<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
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 019774
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United Retail Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 51 0303670
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
365 West Passaic Street, Rochelle Park, NJ 07662
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 845-0880
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Securities registered pursuant to Section 12(b) of the 1934 Act:
Title of each class Name of each exchange on which registered
___________________________ _____________________________________________
___________________________ _____________________________________________
Securities registered pursuant to Section 12(g) of the 1934 Act:
Common Stock, $.001 par value per share
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(Title of class)
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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 (the
"1934 Act") 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___(Check mark)___ NO _______
Indicate by 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. [ ]
As of March 31, 1999, the aggregate market value of the voting stock of the
registrant (also referred to herein as the "Company") held by non-affiliates of
the registrant was approximately $86.8 million. For purposes of the preceding
sentence only, affiliate status was determined on the basis that all
stockholders of the registrant are non-affiliates except stockholders who have
filed statements with the Securities and Exchange Commission (the "SEC") under
Section 16(a) of the 1934 Act.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the 1934 Act
subsequent to the distribution of securities under a plan confirmed by a court.
YES _______ NO _______
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of April 16, 1999, 13,099,588 shares of the registrant's common stock, $.001
par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's annual report for the year ended January 30, 1999 (the "1998
Annual Report to Stockholders") is incorporated in part by reference in Part I
and Part II of this Form 10-K.
The registrant's proxy statement on Schedule 14A for its 1999 annual meeting of
stockholders (the "1999 Proxy Statement") is incorporated in part by reference
in Part I and Part III of this Form 10-K.
<PAGE>
PART I
Item 1. Business.
Overview
The Company is a leading nationwide specialty retailer of large-size women's
apparel and accessories, offering merchandise using the Company's AVENUE
trademark. The Company's merchandising strategy is to offer its customers
merchandise of the same quality and variety available in smaller sizes. The
Company also carries lines of women's comfort shoes, offering both its own brand
and a national brand. The Company operates stores principally under the names
THE AVENUE(R) and Sizes Unlimited.
Customer Base
The Company serves the mass market and targets fashion-conscious women between
18 and 50 years of age who wear size 14 or larger apparel. The Company believes
that the large-size customer often has fewer store alternatives in nearby
shopping malls and strip shopping centers than her smaller-size counterpart
although in recent years new entrants in the market segment have expanded the
available alternatives.
History
The Company was incorporated in 1987 and completed its initial public offering
in 1992. The Company's current business resulted from an internal reorganization
at The Limited, Inc. ("The Limited") in 1987, in which The Limited combined its
underperforming The Avenue(R) store group (then operating under the Lerner Woman
trade name) with the Sizes Unlimited store group. Raphael Benaroya, the
Company's Chairman of the Board, President and Chief Executive Officer, and his
management team were selected to manage the combined businesses.
Merchandising and Marketing
The Company's strategy is to offer its customers a proprietary brand in
moderately priced apparel and accessories. It emphasizes consistency of
merchandise quality and fit and updates its merchandise selections to reflect
customer demand and fashion trends. The apparel industry is subject to rapidly
changing consumer fashion preferences and the Company's performance depends on
its ability to respond quickly to changes in fashion.
Each store operated by the Company offers selections of casual wear, career
apparel, specialty items and accessories. The casual wear assortment includes
comfortably fitted jeans, slacks, T-shirts, skirts, active wear and sweaters.
Casual wear comprises the majority of the Company's sales. The career assortment
includes skirts, soft blouses, dresses and coats. Specialty items include
sleepwear and lingerie. Accessories include earrings, pins, scarves, socks,
hosiery and a selection of gift items. Some Company stores also offer shoes. The
Company offers most of its merchandise at popular or moderate price points,
including blouses in the $20 to $40 price range, jeans and slacks in the $20 to
$35 price range and dresses and suits in the $49 to $99 price range.
The Company promotes merchandise with its own brand, which generally has higher
gross profit margins than national brands would have. The Company believes that
its brand, AVENUE, creates an image that helps distinguish it from competitors.
Through careful brand management, including consistent imaging of its brand, the
Company believes it enhances brand recognition and the customer's perception of
value. Garments are tagged, packaged and presented at the Company's stores in a
manner consistent with more expensive merchandise with national brand names.
<PAGE>
The Company develops new merchandise assortments on average four to six times
each year. Merchandise selection is allocated to each store based on many
factors, including store location, store profile and sales experience. The
Company regularly updates each store's profile based on its customers' fashion
and price preferences and local demographics. The Company's point-of-sale
systems gather financial, credit, inventory and other statistical information
from each store on a daily basis. This information is then used to evaluate and
adjust each store's merchandise mix on a weekly basis.
The Company uses creative merchandise displays, distinctive signage and upscale
packaging to create an attractive store atmosphere. To further stimulate store
traffic, the Company frequently uses credit card inserts with announcements of
upcoming events.
Merchandise Distribution and Inventory Management
The Company believes that short production schedules and rapid movement of
merchandise from manufacturers to its stores are vital to minimize business
risks arising from changing fashion trends.
The Company uses a centralized distribution system, under which all merchandise
is received, processed and distributed through a distribution complex located in
Troy, Ohio. Merchandise received at the distribution center is promptly assigned
to individual stores, packed for delivery and shipped to the stores.
The Company maintains a worldwide logistics network of agents and space
availability arrangements to support the in-bound movement of merchandise into
the distribution complex. The out-bound system consists of common carrier line
haul routes connecting the distribution complex to a network of delivery agents.
This system enables the Company to provide every store with frequent deliveries.
The Company does not own or operate trucks or trucking facilities.
The Company manages its inventory levels, merchandise allocation to stores and
sales replenishing for each store through its computerized management
information systems, which enable the Company to profile each store and evaluate
and adjust each store's merchandise mix on a weekly basis. New merchandise is
allocated by style, color and size immediately before shipment to stores to
achieve a merchandise assortment that is suited to each store's customer base.
The Company's inventory management strategy is designed to maintain targeted
inventory turnover rates and minimize the amount of unsold merchandise at the
end of a season by closely comparing sales and fashion trends with on-order
merchandise and making necessary purchasing adjustments. Additionally, the
Company uses markdowns and promotions as necessary. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources," which is a section in the Company's 1998 Annual Report to
Stockholders.
Management Information Systems
The applications software for the Company's management information systems was
acquired by the Company from The Limited in 1989 and has been modified by the
Company's MIS Department. The Company's management information systems consist
of a full range of store, financial and merchandising systems, including credit,
inventory distribution and control, sales reporting, accounts payable,
cash/credit, merchandise reporting and planning. All of the Company's stores
have point-of-sale terminals that transmit daily information on sales by
merchandise category as well as style, color and size. The Company evaluates
this information, together with its report on merchandise shipments to the
stores, to implement merchandising decisions regarding markdowns, reorders of
fast-selling items and allocation of merchandise. In addition, the Company's
headquarters and distribution center are linked through an interactive computer
network.
<PAGE>
Company employees located at its headquarters maintain and support the
applications software, operations, networking and point-of-sale functions of the
Company's management information systems. The hardware and systems software for
the Company's management information systems are maintained by Integrated
Systems Solutions Corporation, a wholly-owned subsidiary of IBM.
Purchasing
Separate groups of merchants are responsible for different categories of
merchandise. Most of the merchandise purchased by the Company consists of custom
designed garments produced for the Company by contract manufacturing, under the
Company's brand. An item of merchandise is test marketed, whenever possible, in
limited quantities prior to mass production to help identify the current fashion
preferences of the Company's customers.
The Company provides manufacturers with strict guidelines for size
specifications and gradings to ensure proper, consistent fit across product
categories. The Company and independent sourcing agents monitor production by
manufacturers in the United States and abroad to ensure that size
specifications, grading requirements and other specifications are met.
In Fiscal 1998, each of three vendors accounted for more than 5% but less than
10% of the Company's merchandise purchases. The loss of these vendors would not
have a materially adverse effect on the Company's operations.
Domestic purchases (some of which are foreign-made products) are executed by
Company purchase orders. Import purchases are made in U.S. dollars and are
generally supported by letters of credit. See, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Credit Sales
The Company permits its customers to use several methods of payment, including
cash, personal checks, third-party credit cards, layaways and its own credit
cards. See, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Proprietary Credit Cards."
Competition
All aspects of the women's retail apparel business are highly competitive. Many
of the competitors are units of large national chains that have substantially
greater resources than the Company. Management believes its principal
competitors include all major national and regional department stores, specialty
retailers (including Lane Bryant, Inc. which is a subsidiary of The Limited, and
which management believes is the largest specialty retailer of large-size
women's apparel), discount stores, mail order companies, television shopping
channels and interactive electronic media. Management believes its merchandise
selection, prices, consistency of merchandise quality and fit, and appealing
shopping experience emphasizing strong merchandise presentations, together with
its experienced management team, management information systems and logistics
capabilities, enable it to compete in the marketplace.
Operational Factors
The Company's operations may be adversely affected by circumstances beyond its
control. See, "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Future Results."
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Trade Names and Trademarks
The Company is the owner in the United States of its principal trade name, THE
AVENUE, used on store fronts, and trademark, AVENUE, used on garment labels.
See, "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Stores." The Company is also the sublicensee of a national brand
name of hosiery, sleepwear and foundations. See, "Certain Transactions" in the
1999 Proxy Statement. The Company is not aware of any use of its principal trade
name or trademark by its competitors that has a material effect on the Company's
operations or any material claims of infringement or other challenges to the
Company's right to use its principal trade name and trademark in the United
States.
Employees
As of March 31, 1999, the Company employed approximately 4,700 associates, of
whom approximately 1,800 worked full-time and the balance of whom worked
part-time. Considerable seasonality is associated with employment levels.
Approximately 60 store associates are covered by collective bargaining
agreements. The Company believes that its relations with its associates are
good.
Item 2. Properties.
As of March 31, 1999, the Company operated stores in 36 states:
Alabama 6 Nevada 2
Arizona 4 New Hampshire 2
Arkansas 1 New Jersey 41
California 76 New Mexico 1
Connecticut 11 New York 50
Delaware 1 North Carolina 9
Florida 17 Ohio 19
Georgia 20 Oklahoma 3
Illinois 35 Oregon 7
Indiana 12 Pennsylvania 18
Iowa 1 Rhode Island 1
Kentucky 4 South Carolina 7
Louisiana 11 Tennessee 10
Maine 1 Texas 34
Maryland 16 Utah 1
Massachusetts 20 Virginia 11
Michigan 26 Washington 11
Missouri 6 Wisconsin 7
Total: 502
The Company leases its executive offices, which consist of approximately 56,000
square feet in an office building at 365 West Passaic Street, Rochelle Park, New
Jersey. The office lease has a term ending in August 2006.
The Company owns a 128-acre site on Interstate 75 in Troy, Ohio, on which its
national distribution center is located. The national distribution center is
equipped to service 900 stores. The site is adequate for a total of four similar
facilities.
Item 3. Legal Proceedings.
The Company is defending various routine legal proceedings incidental to the
conduct of its business and is maintaining reserves that include, among other
things, the estimated cost of uninsured payments to accident victims and
payments to landlords and vendors of goods and services resulting from certain
disputes. Based on legal advice that it received, management believes that,
giving effect to reserves and insurance coverage, these legal proceedings are
not likely to have a material adverse effect on the financial condition or
results of operations of the Company.
No material pending legal proceeding to which the Company was a party was
terminated during the fourth quarter of the fiscal year ended January 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The section captioned "Shareholder Information" in the 1998 Annual Report to
Stockholders is incorporated herein by reference. (Only those portions of the
1998 Annual Report to Stockholders incorporated by reference in another document
filed with the SEC shall be deemed "filed" in accordance with the rules and
regulations promulgated by the SEC.) The Company registered under the Securities
Act of 1933 all securities that it issued in the year ended January 30, 1999,
consisting of stock options granted to associates and directors of the Company
and shares of common stock issued upon the exercise of such stock options.
Item 6. Selected Financial Data.
The section captioned "Selected Financial Data" in the 1998 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The section captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the 1998 Annual Report to Stockholders
is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements in the 1998 Annual Report to Stockholders
are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The subsection captioned "Election of Directors - Business and Professional
Experience" in the 1999 Proxy Statement is incorporated herein by reference.
In addition to Raphael Benaroya and George R. Remeta, the executive officers of
the registrant or its subsidiaries are:
Kenneth P. Carroll, age 56, was the Company's Vice President - General Counsel
from before 1994 to March 1996, when he was elected the Senior Vice President -
General Counsel.
Ellen Demaio, age 41, was a Vice President - Merchandise of United Retail
Incorporated from before 1994 to February 1995, when she was elected the Senior
Vice President - Merchandise of United Retail Incorporated.
Kevin Burke, age 43, has been Vice President - Footwear of United Retail
Incorporated since January 1999. In 1998, he was self employed as a business
consultant. Previously, he was the Division President of Easy Spirit - Retail at
Nine West Group, Inc., a footwear manufacturer, since before 1994.
Carrie Cline-Tunick, age 38, has been the Vice President - Product Design and
Development of United Retail Incorporated since April 1996. Previously, she was
the Design Director of Norton McNaughton, Inc., a garment manufacturer, from
April 1996 to before 1994.
Julie L. Daly, age 44, has been the Vice President - Strategic Planning of
United Retail Incorporated since December 1996. Previously, she was the Vice
President - Planning and Distribution of United Retail Incorporated since prior
to 1994.
Kent Frauenberger, age 52, has been the Vice President - Logistics of United
Retail Logistics Operations Incorporated since before 1994.
Jon Grossman, age 41, has been the Vice President - Finance of the Company since
before 1994.
Alan R. Jones, age 51, has been the Vice President - Real Estate of United
Retail Incorporated since November 1994. Previously, he was Vice President -
Real Estate of Payless Shoesource, a division of May Department Stores, Inc.,
since before 1994.
Charles E. Naff, age 55, has been the Vice President - Sales of United Retail
Incorporated since August 1996 and was the Director of Stores of United Retail
Incorporated from March 1994 to before 1994. He was the Vice President - Store
Operations of Leejay Bed and Bath, a retail chain, between August 1996 and March
1994.
Bradley Orloff, age 41, has been the Vice President - Marketing of United Retail
Incorporated since before 1994.
Robert Portante, age 47, has been the Vice President - MIS of United Retail
Incorporated since November 1994. Previously, he was Vice President - MIS of
Brooks Fashion Stores, Inc. ("Brooks"), a retail store chain, since before 1994.
Brooks filed as debtor-in-possession under the United States Bankruptcy Code.
Fredric E. Stern, age 50, has been the Vice President - Controller of United
Retail Incorporated since before 1994.
<PAGE>
The term of office of these executive officers will expire at the 1999 annual
meeting of stockholders, scheduled to be held in May 1999.
The section captioned "Section 16(a) Beneficial Ownership Reporting Compliance"
in the 1999 Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation.
The sections captioned "Executive Compensation" and "Report of Compensation
Committee" in the 1999 Proxy Statement are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The sections captioned "Security Ownership of Principal Stockholders" and
"Security Ownership of Management" in the 1999 Proxy Statement are incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
The sections captioned "Certain Transactions" and "Compensation Committee
Interlocks and Insider Participation" in the 1999 Proxy Statement are
incorporated herein by reference.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following exhibits are filed herewith:
Number Description
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10.1 Amendment, dated March 29, 1999, to Financing Agreement
among the Corporation, United Retail Incorporated and The
CIT Group/Business Credit, Inc. ("CIT")
10.2 Financial Statements of Retirement Savings Plan for year
ended December 31, 1998
13 Sections of 1998 Annual Report to Stockholders (including
opinion of Independent Public Accountants) that are
incorporated by reference in response to the items of the
Annual Report on Form 10-K
21 Subsidiaries of the Corporation
23.1 Consent of Independent Public Accountants for the
Corporation
23.2 Consent of Independent Public Accountants for Retirement
Savings Plan
27 Financial Data Schedule
The form of Additional Options set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1998 annual meeting of
stockholders is incorporated herein by reference.*
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended October 31, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* Employment Agreement, dated November 20, 1998, between
the Corporation and Raphael Benaroya
10.2* Employment Agreement, dated November 20, 1998, between
the Corporation and George R. Remeta
<PAGE>
10.3* Employment Agreement, dated November 20, 1998, between
the Corporation and Kenneth P. Carroll
10.4* Employment Agreement, dated March 26, 1998, between the
Corporation and Carrie Cline-Tunick and amendment
thereto.
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended May 2, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* 1998 Stock Option Agreement, dated May 21, 1998, between
the Corporation and Raphael Benaroya
10.2* 1998 Stock Option Agreement, dated May 21, 1998, between
the Corporation and George R. Remeta
The following exhibits to the Corporation's Annual Report on Form 10-K
for the year ended January 31, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
4.1 Amended By-Laws of the Corporation
10.1 Restated Stockholders' Agreement, dated December 23,
1992, between the Corporation and certain of its
stockholders and Amendment No. 1, Amendment No. 2 and
Amendment No. 3 thereto
10.2 Private Label Credit Program Agreement, dated January 27,
1998, between the Corporation, United Retail Incorporated
and World Financial Network National Bank (Confidential
portions have been deleted and filed separately with the
Secretary of the Commission)
10.4* Restated 1990 Stock Option Plan as of March 6, 1998
10.5* Restated 1990 Stock Option Plan as of May 28, 1996
10.6* Restated 1996 Stock Option Plan as of March 6, 1998
10.7* Restated 1989 Performance Option Plan as of May 6, 1998
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 1, 1997 is incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1 Amendment, dated September 15, 1997, to Financing
Agreement among the Corporation, United Retail
Incorporated and CIT
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended August 2, 1997 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1 Financing Agreement, dated August 15, 1997, among the
Corporation, United Retail Incorporated and CIT
10.2* Amendment No. 1 to Restated Supplemental Retirement
Savings Plan
<PAGE>
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 2, 1996 is incorporated herein by reference:
Number in Filing Description
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10.1* Restated Supplemental Retirement Savings Plan
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended May 4, 1996 is incorporated herein by reference:
Number in Filing Description
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10.3 Amended and Restated Term Sheet Agreement for Hosiery,
dated as of December 29, 1995, between The Avenue, Inc.
and American Licensing Group, Inc. (Confidential portions
have been deleted and filed separately with the Secretary
of the Commission)
The following exhibits to the Corporation's Amended Current Report on
Form 8-KA, dated May 22, 1995, are incorporated herein by reference:
Number in Filing Description
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10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel
Sublicense Agreement, dated May 22, 1995, between United
Retail Incorporated and American Licensing Group Limited
Partnership ("ALGLP")
10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated
May 22, 1995, between United Retail Incorporated and
ALGLP
The following exhibit to the Corporation's Annual Report on Form 10-K
for the year ended January 28, 1995 is incorporated herein by reference:
Number in Filing Description
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10.1* Incentive Compensation Program Summary
The following exhibits to the Corporation's Registration Statement on
Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by
reference:
Number in Filing Description
---------------- -----------
3.1 Amended and Restated Certificate of Incorporation of
Registrant
4.1 Specimen Certificate for Common Stock of Registrant
10.2.1 Software License Agreement, dated as of April 30, 1989,
between The Limited Stores, Inc. and Sizes Unlimited,
Inc. (now known as United Retail Incorporated)
10.2.2 Amendment to Software License Agreement, dated December
10, 1991
10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense
Agreement, dated as of April 30, 1989, between American
Licensing Group, Inc. (Licensee) and Sizes Unlimited,
Inc. (Sublicensee)
<PAGE>
10.12 Amended and Restated Master Affiliate Sublease Agreement,
dated as of July 17, 1989, among Lane Bryant, Inc.,
Lerner Stores, Inc. (Landlord) and Sizes Unlimited, Inc.
(Tenant) and Amendment thereto, dated July 17, 1989
10.33* 1991 Stock Option Agreement, dated November 1, 1991,
between the Corporation and Raphael Benaroya
10.34* 1991 Stock Option Agreement, dated November 1, 1991,
between the Corporation and George R. Remeta
10.38 Management Services Agreement, dated August 26, 1989,
between American Licensing Group, Inc. and ALGLP
10.39 First Refusal Agreement, dated as of August 31, 1989,
between the Corporation and ALGLP
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*A compensatory plan for the benefit of the Corporation's management
or a management contract.
(b) No Current Reports on Form 8-K were filed by the Corporation
during the fiscal quarter ended January 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
(Registrant) UNITED RETAIL GROUP, INC.
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By: /s/ Raphael Benaroya
----------------------------------------
Raphael Benaroya, Chairman of the Board,
President and Chief Executive Officer
Date: April 21, 1999
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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 dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Raphael Benaroya
- --------------------
Raphael Benaroya Chairman of the Board, April 21, 1999
Principal Executive Officer President, Chief Executive
Officer and Director
/s/ George R. Remeta
- --------------------
George R. Remeta Vice Chairman, April 21, 1999
Principal Financial Officer Chief Financial Officer,
Secretary and Director
/s/ Jon Grossman
- ----------------
Jon Grossman Vice President - Finance April 21, 1999
Principal Accounting Officer
/s/ Joseph A. Alutto
- --------------------
Joseph A. Alutto Director April 21, 1999
/s/ Russell Berrie
- ------------------
Russell Berrie Director April 21, 1999
- ----------------------
Joseph Ciechanover Director
/s/ Ilan Kaufthal
- -----------------
Ilan Kaufthal Director April 21, 1999
- ----------------------
Vincent P. Langone Director
/s/ Richard W. Rubenstein
- -------------------------
Richard W. Rubenstein Director April 21, 1999
</TABLE>
<PAGE>
UNITED RETAIL GROUP, INC. EXHIBIT INDEX
The following exhibits are filed herewith:
Number Description
------ -----------
10.1 Amendment, dated March 29, 1999, to
Financing Agreement among the Corporation,
United Retail Incorporated and The CIT
Group/Business Credit, Inc. ("CIT")
10.2 Financial Statements of Retirement Savings
Plan for year ended December 31, 1998
13 Sections of 1998 Annual Report to
Stockholders (including opinion of
Independent Public Accountants) that are
incorporated by reference in response to
the items of the Annual Report on Form 10-K
21 Subsidiaries of the Corporation
23.1 Consent of Independent Public Accountants
for the Corporation
23.2 Consent of Independent Public Accountants
for Retirement Savings
Plan
27 Financial Data Schedule
The form of Additional Options set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1998 annual meeting of
stockholders is incorporated herein by reference.*
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended October 31, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* Employment Agreement, dated November 20,
1998, between the Corporation and Raphael
Benaroya
10.2* Employment Agreement, dated November 20,
1998, between the Corporation and George R.
Remeta
10.3* Employment Agreement, dated November 20,
1998, between the Corporation and Kenneth
P. Carroll
10.4* Employment Agreement, dated March 26, 1998,
between the Corporation and Carrie
Cline-Tunick and amendment thereto.
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended May 2, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* 1998 Stock Option Agreement, dated May 21,
1998, between the Corporation and Raphael
Benaroya
10.2* 1998 Stock Option Agreement, dated May 21,
1998, between the Corporation and George R.
Remeta
<PAGE>
The following exhibits to the Corporation's Annual Report on Form 10-K
for the year ended January 31, 1998 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
4.1 Amended By-Laws of the Corporation
10.1 Restated Stockholders' Agreement, dated
December 23, 1992, between the Corporation
and certain of its stockholders and
Amendment No. 1, Amendment No. 2 and
Amendment No. 3 thereto
10.2 Private Label Credit Program Agreement,
dated January 27, 1998, between the
Corporation, United Retail Incorporated and
World Financial Network National Bank
(Confidential portions have been deleted
and filed separately with the Secretary of
the Commission)
10.4* Restated 1990 Stock Option Plan as of March
6, 1998
10.5* Restated 1990 Stock Option Plan as of May
28, 1996
10.6* Restated 1996 Stock Option Plan as of March
6, 1998
10.7* Restated 1989 Performance Option Plan as of
May 6, 1998
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 1, 1997 is incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1 Amendment, dated September 15, 1997, to
Financing Agreement among the Corporation,
United Retail Incorporated and CIT
The following exhibits to the Corporation's Quarterly Report on Form
10-Q for the period ended August 2, 1997 are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1 Financing Agreement, dated August 15, 1997,
among the Corporation, United Retail
Incorporated and CIT
10.2* Amendment No. 1 to Restated Supplemental
Retirement Savings Plan
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended November 2, 1996 is incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* Restated Supplemental Retirement Savings
Plan
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended May 4, 1996 is incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.3 Amended and Restated Term Sheet Agreement
for Hosiery, dated as of December 29, 1995,
between The Avenue, Inc. and American
Licensing Group, Inc. (Confidential
portions have been deleted and filed
separately with the Secretary of the
Commission)
<PAGE>
The following exhibits to the Corporation's Amended Current Report on
Form 8-KA, dated May 22, 1995, are incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1 Amended and Restated Gloria Vanderbilt
Intimate Apparel Sublicense Agreement,
dated May 22, 1995, between United Retail
Incorporated and American Licensing Group
Limited Partnership ("ALGLP")
10.2 Gloria Vanderbilt Sleepwear Sublicense
Agreement, dated May 22, 1995, between
United Retail Incorporated and ALGLP
The following exhibit to the Corporation's Annual Report on Form 10-K
for the year ended January 28, 1995 is incorporated herein by reference:
Number in Filing Description
---------------- -----------
10.1* Incentive Compensation Program Summary
The following exhibits to the Corporation's Registration Statement on
Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by
reference:
Number in Filing Description
---------------- -----------
3.1 Amended and Restated Certificate of
Incorporation of Registrant
4.1 Specimen Certificate for Common Stock of
Registrant
10.2.1 Software License Agreement, dated as of
April 30, 1989, between The Limited Stores,
Inc. and Sizes Unlimited, Inc. (now known
as United Retail Incorporated)
10.2.2 Amendment to Software License Agreement,
dated December 10, 1991
10.7 Amended and Restated Gloria Vanderbilt
Hosiery Sublicense Agreement, dated as of
April 30, 1989, between American Licensing
Group, Inc. (Licensee) and Sizes Unlimited,
Inc. (Sublicensee)
10.12 Amended and Restated Master Affiliate
Sublease Agreement, dated as of July 17,
1989, among Lane Bryant, Inc., Lerner
Stores, Inc. (Landlord) and Sizes
Unlimited, Inc. (Tenant) and Amendment
thereto, dated July 17, 1989
10.33* 1991 Stock Option Agreement, dated November
1, 1991, between the Corporation and
Raphael Benaroya
10.34* 1991 Stock Option Agreement, dated November
1, 1991, between the Corporation and George
R. Remeta
10.38 Management Services Agreement, dated August
26, 1989, between American Licensing Group,
Inc. and ALGLP
10.39 First Refusal Agreement, dated as of August
31, 1989, between the Corporation and ALGLP
- --------------------
*A compensatory plan for the benefit of the Corporation's management or
a management contract.
10-K199
<PAGE>
EXHIBIT NO. 10.1
The CIT Group/
Business Credit
1211 Avenue of the Americas
New York, NY 10036
212-536-1200
THE
CIT
GROUP
March 29, 1999
UNITED RETAIL GROUP, INC.
UNITED RETAIL INCORPORATED
365 West Passaic Street
Rochelle Park, NJ 07662
Gentlemen:
We refer to the Financing Agreement by and among United Retail Group, Inc.
("URGI") United Retail Incorporated ("URI" and together with URGI the
"Companies"), The CIT Group/Business Credit, Inc., as Agent and Lender,
FirsTrust Bank, as Lender and other parties hereafter becoming the Lenders
thereunder, dated August 15, 1997, as amended (herein the "Agreement").
Capitalized terms used herein and defined in the Agreement shall have the
meanings specified therein unless otherwise specifically defined herein.
Effective immediately pursuant to mutual understanding, Section 1 of the
Agreement shall be and hereby is, amended by amending the definition of
"Anniversary Date" as set forth therein in its entirety to read as follows:
"Anniversary Date" shall mean August 15, 2001 and the same date in each year
thereafter."
<PAGE>
Except as hereinabove specifically provided no other change in or
waiver of the terms, provisions or conditions of the Agreement is intended or
implied. If the foregoing is in accordance with your understanding of our
agreement kindly so indicate by signing and returning the enclosed copy of this
letter.
Very truly yours,
THE CIT GROUP/BUSINESS
CREDIT, INC., as Agent and Lender
By: /s/ Karen Hoffman
------------------------------
Title: Assistant Vice President
FIRSTRUST BANK, as Lender
By: /s/ Edward D'Ancona
------------------------------
Title: Executive Vice President
Read and Agreed to:
UNITED RETAIL GROUP, INC.
By: /s/ Jon Grossman
------------------------
Title: Vice President
UNITED RETAIL INCORPORATED
By: /s/ Kenneth P. Carroll
------------------------
Title: President
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
United Retail Group, Inc. and the
Plan Administrator of the United
Retail Group Retirement Savings Plan:
We have audited the accompanying statements of net assets available for
benefits of the United Retail Group Retirement Savings Plan as of December 31,
1998 and 1997, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
stan dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for benefits of the
Plan as of December 31, 1998 and 1997, and the changes in net assets available
for benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules of
investments held for investment purposes, loans or fixed income obligations, and
reportable transactions are presented for the purpose of additional analysis and
are not a required part of the basic financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, are
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ Ary, Earman and Roepcke
---------------------------
Ary, Earman and Roepcke
Columbus, Ohio,
February 24, 1999.
<PAGE>
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Company Balanced Fixed Equity Aggressive Int'l
Total Stock Fund Fund Fund Fund Fund Fund
----- ---------- -------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at Fair Value:
Common Stock:
United Retail Group, Inc. $ 948,967 $ 948,967 $ - $ - $ - $ - $ -
Other 7,062 - - - - - -
Shares of Registered Investment
Companies:
Scudder Balanced Fund 2,003,077 - 2,003,077 - - - -
Scudder Cash Investment Trust 2,008,561 - - 2,008,561 - - -
Scudder Growth and Income Fund 2,023,589 - - - 2,023,589 - -
Franklin Small Cap Growth Fund 705,645 - - - - 705,645 -
Warburg Pincus International
Equity 337,051 - - - - - 337,051
Other 275,655 1,684 - - - - -
Participant Loans 336,038 - - - - - -
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total Investments 8,645,645 950,651 2,003,077 2,008,561 2,023,589 705,645 337,051
Cash 1,888 835 - - - - 1,053
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total Assets 8,647,533 951,486 2,003,077 2,008,561 2,023,589 705,645 338,104
---------- ---------- ---------- ---------- ----------- ---------- ----------
LIABILITIES
Due to Brokers 1,883 830 - - - - 1,053
Administrative Fees Payable 5,732 140 1,585 3,364 627 8 8
---------- ---------- ---------- ---------- ----------- ---------- ----------
Total Liabilities 7,615 970 1,585 3,364 627 8 1,061
---------- ---------- ---------- ---------- ----------- ---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $8,639,918 $ 950,516 $2,001,492 $2,005,197 $ 2,022,962 $ 705,637 $ 337,043
========== ========== ========== ========== =========== ========== ==========
Self Directed
Brokerage Loan
Account/Other Fund
------------- ----
ASSETS
Investments, at Fair Value:
Common Stock:
United Retail Group, Inc. $ - $ -
Other 7,062 -
Shares of Registered Investment
Companies:
Scudder Balanced Fund - -
Scudder Cash Investment Trust - -
Scudder Growth and Income Fund - -
Franklin Small Cap Growth Fund - -
Warburg Pincus International
Equity - -
Other 273,971 -
Participant Loans - 336,038
---------- ----------
Total Investments 281,033 336,038
Cash - -
---------- ----------
Total Assets 281,033 336,038
---------- ----------
LIABILITIES
Due to Brokers - -
Administrative Fees Payable - -
---------- ----------
Total Liabilities - -
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 281,033 $ 336,038
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-1
<PAGE>
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Company Balanced Fixed Equity Aggressive Int'l
Total Stock Fund Fund Fund Fund Fund Fund
----- ---------- -------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at Fair Value:
Common Stock:
United Retail Group, Inc. $ 287,503 $ 287,503 $ - $ - $ - $ - $ -
Other 5,973 - - - - - -
Shares of Registered Investment
Companies:
Scudder Balanced Fund 1,665,349 - 1,665,349 - - - -
Scudder Cash Investment Trust 1,821,467 - - 1,821,467 - - -
Scudder Growth and Income Fund 1,945,426 - - - 1,945,426 - -
Janus Enterprise Fund 685,536 - - - - 685,536 -
Warburg Pincus International
Equity 349,042 - - - - - 349,042
Other 196,955 - - - - - -
Participant Loans 351,094 - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $7,308,345 $ 287,503 $1,665,349 $1,821,467 $1,945,426 $ 685,536 $ 349,042
========== ========== ========== ========== ========== ========== ==========
Self Directed
Brokerage Loan
Account/Other Fund
------------- ----
ASSETS
Investments, at Fair Value:
Common Stock:
United Retail Group, Inc. $ - $ -
Other 5,973 -
Shares of Registered Investment
Companies:
Scudder Balanced Fund - -
Scudder Cash Investment Trust - -
Scudder Growth and Income Fund - -
Janus Enterprise Fund - -
Warburg Pincus International
Equity - -
Other 196,955 -
Participant Loans - 351,094
---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $ 202,928 $ 351,094
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-2
<PAGE>
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Company Balanced Fixed Equity Aggressive Int'l
Total Stock Fund Fund Fund Fund Fund Fund
----- ---------- -------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Net Appreciation (Depreciation)
in Fair Value of Investments $ 738,400 $ 530,593 $ 206,266 $ - $ (73,929) $ (11,861) $ 14,578
Mutual Funds 431,962 80 137,312 88,324 190,820 11,699 25
Interest 26,503 - - - - - -
Dividend 216 - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment Income
(Loss) 1,197,081 530,673 343,578 88,324 116,891 (162) 14,603
---------- ---------- ---------- ---------- ---------- ---------- ----------
Contributions:
Employer 170,685 12,602 39,850 25,066 55,184 26,936 11,047
Participants 847,441 42,369 187,508 167,806 268,125 128,126 53,507
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Contribution 1,018,126 54,971 227,358 192,872 323,309 155,062 64,554
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loan Repayments - 6,159 45,862 50,828 48,308 18,363 10,630
Loans Issued - (12,902) (48,941) (51,944) (44,666) (11,761) (10,286)
Interfund Transfers - 139,504 (56,034) 52,649 (84,524) (21,003) (32,026)
Administrative Expense (33,798) (823) (9,333) (19,852) (3,693) (47) (50)
Benefits to Participants (849,836) (54,569) (166,347) (129,147) (278,089) (120,351) (59,424)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in Net
Assets Available for Benefits 1,331,573 663,013 336,143 183,730 77,536 20,101 (11,999)
Beginning Net Assets Available
for Benefits 7,308,345 287,503 1,665,349 1,821,467 1,945,426 685,536 349,042
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Net Assets Available
for Benefits $8,639,918 $ 950,516 $2,001,492 $2,005,197 $2,022,962 $ 705,637 $ 337,043
========== ========== ========== ========== ========== ========== ==========
Self Directed
Brokerage Loan
Account/Other Fund
------------- ----
Investment Income:
Net Appreciation (Depreciation)
in Fair Value of Investments $ 72,753 $ -
Mutual Funds 3,702 -
Interest - 26,503
Dividend 216 -
---------- ----------
Total Investment Income
(Loss) 76,671 26,503
---------- ----------
Contributions:
Employer - -
Participants - -
---------- ----------
Total Contribution - -
---------- ----------
Loan Repayments - (180,150)
Loans Issued - 180,500
Interfund Transfers 1,434 -
Administrative Expense - -
Benefits to Participants - (41,909)
---------- ----------
Increase (Decrease) in Net
Assets Available for Benefits 78,105 (15,056)
Beginning Net Assets Available
for Benefits 202,928 351,094
---------- ----------
Ending Net Assets Available
for Benefits $ 281,033 $ 336,038
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Company Balanced Fixed Equity Aggressive Int'l
Total Stock Fund Fund Fund Fund Fund Fund
----- ---------- -------- ----- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Net Appreciation (Depreciation)
in Fair Value of Investments $ 467,300 $ 52,323 $ 223,334 $ - $ 269,056 $ 33,065 $ (68,476)
Mutual Funds 483,396 - 99,124 94,079 183,248 40,969 49,793
Interest 25,312 - - - - - -
Dividend 53 - - - - - -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Investment Income
(Loss) 976,061 52,323 322,458 94,079 452,304 74,034 (18,683)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Contributions:
Employer 181,440 15,589 38,579 40,455 48,318 27,264 11,235
Participants 828,786 33,852 178,529 164,277 256,517 139,379 56,232
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Contribution 1,010,226 49,441 217,108 204,732 304,835 166,643 67,467
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loan Repayments - 5,748 36,654 40,508 41,436 16,280 11,124
Loans Issued - (2,825) (80,204) (41,703) (38,317) (17,426) (7,003)
Interfund Transfers - 35,670 (7,945) (313,701) 90,854 (19,483) (14,089)
Administrative Expense (40,411) - (11,225) (23,970) (4,962) - (254)
Benefits to Participants (964,847) (25,516) (292,321) (183,768) (331,884) (55,725) (31,172)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (Decrease) in Net
Assets Available for Benefits 981,029 114,841 184,525 (223,823) 514,266 164,323 7,390
Beginning Net Assets Available
for Benefits 6,327,316 172,662 1,480,824 2,045,290 1,431,160 521,213 341,652
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ending Net Assets Available
for Benefits $7,308,345 $ 287,503 $1,665,349 $1,821,467 $1,945,426 $ 685,536 $ 349,042
========== ========== ========== ========== ========== ========== ==========
Self Directed
Brokerage Loan
Account/Other Fund
------------- ----
Investment Income:
Net Appreciation (Depreciation)
in Fair Value of Investments $ (42,002) $ -
Mutual Funds 16,183 -
Interest - 25,312
Dividend 53 -
---------- ----------
Total Investment Income
(Loss) (25,766) 25,312
---------- ----------
Contributions:
Employer - -
Participants - -
---------- ----------
Total Contribution - -
---------- ----------
Loan Repayments - (151,750)
Loans Issued - 187,478
Interfund Transfers 228,694 -
Administrative Expense - -
Benefits to Participants - (44,461)
---------- ----------
Increase (Decrease) in Net
Assets Available for Benefits 202,928 16,579
Beginning Net Assets Available
for Benefits - 334,515
---------- ----------
Ending Net Assets Available
for Benefits $ 202,928 $ 351,094
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE PLAN
General
The United Retail Group Retirement Savings Plan (the "Plan") is a defined
contribution plan covering certain employees of United Retail Group,
Inc. and its affiliates (the "Employer") who are at least 21 years of
age and have completed 1,000 or more hours of service during their
first consecutive twelve months of employment or any calendar year
beginning in or after their first consecutive twelve months of
employment. Certain employees of the Employer, who are covered by a
collective bargaining agreement, are not eligible to participate in
the Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA) as amended.
Amendments
Effective January 1, 1998, the Plan was amended to increase the maximum
allowable percentage as noted under "Contributions" below.
Effective January 1, 1997, the Plan was amended and restated to, among
other things,
(1) allow in-service withdrawals as noted under "Payment of Benefits"
below, and
(2) make certain changes in the Plan as were required by law.
Contributions
Employer Contributions:
The Employer may provide a 50% matching contribution on the first 3% of a
participant's voluntary contributions.
Participant Voluntary Contribution:
A participant may elect to make a voluntary tax-deferred contribution of
1% to 15% of his or her annual compensation up to the maximum
permitted under Section 402(g) of the Internal Revenue Code adjusted
annually ($10,000 at December 31, 1998). Prior to January 1, 1998 a
voluntary tax-deferred contribution up to only 12% was allowed. The
annual compensation of each participant taken into account under the
Plan is limited to the maximum amount permitted under Section
401(a)(17) of the Internal Revenue Code. The annual compensation limit
for the Plan year ended December 31, 1998, was $160,000. This
voluntary tax-deferred contribution may be limited by Section 401(k)
of the Internal Revenue Code.
F-5
<PAGE>
Vesting
A participant is fully and immediately vested for voluntary and rollover
contributions and is credited with a year of vesting service in the
Employer's contributions for each Plan year that they are credited
with a least 500 hours of service. A summary of vesting percentages in
the Employer's contributions follows:
Years of Vesting Service Percentage
------------------------ ----------
Less than 3 years 0%
3 years 20
4 years 40
5 years 60
6 years 80
7 years 100
Payment of Benefits
The full value of participants' accounts becomes payable upon retirement,
disability, or death. Upon termination of employment for any other
reason, participants' accounts, to the extent vested, become payable.
Participants will receive any benefit to which they are entitled in
the form of, (1) lump-sum cash distribution, with those participants
holding more than 100 shares of Employer Securities receiving shares
for the portion of their account invested in Employer Securities, (2)
if eligible a payment directly to an eligible retirement plan
specified by the Participant or (3) if the account balance is greater
than $3,500 and the Participant has attained age 70-1/2, cash
installments over a period not extending beyond the life expectancy of
the Participant or the joint and last survivor life expectancies of
the Participant and a designated Beneficiary. Those participants with
vested account balances more than $5,000 have the option of leaving
their accounts invested in the Plan until age 65.
Participants may make in-service withdrawals from their account of
participant deferrals if they have obtained the age of 59-1/2 and all
vested amounts if they have obtained the age of 65, based on the terms
of the plan.
Participant Loans
Participants are permitted to borrow from their account the lesser of
$50,000 or 50% of the vested balance of their account for a term of
not more than five years with repayment made from payroll deductions.
All loans become due and payable in full upon a participant's
termination of employment with the Employer. The borrowing constitutes
a separate earmarked investment of the participant's account. Interest
on the borrowing is based on a formula using the published money call
rate on the date of application.
Amounts Allocated to Participants Withdrawn from the Plan
The vested portion of net assets available for plan benefits allocated to
participants withdrawn from the Plan as of December 31, 1998 and
1997, is set forth below:
1998 1997
------- -------
Stock Fund $ 186 $ -
Balanced Fund 186 3,661
Fixed Fund 166 6,258
Equity Fund 171 27,812
Aggressive Fund 180 21,694
International Fund 166 17,480
Other 2,851 -
------- -------
$ 3,906 $76,905
======= =======
F-6
<PAGE>
Forfeitures
Forfeitures are used to reduce the Employer's required contributions.
Utilized forfeitures for 1998 and 1997, is set forth below:
1998 1997
-------- --------
Stock Fund $ 3,043 $ 2,141
Balanced Fund 9,177 9,643
Fixed Fund 21,405 6,508
Equity Fund 11,662 17,501
Aggressive Fund 4,089 5,781
International Fund 1,716 2,148
-------- --------
$ 51,092 $ 43,722
======== ========
Expenses
Brokerage fees, transfer taxes, and other expenses incurred in connection
with the investment of the Plan's assets will be added to the cost of
such investments or deducted from the proceeds thereof, as the case
may be. Administrative expenses of the Plan will be allocated to
participants' accounts, unless the Employer elects to pay any or all
of such costs.
Tax Determination
The Plan obtained its latest determination letter on February 23, 1998,
in which the Internal Revenue Service stated that the Plan, as amended
and restated January 1, 1997, was in compliance with the applicable
requirements of the Internal Revenue Code. The Plan has been amended
since receiving the determination letter. However, the Plan
administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the
applicable requirements of the Internal Revenue Code. Accordingly,
the following Federal income tax rules will apply to the Plan:
Voluntary tax-deferred contributions made under the Plan by a
participant and contributions made by the Employer to participant
accounts are generally not taxable until such amounts are
distributed.
The participants are not subject to Federal income tax on
interest, dividends, or gains in their particular accounts until
distributed.
The foregoing is only a brief summary of certain tax implications and
applies only to Federal tax regulations currently in effect.
(2) SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting
The Plan's financial statements are prepared on the accrual basis of
accounting. Assets of the Plan are valued at fair value. The
preparation of the financial statements in conformity with generally
accepted accounting principles requires the Plan's management to use
estimates and assumptions that affect the accompanying financial
statements and disclosures. Actual results could differ from these
estimates.
Income Recognition
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date.
F-7
<PAGE>
Investment Valuation
Mutual funds are stated at fair value as determined by quoted market
prices, which represents the net asset value of shares held by the
Plan at year end. Common stock is valued as determined by quoted
market price.
Net Appreciation (Depreciation) in Fair Value of Investments
Net realized and unrealized appreciation (depreciation) is recorded in
the accompanying statement of changes in net assets available for
benefits as net appreciation (depreciation) in fair value of
investments.
Brokerage fees are added to the acquisition costs of assets purchased and
subtracted from the proceeds of assets sold.
Benefit Payments
Benefits are recorded when paid.
Reclassification of Prior Year Information
Certain prior year information has been reclassified to conform with
current year presentation.
(3) INVESTMENTS
The Plan's investments are held by Scudder Trust Company, a subsidiary of
Scudder Kemper Investments, Inc., manager of certain mutual funds in
which the Plan invests. The following table presents balances for 1998
and 1997 for the Plan's current investment options. Investments that
represent 5 percent or more of the Plan's net assets are separately
identified.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Investments at Fair Value as Determined by
Quoted Market Price:
Common Stock:
United Retail Group, Inc. (88,276 and
71,029 Shares at a Cost of $655,552
and 503,325 for 1998 and 1997,
Respectively) $ 948,967 $ 287,503
Other 7,062 5,973
Shares of Registered Investment Companies:
Scudder Balanced Fund 2,003,077 1,665,349
Scudder Cash Investment Trust 2,008,561 1,821,467
Scudder Growth and Income Fund 2,023,589 1,945,426
Franklin Small Cap Growth Fund - Class A 705,645 -
Warburg Pincus International Equity 337,051 349,042
Janus Enterprise Fund - 685,536
Other 275,655 196,955
Investments at Estimated Fair Value:
Participant Loans 336,038 351,094
----------- -----------
$ 8,645,645 $ 7,308,345
=========== ===========
</TABLE>
The Plan's investments (including investments bought, sold, and held
during the year) appreciation in value for the years ended December
31, 1998 and 1997, is set forth below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Investments at Fair Value as Determined
by Quoted Market Price:
Shares of Registered
Investment Companies $206,740 $414,999
Common Stock 531,660 52,301
-------- --------
$738,400 $467,300
======== ========
</TABLE>
F-8
<PAGE>
Contributions under the Plan may be invested in any one or more of seven
investment options: (1) The Company Stock Fund, consisting of common
stock of United Retail Group, Inc., (2) the Balanced Fund, which is
invested in the Scudder Balanced Fund, (3) the Fixed Fund, which is
invested in the Scudder Cash Investment Trust, (4) the Equity Fund,
which is invested in the Scudder Growth and Income Fund, (5) the
Aggressive Fund, which is invested in the Franklin Small Cap Growth
Fund - Class A which replaced the investment in the Janus Enterprise
Fund in 1997, (6) the International Fund, which invests in the Warburg
Pincus International Equity Fund, and (7) a self-directed brokerage
account.
Participants' voluntary and the Employer's contributions may be invested
in any one or more of the options, at the election of the participant,
except for the self- directed brokerage account which only allows
participants to transfer existing balances based on the terms of the
Plan.
Subsequent to year end the Plan's management replaced the Scudder Cash
Investment Trust and the Warburg Pincus International Equity Fund with
the Scudder U.S. Treasury Money Fund and Janus Overseas Fund,
respectively. The Plan's management also added the Scudder Short Term
Bond Fund as a new investment option.
(4) PLAN ADMINISTRATION
The Plan is administered by a Committee, the members of which are
appointed by the Board of Directors of the Employer.
(5) PLAN TERMINATION
Although the Employer has not expressed any intent, the Employer has the
right under the Plan to discontinue their contributions at any time.
United Retail Group, Inc. has the right at any time, by action of its
Board of Directors, to terminate the Plan subject to the provisions of
ERISA. Upon Plan termination or partial termination, participants
will become fully vested in their accounts.
(6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
per the financial statements to Form 5500:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net Assets Available for Benefits Per
The Financial Statements $8,645,650 $7,308,345
Amounts Allocated to Withdrawing
Participants (3,906) (76,905)
---------- ----------
Net assets Available for Benefits Per
Form 5500 $8,641,744 $7,231,440
========== ==========
</TABLE>
The following is a reconciliation of benefits paid to participants per
the financial statements to Form 5500:
1998
------
Benefits Paid to Participants Per
the Financial Statements $849,836
Amounts Allocated to Withdrawing
Participants at:
December 31, 1998 3,906
December 31, 1997 (76,905)
--------
Benefits Paid to Participants Per
Form 5500 $776,837
========
Amounts allocated to withdrawing participants are recorded on Form 5500
for benefit claims that have been processed and approved for payment
prior to December 31, but not yet paid as of that date.
F-9
<PAGE>
SCHEDULE I
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Description of Investment Including Maturity
Identity of Issuer, Borrower, Date, Rate of Interest, Collateral, Par or Current
Lessor, or Similar Party Maturity Value Cost Value
- ----- ---------------------------- -------------------------------------------- -------- --------
<S> <C> <C> <C>
* United Retail Group, Inc. 88,276 Shares of Common Stock, Par Value $0.001 $ 655,552 $ 948,967
* Scudder Kemper Investments, 105,646.761 Shares of Scudder Balanced Fund, Par 1,660,697 2,003,077
Inc. Value $0.01
* Scudder Kemper Investments, 2,008,560.53 Shares of Scudder Cash Investment 2,008,561 2,008,561
Inc. Trust, Par Value $0.01, 7 Day Net Annualized
Yield on 12/30/98 of 4.46%
* Scudder Kemper Investments, 76,913.315 Shares of Scudder Growth and Income 1,942,014 2,023,589
Inc. Fund, Par Value $0.01
* Scudder Kemper Investments, 2,851.37 Shares of Scudder U.S. Treasury Money 2,851 2,851
Inc. Market Fund, Par Value $0.01, 7 Day Net
Annualized Yield on 12/31/98 of 4.23%
* Scudder Kemper Investments, 1,684.48 Shares of Scudder Money market 1,684 1,684
Inc. Series #23, Daily Rate on 12/31/98 of 5.1%
Templeton Franklin Investment 31,264.389 shares of Franklin Small Cap Growth 705,640 705,645
Services, Inc. Fund - Class A, Par Value $0.01
Warburg Pincus Funds 18,946.069 Shares of Warburg Pincus 364,315 337,051
International Equity, Par Value $0.01
Fidelity Investments 1,332.958 of Select Electronics, Par Value $0.01 63,529 62,062
</TABLE>
* Represents a party in interest
The accompanying notes are an integral part of this schedule.
F-10
<PAGE>
SCHEDULE I
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Description of Investment Including Maturity
Identity of Issuer, Borrower, Date, Rate of Interest, Collateral, Par or Current
Lessor, or Similar Party Maturity Value Cost Value
- ----- ---------------------------- -------------------------------------------- -------- --------
<S> <C> <C> <C>
T. Rowe Price Associates, Inc. 1,778.75 Shares of T. Rowe Price Science & 62,150 67,005
Technology, Par Value $0.01
Fred Alger Management 2,982.133 Shares of Spectra Fund, Inc., Par 58,212 75,179
Value $0.01
Stein Roe 2,470.784 Shares of Stein Roe Young Investor 56,739 66,069
Fund, Par Value $0.01
Philip Morris, Inc. 132 Shares of Common Stock, Par Value $0.33 1/3 5,995 7,062
State Street 804.58 Shares of Seven Seas Money Market Fund, 805 805
Par Value %0.01, 7 Day Net Annualized Yield on
12/30/98 of 4.83%
Participant Loans Interest from 7.5% - 9.25% - 336,038
---------- ----------
$7,588,744 $8,645,645
========== ==========
</TABLE>
* Represents a party in interest
The accompanying notes are an integral part of this schedule.
F-11
<PAGE>
SCHEDULE II
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Detail Description of Loan
Including Dates of Making
and Maturity, Interest Rate,
The Type and Value of
Collateral, Any
Principal Interest Unpaid Renegotiation of the Loan
Original Received Received Balance and the Terms of the
Identity and Amount of During During End of Renegotiation and Other Principal Interest
Address of Obligor Loan Year Year Year Material Items Overdue Overdue
------------------ --------- --------- -------- --------- ----------------------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Charlene Macaluso $ 1,142 $ - $ - $ 1,142 Participant loan secured by $ 1,142 $ 151
331 West 75th Place account balance, issued
Merrillville, In. 5/23/95 at 9.25%. Balance
SS# ###-##-#### and accrued interest reported
as deemed distribution in
prior years.
Karen Denoyer 4,200 - - 4,071 Participant loan secured by 4,071 17
305 N. 59th Street account balance, issued
Milwaukee, Wi. 8/5/95 at 9.25%. Reported as
SS# ###-##-#### deemed distribution in prior
years.
Laura L. Altobelli 5,106 306 105 3,619 Participant loan secured by 3,619 -
19624 Reno account balance, issued
Detroit, Mi 7/10/96 at 8%. Reported as
###-##-#### deemed distribution in the
current year.
Laura L. Altobelli 2,000 109 44 1,816 Participant loan secured by 1,816 -
19624 Reno account balance, issued
Detroit, Mi 8/29/97 at 8.25%. Reported
###-##-#### as deemed distribution in the
current year.
</TABLE>
The accompanying notes are an integral part of this schedule.
F-12
<PAGE>
SCHEDULE III
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Purchases Sales
---------------------------- -------------------------------
Current
Value
Description of Asset of Asset on
Identity of (Include Interest Rate and Purchase Transaction Selling Cost of
Party Involved Maturity in Case of a Loan Price Date Price Assets
- ----------------- -------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
*Scudder Kemper Scudder Balanced Fund $ 469,569 $ 469,569 $ 340,039 $ 293,488
Investments, Inc.
*Scudder Kemper Scudder Growth and Income 676,571 676,571 524,265 464,757
Investments, Inc. Fund
*Scudder Kemper Scudder Cash Investment 565,661 565,661 378,567 378,567
Investments, Inc. Trust
Janus Capital Janus Enterprise Fund - - 677,312 653,937
Templeton Franklin Small Cap Growth 918,783 918,783 208,231 213,143
Franklin Fund - Class A
Investment
Services, Inc.
------------------------------
Current
Value
of Asset on
Transaction Net Gain
Date or (Loss)
---------- ----------
<C> <C>
*Scudder Kemper $ 340,039 $ 46,551
Investments, Inc.
*Scudder Kemper 524,265 59,508
Investments, Inc.
*Scudder Kemper 378,567 -
Investments, Inc.
Janus Capital 677,312 23,375
Templeton 208,231 (4,912)
Franklin
Investment
Services, Inc.
</TABLE>
*Represents a party in interest
The accompanying notes are an integral part of this schedule.
F-13
<PAGE>
EXHIBIT 13
UNITED RETAIL GROUP, INC. is a leading specialty retailer of large-size women's
apparel and accessories, which feature its AVENUE brand. The Company seeks to
create a fashion-current, upscale image at prices that appeal to the middle mass
market.
Financial Highlights
(dollars in thousands, except per share amounts) Fiscal 1997 Fiscal 1998
Net Sales $361,751 $378,562
Income before income taxes 3,050 27,844
(Benefit from) provision for income taxes (828) 10,077
Benefit from write-up of the compensation
related deferred tax asset (953) (213)
Net Income $ 4,831 $ 17,980
Net income per common share
Basic $ 0.40 $ 1.38
Diluted $ 0.37 $ 1.31
Weighted average number of shares
outstanding (in thousands):
Basic 12,190 13,056
Diluted 13,188 13,736
Stores open at end of period 522 502
Contents
Management's Discussion and Analysis 10
Report of Independent Auditors 15
Consolidated Balance Sheets 16
Consolidated Statements of Operations 17
Consolidated Statements of Cash Flows 18
Consolidated Statements of Stockholders' Equity 19
Notes to the Consolidated Financial Statements 20
Selected Financial Data 27
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1998 VERSUS FISCAL 1997
Net sales for fiscal 1998 increased 4.6% from fiscal 1997, to $378.6
million from $361.8 million, principally from an increase in average price.
Average stores open decreased 7.7% from 557 to 514 as underperforming stores
were closed selectively. Comparable store sales for fiscal 1998 increased 10.4%.
There is no assurance that sales and comparable store sales will continue to
increase.
Gross profit increased by $19.1 million to $102.8 million in fiscal 1998
from $83.7 million in fiscal 1997, increasing as a percentage of net sales to
27.1% from 23.1%. The increase in gross profit as a percentage of net sales was
primarily attributable to a decrease in buying and occupancy costs as a
percentage of net sales and an increase in the merchandise margin rate.
General, administrative and store operating expenses were $79.2 million in
fiscal 1998 compared to $80.5 million in fiscal 1997, decreasing principally as
a result of premiums received by the Company from a bank on proprietary credit
card purchases of Company merchandise (see, "--Proprietary Credit Cards") and of
reduced store payroll expenses. As a percentage of net sales, general,
administrative and store operating expenses decreased to 20.9% from 22.2%.
During fiscal 1998, the Company had operating income of $23.5 million (6.2%
of sales) compared to operating income of $3.2 million in fiscal 1997. Fiscal
1998 operating income excludes the capital gain referred to in the last
paragraph of this section.
Net interest income was $1.2 million in fiscal 1998 compared to net
interest expense of $0.2 million in fiscal 1997, primarily from interest earned
on a higher level of cash and cash equivalents.
The Company had a provision for income taxes of $10.1 million in fiscal
1998 compared with an income tax benefit of $0.8 million in fiscal 1997.
Included in the fiscal 1997 income tax benefit is the reversal of a $1.8
million valuation allowance established in fiscal 1996 with respect to the
deferred tax asset.
Write-ups of the deferred tax asset were made of $0.2 million in fiscal
1998 and $1.0 million in fiscal 1997, respectively. These write-ups were based
on the year end market value of the Company's Common Stock and arose from
certain non-recurring charges in fiscal 1992. In fiscal 1992, the Company
incurred a non-cash compensation expense of $15.6 million related to certain
stock options ("Performance Options") previously granted to Raphael Benaroya,
Chairman of the Board, President and Chief Executive Officer of the Company, and
George R. Remeta, Vice Chairman and Chief Financial Officer of the Company. The
non-cash compensation expense resulted in the recognition of certain future tax
benefits realizable at the time Performance Options are exercised based on an
assumption that the market price of the Common Stock at the time of exercise
will be $15 per share (the price of the initial public offering in fiscal 1992).
<PAGE>
The Company had net income of $18.0 million for fiscal 1998, which included
the write-up of the compensation related deferred tax asset. The Company had net
income of $4.8 million for fiscal 1997, which included the write-up of the
compensation related deferred tax asset and the reversal of the valuation
allowance. Excluding the write-ups and the allowance, the Company would have had
net income of $17.8 million for fiscal 1998 and $2.0 million for fiscal 1997.
Net income for fiscal 1998 included a capital gain on the sale of the
Company's minority interest in a privately held apparel design and manufacturing
concern of $3.1 million ($2.0 million after tax).
FISCAL 1997 VERSUS FISCAL 1996
Net sales for fiscal 1997 decreased 0.4% from fiscal 1996, to $361.8
million from $363.1 million, principally from a decrease in unit sales volume
partially offset by an increase in average price. Average stores open decreased
4.1% from 581 to 557 as underperforming stores were closed selectively.
Comparable store sales for fiscal 1997 increased 2.8%.
Gross profit increased by $10.0 million to $83.7 million in fiscal 1997
from $73.7 million in fiscal 1996, increasing as a percentage of net sales to
23.1% from 20.3%. The increase in gross profit as a percentage of net sales was
primarily attributable to an increase in the merchandise margin rate.
General, administrative and store operating expenses increased to $80.5
million in fiscal 1997 compared to $80.1 million in fiscal 1996. As a percentage
of net sales, general, administrative and store operating expenses increased to
22.2% from 22.1%.
During fiscal 1997, the Company had operating income of $3.2 million,
compared to an operating loss of $6.4 million in fiscal 1996.
Net interest expense was $0.2 million in fiscal 1997 and $0.4 million in
fiscal 1996.
The Company had an income tax benefit of $0.8 million in fiscal 1997 and of
$1.0 million in fiscal 1996.
Included in the fiscal 1997 income tax benefit is the reversal of a $1.8
million valuation allowance established in fiscal 1996 with respect to the
deferred tax asset.
10
1998 ANNUAL REPORT
<PAGE>
A write-up of the deferred tax asset of $1.0 million was made in fiscal
1997 based on the market value of the Company's Common Stock at the end of
fiscal 1997. A write-down of $0.3 million was taken in fiscal 1996 based on the
market value of Common Stock at the end of fiscal 1996.
The Company had net income of $4.8 million for fiscal 1997, which included
the write-up of the compensation related deferred tax asset and the reversal of
the valuation allowance. The Company incurred a net loss of $6.1 million for
fiscal 1996, which reflected the write-down of the compensation related deferred
tax asset and the valuation allowance. The write-down and the allowance, net of
certain other tax entries, totaled $1.4 million for fiscal 1996. Excluding the
write-up, the write-down and the allowance, net of certain other tax entries,
the Company would have had net income of $2.0 million for fiscal 1997 and the
Company would have incurred a net loss of $4.7 million for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities in fiscal 1998 was $21.5
million.
In May 1998, the Company sold its minority equity interest in a privately
held apparel design and manufacturing firm for $3.1 million cash.
The Company's cash on hand was $45.9 million at January 30, 1999 and $31.1
million at January 31, 1998.
Inventory increased to $45.6 million at January 30, 1999 from $38.0 million
at January 31, 1998. The Company's inventory levels peak in early May and
November/December. During fiscal 1998, the highest inventory level was $54.2
million.
Import purchases are made in U.S. dollars and are generally financed by
trade letters of credit. Import purchases constituted approximately 56% of total
purchases in fiscal 1998.
Short-term trade credit represents a significant source of financing for
domestic merchandise purchases. Trade credit arises from the willingness of the
Company's domestic vendors to grant extended payment terms for inventory
purchases and is generally financed either by the vendor or a third-party
factor.
United Retail Group, Inc. and United Retail Incorporated, its subsidiary
(collectively, the "Companies"), are parties to a Financing Agreement, dated
August 15, 1997, as amended (the "Financing Agreement"), with The CIT
Group/Business Credit, Inc. ("CIT"). The Financing Agreement provides a
revolving line of credit which was recently extended to August 15, 2001 in the
aggregate amount of $40 million for the Companies, subject to availability of
credit as described in the following paragraphs. The line of credit may be used
on a revolving basis by either of the Companies to support trade letters of
credit and standby letters of credit and to finance loans. As of January 30,
1999, trade letters of credit for the account of the Company and supported by
CIT were outstanding in the amount of $22.7 million. (A standby letter of credit
supported by CIT was also outstanding for $2.0 million as collateral for
obligations in the ordinary course of business under general liability insurance
policies.)
<PAGE>
Subject to the following paragraph, the availability of credit (within the
aggregate $40 million line of credit) to either of the Companies at any time is
the excess of its borrowing base over the sum of (x) the aggregate outstanding
amount of its letters of credit and its revolving loans, if any, and (y) at ClTs
option, the sum of (i) unpaid sales taxes, and (ii) up to $500,000 in total
liabilities of the Companies under permitted encumbrances (as defined in the
Financing Agreement). The borrowing base, as to either of the Companies, is the
sum of (x) a percentage of the book value of its eligible inventory (both on
hand and unfilled purchase orders financed with letters of credit), ranging from
60% to 65% depending on the season, and (y) the balance in an account in its
name that has been pledged to the lenders (a "Pledged Account"). (At January 30,
1999, the combined availability of the Companies was $13.0 million; no balance
was in a Pledged Account; no loan had been drawn down; and the Company's cash on
hand was unrestricted.)
The provisions of the preceding paragraph to the contrary notwithstanding,
the Companies are required to maintain unused at all times combined availability
of at least $5 million. Except for the maintenance of a minimum availability of
$5 million and a limit on capital expenditures, the Financing Agreement does not
contain any financial covenants.
In the event a revolving loan is made to one of the Companies, interest is
payable monthly based on a 360-day year at the prime rate or at two percent plus
the LIBOR rate on a per annum basis, at the borrowers option.
The line of credit is secured by a security interest in inventory and
proceeds and by the balance from time to time in the Pledged Account.
The Financing Agreement also includes certain restrictive covenants that
impose limitations (subject to certain exceptions) on the Companies with respect
to, among other things, making certain investments, declaring or paying
dividends, acquiring Common Stock or preferred stock of the Company, making
loans, engaging in certain transactions with affiliates, or consolidating,
merging or making acquisitions outside the ordinary course of business.
11
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
The Company believes that its cash on hand, the availability of credit
under the Financing Agreement and cash flows from operating activities will be
adequate to meet anticipated working capital needs, including seasonal financing
needs, for the next 12 months. This paragraph constitutes forward-looking
information under the 1995 Private Securities Litigation Reform Act (the "Reform
Act") and is subject to the uncertainties and other risk factors referred to
under the caption "Future Results."
PROPRIETARY CREDIT CARDS
In fiscal 1997, purchases of Company merchandise made by customers with the
Company's proprietary credit cards were paid for daily by a bank in amounts that
came out to a net discount for the year. On the contrary, the bank paid a
premium, instead of taking a discount, on proprietary credit card purchases in
fiscal 1998. During fiscal 1998, premiums paid to the Company by the bank had a
material favorable effect on the Company's general, administrative and store
operating expenses.
After fiscal 1998, a different bank (the "Credit Card Bank") has begun to
issue the Company's proprietary credit cards and finance credit card purchases.
There is no assurance that in fiscal 1999 discounts will not be taken by the
Credit Card Bank on proprietary credit card purchases and that other bank
charges will not be incurred by the Company. Any such discounts and charges
would have a material adverse effect on the Company's general, administrative
and store operating expenses in fiscal 1999. The Company plans to convert all
its proprietary credit cards to the AVENUE brand in 1999.
STORES
The Company leased 502 retail stores at January 30, 1999, of which 297
stores were located in strip shopping centers, 182 stores were located in malls
and 23 stores were located in downtown shopping districts. Total retail square
footage was 2.0 million square feet at January 30, 1999 compared to 2.1 million
square feet a year earlier.
The Company plans to change the trade name of 303 stores to the AVENUE
trade name in 1999. There is no assurance that the change will not have an
adverse effect on sales. (The Company's other stores already operate under the
AVENUE trade name.)
The Company intends to pay the costs of remodeling stores from its cash on
hand at the time. This paragraph constitutes forward-looking information under
the Reform Act, which is subject to the uncertainties and other risk factors
referred to under the caption "Future Results."
<PAGE>
TAX MATTERS
The Company's federal income tax returns for fiscal 1994, fiscal 1995 and
fiscal 1996 are being audited by the Internal Revenue Service. Management
believes that the results of the audit will not have a material adverse effect
on the Company's financial condition or results of operations.
RENOVATING COMPUTERIZED SYSTEMS AND
REPLACING EMBEDDED TECHNOLOGY
The Company operates a nationwide chain of specialty apparel retail stores,
imports a significant portion of its inventory, and makes proprietary credit
cards available to its customers. The Company's operations are heavily dependent
on date sensitive computerized systems and embedded technology, including (i)
its management information systems, (ii) the technology, including
microcontrollers, embedded in equipment at the Company's national distribution
center, (iii) the system for issuing and processing a trade letter of credit for
each of the Company's purchase orders used by the bank (the "Letter of Credit
Provider") that finances the Company's purchases of inventory abroad and (iv)
links to the Credit Card Bank to authorize purchases by customers using the
Company's proprietary credit cards. The Company's headquarters uses a date
sensitive voicemail system. The Company's headquarters and stores are leased and
are generally affected by date sensitive embedded technology used to control
heating and ventilation and lighting.
Computer programs and embedded technology, including the programs and
technology on which the Company's operations depend, often will mishandle data
that includes a year after 1999 (referred to below as "Year 2000 risks").
The mainframe operating systems used by the Company's vendor have been
represented by the vendor to be Year 2000 compliant in all material respects.
The Company's management information systems department (the "MIS
Department") is renovating and validating the Company's applications software,
systems software and hardware (collectively referred to below as "Systems") to
accommodate dates after 1999. The MIS Department identified 275 projects to
analyze and, if necessary, renovate and validate Systems to ensure that they are
Year 2000 complaint. After being validated, Systems are implemented as part of
each project. 251 projects have been completed in all material respects and 11
projects are underway.
Integrated Year 2000 testing of substantially all the Systems that are
essential to the Company's management information systems ("Essential Systems")
and the mainframe operating systems was completed successfully. (There is no
assurance, however, that the integrated testing revealed all
12
1998 ANNUAL REPORT
<PAGE>
Year 2000 risks.) The few remaining Essential Systems will be tested separately
during the first half of fiscal 1999. (The renovation, validation and testing of
the Essential Systems is referred to below as the "Year 2000 Project.")
The Company has obtained representations from the manufacturers of the
equipment that performs essential functions at the national distribution center
to the effect that the equipment is Year 2000 compliant in all material
respects. There is no assurance, however, that all the essential equipment at
the national distribution center will function properly after 1999 or that any
malfunctions that occur will not have a material adverse effect on the Company's
logistics operations.
The Letter of Credit Provider has advised the Company that its trade letter
of credit system and telecommunications interfaces are Year 2000 compliant in
all material respects. There is no assurance, however, that such system and
interfaces will function properly after 1999.
The Credit Card Bank has advised the Company that its credit card
transaction processing system has been renovated, tested and certified to be
Year 2000 compliant in all material respects. The Credit Card Bank also stated
that it has assessed its telecommunications interfaces for point of sale credit
authorizations and is in the process of renovating them to make them Year 2000
compliant in all material respects by June 30, 1999. There is no assurance,
however, that these processing systems and telecommunications interfaces will
function properly after 1999 or that any malfunctions that occur will not have a
material adverse effect on the Company's sales.
The Company will replace its voicemail system in 1999 with one that is
guaranteed to be Year 2000 compliant by the manufacturer.
The Company believes that in most cases the embedded technology used in
energy management systems to control heating and ventilation and lighting at its
headquarters and its stores can quickly be bypassed manually in the event of a
malfunction because of an inability to accommodate dates after 1999. There is no
assurance, however, that any malfunctions that occur will not have a material
adverse effect on the Company's operations.
The Company does not have a project tracking system for the time that its
associates spend on the Year 2000 Project. The Company's internal costs for the
Year 2000 Project are principally the related payroll costs for the MIS
Department, estimated to have been $0.7 million from February 3, 1996 to January
30, 1999, of which $0.5 million is estimated to have been expensed in fiscal
1998. The cost of special purchases for the Year 2000 Project was approximately
$0.6 million, substantially all of which was incurred in fiscal 1998. Amounts
equal to the internal and external costs of the Year 2000 Project, however,
probably would have been spent on other software development projects, if the
Year 2000 Project had not been necessary. Other software development projects
deferred because of the Year 2000 Project probably would have improved the
Company's operational efficiency but management does not believe that any of the
deferred operational improvements would have been material to its operations.
<PAGE>
Budgeted MIS Department payroll costs and special purchases for the Year
2000 Project, including a voicemail system, in fiscal 1999 are not material in
relation to the Company's general, administrative and store operating expenses
in fiscal 1998. However, there is no assurance that unexpected additional costs
will not be incurred.
The inability of computerized systems and embedded technology in general to
accommodate dates after 1999 may cause disruptions in the United States and
abroad in the telecommunications, banking, credit card, transportation,
utilities and apparel manufacturing industries and in government services. If
such disruptions occur, they could have a material adverse effect on the entire
specialty apparel retail industry, including the Company. The Company has not
assessed industry-wide Year 2000 risks that are not unique to the Company's
operations. The Company's contingency plan for Year 2000 risks that might affect
the entire industry is to have multiple, geographically diverse vendors of each
major category of goods, to the extent feasible. The Company will address
industry-wide Year 2000 risks on an ad hoc basis as problems arise, principally
by shifting purchase orders to vendors that are less troubled by Year 2000
problems than their competitors. There is no assurance, however, that any
vendors will be Year 2000 compliant.
The Company intends to renovate and validate its Essential Systems to make
them Year 2000 compliant in all material respects, if testing shows that they
are not already compliant in all material respects. The Company also intends to
ensure that the heating and ventilation and lighting at its headquarters will be
Year 2000 compliant. There is no commercially viable alternative course of
action, so the Company will not develop contingency plans for prolonged failure
of its Essential Systems and lengthy constructive eviction from its
headquarters. Such Systems failure and constructive eviction would have a
material adverse effect on the Company's results of operations, net cash
provided from operating activities and financial condition.
The Company's contingency plan for Year 2000 risks at its national
distribution center is to replace as quickly as possible any essential equipment
that malfunctions because of
13
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
inability to accommodate dates after 1999. There is no assurance, however, that
Year 2000 compliant replacement equipment will be available.
The Company's contingency plan with respect to the unavailability of a
trade letter of credit for each of the Company's purchase orders is to deliver
blanket trade letters of credit to the Company's major foreign vendors, by
courier, if necessary. (A blanket trade letter of credit would finance all
Company purchase orders to be given to the vendor.)
The Company's contingency plan with respect to downtime in proprietary
credit card operations by the Credit Card Bank is to continue credit sales on
the Company's own account with its own systems until the Credit Card Bank
resumes operations or is replaced by another bank. While other banks would be
available to replace the Credit Card Bank, there is no assurance that any bank
will be Year 2000 compliant.
The Company has contingency plans with respect to heating and ventilation
and lighting controls in its stores that have malfunctioned because of an
inability to accommodate dates after 1999. For stores located in strip shopping
centers, the Company will arrange as quickly as possible for local maintenance
contractors to bypass manually any controls that have malfunctioned. There is no
assurance, however, that local maintenance contractors will have time available
to bypass controls that have malfunctioned. For stores located in malls and
downtown shopping districts, the Company will promptly notify landlords of
systems that have malfunctioned and request immediate restoration of service.
There is no assurance, however, that landlords will be able to restore service.
In the case of any unheated stores that have lights, the Company will also ask
store managers to keep the stores open if weather conditions permit.
There is no assurance that the Company's contingency plans will diminish
the possible adverse consequences of Year 2000 risks.
The Company believes that a reasonably likely worst case scenario resulting
from Year 2000 risks that are unique to its operations would be a decline in net
sales for the fourth quarter of fiscal 1999 having a material adverse effect on
the Company's results of operations and net cash provided from operating
activities for that quarter but not on the Company's financial condition (see,
"--Liquidity and Capital Resources"). While management does not believe that
such risks will have a material adverse effect on the Company's operations in
fiscal 2000, there is no assurance that such risks will not have such a material
adverse effect, regardless of the Company's remediation efforts and contingency
plans. Further, there is no assurance that Year 2000 risks that affect the
entire specialty apparel retail industry, and not just the Company, will not
have a material adverse effect on the Company's operations in fiscal 1999 and
fiscal 2000.
<PAGE>
Certain of the 18 preceding paragraphs contain forward-looking information
under the Reform Act, which is subject to the uncertainties and other risk
factors referred to under the caption "Future Results."
FUTURE RESULTS
Future results could differ materially from those currently anticipated by
the Company due to unforeseeable problems that might arise and possible (i)
miscalculation of fashion trends, (ii) shifting shopping patterns, both within
the specialty store sector and in other channels of distribution, (iii) extreme
or unseasonable weather conditions, (iv) disruptions in the telecommunications,
banking, credit card, transportation, utilities and apparel manufacturing
industries in the United States and abroad caused by the inability of their
computerized systems and embedded technology to accommodate dates after 1999,
(v) economic downturns, weakness in overall consumer demand, and variations in
the demand for women's fashion apparel, (vi) imposition by vendors, or their
third-party factors, of more onerous payment terms for domestic merchandise
purchases, (vii) acceleration in the rate of business failures and inventory
liquidations in the specialty store sector of the women's apparel industry, and
(viii) disruptions in the sourcing of merchandise abroad, including (a)
political instability and economic distress in South Asia, (b) China's claims to
sovereignty over Taiwan, (c) North Korea's claims to sovereignty over South
Korea, (d) exchange rate fluctuations, (e) trade sanctions or restrictions, (f)
changes in quota and duty regulations, (g) delays in shipping, (h) increased
costs of transportation or (i) disruptions in government services in the United
States and abroad caused by the inability of computerized systems and embedded
technology to accommodate dates after 1999, including delays in the issuance by
the United States Customs Service of clearances on imported merchandise.
14
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
United Retail Group, Inc.:
In our opinion the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and stockholders' equity
present fairly, in all material respects, the financial position of United
Retail Group, Inc. and its subsidiaries (the "Company") at January 31, 1998 and
January 30, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended January 30, 1999, in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, New York
February 12, 1999
15
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, January 30,
(dollars in thousands) 1998 1999
- ---------------------- ----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,122 $ 45,894
Accounts receivable 571 513
Inventory 38,003 45,564
Prepaid rents 3,999 3,946
Other prepaid expenses 2,607 2,429
-------- --------
Total current assets 76,302 98,346
Property and equipment, net 48,231 48,017
Deferred charges and other intangible assets,
net of accumulated amortization of
$1,784 and $2,130 7,058 6,746
Deferred income taxes 2,685 1,120
Other assets 451 363
-------- --------
Total assets $134,727 $154,592
======== ========
LIABILITIES
Current liabilities:
Current portion of distribution center financing $ 1,052 $ 1,136
Accounts payable, trade 12,596 14,208
Accrued expenses 18,779 22,659
-------- --------
Total current liabilities 32,427 38,003
Distribution center financing 10,308 9,172
Other long-term liabilities 6,948 6,270
-------- --------
Total liabilities 49,683 53,445
-------- --------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized
1,000,000; none issued
Common stock, $.001 par value; authorized
30,000,000; issued 12,680,375 and 13,762,900;
outstanding 12,190,375 and 13,089,588 13 14
Additional paid-in capital 78,259 77,458
Retained earnings 7,354 25,334
Treasury stock (490,000 and 673,312 shares),
at cost (582) (1,659)
-------- --------
Total stockholders' equity 85,044 101,147
-------- --------
Total liabilities and stockholders' equity $134,727 $154,592
======== ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
16
1998 annual report
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
February 1, January 31, January 30,
(dollars in thousands, except per share amounts) 1997 1998 1999
- ------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 363,074 $ 361,751 $ 378,562
Cost of goods sold, including buying and occupancy costs 289,421 278,078 275,811
----------- ----------- -----------
Gross profit 73,653 83,673 102,751
General, administrative and store operating expenses 80,063 80,469 79,221
----------- ----------- -----------
Operating (loss) income (6,410) 3,204 23,530
Non-operating income -- -- 3,113
Interest expense (income), net 413 154 (1,201)
----------- ----------- -----------
(Loss) income before income taxes (6,823) 3,050 27,844
(Benefit from) provision for income taxes (1,018) (828) 10,077
Provision for (benefit from) write-down (write-up) of the
compensation related deferred tax asset 342 (953) (213)
----------- ----------- -----------
Net (loss) income $ (6,147) $ 4,831 $ 17,980
=========== =========== ===========
Net (loss) income per share
Basic $ (0.50) $ 0.40 $ 1.38
=========== =========== ===========
Diluted $ (0.50) $ 0.37 $ 1.31
=========== =========== ===========
Weighted average number of shares outstanding
Basic 12,190,375 12,190,375 13,055,673
Common stock equivalents (stock options) -- 997,234 680,340
----------- ----------- -----------
Diluted 12,190,375 13,187,609 13,736,013
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
17
1998 annual report
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
February 1, January 31, January 30,
(dollars in thousands) 1997 1998 1999
- ---------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(6,147) $ 4,831 $17,980
Adjustments to reconcile net (loss) income to net cash
provided from operating activities:
Depreciation and amortization of property and equipment 9,983 8,540 7,027
Amortization of deferred charges and other intangible assets 225 287 353
Loss (gain) on disposal of assets 463 496 (30)
Gain on sale of investments -- (43) (3,113)
Compensation expense 77 -- 216
Provision for (benefit from) deferred income taxes 811 (2,685) 1,956
Deferred lease assumption revenue amortization (531) (655) (648)
Changes in operating assets and liabilities:
Accounts receivable 473 726 58
Income taxes receivable 2,490 229 --
Inventory (377) 2,775 (7,561)
Accounts payable and accrued expenses 656 223 6,108
Prepaid expenses 268 535 231
Income taxes payable -- 1,379 (469)
Other assets and liabilities (768) (606) (643)
------- ------- -------
Net Cash Provided from Operating Activities 7,623 16,032 21,465
------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures (4,602) (2,375) (7,003)
Deferred payment for property and equipment (896) 40 110
Proceeds from sale of investment and lease -- 410 3,345
------- ------- -------
Net Cash Used for Investing Activities (5,498) (1,925) (3,548)
------- ------- -------
FINANCING ACTIVITIES:
Issuance of loans to officers -- -- (2,113)
Exercise of stock options -- -- 20
Debt issuance costs -- (276) --
Repayments of long-term debt (901) (973) (1,052)
------- ------- -------
Net Cash Used in Financing Activities (901) (1,249) (3,145)
------- ------- -------
Net increase in cash and cash equivalents 1,224 12,858 14,772
Cash and cash equivalents, beginning of period 17,040 18,264 31,122
------- ------- -------
Cash and cash equivalents, end of period $18,264 $31,122 $45,894
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
18
1998 annual report
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Common Common
Stock Stock Additional Treasury Total
Shares $.001 Paid-in Retained Stock, Stockholders'
(shares and dollars in thousands) Outstanding Par Value Capital Earnings at Cost Equity
- --------------------------------- ----------- --------- ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996 12,190 $13 $78,182 $ 8,670 $ (582) $ 86,283
------ --- ------- ------- ------- --------
Compensation expense 77 77
Net loss (6,147) (6,147)
------ --- ------- ------- ------- --------
Balance, February 1, 1997 12,190 13 78,259 2,523 (582) 80,213
------ --- ------- ------- ------- --------
Net income 4,831 4,831
------ --- ------- ------- ------- --------
Balance, January 31, 1998 12,190 13 78,259 7,354 (582) 85,044
------ --- ------- ------- ------- --------
Exercise of stock options 1,083 1 1,096 1,097
Treasury stock (183) (1,077) (1,077)
Loans to officers (2,113) (2,113)
Compensation expense 216 216
Net income 17,980 17,980
------ --- ------- ------- ------- --------
Balance, January 30, 1999 13,090 $14 $77,458 $25,334 $(1,659) $101,147
====== === ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
19
1998 annual report
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
1. BASIS OF PRESENTATION
On July 17, 1989, Sizes Unlimited Acquisition Corporation was merged with
and into Lernmark, Inc. ("Lernmark"), a wholly-owned subsidiary of The Limited,
Inc. ("The Limited"), with Lernmark being the surviving corporation. Lernmark
was the holding company for Lerner Woman/Sizes Unlimited, a division of The
Limited. Lernmark subsequently changed its name to United Retail Group, Inc.
("United Retail"). United Retail is a leading nationwide specialty retailer of
private label large-size women's apparel and accessories featuring the AVENUE
brand operating approximately 500 stores throughout the United States. The
Limited, through an affiliate, initially retained a one-third interest in United
Retail through its acquisition of 2.5 million shares of United Retail's Common
Stock. For financial reporting purposes, the acquisition was accounted for using
the purchase method and, accordingly, the results of operations have been
included in the financial statements from April 30, 1989, which is considered to
be the effective date. The total cost of the acquisition, which includes costs
directly related to the acquisition, was allocated among the net assets acquired
on the basis of the respective fair values of such net assets adjusted for the
one-third interest initially retained by The Limited.
The consolidated financial statements include the accounts of United Retail
and its subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are designated in the financial statements and notes by the
calendar year in which the fiscal year commences. Fiscal 1996, fiscal 1997 and
fiscal 1998 consisted of 52 weeks and ended on February 1, 1997, January 31,
1998 and January 30, 1999, respectively.
Net Retail Sales and Revenues
Sales are net of returns and exclude sales tax. Revenues include sales from
all stores operating during the period.
Marketing Costs
The Company expenses marketing costs when the event occurs. Marketing
expense, included in cost of goods sold in the accompanying consolidated
statements of operations, was $6.5 million, $6.7 million, and $9.5 million in
fiscal 1996, 1997 and 1998, respectively.
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include obligations of financial institutions
with original maturities of less than 90 days.
Inventory
Inventory is stated at the lower of cost or market utilizing the retail
method.
Property and Depreciation
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service lives of 40
years for the distribution center building, the life of the lease for leasehold
improvements, furniture and fixtures, 20 years for material handling equipment
and 5 years for other property. The cost of assets sold or retired and the
related accumulated depreciation or amortization are removed from the accounts
with any resulting gain or loss included in net income. Maintenance, repairs and
minor renewals are charged to expense as incurred. Renewals and betterments
which extend service lives are capitalized.
Computation of Income (Loss) Per Common Share
At the end of fiscal 1997, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." Basic per share
data has been computed based on the weighted average number of shares of common
stock outstanding. Diluted per share data has been computed on the basic plus
the dilution of stock options. Shares issuable upon the exercise of stock
options have not been included in the diluted earnings per share computation for
fiscal 1996 because the effect would be anti-dilutive.
Deferred Charges and Other Intangible Assets
Certain loan facility fees and other costs of obtaining financing are being
amortized on a straight-line basis over the term of the related loan.
Goodwill, as of January 31, 1998 and January 30, 1999, of $6.4 million and
$6.2 million, respectively, represents the excess cost over the fair market
value of the net assets of the businesses acquired. Goodwill is being amortized
over a 40-year period using the straight-line method.
The Company acquired certain trademarks during fiscal 1996 and fiscal 1998
in the amounts of $410,000 and $39,000, respectively. These amounts are being
amortized over 10 and 15 year periods using the straight-line method.
20
1998 ANNUAL REPORT
<PAGE>
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of deferred charges
and other intangible assets may warrant revision or that the remaining balance
may not be recoverable. When factors indicate that the asset should be evaluated
for possible impairment, the Company uses an estimate of the undiscounted net
cash flows over the remaining life of the asset in measuring whether the asset
is recoverable.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Store Opening Costs
All costs associated with the opening of new stores were expensed as
incurred.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of (dollars in thousands):
January 31, January 30,
1998 1999
- --------------------------------------------------------------------------------
Land $ 2,176 $ 2,176
Buildings 10,574 10,574
Furniture, fixtures and equipment 58,947 59,817
Leasehold improvements 26,905 26,826
Beneficial leaseholds 9,811 8,560
Construction in progress 651 2,378
------- -------
109,064 110,331
Accumulated depreciation and
amortization, including beneficial
leaseholds of $8,683 and $7,586 (60,833) (62,314)
------- -------
Property and equipment, net $48,231 $48,017
------- -------
<PAGE>
4. ACCRUED EXPENSES
Accrued expenses consist of (dollars in thousands):
January 31, January 30,
1998 1999
- --------------------------------------------------------------------------------
Occupancy expenses $3,514 $3,907
Payroll related expenses 4,404 4,771
Insurance payable 3,140 4,684
Sales taxes payable 1,208 1,149
Other 6,513 8,148
------- -------
$18,779 $22,659
======= =======
5. LEASED FACILITIES AND COMMITMENTS
Annual store rent is composed of two components, a fixed minimum amount and
a contingent rent (percentage rent) based upon a percentage of sales exceeding a
stipulated amount. In certain leases, the Company and the landlord have agreed
to replace the fixed minimum amount with a rental based on a percentage of
sales. Store lease terms generally require additional payments to the landlord
covering taxes, maintenance and certain other expenses.
Rent expense was as follows (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Store rent
Fixed minimum $40,546 $39,423 $36,986
Percentage (26) 32 77
------- ------- -------
Total store rent 40,520 39,455 37,063
Equipment and other 424 411 360
------- ------- -------
Total rent expense $40,944 $39,866 $37,423
======= ======= =======
</TABLE>
At January 30, 1999, the Company was committed under store leases with
initial terms ranging from 1 to 20 years and with varying renewal options. At
February 1, 1997, January 31, 1998 and January 30, 1999, accrued rent expense
amounted to $5.7 million, $5.7 million and $5.8 million, respectively, of which
$5.5 million, $5.3 million and $5.1 million, respectively, is included in "Other
long-term liabilities."
21
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
A summary of approximate non-cancelable lease commitments under leases
follows (dollars in thousands) for the fiscal years:
1999 $ 30,960
2000 27,193
2001 24,258
2002 22,091
2003 19,191
Thereafter 53,003
--------
Total minimum obligations $176,696
========
6. LONG-TERM DEBT
Long-term debt consists of (dollars in thousands):
January 31, January 30,
1998 1999
- --------------------------------------------------------------------------------
Distribution center financing:
7.30% Note due 2003 $ 4,546 $ 3,873
8.64% Mortgage due 2009 6,814 6,435
-------- -------
Total distribution center financing $11,360 $10,308
Less current maturities 1,052 1,136
-------- -------
Long-term portion of distribution
center financing $10,308 $ 9,172
======= =======
In 1994, the Company executed a fifteen-year $8.0 million loan bearing
interest at 8.64%. Interest and principal are payable in equal monthly
installments beginning May 1, 1994. The loan is collateralized by a mortgage on
the national distribution center owned by the Company in Troy, Ohio.
In 1993, the Company executed a ten-year $7.0 million note bearing interest
at 7.3%. Interest and principal are payable in equal monthly installments
beginning November 1993. The note is collateralized by the material handling
equipment in the distribution center.
The Company and United Retail Incorporated, its subsidiary (collectively,
the "Companies"), are parties to a Financing Agreement, dated August 15, 1997,
as amended September 15, 1997 (the "Financing Agreement"), with The CIT
Group/Business Credit, Inc. ("CIT"). The Financing Agreement provides a
revolving line of credit for a term of three years in the aggregate amount of
$40 million for the Companies to support trade letters of credit and standby
letters of credit and to finance loans.
The Companies are required to maintain unused at all times combined
availability of at least $5 million. Except for the maintenance of a minimum
availability of $5 million and a limit on capital expenditures, the Financing
Agreement does not contain any financial covenants.
<PAGE>
In the event a loan is made to one of the Companies, interest is payable
monthly based on a 360-day year at the prime rate or at two percent plus the
LIBOR rate on a per annum basis, at the borrowers option.
The line of credit is secured by a security interest in inventory and
proceeds and by the balance on deposit from time to time in an account that has
been pledged to the lenders.
At January 30, 1999, the combined availability of the Companies was $13.0
million, no balance was in the pledged account, the aggregate outstanding amount
of letters of credit arranged by CIT was $24.8 million and no loan had been
drawn down. The Company's cash on hand was unrestricted.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents and trade payables
approximate fair value because of the short-term maturity of these instruments.
The fair value of long-term debt, including current portion, is estimated to be
$11.5 million and $10.6 million for fiscal 1997 and fiscal 1998, respectively,
based on the current rates quoted to the Company for debt of the same or similar
issues.
8. INCOME TAXES
The Company provides for income taxes in accordance with SFAS No.109,
"Accounting for Income Taxes." This statement requires the use of the liability
method of accounting for income taxes. Under the liability method, deferred
taxes are determined based on the difference between the financial reporting and
tax bases of assets and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
The (benefit from) provision for income taxes consists of (dollars in
thousands):
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Currently payable:
Federal $(1,584) $ 722 $7,350
State 97 182 558
------- ------- -------
(1,487) 904 7,908
------- ------- -------
Deferred:
Federal 696 (2,419) 1,899
State 115 (266) 57
------- ------- -------
811 (2,685) 1,956
------- ------- -------
$ (676) $(1,781) $9,864
======= ======= =======
22
1998 ANNUAL REPORT
<PAGE>
Reconciliation of the (benefit from) provision for income taxes from the
U.S. Federal statutory rate to the Company's effective rate is as follows:
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Statutory Federal income
tax rate (34.0)% 34.0% 35.0%
State income taxes,
net of Federal benefit 0.4 3.9 1.5
Goodwill amortization 1.0 2.3 0.3
Other (1.0) 0.7 (0.6)
----- ----- ----
Sub-total (33.6) 40.9 36.2
Charitable contribution benefit (3.0) 0.0 0.0
Write-down (write-up) of the
compensation related
deferred tax asset 5.0 (31.3) (0.8)
Valuation allowance 21.7 (68.0) 0.0
----- ----- ----
(9.9)% (58.4)% 35.4%
===== ===== ====
The Company's net deferred tax asset reflects the tax impact of temporary
differences. The components of the net deferred tax asset are as follows:
January 31, January 30,
1998 1999
- --------------------------------------------------------------------------------
Assets:
Inventory $ 184 $ 658
Accruals and reserves 1,820 2,591
Compensation 1,839 308
Credit carryforwards 1,479 0
------ ------
5,322 3,557
------ ------
Liabilities:
Depreciation 2,637 2,437
------ ------
Net deferred tax asset $2,685 $1,120
====== ======
Future realization of the tax benefits attributable to these existing
deductible temporary differences ultimately depends on the existence of
sufficient taxable income within the carryback and/or carryforward period
available under the tax law at the time of the tax deduction. Based on
management's assessment, it is more likely than not that the net deferred tax
asset will be realized through future taxable earnings or available carrybacks.
Included in the fiscal 1996, fiscal 1997 and fiscal 1998 income tax expense
(benefit) is a $0.3 million write-down, a $(1.0 million) write-up, and a $(0.2
million) write-up of the compensation related deferred tax asset, respectively,
<PAGE>
which had been recorded in fiscal 1992 based upon the initial public offering
price of $15 per share. On February 13, 1998 underlying stock options relating
to $1.822 million of the compensation related deferred tax asset were exercised,
which resulted in an additional $0.2 million tax benefit in fiscal 1998.
At January 31, 1998 and January 30, 1999, the Company had pre-acquisition
net operating loss carryforwards aggregating approximately $0.5 million and $0.4
million, respectively, available to reduce future taxable income in certain
states, expiring through 2004.
9. RELATED PARTY TRANSACTIONS
The Company shares certain store locations with subsidiaries of The Limited
and is charged by The Limited for occupancy costs. The impact on the statements
of operations of these occupancy charges was as follows (dollars in thousands):
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Cost of goods sold, including
buying and occupancy costs $367 $123 $121
An affiliate of the Chairman of the Board of the Company, American
Licensing Group, L.P. ("ALGLP"), (in which he holds an 80% interest) provides
management and administrative services to a subsidiary of The Limited, ALG,
Inc., for a base annual fee and profit sharing fee, the profit sharing fee being
the lower of one-third of net profits or $150,000 per annum. During fiscal 1996,
fiscal 1997 and fiscal 1998, the aforementioned affiliate was paid $105,000,
$160,000 and $62,000, respectively, by that subsidiary of The Limited.
During fiscal 1996, fiscal 1997, and fiscal 1998, the Company incurred
expenses under certain Sublicensing Agreements with respect to trademarks to
ALG, Inc. in the amounts of $416,000, $395,000, and $361,000, respectively, and
to ALGLP in the amounts of $593,000, $599,000 and $442,000, respectively. ALG,
Inc. and ALGLP, in turn, incurred expenses with respect to the trademarks under
certain Licensing Agreements with the owner of the trademarks.
In fiscal 1994 and fiscal 1996, the Company made investments in a vendor
from which the Company purchased apparel. The investments totaled $12,500 for
approximately 22% of the outstanding common stock of the vendor and an unsecured
loan facility in the amount of $400,000, which expired on January 31, 1997.
Purchases of apparel during fiscal 1996 and fiscal 1997 totaled $2.7 million and
$0.6 million,
23
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
respectively. In fiscal 1998, the Company realized a capital gain of $3.1
million on the sale of its shares of common stock back to the vendor. The gain
is reported as non-operating income.
During fiscal 1995, the Company made an investment in one of the purchasing
agents that acted on the Company's behalf in contracting for apparel with
foreign vendors. In fiscal 1997, the Company sold its entire investment in the
purchasing agent at a purchase price of $505,000, resulting in a gain of
$43,000.
10. RETIREMENT PLAN
The Company maintains a defined contribution pension plan. Generally, an
employee is eligible to participate in the plan if the employee has completed
one year of full-time continuous service. The Company makes a 50% match of a
portion of employee savings contributions.
The Company also maintains a non-qualified defined contribution pension
plan, known as the Supplemental Retirement Savings Plan. The Company makes a 50%
match of a portion of employee savings contributions for those associates whose
contributions to the qualified plan are limited by IRS regulations, as well as
retirement contributions for certain grandfathered associates equal to 6% of
those associates compensation.
Pension costs for all benefits charged to income during fiscal 1996, fiscal
1997 and fiscal 1998 approximated $335,000, $278,000 and $522,000, respectively.
11. STOCKHOLDERS EQUITY
Coincident with the completion of its initial public offering on March 17,
1992, the Company's certificate of incorporation was amended to provide for only
one class of Common Stock, par value $.001 per share, with 30 million shares
authorized. The Company also authorized 1,000,000 shares of Preferred Stock, par
value $.001 per share, to be issued from time to time, in one or more classes or
series, each such class or series to have such preferences, voting powers,
qualifications and special or relative rights and privileges as shall be
determined by the Board of Directors in a resolution or resolutions providing
for the issue of such class or series of Preferred Stock. The Company has paid
no cash dividends and expects to retain any future earnings for expansion of its
business rather than to pay cash dividends in the foreseeable future.
Additionally, a loan agreement to which the Company is a party imposes
restrictions on the payment of dividends.
<PAGE>
12. Stock Options
Under the 1989 Management Stock Option Plan (the "1989 Plan") established
on July 17, 1989, options to purchase 1,078,125 shares and 50,000 shares at
exercise prices of $1.00 and $5.00 per share, respectively, were granted, of
which 50,000 options were outstanding as of January 30, 1999. All options
granted under the 1989 Plan became vested and exercisable upon completion of the
Company's initial public offering and the payment of certain obligations to The
Limited Inc. On February 13, 1998, 1,078,125 of the 1989 Plan options were
exercised by management.
Under 1991 Stock Option Agreements between the Company and certain
executive officers (the "1991 Options"), the Board of Directors approved and
granted, on July 24, 1991, options to purchase 300,000 shares at an exercise
price of $5.00 per share which were outstanding as of January 30, 1999. These
options became vested and exercisable upon completion of the initial public
offering and the payment of certain obligations to The Limited Inc.
The options outstanding under the 1989 Plan and the 1991 Options expire on
December 31, 1999. The voluntary resignation of an optionee does not limit the
above options' expiration date or otherwise affect the exercisability of these
options in any way.
The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was
established in June 1990 and terminated in May 1996. Exercise prices were not
less than fair market value of the Company's stock on the date of grant. The
options granted under the 1990 Plan expire between seven and ten years after the
date of grant. As of February 1, 1997, January 31, 1998 and January 30, 1999,
outstanding options to purchase 658,000, 619,300 and 615,300 shares,
respectively, were granted under the Plan at average exercise prices of $6.78,
$6.89 and $6.90 per share, respectively. The options granted vest beginning one
year from the date of grant, and vest fully after four or five years, subject to
acceleration under certain circumstances. Options were granted, and the 1990
Plan is administered, by the Compensation Committee of the Board of Directors
composed of non-employees of the Company. The Company recorded compensation
expense pursuant to the 1990 Plan in fiscal 1996 of $77,000.
24
1998 ANNUAL REPORT
<PAGE>
A summary of stock option transactions under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of period 665,000 658,000 619,300
Options granted (a) 99,000 0 0
Options exercised 0 0 3,200
Options expired 0 22,500 0
Options canceled (a) 106,000 16,200 800
Options outstanding at end of period 658,000 619,300 615,300
Options available for grant at end of period 0 0 0
Options vested and outstanding at end of period 102,895 198,783 323,570
Options exercisable at end of period and having an
exercise price that is less than the respective
year end common stock closing price 0 86,500 305,570
Range of option prices per share for outstanding
options $4.125-$26.75 $4.125-$26.75 $4.125-$26.75
</TABLE>
(a) Options granted and options canceled do not include the reissuance in fiscal
1996 of 271,500 options at an exercise price of $5.125 per share.
The restated 1996 Stock Option Plan (as amended, the "1996 Plan") was
established in May 1996. Exercise prices are required by the 1996 Plan to be not
less than fair market value of the Company's stock on the date of grant. The
total number of shares that may be optioned under the 1996 Plan is 440,000
shares. The options granted under the 1996 Plan expire ten years after the date
of grant. As of February 1, 1997, January 31, 1998, and January 30, 1999,
outstanding options to purchase 45,000, 163,000 and 373,300 shares have been
granted under the Plan at an average exercise price of $3.00, $3.22 and $5.24
per share. The options granted vest beginning one year from the date of grant,
and vest fully after five years, subject to acceleration under certain
circumstances. Employees of the Company whose judgment, initiative and efforts
may be expected to contribute materially to the successful performance of the
Company are eligible to receive options. Public Directors receive annual grants
of options under the 1996 Plan. Options are granted, and the 1996 Plan is
administered, by the Compensation Committee of the Board of Directors composed
of non-employees of the Company.
A summary of stock option transactions under the 1996 Plan follows:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of period 0 45,000 163,000
Options granted 45,000 145,000 253,500
Options exercised 0 0 1,200
Options canceled 0 27,000 42,000
Options outstanding at end of period 45,000 163,000 373,300
Options available for grant at end of period 395,000 277,000 65,500
Options vested and outstanding at end of period 0 4,000 30,900
Options exercisable at end of period and having an
exercise price that is less than the respective year
end common stock closing price 0 4,000 30,900
Range of option prices per share for outstanding
options $3.00 $2.625-$5.625 $2.625-$11.50
</TABLE>
In May 1998, the Company issued non-qualified stock options to purchase a
total of 300,000 shares at $6.3125 per share (the fair market value on the date
of Board action) to two officers of the Company. These options expire ten years
after the date of grant. The options vest beginning one year from the date of
grant and vest fully after five years, subject to acceleration under certain
circumstances.
The options described in the preceding paragraph were approved by the
Company's stockholders.
The Company records compensation expense for all stock-based compensation
plans using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No.
25, compensation expense, if any, is measured as the excess of the market price
of the stock over the exercise price on the measurement date. In May 1998, the
Company issued non-qualified stock options whose market price at the date of
grant exceeded the exercise price, which equalled the market price on the date
of Board action. In accordance with Opinion No. 25, compensation expense will be
recorded ratably over the five-year vesting period of the options. The Company
recognized $216,000 of related compensation expense in fiscal 1998.
25
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which
encourages companies to recognize expense for stock-based awards based on their
estimated value on the date of grant. SFAS No. 123 did not require companies to
change their existing accounting for stock-based awards. The Company continues
to account for stock-based compensation plans using the intrinsic value method,
and has supplementally disclosed pro forma information required by SFAS No. 123.
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Net (loss) income--
as reported $(6,147) $4,831 $17,980
Net (loss) income--
pro forma $(6,416) $4,532 $17,483
(Loss) earnings per share--
as reported $ (0.50) $ 0.37 $ 1.31
(Loss) earnings per share--
pro forma $ (0.53) $ 0.34 $ 1.27
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price volatility 50.00% 50.00% 50.00%
Risk-free interest rate 5.72% 5.39% 4.55%
Expected life of options 5 years 5 years 5 years
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require input
of highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<PAGE>
13. ADVANCES TO OFFICERS
Advances were made on February 13, 1998 in the amount of $1.6 million to
Raphael Benaroya, the Company's Chairman of the Board, President and Chief
Executive Officer, and $0.2 million to George R. Remeta, the Company's Vice
Chairman and Chief Financial Officer. The purpose of the advances was to finance
payment of income taxes incurred in connection with their exercise of stock
options. Interest is payable annually in cash at the prime rate. The advances
have a term of four years subject to acceleration under certain circumstances
and to call by the Company after two years with respect to half of the principal
amount. Payment of the advances is secured by a pledge of the shares of the
Company's Common Stock issued upon the option exercises in the amount of 777,925
shares issued to Mr. Benaroya and 116,888 shares issued to Mr. Remeta. Each
advance is a full recourse obligation of the borrower.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash flow from operating activities reflects cash payments for interest
and income taxes as follows (dollars in thousands):
Fiscal Fiscal Fiscal
1996 1997 1998
- --------------------------------------------------------------------------------
Interest expense (income), net
per statements of income $ 413 $ 154 $(1,201)
Non-cash interest
income (expense) 50 (63) 72
---------------------------------
Net cash interest expense (income),
including interest income of
$924, $984 and $2,235 $ 463 $ 91 $(1,273)
---------------------------------
Income taxes (refunded) paid $(3,990) $ 531 $ 8,376
---------------------------------
Financing activities in fiscal 1998 include the non-cash exercise of
1,076,955 stock options, with the exercise price paid by exchanging common stock
held equal to the cash payment due.
15. CONTINGENCY FOOTNOTE
The Company is involved in legal actions and claims arising in the ordinary
course of business. Management believes (based on advice of legal counsel) that
such litigation and claims will not have a material adverse effect on the
Company's financial condition or results of operations.
26
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
Jan. 28, Feb. 3, Feb. 1, Jan. 31, Jan. 30,
(shares and dollars in thousands, except per share data) 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $357,684 $369,173 $363,074 $361,751 $378,562
Cost of goods sold, including
buying and occupancy costs 276,038 292,790 289,421 278,078 275,811
Gross profit 81,646 76,383 73,653 83,673 102,751
General, administrative and
store operating expenses 74,986 80,170 80,063 80,469 79,221
Operating income (loss) 6,660 (3,787) (6,410) 3,204 23,530
Non-operating income 0 0 0 0 3,113
Interest expense (income), net 491 (119) 413 154 (1,201)
Income (loss) before taxes 6,169 (3,668) (6,823) 3,050 27,844
Provision for (benefit from) income taxes 2,276 (957) (1,018) (828) 10,077
Provision for (benefit from) write-down (write-up)
of the compensation related deferred tax asset 917 1,928 342 (953) (213)
Net income (loss) 2,976 (4,639) (6,147) 4,831 17,980
Net income (loss) per common share:
Basic $ .24 $ (.38) $ (.50) $ .40 $ 1.38
Diluted $ .22 $ (.38) $ (.50) $ .37 $ 1.31
Weighted average number of common
shares outstanding:
Basic 12,169 12,190 12,190 12,190 13,056
Diluted 13,313 12,190 12,190 13,187 13,736
BALANCE SHEET DATA (at period end):
Working capital $ 37,614 $ 38,394 $ 36,941 $ 43,875 $ 60,343
Total assets 138,434 139,033 130,347 134,727 154,592
Long-term debt 0 0 0 0 0
Distribution center financing 13,233 12,333 11,355 10,308 9,172
Total stockholders equity 90,672 86,283 80,213 85,044 101,147
</TABLE>
The Selected Financial Data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Company's Consolidated Financial Statements, including the notes
thereto. The data for the periods indicated has been derived from the Company's
Consolidated Financial Statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report for the three
fiscal years ended January 30, 1999 appears elsewhere in this Annual Report.
27
1998 ANNUAL REPORT
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
United Retail Group Corporate Officers & Directors
Raphael Benaroya
Chairman of the Board, President
and Chief Executive Officer*
George R. Remeta
Vice Chairman - Chief Financial
Officer, Secretary and Director*
Kenneth P. Carroll
Senior Vice President -
General Counsel*
Ellen Demaio
Senior Vice President - Merchandise
Raymond W. Brown
Vice President - Associate Services
Kevin Burke
Vice President - Footwear
Carrie Cline-Tunick
Vice President - Product Design
and Development
Julie L. Daly
Vice President - Strategic Planning
Kent Frauenberger
Vice President - Logistics
Jon Grossman
Vice President - Finance*
Alan R. Jones
Vice President - Real Estate
<PAGE>
Charles E. Naff
Vice President - Sales
Bradley Orloff
Vice President - Marketing
Robert Portante
Vice President - MIS
Fredric E. Stern
Vice President - Controller
Joseph A. Alutto
A Director of the Company, is the
Dean of Max M. Fisher School of
Business at Ohio State University
Russell Berrie
A Director of the Company, is the
Chairman of the Board and Chief
Executive Officer of Russ Berrie and
Company, Inc., an international toy
manufacturer
Joseph Ciechanover
A Director of the Company, is the
Chairman of the Board of El Al
Israel Airlines Ltd.
Ilan Kaufthal
A Director of the Company,
is a Vice Chairman of
Schroder & Co., Inc.,
an investment banking firm
Vincent P. Langone
A Director of the Company,
is Chief Executive Officer
of Formica Corporation,
a manufacturer of Formica(R) brand
laminate
Richard W. Rubenstein
A Director of the Company, is a
Partner of Squire, Sanders &
Dempsey, a law firm
*An officer of the parent holding company
rather than the operating subsidiary, United
Retail Incorporated
or United Retail Logistics Operations
Incorporated.
<PAGE>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
Shareholder Information
The Company's Annual Report on Form 10-K, including financial statement
schedules, filed with the Securities and Exchange Commission ("SEC"), is
available without charge upon written request to Kenneth P. Carroll, Esq.,
Senior Vice President - General Counsel, at the Company's headquarters. Mail
should be addressed to 365 West Passaic Street, Rochelle Park, New Jersey 07662;
E-mail should be addressed to [email protected]. The Annual Report on
Form 10-K is also available through the SEC at http://www.sec.gov.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"URGI." The last reported sale price of the Common Stock on the Nasdaq National
Market on April 13, 1999 was 10 1/2. The following table sets forth the reported
high and low sale prices of the Common Stock as reported by Nasdaq for each
calendar quarter indicated.
High Low High Low
- --------------------------------------------------------------------------------
1997 1998
--------------------------------------------------------
First Quarter $4 3/4 $2 7/8 $6 3/4 $3 5/8
Second Quarter $4 1/8 $2 1/2 $16 13/16 $3 5/16
Third Quarter $3 3/16 $2 15/16 $16 1/8 $7 5/8
Fourth Quarter $6 1/8 $2 5/8 $12 1/8 $6 7/8
The Company has not paid dividends on its Common Stock and has no present
intention of doing so. Also, the Financing Agreement between the Company, United
Retail Incorporated and The CIT Group/Business Credit, Inc., dated August 15,
1997, as amended, forbids the payment of dividends.
The Company's transfer agent and registrar is Continental Stock Transfer and
Trust Co., 2 Broadway, New York, New York 10004.
At March 3, 1999, there were 409 record owners of Common Stock.
This report contains certain forward-looking statements concerning the Company's
operations and performance. Such forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those currently anticipated by the Company. Such factors may
include, but are not limited to, possible miscalculation of fashion trends,
shifting shopping patterns, extreme or unseasonable weather conditions, economic
downturns, and weakness in overall consumer demand, as well as competitive
pressures. These, and other factors, are detailed in the Company's filings with
the SEC, including the Company's Annual Report on Form 10-K.
UNITED RETAIL GROUP, INC.
<PAGE>
EXHIBIT NO. 21
The direct and indirect active subsidiaries of the registrant are:
United Retail Holding Corporation
United Retail Incorporated
United Retail Logistics Operations Incorporated
United Retail International, Ltd.
United Distribution Services, Inc.
The Avenue, Inc.
Cloudwalkers, Inc.
All the registrant's subsidiaries are organized under the laws of the
State of Delaware except United Retail International, Ltd., which is organized
under the laws of the Cayman Islands.
<PAGE>
EXHIBIT NO. 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
United Retail Group, Inc. and Subsidiaries (the "Company") on Forms S-8 (File
Nos. 333-47407, 033-48500, 033-48501, 333-64643, 033-67288) of our report dated
February 12, 1999, on our audits of the consolidated financial statements of
the Company as of January 30, 1999 and January 31, 1998 and for each of the
three fiscal years ended January 30, 1999, which report is incorporated by
reference in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
April 21, 1999
<PAGE>
EXHIBIT NO. 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The undersigned hereby consents to the inclusion as an exhibit to this Annual
Report on Form 10-K for the year ended January 30, 1999 of our report dated
February 24, 1999, on our audits of the statements of net assets available for
benefits of the United Retail Group Retirement Savings Plan (the "Plan") as of
December 31, 1998 and 1997, and the related statements of changes in net assets
available for benefits for the years then ended.
The undersigned also hereby consents to the incorporation of such report by
reference in the Registration Statement on Form S-8 of United Retail Group, Inc.
(The "Company") with respect to the Plan and its investment in shares of common
stock of the Company.
/s/ Ary, Earman and Roepcke
------------------------
ARY, EARMAN AND ROEPCKE
Columbus, Ohio
April 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 45,894
<SECURITIES> 0
<RECEIVABLES> 513
<ALLOWANCES> 0
<INVENTORY> 45,564
<CURRENT-ASSETS> 98,346
<PP&E> 110,331
<DEPRECIATION> 62,314
<TOTAL-ASSETS> 154,592
<CURRENT-LIABILITIES> 38,003
<BONDS> 9,172
0
0
<COMMON> 14
<OTHER-SE> 101,133
<TOTAL-LIABILITY-AND-EQUITY> 154,592
<SALES> 378,562
<TOTAL-REVENUES> 378,562
<CGS> 275,811
<TOTAL-COSTS> 275,811
<OTHER-EXPENSES> 79,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,201)
<INCOME-PRETAX> 27,844
<INCOME-TAX> 9,864
<INCOME-CONTINUING> 17,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,980
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.31
</TABLE>
