<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 4, 1998
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
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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 15, 1998 was:
2,216,488 of Class A common stock
1,368,984 of Class B common stock
This report contains a total of 18 pages including exhibits.
1
<PAGE>
PART I. FINANCIAL INFORMATION
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-----------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------------------------------
ASSETS July 4, 1998 January 3, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 12,838 $ 7,099
Marketable securities 16,219 15,623
Accounts and notes receivable, net 6,244 6,310
Inventories 10,208 11,552
Other current assets 1,121 1,626
- -----------------------------------------------------------------------------------------
Total current assets 46,630 42,210
Property for resale or sublease 1,359 4,051
Property, plant and equipment, at cost, less
accumulated depreciation and amortization of
$31,602 and $29,879, respectively 38,409 39,163
Other assets 2,623 2,702
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Total assets $ 89,021 $ 88,126
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- -----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Current liabilities:
Accounts payable, trade $ 10,996 $ 14,434
Other current liabilities 12,380 12,409
Current portion of long-term debt 1,371 1,469
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Total current liabilities 24,747 28,312
Long-term debt 6,984 7,663
Deferred income taxes 2,760 2,430
Other liabilities 1,475 1,461
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Total liabilities 35,966 39,866
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Commitments and contingent liabilities
Stockholders' equity:
Common stock, Class A 894 894
Common stock, Class B 342 342
Capital surplus 3,866 3,866
Notes receivable from officer/director (255) (255)
Unrealized gain on available-for-sale securities 734 416
Retained earnings 51,227 46,750
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56,808 52,013
Less, treasury stock, at cost 3,753 3,753
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Total stockholders' equity 53,055 48,260
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Total liabilities and stockholders' equity $ 89,021 $ 88,126
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(In Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------------------------------------------------------
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------- ----------------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $72,862 $65,360 $143,156 $130,321
Cost of sales 43,254 39,019 85,334 78,433
- -------------------------------------------------------------------------------------------------------------------------------
Gross profit 29,608 26,341 57,822 51,888
Delivery, selling, general and administrative expenses 26,322 23,000 50,571 45,815
- -------------------------------------------------------------------------------------------------------------------------------
Operating income 3,286 3,341 7,251 6,073
Interest and dividend income 347 396 592 771
Other income (expense), net 110 194 (15) 189
Interest expense (189) (165) (390) (337)
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations, before income taxes 3,554 3,766 7,438 6,696
Income tax provision 1,415 1,474 2,961 2,619
- -------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations, net of income taxes 2,139 2,292 4,477 4,077
Loss from discontinued operations, net of income
tax benefits of $25 and $1,602, respectively (43) (2,738)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $2,139 $2,249 $4,477 $1,339
- -------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains (losses) arising during the period (6) 349 252 271
Reclassification adjustment for gains (losses) included
in net income 66 (80)
- -------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss), net of income tax expense (benefits)
of $(3) and $213 for 1998 and $230 and $125 for 1997,
respectively (6) 349 318 191
- -------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $2,133 $2,598 $4,795 $1,530
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- -------------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations $.60 $.52 $1.25 $.92
Loss from discontinued operations ( .01) (.62)
- -------------------------------------------------------------------------------------------------------------------------------
Net income $.60 $.51 $1.25 $.30
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Weighted average common shares outstanding 3,585,472 4,435,948 3,585,472 4,435,948
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-----------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands)
- -------------------------------------------------------------------------------------------------
Twenty-Six Weeks Ended
----------------------
July 4, 1998 June 28, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $144,102 $131,033
Cash paid to suppliers and employees (135,286) (123,240)
Sales/(purchases) of trading securities, net (1,239)
Interest and dividends received 587 782
Interest paid (382) (316)
Income taxes paid (3,537) (1,963)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,484 5,057
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,036) (1,902)
Transfer to discontinued operations (2,540)
Purchases of available-for-sale securities (316) (2,819)
Sales of available-for-sale securities 250 1,380
Proceeds from the sale of property, plant and
equipment 3,132 207
Payments received on notes from the sale of
property, plant and equipment 56
- -------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,030 (5,618)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on long-term debt (640) (367)
Principal payments under capital lease obligations (112) (100)
Loan payments from officer/director 74
Purchase of Company debentures (23)
- -------------------------------------------------------------------------------------------------
Net cash used in financing activities (775) (393)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 5,739 (954)
Cash at beginning of year 7,099 5,473
- -------------------------------------------------------------------------------------------------
Cash at end of quarter $12,838 $4,519
- -------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
STATEMENTS OF CASHFLOWS, Continued
<TABLE>
<CAPTION>
(In Thousands)
- -------------------------------------------------------------------------------------------------------
Twenty-Six Weeks Ended
-----------------------------------
July 4, 1998 June 28, 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 4,477 $ 1,339
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations 2,738
Depreciation and amortization 2,812 2,483
Unrealized loss on trading securities 60
Provision for losses on accounts and
notes receivable 46 54
Deferred income taxes 117 (502)
Net gain from the disposal of property, plant
and equipment (447) (86)
Realized loss (gain) on marketable securities, net 1 (221)
Gain on purchase of 7% debentures (2)
Change in assets and liabilities net of effects from
investment and financing activities:
(Increase) decrease in assets:
Marketable securities (1,263)
Accounts and notes receivable 35 1,574
Inventories 1,344 1,007
Other current assets 505 296
Other assets 49 160
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses (3,467) (2,314)
Other liabilities 14 (268)
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 5,484 $ 5,057
- -------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-----------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 and six
months ended July 4, 1998 and June 28, 1997 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, 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 January 3,
1998 has been derived from audited financial statements and,
accordingly, does not include all disclosures required by GAAP as
permitted by interim reporting requirements. The results of operations
for the three and six months ended July 4, 1998 are not necessarily
indicative of the results to be expected for the full year ending
January 2, 1999.
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 stockholders'
equity.
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.
6
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
NOTES TO FINANCIAL STATEMENTS, Continued
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 arbitration completed in 1997 were recognized in
the 1994 and 1995 statements of operations of Arden. In the third and
fourth quarters of 1996, arbitration costs, net of taxes, which exceeded
the first arbitration award ($311,000 and $145,000, respectively) were
expensed as discontinued operations.
In the concluding phase of the arbitration proceedings, the arbitrators
determined that neither party was a prevailing party and, therefore,
neither party was awarded costs and fees incurred by the other party
with respect to the proceedings.
The above arbitration awards, the associated expenses not expensed in
1996 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 $2,738,000 in 1997.
4. NET INCOME PER COMMON SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," was adopted in the fourth quarter of 1997 and supersedes the
Company's previous standards for computing net income per share under
Accounting Principles Board Opinion No. 15. The new standard requires
dual presentation of net income per common share and net income per
common share assuming dilution on the face of the income statement.
Basic net income per share is computed by dividing the net income
attributable to common stockholders by the weighted average number of
common shares outstanding during the period. The Company does not have
any dilutive shares for the periods presented in the statements of
operations. The financial statements present basic net income per share.
A four-for-one stock split of each class of the Company's common stock
in the form of a stock dividend was distributed on July 15, 1998 to
holders of record on June 29, 1998. Stockholders received three
additional shares of Class A common stock ("Class A") for each share of
Class A held and three additional shares of Class B common stock ("Class
B") for each share of Class B held. The stock split allowed the Company
to maintain compliance with the public float requirements for continued
listing on the Nasdaq National Market System. Common stock, capital
surplus, and all share and per share data has been restated to reflect the
stock split.
5. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," was adopted during the
first quarter of 1998. The standard establishes guidelines for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income includes unrealized gains
and losses on debt and equity securities classified as
available-for-sale that is currently presented as a component of
stockholders' equity.
7
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." The standard requires that companies disclose "operating
segments" based on the way management disaggregates the company for
making internal operating decisions. The new rules will be effective
for the 1998 fiscal year. Abbreviated quarterly disclosure will be
required beginning in the first quarter of 1999, with both 1999 and 1998
information. The Company does not believe that the new standard will
have a material impact on its reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives will be recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and,
if it is, the type of hedge transaction. The new rules will be
effective the first quarter of 2000. The Company does not believe that
the new standard will have a material impact on the Company's financial
statements.
8
<PAGE>
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 1998, the Company had net income of $2,139,000
compared to net income of $2,249,000 during the second quarter of 1997.
Pretax income from continuing operations was $3,554,000 for the second
quarter of 1998 compared to $3,766,000 for the second quarter of 1997.
During the second quarter of 1998, the Company's operating income was
$3,286,000 compared to operating income of $3,341,000 during the second
quarter of 1997.
Sales from the Company's 13 supermarkets in the greater Los Angeles area (12
of which were operating in the second quarter of 1997) were $72,862,000 in
the second quarter of 1998, an increase of 11.5% from the second quarter of
1997, when sales were $65,360,000. Same store sales increased 8.1% in 1998
compared to the prior year. Sales associated with Easter and the 4th of July
occurred in the second quarter of 1998 versus the first and third quarters of
1997, respectively. The increase in sales is due to a number of factors
including a more robust economy in Southern California and the effect of
product pricing decisions. In November 1997, the Company opened a Gelson's
Market in Northridge, California, and although the Company is encouraged by
the sales increases since the store opened, they are still below management's
projections. Sales at Northridge are expected to improve as construction
activity is completed in the shopping center and additional tenants occupy
the center's vacant space, although there are no assurances that either of
these events will increase store sales to acceptable levels. 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 and completion of construction activity, the timing and
occupancy of the other tenant spaces, the success of the other tenants and
competition from other supermarkets in the trade area.
The Company's gross profit from supermarket operations as a percentage of
sales was 40.6% in the second quarter of 1998 compared to 40.3% in the same
period of 1997. Added controls over product costs, product pricing decisions
and increased volume rebates, buying and promotional allowances were factors
in increasing margins. Also, the sales mix in 1998 favored higher gross
margin categories than in 1997.
Delivery, selling, general and administrative ("DSG&A") expenses for
supermarket operations as a percentage of sales were 36.1% in the second
quarter of 1998 compared to 35.2% in the same period of 1997. 1998 expense
as a percent of sales is higher due, in part, to the reinstatement in April
1998 of a monthly union pension contribution of $245,000 which was not in
effect in 1997 and the opening of the Gelson's market in Northridge,
California in November 1997, as described above. These additional costs were
partially mitigated by the Company's continued cost containment efforts.
DSG&A in the second quarter of 1998, also reflects a net reserve of
approximately $200,000 as part of a proposed settlement agreement, which is
being finalized, related to the cost of remediation of hazardous substances
allegedly existing on property previously leased by the Company. Although
the actual settlement amount may vary from the amount reserved, it is not
anticipated that any future costs relating to this property will have an
adverse material effect on the results of operations or financial
conditions.
9
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
Interest and dividend income was $347,000 in the second quarter of 1998
compared to $396,000 for the same period in 1997 primarily due to interest
bearing investments being at lower average levels in 1998 compared to 1997.
Interest expense was $189,000 in the second quarter of 1998 compared to
$165,000 in the second quarter of 1997 due to higher average levels of
fixture financing debt.
Other income (expense) includes gains (losses) realized on investments in
marketable securities of $116,000 and $63,000 in the second quarters of 1998
and 1997, respectively.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that unrealized holding gains and losses for
available-for-sale securities be included as a component of stockholders'
equity. Unrealized losses on available-for-sale securities were $6,000 (net
of income tax benefits of $3,000) compared to an unrealized gain of $349,000
(net of income tax expense of $230,000) in the second quarter of 1997.
Basic net income per share from continuing operations for the current and
prior years has been restated to reflect the effect of the Company's
four-for-one stock split on July 15, 1998. The increase in basic net income
per share from continuing operations occurred due to a reduction in weighted
average shares outstanding as a result of the Company's purchase of 212,619
shares (before the stock split) of Class A common stock in August 1997.
YEAR-TO-DATE ANALYSIS
During the first six months of 1998, the Company had net income of $4,477,000
compared to net income of $1,339,000 during the first six months of 1997.
Pretax income from continuing operations was $7,438,000 for the first six
months of 1998 compared to $6,696,000 for the first six months of 1997.
During the first six months of 1998, the Company's operating income was
$7,251,000 compared to operating income of $6,073,000 during the first six
months of 1997.
Sales from the Company's 13 supermarkets in the greater Los Angeles area (12
of which were operating in the first six months of 1997) were $143,156,000 in
the first six months of 1998, an increase of 9.8% from the first six months
of 1997, when sales were $130,321,000. Same store sales increased 6.6% for
the first six months in 1998 compared to the prior year. Sales associated
with the 4th of July occurred in the first six months of 1998 versus the
third quarter of 1997. The increase in sales is due to a number of factors
including a more robust economy in Southern California and the effect of
product pricing decisions. In November 1997, the Company opened a Gelson's
Market in Northridge, California, and although the
10
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
Company is encouraged by the sales increases since the store opened, they are
still below management's projections. Sales at Northridge are expected to
improve as construction activity is completed in the shopping center and
additional tenants occupy the center's vacant space, although there are no
assurances that either of these events will increase store sales to
acceptable levels. 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 and completion of construction
activity, the timing and occupancy of the other tenant spaces, the success of
the other tenants and competition from other supermarkets in the trade area.
The Company's gross profit from supermarket operations as a percentage of
sales was 40.4% in the first six months of 1998 compared to 39.8% in the same
period of 1997. Added controls over product costs, product pricing decisions
and increased volume rebates, buying and promotional allowances were factors
in increasing margins. Also, the sales mix in 1998 favored higher gross
margin categories than in 1997.
DSG&A expenses for supermarket operations as a percentage of sales were 35.3%
in the first six months of 1998 compared to 35.2% in the first six months of
1997. 1998 expense as a percent of sales is higher due, in part, to the
reinstatement in April 1998 of a monthly union pension contribution of
$245,000 which was not in effect in 1997 and the opening of the Gelson's
market in Northridge, California in November 1997, as described above. These
additional costs were partially mitigated by the Company's continued cost
containment efforts and a $437,000 gain recognized in 1998 on the sale of the
Company's Santa Barbara property. DSG&A in the first six months of 1998,
also reflects a net reserve of approximately $200,000 as part of a proposed
settlement agreement, which is being finalized, related to the cost of
remediation of hazardous substances allegedly existing on property previously
leased by the Company. Although the actual settlement amount may vary from
the amount reserved, it is not anticipated that any future costs relating to
this property will have an adverse material effect on the results of
operations or financial conditions.
Interest and dividend income was $592,000 in the first six months of 1998
compared to $771,000 for the same period in 1997 primarily due to interest
bearing investments being at lower average levels in 1998 compared to 1997.
Interest expense was $390,000 in the first six months of 1998 compared to
$337,000 in the first six months of 1997 due to higher average levels of
fixture financing debt.
Other income (expense) includes gains (losses) realized on investments in
marketable securities of ($1,000) and $271,000 in the first six months of
1998 and 1997, respectively.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that unrealized holding gains and losses for
available-for-sale securities be included as a component of stockholders'
equity. Unrealized gains on available-for-sale securities were $318,000 (net
of income tax expense of $213,000) compared to an unrealized gain of $191,000
(net of income tax expense of $125,000) in the first six months of 1998 and
1997, respectively.
11
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
Basic net income per share from continuing operations for the current and
prior years has been restated to reflect the effect of the Company's
four-for-one stock split on July 15, 1998. The increase in basic net income
per share from continuing operations occurred due to increased income from
continuing operations for the period, as well as a reduction in weighted
average shares outstanding as a result of the Company's purchase of 212,619
shares (before the stock split) of Class A common stock in August 1997.
CAPITAL EXPENDITURES/LIQUIDITY
The Company plans to utilize cash-on-hand (including marketable securities)
and cash flow from operations to fund capital expenditures in 1998.
Additionally, the Company has a term loan line of credit totaling $10,000,000
to finance store fixtures and equipment. As of July 4, 1998, the outstanding
borrowed balance on the line was $3,579,000.
The Company also has two revolving lines of credit totaling $12,000,000.
There were no outstanding balances against either of the revolving lines as
of July 4, 1998.
The Company utilizes a significant number of computer software programs
including proprietary software. To the extent the Company's software
applications contain source codes that are unable to appropriately interpret
the upcoming calendar Year 2000, some level of modification, or even possibly
replacement of such applications, may be necessary. The Company has made an
assessment of the impact of the Year 2000 issue on its internal operations
and has developed a plan to bring its computer systems into compliance before
the end of 1999. The plan addresses the modification or replacement of
applications and operating systems to achieve timely Year 2000 compliance and
also includes communication and analysis with outside vendors with whom the
Company interfaces electronically. Although it is not possible to quantify
the aggregate cost of such modifications, the Company does not anticipate the
cost will have a material adverse impact on its financial position or results
of operations. The foregoing statement relative to the Year 2000 is a
forward looking statement and actual compliance may be affected by a number
of factors which include the timing and compliance by the Company's outside
vendors and suppliers (including its banking relations). The Company may be
adversely affected if its vendors and service providers (including its
banking relations) are unable to fully correct any Year 2000 problems they
may have.
After extensive site, demographic and competitive analysis the Company
decided not to enter the Santa Barbara marketplace and, in the first quarter
of 1998, sold the property it purchased in 1996 for $3,100,000 and recognized
a pretax gain of approximately $437,000. In the second quarter of 1998, the
Company executed a long-term lease agreement with a developer to build a new
Gelson's market in Beverly Hills, California. The development and actual
opening of the market is subject to, among other things, necessary
governmental approvals and the developer fulfilling certain conditions.
12
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Recently issued accounting standards are described in Note 6 of Notes to
Financial Statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE>
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 17, 1998.
(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 directors as listed in the Proxy
Statement. One nominee was elected by Class A stockholders and two
nominees were elected by Class B stockholders as follows:
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
Class A: Dan Lembark
For 486,157
Against 415
Abstain 2,791
Class B: Bernard Briskin
For 3,411,140
Against 0
Abstain 0
Class B: John G. Danhakl
For 3,411,140
Against 0
Abstain 0
</TABLE>
Continuing directors whose terms of office do not expire until 1999 or
2000 are:
Robert A. Davidow
Stuart Krieger
Ben Winters
(c) At the meeting, the bonus plan for Bernard Briskin was approved by the
following votes:
<TABLE>
<CAPTION>
Class A Stock Class B Stock
------------- -------------
<S> <C> <C>
For 476,645 3,408,050
Against 7,592 90
Abstain 5,126 3,000
</TABLE>
14
<PAGE>
PART II. OTHER INFORMATION, Continued
An amendment to the Restated Certificate of Incorporation increasing the
number of authorized shares of Class A Common Stock from 5,000,000 to
10,000,000 and the Class B Common Stock from 500,000 to 1,500,000 shares
was approved by the following vote:
<TABLE>
<CAPTION>
Class A Stock Class B Stock
------------- --------------
<S> <C> <C>
For 482,767 3,411,140
Against 5,402 0
Abstain 1,194 0
</TABLE>
The selection of PricewaterhouseCoopers LLP independent public
accountants, to audit the books, records and accounts of the Company and
its consolidated subsidiaries for the 1998 fiscal year was approved by
the following vote:
<TABLE>
<CAPTION>
Class A Stock Class B Stock
------------- --------------
<S> <C> <C>
For 487,232 3,411,140
Against 1,251 0
Abstain 879 0
</TABLE>
There were no broker non-votes.
ITEM 5. OTHER INFORMATION
If a stockholder wishes to submit a proposal for consideration at the
Company's 1999 Annual Meeting of Stockholders and have the proposal set forth
in the Proxy Statement and form of Proxy for such meeting in accordance with
Rule 14a-8 of the Securities and Exchange Commission, such proposal should be
directed to and received by the Assistant Secretary of the Company by January
19, 1999. If a stockholder proposal is otherwise presented at the Company's
1999 Annual Meeting of Stockholders, proxies solicited by the Company for
such Annual Meeting will confer upon the proxy holders discretionary
authority to vote on any matter so presented at the meeting of which the
Company did not have notice prior to April 4, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedules
15
<PAGE>
PART II. OTHER INFORMATION, Continued
(b) Reports on Form 8-K:
1. The Company filed a Form 8-K on April 24, 1998. The Form 8-K
reported under Item 5 "Other Events," a press release issued by the
Company on April 23, 1998 stating that the Company received from
the Nasdaq Stock Market an extension of time within which the Class
A Common Stock of the Company must meet the new public float
requirement for continued listing on the Nasdaq National Market
System.
2. The Company filed a Form 8-K on June 22, 1998. The Form 8-K
reported under Item 5 "Other Events," a press release issued by the
Company on June 17, 1998 (1) stating that, on such date, the
Company's Board of Directors authorized a four-for-one stock split
of each of the Company's Class A Common Stock and Class B Common
Stock through the declaration of a stock dividend of three shares
of Class A Common Stock for each share of Class A Common Stock, and
three shares of Class B Common Stock for each share of Class B
Common Stock, held by the stockholders of record at the close of
business on June 29, 1998 and (2) reporting the results of the vote
on the proposals considered at the Annual Meeting of Stockholders
held on June 17, 1998.
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 17, 1998 ERNEST T. KLINGER
----------------------- -------------------------------------------
Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
(Authorized Signatory)
16
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
- -------
<C> <S>
27. Financial Data Schedules.
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> APR-05-1998
<PERIOD-END> JUL-04-1998
<CASH> 12,838
<SECURITIES> 16,219
<RECEIVABLES> 6,831
<ALLOWANCES> 587
<INVENTORY> 10,208
<CURRENT-ASSETS> 46,630
<PP&E> 70,011
<DEPRECIATION> 31,602
<TOTAL-ASSETS> 89,021
<CURRENT-LIABILITIES> 24,747
<BONDS> 6,984
0
0
<COMMON> 1,236
<OTHER-SE> 51,819
<TOTAL-LIABILITY-AND-EQUITY> 89,021
<SALES> 143,156
<TOTAL-REVENUES> 143,156
<CGS> 85,334
<TOTAL-COSTS> 85,334
<OTHER-EXPENSES> 50,525
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 390
<INCOME-PRETAX> 7,438
<INCOME-TAX> 2,961
<INCOME-CONTINUING> 4,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,477
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
<PAGE>
Arden Group, Inc.
August 17, 1998
United States Securities & Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Reference: Form 10-Q
File Number 0-9904
Ladies and Gentlemen:
Enclosed is the Arden Group, Inc. Form 10-Q for the Second
Quarter ended July 4, 1998.
Very truly yours,
ARDEN GROUP, INC.
ERNEST T. KLINGER
Ernest T. Klinger
Chief Financial Officer
Vice President Finance
and Administration
/sls
Enclosure
Post Office Box 512256, Los Angeles, California 90051-0256, (310) 638-2842
2020 South Central Avenue, Compton, California 90220, FAX: (310) 631-0950
