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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-9904
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ARDEN GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-3163136
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2020 South Central Avenue, Compton, California 90220
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 638-2842
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No Change
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's classes of common stock as
of September 30, 2000 was:
2,088,512 of Class A common stock
1,368,984 of Class B common stock
This report contains a total of 13 pages including exhibits.
1
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PART I. FINANCIAL INFORMATION
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
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BALANCE SHEETS
<TABLE>
<CAPTION>
(In Thousands)
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ASSETS September 30, 2000 January 1, 2000
(Unaudited)
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 22,973 $ 18,157
Marketable securities 13,209 17,910
Accounts and notes receivable, net 5,960 5,412
Inventories 12,239 12,202
Other current assets 1,831 2,094
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Total current assets 56,212 55,775
Property for resale or sublease 826 868
Property, plant and equipment, at cost, less accumulated
depreciation and amortization of $42,596 and $38,132,
respectively 52,449 51,366
Other assets 3,989 3,270
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Total assets $ 113,476 $ 111,279
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable, trade $ 14,910 $ 14,853
Other current liabilities 12,663 14,016
Current portion of long-term debt 1,838 2,229
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Total current liabilities 29,411 31,098
Long-term debt 7,165 8,322
Deferred income taxes 1,129 1,125
Other liabilities 1,942 1,458
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Total liabilities 39,647 42,003
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Commitments and contingent liabilities
Stockholders' equity:
Common stock, Class A, $ .25 par value; 3,445,712 and 3,573,688 shares issued
and outstanding, respectively, including 1,357,200 treasury shares 862 894
Common stock, Class B, $ .25 par value; 1,368,984 shares issued and outstanding 342 342
Capital surplus 3,766 3,866
Notes receivable from officer/director (175) (175)
Unrealized loss on available-for-sale securities (159) (446)
Retained earnings 72,946 68,548
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77,582 73,029
Treasury stock, at cost (3,753) (3,753)
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Total stockholders' equity 73,829 69,276
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Total liabilities and stockholders' equity $ 113,476 $ 111,279
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
2
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
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STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands, Except Share and Per Share Data)
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Thirteen Weeks Ended Thirty-Nine Weeks Ended
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September 30, October 2, September 30, October 2,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Sales $ 88,009 $ 79,172 $ 263,124 $ 234,986
Cost of sales 51,352 46,581 153,857 139,192
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Gross profit 36,657 32,591 109,267 95,794
Delivery, selling, general and administrative expenses 32,318 28,851 94,507 82,846
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Operating income 4,339 3,740 14,760 12,948
Interest and dividend income 608 367 1,644 1,092
Other income (expense), net (4) (8) (414) (97)
Interest expense (190) (153) (601) (474)
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Income before income taxes 4,753 3,946 15,389 13,469
Income tax provision 1,936 1,608 6,270 4,341
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Net income $ 2,817 $ 2,338 $ 9,119 $ 9,128
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Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains (losses) arising during the period 105 (482) 51 (798)
Reclassification adjustment for gains (losses) included
in net income (3) 236 112
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Net unrealized gain (loss), net of income tax expense
(benefits) of $69 and $198 for 2000 and $(332)and
$(467) for 1999, respectively 102 (482) 287 (686)
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Comprehensive income $ 2,919 $ 1,856 $ 9,406 $ 8,442
======== ======== ========= =========
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Net income per common share:
Basic $ .81 $ .65 $ 2.58 $ 2.55
Diluted .81 .65 2.58 2.55
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Weighted average common shares outstanding:
Basic 3,457,496 3,585,472 3,531,539 3,585,472
Diluted 3,459,655 3,585,472 3,533,018 3,585,472
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
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STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In Thousands)
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Thirty-Nine Weeks Ended
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September 30, 2000 October 2, 1999
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 263,286 $ 235,931
Cash paid to suppliers and employees (244,079) (216,617)
Interest and dividends received 1,561 1,093
Interest paid (598) (521)
Income taxes paid (7,425) (6,886)
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Net cash provided by operating activities 12,745 13,000
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Cash flows from investing activities:
Capital expenditures (6,056) (13,115)
Purchases of available-for-sale securities (1,013) (3,484)
Sales of available-for-sale securities 5,793 2,658
Other (348)
Proceeds from the sale of property, plant and
equipment 96 7
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Net cash used in investing activities (1,528) (13,934)
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Cash flows from financing activities:
Purchase and retirement of Company stock (4,853)
Principal payments on long-term debt (1,379) (833)
Principal payments under capital lease obligations (169) (190)
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Net cash used in financing activities (6,401) (1,023)
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Net increase (decrease) in cash 4,816 (1,957)
Cash at beginning of period 18,157 13,647
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Cash at end of period $ 22,973 $ 11,690
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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PART I. FINANCIAL INFORMATION, Continued
STATEMENTS OF CASHFLOWS, Continued
<TABLE>
<CAPTION>
(In Thousands)
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Thirty-Nine Weeks Ended
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September 30, 2000 October 2, 1999
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<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net income $ 9,119 $ 9,128
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,929 4,217
Provision for losses on accounts and
notes receivable 113 68
Deferred income taxes (157) (258)
Net (gain) loss from the disposal of property, plant
and equipment (11) 68
Realized loss on marketable securities, net 391 74
Change in assets and liabilities net of effects from investment and
financing activities:
(Increase) decrease in assets:
Accounts and notes receivable (662) 142
Inventories (37) (540)
Other current assets 263 (605)
Other assets (370) (202)
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses (1,280) 347
Deferred income taxes on unrealized (gains)/losses (37)
Other liabilities 484 561
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Net cash provided by operating activities $ 12,745 $ 13,000
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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PART I. FINANCIAL INFORMATION, Continued
ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY
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NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Arden Group, Inc. (the "Company")
include the accounts of the Company and its direct and indirect
subsidiaries. Intercompany balances and transactions are eliminated. The
Company operates primarily in the supermarket business.
The accompanying consolidated financial statements for the three and nine
months ended September 30, 2000 and October 2, 1999 have been prepared in
accordance with the instructions for Form 10-Q, Article 10 of Regulation
S-X and generally accepted accounting principles ("GAAP") for interim
financial information. These financial statements have not been audited by
independent public accountants but include all adjustments, which in the
opinion of management of the Company, are necessary for a fair statement of
the financial position and the results of operations for the periods
presented. The accompanying consolidated balance sheet as of January 1,
2000 has been derived from audited financial statements and, accordingly,
does not include all disclosures required by GAAP as permitted by interim
reporting requirements. The results of operations for the three and nine
months ended September 30, 2000 are not necessarily indicative of the
results to be expected for the full year ending December 30, 2000.
2. MARKETABLE SECURITIES
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such
determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading securities and unrealized holding gains and losses
are included in earnings. Debt securities for which the Company does not
have the intent or ability to hold to maturity and equity securities are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, with the unrealized gains and losses, net of tax, reported
as a separate component of stockholders' equity.
3. COMMON STOCK AND NET INCOME PER COMMON SHARE
In the second quarter of 2000, the Company purchased and retired 127,976
shares of its Class A Common Stock. These shares were purchased in private
transactions from sellers not affiliated with the Company.
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. Diluted net income per share
is calculated by adjusting outstanding shares assuming conversion of all
potentially dilutive stock options. Certain of the Company's stock options
were excluded from the calculation of diluted net income per share because
they were antidilutive but these options could be dilutive in the future.
6
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PART I. FINANCIAL INFORMATION, Continued
NOTES TO FINANCIAL STATEMENTS, Continued
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives will be recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if
it is, the type of hedge transaction. The new rules will be effective the
first quarter of 2001. The Company does not believe that the new standard
will have any impact, as the Company currently holds no derivatives.
7
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PART I. FINANCIAL INFORMATION, Continued
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER ANALYSIS
Income before income taxes in the third quarter of 2000 increased 20.5% to
$4,753,000 compared to $3,946,000 during the third quarter of 1999. Operating
income was $4,339,000 in the third quarter of 2000 compared to $3,740,000 in the
same period of the prior year.
Sales from the Company's 16 supermarkets (all of which are located in Southern
California) were $88,009,000 in the third quarter of 2000. This represents an
increase of 11.2% over the third quarter of 1999, when sales were $79,172,000.
The majority of the sales increase is attributable to the opening of new stores
in Sherman Oaks and Santa Barbara, California in late August and October 1999,
respectively. Our new store in Irvine, California opened the last week of
September 2000 and did not contribute significantly to the increase in sales.
Same store sales increased 3.3% in the third quarter of 2000 compared to the
prior year. The increase in same store sales reflects the positive impact of
store remodel activity.
The Company's gross profit as a percent of sales was 41.7% in the third quarter
of 2000 compared to 41.2% in the same period of 1999. Added controls over
product costs, product pricing decisions and increased buying and promotional
allowances contributed to the increase in margins. Delivery, selling, general
and administrative ("DSG&A") expenses as a percent of sales were 36.7% in the
third quarter of 2000 compared to 36.4% in the same quarter of 1999. DSG&A
expense in the third quarter of 2000 is slightly higher as a result of the
opening of the Irvine store in late September 2000.
Interest and dividend income was $608,000 in the third quarter of 2000 compared
to $367,000 for the same period in 1999 primarily due to higher interest rates
and higher average levels of interest bearing investments in 2000.
Interest expense was $190,000 in the third quarter of 2000 compared to $153,000
in the third quarter of 1999 due to higher average levels of fixture financing
debt.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
requires that unrealized holding gains and losses for available-for-sale
securities be included as a component of stockholders' equity. Unrealized gains
on available-for-sale securities were $102,000 (net of income tax expense of
$69,000) in the third quarter of 2000 compared to unrealized losses of $482,000
(net of income tax benefits of $332,000) in the third quarter of 1999.
8
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PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
YEAR-TO-DATE ANALYSIS
During the first nine months of 2000, income before income taxes increased 14.3%
to $15,389,000 compared to $13,469,000 during the first nine months of 1999.
Operating income was $14,760,000 for the first nine months of 2000 compared to
$12,948,000 in the same period of the prior year.
Sales from the Company's 16 supermarkets (all of which are located in Southern
California) were $263,124,000 in the first nine months of 2000. This represents
an increase of 12.0% over the first nine months of 1999 when sales were
$234,986,000. The majority of the sales increase is attributable to the opening
of new stores in Sherman Oaks and Santa Barbara, California as previously
described. Our new store in Irvine, California opened the last week of September
2000 and did not contribute significantly to the increase in sales. Same store
sales increased 2.5% in the first nine months of 2000 compared to the prior
year. The increase in same store sales reflects the positive impact of store
remodel activity.
The Company's gross profit as a percent of sales was 41.5% in the first nine
months of 2000 compared to 40.8% in the same period of 1999. Added controls over
product costs, product pricing decisions and increased buying and promotional
allowances contributed to the increase in margins. DSG&A expenses as a percent
of sales were 35.9% in the first nine months of 2000 compared to 35.3% in the
same period of 1999. An increase in salaries and promotions expense contributed
to the rise in DSG&A expense in 2000. In addition, the opening of two new stores
and a major remodel in late 1999 resulted in a slight increase in DSG&A expense
as a percent of sales in early 2000. Expense was also higher due to the opening
of the Irvine store in late September 2000.
Interest and dividend income was $1,644,000 in the first nine months of 2000
compared to $1,092,000 for the same period in 1999 primarily due to higher
interest rates and higher average levels of interest bearing investments in
2000.
Interest expense was $601,000 in the first nine months of 2000 compared to
$474,000 in the first nine months of 1999 due to higher average levels of
fixture financing debt.
Other income (expense) includes net losses realized on the sale of marketable
securities of $391,000 and $74,000 in the first nine months of 2000 and 1999,
respectively.
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that unrealized holding gains and losses for
available-for-sale securities be included as a component of stockholders'
equity. Unrealized gains on available-for-sale securities were $287,000 (net of
income tax expense of $198,000) compared to unrealized losses of $686,000 (net
of income tax benefits of $467,000) in the first nine months of 2000 and 1999,
respectively.
In June 1999, the California Franchise Tax Board withdrew assessments against
the Company related to its 1986 through 1989 tax returns. As a result, the
income tax provision for the first nine months of 1999 reflects a $1,286,000
reduction of tax reserves.
9
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PART I. FINANCIAL INFORMATION, Continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
CAPITAL EXPENDITURES/LIQUIDITY
The Company plans to utilize cash-on-hand (including marketable securities) and
cash flow from operations to fund capital expenditures in 2000. The Company has
a $10,000,000 nonrevolving line of credit providing for term loans to finance
store fixtures and equipment under which no additional borrowing capacity is
available. At the end of the third quarter of 2000, the outstanding borrowings
on the line totaled $5,263,000.
The Company also has two revolving lines of credit totaling $8,000,000. There
were no outstanding balances against either of the revolving lines as of
September 30, 2000.
The Company opened a new store in Irvine, California during the last week of
September 2000 and anticipates completing a major remodel of the Westlake
Village store in the fourth quarter of 2000. The Company has also entered into
agreements to open new Gelson's Markets in Dana Point, Pasadena and Beverly
Hills, California. The Dana Point store is expected to open in early 2001, with
the remaining stores beginning operations in subsequent years. All new store
openings are subject to, among other things, necessary governmental approvals
and the developers fulfilling certain conditions.
ITEM 3. 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 $5,000,000 and
$3,000,000 revolving lines of credit. Borrowings under the agreements bear
interest at the bank's reference rate or the bank's adjusted LIBOR rate plus a
margin. There were no borrowings outstanding under either agreement as of
September 30, 2000. A hypothetical 1% interest rate change would have no impact
on the Company's financial position or results of operations.
A change in market prices also exposes the Company to market risk related to its
investments in marketable securities. At September 30, 2000, the Company held
$13,209,000 in marketable securities. A hypothetical 10% drop in the market
value of these investments would result in a $1,321,000 unrealized loss and a
corresponding decrease 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 Company sold the investments.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARDEN GROUP, INC.
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Registrant
Date November 13, 2000 /s/DAVID M. OLIVER
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David M. Oliver
Chief Financial Officer
(Authorized Signatory)
11
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ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO EXHIBITS
EXHIBIT
27. Financial Data Schedules.
12
