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 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ______________________
Commission file number 019774
United Retail Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 51 0303670
- ------------------------------------- -----------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization
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
--------------
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, with Stock Purchase Right attached
- ---------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 (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 _______
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 April 10, 2000, 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 $85.2 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 and the holdings
of affiliates are based upon the contents of the filed statements.
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 March 31, 2000, 13,297,033 shares of the registrant's common stock,
$.001 par value per share, were outstanding. One Stock Purchase Right is
attached to each outstanding share.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's annual report for the year ended January 29, 2000 (the
"1999 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 2000 annual
meeting of stockholders (the "2000 Proxy Statement") is incorporated in
part by reference in Part I and Part III of this Form 10-K.
PART I
Item 1. Business.
OVERVIEW
The Company is a leading nationwide specialty retailer featuring
AVENUE(R) brand apparel and accessories for large-size women and
CLOUDWALKERS.COM(TM) brand women's shoes. The Company's merchandising
strategy is to offer its customers merchandise of the same quality and
variety available in smaller sizes. The Company operates its stores under
the AVENUE(R) trade name.
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,
provided, however, that CLOUDWALKERS.COM(TM) shoes are available in a
complete size range. The Company believes that the large-size customer
often has fewer specialty 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 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 the proprietary AVENUE(R)
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, lingerie and body lotions. Accessories
include earrings, pins, scarves and a selection of gift items. The Company
offers most of its merchandise at popular or moderate price points.
The Company promotes merchandise with its own brands, which generally have
higher gross profit margins than national brands would have. The Company
believes that its brands create an image that helps distinguish them from
competitors. Through careful brand management, including consistent imaging
of its brands, the Company believes it enhances brand recognition and the
customer's perception of value. Products are packaged and presented at the
Company's stores in a manner consistent with more expensive merchandise
with national brand names.
The Company develops new apparel 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 daily. This information is then
used to evaluate and adjust each store's merchandise mix weekly.
The Company also offers a moderately priced line of women's comfort shoes
under its proprietary Cloudwalkers.com(TM) brand.
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 1999 Annual Report to Stockholders, a copy of
which is contained in Exhibit 13 to this Form 10-K.
MANAGEMENT INFORMATION SYSTEMS
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, style, color and size, as well as customer data. 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.
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 products produced for the Company by contract
manufacturing, under one of the Company's two proprietary brands. 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. 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 1999, each of two purchasing agents accounted for more than 5%
but less than 10% of the Company's merchandise purchases and each of two
purchasing agents accounted for between 10% and 15% of the Company's
merchandise purchases. There is no assurance that the replacement 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 proprietary credit card.
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 Charming Shoppes, Inc.), discount stores,
mail order companies, television shopping channels and internet web sites.
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."
TRADE NAME AND TRADEMARKS
The Company is the owner in the United States of its trade name, AVENUE(R),
used on store fronts, and trademarks, AVENUE(R) and CLOUDWALKERS.COM(TM),
used on merchandise labels. See, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Stores." The Company is not
aware of any use of its trade name or trademarks 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 trade
name and trademarks in the United States.
EMPLOYEES
As of March 31, 2000, the Company employed approximately 5,000 associates,
of whom approximately 2,000 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, 2000, the Company leased stores in 35 states:
Alabama 6 Nevada 2
Arizona 4 New Hampshire 2
Arkansas 1 New Jersey 40
California 74 New Mexico 1
Connecticut 12 New York 51
Delaware 2 North Carolina 9
Florida 19 Ohio 19
Georgia 20 Oklahoma 3
Illinois 36 Oregon 6
Indiana 10 Pennsylvania 17
Iowa 1 Rhode Island 1
Kentucky 4 South Carolina 6
Louisiana 11 Tennessee 8
Maine 1 Texas 35
Maryland 15 Virginia 10
Massachusetts 19 Washington 11
Michigan 27 Wisconsin 7
Missouri 6
Total: 496
The Company leases its executive offices, which consist of approximately
65,000 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 position or results of operations of the Company.
Certain pending legal proceedings to which the Company was a party were
terminated during the fourth quarter of Fiscal 1999 in the ordinary course
of business. The termination of pending legal proceedings during that
fiscal quarter did not have a material effect on the results of operations
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The section captioned "Shareholder Information" in the 1999 Annual Report
to Stockholders, a copy of which is contained in Exhibit 13 to this Form
10-K, is incorporated herein by reference. (Only those portions of the 1999
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.)
All unregistered securities that the Company issued in Fiscal 1999,
consisting of stock options granted to associates and directors of the
Company, were described in the Company's Quarterly Reports on Form 10-Q
except that incentive stock options were issued during the last quarter of
the fiscal year, as follows:
Grant No. of Underlying Shares Exercise Price
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11/1/99 10,000 $10.00
12/2/99 5,000 $ 9.125
The options become exercisable in five equal annual installments
commencing one year after the date of grant.
The grants were exempt from the registration provisions of the
Securities Act under Section 4(2) thereof because the grantees are
employees of the issuer. Nevertheless, the Company intends to file a
registration statement with respect to the options before they become
exercisable.
Item 6. Selected Financial Data.
The section captioned "Selected Financial Data" in the 1999 Annual Report
to Stockholders, a copy of which is contained in Exhibit 13 to this Form
10-K, 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 1999 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 1999 Annual Report to
Stockholders, a copy of which are contained in Exhibit 13 to this Form
10-K, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The subsection captioned "Election of Directors - Business and Professional
Experience" in the 2000 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 57, was the Company's Vice President - General
Counsel from before 1995 to March 1996, when he was elected the Senior Vice
President - General Counsel.
Ellen Demaio, age 42, has been the Senior Vice President - Merchandise of
United Retail Incorporated since February 1995.
James Broderick, age 46, has been the Vice President - Shop-At-Home of
United Retail Incorporated since January 2000. Previously, he was a Vice
President of Spiegel, Inc., a catalog company, since before 1995.
Raymond W. Brown, age 40, has been the Vice President - Associate Services
of United Retail Incorporated since May 1998. Previously, he was Vice
President - Human Resources of National Merchants Management Corp., a
management firm, since before 1995.
Carrie Cline-Tunick, age 39, 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, since before 1995.
Julie L. Daly, age 45, 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 before 1995.
Jeff Fink, age 41, has been the Vice President - Real Estate of United
Retail Incorporated since November 1999. Previously, he was Vice President
- - Real Estate of Party City, Inc. since August 1997. He was Vice President
- - Real Estate of Famous Footwear, Inc. from July 1997 to before 1995.
Kent Frauenberger, age 53, has been the Vice President - Logistics of
United Retail Logistics Operations Incorporated since before 1995.
Jon B. Grossman, age 42, has been the Vice President - Finance of the
Company since before 1995.
Charles E. Naff, age 56, has been the Vice President - Sales of United
Retail Incorporated since August 1996. Previously, he was the Vice
President - Store Operations of Leejay Bed and Bath, a retail chain, since
before 1995.
Bradley Orloff, age 42, has been the Vice President - Marketing of United
Retail Incorporated since before 1995.
Robert Portante, age 48, has been the Vice President - MIS of United Retail
Incorporated since before 1995.
Gerald Schleiffer, age 48, has been the Vice President - Planning and
Distribution of United Retail Incorporated since August 1999. He was Vice
President - Planning and Allocation of Nine West, Inc., a shoe retailer,
between July 1999 and June 1998. He was Director of Planning and Allocation
of Value City Department Stores, Inc. between May 1998 and February 1997.
He was Executive Vice President - Planning and Allocation of Lane Bryant,
Inc., a women's apparel retailer, from January 1997 to before 1995.
Fredric E. Stern, age 51, has been the Vice President - Controller of
United Retail Incorporated since before 1995.
The term of office of these executive officers will expire at the 2000
annual meeting of stockholders,
Item 11. Executive Compensation.
The section captioned "Executive Compensation" in the 2000 Proxy Statement
is 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 2000 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 2000 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
------ -----------
10.1 Incentive Compensation Program Summary
10.2 Amendment, dated December 28, 1999, to Financing Agreement
among the Corporation, United Retail Incorporated and The
CIT Group/Business Credit, Inc., as Agent and Lender ("CIT")
10.3 Amendment, dated January 31, 2000, to Financing Agreement
among the Corporation, United Retail Incorporated,
Cloudwalkers, Inc. and CIT
10.4 Financial Statements of Retirement Savings Plan for year
ended December 31, 1999
13 Sections of 1999 Annual Report to Stockholders (including
report of Independent Accountants) that are incorporated by
reference in response to the items of the Annual Report on
Form 10-K
23.1 Consent of Independent Accountants for the Corporation
23.2 Consent of Independent Public Accountants for Retirement
Savings Plan
27 Financial Data Schedule
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended October 30, 1999 is incorporated herein by
reference:
Number in filing Description
---------------- -----------
10.1 Amendment, dated October 6, 1999, to Financing
Agreement among the Corporation, United Retail
Incorporated and CIT.
The promissory note, dated November 18, 1999, from Raphael Benaroya
to the Corporation filed as the exhibit to Mr. Benaroya's Schedule 13D,
dated November 18, 1999, is incorporated herein by reference.
The following exhibits to the Corporation's Current Report on Form
8-K, filed September 23, 1999, are incorporated herein by reference:
Number in Filing Description
---------------- -----------
3 Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
10.1.1 Right of First Refusal Agreement, dated as of
September 17, 1999, between the Corporation and
Limited Direct Associates, L.P.
10.1.2 Right of First Refusal Agreement, dated as of September
17, 1999, between the Corporation and The Limited,
Inc./Intimate Brands, Inc. Foundation
The following exhibit to the Corporation's Current Report on Form
8-K, filed September 17, 1999, is incorporated herein by reference:
Number in Filing Description
---------------- -----------
3 Restated By-Laws of the Corporation
The stockholders' rights plan filed as the exhibit to the
Corporation's Registration Statement on Form 8-A, dated September 15, 1999,
is incorporated herein by reference.
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 CIT
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 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.
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 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 January 29, 2000.
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/ Raphael Benaroya
----------------------------------------
Raphael Benaroya, Chairman of the Board,
President and Chief Executive Officer
Date: April 20, 2000
--------------
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.
Signature Title Date
_____________________________________________________________________________
/s/ Raphael Benaroya Chairman of the Board, President, April 20, 2000
- ------------------------- Chief Executive Officer
Raphael Benaroya
Principal Executive
Officer
/s/ George R. Remeta Vice Chairman, Chief April 20, 2000
- ------------------------- Administrative officer,
George R. Remeta Secretary and Director
Principal Financial
Officer
/s/ Jon Grossman Vice President - Finance April 20, 2000
- -------------------------
Jon Grossman
Principal Accounting
Officer
/s/ Joseph A. Alutto Director April 20, 2000
- -------------------------
Joseph A. Alutto
/s/ Russell Berrie Director April 20, 2000
- -------------------------
Russell Berrie
Director April 20, 2000
- -------------------------
Joseph Ciechanover
/s/ Michael Goldstein Director April 20, 2000
- -------------------------
Michael Goldstein
Director April 20, 2000
- -------------------------
Ilan Kaufthal
/s/ Vincent P. Langone Director April 20, 2000
- -------------------------
Vincent P. Langone
/s/ Richard W. Rubenstein Director April 20, 2000
- -------------------------
Richard W. Rubenstein
UNITED RETAIL GROUP, INC. EXHIBIT INDEX
The following exhibits are filed herewith:
Number Description
------ -----------
10.1 Incentive Compensation Program Summary
10.2 Amendment, dated December 28, 1999, to Financing Agreement
among the Corporation, United Retail Incorporated and The
CIT Group/Business Credit, Inc., as Agent and Lender
("CIT")
10.3 Amendment, dated January 31, 2000, to Financing Agreement
among the Corporation, United Retail Incorporated,
Cloudwalkers, Inc. and CIT
10.4 Financial Statements of Retirement Savings Plan for year
ended December 31, 1999
13 Sections of 1999 Annual Report to Stockholders (including
report of Independent Accountants) that are incorporated by
reference in response to the items of the Annual Report on
Form 10-K
23.1 Consent of Independent Accountants for the Corporation
23.2 Consent of Independent Public Accountants for Retirement
Savings Plan
27 Financial Data Schedule
The following exhibit to the Corporation's Quarterly Report on Form
10-Q for the period ended October 30, 1999 is incorporated herein by
reference:
Number in filing Description
---------------- -----------
10.1 Amendment, dated October 6, 1999, to Financing
Agreement among the Corporation, United Retail
Incorporated and CIT.
The promissory note, dated November 18, 1999, from Raphael Benaroya
to the Corporation filed as the exhibit to Mr. Benaroya's Schedule 13D,
dated November 18, 1999, is incorporated herein by reference.
The following exhibits to the Corporation's Current Report on Form
8-K, filed September 23, 1999, are incorporated herein by reference:
Number in Filing Description
---------------- -----------
3 Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock
10.1.1 Right of First Refusal Agreement, dated as of
September 17, 1999, between the Corporation and
Limited Direct Associates, L.P.
10.1.2 Right of First Refusal Agreement, dated as of September
17, 1999, between the Corporation and The Limited,
Inc./Intimate Brands, Inc. Foundation
The following exhibit to the Corporation's Current Report on Form
8-K, filed September 17, 1999, is incorporated herein by reference:
Number in Filing Description
---------------- -----------
3 Restated By-Laws of the Corporation
The stockholders' rights plan filed as the exhibit to the
Corporation's Registration Statement on Form 8-A, dated September 15, 1999,
is incorporated herein by reference.
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
CIT
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.
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 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.
EXHIBIT 10.1
UNITED RETAIL INCORPORATED
INCENTIVE COMPENSATION PROGRAM SUMMARY
The Incentive Compensation (IC) Program provides a select group of
executives with an opportunity each season to earn substantial extra cash
remuneration based on attainment of aggressive operating income targets.
At the discretion of the CEO of the Company, each participant has
been assigned an individual participation percentage based, among other
things, on the participant's responsibilities and seniority. Further,
operating income targets have been established in advance and are converted
to percentages ranging from 20% for the lowest acceptable amount of
operating income to 200% at and above the highest goal.
The amount of an IC award is the product of seasonal base salary
multiplied by the participant's participation percentage multiplied by the
target percentage achieved. For example, an associate with a seasonal
salary of $60,000 ($120,000 per annum) and a participation percentage of
20% would receive $2,400 if the 20% target is met and $14,400 if the 120%
target is met. There is no payout if the 20% target is missed.
In compliance with the law, IC awards are subject to withholding
taxes and deductions for contributions to the Retirement Savings Plan and,
if available, the Supplemental Retirement Savings Plan.
IC awards for a season vest on the Tuesday after the first meeting of
the Board of Directors in the next season. (Prior to that time, the Company
has the legal right to cancel the program without notice for any reason
without incurring any liability.) An associate must be in the Company's
employ on that date, and must return to work if on vacation or leave on
that date, in order to receive an IC payout.
Participation in the IC program confers no right to continued
employment. Employment remains "at will" and may be terminated without
cause by the Company or the Associate at any time.
EXHIBIT 10.2
December 28, 1999
UNITED RETAIL GROUP, INC.
UNITED RETAIL INCORPORATED
365 West Passaic Street
Rochelle Park, NJ 07662
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 Lenders
thereunder, dated August 15, 1997, as amended (herein the "Agreement").
Capitalized terms used and not otherwise defined herein shall have the
meanings specified therein unless otherwise specifically defined herein.
This letter is to confirm that pursuant to mutual consent and
understanding, effective as of the date hereof, the Agreement shall be
amended as follows:
1. The following definition shall be, and hereby is, included in Section 1
of the Agreement:
"PERMITTED INVESTMENTS shall mean any of the following investments:
---------------------
a. marketable direct obligations issued by, or unconditionally
guaranteed by, or insured by the United States of America or issued
by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within three years from the date
of acquisition thereof;
b. marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of acquisition,
having a rating of at least A-1 or the equivalent thereof from either
Standard & Poors Ratings Group or P-1 or the equivalent thereof from
Moody's Investors Services, Inc.;
c. commercial paper maturing no more than nine months from the
date of acquisition thereof and, at the time of acquisition, having a
rating of at least A-1 or the equivalent thereof from Standard &
Poor's Ratings Group or at least P-1 or the equivalent thereof from
Moody's Investors Service, Inc.;
d. corporate notes maturing no more than nine months from the
date of acquisition thereof and, at the time of acquisition, having a
rating of at least A or the equivalent thereof from Standard & Poors
Rating Group or at least A-2 or the equivalent thereof from Moody's
Investors Service, Inc.;
e. certificates of deposit (including those denominated in
Euro Dollars), time deposits or acceptances maturing within ninety
days from the date of acquisition thereof issued by any commercial
bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any United States branch
of a foreign bank having at the calendar year-end immediately
preceding the date of acquisition thereof combined capital and
surplus of not less than $500,000,000 which has or, the holding
company of which has at the date of acquisition thereof, a commercial
paper rating meeting the requirement specified in clause (c) above;
f. repurchase obligations with a term of not more than ninety
days for underlying securities of the types described in clause (a)
above entered into with any bank meeting the qualifications specified in
clause (e) above;
g. preferred stock issued by corporations which provides for 30
days redemption rights to the holder and which, at the time of
acquisition, has a rating of at least A or the equivalent thereof
from Standard & Poors Rating Group or at least A-2 or the equivalent
thereof from Moody's Investor Service, Inc.; and
h. investments in mutual funds having assets in excess of
$500,000,000 at the calendar year-end immediately preceding the date
of acquisition thereof (and which provide for 30 day redemption
rights) which invest substantially all of their assets in securities
of the types described in clauses (a) through (g) above.
2. The following shall be, and hereby is, included at the end of Paragraph
8 H, Section 6 of the Agreement:
"and (iii) Permitted Investments;"
Except as herein specifically provided, the Agreement remains in full force
and effect in accordance with its terms and no other changes in the terms
or provisions of the Agreement is intended or implied. If you are in
agreement with the foregoing, please so indicate by signing and returning
to us the enclosed copy of this letter.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT, INC., as
Agent and Lender
By: /s/ Karen Hoffman
---------------------------------------
Title: Vice President
FIRSTRUST BANK, as Lender
By: /s/ Kent Nelson
---------------------------------------
Title: Vice President
Read and Agreed to:
UNITED RETAIL GROUP, INC.
By: /s/ Jon Grossman
----------------------------
Title: Vice President - Finance
UNITED RETAIL INCORPORATED
By: /s/ Kenneth P. Carroll
------------------------------
Title: President
EXHIBIT 10.3
AMENDMENT AGREEMENT
January 31, 2000
United Retail Group, Inc.
United Retail Incorporated
365 West Passaic Street
Rochelle Park, NJ 07662
Gentlemen:
We refer to (1) the Financing Agreement dated August 15, 1997 by and among
United Retail Group, Inc. ("URGI"), United Retail Incorporated ("URI") The
CIT Group/Business Credit, Inc. as Agent and Lender ("CITBC")and FirsTrust
Bank as Lender, as amended (the "Financing Agreement"), (2) the Guaranty
dated August 15, 1997 executed by URGI and URI in favor of the Agent and
the Lenders, as amended ("Borrower Guaranty"), and (3) the Pledge and
Security Agreement executed by URGI in favor of CITBC, as amended (the
"Collateral Pledge"). Capitalized terms used herein and defined in the
Financing Agreement shall have the meanings set forth in said Financing
Agreement unless otherwise specifically defined herein.
URGI has advised CITBC that it has formed a wholly owned indirect
subsidiary named Cloudwalkers, Inc. ("Cloudwalkers") and has requested that
CITBC extend Revolving Loans to Cloudwalkers and/or assist Cloudwalkers in
opening Letters of Credit under the Financing Agreement on the same terms
as Revolving Loans and Letters of Credit are made available to the
Companies thereunder.
Subject to and in accordance with the terms, provisions and conditions
hereof, the Agent and the Lenders have agreed to extend such Revolving
Loans and Letters of Credit to Cloudwalkers. In furtherance thereof, the
Financing Agreement shall be, and hereby is, amended as follows:
(1) Effective immediately, the term "Companies" as used in the
Financing Agreement shall also include without limitation
Cloudwalkers. Cloudwalkers by its signature below hereby
adopts, ratifies, confirms, agrees to be bound by and comply
with all of the terms, provisions and conditions of the
Financing Agreement as if Cloudwalkers had been an original
signatory thereto;
(2) CITBC specifically confirms its agreement to: (a) make
Revolving Loans to Cloudwalkers subject to and in accordance
with all of the terms, provisions, conditions and limitations
of Section 3, Paragraph 1 of the Financing Agreement; and (b)
assist Cloudwalkers in opening Letters of Credit subject to and
in accordance with all of the terms, provisions, conditions and
limitations of Section 4, Paragraph 1 of the Financing
Agreement.
(3) Cloudwalkers specifically confirms:
(a) its grant to the Agent for the benefit of the Lenders of
a lien upon and security interest in all of Cloudwalkers
now owned and hereafter acquired Collateral, including
but not limited to, all Inventory, Accounts, Documents of
Title, and Other Collateral, all in accordance with the
terms and provisions of Section 5 of the Financing
Agreement;
(b) its agreement to be bound by and comply with each of the
representations, warranties and covenants contained in
Section 6 of the Financing Agreement;
(c) its agreement to pay interest on its Obligations under
the Financing Agreement at the rate set forth in Section
7 of the Financing Agreement, and further confirms its
agreement to pay all other fees and/or expenses as more
fully described in said Section;
(d) its agreement to grant to the Agent for the benefit of the
Lenders all of the powers set forth in Section 8 of the
Financing Agreement;
(e) its agreement to grant to the Agent for the benefit of
the Lenders all of the rights and remedies enumerated
under Sections 9 and 10 of the Financing Agreement; and
(f) its agreement to the various provisions and waivers more
fully set forth in Section 11 of the Financing Agreement.
(4) It is further agreed that:
(a) The term "Obligations" as used in the Financing Agreement
shall also include, without limitation, all indebtedness,
liabilities and obligations of Cloudwalkers to the Agent
and the Lenders.
(b) All Obligations of Cloudwalkers shall be and hereby are
secured by a lien upon and security interest in all
Collateral (as defined in the Financing Agreement).
(c) The extension of Revolving Loans and/or Letters of Credit
to Cloudwalkers shall be conditioned upon:
(i) Cloudwalkers signing below to confirm that
Cloudwalkers shall be, and hereby is, added as a
signatory to the Borrower Guaranty, and that all
references therein to "Companies" and/or "the
undersigned" shall also include Cloudwalkers. By
its signature below Cloudwalkers specifically
adopts, ratifies and confirms the Borrower Guaranty
in all respects as if Cloudwalkers had been an original
signatory thereto and further confirms its guaranty of
payment of the Obligations of and URI and URGI to the
Agent and the Lenders, all in accordance with the terms
and provisions of said Borrower Guaranty.
(ii) URGI and URI signing below to confirm that the term
"Obligations" as defined in the Borrower Guaranty
shall also include without limitation all
indebtedness, liabilities and obligations of
Cloudwalkers to the Agent and the Lenders.
(iii) URGI signing below to confirm that the term
"Secured Obligations" as used in the Collateral
Pledge and any other pledge and/or security
agreements executed by URGI in favor of the Agent
and the Lenders shall also include, without
limitation, all indebtedness, liabilities and
obligations of Cloudwalkers to the Agent and the
Lenders.
(iv) The Agent shall have received tax, judgment and
Uniform Commercial Code searches satisfactory to
the Agent for all locations presently occupied or
used by Cloudwalkers.
(v) Cloudwalkers shall have delivered to the Agent
evidence satisfactory to the Agent that casualty
insurance policies listing the Agent as loss payee
or mortgagee, as the case may be, with respect to
the Collateral of Cloudwalkers are in full force
and effect, all as set forth in Section 6,
Paragraph 5 of the Financing Agreement.
(vi) Any documents (including without limitation,
financing statements) required to be filed in order
to create, in favor of the Agent for the benefit of
the Lenders a first and exclusive perfected
security interest in the Collateral of Cloudwalkers
(subject only to Permitted Encumbrances) with
respect to which a security interest may be
perfected by a filing under the U.C.C. shall been
properly filed in each office in each jurisdiction
required in order to create in favor of the Agent
for the benefit of the Lenders a perfected lien on
the Collateral of Cloudwalkers. The Agent shall
have received acknowledgment copies of all such
filings (or, in lieu thereof, the Agent shall have
received other evidence satisfactory to the Agent
that all such filings have been made); and the
Agent shall have received evidence that all
necessary filing fees and all taxes or other
expenses related to such filings have been paid in
full.
(vii) The Agent shall have received a copy of the resolutions
of Cloudwalkers authorizing the execution, delivery an
performance of (x) this Amendment Agreement, and (y)
any related agreements, certified by the Secretary or
Assistant Secretary of Cloudwalkers as of the date
hereof, together with a certificate of the
Secretary or Assistant Secretary of Cloudwalkers as
to the incumbency and signature of the officers of
Cloudwalkers executing such agreements and
certificate or other documents to be delivered by
them pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant
Secretary.
(viii) The Agent shall have received (x) a copy of the
Articles of Organization of Cloudwalkers certified
by the Secretary of State of its organization, and
(y) a copy of the Bylaws (as amended through the
date hereof) of Cloudwalkers certified by its
Secretary or Assistant Secretary.
(ix) The Agent shall have received an executed Officer's
Certificate of the Companies satisfactory in form
and substance to the Agent, certifying that (i) the
representations and warranties contained herein are
true and correct in all material respects on and as
of the date hereof; (ii) the Companies are in
compliance with all of the terms and provisions set
forth herein; and (iii) no Default or Event of
Default has occurred.
(x) No Default, Event of Default or material adverse
change in the financial condition, business,
prospects, profits, operations or assets of
Cloudwalkers or the other Companies shall have
occurred.
(xi) The Agent shall have completed to the satisfaction
of the Agent an examination and verification of the
Accounts, Inventory, books and records of
Cloudwalkers.
(xii) Cloudwalkers shall have executed and delivered to
the Agent a Revolving Loan Promissory Note.
(xiii) All parties to the Amended and Restated Letter of
Credit Agreement shall have executed an amendment
and consent to the inclusion of Cloudwalkers
thereunder.
(xiv) The Agent shall have received an opinion of counsel
to Cloudwalkers, and the other Companies (in form
and substance satisfactory to the Agent) opining,
inter alia, that, subject to the i) filing,
priority and remedies provisions of the Uniform
Commercial Code, ii) the provisions of the
Bankruptcy Code, insolvency statutes or other like
laws, iii) the equity powers of a court of law and
iv) such other matters as may be agreed upon with
the Agent; (A)(a) this Amendment to Financing
Agreement, and (b) all other loan documents of
Cloudwalkers and the Companies are x) valid,
binding and enforceable according to their terms,
y) are duly authorized and z) do not violate any
terms, provisions, representations or covenants in
the articles of organization, charter or by-laws of
Cloudwalkers and the Companies or, to the best
knowledge of such counsel, of any loan agreement,
mortgage, deed of trust, note, security or pledge
agreement or indenture to which Cloudwalkers or the
Companies is a signatory or by which they or their
assets are bound.
Except as set forth herein no other waiver of or change in the terms or
provisions of the Financing Agreement, Borrower Guaranty, or the Collateral
Pledge 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: Vice President
FIRSTRUST BANK, as Lender
By: /s/ Kent Nelson
---------------------------------------
Title: Vice President
Read and Agreed to:
UNITED RETAIL GROUP, INC.
By: /s/ Jon Grossman
------------------------------
Title: Vice President - Finance
UNITED RETAIL INCORPORATED
By: /s/ Kenneth P. Carroll
------------------------------
Title: President
CLOUDWALKERS, INC.
By: /s/ George R. Remeta
------------------------------
Title: President
Exhibit 10.4
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, 1999 and 1998, 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
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for benefits of
the Plan as of December 31, 1999 and 1998, 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 schedule of
investments held for investment purposes is presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but is 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 schedule
has been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/Ary, Earman and Roepcke
Columbus, Ohio,
February 24, 2000.
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
1999 1998
----------- ----------
ASSETS:
Investments $10,210,215 $8,645,645
Cash - 1,888
----------- ----------
Total assets 10,210,215 8,647,533
----------- ----------
LIABILITIES:
Due to brokers - 1,883
Administrative fees payable 5,117 5,732
----------- ----------
Total liabilities 5,117 7,615
----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS $10,205,098 $8,639,918
=========== ==========
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
----------- ----------
ADDITIONS:
Investment Income:
Net appreciation in fair
value of investments $ 1,073,917 $ 738,400
Mutual fund earnings 309,155 431,962
Interest 28,314 26,503
Dividends 117 216
----------- ----------
Total investment income 1,411,503 1,197,081
----------- ----------
Contributions:
Employer 194,225 170,685
Participants 823,968 847,441
----------- ----------
Total contributions 1,018,193 1,018,126
----------- ----------
Total additions 2,429,696 2,215,207
----------- ----------
DEDUCTIONS:
Distributions to participants 832,784 849,836
Administrative expenses 31,732 33,798
----------- ----------
Total deductions 864,516 883,634
----------- ----------
Net increase 1,565,180 1,331,573
Net assets available for plan benefits:
Beginning of year 8,639,918 7,308,345
----------- ----------
End of year $10,205,098 $8,639,918
=========== ==========
The accompanying notes are an integral part of these financial statements.
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.
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, 1999). 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, 1999, was $160,000. This
voluntary tax-deferred contribution may be limited by Section 401(k)
of the Internal Revenue Code.
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 at 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 $5,000 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 70-1/2.
Participants may make in-service withdrawals of their 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 prime 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,
1999 and 1998, is $16,404 and $3,906, respectively.
Forfeitures
-----------
Forfeitures are used to reduce the Employer's required contributions.
The Employers utilized $27,828 and $51,092 in forfeitures for 1999
and 1998, respectively.
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.
(2) SUMMARY OF ACCOUNTING POLICIES
Estimates
---------
The Plan prepares its financial statements in conformity with
generally accepted accounting principles, which requires management
to make estimates and assumptions which affect the reported amounts
of net assets available for plan benefits at the date of the
financial statements and the changes in net assets available for plan
benefits during the reporting period and, when applicable,
disclosures of contingent assets and liabilities at the date of the
financial statements. Actual results could differ from those
estimates.
Basis of Presentation
---------------------
The Plan's financial statements have been prepared on the accrual
basis of accounting.
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.
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 in Fair Value of Investments
---------------------------------------------
Net realized and unrealized gains and losses is recorded in the
accompanying statement of changes in net assets available for
benefits as net appreciation or 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 1999 and 1998 for the Plan's current investment options.
Investments that represent 5 percent or more of the Plan's net assets
are separately identified.
1999 1998
----------- ----------
Investments at Fair Value as Determined by
Quoted Market Price:
Common Stock:
United Retail Group, Inc. $ 573,977 $ 948,967
Other 59,319 7,062
Shares of Registered Investment Companies:
Scudder Balanced Fund 2,255,340 2,003,077
Scudder Growth and Income Fund 2,207,603 2,023,589
Scudder U.S. Treasury Fund 2,091,751 -
Scudder 21st Century Fund 1,618,844 -
Scudder International Fund 668,218 -
Scudder Cash Investment Trust 463 2,008,561
Franklin Small Cap Growth Fund - Class A - 705,645
Other 336,321 612,706
Investments at Estimated Fair Value:
Participant Loans 398,379 336,038
----------- ----------
$10,210,215 $8,645,645
=========== ==========
The Plan's investments (including investments bought, sold, and held
during the year) appreciation (depreciated) in value for the years
ended December 31, 1999 and 1998, is set forth below:
1999 1998
---------- ---------
Investments at Fair Value as Determined
by Quoted Market Price:
Shares of Registered
Investment Companies $1,256,231 $ 206,740
Common Stock (182,314) 531,660
---------- ---------
$1,073,917 $ 738,400
========== =========
The Plan allows participants to direct the investment of their
contributions and the related Employer's matching contributions among
several investment funds. As of December 31, 1999 and 1998, the Plan
provided the following investment funds that the participant had to
select from:
Scudder U.S. Treasury Money Fund: Invests primarily in short-term U.S.
treasury obligations and repurchase agreements, seeking to minimize
credit risk and generate current income. This fund option was not
available to participants until 1999.
Scudder Cash Investment Trust: Invests primarily in Treasury Bills,
certificates of deposit from U.S. banks, and commercial paper, seeking
current income and principal stability. This fund option was
eliminated to participants during 1999.
Scudder Short Term Bond Fund: Invests primarily in high-quality
short-term U.S. government and high-quality corporate bonds, seeking
higher than money market yields with capital preservation. This
investment option was not available to participants until 1999.
Scudder Balanced Fund: Invests in a diversified portfolio of stocks
of larger, seasoned companies and high-grade bonds, seeking a balance
of growth and current income as well as long-term preservation of
capital.
Scudder Growth and Income Fund: Invests primarily in common stocks,
preferred stocks, and securities convertible into common stocks,
seeking long-term growth of capital while paying current dividends.
Scudder S&P 500 Index Fund: Invests primarily all of its assets in
the Scudder Equity Index Portfolio, which has the same investment
objective as the fund, by investing in a diversified stock portfolio
of the companies that comprise the S&P 500 Index, seeking long-term
growth of capital through broad diversification. This investment
option was not available to participants until 1999.
Scudder International Fund: Invests primarily in foreign stocks of
established companies, seeking long-term growth of capital primarily
through international diversification. This investment option was not
available to participants until 1999.
Warburg Pincus International Equity Fund: Invests primarily in a
broadly diversified portfolio of equity securities of companies that
have their principal business activities and interest outside the
U.S., seeking long-term growth of capital. This investment option was
eliminated to participants during 1999.
Janus Overseas Fund: Invests primarily in foreign equity and debt
securities of issuers from at least five different countries,
excluding the United States, seeking long-term growth of capital.
This investment option was made available and eliminated to
participants during 1999.
Scudder Large Company Value Fund: Invests primarily in common stocks
in all sectors of the stock market, seeking maximized long-term
growth of capital. This investment option was not available to
participants until 1999.
Scudder 21st Century Growth Fund: Invests primarily in small U.S.
companies, seeking long-term growth of capital. This investment option
was not available to participants until 1999.
Franklin Templeton Small Cap Growth Fund: Invests primarily in common
stocks of small-capitalization companies, seeking long-term growth of
capital. This investment option was eliminated to participants during
1999.
United Retail Group Stock Fund: Seeks to achieve long-term capital
appreciation by investing in the common stock of United Retail Group,
Inc.
Self-Directed Brokerage Account: Allowing the participant to invest in
securities not offered otherwise.
(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:
1999 1998
----------- -----------
Net assets available for benefits per
the financial statements $10,205,098 $ 8,639,918
Amounts allocated to withdrawing
participants (16,404) (3,906)
Amounts relating to deemed participant
loans not yet distributable (6,577) -
----------- -----------
Net assets Available for benefits per
Form 5500 $10,182,117 $ 8,636,012
=========== ===========
The following is a reconciliation of benefits paid to participants
per the financial statements to Form 5500:
1999
---------
Benefits paid to participants per
the financial statements $832,784
Amounts allocated to withdrawing
participants at:
December 31, 1999 16,404
December 31, 1998 (3,906)
--------
Benefits paid to participants per
Form 5500 $845,282
========
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.
1999
-------
Deemed distributions of participant
loans per the financial statements $ -
Deemed distributions of participant
loans for which no distributable
event has occurred 6,877
------
Deemed distributions of participant
loans per Form 5500 $6,877
======
Defaulted loans to participants which by the terms of the plan can
not be distributed are reported as an investment for financial
statement, but are recorded on the Form 5500 as a deemed
distribution.
SCHEDULE I
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
DECEMBER 31, 1999
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
-------------------- ------------------------ ---------- ----------
<S> <C> <C> <C> <C>
* United Retail Group, 69,573 shares of common $ 576,302 $ 573,977
Inc. stock of United Retail
Group, Inc., par value
$0.001
* Scudder Kemper 2,091,750.780 shares of 2,091,751 2,091,751
Investments, Inc. Scudder U.S. Treasury Money
Fund, $1.00 net asset
value, 7 day annualized
yield of 4.79%
* Scudder Kemper 463.000 shares of Scudder 463 463
Investments, Inc. Cash Investment Trust,
$1.00 net asset value, 7
day annualized yield of
5.29%
* Scudder Kemper 561.439 shares of Scudder 5,928 5,861
Investments, Inc. Short Term Bond Fund,
$10.44 net asset value
* Scudder Kemper 106,635.478 shares of 1,750,537 2,255,340
Investments, Inc. Scudder Balanced Fund,
$21.15 net asset value
* Scudder Kemper 82,712.720 shares of 2,117,993 2,207,603
Investments, Inc. Scudder Growth and Income
Fund, $26.69 net asset value
* Scudder Kemper 133.048 shares of Scudder 2,566 2,608
Investments, Inc. S&P 500 Index Fund, $19.60
net asset value
* Scudder Kemper 9,446.109 shares of Scudder 622,336 668,218
Investments, Inc. International Fund, $70.74
net asset value
* Represents a party in interest
</TABLE>
SCHEDULE I
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
DECEMBER 31, 1999
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
-------------------- ------------------------- -------- ---------
<S> <C> <C> <C> <C>
* Scudder Kemper 16.159 shares of Scudder 453 435
Investments, Inc. Large Company Value Fund,
$26.91 net asset value
* Scudder Kemper 55,137.739 shares of 1,434,786 1,618,844
Investments, Inc. Scudder 21st Century Growth
Fund, $29.36 net asset value
State Street 304,074.130 shares of Seven 304,074 304,074
Seas Money Market Fund,
$1.00 net asset value, 7
day average net yield of
5.25%
Philip Morris, Inc. 132 shares of common stock 5,995 3,036
of Philip Morris, Inc., par
value $0.33 1/3
American Online, Inc. 160 shares of common stock 10,114 12,140
of American Online, Inc.,
par value $0.01
American Express 80 shares of common stock 9,784 13,300
Company of American Express
Company, par value $0.60
Walt Disney Company 300 shares of common stock 9,983 8,775
of Walt Disney Company, par
value $0.01
Microsoft Corporation 110 shares of common stock 9,872 12,843
of Microsoft Corp., par
value $0.0000125
* Represents a party in interest
</TABLE>
SCHEDULE I
UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN
EIN #51-0303670 PLAN #003
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END
DECEMBER 31, 1999
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Description of
investment including
Identity of issue, maturity date, rate
borrower, lessor, or of interest, collateral, Current
similar party par or maturity value Cost value
------------------- ------------------------- -------- --------
<S> <C> <C> <C> <C>
Restoration Hardware, 400 shares of common stock 5,893 2,725
Inc. of Restoration Hardware,
Inc., par value $0.01
Fidelity Investments 464.901 shares of Fidelity 10,984 16,986
Advisor Technology Class T
Fund, $36.54 net asset value
WWW Advisors, Inc. 151.442 shares of WWW 6,250 6,356
Internet Fund, $41.97 net
asset value
Mortgage.Com, Inc. 200 shares of common stock 1,575 1,163
of Mortgage.Com, Inc., par
value $0.01
Networks Associates, 200 shares of common stock 5,459 5,338
Inc. of Networks Associates,
Inc., par value $0.001
Participant loans Interest from 7.50% - 9.25% - 391,802
</TABLE>
EXHIBIT 13
Sections of 1999 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
* * * * * * * * * * * *
Report of Independent Accountants...........................................14
Consolidated Balance Sheets as of January 30, 1999 and
January 29, 2000..........................................................15
Consolidated Statements of Income for each of the three fiscal years
ended January 29, 2000....................................................16
Consolidated Statements of Cash Flows for each of the three fiscal
years ended January 29, 2000..............................................17
Consolidated Statements of Stockholders' Equity for each of the three
fiscal years ended January 29, 2000.......................................18
Notes to Consolidated Financial Statements..................................19
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 income, 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
30, 1999 and January 29, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended January
29, 2000, in conformity with accounting principles generally accepted in
the United States. 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 audit. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which 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, 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.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 12, 2000
<TABLE>
<CAPTION>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JANUARY 30, JANUARY 29,
1999 2000
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $54,398 $45,223
Accounts receivable................................ 513 1,146
Inventory.......................................... 45,564 55,323
Prepaid rents...................................... 3,946 3,900
Deferred income taxes.............................. - 1,647
Other prepaid expenses............................. 2,429 2,365
------------ ------------
Total current assets.............................. $106,850 $109,604
Property and equipment, net.......................... 48,017 63,302
Deferred charges and other intangible assets,
net of accumulated amortization of $2,130 and
$2,495............................................. 6,746 7,010
Deferred income taxes................................ 1,120 -
Other assets......................................... 363 422
------------ ------------
Total assets....................................... $163,096 $180,338
============ ============
LIABILITIES
Current liabilities:
Current portion of distribution center financing... $1,136 $1,228
Accounts payable and other......................... 22,712 26,993
Accrued expenses................................... 22,659 20,285
------------ ------------
Total current liabilities......................... 46,507 48,506
Distribution center financing........................ 9,172 7,944
Other long-term liabilities ......................... 6,270 6,131
------------ ------------
Total liabilities................................. 61,949 62,581
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value; authorized
1,000,000; none issued Series A junior participating
preferred stock, $.001 par value; authorized 150,000;
none issued
Common stock, $.001 par value; authorized 30,000,000;
issued 13,762,900 and 14,190,800; outstanding
13,089,588 and 13,289,433.......................... 14 14
Additional paid-in capital........................... 77,458 80,143
Retained earnings.................................... 25,334 41,483
Treasury stock (673,312 and 901,367 shares), at cost. (1,659) (3,883)
------------ ------------
Total stockholders' equity......................... 101,147 117,757
------------ ------------
Total liabilities and stockholders' equity......... $163,096 $180,338
============ ============
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales.............................. $361,751 $378,562 $382,631
Cost of goods sold, including buying and
occupancy costs...................... 278,078 275,811 282,754
------------ ------------ ------------
Gross profit......................... 83,673 102,751 99,877
General, administrative and store
operating expenses................... 80,469 79,221 77,778
------------ ------------ ------------
Operating income..................... 3,204 23,530 22,099
Non-operating income - 3,113 -
Interest (expense) income, net......... (154) 1,201 1,688
------------ ------------ ------------
Income before income taxes........... 3,050 27,844 23,787
(Benefit from) provision for income taxes (828) 10,077 7,638
Benefit from write-up of the compensa-
tion related deferred tax asset...... (953) (213) -
------------ ------------ ------------
Net income........................... $4,831 $17,980 $16,149
============ ============ ============
NET INCOME PER SHARE
Basic................................ $0.40 $1.38 $1.23
============ ============ ============
Diluted.............................. $0.37 $1.31 $1.17
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic................................ 12,190,375 13,055,673 13,156,310
Common stock equivalents (stock
options)........................... 997,234 680,340 695,794
------------ ------------ ------------
Diluted.............................. 13,187,609 13,736,013 13,852,104
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
JANUARY 31 JANUARY 30, JANUARY 29,
1998 1999 2000
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income.................................. $4,831 $17,980 $16,149
Adjustments to reconcile net income to net
cash provided from the activities:
Depreciation and amortization of property
and equipment............................. 8,540 7,027 7,031
Amortization of deferred charges and other
intangible assets......................... 287 353 416
Loss (gain) on disposal of assets........... 496 (30) 568
Gain on sale of investments................. (43) (3,113) -
Compensation expense........................ - 216 311
(Benefit from) provision for deferred income
taxes..................................... (2,685) 1,956 (527)
Deferred lease assumption revenue amortiza-
tion...................................... (655) (648) (402)
Changes in operating assets and liabilities:
Accounts receivable......................... 726 58 (633)
Income taxes receivable..................... 229 - -
Inventory................................... 2,775 (7,561) (9,759)
Accounts payable and accrued expenses....... 126 6,725 2,443
Prepaid expenses............................ 535 231 110
Income taxes payable........................ 1,379 (469) (402)
Other assets and liabilities................ (606) (643) (878)
---------- ---------- ---------
Net Cash Provided from Operating Activities... 15,935 22,082 14,427
---------- ---------- ---------
INVESTING ACTIVITIES:
Capital expenditures........................ (2,375) (7,003) (23,271)
Deferred payment for property and equipment. 40 110 268
Proceeds from sale of investment and lease.. 410 3,345 387
---------- ---------- ---------
Net Cash Used in Investing Activities......... (1,925) (3,548) (22,616)
---------- ---------- ---------
FINANCING ACTIVITIES:
Issuance of loans to officers............... - (2,113) (604)
Treasury stock acquired..................... - - (214)
Proceeds from exercise of stock options..... - 20 373
Tax benefit from exercise of stock options.. - - 710
Debt issuance costs......................... (276) - -
Repayments of long-term debt................ (973) (1,052) (1,136)
Other....................................... - - (115)
---------- ---------- ---------
Net Cash Used in Financing Activities......... (1,249) (3,145) (986)
---------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 12,761 15,389 (9,175)
Cash and cash equivalents, beginning of period 26,248 39,009 54,398
---------- ---------- ---------
Cash and cash equivalents, end of period...... $39,009 $54,398 $45,223
========== ========== =========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(SHARES AND DOLLARS IN THOUSANDS)
COMMON COMMON TREASURY
STOCK STOCK ADDITION STOCK, TOTAL
SHARES $.001 PAID-IN RETAINED AT STOCKHOLDERS'
OUTSTANDING PAR VALUE CAPITAL EARNINGS COST EQUITY
----------- --------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
----------- --------- -------- -------- -------- ------------
Exercise of stock
options............. 427 2,123 2,123
Treasury stock........ (228) (2,224) (2,224)
Loans to officers..... (344) (344)
Compensation expense.. 311 311
Tax Benefit from exer-
cise of stock
options............. 710 710
Other................. (115) (115)
Net income............ 16,149 16,149
----------- --------- -------- -------- -------- -----------
Balance, January 29,
2000................ $13,289 $14 $80,143 $41,483 $(3,883) $117,757
=========== ========= ======== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY DESCRIPTION AND BASIS OF PRESENTATION
United Retail Group, Inc. ("United Retail") is a specialty retailer of
large-size women's fashion apparel, footwear and accessories, featuring
AVENUE(R) brand merchandise operating approximately 500 stores throughout
the United States.
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.
Certain prior year balances have been reclassified to conform with the
current year presentation.
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 1997, fiscal 1998
and fiscal 1999 consisted of 52 weeks and ended on January 31, 1998,
January 30, 1999, and January 29, 2000, respectively.
NET SALES
Sales are net of returns and exclude sales tax. Sales from all stores
operating during the period, the Company's catalog and its website
operations are included. In December 1999, the SEC issued Staff Accounting
Bulletin No. 101 related to revenue recognition, including layaway sales.
The pronouncement requires adoption by the second quarter of fiscal 2000.
The Company will adopt this pronouncement by recording a cumulative effect
adjustment in the first quarter of fiscal 2000. The Company believes this
pronouncement will not have a material effect on the Company's financial
position or annual results of operations, but will impact interim reporting
of results. The Company recognizes sales upon redemption of gift
certificates.
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 income, was $6.7 million, $9.5 million, and $12.6 million in
fiscal 1997, 1998, and 1999, respectively.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, bank deposits, money market funds and
short term investments with maturities of less than 90 days as cash and
cash equivalents.
INVENTORY
Inventory is stated at the lower of cost or market, utilizing the retail
method. An average cost flow assumption is used.
LONG-LIVED ASSETS
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 and 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.
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. The
difference that would result from amortization using the effective interest
method is not material.
Goodwill, as of January 30, 1999 and January 29, 2000 of $6.2 million and
$6.0 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 1998 and fiscal 1999
in the amounts of $39,000 and $318,000, respectively. These trademarks are
being amortized over 15-year periods using the straight-line method.
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of long-lived
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.
COMPUTATION OF INCOME PER COMMON SHARE
The computation of income per basic common share 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 shares of common stock which 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 were as follows:
FISCAL FISCAL FISCAL
1997 1998 1999
----------------------------------------------
Options 271,000 58,000 65,500
Range of option prices
per share $5.625 - $26.75 $10.75 - $26.75 $11.50 - $26.75
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk, are primarily cash and cash equivalents. The
Company places its cash and cash equivalents in highly liquid investments
with high quality financial institutions.
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. The more significant estimates and assumptions relate to
deferred tax assets, inventory and useful lives of assets.
STORE OPENING COSTS
All costs associated with the opening of new stores are expensed as
incurred.
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of (dollars in thousands):
JANUARY 30, JANUARY 29,
1999 2000
----------- -----------
Land $2,176 $2,176
Buildings 10,574 10,574
Furniture, fixtures and equipment 59,817 70,439
Leasehold improvements 26,826 31,389
Beneficial leaseholds 8,560 6,942
Construction in progress 2,378 1,321
-----------------------
110,331 122,841
Accumulated depreciation and
amortization, including beneficial
leaseholds of $7,586 and $6,272 (62,314) (59,539)
-------------------------
Property and equipment, net $48,017 $63,302
========================
4. ACCRUED EXPENSES
Accrued expenses consist of (dollars in thousands):
JANUARY 30, JANUARY 29,
1999 2000
------------ ----------
Occupancy expenses $3,907 $3,649
Payroll related expenses 4,771 3,011
Insurance payable 4,684 2,131
Sales taxes payable 1,149 1,152
Credit processing ---- 1,508
Marketing 972 2,027
Other 7,176 6,807
-----------------------
$22,659 $20,285
=======================
5. LEASED FACILITIES AND COMMITMENTS
Annual store rent is composed of a fixed minimum amount, plus contingent
rent based upon a percentage of sales exceeding a stipulated amount. 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):
FISCAL FISCAL FISCAL
1997 1998 1999
-------------------------
Store rent
Fixed minimum $39,423 $36,986 $36,815
Percentage 32 77 126
-------------------------
Total store rent 39,455 37,063 36,941
Equipment and other 411 360 381
-------------------------
Total rent expense $39,866 $37,423 $37,322
=========================
At January 29, 2000, the Company was committed under store leases with
initial terms ranging from 1 to 20 years and with varying renewal options.
At January 31, 1998, January 30, 1999 and January 29, 2000, accrued rent
expense amounted to $5.7 million, $5.8 million and $6.0 million,
respectively, of which $5.3 million, $5.1 million and $5.3 million,
respectively, is included in "Other long-term liabilities".
A summary of approximate non-cancelable lease commitments under leases
follows (dollars in thousands) for the fiscal years:
2000 $33,563
2001 30,169
2002 30,275
2003 24,482
2004 21,285
Thereafter 71,539
--------
Total minimum obligations $211,313
========
6. LONG-TERM DEBT
Long-term debt consists of (dollars in thousands):
JANUARY 30, JANUARY 29,
1999 2000
-----------------------
Distribution center financing:
7.30% Note due 2003 $3,873 $3,151
8.64% Mortgage due 2009 6,435 6,021
---------------------
Total distribution center
financing $10,308 $9,172
Less current maturities 1,136 1,228
---------------------
Long-term portion of distribution
center financing $ 9,172 $7,944
=====================
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.
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.
The Company and certain of its subsidiaries, (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 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.
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 an account that
has been pledged to the lenders.
At January 29, 2000, the combined availability of the Companies was $13.1
million, no balance was in the pledged account, the aggregate outstanding
amount of letters of credit arranged by CIT was $26.9 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. An advance to an officer approximates fair value because
interest is payable annually in cash at the prime rate. The fair value of
long-term debt, including the current portion, is estimated to be $8.9
million for fiscal 1999 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 (benefit) 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
1997 1998 1999
------------------------------
Currently payable:
Federal $722 $7,350 $7,539
State 182 558 626
----------------------------------
904 7,908 8,165
----------------------------------
Deferred:
Federal (2,419) 1,899 537
State (266) 57 (1,064)
----------------------------------
(2,685) 1,956 (527)
----------------------------------
($1,781) $9,864 $7,638
==================================
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
1997 1998 1999
------------------------------
Statutory Federal income
tax rate 34.0% 35.0% 35.0%
State income taxes, net of
Federal benefit 3.9 3.7 4.1
Benefit from state net
operating losses ("NOL's") 0.0 (2.2) (2.1)
Goodwill amortization 2.3 0.3 0.3
Other 0.7 (0.6) (0.3)
----------------------------
Sub-total 40.9 36.2 37.1
Deferred tax asset recognized
for state NOL's 0.0 0.0 (5.0)
Write-up of the compensation
related deferred tax asset (31.3) (0.8) (0.0)
Valuation allowance (68.0) 0.0 0.0
-----------------------------
(58.4%) 35.4% 32.1%
=============================
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
(dollars in thousands):
JANUARY 30, JANUARY 29,
1999 2000
----------- -----------
Assets:
Inventory $658 $550
Accruals and reserves 2,591 2,832
Compensation 308 205
State NOL's 0 1,180
---------------------
3,557 4,767
--------------------
Liabilities:
Depreciation 2,437 3,120
--------------------
Net deferred tax asset $1,120 $1,647
======================
Included in the fiscal 1997 and fiscal 1998 income tax expense (benefit) is
a ($1.0 million) write-up and a ($0.2 million) write-up of the
compensation related deferred tax asset, respectively, 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. In fiscal 1999, the Company recorded a $1.2 million deferred
tax asset related to state NOL's, which had previously not been recognized
because the realization of any tax benefit from the state NOL's had been
considered remote.
Future realization of the tax benefits attributable to the existing
deductible temporary differences and NOL carryforwards 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 assets will be realized through future taxable
earnings or available carrybacks.
9. RELATED PARTY TRANSACTIONS
The Company shares a store location with a subsidiary of The Limited, Inc.
("The Limited") and is charged by The Limited for occupancy costs. The
impact on the statements of income of these occupancy charges was as
follows (dollars in thousands):
FISCAL FISCAL FISCAL
1997 1998 1999
--------------------------
Cost of goods sold, including
buying and occupancy costs $74 $73 $73
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, American Licensing Group, 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 1997, fiscal 1998, and fiscal 1999, the Company incurred
expenses under certain Sublicensing Agreements with respect to trademarks
to American Licensing Group, Inc. in the amounts of $395,000, $361,000, and
$353,000, respectively, and to ALGLP in the amounts of $599,000, $442,000
and $365,000 respectively. American Licensing Group, Inc. and ALGLP, in
turn, incurred expenses with respect to the trademarks under certain
Licensing Agreements with the owner of the trademarks.
The Company made investments in a vendor from which the Company purchased
apparel. In fiscal 1998, the Company realized a capital gain of $3.1
million on the sale of its investments back to the vendor. The gain was
reported as non-operating income. Purchases of apparel during fiscal 1997
and fiscal 1998 totalled $600,000 and $12,000, respectively.
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 1997, fiscal
1998 and fiscal 1999 approximated $278,000, $522,000 and $365,000,
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 issuance 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, certain
loan agreements, to which the Company is a party, impose restrictions on
the payments of dividends.
In September 1999, the Company entered into right of first refusal
agreements for any proposed sales of shares of its Common Stock held by
Limited Direct Associates, L.P. and The Limited/Intimate Brands Foundation
(collectively, "Limited"). Each right has a term of one year, subject to
extension by mutual agreement, and applies to any sales that Limited may
propose to make from time to time on the Nasdaq National Market System and
in negotiated or block transactions. If the Company exercises the right of
first refusal, any shares that are proposed to be sold on the Nasdaq
National Market System will be sold to the Company instead (i) after the
market closes and before it opens again and (ii) at a purchase price equal
to that day's closing price. The Company has no obligation, however, to
exercise the right and purchase shares. Limited holds 1,600,000 shares of
the Company's common stock, representing approximately 12% of the shares
outstanding.
In September 1999, the Company adopted a Shareholder Rights Plan and
distributed rights as a dividend at the rate of one Right for each share of
Common Stock of the Company held by shareholders of record as of the close
of business on September 27, 1999. The rights will expire on September 28,
2009.
Each Right initially entitles a shareholder to buy one one-hundredth of a
share of a series of preferred stock for $65. Among other things, the
Rights will be exercisable, subject to certain exceptions, if a person or
group acquires beneficial ownership of 15% or more of the Company's Common
Stock or commences a tender or exchange offer upon consummation of which
such person or group would beneficially own 15% or more of the Company's
Common Stock. Until the Rights become exercisable, each share of common
stock of the Company has a Right attached and the securities trade as a
unit.
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.
All options granted under the 1989 Plan became vested and exercisable upon
completion of the IPO 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. On November 18, 1999, the remaining 50,000 options
were exercised.
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. These options became vested and
exercisable upon completion of the initial public offering and the payment
of certain obligations to The Limited Inc. On November 18, 1999, all
300,000 options were exercised by management.
The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was
established in June 1990, amended in November 1991, December 1992 and May
1993, and terminated in May 1996. Exercise prices were not less than fair
market value of the Company's common 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 January 31, 1998, January 30, 1999, and
January 29, 2000 options to purchase 619,300, 612,300, and 537,300 shares,
respectively, were outstanding under the Plan at average exercise prices of
$6.89, $6.90 and $6.75 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.
A summary of stock option transactions under the 1990 Plan is as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1998 1999
--------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of period 658,000 619,300 612,300
Options granted 0 0 0
Options exercised 0 3,200 45,500
Options expired 22,500 0 0
Options canceled 16,200 3,800 29,500
Options outstanding at end of period 619,300 612,300 537,300
Options available for grant at end of period 0 0 0
Options vested and outstanding at
end of period 198,783 323,570 385,406
Options exercisable at end of period
and having an exercise price that is
less than the respective year end
common stock closing price 86,500 305,570 377,406
Range of option prices per share for
outstanding options $4.125-$26.75 $4.125-$26.75 $4.125-$26.75
</TABLE>
The 1996 Stock Option Plan (the "1996 Plan") was established in May 1996
and terminated in May 1999. Exercise prices were not less than fair market
value of the Company's common stock on the date of grant. The options
granted under the 1996 Plan expire ten years after the date of grant. As of
January 31, 1998, January 30, 1999, and January 29, 2000 options to
purchase 163,000, 373,300 and 345,500 shares were outstanding under the
Plan at an average exercise price of $3.22, $5.24 and $5.78 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. Options were 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
1997 1998 1999
--------------------------------------
<C> <C> <C>
Options outstanding at beginning of period 45,000 163,000 373,300
Options granted 145,000 253,500 37,000
Options exercised 0 1,200 32,400
Options canceled 27,000 42,000 32,400
Options outstanding at end of period 163,000 373,300 345,500
Options available for grant at end of period 277,000 65,500 0
Options vested and outstanding at end of period 4,000 30,900 69,000
Options exercisable at end of period and
having an exercise price that is less
than the respective year end common stock
closing price 4,000 30,900 67,200
Range of option prices per share for
outstanding options $2.625-$5.625 $2.625-$11.50 $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 1999 Stock Option Plan (the "1999" Plan) was established in May 1999.
Exercise prices are required by the 1999 Plan to be not less than the fair
market value of the Company's common stock on the date of grant. The total
number of shares that may be optioned under the 1999 Plan is 400,000
shares. The options granted under the 1999 Plan expire ten years after the
date of grant. As of January 29, 2000 outstanding options to purchase
47,500 shares have been granted under the Plan at an average exercise price
of $12.34 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.
Non-employee Directors receive annual grants of options under the 1999
Plan. Options are granted, and the 1999 Plan is administered, by the
Compensation Committee of the Board of Directors, composed of non-employees
of the Company.
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
equaled the market price on the date of Board action. In accordance with
Opinion No. 25, compensation expense is recorded ratably over the five-year
vesting period of the options. The Company recognized $216,000 and $311,000
of related compensation expense in fiscal 1998 and fiscal 1999,
respectively.
In October 1995, 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 does 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 the following pro forma information required by SFAS No. 123.
FISCAL FISCAL FISCAL
1997 1998 1999
-----------------------------
Net income-as reported (dollars in thousands) $4,831 $17,980 $16,149
Net income - pro forma (dollars in thousands) $4,532 $17,483 $15,585
Earnings per diluted share - as reported $0.37 $1.31 $1.17
Earnings per diluted share - pro forma $0.34 $1.27 $1.13
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
1997 1998 1999
--------------------------
Expected dividend yield 0.00% 0.00% 0.00%
Expected stock price
volatility 50.00% 50.00% 50.00%
Risk-free interest rate 5.39% 4.55% 6.60%
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.
13. ADVANCES TO OFFICERS
Advances were made by the Company in February, 1998 and February, 1999 in
the amounts of $1.6 million and $0.1 million to Raphael Benaroya, the
Company's Chairman of the Board, President and Chief Executive Officer. The
purpose of the advances was to finance payment of income taxes incurred in
connection with the exercise of stock options. These advances and their
related interest were refinanced as part of an issuance of a new note which
aggregated $2.4 million, which includes an additional advance of $0.7
million, in November 1999. The additional advance was to finance payment of
income taxes incurred in connection with the exercise of stock options and
to pay interest accrued on the note that was refinanced. Interest is
payable annually in cash at the prime rate. The note has 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 to Mr. Benaroya is secured by a pledge of the
shares of the Company's Common Stock issued upon the option exercises in
the amount of 899,719 shares. The note is a full recourse obligation of the
borrower.
An advance was made to George R. Remeta, the Company's Vice Chairman and
Chief Administrative Officer in the amount of $0.2 million in February,
1998 to finance payment of income taxes incurred in connection with the
exercise of stock options. Mr. Remeta repaid the advance in November, 1999
by surrendering shares of common stock having an equivalent market value.
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
1997 1998 1999
-----------------------
Interest (expense) income, net
per statements of income ($154) $1,201 $1,688
Non-cash interest 63 72 12
--------------------
Net cash interest (expense) income,
including interest income of
$984, $2,235 and $2,429 ($91) $1,273 $1,700
=======================
Income taxes paid $531 $8,376 $7,843
======================
Financing activities include the non-cash exercise of 1,076,955 and 350,000
stock options, in fiscal 1998 and fiscal 1999, respectively with the
exercise price paid by surrendering common stock held with a market value
equal to the cash payment in lieu of cash payment. Also included in
financing activities is a repayment of an officer loan in fiscal 1999 with
the repayment made by surrendering common stock to the Company held with a
market value equal to the loan, in lieu of cash payment.
15. CONTINGENCIES
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.
United Retail Group, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL 1999 VERSUS FISCAL 1998
Net sales for fiscal 1999 increased 1.1% from fiscal 1998, to $382.6
million from $378.6 million. Average stores open decreased 2.4% from 514 to
502 as underperforming stores were closed selectively. Comparable store
sales for fiscal 1999 increased 2.5%. There is no assurance that sales and
comparable store sales will continue to increase. Sales in channels of
distribution other than retail stores were not material (see,
"Shop-At-Home").
Gross profit was $99.9 million in fiscal 1999 compared with $102.8
million in fiscal 1998, decreasing as a percentage of net sales to 26.1%
from 27.1%. The decrease in gross profit as a percentage of net sales was
attributable primarily to an increase in marketing expenses as a percentage
of net sales. In addition, the merchandise margin rate decreased. The
increase in marketing expenses related principally to the conversion of
stores and proprietary credit cards to the Company's AVENUE(R) trade name
(see, "Stores") and to shop-at-home tests in the second half of fiscal
1999. The rate of shop-at-home marketing expenses incurred in the second
half of fiscal 1999 is expected to continue or increase.
General, administrative and store operating expenses declined to
$77.8 million in fiscal 1999 from $79.2 million in fiscal 1998, principally
as a result of reductions in incentive compensation and insurance costs. As
a percentage of net sales, general, administrative and store operating
expenses decreased to 20.3% from 20.9%.
During fiscal 1999, operating income was $22.1 million compared with
operating income of $23.5 million in fiscal 1998.
Net interest income increased to $1.7 million in fiscal 1999 from
$1.2 million in fiscal 1998, from a higher level of cash and cash
equivalents and higher interest rates.
The Company had a provision for income taxes of $7.6 million in
fiscal 1999, which included recording a deferred tax asset of $1.2 million
from the establishment of state net operating loss carryforwards. The
Company had a provision for income taxes of $10.1 million in fiscal 1998.
The Company had net income of $16.1 million for fiscal 1999. The
Company had net income of $18.0 million for fiscal 1998. Net income for
fiscal 1998 included both 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) and a $0.2 million
write-up of the deferred tax asset relating to compensation (see, "Fiscal
1998 Versus Fiscal 1997").
Excluding the $1.2 million benefit from the deferred tax asset in
fiscal 1999 and the $3.1 million capital gain and the $0.2 million write-up
of the deferred tax asset in fiscal 1998, the Company would have had net
income of $14.9 million for fiscal 1999 and $15.8 million for fiscal 1998.
The decline was attributable to the trade name conversion to AVENUE(R) and
to the shop-at-home tests that commenced in the third quarter of fiscal
1999. Shop-at-home tests are continuing and are expected to continue to
reduce net income from retail store sales.
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%.
Gross profit increased to $102.8 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 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
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 management stock options ("Performance Options"). 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 would be $15 per share (the price of the initial public offering
in fiscal 1992).
The Company had net income of $18.0 million for fiscal 1998, which
included the write- up of the compensation related deferred tax asset. 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). 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 capital gain, the write-ups and the allowance, the
Company would have had net income of $15.8 million for fiscal 1998 and $2.0
million for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided from operating activities in fiscal 1999 was $14.4
million.
The Company's cash and cash equivalents decreased to $45.2 million at
January 29, 2000 from $54.4 million at January 30, 1999.
Inventory increased to $55.3 million at January 29, 2000 from $45.6
million at January 30, 1999. The Company's inventory levels peak in early
May and November/December. During fiscal 1999, the highest inventory level
was $66.5 million.
Inventory levels increased in fiscal 1998 and in fiscal 1999,
respectively, to build inventories for the Company's developing shoe
business and to maintain higher levels of inventories of basic items of
apparel to assure availability. In addition, in fiscal 1998 deliveries of
Spring merchandise were received earlier than usual.
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.
Import purchases are made in U.S. dollars, are generally financed by
trade letters of credit and constituted approximately 60% of total
purchases in fiscal 1999.
Accounts payable increased in fiscal 1998 and fiscal 1999,
respectively, as a result of increased inventory levels.
United Retail Group, Inc. and certain of its subsidiaries
(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 any of the Companies to support trade letters of
credit and standby letters of credit and to finance loans. As of January
29, 2000, trade letters of credit for the account of the Companies and
supported by CIT were outstanding in the amount of $26.9 million.
Subject to the following paragraph, the availability of credit
(within the aggregate $40 million line of credit) to any 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 any 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 29,
2000, the combined availability of the Companies was $13.1 million; the
Pledged Account had a zero balance; 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, making loans, engaging in certain transactions with
affiliates, or consolidating, merging or making acquisitions outside the
ordinary course of business.
The Company's Board of Directors has authorized management, in its
discretion, to repurchase up to 1,600,000 shares of Common Stock of the
Company. No shares have been repurchased except in connection with the
exercise of employee stock options in which a portion of the shares
otherwise issuable has been classified as treasury shares (i) in lieu of
the payment by the optionholder of the exercise price in cash and (ii) to
finance the payment of income taxes incurred by the optionholder upon
exercise of the option.
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 for the next 12 months to
meet anticipated working capital needs, including seasonal inventory
financing, the cost of developing and marketing the AVENUE(R) internet test
site (see "Shop-at-Home") and increased retail store construction
costs (see, "Stores"), and to pay for any purchases of Common Stock of the
Company that may be made. 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 496 retail stores at January 29, 2000, of which
310 stores were located in strip shopping centers, 164 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 January 29, 2000
and a year earlier.
The stores and proprietary credit cards under Company trade names
that predate the Company's AVENUE(R) trade name were converted to the
AVENUE(R) trade name in the third quarter of fiscal 1999. The Company's
apparel and accessories bear the AVENUE(R) trademark, so the Company is now
able to project a consistent brand image-to be "a brand that is a store."
During the next 12 months, the Company plans to open from 35 to 50
new stores and 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 although start-up costs are expensed. 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".
SHOP-AT-HOME
The Company intends to enter a new channel of distribution for its
merchandise, internet and catalog sales ("shop-at-home"), in order to
expand its customer base and attract more business from its existing
customers.
The Company has operated a test site (www.cloudwalkers.com) for the
sale of its Cloudwalkers.com(TM) brand women's shoes on the internet since
the third quarter of fiscal 1999. Catalogs for Cloudwalkers.com(TM) have
also been distributed. Shop-at-home sales of Cloudwalkers.com(TM) have not
been material. Fulfillment of shop-at-home sales has been outsourced.
The Company plans to launch a site (www.avenue.com) during the second
half of fiscal 2000 for the sale of its AVENUE(R) brand apparel and
accessories on the internet. The Company may also distribute a catalogue
for AVENUE(R) merchandise. 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."
There is no assurance of gross profit on shop-at-home sales.
TAX MATTERS
The Company's federal income tax returns for fiscal 1994, fiscal 1995
and fiscal 1996 were audited by the Internal Revenue Service and settled
except for the auditor's disallowance of a refund claim, which the Company
protested. The refund claim, which would affect stockholders' equity rather
than the Company's earnings, is being reviewed by an IRS appeals officer
pursuant to the Company's protest.
RENOVATING COMPUTERIZED SYSTEMS
The Company's operations are heavily dependent on date sensitive
computerized systems, including (i) its management information systems,
(ii) the technology, including microcontrollers, 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 to finance
the Company's purchases of inventory abroad and (iv) links to a bank to
authorize purchases by customers using the Company's proprietary credit
card.
The Company's management information systems department (the "MIS
Department") renovated substantially all of the Company's applications
software, systems software and hardware (collectively referred to as
"Systems") to accommodate dates after 1999 (the "Year 2000 Project"). A few
ancillary Systems failed to accommodate dates after 1999 in actual practice
but the failures did not have a material adverse effect on the Company's
operations and were promptly remedied.
The Company's internal costs for the Year 2000 Project were
principally the related payroll costs for the MIS Department, estimated to
have been $1.1 million. The Company did not have a project tracking system
for the time that its associates spent on the Year 2000 Project. 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.
FUTURE RESULTS
Future results could differ materially from those currently
anticipated by the Company due to unforeseeable problems that might arise
and possible (i) extreme or unseasonable weather conditions, (ii)
miscalculation of fashion trends, (iii) shifting shopping patterns, both
within the specialty store sector and in the shop-at-home channel of
distribution, (iv) economic downturns, weakness in overall consumer demand,
and variations in the demand for women's fashion apparel, (v) increase in
prevailing rents, (vi) cost overruns, (vii) imposition by vendors, or their
third-party factors, of more onerous payment terms for domestic merchandise
purchases, (viii) acceleration in the rate of business failures and
inventory liquidations in the specialty store sector of the women's apparel
industry, and (ix) 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, or (h) increased costs of transportation.
FISCAL FISCAL FISCAL FISCAL FISCAL
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
FEB. 3, FEB. 1, JAN. 31, JAN. 30, JAN. 29,
1996 1997 1998 1999 2000
-------- -------- -------- --------- --------
(SHARES AND DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net Sales......................$369,173 $363,074 $361,751 $ 378,562 $382,631
Cost of goods sold, including
buying and occupancy costs... 292,790 289,421 278,078 275,811 282,754
Gross profit................... 76,383 73,653 83,673 102,751 99,877
General, administrative and
store operating expenses..... 80,170 80,063 80,469 79,221 77,778
Operating (loss) income........ (3,787) (6,410) 3,204 23,530 22,099
Non-operating income........... 0 0 0 3,113 0
Interest income (expense), net. 119 (413) (154) 1,201 1,688
(Loss) Income before taxes..... (3,668) (6,823) 3,050 27,844 23,787
(Benefit from) provision for
income....................... (957) (1,018) (828) 10,077 7,638
Provision for (benefit from)
write-down (write-up) of the
compensation related deferred
tax asset.................... 1,928 342 (953) (213) 0
Net (loss) income.............. (4,639) (6,147) 4,831 17,980 16,149
Net (loss) income per common
share:
Basic....................... ($.38) ($.50) $.40 $1.38 $1.23
Diluted..................... ($.38) ($.50) $.37 $1.31 $1.17
Weighted average number of
common shares outstanding:
Basic....................... 12,190 12,190 12,190 13,056 13,156
Diluted..................... 12,190 12,190 13,187 13,736 13,852
BALANCE SHEET DATA (AT PERIOD END):
Working capital................$ 38,394 $ 36,941 $ 43,875 $ 60,343 $ 61,098
Total assets................... 143,955 138,331 142,614 163,096 180,338
Long-term debt................. 0 0 0 0 0
Distribution center financing.. 12,333 11,355 10,308 9,172 7,944
Total stockholders' equity..... 86,283 80,213 85,044 101,147 117,757
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 Pricewaterhouse Coopers LLP, independent accountants, whose
report for the three fiscal years ended January 29, 2000 appears elsewhere
in this Annual Report.
* * * * * * * * * * * *
United Retail Group, Inc. is a leading specialty retailer of products
including AVENUE(R) brand apparel and accessories for large-size women and
Cloudwalkers.com(TM) brand shoes. The Company's brands present a
fashion-current, upscale image at prices that target the middle mass
market. The Company operates a nationwide chain of retail stores and
intends to enter the internet and catalog channel of distribution to expand
its customer base and attract more business from its existing customers.
* * * * * * * * * * * *
UNITED RETAIL GROUP CORPORATE OFFICERS & DIRECTORS
Raphael Benaroya
Chairman of the Board, President
and Chief Executive Officer*
George R. Remeta
Vice Chairman - Chief Administrative
Officer, Secretary and Director*
Kenneth P. Carroll
Senior Vice President -
General Counsel*
Ellen Demaio
Senior Vice President - Merchandise
James Broderick
Vice President - Shop-At-Home
Raymond W. Brown
Vice President - Associate Services
Carrie Cline-Tunick
Vice President - Product Design and
Development
Julie L. Daly
Vice President - Strategic Planning
Jeff Fink
Vice President - Real Estate
Kent Frauenberger
Vice President - Logistics
Jon Grossman
Vice President - Finance*
Charles E. Naff
Vice President - Sales
Bradley Orloff
Vice President - Marketing
Robert Portante
Vice President - MIS
Gerald Schleiffer
Vice President - Planning and Distribution
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.
Michael Goldstein
A Director of the Company, is the Chairman
of the Board of Toys "R" Us, a retailer
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
* * * * * * * * * * * *
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 07622; 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 10, 2000 was 9-5/8.
The following table sets forth the reported high and low sales prices of
the Common Stock as reported by Nasdaq for each calendar quarter indicated.
High Low High Low
--------------------------------------------
1998 1999
---- ----
First Quarter $6-3/4 $3-5/8 $11-5/8 $9-3/8
Second Quarter $16-13/16 $3-5/16 $15-5/16 $10-1/2
Third Quarter $16-1/8 $7-5/8 $15-1/8 $9-5/8
Fourth Quarter $12-1/8 $6-7/8 $12-1/2 $7-15/16
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
and certain of its subsidiaries 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 April 6, 2000 there were 430 record owners of Common Stock.
This report contains certain forward-looking statements concerning
the Company's operations and performance. (In making these statements, the
Company intends to take advantage of the provisions of the 1995 Private
Securities Litigation Reform Act.) Such forward-looking statements are
subject to uncertainties and other risk factors that could cause future
results to differ materially from those currently anticipated by the
Company. Certain risk factors are referred to in this report under the
caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Future Results." Other factors are detailed in the
Company's filings with the SEC, including the Company's Annual Report on
Form 10-K.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-47407, 33-48500, 33-48501, 333-64643
and 33-67288) of United Retail Group, Inc. and Subsidiaries (the "Company")
of our report dated February 12, 2000, relating to the financial
statements, which appears in the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
reference to us under the heading "Selected Financial Data" which appears
in the Annual Report to Stockholders.
/s/ Pricewaterhousecoopers LLP
PRICEWATERHOUSECOOPERS LLP
New York, New York
April 21, 2000
Exhibit 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 29, 2000 of our
report dated February 24, 2000, 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, 1999 and 1998, 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
March 31, 2000
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