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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549

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FORM 10-K

(Mark One)

|/x/                                         | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
|------------------------------------------- | ------------------------------------------------------------------------------------------------------
|For the fiscal year ended December 30, 2000

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
|--- | ----------------------------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 0-9904

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ARDEN GROUP, INC.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                 |  | 95-3163136(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------
|2020 South Central Avenue, Compton, California(Address of principal executive offices) |  | 90220(Zip Code)                               

(310) 638-2842Registrant's telephone number, including area code

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Securities
registered pursuant to Section 12(b) of the Act:

|Title of each class                                         |  |                      |  | Name of each exchange on which registered
|----------------------------------------------------------- |  | -------------------- |  | -----------------------------------------
|None                                                        |  |                      |  | None                                     
|Securities registered pursuant to Section 12(g) of the Act:
|                                                            |  | Class A Common Stock |  |                                          
|                                                            |  | (Title of class)     |  |                                          

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

Indicate
by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/

The
aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock on March 2, 2001 was:

Class A
Common Stock $61,863,441

The
number of shares outstanding of the registrant's classes of common stock as of March 2, 2001 was:

2,088,512
of Class A Common Stock
1,368,984 of Class B Common Stock

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PART I

Item 1. Business;

Item 2. Properties; and

Item 3. Legal Proceedings

General

The Registrant, Arden Group, Inc. (the "Company"), is a holding company with certain real estate holdings which conducts other operations through its
wholly-owned subsidiary, Arden-Mayfair, Inc. ("Arden-Mayfair"). Arden-Mayfair's wholly-owned subsidiary, Gelson's Markets ("Gelson's"), operates supermarkets in the Southern California area.

Arden
Group, Inc. is headquartered at 2020 South Central Avenue, Compton, California 90220 and its telephone number is (310) 638-2842.

Business and Properties

Market Operations

Gelson's currently operates 17 supermarkets in the Southern California area; 15 under the name "Gelson's" and two under the name "Mayfair." Gelson's and
Mayfair are self-service cash-and-carry markets and offer a broad selection of local and national brands as well as a limited number of private label items. The
Gelson's supermarkets target the consumer who values superior customer service, merchandise presentation, selection and quality products.

Store Formats and Business Strategy

Gelson's business strategy is to offer a comfortable shopping experience which is superior to its competitors in terms of customer service and merchandise
selection and presentation. The goal of this strategy is to continue to develop and maintain Gelson's loyal base of customers. Central elements of this strategy are as follows:

MerchandiseThe merchandise offerings in the markets are tailored in response to Gelson's customer profile. Gelson's
stores, which range in size from approximately 18,000 to 40,000 square feet, typically carry a wide range of items, including all of the traditional grocery categories such as produce, dry groceries,
meats, seafood, bakery, dairy, wine and liquor, floral, sushi, vitamins, health and natural food products and health and beauty aids. Gelson's perishables are premium products, which are rigorously
maintained and culled as appropriate to assure quality and freshness. Gelson's merchandising emphasizes specialty items such as imported foods and unusual delicatessen items, and items found in
service departments such as seafood, sit-down coffee areas, bakeries and service deli. The two Mayfair stores are approximately 25,000 square feet in size and offer a merchandise selection
equal in quality to a Gelson's but generally less broad.

ServiceGelson's emphasizes customer service by offering a variety of service departments including seafood,
delicatessen, floral, sushi and bakery departments. Some Gelson's stores include additional service departments such as fresh pizza and coffee bars. Additionally, selected stores offer banking and
pharmacy services through third parties. Stores are staffed so that, even at peak times, customer checkout time is minimized. In addition to checkers, there are personnel assigned to bagging and
carrying out purchases. All employees are encouraged to know customers by name and assist them whenever possible. All stores offer Company credit cards to qualified customers as well as allowing
customers the option of paying for their purchases with cash, checks or credit and debit cards. Stores
are typically open 14 to 17 hours per day, with hours of operation determined by local code or lease provisions, or as appropriate for the business characteristics of a specific area.

2

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PresentationAll stores are maintained in accordance with extremely high standards. Personnel continuously fill and
face shelves with groceries. Produce and other perishables are aggressively trimmed and culled to maintain quality and appearance.

PricingThe pricing strategy at the stores is to be competitive within their market niches, ranging from the more
traditional to the more exotic, specialty or high-end retailers.

Expansion and Store DevelopmentManagement regularly evaluates the feasibility of opening new stores and remodels
existing stores in order to maximize the existing stores' appeal to consumers and their profit potential. In late 2000 and early 2001, the Company opened two new stores and completed one major
remodel. Total capital expenditures in 2000 were approximately $9,882,000. The Company has entered into agreements to open two new stores and anticipates opening one of these stores in late 2001 and
the other in a subsequent year. The development and actual opening of new locations is subject to, among other things, necessary governmental approvals and the developers fulfilling certain
conditions. See "Properties."

Advertising and PromotionGelson's advertises in newspapers on a limited basis. Direct advertising is limited
(primarily newsletters and direct mail) and is typically event rather than price oriented, emphasizing, for example, special holiday selections, specialty items and services, recipes and new products.

Competition

The retail grocery business is very competitive. Competition in the supermarket business is based primarily upon price, merchandise variety and quality,
service and location. The number of stores, market share and availability of capital are also important competitive factors. Gelson's is in direct competition with numerous local outlets of regional
and national supermarket chains (most of which have greater resources and a larger market share than Gelson's), independent grocery stores, convenience stores, specialty and gourmet markets and food
departments in mass merchandise and club stores. Competition also exists from many other types of retailers with respect to particular products. Stores compete primarily by offering a combination of
high-quality products and superior customer
service. The Company also believes that Gelson's prime store locations and long-standing reputation add to its competitive strength.

Seasonality

Gelson's business is somewhat seasonal, with sales tending to increase during the last quarter of the year because of the holiday season.

Support and Other Services

Each store has an on-site stockroom, the size of which varies for each store. In addition, Gelson's operates an 89,000 square foot warehouse and an
adjacent 4,000 square foot truck service facility in the City of Commerce, California. The central warehouse distributes fresh fruits and vegetables, liquor, wine, floral and a limited number of
grocery, meat, delicatessen, paper goods and supply items to the stores.

The
bulk of all merchandise purchasing takes place at Gelson's office in Encino, California. Approximately 39% of the purchases are distributed through the central warehouse; the
remainder are delivered directly to the stores from manufacturers or wholesalers. The central purchasing and distribution operations are conducted based on electronic in-store ordering
systems. Stores place orders for merchandise an average of five times per week, with perishable goods ordered more frequently.

3

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The largest supplier for the stores is Unified Western Grocers (formerly Certified Grocers), a cooperative wholesaler which has been a supplier for approximately
twenty-six years and which accounted for approximately 23% of Gelson's purchases in 2000. No other supplier accounts for a material percentage of Gelson's purchases. The Company believes
that the negative impact of the loss of Unified Western Grocers as a supplier for Gelson's likely would be mitigated by a combination of events, which could include: (i) purchasing certain
items for direct store delivery, thereby freeing warehouse capacity to allow other items to be purchased through the warehouse and (ii) purchasing certain products through other wholesalers.
However, such a loss could have a short-term adverse effect on the performance of Gelson's.

Employees

Gelson's has approximately 1,101 full-time and 1,152 part-time employees. Most store level and warehouse employees of Gelson's are
covered by collective bargaining agreements that require union membership and establish rates of pay, hours of work, working conditions and procedures for the orderly settlement of disputes. In
general, these agreements have been negotiated on an area-wide and industry-wide basis. The Company believes that its employee relations are good.

In
addition, Arden-Mayfair has approximately 60 full-time employees at its executive and headquarters offices, some of whom are covered by a collective bargaining
agreement.

Properties

The Company currently owns two of its freestanding supermarket properties and a shopping center in which a Gelson's Market is located. The shopping center
owned by the Company, located in Calabasas, California, consists of approximately 18,000 square feet of space leased to eleven tenants in addition to the approximately 40,000 square foot Gelson's
Market. Fourteen supermarkets and the warehouse and distribution facilities which service the markets are leased. Supermarkets are generally leased for terms of 20 years and may include options
up to an additional 20 years under leases which generally stipulate a minimum rental against a percentage of gross sales. The average term remaining on the supermarket leases, including renewal
options, is approximately 18 years. The 17 markets range in size from approximately 18,000 to approximately 40,000 square feet. Gelson's warehouse and distribution facilities in the City of
Commerce, California, are approximately 93,000 square feet and the term of the lease expires in September 2005.

In
September 2000 and January 2001, the Company opened new stores in Irvine and Dana Point, California, respectively. The Company has entered into agreements to open
stores in Pasadena and Beverly Hills, California. The Pasadena store is expected to open in the latter half of 2001 and the Beverly Hills store will begin operations in a subsequent year. The
development and actual openings of these markets are subject to, among other things, necessary governmental approvals and the developers fulfilling certain conditions.

The
Company owns its 30,000 square foot corporate headquarters office building in Compton, California. In addition, AMG Holdings, Inc. ("AMG Holdings"), a wholly-owned
subsidiary of Arden-Mayfair, leases a 64,000 square foot building in Los Angeles consisting of office and warehouse space, which is subleased until the lease on the property expires in 2012 (including
renewal options).

Governmental Regulation

Gelson's is subject to regulation by a variety of governmental agencies, including the U.S. Food and Drug Administration, the California Department of
Alcoholic Beverage Control, and state and local health departments. The Company believes that Gelson's and Mayfair store operations comply with all federal, state and local health, environmental and
other laws and regulations. Although the Company cannot predict the effect of future laws or regulations on its operations, expenditures for

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continued compliance with current laws are not expected to have a material adverse effect on Gelson's competitive position or the Company's consolidated financial position, results of operations or
cash flows.

Legal Proceedings

The Company and certain of its subsidiaries are involved in a number of pending legal and/or administrative proceedings. Such proceedings are not expected
individually or in the aggregate to have a material adverse impact upon either the Company's consolidated financial position, results of operations or cash flows. See Note 14 of Notes to
Consolidated Financial Statements.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters



2000

1999High

Low

High

Low1st Quarter

38

287/8

423/4

392nd Quarter

423/8

277/8

437/8

387/83rd Quarter

483/4

317/8

43

375/84th Quarter

49

411/2

383/4

33


There
is no established public trading market for the Company's Class B Common Stock ("Class B"), which is subject to various restrictions on transfer.



5

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Item 6. Selected Financial Data of Arden Group, Inc.

|                                                       |            | 2000 |           | 1999   |   | 1998      |        | 1997 |           | 1996   |  
|------------------------------------------------------ | ---------- | ---- | --------- | ------ | - | --------- | ------ | ---- | --------- | ------ | -
|
|Operations For The Year:                               |            |      |           |        |   |           |        |      |           |        |  
|Sales                                                  |            | $    | 359,994   |        | $ | 324,168   |        | $    | 296,487   |        | $
|Gross profit                                           |            |      | 149,110   |        |   | 131,722   |        |      | 119,892   |        |  
|Operating income                                       |            |      | 19,838    |        |   | 16,830    |        |      | 16,010    |        |  
|Other income (expense), net                            |            |      | 1,019     |        |   | 1,009     |        |      | 1,085     |        |  
|Income tax provision                                   |            |      | (8,498    | )      |   | (6,122    | )      |      | (7,014    | )      |  
|Income from continuing operations, net of income taxes |            |      | 12,359    |        |   | 11,717    |        |      | 10,081    |        |  
|Loss from discontinued operations, net of income taxes |            |      |           |        |   |           |        |      |           |        |  
|                                                       |            |      |           |        |   |           |        |      |           |        |  
|                                                       | Net income |      | $         | 12,359 |   | $         | 11,717 |      | $         | 10,081 |  
|                                                       |            |      |           |        |   |           |        |      |           |        |  
|Depreciation and amortization
on continuing operations |            | $    | 6,719     |        | $ | 5,824     |        | $    | 5,618     |        | $
|Financial Position At Year End:                        |            |      |           |        |   |           |        |      |           |        |  
|Total assets                                           |            | $    | 118,160   |        | $ | 111,279   |        | $    | 93,126    |        | $
|Working capital                                        |            |      | 27,424    |        |   | 24,677    |        |      | 25,747    |        |  
|Long-term debt                                         |            |      | 6,735     |        |   | 8,322     |        |      | 6,369     |        |  
|Stockholders' equity                                   |            |      | 77,267    |        |   | 69,276    |        |      | 58,358    |        |  
|Capital expenditures                                   |            |      | 9,882     |        |   | 19,630    |        |      | 4,244     |        |  
|Basic and Diluted per Share Data:                      |            |      |           |        |   |           |        |      |           |        |  
|Income from continuing operations                      |            | $    | 3.52      |        | $ | 3.27      |        | $    | 2.81      |        | $
|Loss from discontinued operations                      |            |      |           |        |   |           |        |      |           |        |  
|                                                       |            |      |           |        |   |           |        |      |           |        |  
|                                                       | Net income |      | $         | 3.52   |   | $         | 3.27   |      | $         | 2.81   |  
|                                                       |            |      |           |        |   |           |        |      |           |        |  
|Basic weighted average shares outstanding              |            |      | 3,513,028 |        |   | 3,585,472 |        |      | 3,585,472 |        |  
|Diluted weighted average shares outstanding            |            |      | 3,515,117 |        |   | 3,585,472 |        |      | 3,585,472 |        |  

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All years are 52 weeks except for 1997 which is 53 weeks.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company cautions readers that any forward-looking statements contained in this Form 10-K or made by the management of the Company
involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, could affect the Company's financial results and could cause the
Company's financial performance to differ materially from the expectations expressed in any forward-looking statement made by or on behalf of the Company: the strength of the U.S. economy, economic
conditions in Southern California, the effects of and changes in fiscal policies and laws, inflation, changes in suppliers, consolidations in the supermarket industry and competition from other
supermarkets and retailers with a food presentation.

Results of Operations

2000 Compared to 1999

Income before income taxes in 2000 increased 16.9% to $20,857,000 compared to $17,839,000 during 1999. Operating income increased 17.9% to $19,838,000 in 2000
compared to $16,830,000 in 1999.

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Sales
from the Company's 16 supermarkets (all of which are located in Southern California) were $359,994,000 in 2000. This represents an increase of 11.1% over 1999, when sales were
$324,168,000. The majority of the sales increase is attributable to the opening of new stores in Sherman Oaks and Santa Barbara, California in late August and October 1999, respectively. In
addition, a new store in Irvine, California was opened in late September 2000. Same store sales increased 2.8% in 2000 compared to the prior year. The increase in same store sales reflects the
positive impact of store remodel activity and a robust economy in Southern California.

The
Company's gross profit as a percent of sales was at 41.4% in 2000 compared to 40.6% in 1999. Added controls over product costs, product pricing decisions and increased buying and
promotional allowances contributed to the increase in margins.

Delivery,
selling, general and administrative ("DSG&A") expenses as a percent of sales were 35.9% in 2000 compared to 35.4% in 1999. An increase in salaries and promotions expense
contributed to the rise in DSG&A expense in 2000. In addition, the opening of two new stores and a major remodel in late 1999 resulted in a slight increase in DSG&A expense as a percent of sales in
early 2000. Expense was also higher in 2000 due to the opening of the Irvine store in late September 2000. Included in 1999 DSG&A is approximately $496,000 of expense related to making the
Company's systems and equipment Year 2000 compliant.

Interest
and dividend income was $2,265,000 in 2000 compared to $1,807,000 for 1999 primarily due to higher interest rates and higher average levels of interest bearing investments in
2000.

Interest
expense increased to $782,000 in 2000 from $694,000 in 1999 primarily due to higher average levels of fixture financing debt.

Other
income (expense) includes losses realized on investments in marketable securities of $434,000 and $74,000 in 2000 and 1999, respectively.

All
marketable securities are defined as available-for-sale securities under the provisions of Statement of Financial Accounting Standards No. ("SFAS") 115,
"Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Debt securities for which the Company does not have the intent or ability to hold to
maturity and equity securities are classified as available-for-sale securities and any unrealized holding gains and losses are included as a separate component of stockholders'
equity. Unrealized gains on available-for-sale securities were $445,000 (net of income tax expense of $306,000) in 2000 compared to an unrealized loss of $839,000 (net of
income tax benefits of $572,000) in 1999.

During
1999, the California Franchise Tax Board withdrew tax assessments which it had previously rendered against the Company. As a result, in 1999 the Company recognized a reduction
in its tax reserve and an increase in net income of approximately $1,286,000. For an analysis of the Company's provision for income taxes, see Note 11 of Notes to Consolidated Financial
Statements.

In
the second quarter of 2000, the Company purchased in private transactions from unaffiliated parties an aggregate of 127,976 shares of Class A Common Stock for an aggregate
purchase price of approximately $4,853,000 which had the result of reducing the weighted average number of shares outstanding, which is employed in computing basic net income per share, to 3,513,028
shares from 3,585,472 shares in 1999.

1999 Compared to 1998

Net income in 1999 increased 16.2% to $11,717,000 compared to $10,081,000 during 1998. Operating income increased 5.1% to $16,830,000 in 1999 compared to
$16,010,000 in 1998.

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Sales from the Company's 15 supermarkets (all of which are located in Southern California) were $324,168,000 in 1999. This represents an increase of 9.3% over 1998, when sales were
$296,487,000. Same store sales increased 5.9% in 1999 compared to the prior year. Sales continue to increase as the result of a more robust economy in Southern California and the positive impact of
store remodel activity. In addition, the Company opened new stores in Sherman Oaks and Santa Barbara, California in August and October 1999, respectively. The new stores have generated positive
consumer response and sales have met management's projections. The Northridge store, which opened in November 1997, continued to experience sales improvement in 1999.

The
Company's gross profit as a percent of sales was relatively unchanged at 40.6% in 1999 compared to 40.4% in 1998. DSG&A expenses as a percent of sales were 35.4% in 1999 compared
to 35.0% in
1998. DSG&A expense increased as the result of preopening expenses incurred in connection with the opening of the new Sherman Oaks and Santa Barbara stores, as described above. In addition, the
Company incurred approximately $496,000 of expense in 1999 related to making the Company's systems and equipment Year 2000 compliant. DSG&A activity in 1998 reflects a $437,000 pretax gain on the sale
of real property owned by the Company.

Interest
and dividend income was $1,807,000 in 1999 compared to $1,453,000 for 1998 primarily due to higher average levels of interest bearing investments in 1999. In addition, the
Company accrued $169,000 of interest income due on a lease deposit for one of its stores.

Interest
expense decreased to $694,000 in 1999 from $764,000 in 1998 primarily due to lower average levels of fixture financing debt.

Other
income (expense) includes gains (losses) realized on investments in marketable securities of ($74,000) and $408,000 in 1999 and 1998, respectively.

All
marketable securities are defined as available-for-sale securities under the provisions of SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet
date. Debt securities for which the Company does not have the intent or ability to hold to maturity and equity securities are classified as available-for-sale securities and
any unrealized holding gains and losses are included as a separate component of stockholders' equity. Unrealized losses on available-for-sale securities were $839,000 (net of
income tax benefits of $572,000) in 1999 compared to an unrealized loss of $23,000 (net of income tax benefits of $9,000) in 1998.

During
1999, the California Franchise Tax Board withdrew tax assessments which it had previously rendered against the Company. As a result, in 1999 the Company recognized a reduction
in its tax reserve and an increase in net income of approximately $1,286,000. For an analysis of the Company's provision for income taxes, see Note 11 of Notes to Consolidated Financial
Statements.

Basic
net income per share from continuing operations has been restated to reflect the effect of the Company's four-for-one stock split on July 15,
1998. The increase in basic net income per share from continuing operations occurred due to increased income from continuing operations for the year. See Note 8 of Notes to Consolidated
Financial Statements.

Liquidity and Capital Resources

The Company has an ongoing program to remodel existing supermarkets and to add new stores. In 2000, the Company had capital expenditures of approximately
$9,882,000. As of December 30, 2000, authorized expenditures on incomplete projects for the purchase of property, plant and equipment totaled approximately $2,662,000. Of this total,
approximately $1,599,000 has been contractually committed.

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In late 2000 and early 2001, the Company opened two new stores in Irvine and Dana Point, California, respectively. The Company has also entered into agreements to open stores in
Pasadena and Beverly Hills, California. The Company expects to open the Pasadena store in the latter half of 2001 and anticipates opening the Beverly Hills store in a subsequent year. The development
and actual openings of these markets are subject to, among other things, necessary governmental approvals and the developers fulfilling certain conditions.

The
Company and its subsidiaries are subject to a myriad of environmental laws and regulations regarding air, water and land use, and the use, storage and disposal of hazardous
materials. The Company believes it substantially complies, and has in the past substantially complied, with federal, state and local environmental laws and regulations. The Company cannot at this time
estimate the expense it ultimately may incur in connection with any current or future violations, however, it believes any such claims will not have a material adverse impact on either the Company's
consolidated financial position, results of operations or cash flows.

The
Company has a credit facility with a bank establishing a revolving line of credit in the amount of $5,000,000 with a standby letter of credit subfacility in the amount of
$5,000,000 and a $10,000,000 non-revolving line of credit providing for term loans. In addition, the Company has a revolving line of credit with another bank in the amount of $3,000,000.
The Company borrowed $2,750,000, $2,500,000 and $4,750,000 against the term loan line of credit on December 30, 1995, December 30, 1997 and October 15, 1999, respectively, to
finance capital expenditures of which $4,762,000 was outstanding at December 30, 2000. There were no outstanding balances against either of the revolving lines as of December 30, 2000.
The Company's current cash position including marketable securities, the lines of credit and net cash provided by operating activities (approximately $15,381,000 for 2000) are the primary sources of
funds available to meet the Company's current liquidity requirements. See Note 7 of Notes to Consolidated Financial Statements for a description of the Company's credit lines.

The
Company's total liabilities to equity ratio decreased to .53 at December 30, 2000 from .61 at January 1, 2000. The Company's current ratio was 1.88 at
December 30, 2000 compared to 1.79 at January 1, 2000. The Company's current assets at the end of 2000 were approximately $2,870,000 more than at the end of 1999.

The
Company's cash position, including marketable securities, at the end of 2000 was $34,722,000 compared to $36,067,000 at the end of 1999. Cash not required for the immediate needs
of the Company has been temporarily invested in commercial paper and marketable securities. See Notes 1 and 2 of Notes to Consolidated Financial Statements. The Company is actively investigating
opportunities for the use of these funds, primarily for the expansion of its supermarket operations.

California Electrical Market

Beginning early 2001, periodic rolling electrical blackouts have been imposed across California adversely impacting consumers and businesses in various parts
of the state. Rolling blackouts are anticipated to continue with no immediate relief in the near future. Warmer weather will likely increase the frequency and severity of power outages. The Company's
warehouse, corporate offices, stores and suppliers may be subject to future power outages that could result in a significant adverse impact on operations and financial results. The Company does not
generate sufficient emergency power at its facilities and stores to maintain ongoing operations during power outages which may result in lost sales and product spoilage.

Recent Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be

9

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recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. As
amended by SFAS 137, the new rules were effective the first quarter of 2001. Effective January 1, 2001, the Company adopted SFAS 133 and the new standard did not have any impact
on the Company's financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk from changes in interest rates on debt. The Company's exposure to interest rate risk relates to its $5,000,000 and
$3,000,000 revolving lines of credit. Borrowings under the agreements bear interest as discussed in Note 7 of Notes to Consolidated Financial Statements. There were no borrowings outstanding
under either agreement as of December 30, 2000. Consequently, a hypothetical 1% interest rate change would have no impact on the Company's results of operations.

A
change in market prices also exposes the Company to market risk related to its investments in marketable securities. At December 30, 2000 the Company held $15,032,000 in
marketable securities. A hypothetical 10% drop in the market value of these investments would result in a $1,503,000 unrealized pretax loss and a corresponding loss of a like amount in the fair value
of these instruments. This hypothetical drop would not affect cash flow and would not have an impact on earnings until the investments were disposed of.

Item 8. Financial Statements and Supplementary Data

See Index to Consolidated Financial Statements and Supplemental Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

10

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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 2, 2001. Certain of this information has been supplied by
the persons shown.

|Name              |  | Age |  | Principal Occupation (1)
and Other Directorships                                                                                                                                                                                                                                                                                                                                                                                                                |  | Director
Since (2) |  | Term Expires
|----------------- |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ |  | ------------
|Bernard Briskin   |  | 76  |  | Chairman of the Board of Directors, President and Chief Executive Officer of the Company and Arden-Mayfair, a subsidiary of the Company, and Chairman of the Board and Chief Executive Officer of AMG Holdings and Gelson's, both subsidiaries of
Arden-Mayfair.                                                                                                                                                                                                |  | 1970               |  | 2001        
|John G. Danhakl   |  | 44  |  | Partner, Leonard Green & Partners since March 1995. Managing Director of Donaldson Lufkin Jenrette Securities Corporation from March 1990 to February 1995. Director of Big 5 Sporting Goods, Inc., Communications Power and Industries, Inc., Twin
Laboratories Corporation, Hechinger/BSQ, Diamond Auto Glass Works, Liberty Group Publishing, Leslie's Poolmart, Inc., Veterinary Centers of America, Inc., Korea Times USA and Petco Animals Supplies, Inc. |  | 1995               |  | 2001        
|Robert A. Davidow |  | 58  |  | Director and Vice Chairman of WHX Corporation; private investor.                                                                                                                                                                                                                                                                                                                                                                                                |  | 1991               |  | 2002        
|Daniel Lembark    |  | 76  |  | Financial consultant.                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | 1978               |  | 2001        
|Ben Winters       |  | 80  |  | Business consultant.                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | 1978               |  | 2003        

---

11

---

Identification of Executive Officers

Below
is set forth certain information about each of the executive officers of the Company as of March 2, 2001:

|Name            |  | Age |  | Position(s)                                                                                                                                                                                    
|--------------- |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Bernard Briskin |  | 76  |  | Chairman of the Board of Directors, President and Chief Executive Officer of the Company and Arden-Mayfair, and Chairman of the Board and Chief Executive Officer of AMG Holdings and Gelson's.
|David M. Oliver |  | 43  |  | Chief Financial Officer of the Company and Arden-Mayfair, Chief Financial Officer and Secretary of AMG Holdings and Gelson's.                                                                  

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, pursuant to an employment agreement which expires on January 1, 2004, although the term will be automatically extended for successive one year periods unless certain
termination notices are given by either Mr. Briskin or the employers. See "Item 11. Executive Compensation".

Mr. Oliver
was elected Chief Financial Officer of the Company in November 1999. Mr. Oliver also serves as Chief Financial Officer of Arden-Mayfair, and Chief
Financial Officer and Secretary of AMG Holdings and Gelson's. From August 1998 until he joined the Company, he worked as an independent consultant. From July 1997 to July 1998,
Mr. Oliver served as Senior Vice President, Chief Financial Officer of Hughes Family Markets. He served as Vice President, Controller of The Vons Companies, Inc. from July 1994 to
April 1997 and as Assistant Controller from August 1988 to June 1994. Mr. Oliver was employed by Arthur Andersen & Co. as a Certified Public Accountant in the audit
department from June 1979 to May 1988.

Except
for Mr. Briskin, who has an employment agreement, all officers serve at the pleasure of the Board of Directors.

12

---



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, 2000 exceeded $100,000 in the aggregate.

|                                             |  |                |  |                         |  |                         |  | Long Term
Compensation |  |                     
|-------------------------------------------- |  | -------------- |  | ----------------------- |  | ----------------------- |  | ---------------------- |  | --------------------
|
|
|Bernard Briskin,
Chief Executive
Officer     |  | 2000
1999
1998 |  | 524,352
511,563
507,000 |  | 735,731
626,299
599,297 |  |                        |  | 69,200
12,800
12,800
|David M. Oliver (1),
Chief Financial
Officer |  | 2000
1999      |  | 150,654
11,070          |  | 25,000                  |  | 2,500                  |  |                     

---

Stock Appreciation Rights

The following table sets forth certain information on stock appreciation right ("SAR") grants in fiscal 2000 to the named executive officers:

SAR Grants in Last Fiscal Year

|                |  | Individual Grants |   |    |   |        |  |         
|--------------- |  | ----------------- | - | -- | - | ------ |  | --------
|
|
|
|
|
|
|David M. Oliver |  | 2,500(1           | ) | 25 | % | 291/16 |  | 03/28/05

---

13

---

The
following table provides information on the exercise of SARs by the named executive officers in fiscal 2000 and the number of each officers' SARs that were unexercised at
December 30, 2000:

Aggregated SAR Exercises in Last Fiscal Year and Fiscal
Year-End Unexercised SARs

|                |  |   |  |   |  | Number of Securities
Underlying Unexercised
SARs at
Fiscal Year End
(#) |  | Value of Unexercised
In-the-Money
SARs at
Fiscal Year End
($)
|--------------- |  | - |  | - |  | ----------------------------------------------------------------------- |  | -------------------------------------------------------------
|
|
|David M. Oliver |  | 0 |  | 0 |  | 0/2,500                                                                 |  | 0/26,000                                                     

Employment Agreement

The compensation of Mr. Briskin, the Chief Executive Officer of the Company, is established under an Employment Agreement, as amended ("the Employment
Agreement") which expires on January 1, 2004. Pursuant to the terms of the Employment Agreement, Mr. Briskin's base salary increases on January 1 of each year based upon increases
in the Consumer Price Index subject to a maximum annual increase of 4%. His annual bonus is equal to 21/2% of the Company's first $2,000,000 of Pre-Tax Profits (as defined
in the Employment Agreement) plus 31/2% of Pre-Tax Profits in excess of $2,000,000. The Employment Agreement provides for an annual medical expense reimbursement of $200,000
for Mr. Briskin and his immediate family, as well as annual retirement compensation equal to twenty-five percent of Mr. Briskin's average base salary and bonus earned in the
last three fiscal years prior to his retirement and continuation of health insurance benefits and automobile allowance. In addition, if he becomes permanently disabled, dies or his employment is
terminated prior to January 1, 2004, the cumulative unpaid portion of two notes from Mr. Briskin to the Company, in the amount of $135,000 as of March 2, 2001, will be forgiven.
The maturity dates of the two notes were extended to December 31, 2003 with equal annual principal payments of $40,000 plus interest at 6% per annum.

Remuneration of Directors

Non-employee directors are compensated for their services as directors at an annual rate of $22,800, plus $1,000 for each Board meeting attended
and $1,000 for attendance at each committee meeting. Non-employee directors who serve as committee chairmen are entitled to an additional $4,200 per year. In 2000, each
non-employee director also received stock appreciation rights covering 10,000 shares of the Company's Class A Common Stock. See Note 9 of Notes to Consolidated Financial
Statements. 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 2000, the Compensation Committee was comprised of the following directors, none of whom are or have
been officers of the Company:



14

---

Item 12. Security Ownership of Certain Beneficial Owners and Management



|Name and Address of
Beneficial Owner                                                                                                                           |  | Title of Class       |  | Amount and
Nature of
Beneficial
Ownership(1) |        | Percent of
Class |   | Percent of
Total Vote |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- |  | -------------------------------------------- | ------ | ---------------- | - | --------------------- | -
|City National Bank, as Trustee of the
Company's Stock Bonus Plan and Trust
(the "Stock Bonus Plan")
400 North Roxbury Drive, 7th Floor
Beverly Hills, CA 90210 |  | Class A Common Stock |  | 239,336                                      |        | 11.5             | % | 1.5                   | %
|Bernard Briskin
Arden Group, Inc.
9595 Wilshire Blvd., Suite 411
Beverly Hills, CA 90212                                                                       |  | Class A Common Stock |  | 615,389                                      | (2)(3) | 29.5             | % | 3.9                   | %
|Bernard Briskin                                                                                                                                                |  | Class B Common Stock |  | 1,362,496                                    | (3)    | 99.5             | % | 86.4                  | %

---

If
Mr. Briskin converted all of his Class B Common Stock to Class A Common Stock (convertible on a share for share basis), his and his spouse's beneficial
ownership of Class A Common Stock would be increased to 1,977,885 shares or 57.2% of the total shares outstanding as of March 2, 2001.



15

---



|Name of Beneficial Owner                                    |  | Title of Class                            |  | Amount and Nature
of Beneficial
Ownership(1) |        | Percent
of Class |     | Percent
of Total
Vote |    
|----------------------------------------------------------- |  | ----------------------------------------- |  | -------------------------------------------- | ------ | ---------------- | --- | --------------------- | ---
|Bernard Briskin                                             |  | Class A Common Stock
Class B Common Stock |  | 615,389
1,362,496                            | (2)(2) | 29.5
99.5        | %%  | 3.9
86.4              | %% 
|John G. Danhakl                                             |  | Class A Common Stock                      |  | 0                                            |        |                  |     |                       |    
|Robert A. Davidow                                           |  | Class A Common Stock                      |  | 0                                            |        |                  |     |                       |    
|Daniel Lembark                                              |  | Class A Common Stock                      |  | 0                                            |        |                  |     |                       |    
|David M. Oliver                                             |  | Class A Common Stock                      |  | 0                                            |        |                  |     |                       |    
|Ben Winters                                                 |  | Class A Common Stock                      |  | 500                                          |        |                  | (3) |                       | (3)
|All directors and executive officers
as a group (6 persons) |  | Class A Common Stock
Class B Common Stock |  | 615,889
1,362,496                            | (2)(2) | 29.5
99.5        | %%  | 3.9
86.4              | %% 

---

Item 13. Certain Relationships and Related Transactions

In connection with the purchase by Mr. Briskin of shares of the Company's Class A Common Stock in 1979 and 1980, the Company loaned
Mr. Briskin $212,500 and $303,750, respectively. Effective January 1, 1997 the terms of the notes were modified to extend the maturity date from December 31, 2000 to
December 31, 2003 and to reduce the annual principal payments from $73,750 to $40,000 plus interest at 6% per annum. The highest cumulative outstanding balance of the two loans was $175,000
during 2000 and was $135,000 as of March 2, 2001.

16

---



PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K



17

---





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                |  | /s/BERNARD BRISKINBernard Briskin Chairman of the Board, President and Chief Executive Officer                  
| |  | By                |  | /s/DAVID M. OLIVERDavid M. Oliver Chief Financial Officer (Principal Financial and Principal Accounting Officer)

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the date indicated. The undersigned have also relied upon the reports of the registrant's independent accountants at page 20.

|                                      |  |                                    |  | Date    
|------------------------------------- |  | ---------------------------------- |  | --------
|/s/BERNARD BRISKINBernard Briskin     |  | Director and Chairman of the Board |  | 03/21/01
|/s/JOHN G. DANHAKLJohn G. Danhakl     |  | Director                           |  | 03/21/01
|/s/ROBERT A. DAVIDOWRobert A. Davidow |  | Director                           |  | 03/21/01
|/s/DANIEL LEMBARKDaniel Lembark       |  | Director                           |  | 03/21/01
|/s/BEN WINTERSBen Winters             |  | Director                           |  | 03/21/01

18

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA

|                                  |                                                                                                     | Page                                                                                                                          
|--------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------
|Report of Independent Accountants |                                                                                                     | 20                                                                                                                            
|Financial Statements:             |                                                                                                     |                                                                                                                               
|                                  | Consolidated Balance Sheets, December 30, 2000 and January 1, 2000                                  |                                                                                                                               
|                                  | Consolidated Statements of Operations and Comprehensive Income for fiscal years 2000, 1999 and 1998 |                                                                                                                               
|                                  | Consolidated Statements of Stockholders' Equity for fiscal years 2000, 1999 and 1998                |                                                                                                                               
|                                  | Consolidated Statements of Cash Flows for fiscal years 2000, 1999 and 1998                          |                                                                                                                               
|                                  | Notes to Consolidated Financial Statements                                                          |                                                                                                                               
|                                  |                                                                                                     | The financial statements include the Registrant's subsidiary (Arden-Mayfair, Inc.) and the subsidiaries of Arden-Mayfair, Inc.

Schedules
are omitted because of the absence of the conditions under which they are required.

19

---

REPORT OF INDEPENDENT ACCOUNTANTS

To
the Stockholders of
Arden Group, Inc.

In
our opinion, the consolidated financial statements listed in the index on page 19 of this Form 10-K present fairly, in all material respects, the financial
position of Arden Group, Inc. and its subsidiary at December 30, 2000 and January 1, 2000, and the consolidated results of their operations and comprehensive income, and their
cash flows for each of the three fiscal years in the period ended December 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.



Los
Angeles, California
March 14, 2001

20

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

|                                                 |                                                                                                                                                                   | December 30, 2000 |                                            | January 1, 2000 |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | ------------------------------------------ | --------------- | -
|
|Assets                                           |                                                                                                                                                                   |                   |                                            |                 |  
|Current assets:                                  |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 | Cash and cash equivalents                                                                                                                                         |                   | $                                          | 19,690          |  
|                                                 | Marketable securities                                                                                                                                             |                   |                                            | 15,032          |  
|                                                 | Accounts and notes receivable, net                                                                                                                                |                   |                                            | 7,512           |  
|                                                 | Inventories                                                                                                                                                       |                   |                                            | 13,414          |  
|                                                 | Other current assets                                                                                                                                              |                   |                                            | 2,997           |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | Total current assets                       |                 |  
|Property for resale or sublease                  |                                                                                                                                                                   |                   | 795                                        |                 |  
|Property, plant and equipment, net               |                                                                                                                                                                   |                   | 54,484                                     |                 |  
|Other assets                                     |                                                                                                                                                                   |                   | 4,236                                      |                 |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | Total assets                               |                 | $
|Liabilities and Stockholders' Equity             |                                                                                                                                                                   |                   |                                            |                 |  
|Current liabilities:                             |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 | Accounts payable, trade                                                                                                                                           |                   | $                                          | 15,455          |  
|                                                 | Other current liabilities                                                                                                                                         |                   |                                            | 14,059          |  
|                                                 | Current portion of long-term debt                                                                                                                                 |                   |                                            | 1,707           |  
|                                                 |                                                                                                                                                                   |                   | Total current liabilities                  |                 |  
|Long-term debt                                   |                                                                                                                                                                   |                   | 6,735                                      |                 |  
|Deferred income taxes                            |                                                                                                                                                                   |                   | 863                                        |                 |  
|Other liabilities                                |                                                                                                                                                                   |                   | 2,074                                      |                 |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | Total liabilities                          |                 |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|Commitments and contingent liabilities (Note 14) |                                                                                                                                                                   |                   |                                            |                 |  
|Stockholders' equity:                            |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 | Common Stock, Class A, $.25 par value; 3,445,712 and 3,573,688 shares issued and outstanding for 2000 and 1999, respectively, including 1,357,200 treasury shares |                   |                                            | 862             |  
|                                                 | Common Stock, Class B, $.25 par value; 1,368,984 shares issued and outstanding                                                                                    |                   |                                            | 342             |  
|                                                 | Capital surplus                                                                                                                                                   |                   |                                            | 3,766           |  
|                                                 | Notes receivable from officer/director                                                                                                                            |                   |                                            | (135            | )
|                                                 | Unrealized loss on available-for-sale securities                                                                                                                  |                   |                                            | (1              | )
|                                                 | Retained earnings                                                                                                                                                 |                   |                                            | 76,186          |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | 81,020                                     |                 |  
|                                                 | Treasury stock, 1,357,200 shares at cost                                                                                                                          |                   |                                            | (3,753          | )
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | Total stockholders' equity                 |                 |  
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  
|                                                 |                                                                                                                                                                   |                   | Total liabilities and stockholders' equity |                 | $
|                                                 |                                                                                                                                                                   |                   |                                            |                 |  

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

21

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME

|                                                       |                                                                                                                      | 2000                                                         |         | 1999      |     | 1998    |          
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------- | --------- | --- | ------- | ---------
|
|Sales                                                  |                                                                                                                      | $                                                            | 359,994 |           | $   | 324,168 |          
|Cost of sales                                          |                                                                                                                      |                                                              | 210,884 |           |     | 192,446 |          
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Gross profit                                                                                                         |                                                              |         | 149,110   |     |         | 131,722  
|Delivery, selling, general and administrative expenses |                                                                                                                      |                                                              | 129,272 |           |     | 114,892 |          
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Operating income                                                                                                     |                                                              |         | 19,838    |     |         | 16,830   
|Interest and dividend income                           |                                                                                                                      |                                                              | 2,265   |           |     | 1,807   |          
|Other income (expense), net                            |                                                                                                                      |                                                              | (464    | )         |     | (104    | )        
|Interest expense                                       |                                                                                                                      |                                                              | (782    | )         |     | (694    | )        
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Income before income taxes                                                                                           |                                                              |         | 20,857    |     |         | 17,839   
|Income tax provision                                   |                                                                                                                      |                                                              | 8,498   |           |     | 6,122   |          
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Net income                                                                                                           |                                                              | $       | 12,359    |     | $       | 11,717   
|Other comprehensive income (loss), net of tax:         |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Unrealized gain (loss) from available-for-sale securities:                                                           |                                                              |         |           |     |         |          
|                                                       |                                                                                                                      | Unrealized holding gains (losses) arising
during the period  |         |           | 184 |         |          
|                                                       |                                                                                                                      | Reclassification adjustment for gains included
in net income |         |           | 261 |         |          
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Net unrealized gain (loss), net of income tax expense (benefits) of $306 for 2000, ($572) for 1999 and ($9) for 1998 |                                                              |         | 445       |     |         | (839     
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Comprehensive income                                                                                                 |                                                              | $       | 12,804    |     | $       | 10,878   
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|Net income per common share:                           |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Basic                                                                                                                |                                                              | $       | 3.52      |     | $       | 3.27     
|                                                       | Diluted                                                                                                              |                                                              |         | 3.52      |     |         | 3.27     
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          
|Weighted average common shares outstanding:            |                                                                                                                      |                                                              |         |           |     |         |          
|                                                       | Basic                                                                                                                |                                                              |         | 3,513,028 |     |         | 3,585,472
|                                                       | Diluted                                                                                                              |                                                              |         | 3,515,117 |     |         | 3,585,472
|                                                       |                                                                                                                      |                                                              |         |           |     |         |          

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

22

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                         |                                                   | 2000                               |        | 1999   |        | 1998   |       
|-------------------------------------------------------- | ------------------------------------------------- | ---------------------------------- | ------ | ------ | ------ | ------ | ------
|
|Common Stock, Class A:                                   |                                                   |                                    |        |        |        |        |       
|                                                         | Balance, beginning of year                        |                                    | $      | 894    |        | $      | 894   
|                                                         | Purchase and retirement of stock (127,976 shares) |                                    |        | (32    | )      |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, end of year               |        |        | 862    |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Common Stock, Class B:                                   |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, beginning and end of year |        |        | 342    |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Capital surplus:                                         |                                                   |                                    |        |        |        |        |       
|                                                         | Balance, beginning of year                        |                                    |        | 3,866  |        |        | 3,866 
|                                                         | Purchase and retirement of common stock           |                                    |        | (100   | )      |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, end of year               |        |        | 3,766  |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Notes receivable from officer/director:                  |                                                   |                                    |        |        |        |        |       
|                                                         | Balance, beginning of year                        |                                    |        | (175   | )      |        | (215  
|                                                         | Principal paid                                    |                                    |        | 40     |        |        | 40    
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, end of year               |        |        | (135   | )      |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Unrealized gain (loss) on available-for-sale securities: |                                                   |                                    |        |        |        |        |       
|                                                         | Balance, beginning of year                        |                                    |        | (446   | )      |        | 393   
|                                                         | Net unrealized gain (loss)                        |                                    |        | 445    |        |        | (839  
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, end of year               |        |        | (1     | )      |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Retained earnings:                                       |                                                   |                                    |        |        |        |        |       
|                                                         | Balance, beginning of year                        |                                    |        | 68,548 |        |        | 56,831
|                                                         | Net income                                        |                                    |        | 12,359 |        |        | 11,717
|                                                         | Purchase and retirement of common stock           |                                    |        | (4,721 | )      |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Balance, end of year               |        |        | 76,186 |        |       
|                                                         |                                                   |                                    |        |        |        |        |       
|Stockholders' equity before treasury stock               |                                                   |                                    | 81,020 |        |        | 73,029 |       
|Treasury stock, at cost                                  |                                                   |                                    | (3,753 | )      |        | (3,753 | )     
|                                                         |                                                   |                                    |        |        |        |        |       
|                                                         |                                                   | Total stockholders' equity         |        | $      | 77,267 |        | $     
|                                                         |                                                   |                                    |        |        |        |        |       

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

23

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                               |                                                                                                  | 2000                                                |        | 1999     |        | 1998   |         
|---------------------------------------------- | ------------------------------------------------------------------------------------------------ | --------------------------------------------------- | ------ | -------- | ------ | ------ | --------
|
|Cash flows from operating activities:          |                                                                                                  |                                                     |        |          |        |        |         
|                                               | Cash received from customers                                                                     |                                                     | $      | 358,007  |        | $      | 324,276 
|                                               | Cash paid to suppliers and employees                                                             |                                                     |        | (334,693 | )      |        | (296,662
|                                               | Interest and dividends received                                                                  |                                                     |        | 2,029    |        |        | 1,639   
|                                               | Interest paid                                                                                    |                                                     |        | (761     | )      |        | (716    
|                                               | Income taxes paid                                                                                |                                                     |        | (9,201   | )      |        | (7,859  
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|                                               |                                                                                                  | Net cash provided by operating activities           |        |          | 15,381 |        |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|Cash flows from investing activities:          |                                                                                                  |                                                     |        |          |        |        |         
|                                               | Capital expenditures                                                                             |                                                     |        | (9,882   | )      |        | (19,630 
|                                               | Purchases of available-for-sale securities                                                       |                                                     |        | (2,614   | )      |        | (2,528  
|                                               | Sales of available-for-sale securities                                                           |                                                     |        | 5,797    |        |        | 2,658   
|                                               | Proceeds from the sale of property, plant and equipment, liquor licenses and leasehold interests |                                                     |        | 121      |        |        | 7       
|                                               | Other                                                                                            |                                                     |        | (348     | )      |        |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|                                               |                                                                                                  | Net cash used in investing activities               |        |          | (6,926 | )      |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|Cash flows from financing activities:          |                                                                                                  |                                                     |        |          |        |        |         
|                                               | Purchase and retirement of Company stock                                                         |                                                     |        | (4,853   | )      |        |         
|                                               | Principal payments on long-term debt                                                             |                                                     |        | (1,880   | )      |        | (1,208  
|                                               | Principal payments under capital lease obligations                                               |                                                     |        | (229     | )      |        | (257    
|                                               | Loan payments received from officer/director                                                     |                                                     |        | 40       |        |        | 40      
|                                               | Proceeds from equipment financing                                                                |                                                     |        |          |        |        | 4,750   
|                                               | Purchase of Company debentures                                                                   |                                                     |        |          |        |        |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|                                               |                                                                                                  | Net cash provided by (used in) financing activities |        |          | (6,922 | )      |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|Net increase in cash and cash equivalents      |                                                                                                  |                                                     | 1,533  |          |        | 4,510  |         
|Cash and cash equivalents at beginning of year |                                                                                                  |                                                     | 18,157 |          |        | 13,647 |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         
|Cash and cash equivalents at end of year       |                                                                                                  | $                                                   | 19,690 |          | $      | 18,157 |         
|                                               |                                                                                                  |                                                     |        |          |        |        |         

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

24

---

|                                                                                                  |                                     | 2000                                                                                                        |        | 1999 |        | 1998   | 
|------------------------------------------------------------------------------------------------- | ----------------------------------- | ----------------------------------------------------------------------------------------------------------- | ------ | ---- | ------ | ------ | 
|Reconciliation of Net Income to Net Cash Provided by Operating Activities:                        |                                     |                                                                                                             |        |      |        |        | 
|Net income                                                                                        |                                     | $                                                                                                           | 12,359 |      | $      | 11,717 | 
|Adjustments to reconcile net income to net cash provided by operating activities:                 |                                     |                                                                                                             |        |      |        |        | 
|                                                                                                  |                                     | Depreciation and amortization                                                                               |        |      | 6,719  |        | 
|                                                                                                  |                                     | Provision for losses on accounts and notes receivable                                                       |        |      | 142    |        | 
|                                                                                                  |                                     | Deferred income taxes                                                                                       |        |      | (262   | )      | 
|                                                                                                  |                                     | Net loss (gain) from the disposal of property, plant and equipment, liquor licenses and leasehold interests |        |      | (19    | )      | 
|                                                                                                  |                                     | Realized loss (gain) on marketable securities, net                                                          |        |      | 434    |        | 
|                                                                                                  |                                     | Gain on purchase of 7% debentures                                                                           |        |      |        |        | 
|Changes in assets and liabilities net of effects from noncash investing and financing activities: |                                     |                                                                                                             |        |      |        |        | 
|                                                                                                  | (Increase) decrease in assets:      |                                                                                                             |        |      |        |        | 
|                                                                                                  |                                     | Marketable securities                                                                                       |        |      | (2     | )      | 
|                                                                                                  |                                     | Accounts and notes receivable                                                                               |        |      | (2,242 | )      | 
|                                                                                                  |                                     | Inventories                                                                                                 |        |      | (1,212 | )      | 
|                                                                                                  |                                     | Other current assets                                                                                        |        |      | (903   | )      | 
|                                                                                                  |                                     | Other assets                                                                                                |        |      | (602   | )      | 
|                                                                                                  | Increase (decrease) in liabilities: |                                                                                                             |        |      |        |        | 
|                                                                                                  |                                     | Accounts payable and other accrued expenses                                                                 |        |      | 659    |        | 
|                                                                                                  |                                     | Deferred income taxes on unrealized gains                                                                   |        |      | (306   | )      | 
|                                                                                                  |                                     | Other liabilities                                                                                           |        |      | 616    |        | 
|                                                                                                  |                                     |                                                                                                             |        |      |        |        | 
|Net cash provided by operating activities                                                         |                                     | $                                                                                                           | 15,381 |      | $      | 20,678 | 
|                                                                                                  |                                     |                                                                                                             |        |      |        |        | 

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

25

---

ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Accounting Policies

The following is a summary of significant accounting policies followed in the preparation of these consolidated financial statements.



The consolidated financial statements of Arden Group, Inc. (the "Company") include the accounts of the Company and its direct and indirect subsidiaries.
All intercompany accounts and transactions are eliminated in consolidation. The Company operates primarily in the supermarket business in the Southern California area.



The Company operates on a fiscal year ending on the Saturday closest to December 31. Fiscal years for the consolidated financial statements included
herein ended on December 30, 2000, January 1, 2000 and January 2, 1999. Each of the three years consisted of 52 weeks.



The Consolidated Statements of Cash Flows classify changes in cash or cash equivalents (short-term, highly liquid investments readily convertible
into cash with an original maturity at date of purchase of three months or less) according to operating, investing or financing activities. Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of cash and temporary cash investments. At times, cash balances held at financial institutions are in excess of federally insured limits. The
Company places its temporary cash investments with high credit, quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. The Company
believes no significant concentration of credit risk exists with respect to these cash investments.



Marketable securities consist of mutual funds and debt and equity securities. Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date. All marketable securities are defined as available-for-sale securities under the provisions of Statement of
Financial Accounting Standards No. ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities."

Management
determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date.
Debt securities for which the Company does not have the intent or ability to hold to maturity and equity securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. The cost of
investments sold is determined based on the specific identification method.



The Company closely monitors extensions of credit and has not experienced significant losses related to its receivables. At December 30, 2000, the
Company did not have significant credit risk concentrations. No single group or customer represents greater than 2% of total accounts and notes

26

---

receivable. Issuance costs related to Gelson's charge cards are not significant and are expensed as incurred.



The cost of supermarket nonperishable inventories is determined by the retail inventory method using the last-in, first-out (LIFO)
method, which is lower than market. Perishable inventories are valued at the lower of cost on a first-in, first-out ("FIFO") method or market.



It is the Company's policy to make available for sale or sublease property considered by management as excess and no longer necessary for the operations of the
Company. The aggregate carrying values of such owned property and property under capital leases are periodically reviewed and adjusted downward to fair value, when appropriate.



Owned property, plant and equipment is valued at cost. Depreciation is provided on the straight-line method at rates ranging from three to twenty
years based on the estimated useful lives of individual assets or classes of assets. Improvements to leased properties or fixtures are amortized over their estimated useful lives or lease period,
whichever is shorter.

Leased
property meeting certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of capitalized leased assets is
computed on the straight-line method over the term of the lease.

Normal
repairs and maintenance are expensed as incurred. Expenditures which materially increase values, change capacities or extend useful lives are capitalized. Replacements are
capitalized and the property, plant and equipment accounts are relieved of the items being replaced. The related costs and accumulated depreciation of disposed assets are eliminated and any gain or
loss on disposition is included in income.



SFAS 107, "Disclosure About Fair Value of Financial Instruments," requires certain disclosures regarding the fair value of financial instruments. The
carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair values because of the short-term maturity of these instruments.
The fair value of long-term debt closely approximates its carrying value. The Company uses quoted market prices, when available, or discounted cash flows to calculate these fair values.



In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows of the individual stores and consolidated
undiscounted net cash flows for long-lived assets not identifiable to individual stores compared to the related carrying value. If the sum of the undiscounted future cash flows is less
than the carrying amount of the asset, an impairment loss is recognized.

27

---



Costs incurred to investigate and remediate contaminated sites are expensed as incurred.



Noncapital expenditures incurred in opening a new store are expensed as incurred.



Advertising and sales promotion costs are expensed as incurred and totaled $2,630,000, $1,732,000 and $1,504,000 in 2000, 1999 and 1998, respectively.



The Company accounts for income taxes under the provisions of SFAS 109, "Accounting for Income Taxes." Under SFAS 109, deferred tax liabilities
and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are
expected to reverse.



SFAS 128, "Earnings Per Share," requires dual presentation of basic net income per common share and dilutive net income per common share on the face of
the income statement. Basic net income per share is computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the
period. Diluted net income per share is calculated by adjusting outstanding shares to include all potentially dilutive stock options. The weighted average number of common shares used to compute
dilutive net income per share in 2000 excludes 30,000 shares related to stock options. These shares are excluded due to their antidilutive effect on net income per share.



SFAS 130, "Reporting Comprehensive Income," was adopted during the first quarter of 1998. The standard establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements. Comprehensive income includes unrealized gains and losses on debt and equity securities classified as
available-for-sale and included as a component of stockholders' equity.



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions for
the reporting period and as of the financial statement date. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. Actual results could differ from these estimates.



In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. As amended by SFAS 137, the new rules
were effective the first quarter of 2001. Effective January 1, 2001,

28

---

the Company adopted SFAS 133 and the new standard did not have any impact on the Company's financial statements.

2. Marketable Securities

Marketable securities are carried on the balance sheet at their fair value.

Cost

Unrealized
Gain (Loss)

Fair Value(In Thousands)As of December 30, 2000:Available-for-sale securities:Mutual funds

$
11,575

$
(80
)
$
11,495Equity securities


2,282


55


2,337Debt securities


1,167


33


1,200Total

$
15,024

$
8

$
15,032As of January 1, 2000:Available-for-sale securities:Mutual funds

$
16,862

$
(824
)
$
16,038Equity securities


1,763


109


1,872Debt securities


578


(578
)

0Total

$
19,203

$
(1,293
)
$
17,910


Debt
securities held as of December 30, 2000 mature on May 15, 2006. Realized net losses from sale of securities were $434,000, $342,000 and $4,000 in 2000, 1999 and
1998, respectively.

3. Accounts and Notes Receivable, Net

December 30, 2000

January 1, 2000(In Thousands)Accounts receivable, trade

$
4,037

$
4,120Notes receivable


117


310Other accounts receivable


3,714


1,5227,868


5,952Less: Allowance for doubtful accounts and notes receivable


(356
)

(540
)$
7,512

$
5,412


The
provision for doubtful accounts and notes receivable in 2000, 1999 and 1998 was approximately $142,000, $191,000 and $92,000, respectively.

4. Inventories

Inventories valued by the LIFO method ($10,530,000 in 2000, $9,635,000 in 1999 and $8,632,000 in 1998) would have been $3,253,000, $3,123,000 and $2,807,000
higher at December 30, 2000, January 1, 2000 and January 2, 1999, respectively, if they had been stated at the lower of FIFO cost or market. The LIFO effect on net income and
basic net income per common share in 2000, 1999 and 1998 was a decrease of approximately $77,000 ($.02 per share), $187,000 ($.05 per share) and $143,000 ($.04 per share), respectively.

29

---

5. Property, Plant and Equipment, Net

December 30, 2000

January 1, 2000(In Thousands)Land

$
8,110

$
8,110Buildings and improvements


9,693


9,717Store fixtures and office equipment


30,861


27,443Transportation equipment


2,036


1,659Machinery and equipment


851


831Leasehold improvements


38,014


33,599Leasehold interests


4,538


4,142Assets under capital leases


3,058


3,058Assets under construction


1,575


93998,736


89,498Accumulated depreciation and amortization


(44,252
)

(38,132
)$
54,484

$
51,366


As
of December 30, 2000, approximately $16,492,000 of property, plant and equipment (at cost) was fully depreciated and is still being used in operations.

6. Other Current Liabilities

December 30, 2000

January 1, 2000(In Thousands)Compensated absences

$
3,973

$
3,578Taxes (including taxes collected from others of $1,392 and $1,321, respectively)


2,364


2,354Other


7,722


8,084$
14,059

$
14,016


7. Long-Term Debt

|                                                        |  | Current |       | Non-Current
|------------------------------------------------------- |  | ------- | ----- | -----------
|
|
|Notes payable                                           |  | $       | 1,450 |            
|Obligations under capital leases                        |  |         | 257   |            
|7% Subordinated income debentures due September 1, 2014 |  |         |       |            
|                                                        |  |         |       |            
|                                                        |  | $       | 1,707 |            
|                                                        |  |         |       |            

30

---

At December 30, 2000, the approximate principal payments required on long-term debt for each fiscal year are as follows (in thousands):

2001

$
1,7072002


1,7392003


1,3152004


1,2352005


409Thereafter


2,037$
8,442


The
Company has a loan agreement for a credit facility with a bank establishing a revolving line of credit in the amount of $5,000,000 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. The loan agreement expires July 31, 2002. Major provisions of the agreement permit
the Company to elect to pay interest under either the "Base Interest" or "Reference" rate provisions of the agreement. Additionally, there are certain minimum requirements as to the Company's equity,
working capital and debt-to-equity relationships. The Company also has a revolving line of credit with another bank in the amount of $3,000,000 which expires in
October 2001. Borrowings bear interest at the bank's reference rate or adjusted LIBOR rate plus a margin. At the end of 2000 and 1999, there were no amounts borrowed under either of the
revolving lines of credit.

Notes
Payable: In 1999, 1997 and 1995, the Company borrowed $4,750,000 (at 6.98%), $2,500,000 (at 6.76%) and $2,750,000 (at 6.18%), respectively, from its $10,000,000
non-revolving line of credit to finance the purchase of supermarket equipment. All three borrowings are five year, fully amortized notes. The note payable entered into in 1995 was paid in
full in December 2000.

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 sufficient therefore, or at the discretion of the Company, out of available retained earnings. No accrued interest was in arrears as of December 30, 2000.

The
aggregate fair market value of long-term debt approximates its carrying value.

8. Capital Stock

A four-for-one stock split of each class of the Company's common stock in the form of a stock dividend was distributed on
July 15, 1998 to holders of record on June 29, 1998. Stockholders received three additional shares of Class A Common Stock for each share of Class A Common Stock held and
three additional shares of Class B Common Stock for each share of Class B Common Stock held. Common stock, capital surplus, and all share and per share data have been restated to reflect
the stock split.

Class A
Common Stock: The Company is authorized to issue 10,000,000 shares of Class A Common Stock, par value $.25 per share. At December 30, 2000 and
January 1, 2000, shares issued were 3,445,712 and 3,573,688, respectively, including 1,357,200 treasury shares. In the second quarter of 2000, the Company purchased and retired 127,976 shares
of its Class A Common Stock for an aggregate purchase price of approximately $4,853,000. The Class A Common Stock has one vote per share on all matters on which stockholders are entitled
to vote or consent.

Class B
Common Stock: The Company is authorized to issue 1,500,000 shares of Class B Common Stock, par value $.25 per share. At December 30, 2000 and
January 1, 2000 there were 1,368,984 shares

31

---

issued and outstanding. The Class B Common Stock has ten votes per share on virtually all matters on which stockholders are entitled to vote or consent. Transfer of Class B Common Stock
is restricted to other Class B stockholders and certain other classes of transferees. Class B Common Stock is convertible, at the option of the holder, into Class A Common Stock
on a share-for-share basis. The Class B Common Stock is also automatically converted into Class A Common Stock under certain circumstances, including upon the
transfer of such stock to a transferee other than another Class B stockholder and certain other classes of transferees. No shares were converted in 2000, 1999 or 1998. Cash or property
dividends on Class B Common Stock are restricted to an amount equal to 90% of any dividend paid on Class A Common Stock.

9. Stock Options

In 1998, the Company adopted a Non-Officer and Non-Director Stock Option Plan (the "Stock Option Plan") which initially provided for
the granting of stock options to key employees to purchase up to 35,000 shares of the Company's Class A Common Stock. The Stock Option Plan was amended in 2000 to increase the number of shares
available thereunder to an aggregate of 70,000 shares. The objective of the Stock Option Plan is to attract and retain quality personnel and to promote the success of the Company by providing
employees the opportunity to share in its growth.

The
Company granted 11,500 stock options at an exercise price of $291/16 per share in March 2000 and 30,000 stock options at an exercise price of $40 per share
in November 1998. No options were granted in 1999. These options vest at 25% per year beginning at the end of the first year and expire five years from the date of grant. The exercise price of
stock options granted under the Stock Option Plan is equal to the fair market value of the Company's Class A Common Stock on the date of grant. No options were exercised or cancelled in 2000,
1999 or 1998.

The
Company accounts for its Stock Option Plan using the intrinsic value based method prescribed in Accounting Principles Board Opinion No. ("APB") 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation cost has been recognized in the Company's Statements of Operations and Comprehensive Income for the fiscal years 2000, 1999 or 1998. SFAS 123,
"Accounting for Stock-Based Compensation," encourages adoption of a fair value based method for valuing the cost of stock-based compensation. However, it allows companies to use the intrinsic value
based method prescribed by APB 25 and disclose pro forma net earnings and earnings per share in accordance with SFAS 123. Had compensation expense for the Company's Stock Option Plan
been determined under SFAS 123 using the fair value based method, the Company's pro forma net earnings and net earnings per common share would have been reduced to the pro forma amounts
indicated below (in thousands, except net income per share):

2000

1999

1998Net income, as reported

$
12,359

$
11,717

$
10,081Net income, pro forma


12,271


11,646


10,072Basic net income per common share, as reported


3.52


3.27


2.81Basic net income per common share, pro forma


3.49


3.25


2.81Diluted net income per common share, as reported


3.52


3.27


2.81Diluted net income per common share, pro forma


3.49


3.25


2.81


32

---

The
weighted average fair value at date of grant for options issued in 2000 and 1998 was $12.50 and $16.43 per option, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:

2000

1998Risk-free interest rate

6.54
%
4.90
%Expected dividend yield

0
%
0
%Expected option life

4 years

4 yearsExpected stock price volatility

44.3
%
45.7
%


The
effects of applying SFAS 123 for the pro forma disclosures are not necessarily indicative of the effects expected on current or future net earnings and net earnings per
common share as the valuations are based on highly subjective assumptions about the future, including stock price volatility and exercise patterns.

In
1998, the Company also adopted a Phantom Stock Option Plan (the "Phantom Plan") which provides for the granting of units covering up to 35,000 shares of the Company's
Class A Common Stock to persons who are at the vice president or higher level of the Company. Each unit entitles the holder to receive upon exercise thereof the excess of the fair market value
of a share of Class A Common Stock on the date of exercise over the fair market value of such share on the date specified by the committee administrating the Phantom Plan at the time of grant.
All of the units vest 25% each year beginning at the end of the first year and expire five years from the date of grant. During 2000 and 1998, the Company granted units covering 10,000 and 17,000
shares of Class A Common Stock at an exercise price of $291/16 and $40, respectively. During 1999, units for 7,000 shares were cancelled. No units have been exercised as of
December 30, 2000. For 2000, 1999 and 1998, the Company incurred compensation expense related to the Phantom Plan of $42,000, $0 and $0, respectively.

During
2000, the Company also issued stock appreciation rights ("SARs") for units covering up to 40,000 shares of the Company's Class A Common Stock to the Company's
non-employee directors with a base price of $291/16, representing the fair market value on the date of grant. When the SARs are exercised, each unit entitles the holder to
receive the excess of the fair market value of a share of Class A Common Stock on the date of exercise over the base price. All of the units vest 25% each year beginning at the end of the first
year and expire five years from the date of grant. No SARs have been exercised or cancelled as of December 30, 2000. For the year ended December 30, 2000, the Company incurred
compensation expense related to the SARs of $106,000.

10. Retirement Plans

The Company contributes to multi-employer union pension plans administered by various trustees which may be deemed to be defined benefit plans. Contributions
to these plans are based upon negotiated wage contracts. Information relating to accumulated benefits and fund assets as they may be allocable to the participants at December 30, 2000 is not
available. The Company's total union pension expense for all plans for 2000, 1999 and 1998 amounted to $1,099,000, $1,801,000 and $2,127,000, respectively. The Company's 1999 and 1998 expense is
higher than 2000 due to the reinstatement of a union pension contribution which was suspended in late 1999.

The
Company has a noncontributory, trusteed Stock Bonus Plan (the "Plan") which is qualified under Section 401 of the Internal Revenue Code of 1986, as amended. All nonunion
employees over 18 years of age who complete 1,000 hours of service within the year ending on the anniversary date of employment are eligible to become participating employees in the
Plan. Contributions to the Plan for any fiscal year, as determined by the Board of Directors, are discretionary, but in no event will they exceed 15% of the annual aggregate salaries of those
employees eligible for participation in the Plan. Contributions must be invested in the Company's Class A Common Stock with excess cash being

33

---

invested in certain government-backed securities. Contributions to the Plan are allocated among eligible participants in the proportion of their salaries to the salaries of all participants.
Contributions accrued for the Plan in 2000, 1999 and 1998 were $0.

The
Arden Group, Inc. 401(k) Retirement Savings Plan (the "Company Savings Plan") covers all nonunion employees of the Company and its subsidiaries who have attained the age of
18 and have completed at least one year of service with any of such companies. The Company Savings Plan provides that, with certain limitations, a participating employee may elect to contribute up to
15% of such employee's annual compensation to the Company Savings Plan on a tax-deferred basis, subject to a limitation that the annual elective contribution may not exceed an annual
indexed dollar limit determined pursuant to the Internal Revenue Code ($10,500 in 2000). Annual matching contributions are made by the Company each year for those participants whose annualized gross
earnings for the previous year were $45,000 or less, and such matching contribution was $9,000 in 2000, $8,000 in 1999 and $7,000 in 1998. An additional discretionary amount of $652,000 was accrued in
2000 and contributed to the Plan in early 2001. Similarly, $588,000 was accrued in 1999 and contributed to the Plan in early 2000 and $539,000 was accrued in 1998 and contributed in early 1999.

An
employment agreement with a key executive officer provides for annual retirement compensation equal to 25% of his average base salary and bonus earned in the last three years prior
to his retirement. The obligation determined on an actuarial basis is being accrued over the seven-year term of his agreement. The Company accrued $273,000, $273,000 and $226,000 in 2000,
1999 and 1998, respectively, toward this benefit.

11. Income Taxes

The composition of federal and state income tax expense (benefit) is as follows:

2000

1999

1998(In Thousands)Current:Federal

$
6,904

$
6,211

$
6,358State


1,856


342


1,521Total


8,760


6,553


7,879Deferred:Federal


(250
)

(326
)

(760
)State


(12
)

(105
)

(105
)Total


(262
)

(431
)

(865
)Total income tax provision

$
8,498

$
6,122

$
7,014


34

---

The
Company's deferred tax assets (liabilities) were attributable to the following:

December 30,
2000

January 1,
2000(In Thousands)Deferred tax assets:Debt under capital leases

$
1,085

$
1,187Accrued expenses


1,462


1,347State income taxes


667


566Allowance for doubtful accounts


156


237Other


853


788Deferred tax assets


4,223


4,125Deferred tax liabilities:Deferred gain on debenture exchange


(3,938
)

(4,111
)Property leased under capital leases, net of accumulated depreciation


(660
)

(735
)Other


(488
)

(404
)Deferred tax liabilities


(5,086
)

(5,250
)Deferred income taxes, net

$
(863
)
$
(1,125
)


The
Company has not established a valuation allowance because its deferred tax assets can be realized by offsetting taxable income in the carryback period, and also against deferred
tax liabilities and future
taxable income, which management believes will more likely than not be earned, based on the Company's historical earnings record.

Reconciliation
of the statutory federal rate and effective rate is as follows:

|                                               |  | 2000 |       | 1999 |      | 1998 |  
|---------------------------------------------- |  | ---- | ----- | ---- | ---- | ---- | -
|
|
|Federal tax at statutory rate                  |  | $    | 7,300 |      | 35.0 | %    | $
|State income taxes, net of federal tax benefit |  |      | 1,198 |      | 5.7  | %    |  
|Tax reserve adjustment                         |  |      |       |      |      |      |  
|Other                                          |  |      |       |      |      |      |  
|                                               |  |      |       |      |      |      |  
|                                               |  | $    | 8,498 |      | 40.7 | %    | $
|                                               |  |      |       |      |      |      |  

The
California Franchise Tax Board rendered tax assessments against the Company in prior years. The Company believed these assessments to be excessive and filed an appeal. The matter
was favorably resolved during 1999 and tax reserves were adjusted accordingly.

12. Leases

The
principal kinds of property leased by the Company and its subsidiaries are supermarket buildings and delivery equipment. The most significant obligations assumed under the lease
terms, other than rental payments, are the upkeep of the facilities, insurance and property taxes. Most supermarket leases contain contingent rental provisions based on sales volume and have renewal
options. The Company's decision to exercise renewal options is primarily dependent on the level of business conducted at the location and the profitability thereof.

35

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All leases and subleases with an initial term greater than one year are accounted for under SFAS 13, "Accounting for Leases." These leases are classified as either capital
leases, operating leases or subleases, as appropriate.

Assets
Under Capital Leases: Assets under capital leases are capitalized using interest rates appropriate at the inception of each lease. Contingent rentals associated with capital
leases in 2000, 1999 and 1998 were $181,000, $160,000 and $139,000, respectively, and accordingly have been charged to expense as incurred. Following is an analysis of assets under capital leases:

December 30, 2000

January 1, 2000(In Thousands)Buildings:Cost

$
3,058

$
3,058Accumulated amortization


(2,296
)

(2,183
)$
762

$
875


Also,
included in property for sublease are properties classified as capital leases with aggregate net book values of $744,000 and $801,000 as of the end of 2000 and 1999,
respectively.

Future
minimum lease payments for the above assets under capital leases at December 30, 2000 are as follows (in thousands):

2001

$
5362002


5352003


5362004


5352005


536Thereafter


906Total minimum obligations


3,584Executory costs


(27
)Net minimum obligations


3,557Interest


(1,105
)Present value of net minimum obligations


2,452Current portion


(257
)Long-term obligations

$
2,195


Minimum
capital lease obligations have not been reduced by related minimum future sublease rentals of approximately $1,285,000.

Executory
costs include such items as property taxes and insurance.

36

---

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, 2000 are as
follows:

Commitments

Deduct
Sublease
Rentals

Net
Rental
Commitments(In Thousands)2001

$
6,072

$
640

$
5,4322002


5,987


640


5,3472003


6,250


473


5,7772004


6,485


418


6,0672005


6,019


397


5,622Thereafter


69,180


2,661


66,519$
99,993

$
5,229

$
94,764


Rent
expense under operating leases was as follows:

2000

1999

1998(In Thousands)Minimum rent

$
6,164

$
5,397

$
4,776Contingent rent


1,247


1,400


1,2227,411


6,797


5,998Sublease rentals


(1,597
)

(1,330
)

(1,203
)$
5,814

$
5,467

$
4,795


13. Related Party Transactions

At December 30, 2000 and January 1, 2000, the Company held two notes receivable with balances totaling $135,000 and $175,000, respectively, from
an officer/director of the Company. These notes arose from transactions in 1979 and 1980 whereby the Company loaned the officer/director money to purchase an aggregate of 200,000 shares (before the
1998 stock split) of the Company's Class A Common Stock at the then fair market value. These notes, which bear interest at the rate of 6% per annum, mature on December 31, 2003 with
principal payments of $40,000 due annually prior thereto. If the officer's employment is terminated prior to January 1, 2004, the unpaid portion of the two notes would be forgiven. The loans
are collateralized by 180,000 shares of Class B Common Stock. The receivable is shown on the balance sheets as a reduction of stockholders' equity.

14. Commitments and Contingent Liabilities

The Company has an employment agreement with a key executive officer which expires on January 1, 2004. In addition to a base salary, the agreement
provides for a bonus based on pre-tax earnings. No maximum compensation limit exists. The total compensation expensed in 2000, 1999 and 1998 was approximately $1,316,000, $1,161,000 and
$1,122,000, respectively.

The
Company is contingently liable as a guarantor of certain leases which it has either assigned or subleased. Any liability arising as a result of these guarantees would have no
significant effect on either the Company's consolidated results of operations, financial position or cash flows.

As
of December 30, 2000, authorized expenditures on incomplete projects for the purchase of property, plant and equipment totaled approximately $2,662,000. Of this total,
approximately $1,599,000 has been contractually committed.

37

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The Company and its subsidiaries are subject to a myriad of environmental laws and regulations regarding air, water and land use, and the use, storage and disposal of hazardous
materials. The Company believes it substantially complies, and has in the past substantially complied, with federal, state and local environmental laws and regulations. The Company cannot at this time
estimate the expense it ultimately may incur in connection with any current or future violations, however, it believes any such claims will not have a material adverse impact on either the Company's
consolidated financial position, results of operations or cash flows.

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

15. Selected Quarterly Financial Data (Unaudited)

Quarter

Sales

Gross
Profit

Net
Income

Diluted
Net Income
Per Share(1)(In Thousands, Except Per Share Data)1999First

$
78,017

$
31,511

$
2,958

$
.83Second


77,797


31,692


3,832


1.06Third


79,172


32,591


2,338


.65Fourth


89,182


35,928


2,589


.732000First

$
86,445

$
35,902

$
3,063

$
.85Second


88,670


36,708


3,239


.91Third


88,009


36,657


2,817


.81Fourth


96,870


39,843


3,240


.94


38

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ARDEN GROUP, INC. AND CONSOLIDATED SUBSIDIARY

---

INDEX TO EXHIBITS

|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1.1   |  | Restated Certificate of Incorporation of Arden Group, Inc. dated November 7, 1988 filed as Exhibit 3.1 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended December
 31, 1988 and incorporated herein by reference.                                                                                                                                                                          
|3.1.2   |  | Certificate of Amendment of Restated Certificate of Incorporation of Arden Group, Inc. dated June 17, 1998 filed as Exhibit 3.1.2 to the Annual Report on Form 10-K of Arden Group, Inc. for the
fiscal year ended January 2, 1999 and incorporated herein by reference.                                                                                                                                                  
|3.2     |  | Amended and Restated By-Laws of Arden Group, Inc. (as amended and restated as of June 25, 1991) filed as Exhibit 3.2 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year
ended January 2, 1993 and incorporated herein by reference.                                                                                                                                                               
|4.1     |  | Indenture dated as of September 1, 1964 between Arden Farms Co. and Security First National Bank, as Trustee, pertaining to 6% Subordinated Income Debentures, due September 1, 2014, filed as Exhibit 4.2 to
Registration Statement on Form S-1 of Arden Group, Inc. and Arden-Mayfair, Inc., Registration No. 2-58687, and incorporated herein by reference.                                                            
|4.1.1   |  | First Supplemental Indenture dated as of November 7, 1978, to Indenture which is Exhibit 4.1, filed as Exhibit 7 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended
December 30, 1978 and incorporated herein by reference.                                                                                                                                                                 
|4.1.2   |  | Second Supplemental Indenture dated as of November 7, 1978, to Indenture which is Exhibit 4.1, filed as Exhibit 8 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended
December 30, 1978 and incorporated herein by reference.                                                                                                                                                                
|4.1.3   |  | Third Supplemental Indenture dated April 24, 1981, to Indenture which is Exhibit 4.1, filed as Exhibit 4.2.3 to the Quarterly Report on Form 10-Q of Arden Group, Inc. for the quarter ended April
 4, 1981 and incorporated herein by reference.                                                                                                                                                                         
|4.2     |  | Loan Agreement dated December 23, 1993, as amended by a Second Amendment thereto dated December 20, 1995, a Third Amendment thereto dated December 18, 1996 and a Fourth Amendment thereto dated January
 13, 1997, between Arden Group, Inc. and Union Bank filed as Exhibit 4.2 to the Annual Report on Form 10-K of Arden Group, Inc. for the fiscal year ended December 28, 1996 and incorporated herein by
reference.
|4.2.1   |  | Fifth Amendment dated April 30, 1998 to Loan Agreement between Arden Group, Inc. and Union Bank, as previously amended filed as Exhibit 4.2.1 to Annual Report of Form 10K of Arden Group, Inc. for
the fiscal year ended January 1, 2000 and incorporated herein by reference.                                                                                                                                           
|4.2.2   |  | Sixth Amendment dated July 7, 2000 to Loan Agreement between Arden Group, Inc. and Union Bank, as previously amended.                                                                                                                                                                                                                                                                                                     
|10.1*   |  | Employment Agreement dated May 13, 1988 by and among Arden Group, Inc., Arden-Mayfair, Inc., Telautograph Corporation and Gelson's Markets and Bernard Briskin, filed as Exhibit 10 to the Quarterly
Report on Form 10-Q of Arden Group, Inc. for the quarter ended July 2, 1988 and incorporated herein by reference.                                                                                                    
|10.2*   |  | Amendment to Employment Agreement dated April 27, 1994 by and between Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and Gelson's Markets and Bernard Briskin, filed as Exhibit 10.7 to
the Quarterly Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and incorporated herein by reference.                                                                                      

39

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|10.3*  |  | Extension Agreement dated January 4, 1981 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q of
Arden Group, Inc. for the quarter ended July 4, 1981 and incorporated herein by reference.                                      
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4*  |  | Extension Agreement dated January 1, 1984 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin filed as Exhibit 19.1 to the Quarterly Report on Form 10-Q of
Arden Group, Inc. for the quarter ended September 29, 1984 and incorporated herein by reference.                                 
|10.5*  |  | Extension Agreement dated May 13, 1988 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin filed as Exhibit 10.11 to the Annual Report on Form 10-K of Arden
Group, Inc. for the fiscal year ended December 31, 1988 and incorporated herein by reference.                                   
|10.6*  |  | Modification and Fourth Extension Agreement dated as of January 1, 1994 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.8 to the
Quarterly Report on Form 10-Q of Arden Group, Inc. for the quarter ended April 2, 1994 and incorporated herein by reference.       
|10.7   |  | Form of Indemnification Agreement between the Registrant and the Directors and certain officers, filed as Exhibit 10.13 to the Annual Report on Form 10-K of Arden Group, Inc. for the year ended December
 29, 1990 and incorporated herein by reference.                                                                               
|10.8*  |  | Amended Loan and Stock Pledge Agreement dated November 4, 1993 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.6 to the Annual Report on
Form 10-K of Arden Group, Inc. for the year ended January 1, 1994 and incorporated herein by reference.                    
|10.9*  |  | Second Amendment to Employment Agreement as of January 1, 1997 by and between Arden Group, Inc., Arden-Mayfair, Inc., AMG Holdings, Inc. and Gelson's Markets and Bernard Briskin, filed as Exhibit
 10.9 to the Annual Report on Form 10-K of Arden Group, Inc. for the year ended January 3, 1998 and incorporated herein by reference.
|10.10* |  | Modification and Fifth Extension Agreement as of January 1, 1997 regarding promissory notes held by the Registrant between Arden Group, Inc. and Bernard Briskin, filed as Exhibit 10.10 to the Annual Report
on Form 10-K of Arden Group, Inc. for the year ended January 3, 1998 and incorporated herein by reference.                 
|10.11* |  | Phantom Stock Plan of Arden Group, Inc., filed as Exhibit 10.11 to the Annual Report on Form 10-K of Arden Group, Inc. for the year ended January 2, 1999 and incorporated herein by
reference.                                                                                                                                          
|10.12* |  | Form of Non-Employee Director Phantom Stock Unit Agreement with each of John G. Danhakl, Robert A. Davidow, Daniel Lembark and Ben Winters filed as Exhibit 10.1 to the Quarterly Report on Form 10Q of Arden Group,
 Inc. for the quarter ended July 1, 2000 and incorporated herein by reference.                                      
|21.    |  | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                              
|23.    |  | Consent of Independent Accountants.                                                                                                                                                                                                                                                                                                      

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