FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _____________________
Commission file number 00019774
United Retail Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 51-0303670
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
365 West Passaic Street, Rochelle Park, NJ 07662
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 845-0880
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 (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 X NO _______
APPLICABLE ONLY TO ISSUERS 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 ISSUERS:
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date.
As of July 31, 1999, 13,142,488 shares of the registrant's common
stock, $.001 par value per share, were outstanding.
Item 1. FINANCIAL STATEMENTS
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
July 31, January 30, August 1,
1999 1999 1998
----------- ----------- -----------
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $57,347 $45,894 $50,641
Accounts receivable 2,316 513 766
Inventory 40,518 45,564 38,040
Prepaid rents 3,881 3,946 3,987
Other prepaid expenses 3,020 2,429 2,442
----------- ----------- -----------
Total current assets 107,082 98,346 95,876
Property and equipment, net 55,206 48,017 46,146
Deferred charges and other
intangible assets, net of
accumulated amortization of
$2,311, $2,130 and $1,971 6,883 6,746 6,866
Deferred income taxes 893 1,120 1,172
Other assets 441 363 363
----------- ----------- -----------
Total assets 170,505 154,592 150,423
=========== =========== ===========
LIABILITIES
Current liabilities:
Current portion of distribution
center financing $1,181 $1,136 $1,093
Accounts payable, trade 15,495 14,208 12,107
Accrued expenses 26,708 22,659 25,960
----------- ----------- -----------
Total current liabilities 43,384 38,003 39,160
Distribution center financing 8,570 9,172 9,751
Other long-term liabilities 6,090 6,270 6,625
----------- ----------- -----------
Total liabilities 58,044 53,445 55,536
----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
authorized 1,000,000; none
issued
Common stock, $.001 par value; 14 14 14
authorized 30,000,000; issued
(13,812,200, 13,762,900 and
13,760,300); outstanding
(13,138,888, 13,089,588,
and 13,086,988)
Additional paid-in capital 77,662 77,458 77,370
Retained earnings 36,444 25,334 19,162
Treasury stock (673,312, 673,312,
and 673,312 shares) at cost (1,659) (1,659) (1,659)
----------- ----------- -----------
Total stockholders' equity 112,461 101,147 94,887
----------- ----------- -----------
Total liabilities and
stockholders' equity $170,505 $154,592 $150,423
=========== =========== ===========
The accompanying notes are an integral part of the Consolidated
Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------- ----------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------- --------- --------- ---------
Net sales $98,913 $102,175 $195,606 $197,118
Cost of goods sold, including
buying and occupancy cost 70,179 73,419 139,898 141,242
---------- ---------- ---------- ----------
Gross profit 28,734 28,756 55,708 55,876
General, administrative and
store operating expenses 19,934 20,947 38,941 40,854
---------- ---------- ---------- ----------
Operating income 8,800 7,809 16,767 15,022
Non-operating income - 3,113 - 3,113
Interest income, net (499) (355) (846) (495)
---------- ---------- ---------- ----------
Income before income taxes 9,299 11,277 17,613 18,630
Provision for income taxes 3,448 4,039 6,503 6,822
---------- ---------- ---------- ----------
Net income $ 5,851 $ 7,238 $11,110 $11,808
========== ========== ========== ==========
Net income per share
Basic $0.45 $0.55 $0.85 $0.91
========== ========== ========== ==========
Diluted $0.42 $0.52 $0.80 $0.85
========== ========== ========== ==========
Weighted average number of
shares outstanding
Basic 13,125,718 13,086,645 13,109,504 13,022,015
Common stock equivalents
(stock options) 880,208 873,867 796,691 842,654
---------- ---------- ---------- ----------
Diluted 14,005,926 13,960,512 13,906,195 13,864,669
========== ========== ========== ==========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
Twenty-Six Weeks Ended
----------------------
July 31, August 1,
1999 1998
Cash Flows From Operating Activities: -------- ---------
Net income $11,110 $11,808
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization of property
and equipment 3,329 3,742
Amortization of deferred charges and other
intangible assets 182 178
Loss (gain) on disposal of assets 276 (75)
Gain on sale of investments - (3,113)
Compensation expense 156 61
Benefit from deferred income taxes 227 1,513
Deferred lease assumption revenue amortization (221) (425)
Changes in operating assets and liabilities:
Accounts receivable (1,803) (195)
Income taxes 2,036 3,379
Inventory 5,046 (37)
Accounts payable and accrued expenses 3,003 3,816
Prepaid expenses (526) (177)
Other (676) (233)
--------- ---------
Net Cash Provided From Operating Activities 22,139 20,596
--------- ---------
Investing Activities:
Capital expenditures (10,794) (1,802)
Deferred payment for property and equipment 518 (78)
Proceeds from sale of investment and lease - 3,345
--------- ---------
Net Cash (Used For) Provided From Investing
Activities (10,276) 1,465
--------- ---------
Financing Activities:
Repayments of long-term debt (557) (516)
Issuance of loans to officers (82) (2,033)
Exercise of stock options 229 7
--------- ---------
Net Cash Used In Financing Activities (410) (2,542)
--------- ---------
Net increase in cash and cash equivalents 11,453 19,519
Cash and cash equivalents, beginning of period 45,894 31,122
--------- ---------
Cash and cash equivalents, end of period $57,347 50,641
========= =========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
UNITED RETAIL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
United Retail Group, Inc. and its subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated.
The consolidated financial statements as of and for the thirteen
and twenty-six weeks ended July 31, 1999 and August 1, 1998 are unaudited
and are presented pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, the consolidated financial statements
should be read in conjunction with the financial statement disclosures
contained in the Company's 1998 Annual Report and 1998 Form 10-K. In the
opinion of management, the accompanying consolidated financial statements
reflect all adjustments necessary (which are of a normal recurring nature)
to present fairly the financial position and results of operations and cash
flows for the interim periods, but are not necessarily indicative of the
results of operations for a full fiscal year.
2. NET INCOME PER 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.
Options to purchase approximately 33,000 and 53,000 shares of
common stock for the thirteen and twenty-six weeks ended July 31, 1999 at
prices ranging from $11.63 to $26.75 per share and approximately 15,000 and
53,000 shares for the thirteen and twenty-six weeks ended August 1, 1998 at
prices ranging from $11.50 to $26.75 per share were outstanding but were not
included in the computation of diluted net income per share because the
exercise prices were greater than the average market price of the common
shares.
3. FINANCING ARRANGEMENTS
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 (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, subject to availability of credit according to a borrowing
base computation. 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.
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 significant financial covenants.
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 borrower's 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 a bank
account that has been pledged to the lenders.
At July 31, 1999, the combined availability of the Companies was
$8.0 million. The aggregate outstanding amount of letters of credit arranged
by CIT was $28.4 million and no loan had been drawn down. The Company's cash
on hand was unrestricted other than $0.2 million in the pledged accounts.
4. INCOME TAXES
The provision for income taxes consists of (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------- ------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Currently payable:
Federal $3,316 $4,033 $5,868 $5,045
State 289 208 408 264
--------------------------------------------------------------
3,605 4,241 6,276 5,309
--------------------------------------------------------------
Deferred:
Federal (129) (166) 187 1,245
State (28) (36) 40 268
--------------------------------------------------------------
(157) (202) 227 1,513
--------------------------------------------------------------
$3,448 $4,039 $6,503 $6,822
==============================================================
</TABLE>
Reconciliation of the provision for income taxes from the U.S.
Federal statutory rate to the Company's effective rate is as follows
(dollars in thousands):
Thirteen Weeks Ended
--------------------
July 31, 1999 August 1, 1998
-------------- --------------
Tax at Federal rate $3,255 35.0% $3,947 35.0%
State income taxes, net of 170 1.8% 112 1.0%
federal benefit
Goodwill amortization 18 0.2% 18 0.1%
Other 5 0.1% (38) (0.3%)
---------------- ------ ------
$3,448 37.1% $4,039 35.8%
============================================
Twenty-Six Weeks Ended
----------------------
July 31, 1999 August 1, 1998
------------- --------------
Tax at Federal rate $6,164 35.0% $6,520 35.0%
State income taxes, net of 292 1.6% 346 1.9%
federal benefit
Goodwill amortization 36 0.2% 36 0.2%
Other 11 0.1% (80) (0.5%)
--------------- -----------------
$6,503 36.9% $6,822 36.6%
========================================
The net deferred tax asset reflects the tax impact of temporary
differences. The components of the net deferred tax asset as of July 31,
1999 are as follows (dollars in thousands):
Assets:
Inventory $ 406
Accruals and reserves 2,829
Compensation 206
------
3,441
Liabilities:
Depreciation 2,548
------
Net deferred tax asset $893
Future realization of the tax benefits attributable to these
existing deductible temporary differences ultimately depends on the
existence of sufficient taxable income 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.
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 audits will not have a material
adverse effect on the Company's financial position or results of operations.
5. ADVANCES TO OFFICERS
Raphael Benaroya, the Chairman of the Board, President and Chief
Executive Officer of the Company, and George R. Remeta, the Vice Chairman
and Chief Administrative Officer of the Company, borrowed money from the
Company to finance taxes arising from their exercises of employee stock
options on February 13, 1998. (The advances had previously been authorized
by the Compensation Committee.) In Fiscal 1998, advances were made of
approximately $1.6 million to Mr. Benaroya and $0.2 million to Mr. Remeta.
In Fiscal 1999, an additional advance of approximately $0.1 million was
made to Mr. Benaroya. Interest is payable annually at the prime rate.
Accrued interest at February 13, 1999 has been paid in full in the
respective amounts of approximately $137,000 for Mr. Benaroya and $21,000
for Mr. Remeta. The largest amounts outstanding were approximately $1.7
million from Mr. Benaroya and $0.2 million from Mr. Remeta, respectively,
which remain outstanding. The advances mature on February 13, 2002 subject
to acceleration under certain circumstances and to a call by the Company on
February 13, 2000 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 respective amounts 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.
6. STOCK OPTIONS
In May 1999, at the annual meeting of stockholders of the Company,
the stockholders approved the adoption of the 1999 Stock Option Plan,
including a stock option reserve of 400,000 shares of common stock.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Net cash flow from operating activities includes cash payments for
interest and income taxes as follows (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------- --------------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash interest:
Interest income, net per
statements of operations ($499) ($355) ($846) ($495)
Less: Non-cash
interest expense 33 6 53 17
--------------------- ---------------------
Net cash interest income
including interest income
of $733, $616,
$1,317 and $1,054 ($532) ($361) ($899) ($512)
===========================================================
Net income tax payments $4,173 $1,481 $4,227 $1,930
===========================================================
</TABLE>
Financing activities for the twenty-six weeks ended July 31, 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.
8. OTHER INCOME
In May 1998, the Company realized a capital gain of $3.1 million on
the sale of its minority interest in a privately held apparel design and
manufacturing firm for cash. The gain is reported as non-operating income.
9. 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 position or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER FISCAL 1999 VERSUS SECOND QUARTER FISCAL 1998
Net sales for the second quarter of Fiscal 1999 decreased 3.2%
from the second quarter of Fiscal 1998, to $98.9 million from $102.2
million, from a decrease in unit volume. Average stores open decreased 2.7%
from 516 to 502 as underperforming stores were closed selectively.
Comparable store sales for the quarter decreased 1.4%. There is no
assurance that sales and comparable store sales will not continue to
decrease.
Gross profit was $28.7 million in the second quarter of Fiscal
1999 compared with $28.8 million in the second quarter of Fiscal 1998,
increasing as a percentage of net sales to 29.0% from 28.1%. 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 were $19.9
million in the second quarter of Fiscal 1999 compared to $20.9 million in
the second quarter of Fiscal 1998, decreasing principally as a result of
reduced computer software expenses and compensation. As a percentage of net
sales, general, administrative and store operating expenses decreased to
20.2% from 20.5%.
During the second quarter of Fiscal 1999, operating income
increased 12.7% to $8.8 million (8.9% of sales) from $7.8 million in the
second quarter of Fiscal 1998.
Net interest income was $0.5 million in the second quarter of
Fiscal 1999 and $0.4 million in the second quarter of Fiscal 1998,
primarily from interest earned on a higher level of cash and cash
equivalents.
The Company had a provision for income taxes of $3.4 million in
the second quarter of Fiscal 1999 and $4.0 million in the second quarter of
Fiscal 1998. The effective rate increased to 37.1% in the second quarter of
Fiscal 1999 from 35.8% in the second quarter of Fiscal 1998.
The Company had net income of $5.9 million for the second quarter
of Fiscal 1999 and $7.2 million for the second quarter of Fiscal 1998.
Excluding non-operating income of $3.1 million, net of taxes, net income
for the second quarter of Fiscal 1998 was $5.3 million.
FIRST HALF FISCAL 1999 VERSUS FIRST HALF FISCAL 1998
Net sales for the first half of Fiscal 1999 decreased 0.8% from
the first half of Fiscal 1998, to $195.6 million from $197.1 million, from
a decrease in unit volume. There is no assurance that sales will not
continue to decrease. Average stores open decreased 3.3% from 519 to 502 as
underperforming stores were closed selectively. Comparable store sales for
the first half increased 1.5%.
Gross profit was $55.7 million in the first half of Fiscal 1999
compared with $55.9 million in the first half of Fiscal 1998, increasing as
a percentage of net sales to 28.5% from 28.3%.
General, administrative and store operating expenses were $38.9
million in the first half of Fiscal 1999 compared to $40.9 million in the
first half of Fiscal 1998, decreasing principally as a result of reduced
computer software and insurance expenses. As a percentage of net sales,
general, administrative and store operating expenses decreased to 19.9%
from 20.7%.
During the first half of Fiscal 1999, operating income increased
11.6% to $16.8 million (8.6% of sales) from $15.0 million in the first half
of Fiscal 1998.
Net interest income was $0.8 million in the first half of Fiscal
1999 and $0.5 million in the first half of Fiscal 1998, primarily from
interest earned on a higher level of cash and cash equivalents.
The Company had a provision for income taxes of $6.5 million in
the first half of Fiscal 1999 and $6.8 million in the first half of Fiscal
1998. The effective rate increased to 36.9% in the first half of Fiscal
1999 from 36.6% in the first half of Fiscal 1998.
The Company had net income of $11.1 million for the first half of
Fiscal 1999 and $11.8 million for the first half of Fiscal 1998. Excluding
non-operating income of $3.1 million, net of taxes, net income for the
first half of Fiscal 1998 was $9.8 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities in the first half of
Fiscal 1999 was $22.2 million.
The Company's cash on hand increased to $57.3 million at July 31,
1999 from $45.9 million at January 30, 1999 and $50.6 million at August 1,
1998.
Inventory increased to $40.5 million at July 31, 1999 from $38.0
million at August 1, 1998. Inventory was $45.6 million at January 30, 1999.
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, are generally financed
by trade letters of credit and generally constitute approximately half of
total purchases.
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 for a term ending 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 July 31, 1999, trade letters of credit for the account
of the Company and supported by CIT were outstanding in the amount of $26.4
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.)
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 CIT's 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 July
31, 1999, the combined availability of the Companies was $8.0 million; $0.2
million was in a Pledged Account; the remainder of the Company's cash on
hand was unrestricted and no loan had been drawn down.)
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 borrower's
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.
The Company believes that its cash on hand, the availability of
credit under the Financing Agreement on a revolving basis and cash flows
from future 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."
STORES
The Company leased 499 retail stores at July 31, 1999, of which
301 stores were located in strip shopping centers, 176 stores were located
in malls and 22 stores were located in downtown shopping districts. Total
retail square footage was 2.0 million square feet both at July 31, 1999 and
a year earlier.
303 stores operated by the Company under trade names that predate
the Company's AVENUE(R) trade name are scheduled to be converted to the
AVENUE(R) trade name in the third quarter of Fiscal 1999. The cost of
conversion will be paid from the Company's cash on hand. The budgeted
expenses for trade name conversions in the third quarter of Fiscal 1999 are
approximately $1.0 million.
In the third quarter of Fiscal 1999, the Company intends to pay
the costs of opening new stores and remodeling certain existing stores from
its cash on hand. Substantially all of these costs will be capitalized.
The two 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".
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 position 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 another bank (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.
Generally, computer programs and embedded technology 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") has renovated substantially all of the Company's applications
software, systems software and hardware (collectively referred to below as
"Systems") to accommodate dates after 1999.
The Systems that are essential to the Company's management
information systems ("Essential Systems") and the mainframe operating
systems were successfully tested together. (There is no assurance, however,
that the integrated testing revealed all Year 2000 risks.) (The renovation,
validation and testing of the Essential Systems are 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 complaint 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 and telecommunications have been renovated,
and that its credit card transaction processing system has been certified
to be Year 2000 compliant in all material respects. The Credit Card Bank's
telecommunications interfaces for point of sale credit authorizations will
be tested by the Company in the third fiscal quarter of 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 replaced its voicemail system 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 spent 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 $1.0 million from February
3, 1996 to July 31, 1999, of which $0.1 million is estimated to have been
expensed in the second quarter of Fiscal 1999. 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.
Budgeted MIS Department payroll costs and special purchases for
the Year 2000 Project in the second half of Fiscal 1999 are not material in
relation to the Company's general, administrative and store operating
expenses in the second half of 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.
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 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 malfunction 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"). 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 the fourth quarter of Fiscal 1999 and in
Fiscal 2000.
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.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
George R. Remeta, the Vice Chairman, Chief Financial Officer and
Secretary of the Company, was promoted on May 26, 1999 to the position of
Chief Administrative Officer, which includes the duties of Chief Financial
Officer and Secretary and additional executive responsibilities. He remains
the Vice Chairman.
ITEM 6. EXHIBITS
The following exhibit is filed herewith:
Number Description
27 Financial Data schedule
The following exhibit to the Corporation's Quarterly Report on
Form 10-Q for the period ended May 1, 1999 is incorporated herein by
reference:
Number in Filing Description
4.1 Restated By-Laws of the Corporation
The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 30, 1999 are incorporated herein by
reference:
Number in Filing 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
The 1999 Stock Option Plan set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1999 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
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
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)
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.
(b) No Current Reports on Form 8-K were filed by the Corporation
during the fiscal quarter ended July 31, 1999.
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.
By: /s/ GEORGE R. REMETA
_______________________________________
George R. Remeta, Vice Chairman of the
Board and Chief Administrative Officer -
Authorized Signatory
By: /s/ JON GROSSMAN
_______________________________________
Jon Grossman, Vice President -
Finance and Chief Accounting Officer
Date: September 13, 1999
EXHIBIT INDEX
The following exhibit is filed herewith:
Number Description
27 Financial Data schedule
The following exhibit to the Corporation's Quarterly Report on
Form 10-Q for the period ended May 1, 1999 is incorporated herein by
reference:
Number in Filing Description
4.1 Restated By-Laws of the Corporation
The following exhibits to the Corporation's Annual Report on Form
10-K for the year ended January 30, 1999 are incorporated herein by
reference:
Number in Filing 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
The 1999 Stock Option Plan set forth as the Appendix to the
Corporation's proxy statement on Schedule 14A for its 1999 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
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
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)
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.
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