SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2004
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                 to

 

Commission file number 0-9904

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.    Yes  ý   No  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  o   No  ý

 

The number of shares outstanding of the registrant’s classes of common stock as of April 3, 2004 was:

 

2,017,668 of Class A Common Stock

1,363,584 of Class B Common Stock

 

 

PART I.  FINANCIAL INFORMATION

 

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(In Thousands)

 

		April 3, 2004			January 3, 2004
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	63,649		$	71,597
Investments		34,171			33,844
Accounts and notes receivable, net		5,571			6,761
Inventories		17,749			16,997
Other current assets		2,134			1,783
Total current assets		123,274			130,982
Property held for resale or sublease		51			51
Property, plant and equipment, net		44,828			45,637
Deferred income taxes		4,188			7,010
Other assets		3,375			3,292
Total assets		$	175,716		$	186,972
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable, trade		$	17,190		$	22,797
Other current liabilities		23,289			37,793
Current portion of long-term debt		252			245
Total current liabilities		40,731			60,835
Long-term debt		1,972			2,038
Deferred rent		4,519			4,473
Other liabilities		5,623			4,626
Total liabilities		52,845			71,972
Commitments and contingent liabilities (Note 6)
Stockholders’ equity:
Common Stock, Class A		844			844
Common Stock, Class B		341			341
Capital surplus		5,547			5,547
Unrealized gain on available-for-sale securities		473			346
Retained earnings		119,419			111,675
		126,624			118,753
Treasury stock, at cost		(3,753		)	(3,753		)
Total stockholders’ equity		122,871			115,000
Total liabilities and stockholders’ equity		$	175,716		$	186,972

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)

 

(In Thousands, Except Share and Per Share Data)

 

		Thirteen Weeks Ended
		April 3, 2004			March 29, 2003
Sales		$	148,378		$	100,364
Cost of sales		82,928			56,597
Gross profit		65,450			43,767
Delivery, selling, general and administrative expenses		51,326			39,345
Operating income		14,124			4,422
Interest and dividend income		363			339
Interest expense		(49		)	(64		)
Income before income taxes		14,438			4,697
Income tax provision		5,883			1,912
Net income		$	8,555		$	2,785
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) from available-for-sale securities:
Unrealized holding gains arising during the period		127			115
Net unrealized gain, net of income tax expense of $89 and $79, respectively		127			115
Comprehensive income		$	8,682		$	2,900
Net income per common share:
Basic		$	2.53		$	.83
Diluted		2.53			.82
Weighted average common shares outstanding:
Basic		3,381,252			3,375,653
Diluted		3,382,382			3,379,300

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

 

(In Thousands)

 

		Thirteen Weeks Ended
		April 3, 2004			March 29, 2003
Cash flows from operating activities:
Cash received from customers		$	149,558		$	100,792
Cash paid to suppliers and employees		(145,369		)	(95,153		)
Interest and dividends received		312			213
Interest paid		(71		)	(77		)
Income taxes paid		(11,300		)	(1,625		)
Net cash provided by (used in) operating activities		(6,870		)	4,150
Cash flows from investing activities:
Capital expenditures		(981		)	(2,777		)
Purchases of investments		(70		)	(5,135		)
Proceeds from the sale of property, plant and equipment		32			33
Net cash used in investing activities		(1,019		)	(7,879		)
Cash flows from financing activities:
Proceeds from exercise of stock options					736
Principal payments under capital lease obligations		(59		)	(53		)
Net cash provided by (used in) financing activities		(59		)	683
Net decrease in cash and cash equivalents		(7,948		)	(3,046		)
Cash and cash equivalents at beginning of period		71,597			30,161
Cash and cash equivalents at end of period		$	63,649		$	27,115

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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		Thirteen Weeks Ended
		April 3, 2004			March 29, 2003
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income		$	8,555		$	2,785
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,783			2,019
Provision for losses on accounts and notes receivable		10			13
Net gain from the disposal of property, plant and equipment		(25		)	(9		)
Tax benefit of stock option transactions					168
Change in assets and liabilities net of effects from investing and financing activities:
(Increase) decrease in assets:
Investments		(41		)	(24		)
Accounts and notes receivable		1,180			360
Inventories		(752		)	1,671
Other current assets		(351		)	(1,435		)
Other assets		(83		)	21
(Decrease) increase in liabilities:
Accounts payable and other current liabilities		(20,922		)	(2,266		)
Deferred income taxes		2,733			520
Deferred rent		46			178
Other liabilities		997			149
Net cash provided by (used in) operating activities		$	(6,870	)	$	4,150

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.                    Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements of Arden Group, Inc.  (the “Company”) include the accounts of the Company and its direct and indirect subsidiaries.  All intercompany accounts and transactions are eliminated in consolidation.  The Company operates 18 supermarkets in Southern California.

 

The accompanying consolidated financial statements for the thirteen weeks ended April 3, 2004 and March 29, 2003 have been prepared in accordance with the instructions to Form 10-Q, Article 10 of Regulation S-X and generally accepted accounting principles (“GAAP”) for interim financial information.  These financial statements have not been audited by independent accountants but include all adjustments which, in the opinion of management of the Company, are necessary for a fair statement of the financial position and the results of operations for the periods presented.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to Securities and Exchange Commission regulations.  Accordingly, the accompanying consolidated financial statements should be read in conjunction with the Company’s fiscal 2003 Annual Report on Form 10-K.  The results of operations for the thirteen week period ended April 3, 2004 are not necessarily indicative of the results to be expected for the full year ending January 1, 2005.

 

2.                    Labor Dispute

 

The collective bargaining agreement with the United Food and Commercial Workers (“UFCW”), which covers the majority of the Company’s employees expired on October 5, 2003.  Three major grocery retailers in our trade area whose employees are covered under the expired agreement operated under strike or lockout from October 11, 2003 through February 29, 2004 when a contract settlement was reached.  Prior to the contract expiration, the Company agreed to be bound by all modifications regarding trust funds and hourly wage rates as negotiated between the UFCW and the three major grocery retailers.  The Company operated under contract extensions during the labor dispute.  In return, the UFCW agreed not to strike the Company.  Gelson’s remained open; its employees elected not to strike the Company.

 

In late February 2004, employees of the three major retailers ratified a new labor contract.  The new contract provides for, among other things, a new two-tier employment structure, elimination of health care maintenance of benefits provided for under the prior agreement and bonus payments in lieu of wage increases.  In a vote held on March 24-25, 2004, employees of the Company who are members of the UFCW ratified a new labor contract on terms similar to those reached by the three major grocery retailers.  The new labor contract expires in March 2007.

 

The labor dispute resulted in a temporary shift in consumer shopping patterns and a significant increase in the Company’s sales and operating income during the fourth quarter of 2003 and the first quarter of 2004.  The Company anticipates that with the February 2004 contract settlement most former customers of the three major grocery retailers have or will return to their previous shopping

 

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patterns but that post-strike sales will be somewhat greater than during comparable pre-strike levels as a result of the retention of some of the new shoppers that came to Gelson’s during the labor dispute.

 

3.                    Common Stock and Net Income Per Common Share

 

Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the period.  Diluted net income per share is computed by dividing the net income attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period.  Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options using the treasury stock method.

 

4.                    Recent Accounting Standards

 

In November 2003, the Emerging Issues Task Force reached a consensus on Emerging Issues Task Force Issue No. (“EITF”) 03-10, “Application of EITF 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers.”  EITF 03-10 addresses the accounting for manufacturer sales incentives offered directly to consumers, including manufacturer coupons.  EITF 03-10 is effective for the first interim period beginning after November 25, 2003.  Adoption of the provisions of EITF 03-10 did not have an impact on the Company’s consolidated financial statements.

 

5.                    Stock Options and Stock Appreciation Rights

 

As allowed by Statement of Financial Accounting Standards No. (“SFAS”) 123, as amended by SFAS 148, the Company follows the disclosure requirements of SFAS 123, but continues to account for its employee stock option plans in accordance with Accounting Principles Board Opinion No. (“APB”) 25, “Accounting for Stock Issued to Employees,” which results in no charge to earnings when options are issued at fair market value.

 

The following table illustrates the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested stock option awards in each period presented:

 

		13 Weeks Ended
		April 3, 2004			March 29, 2003
Net earnings as reported		$	8,555		$	2,785
Deduct:  Total stock-based employee compensation expense determined under fair value based method, net of related tax effects		(5		)	(5		)
Pro forma net income		$	8,550		$	2,780
Earnings per share:
Basic – as reported		$	2.53		$	.83
Basic – pro forma		2.53			.82
Diluted – as reported		2.53			.82
Diluted – pro forma		2.53			.82

 

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During the first quarter of 2004, the Company recorded $105,000 in compensation expense related to stock appreciation rights (“SARs”).  In the first quarter of 2003, the Company recognized income of $164,000 related to SARs.

 

6.                    Commitments and Contingent Liabilities

 

The Company and its subsidiaries are subject to a myriad of environmental laws, regulations and lease covenants with its landlords regarding air, water and land use, products for sale, 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 and private covenants.  The Company cannot, at this time, estimate the expense it ultimately may incur in connection with any current or future violations; however, it believes any such claims will not have a material adverse impact on either the Company’s consolidated financial position, results of operations or cash flows.

 

The Company or its subsidiaries are defendants in a number of cases currently in litigation, being vigorously defended, in which the complainants seek monetary damages.  As of the date hereof, no estimate of potential liability, if any, is possible. Based upon current information, management, after consultation with legal counsel defending the Company’s interests in the cases, believes the ultimate disposition thereof will have no material effect upon either the Company’s consolidated financial position, results of operations or cash flows.

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

RESULTS OF OPERATIONS

 

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company.  Certain statements contained in Management’s Discussion and Analysis, in other parts of this report and in other Company filings are forward-looking statements.  These statements discuss, among other things, future sales growth, operating results and financial condition.  Forward-looking statements reflect the Company’s current plans and expectations regarding important risk factors and are based on information currently known to the Company.

 

The Company cautions readers that any forward-looking statements contained in this report or made by the management of the Company involve risks and uncertainties, and are subject to change based on various important factors.  The following factors, among others, could affect the Company’s financial results and could cause the Company’s financial performance to differ materially from the expectations expressed in any forward-looking statement made by or on behalf of the Company:

 

•                  the strength of the U.S. economy, in particular, the economic conditions in Southern California;

•                  the effects of and changes in fiscal policies and laws, as well as, changes in accounting policies and practices;

•                  inflation or deflation;

•                  potential business disruptions from acts of terrorism or national emergencies;

•                  the impact of fluctuations in the Company’s stock price on compensation expense;

•                  the ability of vendors, including Unified Western Grocers, Inc., to continue providing products and services in a timely manner;

•                  consolidations in the supermarket industry and competition from other supermarkets and food retailers, some of which are nonunion;

•                  the ability to renew current leases at favorable rates;

•                  the ability of the Company to materially increase sales at its Pasadena store;

•                  implementation of a major construction project at the Century City Shopping Center and the effect of such project when implemented on the Gelson’s store located in the center;

•                  the amount of future premium increases incurred by the Company in order to maintain current levels of insurance coverage;

•                  the financial impact of the Company’s termination of its guaranteed cost workers’ compensation policy and the resulting change to self-insurance with stop-loss coverage for workers’ compensation claims;

•                  the impact of the Company’s workers’ compensation safety records and claims experience and any changes to the insurance industry’s rating process and premium schedules on workers’ compensation stop-loss coverage;

•                  the adequacy of self-insurance reserves for reported claims and incurred but not reported claims;

•                  the impact of uninsured losses;

•                  the terms of new labor contracts;

•                  the impact of any violation of environmental laws, regulations or lease provisions;

•                  the retirement of existing senior management;

 

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•                  the term of any future suspension and subsequent reinstatement of multi-employer union pension contributions, the number of hours worked by the applicable union employees, the required rate of contribution and the future rate of return received by the union pension plans on their investments;

•                  changes in the Company’s health care costs;

•                  any changes in assumptions or market conditions that could affect management’s estimate of future cash flows when evaluating assets for impairment.

 

First Quarter Analysis

 

The results of operations for the first quarter of 2004 compared to the first quarter of 2003 reflects the pervasive impact of a labor dispute in the Company’s trade area that commenced October 11, 2003 and concluded February 29, 2004.  The collective bargaining agreement covering the majority of the Company’s employees, as well as other participating employers in Southern California, expired on October 5, 2003.

 

Three major grocery retailers covered under the expired agreement operated under strike or lockout from October 11, 2003 through February 29, 2004 when a contract settlement was reached.  During the labor dispute, the Company operated under contract extensions.  In return, the UFCW agreed not to strike the Company.  Gelson’s remained open; its employees did not strike.

 

Prior to the contract expiration, the Company agreed to be bound by all modifications regarding trust funds and hourly wage rates as negotiated between the UFCW and the three major grocery retailers.  In late February 2004, employees of the three major retailers ratified a new labor contract.  The new contract provides for, among other things, a new two-tier employment structure, elimination of health care maintenance of benefits provided for under the prior agreement and bonus payments in lieu of wage increases.  In a vote held on March 24-25, 2004, employees of the Company who are members of the UFCW ratified a new labor contract on terms similar to those reached by the three major grocery retailers.  The new labor contract expires in March 2007.

 

The labor dispute resulted in a temporary shift in consumer shopping patterns and a significant increase in the Company’s sales and operating income during the fourth quarter of 2003 and the first quarter of 2004.  The Company anticipates that with the February 2004 contract settlement most former customers of the three major grocery retailers have or will return to their previous shopping patterns but that post-strike sales will be somewhat greater than comparable pre-strike levels as a result of the retention of some of the new shoppers that came to Gelson’s during the labor dispute.  The Company also expects the costs under the new labor contract will be somewhat less than during the comparable pre-strike levels.

 

Net income in the first quarter of 2004 increased 207.2% to $8,555,000 compared to $2,785,000 during the first quarter of 2003.  Operating income increased 219.4% to $14,124,000 in the first quarter of 2004 compared to $4,422,000 in the prior year.

 

Sales from the Company’s 18 supermarkets (all of which are located in Southern California) were $148,378,000 in the first quarter of 2004 representing an increase of 47.8% compared to same store sales in the first quarter of 2003.  The labor dispute in the Company’s trade area contributed to the majority of the sales increase.  During the first quarter of 2003, the Silverlake/Los Feliz Mayfair location was converted to the Gelson’s name and format as part of a major remodel.  Sales at the store were adversely impacted by a ten-day closure and reduced customer traffic during the construction phase of the remodel which was completed in late March 2003.

 

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Delivery, selling, general and administrative (“DSG&A”) expense as a percent of sales was 34.6% in the first quarter of 2004 compared to 39.2% in the first quarter of 2003.  During the labor dispute, the Company achieved significant economies of scale from incremental sales.  These economies were partially offset by approximately $2,200,000 in bonus payments for the majority of the Company’s union employees.  During the first quarter of 2004, the Company also recorded $105,000 in compensation expense related to SARs.  In the first quarter of 2003, the Company recognized income of $164,000 related to SARs.

 

The Company contributes to several multi-employer union pension and health care plans.  Contributions to the multi-employer union pension plan, covering a majority of the Company’s employees (the “Plan”), have been periodically suspended and reinstated in recent years.  Most recently, contributions were suspended in November 2002 and reinstated in March 2003.  The Company recorded thirteen weeks pension expense in the first quarter of 2004 and five weeks in the first quarter of 2003.  The Company’s contributions to all union pension and health care plans totaled $6,494,000 and $4,164,000 for the first quarter of 2004 and 2003, respectively.

 

In June 2003, in an effort to control the substantially increasing workers’ compensation rates, the Company terminated its guaranteed cost workers’ compensation insurance coverage and purchased a high deductible workers’ compensation policy.  The Company has stop-loss coverage to limit its exposure on a per claim basis and is insured for covered costs in excess of per claim limits.  Self-insurance accruals for losses up to the purchased stop-loss coverage are based on historical and current reported claims and an estimate of claims incurred but not reported.  No assurance can be given that this change will ultimately result in a reduction in workers’ compensation expense or limit future increases.  The Company devotes substantial time and commitment to maintaining a safe work environment.  The ultimate cost of workers’ compensation is highly dependent upon legal and legislative trends, the inflation rate of health care costs and the Company’s ability to manage claims.  In April 2004, California passed legislation aimed at reforming the workers’ compensation insurance system in the state.  At this point in time, the Company is unable to predict how this legislation will impact overall costs.

 

Stock-based compensation under the SARs program, is subject to variable accounting in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.”  Changes in the market price of the Company’s Class A Common Stock impact the compensation charge related to SARs.  For the fiscal year ended January 3, 2004, SARs compensation expense was $740,000.  Assuming the Company’s stock price remains at the April 2, 2004 closing price of $76.46, the Company anticipates fiscal 2004 SARs compensation expense of approximately $154,000 on an after tax basis related to the additional vesting of SARs.  This estimate assumes that no additional SARs are granted and no existing SARs are terminated or exercised.  Changes in the Company’s stock price, exercise or termination of outstanding SARs or additional grants could cause this estimate to vary.  On January 20, 2004, the Company granted SARs covering 50,000 shares to each of the five non-employee members of the Board of Directors at a base price of $77.50 per share, the fair market value of the Class A Common Stock on that date.

 

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During the first quarter of 2004, the Company procured approximately 22.7% of its product through Unified Western Grocers, Inc. (“Unified”), a grocery cooperative.  As a member-patron, the Company is required to provide Unified with certain minimum deposits and credit in order to purchase product from the cooperative.  As of April 3, 2004, the Company had approximately $2,420,000 on deposit with Unified.  The minimum deposit requirement is satisfied through a combination of cash, credit and ownership of equity shares in Unified.  In fiscal 2003, the Company recorded $169,000 in patronage dividends income received in the form of equity shares in Unified.

 

Interest and dividend income was $363,000 in the first quarter of 2004 compared to $339,000 for the same period in 2003 primarily due to higher average levels of interest bearing investments in 2004.

 

SFAS 115, “Accounting for Certain Investments in Debt and Equity Securities,” requires that unrealized holding gains and losses for available-for-sale securities be included as a component of stockholders’ equity.  Unrealized gains on available-for-sale securities were $127,000 (net of income tax expense of $89,000) in the first quarter of 2004 compared to unrealized gains of $115,000 (net of income tax expense of $79,000) in the first quarter of 2003.

 

In September 2001, the Company opened a Gelson’s Market in a mixed use shopping center/apartment project in Pasadena, California, which is currently performing significantly below management’s expectations.  During the fourth quarter of 2003, the Company recorded a $4,311,000 impairment on long-lived assets at its Pasadena store.  The Company has the right, under certain circumstances, to terminate its lease in the Spring of 2005 which would result in an additional write-off of fixed assets and other costs.

 

A major road improvement project is under construction along Santa Monica Boulevard in West Los Angeles, California, which is estimated to last approximately two more years.  At some times during the construction schedule, construction has, and will continue to occur directly in front of, or very close to, the Century City Shopping Center, where Gelson’s has its Century City store.  It can be expected that the sales of the Century City store will be negatively impacted during the period when the construction is at or near the Century City Shopping Center, but that access to the shopping center is expected to improve once the roadway project has been completed.  In addition, the landlord of the Century City Shopping Center has discussed with Gelson’s the landlord’s plans for a major construction project which would result in the relocation of the movie theaters, food court and other tenants to newly constructed areas immediately adjacent to the Gelson’s store.  Those plans also include the expansion of the Gelson’s store.  The preliminary phase of that construction began in March 2004.    The Company does not know how long this project will take.  The final project plans are still being developed.  The Company expects, however, that the sales of the Century City store will be negatively affected during this construction.  Although the Company also expects that the parking for Gelson’s customers will be adversely affected by relocating the theaters, food court and other tenants to the immediate vicinity of the Gelson’s store, it also anticipates that the relocation will increase foot traffic in the vicinity of the store and that the expanded store with additional facilities and services and the increased foot traffic will increase the number of customers.

 

CAPITAL EXPENDITURES/LIQUIDITY

 

The Company plans to utilize cash-on-hand (including investments) and cash flow from operations to fund capital expenditures in 2004.  Capital expenditures of approximately $981,000 were incurred during the thirteen weeks ended April 3, 2004.

 

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The Company also has two revolving lines of credit totaling $13,000,000 available for standby letters of credit, funding operations and expansion.  The Company maintains three standby letters of credit aggregating $5,994,000 pursuant to the Company’s general liability and workers’ compensation self-insurance programs.  The standby letters of credit reduce the available borrowings under its revolving lines.  There were no outstanding borrowings against either of the revolving lines as of April 3, 2004.

 

The following table sets forth the Company’s contractual cash obligations and commercial commitments as of April 3, 2004:

 

		Contractual Cash Obligations (In Thousands)
		Total			Less Than 1 Year			1-3 Years			4-5 Years			After 5 Years
7% Subordinated Income Debentures Due September 2014 Including Interest		$	2,131		$	86		$	172		$	172		$	1,701
Capital Lease Obligations Including Interest		1,201			348			680			173			0
Operating Leases		99,753			7,642			14,841			13,287			63,983
Total Contractual Cash Obligations		$	103,085		$	8,076		$	15,693		$	13,632		$	65,684
		Other Commercial Commitments (In Thousands)
		Total			Less Than 1 Year			1-3 Years			4-5 Years			After 5 Years
Standby Letters of Credit		$	5,994		$	5,994

 

In April 2003, the Company announced a stock repurchase program, authorized by the Board of Directors, to purchase from time to time up to 100,000 shares of its Class A Common Stock in the open market or in private transactions.  The timing, volume and price of purchases are at the discretion of the management of the Company.  No shares were repurchased during the thirteen weeks ended April 3, 2004.

 

On April 20, 2004, the Company paid a regular quarterly cash dividend of 25 cents per share on Class A Common Stock and 22.5 cents per share on Class B Common Stock, aggregating $811,000, to stockholders of record on March 31, 2004.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company currently has no bank debt or fixture financing.  If the Company should obtain financing or draw on its existing lines of credit, which bear interest at the bank’s reference rate or the bank’s adjusted LIBOR rate plus an index up to 1.2%, the Company could then be exposed to market risk related to interest fluctuations.

 

A change in market prices exposes the Company to market risk related to its investments which totaled $34,171,000 as of April 3, 2004.  A hypothetical 10% drop in the market value of these investments would result in a $3,417,000 unrealized loss and a corresponding decrease in the fair value of these instruments.  This hypothetical drop would not affect cash flow and would not have an impact on earnings until the Company sold the investments.

 

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ITEM 4.  CONTROLS AND PROCEDURES

 

An evaluation was carried out by the Company’s Chief Executive Officer and the person temporarily performing the functions of the Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures as of April 3, 2004 (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934).  Based upon that evaluation, the Chief Executive Officer and the person temporarily performing the functions of the Chief Financial Officer concluded that these disclosure controls and procedures were effective.  During the period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.  Effective April 3, 2004, the Company’s Chief Financial Officer resigned to pursue another opportunity.  A search has been undertaken for his replacement.

 

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PART II.  OTHER INFORMATION

 

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

 

(a)		Exhibits:
		31.1                 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.
		31.2                 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
		32.1                 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		32.2                 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.
(b)		Reports on Form 8-K:
		On March 16, 2004, the Company filed a Form 8-K furnishing under Item 5 a press release announcing developments on Gelson’s union contract.
		On March 26, 2004, the Company filed a Form 8-K furnishing under Item 5 a press release announcing ratification of Gelson’s union contract.
		On March 29, 2004, the Company filed a Form 8-K furnishing under Item 12 a press release announcing the results of operations for the quarter and year ended January 3, 2004.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

				ARDEN GROUP, INC.
				Registrant
Date	May 10, 2004			/s/LAURA J. NEUMANN
				Laura J. Neumann
				Director of Financial
				Reporting and Compliance
				(Authorized Signatory)

 

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