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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended JANUARY 1, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to ___________
Commission file number 0-9904
ARDEN GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-3163136
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2020 SOUTH CENTRAL AVENUE, COMPTON, CALIFORNIA 90220
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 638-2842
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK
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(Title of class)
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 such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock on March 1, 2000 was:
Class A Common Stock $54,328,032
The number of shares outstanding of the registrant's classes of common stock as
of March 1, 2000 was:
2,216,488 of Class A Common Stock
1,368,984 of Class B Common Stock
<PAGE>
PART I
ITEM 1. BUSINESS;
ITEM 2. PROPERTIES; AND
ITEM 3. LEGAL PROCEEDINGS
GENERAL
The Registrant, Arden Group, Inc. (the "Company"), is a holding company with
certain real estate holdings which conducts other operations through its
wholly-owned subsidiary, Arden-Mayfair, Inc. ("Arden-Mayfair"). Arden-Mayfair's
wholly-owned subsidiary, Gelson's Markets ("Gelson's"), operates supermarkets in
the Southern California area. Another wholly-owned subsidiary of Arden-Mayfair,
AMG Holdings, Inc. ("AMG Holdings") formerly Telautograph Corporation,
distributed and serviced facsimile and other communications equipment and parts
prior to the sale of its operating assets and liabilities in 1993. See Note 15
of Notes to Consolidated Financial Statements.
Arden Group, Inc. is headquartered at 2020 South Central Avenue, Compton,
California 90220 and its telephone number is (310) 638-2842.
BUSINESS AND PROPERTIES
MARKET OPERATIONS
Gelson's currently operates 15 supermarkets in the Southern California area; 13
under the name "Gelson's" and two under the name "Mayfair." Gelson's and Mayfair
are self-service cash-and-carry markets and offer a broad selection of local and
national brands as well as a limited number of private label items. The Gelson's
supermarkets target the consumer who values superior customer service,
merchandise presentation, selection and quality products.
STORE FORMATS AND BUSINESS STRATEGY
Gelson's business strategy is to offer a comfortable shopping experience which
is superior to its competitors in terms of customer service and merchandise
selection and presentation. The goal of this strategy is to continue to develop
and maintain Gelson's loyal base of customers. Central elements of this strategy
are as follows:
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MERCHANDISE The merchandise offerings in the markets are tailored in response to
Gelson's customer profile. Gelson's stores, which range in size from
approximately 18,000 to 40,000 square feet, typically carry a wide range of
items, including all of the traditional grocery categories such as produce, dry
groceries, meats, seafood, bakery, dairy, wine and liquor, floral, sushi,
vitamins, health and natural food products and health and beauty aids. Gelson's
perishables are premium products, which are rigorously maintained and culled as
appropriate to assure quality and freshness. Gelson's merchandising emphasizes
specialty items such as imported foods and unusual delicatessen items, and items
found in service departments such as seafood, sit-down coffee areas, bakeries
and service deli. The two Mayfair stores are approximately 25,000 square feet in
size and offer a merchandise selection equal in quality to a Gelson's but
generally less broad.
SERVICE Gelson's emphasizes customer service by offering a variety of service
departments including seafood, delicatessen, floral, sushi and bakery
departments. Some Gelson's stores include additional service departments such as
fresh pizza and pasta preparation and coffee bars. Additionally, selected stores
offer banking and pharmacy services through third parties. Stores are staffed so
that, even at peak times, customer checkout time is minimized. In addition to
checkers, there are personnel assigned to bagging and carrying out purchases.
All employees are encouraged to know customers by name and assist them whenever
possible. All stores offer Company credit cards to qualified customers as well
as allowing customers the option of paying for their purchases with cash, checks
or credit and debit cards. Stores are typically open 14 to 17 hours per day,
with hours of operation determined by local code or lease provisions, or as
appropriate for the business characteristics of a specific area.
PRESENTATION All stores are maintained in accordance with extremely high
standards. Personnel continuously fill and face shelves with groceries. Produce
and other perishables are aggressively trimmed and culled to maintain quality
and appearance.
PRICING The pricing strategy at the stores is to be competitive within their
market niches, ranging from the more traditional to the more exotic, specialty
or high-end retailers.
EXPANSION AND STORE DEVELOPMENT Management regularly evaluates the feasibility
of opening new stores and remodeling existing stores in order to maximize the
existing stores' appeal to consumers and their profit potential. In 1999, the
Company opened two new stores, converted an existing Mayfair to the Gelson's
format and completed two major remodels. Total capital expenditures in 1999 were
approximately $19,630,000. The Company has entered into agreements to open three
new stores and anticipates opening one of these stores in 2000 and the remaining
two stores in subsequent years. The development and actual opening of new
locations is subject to, among other things, necessary governmental approvals
and the developers fulfilling certain conditions. See "Properties."
ADVERTISING AND PROMOTION Gelson's advertises in newspapers on a limited basis.
Direct advertising is limited (primarily newsletters and direct mail) and is
typically "event" rather than "price" oriented; emphasizing, for example,
special holiday selections, specialty items and services, recipes and new
products.
2
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COMPETITION
The retail grocery business is very competitive nationwide. It is especially
intense in the Southern California area. Competition in the supermarket business
is based primarily upon price, merchandise variety and quality, service and
location. The number of stores, market share and availability of capital are
also important competitive factors. Gelson's is in direct competition with
numerous local outlets of regional and national supermarket chains (most of
which have greater resources and a larger market share than Gelson's),
independent grocery stores, convenience stores, specialty and gourmet markets
and food departments in mass merchandise stores and club stores. Competition
also exists from many other types of retailers with respect to particular
products. Stores compete primarily by offering a combination of high-quality
products and superior customer service. The Company also believes that Gelson's
prime store locations and long-standing reputation add to its competitive
strength.
SEASONALITY
Gelson's business is somewhat seasonal, with sales tending to increase during
the last quarter of the year because of the holiday season.
SUPPORT AND OTHER SERVICES
Each store has an on-site stockroom, the size of which varies for each store. In
addition, Gelson's operates an 89,000 square foot warehouse and an adjacent
4,000 square foot truck service facility in the City of Commerce, California.
The warehouse distributes fresh fruits and vegetables, liquor, wine, floral and
a limited number of grocery, meat, delicatessen, paper goods and supply items to
the stores.
The bulk of all merchandise purchasing is accomplished through Gelson's office
in Encino, California. Approximately one-third of the purchases are distributed
through the central warehouse; the remainder are delivered directly to the
stores from manufacturers or wholesalers. The central purchasing and
distribution operations are conducted based on electronic in-store ordering
systems. Stores place orders for merchandise an average of five times per week,
with perishable goods ordered more frequently.
The largest supplier for the stores is Unified Western Grocers (formerly
Certified Grocers), a cooperative wholesaler which has been a supplier for
approximately twenty-five years and which accounted for approximately 22% of
Gelson's purchases in 1999. No other supplier accounts for a material percentage
of Gelson's purchases. The Company believes that the negative impact of the loss
of Unified Western Grocers as a supplier for Gelson's likely would be mitigated
by a combination of events, which could include: (i) purchasing certain items
for direct store delivery, thereby freeing warehouse capacity to allow other
items to be purchased through the warehouse, and (ii) purchasing certain
products through other wholesalers. However, such a loss could have a short-term
adverse effect on the performance of Gelson's.
3
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EMPLOYEES
Gelson's has approximately 1,050 full-time and 1,057 part-time employees. Most
store level and warehouse employees of Gelson's are covered by collective
bargaining agreements that require union membership and establish rates of pay,
hours of work, working conditions and procedures for the orderly settlement of
disputes. In general, these agreements have been negotiated on an area-wide and
industry-wide basis. The Company believes that its employee relations are good.
In addition, Arden-Mayfair has approximately 63 full-time employees at its
executive and headquarters offices, some of whom are covered by a collective
bargaining agreement.
PROPERTIES
The Company currently owns two of its freestanding supermarket properties and a
shopping center in which a Gelson's Market is located. The shopping center owned
by the Company, located in Calabasas, California, consists of approximately
18,000 square feet of space leased to twelve tenants in addition to the
approximately 40,000 square foot Gelson's Market. Twelve supermarkets and the
warehouse and distribution facilities which service the markets are leased.
Supermarkets are leased for terms which may include options of up to 20 years
under leases which generally stipulate a minimum rental against a percentage of
gross sales. The average term remaining on the supermarket leases, including
renewal options, is approximately 18 years. The 15 markets range in size from
approximately 18,000 to approximately 40,000 square feet. Gelson's warehouse and
distribution facilities in the City of Commerce, California, are approximately
93,000 square feet and the term of the lease expires in September 2005.
In June 1999, the Company completed the acquisition of a leasehold interest in
an existing supermarket located in Sherman Oaks, California. The Company
extensively remodeled the store and opened a new Gelson's Market at this
location in August 1999.
In September 1999, the Company acquired another leasehold interest in an
existing store in Santa Barbara, California. After some minor remodeling work,
the store opened in late October 1999. The Company continues to perform
additional remodeling while the store is open for business.
The Company has entered into agreements to open stores in Irvine, Pasadena and
Beverly Hills, California. The Irvine store is expected to open in the latter
half of 2000, with the remaining stores beginning operations in subsequent
years. The development and actual openings of these markets are subject to,
among other things, necessary governmental approvals and the developers
fulfilling certain conditions.
The Company owns its 30,000 square foot corporate headquarters office building
in Compton, California. In addition, AMG Holdings leases a 64,000 square foot
building in Los Angeles consisting of office and warehouse space, which is
subleased until the lease on the property expires in 2012 (including renewal
options).
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GOVERNMENTAL REGULATION
Gelson's is subject to regulation by a variety of governmental agencies,
including the U.S. Food and Drug Administration, the California Department of
Alcoholic Beverage Control, and state and local health departments. The Company
believes that Gelson's and Mayfair store operations comply with all federal,
state and local health, environmental and other laws and regulations. Although
the Company cannot predict the effect of future laws or regulations on its
operations, expenditures for continued compliance with current laws are not
expected to have a material adverse effect on Gelson's competitive position or
the Company's consolidated financial position, results of operations or cash
flows.
LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are involved in a number of pending
legal and/or administrative proceedings. Such proceedings are not expected
individually or in the aggregate to have a material adverse impact upon either
the Company's consolidated financial position, results of operations or cash
flows. See Note 14 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Class A Common Stock ("Class A") is traded over-the-counter
in the NASDAQ National Market System. During the past two years, the range
of high and low sales prices (not including markups, markdowns or
commissions) for each quarterly period was, according to NASDAQ, the
following (restated to reflect a four-for-one stock split distributed in
July 1998):
<TABLE>
<CAPTION>
1999 1998
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HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
1st Quarter 42-3/4 39 37-1/4 23-11/16
2nd Quarter 43-7/8 38-7/8 43-3/4 35-13/16
3rd Quarter 43 37-5/8 60 27
4th Quarter 38-3/4 33 45 30-1/2
</TABLE>
There is no established public trading market for the Company's Class B
Common Stock ("Class B"), which is subject to various restrictions on
transfer.
(b) As of January 1, 2000, there were 1,308 holders of record of the Company's
Class A, with aggregate holdings of 2,216,488 shares of Class A. This does
not include 1,357,200 shares of the Company's Class A owned by AMG
Holdings. As of the same date, there were 13 holders of record of the
Company's Class B, with aggregate holdings of 1,368,984 shares of Class B.
(c) No dividends have been paid on either Class A or Class B during the past
three years. Cash or property dividends on Class B are restricted to an
amount equal to 90% of any dividend paid on Class A.
6
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Item 6. SELECTED FINANCIAL DATA OF ARDEN GROUP, INC.
<TABLE>
<CAPTION>
(In Thousands, Except Share and Per Share Data)
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
Operations For The Year:
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Sales $ 324,168 $ 296,487 $ 274,354 $ 252,019 $ 242,962
Gross profit 131,722 119,892 109,988 99,167 95,053
Operating income 16,830 16,010 12,861 5,922 8,212
Other income (expense), net 1,009 1,085 1,422 679 3,560
Income tax expense (6,122) (7,014) (5,586) (2,622) (4,661)
Income from continuing operations,
net of income taxes 11,717 10,081 8,697 3,979 7,111
Loss from discontinued operations,
net of income taxes (2,738) (456)
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Net income $ 11,717 $ 10,081 $ 5,959 $ 3,523 $ 7,111
========== ========== ========== ========= =========
Depreciation and amortization on
continuing operations $ 5,824 $ 5,618 $ 5,111 $ 4,686 $ 3,480
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Financial Position At Year End:
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Total assets $ 111,279 $ 93,126 $ 88,126 $ 91,248 $ 89,478
Working capital 24,677 25,747 13,898 23,142 28,706
Long-term debt 8,322 6,369 7,663 6,663 7,695
Stockholders' equity 69,276 58,358 48,260 55,737 53,827
Capital expenditures 19,630 4,244 7,896 12,841 10,731
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Per Share Data:
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Income from continuing operations $ 3.27 $ 2.81 $ 2.10 $ .89 $ 1.37
Loss from discontinued operations (.66) (.10)
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Net income $ 3.27 $ 2.81 $ 1.44 $ .79 $ 1.37
========== ========== ========== ========= =========
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Weighted average shares outstanding 3,585,472 3,585,472 4,131,060 4,460,860 5,195,960
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ALL YEARS ARE 52 WEEKS EXCEPT FOR 1997 WHICH IS 53 WEEKS.
</TABLE>
7
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company cautions readers that any forward-looking statements contained in
this Form 10-K or made by the management of the Company involve risks and
uncertainties, and are subject to change based on various important factors. The
following factors, among others, could affect the Company's financial results
and could cause the Company's financial performance to differ materially from
the expectations expressed in any forward-looking statement made by or on behalf
of the Company: the strength of the U.S. economy, economic conditions in
Southern California, the effects of and changes in fiscal policies and laws,
inflation, consolidations in the supermarket industry and competition from other
supermarkets and retailers with a food presentation.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
Net income in 1999 increased 16.2% to $11,717,000 compared to $10,081,000 during
1998. Operating income increased 5.1% to $16,830,000 in 1999 compared to
$16,010,000 in 1998.
Sales from the Company's 15 supermarkets (all of which are located in Southern
California) were $324,168,000 in 1999. This represents an increase of 9.3% over
1998, when sales were $296,487,000. Same store sales increased 5.9% in 1999
compared to the prior year. Sales continue to increase as the result of a more
robust economy in Southern California and the positive impact of store remodel
activity. In addition, the Company opened new stores in Sherman Oaks and Santa
Barbara, California in August and October 1999, respectively. The new stores
have generated positive consumer response and sales have met management's
projections. Finally, the Northridge store, which opened in November 1997,
continued to experience sales improvement in 1999.
The Company's gross profit as a percent of sales was relatively unchanged at
40.6% in 1999 compared to 40.4% in 1998. Delivery, selling, general and
administrative ("DSG&A") expenses as a percent of sales were 35.4% in 1999
compared to 35.0% in 1998. DSG&A expense increased as the result of preopening
expenses incurred in connection with the opening of the new Sherman Oaks and
Santa Barbara stores, as described above. In addition, the Company incurred
approximately $496,000 of expense in 1999 related to making the Company's
systems and equipment Year 2000 compliant. DSG&A activity in 1998 reflects a
$437,000 pretax gain on the sale of real property owned by the Company.
Interest and dividend income was $1,807,000 in 1999 compared to $1,453,000 for
1998 primarily due to higher average levels of interest bearing investments in
1999. In addition, the Company accrued $169,000 of interest income due on a
lease deposit for one of its stores.
Interest expense decreased to $694,000 in 1999 from $764,000 in 1998 primarily
due to lower average levels of fixture financing debt.
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Other income (expense) includes gains (losses) realized on investments in
marketable securities of ($74,000) and $408,000 in 1999 and 1998, respectively.
All marketable securities are defined as trading securities or
available-for-sale securities under the provisions of Statement of Financial
Accounting Standards No. ("SFAS") 115, "Accounting for Certain Investments in
Debt and Equity 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 securities and any unrealized holding gains
and losses are included as a separate component of stockholders' equity.
Unrealized losses on available-for-sale securities were $839,000 (net of income
tax benefits of $572,000) in 1999 compared to an unrealized loss of $23,000 (net
of income tax benefits of $9,000) in 1998.
During 1999, the California Franchise Tax Board withdrew tax assessments
which it had previously rendered against the Company. As a result, in 1999
the Company recognized a reduction in its tax reserve and an increase in net
income of approximately $1,286,000. For an analysis of the Company's
provision for income taxes, see Note 11 of Notes to Consolidated Financial
Statements.
Basic net income per share from continuing operations for 1998 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 year. See
Note 8 of Notes to Consolidated Financial Statements.
1998 COMPARED TO 1997
During 1998, the Company had net income of $10,081,000 compared to net income of
$5,959,000 during 1997. The Company's operating income was $16,010,000 compared
to operating income of $12,861,000 during 1997.
Sales from the Company's 13 supermarkets in the Southern California area were
$296,487,000 in 1998 (a 52-week fiscal year), an increase of 8.1% from 1997 (a
53-week fiscal year), when sales were $274,354,000. Same store sales for a
comparable 53-week period increased 7.2% in 1998 compared to the prior year. The
increase in sales was due to a number of factors including a more robust economy
in Southern California, the effect of product pricing decisions and the positive
impact of store remodel activity. Additionally, the Calabasas store, which
opened in February 1996, has experienced higher sales and lower expenses as a
percent of sales in 1998 compared to 1997. In November 1997, the Company opened
a Gelson's Market in Northridge, California, and although management is
encouraged by the sales improvement since the Northridge store opened, sales are
still below their original projections. Management expects sales to continue to
improve as new tenants are added and existing tenants in the shopping center
become more established. However, the occurrence of these events does not
guarantee that sales at the Northridge store will increase to originally
anticipated levels. The foregoing statements concerning the Northridge store are
forward-looking statements 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 tenants' spaces, the nature and success of the other
tenants' businesses, the timing and completion of the other tenants' storefronts
and competition from other supermarkets in the trade area.
9
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The Company's gross profit as a percent of sales was 40.4% in 1998 compared
to 40.1% in 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 expenses as a percent of sales
were 35.0% in 1998 compared to 35.4% for 1997. DSG&A activity in 1998 reflects
continued cost containment efforts and a $437,000 pretax gain recognized
on the sale of real property owned by the Company. The lower expense in 1998 was
partially offset by the reinstatement in April 1998 of an average monthly union
pension contribution of $275,000 which was not in effect in 1997. The
contribution was suspended again in September 1998. In addition, DSG&A was
higher in 1998 due to the opening of the Gelson's Market in Northridge,
California in November 1997, as described above.
Interest and dividend income was $1,453,000 in 1998 compared to $1,536,000 for
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 for a
federal income tax refund as a result of the Company filing an amended 1993
corporate income tax return.
Interest expense increased to $764,000 in 1998 from $702,000 in 1997 primarily
due to higher average levels of fixture financing debt.
Other income (expense) included gains (losses) realized on investments in
marketable securities of $408,000 and $605,000 in 1998 and 1997, respectively.
All marketable securities are defined as trading securities or
available-for-sale securities under the provisions of SFAS 115, "Accounting for
Certain Investments in Debt and Equity 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 securities and any unrealized holding gains
and losses are included as a separate component of stockholders' equity.
Unrealized losses on available-for-sale securities were $23,000 (net of income
tax benefits of $9,000) in 1998 compared to an unrealized gain of $416,000 (net
of income tax expense of $275,000) in 1997.
For an analysis of the Company's provision for income taxes, see Note 11 of
Notes to Consolidated Financial Statements.
The loss on discontinued operations in 1997 resulted from a decision in an
arbitration proceeding related to the sale in 1993 of the Company's
communication equipment business. See Note 15 of Notes to Consolidated Financial
Statements.
10
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Basic net income per share from continuing operations for 1998 and 1997 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 of Class A Common Stock (without giving
effect to the 1998 stock split) in August 1997. See Note 8 of Notes to
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an ongoing program to remodel existing supermarkets and to add
new stores. In 1999, the Company had capital expenditures of approximately
$19,630,000. As of January 1, 2000, authorized expenditures on incomplete
projects for the purchase of property, plant and equipment totaled approximately
$6,003,000. Of this total, approximately $4,551,000 has been contractually
committed.
In June 1999, the Company completed the acquisition of a leasehold interest in
an existing supermarket located in Sherman Oaks, California. The Company
extensively remodeled the store and opened a new Gelson's Market at this
location in August 1999.
In September 1999, the Company acquired another leasehold interest in an
existing store in Santa Barbara, California. After some minor remodeling work,
the store opened in late October 1999. The Company continues to perform
additional remodeling while the store is open for business.
The Company has entered into agreements to open stores in Irvine, Pasadena and
Beverly Hills, California. The Irvine store is expected to open in the latter
half of 2000, with the remaining stores beginning operations in subsequent
years. The development and actual openings of these markets are subject to,
among other things, necessary governmental approvals and the developers
fulfilling certain conditions.
The Company and its subsidiaries are subject to a myriad of environmental laws
and regulations regarding air, water and land use, and the use, storage and
disposal of hazardous materials. The Company believes it substantially complies,
and has in the past substantially complied, with federal, state and local
environmental laws and regulations. The Company cannot at this time estimate the
expense it ultimately may incur in connection with any current or future
violations, however, it believes any such claims will not have a material
adverse impact on either the Company's consolidated financial position, results
of operations or cash flows.
The Company has a credit facility with a bank establishing a revolving line of
credit in the amount of $9,000,000 with a standby letter of credit subfacility
in the amount of $5,000,000 and a $10,000,000 non-revolving line of credit
providing for term loans. In addition, the Company has a revolving line of
credit with another bank in the amount of $3,000,000. The Company borrowed
$2,750,000, $2,500,000 and $4,750,000 against the term loan line of credit on
December 30, 1995, December 30, 1997 and October 15, 1999, respectively, to
finance capital expenditures of which $6,642,000 was outstanding at
January 1, 2000. There were no outstanding balances against either of the
revolving lines as of January 1, 2000. The Company's current cash position
including marketable securities, the lines of credit and net cash provided by
operating activities (approximately $20,678,000 for 1999) are the primary
sources of funds
11
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available to meet the Company's current liquidity requirements. See Note 7 of
Notes to Consolidated Financial Statements for a description of the Company's
credit lines.
The Company's total liabilities to equity ratio increased to .61 at January 1,
2000 from .60 at January 2, 1999. The Company's current ratio was 1.79 at
January 1, 2000 compared to 2.01 at January 2, 1999. The Company's current
assets at the end of 1999 were approximately $4,489,000 more than at the end of
1998.
The Company's cash position, including marketable securities, at the end of 1999
was $36,067,000 compared to $33,171,000 at the end of 1998. Cash not required
for the immediate needs of the Company has been temporarily invested in
commercial paper and marketable securities. See Notes 1 and 2 of Notes to
Consolidated Financial Statements. The Company is actively investigating
opportunities for the use of these funds, primarily for the expansion of its
supermarket operations.
YEAR 2000 ISSUE
The Company modified its systems to be Year 2000 ("Y2K") compliant, and as a
result, has not experienced significant Y2K problems. Computer software and
hardware used by the Company were modified or replaced to ensure Y2K readiness.
The Company believes that its significant vendors and service providers are Y2K
compliant and has not, to date, been made aware that any significant vendors or
service providers have experienced Y2K disruptions in their systems.
Accordingly, the Company does not anticipate additional material expenses or
operational disruptions as a result of any Y2K issues.
As of January 1, 2000, the Company has spent a total of approximately $672,000
in connection with addressing the Y2K issue. These costs related primarily to
the use of internal staff and outside contractors to modify or replace existing
programs in order to achieve Y2K compliance. All costs were funded from
operating cash flow and, for the most part, were expensed as incurred.
Although unlikely, given that the Company has not experienced any Y2K problems
to date, there can be no certainty that any future unforeseen Y2K problem will
not adversely affect the Company's results of operations, liquidity or financial
position or adversely affect the Company's relationships with its customers,
suppliers, vendors or others.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 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 2001.
The Company does not believe that the new standard will have any impact as the
Company currently holds no derivatives.
12
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on debt.
The Company's exposure to interest rate risk relates to its $9,000,000 and
$3,000,000 revolving lines of credit. Borrowings under the agreements bear
interest as discussed in Note 7 of Notes to Consolidated Financial Statements.
There were no borrowings outstanding under either agreement during 1999. A
hypothetical 1% interest rate change would have no impact on the Company's
results of operations.
A change in market prices also exposes the Company to market risk related to its
investments in marketable securities. At January 1, 2000 the Company held
$17,910,000 in marketable securities. A hypothetical 10% drop in the market
value of these investments would result in a $1,791,000 unrealized pretax loss
and a corresponding loss of a like amount in the fair value of these
instruments. This hypothetical drop would not affect cash flow and would not
have an impact on earnings until the investments were disposed of. See Notes 1
and 2 of Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Supplemental Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors
Below is set forth certain information about each of the directors of
the Company as of March 1, 2000. Certain of this information has been
supplied by the persons shown.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION (1) DIRECTOR TERM
NAME AGE AND OTHER DIRECTORSHIPS SINCE (2) EXPIRES
---- --- ------------------------ --------- -------
<S> <C> <C> <C> <C>
Bernard Briskin 75 Chairman of the Board of Directors, 1970 2001
President and Chief Executive
Officer of the Company and
Arden-Mayfair, a subsidiary of
the Company, and Chairman of
the Board and Chief Executive
Officer of AMG Holdings and
Gelson's Markets, both
subsidiaries of Arden-Mayfair.
John G. Danhakl 43 Partner, Leonard Green & Partners 1995 2001
since March 1995. Managing
Director of Donaldson Lufkin
Jenrette Securities Corporation
from March 1990 to February
1995. Director of Big 5
Sporting Goods, Inc.,
Communications Power and
Industries, Inc., Twin
Laboratories Corporation,
Hechinger/BSQ, Diamond Auto
Glass Works, Liberty Group
Publishing and Leslie's
Poolmart, Inc.
Robert A. Davidow 57 Director and Vice Chairman of WHX 1993 2002
Corporation; private investor.
Stuart A. Krieger 82 Business consultant. 1978 2000
Daniel Lembark 75 Financial consultant and Certified 1978 2001
Public Accountant.
Ben Winters 79 Business consultant. 1978 2000
</TABLE>
(1) Unless otherwise indicated, principal occupation or occupations shown
have been such for a period of at least five years in the aggregate.
(2) Date shown for term of service indicates commencement of service as a
director of the Company or Arden-Mayfair.
14
<PAGE>
Identification of Executive Officers
Below is set forth certain information about each of the executive
officers of the Company as of March 1, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Bernard Briskin 75 Chairman of the Board of Directors, President and Chief
Executive Officer of the Company and Arden-Mayfair, and
Chairman of the Board and Chief Executive Officer of AMG
Holdings and Gelson's Markets.
David M. Oliver 42 Chief Financial Officer of the Company and Arden-Mayfair,
Chief Financial Officer and Secretary of AMG Holdings and
Gelson's Markets.
</TABLE>
Mr. Briskin served as Chairman of the Executive Committee of the Board of
Directors of Arden-Mayfair until August 1978, when he was elected President and
Chief Executive Officer of Arden-Mayfair. In November 1978, Mr. Briskin was
elected President and Chief Executive Officer of the Company and in June 1994 he
was elected Chairman of the Board of the Company. Mr. Briskin serves as Chairman
of the Board, President and Chief Executive Officer of the Company and
Arden-Mayfair, and Chairman of the Board and Chief Executive Officer of AMG
Holdings and Gelson's Markets, pursuant to an employment agreement which expires
on January 1, 2004, although the term will be automatically extended for
successive one year periods unless certain termination notices are given by
either Mr. Briskin or the employers. See "Item 11. Executive Compensation".
Mr. Oliver was elected Chief Financial Officer of the Company in November 1999.
Mr. Oliver also serves as Chief Financial Officer of Arden-Mayfair, and Chief
Financial Officer and Secretary of AMG Holdings and Gelson's Markets. From
August 1998 until he joined the Company, he worked as an independent consultant.
From July 1997 to July 1998, Mr. Oliver served as Senior Vice President, Chief
Financial Officer of Hughes Family Markets. He served as Vice President,
Controller of The Vons Companies, Inc. from July 1994 to April 1997 and as
Assistant Controller from August 1988 to June 1994. Mr. Oliver was employed by
Arthur Andersen & Co. as a Certified Public Accountant in the audit department
from June 1979 to May 1988.
Except for Mr. Briskin, who has an employment agreement, all officers serve at
the pleasure of the Board of Directors.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
GENERAL
The following table sets forth the total annual and long-term
compensation paid or accrued by the Company and its subsidiaries in
connection with all businesses of the Company and its subsidiaries to
or for the account of the Chief Executive Officer of the Company and
each other executive officer of the Company whose total annual salary
and bonus for the fiscal year ended January 1, 2000 exceeded $100,000
in the aggregate.
<TABLE>
<CAPTION>
LONG TERM
--COMPENSATION--
---------ANNUAL COMPENSATION---------- -----AWARDS-----
SECURITIES-
UNDERLYING ALL OTHER
NAME AND OPTIONS/ COMPEN-
PRINCIPAL SARS SATION
POSITION (1) YEAR SALARY ($) BONUS ($) (#)(3) ($)(4)(5)
------------ ---- ---------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Bernard Briskin, 1999 511,563 626,299 12,800
Chief Executive 1998 507,000 599,297 12,800
Officer 1997 500,000 496,780 12,800
Ernest T. Klinger (2), 1999 125,194 0 43,386
Former CFO, VP 1998 190,000 40,000 7,000 12,800
Finance & Admin. 1997 190,000 40,000 12,800
</TABLE>
(1) David M. Oliver, Chief Financial Officer, joined the Company in
November 1999 at an annual salary of $150,000.
(2) Mr. Klinger resigned as an officer of the Company and terminated his
employment in June 1999.
(3) The Company did not grant to Mr. Briskin or Mr. Klinger any restricted
stock or stock options and made no payout to them on any long-term
incentive plan in fiscal years 1999, 1998 or 1997. Stock appreciation
rights covering 7,000 shares of Class A Common Stock granted to Mr.
Klinger terminated upon his resignation in June 1999. See Note 9 of
Notes to Consolidated Financial Statements.
(4) Includes the Company's contributions to the Arden Group, Inc.
401(k) Retirement Savings Plan and the Arden Group, Inc. Stock
Bonus Plan. In 1999, Mr. Briskin was allocated $12,800 to his 401(k)
account and $0 to his Stock Bonus Plan account.
(5) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the compensation received by Mr. Briskin in any of
the years for which compensation information is reported or by Mr.
Klinger in 1998 or 1997. Other compensation for Mr. Klinger includes a
Company automobile transferred to him in 1999 in connection with the
termination of his employment.
16
<PAGE>
STOCK APPRECIATION RIGHTS
No stock appreciation rights were granted or exercised during the 1999
fiscal year. There were no unexercised stock appreciation rights held
by executive officers at January 1, 2000.
EMPLOYMENT AGREEMENT
The compensation of Mr. Briskin, the Chief Executive Officer of the
Company, is established under an Employment Agreement dated May 13,
1988, as amended by Amendment to Employment Agreement dated April 27,
1994 (the "Employment Agreement") which was further amended in January
1998, effective January 1, 1997 (the "Amended Employment Agreement").
The Amended Employment Agreement extended the expiration date of the
term of the Employment Agreement from January 1, 2001 to January 1,
2004, increased Mr. Briskin's base annual salary to $500,000 effective
January 1, 1997, excluded from the definition of Pre-Tax Profits, upon
which Mr. Briskin's bonus is determined, any arbitration award to Danka
Industries, Inc. and the associated expense in 1997 as a charge to
discontinued operations which had the effect of increasing the amount
of Mr. Briskin's bonus in 1997 from $344,871 to $496,780, increased the
maximum annual reimbursement for medical expenses for Mr. Briskin and
his immediate family from $100,000 to $200,000 and provides for annual
retirement compensation equal to twenty-five percent of Mr. Briskin's
average base salary and bonus earned in the last three fiscal years
prior to his retirement and continuation of health insurance benefits
and automobile allowance. Pursuant to the terms of the Amended
Employment Agreement, Mr. Briskin's base salary will be increased on
January 1 of each year of the term of the Amended Employment Agreement
commencing January 1, 1998 based upon increases in the Consumer Price
Index subject, however, to a maximum annual increase of 4%. His annual
bonus will equal 2-1/2% of the Company's first $2,000,000 of Pre-Tax
Profits (as defined in the Amended Employment Agreement) plus 3-1/2% of
Pre-Tax Profits in excess of $2,000,000. In addition, if he becomes
permanently disabled, dies or his employment is terminated prior to
January 1, 2004, the cumulative unpaid portion of two notes from Mr.
Briskin to the Company, in the amount of $175,000 as of March 1, 2000,
will be forgiven. The maturity dates of the two notes were extended to
December 31, 2003 with equal annual principal payments of $40,000 plus
interest at 6% per annum.
REMUNERATION OF DIRECTORS
Non-employee directors are compensated for their services as directors
at an annual rate of $22,800, plus $1,000 for each Board meeting
attended and $1,000 for attendance at each committee meeting.
Non-employee directors who serve as committee chairmen are entitled to
an additional $4,200 per year. Mr. Briskin is an employee of the
Company and does not receive the compensation otherwise payable to
directors.
17
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has a Compensation Committee. In 1999 the
Compensation Committee was comprised of the following directors, none
of whom are or have been officers of the Company:
John G. Danhakl, Chairman
Robert A. Davidow
Daniel Lembark
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth information as of March 1, 2000
relating to the stockholdings of persons known to the Company
to be the beneficial owner of more than 5% of any class of the
Company's voting securities:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF PERCENT OF
BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP (1) CLASS TOTAL VOTE
---------------- -------------- ------------- ----- ----------
<S> <C> <C> <C> <C>
City National Bank, as Trustee of the Class A Common Stock 252,163 11.4% 1.6%
Company's Stock Bonus Plan and Trust (the
"Stock Bonus Plan")
500 North Roxbury Drive, Suite 500
Beverly Hills, CA 90210
Bernard Briskin Class A Common Stock 616,749(2)(3) 27.8% 3.9%
Arden Group, Inc.
9595 Wilshire Blvd., Suite 411
Beverly Hills, CA 90212
Bernard Briskin Class B Common Stock 1,362,496(3) 99.5% 85.7%
</TABLE>
(1) Unless otherwise indicated to the contrary, all beneficial owners have
sole investment and voting power. For purposes of this table, 1,357,200
shares of Company Class A Common Stock, which are held by AMG Holdings,
are not deemed to be outstanding.
(2) This amount includes the following shares: (i) 186,096 shares held in
trust (of which Mr. Briskin is a trustee) for the benefit of Mr.
Briskin and his children and (ii) 98,012 shares held in an Individual
Retirement Account by Mr. Briskin's wife. Mr. Briskin disclaims any
beneficial ownership of the shares set forth in clause (ii) hereof. Mr.
Briskin shares voting and investment power with respect to the shares
referred to in clause (i), and he has no voting or investment power
with respect to the shares referred to in clause (ii). Nothing herein
should be construed as an admission that Mr. Briskin is in fact the
beneficial owner of any of these shares.
18
<PAGE>
(3) This amount excludes 22,000 shares of Class A Common Stock and 4 shares
of Class B Common Stock held by The Judy and Bernard Briskin Foundation
of which Mr. Briskin serves as a co-trustee. Mr. Briskin disclaims any
beneficial ownership with respect to these shares.
If Mr. Briskin converted all of his Class B Common Stock to Class A Common Stock
(convertible on a share for share basis), his and his spouse's beneficial
ownership of Class A Common Stock would be increased to 1,979,245 shares or
55.2% of the total shares outstanding as of March 1, 2000.
(b) Security Ownership of Management
The following table shows, as of March 1, 2000, the beneficial
ownership of the Company's equity securities by each director,
executive officer and by all directors and executive officers
as a group:
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP(1) OF CLASS VOTE
- ------------------------ -------------- ----------------------- -------- ----
<S> <C> <C> <C> <C>
Bernard Briskin Class A Common Stock 616,749 (2) 27.8% 3.9%
Class B Common Stock 1,362,496 99.5% 85.7%
John G. Danhakl Class A Common Stock 0
Robert A. Davidow Class A Common Stock 0
Stuart A. Krieger Class A Common Stock 0
Daniel Lembark Class A Common Stock 0
David M. Oliver Class A Common Stock 0
Ben Winters Class A Common Stock 500 (3) (3)
All directors and executive officers Class A Common Stock 617,249 (2) 27.8% 3.9%
as a group (7 persons) Class B Common Stock 1,362,496 99.5% 85.7%
</TABLE>
(1) Unless otherwise indicated to the contrary, all beneficial owners have
sole investment and voting power. The number of outstanding shares of
Company Class A Common Stock on which the percentages shown in this
table are based does not include 1,357,200 shares of Company Class A
Common Stock held by AMG Holdings.
(2) See note (2) and (3) to the table under "Security Ownership of Certain
Beneficial Owners" set forth above.
(3) Did not exceed 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the purchase by Mr. Briskin of shares of the Company's Class
A Common Stock in 1979 and 1980, the Company loaned Mr. Briskin $212,500 and
$303,750, respectively. Effective January 1, 1997 the terms of the notes were
modified to extend the maturity date from December 31, 2000 to December 31, 2003
and to reduce the annual principal payments from $73,750 to $40,000 plus
interest at 6% per annum. The highest cumulative outstanding balance of the two
loans was $215,000 during 1999 and was $175,000 as of March 1, 2000.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statements and Schedules
(1) Financial Statements
See Index to Consolidated Financial Statements and Supplemental
Data
(2) Financial Statement Schedules
See Index to Consolidated Financial Statements and Supplemental
Data
(3) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
None
(c) Exhibits
See Index to Exhibits
(d) Other Financial Schedules
See Index to Consolidated Financial Statements and Supplemental Data
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE
By BERNARD BRISKIN 03/28/00
------------------------------------------------------
Bernard Briskin, Chairman of the Board,
President and Chief Executive Officer
By DAVID M. OLIVER 03/28/00
------------------------------------------------------
David M. Oliver, Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated. The undersigned have also relied
upon the reports of the registrant's independent accountants at page 23.
DATE
BERNARD BRISKIN 03/28/00
------------------------------------------------------
Bernard Briskin, Director and Chairman of the Board
JOHN G. DANHAKL 03/28/00
------------------------------------------------------
John G. Danhakl, Director
ROBERT A. DAVIDOW 03/28/00
------------------------------------------------------
Robert A. Davidow, Director
STUART A. KRIEGER 03/28/00
------------------------------------------------------
Stuart A. Krieger, Director
DANIEL LEMBARK 03/28/00
------------------------------------------------------
Daniel Lembark, Director
BEN WINTERS 03/28/00
------------------------------------------------------
Ben Winters, Director
21
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
---------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants.........................................................................23
Financial Statements:
Consolidated Balance Sheets, January 1, 2000 and January 2, 1999.................................24
Consolidated Statements of Operations and Comprehensive Income for
fiscal years 1999, 1998 and 1997.................................................................25
Consolidated Statements of Stockholders' Equity for fiscal years 1999,
1998 and 1997....................................................................................26
Consolidated Statements of Cash Flows for fiscal years 1999, 1998 and 1997.......................27
Notes to Consolidated Financial Statements.......................................................29
The financial statements include the Registrant's subsidiary (Arden-Mayfair,
Inc.) and the subsidiaries of Arden-Mayfair, Inc.
Selected Quarterly Financial Data (Unaudited).............................................................45
</TABLE>
Schedules are omitted because of the absence of the conditions under which they
are required.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Stockholders of
Arden Group, Inc.
In our opinion, the consolidated financial statements listed in the index on
page 22 of this Form 10-K present fairly, in all material respects, the
financial position of Arden Group, Inc. and its subsidiary at January 1, 2000
and January 2, 1999, and the consolidated results of their operations and
comprehensive income, and their cash flows for each of the three fiscal years in
the period ended January 1, 2000, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 10, 2000
23
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands, Except Share and Per Share Data)
=================================================================================================================
ASSETS January 1, 2000 January 2, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,157 $13,647
Marketable securities 17,910 19,524
Accounts and notes receivable, net 5,412 5,454
Inventories 12,202 10,796
Other current assets 2,094 1,865
- -----------------------------------------------------------------------------------------------------------------
Total current assets 55,775 51,286
Property for resale or sublease 868 1,326
Property, plant and equipment, net 51,366 37,759
Other assets 3,270 2,755
- -----------------------------------------------------------------------------------------------------------------
Total assets $111,279 $93,126
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable, trade $ 14,853 $11,407
Other current liabilities 14,016 12,825
Current portion of long-term debt 2,229 1,307
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 31,098 25,539
Long-term debt 8,322 6,369
Deferred income taxes 1,125 1,556
Other liabilities 1,458 1,304
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 42,003 34,768
- -----------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Note 14)
Stockholders' equity:
Common Stock, Class A, $ .25 par value;
3,573,688 shares issued and outstanding
including 1,357,200 treasury shares 894 894
Common Stock, Class B, $ .25 par value;
1,368,984 shares issued and outstanding 342 342
Capital surplus 3,866 3,866
Notes receivable from officer/director (175) (215)
Unrealized gain (loss) on available-for-sale securities (446) 393
Retained earnings 68,548 56,831
- -----------------------------------------------------------------------------------------------------------------
73,029 62,111
Treasury stock, 1,357,200 shares at cost (3,753) (3,753)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 69,276 58,358
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $111,279 $93,126
=================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
24
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(In Thousands, Except Share and Per Share Data)
=================================================================================================================
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 324,168 $ 296,487 $ 274,354
Cost of sales 192,446 176,595 164,366
- -----------------------------------------------------------------------------------------------------------------
Gross profit 131,722 119,892 109,988
Delivery, selling, general and administrative expenses 114,892 103,882 97,127
- -----------------------------------------------------------------------------------------------------------------
Operating income 16,830 16,010 12,861
Interest and dividend income 1,807 1,453 1,536
Other income (expense), net (104) 396 588
Interest expense (694) (764) (702)
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations, before income taxes 17,839 17,095 14,283
Income tax provision 6,122 7,014 5,586
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations, net of income taxes 11,717 10,081 8,697
Loss from discontinued operations, net of income tax benefits
of $1,602 in 1997 (2,738)
- -----------------------------------------------------------------------------------------------------------------
Net income $ 11,717 $ 10,081 $ 5,959
- -----------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains (losses) arising during the
period (951) (89) 496
Reclassification adjustment for gains (losses) included
in net income 112 66 (80)
- -----------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss), net of income tax expense
(benefits) of $(572) for 1999, $(9) for 1998 and
$275 for 1997 (839) (23) 416
- -----------------------------------------------------------------------------------------------------------------
Comprehensive income $ 10,878 $ 10,058 $ 6,375
========= ========= ========
=================================================================================================================
Basic net income per common share:
Income from continuing operations $ 3.27 $ 2.81 $ 2.10
Loss from discontinued operations (.66)
- -----------------------------------------------------------------------------------------------------------------
Net income $ 3.27 $ 2.81 $ 1.44
- -----------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 3,585,472 3,585,472 4,131,060
=================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
25
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In Thousands, Except Share Data)
====================================================================================================================
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, Class A:
Balance, beginning of year $ 894 $ 894 $ 1,106
Purchase and retirement of stock (850,476 shares) (212)
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year 894 894 894
- --------------------------------------------------------------------------------------------------------------------
Common Stock, Class B:
Balance, beginning and end of year 342 342 342
- --------------------------------------------------------------------------------------------------------------------
Capital surplus:
Balance, beginning of year 3,866 3,866 4,531
Purchase and retirement of common stock (665)
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year 3,866 3,866 3,866
- --------------------------------------------------------------------------------------------------------------------
Notes receivable from officer/director:
Balance, beginning of year (215) (255) (369)
Principal paid 40 40 114
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year (175) (215) (255)
- --------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on available-for-sale securities:
Balance, beginning of year 393 416
Net unrealized gain (loss) (839) (23) 416
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year (446) 393 416
- --------------------------------------------------------------------------------------------------------------------
Retained earnings:
Balance, beginning of year 56,831 46,750 53,880
Net income 11,717 10,081 5,959
Purchase and retirement of common stock (13,089)
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year 68,548 56,831 46,750
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity before treasury stock 73,029 62,111 52,013
Treasury stock, at cost (3,753) (3,753) (3,753)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 69,276 $ 58,358 $ 48,260
====================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
26
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In Thousands)
===================================================================================================================
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 324,276 $ 296,751 $ 274,683
Cash paid to suppliers and employees (296,662) (278,213) (254,622)
Sales of trading securities, net 8,851
Interest and dividends received 1,639 1,449 1,683
Interest paid (716) (751) (705)
Income taxes paid (7,859) (6,689) (3,831)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,678 12,547 26,059
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (19,630) (4,244) (7,896)
Transfer to discontinued operations (2,575)
Purchases of available-for-sale securities (2,528) (3,793) (3,202)
Sales of available-for-sale securities 2,658 268 1,380
Proceeds from the sale of property, plant and
equipment, liquor licenses and leasehold
interests 7 3,171 163
Payments received on notes from the sale of
property, plant and equipment and liquor
licenses 53
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (19,493) (4,598) (12,077)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Purchase and retirement of stock (13,966)
Principal payments on long-term debt (1,208) (1,188) (799)
Principal payments under capital lease obligations (257) (230) (205)
Loan payments received from officer/director 40 40 114
Proceeds from equipment financing 4,750 2,500
Purchase of Company debentures (23)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,325 (1,401) (12,356)
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,510 6,548 1,626
Cash and cash equivalents at beginning of year 13,647 7,099 5,473
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 18,157 $ 13,647 $ 7,099
===================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
27
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 11,717 $ 10,081 $ 5,959
Adjustments to reconcile net income to net cash provided by operating
activities:
Loss from discontinued operations 2,738
Depreciation and amortization 5,824 5,618 5,111
Provision for losses on accounts and
notes receivable 191 92 62
Deferred income taxes (431) (865) 270
Net loss (gain) from the disposal of property,
plant and equipment, liquor licenses
and leasehold interests 149 (409) 731
Realized loss (gain) on marketable securities, net 74 (408) (605)
Gain on purchase of 7% debentures (2)
Change in assets and liabilities net of effects from noncash investment and
financing activities:
(Increase) decrease in assets:
Marketable securities 8,851
Accounts and notes receivable (67) 794 1,639
Inventories (1,406) 756 (824)
Other current assets (229) (239) (274)
Other assets (551) (103) (90)
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses 4,665 (2,611) 3,847
Deferred income taxes on unrealized gains 571 (275)
Other liabilities 171 (157) (1,081)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 20,678 $ 12,547 $ 26,059
===================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
28
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------
1. Accounting Policies
The following is a summary of significant accounting policies followed in
the preparation of these consolidated financial statements.
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. All intercompany accounts and transactions are eliminated in
consolidation. The Company operates primarily in the supermarket business
in the Southern California area.
FISCAL YEAR
The Company operates on a fiscal year ending on the Saturday closest to
December 31. Fiscal years for the consolidated financial statements
included herein ended on January 1, 2000 (52 weeks), January 2, 1999 (52
weeks) and January 3, 1998 (53 weeks).
CASH AND CASH EQUIVALENTS
The Consolidated Statements of Cash Flows classify changes in cash or cash
equivalents (short-term, highly liquid investments readily convertible
into cash with an original maturity at date of purchase of three months or
less) according to operating, investing or financing activities. Financial
instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and temporary cash investments. At
times, cash balances held at financial institutions were in excess of
federally insured limits. The Company places its temporary cash
investments with high-credit, quality financial institutions and, by
policy, limits the amount of credit exposure to any one financial
institution. The Company believes no significant concentration of credit
risk exists with respect to these cash investments.
MARKETABLE SECURITIES
Marketable securities consist of mutual funds and debt and equity
securities. Marketable securities are stated at market value as determined
by the most recently traded price of each security at the balance sheet
date. All marketable securities are defined as trading securities or
available-for-sale securities under the provisions of Statement of
Financial Accounting Standards No. ("SFAS") 115, "Accounting for Certain
Investments in Debt and Equity Securities."
29
<PAGE>
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. The cost of
investments sold is determined on the specific identification or the
first-in, first-out method.
ACCOUNTS AND NOTES RECEIVABLE
The Company closely monitors extensions of credit and has not experienced
significant losses related to its receivables. At January 1, 2000, the
Company did not have significant credit risk concentrations. No single
group or customer represents greater than 2% of total accounts and notes
receivable. Issuance costs related to Gelson's charge cards are not
significant and are expensed as incurred.
INVENTORIES
The cost of supermarket nonperishable inventories is determined by the
retail inventory method using the last-in, first-out (LIFO) method, which
is lower than market. Perishable inventories are valued at the lower of
cost (first-in, first-out or average) or market.
PROPERTY FOR RESALE OR SUBLEASE
It is the Company's policy to make available for sale or sublease property
considered by management as excess and no longer necessary for the
operations of the Company. The aggregate carrying values of such owned
property and property under capital leases are periodically reviewed and
adjusted downward to fair value, when appropriate.
PROPERTY, PLANT AND EQUIPMENT
Owned property, plant and equipment is valued at cost. Depreciation is
provided on the straight-line method at rates ranging from three to twenty
years based on the estimated useful lives of individual assets or classes
of assets. Improvements to leased properties or fixtures are amortized
over their estimated useful lives or lease period, whichever is shorter.
Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability.
Amortization of capitalized leased assets is computed on the straight-line
method over the term of the lease.
Normal repairs and maintenance are expensed as incurred. Expenditures
which materially increase values, change capacities or extend useful lives
are capitalized. Replacements are capitalized and the property, plant and
equipment accounts are relieved of the items being replaced. The related
costs and accumulated depreciation of disposed assets are eliminated and
any gain or loss on disposition is included in income.
30
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. The
carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximate fair values because
of the short-term maturity of these instruments. The fair value of
long-term debt closely approximates its carrying value. The Company uses
quoted market prices, when available, or discounted cash flows to
calculate these fair values.
LONG-LIVED ASSETS
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," long-lived assets
held and used by the Company are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. For purposes of evaluating the recoverability of
long-lived assets, the recoverability test is performed using undiscounted
net cash flows of the individual stores and consolidated undiscounted net
cash flows for long-lived assets not identifiable to individual stores
compared to the related carrying value.
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate contaminated sites are
expensed as incurred.
STORE OPENING COSTS
Noncapital expenditures incurred in opening a new store are expensed as
incurred.
ADVERTISING AND SALES PROMOTION COSTS
Advertising and sales promotion costs are expensed as incurred and totaled
$1,732,000, $1,504,000, and $1,496,000 in 1999, 1998 and 1997,
respectively.
INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS 109,
"Accounting for Income Taxes." Under SFAS 109, deferred tax liabilities
and assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities, using enacted tax rates
in effect for the year in which the differences are expected to reverse.
NET INCOME PER COMMON SHARE
SFAS 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 basic net income per common share
and dilutive net income per common share 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 any of
31
<PAGE>
the three fiscal years in the period ended January 1, 2000. The financial
statements present basic net income per common share.
COMPREHENSIVE INCOME
SFAS 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 and included
as a component of stockholders' equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions for the reporting period and as of the financial statement
date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results could differ
from these estimates.
SEGMENT INFORMATION
In fiscal year 1998, the Company adopted SFAS 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
Company operates exclusively in the supermarket business in the Southern
California area. Consequently, SFAS 131 does not result in any additional
reporting requirements for the Company.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 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 2001. The Company
does not believe that the new standard will have any impact as the Company
currently holds no derivatives.
32
<PAGE>
2. Marketable Securities
Marketable securities are carried on the balance sheet at their fair
value.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
UNREALIZED
(In Thousands) COST GAIN (LOSS) FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
As of January 1, 2000:
Available-for-sale securities:
Mutual funds $ 16,862 $ (824) $ 16,038
Equity securities 1,763 109 1,872
Debt securities 578 (578)
---------- ---------- ---------
Total $ 19,203 $ (1,293) $17,910
========== ========== =========
As of January 2, 1999:
Available-for-sale securities:
Mutual funds $ 15,829 $ 625 $ 16,454
Equity securities 3,000 70 3,070
Debt securities 578 (578)
---------- ---------- ---------
Total $ 19,407 $ 117 $ 19,524
========= ========== =========
</TABLE>
Realized gains (losses) from sale of securities were ($342,000), ($4,000)
and $605,000 in 1999, 1998 and 1997, respectively.
3. Accounts and Notes Receivable, Net
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In Thousands) January 1, 2000 January 2, 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable, trade $4,120 $4,238
Notes receivable 310 392
Other accounts receivable 1,522 1,385
-------- -------
5,952 6,015
Less: Allowance for doubtful accounts and
notes receivable (540) (561)
-------- -------
$5,412 $5,454
======== =======
</TABLE>
The provision for doubtful accounts and notes receivable in 1999, 1998
and 1997 was approximately $191,000, $92,000 and $62,000, respectively.
4. Inventories
Inventories valued by the LIFO method ($9,635,000 in 1999, $8,632,000 in
1998 and $9,545,000 in 1997) would have been $3,123,000, $2,807,000, and
$2,570,000 higher at January 1, 2000, January 2, 1999, and January 3,
1998, respectively, if they had been stated at the lower of FIFO cost or
market. The LIFO effect on net income and basic net income
33
<PAGE>
per common share in 1999, 1998 and 1997 was a decrease of approximately
$187,000 ($.05 per share), $143,000 ($.04 per share) and $105,000 ($.03
per share), respectively.
5. Property, Plant and Equipment, Net
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In Thousands) January 1, 2000 January 2, 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 8,110 $ 8,058
Buildings and improvements 9,717 9,637
Store fixtures and office equipment 27,443 21,299
Transportation equipment 1,659 1,544
Machinery and equipment 831 789
Leasehold improvements 33,599 25,186
Leasehold interests 4,142
Assets under capital leases 3,058 3,058
Assets under construction 939 1,677
-------------- -----------
89,498 71,248
Accumulated depreciation and amortization (38,132) (33,489)
-------------- -----------
$51,366 $37,759
============== ===========
</TABLE>
As of January 1, 2000, approximately $14,770,000 of property, plant and
equipment (at cost) was fully depreciated.
6. Other Current Liabilities
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In Thousands) January 1, 2000 January 2, 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Compensated absences $ 3,578 $ 3,194
Taxes (including taxes collected from others
of $1,321 and $1,134, respectively) 2,354 3,965
Other 8,084 5,666
--------- ---------
$14,016 $12,825
========= =========
</TABLE>
34
<PAGE>
7. Long-Term Debt
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CURRENT NON-CURRENT
----------------------------- -------------------------------
JANUARY 1, JANUARY 2, JANUARY 1, JANUARY 2,
(In Thousands) 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Notes payable $ 2,000 $ 1,050 $ 4,642 $ 2,050
Obligations under capital
leases 229 257 2,452 3,091
7% Subordinated income
debentures due
September 1, 2014 1,228 1,228
-------- --------- --------- --------
$ 2,229 $ 1,307 $ 8,322 $ 6,369
======== ========= ========= ========
</TABLE>
At January 1, 2000, the approximate principal payments required on
long-term debt for each fiscal year are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 2,229
2001 1,707
2002 1,739
2003 1,274
2004 1,156
Thereafter 2,446
-----------
$ 10,551
===========
</TABLE>
The Company has a 24 month loan agreement for a credit facility with a
bank establishing a revolving line of credit in the amount of $9,000,000
with a standby letter of credit subfacility in the amount of $5,000,000
and a $10,000,000 non-revolving line of credit providing for term loans.
Major provisions of the agreement permit the Company to elect to pay
interest under either the "Base Interest" or "Reference" rate provisions
of the agreement. Additionally, there are certain minimum requirements as
to the Company's equity, working capital and debt-to-equity relationships.
The Company also has a one-year revolving line of credit with another bank
in the amount of $3,000,000 with interest at the bank's reference rate or
adjusted LIBOR rate plus a margin. At the end of 1999 and 1998 there were
no amounts borrowed under either of the revolving lines of credit.
Notes Payable: In 1999, 1997 and 1995, the Company borrowed $4,750,000 (at
6.98%), $2,500,000 (at 6.76%) and $2,750,000 (at 6.18%), respectively,
from its $10,000,000 non-revolving line of credit to finance the purchase
of supermarket equipment. All three borrowings are five year, fully
amortized notes.
Debentures: The indenture relating to the 7% (6% prior to November 7,
1978) subordinated income debentures ("7% Debentures"), due September 1,
2014, provides for interest payable semiannually on March 1 and September
1 to the extent that current annual net income (consolidated net income
before income taxes and interest accrued on the 7% Debentures) is
35
<PAGE>
sufficient therefore, or at the discretion of the Company, out of
available retained earnings. No accrued interest was in arrears as of
January 1, 2000.
The aggregate fair market value of long-term debt approximates its
carrying value.
8. Capital Stock
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. Common stock, capital surplus, and all share and per
share data have been restated to reflect the stock split.
Class A Common Stock: The Company is authorized to issue 10,000,000 shares
of Class A Common Stock, par value $.25 per share. At January 1, 2000 and
January 2, 1999, shares issued were 3,573,688 including 1,357,200 treasury
shares. In the third quarter of 1997, the Company completed a self-tender
offer by purchasing 212,619 shares (before the stock split) at $65.00 per
share. The Class A Common Stock has one vote per share on all matters on
which stockholders are entitled to vote or consent.
Class B Common Stock: The Company is authorized to issue 1,500,000 shares
of Class B Common Stock, par value $.25 per share. At January 1, 2000 and
January 2, 1999 there were 1,368,984 shares issued and outstanding. The
Class B Common Stock has ten votes per share on virtually all matters on
which stockholders are entitled to vote or consent. Transfer of Class B
Common Stock is restricted to other Class B stockholders and certain other
classes of transferees. Class B Common Stock is convertible, at the option
of the holder, into Class A Common Stock on a share-for-share basis. The
Class B Common Stock is also automatically converted into Class A Common
Stock under certain circumstances, including upon the transfer of such
stock to a transferee other than another Class B stockholder and certain
other classes of transferees. No shares were converted in 1999, 1998 or
1997. Cash or property dividends on Class B Common Stock are restricted to
an amount equal to 90% of any dividend paid on Class A Common Stock.
9. Stock Options
In 1998, the Company adopted a Non-Officer and Non-Director Stock Option
Plan (the "Stock Option Plan") which provides for the granting of stock
options to key employees to purchase up to 35,000 shares of the Company's
Class A Common Stock. The objective of this plan is to attract and retain
quality personnel and to promote the success of the Company by providing
employees the opportunity to share in its growth.
In November 1998, the Company granted 30,000 stock options at an exercise
price of $40 per share under the Stock Option Plan. These options remain
outstanding as of January 1, 2000, vest at 25% per year commencing the
second year and expire five years from the date of grant. The exercise
price of stock options granted under the Stock Option Plan is equal to the
fair market value of the Company's Class A Common Stock on the date of
grant. There were no options granted in 1999.
36
<PAGE>
The Company accounts for its Stock Option Plan using the intrinsic value
based method prescribed in Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees." Accordingly, no
compensation cost has been recognized in the Company's Statement of
Operations and Comprehensive Income for the years ended January 1, 2000
and January 2, 1999. SFAS 123, "Accounting for Stock-Based Compensation,"
encourages adoption of a fair value based method for valuing the cost of
stock-based compensation. However, it allows companies to use the
intrinsic value based method prescribed by APB 25 and disclose pro forma
net earnings and earnings per share in accordance with SFAS 123. Had
compensation expense for the Company's Stock Option Plan been determined
under SFAS 123 using the fair value based method, the Company's pro forma
net earnings and net earnings per share would not have been affected for
the fiscal years ended January 1, 2000 and January 2, 1999.
The fair value of options granted during 1998 estimated on the date of
grant using the Black-Scholes option-pricing model was $16.43. The fair
value was calculated using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate 4.9%
Expected dividend yield 0%
Expected option life 4 yrs.
Expected stock price volatility 45.7%
</TABLE>
The effects of applying SFAS 123 for the pro forma disclosures are not
necessarily indicative of the effects expected on current or future net
earnings and net earnings per share as the valuations are based on highly
subjective assumptions about the future, including stock price volatility
and exercise patterns.
In 1998, the Company also adopted a Phantom Stock Option Plan (the
"Phantom Plan") which provides for the granting of units covering up to
35,000 shares of the Company's Class A Common Stock to persons who are at
the vice president or higher level of the Company. Each unit entitles the
holder to receive upon exercise thereof the excess of the fair market
value of a share of Class A Common Stock on the date of exercise over the
fair market value of such share on the date specified by the committee
administrating the Phantom Plan at the time of grant. All of the units
vest after the first year at 25% each year over a four year period and
expire five years from the date of grant. During 1998, the Company granted
units covering 17,000 shares of Class A Common Stock to certain officers
of the Company exercisable at $40 per share. No units were granted or
exercised in 1999. As of January 1, 2000, units covering 10,000 shares of
Class A Common Stock remain outstanding. For the years ended January 1,
2000 and January 2, 1999, the Company incurred no compensation expense
related to the Phantom Plan.
10. Retirement Plans
The Company contributes to multi-employer union pension plans administered
by various trustees which may be deemed to be defined benefit plans.
Contributions to these plans are based upon negotiated wage contracts.
Information relating to accumulated benefits and
37
<PAGE>
fund assets as they may be allocable to the participants at January 1,
2000 is not available. The Company's total union pension expense for all
plans for 1999, 1998 and 1997 amounted to $1,801,000, $2,127,000 and
$937,000, respectively. The Company's 1999 and 1998 expense is higher than
1997 due to the reinstatement of a union pension contribution which was
not in effect in 1997. The contribution was suspended again in late 1999.
The Company has a noncontributory, trusteed Stock Bonus Plan (the "Plan")
which is qualified under Section 401 of the Internal Revenue Code of 1986,
as amended. All nonunion employees over 18 years of age who complete 1,000
hours of service within the year ending on the anniversary date of
employment are eligible to become participating employees in the Plan.
Contributions to the Plan for any fiscal year, as determined by the Board
of Directors, are discretionary, but in no event will they exceed 15% of
the annual aggregate salaries of those employees eligible for
participation in the Plan. Contributions must be invested in the Company's
Class A Common Stock with excess cash being invested in certain
government-backed securities. Contributions to the Plan are allocated
among eligible participants in the proportions of their salaries to the
salaries of all participants. Contributions accrued for the Plan in 1999,
1998 and 1997 were $0, $0 and $135,000, respectively.
The Arden Group, Inc. 401(k) Retirement Savings Plan (the "Company Savings
Plan") covers all nonunion employees of the Company and its subsidiaries
who have attained the age of 18 and have completed at least one year of
service with any of such companies. The Company Savings Plan provides
that, with certain limitations, a participating employee may elect to
contribute up to 15% of such employee's annual compensation to the Company
Savings Plan on a tax-deferred basis, subject to a limitation that the
annual elective contribution may not exceed an annual indexed dollar limit
determined pursuant to the Internal Revenue Code ($10,000 in 1999). Annual
matching contributions are made by the Company each year for those
participants whose annualized gross earnings for the previous year were
$45,000 or less, and such matching contribution was $8,000 in 1999, $7,000
in 1998 and $10,000 in 1997. An additional discretionary amount of
$588,000 was accrued in 1999 and contributed to the Plan in early 2000.
Similarly, $539,000 was accrued in 1998 and contributed to the Plan in
early 1999 and $406,000 was accrued in 1997 and contributed in early 1998.
An employment agreement with a key executive officer provides for annual
retirement compensation equal to 25% of his average base salary and bonus
earned in the last three years prior to his retirement. The obligation
determined on an actuarial basis is being accrued over the seven-year term
of his agreement. The Company accrued $273,000, $226,000 and $226,000 in
1999, 1998 and 1997, respectively, toward this benefit.
38
<PAGE>
11. Income Taxes
Income (loss) before income taxes and the related income tax expense
(benefit) are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
Continuing operations $ 17,839 $17,095 $14,283
Discontinued operations (4,340)
--------- ------- -------
Total $ 17,839 $17,095 $ 9,943
========= ======= =======
Income tax expense (benefit):
Continuing operations $ 6,122 $ 7,014 $ 5,586
Discontinued operations (1,602)
--------- ------- -------
Total $ 6,122 $ 7,014 $ 3,984
========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
The composition of federal and state income tax expense (benefit) is as
follows:
- ----------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $6,211 $6,358 $2,701
State 342 1,521 1,013
--------- ------- -------
Total 6,553 7,879 3,714
Deferred:
Federal (326) (760) 359
State (105) (105) (89)
--------- ------- -------
Total (431) (865) 270
--------- ------- -------
Total income tax expense $6,122 $7,014 $3,984
========= ======= =======
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
The Company's deferred tax assets (liabilities) were attributable to the
following:
-----------------------------------------------------------------------------------------------------------
January 1, January 2,
(In Thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Debt under capital leases $ 1,187 $ 1,482
Accrued expenses 1,347 1,221
State income taxes 566 532
Allowance for doubtful accounts 237 246
Other 788 766
--------- ---------
Deferred tax assets 4,125 4,247
--------- ---------
Deferred tax liabilities:
Deferred gain on debenture exchange (4,111) (4,416)
Property leased under capital leases, net of
accumulated depreciation (735) (1,002)
Other (404) (385)
--------- ---------
Deferred tax liabilities (5,250) (5,803)
--------- ---------
Deferred income taxes, net $(1,125) $(1,556)
========= =========
</TABLE>
The Company has not established a valuation allowance because its deferred
tax assets can be realized by offsetting taxable income in the carryback
period, and also against deferred tax liabilities and future taxable
income, which management believes will more likely than not be earned,
based on the Company's historical earnings record.
Reconciliation of the statutory federal rate and effective rate is as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1999 1998 1997
(In Thousands, Except ----------- ----------- -----------
Percentage Amounts) Amount Rate Amount Rate Amount Rate
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal tax at statutory
rate $6,244 35.0 % $5,983 35.0 % $3,380 34.0 %
State income taxes, net of
federal tax benefit 1,025 5.7 % 983 5.8 % 610 6.1 %
Tax reserve adjustment (1,286) (7.2)%
Other 139 .8 % 48 0.2 % (6) (0.1)%
--------------- ---------------- ---------------
$6,122 34.3 % $7,014 41.0 % $3,984 40.0 %
=============== ================ ===============
</TABLE>
The California Franchise Tax Board had previously rendered tax assessments
against the Company. The Company believed these assessments to be excessive
and filed an appeal, which resulted in a proposed settlement in 1998. The
matter was resolved during 1999 and tax reserves were adjusted accordingly.
40
<PAGE>
12. Leases
The principal kinds of property leased by the Company and its subsidiaries
are supermarket buildings and delivery equipment. The most significant
obligations assumed under the lease terms, other than rental payments, are
the upkeep of the facilities, insurance and property taxes. Most
supermarket leases contain contingent rental provisions based on sales
volume and have renewal options. The Company's decision to exercise renewal
options is primarily dependent on the level of business conducted at the
location and the profitability thereof.
All leases and subleases with an initial term greater than one year are
accounted for under SFAS 13, "Accounting for Leases." These leases are
classified as either capital leases, operating leases or subleases, as
appropriate.
Assets Under Capital Leases: Assets under capital leases are capitalized
using interest rates appropriate at the inception of each lease. Contingent
rentals associated with capital leases in 1999, 1998 and 1997 were
$160,000, $139,000 and $107,000, respectively, and accordingly have been
charged to expense as incurred. Following is an analysis of assets under
capital leases:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
(In Thousands) January 1, 2000 January 2, 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Buildings:
Cost $ 3,058 $ 3,058
Accumulated amortization (2,183) (2,070)
------- -------
$ 875 $ 988
========= ========
</TABLE>
Also, included in property for sublease are properties classified as
capital leases with aggregate net book values of $801,000 and $1,297,000 as
of the end of 1999 and 1998, respectively.
41
<PAGE>
Future minimum lease payments for the above assets under capital leases at
January 1, 2000 are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 535
2001 536
2002 535
2003 536
2004 535
Thereafter 1,442
----------
Total minimum obligations 4,119
Executory costs (31)
----------
Net minimum obligations 4,088
Interest (1,407)
----------
Present value of net minimum obligations 2,681
Current portion (229)
----------
Long-term obligations $ 2,452
==========
</TABLE>
Minimum capital lease obligations have not been reduced by related minimum
future sublease rentals of approximately $1,478,000.
Executory costs include such items as property taxes and insurance.
Operating Leases and Subleases: Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one year at
January 1, 2000 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Deduct Net
Sublease Rental
(In Thousands) Commitments Rentals Commitments
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 $ 5,156 $ 421 $ 4,735
2001 5,187 382 4,805
2002 5,067 330 4,737
2003 4,959 337 4,622
2004 4,873 353 4,520
Thereafter 61,673 3,158 58,515
---------- ---------- ----------
$ 86,915 $ 4,981 $ 81,934
========== ========== ==========
</TABLE>
42
<PAGE>
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(In Thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent $ 5,397 $ 4,776 $ 4,361
Contingent rent 1,400 1,222 1,192
------- ------- -------
6,797 5,998 5,553
Sublease rentals (1,330) (1,203) (975)
------- ------- -------
$ 5,467 $ 4,795 $ 4,578
======= ======= =======
</TABLE>
13. Related Party Transactions
At January 1, 2000, the Company held two notes receivable with balances
totaling $175,000 from an officer/director of the Company. These notes
arose from transactions in 1979 and 1980 whereby the Company loaned the
officer/director money to purchase an aggregate of 200,000 shares of the
Company's Class A Common Stock at the then fair market value. These notes,
which bear interest at the rate of 6% per annum, mature on December 31,
2003 with principal payments of $40,000 due annually prior thereto. If the
officer's employment is terminated prior to January 1, 2004, the unpaid
portion of the two notes would be forgiven. The loans are collateralized by
180,000 shares of Class B Common Stock. The receivable is shown on the
balance sheets as a reduction of stockholders' equity.
14. Commitments and Contingent Liabilities
The Company has an employment agreement with a key executive officer which
expires on January 1, 2004. In addition to a base salary, the agreement
provides for a bonus based on pre-tax earnings. No maximum compensation
limit exists. The total compensation expensed in 1999, 1998 and 1997 was
approximately $1,161,000, $1,122,000 and $1,020,000, respectively.
The Company is contingently liable as a guarantor of certain leases which
it has either assigned or subleased. Any liability arising as a result of
these guarantees would have no significant effect on either the Company's
consolidated results of operations, financial position or cash flows.
As of January 1, 2000, authorized expenditures on incomplete projects for
the purchase of property, plant and equipment totaled approximately
$6,003,000. Of this total, approximately $4,551,000 has been contractually
committed.
The Company and its subsidiaries are subject to a myriad of environmental
laws and regulations regarding air, water and land use, and the use,
storage and disposal of hazardous materials. The Company believes it
substantially complies, and has in the past substantially complied, with
federal, state and local environmental laws and regulations. The Company
cannot at this time estimate the expense it ultimately may incur in
connection with any current or future violations, however, it believes any
such claims will not have a material
43
<PAGE>
adverse impact on either the Company's consolidated results of operations,
financial position or cash flows.
The Company or its subsidiaries are defendants in a number of cases
currently in litigation, being vigorously defended, in which the
complainants pray for monetary damages. As of the date hereof, no estimate
of potential liability, if any, is possible. Based upon current
information, management, after consultation with legal counsel defending
the Company's interests in the cases, believes the ultimate disposition
thereof will have no material effect upon either the Company's consolidated
results of operations, financial position or cash flows.
15. Arbitration Proceedings
Pursuant to an Asset Purchase Agreement dated September 1, 1993, by and
among Telautograph, the Company and Danka Industries, Inc. (the
"Purchaser") and Danka Business Systems PLC ("Danka"), on September 17,
1993 AMG Holdings, Inc. sold its communication equipment business and
substantially all of the operating assets and certain liabilities of such
business to the Purchaser, a wholly-owned indirect subsidiary of Danka, for
a cash purchase price of approximately $45,780,000 subject to certain
post-closing adjustments which were subsequently arbitrated between the
parties.
The purchase price and the gain were subject to adjustment after resolution
of disputes between AMG Holdings, Inc. and the Purchaser concerning the
assets and liabilities transferred to the Purchaser. In March 1997, the
Company received notice of a decision rendered in the arbitration
proceedings. The arbitrators upheld the Company's claim for approximately
$2,200,000 and awarded Danka on its counterclaims approximately $4,065,000.
As a result of this decision, the Company paid Danka approximately
$1,865,000 in April 1997.
As a result of a final arbitration, the associated costs not previously
expensed and the final adjustments to the purchase price resulted in the
Company recognizing a loss from discontinued operations, net of taxes,
of $2,738,000 in 1997.
44
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
======================================================================================================================
(In Thousands, Except Per Share Data)
Continuing Operations Discontinued Operations
----------------------------------------- -----------------------
Gross Income Loss Net Net Income (Loss)
Quarter Sales Profit Income Per Share (2) Loss Per Share Income (Loss) Per Share (2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997
First $64,961 $25,547 $1,785 $ .40 $(2,695) $ (.61) $ (910) $(.21)
Second 65,360 26,341 2,292 .52 (43) (.01) 2,249 .51
Third 65,897 26,445 2,349 .57 2,349 .57
Fourth (1) 78,136 31,655 2,271 .63 2,271 .63
1998
First $70,294 $28,214 $2,338 $ .65 $2,338 $ .65
Second 72,862 29,608 2,139 .60 2,139 .60
Third 74,120 30,374 2,854 .80 2,854 .80
Fourth 79,211 31,696 2,750 .76 2,750 .76
1999
First $78,017 $31,511 $2,958 $ .83 $2,958 $ .83
Second 77,797 31,692 3,832 1.06 3,832 1.06
Third 79,172 32,591 2,338 .65 2,338 .65
Fourth 89,182 35,928 2,589 .73 2,589 .73
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings per share is calculated on the weighted average outstanding shares in
the quarter. All per share data has been restated to reflect the July 15, 1998
stock split.
(1) The fourth quarter of 1997 was a 14 week quarter compared to 13 weeks in
the fourth quarters of 1999 and 1998.
(2) The cumulative net income per share of the four quarters in 1997 will not
equal the net income per share for the year due to the Class A common stock
repurchase in the third quarter of 1997.
45
<PAGE>
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
-------------------------------------------------------
INDEX TO EXHIBITS
EXHIBIT
2.1 Asset Purchase Agreement dated September 1, 1993 by and among
Telautograph Corporation, Arden Group, Inc., Danka Industries, Inc. and
Danka Business Systems PLC filed as Exhibit 2.1 to the Form 8-K of Arden
Group, Inc. dated September 30, 1993 and incorporated herein by
reference.
3.1.1 Restated Certificate of Incorporation of Arden Group, Inc. dated
November 7, 1988 filed as Exhibit 3.1 to the Annual Report on Form 10-K
of Arden Group, Inc. for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
3.1.2 Certificate of Amendment of Restated Certificate of Incorporation of
Arden Group, Inc. dated June 17, 1998 filed as Exhibit 3.1.2 to the
Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended
January 2, 1999 and incorporated herein by reference.
3.2 Amended and Restated By-Laws of Arden Group, Inc. (as amended and
restated as of June 25, 1991) filed as Exhibit 3.2 to the Annual Report
on Form 10-K of Arden Group, Inc. for the fiscal year ended January 2,
1993 and incorporated herein by reference.
4.1 Indenture dated as of September 1, 1964 between Arden Farms Co. and
Security First National Bank, as Trustee, pertaining to 6% Subordinated
Income Debentures, due September 1, 2014, filed as Exhibit 4.2 to
Registration Statement on Form S-1 of Arden Group, Inc. and
Arden-Mayfair, Inc., Registration No. 2-58687, and incorporated herein by
reference.
4.1.1 First Supplemental Indenture dated as of November 7, 1978, to Indenture
which is Exhibit 4.1, filed as Exhibit 7 to the Annual Report on Form
10-K of Arden Group, Inc. for the fiscal year ended December 30, 1978 and
incorporated herein by reference.
4.1.2 Second Supplemental Indenture dated as of November 7, 1978, to Indenture
which is Exhibit 4.1, filed as Exhibit 8 to the Annual Report on Form
10-K of Arden Group, Inc. for the fiscal year ended December 30, 1978 and
incorporated herein by reference.
4.1.3 Third Supplemental Indenture dated April 24, 1981, to Indenture which is
Exhibit 4.1, filed as Exhibit 4.2.3 to the Quarterly Report on Form 10-Q
of Arden Group, Inc. for the quarter ended April 4, 1981 and incorporated
herein by reference.
4.2 Loan Agreement dated December 23, 1993, as amended by a Second Amendment
thereto dated December 20, 1995, a Third Amendment thereto dated December
18, 1996 and a Fourth Amendment thereto dated January 13, 1997, between
Arden Group, Inc. and Union Bank filed as Exhibit 4.2 to the Annual
Report on Form 10-K of Arden Group, Inc. for the fiscal year ended
December 28, 1996 and incorporated herein by reference.
46
<PAGE>
EXHIBIT
4.2.1 Fifth Amendment dated April 30, 1998 to Loan Agreement between Arden
Group, Inc. and Union Bank, as previously amended which is Exhibit 4.2.
10.1* Employment Agreement dated May 13, 1988 by and among Arden Group, Inc.,
Arden-Mayfair, Inc., Telautograph Corporation and Gelson's Markets and
Bernard Briskin, filed as Exhibit 10 to the Quarterly Report on Form 10-Q
of Arden Group, Inc. for the quarter ended July 2, 1988 and incorporated
herein by reference.
10.2* Amendment to Employment Agreement dated April 27, 1994 by and between
Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and Gelson's
Markets and Bernard Briskin, filed as Exhibit 10.7 to the Quarterly
Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2,
1994 and incorporated herein by reference.
10.3* Extension Agreement dated January 4, 1981 regarding promissory notes held
by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as
Exhibit 10.2 to the Quarterly Report on Form 10-Q of Arden Group, Inc.
for the quarter ended July 4, 1981 and incorporated herein by reference.
10.4* Extension Agreement dated January 1, 1984 regarding promissory notes held
by the Registrant between Arden Group, Inc. and Bernard Briskin filed as
Exhibit 19.1 to the Quarterly Report on Form 10-Q of Arden Group, Inc.
for the quarter ended September 29, 1984 and incorporated herein by
reference.
10.5* Extension Agreement dated May 13, 1988 regarding promissory notes held by
the Registrant between Arden Group, Inc. and Bernard Briskin filed as
Exhibit 10.11 to the Annual Report on Form 10-K of Arden Group, Inc. for
the fiscal year ended December 31, 1988 and incorporated herein by
reference.
10.6* Modification and Fourth Extension Agreement dated as of January 1, 1994
regarding promissory notes held by the Registrant between Arden Group,
Inc. and Bernard Briskin, filed as Exhibit 10.8 to the Quarterly Report
on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and
incorporated herein by reference.
10.7 Form of Indemnification Agreement between the Registrant and the
Directors and certain officers, filed as Exhibit 10.13 to the Annual
Report on Form 10-K of Arden Group, Inc. for the year ended December 29,
1990 and incorporated herein by reference.
10.8* Amended Loan and Stock Pledge Agreement dated November 4, 1993 regarding
promissory notes held by the Registrant between Arden Group, Inc. and
Bernard Briskin, filed as Exhibit 10.6 to the Annual Report on Form 10-K
of Arden Group, Inc. for the year ended January 1, 1994 and incorporated
herein by reference.
10.9* Second Amendment to Employment Agreement as of January 1, 1997 by and
between Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and
Gelson's Markets and Bernard Briskin, filed as Exhibit 10.9 to the Annual
Report on Form 10-K of Arden Group, Inc. for the year ended January 3,
1998 and incorporated herein by reference.
47
<PAGE>
EXHIBIT
10.10* Modification and Fifth Extension Agreement as of January 1, 1997
regarding promissory notes held by the Registrant between Arden Group,
Inc. and Bernard Briskin, filed as Exhibit 10.10 to the Annual Report on
Form 10-K of Arden Group, Inc. for the year ended January 3, 1998 and
incorporated herein by reference.
10.11* Phantom Stock Plan of Arden Group, Inc., filed as Exhibit 10.11 to the
Annual Report on Form 10-K of Arden Group, Inc. for the year ended
January 2, 1999 and incorporated herein by reference.
21. Subsidiaries of Registrant.
23. Consent of Independent Accountants.
27. Financial Data Schedules.
* Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this report.
48
<PAGE>
EXHIBIT 4.2.1
FIFTH AMENDMENT
TO LOAN AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AGREEMENT (this "Fifth Amendment") dated as of
April 30, 1998, is made and entered into by and between ARDEN GROUP, INC., a
Delaware corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. ("Bank").
RECITALS:
A. Borrower and Bank are parties to that certain Loan Agreement dated
December 23, 1993 (the "Agreement"), pursuant to which Bank agreed to extend
credit to Borrower and amendments thereto dated October 31, 1994, December
20, 1995, December 18, 1996, and January 13, 1997.
B. Borrower and Bank desire to amend the Agreement subject to the terms and
conditions of this Fifth Amendment.
AGREEMENT:
In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:
1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
(a) Section 2.1A, of the Agreement is hereby amended by substituting the
date "April 30, 2000" for the date "April 30, 1998."
(b) Section 2A.1, of the Agreement is hereby amended by substituting the
date "April 30, 2000" for the date "April 30, 1998."
(c) Section 5.16 Reports from Guarantors of the Agreement is hereby deleted
in its entirety.
3. EFFECTIVENESS OF THE FIFTH AMENDMENT. This Fifth Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
all of the following, in form and substance satisfactory to Bank:
(a) The counterpart of this Fifth Amendment, duly executed by Borrower;
(b) The Revolving Note, duly executed by Borrower;
(c) Such other documents, instruments or agreements as Bank may reasonably
deem necessary.
4. RATIFICATION. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:
(a) Each of the representations and warranties contained in the Agreement,
as may be amended hereby, is hereby reaffirmed as of the date hereof, each as if
set forth herein;
(b) The execution, delivery and performance of the Fifth Amendment and any
other instruments or documents in connection herewith are within Borrower's
power, have been duly authorized, are legal, valid and binding obligations of
Borrower, and are not in conflict with the terms of any charter, bylaw, or other
organization papers of Borrower or with any law, indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is bound or
affected;
-1-
<PAGE>
(c) No event has occurred and is continuing or would result from this Fifth
Amendment which constitutes or would constitute an Event of Default under the
Agreement.
6. GOVERNING LAW. This Fifth Amendment and all other instruments or documents
in connection herewith shall be governed by and construed according to the laws
of the State of California.
7. COUNTERPARTS. This Fifth Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
ARDEN GROUP, INC. UNION BANK OF CALIFORNIA, N.A.
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
By:______________________________
Title:___________________________
-2-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
The following are subsidiaries of the Registrant:
<TABLE>
<CAPTION>
State or Province
of Incorporation
------------------------
<S> <C>
Arden-Mayfair, Inc. Delaware
Gelson's Markets California
AMG Holdings, Inc.
(formerly Telautograph Corporation) Virginia
</TABLE>
Arden-Mayfair, Inc. is a wholly-owned subsidiary of the Registrant. Gelson's
Markets and AMG Holdings, Inc. are wholly-owned subsidiaries of Arden-Mayfair,
Inc. All of the subsidiaries listed above are included in the consolidated
financial statements of the Registrant.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of Arden Group, Inc. on Form S-8 (File No. 333-69787) of our report
dated March 10, 2000, on our audits of the consolidated financial statements
of Arden Group, Inc. and Subsidiary as of January 1, 2000 and January 2,
1999, and for each of the three fiscal years in the period ended January 1,
2000, which report is included in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 18,157
<SECURITIES> 17,910
<RECEIVABLES> 5,952
<ALLOWANCES> 540
<INVENTORY> 12,202
<CURRENT-ASSETS> 55,775
<PP&E> 89,498
<DEPRECIATION> 38,132
<TOTAL-ASSETS> 111,279
<CURRENT-LIABILITIES> 31,098
<BONDS> 8,322
0
0
<COMMON> 1,236
<OTHER-SE> 68,040
<TOTAL-LIABILITY-AND-EQUITY> 111,279
<SALES> 324,168
<TOTAL-REVENUES> 324,168
<CGS> 192,446
<TOTAL-COSTS> 192,446
<OTHER-EXPENSES> 114,701
<LOSS-PROVISION> 191
<INTEREST-EXPENSE> 694
<INCOME-PRETAX> 17,839
<INCOME-TAX> 6,122
<INCOME-CONTINUING> 11,717
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,717
<EPS-BASIC> 3.27
<EPS-DILUTED> 3.27
</TABLE>
