<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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 June 29, 1996
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 June 29, 1996 was:
765,753 of Class A common stock
343,246 of Class B common stock
This report contains a total of 12 pages including exhibits.
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(In Thousands, Except Per Share Data)
A S S E T S
June 29, December 30,
1996 1995
--------- -----------
Current assets:
Cash and cash equivalents $4,754 $10,102
Marketable securities 21,536 20,160
Accounts and notes receivable, net 5,599 9,384
Inventories 9,444 10,172
Prepaid and other 3,254 2,646
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Total current assets 44,587 52,464
Notes receivable 150 57
Property for resale or sublease 1,452 1,461
Property, plant and equipment, at cost, less
accumulated depreciation and amortization
of $26,005 and $24,398, respectively 39,932 33,458
Other assets 2,113 2,038
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Total assets $88,234 $89,478
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-------- ---------
See Notes to Financial Statements
2
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(In Thousands, Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 29, December 30,
1996 1995
--------- -------------
Current liabilities:
Accounts payable, trade $9,017 $11,345
Other current liabilities 10,511 11,335
Current portion of long-term debt 4,001 1,078
-------- --------
Total current liabilities 23,529 23,758
Long-term debt, including obligations
under capital leases of $3,683 and
$3,782, respectively 7,154 7,695
Deferred income taxes 1,077 1,583
Other liabilities 3,231 2,615
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Total liabilities 34,991 35,651
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Commitments and contingent liabilities
Stockholders' equity:
Class A common stock 276 283
Class B common stock 86 86
Capital surplus 5,617 5,718
Notes receivable from officer/director (369) (369)
Retained earnings 51,386 51,862
-------- --------
56,996 57,580
Less: treasury stock, at cost 3,753 3,753
-------- --------
Total stockholders' equity 53,243 53,827
-------- --------
Total liabilities and stockholders' equity $88,234 $89,478
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-------- --------
See Notes to Financial Statements
3
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------------- ---------------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $62,864 $60,317 $123,480 $120,258
Cost of sales 38,215 36,575 75,185 73,307
------------- ------------- ------------- -------------
Gross profit 24,649 23,742 48,295 46,951
Delivery, selling, general and administrative
expenses 23,090 21,121 46,163 42,848
------------- ------------- ------------- -------------
Operating income 1,559 2,621 2,132 4,103
Interest, dividend and other income
(expense), net (61) 671 318 763
Net unrealized gain (loss) on marketable
securities (37) 427 (750) 1,188
------------- ------------- ------------- -------------
Income before income taxes 1,461 3,719 1,700 6,054
Income tax provision 566 1,473 671 2,383
------------- ------------- ------------- -------------
Net income $895 $2,246 $1,029 $3,671
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per common share $ .81 $1.71 $ .92 $2.79
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares
outstanding 1,109,768 1,314,112 1,121,454 1,314,112
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
----------------------------
June 29, July 1,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $124,443 $120,881
Cash paid to suppliers and employees (121,569) (116,335)
Interest and dividends received 903 1,329
Interest paid (506) (353)
Income taxes paid (1,728) (1,665)
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Net cash provided by operating activities 1,543 3,857
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Cash flows from investing activities:
Capital expenditures (10,448) (2,497)
Sale of (investment in) marketable securities (2,145) 2,803
Proceeds from sale of GPS 2,511
Proceeds from the sale of property, plant and
equipment, liquor licenses and leasehold interests 2,264 46
Property in escrow 2,664
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Net cash provided by (used in) investing activities (7,665) 2,863
-------- --------
Cash flows from financing activities:
Bank borrowing 3,000
Purchase and retirement of stock (1,613)
Principal payments under capital lease obligations (184) (254)
Purchase of Company debentures (54)
Principal payments on long-term debt (375) (93)
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Net cash used in financing activities 774 (347)
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Net increase (decrease) in cash (5,348) 6,373
Cash and cash equivalents at beginning of year 10,102 19,241
-------- --------
Cash and cash equivalents at end of quarter $4,754 $25,614
-------- --------
-------- --------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(In Thousands)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-----------------------------
June 29, July 1,
1996 1995
--------- -----------
<S> <C> <C>
Net income $1,029 $3,671
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,281 1,679
Unrealized (gain) loss on marketable securities 750 (1,188)
Loss on sale of marketable securities 19 363
Noncompete payment on sale of GPS (86)
Provision for losses on accounts and notes receivable 63 80
Net (gain) loss from the sale of property, plant and equipment,
liquor licenses and early lease terminations (544) (35)
Notes receivable from officer/director (1)
Gain on purchase of Company debentures (5)
Change in assets and liabilities net of effects from noncash
investing and financing activities:
(Increase) decrease in assets:
Notes and accounts receivable 962 490
Inventories 728 1,106
Prepaid and other (608) 40
Other assets (90) (81)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities (3,152) (2,008)
Deferred income taxes 616 (401)
Other liabilities (506) 228
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Net cash provided by operating activities $1,543 $3,857
--------- ---------
--------- ---------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL PRESENTATION:
The unaudited interim consolidated financial statements as of June 29, 1996
and for the thirteen and twenty-six weeks ended June 29, 1996 and July 1,
1995, respectively, have been prepared in accordance with generally
accepted accounting principles and include all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of the results of operations for such
interim periods presented and financial position at such date. The current
period results of operations are not necessarily indicative of results
which ultimately will be reported for the full year ending December 28,
1996.
The December 30, 1995 balance sheet data was derived from audited financial
statements but does not include all disclosures required by generally
accepted accounting principles. The interim financial statements and notes
thereto should be read in conjunction with the financial statements and
notes included in the Company's Form 10-K for the fiscal year ended
December 30, 1995.
2. 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. Intercompany balances and transactions are eliminated. The
Company operates exclusively in the supermarket business.
3. 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. 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 related to the first arbitration and no expenses related to the
second arbitration have been recognized in the statements of operations of
the Company.
4. NET INCOME PER SHARE:
Net income per share is based on the weighted average number of common
shares outstanding during the period. Due to the Company's purchase of
179,229 shares of its Class A common stock for $11,193,000 in 1995 and an
additional purchase of 25,884 shares for $1,613,000 in 1996, the weighted
average number of shares is reduced in the second quarter and first six
months of 1996 compared to the same periods of 1995.
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 1996, the Company had net income of $895,000
compared to net income of $2,246,000 during the second quarter of 1995. Pretax
income was $1,461,000 for the second quarter of 1996 compared to pretax income
of $3,719,000 for the second quarter of 1995. As described below, included in
the second quarter of 1996 pretax income is $37,000 of net unrealized losses
related to marketable securities as compared to net unrealized gains of $427,000
in the second quarter of 1995.
During the second quarter of 1996, the Company's operating income was $1,559,000
compared to operating income of $2,621,000 during the second quarter of 1995.
Sales from the Company's 12 supermarkets in the greater Los Angeles area were
$62,864,000 in the second quarter of 1996, an increase of 4.2% from the second
quarter of 1995, when sales were $60,317,000. The second quarter of 1995
included sales from a Mayfair Market in West Hollywood which was closed in
October 1995. In January 1996, the Company opened a shopping center it
developed in Calabasas, California which includes a Gelson's market and spaces
for additional tenants. Opening sales of the Calabasas market have not met
original projections. The Company has entered into leases for most of the
tenant spaces, some which opened for business during the second quarter and
others scheduled to be opened later this year. It is anticipated that
supermarket sales will improve as Gelson's and the other tenants become
established in the trading area. The foregoing statement is a forward looking
statement based on management's judgment, however, actual future sales are
dependent on a number of events which may or may not occur. Chain wide same
store sales increased 2.2% in the second quarter of 1996 compared to the prior
year, even though sales of certain stores have been negatively impacted by
competitors opening new stores.
In 1996, the Company purchased a site for a potential Gelson's Market in Santa
Barbara, California and, in 1995, entered into two long-term leases to open new
Gelson's markets at other locations. The opening of Gelson's markets in each of
these sites is subject to, among other things, the Company's due diligence,
receipt of necessary governmental approvals and the developers fulfilling
certain conditions.
The Company's gross profit from supermarket operations as a percentage of sales
was 39.2% in the second quarter of 1996 compared to 39.4% in the same period of
1995.
Delivery, selling, general and administrative ("DSG&A") expenses for supermarket
operations as a percentage of sales were 36.7% in the second quarter of 1996
compared to 35.0% the second quarter of 1995. The increase in 1996 is due, in
part, to higher than expected operating costs associated with the new Gelson's
market in Calabasas. Also, an increase in real estate and remodel expenditures
during the past year resulted in higher depreciation expense in the second
quarter of 1996 compared to the same period in 1995. In the second quarter of
1995, the Company recognized contractual credits of $542,000 against health and
welfare payments due the retail clerks and meat cutters unions. No such credits
were received in 1996.
8
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PART I. FINANCIAL INFORMATION, Continued
Interest and dividend income was $408,000 in the second quarter of 1996 compared
to $739,000 for the same period in 1995 due to decreased levels of investments
and a decrease in earnings rates.
Interest expense increased to $337,000 in the second quarter of 1996 from
$177,000 in the second quarter of 1995 primarily due to interest resulting from
a Federal income tax audit.
Other income (expense) includes realized gains (losses) on the sale of
marketable securities of ($111,000) and $130,000 in the second quarters of 1996
and 1995, respectively.
In the second quarter of 1996, the market value of the Company's holdings in
marketable securities decreased. The Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"), requires that unrealized holding gains and losses for
certain marketable securities shall be included in the determination of net
income. As a result, net unrealized losses of $37,000 related to marketable
securities were reported in the second quarter of 1996 compared to net
unrealized gains of $427,000 in the second quarter of 1995.
YEAR-TO-DATE ANALYSIS
During the first six months of 1996, the Company had net income of $1,029,000
compared to net income of $3,671,000 during the first six months of 1995.
Pretax income was $1,700,000 for the first six months of 1996 compared to
pretax income of $6,054,000 for the first six months of 1995. As described
below, included in the first six months of 1996 pretax income is $750,000 of net
unrealized losses related to marketable securities as compared to net unrealized
gains of $1,188,000 in the first six months of 1995.
During the first six months of 1996, the Company's operating income from its
supermarket operations was $2,132,000 compared to operating income of $4,103,000
during the first six months of 1995.
Sales from the Company's 12 supermarkets in the greater Los Angeles area were
$123,480,000 in the first six months of 1996, an increase of 2.7% from the first
six months of 1995, when sales were $120,258,000. The first six months of 1995
included sales from a Mayfair Market in West Hollywood which was closed in
October 1995. In January 1996, the Company opened a shopping center it
developed in Calabasas, California which includes a Gelson's market and spaces
for additional tenants. Opening sales of the Calabasas market have not met
original projections. The Company has entered into leases for most of the
tenant spaces, some which opened for business during the second quarter and
others scheduled to be opened later this year. It is anticipated that
supermarket sales will improve as Gelson's and the other tenants become
established in the trading area. The foregoing statement is a forward looking
statement based on management's judgment, however, actual future sales are
dependent on a number of events which may or may not occur. Chain wide same
store sales increased 1.5% in the six months of 1996 compared to the prior year,
even though sales of certain stores have been negatively impacted by competitors
opening new stores.
9
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PART I. FINANCIAL INFORMATION, Continued
In 1996, the Company purchased a site for a potential Gelson's Market in Santa
Barbara, California and, in 1995, entered into two long-term leases to open new
Gelson's markets at other locations. The opening of Gelson's markets in each of
these sites is subject to, among other things, the Company's due diligence,
receipt of necessary governmental approvals and the developers fulfilling
certain conditions.
The Company's gross profit from supermarket operations as a percentage of sales
was 39.1% in the first six months of 1996 compared to 39.0% in the same period
of 1995.
Delivery, selling, general and administrative ("DSG&A") expenses for supermarket
operations as a percentage of sales were 37.4% in the first six months of 1996
compared to 35.6% the first six months of 1995. The increase in 1996 is due, in
part, to higher than anticipated operating costs as well as preopening expenses
associated with the new Gelson's market in Calabasas. Also, an increase in real
estate and remodel expenditures during the past year resulted in higher
depreciation expense in 1996 compared to 1995. Additionally, certain costs
relating to the sublease of the former AMG Holdings headquarters facility
(effective April 1996) were expensed in 1996. In the second quarter of 1995,
the Company recognized contractual credits of $542,000 against health and
welfare payments due the retail clerks and meat cutters unions. No such credits
were received in 1996. Included in 1996 DSG&A is a gain of $584,000 relating to
the property sale of a former Mayfair market located in West Hollywood,
California.
Interest and dividend income was $895,000 in the first six months of 1996
compared to $1,427,000 for the same period in 1995 due to decreased levels of
investments and a decrease in earnings rates.
Interest expense increased to $525,000 in the first six months of 1996 from
$361,000 in the first six months of 1995 primarily due to interest resulting
from a Federal income tax audit.
Other income (expense) includes realized losses on the sale of marketable
securities of $20,000 and $363,000 in the first six months of 1996 and 1995,
respectively.
In the first six months of 1996, the market value of the Company's holdings in
marketable securities decreased. As a result, net unrealized losses of $750,000
related to marketable securities were reported in the first six months of 1996
compared to net unrealized gains of $1,188,000 in the first six months of 1995.
CAPITAL EXPENDITURES/LIQUIDITY
The Company plans to utilize cash-on-hand (including marketable securities) and
cash flow from operations to fund capital expenditures in 1996. In May 1996,
the Company borrowed $3,000,000 from its revolving line of credit to meet short-
term working capital needs but, as of the date of this report, all borrowings on
the line of credit have been repaid.
The Company's current assets at the end of the second quarter were approximately
$7,900,000 less than at the end of 1995 primarily due to capital expenditures
including real estate and remodel expenditures incurred during the first six
months of 1996.
10
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PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(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 9, 1996 ERNEST T. KLINGER
---------------- ------------------------------
Ernest T. Klinger
Vice President Finance and
Administration and Chief
Financial Officer
(Authorized Signatory)
11
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ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
Exhibit
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27. Financial Data Schedule.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 4,754
<SECURITIES> 21,536
<RECEIVABLES> 6,342
<ALLOWANCES> 743
<INVENTORY> 9,444
<CURRENT-ASSETS> 44,587
<PP&E> 65,937
<DEPRECIATION> 26,005
<TOTAL-ASSETS> 88,234
<CURRENT-LIABILITIES> 23,529
<BONDS> 7,154
0
0
<COMMON> 362
<OTHER-SE> 52,881
<TOTAL-LIABILITY-AND-EQUITY> 88,234
<SALES> 123,480
<TOTAL-REVENUES> 123,480
<CGS> 75,185
<TOTAL-COSTS> 75,185
<OTHER-EXPENSES> 46,100
<LOSS-PROVISION> 63
<INTEREST-EXPENSE> 525
<INCOME-PRETAX> 1,700
<INCOME-TAX> 671
<INCOME-CONTINUING> 1,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,029
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
</TABLE>
