-----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, OK3mApr9HLxOIO74hYoJlnVck4QUrdVCA0ZSOi8czOw0Uqb8r9xevxbN23ToC6C4 6EDMz9G+oW16bo2O36yUhQ== 0000950123-96-001732.txt : 19960418 0000950123-96-001732.hdr.sgml : 19960418 ACCESSION NUMBER: 0000950123-96-001732 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960203 FILED AS OF DATE: 19960417 SROS: NASD 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: 0202 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19774 FILM NUMBER: 96547801 BUSINESS ADDRESS: STREET 1: 365 WEST PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018450880 MAIL ADDRESS: STREET 2: 365 W PASSAIC STREET CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 10-K 1 UNITED RETAIL GROUP, INC. 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 [FEE REQUIRED] For the fiscal year ended February 3, 1996 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) 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 29, 1996, 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 $19.1 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 (i) the officers and directors of the registrant and its subsidiaries and (ii) other stockholders who have filed statements with the Securities and Exchange Commission (the "SEC") under Section 13(d) of the 1934 Act reporting beneficial ownership of more than 5% of the voting stock of the registrant, regardless of the reported purpose of their holdings. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the 1934 Act subsequent to the distribution of securities under a plan confirmed by a court. YES _______ NO _______ APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 31, 1996, 12,190,375 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 February 3, 1996 is incorporated in part by reference in Part II of this Form 10-K. The registrant's proxy statement for its 1996 annual meeting of stockholders is incorporated in part by reference in Part III of this Form 10-K. 3 PART I Item 1. Business. OVERVIEW The Company is a leading nationwide specialty retailer of large-size women's apparel and accessories, offering private label merchandise with a "designer" look. The Company's merchandising strategy is to offer its customers merchandise of the same quality and variety available in smaller sizes. The Company operates 576 stores in 37 states principally under the names The Avenue(R) and Sizes Unlimited. CUSTOMER BASE The Company seeks to serve the mass market and targets fashion-conscious women between 18 and 50 years of age who wear size 14 or larger. The Company believes that this market is underserved by many department and specialty retail stores that do not offer wide selections of fashionable large-size women's apparel. In addition, the large-size customer often has fewer store alternatives in nearby shopping malls and strip shopping centers than her smaller-size counterpart. 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 design and implement a plan to turn around the combined businesses. In the spring of 1988, management launched its business plan, which was designed to increase average store sales and close stores with low sales potential. From the beginning of Fiscal 1988 through Fiscal 1991, the Company focused on rationalizing its store base by closing 64 stores while opening only 37 new stores. The business plan also focused on improving merchandise quality and fit, introducing more fashionable lines, enhancing the store shopping experience with strong merchandise presentations and upgraded customer service, renovating existing stores and designing and building new-store prototypes. From Fiscal 1992 through Fiscal 1995, the Company expanded its store base by opening individual new stores and by acquiring groups of closed stores from other retail chains. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations." MERCHANDISING AND MARKETING The Company's strategy is to offer its customers a "designer" look in moderately priced private label merchandise. It emphasizes consistency of merchandise quality and fit and aggressively 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, jackets, suits, dresses and coats. Specialty items include a full line of sleepwear and lingerie. Accessories include earrings, pins, scarves, socks, hosiery and a selection of gift items. The Company offers most of its merchandise at popular or moderate price 4 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 private label merchandise, which has higher gross profit margins and which the Company believes creates an exclusive "designer" image that helps distinguish it from competitors. Through careful brand management, including consistent imaging of its private label merchandise, the Company believes it enhances brand recognition and the customer's perception of value. Branded private label merchandise includes casual wear (Forelli(R)) and career apparel (Adrian Jordan(R)). The Avenue(R) label is also used on both casual wear and career apparel. Private label garments are tagged, packaged and presented at the Company's stores in a manner consistent with more expensive garments with national brand names. The Company develops new merchandise assortments on average 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 that, combined with attractive store decor, create an atmosphere comparable to that of other quality specialty retailers and department stores. 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. 5 MANAGEMENT INFORMATION SYSTEMS The applications software for the Company's management information systems was acquired by the Company from The Limited. 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 ("ISSC"), a wholly-owned subsidiary of IBM. The computer hardware used in processing is located in Lexington, Kentucky, at a facility operated by ISSC. PURCHASING Separate groups of merchants are responsible for different categories of merchandise. See, also, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Most of the merchandise purchased by the Company consists of either manufacturer's "line merchandise" produced under the Company's private label or custom designed garments produced for the Company by contract manufacturing, also under the Company's private labels. 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 1995, a single manufacturer accounted for more than 5% but less than 10% of the Company's merchandise purchases. No manufacturer accounted for 10% or more of the Company's merchandise purchases. 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 financed by letters of credit. 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. All of the Company's proprietary credit cards are issued by Citibank (South Dakota) N.A., which purchases credit card charges from the Company daily at a discount that is adjusted annually. 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. 6 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. TRADE NAMES AND TRADEMARKS The Company is the owner in the United States of its principal trademarks, The Avenue(R), Forelli(R) and Adrian Jordan(R), which are registered with the Patent and Trademark Office. The Company is also the sublicensee of certain national brand names. See, "Certain Relationships and Related Transactions." The Company believes that no individual trade name or trademark is material to the Company's competitive position in the industry. The Company is not aware of any use of any of its trade names or principal trademarks by its competitors that has a material effect on the Company's operations (except that the Company has agreed not to use the Sizes Unlimited trade name in the states of Washington and Oregon, where the Company operates stores under the trade name Smart Size) or any material claims of infringement or other challenges to the Company's right to use its trade names or principal trademarks in the United States. EMPLOYEES As of March 16, 1996, the Company employed approximately 5,300 associates, of whom approximately 2,000 worked full-time and the balance of whom worked part-time. Considerable seasonality is associated with employment levels. Approximately 80 store associates are covered by collective bargaining agreements. The Company believes that its relations with its associates are good. SEASONALITY The Company's business is seasonal, with the first half of each fiscal year providing a greater portion of the Company's annual net sales and operating income. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 2. Properties. As of February 29, 1996, the Company operated stores in 37 states: Alabama 6 Nevada 1 Arizona 5 New Hampshire 4 Arkansas 1 New Jersey 39 California 87 New Mexico 1 Colorado 1 New York 56 Connecticut 13 North Carolina 10 Delaware 2 Ohio 23 Florida 25 Oklahoma 4 Georgia 21 Oregon 6 Illinois 48 Pennsylvania 21 Indiana 8 Rhode Island 2 Iowa 2 South Carolina 10 Kentucky 5 Tennessee 13 Louisiana 11 Texas 39 Maine 1 Utah 1 Maryland 18 Virginia 12 Massachusetts 21 Washington 10 Michigan 29 Wisconsin 11 Missouri 9 Total: 576
7 Of the Company's stores, 303 were in strip shopping centers, 243 were in shopping malls, and 30 were in downtown shopping districts. Stores generally range in size from 2,500 to 6,000 net square feet. The Company leases all its store locations. The Company leases its executive offices, which consist of approximately 56,000 square feet and are located in an office building at 365 West Passaic Street, Rochelle Park, New Jersey. The office lease has a term ending in August 1999. 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 involved in various routine legal proceedings incidental to the conduct of its business and maintains reserves that include, among other things, the estimated cost of uninsured payments to accident victims and payments to vendors of goods and services resulting from certain disputes. Management believes that, giving effect to reserves, these legal proceedings will not 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 February 3, 1996. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The section captioned "Shareholder Information" in the registrant's 1995 annual report to stockholders is incorporated herein by reference. (Only those portions of the 1995 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.) Item 6. Selected Financial Data. The section captioned "Selected Financial Data" in the registrant's 1995 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 registrant's 1995 annual report to stockholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The section captioned "Consolidated Financial Statements" in the registrant's 1995 annual report to stockholders is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 9 PART III Item 10. Directors and Executive Officers of the Registrant. The subsections captioned "Election of Directors - Nominees" and " - Business Experience" in the registrant's proxy statement for its 1996 annual meeting of stockholders (the "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: Charles R. Wilkinson, age 51, has been the Executive Vice President - Organizational Development of United Retail Incorporated, a subsidiary of the registrant, since June 1991. He was employed at The Children's Place, Inc., a chain of retail children's apparel stores, as Chief Executive Officer since before 1991. Kenneth P. Carroll, age 53, was the Company's Vice President - General Counsel from March 1992 to March 1996, when he was elected the Senior Vice President - General Counsel. Previously, he was a member of Bachner, Tally, Polevoy & Misher, a law firm, since before 1991. Ellen Demaio, age 38, has been employed by United Retail Incorporated as a merchant since before 1991. In 1992, she was elected a Vice President - Merchandise of United Retail Incorporated and in 1994 she was elected the Senior Vice President - Merchandise of United Retail Incorporated. Julie L. Daly, age 41, has been the Vice President - Planning and Distribution of United Retail Incorporated since May 1991, and previously was employed by United Retail Incorporated in merchandise planning positions since before 1991. Kent Frauenberger, age 49, has been the Vice President - Logistics of United Retail Logistics Operations Incorporated, a subsidiary of the registrant, since May l993. Previously, he was Manager of Business Development of Exel Logistics Inc., a logistics firm, through 1992. Previously, he was Director of Distribution of Mervyns, a division of Dayton Hudson Corp., a retail store chain, since before 1991. Jon Grossman, age 38, has been the Vice President - Finance of the Company since May 1992. Previously, he served the Company as its Director of Financial Reporting since before 1991. Alan R. Jones, age 48, 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 1991. Bradley Orloff, age 38, has been the Vice President - Marketing of United Retail Incorporated since May 1991. He previously served United Retail Incorporated in marketing positions since before 1991. Robert Portante, age 44, 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 May 1991. Brooks filed as debtor in possession under the United States Bankruptcy Code. Previously, he was Director - MIS of Brooks since before 1991. Fredric E. Stern, age 46, has been the Vice President - Controller of United Retail Incorporated since before 1991. 10 John I. Trombley, age 47, has been the Vice President - Store Design and Construction of United Retail Incorporated since August 1994. Previously, he was Vice President - Store Planning of The Limited since before 1991. The term of office of these executive officers will expire at the 1996 annual meeting of stockholders, scheduled to be held in May 1996. The subsection captioned "Section 16(b) Filings" in the Proxy Statement is incorporated herein by reference. Item 11. Executive Compensation. The sections captioned "Executive Compensation" and "Report of Compensation Committee" in the Proxy Statement are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The section captioned "Security Ownership of Principal Stockholders and Management" in the Proxy Statement is 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 Proxy Statement are incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The following financial statement schedule is filed herewith: Schedule Description -------- ----------- II Valuation of Qualifying Accounts and Reserves The following exhibits are filed herewith: Number Description ------ ----------- 13 Sections of 1995 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 23.1 Consent of Independent Public Accountants for the registrant 23.2 Opinion of Independent Public Accountants on financial statement schedule 27 Financial Data Schedule The registrant's proxy statement on Schedule 14A for its 1996 annual meeting of stockholders is incorporated herein by reference. 11 The following exhibits to the registrant's Current Report on Form 8-K, dated March 22, 1996, are incorporated herein by reference: Number Description ------ ----------- 10.1 Amendment No. 7, dated March 5, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and The Chase Manhattan Bank (N.A.) ("Chase") 10.2 Amendment No. 6, dated March 5, 1996, to the Credit Agreement among the Corporation, its subsidiaries and Chase 10.3* Employment Agreement, dated March 1, 1996 , between the Corporation and Kenneth P. Carroll The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended July 29, 1995 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 5, dated January 31, 1995, to the Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment No. 6, dated January 31, 1995, to the Letter of Credit Agreement among the Corporation, its subsidiaries and Chase The following exhibits to the registrant's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibits to the registrant's Annual Report on Form 10-K for the year ended January 28, 1995 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Incentive Compensation Program Summary 21 Subsidiaries of the Corporation The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended October 29, 1994 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Retirement Savings Plan 10.2* Restated Supplemental Retirement Savings Plan 12 The following exhibit to the registrant's Quarterly Report on Form 10-Q for the period ended July 30, 1994 is incorporated herein by reference: Number in Filing Description ----------------- ----------- l0.2* Letter from the Corporation to Raphael Benaroya and George R. Remeta, dated May 20, 1994, regarding their respective Restated Employment Agreements, dated November 1, 1991 The following exhibits to the registrant's amended Annual Report on Form 10-KA for the year ended January 29, 1994 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.3 Amendment, dated December 6, 1993, to Credit Agreement between the Corporation and Citibank (South Dakota) N.A. 10.4 Term Sheet Agreement, dated as of May 4, 1993, with respect to Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended July 31, 1993 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 4.1 Amended By-Laws of the Corporation, as amended June 1, 1993 4.2 Amendment No. 1, dated June 1, 1993, to Restated Stockholders' Agreement The following exhibit to the registrant's proxy statement on Schedule 14A for its 1993 annual meeting of stockholders is incorporated herein by reference: Restated 1990 Stock Option Plan* The following exhibits to the registrant's Current Report on Form 8-K, dated January 6, 1993, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 4.2 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders 10.1 Amendment No. 1, dated March 17, 1992, to Letter of Credit Agreement between the Corporation, its subsidiaries and Chase 10.2 Amendment No. 2, dated May 4, 1992, to Letter of Credit Agreement between the Corporation its subsidiaries and Chase 10.3 Amendment No. 3, dated July 2, 1992, to Letter of Credit Agreement between the Corporation , its subsidiaries and Chase 10.4 Amendment No. 1, dated May 4, 1992, to Credit Agreement between the Corporation, its subsidiaries and Chase 10.5 Amendment No. 2, dated July 2, 1992, to Credit Agreement between the Corporation, its subsidiaries and Chase 13 10.6 Second Amendment to Lease, dated June 30, 1992, to Office Lease between Mack Passaic Street Properties Co. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.7 Guaranty of Lease, dated June 30, 1992, made by Sizes Unlimited Holding Corporation (now known as United Retail Holding Corporation) to Mack Passaic Street Properties Co. The following exhibits to the registrant's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 2.1 Acquisition Agreement, dated as of July 14, 1989, between The Limited, Inc. and Sizes Unlimited Acquisition Corporation 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. 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.3.1 Merchandise Handling Agreement, dated as of April 30, 1989, among The Limited Stores, Inc., Limited Express, Inc. and Sizes Unlimited, Inc. and Amendment thereto, dated October 4, 1990 10.3.2 Amendment, dated December 30, 1991, to Merchandise Handling Agreement 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (also known as Oldco, Inc.) (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.11 Office Lease, dated June 12, 1987, between Mack Passaic Street Properties Co. and Sizes Unlimited, Inc. and Amendment thereto dated August 21, 1988 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 10.23* Restated Employment Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 10.25* Restated Employment Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.29* Restated 1989 Management Stock Option Plan, dated November 1, 1991 10.30* Performance Option Agreement, dated July 17, 1989, between Lernmark, Inc. and Raphael Benaroya and First Amendment thereto dated November 1, 1991 10.31* Performance Option Agreement, dated July 17, 1989, between Lernmark, Inc. and George R. Remeta and First Amendment thereto dated November 1, 1991 10.32* Second Amendment, dated November 1, 1991, to Performance Option Agreements with Raphael Benaroya and George R. Remeta 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 14 10.39 First Refusal Agreement dated as of August 31, 1989 between the Corporation and ALGLP 10.40 Credit Agreement, dated as of February 24, 1992, among the Corporation, its subsidiaries and Chase 10.41 Letter of Credit Agreement, dated as of February 24, 1992, among the Corporation, its subsidiaries and Chase The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended October 30, 1993 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment Nos. 3 and 4, dated September 30, 1993 and November 18, 1993, respectively, to Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment Nos. 4 and 5, dated September 30, 1993 and November 18, 1993, respectively, to Letter of Credit Agreement among the Corporation, its subsidiaries and Chase - ------------------------- *A compensatory plan for the benefit of the registrant's management or a management contract. - ------------- (b) No Current Reports on Form 8-K were filed by the registrant during the fiscal quarter ended February 3, 1996. 15 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 11, 1996 -------------- 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 11, 1996 Principal Executive Officer President, Chief Executive Officer and Director /s/ GEORGE R. REMETA - ---------------------------- George R. Remeta Vice Chairman, April 11, 1996 Principal Financial Officer Chief Financial Officer, Secretary and Director /s/ JON GROSSMAN - ---------------------------- Jon Grossman Vice President - Finance April 11, 1996 Principal Accounting Officer /s/ JOSEPH A. ALUTTO - ---------------------------- Joseph A. Alutto Director April 11, 1996 /s/ RUSSELL BERRIE - ---------------------------- Russell Berrie Director April 11, 1996 /s/ JOSEPH CIECHANOVER - ---------------------------- Joseph Ciechanover Director April 11, 1996 /s/ ILAN KAUFTHAL - ---------------------------- Ilan Kaufthal Director April 11, 1996 /s/ VINCENT LANGONE - ---------------------------- Vincent Langone Director April 11, 1996 /s/ CHRISTINA A. MOHR - ---------------------------- Christina A. Mohr Director April 11, 1996 /s/ RICHARD W. RUBENSTEIN - ---------------------------- Richard W. Rubenstein Director April 11, 1996 16 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES SCHEDULE II AMOUNTS RECEIVABLE FROM OFFICERS (dollars in thousands)
Balance at End of Deductions Period ----------------------- ----------------- Balance at Beginning Amounts Amounts Non- of Period Additions Collected Written Off Current Current ---------- --------- --------- ----------- ------- ------- Charles R. Wilkinson (1) For the fiscal year ended January 29, 1994 $ 0 $ 0 $ 0 $0 $0 $ 0 ==== ==== === == == ==== For the fiscal year ended January 28, 1995 $ 0 $189 $ 1 $0 $0 $188 ==== ==== === == == ==== For the fiscal year ended February 3, 1996 $188 $ 19 $18 $0 $0 $189 ==== ==== === == == ====
(1) The loan bore interest at Prime plus 1%. 17 UNITED RETAIL GROUP, INC. EXHIBIT INDEX The following exhibits are filed herewith:
Number Description ------ ----------- 13 Sections of 1995 Annual Report to Stockholders that are incorporated by reference in response to the items of the Annual Report on Form 10-K 23.1 Consent of Independent Public Accountants for the registrant 23.2 Opinion of Independent Public Accountants on financial statement schedule 27 Financial Data Schedule The following financial statement schedule is filed herewith: Schedule Description -------- ----------- II Valuation of Qualifying Accounts and Reserves The registrant's proxy statement on Schedule 14A for its 1996 annual meeting of stockholders is incorporated herein by reference. The following exhibits to the registrant's Current Report on Form 8-K, dated March 22, 1996, are incorporated herein by reference: Number Description ------ ----------- 10.1 Amendment No. 7, dated March 5, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and The Chase Manhattan Bank (N.A.) ("Chase") 10.2 Amendment No. 6, dated March 5, 1996, to the Credit Agreement among the Corporation, its subsidiaries and Chase 10.3* Employment Agreement, dated March 1, 1996 between the Corporation and Kenneth P. Carroll The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended July 29, 1995 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 5, dated January 31, 1995, to the Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment No. 6, dated January 31, 1995, to the Letter of Credit Agreement among the Corporation, its subsidiaries and Chase The following exhibits to the registrant'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")
18 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibits to the registrant's Annual Report on Form 10-K for the year ended January 28, 1995 are incorporated herein by reference: Number in Filing Description 10.1* Incentive Compensation Program Summary 21 Subsidiaries of the Corporation The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended October 29, 1994 are incorporated herein by reference: Number in Filing Description 10.1* Restated Retirement Savings Plan 10.2* Restated Supplemental Retirement Savings Plan The following exhibit to the registrant's Quarterly Report on Form 10-Q for the period ended July 30, 1994 is incorporated herein by reference: Number in Filing Description l0.2* Letter from the Corporation to Raphael Benaroya and George R. Remeta, dated May 20, 1994, regarding their respective Restated Employment Agreements, dated November 1, 1991 The following exhibits to the registrant's amended Annual Report on Form 10-KA for the year ended January 29, 1994 are incorporated herein by reference: Number in Filing Description 10.3 Amendment, dated December 6, 1993, to Credit Agreement between the Corporation and Citibank (South Dakota) N.A. 10.4 Term Sheet Agreement, dated as of May 4, 1993, with respect to Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended July 31, 1993 are incorporated herein by reference: Number in Filing Description 4.1 Amended By-Laws of the Corporation, as amended June 1, 1993 4.2 Amendment No. 1, dated June 1, 1993, to Restated Stockholders' Agreement The following exhibit to the registrant's proxy statement on Schedule 14A for its 1993 annual meeting of stockholders is incorporated herein by reference: Restated 1990 Stock Option Plan* 19 The following exhibits to the registrant's Current Report on Form 8-K, dated January 6, 1993, are incorporated herein by reference: Number in Filing Description 4.2 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders 10.1 Amendment No. 1, dated March 17, 1992, to Letter of Credit Agreement between the Corporation, its subsidiaries and Chase 10.2 Amendment No. 2, dated May 4, 1992, to Letter of Credit Agreement between the Corporation , its subsidiaries and Chase 10.3 Amendment No. 3, dated July 2, 1992, to Letter of Credit Agreement between the Corporation , its subsidiaries and Chase 10.4 Amendment No. 1, dated May 4, 1992, to Credit Agreement between the Corporation , its subsidiaries and Chase 10.5 Amendment No. 2, dated July 2, 1992, to Credit Agreement between the Corporation, its subsidiaries and Chase 10.6 Second Amendment to Lease, dated June 30, 1992, to Office Lease between Mack Passaic Street Properties Co. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.7 Guaranty of Lease, dated June 30, 1992, made by Sizes Unlimited Holding Corporation (now known as United Retail Holding Corporation) to Mack Passaic Street Properties Co. The following exhibits to the registrant's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description 2.1 Acquisition Agreement, dated as of July 14, 1989, between The Limited, Inc. and Sizes Unlimited Acquisition Corporation 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. 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.3.1 Merchandise Handling Agreement, dated as of April 30, 1989, among The Limited Stores, Inc., Limited Express, Inc. and Sizes Unlimited, Inc. and Amendment thereto, dated October 4, 1990 10.3.2 Amendment, dated December 30, 1991, to Merchandise Handling Agreement 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (also known as Oldco, Inc.) (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.11 Office Lease, dated June 12, 1987, between Mack Passaic Street Properties Co. and Sizes Unlimited, Inc. and Amendment thereto dated August 21, 1988 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 10.23* Restated Employment Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 20 10.25* Restated Employment Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.29* Restated 1989 Management Stock Option Plan, dated November 1, 1991 10.30* Performance Option Agreement, dated July 17, 1989, between Lernmark, Inc. and Raphael Benaroya and First Amendment thereto dated November 1, 1991 10.31* Performance Option Agreement, dated July 17, 1989, between Lernmark, Inc. and George R. Remeta and First Amendment thereto dated November 1, 1991 10.32* Second Amendment, dated November 1, 1991, to Performance Option Agreements with Raphael Benaroya and George R. Remeta 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 10.40 Credit Agreement, dated as of February 24, 1992, among the Corporation, its subsidiaries and Chase 10.41 Letter of Credit Agreement, dated as of February 24, 1992, among the Corporation, its subsidiaries and Chase The following exhibits to the registrant's Quarterly Report on Form 10-Q for the period ended October 30, 1993 are incorporated herein by reference: Number in Filing Description 10.1 Amendment Nos. 3 and 4, dated September 30, 1993 and November 18, 1993, respectively, to Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment Nos. 4 and 5, dated September 30, 1993 and November 18, 1993, respectively, to Letter of Credit Agreement among the Corporation, its subsidiaries and Chase - ------------------------- *A compensatory plan for the benefit of the registrant's management or a management contract. - ------------- EX-13 2 SECTIONS OF ANNUAL REPORT 1 EXHIBIT 13 UNITED RETAIL GROUP, INC. is a leading specialty retailer of private label large-size women's apparel and accessories, operating 576 stores in 37 states. The Company seeks to create a fashion-current, upscale image at prices that appeal to the middle mass market. [THE AVENUE LOGO] [SIZES UNLIMITED LOGO] [1416 PLUS LOGO] UNITED RETAIL GROUP, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (dollars in thousands, except per share amounts)
Fiscal Fiscal 1994 1995 - ---------------------------------------------------------------- Net sales $357,684 $369,173 Income (loss) before income taxes 6,169 (3,668) Provision (benefit) for income taxes 2,276 (957) Provision for write-down of the compensation related deferred tax asset 917 1,928 Net income (loss) 2,976 (4,639) Net income (loss) per common share 0.22 (0.38) Net income (loss) excluding the deferred tax asset write-down: Net income (loss) 3,893 (2,711) Net income (loss) per common share 0.29 (0.22) Weighted average outstanding shares (in thousands) 13,313 12,190 Stores open at end of period 532 576 - ----------------------------------------------------------------
2 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1995 VERSUS FISCAL 1994 Net sales for Fiscal 1995 increased 3.2% from Fiscal 1994, to $369.2 million from $357.7 million, principally from an increase in sales volume rather than price changes. Average stores open increased from 518 to 552; see, however, "Properties," regarding the Company's plan for future store openings. (Net sales for the months of February 1996 and March 1996, combined, increased 5.6% from the same period in 1995 to $58.2 million from $55.1 million.) There is no assurance that sales will continue to increase. The women's apparel industry is subject to rapidly changing consumer fashion preferences. The Company's performance depends on the operational flexibility to respond to such changes quickly. See, also, "A Single Merchandise Assortment in Mid-Spring 1996." The industry is also subject to shifting shopping patterns, both within the Company's sector (the specialty store sector) and in other channels of distribution, such as department stores, catalogues and electronic media. Finally, the Company's sales are affected by economic conditions and the location and severity of major storms. Comparable store sales decreased 1.9% for Fiscal 1995 (comparable store sales decreased 0.4% for February 1996 and March 1996, combined, even though the period included Easter Week, which occurred in April in the previous year). There is no assurance that comparable store sales will not continue to decrease. Frequent snow storms before Christmas, economic conditions, and other temporary external factors are believed to have contributed to the decrease in comparable store sales. The Company also believes that the search by consumers for lower prices throughout the specialty apparel industry has become a permanent influence on the retail marketplace. Finally, the Company believes that poor execution of its merchandise planning and selection processes, which resulted in weak merchandise assortments for the year, also contributed to the decrease in comparable store sales. See, also, "A Single Merchandise Assortment in Mid-Spring 1996." Gross profits decreased by $5.3 million to $76.4 million in Fiscal 1995 from $81.6 million in Fiscal 1994, decreasing as a percentage of net sales to 20.7% from 22.8%. The decrease in gross profits as a percentage of net sales was primarily attributable to a decrease in the merchandise margin rate and higher occupancy costs as a percentage of net sales. The Company expects that in the long term consumer pressure to reduce prices will continue, making it necessary for the Company to increase productivity, continue to reduce costs and offer added value merchandise in order to increase profit margins. There is no assurance that gross profits will not continue to decrease. General, administrative and store operating expenses were $80.2 million in Fiscal 1995, compared to $75.0 million in the previous year, principally from higher payroll costs, resulting principally from an increase in the number of stores; see, "Properties." As a percentage of net sales, general, administrative and store operating expenses increased to 21.7% from 21.0%. During Fiscal 1995, the Company incurred an operating loss of $3.8 million compared to operating income of $6.7 million for Fiscal 1994. The operating loss was 1.0% of net sales. There is no assurance that the Company will not continue to incur operating losses. Net interest income was $0.1 million for Fiscal 1995, compared to net interest expense of $0.5 million in Fiscal 1994, principally as a result of mortgage origination fees in Fiscal 1994 that were not incurred in Fiscal 1995. 7 3 The Company had an income tax benefit of $1.0 million in Fiscal 1995 and a provision for income taxes of $2.3 million in Fiscal 1994. In addition, there were provisions for write-downs of certain future tax benefits explained below. As part of certain non-recurring charges in Fiscal 1992, the Company incurred a non-cash compensation expense of $15.6 million because the 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, vested in March 1992 and became exercisable until December 1999. 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 March 1992). The write-downs occurred because the market price of Common Stock at the end of Fiscal 1994 and Fiscal 1995, respectively, was $8 and $3.875, respectively, and the future tax benefits had been based on an assumed market price of $15 per share. The write-down of the compensation related deferred tax asset was $0.9 million in Fiscal 1994 and $1.9 million in Fiscal 1995. The Company incurred a net loss of $4.6 million for Fiscal 1995, compared to net income of $3.0 million for Fiscal 1994. Excluding the unusual write-downs referred to above, the Company would have incurred a net loss of $2.7 million in Fiscal 1995 and would have had net income of $3.9 million in Fiscal 1994. (The Company is not likely to be profitable in the first quarter of Fiscal 1996.) FISCAL 1994 VERSUS FISCAL 1993 Net sales for Fiscal 1994 increased 4.0% from Fiscal 1993 to $357.7 million from $344.1 million, principally from an increase in sales volume rather than price changes. Average stores open increased from 501 to 518. Comparable store sales for Fiscal 1994 increased 0.2%. Gross profits decreased by $0.5 million to $81.6 million in Fiscal 1994 from $82.2 million in the previous year, declining as a percentage of net sales to 22.8% from 23.9%. The decrease in gross profits as a percentage of net sales was primarily attributable to a decrease in the merchandise margin rate and higher occupancy costs as a percentage of net sales. General, administrative and store operating expenses were $75.0 million in Fiscal 1994 compared to $75.7 million in the previous year. As a percentage of net sales, general, administrative and store operating expenses decreased to 21.0% from 22.0%, principally from lower distribution center and logistics expenses. During Fiscal 1994, the Company had operating income of $6.7 million compared to operating income of $6.4 million for the previous year. Net interest expense was $0.5 million for Fiscal 1994, compared to net interest income of $0.1 million in the previous year as a result of increased distribution center financing and related origination fees. The Company had a provision for income taxes of $2.3 million in Fiscal 1994 and $2.5 million for the previous year. In addition, there were provisions for write-downs of the compensation related deferred tax asset of $0.9 million in Fiscal 1994 and $2.5 million in the previous year. The Company had net income of $3.0 million for Fiscal 1994 and $1.6 million in the previous year. Excluding the unusual write-downs referred to above, the Company's net income would have been $3.9 million in Fiscal 1994 and $4.0 million in the previous year. 8 4 A SINGLE MERCHANDISE ASSORTMENT COMMENCING IN MID-SPRING 1996 The Company's merchandising strategy was to have one team of merchants providing inventory for stores in malls and a separate team of merchants providing different inventory for stores in strip shopping centers. This strategy was changed in the third quarter of Fiscal 1995. The separate teams of merchants for mall stores and strip shopping center stores were unified. A single team with more specialized functions will provide the same inventory for all the Company's stores. The first unified merchandise assortment will arrive in Mid-Spring 1996. The new assortment will put greater emphasis on The Avenue(R) label than on Forelli(R) and Adrian Jordan(R) labels. The new unified merchandising structure has three specialized components: product development, product quality and merchandising. Product development is a new function that is responsible for fashion content and design. The expanded product quality function is responsible for product specifications, for vendor qualifications and for quality control, both pre-production and upon delivery to the national distribution center. The merchandising function continues to be responsible for building assortments, for purchasing and for retail pricing. The change from a larger divisional structure employing generalists to a smaller unified team relying on specialists is a strategic move in response to our view of long term trends in the marketplace. The goal is to improve the fashion, increase the quality and lower the cost of the Company's merchandise assortments. The Company-wide merchandising function and the expanded product quality function have been staffed from within. The Company is recruiting experienced senior personnel for the product development function but there is no assurance that they will be available promptly. The unification and specialization of the merchandising function caused the separation of approximately 20 associates from the Company's employ, including the general merchandise manager of the mall stores. Product development specialists who are being recruited will partially offset the number of associate departures. The Company's new merchandising structure involved a realignment of management responsibilities, reassignments of merchants and planners, the voluntary resignation of certain merchants and the layoff of others. The Fall 1995 season was a transitional period for the merchandising function that had an adverse effect on sales and merchandise margin rates. There is no assurance that the new merchandising structure will increase sales and improve merchandise margin rates. Economies of scale are expected to result from having a single merchandise assortment and fewer merchants. Savings were not the objective of the new structure, however, and may not be material. Moreover, the Company intends to improve product quality and marketing and any savings from the restructuring may be offset by the increased cost of higher product quality and better marketing. 9 5 LIQUIDITY AND CAPITAL RESOURCES The Company's cash on hand was $16.8 million at February 3, 1996 and $18.5 million at January 28, 1995. At February 3, 1996, there was an income tax refund receivable in the amount of $2.7 million. Net cash provided by operating activities for Fiscal 1995 was $8.7 million. Inventory increased from $37.5 million at January 28, 1995 to $40.4 million at February 3, 1996, as a result of an 8% increase in retail square footage. The Company's inventory levels peak in early May and December. During Fiscal 1995, the highest inventory level was $54.9 million. Import purchases are made in U.S. dollars and are generally financed by trade letters of credit. 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. In Fiscal 1995, domestic purchases and import purchases each constituted one-half of total purchases. In March 1996, the Company and The Chase Manhattan Bank (N.A.) ("Chase") amended agreements (as amended, the "Chase Agreements") providing two credit facilities and extended the term of each to February 1999. The first facility under the Letter of Credit Agreement now provides for the issuance by Chase of trade letters of credit for the account of the Company in an aggregate amount at any time of up to $25.0 million, of which $13.9 million was utilized at February 3, 1996. The second facility under the Credit Agreement now provides for revolving credit loans totaling a maximum of $15.0 million, of which up to $10.0 million would be available for standby letters of credit for general corporate purposes. The credit facilities continue to be collateralized by a pledge of the stock of the Company's subsidiaries. Merchandise being purchased under outstanding trade letters of credit is subject to a security interest pursuant to the Letter of Credit Agreement. Loans under the revolving credit facility will bear interest, at the option of the Company, at either (i) the higher of the Federal Funds Rate plus 0.5% or the prime commercial lending rate of Chase, or (ii) the London Interbank Offered Rate plus 1.5%. The Company has not drawn upon its revolving credit facility since its inception except to issue standby letters of credit totaling $4.5 million at February 3, 1996 as collateral for obligations in the ordinary course of business under casualty insurance policies. The Chase Agreements contain a number of financial covenants, including (i) tangible net worth to equal at least $73.0 million plus, for each fiscal year ending after February 3, 1996, for which net income shall be positive, an amount equal to 50% of net income, and (ii) capital expenditures not to exceed $10.0 million per annum plus, during the period from February 4, 1996 the sum of (A) $10.0 million plus (B) if adjusted cash flow (as defined in the Chase Agreements) is positive, 75% of adjusted cash flow for the period. The Chase Agreements also require: (i) the ratio of total debt (excluding accrued and payable expenses incurred in the ordinary course of business) to tangible net worth not be .45 to 1.0 or more, (ii) the fixed charges ratio (as defined in the Chase Agreements) not be less than 1.0 to 1.0, and (iii) the ratio of current assets to current liabilities not be less than 1.25 to 1.0. The Chase Agreements also include certain restrictive covenants that impose limitations (subject to certain exceptions) on the Company with respect to, among other things, (i) making or owning certain investments, declaring or paying dividends, acquiring Common Stock or preferred stock of the Company, or making loans, involving more than $5 million in the aggregate of investments, dividends, purchase prices and loan proceeds, (ii) engaging in any line of business other than apparel retailing, (iii) engaging in certain transactions with affiliates and (iv) consolidating, merging or making acquisitions outside the ordinary course of business involving assets with a value in excess of $5 million. The Company does not believe that continued compliance with the covenants under the Chase Agreements will materially restrict its anticipated operations. It would constitute an event of 10 6 default under the Chase Agreements if a majority of the Company's outstanding Common Stock were to be held by one person, or an investment group, other than an affiliate of The Limited, Inc. or Raphael Benaroya, the Chairman of the Board, President and Chief Executive Officer of the Company. The Company believes that its credit facilities, together with cash flows from operating activities, will be adequate to meet anticipated working capital needs, including seasonal financing needs, for the next 12 months. The accounts receivable from the Company's proprietary credit cards are purchased daily by Citibank (South Dakota), N.A. ("Citibank") at a discount ("Discount") that is adjusted annually. There is no assurance that the annual adjustment in the discount rate will not increase materially the cost of the Company's proprietary credit card programs. The Credit Agreement between the Company and Citibank (as amended in December 1993, the "Citibank Agreement") provides that either party may terminate the Citibank Agreement effective on January 30, 1999 upon notice of not less than one year and not more than two years. Upon termination of the Citibank Agreement, the Company at its option shall either (i) arrange for a bank to purchase all unpaid indebtedness ("Receivables") to Citibank of charge customers of the Company that has not been written off by Citibank, or (ii) compensate Citibank for (y) that portion of its costs incurred in billing and collecting the Receivables after termination which would have been recovered by Citibank out of the Discount and finance charges if the Citibank Agreement had not been terminated, and (z) net credit losses (as defined in the Citibank Agreement) incurred after termination at a percentage rate in excess of net credit losses incurred during the 12 months prior to termination. At February 29, 1996, Receivables were approximately $62 million. The Citibank Agreement contains covenants by the Company, including financial covenants requiring the Company to comply with the fixed charges ratio (as contained in the Chase Agreements) and not to permit tangible net worth (as defined in the Chase Agreements) to be less than the sum of $32 million plus, for each fiscal year ending after February 1, 1992, for which net income shall be positive, an amount equal to 50% of net income. Citibank is entitled to terminate the Citibank Agreement prior to January 30, 1999 in the event the Company breaches one or more of its covenants, provided, however, that, if the breach involves the financial covenants only, Citibank shall not terminate the Citibank Agreement if the Company posts collateral, subject to a maximum amount of collateral equal to 10% of the Receivables. Overseas production of merchandise purchased by the Company is mainly in the Far East and South Asia and is obtained through independent agents. The Company's operations may be adversely affected by political instability resulting in disruption of trade with foreign countries in which the Company's foreign suppliers are located, the adoption of additional regulations relating to imports or duties, the imposition of taxes or other charges on imports, any significant fluctuation of the value of the dollar against foreign currencies, and restrictions on the transfer of funds. PROPERTIES The Company leased 576 retail stores at February 3, 1996, of which 303 stores were located in strip shopping centers, 243 stores were located in malls and 30 stores were located in downtown shopping districts. In Fiscal 1995, the Company increased its retail square footage to 2.2 million square feet, an increase of 8% that included 21 closed retail stores that were formerly operated by another chain of specialty apparel retail stores and were reopened by the Company. The increase in retail square footage led to an increase in net sales. The Company presently plans to maintain its retail square footage at approximately 2.2 million square feet and to obtain further increases in net sales from higher sales per square foot. There is no 11 7 assurance, however, that net sales will continue to increase. The Company plans to open new mall stores only in exceptional circumstances and to decrease the retail square footage in mall locations gradually by letting underperforming leases expire. Subject to space availability, the Company plans to open stores in strip shopping centers to replace mall stores that close. The Company intends to pay for the costs of new store openings from net cash provided by operating activities. New stores and newly remodeled stores will use The Avenue(R) trade name. In Fiscal 1995, the Company completed an experiment with certain new stores and remodeled stores that sell both large size merchandise and smaller "missy" sizes in separate departments. The Company will discontinue "missy" assortments in those stores and will sell large sizes there exclusively. The first of these experimental tandem stores opened in Fiscal 1993. At February 3, 1996, 58 tandem stores were open. During Fiscal 1995 sales of merchandise of all sizes in tandem stores totaled $41.4 million, or 11% of the Company's net sales. The average merchandise margin rate in the tandem stores during Fiscal 1995 was below the Company's average. SEASONALITY The Company's business is seasonal, with the first half of each fiscal year usually providing a greater portion of the Company's annual net sales and operating income. INFLATION AND CHANGING PRICES Inflation has not had a significant effect on the Company's operations. FISCAL CALENDAR Fiscal 1995 included 53 weeks instead of the 52 weeks in Fiscal 1996, Fiscal 1994 and Fiscal 1993. Dated: April 8, 1996 12 8 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF UNITED RETAIL GROUP, INC.: We have audited the accompanying consolidated balance sheets of United Retail Group, Inc. and Subsidiaries (the "Company") as of February 3, 1996 and January 28, 1995 and the related consolidated statements of income, cash flows and stockholders' equity for each of the three fiscal years ended February 3, 1996. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Retail Group, Inc. and Subsidiaries as of February 3, 1996 and January 28, 1995 and the consolidated results of their operations and their cash flows for each of the three fiscal years ended February 3, 1996 in conformity with generally accepted accounting principles. Coopers & Lybrand, L.L.P. New York, New York February 16, 1996, except for Note 15, as to which the date is March 5, 1996. 13 9 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
Jan. 28, 1995 Feb. 3, 1996 - ---------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 18,506 $ 16,811 Income taxes receivable -- 2,719 Accounts receivable 3,231 1,999 Inventory 37,518 40,401 Prepaid rents 4,025 4,473 Other prepaid expenses 2,380 2,936 Deferred income taxes 848 -- - ---------------------------------------------------------------------------------------------- Total current assets 66,508 69,339 Property and equipment, net 60,743 60,737 Deferred charges and other intangible assets, net of accumulated amortization of $1,364 and $1,265 7,071 6,846 Deferred income taxes 3,608 811 Other assets 504 1,300 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $ 138,434 $ 139,033 - ----------------------------------------------------------------------======================== - ---------------------------------------------------------------------------------------------- LIABILITIES Current liabilities: Current portion of distribution center financing $ 833 $ 901 Accounts payable, trade 13,915 15,210 Accrued expenses 12,519 14,834 Income taxes payable 1,627 -- - ---------------------------------------------------------------------------------------------- Total current liabilities 28,894 30,945 Distribution center financing 13,233 12,333 Other long-term liabilities 5,635 9,472 - ---------------------------------------------------------------------------------------------- Total liabilities 47,762 52,750 - ---------------------------------------------------------------------------------------------- Commitments and contingencies - ---------------------------------------------------------------------------------------------- STOCKHOLDER'S EQUITY Preferred stock, $.001 par value; authorized 1,000,000; none issued Common stock, $.001 par value; authorized 30,000,000; 13 13 issued 12,679,375 and 12,680,375 outstanding 12,189,375 and 12,190,375 Additional paid-in capital 77,932 78,182 Retained earnings 13,309 8,670 Treasury stock (490,000 shares) at cost (582) (582) - ---------------------------------------------------------------------------------------------- Total stockholders' equity 90,672 86,283 - ---------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 138,434 $ 139,033 - ----------------------------------------------------------------------========================
The accompanying notes are an integral part of the Consolidated Financial Statements. 14 10 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share amounts)
52 Weeks 52 Weeks 53 Weeks Fiscal Year Ended Jan. 29, 1994 Jan. 28, 1995 Feb. 3, 1996 - --------------------------------------------------------------------------------------- Net Sales $ 344,090 $ 357,684 $ 369,173 Cost of goods sold, including buying and occupancy costs 261,920 276,038 292,790 - --------------------------------------------------------------------------------------- Gross profit 82,170 81,646 76,383 General, administrative and store operating expenses 75,744 74,986 80,170 - --------------------------------------------------------------------------------------- Operating income (loss) 6,426 6,660 (3,787) Interest (income) expense, net (143) 491 (119) - --------------------------------------------------------------------------------------- Income (loss) before income taxes 6,569 6,169 (3,668) Provision (benefit) for income taxes 2,522 2,276 (957) Provision for writedown of the compensation related deferred tax asset 2,479 917 1,928 - --------------------------------------------------------------------------------------- Net income (loss) $ 1,568 $ 2,976 ($ 4,639) - --------------------------------------------------------------------------------------- Net income (loss) per common share $ 0.12 $ 0.22 ($ 0.38) - --------------------------------------------------------------------------------------- Weighted average number of common and common equivalent shares outstanding 13,527,628 13,313,085 12,190,294
The accompanying notes are an integral part of the Consolidated Financial Statements. 15 11 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Fiscal Year Ended Jan. 29, 1994 Jan. 28, 1995 Feb. 3, 1996 - ------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income (loss) $ 1,568 $ 2,976 ($ 4,639) Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation and amortization of property and equipment 11,253 10,768 10,101 Amortization of deferred charges, other intangible assets and original issue discount 343 350 224 Loss on disposal of assets 128 164 379 Compensation expense 347 120 246 Provision for deferred income taxes 2,883 1,653 3,645 Deferred lease assumption revenue amortization -- -- (455) Lease assumption proceeds -- -- 3,523 Changes in operating assets and liabilities: Accounts receivable (1,664) (403) 1,232 Income taxes receivable -- -- (2,719) Inventory (6,038) 383 (2,883) Accounts payable and accrued expenses 5,414 (8,797) 2,194 Prepaid expenses (220) (512) (1,004) Income taxes payable (2,102) 14 (1,627) Other assets and liabilities 505 12 505 - ------------------------------------------------------------------------------------------------- Net Cash Provided from Operating Activities 12,417 6,728 8,722 - ------------------------------------------------------------------------------------------------- Investing Activities: Capital expenditures (27,720) (10,294) (10,523) Deferred payment for property and equipment 5,330 (5,330) 934 - ------------------------------------------------------------------------------------------------- Net Cash Used for Investing Activities (22,390) (15,624) (9,589) - ------------------------------------------------------------------------------------------------- Financing Activities: Proceeds from issuance of distribution center financing 6,955 8,000 -- Net proceeds from issuance of common stock 573 256 4 Repayments of long-term debt (160) (729) (832) - ------------------------------------------------------------------------------------------------- Net Cash Provided from (Used In) Financing Activities 7,368 7,527 (828) - ------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (2,605) (1,369) (1,695) Cash and cash equivalents, beginning of period 22,480 19,875 18,506 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 19,875 $ 18,506 $ 16,811 - -----------------------------------------------------------======================================
The accompanying notes are an integral part of the Consolidated Financial Statements. 16 12 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (shares and dollars in thousands)
Common Common Stock Stock Additional Treasury Total Shares $.001 Paid-in Retained Stock, Stockholders' Outstanding Par Value Capital Earnings at Cost Equity - --------------------------------------------------------------------------------------------------------- Balance, January 30, 1993 12,075 $ 13 $76,636 $8,765 ($582) $84,832 Exercise of stock options 82 573 573 Compensation expense 347 347 Net income 1,568 1,568 - --------------------------------------------------------------------------------------------------------- Balance, January 29, 1994 12,157 13 77,556 10,333 (582) 87,320 - --------------------------------------------------------------------------------------------------------- Exercise of stock options 32 256 256 Compensation expense 120 120 Net income 2,976 2,976 - --------------------------------------------------------------------------------------------------------- Balance, January 28, 1995 12,189 13 77,932 13,309 (582) 90,672 - --------------------------------------------------------------------------------------------------------- Exercise of stock options 1 4 4 Compensation expense 246 246 Net loss (4,639) (4,639) - --------------------------------------------------------------------------------------------------------- Balance, February 3, 1996 12,190 $13 $78,182 $8,670 ($582) $86,283 - ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 17 13 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION On July 17, 1989, Sizes Unlimited Acquisition Corporation ("SUAC") 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"). 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. Certain prior year balances have been reclassified to conform with the fiscal 1995 presentation. The Company as of February 3, 1996 operated 576 women's apparel stores throughout the United States. 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 year 1995 consisted of 53 weeks and ended February 3, 1996. Fiscal years 1994 and 1993 each consisted of 52 weeks and ended on January 28,1995 and January 29, 1994, respectively. NET RETAIL SALES AND REVENUES Sales are net of returns and exclude sales tax. Revenues include sales from all stores operating during that period. MARKETING COSTS Marketing costs are charged to operations as incurred. CASH AND CASH EQUIVALENTS Cash and cash equivalents include amounts on deposit with financial institutions with maturities of less than 90 days. INVENTORY Inventory is stated at the lower of cost or market, on a first-in, first-out basis, utilizing the retail method. 18 14 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 leaseholds, 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 depreciation or amortization are removed from the accounts with any resulting gain or loss included in results of operations. Maintenance, repairs and minor renewals are charged to expense as incurred. Renewals and betterments which extend service lives are capitalized. Inasmuch as the fair values of furniture and fixtures and leasehold improvements, in management's opinion, approximated the net book value at April 29, 1989, no adjustment was required to record these assets at their fair value as of the acquisition date. Leasehold interests were ascribed an additional $7.5 million as of April 30, 1989, which represents two-thirds of the fair value of leaseholds in excess of their historical carrying value at the acquisition date. The fair values ascribed to the leasehold interests were determined based on current market rental rates for comparable store locations. In the third quarter of fiscal 1994 the Company changed the estimated useful lives of furniture and fixtures at new store locations opened after 1991 from 7 years to the life of the lease. This change in estimate resulted in a reduction of depreciation expense of approximately $700,000 in fiscal 1994. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Company believes that SFAS #21, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of, will not have a material impact on the Company. COMPUTATION OF INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed using the weighted average number of common and common equivalent shares (stock options) outstanding during the period. Shares issuable upon the exercise of stock options have not been included in the primary earnings per share computation for fiscal 1995 because the effect of such would be anti-dilutive. For fiscal 1993, 1994 and 1995, the net income (loss) per share would have been $.30, $.29 and ($.22) per share, respectively, if the provision for the write-down of the compensation related deferred tax asset of $2.5 million, $0.9 million and $1.9 million, respectively, was excluded (see Note 8). 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 February 3, 1996, of $6,846,000 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. 19 15 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. OTHER MATTERS The amount of "Accrued Expenses" at February 3, 1996 takes into account, among other things, The Limited's indemnification of the Company, under the terms of the acquisition agreement, for certain tax and ERISA liabilities relating to periods prior to April 29, 1989. During 1992, the Company entered into a three-year agreement with Citibank (South Dakota) N.A. to manage the Company's proprietary credit card sales program. In 1993, the Company exercised an option to extend the agreement for another three years through January 30, 1999. All costs associated with the opening of new stores are being expenses as incurred. 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of (dollars in thousands):
January 28, February 3, 1995 1996 - ------------------------------------------------------------------------------------ Land $2,176 $2,176 Buildings 10,980 10,574 Furniture, fixtures and equipment 53,032 59,766 Leasehold improvements 29,744 31,232 Beneficial leaseholds 11,893 11,397 Construction in progress 241 611 ------- ------- 108,066 115,756 Accumulated depreciation and amortization, including beneficial leaseholds of $8,287 and $8,934 (47,323) (55,019) ------- ------- Property and equipment, net $60,743 $60,737 ======= =======
20 16 4. ACCRUED EXPENSES Accrued expenses consist of (dollars in thousands):
January 28, February 3, 1995 1996 - -------------------------------------------------- Fixed asset payable ($ 80) $ 934 Occupancy expenses 2,326 2,731 Payroll related expenses 2,764 2,899 Insurance payable 2,465 2,914 Sales taxes payable 1,177 1,346 Other 3,867 4,010 -------- ------- $ 12,519 $14,834 ======== =======
5. LEASED FACILITIES AND COMMITMENTS Annual store rent is composed of a fixed minimum amount, plus contingent rent based upon a percentage of sales exceeding a stipulated amount. Store lease terms generally require additional payments to the landlord covering taxes, maintenance and certain other expenses. Rent expense was as follows (dollars in thousands):
Fiscal Fiscal Fiscal 1993 1994 1995 - ---------------------------------------------------------------------- Store rent Fixed minimum $32,874 $37,002 $39,300 Percentage 63 (31) 41 ------- ------- ------- Total store rent 32,937 36,971 39,341 Equipment and other 424 404 517 ------- ------- ------- Total rent expense $33,361 $37,375 $39,858 ======= ======= =======
At February 3, 1996, the Company was committed under store leases with initial terms ranging from 1 to 20 years and with varying renewal options. At January 29, 1994, January 28, 1995 and February 3, 1996, accrued rent expense amounted to $5.6 million, $5.5 million and $5.5 million, respectively, of which $5.1 million, $5.6 million and $5.9 million, respectively, is included in "Other long-term liabilities". A summary of approximate rent commitments under noncancelable leases follows (dollars in thousands) for the fiscal years: 1996 $ 40,520 1997 32,513 1998 26,270 1999 22,493 2000 19,661 Thereafter 80,488 -------- Total minimum obligations $221,945 ========
21 17 In July 1995, the Company agreed to assume the lease obligations of 21 stores previously operated by another retail chain. In order to induce the Company to assume the leases, the assignor of the leases paid the Company approximately $3.5 million. This payment has been recorded as accrued rent payable and will be amortized against rent expense over the life of the assumed leases. 6. LONG-TERM DEBT (SEE ALSO NOTES 7 AND 15) Long-term debt consists of (dollars in thousands):
January 28, February 3, 1995 1996 - ---------------------------------------------------------------------------- Distribution center financing: Current portion $833 $901 Long-term portion 13,233 12,333 ------- ------- Total distribution center financing $14,066 $13,234 ======= =======
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. In fiscal 1993, the Company extended to January 1997 the term of both its Credit Agreement and its Letter of Credit Agreement with The Chase Manhattan Bank (National Association) ("Chase"). Additionally, the revolving credit facility under the Credit Agreement and the facility for trade letters of credit under the Letter of Credit Agreement each have limits of $25 million. As of February 3, 1996, the Company had not drawn upon its revolving credit facility except to issue standby letters of credit totaling $4.5 million as collateral for obligations under casualty insurance policies. The Company had $13.9 million of outstanding trade letter of credit commitments. Loans under the revolving credit facility will bear interest, at the option of the Company, at either (i) the higher of the Federal Funds Rate plus .5% or the prime commercial lending rate of Chase, or (ii) the London Interbank Offered Rate plus 1.25%. The fees for letters of credit under the revolving credit facility will be a maximum of 1.50% per annum plus a maximum of $5,000 per annum in origination charges. In addition, the Company must pay a commitment fee equal to a maximum of 3/8 of 1% of the unused portion of the commitment, per annum, for each of the aforementioned facilities. The Company is obligated to maintain several financial covenants, including a current ratio and a fixed charges ratio, and has restrictions on paying dividends, as well as a limitation on aggregate capital expenditures. The Company has pledged to Chase as collateral the shares of common and preferred stock of its subsidiaries. 22 18 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The following represents the fair value of the Company's Financial Instruments as of February 3, 1996.
Carrying Fair Amount Value - --------------------------------------------------------------------------- Assets Cash and cash equivalents $18,506 $18,506 Liabilities Long term debt including current portion 13,234 13,415
The carrying amounts of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments. The fair value of long-term debt including current portion is estimated based on the current rates quoted to the Company for debt of the same or similar issues. 8. INCOME TAXES Effective February 2, 1992, the Company had prospectively adopted 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 provision (benefit) for income taxes consists of (dollars in thousands):
Fiscal Fiscal Fiscal 1993 1994 1995 - ---------------------------------------------------------------------------- Currently payable: Federal $1,828 $1,455 ($2,523) State 290 85 (151) ------ ------ ------- 2,118 1,540 (2,674) Deferred: Federal 2,361 1,353 2,850 State 522 300 795 ------ ------ ------- 2,883 1,653 3,645 ------ ------ ------- $5,001 $3,193 $971 ====== ====== =======
23 19 Reconciliation of the provision for income taxes from the U.S. Federal statutory rate to the Company's effective rate is as follows:
Fiscal Fiscal Fiscal 1993 1994 1995 - ---------------------------------------------------------------------------------------------------------------------- Statutory Federal income tax rate 34.0% 34.0% (34.0%) State income taxes, net of Federal benefit 3.7 2.2 5.3 Goodwill amortization 1.1 1.1 1.9 Other (.4) (.4) .7 ---- ---- ---- Sub-total 38.4 36.9 (26.1) Write-down of the compensation related deferred tax asset 37.7 14.9 52.6 ---- ---- ---- 76.1% 51.8% 26.5% ==== ==== ====
The deferred tax asset reflects the tax impact of temporary differences. The components of the net deferred tax asset as of February 3, 1996 are as follows: Assets: Inventory $281 Accruals and reserves 255 Compensation 1,995 ----- 2,531 ----- Liabilities: Depreciation 1,720 ----- Net deferred tax asset $811 =====
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. Included in the fiscal 1993, fiscal 1994 and fiscal 1995 income tax expense is a $2.5 million, $0.9 million and $1.9 million write-down 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. As of February 3, 1996, the remaining compensation related deferred tax asset will be fully realizable upon the exercise of all of the outstanding options only if (i) the market price of the stock equals or exceeds $3.875 per share upon exercise and (ii) the compensation expense deduction is not limited by future enacted tax laws. The underlying options of the compensation related deferred tax asset are exercisable through December 31, 1999. At January 28, 1995 and February 3, 1996, the Company has pre-acquisition net operating loss carryforwards aggregating approximately $0.9 million and $0.6 million, respectively, available to reduce future taxable income in certain states, expiring through 2004. 24 20 9. RELATED PARTY TRANSACTIONS The Company shared certain store locations with subsidiaries of The Limited and obtained from subsidiaries of The Limited certain services with respect to merchandise distribution and the purchase of supplies. As of June 1993, none of these services are provided by subsidiaries of The Limited. The Company continues to share certain store locations. During fiscal 1993, fiscal 1994, and fiscal 1995, the Company was charged $4.8 million, $0.8 million and $1.2 million respectively, by The Limited for the aforementioned services and occupancy costs. The impact on the statements of income was as follows (dollars in thousands):
Fiscal Fiscal Fiscal 1993 1994 1995 - ------------------------------------------------------------------------------------- Cost of goods sold, including buying and occupancy costs $2,589 $815 $1,176 General, administrative and store operating costs $2,180 $0 $0
An affiliate of the Chairman of the Board of the Company (in which he holds an 80% interest) provides management and administrative services to the aforementioned subsidiary of The Limited 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 1993, fiscal 1994, and fiscal 1995, the aforementioned affiliate was paid $161,000, $110,000 and $114,000, respectively, by that subsidiary of The Limited. During fiscal 1993, fiscal 1994, and fiscal 1995, the Company incurred expenses to a subsidiary of The Limited and to the affiliate of the Chairman of the Board of the Company referred to above in the combined amounts of $295,000, $179,000, and $639,000, respectively, under certain Sublicensing Agreements with respect to trademarks. During January 1995, the Company made investments in a vendor from which the Company purchased apparel. Purchases during the 1995 fiscal year totaled $1.8 million. The investments made (which are all the investments in the vendor made by the Company) were $6,000 for 10% of the outstanding common stock of the vendor and an unsecured loan facility in the amount of $400,000 under which $300,000 has been borrowed and is payable on January 31, 1997 with interest at 2 percentage points over the prime rate payable quarterly. The Company also holds a warrant to purchase shares equivalent to an additional 10% of the outstanding common stock of the vendor. Purchases from the vendor are on terms comparable to terms negotiated with other vendors. 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. The investment made during fiscal 1995 (which is the only investment made in the purchasing agent by the Company) was $474,000 for 25% of the outstanding common stock of the purchasing agent. Fees paid to the purchasing agent during fiscal 1995 totaled $844,000, principally as percentage commissions on apparel purchases. Commissions were paid on terms comparable to terms negotiated with other purchasing agents. In fiscal 1995, the Company extended to the purchasing agent a loan of $125,000 payable on May 1, 1996 with interest thereafter at 2 percentage points over the prime rate. 25 21 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. Pension costs for all benefits charged to income during fiscal 1993, fiscal 1994 and fiscal 1995 approximated $404,000, $92,000 and $248,000 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, certain loan agreements, to which the Company is a party, impose restrictions on the payments 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, have been granted and are outstanding as of February 3, 1996. All options granted under the 1989 Plan became vested and exercisable upon completion of the IPO and the payment of certain obligations to The Limited Inc. and expire on December 31, 1999. 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 are outstanding as of February 3, 1996. These options became vested and exercisable upon completion of the IPO and the payment of certain obligations to The Limited Inc. and 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. 26 22 The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was established in June 1990 and amended in November 1991, December 1992 and May 1993. Exercise prices are required by the 1990 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 1990 Plan, including past grants, is 880,000 shares. The options granted under the 1990 Plan expire between seven and ten years after the date of grant. As of January 28, 1995 and February 3, 1996, outstanding options to purchase 636,750 and 665,000 shares, respectively, have been granted under the Plan at average exercise prices of $11.09 and $8.80 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. 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 (as defined in the Restated Stockholders' Agreement) receive annual grants of options under the 1990 Plan. Options are 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 1994 and in fiscal 1995 of $120,000 and $246,000, respectively. A summary of stock option transactions under the 1990 Plan follows:
Fiscal Fiscal Fiscal 1993 1994 1995 --------------------------------------------------------------------------------------------- Options outstanding at beginning of period 395,500 586,250 636,750 Options granted (a) 344,500 169,500 111,500 Options exercised 81,750 32,625 1,000 Options canceled (a) 72,000 86,375 82,250 Options outstanding at end of period 586,250 636,750 665,000 Options available for grant at end of period 207,000 123,875 94,625 Options vested and outstanding at end of period 67,100 109,900 141,900 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 43,375 54,100 0 Range of option prices per share for outstanding options $4.07-$26.75 $4.50-$26.75 $4.50-$26.75
(a) Options granted and options canceled do not include the reissuance in fiscal 1994 and fiscal 1995 of 160,000 and 210,000 options at exercise prices of $10.00 and $8.50 per share, respectively. The Company anticipates adopting SFAS No. 123, Accounting for Stock Based Compensation for disclosure purposes only, and will continue to account for stock based compensation under APB No. 25. 27 23 13. 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 1993 1994 1995 ---------------------------------------------------------------------------------------------- Interest expense (income), net per statements of income ($143) $491 ($119) Less: Non-cash interest expense (106) (101) (41) ------ ------ ----- Net cash interest, including interest income of $678, $1,170 and $1,425 ($249) $390 ($160) ====== ====== ===== Income taxes $4,087 $1,605 $474 ====== ====== =====
14. STOCK OFFERING AND NON-RECURRING CHARGES During the first quarter of fiscal 1993, a secondary offering was completed in which 1,729,355 shares of Common Stock were sold by certain stockholders at a price of $25.50. The Company did not receive any of the proceeds from the shares sold by the selling stockholders. 15. SUBSEQUENT EVENT On March 5, 1996, the Company and the Chase Manhattan Bank (N.A.) ("Chase") amended agreements providing two credit facilities and extended the term of each to February 1999. The first facility now provides for the issuance by Chase of trade letters of credit for the account of the Company in an aggregate amount at any time of up to $25.0 million, of which $13.9 million was utilized at February 3, 1996. The second facility now provides for revolving credit loans totaling a maximum of $15.0 million, of which up to $10.0 million would be available for standby letters of credit for general corporate purposes. The commitment fee for the revolving credit facility is a maximum of 1/2 of 1%. The credit facilities continue to be secured by a pledge of the stock of the Company's subsidiaries. Merchandise being purchased under outstanding trade letters of credit is subject to a security interest pursuant to the Letter of Credit agreement. Loans under the revolving credit facility will bear interest, at the option of the Company, at either (i) the higher of the Federal Funds Rate plus 0.5% or the prime commercial lending rate of Chase, or (ii) the London Interbank Offered Rate plus 1.5%. The Company has not drawn upon its revolving credit facility except to issue standby letters of credit totaling $4.5 million at February 3, 1996 as collateral for obligations in the ordinary course of business under casualty insurance policies. 28 24 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (shares and dollars in thousands)
Feb. 1, Jan. 30, Jan. 29, Jan. 28, Feb. 3, Fiscal Year Ended 1992 1993 1994 1995 1996 - ------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA: Net sales $264,071 $330,083 $344,090 $357,684 $369,173 Cost of goods sold, including buying and occupying costs 190,141 236,827 261,920 276,038 292,790 Gross profit 73,930 93,256 82,170 81,646 76,383 General, administrative and store operating expenses 60,022 73,192 75,744 74,986 80,170 Non-recurring general expenses 16,330 Operating income 13,908 3,734 6,426 6,660 (3,787) Interest expense (income), net 3,869 (281) (143) 491 (119) Non-recurring interest expense 6,083 Income (loss) before taxes 10,039 (2,068) 6,569 6,169 (3,668) Provision (benefit) for income taxes 3,968 (748) 2,522 2,276 (957) Provision for writedown of the compensation related deferred tax asset 2,479 917 1,928 Net income (loss) 6,071 (1,320) 1,568 2,976 (4,639) Net income (loss) per common share(1) $.76 $(.04) $.12 $.22 $(.38) Weighted average number of common shares outstanding(1) 8,466 12,974 13,528 13,313 12,190 BALANCE SHEET DATA (AT PERIOD END): Working capital $12,432 $28,981 $24,533 $37,614 $38,394 Total assets 74,648 123,807 141,607 138,434 139,033 Long-term debt 20,214 0 0 0 0 Distribution center financing 0 0 6,293 13,233 12,333 Total stockholders' equity 19,284 84,832 87,320 90,672 86,283
(1) Prior to the completion of the initial public offering in Fiscal 1992, the weighted average common shares outstanding included outstanding warrants, certain stock options issued within one year of the offering and the outstanding options granted under the 1990 Stock Option Plan. Thereafter, all of the outstanding stock options are included. See also note 2 of Notes to the Company's Consolidated Financial Statements. 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 consolidated financial statements of the Company, which have been audited by Coopers & Lybrand, L.L.P., independent accountants, whose report for the three fiscal years ended February 3, 1996 appears elsewhere in this annual report. 29 25 UNITED RETAIL GROUP, INC. EXECUTIVE OFFICERS AND DIRECTORS RAPHAEL BENAROYA Chairman of the Board, President and Chief Executive Officer* GEORGE R. REMETA Vice Chairman -- Chief Financial Officer, Secretary and Director* CHARLES R. WILKINSON Executive Vice President -- Organizational Development KENNETH P. CARROLL Senior Vice President -- General Counsel* ELLEN DEMAIO Senior Vice President -- Merchandise JULIE L. DALY Vice President -- Planning and Distribution KENT FRAUENBERGER Vice President -- Logistics JON GROSSMAN Vice President -- Finance* ALAN R. JONES Vice President -- Real Estate BRADLEY ORLOFF Vice President -- Marketing ROBERT PORTANTE Vice President -- MIS FREDRIC E. STERN Vice President -- Controller JOHN I. TROMBLEY Vice President -- Store Design and Construction JOSEPH A. ALUTTO A Director of the Company, is the Dean of the 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 Managing Director of Schroder Wertheim & Co., Inc., an investment banking firm VINCENT P. LANGONE A Director of the Company, is Chairman of the Board of L & S Associates, Inc., a management consulting firm CHRISTINA A. MOHR A Director of the Company, is a Managing Director of Lazard Freres & Co. LLC, an investment banking firm RICHARD W. RUBENSTEIN A Director of the Company, is a Partner of Squire, Sanders & Dempsey, a law firm *An officer of the parent holding company rather than the operating subsidiary, United Retail Incorporated or United Retail Logistics Operations Incorporated. SHAREHOLDER INFORMATION The Company's Annual Report on Form 10-K, including financial statement schedules, filed with the Securities and Exchange Commission ("SEC"), is available without charge upon written request to Kenneth P. Carroll, Esq., Senior Vice President - General Counsel, at the Company's headquarters. Mail should be addressed to 365 West Passaic Street, Rochelle Park, New Jersey, 07662; E-mail should be addressed to kcarrol@ibm.net. 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 8, 1996 was 5 1/4. 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 - ----------------------------------------------- 1994 First Quarter $ 12 1/2 $ 8 Second Quarter $ 9 1/2 $ 7 Third Quarter $ 9 $ 6 1/2 Fourth Quarter $ 8 3/8 $ 6 1/2 1995 First Quarter $ 11 1/8 $ 7 5/8 Second Quarter $ 8 5/8 $ 5 3/8 Third Quarter $ 7 7/8 $ 4 1/8 Fourth Quarter $ 5 7/8 $ 3 7/8 1996 First Quarter $ 5 1/2 $ 3 7/8
The Company's transfer agent and registrar is Continental Stock Transfer and Trust Co., 2 Broadway, New York, New York 10004. At March 31, 1996, there were approximately 1,700 beneficial owners of Common Stock. EX-23.1 3 CONSENT 1 EXHIBIT 23.1 [COOPERS & LYBRAND LETTERHEAD] 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 No. 33-48500, No. 33-48501 and No. 33-67288) of our report dated February 16, 1996 except for Note 15, as to which the date is March 5, 1996, on our audits of the consolidated financial statements and financial statement schedule of the Company as of February 3, 1996 and January 28, 1995 and for each of the three fiscal years ended February 3, 1996, which report is incorporated by reference in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. ----------------------------- COOPERS & LYBRAND L.L.P. New York, New York April 12, 1996 EX-23.2 4 OPINION 1 EXHIBIT 23.2 [COOPERS & LYBRAND LETTERHEAD] Report of Independent Accountants Our report on the consolidated financial statements of United Retail Group, Inc. and subsidiaries (the "Company") has been incorporated by reference in this Form 10K from Page 13 of the 1995 Annual Report to Shareholders of the Company. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index on page 16 of this Annual Report on Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ COOPERS & LYBRAND L.L.P. ----------------------------- COOPERS & LYBRAND L.L.P. New York, New York February 16, 1996 EX-27 5 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 YEAR FEB-03-1996 JAN-29-1995 FEB-03-1996 16,811 [BLANK] 4,718 [BLANK] 40,401 69,339 115,756 55,019 139,033 30,945 [BLANK] [BLANK] [BLANK] 13 86,270 139,033 369,173 369,173 292,790 292,790 80,170 [BLANK] (119) (3,668) 971 (4,639) [BLANK] [BLANK] [BLANK] (4,639) (.38) (.38)
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