-----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, LdcPdn1qWvETxOxyPGiTslXpadGdRA4zemL+tILVwSyHeV3j2KsaLBxfKUo7x18I n+MO9ODTvQX2r5+CRR+P2w== 0000950123-97-003427.txt : 19970424 0000950123-97-003427.hdr.sgml : 19970424 ACCESSION NUMBER: 0000950123-97-003427 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970423 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: 97585351 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 FORM 10-K -- 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 For the fiscal year ended February 1, 1997 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) 1 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 April 7, 1997, 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 $35.2 million. For purposes of the preceding sentence only, affiliate status was determined on the basis that all stockholders of the registrant are non-affiliates except stockholders who are filing statements with the Securities and Exchange Commission (the "SEC") under Section 16(a) of the 1934 Act. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the 1934 Act subsequent to the distribution of securities under a plan confirmed by a court. YES _______ NO _______ APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of April 5, 1997, 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 1, 1997 (the "1996 Annual Report to Stockholders") is incorporated in part by reference in Part I and Part II of this Form 10-K. The registrant's proxy statement on Schedule 14A for its 1997 annual meeting of stockholders (the "1997 Proxy Statement") is incorporated in part by reference in Part I and Part III of this Form 10-K. 2 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 using the AVENUE [by design] trademark. The Company's merchandising strategy is to offer its customers merchandise of the same quality and variety available in smaller sizes. The Company operates 565 stores principally under the names THE AVENUE(R) and Sizes Unlimited. CUSTOMER BASE The Company serves the mass market and targets fashion-conscious women between 18 and 50 years of age who wear size 14 or larger. 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 manage the combined businesses. MERCHANDISING AND MARKETING The Company's strategy is to offer its customers a brand name look in moderately priced private label merchandise. It emphasizes consistency of merchandise quality and fit and updates its merchandise selections to reflect customer demand and fashion trends. The apparel industry is subject to rapidly changing consumer fashion preferences and the Company's performance depends on its ability to respond quickly to changes in fashion. Each store operated by the Company offers selections of casual wear, career apparel, specialty items and accessories. The casual wear assortment includes comfortably fitted jeans, slacks, T-shirts, skirts, active wear and sweaters. Casual wear comprises the majority of the Company's sales. The career assortment includes skirts, soft blouses, 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 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. The Company believes that its brand, AVENUE [by design], creates an 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. 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. 3 4 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 to create an attractive store atmosphere. To further stimulate store traffic, the Company frequently uses credit card inserts with announcements of upcoming events. MERCHANDISE DISTRIBUTION AND INVENTORY MANAGEMENT The Company believes that short production schedules and rapid movement of merchandise from manufacturers to its stores are vital to minimize business risks arising from changing fashion trends. The Company uses a centralized distribution system, under which all merchandise is received, processed and distributed through a distribution complex located in Troy, Ohio. Merchandise received at the distribution center is promptly assigned to individual stores, packed for delivery and shipped to the stores. The Company maintains a worldwide logistics network of agents and space availability arrangements to support the in-bound movement of merchandise into the distribution complex. The out-bound system consists of common carrier line haul routes connecting the distribution complex to a network of delivery agents. This system enables the Company to provide every store with frequent deliveries. The Company does not own or operate trucks or trucking facilities. The Company manages its inventory levels, merchandise allocation to stores and sales replenishing for each store through its computerized management information systems, which enable the Company to profile each store and evaluate and adjust each store's merchandise mix on a weekly basis. New merchandise is allocated by style, color and size immediately before shipment to stores to achieve a merchandise assortment that is suited to each store's customer base. The Company's inventory management strategy is designed to maintain targeted inventory turnover rates and minimize the amount of unsold merchandise at the end of a season by closely comparing sales and fashion trends with on-order merchandise and making necessary purchasing adjustments. Additionally, the Company uses markdowns and promotions as necessary. 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. 4 5 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. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Computer Systems." (Management's Discussion and Analysis of Financial Condition and Results of Operations is a section in the Company's 1996 Annual Report to Stockholders.) 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 - A Single Merchandise Assortment Commencing in Mid-Spring 1996." 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 label. 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 1996, one manufacturer accounted for more than 5% but less than 10% of the Company's merchandise purchases. Another manufacturer accounted for more than 10% but less than 15% 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 supported by letters of credit. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." CREDIT SALES The Company permits its customers to use several methods of payment, including cash, personal checks, third-party credit cards, layaways and its own credit cards. 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. 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. 5 6 OPERATIONAL FACTORS The Company's operations may be adversely affected by circumstances beyond its control. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Future Results." TRADE NAMES AND TRADEMARKS The Company is the owner in the United States of its principal trademarks, THE AVENUE, used on store fronts, and AVENUE [by design], used on garment labels. The Company is also the sublicensee of certain national brand names. See, "Certain Transactions" in the 1997 Proxy Statement. The Company is not aware of any use of its principal trademarks by its competitors that has a material effect on the Company's operations or any material claims of infringement or other challenges to the Company's right to use its principal trademarks in the United States. EMPLOYEES As of March 31, 1997, the Company employed approximately 5,500 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 usually seasonal, with the first half of the 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 - Seasonality." Item 2. Properties. As of March 31, 1997, the Company operated stores in 36 states: Alabama 6 Nevada 2 Arizona 5 New Hampshire 2 Arkansas 1 New Jersey 43 California 87 New Mexico 1 Connecticut 12 New York 57 Delaware 2 North Carolina 9 Florida 20 Ohio 23 Georgia 21 Oklahoma 3 Illinois 47 Oregon 7 Indiana 12 Pennsylvania 20 Iowa 2 Rhode Island 1 Kentucky 5 South Carolina 8 Louisiana 11 Tennessee 11 Maine 1 Texas 36 Maryland 16 Utah 1 Massachusetts 20 Virginia 12 Michigan 29 Washington 12 Missouri 9 Wisconsin 11 Total: 565 Stores generally range in size from 2,500 to 6,000 net square feet. The Company leases all its store locations. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Properties." 6 7 The Company leases its executive offices, which consist of approximately 56,000 square feet in an office building at 365 West Passaic Street, Rochelle Park, New Jersey. The office lease has a term ending in August 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 landlords and 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 1, 1997. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 7 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The section captioned "Shareholder Information" in the 1996 Annual Report to Stockholders is incorporated herein by reference. (Only those portions of the 1996 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.) During Fiscal 1996, the Company issued two stock options under its 1996 Stock Option Plan, one to purchase 25,000 shares issued on December 2, 1996 and one to purchase 20,000 shares issued on August 22, 1996. Both options are exercisable at a price of $3.00 per share for a 10-year term with five-year vesting and are incentive stock options under the Internal Revenue Code. Options issued under the 1996 Stock Option Plan are not registered under the Securities Act of 1933. Item 6. Selected Financial Data. The section captioned "Selected Financial Data" in the 1996 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 1996 Annual Report to Stockholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The section captioned "Consolidated Financial Statements" in the 1996 Annual Report to Stockholders is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 8 9 PART III Item 10. Directors and Executive Officers of the Registrant. The subsections captioned "Election of Directors - Nominees" and " - Business Experience" in the 1997 Proxy Statement is incorporated herein by reference. In addition to Raphael Benaroya and George R. Remeta, the executive officers of the registrant or its subsidiaries are: Kenneth P. Carroll, age 54, was the Company's Vice President - General Counsel from April 1992 to March 1996, when he was elected the Senior Vice President - General Counsel. Ellen Demaio, age 39, was a Vice President - Merchandise of United Retail Incorporated from March 1992 to March 1994, when she was elected the Senior Vice President - General Merchandising Manager of United Retail Incorporated. Carrie Cline-Tunick, age 36, has been the Vice President - Product Design and Development of United Retail Incorporated since April 1996. Previously, she was the Design Director of Norton McNaughton, Inc., a garment manufacturer, from April 1996 to before 1992. Julie L. Daly, age 42, has been the Vice President - Strategic Planning of United Retail Incorporated since December 1996. Previously, she was the Vice President - Planning and Distribution of United Retail Incorporated since prior to 1992. Kent Frauenberger, age 50, has been the Vice President - Logistics of United Retail Logistics Operations Incorporated since May l993. Previously, he was Manager of Business Development of Exel Logistics Inc., a logistics firm, since before 1992. Jon Grossman, age 39, has been the Vice President - Finance of the Company since May 1992. Previously, he served the Company as its Director of Financial Reporting. Sharon Harp, age 52, has been the Vice President - Planning and Distribution of United Retail Incorporated since December 1996. She was the Senior Vice President - Planning and Distribution of Petrie Retail Corp. between November 1996 and November 1994 and was the Vice President - Planning and Distribution of a division of The Limited between October 1994 and prior to 1992. Petrie Retail Corp. filed as debtor-in-possession under the United States Bankruptcy Code. Alan R. Jones, age 49, 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 1992. Charles E. Naff, age 53, has been the Vice President - Sales of United Retail Incorporated since August 1996 and was the Director of Stores of United Retail Incorporated from March 1994 to November 1993. He was the Vice President - Store Operations of Leejay Bed and Bath, a retail chain, between August 1996 and March 1994 and was the Senior Vice President - Operations of The Children's Place, a retail chain, from November 1993 to before 1992. Bradley Orloff, age 39, has been the Vice President - Marketing of United Retail Incorporated since before 1992. Robert Portante, age 45, has been the Vice President - MIS of United Retail Incorporated since November 1994. Previously, he was Vice President - MIS of Brooks Fashion Stores, Inc. ("Brooks"), a retail store chain, since before 1992. Brooks filed as debtor in possession under the United States Bankruptcy Code. 9 10 Fredric E. Stern, age 48, has been the Vice President - Controller of United Retail Incorporated since before 1992. The term of office of these executive officers will expire at the 1997 annual meeting of stockholders, scheduled to be held in May 1997. The section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1997 Proxy Statement is incorporated herein by reference. Item 11. Executive Compensation. The sections captioned "Executive Compensation" and "Report of Compensation Committee" in the 1997 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 1997 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The section captioned "Certain Transactions" in the 1997 Proxy Statement is incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. Not applicable. The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Amendment No. 9, dated January 31, 1997, to Letter of Credit Agreement among the Corporation, its subsidiaries and The Chase Manhattan Bank ("Chase") 10.2 Amendment No. 8, dated January 31, 1997 to Credit Agreement among the Corporation, its subsidiaries and Chase 10.3 Financial Statements of Retirement Savings Plan for year ended December 31, 1996 13 Sections of 1996 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 Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule 10 11 The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 3, 1996 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 8, dated August 22, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment No. 7, dated August 22, 1996, to Credit Agreement among the Corporation, its subsidiaries and Chase 10.3 Letter, dated August 23, 1996, with respect to Credit Agreement between the Corporation and Citibank (South Dakota) N.A. ("Citibank") The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Severance Pay Agreement, dated May 28, 1996, between the Corporation and Raphael Benaroya 10.2* Severance Pay Agreement, dated May 28, 1996, between the Corporation and George R. Remeta 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. (Confidential portions have been deleted and filed separately with the Secretary of the Commission) The Corporation's 1996 Stock Option Plan set forth as Exhibit A to the Corporation's proxy statement on Schedule 14A for its 1996 annual meeting of stockholders is incorporated herein by reference.* 11 12 The following exhibits to the Corporation's Current Report on Form 8-K, dated March 22, 1996, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 7, dated March 5, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and 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 Corporation'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 Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibits to the Corporation's 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 12 13 The following exhibit to the Corporation'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 Corporation'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 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 Corporation'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 The following exhibits to the Corporation'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, dated December 23, 1992, between the Corporation and certain of its stockholders The Corporation's Restated 1990 Stock Option Plan set forth as Exhibit A to the Corporation's proxy statement on Schedule 14A for its 1993 annual meeting of stockholders is incorporated herein by reference.* 13 14 The following exhibits to the Corporation'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 Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.11 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 the Corporation, then known as Lernmark, Inc., and Raphael Benaroya and First Amendment thereto dated November 1, 1991 14 15 10.31* Performance Option Agreement, dated July 17, 1989, between the Corporation 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 exhibit to the Restated Schedule 13D, dated February 5, 1997, of Raphael Benaroya with respect to shares of Common Stock of the Corporation is incorporated herein by reference: Number in Filing Description ---------------- ----------- 99.10 Amendment No. 2, dated February 1, 1997, to Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders - ------------------------- *A compensatory plan for the benefit of the Corporation's management or a management contract. - ------------- (b) No Current Reports on Form 8-K were filed by the Corporation during the fiscal quarter ended February 1, 1997. 15 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (Registrant) UNITED RETAIL GROUP, INC. ---------------------------------------------------------- By: /S/ RAPHAEL BENAROYA ---------------------------------------------------- Raphael Benaroya, Chairman of the Board, President and Chief Executive Officer Date: April 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /S/ RAPHAEL BENAROYA - ------------------------- Raphael Benaroya Chairman of the Board, April 21, 1997 Principal Executive Officer President, Chief Executive Officer and Director /S/ GEORGE R. REMETA - ------------------------- George R. Remeta Vice Chairman, April 21, 1997 Principal Financial Officer Chief Financial Officer, Secretary and Director /S/ JON GROSSMAN - ------------------------- Jon Grossman Vice President - Finance April 21, 1997 Principal Accounting Officer /S/ JOSEPH A. ALUTTO - ------------------------- Joseph A. Alutto Director April 21, 1997 /S/ RUSSELL BERRIE - ------------------------- Russell Berrie Director April 21, 1997 /S/ JOSEPH CIECHANOVER - ------------------------- Joseph Ciechanover Director April 21, 1997 /S/ ILAN KAUFTHAL - ------------------------- Ilan Kaufthal Director April 21, 1997 /S/ VINCENT LANGONE - ------------------------- Vincent Langone Director April 21, 1997 /S/ CHRISTINA A. MOHR - ------------------------- Christina A. Mohr Director April 21, 1997 /S/ RICHARD W. RUBENSTEIN - ------------------------- Richard W. Rubenstein Director April 21, 1997 16 17 UNITED RETAIL GROUP, INC. EXHIBIT INDEX The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Amendment No. 9, dated January 31, 1997, to Letter of Credit Agreement among the Corporation, its subsidiaries and The Chase Manhattan Bank ("Chase") 10.2 Amendment No. 8, dated January 31, 1997 to Credit Agreement among the Corporation, its subsidiaries and Chase 10.3 Financial Statements of Retirement Savings Plan for year ended December 31, 1996 13 Sections of 1996 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 Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 3, 1996 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 8, dated August 22, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and Chase 10.2 Amendment No. 7, dated August 22, 1996, to Credit Agreement among the Corporation, its subsidiaries and Chase 10.3 Letter, dated August 23, 1996, with respect to Credit Agreement between the Corporation and Citibank (South Dakota) N.A. ("Citibank") 17 18 The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Severance Pay Agreement, dated May 28, 1996, between the Corporation and Raphael Benaroya 10.2* Severance Pay Agreement, dated May 28, 1996, between the Corporation and George R. Remeta 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. (Confidential portions have been deleted and filed separately with the Secretary of the Commission) The Corporation's 1996 Stock Option Plan set forth as Exhibit A to the Corporation's proxy statement on Schedule 14A for its 1996 annual meeting of stockholders is incorporated herein by reference.* The following exhibits to the Corporation's Current Report on Form 8-K, dated March 22, 1996, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment No. 7, dated March 5, 1996, to Letter of Credit Agreement among the Corporation, its subsidiaries and 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 Corporation'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 Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP 18 19 The following exhibits to the Corporation'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 exhibit to the Corporation'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 Corporation'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 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 Corporation'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 The following exhibits to the Corporation'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, dated December 23, 1992, between the Corporation and certain of its stockholders The Corporation's Restated 1990 Stock Option Plan set forth as Exhibit A to the Corporation's proxy statement on Schedule 14A for its 1993 annual meeting of stockholders is incorporated herein by reference.* 19 20 The following exhibits to the Corporation'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 Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.11 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 the Corporation, then known as Lernmark, Inc., and Raphael Benaroya and First Amendment thereto dated November 1, 1991 20 21 10.31* Performance Option Agreement, dated July 17, 1989, between the Corporation 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 exhibit to the Restated Schedule 13D, dated February 5, 1997, of Raphael Benaroya with respect to shares of Common Stock of the Corporation is incorporated herein by reference: Number in Filing Description 99.10 Amendment No. 2, dated February 1, 1997, to Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders - ------------------------- *A compensatory plan for the benefit of the Corporation's management or a management contract. 21 EX-10.1 2 AMENDMENT NO. 9 TO LETTER OF CREDIT AGREEMENT 1 Exhibit 10.1 AMENDMENT NO. 9 AMENDMENT NO. 9 dated as of January 31, 1997, between UNITED RETAIL GROUP, INC. (the "Company"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Company, the "Obligors"); and THE CHASE MANHATTAN BANK (successor in interest of The Chase Manhattan Bank, N.A.), as collateral agent for itself under the Letter of Credit Agreement (the "Collateral Agent"). The Company, the Subsidiary Guarantors and the Collateral Agent are parties to a Letter of Credit Agreement dated as of February 24, 1992 (as heretofore amended, the "Letter of Credit Agreement"), providing, subject to the terms and conditions thereof, for letters of credit to be issued by the Collateral Agent to the Company in an aggregate face amount not exceeding $25,000,000. The Company has requested the Collateral Agent to consent to certain amendments to the Letter of Credit Agreement, all on the terms and conditions set forth herein and, accordingly, the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Letter of Credit Agreement are used herein as defined therein unless amended hereby. Section 2. Amendments. Subject to the execution and delivery hereof by the Company, each Subsidiary Guarantor and the Collateral Agent (and the payment to the Collateral Agent of an amendment fee in the amount of $10,000), but effective as of the date hereof, the Letter of Credit Agreement is hereby amended as follows: A. Definitions. The definition of "Fixed Charges Ratio" in Section 1.01 of the Letter of Credit Agreement is hereby amended in its entirety to read as follows: "Fixed Charges Ratio" shall mean, for any period of determination thereof, (a) Cash Flow for the period of four consecutive fiscal quarters then ended plus the aggregate amount of payments by the Company and its Subsidiaries made in respect of Operating Lease Obligations during such period to (b) Fixed Charges for such period; provided however, that, up to and including the fiscal month ending January 3, 1998, Fixed Charges Ratio shall mean, for any period of determination thereof, (a) Cash Flow for the period of 12 consecutive fiscal months then ended, if the determination date is the end of a fiscal month or, if otherwise, as at Amendment No. 9 to Letter of Credit Agreement 2 - 2 - the end of the preceding fiscal month for the period of 12 consecutive fiscal months then ended; plus the aggregate amount of payments by the Company and its Subsidiaries made in respect of Operating Lease Obligations during such period to (b) Fixed Charges for such period. B. Tangible Net Worth. Section 9.11 of the Letter of Credit Agreement is hereby amended in its entirety to read as follows: "9.11 Tangible Net Worth. The Company will not permit Tangible Net Worth on any date (each such date a 'Determination Date') to be less than $70,000,000 plus for each complete fiscal year ending after February 3, 1996 and on or before such Determination Date for which Net Income shall be positive, an amount equal to 50% of such Net Income minus as at the last day of the fiscal year ending February 1, 1997, and any date thereafter, any write-down in the deferred tax asset account resulting from management options associated with the IPO as determined by the Company's auditors and reflected on its balance sheet as at the last day of such fiscal year." C. Fixed Charges Ratio. Section 9.12 of the Letter of Credit Agreement is hereby amended in its entirety to read as follows: "9.12 Fixed Charges Ratio. The Company will not permit the Fixed Charges Ratio on any date on or after February 1, 1997 to be less than 1.0 to 1." D. Capital Expenditures. Section 9.13 of the Letter of Credit Agreement is hereby amended (i) by deleting subsection (a) thereof and substituting the following therefor: "(a) Capital Expenditures of the Company and its Subsidiaries (i) in the fiscal year ending February 1, 1997, in an aggregate amount not exceeding $6,500,000, (ii) in the fiscal year ending January 31, 1998, in an aggregate amount not exceeding $6,500,000 and (iii) thereafter, in an aggregate amount not exceeding $10,000,000 in any other fiscal year;" and (ii) by deleting subsection (c) thereof and substituting the following therefor: "(c) additional Capital Expenditures made during the period from and after February 1, 1997 in an aggregate amount not exceeding (i) $10,000,000 plus (ii) if Adjusted Cash Flow for such period is positive, Amendment No. 9 to Letter of Credit Agreement 3 - 3 - 75% of Adjusted Cash Flow for such period; provided that the Company has delivered audited financial statements pursuant to Section 9.01(b) hereof for the fiscal year ending February 1, 1997." E. Cash Flow. Section 9.22 of the Letter of Credit Agreement is hereby amended in its entirety to read as follows: "9.22 Cash Flow. The Company shall not permit the Cash Flow for the following respective periods to be less than the amounts indicated below opposite the respective periods:
Period Amount ------ ------ From December 1, 1996 through February 1, 1997 $1,000,000 January 5, 1997 through March 1, 1997 ($9,000,000) From February 2, 1997 through March 29, 1997 ($1,500,000) From March 2, 1997 through May 3, 1997 $3,000,000 From March 30, 1997 through May 31, 1997 $3,400,000 From May 4, 1997 through June 28, 1997 $4,300,000 From June 1, 1997 through August 2, 1997 $0 From June 29, 1997 through August 30, 1997 ($4,500,000) From August 3, 1997 through September 27, 1997 ($1,600,000) From August 31, 1997 through November 1, 1997 $0 From September 28, 1997 through November 29, 1997 $ 500,000 From November 2, 1997 through January 3, 1998 $8,000,000
Amendment No. 9 to Letter of Credit Agreement 4 - 4 - From November 30, 1997 through January 31, 1998 $2,600,000".
F. Liquidity. Section 9.23 of the Letter of Credit Agreement is hereby amended in its entirety to read as follows: "9.23 Liquidity. The Company will not permit the sum of (x) the aggregate amount of cash and Cash Equivalents held by the Company and its Subsidiaries plus (y) the aggregate unused amount of the obligation of the Banks to extend credit under the Credit Agreement (by means of Loans or Letters of Credit) under the caption "Commitment" (as the same may be reduced at any time or from time to time pursuant to Section 2.04 thereto) to be less than the amounts indicated below at any time during each respective period:
Period Amount ------ ------ From December 29, 1996 through February 1, 1997 $21,000,000 From February 2, 1997 through March 1, 1997 $16,000,000 From March 2, 1997 through March 29, 1997 $16,300,000 From March 30, 1997 through May 3, 1997 $15,100,000 From May 4, 1997 through May 31, 1997 $20,500,000 From June 1, 1997 through June 28, 1997 $26,700,000 From June 29, 1997 through August 2, 1997 $25,500,000 From August 3, 1997 through August 30, 1997 $21,800,000 From August 31, 1997 through September 27, 1997 $21,200,000 From September 28, 1997 through November 1, 1997 $15,600,000 From November 2, 1997
Amendment No. 9 to Letter of Credit Agreement 5 - 5 - through November 29, 1997 $13,800,000 From November 30, 1997 through January 3, 1998 $31,500,000 From January 4, 1998 through January 31, 1998 $26,600,000"
Section 3. Miscellaneous. Except as herein provided, the Letter of Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 9 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 9 by signing any such counterpart. This Amendment No. 9 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 9 to Letter of Credit Agreement 6 - 6 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 9 to be duly executed and delivered as of the day and year first above written. UNITED RETAIL GROUP, INC. THE CHASE MANHATTAN BANK, individually and as Collateral Agent By /s/ GEORGE R. REMETA By /s/ CAROL ULMER --------------------------- ------------------------------ Title: Vice Chairman Title: Vice President Each of the Subsidiary Guarantors, by its signature below, hereby consents to the foregoing Amendment No. 9 for purposes of its Guarantee under Section 6 of the Letter of Credit Agreement and agrees that the obligations of the Company under the Letter of Credit Agreement, as amended by said Amendment No. 9, shall constitute "Guaranteed Obligations" for all purposes of said Section 6 and the Security Documents (as defined in the Letter of Credit Agreement). SUBSIDIARY GUARANTORS UNITED RETAIL HOLDING UNITED RETAIL INCORPORATED CORPORATION (formerly (formerly known as Sizes known as Sizes Unlimited Unlimited, Inc.) Holding Corporation) By /s/ KENNETH P. CARROLL By /s/ KENNETH P. CARROLL ---------------------------------- ------------------------------- Title: President Title: President SMART SIZE, INC. UNITED RETAIL LOGISTICS OPERATIONS INCORPORATED (formerly known as Sizes Unlimited Florida, Inc.) By /s/ KENNETH P. CARROLL By /s/ KENNETH P. CARROLL ---------------------------------- ------------------------------- Title: President Title: President UNITED DISTRIBUTION THE AVENUE, INC. SERVICES,INC. By /s/ KENNETH P. CARROLL By /s/ BARRY GOLDIN ---------------------------------- ------------------------------- Title: President Title: President Amendment No. 9 to Letter of Credit Agreement EX-10.2 3 AMENDMENT NO. 8 TO CREDIT AGREEMENT 1 Exhibit 10.2 AMENDMENT NO. 8 AMENDMENT NO. 8 dated as of January 31, 1997, between UNITED RETAIL GROUP, INC. (the "Company"); each of the Subsidiaries of the Company identified under the caption "SUBSIDIARY GUARANTORS" on the signature pages hereto (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Company, the "Obligors"); each of the lenders that is a signatory hereto identified under the caption "BANKS" on the signatory pages hereto; and THE CHASE MANHATTAN BANK (successor in interest of The Chase Manhattan Bank, N.A.), as agent for the Banks (the "Agent") and as collateral agent for the Banks under the Credit Agreement and for itself under the Letter of Credit Agreement (the "Collateral Agent"). The Company, the Subsidiary Guarantors, the Banks, the Agent and the Collateral Agent are parties to a Credit Agreement dated as of February 24, 1992 (as heretofore amended, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by making of loans and issuing letters of credit) to be made by said Banks to the Company in an aggregate principal or face amount not exceeding $15,000,000. The Company has requested the Banks to consent to certain amendments to the Credit Agreement, all on the terms and conditions set forth herein and, accordingly, the parties hereto agree as follows: Section 1. Definitions. Terms defined in the Credit Agreement are used herein as defined therein unless amended hereby. Section 2. Amendments. Subject to the execution and delivery hereof by the Company, each Subsidiary Guarantor, each Bank and the Agent (and the payment to the Agent for account of the Banks of an amendment fee in the amount of $10,000), but effective as of the date hereof, the Credit Agreement is hereby amended as follows: A. Definitions. The definition of "Fixed Charges Ratio" in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows: "Fixed Charges Ratio" shall mean, for any period of determination thereof, (a) Cash Flow for the period of four consecutive fiscal quarters then ended plus the aggregate amount of payments by the Company and its Subsidiaries made in respect of Operating Lease Obligations during such period to (b) Fixed Charges for such period; provided however, that, up to and including the fiscal month ending January 3, 1998, Fixed Charges Ratio shall mean, for any period of determination thereof, (a) Cash Flow for the period of 12 Amendment No. 8 to Credit Agreement 2 - 2 - consecutive fiscal months then ended, if the determination date is the end of a fiscal month or, if otherwise, as at the end of the preceding fiscal month for the period of 12 consecutive fiscal months then ended; plus the aggregate amount of payments by the Company and its Subsidiaries made in respect of Operating Lease Obligations during such period to (b) Fixed Charges for such period. B. Tangible Net Worth. Section 9.11 of the Credit Agreement is hereby amended in its entirety to read as follows: "9.11 Tangible Net Worth. The Company will not permit Tangible Net Worth on any date (each such date a 'Determination Date') to be less than $70,000,000 plus for each complete fiscal year ending after February 3, 1996 and on or before such Determination Date for which Net Income shall be positive, an amount equal to 50% of such Net Income minus as at the last day of the fiscal year ending February 1, 1997, and any date thereafter, any write-down in the deferred tax asset account resulting from management options associated with the IPO as determined by the Company's auditors and reflected on its balance sheet as at the last day of such fiscal year." C. Fixed Charge Coverage Ratio. Section 9.12 of the Credit Agreement is hereby amended in its entirety to read as follows: "9.12 Fixed Charges Ratio. The Company will not permit the Fixed Charges Ratio on any date on or after February 1, 1997 to be less than 1.0 to 1." D. Capital Expenditures. Section 9.13 of the Credit Agreement is hereby amended (i) by deleting subsection (a) thereof and substituting the following therefor: "(a) Capital Expenditures of the Company and its Subsidiaries (i) in the fiscal year ending February 1, 1997, in an aggregate amount not exceeding $6,500,000, (ii) in the fiscal year ending January 31, 1998, in an aggregate amount not exceeding $6,500,000 and (iii) thereafter, in an aggregate amount not exceeding $10,000,000 in any other fiscal year;" and (ii) by deleting subsection (c) thereof and substituting the following therefor: "(c) additional Capital Expenditures made during the period from and after February 1, 1997 in an aggregate amount not exceeding (i) $10,000,000 plus Amendment No. 8 to Credit Agreement 3 - 3 - (ii) if Adjusted Cash Flow for such period is positive, 75% of Adjusted Cash Flow for such period; provided that the Company has delivered audited financial statements pursuant to Section 9.01(b) hereof for the fiscal year ending February 1, 1997." E. Cash Flow. Section 9.22 of the Credit Agreement is hereby amended in its entirety to read as follows: "9.22 Cash Flow. The Company shall not permit the Cash Flow for the following respective periods to be less than the amounts indicated below opposite the respective periods:
Period Amount ------ ------ From December 1, 1996 through February 1, 1997 $1,000,000 January 5, 1997 through March 1, 1997 ($9,000,000) From February 2, 1997 through March 29, 1997 ($1,500,000) From March 2, 1997 through May 3, 1997 $3,000,000 From March 30, 1997 through May 31, 1997 $3,400,000 From May 4, 1997 through June 28, 1997 $4,300,000 From June 1, 1997 through August 2, 1997 $0 From June 29, 1997 through August 30, 1997 ($4,500,000) From August 3, 1997 through September 27, 1997 ($1,600,000) From August 31, 1997 through November 1, 1997 $0 From September 28, 1997 through November 29, 1997 $ 500,000 From November 2, 1997
Amendment No. 8 to Credit Agreement 4 - 4 - through January 3, 1998 $8,000,000 From November 30, 1997 through January 31, 1998 $2,600,000".
F. Liquidity. Section 9.23 of the Credit Agreement is hereby amended in its entirety to read as follows: "9.23 Liquidity. The Company will not permit the sum of (x) the aggregate amount of cash and Cash Equivalents held by the Company and its Subsidiaries plus (y) the aggregate unused amount of the Commitment to be less than the amounts indicated below at any time during each respective period:
Period Amount ------ ------ From December 29, 1996 through February 1, 1997 $21,000,000 From February 2, 1997 through March 1, 1997 $16,000,000 From March 2, 1997 through March 29, 1997 $16,300,000 From March 30, 1997 through May 3, 1997 $15,100,000 From May 4, 1997 through May 31, 1997 $20,500,000 From June 1, 1997 through June 28, 1997 $26,700,000 From June 29, 1997 through August 2, 1997 $25,500,000 From August 3, 1997 through August 30, 1997 $21,800,000 From August 31, 1997 through September 27, 1997 $21,200,000 From September 28, 1997 through November 1, 1997 $15,600,000 From November 2, 1997 through November 29, 1997 $13,800,000
Amendment No. 8 to Credit Agreement 5 - 5 - From November 30, 1997 through January 3, 1998 $31,500,000 From January 4, 1998 through January 31, 1998 $26,600,000"
Section 3. Miscellaneous. Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment No. 8 may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment No. 8 by signing any such counterpart. This Amendment No. 8 shall be governed by, and construed in accordance with, the law of the State of New York. Amendment No. 8 to Credit Agreement 6 - 6 - IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to be duly executed and delivered as of the day and year first above written. UNITED RETAIL GROUP, INC. THE CHASE MANHATTAN BANK, individually and as Agent and Collateral Agent By /s/ George R. Remeta By /s/ Carol Ulmer ---------------------------- ------------------------------ Title: VICE CHAIRMAN Title: VICE PRESIDENT Each of the Subsidiary Guarantors, by its signature below, hereby consents to the foregoing Amendment No. 8 for purposes of its Guarantee under Section 6 of the Credit Agreement and agrees that the obligations of the Company under the Credit Agreement, as amended by said Amendment No. 8, shall constitute "Guaranteed Obligations" for all purposes of said Section 6 and the Security Documents (as defined in the Credit Agreement). SUBSIDIARY GUARANTORS UNITED RETAIL HOLDING CORPORATION (formerly known as Sizes Unlimited Holding Corporation) UNITED RETAIL INCORPORATED (formerly known as Sizes Unlimited, Inc.) By /s/ Kenneth P. Carroll By /s/ Kenneth P. Carroll ---------------------------- ---------------------------- Title: PRESIDENT Title: PRESIDENT SMART SIZE, INC. UNITED RETAIL LOGISTICS OPERATIONS INCORPORATED (formerly known as Sizes Unlimited Florida, Inc.) By /s/ Kenneth P. Carroll By /s/ Kenneth P. Carroll --------------------------- ---------------------------- Title: PRESIDENT Title: PRESIDENT UNITED DISTRIBUTION THE AVENUE, INC. SERVICES,INC. By /s/ Kenneth P. Carroll By /s/ Barry Goldin ---------------------------- ---------------------------- Title: PRESIDENT Title: PRESIDENT Amendment No. 8 to Credit Agreement EX-10.3 4 FINANCIAL STATEMENTS OF RETIREMENT SAVINGS PLAN 1 EXHIBIT 10.3 [ARY, EARMAN AND ROEPCKE LETTERHEAD] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of United Retail Group, Inc. and the Plan Administrator of the United Retail Group Retirement Savings Plan: We have audited the accompanying statements of net assets available for benefits of the United Retail Group Retirement Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ary, Earman, and Roepcke Columbus, Ohio, February 28, 1997. 2 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1996
Company Balanced Fixed Equity Total Stock Fund Fund Fund Fund ---------- ----------- ----------- ---------- ----------- ASSETS Investments, at Fair Value: Determined by Quoted Market Price: United Retail Group, Inc. Stock (Cost $509,200) $ 176,306 $ 176,306 $ -- $ -- $ -- Warburg Pincus International Equity Fund (Cost $317,478) 342,048 -- -- -- -- Cash Equivalents (Cost Approximates Fair Value) Schwab Money Market Fund 12,198 -- -- 12,198 -- Schwab Government Money Market Fund 190 -- -- 190 -- Participant Loans 334,515 -- -- -- -- ---------- ----------- ----------- ---------- ----------- Total Investments 865,257 176,306 -- 12,388 -- Interfund Transfers -- (1,231) (818) 108 (834) Cash 5,514,267 -- 1,497,827 2,055,557 1,439,275 ---------- ----------- ----------- ---------- ----------- Total Assets 6,379,524 175,075 1,497,009 2,068,053 1,438,441 LIABILITIES Administrative Expense Payable 52,208 2,413 16,185 22,763 7,281 ---------- ----------- ----------- ---------- ----------- NET ASSETS AVAILABLE FOR BENEFITS $6,327,316 $ 172,662 $ 1,480,824 $2,045,290 $ 1,431,160 ========== =========== =========== ========== ===========
Aggressive International Loan Fund Fund Fund -------- -------- -------- Investments, at Fair Value: Determined by Quoted Market Price: United Retail Group, Inc. Stock (Cost $509,200) $ -- $ -- $ -- Warburg Pincus International Equity Fund (Cost $317,478) -- 342,048 -- Cash Equivalents (Cost Approximates Fair Value) Schwab Money Market Fund -- -- -- Schwab Government Money Market Fund -- -- -- Participant Loans -- -- 334,515 -------- -------- -------- Total Investments -- 342,048 334,515 Interfund Transfers 1,405 1,370 -- Cash 521,608 -- -- -------- -------- -------- Total Assets 523,013 343,418 334,515 LIABILITIES Administrative Expense Payable 1,800 1,766 -- -------- -------- -------- NET ASSETS AVAILABLE FOR BENEFITS $521,213 $341,652 $334,515 ======== ======== ========
The accompanying notes are an integral part of this financial statement. F-1 3 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1995
Company Balanced Fixed Equity Aggressive Total Stock Fund Fund Fund Fund Fund ---------- --------- ----------- ---------- ----------- -------- ASSETS Investments, at Fair Value: Determined by Quoted Market Price: Vanguard Wellesley Income Fund (Cost $1,443,745) $1,588,578 $ -- $ 1,588,578 $ -- $ -- $ -- United Retail Group, Inc. Stock (Cost $586,955) 175,779 175,779 -- -- -- -- Fidelity Contra Fund (Cost $853,076) 978,643 -- -- -- 978,643 -- Columbia Special Fund, Inc. (Cost $293,113) 314,248 -- -- -- -- 314,248 Warburg Pincus International Equity Fund (Cost $143,071) 160,270 -- -- -- -- -- Cash Equivalents (Cost Approximates Fair Value) Schwab Money Market Fund 2,471,042 -- -- 2,471,042 -- -- Schwab Government Money Market Fund 33,453 -- -- 33,453 -- -- Participant Loans 288,402 -- -- -- -- -- ---------- --------- ----------- ---------- ----------- -------- Total Investments 6,010,415 175,779 1,588,578 2,504,495 978,643 314,248 Interfund Transfers -- (47) (30) 77 (74) 74 Accrued Income 122,350 -- -- -- 82,336 40,014 Cash 17,285 1,171 -- 16,114 -- -- ---------- --------- ----------- ---------- ----------- -------- Total Assets 6,150,050 176,903 1,588,548 2,520,686 1,060,905 354,336 LIABILITIES Administrative Expense Payable 56,080 -- 18,182 26,137 8,462 2,190 ---------- --------- ----------- ---------- ----------- -------- NET ASSETS AVAILABLE FOR BENEFITS $6,093,970 $ 176,903 $ 1,570,366 $2,494,549 $ 1,052,443 $352,146 ========== ========= =========== ========== =========== ========
International Loan Fund Fund -------- -------- Investments, at Fair Value: Determined by Quoted Market Price: Vanguard Wellesley Income Fund (Cost $1,443,745) $ -- $ -- United Retail Group, Inc. Stock (Cost $586,955) -- -- Fidelity Contra Fund (Cost $853,076) -- -- Columbia Special Fund, Inc. (Cost $293,113) -- -- Warburg Pincus International Equity Fund (Cost $143,071) 160,270 -- Cash Equivalents (Cost Approximates Fair Value) Schwab Money Market Fund -- -- Schwab Government Money Market Fund -- -- Participant Loans -- 288,402 -------- -------- Total Investments 160,270 288,402 Interfund Transfers -- -- Accrued Income -- -- Cash -- -- -------- -------- Total Assets 160,270 288,402 LIABILITIES Administrative Expense Payable 1,109 -- -------- -------- NET ASSETS AVAILABLE FOR BENEFITS $159,161 $288,402 ======== ========
The accompanying notes are an integral part of this financial statement. F-2 4 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1996
Company Balanced Fixed Equity Total Stock Fund Fund Fund Fund ----------- --------- ----------- ----------- ----------- Investment Income: Mutual Funds $ 255,316 $ -- $ 126,428 $ -- $ 115,497 Increase (Decrease) In Net Unrealized Appreciation (213,774) 70,390 (144,833) -- (125,567) Interest 131,073 -- -- 108,864 -- Realized Gain (Loss) on Sale of Securities 389,480 (124,135) 164,547 -- 272,195 ----------- --------- ----------- ----------- ----------- Total Investment Income (Loss) 562,095 (53,745) 146,142 108,864 262,125 ----------- --------- ----------- ----------- ----------- Contributions: Employer 53,786 3,141 11,464 10,826 17,002 Participants 827,229 37,653 171,907 262,203 204,029 ----------- --------- ----------- ----------- ----------- Total Contribution 881,015 40,794 183,371 273,029 221,031 ----------- --------- ----------- ----------- ----------- Loan Repayments -- 5,343 28,271 31,599 26,793 Loans Issued -- (1,912) (46,542) (133,414) (19,455) Interfund Transfers -- 31,554 (32,855) (345,119) 141,231 Administrative Expense (47,408) (3,958) (11,064) (16,793) (9,494) Benefits to Participants (1,162,356) (22,317) (356,865) (367,425) (243,514) ----------- --------- ----------- ----------- ----------- Increase (Decrease) in Net Assets Available for Benefits 233,346 (4,241) (89,542) (449,259) 378,717 Beginning Net Assets Available for Benefits 6,093,970 176,903 1,570,366 2,494,549 1,052,443 ----------- --------- ----------- ----------- ----------- Ending Net Assets Available for Benefits $ 6,327,316 $ 172,662 $ 1,480,824 $ 2,045,290 $ 1,431,160 =========== ========= =========== =========== ===========
Aggressive International Loan Fund Fund Fund --------- --------- --------- Investment Income: Mutual Funds $ -- $ 13,391 $ -- Increase (Decrease) In Net Unrealized Appreciation (21,135) 7,371 -- Interest -- -- 22,209 Realized Gain (Loss) on Sale of Securities 73,705 3,168 -- --------- --------- --------- Total Investment Income (Loss) 52,570 23,930 22,209 --------- --------- --------- Contributions: Employer 8,339 3,014 -- Participants 97,671 53,766 -- --------- --------- --------- Total Contribution 106,010 56,780 -- --------- --------- --------- Loan Repayments 20,324 6,341 (118,671) Loans Issued (13,407) (3,849) 218,579 Interfund Transfers 85,631 119,558 -- Administrative Expense (3,360) (2,739) -- Benefits to Participants (78,701) (17,530) (76,004) --------- --------- --------- Increase (Decrease) in Net Assets Available for Benefits 169,067 182,491 46,113 Beginning Net Assets Available for Benefits 352,146 159,161 288,402 --------- --------- --------- Ending Net Assets Available for Benefits $ 521,213 $ 341,652 $ 334,515 ========= ========= =========
The accompanying notes are an integral part of this financial statement. F-3 5 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1995
Company Balanced Fixed Equity Total Stock Fund Fund Fund Fund ----------- --------- ----------- ----------- ----------- Investment Income: Mutual Funds $ 234,785 $ -- $ 107,498 $ -- $ 82,336 Increase (Decrease) In Net Unrealized Appreciation 336,792 (76,265) 266,074 -- 104,360 Interest 149,953 -- -- 136,633 -- Realized Gain (Loss) on Sale of Securities 25,208 (65,411) 1,617 -- 79,621 ----------- --------- ----------- ----------- ----------- Total Investment Income (Loss) 746,738 (141,676) 375,189 136,633 266,317 Participants' Contributions 708,082 45,347 170,923 196,575 173,240 Loan Repayments -- 3,860 22,149 21,050 13,050 Loans Issued -- (10,779) (52,820) (86,990) (43,494) Interfund Transfers -- 16,381 (241,569) (104,416) 178,480 Administrative Expense (52,540) -- (14,920) (25,722) (7,957) Benefits to Participants (634,477) (35,503) (250,906) (220,253) (95,133) ----------- --------- ----------- ----------- ----------- Increase (Decrease) in Net Assets Available for Benefits 767,803 (122,370) 8,046 (83,123) 484,503 Beginning Net Assets Available for Benefits 5,326,167 299,273 1,562,320 2,577,672 567,940 ----------- --------- ----------- ----------- ----------- Ending Net Assets Available for Benefits $ 6,093,970 $ 176,903 $ 1,570,366 $ 2,494,549 $ 1,052,443 =========== ========= =========== =========== ===========
Aggressive International Loan Fund Fund Fund --------- --------- --------- Investment Income: Mutual Funds $ 40,014 $ 4,937 $ -- Increase (Decrease) In Net Unrealized Appreciation 25,424 17,199 -- Interest -- -- 13,320 Realized Gain (Loss) on Sale of Securities 6,449 2,932 -- --------- --------- --------- Total Investment Income (Loss) 71,887 25,068 13,320 Participants' Contributions 88,600 33,397 -- Loan Repayments 12,263 1,039 (73,411) Loans Issued (29,286) (8,939) 232,308 Interfund Transfers 36,716 114,408 -- Administrative Expense (2,747) (1,194) -- Benefits to Participants (13,927) (4,618) (14,137) --------- --------- --------- Increase (Decrease) in Net Assets Available for Benefits 163,506 159,161 158,080 Beginning Net Assets Available for Benefits 188,640 -- 130,322 --------- --------- --------- Ending Net Assets Available for Benefits $ 352,146 $ 159,161 $ 288,402 ========= ========= =========
The accompanying notes are an integral part of this financial statement. F-4 6 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1994
Company Balanced Fixed Equity Aggressive Loan Total Stock Fund Fund Fund Fund Fund Fund ---------- ---------- ---------- ---------- ---------- ---------- ---------- Investment Income: Mutual Funds $ 173,742 $ - $ 155,184 $ - $ 6,596 $ 11,962 $ - Increase (Decrease) in Net Unrealized Appreciation (281,010) (40,360) (245,717) - 9,356 (4,289) - Interest 87,528 67 - 85,553 - - 1,908 Realized Gain (Loss) on Sale of Securities (77,425) (56,910) (28,831) - 7,811 505 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Investment Income (97,165) (97,203) (119,364) 85,553 23,763 8,178 1,908 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Contributions: Employer 36,398 7,567 13,122 6,637 3,791 5,281 - Participants 782,876 58,714 258,240 260,503 145,290 60,129 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total Contribution 819,274 66,281 271,362 267,140 149,081 65,410 - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Loan Repayments - 372 1,761 2,578 2,877 614 (8,202) Loans Issued - - (45,463) (44,455) (26,366) (20,332) 136,616 Interfund Transfers - (790) (829,034) 574,052 118,309 137,463 - Administrative Expense (50,660) - (22,874) (21,421) (5,633) (732) - Benefits to Participants (917,349) (42,786) (336,335) (362,777) (173,490) (1,961) - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Increase (Decrease) in Net Assets Available for Benefits (245,900) (74,126) (1,079,947) 500,670 88,541 188,640 130,322 Beginning Net Assets Available for Benefits 5,572,067 373,399 2,642,267 2,077,002 479,399 - - ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ending Net Assets Available for Benefits $5,326,167 $ 299,273 $1,562,320 $2,577,672 $ 567,940 $ 188,640 $ 130,322 ========== ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of this financial statement. F-5 7 UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS (1) DESCRIPTION OF THE PLAN General The United Retail Group Retirement Savings Plan (the "Plan") is a defined contribution plan covering certain employees of United Retail Group, Inc. and its affiliates (the "Employer") who are at least 21 years of age and have completed 1,000 or more hours of service during their first consecutive twelve months of employment or any calendar year beginning in or after their first consecutive twelve months of employment. Certain employees of the Employer, who are covered by a collective bargaining agreement, are not eligible to participate in the Plan. At December 31, 1996 there were 979 participants in the Plan. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended. Amendments Effective January 1, 1994, the Plan was amended and restated to, among other things, (1) permit participant loans as noted under "Participant Loans" below and (2) make certain changes in the Plan as were required by law. Contributions Employer Contributions: The Employer may provide a 50% matching contribution on the first 3% of a participant's voluntary contributions. Participant Voluntary Contribution: A participant may elect to make a voluntary tax-deferred contribution of 1% to 12% of his or her annual compensation up to the maximum permitted under Section 402(g) of the Internal Revenue Code adjusted annually ($9,500 at December 31, 1996). The annual compensation of each participant taken into account under the Plan is limited to the maximum amount permitted under Section 401(a)(17) of the Internal Revenue Code. The annual compensation limit for the Plan year ended December 31, 1996, was $150,000. Participants earning annually more than $66,000 for the years ended December 31, 1996, 1995 and 1994, respectively, may be limited to voluntary contributions of less than 12% due to requirements by Section 401(k) of the Internal Revenue Code based on the current levels of participant voluntary contributions. Vesting A participant is fully and immediately vested for voluntary contributions. A summary of vesting percentages in the Employer's contributions follows:
Years of Continuous Service Percentage --------------------------- ---------- Less than 3 years 0% 3 years 20 4 years 40 5 years 60 6 years 80 7 years 100
F-6 8 Payment of Benefits The full value of participants' accounts becomes payable upon retirement, disability, or death. Upon termination of employment for any other reason, participants' accounts, to the extent vested, become payable. Participants will receive any benefit to which they are entitled in the form of, (1) lump-sum cash distribution, with those participants holding more than 100 shares of Employer Securities receiving shares for the portion of their account invested in Employer Securities, (2) if eligible a payment directly to an eligible retirement plan specified by the Participant or (3) if the account balance is greater than $3,500 and the Participant has attained age 70-1/2, cash installments over a period not extending beyond the life expectancy of the Participant or the joint and last survivor life expectancies of the Participant and a designated Beneficiary. Those participants with vested account balances more than $3,500 have the option of leaving their accounts invested in the Plan until age 65. Participant Loans Effective July 1, 1994, participants are permitted to borrow from their account the lesser of $50,000 or 50% of the vested balance of their account for a term of not more than five years with repayment made from payroll deductions. All loans become due and payable in full upon a participant's termination of employment with the Employer. The borrowing constitutes a separate earmarked investment of the participant's account. Interest on the borrowing is based on a formula using the published money call rate on the date of application. Amounts Allocated Participants Withdrawn from the Plan The vested portion of net assets available for plan benefits allocated to participants withdrawn from the Plan as of December 31, 1996, 1995, and 1994, is set forth below:
Stock Balanced Fixed Equity Aggressive Int'l Total Fund Fund Fund Fund Fund Fund ----- ---- ---- ---- ---- ---- ---- December 31, 1996 $ 56,829 $ 928 $ 16,680 $ 5,585 $ 17,911 $ 6,477 $ 9,248 December 31, 1995 $161,004 $ 4,079 $ 40,493 $ 50,281 $ 45,127 $ 16,919 $ 4,105 December 31, 1994 $180,460 $ 4,870 $ 82,250 $ 77,040 $ 14,024 $ 2,276 $ -
Benefits undeliverable due to addresses are invested in the Schwab Government Money Market Fund and held within the Fixed Fund. At December 31, 1996, 1995 and 1994, the Plan was holding $31,269, $33,453 and $31,756, respectively of such assets which are reflected in the above amounts. Prior to 1994 these assets were held in a separate trust account by the Trustee. Forfeitures Forfeitures are used to reduce the Employer's required contributions. Utilized forfeitures for 1996, 1995 and 1994, is set forth below:
Stock Balanced Fixed Equity Aggressive Int'l Total Fund Fund Fund Fund Fund Fund ----- ---- ---- ---- ---- ---- ---- December 31, 1996 $151,071 $ 8,899 $ 33,028 $ 44,021 $ 39,644 $ 17,935 $ 7,544 December 31, 1995 $169,076 $ 13,502 $ 41,877 $ 55,369 $ 35,752 $ 16,488 $ 6,088 December 31, 1994 $135,690 $ 9,130 $ 49,171 $ 49,127 $ 27,334 $ 928 $ -
F-7 9 Forfeitures not utilized as of December 31, 1996, 1995 and 1994 represent unallocated assets in the investment funds as follows:
Stock Balanced Fixed Equity Aggressive Int'l Total Fund Fund Fund Fund Fund Fund ----- ---- ---- ---- ---- ---- ---- December 31, 1996 $ - $ - $ - $ - $ - $ - $ - December 31, 1995 $124,930 $ 770 $ 15,777 $101,957 $ 4,945 $ 1,241 $ 240 December 31, 1994 $223,064 $ 3,852 $ 48,717 $158,215 $ 12,176 $ 104 $ -
Expenses Brokerage fees, transfer taxes, and other expenses incurred in connection with the investment of the Plan's assets will be added to the cost of such investments or deducted from the proceeds thereof, as the case may be. Administrative expenses of the Plan, not to exceed .25% of the net asset value of the Plan valued as of the last day of each quarter, will be paid from the Plan from earnings not allocated to participants' accounts. The remainder will be paid by the Employer, unless the Employer elects to pay more or all of such costs. Tax Determination The Plan obtained its latest determination letter on November 21, 1994, in which the Internal Revenue Service stated that the Plan, as amended and restated January 1, 1994, was in compliance with the applicable requirements of the Internal Revenue Code. Accordingly, the following Federal income tax rules will apply to the Plan: Voluntary tax-deferred contributions made under the Plan by a participant and contributions made by the Employer to participant accounts are generally not taxable until such amounts are distributed. The participants are not subject to Federal income tax on interest, dividends, or gains in their particular accounts until distributed. The foregoing is only a brief summary of certain tax implications and applies only to Federal tax regulations currently in effect. (2) SUMMARY OF ACCOUNTING POLICIES The Plan's financial statements are prepared on the accrual basis of accounting. Assets of the Plan are valued at fair value. If available, quoted market prices are used to value investments. The amounts for investments that have no quoted market price are shown at their estimated fair value, which is determined based on yields equivalent for such securities or for securities of comparable maturity, quality, and type as obtained from market makers. Realized gains or losses on the distribution or sale of securities represent the difference between the average cost of such securities held and the market value on the date of distribution or sale. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the plan administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results may differ from those estimates. F-8 10 (3) INVESTMENTS Net unrealized appreciation (depreciation), equal to the difference between cost and market value of all investments at the applicable valuation dates, is recognized in determining the value of each fund. The unrealized appreciation (depreciation) as of December 31, 1996, 1995, and 1994, is set forth below:
Unrealized Appreciation (Depreciation) -------------------------------------- Stock Balanced Fixed Equity Aggressive Int'l Total Fund Fund Fund Fund Fund Fund ----- ---- ---- ---- ---- ---- ---- December 31, 1996 $(308,324) $(332,894) $ - $ - $ - $ - $ 24,570 December 31, 1995 $(102,442) $(411,176) $ 144,833 $ - $ 125,567 $ 21,135 $ 17,199 December 31, 1994 $(436,274) $(331,951) $(121,241) $ - $ 21,207 $ (4,289) $ -
The following is a summary of the net gain (loss) on securities sold during the periods ended December 31, 1996, 1995, and 1994: Realized Gain (Loss) --------------------
Stock Balanced Fixed Equity Aggressive Int'l Total Fund Fund Fund Fund Fund Fund ----------- --------- ----------- ---------- ---------- -------- ------- Year Ended December 1996 Proceeds $ 7,580,312 $ 40,890 $ 2,091,472 $3,024,858 $1,746,402 $649,107 $27,583 Cost 7,190,832 165,025 1,926,925 3,024,858 1,474,207 575,402 24,415 ----------- --------- ----------- ---------- ---------- -------- ------- Realized $ 389,480 $(124,135) $ 164,547 $ -- $ 272,195 $ 73,705 $ 3,168 =========== ========= =========== ========== ========== ======== ======= Year Ended December 1995 Proceeds $ 2,268,219 $ 45,138 $ 634,850 $ 710,031 $ 768,143 $ 71,648 $38,409 Cost 2,243,011 110,549 633,233 710,031 688,522 65,199 35,477 ----------- --------- ----------- ---------- ---------- -------- ------- Realized $ 25,208 $ (65,411) $ 1,617 $ -- $ 79,621 $ 6,449 $ 2,932 =========== ========= =========== ========== ========== ======== ======= Year Ended December 1994 Proceeds $ 4,279,914 $ 61,533 $ 1,226,336 $2,699,562 $ 268,648 $ 23,835 $ -- Cost 4,357,339 118,443 1,255,167 2,699,562 260,837 23,330 -- ----------- --------- ----------- ---------- ---------- -------- ------- Realized $ (77,425) $ (56,910) $ (28,831) $ -- $ 7,811 $ 505 $ -- =========== ========= =========== ========== ========== ======== =======
Contributions under the Plan are invested in one of six investment funds: (1) The Company Stock Fund, consisting of common stock of the United Retail Group, Inc., (2) the Balanced Fund, which is invested in the Vanguard Wellesley Income Fund, (3) the Fixed Fund, which is invested in the Schwab Money Market Fund, prior to October of 1994 the assets were invested in the Vanguard Money Market Reserves Prime Portfolio Fund, (4) the Equity Fund, which is invested in the Fidelity Contra Fund and prior to February of 1995 the Vanguard World Fund - U.S. Growth Portfolio, (5) effective July 1, 1994 the Aggressive Fund, which is invested in the Columbia Special Fund, Inc., and (6) effective January 1, 1995 the International Fund, which invests in the Warburg Pincus International Equity Fund. Participants' voluntary and the Employer's contributions may be invested in any one or more of the funds, at the election of the participant. There are 145 participants in the Company Stock Fund, 465 in the Balanced Fund, 365 in the Fixed Fund, 403 in the Equity Fund, 264 in the Aggressive Fund, and 154 in the International Fund at December 31, 1996. During the year ended December 31, 1996 the Employer adopted a resolution to change the Plan's trustee effective January 1, 1997. To facilitate the transfer of assets the investments held under the Balanced Fund, the Fixed Fund, the Equity Fund, and the Aggressive Fund were sold December 30, 1996, since they would not be available under the new trustee. These funds were transferred in 1997 and reinvested in funds of like investment objectives as follows: (1) the Balanced Fund, invested in Scudder Balanced Fund, (2) the Fixed Fund, invested in the Scudder Cash Investment Trust, (3) the Equity Fund, invested in the Scudder Growth and Income Fund, and (4) the Aggressive Fund, invested in the Janus Enterprise Fund. F-9 11 (4) PLAN ADMINISTRATION The Plan is administered by a Committee, the members of which are appointed by the Board of Directors of the Employer. (5) PLAN TERMINATION Although the Employer has not expressed any intent, the Employer has the right under the Plan to discontinue their contributions at any time. United Retail Group, Inc. has the right at any time, by action of its Board of Directors, to terminate the Plan subject to the provisions of ERISA. Upon Plan termination or partial termination, participants will become fully vested in their accounts. F-10 EX-13 5 SECTIONS OF 1996 ANNUAL REPORT TO STOCKHOLDERS 1 EXHIBIT 13 TABLE OF CONTENTS Management's Discussion and Analysis PAGE 6 Report of Independent Accountants PAGE 12 Consolidated Balance Sheets PAGE 13 Consolidated Statements of Operations PAGE 14 Consolidated Statements of Cash Flows PAGE 15 Consolidated Statements of Stockholders' Equity PAGE 16 Notes to Consolidated Financial Statements PAGE 17 Selected Financial Data PAGE 27 UNITED RETAIL GROUP, INC. is a leading specialty retailer of private label large-size women's apparel and accessories, operating 569 stores in 36 states. The Company seeks to create a fashion-current, upscale image at prices that appeal to the middle mass market. [AVENUE BY DESIGN LOGO] [SIZES UNLIMITED LOGO] [16 PLUS LOGO] UNITED RETAIL GROUP, INC. CONSOLIDATED FINANCIAL HIGHLIGHTS (dollars in thousands, except per share amounts)
Fiscal Fiscal 1995 1996 (53 weeks) (52 weeks) - -------------------------------------------------------------------------------- Net sales $ 369,173 $ 363,074 Loss before income taxes (3,668) (6,823) Benefit from income taxes (957) (1,018) Provision for write-down of the compensation related deferred tax asset 1,928 342 Net loss (4,639) (6,147) Net loss per common share (0.38) (0.50) Net loss excluding the deferred tax asset write-down: Net loss (2,711) (5,805) Net loss per common share (0.22) (0.48) Weighted average outstanding shares (in thousands) 12,190 12,190 Stores open at end of period 576 569 - --------------------------------------------------------------------------------
2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1996 VERSUS FISCAL 1995 Net sales for Fiscal 1996 (52 weeks) decreased to $363.1 million from $369.2 million in Fiscal 1995 (53 weeks), principally from a decrease in sales volume rather than a change in average price. Average stores open increased from 552 to 581; see, however, "Properties," regarding the Company's real estate plan. Comparable store sales for the comparable 52 week periods decreased 3.6% for Fiscal 1996. There is no assurance that sales and comparable store sales will not continue to decrease. (Net sales for the two fiscal months ended April 5, 1997 were $57.7 million compared to $58.2 million in the comparable period in 1996; comparable store sales for the two month period increased 0.5%.) Gross profits decreased by $2.7 million to $73.7 million in Fiscal 1996 from $76.4 million in Fiscal 1995, decreasing as a percentage of net sales to 20.3% from 20.7%. The decrease in gross profits as a percentage of net sales was primarily attributable to higher occupancy costs as a percentage of net sales, partially offset by a reduction in payroll costs for merchants and planners. There is no assurance that gross profits will not continue to decrease. 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, "A Single Merchandise Assortment in Mid-Spring 1996." The industry has also been 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. The Company also believes that consumer pressure to reduce prices throughout the women's apparel industry has become a permanent influence on the retail marketplace. Finally, in Fiscal 1996 the Company replaced its older proprietary brands of clothing with its new AVENUE [by design] brand. (Substantially all clothing carried a proprietary brand.) The transition from the older proprietary brands of clothing may have had an adverse effect on sales and merchandise margin rates and there is no assurance that the brand transition will not have an adverse effect in Fiscal 1997. General, administrative and store operating expenses were $80.1 million in Fiscal 1996, compared to $80.2 million in the previous year. As a percentage of net sales, general, administrative and store operating expenses increased to 22.1% from 21.7%, principally from higher store payroll costs as a percentage of net sales partially offset by lower administrative costs and insurance costs. During Fiscal 1996, the Company incurred an operating loss of $6.4 million compared to an operating loss of $3.8 million for Fiscal 1995. The Fiscal 1996 operating loss was 1.8% of net sales. There is no assurance that the Company will not continue to incur operating losses. Net interest expense was $0.4 million for Fiscal 1996, compared to net interest income of $0.1 million in 1995, principally as a result of lower interest income in Fiscal 1996. The Company had an income tax benefit of $1.0 million both in Fiscal 1996 and in Fiscal 1995 and recorded write-downs of the deferred tax asset, as explained below. The income tax benefit in Fiscal 1996 and Fiscal 1995 resulted from operating losses, the effect of which was partially offset in Fiscal 1996 by a $1.8 million valuation allowance in the full amount of the net deferred tax asset remaining after the write-down taken in Fiscal 1996. 3 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 1996 and Fiscal 1995, respectively, was $3.125 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 $0.3 million in Fiscal 1996 and $1.9 million in Fiscal 1995. The Company incurred a net loss of $6.1 million for Fiscal 1996 compared to a net loss of $4.6 million for Fiscal 1995. The net loss for each year reflected a write-down of the compensation related deferred tax asset. The net loss for Fiscal 1996 also reflected a valuation allowance in the full amount of the deferred tax asset. The write-down and the allowance, net of certain other tax entries, totaled $1.4 million for Fiscal 1996 and the write-down was $1.9 million for Fiscal 1995. Excluding the write-downs and allowance, the Company would have incurred a net loss of $4.7 million in Fiscal 1996 and a net loss of $2.7 million in Fiscal 1995. 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 a change in average price. Average stores open increased from 518 to 552. Comparable store sales decreased 1.9% for Fiscal 1995. 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. 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. 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. 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 incurred only in Fiscal 1994. 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. 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 write-downs of the compensation related deferred tax asset, 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. 4 A SINGLE MERCHANDISE ASSORTMENT COMMENCING IN MID-SPRING 1996 The Company's merchandising had a divisional structure in most of Fiscal 1995, with one team of merchants providing inventory for stores located principally in malls and a separate team of merchants providing different inventory for stores concentrated in strip shopping centers. In order to improve its merchandise assortments, the Company changed from a divisional merchandising methodology to one in which a single team provides the same inventory for all the Company's stores. The separate teams of merchants for mall stores and strip shopping center stores were unified in the third quarter of Fiscal 1995. The first unified merchandise assortment arrived in Mid-Spring 1996. The unified merchandising structure for Fiscal 1997 has three specialized components. Product development, that is, developing fashion content and design, is a new function that was added to the existing merchandising function and product quality function. In April 1996, the Company recruited an experienced executive to handle product development of merchandise assortments arriving in Fiscal 1997 and thereafter. The Company believes Fiscal 1997 will be a period of transition for the unified team of merchants and the new product development team. There is no assurance that the new merchandising structure will increase sales and improve merchandise margin rates. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities in Fiscal 1996 was $7.6 million. The Company's cash on hand increased to $18.3 million at February 1, 1997 from $17.0 million at February 3, 1996. Income taxes receivable decreased to $0.2 million at February 1, 1997 from $2.7 million at February 3, 1996, principally as a result of refunds received in Fiscal 1996 with respect to net operating loss carrybacks. Inventory was $40.8 million at February 1, 1997 and $40.4 million at February 3, 1996. The Company's inventory levels peak in early May and December. During Fiscal 1996, the highest inventory level was $50.6 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 1996, domestic purchases and import purchases each constituted approximately one-half of total purchases. The Company has agreements with The Chase Manhattan Bank ("Chase") providing two credit facilities until February 1999. The first facility 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 $22.5 million was utilized at February 1, 1997. The second facility 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 are secured by a pledge of the stock of the Company's subsidiaries and the Company's investments in cash equivalents. Also, merchandise purchased under trade letters of credit is subject to a security interest pursuant to the Letter of Credit Agreement. Finally, the Company is required to maintain most of its deposit account balances at Chase, where the deposits are subject to a right of offset by Chase. 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%. 5 The Company has not drawn upon its revolving credit facility except to issue standby letters of credit totaling $4.0 million at February 1, 1997 as collateral for obligations in the ordinary course of business under casualty insurance policies. The agreements for the credit facilities contain a number of financial covenants, including (i) tangible net worth to equal at least $70.0 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, minus as of the end of Fiscal 1996 and thereafter any write-down or valuation allowance with respect to the deferred tax asset relating to Performance Options, and (ii) capital expenditures not to exceed $6.5 million in Fiscal 1997 and thereafter $10.0 million per annum, plus during the period after Fiscal 1996 (y) $10 million plus (z) if adjusted cash flow (as defined in the agreements) after February 1, 1997 is positive, 75% of adjusted cash flow for the period. The 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 agreements) not be less than 1.0 to 1.0, (iii) the ratio of current assets to current liabilities not be less than 1.25 to 1.0, (iv) cash flow (as defined and calculated in the agreements) not be less than minimum amounts specified in the agreements, and (v) liquidity, defined as the sum of cash plus cash equivalents plus the unused commitment under the revolving credit facility, not be less than: Month Ended Amount 05/03/97 $15.1 million 05/31/97 $20.5 million 06/28/97 $26.7 million 08/02/97 $25.5 million 08/30/97 $21.8 million 09/27/97 $21.2 million 11/01/97 $15.6 million 11/29/97 $13.8 million 01/03/98 $31.5 million 01/31/98 $26.6 million The agreements also include certain restrictive covenants that impose limitations (subject to certain exceptions) on the Company with respect to, among other things, making or owning certain investments, declaring or paying dividends, acquiring Common Stock or preferred stock of the Company, making loans, engaging in any line of business other than apparel retailing, engaging in certain transactions with affiliates, or consolidating, merging or making acquisitions outside the ordinary course of business. It would constitute an event of default under the 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 does not believe that continued compliance with the covenants under the agreements for the credit facilities will materially restrict its anticipated operations. The Company also believes that its credit facilities, together with anticipated cash flows from operating activities, will be adequate to meet anticipated working capital needs, including seasonal financing needs, for the next 12 months. The preceding sentences in this paragraph constitute forward-looking information under the 1995 Private Securities Litigation Reform Act (the "Reform Act") and are subject to the factors referred to under the caption "Future Results." 6 The accounts receivable from the Company's proprietary credit cards are purchased daily by Citibank (South Dakota), N.A. ("Citibank") at a 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. Overseas production of merchandise purchased by the Company is mainly in South Asia (principally Hong Kong, Taiwan, India, and South Korea) and Turkey 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 569 retail stores at February 1, 1997, of which 311 stores were located in strip shopping centers, 228 stores were located in malls and 30 were located in downtown shopping districts. The Company's retail square footage was 2.2 million square feet both at February 3, 1996 and at February 1, 1997. The Company presently plans to reduce the amount of retail square footage by 4% to 6% in Fiscal 1997. The Company plans to open new mall stores only in exceptional circumstances. The Company will decrease the retail square footage in mall locations gradually by letting underperforming leases expire. The Company intends to pay the costs of new store openings from net cash provided by operating activities. The preceding sentences of this paragraph constitute forward-looking information under the Reform Act and are subject to the factors referred to under the caption "Future Results". New stores and newly remodeled stores will use The Avenue(R) trade name. The Company conducted an experiment with a total of 55 new stores and remodeled stores that sold both large size merchandise and smaller "missy" sizes in separate departments. The Company discontinued "missy" assortments in those stores and sells large sizes there exclusively. The conversion was completed in the second quarter of Fiscal 1996. COMPUTER SYSTEMS The Company intends to modify its computer software programs to accommodate dates after 1999. The cost of modifications is expected to be less than $1.0 million in Fiscal 1997. SEASONALITY The Company's business is usually seasonal. From Fiscal 1991 through Fiscal 1995, the first half of each year provided a greater portion of the Company's annual operating income. In Fiscal 1996, however, the operating loss in the first half exceeded the operating loss in the second half. INFLATION AND CHANGING PRICES Inflation has not had a significant effect on the Company's operations. 7 FUTURE RESULTS Future results could differ materially from those currently anticipated due to possible (i) miscalculation of fashion trends, (ii) shifting shopping patterns, both within the specialty store sector and in other channels of distribution, (iii) extreme or unseasonable weather conditions, (iv) economic downturns, weakness in overall consumer demand, and variations in the demand for women's fashion apparel, (v) imposition by vendors, or their third-party factors, of more onerous payment terms for domestic merchandise purchases, (vi) acceleration in the rate of business failures and inventory liquidations in the specialty store sector of the women's apparel industry, (vii) increase in the rate of bad debt expense among the Company's proprietary credit card holders, (viii) disruptions in the sourcing of merchandise abroad, including (a) China's assumption of control of Hong Kong in 1997, (b) China's claims to sovereignty over Taiwan, (c) North Korea's claims to sovereignty over South Korea, (d) exchange rate fluctuations, (e) political instability, (f) trade sanctions or restrictions, (g) changes in quota and duty regulations, (h) delays in shipping or (i) increased costs of transportation, and (ix) adverse reaction to the replacement of the Company's older proprietary brands of clothing with its new AVENUE [by design] brand. Dated : April 14, 1997 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 1, 1997 and February 3, 1996 and the related consolidated statements of income, cash flows and stockholders' equity for each of the three Fiscal years ended February 1, 1997. 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 1, 1997 and February 3, 1996 and the consolidated results of their operations and their cash flows for each of the three Fiscal years ended February 1, 1997 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand, LLP New York, New York February 14, 1997 9 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands)
ASSETS February 3, 1996 February 1, 1997 ---------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 17,040 $ 18,264 Income taxes receivable 2,719 229 Accounts receivable 1,770 1,297 Inventory 40,401 40,778 Prepaid rents 4,473 4,485 Other prepaid expenses 2,936 2,656 ---------------------------------------------------------------------------------------------------------- Total current assets 69,339 67,709 Property and equipment, net 60,737 54,892 Deferred charges and other intangible assets, net of accumulated amortization of $1,265 and $1,490 6,846 7,031 Deferred income taxes 811 -- Other assets 1,300 715 ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 139,033 130,347 ---------------------------------------------------------------------------------------------------------- LIABILITIES Current liabilities: Current portion of distribution center financing $ 901 $ 978 Accounts payable, trade 15,210 16,543 Accrued expenses 14,834 13,247 ---------------------------------------------------------------------------------------------------------- Total current liabilities 30,945 30,768 Distribution center financing 12,333 11,355 Other long-term liabilities 9,472 8,011 ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 52,750 50,134 ---------------------------------------------------------------------------------------------------------- Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 1,000,000; none issued Common stock, $.001 par value; authorized 30,000,000; issued 12,680,375; and outstanding 12,190,375 13 13 Additional paid-in capital 78,182 78,259 Retained earnings 8,670 2,523 Treasury stock (490,000 shares) at cost (582) (582) ---------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY 86,283 80,213 ---------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 139,033 $ 130,347
The accompanying notes are an integral part of the Consolidated Financial Statements. 10 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts)
52 weeks 53 weeks 52 weeks Fiscal Year Ended January 28, 1995 February 3, 1996 February 1, 1997 - ------------------------------------------------------------------------------------------------------------ Net Sales $ 357,684 $ 369,173 $ 363,074 Cost of goods sold, including buying and occupancy costs 276,038 292,790 289,421 - ------------------------------------------------------------------------------------------------------------ Gross profit 81,646 76,383 73,653 General, administrative and store operating expenses 74,986 80,170 80,063 - ------------------------------------------------------------------------------------------------------------ Operating income (loss) 6,660 (3,787) (6,410) Interest (income) expense, net 491 (119) 413 - ------------------------------------------------------------------------------------------------------------ Income (loss) before income taxes 6,169 (3,668) (6,823) Provision (benefit) for income taxes 2,276 (957) (1,018) Provision for write-down of the compensation related deferred tax asset 917 1,928 342 - ------------------------------------------------------------------------------------------------------------ Net income (loss) $ 2,976 $( 4,639) $( 6,147) - ------------------------------------------------------------------------------------------------------------ Net income (loss) per common share $ 0.22 $( 0.38) $( 0.50) - ------------------------------------------------------------------------------------------------------------ Weighted average number of common and common equivalent shares outstanding 13,313,085 12,190,294 12,190,375
The accompanying notes are an integral part of the Consolidated Financial Statements. 11 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Fiscal Year Ended Jan. 28, 1995 Feb. 3, 1996 Feb. 1, 1997 - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 2,976 $( 4,639) $( 6,147) Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation and amortization of property and equipment 10,768 10,101 9,983 Amortization of deferred charges, other intangible assets and original issue discount 350 224 225 Loss on disposal of assets 164 379 463 Compensation expense 120 246 77 Provision for deferred income taxes 1,653 3,645 811 Deferred lease assumption revenue amortization -- (455) (531) Lease assumption proceeds -- 3,523 -- Changes in operating assets and liabilities: Accounts receivable 85 647 473 Income taxes receivable -- (2,719) 2,490 Inventory 383 (2,883) (377) Accounts payable and accrued expenses (8,797) 2,194 656 Prepaid expenses (512) (1,004) 268 Income taxes payable 14 (1,627) -- Other assets and liabilities 12 505 (768) - --------------------------------------------------------------------------------------------------------------------- Net Cash Provided from Operating Activities 7,216 8,137 7,623 - --------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Capital expenditures (10,294) (10,523) (4,602) Deferred payment for property and equipment (5,330) 934 (896) - --------------------------------------------------------------------------------------------------------------------- Net Cash Used for Investing Activities (15,624) (9,589) (5,498) - --------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of distribution center financing 8,000 -- -- Net proceeds from issuance of common stock 256 4 -- Repayments of long-term debt (729) (832) (901) - --------------------------------------------------------------------------------------------------------------------- Net Cash Provided From (Used In) Financing Activities 7,527 (828) (901) - --------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (881) (2,280) 1,224 Cash and cash equivalents, beginning of period 20,201 19,320 17,040 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 19,320 $ 17,040 $ 18,264 - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 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, 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 - ------------------------------------------------------------------------------------------------------------ Compensation expense 77 77 Net loss (6,147) (6,147) - ------------------------------------------------------------------------------------------------------------ Balance, February 1, 1997 12,190 $13 $78,259 $ 2,523 $(582) $80,213 - ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 13 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION On July 17, 1989, Sizes Unlimited Acquisition Corporation was merged with and into Lernmark, Inc. ("Lernmark"), a wholly-owned subsidiary of The Limited, Inc. ("The Limited") with Lernmark being the surviving corporation. Lernmark was the holding company for Lerner Woman/Sizes Unlimited, a division of The Limited. Lernmark subsequently changed its name to United Retail Group, Inc. ("United Retail"). 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 1996 presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR The Company's Fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the financial statements and notes by the calendar year in which the Fiscal year commences. Fiscal year 1996 consisted of 52 weeks and ended on February 1, 1997. Fiscal year 1995 consisted of 53 weeks and ended on February 3, 1996. Fiscal year 1994 consisted of 52 weeks and ended on January 28, 1995. NET RETAIL SALES AND REVENUES Sales are net of returns and exclude sales tax. Revenues include sales from all stores operating during the period. MARKETING COSTS 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. 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 accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. Maintenance, repairs and minor renewals are charged to expense as incurred. Renewals and betterments which extend service lives are capitalized. 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 Fiscal 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. 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 and Fiscal 1996 because the effect of such would be anti-dilutive. For Fiscal 1994, 1995 and 1996, the net income (loss) per share would have been $.29, ($.22) and ($.48) per share, respectively, if the provision for the write-down of the compensation related deferred tax asset of $0.9 million, $1.9 million and $0.3 million, respectively, was excluded (see Note 8). In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", was issued which establishes standards for computing and presenting earnings per share. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company has not yet determined the impact of implementing the statement on earnings per share. 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 1, 1997, of $6,640,000 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. The Company acquired certain trademarks during Fiscal 1996 in the amount of $410,000. These amounts are being amortized over 10 and 15 year periods using the straight-line method. 15 The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of deferred charges and other intangible assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that the asset should be evaluated for possible impairment, the Company uses an estimate of the related business segment's undiscounted net cash flows over the remaining life of the asset in measuring whether the asset is recoverable. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. STORE OPENING COSTS All costs associated with the opening of new stores are being expensed as incurred. 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of (dollars in thousands):
February 3, 1996 February 1, 1997 ------------------------------------------------------------------------- Land $ 2,176 $ 2,176 Buildings 10,574 10,574 Furniture, fixtures and equipment 59,766 61,414 Leasehold improvements 31,232 31,348 Beneficial leaseholds 11,397 10,005 Construction in progress 611 228 -------- -------- 115,756 115,745 Accumulated depreciation and amortization, including beneficial leaseholds of $8,934 and $8,339 (55,019) (60,853) -------- -------- Property and equipment, net $ 60,737 $ 54,892 -------- --------
4. ACCRUED EXPENSES Accrued expenses consist of (dollars in thousands):
February 3, 1996 February 1 ,1997 ---------------------------------------------------------------- Fixed asset payable $ 934 $ 38 Occupancy expenses 2,731 3,308 Payroll related expenses 2,899 773 Insurance payable 2,914 2,905 Sales taxes payable 1,346 770 Other 4,010 5,453 ------- ------- $14,834 $13,247 ------- -------
16 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 1994 Fiscal 1995 Fiscal 1996 -------------------------------------------------------------------- Store rent Fixed minimum $37,002 $39,300 $40,546 Percentage (31) 41 (26) ------- ------- ------- Total store rent 36,971 39,341 40,520 Equipment and other 404 517 424 ------- ------- ------- Total rent expense $37,375 $39,858 $40,944 ======= ======= =======
At February 1, 1997, the Company was committed under store leases with initial terms ranging from 1 to 20 years and with varying renewal options. At January 28, 1995, February 3, 1996 and February 1, 1997, accrued rent expense amounted to $5.5 million, $5.5 million and $5.7 million, respectively, of which $5.6 million, $5.9 million and $5.5 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: 1997 $38,750 1998 31,530 1999 27,241 2000 23,933 2001 21,441 Thereafter 80,624 -------- Total minimum obligations $223,519 ========
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 is being amortized against rent expense over the life of the assumed leases. As of February 1, 1997, the unamortized balance was $2.5 million. 6. LONG-TERM DEBT Long-term debt consists of (dollars in thousands):
February 3, 1996 February 1, 1997 --------------------------------------------------------------------------- Distribution center financing: Current portion $ 901 $ 978 Long-term portion 12,333 11,355 ------- ------- Total distribution center financing $13,234 $12,333 ======= =======
17 In 1994, the Company executed a fifteen-year $8.0 million loan bearing interest at 8.64%. Interest and principal are payable in equal monthly installments beginning May 1, 1994. The loan is collateralized by a mortgage on the national distribution center owned by the Company in Troy, Ohio. In 1993, the Company executed a ten-year $7.0 million note bearing interest at 7.3%. Interest and principal are payable in equal monthly installments beginning November 1993. The note is collateralized by the material handling equipment in the distribution center. The Company and The Chase Manhattan Bank ("Chase") are parties to agreements providing two credit facilities, the term of which expires in February 1999. The first facility 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 $22.5 million was utilized at February 1, 1997. The second facility 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. As of February 1, 1997, the Company has not drawn upon its revolving credit facility except to issue standby letters of credit totaling $4.0 million as collateral for obligations under casualty insurance policies. 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. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The following represents the fair value of the Company's financial instruments:
February 3, 1996 February 1, 1997 -------------------------------------------------------------------------------- Assets Cash and cash equivalents Carrying Amount $17,040 $18,264 Fair Value $17,040 $18,264 Liabilities Long term debt including current portion Carrying Amount $13,234 $12,333 Fair Value $13,415 $12,084
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 The Company provides for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes". This statement requires the use of the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. 18 The provision (benefit) for income taxes consists of (dollars in thousands):
Fiscal 1994 Fiscal 1995 Fiscal 1996 --------------------------------------------------------------- Currently payable: Federal $1,455 $(2,523) ($ 1,584) State 85 (151) 97 ------ ------- -------- 1,540 (2,674) (1,487) ------ ------- -------- Deferred: Federal 1,353 2,850 696 State 300 795 115 ------ ------- -------- 1,653 3,645 811 ------ ------- -------- $3,193 $ 971 ($ 676) ====== ======= ========
Reconciliation of the provision (benefit) for income taxes from the U.S. Federal statutory rate to the Company's effective rate are as follows:
Fiscal 1994 Fiscal 1995 Fiscal 1996 --------------------------------------------------------------------------------- Statutory Federal Income tax rate 34.0% (34.0%) (34.0%) State income taxes, net of Federal benefit 2.2 5.3 0.4 Goodwill amortization 1.1 1.9 1.0 Other (.4) .7 (1.0) ---- ----- ----- Sub-total 36.9 (26.1) (33.6) Charitable contribution benefit .0 .0 (3.0) Write-down of the compensation related deferred tax asset 14.9 52.6 5.0 Valuation allowance 0.0 0.0 21.7 ---- ----- ----- 51.8% 26.5% (9.9%) ==== ===== =====
The Company's net deferred tax asset reflects the tax impact of temporary differences. The components of the net deferred tax asset as of February 1, 1997 are as follows: Assets: Inventory $245 Accruals and reserves 1,200 Compensation 1,553 NOL and credit carry forwards 2,440 ------ 5,438 ------ Liabilities: Depreciation 1,876 Prepaid rent 1,732 ------ 3,608 ------ Valuation allowance 1,830 ------ Net deferred tax asset $ 0 ======
Future realization of the tax benefits attributable to these existing deductible temporary differences ultimately depends on the existence of sufficient taxable income within the carry-back and/or carry-forward period available under the tax law at the time of the tax deduction. Because it is more likely than not that the net deferred tax asset will not be realized, a valuation allowance has been recorded. Included in the Fiscal 1994, Fiscal 1995 and Fiscal 1996 income tax expense is a $0.9 million, $1.9 million and $0.3 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. 19 As of February 1, 1997, 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 $3.125 per share upon exercise, (ii) the compensation expense deduction is not limited by future enacted tax laws and (iii) there is sufficient taxable income within the carry-back and/or carry-forward period available. The underlying options of the compensation related deferred tax asset are exercisable through December 31, 1999. At February 3, 1996 and February 1, 1997, the Company has pre-acquisition net operating loss carry forwards aggregating approximately $0.6 million and $0.5 million, respectively, available to reduce future taxable income in certain states, expiring through 2004. 9. RELATED PARTY TRANSACTIONS The Company shared certain store locations with subsidiaries of The Limited and was charged by The Limited for occupancy costs. The impact on the statements of income of these occupancy charges was as follows (dollars in thousands):
Fiscal 1994 Fiscal 1995 Fiscal 1996 -------------------------------------------------------------------------- Cost of goods sold, including buying and occupancy costs $636 $537 $367
An affiliate of the Chairman of the Board of the Company (in which he holds an 80% interest) provides management and administrative services to a 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 1994, Fiscal 1995 and Fiscal 1996, the aforementioned affiliate was paid $63,000, $114,000 and $105,000, respectively, by that subsidiary of The Limited. During Fiscal 1994, Fiscal 1995, and Fiscal 1996, the Company incurred expenses to the aforementioned 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 $179,000, $639,000 and $1,009,000, respectively, under certain Sublicensing Agreements with respect to trademarks. In Fiscal 1994 and Fiscal 1996, the Company made investments in a vendor from which the Company purchased apparel. The investments totaled $12,500 for approximately 22% of the outstanding common stock of the vendor and an unsecured loan facility in the amount of $400,000, which expired on January 31,1997. Purchases during Fiscal 1995 and Fiscal 1996 totaled $1.8 million and $2.7 million, respectively. 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 $463,000 for 25% of the outstanding common stock of the purchasing agent. Fees paid to the purchasing agent during Fiscal 1995 and Fiscal 1996 totaled $844,000 and $497,000, respectively, principally as percentage commissions on apparel purchases. In Fiscal 1995, the Company extended to the purchasing agent a loan of $125,000 with interest at 2 percentage points over the prime rate which was repaid in full in May 1996. 20 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 1994, Fiscal 1995 and Fiscal 1996 approximated $92,000, $248,000 and $335,000, 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 1, 1997. All options granted under the 1989 Plan became vested and exercisable upon completion of the Company's initial public offering (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 1, 1997. 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. The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was established in June 1990, amended in November 1991, December 1992 and May 1993, and terminated in May 1996. Exercise prices were not less than fair market value of the Company's stock on the date of grant. The options granted under the 1990 Plan expire between seven and ten years after the date of grant. As of February 3, 1996 and February 1, 1997, outstanding options to purchase 665,000 and 658,000 shares, respectively, were granted under the Plan at average exercise prices of $8.80 and $6.78 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. to the 1990 Plan in Fiscal 1995 and Fiscal 1996 of $246,000 and $77,000, respectively. 21 A summary of stock option transactions under the 1990 Plan follows:
Fiscal 1994 Fiscal 1995 Fiscal 1996 ----------------------------------------------------------------------------------------------------- Options outstanding at beginning of period 586,250 636,750 665,000 Options granted (a) 169,500 111,500 99,000 Options exercised 32,625 1,000 0 Options canceled (a) 86,375 82,250 106,000 Options outstanding at end of period 636,750 665,000 658,000 Options available for grant at end of period 123,875 94,625 0 Options vested and outstanding at end of period 109,900 141,900 102,895 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 54,100 0 0 Range of option prices per share for outstanding options $4.50-$26.75 $4.50-$26.75 $4.125-$26.75
(a) Options granted and options canceled do not include the reissuance in Fiscal 1994, Fiscal 1995 and Fiscal 1996 of 160,000, 210,000 and 271,500 options at exercise prices of $10.00, $8.50 and $5.125 per share, respectively. The 1996 Stock Option Plan (the "1996 Plan") was established in May 1996. Exercise prices are required by the 1996 Plan to be not less than fair market value of the Company's stock on the date of grant. The total number of shares that may be optioned under the 1996 Plan is 440,000 shares. The options granted under the 1996 Plan expire ten years after the date of grant. As of February 1, 1997, outstanding options to purchase 45,000 shares have been granted under the Plan at an average exercise price of $3.00 per share. The options granted vest beginning one year from the date of grant, and vest fully after five years, subject to acceleration under certain circumstances. Employees of the Company whose judgment, initiative and efforts may be expected to contribute materially to the successful performance of the Company are eligible to receive options. Public Directors will receive annual grants of options under the 1996 Plan. Options are granted, and the 1996 Plan is administered, by the Compensation Committee of the Board of Directors composed of non-employees of the Company. A summary of stock option transactions under the 1996 Plan follows:
Fiscal 1996 ------------------------------------------------------------------- Options outstanding at beginning of period 0 Options granted 45,000 Options exercised 0 Options canceled 0 Options outstanding at end of period 45,000 Options available for grant at end of period 395,000 Options vested and outstanding at end of period 0 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 0 Option price per share for outstanding options $ 3.00
The Company records compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No. 25, compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. 22 The Company records compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No. 25, compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. In October 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which encourages companies to recognize expense for stock-based awards based on their estimated value on the date of grant. SFAS No. 123, which is first effective for Fiscal year 1996, does not require companies to change their existing accounting for stock-based awards. The Company continues to account for stock-based compensation plans using the intrinsic value method, and has supplementally disclosed pro forma information required by SFAS No. 123.
Fiscal 1995 Fiscal 1996 ---------------------------------------------------------------------- Net income (loss) - as reported ($4,639) ($6,147) Net income (loss) - pro forma ($4,797) ($6,416) Earnings (loss) per share - as reported ($ 0.38) ($ 0.50) Earnings (loss) per share - pro forma ($ 0.39) ($ 0.53)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: Expected dividend yield 0.00% Expected stock price volatility 50% Risk-free interest rate 5.72% Expected life of options 5 years
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 13. SUPPLEMENTAL CASH FLOW INFORMATION Net cash flow from operating activities reflects cash payments for interest and income taxes as follows (dollars in thousands):
Fiscal 1994 Fiscal 1995 Fiscal 1996 ----------------------------------------------------------------------------- Interest expense (income), net per statements of income $ 491 ($119) $ 413 Less: Non-cash interest (expense) income (101) (41) 50 Net cash interest, including interest income of $1,170, $1,425 and $924 $ 390 ($160) $ 463 Income taxes paid (refunded) $1,605 $474 ($3,990)
23 United RETAIL GROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (dollars in thousands, except per share data)
Fiscal Year Ended Jan. 30, 1993 Jan. 29, 1994 Jan. 28, 1995 Feb. 3, 1996 Feb. 1, 1997 - ------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Net sales $ 330,083 $ 344,090 $357,684 $ 369,173 $ 363,074 Cost of goods sold,including buying and occupancy costs 236,827 261,920 276,038 292,790 289,421 Gross profit 93,256 82,170 81,646 76,383 73,653 General, administrative and store operating expenses 73,192 75,744 74,986 80,170 80,063 Non-recurring general expenses 16,330 Operating income (loss) 3,734 6,426 6,660 (3,787) (6,410) Interest expense (income), net (281) (143) 491 (119) 413 Non-recurring interest expense 6,083 Income (loss) before taxes (2,068) 6,569 6,169 (3,668) (6,823) Provision (benefit) for income taxes (748) 2,522 2,276 (957) (1,018) Provision for write-down of the compensation related deferred tax asset 2,479 917 1,928 342 Net income (loss) (1,320) 1,568 2,976 (4,639) (6,147) Net income (loss) per common share $ (.04) $ .12 $ .22 $ (.38) $ (.50) Weighted average number of common shares outstanding (in thousands) 12,974 13,528 13,313 12,190 12,190 BALANCE SHEET DATA (AT PERIOD END) Working capital $ 28,981 $ 24,533 $ 37,614 $ 38,394 $ 36,941 Total assets 123,807 141,607 138,434 139,033 130,347 Long-term debt 0 0 0 0 0 Distribution center financing 0 6,293 13,233 12,333 11,355 Total stockholders' equity 84,832 87,320 90,672 86,283 80,213
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 1, 1997, appears elsewhere in this annual report. 24 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* KENNETH P. CARROLL Senior Vice President - General Counsel* ELLEN DEMAIO Senior Vice President - General Merchandising Manager CARRIE CLINE-TUNICK Vice President - Product Design and Development JULIE L. DALY Vice President - Strategic Planning KENT FRAUENBERGER Vice President - Logistics JON GROSSMAN Vice President - Finance* SHARON HARP Vice President - Planning and Distribution ALAN R. JONES Vice President - Real Estate CHARLES E. NAFF Vice President - Sales BRADLEY ORLOFF Vice President - Marketing ROBERT PORTANTE Vice President - MIS FREDRIC E. STERN Vice President - Controller JOSEPH A. ALUTTO A Director of the Company, is the Dean of Max M. Fisher School of Business at Ohio State University RUSSELL BERRIE A Director of the Company, is the Chairman of the Board and Chief Executive Officer of Russ Berrie and Company, Inc., an international gift 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 President and Chief Executive Officer of Interbuild International, Inc., a venture capital firm CHRISTINA A. MOHR A Director of the Company, is a Managing Director of Salomon Brothers, Inc., 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 14, 1997 was $ 4 3/4. 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 - -------------------------------------- 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 Second Quarter $ 5 1/4 $4 Third Quarter $ 4 7/8 $2 3/8 Fourth Quarter $ 3 3/8 $1 1/2
The Company's transfer agent and registrar is Continental Stock Transfer and Trust Co., 2 Broadway, New York, New York 10004. At March 31, 1997, there were approximately 2,000 beneficial owners of Common Stock. EX-23.1 6 CONSENTS OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements of United Retail Group, Inc. and Subsidiaries (the "Company") on Forms S-8 (File No. 33-48500, No. 33-48501 and No. 33-67288) of our report dated February 14, 1997, on our audits of the consolidated financial statements of the Company as of February 1, 1997 and February 3, 1996 and for each of the three fiscal years ended February 1, 1997, which report is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. New York, New York April 18, 1997 EX-23.2 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS The undersigned hereby consents to the inclusion as an exhibit to this Annual Report on Form 10-K for the year ended February 1, 1997 of our report dated February 28, 1997, on our audits of the statements of net assets available for benefits of the United Retail Group Retirement Savings Plan (the "Plan") as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the three years in the period ended December 31, 1996. The undersigned also hereby consents to the incorporation of such report by reference in the Registration Statement on Form S-8 of United Retail Group, Inc. (The "Company") with respect to the Plan and its investment in shares of common stock of the Company. /s/ Ary, Earman, and Roepcke ARY, EARMAN AND ROEPCKE Columbus, Ohio April 8, 1997 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR FEB-01-1997 FEB-04-1996 FEB-01-1997 18,264 0 1,526 0 40,778 67,709 115,745 60,853 130,347 30,768 11,355 0 0 13 80,200 130,347 363,074 363,074 289,421 289,421 80,063 0 413 (6,823) (676) (6,147) 0 0 0 (6,147) (0.50) (0.50)
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