<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 MARCH 29, 1997
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2020 SOUTH CENTRAL AVENUE, COMPTON, CALIFORNIA 90220
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 638-2842
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NO CHANGE
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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 March 29, 1997 was:
766,753 of Class A common stock
342,246 of Class B common stock
This report contains a total of 14 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)
A S S E T S
March 29, December 28,
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents $ 5,734 $ 5,473
Marketable securities 23,567 21,356
Accounts and notes receivable, net 7,956 6,629
Inventories 9,790 10,728
Prepaid and other 1,398 3,102
------------ ------------
Total current assets 48,445 47,288
Notes receivable 75 82
Property for resale or sublease 1,433 1,440
Property, plant and equipment, at cost, less
accumulated depreciation and amortization
of $26,670 and $25,667, respectively 39,353 39,875
Other assets 2,355 2,563
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Total assets $91,661 $91,248
------------ ------------
------------ ------------
See Notes to Financial Statements
2
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 29, December 28,
1997 1996
------------ ------------
Current liabilities:
Accounts payable, trade $ 13,694 $11,357
Other current liabilities 11,831 11,816
Current portion of long-term debt 986 973
------------ ------------
Total current liabilities 26,511 24,146
Long-term debt, including obligations
under capital leases of $3,523 and
$3,578, respectively 6,425 6,663
Deferred income taxes 1,694 2,160
Other liabilities 2,288 2,542
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Total liabilities 36,918 35,511
------------ ------------
Commitments and contingent liabilities
Stockholders' equity:
Class A common stock 276 276
Class B common stock 86 86
Capital surplus 5,617 5,617
Notes receivable from officer/director (295) (369)
Unrealized loss on available-for-sale
securities (158)
Retained earnings 52,970 53,880
------------ ------------
58,496 59,490
Less: treasury stock, at cost 3,753 3,753
------------ ------------
Total stockholders' equity 54,743 55,737
------------ ------------
Total liabilities and
stockholders' equity $91,661 $91,248
------------ ------------
------------ ------------
See Notes to Financial Statements
3
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share and Other Data)
Thirteen Weeks Ended
March 29, March 30,
1997 1996
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Sales $64,961 $60,616
Cost of sales 39,414 36,970
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Gross profit 25,547 23,646
Delivery, selling, general and
administrative expenses 22,815 23,073
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Operating income 2,732 573
Interest, dividend and other income
(expense), net 399 379
Net unrealized loss on trading securities (201) (713)
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Income from continuing operations
before income taxes 2,930 239
Income tax provision 1,145 105
------------ -----------
Income from continuing operations,
net of income taxes 1,785 134
Loss from discontinued operations, net of
income tax benefits of $1,577 (2,695)
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Net income (loss) $ (910) $ 134
------------ -----------
------------ -----------
Net income (loss) per common share:
Income from continuing operations $1.61 $ .12
Loss from discontinued operations (2.43)
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Net income (loss) $ (.82) $ .12
------------ -----------
------------ -----------
Weighted average common shares outstanding 1,108,999 1,133,141
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See Notes to Financial Statements
4
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(In Thousands)
Thirteen Weeks Ended
March 29, March 30,
1997 1996
------------ ------------
Cash flows from operating activities:
Cash received from customers $65,440 $61,589
Cash paid to suppliers and employees (62,018) (61,689)
Investment in trading securities (1,211) (1,938)
Interest and dividends received 392 404
Interest paid (151) (172)
Income taxes (paid)/refund 5 (250)
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Net cash provided by (used in)
operating activities 2,457 (2,056)
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Cash flows from investing activities:
Transfer to discontinued operations (207)
Capital expenditures (784) (8,127)
Property in escrow 2,664
Purchases of marketable securities (2,636)
Sales of marketable securities 1,380
Proceeds from the sale of property, plant and
equipment, liquor licenses and leasehold
interests 146 2,239
Payments received on notes from the sale of
property, plant and equipment and liquor
licenses 56 1
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Net cash provided by (used in)
investing activities (2,045) (3,223)
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Cash flows from financing activities:
Purchase and retirement of stock (373)
Principal payments under capital lease
obligations (50) (91)
Principal payments on long-term debt (175) (187)
Payment of loan from officer/director 74
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Net cash used in financing activities (151) (651)
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Net increase (decrease) in cash 261 (5,930)
Cash at beginning of year 5,473 10,102
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Cash at end of quarter $5,734 $4,172
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See Notes to Financial Statements
5
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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:
Thirteen Weeks Ended
March 29, March 30,
1997 1996
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Net income (loss) $ (910) $ 134
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss from discontinued operations 2,695
Depreciation and amortization 1,233 1,060
Unrealized loss on trading securities 201 713
Provision for losses on accounts and
notes receivable 30 33
Net gain from sale of property, plant
and equipment, liquor licenses and early
lease terminations (58) (566)
Gain on sale of marketable securities (221) (91)
Change in assets and liabilities net of effects from noncash
investing and financing activities:
(Increase) decrease in assets:
Marketable securities (1,198) (1,938)
Accounts and notes receivable 1,732 878
Inventories 938 (125)
Prepaid expenses (46) (303)
Other assets 200 (46)
Increase (decrease) in liabilities:
Accounts payable and other current
liabilities (1,524) (1,568)
Deferred income taxes (361) (223)
Other liabilities (254) (14)
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Net cash provided by (used in) operating
activities $2,457 $(2,056)
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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 for a fair presentation.
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. Intercompany balances and transactions are eliminated. The
Company operates exclusively in the supermarket business.
The accompanying consolidated financial statements for the three months
ended March 29, 1997 and March 30, 1996 have been prepared in accordance
with generally accepted accounting principles ("GAAP"). These financial
statements have not been audited by independent public accountants but
include all adjustments, consisting of normal, recurring accruals, which in
the opinion of management of the Company, are necessary for a fair
presentation of the financial position and the results of operations for
the periods presented. The accompanying consolidated balance sheet as of
December 28, 1996 has been derived from audited financial statements, but
does not include all disclosures required by GAAP. The results of
operations for the three months ended March 29, 1997 are not necessarily
indicative of the results to be expected for the full year ending January
3, 1998.
Certain prior year amounts have been reclassified to conform to current
year presentation.
2. MARKETABLE SECURITIES:
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and unrealized holding gains and losses are
included in earnings. Debt securities for which the Company does not have
the intent or ability to hold to maturity and equity securities are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported as
a separate component of shareholders' equity.
7
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PART I. FINANCIAL INFORMATION, Continued
NOTES TO FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
Unrealized Market
Cost Gain (Loss) Value
---- ----------- ------
(in thousands)
<S> <C> <C> <C>
As of March 28, 1997:
Trading securities:
Fixed income securities $ 8,598 $ (247) $ 8,351
Mortgage-backed government securities 1,111 (26) 1,085
Collateralized mortgage obligations 365 (7) 358
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10,074 (280) 9,794
Available-for-sale securities:
Mutual funds 13,632 (90) 13,542
Equity securities 832 (601) 231
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14,464 (691) 13,773
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Total $24,538 $ (971) $23,567
------- -------- -------
------- -------- -------
As of December 28, 1996:
Trading securities:
Mutual funds $10,997 $ 35 $11,032
Fixed income securities 7,707 (662) 7,045
Equity securities 1,413 114 1,527
Mortgage-backed government securities 1,419 7 1,426
Collateralized mortgage obligations 328 (2) 326
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Total $21,864 $ (508) $21,356
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------- -------- -------
</TABLE>
3. ARBITRATION AWARD:
On March 28, 1997, the Company received notice of a decision rendered in the
arbitration proceedings relating to the sale in 1993 of its communication
equipment business to Danka Business Systems PLC. The arbitrators upheld
Arden's claim for approximately $2,200,000 and awarded Danka on its
counterclaims approximately $4,065,000. As a result of this decision, the
Company paid Danka approximately $1,865,000 in April 1997.
As the result of an earlier arbitration, Arden was awarded, in April 1994,
$1,750,000. No income or expenses related to that award and no expenses
related to the just completed arbitration were recognized in the 1994 and
1995 statements of operations of Arden. In 1996, arbitration costs which
exceeded the first arbitration award were expensed as discontinued
operations.
The above arbitration decisions, the associated expenses and the resulting
adjustments to the purchase price for the transaction resulted in the Company
recognizing a loss, net of taxes, from discontinued operations of
approximately $2,695,000 in the first quarter of fiscal 1997.
8
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PART I. FINANCIAL INFORMATION, Continued
NOTES TO FINANCIAL STATEMENTS, Continued
The award of attorneys fees and costs incurred in both arbitrations is
subject to further arbitration proceedings. The Company does not believe
adjustments resulting from this arbitration will have a material adverse
impact on its financial position.
4. EARNINGS PER SHARE:
Net income per share is based on the weighted average number of common
shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share."
SFAS No. 128 supersedes and simplifies the existing computational
guidelines under Accounting Principles Board Opinion No. 15, "Earnings Per
Share." It is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary EPS and replaces it with basic EPS for which common
stock equivalents are not considered in the computation. It also revises
the computation of diluted EPS. It is not expected that the adoption of
SFAS No. 128 will have a material impact on the earnings per share results
reported by the Company under the Company's current capital structure.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER ANALYSIS
During the first quarter of 1997, the Company had a net loss of ($910,000)
compared to net income of $134,000 during the first quarter of 1996. As
described below, included in 1997 was a $2,695,000 loss from discontinued
operations. Pretax income from continuing operations was $2,930,000 for the
first quarter of 1997 compared to pretax income of $239,000 for the first
quarter of 1996.
During the first quarter of 1997, the Company's operating income was $2,732,000
compared to operating income of $573,000 during the first quarter of 1996.
Sales from the Company's 12 supermarkets in the greater Los Angeles area were
$64,961,000 in the first quarter of 1997, an increase of 7.2% from the first
quarter of 1996, when sales were $60,616,000. Chain wide same store sales for
stores opened the entire quarter increased 5.3% in the first quarter of 1997
compared to the prior year, even though sales of certain stores have been
negatively impacted by competitors opening new stores. The increase in same
store sales is due to a number of factors including a more robust economy in
Southern California, the effect of product pricing decisions, the positive
impact of store remodel activity and the timing of Easter which fell in the
first quarter of 1997 but in the second
9
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PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
quarter of 1996. The Calabasas store, opened in February 1996, has experienced
higher sales and better expense controls in 1997 compared to the same period in
1996.
The Company's gross profit from supermarket operations as a percentage of sales
was 39.3% in the first quarter of 1997 compared to 39.0% in the same period of
1996. Union wage and benefit increases are taken into consideration on product
pricing decisions. The sales mix in 1997 favored higher gross margin
categories.
Delivery, selling, general and administrative ("DSG&A") expenses for supermarket
operations as a percentage of sales were 35.1% in the first quarter of 1997
compared to 38.1% the first quarter of 1996. DSG&A activity in 1997 reflects an
improvement in labor efficiency at the stores, improved purchasing methods of
store services and supplies and lower workers' compensation costs. The higher
expense in 1996 is due, in part, to preopening expense, promotional costs and
higher than expected operating costs associated with the Gelson's market in
Calabasas which opened in February 1996. Additionally, in 1996, certain costs
relating to the sublease of the former AMG Holdings headquarters facility were
expensed. Included in 1996 DSG&A is a gain of $584,000 relating to the property
sale of a former Mayfair market.
Interest and dividend income was $375,000 in the first quarter of 1997 compared
to $487,000 for the same period in 1996 due to decreased levels of investments
and a decrease in earnings rates.
Interest expense was $172,000 in the first quarter of 1997 compared to $188,000
in the first quarter of 1996.
Other income (expense) includes realized gains on the sale of marketable
securities of $208,000 and $91,000 in the first quarters of 1997 and 1996,
respectively.
In the first quarter of 1997, the market value of the Company's holdings in
trading securities decreased. 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 trading securities
shall be included in the determination of net income. As a result, net
unrealized losses of $201,000 related to marketable securities occurred in the
first quarter of 1997 compared to net unrealized losses of $713,000 in the first
quarter of 1996. Unrealized losses in the first quarter of 1997 on securities
deemed to be available for sale were $158,000 (net of income tax benefits of
$105,000) and were recorded as a separate component of shareholders' equity.
See Footnote 2 of Notes to Financial Statements.
The loss on discontinued operations of $2,695,000 (net of income tax benefits of
$1,577,000) resulted from a decision in an arbitration proceeding relating to
the sale in 1993 of the Company's communication equipment business and is
reflected on the financial statements as an adjustment to the purchase price.
See Footnote 3 of Notes to Financial Statements.
10
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PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
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 Northridge site is
expected to open in 1997. The opening of Gelson's markets on 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 1997. Additionally,
the Company has a term loan line of credit totaling $10,000,000 to finance store
fixtures and equipment. At the end of the first quarter of 1997 the outstanding
balance from the 1995 borrowing on the line was $2,062,500.
The Company also has two revolving lines of credit totaling $12,000,000. There
were no borrowings or outstanding balances against either of the revolving lines
during the first quarter of 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
11
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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 Schedules
(b) Reports on Form 8-K:
The Company filed a Form 8-K on April 4, 1997. The Form 8-K reported under
Item 5 "Other Events," disclosing the decision rendered in the arbitration
proceedings between the Company and Danka Business Systems PLC ("Danka")
relating to the sale in 1993 of the communication equipment business of the
Company to Danka.
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.
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Registrant
Date May 12, 1997 ERNEST T. KLINGER
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Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
(Authorized Signatory)
12
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ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
EXHIBIT
27. Financial Data Schedules.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 5,734
<SECURITIES> 23,567
<RECEIVABLES> 8,869
<ALLOWANCES> 713
<INVENTORY> 9,790
<CURRENT-ASSETS> 48,445
<PP&E> 66,023
<DEPRECIATION> 26,670
<TOTAL-ASSETS> 91,661
<CURRENT-LIABILITIES> 26,511
<BONDS> 6,425
0
0
<COMMON> 362
<OTHER-SE> 54,381
<TOTAL-LIABILITY-AND-EQUITY> 91,661
<SALES> 64,961
<TOTAL-REVENUES> 64,961
<CGS> 39,414
<TOTAL-COSTS> 39,414
<OTHER-EXPENSES> 22,785
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 2,930
<INCOME-TAX> 1,145
<INCOME-CONTINUING> 1,785
<DISCONTINUED> (2,695)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (910)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> (.82)
</TABLE>
