------- --------
-------- ------- --------- --------
</TABLE>
See Notes to Financial Statements
4
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOW (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------------
July 2, July 3,
1994 1993
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $124,609 $123,061
Cash paid to suppliers and employees (118,950) (116,850)
Interest and dividends received 1,456 417
Interest paid (739) (649)
Income taxes paid (1,104) (1,295)
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Net cash provided by operating activities 5,272 4,684
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Cash flows from investing activities:
Capital expenditures (4,422) (1,196)
Investment in marketable securities (11,179)
Proceeds from the sale of property,
plant and equipment, liquor
licenses and leasehold interests 22 90
Payments received on notes from the
sale of property, plant and
equipment and liquor licenses 18 3
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Net cash used in investing activities (15,561) (1,103)
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Cash flows from financing activities:
Payments related to sale of
discontinued operations (2,413)
Transfer from Telautograph Corporation 958
Principal payments under capital
lease obligations (621) (723)
Payment of loan from officer/director 1,000
Principal payments on long-term debt (5,397) (21)
Net cash from sale of GPS (43)
--------------- ------------
Net cash provided by (used in)
financing activities (7,474) 214
--------------- ------------
Net increase (decrease) in cash (17,763) 3,795
Cash at beginning of year 39,526 20,954
--------------- ------------
Cash at end of quarter $21,763 $24,749
=============== ============
</TABLE>
See Notes to Financial Statements
5
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOW (Unaudited)
(In Thousands)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------------
July 2, July 3,
1994 1993
------------- --------------
<S> <C> <C>
Net income $2,214 $2,651
Adjustments to reconcile net income to
net cash provided by operating
activities:
Income from discontinued operations (1,001)
Depreciation and amortization 1,938 2,062
Unrealized loss on marketable securities 1,304
Provision for losses on accounts and
notes receivable 71 104
Loss on sale of marketable securities 352
Net (gain) loss from the sale of property,
plant and equipment, liquor licenses
and early lease terminations 10 (43)
Interest differential on note payable 12
Notes receivable from officer/director (7) (6)
Gain on sale of GPS (93)
Change in assets and liabilities net of
effects from noncash investing and
financing activities:
(Increase) decrease in assets:
Notes and accounts receivable 316 1,031
Inventories 80 1,447
Prepaid expenses (540) (610)
Other assets (48) (130)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities 437 635
Deferred income taxes (386) (1,187)
Other liabilities (376) (281)
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Net cash provided by operating activities $5,272 $4,684
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----------- -----------
</TABLE>
See Notes to Financial Statements
6
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
These financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results of operations for
the periods presented.
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of Arden Group, Inc. (the "Company")
include the accounts of the Company and its direct and indirect
subsidiaries except for Telautograph Corporation, an indirect wholly-owned
subsidiary of the Company, ("Telautograph") which was carried at equity in
net assets of discontinued operations through September 17, 1993 when the
communications business was sold. The activity of GPS Pool Supply, Inc.
("GPS") has been reclassified in the prior year Statements of Operations
and Statements of Cash Flows as a continuing operation because the
previously announced spin-off of the communication equipment business of
Telautograph and all the capital stock of GPS, a wholly-owned subsidiary
of Telautograph, to the stockholders of Arden was abandoned. Intercompany
balances and transactions are eliminated. On May 27, 1994, the Company sold
GPS (see Note 3). As a result, after the sale of GPS, the Company operates
exclusively in the supermarket business.
2. ARBITRATION AWARD:
As a result of an arbitration hearing, in April 1994 the Company was
awarded $1,750,000 for parts inventory which was purchased by Danka
Industries, Inc. as part of the sale of the Company's communication
equipment business in 1993. The valuation of such inventory had been in
dispute. No amount with respect to this inventory had been included in the
1993 gain from the sale of such business. Expenses related to the
arbitration will be netted against the award. Additionally, there is a
second arbitration with regard to certain items on the closing balance
sheet of the communication equipment business which are being disputed. The
Company does not believe adjustments resulting from the second arbitration,
if any, will have a material adverse impact on its financial position.
However, due to the uncertainty of the outcome of this arbitration, no
income or expenses from the first arbitration has been recognized in the
1994 financial statements of the Company.
3. SALE OF GPS POOL SUPPLY, INC.:
On May 27, 1994, the Company sold all of the outstanding shares of the
capital stock of GPS to Pioneer Chlor Alkali Investments, Inc. ("Pioneer")
for approximately $3,515,000, a substantial portion is represented by a
promissory note of Pioneer. The promissory note is secured by the assets of
GPS and by a pledge of the GPS stock. In the second quarter of 1994, the
Company recognized a pretax gain on the sale of GPS stock, net of related
expenses, of $93,000.
In addition, until such time as the promissory note is paid in full, the
Company will receive additional consideration from Pioneer for a covenant
not to compete, the amount of which will be based on future sales of GPS.
7
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PART I. FINANCIAL INFORMATION, Continued
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER ANALYSIS
During the second quarter of 1994, the Company had net income of $1,667,000
compared to net income of $1,579,000 during the second quarter of 1993. Pretax
income from continuing operations was $2,785,000 for the second quarter of 1994
compared to pretax income of $1,772,000 for the second quarter of 1993.
During the second quarter of 1994, the Company's operating income from its
Gelson's and Mayfair Markets operations was $2,850,000 compared to operating
income of $1,559,000 during the second quarter of 1993. A significant part of
the increase is due to health and welfare credits explained below. Sales from
the Company's 12 supermarkets in the greater Los Angeles area were $59,351,000
in the second quarter of 1994, an increase of 2.4% from the second quarter of
1993, when sales were $57,970,000. The second quarter 1994 comparative sales
increase was lower than that of the first quarter 1994 (5.0%) due partially to
the timing of Easter and Passover observances which occurred near the end of the
first quarter in 1994 versus the second quarter in 1993.
The Company's gross profit from market operations as a percentage of sales was
39.0% in the second quarter of 1994 compared to 38.4% in the same period of
1993. Union wage and benefit cost increases was one of the factors which
contributed to an overall increase in product pricing.
Delivery, selling, general and administrative ("DSG&A") expenses for market
operations were $20,325,000 in the second quarter of 1994 compared to
$20,699,000 in the second quarter of 1993. Expenses as a percentage of sales
were 34.2% in the second quarter of 1994, compared to 35.7% in the same period
of 1993. In the second quarter 1994, the Company recognized contractual credits
against health and welfare payments due the retail clerks and meat cutters
unions of approximately $1,380,000. No such credits were recognized in the
second quarter of 1993. The remaining credits to be earned are not material on
future earnings. The decrease in DSG&A due to the health and welfare credits is
partially offset by increased payroll and payroll related expense.
The swimming pool chemical processing and distribution operations, conducted by
GPS, posted an eight week operating income of $25,000 in the second quarter of
1994 on sales of $2,274,000. In the second quarter of 1993, GPS posted a
thirteen week operating income of $361,000 on sales of $3,899,000. GPS was sold
on May 27, 1994. A pretax gain of $93,000 on the sale of GPS stock is recorded
as other income.
The Company's interest and dividend income was $885,000 in the second quarter of
1994 compared to $244,000 for the same period in 1993. This increase in interest
income was the result of an increased level of short-term investments and
marketable securities and an increase in interest rates.
8
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PART I. FINANCIAL INFORMATION, Continued
In the second quarter of 1994, the market value of the Company's holdings in
marketable securities declined. The Statement of Financial Accounting Standards
No. 115, (Accounting for Certain Investments in Debt and Equity Securities),
which became effective for fiscal years beginning after December 16, 1993,
requires that unrealized holding gains and losses for certain marketable
securities shall be included in the determination of net income. As a result,
unrealized losses of $411,000 related to marketable securities were recognized
in the second quarter of 1994.
YEAR-TO-DATE ANALYSIS
During the first six months of 1994, the Company had net income of $2,214,000
compared to net income of $2,651,000 for the first six months of 1993. Pretax
income from continuing operations was $3,698,000 for the first six months of
1994 compared to pretax income of $2,777,000 for the same period of 1993.
During the first six months of 1994, the Company's operating income from its
Gelson's and Mayfair Markets operations was $4,646,000 compared to operating
income of $3,082,000 during the first six months of 1993. Sales from the
Company's 12 supermarkets in the greater Los Angeles area were $120,164,000 in
the first six months of 1994, an increase of 3.7% from the first six months of
1993, when sales were $115,909,000.
The Company's gross profit from market operations as a percentage of sales was
38.8% in the first six months of 1994 compared to 38.0% in the same period of
1993. Union wage and benefit cost increases was one of the factors which
contributed to an overall increase in product pricing.
Delivery, selling, general and administrative ("DSG&A") expenses for market
operations were $41,994,000 in the first six months of 1994 compared to
$40,990,000 in the first six months of 1993. Expenses as a percentage of sales
were 34.9% in the first six months of 1994, compared to 35.4% in the same period
of 1993. In 1994, the Company recognized contractual credits against health and
welfare payments due the retail clerks and meat cutters unions of approximately
$2,460,000. No such credits were recognized in the first six months of 1993.
The remaining credits to be earned are not material on future earnings. The
decrease in DSG&A due to the health and welfare credits is partially offset by a
charge to operations of $1,300,000 in the first quarter of 1994 to cover the
estimated uninsured portion of losses related to the January 17, 1994 earthquake
centered in Northridge, California.
The swimming pool chemical processing and distribution operations, conducted by
GPS, posted a twenty-one week operating loss of $187,000 in first six months of
1994 on sales of $4,612,000 compared to a twenty-six week operating income of
$6,000 on sales of $6,221,000 in the first six months of 1993. GPS was sold on
May 27, 1994. A pretax gain of $93,000 on the sale of GPS stock is recorded as
other income.
The Company's interest and dividend income was $1,561,000 in the first six
months of 1994 compared to $468,000 for the same period in 1993. This increase
in interest income was the result of an increased level of short-term
investments and marketable securities and an increase in interest rates.
9
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PART I. FINANCIAL INFORMATION, Continued
In the first six months of 1994, the market value of the Company's holdings in
marketable securities declined. The Statement of Financial Accounting Standards
No. 115, (Accounting for Certain Investments in Debt and Equity Securities),
which became effective for fiscal years beginning after December 16, 1993,
requires that unrealized holding gains and losses for certain marketable
securities shall be included in the determination of net income. As a result,
unrealized losses of $1,304,000 related to marketable securities were recognized
in the first six months of 1994.
CAPITAL EXPENDITURES/LIQUIDITY
In the first quarter of 1994, the Company used approximately $3,000,000 of cash
on hand to purchase the properties upon which two existing Mayfair markets are
located. Additionally, the Company paid off at maturity the $634,000 balance of
the mortgage on its headquarters facility in Compton. In the second quarter of
1994, the Company used approximately $4,663,000 of cash on hand to pay off, at
maturity, the balance of the mortgage on its Pacific Palisades Gelson's
location.
There have been no significant changes in the Company's capital expenditures
plan and no material changes in the utilization of the Company's lines of
credit.
10
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on June 28, 1994.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A under
the Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees for directors as listed in the Proxy
Statement. All management nominees were elected by Class B stockholders.
They are as follows:
<TABLE>
<CAPTION>
Votes For
---------
<S> <C>
Stuart A. Krieger 3,421,840
Ben Winters 3,421,840
</TABLE>
There were no votes against or abstaining.
Continuing directors whose terms of office do not expire until 1995 or 1996
are:
<TABLE>
<S> <C>
Bernard Briskin Curtis H. Palmer
Robert A. Davidow Frederick A. Schnell
Daniel Lembark
</TABLE>
(c) At the meeting, the provision of the Amendment to the Employment Agreement
between the Registrant and Bernard Briskin, President and Chief Executive
Officer of Registreant, providing for annual bonuses equal to certain
specified percentages of the pretax profits of the Registrant for each
fiscal year was approved by the following vote:
<TABLE>
<CAPTION>
Class A Stock Class B Stock
------------- -------------
<S> <C> <C>
For 1,102,406 3,408,050
Against 72,942 90
Abstain 5,112 13,700
</TABLE>
Broker non-votes were 5,237.
Also at the meeting, the selection of Coopers & Lybrand, independent
certified public accountants, to audit the books, records and accounts of
the Company and its consolidated subsidiaries for the 1994 fiscal year was
approved by the following vote:
<TABLE>
<CAPTION>
Class A Stock Class B Stock
------------- -------------
<S> <C> <C>
For 1,175,402 3,421,840
Against 875 0
Abstain 4,183 0
</TABLE>
Broker non-votes were 5,237.
11
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PART II. OTHER INFORMATION, Continued
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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.
ARDEN GROUP, INC.
----------------------------------
Registrant
Date August 15, 1994 ERNEST T. KLINGER
------------------ ----------------------------------
Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
Authorized Signatory)
12
