<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 September 28, 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.
------------------------------------------------
(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 September 28, 1996 was:
765,753 of Class A common stock
343,246 of Class B common stock
This report contains a total of 13 pages including exhibits.
1
<PAGE>
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
September 28, December 30,
1996 1995
------------- ------------
Current assets:
Cash and cash equivalents $ 3,544 $ 10,102
Marketable securities 21,693 20,160
Notes and accounts receivable, net 5,777 9,384
Inventories 9,338 10,172
Prepaid and other 3,034 2,646
-------- ---------
Total current assets 43,386 52,464
Notes receivable 143 57
Property for resale or sublease 1,446 1,461
Property, plant and equipment, at cost less
accumulated depreciation and amortization
of $24,933 and $24,213, respectively 39,606 33,458
Other assets 2,473 2,038
-------- ---------
Total assets $ 87,054 $ 89,478
-------- ---------
-------- ---------
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
September 28, December 30,
1996 1995
------------- ------------
Current liabilities:
Accounts payable, trade $ 9,609 $ 11,345
Other current liabilities 11,381 11,335
Current portion of long-term debt 987 1,078
-------- ---------
Total current liabilities 21,977 23,758
Long-term debt, including obligations under capital
leases of $3,631 and $4,271, respectively 6,909 7,695
Deferred income taxes 1,170 1,583
Other liabilities 2,581 2,615
-------- ---------
Total liabilities 32,637 35,651
-------- ---------
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 52,560 51,862
-------- ---------
58,170 57,580
Less: treasury stock, at cost 3,753 3,753
-------- ---------
Total stockholders' equity 54,417 53,827
-------- ---------
Total liabilities and stockholders' equity $ 87,054 $ 89,478
-------- ---------
-------- ---------
See Notes to Financial Statements
3
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(In Thousands Except Per Share and Per Share Data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 62,891 $ 60,968 $ 186,371 $ 181,226
Cost of sales 38,036 37,181 113,221 110,488
------------- ------------- ------------- -------------
Gross profit 24,855 23,787 73,150 70,738
Delivery, selling, general and administrative
expenses 23,270 21,656 69,433 64,504
------------- ------------- ------------- -------------
Operating income 1,585 2,131 3,717 6,234
Interest, dividend and other income
(expense), net 156 558 474 1,321
Net unrealized gain (loss) on marketable
securities 202 296 (548) 1,484
------------- ------------- ------------- -------------
Income before income taxes 1,943 2,985 3,643 9,039
Income tax provision 769 1,184 1,440 3,567
------------- ------------- ------------- -------------
Net income $ 1,174 $ 1,801 $ 2,203 $ 5,472
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per common share $ 1.06 $ 1.37 $ 1.97 $ 4.16
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares
outstanding 1,108,999 1,314,112 1,117,303 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)
Thirty-Nine Weeks Ended
-----------------------
September 28, September 30,
1996 1995
------------ ------------
Cash flows from operating activities:
Cash received from customers $ 187,197 $ 181,549
Cash paid to suppliers and employees (180,972) (171,696)
Interest and dividends received 1,255 2,035
Interest paid (730) (558)
Income taxes paid (2,262) (3,392)
-------- ---------
Net cash provided by operating activities 4,488 7,938
-------- ---------
Cash flows from investing activities:
Capital expenditures (11,341) (5,666)
Sale of (investment in) marketable securities (2,151) 3,516
Proceeds from sale of GPS 2,511
Proceeds from the sale of property, plant and
equipment, liquor licenses and leasehold interests 2,266 58
Property in escrow 2,664
-------- ---------
Net cash provided by (used in) investing activities (8,562) 419
-------- ---------
Cash flows from financing activities:
Purchase and retirement of stock (1,613)
Principal payments under capital lease obligations (254) (382)
Purchase of Company debentures (54)
Principal payments on long-term debt (563) (142)
-------- ---------
Net cash used in financing activities (2,484) (524)
-------- ---------
Net increase (decrease) in cash (6,558) 7,833
Cash and cash equivalents at beginning of year 10,102 19,241
-------- ---------
Cash and cash equivalents at end of quarter $ 3,544 $ 27,074
-------- ---------
-------- ---------
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>
Thirty-Nine Weeks Ended
September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net income $ 2,203 $ 5,472
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,457 2,549
Unrealized (gain) loss on marketable securities 548 (1,484)
Loss on sale of marketable securities 70 297
Provision for losses on accounts and notes receivable 95 96
Net gain from the sale of property, plant and equipment,
liquor licenses and early lease terminations (488) (31)
Notes receivable from officer/director (1)
Noncompete payment on sale of GPS (86)
Gain on purchase of 7% debentures (5)
Change in assets and liabilities net of effects from noncash
investing and financing activities:
(Increase) decrease in assets:
Notes and accounts receivable 759 187
Inventories 834 1,402
Prepaid and other (388) 333
Other assets (459) (158)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities (1,690) (1,593)
Deferred income taxes (413) 390
Other liabilities (35) 565
-------- --------
Net cash provided by operating activities $ 4,488 $ 7,938
-------- --------
-------- --------
</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 September 28,
1996 and for the thirteen and thirty-nine weeks ended September 28, 1996 and
September 30, 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 as presented herein was derived
from audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Therefore, 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 had previously
been recognized in the statements of operations of the Company. In the
third quarter of 1996, arbitration costs of $520,000, which exceeded the
award, were expensed.
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 third quarter and first nine
months of 1996 compared to the same periods of 1995.
7
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER ANALYSIS
During the third quarter of 1996, the Company had net income of $1,174,000
compared to net income of $1,801,000 during the third quarter of 1995. Pretax
income was $1,943,000 for the third quarter of 1996 compared to pretax income
of $2,985,000 for the third quarter of 1995.
During the third quarter of 1996, the Company's operating income was $1,585,000
compared to operating income of $2,131,000 during the third quarter of 1995.
Sales from the Company's 12 supermarkets in the greater Los Angeles area were
$62,891,000 in the third quarter of 1996, an increase of 3.2% from the third
quarter of 1995, when sales were $60,968,000. The third quarter of 1995
included sales from a Mayfair Market in West Hollywood which was closed in
October 1995. Chain wide same store sales increased 1.1% in the third quarter
of 1996 compared to the prior year, even though sales of certain stores have
been negatively impacted by competitors opening new stores. 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. Sales of
the Calabasas market have not met projections. The Company has entered into
leases for most of the tenant spaces, some of which are unoccupied at the end
of the third quarter. 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 and actual future sales are
dependent on a number of factors which may or may not occur including, among
others, the timing of the opening of the vacant spaces and competition from
other supermarkets and shopping centers.
The Company's gross profit from supermarket operations as a percentage of sales
was 39.5% in the third quarter of 1996 compared to 39.0% in the same period of
1995. The increase is primarily attributable to a sales mix in 1996 favoring
higher gross margin categories.
Delivery, selling, general and administrative ("DSG&A") expenses for
supermarket operations as a percentage of sales were 37.0% in the third quarter
of 1996 compared to 35.5% the third 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 third quarter of 1996 compared to the same period in 1995. In the third
quarter of 1996 the Company recognized $520,000 of costs associated with an
arbitration of disputed items relating to the sale of the communication
equipment business in 1993. In the third quarter of 1995, the Company
recognized contractual credits of $424,000 against health and welfare payments
due the retail clerks and meat cutters unions. No such credits were received
in 1996.
Interest and dividend income was $392,000 in the third quarter of 1996 compared
to $686,000 for the same period in 1995 due to decreased levels of investments
and a decrease in earnings rates.
8
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PART I. FINANCIAL INFORMATION, Continued
Interest expense was $186,000 in the third quarter of 1996 from $183,000 in the
third quarter of 1995.
Other income (expense) includes realized gains (losses) on the sale of
marketable securities of ($50,000) and $66,000 in the third quarters of 1996
and 1995, respectively.
In the third quarter of 1996, the market value of the Company's holdings in
marketable securities increased. 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 gains of $202,000 related to marketable securities
were reported in the third quarter of 1996 compared to net unrealized gains of
$296,000 in the third quarter of 1995.
In October 1996, the Company reached a tentative settlement of a claim against
it for costs and damages relating to the alleged contamination of real property
previously owned by the Company. The terms of the settlement are subject to
completion of documentation and court approval. The after tax effect of the
settlement is not expected to exceed $235,000 and will be recognized in the
fourth quarter of 1996.
YEAR-TO-DATE ANALYSIS
During the first nine months of 1996, the Company had net income of $2,203,000
compared to net income of $5,472,000 during the first nine months of 1995.
Pretax income was $3,643,000 for the first nine months of 1996 compared to
pretax income of $9,039,000 for the first nine months of 1995. As described
below, included in the first nine months of 1996 income is $548,000 of net
unrealized losses related to marketable securities as compared to net
unrealized gains of $1,484,000 in the first nine months of 1995.
During the first nine months of 1996, the Company's operating income from its
supermarket operations was $3,717,000 compared to operating income of
$6,234,000 during the first nine months of 1995.
Sales from the Company's 12 supermarkets in the greater Los Angeles area were
$186,371,000 in the first nine months of 1996, an increase of 2.8% from the
first nine months of 1995, when sales were $181,226,000. The first nine months
of 1995 included sales from a Mayfair Market in West Hollywood which was closed
in October 1995. Chain wide same store sales increased 1.4% in the nine months
of 1996 compared to the prior year, even though sales of certain stores have
been negatively impacted by competitors opening new stores. 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. Sales of
the Calabasas market have not met projections. The Company has entered into
leases for most of the tenant spaces, some of which are unoccupied at the end
of the third quarter. 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 and actual future sales are
dependent on a number of factors which may or may not occur including, among
others, the timing of the opening of the vacant spaces and competition from
other supermarkets and shopping centers.
The Company's gross profit from supermarket operations as a percentage of sales
was 39.2% in the first nine months of 1996 compared to 39.0% in the same period
of 1995.
9
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PART I. FINANCIAL INFORMATION, Continued
Delivery, selling, general and administrative ("DSG&A") expenses for
supermarket operations as a percentage of sales were 37.3% for the first nine
months of 1996 compared to 35.6% for the first nine 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.
In the third quarter of 1996 the Company recognized $520,000 of costs
associated with an arbitration of disputed items relating to the sale of the
communication equipment businesss in 1993. Additionally, certain costs
relating to the sublease of the former AMG Holdings headquarters facility
(effective April 1996) were expensed in 1996. In 1995, the Company recognized
contractual credits of $966,000 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 $1,287,000 in the first nine months of 1996
compared to $2,113,000 for the same period in 1995 due to decreased levels of
investments and a decrease in earnings rates.
Interest expense increased to $711,000 in the first nine months of 1996 from
$544,000 in the first nine 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 $70,000 and $297,000 in the first nine months of 1996 and 1995,
respectively.
In the first nine months of 1996, the market value of the Company's holdings in
marketable securities decreased. Net unrealized losses of $548,000 related to
marketable securities were reflected in income in the first nine months of 1996
compared to net unrealized gains of $1,484,000 in the first nine months of
1995.
CAPITAL EXPENDITURES/LIQUIDITY
In 1996, the Company purchased a site for a potential Gelson's Market in Santa
Barbara, California. The Company has leased the Santa Barbara property on a
short term lease (18 months) to maximize its return on the property on an
interim basis while it analyzes its ultimate use. In 1995, the Company entered
into long-term leases to open two new Gelson's markets. 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 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 third quarter were approximately
$9,100,000 less than at the end of 1995 primarily due to capital expenditures
including real estate and remodel expenditures incurred during the first nine
months of 1996.
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 July 9, 1996.
(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 nominee for director as listed in the Proxy
Statement. One management nominee was elected by Class A shareholders as
follows:
Votes
-----
Class A: Robert A. Davidow
For 710,270
Against 120
Abstain 1,362
Continuing directors whose terms of office do not expire until 1997
or 1998 are:
Bernard Briskin Daniel Lembark
John G. Danhakl Ben Winters
Stuart A. Krieger
(c) At the meeting, the selection of Coopers & Lybrand L.L.P. independent
public accountants, to audit the books, records and accounts of the
Company and its consolidated subsidiaries for the 1996 fiscal year was
approved by the following vote:
Class A Stock Class B Stock
------------- -------------
For 709,249 3,421,140
Against 371 0
Abstain 2,132 0
Broker non-votes were 1,254 shares of Class A stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None
11
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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 November 12, 1996 ERNEST T. KLINGER
--------------------- ------------------------------
Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
(Authorized Signatory)
12
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
Exhibit
- -------
27. Financial Data Schedule.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 3,544
<SECURITIES> 21,693
<RECEIVABLES> 6,531
<ALLOWANCES> 754
<INVENTORY> 9,338
<CURRENT-ASSETS> 43,386
<PP&E> 64,539
<DEPRECIATION> 24,933
<TOTAL-ASSETS> 87,054
<CURRENT-LIABILITIES> 21,977
<BONDS> 6,909
0
0
<COMMON> 362
<OTHER-SE> 54,055
<TOTAL-LIABILITY-AND-EQUITY> 87,054
<SALES> 186,371
<TOTAL-REVENUES> 186,371
<CGS> 113,221
<TOTAL-COSTS> 113,221
<OTHER-EXPENSES> 69,338
<LOSS-PROVISION> 95
<INTEREST-EXPENSE> 711
<INCOME-PRETAX> 3,643
<INCOME-TAX> 1,440
<INCOME-CONTINUING> 2,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,203
<EPS-PRIMARY> 1.97
<EPS-DILUTED> 1.97
</TABLE>
