<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 October 3, 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
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 October 3, 1998 was:
2,216,488 of Class A common stock
1,368,984 of Class B common stock
This report contains a total of 17 pages including exhibits.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-----------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands)
- - ----------------------------------------------------------------------------------------------------------------------------
October 3, 1998 January 3, 1998
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash $ 12,043 $ 7,099
Marketable securities 19,081 15,623
Accounts and notes receivable, net 6,320 6,310
Inventories 10,263 11,552
Other current assets 2,254 1,626
---------- ----------
Total current assets 49,961 42,210
Property for resale or sublease 1,343 4,051
Property, plant and equipment, at cost, less accumulated depreciation
and amortization of $32,643 and $29,879, respectively 38,190 39,163
Other assets 2,678 2,702
---------- ----------
Total assets $ 92,172 $ 88,126
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade $ 12,119 $ 14,434
Other current liabilities 12,621 12,409
Current portion of long-term debt 1,318 1,469
---------- ----------
Total current liabilities 26,058 28,312
Long-term debt 6,653 7,663
Deferred income taxes 2,429 2,430
Other liabilities 1,299 1,461
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Total liabilities 36,439 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 558 416
Retained earnings 54,081 46,750
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59,486 52,013
Less, treasury stock, at cost 3,753 3,753
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Total stockholders' equity 55,733 48,260
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Total liabilities and stockholders' equity $ 92,172 $ 88,126
---------- ----------
---------- ----------
</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 Thirty-Nine Weeks Ended
-------------------- -----------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 74,120 $ 65,897 $ 217,276 $ 196,218
Cost of sales 43,746 39,452 129,080 117,885
--------- --------- --------- ---------
Gross profit 30,374 26,445 88,196 78,333
Delivery, selling, general and administrative expenses 25,767 22,903 76,338 68,718
--------- --------- --------- ---------
Operating income 4,607 3,542 11,858 9,615
Interest and dividend income 327 409 919 1,180
Other income (expense), net 10 105 (5) 294
Interest expense (182) (188) (572) (525)
--------- --------- --------- ---------
Income from continuing operations, before income taxes 4,762 3,868 12,200 10,564
Income tax provision 1,908 1,519 4,869 4,138
--------- --------- --------- ---------
Income from continuing operations, net of income taxes 2,854 2,349 7,331 6,426
Loss from discontinued operations, net of income
tax benefits of $1,602 (2,738)
--------- --------- --------- ---------
Net income $ 2,854 $ 2,349 $ 7,331 $ 3,688
--------- --------- --------- ---------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains (losses) arising during the period (176) 419 76 690
Reclassification adjustment for gains (losses) included
in net income 66 (80)
--------- --------- --------- ---------
Net unrealized gain (loss), net of income tax expense (benefits)
of $(110) and $103 for 1998 and $281 and $406 for 1997,
respectively (176) 419 142 610
--------- --------- --------- ---------
Comprehensive income $ 2,678 $ 2,768 $ 7,473 $ 4,298
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic net income per common share:
Income from continuing operations $ .80 $ .57 $ 2.04 $ 1.48
Loss from discontinued operations (.63)
--------- --------- --------- ---------
Net income $ .80 $ .57 $ 2.04 $ .85
--------- --------- --------- ---------
Weighted average common shares outstanding 3,585,472 4,108,842 3,585,472 4,326,913
--------- --------- --------- ---------
--------- --------- --------- ---------
</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)
- - ------------------------------------------------------------------------------------------------------------------------
Thirty-Nine Weeks Ended
--------------------------------------
October 3, 1998 September 27, 1997
---------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 217,439 $ 196,888
Cash paid to suppliers and employees (203,545) (182,853)
Sales/(purchases) of trading securities, net 8,746
Interest and dividends received 907 1,307
Interest paid (585) (551)
Income taxes paid (4,837) (2,897)
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Net cash provided by operating activities 9,379 20,640
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Cash flows from investing activities:
Capital expenditures (3,239) (2,995)
Transfer to discontinued operations (2,575)
Purchases of available-for-sale securities (3,463) (2,957)
Sales of available-for-sale securities 250 1,380
Proceeds from the sale of property, plant and
equipment 3,163 218
Payments received on notes from the sale of
property, plant and equipment 53
---------- -----------
Net cash used in investing activities (3,289) (6,876)
---------- -----------
Cash flows from financing activities:
Principal payments on long-term debt (953) (560)
Principal payments under capital lease obligations (170) (152)
Loan payments received from officer/director 74
Purchase of Company debentures (23)
Purchase and retirement of stock (13,966)
---------- -----------
Net cash used in financing activities (1,146) (14,604)
---------- -----------
Net increase (decrease) in cash 4,944 (840)
Cash at beginning of year 7,099 5,473
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Cash at end of quarter $ 12,043 $ 4,633
---------- -----------
</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)
- - ------------------------------------------------------------------------------------------------------------------------
Thirty-Nine Weeks Ended
--------------------------------------
October 3, 1998 September 27, 1997
- - -------------------------------------------------------------------------------------------------- -------------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net income $ 7,331 $ 3,688
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss from discontinued operations 2,738
Depreciation and amortization 4,221 3,739
Unrealized (gain) loss on trading securities (76)
Provision for losses on accounts and
notes receivable 69 76
Deferred income taxes (105) 352
Net gain from the disposal of property, plant
and equipment (459) (89)
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 8,741
Accounts and notes receivable (56) 1,461
Inventories 1,289 1,048
Other current assets (628) 145
Other assets (17) 121
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses (2,103) (251)
Other liabilities (162) (832)
---------- ----------
Net cash provided by operating activities $ 9,379 $ 20,640
---------- ----------
</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 quarter and
nine months ended October 3, 1998 and September 27, 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 quarter and nine
months ended October 3, 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 related to the 1993 sale 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
Third Quarter Analysis
During the third quarter of 1998, the Company had net income of $2,854,000
compared to net income of $2,349,000 during the third quarter of 1997. Pretax
income from continuing operations was $4,762,000 for the third quarter of 1998
compared to $3,868,000 for the third quarter of 1997.
During the third quarter of 1998, the Company's operating income was $4,607,000
compared to operating income of $3,542,000 during the third quarter of 1997.
Sales from the Company's 13 supermarkets in the greater Los Angeles area (12 of
which were operating in the third quarter of 1997) were $74,120,000 in the third
quarter of 1998, an increase of 12.5% from the third quarter of 1997, when sales
were $65,897,000. Same store sales increased 8.7% in 1998 compared to the prior
year. Sales associated with the Jewish holidays, Rosh Hashanah and Yom Kippur,
occurred in the third quarter of 1998 versus the fourth quarter of 1997. This is
partially offset by the 4th of July sales which are reflected in the third
quarter of 1997, but occurred in the second quarter of 1998. In addition to the
above, the increase in sales is due to a number of other 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 original projections. Sales
at Northridge are expected to improve as additional tenants occupy the center's
vacant space and shopping center construction is completed, 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 occupancy of the other tenant
spaces, the timing and completion of shopping center construction, 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 41.0% in the third quarter of 1998 compared to 40.1% 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 as a percentage
of sales were 34.8% in the third quarter of 1998 and 1997. In April 1998, the
Company began paying a monthly union pension contribution of $250,000. The
contribution was suspended in September, but could be reinstated in 1999. In
addition, DSG&A is higher due to 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 third quarter of 1998, also reflects a $150,000 credit to
reverse most of a $200,000 reserve set up in the prior quarter to record a
proposed settlement agreement against the Company for the remediation of
hazardous substances allegedly existing on previously leased
9
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
property. As part of the final settlement, various third parties have reimbursed
the Company for all but approximately $50,000 of the settlement costs incurred.
The Company does not anticipate that any future costs relating to this property
will be incurred.
Interest and dividend income was $327,000 in the third quarter of 1998 compared
to $409,000 for the same period in 1997. The decrease is due to interest bearing
investments being at lower average levels in 1998 compared to 1997 and interest
of $65,000 received in 1997 on a federal income tax refund as the result of the
Company filing an amended 1993 corporate income tax return.
Interest expense was $182,000 in the third quarter of 1998 compared to $188,000
in the third quarter of 1997. For 1997, expense includes interest on temporary
borrowings to finance the purchase of 212,619 shares (before the stock split) of
the Company's Class A common stock. This is partially offset in the third
quarter of 1998 as interest expense increased due to higher average levels of
fixture financing debt.
Other income (expense) includes unrealized gains on investments in trading
securities of $0 and $136,000 in the third 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 $176,000 (net of
income tax benefits of $110,000) compared to an unrealized gain of $419,000 (net
of income tax expense of $281,000) in the third 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 increased income from continuing
operations for the quarter, 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.
Year-To-Date Analysis
During the first nine months of 1998, the Company had net income of $7,331,000
compared to net income of $3,688,000 during the first nine months of 1997.
Pretax income from continuing operations was $12,200,000 for the first nine
months of 1998 compared to $10,564,000 for the first nine months of 1997.
During the first nine months of 1998, the Company's operating income was
$11,858,000 compared to operating income of $9,615,000 during the first nine
months of 1997.
Sales from the Company's 13 supermarkets in the greater Los Angeles area (12 of
which were operating in the first nine months of 1997) were $217,276,000 in the
first nine months of 1998, an increase of 10.7% from the first nine months of
1997, when sales were $196,218,000. Same store sales increased 7.3% for
10
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
the first nine months in 1998 compared to the prior year. Sales associated with
the Jewish holidays, Rosh Hashanah and Yom Kippur, occurred in the first nine
months of 1998 versus the fourth quarter of 1997. In addition to the above, the
increase in sales is due to a number of other 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 original projections. Sales at
Northridge are expected to improve as additional tenants occupy the center's
vacant space and shopping center construction is completed, 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 occupancy of the other tenant
spaces, the timing and completion of shopping center construction, 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 first nine months of 1998 compared to 39.9% 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 as a percentage of sales were 35.1% in the first nine months of
1998 compared to 35.0% in the first nine 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 $250,000 which was not in effect in 1997.
The contribution was suspended again in September, but could be reinstated in
1999. In addition, DSG&A is higher due to 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.
Interest and dividend income was $919,000 in the first nine months of 1998
compared to $1,180,000 for the same period in 1997. The decrease is due to
interest bearing investments being at lower average levels in 1998 compared to
1997 and interest of $65,000 received in 1997 on a federal income tax refund as
the result of the Company filing an amended 1993 corporate income tax return.
Interest expense was $572,000 in the first nine months of 1998 compared to
$525,000 in the first nine 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 $226,000 in the first nine 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 $142,000 (net of
income tax expense of $103,000) compared to an unrealized gain of $610,000 (net
of income tax expense of $406,000) in the first nine 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 October 3, 1998, the outstanding borrowed balance
on the line was $3,317,000.
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 October
3, 1998.
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.
Year 2000 Issue
The Year 2000 ("Y2K") readiness issue arises from the inability of information
systems, and other time and date sensitive products, equipment and systems, to
properly recognize and process date-sensitive information resulting in system
failures or miscalculations. The Company has made an assessment of the impact of
the Y2K issue on its internal operations and has developed a plan to minimize
any potential business interruption. The plan categorizes the key areas affected
by the Y2K issue as follows: information technology ("IT") systems, non-IT
systems, vendors and customers.
The Company's review of its IT systems (hardware and software) indicates the
need for modification, and in some cases, replacement of applications and
operating systems. The Company plans to have all critical IT systems in
compliance and partially tested by the end of the 1998 fiscal year. Additional
testing will be continued through the first half of 1999.
The Y2K issue could have an impact on personal property that is not directly
connected with its computer systems, such as physical facilities including point
of sale and other store equipment, security systems and utilities. Although
these issues are more difficult to identify and resolve, the Company is actively
identifying the areas concerning its products and services as well as its
physical locations. As these areas are identified, management is formulating the
necessary actions to ensure minimal disruption to its business processes.
12
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
The Company is also assessing the Y2K readiness of its key suppliers and
business partners in an effort to ensure the adequacy of product, supplies and
resources. This includes a review of and direct communication with all product
vendors and key suppliers. Completion of this part of the Y2K readiness plan is
scheduled to be finalized in the early part of 1999.
The Company has determined, that due to the nature of its business, the
readiness of its customers is not within its control. Third party readiness
(financial institutions) may affect the customers' ability to purchase the
Company's products. The Company is not investigating this issue and the impact
is highly uncertain.
Costs incurred to date in addressing the Y2K issue have not been significant and
are being funded through operating cash flows. Based on current information,
costs to make the applicable adjustments and test the Company's IT systems are
not expected to be material to the Company's consolidated financial position and
results of operations. Some of the equipment and other personal property that
the Company is currently replacing in the normal course of business may be part
of the Y2K analysis and although management does not believe the costs
associated with bringing the non-IT systems and equipment into compliance will
have a material negative impact on the consolidated financial position and
results of operations, it will not have a final assessment of these costs until
the early part of 1999.
The foregoing statement relative to the Y2K issue 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 Y2K problems they may have.
13
<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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 15, 1998 the Company effectuated a four-for-one stock split of each
class of its common stock in the form of a stock dividend to holders of record
on June 29, 1998. Stockholders received three additional shares of Class A
common stock for each share of Class A common stock held and three additional
shares of Class B common stock for each share of Class B common stock held.
Exclusive of treasury shares, an aggregate of 1,662,366 shares of Class A common
stock and 1,026,738 shares of Class B common stock were distributed on July 15,
1998 to holders of record on June 29, 1998. These shares of Class A common stock
and Class B common stock were issued in a transaction not involving a "sale",
and therefore, the issuance thereof was not required to be registered under the
Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedules
(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 November 17, 1998 ERNEST T. KLINGER
------------------------- ---------------------------------
Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
(Authorized Signatory)
15
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ARDEN GROUP, INC.
and consolidated subsidiary
INDEX TO EXHIBITS
-----------------
Exhibit
- - -------
27. Financial Data Schedules.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JUL-05-1998
<PERIOD-END> OCT-03-1998
<CASH> 12,043
<SECURITIES> 19,081
<RECEIVABLES> 6,899
<ALLOWANCES> 579
<INVENTORY> 10,263
<CURRENT-ASSETS> 49,961
<PP&E> 70,833
<DEPRECIATION> 32,643
<TOTAL-ASSETS> 92,172
<CURRENT-LIABILITIES> 26,058
<BONDS> 6,653
0
0
<COMMON> 1,236
<OTHER-SE> 54,497
<TOTAL-LIABILITY-AND-EQUITY> 92,172
<SALES> 217,276
<TOTAL-REVENUES> 217,276
<CGS> 129,080
<TOTAL-COSTS> 129,080
<OTHER-EXPENSES> 76,269
<LOSS-PROVISION> 69
<INTEREST-EXPENSE> 572
<INCOME-PRETAX> 12,200
<INCOME-TAX> 4,869
<INCOME-CONTINUING> 7,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,331
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
</TABLE>
