-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GBMHjVJt95HIe6vAjdzChpj7lMwopf4X1sdYdjxP5arIg3R1jOfPaUme8zc//UZC XwcgiuXqc58z9db2/m3u/g== 0000950116-99-000797.txt : 19990423 0000950116-99-000797.hdr.sgml : 19990423 ACCESSION NUMBER: 0000950116-99-000797 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990130 FILED AS OF DATE: 19990422 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RETAIL GROUP INC/DE CENTRAL INDEX KEY: 0000881905 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 510303670 STATE OF INCORPORATION: DE FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19774 FILM NUMBER: 99598746 BUSINESS ADDRESS: STREET 1: 365 WEST PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018450880 MAIL ADDRESS: STREET 1: 365 W PASSAIC STREET STREET 2: 365 W PASSAIC STREET CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________________ to ______________________ Commission file number 019774 ------ United Retail Group, Inc. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51 0303670 - ------------------------------ ------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 365 West Passaic Street, Rochelle Park, NJ 07662 - ------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 845-0880 -------------- 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 --------------------------------------- (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___(Check mark)___ NO _______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of March 31, 1999, the aggregate market value of the voting stock of the registrant (also referred to herein as the "Company") held by non-affiliates of the registrant was approximately $86.8 million. For purposes of the preceding sentence only, affiliate status was determined on the basis that all stockholders of the registrant are non-affiliates except stockholders who have filed statements with the Securities and Exchange Commission (the "SEC") under Section 16(a) of the 1934 Act. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the 1934 Act subsequent to the distribution of securities under a plan confirmed by a court. YES _______ NO _______ APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of April 16, 1999, 13,099,588 shares of the registrant's common stock, $.001 par value per share, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant's annual report for the year ended January 30, 1999 (the "1998 Annual Report to Stockholders") is incorporated in part by reference in Part I and Part II of this Form 10-K. The registrant's proxy statement on Schedule 14A for its 1999 annual meeting of stockholders (the "1999 Proxy Statement") is incorporated in part by reference in Part I and Part III of this Form 10-K. PART I Item 1. Business. Overview The Company is a leading nationwide specialty retailer of large-size women's apparel and accessories, offering merchandise using the Company's AVENUE trademark. The Company's merchandising strategy is to offer its customers merchandise of the same quality and variety available in smaller sizes. The Company also carries lines of women's comfort shoes, offering both its own brand and a national brand. The Company operates stores principally under the names THE AVENUE(R) and Sizes Unlimited. Customer Base The Company serves the mass market and targets fashion-conscious women between 18 and 50 years of age who wear size 14 or larger apparel. The Company believes that the large-size customer often has fewer store alternatives in nearby shopping malls and strip shopping centers than her smaller-size counterpart although in recent years new entrants in the market segment have expanded the available alternatives. History The Company was incorporated in 1987 and completed its initial public offering in 1992. The Company's current business resulted from an internal reorganization at The Limited, Inc. ("The Limited") in 1987, in which The Limited combined its underperforming The Avenue(R) store group (then operating under the Lerner Woman trade name) with the Sizes Unlimited store group. Raphael Benaroya, the Company's Chairman of the Board, President and Chief Executive Officer, and his management team were selected to manage the combined businesses. Merchandising and Marketing The Company's strategy is to offer its customers a proprietary brand in moderately priced apparel and accessories. It emphasizes consistency of merchandise quality and fit and updates its merchandise selections to reflect customer demand and fashion trends. The apparel industry is subject to rapidly changing consumer fashion preferences and the Company's performance depends on its ability to respond quickly to changes in fashion. Each store operated by the Company offers selections of casual wear, career apparel, specialty items and accessories. The casual wear assortment includes comfortably fitted jeans, slacks, T-shirts, skirts, active wear and sweaters. Casual wear comprises the majority of the Company's sales. The career assortment includes skirts, soft blouses, dresses and coats. Specialty items include sleepwear and lingerie. Accessories include earrings, pins, scarves, socks, hosiery and a selection of gift items. Some Company stores also offer shoes. The Company offers most of its merchandise at popular or moderate price points, including blouses in the $20 to $40 price range, jeans and slacks in the $20 to $35 price range and dresses and suits in the $49 to $99 price range. The Company promotes merchandise with its own brand, which generally has higher gross profit margins than national brands would have. The Company believes that its brand, AVENUE, creates an image that helps distinguish it from competitors. Through careful brand management, including consistent imaging of its brand, the Company believes it enhances brand recognition and the customer's perception of value. Garments are tagged, packaged and presented at the Company's stores in a manner consistent with more expensive merchandise with national brand names. The Company develops new merchandise assortments on average four to six times each year. Merchandise selection is allocated to each store based on many factors, including store location, store profile and sales experience. The Company regularly updates each store's profile based on its customers' fashion and price preferences and local demographics. The Company's point-of-sale systems gather financial, credit, inventory and other statistical information from each store on a daily basis. This information is then used to evaluate and adjust each store's merchandise mix on a weekly basis. The Company uses creative merchandise displays, distinctive signage and upscale packaging to create an attractive store atmosphere. To further stimulate store traffic, the Company frequently uses credit card inserts with announcements of upcoming events. Merchandise Distribution and Inventory Management The Company believes that short production schedules and rapid movement of merchandise from manufacturers to its stores are vital to minimize business risks arising from changing fashion trends. The Company uses a centralized distribution system, under which all merchandise is received, processed and distributed through a distribution complex located in Troy, Ohio. Merchandise received at the distribution center is promptly assigned to individual stores, packed for delivery and shipped to the stores. The Company maintains a worldwide logistics network of agents and space availability arrangements to support the in-bound movement of merchandise into the distribution complex. The out-bound system consists of common carrier line haul routes connecting the distribution complex to a network of delivery agents. This system enables the Company to provide every store with frequent deliveries. The Company does not own or operate trucks or trucking facilities. The Company manages its inventory levels, merchandise allocation to stores and sales replenishing for each store through its computerized management information systems, which enable the Company to profile each store and evaluate and adjust each store's merchandise mix on a weekly basis. New merchandise is allocated by style, color and size immediately before shipment to stores to achieve a merchandise assortment that is suited to each store's customer base. The Company's inventory management strategy is designed to maintain targeted inventory turnover rates and minimize the amount of unsold merchandise at the end of a season by closely comparing sales and fashion trends with on-order merchandise and making necessary purchasing adjustments. Additionally, the Company uses markdowns and promotions as necessary. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," which is a section in the Company's 1998 Annual Report to Stockholders. Management Information Systems The applications software for the Company's management information systems was acquired by the Company from The Limited in 1989 and has been modified by the Company's MIS Department. The Company's management information systems consist of a full range of store, financial and merchandising systems, including credit, inventory distribution and control, sales reporting, accounts payable, cash/credit, merchandise reporting and planning. All of the Company's stores have point-of-sale terminals that transmit daily information on sales by merchandise category as well as style, color and size. The Company evaluates this information, together with its report on merchandise shipments to the stores, to implement merchandising decisions regarding markdowns, reorders of fast-selling items and allocation of merchandise. In addition, the Company's headquarters and distribution center are linked through an interactive computer network. Company employees located at its headquarters maintain and support the applications software, operations, networking and point-of-sale functions of the Company's management information systems. The hardware and systems software for the Company's management information systems are maintained by Integrated Systems Solutions Corporation, a wholly-owned subsidiary of IBM. Purchasing Separate groups of merchants are responsible for different categories of merchandise. Most of the merchandise purchased by the Company consists of custom designed garments produced for the Company by contract manufacturing, under the Company's brand. An item of merchandise is test marketed, whenever possible, in limited quantities prior to mass production to help identify the current fashion preferences of the Company's customers. The Company provides manufacturers with strict guidelines for size specifications and gradings to ensure proper, consistent fit across product categories. The Company and independent sourcing agents monitor production by manufacturers in the United States and abroad to ensure that size specifications, grading requirements and other specifications are met. In Fiscal 1998, each of three vendors accounted for more than 5% but less than 10% of the Company's merchandise purchases. The loss of these vendors would not have a materially adverse effect on the Company's operations. Domestic purchases (some of which are foreign-made products) are executed by Company purchase orders. Import purchases are made in U.S. dollars and are generally supported by letters of credit. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Credit Sales The Company permits its customers to use several methods of payment, including cash, personal checks, third-party credit cards, layaways and its own credit cards. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Proprietary Credit Cards." Competition All aspects of the women's retail apparel business are highly competitive. Many of the competitors are units of large national chains that have substantially greater resources than the Company. Management believes its principal competitors include all major national and regional department stores, specialty retailers (including Lane Bryant, Inc. which is a subsidiary of The Limited, and which management believes is the largest specialty retailer of large-size women's apparel), discount stores, mail order companies, television shopping channels and interactive electronic media. Management believes its merchandise selection, prices, consistency of merchandise quality and fit, and appealing shopping experience emphasizing strong merchandise presentations, together with its experienced management team, management information systems and logistics capabilities, enable it to compete in the marketplace. Operational Factors The Company's operations may be adversely affected by circumstances beyond its control. See, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Future Results." Trade Names and Trademarks The Company is the owner in the United States of its principal trade name, THE AVENUE, used on store fronts, and trademark, AVENUE, used on garment labels. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Stores." The Company is also the sublicensee of a national brand name of hosiery, sleepwear and foundations. See, "Certain Transactions" in the 1999 Proxy Statement. The Company is not aware of any use of its principal trade name or trademark by its competitors that has a material effect on the Company's operations or any material claims of infringement or other challenges to the Company's right to use its principal trade name and trademark in the United States. Employees As of March 31, 1999, the Company employed approximately 4,700 associates, of whom approximately 1,800 worked full-time and the balance of whom worked part-time. Considerable seasonality is associated with employment levels. Approximately 60 store associates are covered by collective bargaining agreements. The Company believes that its relations with its associates are good. Item 2. Properties. As of March 31, 1999, the Company operated stores in 36 states: Alabama 6 Nevada 2 Arizona 4 New Hampshire 2 Arkansas 1 New Jersey 41 California 76 New Mexico 1 Connecticut 11 New York 50 Delaware 1 North Carolina 9 Florida 17 Ohio 19 Georgia 20 Oklahoma 3 Illinois 35 Oregon 7 Indiana 12 Pennsylvania 18 Iowa 1 Rhode Island 1 Kentucky 4 South Carolina 7 Louisiana 11 Tennessee 10 Maine 1 Texas 34 Maryland 16 Utah 1 Massachusetts 20 Virginia 11 Michigan 26 Washington 11 Missouri 6 Wisconsin 7 Total: 502 The Company leases its executive offices, which consist of approximately 56,000 square feet in an office building at 365 West Passaic Street, Rochelle Park, New Jersey. The office lease has a term ending in August 2006. The Company owns a 128-acre site on Interstate 75 in Troy, Ohio, on which its national distribution center is located. The national distribution center is equipped to service 900 stores. The site is adequate for a total of four similar facilities. Item 3. Legal Proceedings. The Company is defending various routine legal proceedings incidental to the conduct of its business and is maintaining reserves that include, among other things, the estimated cost of uninsured payments to accident victims and payments to landlords and vendors of goods and services resulting from certain disputes. Based on legal advice that it received, management believes that, giving effect to reserves and insurance coverage, these legal proceedings are not likely to have a material adverse effect on the financial condition or results of operations of the Company. No material pending legal proceeding to which the Company was a party was terminated during the fourth quarter of the fiscal year ended January 30, 1999. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The section captioned "Shareholder Information" in the 1998 Annual Report to Stockholders is incorporated herein by reference. (Only those portions of the 1998 Annual Report to Stockholders incorporated by reference in another document filed with the SEC shall be deemed "filed" in accordance with the rules and regulations promulgated by the SEC.) The Company registered under the Securities Act of 1933 all securities that it issued in the year ended January 30, 1999, consisting of stock options granted to associates and directors of the Company and shares of common stock issued upon the exercise of such stock options. Item 6. Selected Financial Data. The section captioned "Selected Financial Data" in the 1998 Annual Report to Stockholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1998 Annual Report to Stockholders is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements in the 1998 Annual Report to Stockholders are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The subsection captioned "Election of Directors - Business and Professional Experience" in the 1999 Proxy Statement is incorporated herein by reference. In addition to Raphael Benaroya and George R. Remeta, the executive officers of the registrant or its subsidiaries are: Kenneth P. Carroll, age 56, was the Company's Vice President - General Counsel from before 1994 to March 1996, when he was elected the Senior Vice President - General Counsel. Ellen Demaio, age 41, was a Vice President - Merchandise of United Retail Incorporated from before 1994 to February 1995, when she was elected the Senior Vice President - Merchandise of United Retail Incorporated. Kevin Burke, age 43, has been Vice President - Footwear of United Retail Incorporated since January 1999. In 1998, he was self employed as a business consultant. Previously, he was the Division President of Easy Spirit - Retail at Nine West Group, Inc., a footwear manufacturer, since before 1994. Carrie Cline-Tunick, age 38, has been the Vice President - Product Design and Development of United Retail Incorporated since April 1996. Previously, she was the Design Director of Norton McNaughton, Inc., a garment manufacturer, from April 1996 to before 1994. Julie L. Daly, age 44, has been the Vice President - Strategic Planning of United Retail Incorporated since December 1996. Previously, she was the Vice President - Planning and Distribution of United Retail Incorporated since prior to 1994. Kent Frauenberger, age 52, has been the Vice President - Logistics of United Retail Logistics Operations Incorporated since before 1994. Jon Grossman, age 41, has been the Vice President - Finance of the Company since before 1994. Alan R. Jones, age 51, has been the Vice President - Real Estate of United Retail Incorporated since November 1994. Previously, he was Vice President - Real Estate of Payless Shoesource, a division of May Department Stores, Inc., since before 1994. Charles E. Naff, age 55, has been the Vice President - Sales of United Retail Incorporated since August 1996 and was the Director of Stores of United Retail Incorporated from March 1994 to before 1994. He was the Vice President - Store Operations of Leejay Bed and Bath, a retail chain, between August 1996 and March 1994. Bradley Orloff, age 41, has been the Vice President - Marketing of United Retail Incorporated since before 1994. Robert Portante, age 47, has been the Vice President - MIS of United Retail Incorporated since November 1994. Previously, he was Vice President - MIS of Brooks Fashion Stores, Inc. ("Brooks"), a retail store chain, since before 1994. Brooks filed as debtor-in-possession under the United States Bankruptcy Code. Fredric E. Stern, age 50, has been the Vice President - Controller of United Retail Incorporated since before 1994. The term of office of these executive officers will expire at the 1999 annual meeting of stockholders, scheduled to be held in May 1999. The section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1999 Proxy Statement is incorporated herein by reference. Item 11. Executive Compensation. The sections captioned "Executive Compensation" and "Report of Compensation Committee" in the 1999 Proxy Statement are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The sections captioned "Security Ownership of Principal Stockholders" and "Security Ownership of Management" in the 1999 Proxy Statement are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The sections captioned "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation" in the 1999 Proxy Statement are incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Amendment, dated March 29, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and The CIT Group/Business Credit, Inc. ("CIT") 10.2 Financial Statements of Retirement Savings Plan for year ended December 31, 1998 13 Sections of 1998 Annual Report to Stockholders (including opinion of Independent Public Accountants) that are incorporated by reference in response to the items of the Annual Report on Form 10-K 21 Subsidiaries of the Corporation 23.1 Consent of Independent Public Accountants for the Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule The form of Additional Options set forth as the Appendix to the Corporation's proxy statement on Schedule 14A for its 1998 annual meeting of stockholders is incorporated herein by reference.* The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya 10.2* Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta 10.3* Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll 10.4* Employment Agreement, dated March 26, 1998, between the Corporation and Carrie Cline-Tunick and amendment thereto. The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya 10.2* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 4.1 Amended By-Laws of the Corporation 10.1 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto 10.2 Private Label Credit Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank (Confidential portions have been deleted and filed separately with the Secretary of the Commission) 10.4* Restated 1990 Stock Option Plan as of March 6, 1998 10.5* Restated 1990 Stock Option Plan as of May 28, 1996 10.6* Restated 1996 Stock Option Plan as of March 6, 1998 10.7* Restated 1989 Performance Option Plan as of May 6, 1998 The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated September 15, 1997, to Financing Agreement among the Corporation, United Retail Incorporated and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 2, 1997 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Financing Agreement, dated August 15, 1997, among the Corporation, United Retail Incorporated and CIT 10.2* Amendment No. 1 to Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. (Confidential portions have been deleted and filed separately with the Secretary of the Commission) The following exhibits to the Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibit to the Corporation's Annual Report on Form 10-K for the year ended January 28, 1995 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Incentive Compensation Program Summary The following exhibits to the Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.12 Amended and Restated Master Affiliate Sublease Agreement, dated as of July 17, 1989, among Lane Bryant, Inc., Lerner Stores, Inc. (Landlord) and Sizes Unlimited, Inc. (Tenant) and Amendment thereto, dated July 17, 1989 10.33* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 10.34* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.38 Management Services Agreement, dated August 26, 1989, between American Licensing Group, Inc. and ALGLP 10.39 First Refusal Agreement, dated as of August 31, 1989, between the Corporation and ALGLP -------------------- *A compensatory plan for the benefit of the Corporation's management or a management contract. (b) No Current Reports on Form 8-K were filed by the Corporation during the fiscal quarter ended January 30, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (Registrant) UNITED RETAIL GROUP, INC. ------------------------- By: /s/ Raphael Benaroya ---------------------------------------- Raphael Benaroya, Chairman of the Board, President and Chief Executive Officer Date: April 21, 1999 -------------- 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 - -------------------- Raphael Benaroya Chairman of the Board, April 21, 1999 Principal Executive Officer President, Chief Executive Officer and Director /s/ George R. Remeta - -------------------- George R. Remeta Vice Chairman, April 21, 1999 Principal Financial Officer Chief Financial Officer, Secretary and Director /s/ Jon Grossman - ---------------- Jon Grossman Vice President - Finance April 21, 1999 Principal Accounting Officer /s/ Joseph A. Alutto - -------------------- Joseph A. Alutto Director April 21, 1999 /s/ Russell Berrie - ------------------ Russell Berrie Director April 21, 1999 - ---------------------- Joseph Ciechanover Director /s/ Ilan Kaufthal - ----------------- Ilan Kaufthal Director April 21, 1999 - ---------------------- Vincent P. Langone Director /s/ Richard W. Rubenstein - ------------------------- Richard W. Rubenstein Director April 21, 1999
UNITED RETAIL GROUP, INC. EXHIBIT INDEX The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Amendment, dated March 29, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and The CIT Group/Business Credit, Inc. ("CIT") 10.2 Financial Statements of Retirement Savings Plan for year ended December 31, 1998 13 Sections of 1998 Annual Report to Stockholders (including opinion of Independent Public Accountants) that are incorporated by reference in response to the items of the Annual Report on Form 10-K 21 Subsidiaries of the Corporation 23.1 Consent of Independent Public Accountants for the Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule The form of Additional Options set forth as the Appendix to the Corporation's proxy statement on Schedule 14A for its 1998 annual meeting of stockholders is incorporated herein by reference.* The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya 10.2* Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta 10.3* Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll 10.4* Employment Agreement, dated March 26, 1998, between the Corporation and Carrie Cline-Tunick and amendment thereto. The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya 10.2* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 4.1 Amended By-Laws of the Corporation 10.1 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto 10.2 Private Label Credit Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank (Confidential portions have been deleted and filed separately with the Secretary of the Commission) 10.4* Restated 1990 Stock Option Plan as of March 6, 1998 10.5* Restated 1990 Stock Option Plan as of May 28, 1996 10.6* Restated 1996 Stock Option Plan as of March 6, 1998 10.7* Restated 1989 Performance Option Plan as of May 6, 1998 The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated September 15, 1997, to Financing Agreement among the Corporation, United Retail Incorporated and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 2, 1997 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Financing Agreement, dated August 15, 1997, among the Corporation, United Retail Incorporated and CIT 10.2* Amendment No. 1 to Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. (Confidential portions have been deleted and filed separately with the Secretary of the Commission) The following exhibits to the Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibit to the Corporation's Annual Report on Form 10-K for the year ended January 28, 1995 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Incentive Compensation Program Summary The following exhibits to the Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.12 Amended and Restated Master Affiliate Sublease Agreement, dated as of July 17, 1989, among Lane Bryant, Inc., Lerner Stores, Inc. (Landlord) and Sizes Unlimited, Inc. (Tenant) and Amendment thereto, dated July 17, 1989 10.33* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 10.34* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.38 Management Services Agreement, dated August 26, 1989, between American Licensing Group, Inc. and ALGLP 10.39 First Refusal Agreement, dated as of August 31, 1989, between the Corporation and ALGLP - -------------------- *A compensatory plan for the benefit of the Corporation's management or a management contract. 10-K199 EX-10.1 2 EXHIBIT 10.1 EXHIBIT NO. 10.1 The CIT Group/ Business Credit 1211 Avenue of the Americas New York, NY 10036 212-536-1200 THE CIT GROUP March 29, 1999 UNITED RETAIL GROUP, INC. UNITED RETAIL INCORPORATED 365 West Passaic Street Rochelle Park, NJ 07662 Gentlemen: We refer to the Financing Agreement by and among United Retail Group, Inc. ("URGI") United Retail Incorporated ("URI" and together with URGI the "Companies"), The CIT Group/Business Credit, Inc., as Agent and Lender, FirsTrust Bank, as Lender and other parties hereafter becoming the Lenders thereunder, dated August 15, 1997, as amended (herein the "Agreement"). Capitalized terms used herein and defined in the Agreement shall have the meanings specified therein unless otherwise specifically defined herein. Effective immediately pursuant to mutual understanding, Section 1 of the Agreement shall be and hereby is, amended by amending the definition of "Anniversary Date" as set forth therein in its entirety to read as follows: "Anniversary Date" shall mean August 15, 2001 and the same date in each year thereafter." Except as hereinabove specifically provided no other change in or waiver of the terms, provisions or conditions of the Agreement is intended or implied. If the foregoing is in accordance with your understanding of our agreement kindly so indicate by signing and returning the enclosed copy of this letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC., as Agent and Lender By: /s/ Karen Hoffman ------------------------------ Title: Assistant Vice President FIRSTRUST BANK, as Lender By: /s/ Edward D'Ancona ------------------------------ Title: Executive Vice President Read and Agreed to: UNITED RETAIL GROUP, INC. By: /s/ Jon Grossman ------------------------ Title: Vice President UNITED RETAIL INCORPORATED By: /s/ Kenneth P. Carroll ------------------------ Title: President EX-10.2 3 EXHIBIT 10.2 [LETTERHEAD] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of United Retail Group, Inc. and the Plan Administrator of the United Retail Group Retirement Savings Plan: We have audited the accompanying statements of net assets available for benefits of the United Retail Group Retirement Savings Plan as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing stan dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1998 and 1997, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of investments held for investment purposes, loans or fixed income obligations, and reportable transactions are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Ary, Earman and Roepcke --------------------------- Ary, Earman and Roepcke Columbus, Ohio, February 24, 1999. UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1998
Company Balanced Fixed Equity Aggressive Int'l Total Stock Fund Fund Fund Fund Fund Fund ----- ---------- -------- ----- ------ ---------- ----- ASSETS Investments, at Fair Value: Common Stock: United Retail Group, Inc. $ 948,967 $ 948,967 $ - $ - $ - $ - $ - Other 7,062 - - - - - - Shares of Registered Investment Companies: Scudder Balanced Fund 2,003,077 - 2,003,077 - - - - Scudder Cash Investment Trust 2,008,561 - - 2,008,561 - - - Scudder Growth and Income Fund 2,023,589 - - - 2,023,589 - - Franklin Small Cap Growth Fund 705,645 - - - - 705,645 - Warburg Pincus International Equity 337,051 - - - - - 337,051 Other 275,655 1,684 - - - - - Participant Loans 336,038 - - - - - - ---------- ---------- ---------- ---------- ----------- ---------- ---------- Total Investments 8,645,645 950,651 2,003,077 2,008,561 2,023,589 705,645 337,051 Cash 1,888 835 - - - - 1,053 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Total Assets 8,647,533 951,486 2,003,077 2,008,561 2,023,589 705,645 338,104 ---------- ---------- ---------- ---------- ----------- ---------- ---------- LIABILITIES Due to Brokers 1,883 830 - - - - 1,053 Administrative Fees Payable 5,732 140 1,585 3,364 627 8 8 ---------- ---------- ---------- ---------- ----------- ---------- ---------- Total Liabilities 7,615 970 1,585 3,364 627 8 1,061 ---------- ---------- ---------- ---------- ----------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $8,639,918 $ 950,516 $2,001,492 $2,005,197 $ 2,022,962 $ 705,637 $ 337,043 ========== ========== ========== ========== =========== ========== ========== Self Directed Brokerage Loan Account/Other Fund ------------- ---- ASSETS Investments, at Fair Value: Common Stock: United Retail Group, Inc. $ - $ - Other 7,062 - Shares of Registered Investment Companies: Scudder Balanced Fund - - Scudder Cash Investment Trust - - Scudder Growth and Income Fund - - Franklin Small Cap Growth Fund - - Warburg Pincus International Equity - - Other 273,971 - Participant Loans - 336,038 ---------- ---------- Total Investments 281,033 336,038 Cash - - ---------- ---------- Total Assets 281,033 336,038 ---------- ---------- LIABILITIES Due to Brokers - - Administrative Fees Payable - - ---------- ---------- Total Liabilities - - ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $ 281,033 $ 336,038 ========== ==========
The accompanying notes are an integral part of this financial statement. F-1 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1997
Company Balanced Fixed Equity Aggressive Int'l Total Stock Fund Fund Fund Fund Fund Fund ----- ---------- -------- ----- ------ ---------- ----- ASSETS Investments, at Fair Value: Common Stock: United Retail Group, Inc. $ 287,503 $ 287,503 $ - $ - $ - $ - $ - Other 5,973 - - - - - - Shares of Registered Investment Companies: Scudder Balanced Fund 1,665,349 - 1,665,349 - - - - Scudder Cash Investment Trust 1,821,467 - - 1,821,467 - - - Scudder Growth and Income Fund 1,945,426 - - - 1,945,426 - - Janus Enterprise Fund 685,536 - - - - 685,536 - Warburg Pincus International Equity 349,042 - - - - - 349,042 Other 196,955 - - - - - - Participant Loans 351,094 - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $7,308,345 $ 287,503 $1,665,349 $1,821,467 $1,945,426 $ 685,536 $ 349,042 ========== ========== ========== ========== ========== ========== ========== Self Directed Brokerage Loan Account/Other Fund ------------- ---- ASSETS Investments, at Fair Value: Common Stock: United Retail Group, Inc. $ - $ - Other 5,973 - Shares of Registered Investment Companies: Scudder Balanced Fund - - Scudder Cash Investment Trust - - Scudder Growth and Income Fund - - Janus Enterprise Fund - - Warburg Pincus International Equity - - Other 196,955 - Participant Loans - 351,094 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $ 202,928 $ 351,094 ========== ==========
The accompanying notes are an integral part of this financial statement. F-2 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1998
Company Balanced Fixed Equity Aggressive Int'l Total Stock Fund Fund Fund Fund Fund Fund ----- ---------- -------- ----- ------ ---------- ----- Investment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ 738,400 $ 530,593 $ 206,266 $ - $ (73,929) $ (11,861) $ 14,578 Mutual Funds 431,962 80 137,312 88,324 190,820 11,699 25 Interest 26,503 - - - - - - Dividend 216 - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Investment Income (Loss) 1,197,081 530,673 343,578 88,324 116,891 (162) 14,603 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Contributions: Employer 170,685 12,602 39,850 25,066 55,184 26,936 11,047 Participants 847,441 42,369 187,508 167,806 268,125 128,126 53,507 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Contribution 1,018,126 54,971 227,358 192,872 323,309 155,062 64,554 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Loan Repayments - 6,159 45,862 50,828 48,308 18,363 10,630 Loans Issued - (12,902) (48,941) (51,944) (44,666) (11,761) (10,286) Interfund Transfers - 139,504 (56,034) 52,649 (84,524) (21,003) (32,026) Administrative Expense (33,798) (823) (9,333) (19,852) (3,693) (47) (50) Benefits to Participants (849,836) (54,569) (166,347) (129,147) (278,089) (120,351) (59,424) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Increase (Decrease) in Net Assets Available for Benefits 1,331,573 663,013 336,143 183,730 77,536 20,101 (11,999) Beginning Net Assets Available for Benefits 7,308,345 287,503 1,665,349 1,821,467 1,945,426 685,536 349,042 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ending Net Assets Available for Benefits $8,639,918 $ 950,516 $2,001,492 $2,005,197 $2,022,962 $ 705,637 $ 337,043 ========== ========== ========== ========== ========== ========== ========== Self Directed Brokerage Loan Account/Other Fund ------------- ---- Investment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ 72,753 $ - Mutual Funds 3,702 - Interest - 26,503 Dividend 216 - ---------- ---------- Total Investment Income (Loss) 76,671 26,503 ---------- ---------- Contributions: Employer - - Participants - - ---------- ---------- Total Contribution - - ---------- ---------- Loan Repayments - (180,150) Loans Issued - 180,500 Interfund Transfers 1,434 - Administrative Expense - - Benefits to Participants - (41,909) ---------- ---------- Increase (Decrease) in Net Assets Available for Benefits 78,105 (15,056) Beginning Net Assets Available for Benefits 202,928 351,094 ---------- ---------- Ending Net Assets Available for Benefits $ 281,033 $ 336,038 ========== ==========
The accompanying notes are an integral part of this financial statement. F-3 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1997
Company Balanced Fixed Equity Aggressive Int'l Total Stock Fund Fund Fund Fund Fund Fund ----- ---------- -------- ----- ------ ---------- ----- Investment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ 467,300 $ 52,323 $ 223,334 $ - $ 269,056 $ 33,065 $ (68,476) Mutual Funds 483,396 - 99,124 94,079 183,248 40,969 49,793 Interest 25,312 - - - - - - Dividend 53 - - - - - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Investment Income (Loss) 976,061 52,323 322,458 94,079 452,304 74,034 (18,683) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Contributions: Employer 181,440 15,589 38,579 40,455 48,318 27,264 11,235 Participants 828,786 33,852 178,529 164,277 256,517 139,379 56,232 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Contribution 1,010,226 49,441 217,108 204,732 304,835 166,643 67,467 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Loan Repayments - 5,748 36,654 40,508 41,436 16,280 11,124 Loans Issued - (2,825) (80,204) (41,703) (38,317) (17,426) (7,003) Interfund Transfers - 35,670 (7,945) (313,701) 90,854 (19,483) (14,089) Administrative Expense (40,411) - (11,225) (23,970) (4,962) - (254) Benefits to Participants (964,847) (25,516) (292,321) (183,768) (331,884) (55,725) (31,172) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Increase (Decrease) in Net Assets Available for Benefits 981,029 114,841 184,525 (223,823) 514,266 164,323 7,390 Beginning Net Assets Available for Benefits 6,327,316 172,662 1,480,824 2,045,290 1,431,160 521,213 341,652 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ending Net Assets Available for Benefits $7,308,345 $ 287,503 $1,665,349 $1,821,467 $1,945,426 $ 685,536 $ 349,042 ========== ========== ========== ========== ========== ========== ========== Self Directed Brokerage Loan Account/Other Fund ------------- ---- Investment Income: Net Appreciation (Depreciation) in Fair Value of Investments $ (42,002) $ - Mutual Funds 16,183 - Interest - 25,312 Dividend 53 - ---------- ---------- Total Investment Income (Loss) (25,766) 25,312 ---------- ---------- Contributions: Employer - - Participants - - ---------- ---------- Total Contribution - - ---------- ---------- Loan Repayments - (151,750) Loans Issued - 187,478 Interfund Transfers 228,694 - Administrative Expense - - Benefits to Participants - (44,461) ---------- ---------- Increase (Decrease) in Net Assets Available for Benefits 202,928 16,579 Beginning Net Assets Available for Benefits - 334,515 ---------- ---------- Ending Net Assets Available for Benefits $ 202,928 $ 351,094 ========== ==========
The accompanying notes are an integral part of this financial statement. F-4 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (1) DESCRIPTION OF THE PLAN General The United Retail Group Retirement Savings Plan (the "Plan") is a defined contribution plan covering certain employees of United Retail Group, Inc. and its affiliates (the "Employer") who are at least 21 years of age and have completed 1,000 or more hours of service during their first consecutive twelve months of employment or any calendar year beginning in or after their first consecutive twelve months of employment. Certain employees of the Employer, who are covered by a collective bargaining agreement, are not eligible to participate in the Plan. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended. Amendments Effective January 1, 1998, the Plan was amended to increase the maximum allowable percentage as noted under "Contributions" below. Effective January 1, 1997, the Plan was amended and restated to, among other things, (1) allow in-service withdrawals as noted under "Payment of Benefits" below, and (2) make certain changes in the Plan as were required by law. Contributions Employer Contributions: The Employer may provide a 50% matching contribution on the first 3% of a participant's voluntary contributions. Participant Voluntary Contribution: A participant may elect to make a voluntary tax-deferred contribution of 1% to 15% of his or her annual compensation up to the maximum permitted under Section 402(g) of the Internal Revenue Code adjusted annually ($10,000 at December 31, 1998). Prior to January 1, 1998 a voluntary tax-deferred contribution up to only 12% was allowed. The annual compensation of each participant taken into account under the Plan is limited to the maximum amount permitted under Section 401(a)(17) of the Internal Revenue Code. The annual compensation limit for the Plan year ended December 31, 1998, was $160,000. This voluntary tax-deferred contribution may be limited by Section 401(k) of the Internal Revenue Code. F-5 Vesting A participant is fully and immediately vested for voluntary and rollover contributions and is credited with a year of vesting service in the Employer's contributions for each Plan year that they are credited with a least 500 hours of service. A summary of vesting percentages in the Employer's contributions follows: Years of Vesting Service Percentage ------------------------ ---------- Less than 3 years 0% 3 years 20 4 years 40 5 years 60 6 years 80 7 years 100 Payment of Benefits The full value of participants' accounts becomes payable upon retirement, disability, or death. Upon termination of employment for any other reason, participants' accounts, to the extent vested, become payable. Participants will receive any benefit to which they are entitled in the form of, (1) lump-sum cash distribution, with those participants holding more than 100 shares of Employer Securities receiving shares for the portion of their account invested in Employer Securities, (2) if eligible a payment directly to an eligible retirement plan specified by the Participant or (3) if the account balance is greater than $3,500 and the Participant has attained age 70-1/2, cash installments over a period not extending beyond the life expectancy of the Participant or the joint and last survivor life expectancies of the Participant and a designated Beneficiary. Those participants with vested account balances more than $5,000 have the option of leaving their accounts invested in the Plan until age 65. Participants may make in-service withdrawals from their account of participant deferrals if they have obtained the age of 59-1/2 and all vested amounts if they have obtained the age of 65, based on the terms of the plan. Participant Loans Participants are permitted to borrow from their account the lesser of $50,000 or 50% of the vested balance of their account for a term of not more than five years with repayment made from payroll deductions. All loans become due and payable in full upon a participant's termination of employment with the Employer. The borrowing constitutes a separate earmarked investment of the participant's account. Interest on the borrowing is based on a formula using the published money call rate on the date of application. Amounts Allocated to Participants Withdrawn from the Plan The vested portion of net assets available for plan benefits allocated to participants withdrawn from the Plan as of December 31, 1998 and 1997, is set forth below: 1998 1997 ------- ------- Stock Fund $ 186 $ - Balanced Fund 186 3,661 Fixed Fund 166 6,258 Equity Fund 171 27,812 Aggressive Fund 180 21,694 International Fund 166 17,480 Other 2,851 - ------- ------- $ 3,906 $76,905 ======= ======= F-6 Forfeitures Forfeitures are used to reduce the Employer's required contributions. Utilized forfeitures for 1998 and 1997, is set forth below: 1998 1997 -------- -------- Stock Fund $ 3,043 $ 2,141 Balanced Fund 9,177 9,643 Fixed Fund 21,405 6,508 Equity Fund 11,662 17,501 Aggressive Fund 4,089 5,781 International Fund 1,716 2,148 -------- -------- $ 51,092 $ 43,722 ======== ======== Expenses Brokerage fees, transfer taxes, and other expenses incurred in connection with the investment of the Plan's assets will be added to the cost of such investments or deducted from the proceeds thereof, as the case may be. Administrative expenses of the Plan will be allocated to participants' accounts, unless the Employer elects to pay any or all of such costs. Tax Determination The Plan obtained its latest determination letter on February 23, 1998, in which the Internal Revenue Service stated that the Plan, as amended and restated January 1, 1997, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Internal Revenue Code. Accordingly, the following Federal income tax rules will apply to the Plan: Voluntary tax-deferred contributions made under the Plan by a participant and contributions made by the Employer to participant accounts are generally not taxable until such amounts are distributed. The participants are not subject to Federal income tax on interest, dividends, or gains in their particular accounts until distributed. The foregoing is only a brief summary of certain tax implications and applies only to Federal tax regulations currently in effect. (2) SUMMARY OF ACCOUNTING POLICIES Basis of Accounting The Plan's financial statements are prepared on the accrual basis of accounting. Assets of the Plan are valued at fair value. The preparation of the financial statements in conformity with generally accepted accounting principles requires the Plan's management to use estimates and assumptions that affect the accompanying financial statements and disclosures. Actual results could differ from these estimates. Income Recognition Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. F-7 Investment Valuation Mutual funds are stated at fair value as determined by quoted market prices, which represents the net asset value of shares held by the Plan at year end. Common stock is valued as determined by quoted market price. Net Appreciation (Depreciation) in Fair Value of Investments Net realized and unrealized appreciation (depreciation) is recorded in the accompanying statement of changes in net assets available for benefits as net appreciation (depreciation) in fair value of investments. Brokerage fees are added to the acquisition costs of assets purchased and subtracted from the proceeds of assets sold. Benefit Payments Benefits are recorded when paid. Reclassification of Prior Year Information Certain prior year information has been reclassified to conform with current year presentation. (3) INVESTMENTS The Plan's investments are held by Scudder Trust Company, a subsidiary of Scudder Kemper Investments, Inc., manager of certain mutual funds in which the Plan invests. The following table presents balances for 1998 and 1997 for the Plan's current investment options. Investments that represent 5 percent or more of the Plan's net assets are separately identified.
1998 1997 ------------ ------------ Investments at Fair Value as Determined by Quoted Market Price: Common Stock: United Retail Group, Inc. (88,276 and 71,029 Shares at a Cost of $655,552 and 503,325 for 1998 and 1997, Respectively) $ 948,967 $ 287,503 Other 7,062 5,973 Shares of Registered Investment Companies: Scudder Balanced Fund 2,003,077 1,665,349 Scudder Cash Investment Trust 2,008,561 1,821,467 Scudder Growth and Income Fund 2,023,589 1,945,426 Franklin Small Cap Growth Fund - Class A 705,645 - Warburg Pincus International Equity 337,051 349,042 Janus Enterprise Fund - 685,536 Other 275,655 196,955 Investments at Estimated Fair Value: Participant Loans 336,038 351,094 ----------- ----------- $ 8,645,645 $ 7,308,345 =========== ===========
The Plan's investments (including investments bought, sold, and held during the year) appreciation in value for the years ended December 31, 1998 and 1997, is set forth below:
1998 1997 -------- -------- Investments at Fair Value as Determined by Quoted Market Price: Shares of Registered Investment Companies $206,740 $414,999 Common Stock 531,660 52,301 -------- -------- $738,400 $467,300 ======== ========
F-8 Contributions under the Plan may be invested in any one or more of seven investment options: (1) The Company Stock Fund, consisting of common stock of United Retail Group, Inc., (2) the Balanced Fund, which is invested in the Scudder Balanced Fund, (3) the Fixed Fund, which is invested in the Scudder Cash Investment Trust, (4) the Equity Fund, which is invested in the Scudder Growth and Income Fund, (5) the Aggressive Fund, which is invested in the Franklin Small Cap Growth Fund - Class A which replaced the investment in the Janus Enterprise Fund in 1997, (6) the International Fund, which invests in the Warburg Pincus International Equity Fund, and (7) a self-directed brokerage account. Participants' voluntary and the Employer's contributions may be invested in any one or more of the options, at the election of the participant, except for the self- directed brokerage account which only allows participants to transfer existing balances based on the terms of the Plan. Subsequent to year end the Plan's management replaced the Scudder Cash Investment Trust and the Warburg Pincus International Equity Fund with the Scudder U.S. Treasury Money Fund and Janus Overseas Fund, respectively. The Plan's management also added the Scudder Short Term Bond Fund as a new investment option. (4) PLAN ADMINISTRATION The Plan is administered by a Committee, the members of which are appointed by the Board of Directors of the Employer. (5) PLAN TERMINATION Although the Employer has not expressed any intent, the Employer has the right under the Plan to discontinue their contributions at any time. United Retail Group, Inc. has the right at any time, by action of its Board of Directors, to terminate the Plan subject to the provisions of ERISA. Upon Plan termination or partial termination, participants will become fully vested in their accounts. (6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500:
1998 1997 ---------- ---------- Net Assets Available for Benefits Per The Financial Statements $8,645,650 $7,308,345 Amounts Allocated to Withdrawing Participants (3,906) (76,905) ---------- ---------- Net assets Available for Benefits Per Form 5500 $8,641,744 $7,231,440 ========== ==========
The following is a reconciliation of benefits paid to participants per the financial statements to Form 5500: 1998 ------ Benefits Paid to Participants Per the Financial Statements $849,836 Amounts Allocated to Withdrawing Participants at: December 31, 1998 3,906 December 31, 1997 (76,905) -------- Benefits Paid to Participants Per Form 5500 $776,837 ======== Amounts allocated to withdrawing participants are recorded on Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date. F-9 SCHEDULE I UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998
Description of Investment Including Maturity Identity of Issuer, Borrower, Date, Rate of Interest, Collateral, Par or Current Lessor, or Similar Party Maturity Value Cost Value - ----- ---------------------------- -------------------------------------------- -------- -------- * United Retail Group, Inc. 88,276 Shares of Common Stock, Par Value $0.001 $ 655,552 $ 948,967 * Scudder Kemper Investments, 105,646.761 Shares of Scudder Balanced Fund, Par 1,660,697 2,003,077 Inc. Value $0.01 * Scudder Kemper Investments, 2,008,560.53 Shares of Scudder Cash Investment 2,008,561 2,008,561 Inc. Trust, Par Value $0.01, 7 Day Net Annualized Yield on 12/30/98 of 4.46% * Scudder Kemper Investments, 76,913.315 Shares of Scudder Growth and Income 1,942,014 2,023,589 Inc. Fund, Par Value $0.01 * Scudder Kemper Investments, 2,851.37 Shares of Scudder U.S. Treasury Money 2,851 2,851 Inc. Market Fund, Par Value $0.01, 7 Day Net Annualized Yield on 12/31/98 of 4.23% * Scudder Kemper Investments, 1,684.48 Shares of Scudder Money market 1,684 1,684 Inc. Series #23, Daily Rate on 12/31/98 of 5.1% Templeton Franklin Investment 31,264.389 shares of Franklin Small Cap Growth 705,640 705,645 Services, Inc. Fund - Class A, Par Value $0.01 Warburg Pincus Funds 18,946.069 Shares of Warburg Pincus 364,315 337,051 International Equity, Par Value $0.01 Fidelity Investments 1,332.958 of Select Electronics, Par Value $0.01 63,529 62,062
* Represents a party in interest The accompanying notes are an integral part of this schedule. F-10 SCHEDULE I UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES DECEMBER 31, 1998
Description of Investment Including Maturity Identity of Issuer, Borrower, Date, Rate of Interest, Collateral, Par or Current Lessor, or Similar Party Maturity Value Cost Value - ----- ---------------------------- -------------------------------------------- -------- -------- T. Rowe Price Associates, Inc. 1,778.75 Shares of T. Rowe Price Science & 62,150 67,005 Technology, Par Value $0.01 Fred Alger Management 2,982.133 Shares of Spectra Fund, Inc., Par 58,212 75,179 Value $0.01 Stein Roe 2,470.784 Shares of Stein Roe Young Investor 56,739 66,069 Fund, Par Value $0.01 Philip Morris, Inc. 132 Shares of Common Stock, Par Value $0.33 1/3 5,995 7,062 State Street 804.58 Shares of Seven Seas Money Market Fund, 805 805 Par Value %0.01, 7 Day Net Annualized Yield on 12/30/98 of 4.83% Participant Loans Interest from 7.5% - 9.25% - 336,038 ---------- ---------- $7,588,744 $8,645,645 ========== ==========
* Represents a party in interest The accompanying notes are an integral part of this schedule. F-11 SCHEDULE II UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 ITEM 27b - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS DECEMBER 31, 1998
Detail Description of Loan Including Dates of Making and Maturity, Interest Rate, The Type and Value of Collateral, Any Principal Interest Unpaid Renegotiation of the Loan Original Received Received Balance and the Terms of the Identity and Amount of During During End of Renegotiation and Other Principal Interest Address of Obligor Loan Year Year Year Material Items Overdue Overdue ------------------ --------- --------- -------- --------- ----------------------------- --------- -------- Charlene Macaluso $ 1,142 $ - $ - $ 1,142 Participant loan secured by $ 1,142 $ 151 331 West 75th Place account balance, issued Merrillville, In. 5/23/95 at 9.25%. Balance SS# ###-##-#### and accrued interest reported as deemed distribution in prior years. Karen Denoyer 4,200 - - 4,071 Participant loan secured by 4,071 17 305 N. 59th Street account balance, issued Milwaukee, Wi. 8/5/95 at 9.25%. Reported as SS# ###-##-#### deemed distribution in prior years. Laura L. Altobelli 5,106 306 105 3,619 Participant loan secured by 3,619 - 19624 Reno account balance, issued Detroit, Mi 7/10/96 at 8%. Reported as ###-##-#### deemed distribution in the current year. Laura L. Altobelli 2,000 109 44 1,816 Participant loan secured by 1,816 - 19624 Reno account balance, issued Detroit, Mi 8/29/97 at 8.25%. Reported ###-##-#### as deemed distribution in the current year.
The accompanying notes are an integral part of this schedule. F-12 SCHEDULE III UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1998
Purchases Sales ---------------------------- ------------------------------- Current Value Description of Asset of Asset on Identity of (Include Interest Rate and Purchase Transaction Selling Cost of Party Involved Maturity in Case of a Loan Price Date Price Assets - ----------------- -------------------------- ---------- ----------- ---------- ---------- *Scudder Kemper Scudder Balanced Fund $ 469,569 $ 469,569 $ 340,039 $ 293,488 Investments, Inc. *Scudder Kemper Scudder Growth and Income 676,571 676,571 524,265 464,757 Investments, Inc. Fund *Scudder Kemper Scudder Cash Investment 565,661 565,661 378,567 378,567 Investments, Inc. Trust Janus Capital Janus Enterprise Fund - - 677,312 653,937 Templeton Franklin Small Cap Growth 918,783 918,783 208,231 213,143 Franklin Fund - Class A Investment Services, Inc. ------------------------------ Current Value of Asset on Transaction Net Gain Date or (Loss) ---------- ---------- *Scudder Kemper $ 340,039 $ 46,551 Investments, Inc. *Scudder Kemper 524,265 59,508 Investments, Inc. *Scudder Kemper 378,567 - Investments, Inc. Janus Capital 677,312 23,375 Templeton 208,231 (4,912) Franklin Investment Services, Inc.
*Represents a party in interest The accompanying notes are an integral part of this schedule. F-13 EX-13 4 EXHIBIT 13 EXHIBIT 13 UNITED RETAIL GROUP, INC. is a leading specialty retailer of large-size women's apparel and accessories, which feature its AVENUE brand. The Company seeks to create a fashion-current, upscale image at prices that appeal to the middle mass market. Financial Highlights (dollars in thousands, except per share amounts) Fiscal 1997 Fiscal 1998 Net Sales $361,751 $378,562 Income before income taxes 3,050 27,844 (Benefit from) provision for income taxes (828) 10,077 Benefit from write-up of the compensation related deferred tax asset (953) (213) Net Income $ 4,831 $ 17,980 Net income per common share Basic $ 0.40 $ 1.38 Diluted $ 0.37 $ 1.31 Weighted average number of shares outstanding (in thousands): Basic 12,190 13,056 Diluted 13,188 13,736 Stores open at end of period 522 502 Contents Management's Discussion and Analysis 10 Report of Independent Auditors 15 Consolidated Balance Sheets 16 Consolidated Statements of Operations 17 Consolidated Statements of Cash Flows 18 Consolidated Statements of Stockholders' Equity 19 Notes to the Consolidated Financial Statements 20 Selected Financial Data 27 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1998 VERSUS FISCAL 1997 Net sales for fiscal 1998 increased 4.6% from fiscal 1997, to $378.6 million from $361.8 million, principally from an increase in average price. Average stores open decreased 7.7% from 557 to 514 as underperforming stores were closed selectively. Comparable store sales for fiscal 1998 increased 10.4%. There is no assurance that sales and comparable store sales will continue to increase. Gross profit increased by $19.1 million to $102.8 million in fiscal 1998 from $83.7 million in fiscal 1997, increasing as a percentage of net sales to 27.1% from 23.1%. The increase in gross profit as a percentage of net sales was primarily attributable to a decrease in buying and occupancy costs as a percentage of net sales and an increase in the merchandise margin rate. General, administrative and store operating expenses were $79.2 million in fiscal 1998 compared to $80.5 million in fiscal 1997, decreasing principally as a result of premiums received by the Company from a bank on proprietary credit card purchases of Company merchandise (see, "--Proprietary Credit Cards") and of reduced store payroll expenses. As a percentage of net sales, general, administrative and store operating expenses decreased to 20.9% from 22.2%. During fiscal 1998, the Company had operating income of $23.5 million (6.2% of sales) compared to operating income of $3.2 million in fiscal 1997. Fiscal 1998 operating income excludes the capital gain referred to in the last paragraph of this section. Net interest income was $1.2 million in fiscal 1998 compared to net interest expense of $0.2 million in fiscal 1997, primarily from interest earned on a higher level of cash and cash equivalents. The Company had a provision for income taxes of $10.1 million in fiscal 1998 compared with an income tax benefit of $0.8 million in fiscal 1997. Included in the fiscal 1997 income tax benefit is the reversal of a $1.8 million valuation allowance established in fiscal 1996 with respect to the deferred tax asset. Write-ups of the deferred tax asset were made of $0.2 million in fiscal 1998 and $1.0 million in fiscal 1997, respectively. These write-ups were based on the year end market value of the Company's Common Stock and arose from certain non-recurring charges in fiscal 1992. In fiscal 1992, the Company incurred a non-cash compensation expense of $15.6 million related to certain stock options ("Performance Options") previously granted to Raphael Benaroya, Chairman of the Board, President and Chief Executive Officer of the Company, and George R. Remeta, Vice Chairman and Chief Financial Officer of the Company. The non-cash compensation expense resulted in the recognition of certain future tax benefits realizable at the time Performance Options are exercised based on an assumption that the market price of the Common Stock at the time of exercise will be $15 per share (the price of the initial public offering in fiscal 1992). The Company had net income of $18.0 million for fiscal 1998, which included the write-up of the compensation related deferred tax asset. The Company had net income of $4.8 million for fiscal 1997, which included the write-up of the compensation related deferred tax asset and the reversal of the valuation allowance. Excluding the write-ups and the allowance, the Company would have had net income of $17.8 million for fiscal 1998 and $2.0 million for fiscal 1997. Net income for fiscal 1998 included a capital gain on the sale of the Company's minority interest in a privately held apparel design and manufacturing concern of $3.1 million ($2.0 million after tax). FISCAL 1997 VERSUS FISCAL 1996 Net sales for fiscal 1997 decreased 0.4% from fiscal 1996, to $361.8 million from $363.1 million, principally from a decrease in unit sales volume partially offset by an increase in average price. Average stores open decreased 4.1% from 581 to 557 as underperforming stores were closed selectively. Comparable store sales for fiscal 1997 increased 2.8%. Gross profit increased by $10.0 million to $83.7 million in fiscal 1997 from $73.7 million in fiscal 1996, increasing as a percentage of net sales to 23.1% from 20.3%. The increase in gross profit as a percentage of net sales was primarily attributable to an increase in the merchandise margin rate. General, administrative and store operating expenses increased to $80.5 million in fiscal 1997 compared to $80.1 million in fiscal 1996. As a percentage of net sales, general, administrative and store operating expenses increased to 22.2% from 22.1%. During fiscal 1997, the Company had operating income of $3.2 million, compared to an operating loss of $6.4 million in fiscal 1996. Net interest expense was $0.2 million in fiscal 1997 and $0.4 million in fiscal 1996. The Company had an income tax benefit of $0.8 million in fiscal 1997 and of $1.0 million in fiscal 1996. Included in the fiscal 1997 income tax benefit is the reversal of a $1.8 million valuation allowance established in fiscal 1996 with respect to the deferred tax asset. 10 1998 ANNUAL REPORT A write-up of the deferred tax asset of $1.0 million was made in fiscal 1997 based on the market value of the Company's Common Stock at the end of fiscal 1997. A write-down of $0.3 million was taken in fiscal 1996 based on the market value of Common Stock at the end of fiscal 1996. The Company had net income of $4.8 million for fiscal 1997, which included the write-up of the compensation related deferred tax asset and the reversal of the valuation allowance. The Company incurred a net loss of $6.1 million for fiscal 1996, which reflected the write-down of the compensation related deferred tax asset and the valuation allowance. The write-down and the allowance, net of certain other tax entries, totaled $1.4 million for fiscal 1996. Excluding the write-up, the write-down and the allowance, net of certain other tax entries, the Company would have had net income of $2.0 million for fiscal 1997 and the Company would have incurred a net loss of $4.7 million for fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities in fiscal 1998 was $21.5 million. In May 1998, the Company sold its minority equity interest in a privately held apparel design and manufacturing firm for $3.1 million cash. The Company's cash on hand was $45.9 million at January 30, 1999 and $31.1 million at January 31, 1998. Inventory increased to $45.6 million at January 30, 1999 from $38.0 million at January 31, 1998. The Company's inventory levels peak in early May and November/December. During fiscal 1998, the highest inventory level was $54.2 million. Import purchases are made in U.S. dollars and are generally financed by trade letters of credit. Import purchases constituted approximately 56% of total purchases in fiscal 1998. Short-term trade credit represents a significant source of financing for domestic merchandise purchases. Trade credit arises from the willingness of the Company's domestic vendors to grant extended payment terms for inventory purchases and is generally financed either by the vendor or a third-party factor. United Retail Group, Inc. and United Retail Incorporated, its subsidiary (collectively, the "Companies"), are parties to a Financing Agreement, dated August 15, 1997, as amended (the "Financing Agreement"), with The CIT Group/Business Credit, Inc. ("CIT"). The Financing Agreement provides a revolving line of credit which was recently extended to August 15, 2001 in the aggregate amount of $40 million for the Companies, subject to availability of credit as described in the following paragraphs. The line of credit may be used on a revolving basis by either of the Companies to support trade letters of credit and standby letters of credit and to finance loans. As of January 30, 1999, trade letters of credit for the account of the Company and supported by CIT were outstanding in the amount of $22.7 million. (A standby letter of credit supported by CIT was also outstanding for $2.0 million as collateral for obligations in the ordinary course of business under general liability insurance policies.) Subject to the following paragraph, the availability of credit (within the aggregate $40 million line of credit) to either of the Companies at any time is the excess of its borrowing base over the sum of (x) the aggregate outstanding amount of its letters of credit and its revolving loans, if any, and (y) at ClTs option, the sum of (i) unpaid sales taxes, and (ii) up to $500,000 in total liabilities of the Companies under permitted encumbrances (as defined in the Financing Agreement). The borrowing base, as to either of the Companies, is the sum of (x) a percentage of the book value of its eligible inventory (both on hand and unfilled purchase orders financed with letters of credit), ranging from 60% to 65% depending on the season, and (y) the balance in an account in its name that has been pledged to the lenders (a "Pledged Account"). (At January 30, 1999, the combined availability of the Companies was $13.0 million; no balance was in a Pledged Account; no loan had been drawn down; and the Company's cash on hand was unrestricted.) The provisions of the preceding paragraph to the contrary notwithstanding, the Companies are required to maintain unused at all times combined availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any financial covenants. In the event a revolving loan is made to one of the Companies, interest is payable monthly based on a 360-day year at the prime rate or at two percent plus the LIBOR rate on a per annum basis, at the borrowers option. The line of credit is secured by a security interest in inventory and proceeds and by the balance from time to time in the Pledged Account. The Financing Agreement also includes certain restrictive covenants that impose limitations (subject to certain exceptions) on the Companies with respect to, among other things, making certain investments, declaring or paying dividends, acquiring Common Stock or preferred stock of the Company, making loans, engaging in certain transactions with affiliates, or consolidating, merging or making acquisitions outside the ordinary course of business. 11 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES The Company believes that its cash on hand, the availability of credit under the Financing Agreement and cash flows from operating activities will be adequate to meet anticipated working capital needs, including seasonal financing needs, for the next 12 months. This paragraph constitutes forward-looking information under the 1995 Private Securities Litigation Reform Act (the "Reform Act") and is subject to the uncertainties and other risk factors referred to under the caption "Future Results." PROPRIETARY CREDIT CARDS In fiscal 1997, purchases of Company merchandise made by customers with the Company's proprietary credit cards were paid for daily by a bank in amounts that came out to a net discount for the year. On the contrary, the bank paid a premium, instead of taking a discount, on proprietary credit card purchases in fiscal 1998. During fiscal 1998, premiums paid to the Company by the bank had a material favorable effect on the Company's general, administrative and store operating expenses. After fiscal 1998, a different bank (the "Credit Card Bank") has begun to issue the Company's proprietary credit cards and finance credit card purchases. There is no assurance that in fiscal 1999 discounts will not be taken by the Credit Card Bank on proprietary credit card purchases and that other bank charges will not be incurred by the Company. Any such discounts and charges would have a material adverse effect on the Company's general, administrative and store operating expenses in fiscal 1999. The Company plans to convert all its proprietary credit cards to the AVENUE brand in 1999. STORES The Company leased 502 retail stores at January 30, 1999, of which 297 stores were located in strip shopping centers, 182 stores were located in malls and 23 stores were located in downtown shopping districts. Total retail square footage was 2.0 million square feet at January 30, 1999 compared to 2.1 million square feet a year earlier. The Company plans to change the trade name of 303 stores to the AVENUE trade name in 1999. There is no assurance that the change will not have an adverse effect on sales. (The Company's other stores already operate under the AVENUE trade name.) The Company intends to pay the costs of remodeling stores from its cash on hand at the time. This paragraph constitutes forward-looking information under the Reform Act, which is subject to the uncertainties and other risk factors referred to under the caption "Future Results." TAX MATTERS The Company's federal income tax returns for fiscal 1994, fiscal 1995 and fiscal 1996 are being audited by the Internal Revenue Service. Management believes that the results of the audit will not have a material adverse effect on the Company's financial condition or results of operations. RENOVATING COMPUTERIZED SYSTEMS AND REPLACING EMBEDDED TECHNOLOGY The Company operates a nationwide chain of specialty apparel retail stores, imports a significant portion of its inventory, and makes proprietary credit cards available to its customers. The Company's operations are heavily dependent on date sensitive computerized systems and embedded technology, including (i) its management information systems, (ii) the technology, including microcontrollers, embedded in equipment at the Company's national distribution center, (iii) the system for issuing and processing a trade letter of credit for each of the Company's purchase orders used by the bank (the "Letter of Credit Provider") that finances the Company's purchases of inventory abroad and (iv) links to the Credit Card Bank to authorize purchases by customers using the Company's proprietary credit cards. The Company's headquarters uses a date sensitive voicemail system. The Company's headquarters and stores are leased and are generally affected by date sensitive embedded technology used to control heating and ventilation and lighting. Computer programs and embedded technology, including the programs and technology on which the Company's operations depend, often will mishandle data that includes a year after 1999 (referred to below as "Year 2000 risks"). The mainframe operating systems used by the Company's vendor have been represented by the vendor to be Year 2000 compliant in all material respects. The Company's management information systems department (the "MIS Department") is renovating and validating the Company's applications software, systems software and hardware (collectively referred to below as "Systems") to accommodate dates after 1999. The MIS Department identified 275 projects to analyze and, if necessary, renovate and validate Systems to ensure that they are Year 2000 complaint. After being validated, Systems are implemented as part of each project. 251 projects have been completed in all material respects and 11 projects are underway. Integrated Year 2000 testing of substantially all the Systems that are essential to the Company's management information systems ("Essential Systems") and the mainframe operating systems was completed successfully. (There is no assurance, however, that the integrated testing revealed all 12 1998 ANNUAL REPORT Year 2000 risks.) The few remaining Essential Systems will be tested separately during the first half of fiscal 1999. (The renovation, validation and testing of the Essential Systems is referred to below as the "Year 2000 Project.") The Company has obtained representations from the manufacturers of the equipment that performs essential functions at the national distribution center to the effect that the equipment is Year 2000 compliant in all material respects. There is no assurance, however, that all the essential equipment at the national distribution center will function properly after 1999 or that any malfunctions that occur will not have a material adverse effect on the Company's logistics operations. The Letter of Credit Provider has advised the Company that its trade letter of credit system and telecommunications interfaces are Year 2000 compliant in all material respects. There is no assurance, however, that such system and interfaces will function properly after 1999. The Credit Card Bank has advised the Company that its credit card transaction processing system has been renovated, tested and certified to be Year 2000 compliant in all material respects. The Credit Card Bank also stated that it has assessed its telecommunications interfaces for point of sale credit authorizations and is in the process of renovating them to make them Year 2000 compliant in all material respects by June 30, 1999. There is no assurance, however, that these processing systems and telecommunications interfaces will function properly after 1999 or that any malfunctions that occur will not have a material adverse effect on the Company's sales. The Company will replace its voicemail system in 1999 with one that is guaranteed to be Year 2000 compliant by the manufacturer. The Company believes that in most cases the embedded technology used in energy management systems to control heating and ventilation and lighting at its headquarters and its stores can quickly be bypassed manually in the event of a malfunction because of an inability to accommodate dates after 1999. There is no assurance, however, that any malfunctions that occur will not have a material adverse effect on the Company's operations. The Company does not have a project tracking system for the time that its associates spend on the Year 2000 Project. The Company's internal costs for the Year 2000 Project are principally the related payroll costs for the MIS Department, estimated to have been $0.7 million from February 3, 1996 to January 30, 1999, of which $0.5 million is estimated to have been expensed in fiscal 1998. The cost of special purchases for the Year 2000 Project was approximately $0.6 million, substantially all of which was incurred in fiscal 1998. Amounts equal to the internal and external costs of the Year 2000 Project, however, probably would have been spent on other software development projects, if the Year 2000 Project had not been necessary. Other software development projects deferred because of the Year 2000 Project probably would have improved the Company's operational efficiency but management does not believe that any of the deferred operational improvements would have been material to its operations. Budgeted MIS Department payroll costs and special purchases for the Year 2000 Project, including a voicemail system, in fiscal 1999 are not material in relation to the Company's general, administrative and store operating expenses in fiscal 1998. However, there is no assurance that unexpected additional costs will not be incurred. The inability of computerized systems and embedded technology in general to accommodate dates after 1999 may cause disruptions in the United States and abroad in the telecommunications, banking, credit card, transportation, utilities and apparel manufacturing industries and in government services. If such disruptions occur, they could have a material adverse effect on the entire specialty apparel retail industry, including the Company. The Company has not assessed industry-wide Year 2000 risks that are not unique to the Company's operations. The Company's contingency plan for Year 2000 risks that might affect the entire industry is to have multiple, geographically diverse vendors of each major category of goods, to the extent feasible. The Company will address industry-wide Year 2000 risks on an ad hoc basis as problems arise, principally by shifting purchase orders to vendors that are less troubled by Year 2000 problems than their competitors. There is no assurance, however, that any vendors will be Year 2000 compliant. The Company intends to renovate and validate its Essential Systems to make them Year 2000 compliant in all material respects, if testing shows that they are not already compliant in all material respects. The Company also intends to ensure that the heating and ventilation and lighting at its headquarters will be Year 2000 compliant. There is no commercially viable alternative course of action, so the Company will not develop contingency plans for prolonged failure of its Essential Systems and lengthy constructive eviction from its headquarters. Such Systems failure and constructive eviction would have a material adverse effect on the Company's results of operations, net cash provided from operating activities and financial condition. The Company's contingency plan for Year 2000 risks at its national distribution center is to replace as quickly as possible any essential equipment that malfunctions because of 13 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES inability to accommodate dates after 1999. There is no assurance, however, that Year 2000 compliant replacement equipment will be available. The Company's contingency plan with respect to the unavailability of a trade letter of credit for each of the Company's purchase orders is to deliver blanket trade letters of credit to the Company's major foreign vendors, by courier, if necessary. (A blanket trade letter of credit would finance all Company purchase orders to be given to the vendor.) The Company's contingency plan with respect to downtime in proprietary credit card operations by the Credit Card Bank is to continue credit sales on the Company's own account with its own systems until the Credit Card Bank resumes operations or is replaced by another bank. While other banks would be available to replace the Credit Card Bank, there is no assurance that any bank will be Year 2000 compliant. The Company has contingency plans with respect to heating and ventilation and lighting controls in its stores that have malfunctioned because of an inability to accommodate dates after 1999. For stores located in strip shopping centers, the Company will arrange as quickly as possible for local maintenance contractors to bypass manually any controls that have malfunctioned. There is no assurance, however, that local maintenance contractors will have time available to bypass controls that have malfunctioned. For stores located in malls and downtown shopping districts, the Company will promptly notify landlords of systems that have malfunctioned and request immediate restoration of service. There is no assurance, however, that landlords will be able to restore service. In the case of any unheated stores that have lights, the Company will also ask store managers to keep the stores open if weather conditions permit. There is no assurance that the Company's contingency plans will diminish the possible adverse consequences of Year 2000 risks. The Company believes that a reasonably likely worst case scenario resulting from Year 2000 risks that are unique to its operations would be a decline in net sales for the fourth quarter of fiscal 1999 having a material adverse effect on the Company's results of operations and net cash provided from operating activities for that quarter but not on the Company's financial condition (see, "--Liquidity and Capital Resources"). While management does not believe that such risks will have a material adverse effect on the Company's operations in fiscal 2000, there is no assurance that such risks will not have such a material adverse effect, regardless of the Company's remediation efforts and contingency plans. Further, there is no assurance that Year 2000 risks that affect the entire specialty apparel retail industry, and not just the Company, will not have a material adverse effect on the Company's operations in fiscal 1999 and fiscal 2000. Certain of the 18 preceding paragraphs contain forward-looking information under the Reform Act, which is subject to the uncertainties and other risk factors referred to under the caption "Future Results." FUTURE RESULTS Future results could differ materially from those currently anticipated by the Company due to unforeseeable problems that might arise and possible (i) miscalculation of fashion trends, (ii) shifting shopping patterns, both within the specialty store sector and in other channels of distribution, (iii) extreme or unseasonable weather conditions, (iv) disruptions in the telecommunications, banking, credit card, transportation, utilities and apparel manufacturing industries in the United States and abroad caused by the inability of their computerized systems and embedded technology to accommodate dates after 1999, (v) economic downturns, weakness in overall consumer demand, and variations in the demand for women's fashion apparel, (vi) imposition by vendors, or their third-party factors, of more onerous payment terms for domestic merchandise purchases, (vii) acceleration in the rate of business failures and inventory liquidations in the specialty store sector of the women's apparel industry, and (viii) disruptions in the sourcing of merchandise abroad, including (a) political instability and economic distress in South Asia, (b) China's claims to sovereignty over Taiwan, (c) North Korea's claims to sovereignty over South Korea, (d) exchange rate fluctuations, (e) trade sanctions or restrictions, (f) changes in quota and duty regulations, (g) delays in shipping, (h) increased costs of transportation or (i) disruptions in government services in the United States and abroad caused by the inability of computerized systems and embedded technology to accommodate dates after 1999, including delays in the issuance by the United States Customs Service of clearances on imported merchandise. 14 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of United Retail Group, Inc.: In our opinion the accompanying consolidated balance sheets and the related consolidated statements of operations, cash flows and stockholders' equity present fairly, in all material respects, the financial position of United Retail Group, Inc. and its subsidiaries (the "Company") at January 31, 1998 and January 30, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP New York, New York February 12, 1999 15 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
January 31, January 30, (dollars in thousands) 1998 1999 - ---------------------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 31,122 $ 45,894 Accounts receivable 571 513 Inventory 38,003 45,564 Prepaid rents 3,999 3,946 Other prepaid expenses 2,607 2,429 -------- -------- Total current assets 76,302 98,346 Property and equipment, net 48,231 48,017 Deferred charges and other intangible assets, net of accumulated amortization of $1,784 and $2,130 7,058 6,746 Deferred income taxes 2,685 1,120 Other assets 451 363 -------- -------- Total assets $134,727 $154,592 ======== ======== LIABILITIES Current liabilities: Current portion of distribution center financing $ 1,052 $ 1,136 Accounts payable, trade 12,596 14,208 Accrued expenses 18,779 22,659 -------- -------- Total current liabilities 32,427 38,003 Distribution center financing 10,308 9,172 Other long-term liabilities 6,948 6,270 -------- -------- Total liabilities 49,683 53,445 -------- -------- Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 1,000,000; none issued Common stock, $.001 par value; authorized 30,000,000; issued 12,680,375 and 13,762,900; outstanding 12,190,375 and 13,089,588 13 14 Additional paid-in capital 78,259 77,458 Retained earnings 7,354 25,334 Treasury stock (490,000 and 673,312 shares), at cost (582) (1,659) -------- -------- Total stockholders' equity 85,044 101,147 -------- -------- Total liabilities and stockholders' equity $134,727 $154,592 ======== ========
The accompanying notes are an integral part of the Consolidated Financial Statements. 16 1998 annual report UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended February 1, January 31, January 30, (dollars in thousands, except per share amounts) 1997 1998 1999 - ------------------------------------------------ ----------- ----------- ----------- Net sales $ 363,074 $ 361,751 $ 378,562 Cost of goods sold, including buying and occupancy costs 289,421 278,078 275,811 ----------- ----------- ----------- Gross profit 73,653 83,673 102,751 General, administrative and store operating expenses 80,063 80,469 79,221 ----------- ----------- ----------- Operating (loss) income (6,410) 3,204 23,530 Non-operating income -- -- 3,113 Interest expense (income), net 413 154 (1,201) ----------- ----------- ----------- (Loss) income before income taxes (6,823) 3,050 27,844 (Benefit from) provision for income taxes (1,018) (828) 10,077 Provision for (benefit from) write-down (write-up) of the compensation related deferred tax asset 342 (953) (213) ----------- ----------- ----------- Net (loss) income $ (6,147) $ 4,831 $ 17,980 =========== =========== =========== Net (loss) income per share Basic $ (0.50) $ 0.40 $ 1.38 =========== =========== =========== Diluted $ (0.50) $ 0.37 $ 1.31 =========== =========== =========== Weighted average number of shares outstanding Basic 12,190,375 12,190,375 13,055,673 Common stock equivalents (stock options) -- 997,234 680,340 ----------- ----------- ----------- Diluted 12,190,375 13,187,609 13,736,013 =========== =========== ===========
The accompanying notes are an integral part of the Consolidated Financial Statements. 17 1998 annual report UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended February 1, January 31, January 30, (dollars in thousands) 1997 1998 1999 - ---------------------- ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(6,147) $ 4,831 $17,980 Adjustments to reconcile net (loss) income to net cash provided from operating activities: Depreciation and amortization of property and equipment 9,983 8,540 7,027 Amortization of deferred charges and other intangible assets 225 287 353 Loss (gain) on disposal of assets 463 496 (30) Gain on sale of investments -- (43) (3,113) Compensation expense 77 -- 216 Provision for (benefit from) deferred income taxes 811 (2,685) 1,956 Deferred lease assumption revenue amortization (531) (655) (648) Changes in operating assets and liabilities: Accounts receivable 473 726 58 Income taxes receivable 2,490 229 -- Inventory (377) 2,775 (7,561) Accounts payable and accrued expenses 656 223 6,108 Prepaid expenses 268 535 231 Income taxes payable -- 1,379 (469) Other assets and liabilities (768) (606) (643) ------- ------- ------- Net Cash Provided from Operating Activities 7,623 16,032 21,465 ------- ------- ------- INVESTING ACTIVITIES: Capital expenditures (4,602) (2,375) (7,003) Deferred payment for property and equipment (896) 40 110 Proceeds from sale of investment and lease -- 410 3,345 ------- ------- ------- Net Cash Used for Investing Activities (5,498) (1,925) (3,548) ------- ------- ------- FINANCING ACTIVITIES: Issuance of loans to officers -- -- (2,113) Exercise of stock options -- -- 20 Debt issuance costs -- (276) -- Repayments of long-term debt (901) (973) (1,052) ------- ------- ------- Net Cash Used in Financing Activities (901) (1,249) (3,145) ------- ------- ------- Net increase in cash and cash equivalents 1,224 12,858 14,772 Cash and cash equivalents, beginning of period 17,040 18,264 31,122 ------- ------- ------- Cash and cash equivalents, end of period $18,264 $31,122 $45,894 ======= ======= =======
The accompanying notes are an integral part of the Consolidated Financial Statements. 18 1998 annual report UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Common Common Stock Stock Additional Treasury Total Shares $.001 Paid-in Retained Stock, Stockholders' (shares and dollars in thousands) Outstanding Par Value Capital Earnings at Cost Equity - --------------------------------- ----------- --------- ---------- -------- --------- ------------ Balance, February 3, 1996 12,190 $13 $78,182 $ 8,670 $ (582) $ 86,283 ------ --- ------- ------- ------- -------- Compensation expense 77 77 Net loss (6,147) (6,147) ------ --- ------- ------- ------- -------- Balance, February 1, 1997 12,190 13 78,259 2,523 (582) 80,213 ------ --- ------- ------- ------- -------- Net income 4,831 4,831 ------ --- ------- ------- ------- -------- Balance, January 31, 1998 12,190 13 78,259 7,354 (582) 85,044 ------ --- ------- ------- ------- -------- Exercise of stock options 1,083 1 1,096 1,097 Treasury stock (183) (1,077) (1,077) Loans to officers (2,113) (2,113) Compensation expense 216 216 Net income 17,980 17,980 ------ --- ------- ------- ------- -------- Balance, January 30, 1999 13,090 $14 $77,458 $25,334 $(1,659) $101,147 ====== === ======= ======= ======= ========
The accompanying notes are an integral part of the Consolidated Financial Statements. 19 1998 annual report UNITED RETAIL GROUP, INC. AND SUBSIDIARIES 1. BASIS OF PRESENTATION On July 17, 1989, Sizes Unlimited Acquisition Corporation was merged with and into Lernmark, Inc. ("Lernmark"), a wholly-owned subsidiary of The Limited, Inc. ("The Limited"), with Lernmark being the surviving corporation. Lernmark was the holding company for Lerner Woman/Sizes Unlimited, a division of The Limited. Lernmark subsequently changed its name to United Retail Group, Inc. ("United Retail"). United Retail is a leading nationwide specialty retailer of private label large-size women's apparel and accessories featuring the AVENUE brand operating approximately 500 stores throughout the United States. The Limited, through an affiliate, initially retained a one-third interest in United Retail through its acquisition of 2.5 million shares of United Retail's Common Stock. For financial reporting purposes, the acquisition was accounted for using the purchase method and, accordingly, the results of operations have been included in the financial statements from April 30, 1989, which is considered to be the effective date. The total cost of the acquisition, which includes costs directly related to the acquisition, was allocated among the net assets acquired on the basis of the respective fair values of such net assets adjusted for the one-third interest initially retained by The Limited. The consolidated financial statements include the accounts of United Retail and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the financial statements and notes by the calendar year in which the fiscal year commences. Fiscal 1996, fiscal 1997 and fiscal 1998 consisted of 52 weeks and ended on February 1, 1997, January 31, 1998 and January 30, 1999, respectively. Net Retail Sales and Revenues Sales are net of returns and exclude sales tax. Revenues include sales from all stores operating during the period. Marketing Costs The Company expenses marketing costs when the event occurs. Marketing expense, included in cost of goods sold in the accompanying consolidated statements of operations, was $6.5 million, $6.7 million, and $9.5 million in fiscal 1996, 1997 and 1998, respectively. Cash and Cash Equivalents Cash and cash equivalents include obligations of financial institutions with original maturities of less than 90 days. Inventory Inventory is stated at the lower of cost or market utilizing the retail method. Property and Depreciation Depreciation and amortization of property and equipment are computed for financial reporting purposes on a straight-line basis, using service lives of 40 years for the distribution center building, the life of the lease for leasehold improvements, furniture and fixtures, 20 years for material handling equipment and 5 years for other property. The cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. Maintenance, repairs and minor renewals are charged to expense as incurred. Renewals and betterments which extend service lives are capitalized. Computation of Income (Loss) Per Common Share At the end of fiscal 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data has been computed on the basic plus the dilution of stock options. Shares issuable upon the exercise of stock options have not been included in the diluted earnings per share computation for fiscal 1996 because the effect would be anti-dilutive. Deferred Charges and Other Intangible Assets Certain loan facility fees and other costs of obtaining financing are being amortized on a straight-line basis over the term of the related loan. Goodwill, as of January 31, 1998 and January 30, 1999, of $6.4 million and $6.2 million, respectively, represents the excess cost over the fair market value of the net assets of the businesses acquired. Goodwill is being amortized over a 40-year period using the straight-line method. The Company acquired certain trademarks during fiscal 1996 and fiscal 1998 in the amounts of $410,000 and $39,000, respectively. These amounts are being amortized over 10 and 15 year periods using the straight-line method. 20 1998 ANNUAL REPORT The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of deferred charges and other intangible assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that the asset should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net cash flows over the remaining life of the asset in measuring whether the asset is recoverable. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Store Opening Costs All costs associated with the opening of new stores were expensed as incurred. 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of (dollars in thousands): January 31, January 30, 1998 1999 - -------------------------------------------------------------------------------- Land $ 2,176 $ 2,176 Buildings 10,574 10,574 Furniture, fixtures and equipment 58,947 59,817 Leasehold improvements 26,905 26,826 Beneficial leaseholds 9,811 8,560 Construction in progress 651 2,378 ------- ------- 109,064 110,331 Accumulated depreciation and amortization, including beneficial leaseholds of $8,683 and $7,586 (60,833) (62,314) ------- ------- Property and equipment, net $48,231 $48,017 ------- ------- 4. ACCRUED EXPENSES Accrued expenses consist of (dollars in thousands): January 31, January 30, 1998 1999 - -------------------------------------------------------------------------------- Occupancy expenses $3,514 $3,907 Payroll related expenses 4,404 4,771 Insurance payable 3,140 4,684 Sales taxes payable 1,208 1,149 Other 6,513 8,148 ------- ------- $18,779 $22,659 ======= ======= 5. LEASED FACILITIES AND COMMITMENTS Annual store rent is composed of two components, a fixed minimum amount and a contingent rent (percentage rent) based upon a percentage of sales exceeding a stipulated amount. In certain leases, the Company and the landlord have agreed to replace the fixed minimum amount with a rental based on a percentage of sales. Store lease terms generally require additional payments to the landlord covering taxes, maintenance and certain other expenses. Rent expense was as follows (dollars in thousands):
Fiscal Fiscal Fiscal 1996 1997 1998 - ----------------------------------------------------------------------------------------- Store rent Fixed minimum $40,546 $39,423 $36,986 Percentage (26) 32 77 ------- ------- ------- Total store rent 40,520 39,455 37,063 Equipment and other 424 411 360 ------- ------- ------- Total rent expense $40,944 $39,866 $37,423 ======= ======= =======
At January 30, 1999, the Company was committed under store leases with initial terms ranging from 1 to 20 years and with varying renewal options. At February 1, 1997, January 31, 1998 and January 30, 1999, accrued rent expense amounted to $5.7 million, $5.7 million and $5.8 million, respectively, of which $5.5 million, $5.3 million and $5.1 million, respectively, is included in "Other long-term liabilities." 21 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES A summary of approximate non-cancelable lease commitments under leases follows (dollars in thousands) for the fiscal years: 1999 $ 30,960 2000 27,193 2001 24,258 2002 22,091 2003 19,191 Thereafter 53,003 -------- Total minimum obligations $176,696 ======== 6. LONG-TERM DEBT Long-term debt consists of (dollars in thousands): January 31, January 30, 1998 1999 - -------------------------------------------------------------------------------- Distribution center financing: 7.30% Note due 2003 $ 4,546 $ 3,873 8.64% Mortgage due 2009 6,814 6,435 -------- ------- Total distribution center financing $11,360 $10,308 Less current maturities 1,052 1,136 -------- ------- Long-term portion of distribution center financing $10,308 $ 9,172 ======= ======= In 1994, the Company executed a fifteen-year $8.0 million loan bearing interest at 8.64%. Interest and principal are payable in equal monthly installments beginning May 1, 1994. The loan is collateralized by a mortgage on the national distribution center owned by the Company in Troy, Ohio. In 1993, the Company executed a ten-year $7.0 million note bearing interest at 7.3%. Interest and principal are payable in equal monthly installments beginning November 1993. The note is collateralized by the material handling equipment in the distribution center. The Company and United Retail Incorporated, its subsidiary (collectively, the "Companies"), are parties to a Financing Agreement, dated August 15, 1997, as amended September 15, 1997 (the "Financing Agreement"), with The CIT Group/Business Credit, Inc. ("CIT"). The Financing Agreement provides a revolving line of credit for a term of three years in the aggregate amount of $40 million for the Companies to support trade letters of credit and standby letters of credit and to finance loans. The Companies are required to maintain unused at all times combined availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any financial covenants. In the event a loan is made to one of the Companies, interest is payable monthly based on a 360-day year at the prime rate or at two percent plus the LIBOR rate on a per annum basis, at the borrowers option. The line of credit is secured by a security interest in inventory and proceeds and by the balance on deposit from time to time in an account that has been pledged to the lenders. At January 30, 1999, the combined availability of the Companies was $13.0 million, no balance was in the pledged account, the aggregate outstanding amount of letters of credit arranged by CIT was $24.8 million and no loan had been drawn down. The Company's cash on hand was unrestricted. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents and trade payables approximate fair value because of the short-term maturity of these instruments. The fair value of long-term debt, including current portion, is estimated to be $11.5 million and $10.6 million for fiscal 1997 and fiscal 1998, respectively, based on the current rates quoted to the Company for debt of the same or similar issues. 8. INCOME TAXES The Company provides for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes." This statement requires the use of the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. The (benefit from) provision for income taxes consists of (dollars in thousands): Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Currently payable: Federal $(1,584) $ 722 $7,350 State 97 182 558 ------- ------- ------- (1,487) 904 7,908 ------- ------- ------- Deferred: Federal 696 (2,419) 1,899 State 115 (266) 57 ------- ------- ------- 811 (2,685) 1,956 ------- ------- ------- $ (676) $(1,781) $9,864 ======= ======= ======= 22 1998 ANNUAL REPORT Reconciliation of the (benefit from) provision for income taxes from the U.S. Federal statutory rate to the Company's effective rate is as follows: Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Statutory Federal income tax rate (34.0)% 34.0% 35.0% State income taxes, net of Federal benefit 0.4 3.9 1.5 Goodwill amortization 1.0 2.3 0.3 Other (1.0) 0.7 (0.6) ----- ----- ---- Sub-total (33.6) 40.9 36.2 Charitable contribution benefit (3.0) 0.0 0.0 Write-down (write-up) of the compensation related deferred tax asset 5.0 (31.3) (0.8) Valuation allowance 21.7 (68.0) 0.0 ----- ----- ---- (9.9)% (58.4)% 35.4% ===== ===== ==== The Company's net deferred tax asset reflects the tax impact of temporary differences. The components of the net deferred tax asset are as follows: January 31, January 30, 1998 1999 - -------------------------------------------------------------------------------- Assets: Inventory $ 184 $ 658 Accruals and reserves 1,820 2,591 Compensation 1,839 308 Credit carryforwards 1,479 0 ------ ------ 5,322 3,557 ------ ------ Liabilities: Depreciation 2,637 2,437 ------ ------ Net deferred tax asset $2,685 $1,120 ====== ====== Future realization of the tax benefits attributable to these existing deductible temporary differences ultimately depends on the existence of sufficient taxable income within the carryback and/or carryforward period available under the tax law at the time of the tax deduction. Based on management's assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings or available carrybacks. Included in the fiscal 1996, fiscal 1997 and fiscal 1998 income tax expense (benefit) is a $0.3 million write-down, a $(1.0 million) write-up, and a $(0.2 million) write-up of the compensation related deferred tax asset, respectively, which had been recorded in fiscal 1992 based upon the initial public offering price of $15 per share. On February 13, 1998 underlying stock options relating to $1.822 million of the compensation related deferred tax asset were exercised, which resulted in an additional $0.2 million tax benefit in fiscal 1998. At January 31, 1998 and January 30, 1999, the Company had pre-acquisition net operating loss carryforwards aggregating approximately $0.5 million and $0.4 million, respectively, available to reduce future taxable income in certain states, expiring through 2004. 9. RELATED PARTY TRANSACTIONS The Company shares certain store locations with subsidiaries of The Limited and is charged by The Limited for occupancy costs. The impact on the statements of operations of these occupancy charges was as follows (dollars in thousands): Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Cost of goods sold, including buying and occupancy costs $367 $123 $121 An affiliate of the Chairman of the Board of the Company, American Licensing Group, L.P. ("ALGLP"), (in which he holds an 80% interest) provides management and administrative services to a subsidiary of The Limited, ALG, Inc., for a base annual fee and profit sharing fee, the profit sharing fee being the lower of one-third of net profits or $150,000 per annum. During fiscal 1996, fiscal 1997 and fiscal 1998, the aforementioned affiliate was paid $105,000, $160,000 and $62,000, respectively, by that subsidiary of The Limited. During fiscal 1996, fiscal 1997, and fiscal 1998, the Company incurred expenses under certain Sublicensing Agreements with respect to trademarks to ALG, Inc. in the amounts of $416,000, $395,000, and $361,000, respectively, and to ALGLP in the amounts of $593,000, $599,000 and $442,000, respectively. ALG, Inc. and ALGLP, in turn, incurred expenses with respect to the trademarks under certain Licensing Agreements with the owner of the trademarks. In fiscal 1994 and fiscal 1996, the Company made investments in a vendor from which the Company purchased apparel. The investments totaled $12,500 for approximately 22% of the outstanding common stock of the vendor and an unsecured loan facility in the amount of $400,000, which expired on January 31, 1997. Purchases of apparel during fiscal 1996 and fiscal 1997 totaled $2.7 million and $0.6 million, 23 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES respectively. In fiscal 1998, the Company realized a capital gain of $3.1 million on the sale of its shares of common stock back to the vendor. The gain is reported as non-operating income. During fiscal 1995, the Company made an investment in one of the purchasing agents that acted on the Company's behalf in contracting for apparel with foreign vendors. In fiscal 1997, the Company sold its entire investment in the purchasing agent at a purchase price of $505,000, resulting in a gain of $43,000. 10. RETIREMENT PLAN The Company maintains a defined contribution pension plan. Generally, an employee is eligible to participate in the plan if the employee has completed one year of full-time continuous service. The Company makes a 50% match of a portion of employee savings contributions. The Company also maintains a non-qualified defined contribution pension plan, known as the Supplemental Retirement Savings Plan. The Company makes a 50% match of a portion of employee savings contributions for those associates whose contributions to the qualified plan are limited by IRS regulations, as well as retirement contributions for certain grandfathered associates equal to 6% of those associates compensation. Pension costs for all benefits charged to income during fiscal 1996, fiscal 1997 and fiscal 1998 approximated $335,000, $278,000 and $522,000, respectively. 11. STOCKHOLDERS EQUITY Coincident with the completion of its initial public offering on March 17, 1992, the Company's certificate of incorporation was amended to provide for only one class of Common Stock, par value $.001 per share, with 30 million shares authorized. The Company also authorized 1,000,000 shares of Preferred Stock, par value $.001 per share, to be issued from time to time, in one or more classes or series, each such class or series to have such preferences, voting powers, qualifications and special or relative rights and privileges as shall be determined by the Board of Directors in a resolution or resolutions providing for the issue of such class or series of Preferred Stock. The Company has paid no cash dividends and expects to retain any future earnings for expansion of its business rather than to pay cash dividends in the foreseeable future. Additionally, a loan agreement to which the Company is a party imposes restrictions on the payment of dividends. 12. Stock Options Under the 1989 Management Stock Option Plan (the "1989 Plan") established on July 17, 1989, options to purchase 1,078,125 shares and 50,000 shares at exercise prices of $1.00 and $5.00 per share, respectively, were granted, of which 50,000 options were outstanding as of January 30, 1999. All options granted under the 1989 Plan became vested and exercisable upon completion of the Company's initial public offering and the payment of certain obligations to The Limited Inc. On February 13, 1998, 1,078,125 of the 1989 Plan options were exercised by management. Under 1991 Stock Option Agreements between the Company and certain executive officers (the "1991 Options"), the Board of Directors approved and granted, on July 24, 1991, options to purchase 300,000 shares at an exercise price of $5.00 per share which were outstanding as of January 30, 1999. These options became vested and exercisable upon completion of the initial public offering and the payment of certain obligations to The Limited Inc. The options outstanding under the 1989 Plan and the 1991 Options expire on December 31, 1999. The voluntary resignation of an optionee does not limit the above options' expiration date or otherwise affect the exercisability of these options in any way. The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was established in June 1990 and terminated in May 1996. Exercise prices were not less than fair market value of the Company's stock on the date of grant. The options granted under the 1990 Plan expire between seven and ten years after the date of grant. As of February 1, 1997, January 31, 1998 and January 30, 1999, outstanding options to purchase 658,000, 619,300 and 615,300 shares, respectively, were granted under the Plan at average exercise prices of $6.78, $6.89 and $6.90 per share, respectively. The options granted vest beginning one year from the date of grant, and vest fully after four or five years, subject to acceleration under certain circumstances. Options were granted, and the 1990 Plan is administered, by the Compensation Committee of the Board of Directors composed of non-employees of the Company. The Company recorded compensation expense pursuant to the 1990 Plan in fiscal 1996 of $77,000. 24 1998 ANNUAL REPORT A summary of stock option transactions under the 1990 Plan is as follows:
Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------------------------- Options outstanding at beginning of period 665,000 658,000 619,300 Options granted (a) 99,000 0 0 Options exercised 0 0 3,200 Options expired 0 22,500 0 Options canceled (a) 106,000 16,200 800 Options outstanding at end of period 658,000 619,300 615,300 Options available for grant at end of period 0 0 0 Options vested and outstanding at end of period 102,895 198,783 323,570 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 0 86,500 305,570 Range of option prices per share for outstanding options $4.125-$26.75 $4.125-$26.75 $4.125-$26.75
(a) Options granted and options canceled do not include the reissuance in fiscal 1996 of 271,500 options at an exercise price of $5.125 per share. The restated 1996 Stock Option Plan (as amended, the "1996 Plan") was established in May 1996. Exercise prices are required by the 1996 Plan to be not less than fair market value of the Company's stock on the date of grant. The total number of shares that may be optioned under the 1996 Plan is 440,000 shares. The options granted under the 1996 Plan expire ten years after the date of grant. As of February 1, 1997, January 31, 1998, and January 30, 1999, outstanding options to purchase 45,000, 163,000 and 373,300 shares have been granted under the Plan at an average exercise price of $3.00, $3.22 and $5.24 per share. The options granted vest beginning one year from the date of grant, and vest fully after five years, subject to acceleration under certain circumstances. Employees of the Company whose judgment, initiative and efforts may be expected to contribute materially to the successful performance of the Company are eligible to receive options. Public Directors receive annual grants of options under the 1996 Plan. Options are granted, and the 1996 Plan is administered, by the Compensation Committee of the Board of Directors composed of non-employees of the Company. A summary of stock option transactions under the 1996 Plan follows:
Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------------------------- Options outstanding at beginning of period 0 45,000 163,000 Options granted 45,000 145,000 253,500 Options exercised 0 0 1,200 Options canceled 0 27,000 42,000 Options outstanding at end of period 45,000 163,000 373,300 Options available for grant at end of period 395,000 277,000 65,500 Options vested and outstanding at end of period 0 4,000 30,900 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 0 4,000 30,900 Range of option prices per share for outstanding options $3.00 $2.625-$5.625 $2.625-$11.50
In May 1998, the Company issued non-qualified stock options to purchase a total of 300,000 shares at $6.3125 per share (the fair market value on the date of Board action) to two officers of the Company. These options expire ten years after the date of grant. The options vest beginning one year from the date of grant and vest fully after five years, subject to acceleration under certain circumstances. The options described in the preceding paragraph were approved by the Company's stockholders. The Company records compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No. 25, compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. In May 1998, the Company issued non-qualified stock options whose market price at the date of grant exceeded the exercise price, which equalled the market price on the date of Board action. In accordance with Opinion No. 25, compensation expense will be recorded ratably over the five-year vesting period of the options. The Company recognized $216,000 of related compensation expense in fiscal 1998. 25 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which encourages companies to recognize expense for stock-based awards based on their estimated value on the date of grant. SFAS No. 123 did not require companies to change their existing accounting for stock-based awards. The Company continues to account for stock-based compensation plans using the intrinsic value method, and has supplementally disclosed pro forma information required by SFAS No. 123. Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Net (loss) income-- as reported $(6,147) $4,831 $17,980 Net (loss) income-- pro forma $(6,416) $4,532 $17,483 (Loss) earnings per share-- as reported $ (0.50) $ 0.37 $ 1.31 (Loss) earnings per share-- pro forma $ (0.53) $ 0.34 $ 1.27 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Expected dividend yield 0.00% 0.00% 0.00% Expected stock price volatility 50.00% 50.00% 50.00% Risk-free interest rate 5.72% 5.39% 4.55% Expected life of options 5 years 5 years 5 years The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 13. ADVANCES TO OFFICERS Advances were made on February 13, 1998 in the amount of $1.6 million to Raphael Benaroya, the Company's Chairman of the Board, President and Chief Executive Officer, and $0.2 million to George R. Remeta, the Company's Vice Chairman and Chief Financial Officer. The purpose of the advances was to finance payment of income taxes incurred in connection with their exercise of stock options. Interest is payable annually in cash at the prime rate. The advances have a term of four years subject to acceleration under certain circumstances and to call by the Company after two years with respect to half of the principal amount. Payment of the advances is secured by a pledge of the shares of the Company's Common Stock issued upon the option exercises in the amount of 777,925 shares issued to Mr. Benaroya and 116,888 shares issued to Mr. Remeta. Each advance is a full recourse obligation of the borrower. 14. SUPPLEMENTAL CASH FLOW INFORMATION Net cash flow from operating activities reflects cash payments for interest and income taxes as follows (dollars in thousands): Fiscal Fiscal Fiscal 1996 1997 1998 - -------------------------------------------------------------------------------- Interest expense (income), net per statements of income $ 413 $ 154 $(1,201) Non-cash interest income (expense) 50 (63) 72 --------------------------------- Net cash interest expense (income), including interest income of $924, $984 and $2,235 $ 463 $ 91 $(1,273) --------------------------------- Income taxes (refunded) paid $(3,990) $ 531 $ 8,376 --------------------------------- Financing activities in fiscal 1998 include the non-cash exercise of 1,076,955 stock options, with the exercise price paid by exchanging common stock held equal to the cash payment due. 15. CONTINGENCY FOOTNOTE The Company is involved in legal actions and claims arising in the ordinary course of business. Management believes (based on advice of legal counsel) that such litigation and claims will not have a material adverse effect on the Company's financial condition or results of operations. 26 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Ended Ended Ended Ended Ended Jan. 28, Feb. 3, Feb. 1, Jan. 31, Jan. 30, (shares and dollars in thousands, except per share data) 1995 1996 1997 1998 1999 - ----------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Net sales $357,684 $369,173 $363,074 $361,751 $378,562 Cost of goods sold, including buying and occupancy costs 276,038 292,790 289,421 278,078 275,811 Gross profit 81,646 76,383 73,653 83,673 102,751 General, administrative and store operating expenses 74,986 80,170 80,063 80,469 79,221 Operating income (loss) 6,660 (3,787) (6,410) 3,204 23,530 Non-operating income 0 0 0 0 3,113 Interest expense (income), net 491 (119) 413 154 (1,201) Income (loss) before taxes 6,169 (3,668) (6,823) 3,050 27,844 Provision for (benefit from) income taxes 2,276 (957) (1,018) (828) 10,077 Provision for (benefit from) write-down (write-up) of the compensation related deferred tax asset 917 1,928 342 (953) (213) Net income (loss) 2,976 (4,639) (6,147) 4,831 17,980 Net income (loss) per common share: Basic $ .24 $ (.38) $ (.50) $ .40 $ 1.38 Diluted $ .22 $ (.38) $ (.50) $ .37 $ 1.31 Weighted average number of common shares outstanding: Basic 12,169 12,190 12,190 12,190 13,056 Diluted 13,313 12,190 12,190 13,187 13,736 BALANCE SHEET DATA (at period end): Working capital $ 37,614 $ 38,394 $ 36,941 $ 43,875 $ 60,343 Total assets 138,434 139,033 130,347 134,727 154,592 Long-term debt 0 0 0 0 0 Distribution center financing 13,233 12,333 11,355 10,308 9,172 Total stockholders equity 90,672 86,283 80,213 85,044 101,147
The Selected Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Consolidated Financial Statements, including the notes thereto. The data for the periods indicated has been derived from the Company's Consolidated Financial Statements, which have been audited by PricewaterhouseCoopers LLP, independent accountants, whose report for the three fiscal years ended January 30, 1999 appears elsewhere in this Annual Report. 27 1998 ANNUAL REPORT UNITED RETAIL GROUP, INC. AND SUBSIDIARIES United Retail Group Corporate Officers & Directors Raphael Benaroya Chairman of the Board, President and Chief Executive Officer* George R. Remeta Vice Chairman - Chief Financial Officer, Secretary and Director* Kenneth P. Carroll Senior Vice President - General Counsel* Ellen Demaio Senior Vice President - Merchandise Raymond W. Brown Vice President - Associate Services Kevin Burke Vice President - Footwear Carrie Cline-Tunick Vice President - Product Design and Development Julie L. Daly Vice President - Strategic Planning Kent Frauenberger Vice President - Logistics Jon Grossman Vice President - Finance* Alan R. Jones Vice President - Real Estate Charles E. Naff Vice President - Sales Bradley Orloff Vice President - Marketing Robert Portante Vice President - MIS Fredric E. Stern Vice President - Controller Joseph A. Alutto A Director of the Company, is the Dean of Max M. Fisher School of Business at Ohio State University Russell Berrie A Director of the Company, is the Chairman of the Board and Chief Executive Officer of Russ Berrie and Company, Inc., an international toy manufacturer Joseph Ciechanover A Director of the Company, is the Chairman of the Board of El Al Israel Airlines Ltd. Ilan Kaufthal A Director of the Company, is a Vice Chairman of Schroder & Co., Inc., an investment banking firm Vincent P. Langone A Director of the Company, is Chief Executive Officer of Formica Corporation, a manufacturer of Formica(R) brand laminate Richard W. Rubenstein A Director of the Company, is a Partner of Squire, Sanders & Dempsey, a law firm *An officer of the parent holding company rather than the operating subsidiary, United Retail Incorporated or United Retail Logistics Operations Incorporated. UNITED RETAIL GROUP, INC. AND SUBSIDIARIES Shareholder Information The Company's Annual Report on Form 10-K, including financial statement schedules, filed with the Securities and Exchange Commission ("SEC"), is available without charge upon written request to Kenneth P. Carroll, Esq., Senior Vice President - General Counsel, at the Company's headquarters. Mail should be addressed to 365 West Passaic Street, Rochelle Park, New Jersey 07662; E-mail should be addressed to kcarroll@UnitedRetail.com. The Annual Report on Form 10-K is also available through the SEC at http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market under the symbol "URGI." The last reported sale price of the Common Stock on the Nasdaq National Market on April 13, 1999 was 10 1/2. The following table sets forth the reported high and low sale prices of the Common Stock as reported by Nasdaq for each calendar quarter indicated. High Low High Low - -------------------------------------------------------------------------------- 1997 1998 -------------------------------------------------------- First Quarter $4 3/4 $2 7/8 $6 3/4 $3 5/8 Second Quarter $4 1/8 $2 1/2 $16 13/16 $3 5/16 Third Quarter $3 3/16 $2 15/16 $16 1/8 $7 5/8 Fourth Quarter $6 1/8 $2 5/8 $12 1/8 $6 7/8 The Company has not paid dividends on its Common Stock and has no present intention of doing so. Also, the Financing Agreement between the Company, United Retail Incorporated and The CIT Group/Business Credit, Inc., dated August 15, 1997, as amended, forbids the payment of dividends. The Company's transfer agent and registrar is Continental Stock Transfer and Trust Co., 2 Broadway, New York, New York 10004. At March 3, 1999, there were 409 record owners of Common Stock. This report contains certain forward-looking statements concerning the Company's operations and performance. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those currently anticipated by the Company. Such factors may include, but are not limited to, possible miscalculation of fashion trends, shifting shopping patterns, extreme or unseasonable weather conditions, economic downturns, and weakness in overall consumer demand, as well as competitive pressures. These, and other factors, are detailed in the Company's filings with the SEC, including the Company's Annual Report on Form 10-K. UNITED RETAIL GROUP, INC. EX-21 5 EXHIBIT 21 EXHIBIT NO. 21 The direct and indirect active subsidiaries of the registrant are: United Retail Holding Corporation United Retail Incorporated United Retail Logistics Operations Incorporated United Retail International, Ltd. United Distribution Services, Inc. The Avenue, Inc. Cloudwalkers, Inc. All the registrant's subsidiaries are organized under the laws of the State of Delaware except United Retail International, Ltd., which is organized under the laws of the Cayman Islands. EX-23.1 6 EXHIBIT 23.1 EXHIBIT NO. 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of United Retail Group, Inc. and Subsidiaries (the "Company") on Forms S-8 (File Nos. 333-47407, 033-48500, 033-48501, 333-64643, 033-67288) of our report dated February 12, 1999, on our audits of the consolidated financial statements of the Company as of January 30, 1999 and January 31, 1998 and for each of the three fiscal years ended January 30, 1999, which report is incorporated by reference in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, New York April 21, 1999 EX-23.2 7 EXHIBIT 23.2 EXHIBIT NO. 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS The undersigned hereby consents to the inclusion as an exhibit to this Annual Report on Form 10-K for the year ended January 30, 1999 of our report dated February 24, 1999, on our audits of the statements of net assets available for benefits of the United Retail Group Retirement Savings Plan (the "Plan") as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. The undersigned also hereby consents to the incorporation of such report by reference in the Registration Statement on Form S-8 of United Retail Group, Inc. (The "Company") with respect to the Plan and its investment in shares of common stock of the Company. /s/ Ary, Earman and Roepcke ------------------------ ARY, EARMAN AND ROEPCKE Columbus, Ohio April 7, 1999 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-30-1999 FEB-01-1998 JAN-30-1999 45,894 0 513 0 45,564 98,346 110,331 62,314 154,592 38,003 9,172 0 0 14 101,133 154,592 378,562 378,562 275,811 275,811 79,221 0 (1,201) 27,844 9,864 17,980 0 0 0 17,980 1.38 1.31
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