<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1998
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 April 4, 1998 was:
554,134 of Class A common stock
342,246 of Class B common stock
This report contains a total of 12 pages including exhibits.
1
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PART I. FINANCIAL INFORMATION
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
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BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------------------
ASSETS April 4, 1998 January 3, 1998
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<S> <C> <C>
Current assets:
Cash $ 8,969 $ 7,099
Marketable securities 15,930 15,623
Accounts and notes receivable, net 7,408 6,310
Inventories 10,909 11,552
Other current assets 1,370 1,626
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Total current assets 44,586 42,210
Property for resale or sublease 1,371 4,051
Property, plant and equipment, at cost,
less accumulated depreciation and
amortization of $30,981 and $29,879, respectively 38,756 39,163
Other assets 2,600 2,702
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Total assets $87,313 $88,126
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable, trade $10,868 $14,434
Other current liabilities 12,798 12,409
Current portion of long-term debt 1,408 1,469
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Total current liabilities 25,074 28,312
Long-term debt 7,338 7,663
Deferred income taxes 2,538 2,430
Other liabilities 1,441 1,461
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Total liabilities 36,391 39,866
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Commitments and contingent liabilities
Stockholders' equity:
Common stock, Class A 223 223
Common stock, Class B 86 86
Capital surplus 4,793 4,793
Notes receivable from officer/director (255) (255)
Unrealized gain on available-for-sale securities 740 416
Retained earnings 49,088 46,750
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54,675 52,013
Less, treasury stock, at cost 3,753 3,753
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Total stockholders' equity 50,922 48,260
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Total liabilities and stockholders' equity $87,313 $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
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STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
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THIRTEEN WEEKS ENDED
April 4, 1998 March 29, 1997
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<S> <C> <C>
Sales $70,294 $64,961
Cost of sales 42,080 39,414
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Gross profit 28,214 25,547
Delivery, selling, general and administrative expenses 24,249 22,815
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Operating income 3,965 2,732
Interest and dividend income 245 375
Other income (expense), net (125) (5)
Interest expense (201) (172)
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Income from continuing operations, before income taxes 3,884 2,930
Income tax provision 1,546 1,145
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Income from continuing operations, net of income taxes 2,338 1,785
Loss from discontinued operations, net of income
tax benefits of $1,577 (2,695)
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Net income (loss) $2,338 $(910)
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Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains (losses) arising during the period 258 (78)
Reclassification adjustment for (gains) losses included
in net income (loss) 66 (80)
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Net unrealized gain (loss), net of income tax expense (benefits)
of $216 and ($105), respectively 324 (158)
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Comprehensive income (loss) $2,662 $(1,068)
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Basic net income (loss) per common share:
Income from continuing operations $2.61 $1.61
Loss from discontinued operations (2.43)
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Net income (loss) $2.61 $ (.82)
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Weighted average common shares outstanding 896,380 1,108,999
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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
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STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands)
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THIRTEEN WEEKS ENDED
April 4, 1998 March 29, 1997
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $71,317 $65,440
Cash paid to suppliers and employees (68,596) (62,018)
Purchases/sales of trading securities, net (1,211)
Interest and dividends received 248 392
Interest paid (217) (151)
Income taxes refunded 14 5
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Net cash provided by operating activities 2,766 2,457
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Cash flows from investing activities:
Capital expenditures (682) (784)
Transfer to discontinued operations (207)
Purchases of available-for-sale securities (134) (2,636)
Sales of available-for-sale securities 250 1,380
Proceeds from the sale of property, plant and
equipment 56 146
Payments received on notes from the sale of
property, plant and equipment 56
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Net cash used in investing activities (510) (2,045)
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Cash flows from financing activities:
Principal payments on long-term debt (330) (175)
Principal payments under capital lease obligations (56) (50)
Loan payments from officer/director 74
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Net cash used in financing activities (386) (151)
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Net increase in cash $ 1,870 $ 261
Cash at beginning of year 7,099 5,473
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Cash at end of year $ 8,969 $ 5,734
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</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)
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THIRTEEN WEEKS ENDED
April 4, 1998 March 29, 1997
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RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $2,338 $ (910)
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss from discontinued operations 2,695
Depreciation and amortization 1,418 1,233
Unrealized loss on trading securities 201
Provision for losses on accounts and
notes receivable 23 30
Deferred income taxes (108) (361)
Net gain from the disposal of property, plant
and equipment (451) (58)
Realized loss (gains) on marketable securities, net 117 (221)
Change in assets and liabilities net of effects from
investment and financing activities:
(Increase) decrease in assets:
Marketable securities (1,198)
Accounts and notes receivable 1,641 1,732
Inventories 643 938
Other current assets 256 (46)
Other assets 86 200
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses (3,177) (1,524)
Other liabilities (20) (254)
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Net cash provided by operating activities $2,766 $2,457
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</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
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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 months
ended April 4, 1998 and March 29, 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 months ended
April 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.
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.
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
In June 1997, the 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 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.
7
<PAGE>
PART I. FINANCIAL INFORMATION, Continued
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 1998, the Company had net income of $2,338,000
compared to net loss of ($910,000) during the first quarter of 1997. Pretax
income from continuing operations was $3,884,000 for the first quarter of 1998
compared to $2,930,000 for the first quarter of 1997.
During the first quarter of 1998, the Company's operating income was $3,965,000
compared to operating income of $2,732,000 during the first quarter of 1997.
Sales from the Company's 13 supermarkets in the greater Los Angeles area (12 of
which were operating in the first quarter of 1997) were $70,294,000 in the first
quarter of 1998, an increase of 8.2% from the first quarter of 1997, when sales
were $64,961,000. Same store sales increased 5.2% in 1998 compared to the prior
year. Sales associated with Easter occurred in the second quarter of 1998
versus the first 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, the sales of which are significantly 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 full
occupancy of the center 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 40.1% in the first quarter of 1998 compared to 39.3% in the same period of
1997. Added controls over product costs 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 34.5% in the first quarter of 1998
compared to 35.1% the first quarter of 1997. Included in DSG&A in 1998 is a
$437,000 gain on the sale of the Company's Santa Barbara property.
Interest and dividend income was $245,000 in the first quarter of 1998 compared
to $375,000 for the same period in 1997 primarily due to lower average levels of
interest bearing investments in 1998 compared to 1997.
Interest expense was $201,000 in the first quarter of 1998 compared to $172,000
in the first quarter of 1997 due to higher average levels of fixture financing
debt.
8
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PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
Other income (expense) includes gains (losses) on the sale of marketable
securities of ($117,000) and $208,000 in the first quarters of 1998 and 1997,
respectively.
Statement of Financial Accounting Standards 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
$324,000 (net of income tax expense of $216,000) compared to an unrealized loss
of $158,000 (net of income tax benefits of $105,000) in the first quarter of
1997.
Basic net income per share from continuing operations increased due to increased
income from continuing operations for the period, as well as from a reduction in
the weighted average shares outstanding due to the purchase of 212,619 shares 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. At the end of the first quarter of 1998, the
outstanding borrowed balance on the line was $3,842,000.
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 April
4, 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 1996, the Company entered into an option to
lease on a long-term basis a property on which a new Gelson's market would be
built, the development and opening of which is subject to, among other things,
the Company's due diligence, receipt of necessary governmental approvals and the
developer fulfilling certain conditions.
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.
9
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PART II. OTHER INFORMATION
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.
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Registrant
Date May 18, 1998 ERNEST T. KLINGER
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Ernest T. Klinger
Vice President Finance and Administration
and Chief Financial Officer
(Authorized Signatory)
10
<PAGE>
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
-----------------
Exhibit
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27. Financial Data Schedules.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 8,969
<SECURITIES> 15,930
<RECEIVABLES> 8,018
<ALLOWANCES> 610
<INVENTORY> 10,909
<CURRENT-ASSETS> 44,586
<PP&E> 69,737
<DEPRECIATION> 30,981
<TOTAL-ASSETS> 87,313
<CURRENT-LIABILITIES> 25,074
<BONDS> 7,338
0
0
<COMMON> 309
<OTHER-SE> 50,613
<TOTAL-LIABILITY-AND-EQUITY> 87,313
<SALES> 70,294
<TOTAL-REVENUES> 70,294
<CGS> 42,080
<TOTAL-COSTS> 42,080
<OTHER-EXPENSES> 24,226
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> 3,884
<INCOME-TAX> 1,546
<INCOME-CONTINUING> 2,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,338
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.61
</TABLE>
