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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 (FEE REQUIRED)
For the fiscal year ended December 30, 1995
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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
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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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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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. / /
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 15, 1996 was:
Class A Common Stock $38,515,188
The number of shares outstanding of the registrant's classes of common stock as
of March 15, 1996 was:
785,753 of Class A Common Stock
343,246 of Class B Common Stock
This report, including the Exhibits, contains a total of 53 pages. An index to
the Exhibits appears on pages 49 and 50, inclusive.
PART I
ITEM 1. BUSINESS;
ITEM 2. PROPERTIES; AND
ITEM 3. LEGAL PROCEEDINGS
GENERAL
The Registrant, Arden Group, Inc. (sometimes hereinafter referred to as the
"Company"), is a holding company with certain real estate holdings and 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 greater Los Angeles, California area.
Another wholly-owned subsidiary of Arden-Mayfair, AMG Holdings, Inc. ("AMG
Holdings"), formerly known as Telautograph Corporation ("Telautograph"), was
engaged primarily in the distribution and servicing in the United States and
Canada of facsimile and other communication equipment, and the sale of parts and
consumables related thereto. On September 17, 1993, AMG Holdings sold its
communication equipment business and substantially all of the operating assets
and certain of the liabilities of such business. See "Disposition of Assets of
Discontinued Operations" below and Note 14 of Notes to Financial Statements.
AMG Holdings' wholly-owned subsidiary, GPS Pool Supply, Inc. ("GPS"), which
processes and distributes chemicals and equipment and supplies for the
maintenance of swimming pools, was sold on May 27, 1994. See Note 15 of Notes
to Financial Statements.
Arden Group is headquartered at 2020 South Central Avenue, Compton, California
90220 and its telephone number is (310) 638-2842.
BUSINESS AND PROPERTIES OF ARDEN-MAYFAIR AND GELSON'S
MARKET OPERATIONS
With the opening of another supermarket in January 1996, Gelson's currently
operates 12 supermarkets in the greater Los Angeles, California area; nine under
the name "Gelson's" and three 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 number of private label items. Gelson's is a
supermarket chain targeted at both the discriminating and trend-conscious
customer, while the Mayfair markets offer a more limited selection of goods. The
Company believes that all of the Gelson's and Mayfair stores are distinguished
by their superior customer service and merchandise presentation, selection and
quality.
The first Gelson's store was opened in Burbank, California in 1946. Gelson's
was incorporated in California in 1959 and in 1965, Gelson's, which then
consisted of three stores, was acquired by Arden-Mayfair. Arden-Mayfair became
a wholly-owned subsidiary of the Company in a corporate restructuring completed
in December 1978.
1
The Mayfair markets were acquired in 1929 by Arden Farms, a dairy operation
founded in 1925. In 1964 and 1965 Arden Farms underwent a corporate
restructuring, and the name of the surviving corporation was changed to Arden-
Mayfair, Inc. By the mid-1970's, Arden-Mayfair owned or leased 190 grocery
stores located in five states. In the late 1970's and the 1980's, Arden-Mayfair
undertook a strategic review of its supermarket operations and began divesting
and closing stores, particularly those located outside of the Southern
California region. Although the last phase of this plan of divestiture was
completed with the closing or sale of four Mayfair markets since 1989, the
Company continues to evaluate each store's operation and financial contribution.
All of the stores currently operated by Gelson's are located in the greater Los
Angeles, California area. Management practices and operating philosophies at
the remaining Mayfair markets have been shifted towards the Gelson's approach.
Three new market locations are planned, one of which is subject to the developer
fulfilling certain conditions.
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 and committed base of customers. Central elements
of this strategy are as follows:
MERCHANDISE. The merchandise offerings in the Gelson's and Mayfair markets are
tailored in response to each store's customer profile, while seeking economic
efficiencies through centralized purchasing, marketing and accounting
operations. Gelson's stores, which range in size from approximately 29,000 to
approximately 40,000 square feet, typically carry a wide range of items,
including all of the traditional grocery categories such as produce, dry
groceries, meats, dairy, wine and liquor, 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
items such as imported foods and unusual delicatessen items, and service
departments such as seafood, delicatessens, sit-down coffee areas and bakeries.
Some Gelson's stores include additional service departments such as fresh pizza
and pasta preparation, flower departments, coffee bars and outside seating
areas. Additionally, the newly opened store at Calabasas offers banking and
pharmacy services through third parties.
The three Mayfair stores, which are smaller than Gelson's stores (approximately
18,000 to approximately 26,000 square feet), offer a merchandise selection which
is somewhat narrower than at Gelson's. Produce and other perishables are the
same as those purchased for Gelson's and therefore are of high quality.
SERVICE. Gelson's emphasizes customer service by operating a variety of
departments offering personal service including seafood, delicatessen and bakery
departments. Stores are staffed so that even at peak times customer waiting in
checkout lines is minimized. In addition to checkers, there are personnel
dedicated to bagging and carryout. All employees are encouraged to know
customers by name, develop a personal rapport with them and assist them whenever
possible. All Gelson's and Mayfair stores offer their own credit cards to
qualified customers as well as allowing customers the option of paying for their
purchases with bank credit and debit cards.
2
Stores are typically open 12 hours to 18 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 Gelson's and Mayfair stores are maintained in accordance with
extremely high standards. Personnel continuously fill and face shelves.
Produce and other perishables are aggressively trimmed and culled to maintain
appearance.
PRICING. The pricing strategy at Gelson's and Mayfair stores is to be
competitive within their market niches on most products, ranging from the more
traditional to the more exotic, specialty or high-end items.
EXPANSION AND STORE DEVELOPMENT. Management regularly evaluates the feasibility
of opening new stores and remodeling existing stores in order to maximize their
appeal to consumers and their profit potential. Total capital expenditures for
1995, including the development of the shopping center and Gelson's Market in
Calabasas, was $10,731,000, including costs of remodeling, new equipment and
leasehold improvements.
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, and new products.
COMPETITION
The retail grocery business is very competitive nationwide. It is especially
intense in the greater Los Angeles area. Competition in the supermarket business
is based primarily upon price, merchandise 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. Competition also exists from many other types of retailers
with respect to particular products. Gelson's and Mayfair 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 Gelson's and Mayfair store has on-site stockroom capacity, the amount of
which varies for each store. In addition, Gelson's operates an 89,000 square
foot warehouse in the City of Commerce, California, which distributes fresh
fruits and vegetables, liquor, and a limited number of grocery, meat and
delicatessen items to Gelson's and Mayfair stores.
3
The bulk of all merchandise purchasing is accomplished through Gelson's office
in Encino, California. Approximately one third of the purchases are executed
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 Gelson's and Mayfair stores is Certified Grocers, a
cooperative wholesaler which has been a supplier for over twenty years and which
accounted for approximately 21% of Gelson's purchases in 1995. No other
supplier accounts for a material percentage of Gelson's purchases. The Company
believes that the impact of a loss of Certified Grocers as a supplier for
Gelson's likely would be minimized by a combination of events, which could
include: (i) purchasing for direct store delivery certain items currently
purchased through Gelson's warehouse, thereby freeing warehouse capacity to
allow new items to be purchased through that warehouse, and (ii) purchasing
certain products through other wholesalers in the area. However, such a loss
could have a short term adverse effect on the performance of Gelson's.
EMPLOYEES
Gelson's has approximately 925 full-time and 665 part-time employees. Most
store level, warehouse and distribution 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 employee relations
are good.
In addition, Arden-Mayfair has approximately 60 full-time employees at its
executive and headquarters offices of which approximately 57 are in
administration and three are in executive officer positions.
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 materially 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
the operations of Gelson's, expenditures for continued compliance with current
laws are not expected to have a material effect on capital expenditures,
earnings or Gelson's competitive position.
4
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 effect upon either
the Company's consolidated financial position or results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company is involved in arbitration proceedings
related to the sale of its communication equipment business in fiscal 1993. See
"Disposition of Assets of Discontinued Operations" (Note 14 of Notes to
Financial Statements).
PROPERTIES
The Company currently owns three and leases nine of its supermarket properties.
Also leased is the warehouse and distribution facility which services its
markets. Supermarkets are leased for terms which may include options of up to
40 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 20 years. The 12 markets
range in size from approximately 18,000 to approximately 40,000 square feet.
Gelson's warehouse and distribution facility in the City of Commerce,
California, consists of approximately 89,000 square feet. The term of the lease
for this facility, including renewal options, expires on September 30, 2005.
In November 1993, the Company purchased a neighborhood shopping center in
Calabasas, California and developed a new shopping center on the site on which a
Gelson's store opened in January 1996. In January 1996, the Company purchased a
site for a Gelson's market in Santa Barbara. The Company has also signed two
long-term leases to open new Gelson's markets subject to the Company's due
diligence, receipt of necessary entitlements and the developer 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 has
recently been subleased but is not yet occupied. The lease on this property
expires in 2012, including renewal options.
SALE OF GPS
The stock of GPS, a wholly-owned subsidiary of AMG Holdings, was sold to Pioneer
Chlor Alkali Investments, Inc. for $3,515,000 on May 27, 1994. The Company
recognized a pretax gain on the sale of GPS, net of related expenses, of $9,000.
GPS processes, manufactures and distributes chemicals, primarily chlorine and
acid, manufactures and distributes equipment and supplies for the maintenance of
swimming pools and distributes related chemical products to the industrial
market. Revenues generated by GPS constituted 1.9% of the Company's total
revenue in 1994.
5
DISPOSITION OF ASSETS OF DISCONTINUED OPERATIONS
Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the "Asset
Purchase Agreement"), by and among Telautograph, the Company and Danka
Industries, Inc. (the "Purchaser") and Danka Business Systems PLC ("Danka"), on
September 17, 1993 AMG Holdings sold its communication equipment business and
substantially all 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 (which includes $1,000,000 received
for a covenant not-to-compete), subject to certain post-closing adjustments. In
fiscal 1993, AMG Holdings booked a gain related to the sale of approximately
$620,000, net of income taxes of $424,000.
The purchase price and the gain are subject to adjustment after resolution of
disputes which have arisen between AMG Holdings and Purchaser concerning the
assets and liabilities transferred to the Purchaser. As a result of an
arbitration hearing, in April 1994 the Company was awarded $1,750,000 for parts
inventory which was purchased by Purchaser as part of the sale of the Company's
communication equipment business in 1993. The valuation of such inventory on
the balance sheet at the date of sale had been in dispute. No amount with
respect to this inventory had been included in the 1993 gain from the sale of
such business. Expenses related to the arbitration have not exceeded and will
be netted against the award. Additionally, there is a second arbitration with
regard to certain items on the closing balance sheet of the communication
equipment business which are being disputed. The Company does not believe
adjustments resulting from the second arbitration, if any, will have a material
adverse impact on its financial position. However, due to the uncertainty of
the outcome of this arbitration, no income or expenses related to the first
arbitration award and no expenses related to the second arbitration have been
recognized in the 1994 or 1995 statements of operations of the Company.
Excluded from the assets sold by Telautograph to the Purchaser were, among other
items, all the capital stock of GPS, cash and cash equivalents, investments in
the Class A Common Stock of the Company, the real property lease at 8700
Bellanca, Los Angeles, California and intercompany accounts.
The results of operations for the communication equipment business of AMG
Holdings has been presented separately as discontinued operations in 1993.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Class A Common Stock 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:
1995 1994
---- ----
High Low High Low
---- --- ---- ---
1st Quarter 46 42-1/2 54 44
2nd Quarter 47 42-1/2 51 38
3rd Quarter 52-1/2 45 55 32
4th Quarter 65-1/2 50 54-1/2 44
There is no established public trading market for the Company's Class B
Common Stock, which is subject to various restrictions on transfer.
(b) As of December 30, 1995, there were 1756 holders of record of the Company's
Class A Common Stock, with aggregate holdings of 791,637 shares of Class A
Common Stock. This does not include 339,300 shares of the Company's Class
A Common Stock which are owned by AMG Holdings. As of the same date, there
were 12 holders of record of the Company's Class B Common Stock, with
aggregate holdings of 343,246 shares of Class B Common Stock.
(c) No dividends have been paid on either Class A Common Stock or Class B
Common Stock during the past three years. 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.
7
ITEM 6. SELECTED FINANCIAL DATA OF ARDEN GROUP, INC. (in thousands, except per share data and other data)
Fifty-Three Fifty-Two
Fifty-Two Weeks Weeks Weeks
--------------------------------------------------- --------------- -------------
1995 1994 1993 1992 1991
OPERATIONS:
--------------- --------------- --------------- --------------- -------------
Sales $242,962 $246,199 $246,912 $250,367 $250,643
--------------- --------------- --------------- --------------- -------------
Gross profit 95,053 95,021 94,150 93,794 94,105
--------------- --------------- --------------- --------------- -------------
Operating income 8,212 8,305 6,411 7,783 4,238
Other income (expense) 3,560 (183) 50 (573) (2,275)
Income tax expense (4,661) (3,273) (2,623) (2,936) (788)
--------------- --------------- --------------- --------------- -------------
Income from continuing operations,
net of income taxes 7,111 4,849 3,838 4,274 1,175
Income (loss) from discontinued
operations, net of income taxes 2,836 615 (1,409)
--------------- --------------- --------------- --------------- -------------
Income (loss) before extraordinary item 7,111 4,849 6,674 4,889 (234)
Extraordinary item, net of income taxes (406)
--------------- --------------- --------------- --------------- -------------
Net Income (loss) $7,111 $4,849 $6,674 $4,483 $ (234)
--------------- --------------- --------------- --------------- -------------
--------------- --------------- --------------- --------------- -------------
Depreciation on continuing operations $3,308 $3,576 $4,110 $4,076 $4,067
Number of supermarkets at year-end 11 12 12 12 13
FINANCIAL POSITION:
Total assets $89,478 $91,322 $112,471 $107,226 $126,670
Working capital $28,706 $36,506 $51,549 $20,589 $14,182
Long term debt $7,695 $6,465 $7,654 $13,161 $14,607
Stockholders' equity $53,827 $57,836 $67,535 $60,873 $57,402
Capital expenditures $10,731 $6,948 $6,406 $2,449 $4,551
Cash dividends paid common stock None None None None None
PER SHARE DATA:
Income from continuing operations $5.47 $3.18 $2.38 $2.65 $ .73
Income (loss) from discontinued
operations 1.76 .38 (.88)
--------------- --------------- --------------- --------------- -------------
Income (loss) before extraordinary item 5.47 3.18 4.14 3.03 (.15)
Extraordinary item ( .25)
--------------- --------------- --------------- ---------------- -------------
Net Income (loss) $5.47 $3.18 $4.14 $2.78 $ (.15)
--------------- --------------- --------------- --------------- -------------
--------------- --------------- --------------- --------------- -------------
Cash dividends paid on common stock None None None None None
--------------- --------------- --------------- --------------- -------------
Weighted average common shares outstanding 1,299,002 1,527,128 1,612,724 1,612,724 1,612,724
--------------- --------------- --------------- --------------- -------------
--------------- --------------- --------------- --------------- -------------
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During 1993, the Company sold its communication equipment business. See Note 14
of Notes to Financial Statements for a discussion of the disposition of assets
of discontinued operations. The following Management's Discussion and Analysis
of Financial Condition and Results of Operations is a discussion of the
continuing operations of the Company.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
During 1995, the Company had net income from continuing operations net of income
taxes of $7,111,000 compared to $4,849,000 during 1994. Pretax income from
continuing operations was $11,772,000 for 1995 compared to $8,122,000 for 1994.
As described below, included in 1995 income are $1,430,000 of net unrealized
gains related to marketable securities compared to net unrealized losses of
$1,786,000 in 1994.
During 1995, the Company's operating income from its market operations was
$8,212,000 compared to $8,492,000 during 1994 representing a decrease of
approximately 3.3%. Sales from the Company's supermarkets were $242,962,000 in
1995, an increase of 0.6% from 1994 when sales were $241,587,000. Same store
sales increased 1.5% in 1995 compared to 1994. Sales have been negatively
impacted by competitors opening new stores in Gelson's trading areas.
The Company is continually searching for additional store locations and is in
varying stages of discussions on various new locations. In November 1993, the
Company purchased a neighborhood shopping center in Calabasas, California and
developed a new shopping center on the site on which a Gelson's store opened in
January 1996. Additionally, there are spaces for thirteen tenants in the
center. In January 1996, the Company purchased a site for a Gelson's Market in
Santa Barbara and is planning to open a new Gelson's Market in the latter part
of 1996. The Company has also signed two long-term leases to open new Gelson's
markets subject to the Company's due diligence, receipt of necessary
entitlements and the developer fulfilling certain conditions. In October 1995,
the Company closed a Mayfair Market in West Hollywood, California and, in
January 1996, sold the land and building for a pretax gain of $584,000.
The Company's gross profit from market operations as a percentage of sales was
39.1% in 1995 compared to 38.9% in 1994.
Delivery, selling, general and administrative ("DSG&A") expenses for the market
operations were $86,841,000 in 1995 compared to $85,451,000 in 1994. Expenses
as a percentage of sales were 35.7% in 1995 compared to 35.4% in 1994. As a
result of negotiations for new collective bargaining agreements completed in
1993 covering retail clerks and meat cutters, Gelson's recognized $966,000 and
$2,500,000 in credits in 1995 and 1994, respectively, against health and welfare
payments otherwise payable. In 1994 the Company recognized charges of
$1,080,000 to terminate a vacant store lease and to reserve for the remaining
lease costs of two vacant stores located in Arizona. The closure of the
original Calabasas shopping center, the subsequent development of the new
shopping center and higher levels of real estate activity increased
9
DSG&A expense by approximately $580,000 in 1995 compared to 1994. Improved
claims history resulted in lower workers' compensation expense of approximately
$750,000 in 1995 compared to 1994.
The Company's interest and dividend income was $2,702,000 in 1995 compared to
$3,050,000 for the same period in 1994. This decrease in interest income was
the result of a decreased level of short-term investments and marketable
securities partially offset by an increase in earnings rates on investments.
Interest expense for the Company was $559,000 in 1995 compared to $946,000 for
1994. The Company retired approximately $5,310,000 in mortgage debt in 1994 and
had lower average levels of capital lease and fixture debt in 1995 compared to
1994.
In 1995, the market value of the Company's holdings in marketable securities
increased from the market value at December 31, 1994. Pursuant to Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", net unrealized gains of $1,430,000 related to
marketable securities were reflected in earnings compared to net unrealized
losses of $1,786,000 in 1994. Net realized gains on the sale of securities were
$31,000 in 1995 compared to net realized losses of $663,000 in 1994.
For an analysis of the Company's provision for income taxes, see Note 10 of
Notes to Financial Statements.
Net income per share is based on the weighted average number of common shares
outstanding during the period. Due to the purchase of Class A shares in the
fourth quarter of 1995 (see Note 8 of Notes to Financial Statements) the
weighted average number of shares will be reduced in the future.
1994 COMPARED TO 1993
During 1994, the Company had net income from continuing operations net of income
taxes of $4,849,000 compared to $3,838,000 during 1993. Pretax income from
continuing operations was $8,122,000 for 1994 compared to $6,461,000 for 1993.
During 1994, the Company's operating income from its market operations was
$8,492,000 compared to $6,243,000 during 1993 representing an increase of
approximately 36%. Sales from the Company's 12 supermarkets were $241,587,000
in 1994, an increase of 3.2% from 1993 when sales were $234,209,000. Many
supermarket chains operating in Southern California have reported same store
sales decreases in 1994 compared to 1993 due to the continuing recession, low
levels of inflation and increased competition.
The Company operates supermarkets in the greater Los Angeles area and
periodically reviews the operations and contribution of each store as part of
the continuing business. The Company is continually searching for additional
store locations and is in varying stages of discussions on various new
locations.
10
The Company's gross profit from market operations as a percentage of sales was
38.9% in 1994 compared to 38.7% in 1993. Union wage and benefit cost increases
was one of the considerations which resulted in the Company increasing its
product pricing in 1994 and which also contributed to the increase in operating
income.
Delivery, selling, general and administrative ("DSG&A") expenses for the market
operations were $85,451,000 in 1994 compared to $84,380,000 in 1993. Expenses
as a percentage of sales were 35.4% in 1994 compared to 36.0% in 1993. As a
result of negotiations for new collective bargaining agreements completed in
1993 covering retail clerks and meat cutters, Gelson's recognized $2,500,000 and
$724,000 in credits in 1994 and 1993, respectively, against health and welfare
payments otherwise payable. A charge to operations of $1,300,000 in the first
quarter of 1994 for the estimated uninsured portion of losses related to the
January 17 earthquake centered in Northridge, California was offset in the
fourth quarter of 1994 with the recognition of anticipated earthquake cost
recoveries of $1,300,000. In 1994, the Company recognized charges of $1,080,000
to terminate a vacant store lease and to reserve for the remaining lease costs
of two vacant stores located in Arizona. Improved claims history resulted in
lower workers' compensation expense in 1994 compared to 1993.
The swimming pool chemical processing and distribution operations, conducted by
GPS, posted an operating loss of $187,000 on 1994 sales of $4,612,000 prior to
the sale of GPS on May 27, 1994. A pretax gain of $9,000 on the sale of GPS
stock is recorded as other income and is net of a $144,000 charge to remediate
soil contamination at GPS's facility in the City of Industry. This compares to
1993 operating income of $168,000 on sales of $12,703,000.
The Company's interest and dividend income was $3,050,000 in 1994 compared to
$1,404,000 for the same period in 1993. This increase in interest income was
the result of an increased level of short-term investments and marketable
securities and an increase in earnings rates on investments.
Interest expense for the Company was $946,000 in 1994 compared to $1,486,000 for
1993. In 1994, the Company retired approximately $5,310,000 in mortgage debt
and reduced capital lease and fixture financing debt by approximately
$1,710,000.
In 1994, the market value of the Company's holdings in marketable securities
declined. Pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", net
unrealized losses of $1,786,000 related to marketable securities were reflected
in earnings. Net realized losses on the sale of securities were $663,000 in
1994. No realized or unrealized losses on marketable securities occurred in
1993.
For an analysis of the Company's provision for income taxes, see Note 10 of
Notes to Financial Statements. The adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", in 1993 did not
have a material effect on either the Company's results of operations or
financial position.
Net income per share is based on the weighted average number of common shares
outstanding during the period. Due to the purchase of Class A shares in 1994
the weighted average number of shares will be reduced in the future.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company has an ongoing program to remodel existing supermarket locations and
to add new locations. In November 1993, the Company purchased a neighborhood
shopping center in Calabasas, California and built a new shopping center on the
site which opened in January 1996 and includes a Gelson's market. At
December 30, 1995, capital expenditure commitments were approximately
$6,000,000, with additional projects anticipated for commencement during 1996.
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. However, three claims have been made against
the Company in connection with real properties previously owned or leased by the
Company or a subsidiary thereof by the current owner of such properties. In each
such instance, the Company has been asked to pay for a portion of the cost of
remediation of hazardous substances allegedly existing on such properties. The
Company cannot at this time estimate the expenses it ultimately may incur in
connection with these claims, however, it believes such expenses will not be of
a material amount. Although unexpected violations may occur in the future and
although the Company cannot predict the effect of future laws or regulations on
the Company's operations, expenditures for continued compliance with current
laws are not expected to have a material impact on its capital expenditures,
earnings or competitive position.
The Company has a credit facility with a bank with a revolving loan agreement
totaling $9,000,000 and a term loan line of credit totaling $10,000,000, and a
revolving line of credit with another bank in the amount of $3,000,000. The
Company borrowed $2,750,000 against the term loan line of credit at December 30,
1995 to finance store fixtures and equipment. None of the revolving lines had
been utilized as of December 30, 1995. The Company's current cash position
including marketable securities, the lines of credit and net cash provided by
operating activities (approximately $9,975,000 for 1995) are the primary
resources of funds available to maintain the Company's current liquidity
requirements. See Note 7 of Notes to Financial Statements for a description of
the Company's credit lines.
In the fourth quarter of 1995, the Company purchased 179,229 shares of Class A
Common Stock for approximately $11,194,000.
The Company's total liabilities to equity ratio improved to .66 at December 30,
1995 from .58 at December 31, 1994. The Company's current ratio was 2.21 at
December 30, 1995 compared to 2.53 at December 31, 1994.
The Company's cash position, including marketable securities, at the end of 1995
was $30,262,000 compared to $38,941,000 at the end of 1994. Cash not required
for the immediate needs of the Company has been temporarily invested in
marketable securities. See Note 1 of Notes to Financial Statements. The
Company is actively investigating opportunities for the use of these funds,
including the expansion of its supermarket operations.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements, Supporting Schedules and
Supplemental Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
13
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 15, 1996. Certain of this information has been
supplied by the persons shown.
Principal Occupation (1) Director Term
Name Age and Other Directorships Since Expires
---- --- ------------------------ -------- -------
Bernard Briskin 71 Chairman of the Board of Directors, 1970 1998
President and Chief Executive Officer
of the Company and Arden-Mayfair,
Inc., a subsidiary of the Company,
and Chairman of the Board of AMG
Holdings, Inc. and Gelson's Markets,
both subsidiaries of Arden-Mayfair.
John G. Danhakl 39 Partner, Leonard Green & Partners 1995 1998
since March 1995. Managing Director
of Donaldson Lufkin Jenrette
Securities Corporation from March
1990 to February 1995.
Robert A. Davidow 53 Director of WHX Corporation since 1993 1996
April 1991; private investor.
Stuart A. Krieger 78 Business Consultant. Director of 1978 1998
American Rocket Co.
Daniel Lembark 71 Financial consultant and Certified 1978 1998
Public Accountant.
Frederick A. Schnell 85 President (retired), Western 1975 1996
Operations, The Prudential Insurance
Company of America.
Ben Winters 75 Business Consultant. 1978 1997
(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
Identification of Executive Officers
Below is set forth certain information about each of the executive officers
of the Company as of March 15, 1996:
Name Age Position(s)
---- --- -----------
Bernard Briskin 71 Chairman of the Board of Directors, President and
Chief Executive Officer of the Company and Arden-
Mayfair, and Chairman of the Board of AMG Holdings
and Gelson's Markets.
Milton H. Barker 78 Vice President of the Company and Arden-Mayfair.
Ernest T. Klinger 60 Vice President Finance and Administration and
Chief Financial Officer of the Company and Arden-
Mayfair, and Secretary/Treasurer of AMG Holdings
and Gelson's Markets.
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, 2001, 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. Barker has been associated with Arden-Mayfair and the Company in various
legal and executive capacities for over 50 years.
Mr. Klinger has been Vice President Finance and Administration and Chief
Financial Officer of the Company since October 1986. Between January 1983 and
September 1986 he held the position of Vice President Finance and Treasurer and
Chief Financial Officer of the Company. In 1989, he was appointed
Secretary/Treasurer of Gelson's Markets and in 1993 was appointed
Secretary/Treasurer of AMG Holdings, Inc.
Except for Mr. Briskin, who has an employment agreement, all officers serve at
the pleasure of the Board of Directors.
Section 16(a) of the Securities Exchange Act of 1934 requires that directors and
executive officers of the Company, as well as persons holding more than ten
percent (10%) of a registered class of the Company's equity securities, file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes of ownership of Class A Common Stock and other equity
securities of the Company. Based solely on review of copies of such reports
furnished to the Company and written representations that no other reports were
required to be filed during the fiscal year ended December 30, 1995, all Section
16(a) filing requirements applicable to the Company's executive officers,
directors and greater than ten percent (10%)
15
beneficial owners were complied with other than Bernard Briskin who had
inadvertently failed to include in his reports the ownership of and changes
in the holdings of Class A Common Stock by a pension plan trust of which his
spouse was a beneficiary and which are now held in an Individual Retirement
Account for her benefit. After discovering this omission, Mr. Briskin
corrected this deficiency by filing a report reflecting these holdings and
disclosing four late reports consisting of a report in 1988 to reflect
initially these holdings, two reports reflecting a sale of shares of Class A
Common Stock by the trust in 1989 and 1990, respectively, and one report
reflecting an acquisition of shares of Class A Common Stock by the trust in
1995.
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
December 30, 1995 exceeded in the aggregate $100,000.
--Long Term Compensation---
-------Annual Compensation-------- --------Awards--------- -Payouts-
Securities-
Other Annual Restricted Underlying All Other
Name and Compensation Stock Award(s) Options/ LTIP Compen-
Principal SARS Payouts sation
Position Year Salary ($) Bonus ($) ($)(6) (3) (#)(3) (3) ($)(5)
-------- ---- ---------- --------- ------ --- ------ --- ------
Bernard Briskin, 1995 444,400 407,624 20,416 7,500 (4)
Chief Executive 1994 440,000 273,068 41,791 (2) 3,000 (4)
Officer 1993 350,000 2,248,019 (1) 994,609 (2) -0-
Ernest T. Klinger, 1995 190,000 40,000 7,500 (4)
CFO, VP Finance 1994 190,000 -0- 3,000 (4)
and Administration 1993 190,000 -0- 9,450 (4)
(1) Includes a one time bonus to Mr. Briskin of $1,911,827 related to the
sale of the Company's communication equipment business.
(2) Includes for fiscal 1993 a payment of $941,676 to Mr. Briskin under a
deferred compensation arrangement. Also includes payments to Mr.
Briskin of $30,242 and $42,085 for fiscal years 1994 and 1993,
respectively, for the purpose of enabling him to purchase life
insurance.
(3) The Company did not grant to Mr. Briskin or Mr. Klinger any restricted
stock, stock options or stock appreciation rights ("SARs") and made no
payout to them on any long-term incentive plan in fiscal years 1995,
1994 or 1993.
(4) The amount of the Company contribution to the Arden Group, Inc. 401(k)
Retirement Savings Plan allocated to the named executive officer.
16
(5) Does not include retirement benefits from the Telautograph Pension
Plan (terminated in December 1993) or benefits allocable under the
Company Stock Bonus Plan.
(6) Perquisites and other personal benefits did not exceed the lesser of
$50,000 or 10% of the compensation received by the named officers in
any of the years for which compensation information is reported.
Compensation Pursuant to Plans
Due to the sale of the communications business in fiscal 1993, the
Telautograph Defined Benefit Retirement Income Plan ("the Plan"),
which covered certain eligible nonunion former employees of
Telautograph, was terminated and all of the assets of the Plan were
distributed to the participants in December 1993. Each Plan
participant was given a choice of receiving the distribution in the
form of a lump sum payment with a rollover option or an annuity to
begin at retirement age (as defined by the Plan). The Plan was fully
funded at the termination date. The only executive officers of the
Company who were entitled to participate in the Plan were Messrs.
Briskin and Klinger. As a result of the termination of the Plan, Mr.
Briskin elected to receive a joint survivor annuity of $178,092 per
year and Mr. Klinger elected a lump sum payment of $172,630.
Employment Agreement
The compensation of Mr. Bernard Briskin, the Chief Executive Officer
of the Company, is established under an Employment Agreement dated May
13, 1988 (the "Employment Agreement") which was amended in April 1994,
effective January 1, 1994 (the "Amended Employment Agreement"). The
Amended Employment Agreement provides, in pertinent part, that Mr.
Briskin will retain the same positions and would become Chairman of
the Board not later than January 1, 1995. The term of the Amended
Employment Agreement expires January 1, 2001. Effective January 1,
1994, his base salary was increased from $350,000 per year to $440,000
per year. Pursuant to the terms of the Amended Employment Agreement,
Mr. Briskin's base salary was increased effective January 1, 1996 to
$450,177 per year and will be increased on January 1 of each
succeeding year of the term of the Amended Employment Agreement based
upon increases in the Consumer Price Index subject, however to a
maximum annual increase. 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. The Amended Agreement also provides for certain
expense reimbursement and personal benefits, including payment or
reimbursement for uninsured medical expenses of Mr. Briskin and his
immediate family up to a maximum of $100,000 during any calendar year.
In addition, if he becomes permanently disabled, dies or his
employment is terminated prior to January 1, 2001, the unpaid portion
of two notes from Mr. Briskin to the Company in the amounts of
$151,786 and $216,964, respectively (see Item 13), will be forgiven.
In addition, the maturity dates of the two notes were extended to
December 31, 2000 with approximately equal annual payments of
principal plus interest at 6% per annum.
17
Remuneration of Directors
Non-employee directors are compensated for their services as directors
at an annual rate of $12,000, plus $750 for each Board meeting
attended and $750 for attendance at each committee meeting. Non-
employee directors who serve as committee chairmen are entitled to an
additional $3,000 per year. Mr. Briskin is an employee of the Company
and does not receive the compensation otherwise payable to directors.
Compensation Committee Interlocks and Insider Participation
The Board of Directors has a Compensation Committee. In 1995 the
Compensation Committee was comprised of the following directors:
Daniel Lembark, Chairman
Robert A. Davidow
Frederick A. Schnell
Ben Winters
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 15, 1996
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: (1)
Amount and Nature
Name and Address of of Beneficial Percent of Percent of
Beneficial Owner Title of Class Ownership Class Total Vote
---------------- -------------- --------- ----- ----------
City National Bank, as Trustee of Class A Common Stock 212,922 27.1% 5.0%
the 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 169,510 (2) 21.5% 4.0%
Arden Group, Inc.
9595 Wilshire Blvd.
Suite 411
Beverly Hills, CA 90212
Bernard Briskin Class B Common Stock 340,624 99.2% 80.7%
18
(1) Unless otherwise indicated to the contrary, all beneficial owners have
sole investment and voting power. For purposes of this table, 339,300
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) 54,199 shares owned by
Mr. Briskin's wife; (ii) 46,524 shares held in trust (of which Mr.
Briskin is a trustee) for the benefit of Mr. Briskin, his children and
his mother; and (iii) 24,503 shares held in an Individual Retirement
Account by Mr. Briskin's wife. Mr. Briskin disclaims any beneficial
ownership of the shares set forth in clauses (i) and (iii) hereof.
Mr. Briskin shares voting and investment power with respect to the
shares referred to in clause (ii), shares voting power but denies that
he has or shares investment power with respect to the shares referred
to in clauses (i) and (iii). Nothing herein should be construed as an
admission that Mr. Briskin is in fact the beneficial owner of any of
these shares.
Except as set forth in the notes to the table, the beneficial owners hold
sole investment and voting power with respect to the shares listed in the
above table.
(b) Security Ownership of Management
The following table shows, as of March 15, 1996, the beneficial
ownership of the Company's equity securities by each director,
executive officer and by all directors and executive officers as
a group: (1)
Amount and
Nature of Percent
Beneficial Percent of Total
Name of Beneficial Owner Title of Class Ownership of Class Vote
- ------------------------ -------------- --------- -------- ----
Bernard Briskin Class A Common Stock 169,510 (2) 21.5% 4.0%
Class B Common Stock 340,624 99.2% 80.7%
John G. Danhakl Class A Common Stock 0
Robert A. Davidow Class A Common Stock 0
Ernest T. Klinger Class A Common Stock 326 (3) (4) (5)
Stuart A. Krieger Class A Common Stock 0
Daniel Lembark Class A Common Stock 0
Frederick A. Schnell Class A Common Stock 0
Ben Winters Class A Common Stock 100 (4) (5)
All directors and executive
officers as a group (9 persons) Class A Common Stock 180,904 (3) 23.0% 4.3%
Class B Common Stock 340,624 99.2% 80.7%
(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 339,300 shares of Company Class A
Common Stock held by AMG Holdings.
(2) See note (2) to the table under "Security Ownership of Certain
Beneficial Owners" set forth above.
19
(3) Includes shares held in the Company Stock Bonus Plan for their
accounts.
(4) Did not exceed 1% of the outstanding shares of the class.
(5) Did not exceed 1% of the total vote.
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. The notes mature on December 31, 2000
with approximately equal annual payments of principal plus interest at 6%
per annum. The cumulative outstanding balance of the two loans as of
December 30, 1995 was $368,750.
20
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, Supporting
Schedules and Supplementary Data
(2) Financial Statement Schedules
See Index to Consolidated Financial Statements, Supporting
Schedules and Supplementary Data
(3) Exhibits
See Index to Exhibits
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the last quarter of
the period covered by this report. The Form 8-K dated November 28,
1995 reported on "Item 5. Other Events" disclosing the purchase by
the Company of 177,229 shares of its Class A common stock from two of
its institutional holders for $62.50 per share.
(c) Exhibits
See Index to Exhibits
(d) Other Financial Schedules
See Index to Consolidated Financial Statements, Supporting Schedules
and Supplementary Data
21
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.
By BERNARD BRISKIN 3/19/96
--------------------------------------------------------------- -------
Bernard Briskin, Chairman of the Board, Date
President and Chief Executive Office
By ERNEST T. KLINGER 3/19/96
--------------------------------------------------------------- -------
Ernest T. Klinger, Vice President Finance and Date
Administration and 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 24.
BERNARD BRISKIN 3/19/96
-------------------------------------------------------------- -------
Bernard Briskin, Director and Chairman of the Board Date
JOHN G. DANHAKL 3/19/96
-------------------------------------------------------------- -------
John G. Danhakl, Director Date
ROBERT A. DAVIDOW 3/19/96
-------------------------------------------------------------- -------
Robert A. Davidow, Director Date
STUART A. KRIEGER 3/19/96
-------------------------------------------------------------- -------
Stuart A. Krieger, Director Date
DANIEL LEMBARK 3/19/96
-------------------------------------------------------------- -------
Daniel Lembark, Director Date
FREDERICK A. SCHNELL 3/19/96
-------------------------------------------------------------- -------
Frederick A. Schnell, Director Date
BEN WINTERS 3/19/96
-------------------------------------------------------------- -------
Ben Winters, Director Date
22
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS, SUPPORTING SCHEDULES
AND SUPPLEMENTAL DATA
_______________
Page
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements:
Balance Sheets, December 30, 1995 and December 31, 1994 . . . . . . . . 25
Statements of Operations for fiscal years 1995, 1994 and 1993 . . . . . 27
Statements of Stockholders' Equity for fiscal years 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Statements of Cash Flows for fiscal years 1995, 1994 and 1993 . . . . . 29
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 31
The financial statements include the Registrant's subsidiary (Arden-
Mayfair, Inc.) and the subsidiaries of Arden-Mayfair, Inc.
Selected Quarterly Financial Data. . . . . . . . . . . . . . . . . . . . . . 47
Financial Statement Schedule:
VIII Valuation and Qualifying Accounts and Reserves for the . . . . 48
fiscal years ended December 30, 1995, December 31, 1994
and January 1, 1994
Schedules other than those listed above are omitted because of the absence of
the conditions under which they are required.
23
REPORT OF INDEPENDENT ACCOUNTANTS
____________
To the Stockholders of
Arden Group, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Arden Group, Inc. and its subsidiary listed in the index
on page 23 of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arden Group, Inc.
and its subsidiary at December 30, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
three fiscal years in the period ended December 30, 1995 in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 15, 1996
24
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
A S S E T S
December 30, 1995 December 31, 1994
Current assets:
Cash $10,102 $19,241
Marketable securities 20,160 19,700
Notes and accounts receivable, net 9,384 8,580
Inventories 10,172 10,665
Other current assets 2,646 2,181
---------- ----------
Total current assets 52,464 60,367
Notes and contracts receivable 57 1,366
Property for resale or sublease, at lower
of cost or market 1,461 1,539
Property, plant and equipment, at cost, less
accumulated depreciation and amortization 33,458 26,225
Other assets 2,038 1,825
---------- ----------
Total assets $89,478 $91,322
---------- ----------
---------- ----------
The accompanying notes are an integral part of these statements.
25
LIABILITIES AND STOCKHOLDERS' EQUITY
December 30, 1995 December 31, 1994
----------------- -----------------
Current liabilities:
Accounts payable, trade $11,345 $9,994
Other current liabilities 11,335 13,193
Current portion of long-term debt 1,078 674
----------- -----------
Total current liabilities 23,758 23,861
Long-term debt 7,695 6,465
Deferred income taxes 1,583 1,109
Other liabilities 2,615 2,051
----------- -----------
Total liabilities \ 35,651 33,486
----------- -----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, Class A, $ .25 par value;
1,130,937 and 1,310,166 shares issued,
respectively, including 339,300 treasury shares 283 327
Common stock, Class B, $ .25 par value;
343,246 shares issued and outstanding 86 86
Capital surplus 5,718 6,413
Notes receivable from officer/director (369) (442)
Retained earnings 51,862 55,205
----------- -----------
57,580 61,589
Less, treasury stock, at cost 3,753 3,753
----------- -----------
Total stockholders' equity 53,827 57,836
----------- -----------
Total liabilities and stockholders'
equity $89,478 $91,322
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
26
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
----------- ----------- -----------
1995 1994 1993
----------- ----------- -----------
Sales $242,962 $246,199 $246,912
Cost of Sales 147,909 151,178 152,762
----------- ----------- -----------
Gross profit 95,053 95,021 94,150
Delivery, selling, general and administrative expenses 86,841 86,716 87,739
----------- ----------- -----------
Operating income 8,212 8,305 6,411
Interest and dividend income 2,702 3,050 1,404
Other income (expense), net (13) (501) 132
Interest expense (559) (946) (1,486)
Net unrealized gain (loss) on marketable securities 1,430 (1,786)
----------- ----------- -----------
Income from continuing operations, before income taxes 11,772 8,122 6,461
Income tax provision 4,661 3,273 2,623
----------- ----------- -----------
Income from continuing operations, net of income taxes 7,111 4,849 3,838
Discontinued operations:
Income from operations, net of income tax
expense of $1,496 2,216
Gain on sale of Telautograph net assets,
net of income taxes of $424 620
----------- ----------- -----------
Net income $7,111 $4,849 $6,674
----------- ----------- -----------
----------- ----------- -----------
Income per common share (computed on weighted
average common shares outstanding):
Income from continuing operations $5.47 $3.18 $2.38
Income from discontinued operations 1.76
----------- ----------- -----------
Net income $5.47 $3.18 $4.14
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding 1,299,002 1,527,128 1,612,724
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
27
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT STOCK DATA)
------------ ------------ ------------
1995 1994 1993
------------ ------------ -----------
Common stock, Class A:
Balance, beginning of year $327 $402 $871
Purchase and retirement of stock (179,229 and
298,612 shares, respectively) (44) (75)
Retirement of treasury stock (1,875,462 shares) (469)
------------ ------------ ----------
Balance, end of year $283 $327 $402
------------ ------------ ----------
Common stock, Class B:
Balance, beginning and end of year $86 $86 $86
------------ ------------ ----------
Capital surplus:
Balance, beginning of year $6,413 $7,571 $14,845
Purchase and retirement of common stock (695) (1,158)
Retirement of treasury stock (7,274)
------------ ------------ ----------
Balance, end of year $5,718 $6,413 $7,571
------------ ------------ ----------
Notes receivable from officer/director:
Balance, beginning of year $(442) $(1,502) $(1,490)
Principal paid 73 1,074
Amortization of present value discount (14) (12)
------------ ------------ ----------
Balance, end of year $(369) $(442) $(1,502)
------------ ------------ ----------
Retained earnings:
Balance, beginning of year $55,205 $64,731 $67,416
Net income for the year 7,111 4,849 6,674
Purchase and retirement of common stock (10,454) (14,375)
Retirement of treasury stock (9,359)
------------ ------------ -----------
Balance, end of year $51,862 $55,205 $64,731
------------ ------------ -----------
Stockholders' equity before treasury stock $57,580 $61,589 $71,288
Treasury stock, at cost 3,753 3,753 3,753
------------ ------------ -----------
Total stockholders' equity $53,827 $57,836 $67,535
------------ ------------ -----------
------------ ------------ -----------
The accompanying notes are an integral part of these statements.
28
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
----------- ----------- -----------
1995 1994 1993
----------- ----------- -----------
Cash flows from operating activities:
Cash received from customers $243,589 $244,598 $248,654
Cash paid to suppliers and employees (231,614) (235,228) (235,732)
Interest and dividends received 2,784 3,166 1,168
Interest paid (701) (934) (1,586)
Income taxes paid (4,085) (2,606) (3,895)
----------- ----------- -----------
Net cash provided by operating activities 9,973 8,996 8,609
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (10,731) (6,948) (6,406)
Deposits for property in escrow (2,664)
Proceeds from the sale of Telautograph 45,425
Investment in marketable securities 1,014 880 (23,038)
Net cash from sale of GPS 2,511 818
Proceeds from the sale of property, plant and
equipment, liquor licenses and leasehold
interests 241 55 109
Payments received on notes from the sale of
property, plant and equipment and liquor
licenses 3 20 163
----------- ----------- -----------
Net cash (used) provided in investing activities (9,626) (5,175) 16,253
----------- ----------- -----------
Cash flows from financing activities:
Purchase and retirement of stock (11,193) (15,608)
Principal payments on long-term debt (199) (5,486) (86)
Transfer from/(to) discontinued operations (2,556) (5,807)
Principal payments under capital lease obligations (917) (1,530) (1,418)
Loan payments from officer/director 73 1,074
Proceeds from equipment financing 2,750 1,021
----------- ----------- -----------
Net cash used in financing activities (9,486) (24,106) (6,290)
----------- ----------- -----------
Net increase (decrease) in cash (9,139) (20,285) 18,572
Cash at beginning of year 19,241 39,526 20,954
----------- ----------- -----------
Cash at end of year $10,102 $19,241 $39,526
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
29
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
----------- ----------- -----------
1995 1994 1993
----------- ----------- -----------
Net income $7,111 $4,849 $6,674
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations (2,836)
Depreciation and amortization 3,480 3,659 4,176
Unrealized (gain) loss on marketable securities (1,430) 1,786
(Gain) loss on sale of marketable securities (44) 672
Provision for losses on accounts and
notes receivable 94 348 560
Net loss (gain) from the sale of property,
plant and equipment, liquor licenses
and early lease terminations (33) 67 (25)
Gain on sale of GPS (9)
Note receivable from officer/director (14) (12)
Non-compete payment on sale of GPS (86) (217)
Interest differential on note payable 26
Change in assets and liabilities net of effects from
noncash investment and financing activities:
(Increase) decrease in assets:
Notes and accounts receivable 647 (950) 879
Inventories 493 (904) 983
Other current assets (465) (1,244) 80
Other assets (325) 222 (545)
Increase (decrease) in liabilities:
Accounts payable and other accrued expenses (507) 3,044 1,101
Deferred income taxes 474 (972) (1,394)
Other liabilities 564 (1,341) (1,058)
----------- ----------- -----------
Net cash provided by operating activities $9,973 $8,996 $8,609
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these statements.
30
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
---------
1. Accounting Policies:
The following is a summary of significant accounting policies followed in
the preparation of these 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
except for Telautograph Corporation (currently known as AMG Holdings, Inc.),
an indirect wholly-owned subsidiary of the Company ("Telautograph"), which
was carried at equity in net assets of discontinued operations through
September 17, 1993 when the communications business was sold. Intercompany
balances and transactions are eliminated. On May 27, 1994, the Company sold
GPS Pool Supply, Inc. ("GPS"). As a result, after the sale of GPS, the
Company operates exclusively in the supermarket business.
FISCAL YEAR
The Company operates on a fiscal year ending on the Saturday closest to
December 31. Fiscal years for the financial statements included herein
ended on December 30, 1995, December 31, 1994, and January 1, 1994.
CASH AND CASH EQUIVALENTS
The 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 FDIC insurance 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 fixed-income securities having maturities
of up to three years, preferred stock, convertible preferred stock, common
stock, mortgage backed government securities and collateralized mortgage
obligations. Marketable securities are stated at market value. By policy,
the Company invests primarily in high-grade marketable securities. All
marketable securities are defined as trading securities under the provisions
of
31
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) and unrealized holding
gains and losses are reflected in earnings.
Market value is determined by the most recently traded price of the security
at the balance sheet date. Net realized gains or losses are determined on
the FIFO cost method.
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 supermarket and other 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 market, 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 based on the estimated useful
lives of individual assets or classes of assets. Improvements to leased
properties or fixtures are amortized over the estimated useful life or
period of lease, 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 reserves for depreciation of disposed assets are
eliminated and any gain or loss on disposition is included in income.
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate contaminated sites are expensed.
STORE OPENING COSTS
Noncapital expenditures incurred in opening a new store are expensed in the
month the store is opened.
32
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). 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 SHARE
Net income per share is based on the weighted average number of common
shares outstanding during the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals 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.
2. Marketable Securities:
Marketable securities are considered to be trading securities per SFAS 115
and are carried on the balance sheet at their market value.
-----------------------------------------------------------------------------------
Unrealized
(in thousands) Cost Gain (Loss) Market Value
-----------------------------------------------------------------------------------
As of December 30, 1995:
Fixed income securities $17,040 $ (242) $16,798
Equity securities 2,538 (126) 2,412
Mortgage-backed government securities 823 12 835
Collateralized mortgage obligations 115 115
-------- -------- --------
Total $20,516 $ (356) $20,160
-------- -------- --------
-------- -------- --------
As of December 31, 1994:
Fixed income securities $13,050 $ (375) $12,675
Equity securities 8,218 (1,409) 6,809
Mortgage-backed government securities 149 149
Collateralized mortgage obligations 69 (2) 67
-------- -------- --------
Total $21,486 $(1,786) $19,700
-------- -------- --------
-------- -------- --------
33
3. Notes and Accounts Receivable:
----------------------------------------------------------------------------
(in thousands) December 30, 1995 December 31, 1994
----------------------------------------------------------------------------
Accounts receivable, trade $ 4,503 $4,600
Notes and contracts receivable 656 1,974
Other accounts receivable 4,936 2,714
-------- --------
10,095 9,288
Less: Allowance for doubtful accounts and
notes receivable (711) (708)
-------- --------
$ 9,384 $8,580
-------- --------
-------- --------
The provision for doubtful accounts and notes receivable in 1995, 1994, and
1993 was approximately $94,000, $348,000, and $560,000, respectively.
4. Inventories:
Inventories valued by the LIFO method ($8,899,000 in 1995, $9,461,000 in
1994, $8,910,000 in 1993) would have been $2,282,000, $2,147,000 and
$2,116,000 higher at December 30, 1995, December 31, 1994 and January 1,
1994, respectively, if they had been stated at the lower of FIFO cost or
market. The effect on net income and income per share in 1995 and in 1994
was a decrease of approximately $135,000 ($ .10 per share) and $31,000
($.02 per share), respectively, and in 1993 was an increase of approximately
$6,000 (no change per share), respectively.
34
5. Property, Plant, Equipment and Accumulated Depreciation:
---------------------------------------------------------------------------
(in thousands) December 30, 1995 December 31,1994
---------------------------------------------------------------------------
Land $ 8,273 $6,416
Buildings 4,882 6,510
Store fixtures and office equipment 11,450 10,409
Delivery equipment 1,584 1,353
Machinery and equipment 880 872
Leaseholds and improvements to leased
property 20,880 18,869
Assets under capital leases 3,933 4,401
Assets under construction 5,974 108
-------- --------
$57,856 $48,938
Accumulated depreciation and amortization (24,398) (22,713)
-------- --------
$33,458 $26,225
-------- --------
-------- --------
In 1995, the Company developed a new shopping center in Calabasas,
California on which a Gelson's Market was opened in January 1996. The cost
of the shopping center is included in assets under construction at December
30, 1995.
6. Other Current Liabilities:
----------------------------------------------------------------------------
(in thousands) December 30, 1995 December 31, 1994
----------------------------------------------------------------------------
Compensated absences $ 2,612 $ 2,534
Taxes (including taxes collected from
others of $947 and $946, respectively) 3,245 3,184
Other 5,478 7,475
-------- --------
$11,335 $13,193
-------- --------
-------- --------
35
7. Long-Term Debt:
------------------------------------------------------------------------------------------------------------------
Current Non-Current
----------------------------------- ---------------------------------
December 30, December 31, December 30, December 31,
(in thousands) 1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
Notes and contracts payable $ 752 $190 $2,600 $ 611
Obligations under capital
leases 326 484 3,782 4,541
7% Subordinated income
debentures due
September 1, 2014 1,313 1,313
------ ---- ------ ------
$1,078 $674 $7,695 $6,465
------ ---- ------ ------
------ ---- ------ ------
At December 30, 1995, the approximate principal payments required on long-
term debt for each year are as follows (in thousands):
1996 1997 1998 1999 2000 Subsequent
---- ---- ---- ---- ---- ----------
$1,078 $972 $961 $807 $838 $4,117
During 1995 the Company entered into a one year 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 include interest on the
revolving loan and on the term loans at the bank's cost of funds rate plus
.8% or at the LIBOR rate plus .8%, and 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.
There were no amounts borrowed under either of the revolving lines of
credit in 1995 or 1994.
Notes and contracts payable: In 1995, the Company borrowed $2,750,000 (at
6.2%) from its $10,000,000 non-revolving line of credit to finance the
purchase of supermarket equipment. In 1993, the Company financed
$1,021,000 (average interest rate 7.5%) of supermarket equipment. All
equipment financing borrowings are five year, fully amortized notes. Only
the obligations of the 1993 borrowings are collateralized by the equipment.
The balance of the equipment notes at December 30, 1995 was $3,352,000.
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
36
sufficient therefor, or at the discretion of the Company, out of available
retained earnings. No accrued interest was in arrears as of December 30,
1995.
8. Capital Stock:
Class A Common Stock: The Company is authorized to issue 5,000,000 shares
of Class A common stock, par value $.25 per share. At December 30, 1995
and December 31, 1994, shares issued were 1,130,937 and 1,310,166,
respectively, including 339,300 treasury shares at the end of each year.
On September 16, 1994 the Company completed a self-tender offer by
purchasing 285,172 shares of its Class A common stock at $52 per share in
cash. Another 13,440 shares were purchased at various prices, ranging from
$48 to $52 per share, and retired during the fourth quarter of 1994. In
the fourth quarter of 1995, the Company purchased 177,229 shares from two
of its institutional holders for $62.50 per share in cash. An additional
2,000 shares were purchased in the fourth quarter of 1995 for $58.50 per
share. As of March 1996, the Company has purchased or agreed to purchase
in 1996 an additional 25,884 shares at an average price of $62.29 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 500,000 shares of
Class B common stock, par value $.25 per share. At December 30, 1995 and
December 31, 1994 there were 343,246 shares issued and outstanding. The
Class B common stock has ten votes per share on virtually all matters on
which shareholders 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. The number of shares of Class B common stock
converted to Class A common stock were 100 shares in 1993 and 70 shares in
1994. No shares were converted in 1995. 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. Retirement Plans:
The Company contributes to multi-employer union pension plans administered
by various trustees. Contributions to these plans are based upon
negotiated wage contracts. These plans may be deemed to be defined benefit
plans. Information relating to accumulated benefits and fund assets as
they may be allocable to the participants at December 30, 1995 is not
available. The Company's total union pension expense for all plans for
1995, 1994 and 1993 amounted to $891,000, $1,208,000 and $1,696,000,
respectively.
The Company has a noncontributory, trusteed stock bonus 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
37
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 1995 and 1994 were $130,000, and
$328,000, respectively. No contribution was accrued for the plan in 1993.
Effective January 1, 1992, the Company's Board adopted the Arden Group,
Inc. 401(k) Retirement Savings Plan (the "Company Savings Plan"). All non-
union employees of the Company and its subsidiaries (except employees of
Telautograph) who have attained the age of 18 and have completed at least
one year of service with any of such companies are entitled to participate
in the Company Savings Plan. 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 ($9,240 in 1995). Annual matching
contributions are made by the Company in a discretionary amount as
determined 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 $9,000 in 1995 and $10,000 in 1994 and 1993. An
additional $317,000 was accrued in 1995 to be contributed to the plan in
early 1996. Similarly $130,000 was accrued in 1994 and contributed in
early 1995.
38
10. Income Taxes:
Income (loss) before income taxes and the related income tax expense
(benefit) are as follows:
----------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
----------------------------------------------------------------------------------------
Income before income tax:
Continuing operations $11,772 $8,122 $ 6,461
Discontinued operations:
Income from operations 3,712
Gain on sale of Telautograph net assets 1,044
------- ------ -------
Total $11,772 $8,122 $11,217
------- ------ -------
------- ------ -------
Income tax expense:
Continuing operations $ 4,661 $3,273 $ 2,623
Discontinued operations:
Income from operations 1,496
Sale of Telautograph net assets 424
-------- ------ -------
Total $ 4,661 $3,273 $ 4,543
-------- ------ -------
-------- ------ -------
The composition of federal and state income tax expense (benefit) is as
follows:
--------------------------------------------------------------------------------------
(in thousands) 1995 1994 1993
--------------------------------------------------------------------------------------
Current
Federal $ 3,242 $ 3,167 $ 4,761
State 945 923 1,311
------- ------- -------
Total 4,187 4,090 6,072
Deferred
Federal 324 (669) (1,604)
State 150 (148) 75
------- ------- -------
Total 474 (817) (1,529)
------- ------- -------
Total income tax expense $ 4,661 $ 3,273 $ 4,543
------- ------- -------
------- ------- -------
39
The Company's deferred income taxes assets (liabilities) were attributable
to the following:
- ---------------------------------------------------------------------------------------------
December 30, December 31,
(in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------
Deferred tax assets
Debt under capital leases $ 1,796 $ 2,196
Book accruals not recognized for tax until paid 1,165 1,332
Unrealized loss on marketable securities 154 774
Excess of book over tax depreciation 879 689
State tax expense recognized in current period
for books but in following year for tax 315 302
Bad debt allowance not deductible for tax
until year of write-off 306 332
Other 338 208
-------- --------
Deferred tax assets 4,953 5,833
Deferred tax liabilities
Deferred gain on debenture exchange (4,861) (4,987)
Property leased under capital leases, net of
accumulated depreciation (1,276) (1,625)
Other (399) (330)
-------- --------
Deferred tax liabilities (6,536) (6,942)
-------- --------
Deferred income taxes, net $(1,583) $(1,109)
-------- --------
-------- --------
Reconciliation of the statutory federal rate and effective rate is
as follows:
-------------------------------------------------------------------------------------------------------
1995 1994 1993
(in thousands, except ------------------ ------------------ ------------------
percentage amounts) Amount Rate Amount Rate Amount Rate
-------------------------------------------------------------------------------------------------------
Federal tax at statutory
rate $4,020 34.2% $2,761 34.0% $3,814 34.0%
State income taxes, net of
federal tax benefits 712 6.0% 512 6.3% 729 6.5%
Federal dividend exclusion (71) (0.6%)
------------------ ------------------ -----------------
$4,661 39.6% $3,273 40.3% $4,543 40.5%
------------------ ------------------ -----------------
------------------ ------------------ -----------------
40
11. Leases:
The principal kinds of property leased by the Company and its subsidiaries
are supermarket buildings, fixtures 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 exercise of renewal options is
primarily dependent on the level of business conducted at the location.
All leases and subleases with an initial term greater than one year are
accounted for under Statement of Financial Accounting Standards No. 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 rents associated with capital leases in 1995, 1994 and 1993 were
$109,000, $143,000 and $167,000, respectively, and accordingly have been
charged to expense as incurred. Following is an analysis of assets under
capital leases:
---------------------------------------------------------------------------
(in thousands) December 30, 1995 December 31, 1994
---------------------------------------------------------------------------
Buildings $3,058 $3,058
Equipment 875 1,343
------- -------
3,933 4,401
Accumulated amortization (2,474) (2,583)
------- -------
$1,459 $1,818
------- -------
------- -------
41
Future minimum lease payments for the above assets under capital leases at
December 30, 1995 are as follows:
----------------------------------------------------------------------------
(in thousands)
----------------------------------------------------------------------------
1996 $ 782
1997 637
1998 636
1999 637
2000 636
Remainder 4,034
------
Total minimum obligations 7,362
Executory costs (56)
------
Net minimum obligations 7,306
Interest (3,198)
------
Present value of net minimum obligations 4,108
Current portions (326)
------
Long-term obligations at December 30, 1995 $3,782
------
------
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 December 30, 1995 are as follows:
------------------------------------------------------------------------
Deduct Net
Sublease Rental
(in thousands) Commitments Rentals Commitments
------------------------------------------------------------------------
1996 $ 3,655 $187 $ 3,468
1997 3,543 186 3,357
1998 2,934 186 2,748
1999 2,614 186 2,428
2000 2,451 148 2,303
Remainder 13,786 13,786
------- ---- -------
$28,983 $893 $28,090
------- ---- -------
------- ---- -------
42
Rent expense under operating leases is as follows:
--------------------------------------------------------------------------
(in thousands) 1995 1994 1993
--------------------------------------------------------------------------
Minimum rent $4,484 $5,375 $4,803
Contingent rent 1,103 1,063 1,274
------ ------ ------
5,587 6,438 6,077
Sublease rentals (1,450) (1,398) (1,330)
------ ------ ------
$4,137 $5,040 $4,747
------ ------ ------
------ ------ ------
12. Related Party Transactions:
A former director of the Company is associated with a law firm that rendered
various legal services for the Company. The Company and its subsidiaries
paid the firm $166,000 during 1993.
At January 1, 1994, the Company held three notes receivable for a total of
$1,516,250 from an officer/director of the Company. Two 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, are due in full on December
31, 2000 with approximately equal repayment of principal annually prior
thereto. If the officer's employment is terminated prior to January 1,
2001, the unpaid portion of the two notes would be forgiven. A third loan
for $1,000,000 made to the officer/director in 1992 and related to his
exercise in 1991 of 100,000 shares of the Company's Class A common stock,
which were granted to him under a stock option, was repaid in 1994. The
loans are collateralized by 180,000 shares of Class B common stock. The
amount of the receivable is shown on the balance sheets as a reduction in
equity.
43
13. Commitments and Contingent Liabilities:
The Company has an employment agreement with a key executive officer which
expires on January 1, 2001. In addition to a base salary, the agreement
provides for a bonus based on pre-tax earnings. No maximum compensation
limit exists. The compensation expensed in 1995, 1994 and 1993 was $910,000,
$730,000 and $3,012,000, 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 results
of operations or consolidated financial position of the Company.
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. However, three claims have
been made against the Company in connection with real properties previously
owned or leased by the Company or a subsidiary thereof by the current owner
of such properties. In each such instance, the Company has been asked to pay
for a portion of the cost of remediation of hazardous substances allegedly
existing on such properties. The Company cannot at this time estimate the
expenses it ultimately may incur in connection with these claims, however,
it believes such expenses will not be of a material amount. Although
unexpected violations may occur in the future and although the Company
cannot predict the effect of future laws or regulations on the Company's
operations, expenditures for continued compliance with current laws are not
expected to have a material impact on its capital expenditures, earnings or
competitive position.
The Company or its subsidiaries are defendants in a number of cases
currently in litigation, being vigorously defended, in which the complaints
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 results of operations or the consolidated
financial position.
14. Disposition of Assets of Discontinued Operations:
Pursuant to an Asset Purchase Agreement dated September 1, 1993 (the "Asset
Purchase Agreement"), by and among Telautograph, the Company and Danka
Industries, Inc. (the "Purchaser") and Danka Business Systems PLC ("Danka"),
on September 17, 1993 Telautograph (now known as AMG Holdings) sold its
communication equipment business and substantially all 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 (which includes $1,000,000 received for a covenant
not-to-compete), subject to certain post-closing adjustments. In 1993 AMG
Holdings booked a gain related to the sale of approximately $620,000, net of
income taxes of $424,000.
44
The purchase price and the gain are subject to adjustment after resolution
of disputes which have arisen between AMG Holdings and Danka concerning the
assets and liabilities transferred to the Purchaser. As a result of an
arbitration hearing in April 1994, the Company was awarded $1,750,000 for
parts inventory which was purchased by Danka Industries, Inc. as part of
the sale of the Company's communication equipment business in 1993. The
valuation of such inventory on the balance sheet at the date of sale had
been in dispute. No amount with respect to this inventory had been
included in the 1993 gain from the sale of such business. Expenses related
to the arbitration have not exceeded and will be netted against the award.
Additionally, there is a second arbitration with regard to certain items on
the closing balance sheet of the communication equipment business which are
being disputed. The Company does not believe adjustments resulting from
the second arbitration, if any, will have a material adverse impact on its
financial position. However, due to the uncertainty of the outcome of this
arbitration, no income or expenses from the first arbitration award and no
expenses related to the second arbitration have been recognized in the 1995
and 1994 statements of operations of the Company.
In connection with the transaction, the Purchaser paid severance payments
to various employees of Telautograph. Included among these payments was a
payment of $100,000 to the Vice President Finance and Administration and
Chief Financial Officer of the Company on account of his past services to
Telautograph.
Excluded from the assets sold by Telautograph to the Purchaser were, among
other items, all the capital stock of GPS, cash and cash equivalents,
investments in the Class A common stock of the Company, the real property
lease at the headquarters/warehouse facility in Los Angeles, California and
intercompany accounts.
The results of operations for the communication equipment business of AMG
Holdings has been presented separately as discontinued operations.
45
Summarized financial information of the Company's communication equipment
business follows:
---------------------------------------------------------------------------
1993
(in thousands) (37 Weeks)
---------------------------------------------------------------------------
Revenue $51,492
Costs and expenses 47,780
-------
Income before taxes 3,712
Income tax expense 1,496
-------
Income from operations--discontinued
operations $ 2,216
-------
-------
The components of the gain on sale of the communication equipment business
follows:
---------------------------------------------------------------------------
(in thousands)
---------------------------------------------------------------------------
Cash proceeds $ 45,780
Less: Net assets sold (at net book value) (39,604)
Costs associated with the sale (5,132)
Related income tax expense (424)
--------
Gain on sale of discontinued operations $ 620
--------
--------
15. Sale of GPS:
On May 27, 1994, the Company sold all of the outstanding shares of capital
stock of GPS to Pioneer Chlor Alkali Investments, Inc. ("Pioneer") for
approximately $3,515,000, of which a substantial portion was represented by
a promissory note of Pioneer. The promissory note, secured by the assets of
GPS and by a pledge of the GPS stock, was paid in full in March 1995. In
1994, the Company recognized a pretax gain on the sale of GPS stock, net of
related expenses, of $9,000.
In addition, the Company recorded additional consideration from Pioneer of
$86,000 and $217,000 in 1995 and 1994, respectively, for a covenant not to
compete, the amount of which was based on revenue of GPS.
46
ARDEN GROUP, INC.
and consolidated subsidiary
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Share Data)
Discontinued Operations (2)
------------------------------------
Continuing Operations Operations Net Gain On Sale
------------------------------------ --------------------------------------
Net
Income Income Income (Loss) Net Income
Gross Income (Loss) Income (Loss) Income (Loss) Extraordinary Per Income (Loss)
Quarter Sales Profit (Loss) Per Share (Loss) Per Share (Loss) Per Share Item Share (Loss) Per Share
------- ----- ------ ------ --------- ------ --------- ------ --------- ---- ----- ------ ---------
1993
First $60,261 $22,247 $ 596 $ .37 $ 475 $ .29 $1,071 $ .66
Second 61,869 23,481 1,053 .65 526 .33 1,579 .98
Third 61,719 24,037 1,239 .77 1,019 .63 1,838 1.14 4,096 2.54
Fourth 63,063 24,385 950 .59 196 .12 (1,218) (.75) (72) (.04)
1994
First $63,151 $23,926 $ 547 $ .34 $ 547 $ .34
Second 61,625 23,790 1,667 1.03 1,667 1.03
Third 59,702 23,374 1,254 .81 1,254 .81
Fourth 61,721 23,931 1,381 1.04 1,381 1.04 (1)
1995
First $59,941 $23,209 $1,425 $1.08 $1,425 $1.08
Second 60,317 23,742 2,246 1.71 2,246 1.71
Third 60,968 23,787 1,801 1.37 1,801 1.37
Fourth 61,736 24,315 1,639 1.31 1,639 1.31
(1) Earnings per share is calculated on the weighted average outstanding shares
in the quarter. The outstanding shares were
reduced at the end of the third quarter of 1994 by the shares purchased
by the Company pursuant to its self-tender offer.
(2) See Note 14 of Notes to Financial Statements.
47
ARDEN GROUP, INC.
AND CONSOLIDATED SUBSIDIARY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
Additions Charged to
Balance at ----------------------------
Beginning Other Balance at
Description of Year Expenses Accounts Deductions End of Year
- ------------------------------------------ ------------- ------------ -------------- ----------------- --------------
Fiscal Year Ended December 30, 1995:
Allowance for doubtful notes and
accounts receivable (1) $708 $94 $91(2) $711
Fiscal Year Ended December 31, 1994:
Allowance for doubtful notes and
accounts receivable (1) $639 $348 $138(2) $708
141(3)
Fiscal Year Ended January 1, 1994:
Allowance for doubtful notes and
accounts receivable (1) $354 $560 $275(2) $639
- ---------------
(1) These reserves are deducted from the related items in the balance sheet.
(2) Specific items charged to qualifying accounts and reserves.
(3) Transferred to buyer upon sale of subsidiary.
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 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.
3.2 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, between Arden Group, Inc. and Union Bank which is not filed as an exhibit hereto in
accordance with Paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K (see Exhibit 99.1).
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.
49
EXHIBIT
- -------
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.
21. Subsidiaries of Registrant.
27. Financial Data Schedules.
99.1 Agreement pursuant to Paragraph (b) (4) (iii) (A) of Item 601 of Regulation S-K to furnish the
Securities and Exchange Commission upon request a copy of Exhibit 4.2 to this Form 10-K.
* Indicates management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this report.
50