-----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, GpxmPXwct63a8ULnYP5XoH05oVBO4o6W8VfadesqBozLsUNKV44VUoze1mvjHZJf sIddT6ZrKbTOFU4EzEEtHg== 0000950172-00-000794.txt : 20000424 0000950172-00-000794.hdr.sgml : 20000424 ACCESSION NUMBER: 0000950172-00-000794 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000129 FILED AS OF DATE: 20000421 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: 0130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19774 FILM NUMBER: 606381 BUSINESS ADDRESS: STREET 1: 365 WEST PASSAIC ST CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018450880 MAIL ADDRESS: STREET 1: 365 W PASSAIC STREET STREET 2: 365 W PASSAIC STREET CITY: ROCHELLE PARK STATE: NJ ZIP: 07662 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 29, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ___________________ to ______________________ Commission file number 019774 United Retail Group, Inc. ------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 51 0303670 - ------------------------------------- ----------------------------- State or other jurisdiction of (I.R.S. Employer Identification No. incorporation or organization 365 West Passaic Street, Rochelle Park, NJ 07662 - ------------------------------------------ -------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 845-0880 -------------- Securities registered pursuant to Section 12(b) of the 1934 Act: Title of each class Name of each exchange on which registered - -------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the 1934 Act: Common Stock, $.001 par value per share, with Stock Purchase Right attached - --------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "1934 Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES___X___ NO _______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of April 10, 2000, the aggregate market value of the voting stock of the registrant (also referred to herein as the "Company") held by non-affiliates of the registrant was approximately $85.2 million. For purposes of the preceding sentence only, affiliate status was determined on the basis that all stockholders of the registrant are non-affiliates except stockholders who have filed statements with the Securities and Exchange Commission (the "SEC") under Section 16(a) of the 1934 Act and the holdings of affiliates are based upon the contents of the filed statements. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the 1934 Act subsequent to the distribution of securities under a plan confirmed by a court. YES _______ NO _______ APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 31, 2000, 13,297,033 shares of the registrant's common stock, $.001 par value per share, were outstanding. One Stock Purchase Right is attached to each outstanding share. DOCUMENTS INCORPORATED BY REFERENCE The registrant's annual report for the year ended January 29, 2000 (the "1999 Annual Report to Stockholders") is incorporated in part by reference in Part I and Part II of this Form 10-K. The registrant's proxy statement on Schedule 14A for its 2000 annual meeting of stockholders (the "2000 Proxy Statement") is incorporated in part by reference in Part I and Part III of this Form 10-K. PART I Item 1. Business. OVERVIEW The Company is a leading nationwide specialty retailer featuring AVENUE(R) brand apparel and accessories for large-size women and CLOUDWALKERS.COM(TM) brand women's shoes. The Company's merchandising strategy is to offer its customers merchandise of the same quality and variety available in smaller sizes. The Company operates its stores under the AVENUE(R) trade name. CUSTOMER BASE The Company serves the mass market and targets fashion-conscious women between 18 and 50 years of age who wear size 14 or larger apparel, provided, however, that CLOUDWALKERS.COM(TM) shoes are available in a complete size range. The Company believes that the large-size customer often has fewer specialty store alternatives in nearby shopping malls and strip shopping centers than her smaller-size counterpart although in recent years new entrants in the market segment have expanded the available alternatives. HISTORY The Company was incorporated in 1987 and completed its initial public offering in 1992. The Company's current business resulted from an internal reorganization at The Limited, Inc. ("The Limited") in 1987, in which The Limited combined its underperforming AVENUE(R) store group (then operating under the Lerner Woman trade name) with the Sizes Unlimited store group. Raphael Benaroya, the Company's Chairman of the Board, President and Chief Executive Officer, and his management team were selected to manage the combined businesses. MERCHANDISING AND MARKETING The Company's strategy is to offer its customers the proprietary AVENUE(R) brand in moderately priced apparel and accessories. It emphasizes consistency of merchandise quality and fit and updates its merchandise selections to reflect customer demand and fashion trends. The apparel industry is subject to rapidly changing consumer fashion preferences and the Company's performance depends on its ability to respond quickly to changes in fashion. Each store operated by the Company offers selections of casual wear, career apparel, specialty items and accessories. The casual wear assortment includes comfortably fitted jeans, slacks, T- shirts, skirts, active wear and sweaters. Casual wear comprises the majority of the Company's sales. The career assortment includes skirts, soft blouses, dresses and coats. Specialty items include sleepwear, lingerie and body lotions. Accessories include earrings, pins, scarves and a selection of gift items. The Company offers most of its merchandise at popular or moderate price points. The Company promotes merchandise with its own brands, which generally have higher gross profit margins than national brands would have. The Company believes that its brands create an image that helps distinguish them from competitors. Through careful brand management, including consistent imaging of its brands, the Company believes it enhances brand recognition and the customer's perception of value. Products are packaged and presented at the Company's stores in a manner consistent with more expensive merchandise with national brand names. The Company develops new apparel assortments on average four to six times each year. Merchandise selection is allocated to each store based on many factors, including store location, store profile and sales experience. The Company regularly updates each store's profile based on its customers' fashion and price preferences and local demographics. The Company's point-of- sale systems gather financial, credit, inventory and other statistical information from each store daily. This information is then used to evaluate and adjust each store's merchandise mix weekly. The Company also offers a moderately priced line of women's comfort shoes under its proprietary Cloudwalkers.com(TM) brand. The Company uses creative merchandise displays, distinctive signage and upscale packaging to create an attractive store atmosphere. To further stimulate store traffic, the Company frequently uses credit card inserts with announcements of upcoming events. MERCHANDISE DISTRIBUTION AND INVENTORY MANAGEMENT The Company believes that short production schedules and rapid movement of merchandise from manufacturers to its stores are vital to minimize business risks arising from changing fashion trends. The Company uses a centralized distribution system, under which all merchandise is received, processed and distributed through a distribution complex located in Troy, Ohio. Merchandise received at the distribution center is promptly assigned to individual stores, packed for delivery and shipped to the stores. The Company maintains a worldwide logistics network of agents and space availability arrangements to support the in-bound movement of merchandise into the distribution complex. The out-bound system consists of common carrier line haul routes connecting the distribution complex to a network of delivery agents. This system enables the Company to provide every store with frequent deliveries. The Company does not own or operate trucks or trucking facilities. The Company manages its inventory levels, merchandise allocation to stores and sales replenishing for each store through its computerized management information systems, which enable the Company to profile each store and evaluate and adjust each store's merchandise mix on a weekly basis. New merchandise is allocated by style, color and size immediately before shipment to stores to achieve a merchandise assortment that is suited to each store's customer base. The Company's inventory management strategy is designed to maintain targeted inventory turnover rates and minimize the amount of unsold merchandise at the end of a season by closely comparing sales and fashion trends with on-order merchandise and making necessary purchasing adjustments. Additionally, the Company uses markdowns and promotions as necessary. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," which is a section in the Company's 1999 Annual Report to Stockholders, a copy of which is contained in Exhibit 13 to this Form 10-K. MANAGEMENT INFORMATION SYSTEMS The Company's management information systems consist of a full range of store, financial and merchandising systems, including credit, inventory distribution and control, sales reporting, accounts payable, cash/credit, merchandise reporting and planning. All of the Company's stores have point-of-sale terminals that transmit daily information on sales by merchandise category, style, color and size, as well as customer data. The Company evaluates this information, together with its report on merchandise shipments to the stores, to implement merchandising decisions regarding markdowns, reorders of fast-selling items and allocation of merchandise. In addition, the Company's headquarters and distribution center are linked through an interactive computer network. Company employees located at its headquarters maintain and support the applications software, operations, networking and point-of-sale functions of the Company's management information systems. The hardware and systems software for the Company's management information systems are maintained by Integrated Systems Solutions Corporation, a wholly-owned subsidiary of IBM. PURCHASING Separate groups of merchants are responsible for different categories of merchandise. Most of the merchandise purchased by the Company consists of custom designed products produced for the Company by contract manufacturing, under one of the Company's two proprietary brands. An item of merchandise is test marketed, whenever possible, in limited quantities prior to mass production to help identify the current fashion preferences of the Company's customers. The Company provides manufacturers with strict guidelines for size specifications and gradings to ensure proper, consistent fit. The Company and independent sourcing agents monitor production by manufacturers in the United States and abroad to ensure that size specifications, grading requirements and other specifications are met. In Fiscal 1999, each of two purchasing agents accounted for more than 5% but less than 10% of the Company's merchandise purchases and each of two purchasing agents accounted for between 10% and 15% of the Company's merchandise purchases. There is no assurance that the replacement of these vendors would not have a materially adverse effect on the Company's operations. Domestic purchases (some of which are foreign-made products) are executed by Company purchase orders. Import purchases are made in U.S. dollars and are generally supported by letters of credit. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." CREDIT SALES The Company permits its customers to use several methods of payment, including cash, personal checks, third-party credit cards, layaways and its own proprietary credit card. COMPETITION All aspects of the women's retail apparel business are highly competitive. Many of the competitors are units of large national chains that have substantially greater resources than the Company. Management believes its principal competitors include all major national and regional department stores, specialty retailers (including Lane Bryant, Inc., which is a subsidiary of The Limited, and Charming Shoppes, Inc.), discount stores, mail order companies, television shopping channels and internet web sites. Management believes its merchandise selection, prices, consistency of merchandise quality and fit, and appealing shopping experience emphasizing strong merchandise presentations, together with its experienced management team, management information systems and logistics capabilities, enable it to compete in the marketplace. OPERATIONAL FACTORS The Company's operations may be adversely affected by circumstances beyond its control. See, "Management's Discussion and Analysis of Financial Condition and Results of Operation - Future Results." TRADE NAME AND TRADEMARKS The Company is the owner in the United States of its trade name, AVENUE(R), used on store fronts, and trademarks, AVENUE(R) and CLOUDWALKERS.COM(TM), used on merchandise labels. See, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Stores." The Company is not aware of any use of its trade name or trademarks by its competitors that has a material effect on the Company's operations or any material claims of infringement or other challenges to the Company's right to use its trade name and trademarks in the United States. EMPLOYEES As of March 31, 2000, the Company employed approximately 5,000 associates, of whom approximately 2,000 worked full-time and the balance of whom worked part-time. Considerable seasonality is associated with employment levels. Approximately 60 store associates are covered by collective bargaining agreements. The Company believes that its relations with its associates are good. Item 2. Properties. As of March 31, 2000, the Company leased stores in 35 states: Alabama 6 Nevada 2 Arizona 4 New Hampshire 2 Arkansas 1 New Jersey 40 California 74 New Mexico 1 Connecticut 12 New York 51 Delaware 2 North Carolina 9 Florida 19 Ohio 19 Georgia 20 Oklahoma 3 Illinois 36 Oregon 6 Indiana 10 Pennsylvania 17 Iowa 1 Rhode Island 1 Kentucky 4 South Carolina 6 Louisiana 11 Tennessee 8 Maine 1 Texas 35 Maryland 15 Virginia 10 Massachusetts 19 Washington 11 Michigan 27 Wisconsin 7 Missouri 6 Total: 496 The Company leases its executive offices, which consist of approximately 65,000 square feet in an office building at 365 West Passaic Street, Rochelle Park, New Jersey. The office lease has a term ending in August 2006. The Company owns a 128-acre site on Interstate 75 in Troy, Ohio, on which its national distribution center is located. The national distribution center is equipped to service 900 stores. The site is adequate for a total of four similar facilities. Item 3. Legal Proceedings. The Company is defending various routine legal proceedings incidental to the conduct of its business and is maintaining reserves that include, among other things, the estimated cost of uninsured payments to accident victims and payments to landlords and vendors of goods and services resulting from certain disputes. Based on legal advice that it received, management believes that, giving effect to reserves and insurance coverage, these legal proceedings are not likely to have a material adverse effect on the financial position or results of operations of the Company. Certain pending legal proceedings to which the Company was a party were terminated during the fourth quarter of Fiscal 1999 in the ordinary course of business. The termination of pending legal proceedings during that fiscal quarter did not have a material effect on the results of operations of the Company. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The section captioned "Shareholder Information" in the 1999 Annual Report to Stockholders, a copy of which is contained in Exhibit 13 to this Form 10-K, is incorporated herein by reference. (Only those portions of the 1999 Annual Report to Stockholders incorporated by reference in another document filed with the SEC shall be deemed "filed" in accordance with the rules and regulations promulgated by the SEC.) All unregistered securities that the Company issued in Fiscal 1999, consisting of stock options granted to associates and directors of the Company, were described in the Company's Quarterly Reports on Form 10-Q except that incentive stock options were issued during the last quarter of the fiscal year, as follows: Grant No. of Underlying Shares Exercise Price ----- ------------------------ -------------- 11/1/99 10,000 $10.00 12/2/99 5,000 $ 9.125 The options become exercisable in five equal annual installments commencing one year after the date of grant. The grants were exempt from the registration provisions of the Securities Act under Section 4(2) thereof because the grantees are employees of the issuer. Nevertheless, the Company intends to file a registration statement with respect to the options before they become exercisable. Item 6. Selected Financial Data. The section captioned "Selected Financial Data" in the 1999 Annual Report to Stockholders, a copy of which is contained in Exhibit 13 to this Form 10-K, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1999 Annual Report to Stockholders is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements in the 1999 Annual Report to Stockholders, a copy of which are contained in Exhibit 13 to this Form 10-K, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The subsection captioned "Election of Directors - Business and Professional Experience" in the 2000 Proxy Statement is incorporated herein by reference. In addition to Raphael Benaroya and George R. Remeta, the executive officers of the registrant or its subsidiaries are: Kenneth P. Carroll, age 57, was the Company's Vice President - General Counsel from before 1995 to March 1996, when he was elected the Senior Vice President - General Counsel. Ellen Demaio, age 42, has been the Senior Vice President - Merchandise of United Retail Incorporated since February 1995. James Broderick, age 46, has been the Vice President - Shop-At-Home of United Retail Incorporated since January 2000. Previously, he was a Vice President of Spiegel, Inc., a catalog company, since before 1995. Raymond W. Brown, age 40, has been the Vice President - Associate Services of United Retail Incorporated since May 1998. Previously, he was Vice President - Human Resources of National Merchants Management Corp., a management firm, since before 1995. Carrie Cline-Tunick, age 39, has been the Vice President - Product Design and Development of United Retail Incorporated since April 1996. Previously, she was the Design Director of Norton McNaughton, Inc., a garment manufacturer, since before 1995. Julie L. Daly, age 45, has been the Vice President - Strategic Planning of United Retail Incorporated since December 1996. Previously, she was the Vice President - Planning and Distribution of United Retail Incorporated since before 1995. Jeff Fink, age 41, has been the Vice President - Real Estate of United Retail Incorporated since November 1999. Previously, he was Vice President - - Real Estate of Party City, Inc. since August 1997. He was Vice President - - Real Estate of Famous Footwear, Inc. from July 1997 to before 1995. Kent Frauenberger, age 53, has been the Vice President - Logistics of United Retail Logistics Operations Incorporated since before 1995. Jon B. Grossman, age 42, has been the Vice President - Finance of the Company since before 1995. Charles E. Naff, age 56, has been the Vice President - Sales of United Retail Incorporated since August 1996. Previously, he was the Vice President - Store Operations of Leejay Bed and Bath, a retail chain, since before 1995. Bradley Orloff, age 42, has been the Vice President - Marketing of United Retail Incorporated since before 1995. Robert Portante, age 48, has been the Vice President - MIS of United Retail Incorporated since before 1995. Gerald Schleiffer, age 48, has been the Vice President - Planning and Distribution of United Retail Incorporated since August 1999. He was Vice President - Planning and Allocation of Nine West, Inc., a shoe retailer, between July 1999 and June 1998. He was Director of Planning and Allocation of Value City Department Stores, Inc. between May 1998 and February 1997. He was Executive Vice President - Planning and Allocation of Lane Bryant, Inc., a women's apparel retailer, from January 1997 to before 1995. Fredric E. Stern, age 51, has been the Vice President - Controller of United Retail Incorporated since before 1995. The term of office of these executive officers will expire at the 2000 annual meeting of stockholders, Item 11. Executive Compensation. The section captioned "Executive Compensation" in the 2000 Proxy Statement is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The sections captioned "Security Ownership of Principal Stockholders" and "Security Ownership of Management" in the 2000 Proxy Statement are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The sections captioned "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation" in the 2000 Proxy Statement are incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Incentive Compensation Program Summary 10.2 Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and The CIT Group/Business Credit, Inc., as Agent and Lender ("CIT") 10.3 Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT 10.4 Financial Statements of Retirement Savings Plan for year ended December 31, 1999 13 Sections of 1999 Annual Report to Stockholders (including report of Independent Accountants) that are incorporated by reference in response to the items of the Annual Report on Form 10-K 23.1 Consent of Independent Accountants for the Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended October 30, 1999 is incorporated herein by reference: Number in filing Description ---------------- ----------- 10.1 Amendment, dated October 6, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT. The promissory note, dated November 18, 1999, from Raphael Benaroya to the Corporation filed as the exhibit to Mr. Benaroya's Schedule 13D, dated November 18, 1999, is incorporated herein by reference. The following exhibits to the Corporation's Current Report on Form 8-K, filed September 23, 1999, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 10.1.1 Right of First Refusal Agreement, dated as of September 17, 1999, between the Corporation and Limited Direct Associates, L.P. 10.1.2 Right of First Refusal Agreement, dated as of September 17, 1999, between the Corporation and The Limited, Inc./Intimate Brands, Inc. Foundation The following exhibit to the Corporation's Current Report on Form 8-K, filed September 17, 1999, is incorporated herein by reference: Number in Filing Description ---------------- ----------- 3 Restated By-Laws of the Corporation The stockholders' rights plan filed as the exhibit to the Corporation's Registration Statement on Form 8-A, dated September 15, 1999, is incorporated herein by reference. The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 30, 1999 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated March 29, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT 21 Subsidiaries of the Corporation The 1999 Stock Option Plan set forth as the Appendix to the Corporation's proxy statement on Schedule 14A for its 1999 annual meeting of stockholders is incorporated herein by reference.* The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya 10.2* Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta 10.3* Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll 10.4* Employment Agreement, dated March 26, 1998, between the Corporation and Carrie Cline-Tunick and amendment thereto. The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya 10.2* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto 10.2 Private Label Credit Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank (Confidential portions been deleted and filed separately with the Secretary of the Commission) 10.4* Restated 1990 Stock Option Plan as of March 6, 1998 10.5* Restated 1990 Stock Option Plan as of May 28, 1996 10.6* Restated 1996 Stock Option Plan as of March 6, 1998 10.7* Restated 1989 Performance Option Plan as of May 6, 1998 The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated September 15, 1997, to Financing Agreement among the Corporation, United Retail Incorporated and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 2, 1997 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Financing Agreement, dated August 15, 1997, among the Corporation, United Retail Incorporated and CIT 10.2* Amendment No. 1 to Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. The following exhibits to the Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibits to the Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.12 Amended and Restated Master Affiliate Sublease Agreement, dated as of July 17, 1989, among Lane Bryant, Inc., Lerner Stores, Inc. (Landlord) and Sizes Unlimited, Inc. (Tenant) and Amendment thereto, dated July 17, 1989 10.33* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 10.34* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.38 Management Services Agreement, dated August 26, 1989, between American Licensing Group, Inc. and ALGLP 10.39 First Refusal Agreement, dated as of August 31, 1989, between the Corporation and ALGLP - -------------------- * A compensatory plan for the benefit of the Corporation's management or a management contract. (b) No Current Reports on Form 8-K were filed by the Corporation during the fiscal quarter ended January 29, 2000. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (Registrant) UNITED RETAIL GROUP, INC. ---------------------------------------- By: /s/ Raphael Benaroya ---------------------------------------- Raphael Benaroya, Chairman of the Board, President and Chief Executive Officer Date: April 20, 2000 -------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date _____________________________________________________________________________ /s/ Raphael Benaroya Chairman of the Board, President, April 20, 2000 - ------------------------- Chief Executive Officer Raphael Benaroya Principal Executive Officer /s/ George R. Remeta Vice Chairman, Chief April 20, 2000 - ------------------------- Administrative officer, George R. Remeta Secretary and Director Principal Financial Officer /s/ Jon Grossman Vice President - Finance April 20, 2000 - ------------------------- Jon Grossman Principal Accounting Officer /s/ Joseph A. Alutto Director April 20, 2000 - ------------------------- Joseph A. Alutto /s/ Russell Berrie Director April 20, 2000 - ------------------------- Russell Berrie Director April 20, 2000 - ------------------------- Joseph Ciechanover /s/ Michael Goldstein Director April 20, 2000 - ------------------------- Michael Goldstein Director April 20, 2000 - ------------------------- Ilan Kaufthal /s/ Vincent P. Langone Director April 20, 2000 - ------------------------- Vincent P. Langone /s/ Richard W. Rubenstein Director April 20, 2000 - ------------------------- Richard W. Rubenstein UNITED RETAIL GROUP, INC. EXHIBIT INDEX The following exhibits are filed herewith: Number Description ------ ----------- 10.1 Incentive Compensation Program Summary 10.2 Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and The CIT Group/Business Credit, Inc., as Agent and Lender ("CIT") 10.3 Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT 10.4 Financial Statements of Retirement Savings Plan for year ended December 31, 1999 13 Sections of 1999 Annual Report to Stockholders (including report of Independent Accountants) that are incorporated by reference in response to the items of the Annual Report on Form 10-K 23.1 Consent of Independent Accountants for the Corporation 23.2 Consent of Independent Public Accountants for Retirement Savings Plan 27 Financial Data Schedule The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended October 30, 1999 is incorporated herein by reference: Number in filing Description ---------------- ----------- 10.1 Amendment, dated October 6, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT. The promissory note, dated November 18, 1999, from Raphael Benaroya to the Corporation filed as the exhibit to Mr. Benaroya's Schedule 13D, dated November 18, 1999, is incorporated herein by reference. The following exhibits to the Corporation's Current Report on Form 8-K, filed September 23, 1999, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 10.1.1 Right of First Refusal Agreement, dated as of September 17, 1999, between the Corporation and Limited Direct Associates, L.P. 10.1.2 Right of First Refusal Agreement, dated as of September 17, 1999, between the Corporation and The Limited, Inc./Intimate Brands, Inc. Foundation The following exhibit to the Corporation's Current Report on Form 8-K, filed September 17, 1999, is incorporated herein by reference: Number in Filing Description ---------------- ----------- 3 Restated By-Laws of the Corporation The stockholders' rights plan filed as the exhibit to the Corporation's Registration Statement on Form 8-A, dated September 15, 1999, is incorporated herein by reference. The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 30, 1999 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated March 29, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT 21 Subsidiaries of the Corporation The 1999 Stock Option Plan set forth as the Appendix to the Corporation's proxy statement on Schedule 14A for its 1999 annual meeting of stockholders is incorporated herein by reference.* The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya 10.2* Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta 10.3* Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll 10.4* Employment Agreement, dated March 26, 1998, between the Corporation and Carrie Cline-Tunick and amendment thereto. The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended May 2, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and Raphael Benaroya 10.2* 1998 Stock Option Agreement, dated May 21, 1998, between the Corporation and George R. Remeta The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 31, 1998 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Restated Stockholders' Agreement, dated December 23, 1992, between the Corporation and certain of its stockholders and Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto 10.2 Private Label Credit Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank (Confidential portions have been deleted and filed separately with the Secretary of the Commission) 10.4* Restated 1990 Stock Option Plan as of March 6, 1998 10.5* Restated 1990 Stock Option Plan as of May 28, 1996 10.6* Restated 1996 Stock Option Plan as of March 6, 1998 10.7* Restated 1989 Performance Option Plan as of May 6, 1998 The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 1, 1997 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amendment, dated September 15, 1997, to Financing Agreement among the Corporation, United Retail Incorporated and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended August 2, 1997 are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Financing Agreement, dated August 15, 1997, among the Corporation, United Retail Incorporated and CIT 10.2* Amendment No. 1 to Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended November 2, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1* Restated Supplemental Retirement Savings Plan The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 1996 is incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.3 Amended and Restated Term Sheet Agreement for Hosiery, dated as of December 29, 1995, between The Avenue, Inc. and American Licensing Group, Inc. The following exhibits to the Corporation's Amended Current Report on Form 8-KA, dated May 22, 1995, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 10.1 Amended and Restated Gloria Vanderbilt Intimate Apparel Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and American Licensing Group Limited Partnership ("ALGLP") 10.2 Gloria Vanderbilt Sleepwear Sublicense Agreement, dated May 22, 1995, between United Retail Incorporated and ALGLP The following exhibits to the Corporation's Registration Statement on Form S-1 (Registration No. 33-44499), as amended, are incorporated herein by reference: Number in Filing Description ---------------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Registrant 4.1 Specimen Certificate for Common Stock of Registrant 10.2.1 Software License Agreement, dated as of April 30, 1989, between The Limited Stores, Inc. and Sizes Unlimited, Inc. (now known as United Retail Incorporated) 10.2.2 Amendment to Software License Agreement, dated December 10, 1991 10.7 Amended and Restated Gloria Vanderbilt Hosiery Sublicense Agreement, dated as of April 30, 1989, between American Licensing Group, Inc. (Licensee) and Sizes Unlimited, Inc. (Sublicensee) 10.12 Amended and Restated Master Affiliate Sublease Agreement, dated as of July 17, 1989, among Lane Bryant, Inc., Lerner Stores, Inc. (Landlord) and Sizes Unlimited, Inc. (Tenant) and Amendment thereto, dated July 17, 1989 10.33* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and Raphael Benaroya 10.34* 1991 Stock Option Agreement, dated November 1, 1991, between the Corporation and George R. Remeta 10.38 Management Services Agreement, dated August 26, 1989, between American Licensing Group, Inc. and ALGLP 10.39 First Refusal Agreement, dated as of August 31, 1989, between the Corporation and ALGLP - -------------------- * A compensatory plan for the benefit of the Corporation's management or a management contract. EX-10 2 EXHIBIT 10.1 EXHIBIT 10.1 UNITED RETAIL INCORPORATED INCENTIVE COMPENSATION PROGRAM SUMMARY The Incentive Compensation (IC) Program provides a select group of executives with an opportunity each season to earn substantial extra cash remuneration based on attainment of aggressive operating income targets. At the discretion of the CEO of the Company, each participant has been assigned an individual participation percentage based, among other things, on the participant's responsibilities and seniority. Further, operating income targets have been established in advance and are converted to percentages ranging from 20% for the lowest acceptable amount of operating income to 200% at and above the highest goal. The amount of an IC award is the product of seasonal base salary multiplied by the participant's participation percentage multiplied by the target percentage achieved. For example, an associate with a seasonal salary of $60,000 ($120,000 per annum) and a participation percentage of 20% would receive $2,400 if the 20% target is met and $14,400 if the 120% target is met. There is no payout if the 20% target is missed. In compliance with the law, IC awards are subject to withholding taxes and deductions for contributions to the Retirement Savings Plan and, if available, the Supplemental Retirement Savings Plan. IC awards for a season vest on the Tuesday after the first meeting of the Board of Directors in the next season. (Prior to that time, the Company has the legal right to cancel the program without notice for any reason without incurring any liability.) An associate must be in the Company's employ on that date, and must return to work if on vacation or leave on that date, in order to receive an IC payout. Participation in the IC program confers no right to continued employment. Employment remains "at will" and may be terminated without cause by the Company or the Associate at any time. EX-10 3 EXHIBIT 10.2 EXHIBIT 10.2 December 28, 1999 UNITED RETAIL GROUP, INC. UNITED RETAIL INCORPORATED 365 West Passaic Street Rochelle Park, NJ 07662 We refer to the Financing Agreement by and among United Retail Group, Inc. ("URGI"), United Retail Incorporated ("URI" and together with URGI the "Companies"), the CIT Group/Business Credit, Inc., as Agent and Lender, FirsTrust Bank, as lender and other parties hereafter becoming Lenders thereunder, dated August 15, 1997, as amended (herein the "Agreement"). Capitalized terms used and not otherwise defined herein shall have the meanings specified therein unless otherwise specifically defined herein. This letter is to confirm that pursuant to mutual consent and understanding, effective as of the date hereof, the Agreement shall be amended as follows: 1. The following definition shall be, and hereby is, included in Section 1 of the Agreement: "PERMITTED INVESTMENTS shall mean any of the following investments: --------------------- a. marketable direct obligations issued by, or unconditionally guaranteed by, or insured by the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within three years from the date of acquisition thereof; b. marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having a rating of at least A-1 or the equivalent thereof from either Standard & Poors Ratings Group or P-1 or the equivalent thereof from Moody's Investors Services, Inc.; c. commercial paper maturing no more than nine months from the date of acquisition thereof and, at the time of acquisition, having a rating of at least A-1 or the equivalent thereof from Standard & Poor's Ratings Group or at least P-1 or the equivalent thereof from Moody's Investors Service, Inc.; d. corporate notes maturing no more than nine months from the date of acquisition thereof and, at the time of acquisition, having a rating of at least A or the equivalent thereof from Standard & Poors Rating Group or at least A-2 or the equivalent thereof from Moody's Investors Service, Inc.; e. certificates of deposit (including those denominated in Euro Dollars), time deposits or acceptances maturing within ninety days from the date of acquisition thereof issued by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the calendar year-end immediately preceding the date of acquisition thereof combined capital and surplus of not less than $500,000,000 which has or, the holding company of which has at the date of acquisition thereof, a commercial paper rating meeting the requirement specified in clause (c) above; f. repurchase obligations with a term of not more than ninety days for underlying securities of the types described in clause (a) above entered into with any bank meeting the qualifications specified in clause (e) above; g. preferred stock issued by corporations which provides for 30 days redemption rights to the holder and which, at the time of acquisition, has a rating of at least A or the equivalent thereof from Standard & Poors Rating Group or at least A-2 or the equivalent thereof from Moody's Investor Service, Inc.; and h. investments in mutual funds having assets in excess of $500,000,000 at the calendar year-end immediately preceding the date of acquisition thereof (and which provide for 30 day redemption rights) which invest substantially all of their assets in securities of the types described in clauses (a) through (g) above. 2. The following shall be, and hereby is, included at the end of Paragraph 8 H, Section 6 of the Agreement: "and (iii) Permitted Investments;" Except as herein specifically provided, the Agreement remains in full force and effect in accordance with its terms and no other changes in the terms or provisions of the Agreement is intended or implied. If you are in agreement with the foregoing, please so indicate by signing and returning to us the enclosed copy of this letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC., as Agent and Lender By: /s/ Karen Hoffman --------------------------------------- Title: Vice President FIRSTRUST BANK, as Lender By: /s/ Kent Nelson --------------------------------------- Title: Vice President Read and Agreed to: UNITED RETAIL GROUP, INC. By: /s/ Jon Grossman ---------------------------- Title: Vice President - Finance UNITED RETAIL INCORPORATED By: /s/ Kenneth P. Carroll ------------------------------ Title: President EX-10 4 EXHIBIT 10.3 EXHIBIT 10.3 AMENDMENT AGREEMENT January 31, 2000 United Retail Group, Inc. United Retail Incorporated 365 West Passaic Street Rochelle Park, NJ 07662 Gentlemen: We refer to (1) the Financing Agreement dated August 15, 1997 by and among United Retail Group, Inc. ("URGI"), United Retail Incorporated ("URI") The CIT Group/Business Credit, Inc. as Agent and Lender ("CITBC")and FirsTrust Bank as Lender, as amended (the "Financing Agreement"), (2) the Guaranty dated August 15, 1997 executed by URGI and URI in favor of the Agent and the Lenders, as amended ("Borrower Guaranty"), and (3) the Pledge and Security Agreement executed by URGI in favor of CITBC, as amended (the "Collateral Pledge"). Capitalized terms used herein and defined in the Financing Agreement shall have the meanings set forth in said Financing Agreement unless otherwise specifically defined herein. URGI has advised CITBC that it has formed a wholly owned indirect subsidiary named Cloudwalkers, Inc. ("Cloudwalkers") and has requested that CITBC extend Revolving Loans to Cloudwalkers and/or assist Cloudwalkers in opening Letters of Credit under the Financing Agreement on the same terms as Revolving Loans and Letters of Credit are made available to the Companies thereunder. Subject to and in accordance with the terms, provisions and conditions hereof, the Agent and the Lenders have agreed to extend such Revolving Loans and Letters of Credit to Cloudwalkers. In furtherance thereof, the Financing Agreement shall be, and hereby is, amended as follows: (1) Effective immediately, the term "Companies" as used in the Financing Agreement shall also include without limitation Cloudwalkers. Cloudwalkers by its signature below hereby adopts, ratifies, confirms, agrees to be bound by and comply with all of the terms, provisions and conditions of the Financing Agreement as if Cloudwalkers had been an original signatory thereto; (2) CITBC specifically confirms its agreement to: (a) make Revolving Loans to Cloudwalkers subject to and in accordance with all of the terms, provisions, conditions and limitations of Section 3, Paragraph 1 of the Financing Agreement; and (b) assist Cloudwalkers in opening Letters of Credit subject to and in accordance with all of the terms, provisions, conditions and limitations of Section 4, Paragraph 1 of the Financing Agreement. (3) Cloudwalkers specifically confirms: (a) its grant to the Agent for the benefit of the Lenders of a lien upon and security interest in all of Cloudwalkers now owned and hereafter acquired Collateral, including but not limited to, all Inventory, Accounts, Documents of Title, and Other Collateral, all in accordance with the terms and provisions of Section 5 of the Financing Agreement; (b) its agreement to be bound by and comply with each of the representations, warranties and covenants contained in Section 6 of the Financing Agreement; (c) its agreement to pay interest on its Obligations under the Financing Agreement at the rate set forth in Section 7 of the Financing Agreement, and further confirms its agreement to pay all other fees and/or expenses as more fully described in said Section; (d) its agreement to grant to the Agent for the benefit of the Lenders all of the powers set forth in Section 8 of the Financing Agreement; (e) its agreement to grant to the Agent for the benefit of the Lenders all of the rights and remedies enumerated under Sections 9 and 10 of the Financing Agreement; and (f) its agreement to the various provisions and waivers more fully set forth in Section 11 of the Financing Agreement. (4) It is further agreed that: (a) The term "Obligations" as used in the Financing Agreement shall also include, without limitation, all indebtedness, liabilities and obligations of Cloudwalkers to the Agent and the Lenders. (b) All Obligations of Cloudwalkers shall be and hereby are secured by a lien upon and security interest in all Collateral (as defined in the Financing Agreement). (c) The extension of Revolving Loans and/or Letters of Credit to Cloudwalkers shall be conditioned upon: (i) Cloudwalkers signing below to confirm that Cloudwalkers shall be, and hereby is, added as a signatory to the Borrower Guaranty, and that all references therein to "Companies" and/or "the undersigned" shall also include Cloudwalkers. By its signature below Cloudwalkers specifically adopts, ratifies and confirms the Borrower Guaranty in all respects as if Cloudwalkers had been an original signatory thereto and further confirms its guaranty of payment of the Obligations of and URI and URGI to the Agent and the Lenders, all in accordance with the terms and provisions of said Borrower Guaranty. (ii) URGI and URI signing below to confirm that the term "Obligations" as defined in the Borrower Guaranty shall also include without limitation all indebtedness, liabilities and obligations of Cloudwalkers to the Agent and the Lenders. (iii) URGI signing below to confirm that the term "Secured Obligations" as used in the Collateral Pledge and any other pledge and/or security agreements executed by URGI in favor of the Agent and the Lenders shall also include, without limitation, all indebtedness, liabilities and obligations of Cloudwalkers to the Agent and the Lenders. (iv) The Agent shall have received tax, judgment and Uniform Commercial Code searches satisfactory to the Agent for all locations presently occupied or used by Cloudwalkers. (v) Cloudwalkers shall have delivered to the Agent evidence satisfactory to the Agent that casualty insurance policies listing the Agent as loss payee or mortgagee, as the case may be, with respect to the Collateral of Cloudwalkers are in full force and effect, all as set forth in Section 6, Paragraph 5 of the Financing Agreement. (vi) Any documents (including without limitation, financing statements) required to be filed in order to create, in favor of the Agent for the benefit of the Lenders a first and exclusive perfected security interest in the Collateral of Cloudwalkers (subject only to Permitted Encumbrances) with respect to which a security interest may be perfected by a filing under the U.C.C. shall been properly filed in each office in each jurisdiction required in order to create in favor of the Agent for the benefit of the Lenders a perfected lien on the Collateral of Cloudwalkers. The Agent shall have received acknowledgment copies of all such filings (or, in lieu thereof, the Agent shall have received other evidence satisfactory to the Agent that all such filings have been made); and the Agent shall have received evidence that all necessary filing fees and all taxes or other expenses related to such filings have been paid in full. (vii) The Agent shall have received a copy of the resolutions of Cloudwalkers authorizing the execution, delivery an performance of (x) this Amendment Agreement, and (y) any related agreements, certified by the Secretary or Assistant Secretary of Cloudwalkers as of the date hereof, together with a certificate of the Secretary or Assistant Secretary of Cloudwalkers as to the incumbency and signature of the officers of Cloudwalkers executing such agreements and certificate or other documents to be delivered by them pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary. (viii) The Agent shall have received (x) a copy of the Articles of Organization of Cloudwalkers certified by the Secretary of State of its organization, and (y) a copy of the Bylaws (as amended through the date hereof) of Cloudwalkers certified by its Secretary or Assistant Secretary. (ix) The Agent shall have received an executed Officer's Certificate of the Companies satisfactory in form and substance to the Agent, certifying that (i) the representations and warranties contained herein are true and correct in all material respects on and as of the date hereof; (ii) the Companies are in compliance with all of the terms and provisions set forth herein; and (iii) no Default or Event of Default has occurred. (x) No Default, Event of Default or material adverse change in the financial condition, business, prospects, profits, operations or assets of Cloudwalkers or the other Companies shall have occurred. (xi) The Agent shall have completed to the satisfaction of the Agent an examination and verification of the Accounts, Inventory, books and records of Cloudwalkers. (xii) Cloudwalkers shall have executed and delivered to the Agent a Revolving Loan Promissory Note. (xiii) All parties to the Amended and Restated Letter of Credit Agreement shall have executed an amendment and consent to the inclusion of Cloudwalkers thereunder. (xiv) The Agent shall have received an opinion of counsel to Cloudwalkers, and the other Companies (in form and substance satisfactory to the Agent) opining, inter alia, that, subject to the i) filing, priority and remedies provisions of the Uniform Commercial Code, ii) the provisions of the Bankruptcy Code, insolvency statutes or other like laws, iii) the equity powers of a court of law and iv) such other matters as may be agreed upon with the Agent; (A)(a) this Amendment to Financing Agreement, and (b) all other loan documents of Cloudwalkers and the Companies are x) valid, binding and enforceable according to their terms, y) are duly authorized and z) do not violate any terms, provisions, representations or covenants in the articles of organization, charter or by-laws of Cloudwalkers and the Companies or, to the best knowledge of such counsel, of any loan agreement, mortgage, deed of trust, note, security or pledge agreement or indenture to which Cloudwalkers or the Companies is a signatory or by which they or their assets are bound. Except as set forth herein no other waiver of or change in the terms or provisions of the Financing Agreement, Borrower Guaranty, or the Collateral Pledge is intended or implied. If the foregoing is in accordance with your understanding of our agreement, kindly so indicate by signing and returning the enclosed copy of this letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC., as Agent and Lender By: /s/ Karen Hoffman --------------------------------------- Title: Vice President FIRSTRUST BANK, as Lender By: /s/ Kent Nelson --------------------------------------- Title: Vice President Read and Agreed to: UNITED RETAIL GROUP, INC. By: /s/ Jon Grossman ------------------------------ Title: Vice President - Finance UNITED RETAIL INCORPORATED By: /s/ Kenneth P. Carroll ------------------------------ Title: President CLOUDWALKERS, INC. By: /s/ George R. Remeta ------------------------------ Title: President EX-10 5 EXHIBIT 10.4 Exhibit 10.4 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of United Retail Group, Inc. and the Plan Administrator of the United Retail Group Retirement Savings Plan: We have audited the accompanying statements of net assets available for benefits of the United Retail Group Retirement Savings Plan as of December 31, 1999 and 1998, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1999 and 1998, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of investments held for investment purposes is presented for the purpose of additional analysis and are not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/Ary, Earman and Roepcke Columbus, Ohio, February 24, 2000. UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS DECEMBER 31, 1999 AND 1998 1999 1998 ----------- ---------- ASSETS: Investments $10,210,215 $8,645,645 Cash - 1,888 ----------- ---------- Total assets 10,210,215 8,647,533 ----------- ---------- LIABILITIES: Due to brokers - 1,883 Administrative fees payable 5,117 5,732 ----------- ---------- Total liabilities 5,117 7,615 ----------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $10,205,098 $8,639,918 =========== ========== The accompanying notes are an integral part of these financial statements. STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 1999 1998 ----------- ---------- ADDITIONS: Investment Income: Net appreciation in fair value of investments $ 1,073,917 $ 738,400 Mutual fund earnings 309,155 431,962 Interest 28,314 26,503 Dividends 117 216 ----------- ---------- Total investment income 1,411,503 1,197,081 ----------- ---------- Contributions: Employer 194,225 170,685 Participants 823,968 847,441 ----------- ---------- Total contributions 1,018,193 1,018,126 ----------- ---------- Total additions 2,429,696 2,215,207 ----------- ---------- DEDUCTIONS: Distributions to participants 832,784 849,836 Administrative expenses 31,732 33,798 ----------- ---------- Total deductions 864,516 883,634 ----------- ---------- Net increase 1,565,180 1,331,573 Net assets available for plan benefits: Beginning of year 8,639,918 7,308,345 ----------- ---------- End of year $10,205,098 $8,639,918 =========== ========== The accompanying notes are an integral part of these financial statements. NOTES TO FINANCIAL STATEMENTS (1) DESCRIPTION OF THE PLAN General ------- The United Retail Group Retirement Savings Plan (the "Plan") is a defined contribution plan covering certain employees of United Retail Group, Inc. and its affiliates (the "Employer") who are at least 21 years of age and have completed 1,000 or more hours of service during their first consecutive twelve months of employment or any calendar year beginning in or after their first consecutive twelve months of employment. Certain employees of the Employer, who are covered by a collective bargaining agreement, are not eligible to participate in the Plan. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) as amended. Amendments ---------- Effective January 1, 1998, the Plan was amended to increase the maximum allowable percentage as noted under "Contributions" below. Contributions ------------- Employer Contributions: The Employer may provide a 50% matching contribution on the first 3% of a participant's voluntary contributions. Participant Voluntary Contribution: A participant may elect to make a voluntary tax-deferred contribution of 1% to 15% of his or her annual compensation up to the maximum permitted under Section 402(g) of the Internal Revenue Code adjusted annually ($10,000 at December 31, 1999). Prior to January 1, 1998 a voluntary tax-deferred contribution up to only 12% was allowed. The annual compensation of each participant taken into account under the Plan is limited to the maximum amount permitted under Section 401(a)(17) of the Internal Revenue Code. The annual compensation limit for the Plan year ended December 31, 1999, was $160,000. This voluntary tax-deferred contribution may be limited by Section 401(k) of the Internal Revenue Code. Vesting ------- A participant is fully and immediately vested for voluntary and rollover contributions and is credited with a year of vesting service in the Employer's contributions for each Plan year that they are credited with at least 500 hours of service. A summary of vesting percentages in the Employer's contributions follows: Years of Vesting Service Percentage ------------------------ ---------- Less than 3 years 0% 3 years 20 4 years 40 5 years 60 6 years 80 7 years 100 Payment of Benefits ------------------- The full value of participants' accounts becomes payable upon retirement, disability, or death. Upon termination of employment for any other reason, participants' accounts, to the extent vested, become payable. Participants will receive any benefit to which they are entitled in the form of, (1) lump-sum cash distribution, with those participants holding more than 100 shares of Employer Securities receiving shares for the portion of their account invested in Employer Securities, (2) if eligible a payment directly to an eligible retirement plan specified by the Participant or (3) if the account balance is greater than $5,000 and the Participant has attained age 70-1/2, cash installments over a period not extending beyond the life expectancy of the Participant or the joint and last survivor life expectancies of the Participant and a designated Beneficiary. Those participants with vested account balances more than $5,000 have the option of leaving their accounts invested in the Plan until age 70-1/2. Participants may make in-service withdrawals of their deferrals if they have obtained the age of 59-1/2 and all vested amounts if they have obtained the age of 65, based on the terms of the plan. Participant Loans ----------------- Participants are permitted to borrow from their account the lesser of $50,000 or 50% of the vested balance of their account for a term of not more than five years with repayment made from payroll deductions. All loans become due and payable in full upon a participant's termination of employment with the Employer. The borrowing constitutes a separate earmarked investment of the participant's account. Interest on the borrowing is based on a formula using the published prime rate on the date of application. Amounts Allocated to Participants Withdrawn from the Plan --------------------------------------------------------- The vested portion of net assets available for plan benefits allocated to participants withdrawn from the Plan as of December 31, 1999 and 1998, is $16,404 and $3,906, respectively. Forfeitures ----------- Forfeitures are used to reduce the Employer's required contributions. The Employers utilized $27,828 and $51,092 in forfeitures for 1999 and 1998, respectively. Expenses -------- Brokerage fees, transfer taxes, and other expenses incurred in connection with the investment of the Plan's assets will be added to the cost of such investments or deducted from the proceeds thereof, as the case may be. Administrative expenses of the Plan will be allocated to participants' accounts, unless the Employer elects to pay any or all of such costs. Tax Determination ----------------- The Plan obtained its latest determination letter on February 23, 1998, in which the Internal Revenue Service stated that the Plan, as amended and restated January 1, 1997, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator and the Plan's tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Internal Revenue Code. (2) SUMMARY OF ACCOUNTING POLICIES Estimates --------- The Plan prepares its financial statements in conformity with generally accepted accounting principles, which requires management to make estimates and assumptions which affect the reported amounts of net assets available for plan benefits at the date of the financial statements and the changes in net assets available for plan benefits during the reporting period and, when applicable, disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Basis of Presentation --------------------- The Plan's financial statements have been prepared on the accrual basis of accounting. Income Recognition ------------------ Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Investment Valuation -------------------- Mutual funds are stated at fair value as determined by quoted market prices, which represents the net asset value of shares held by the Plan at year end. Common stock is valued as determined by quoted market price. Net Appreciation in Fair Value of Investments --------------------------------------------- Net realized and unrealized gains and losses is recorded in the accompanying statement of changes in net assets available for benefits as net appreciation or depreciation in fair value of investments. Brokerage fees are added to the acquisition costs of assets purchased and subtracted from the proceeds of assets sold. Benefit Payments ---------------- Benefits are recorded when paid. Reclassification of Prior Year Information ------------------------------------------ Certain prior year information has been reclassified to conform with current year presentation. (3) INVESTMENTS The Plan's investments are held by Scudder Trust Company, a subsidiary of Scudder Kemper Investments, Inc., manager of certain mutual funds in which the Plan invests. The following table presents balances for 1999 and 1998 for the Plan's current investment options. Investments that represent 5 percent or more of the Plan's net assets are separately identified. 1999 1998 ----------- ---------- Investments at Fair Value as Determined by Quoted Market Price: Common Stock: United Retail Group, Inc. $ 573,977 $ 948,967 Other 59,319 7,062 Shares of Registered Investment Companies: Scudder Balanced Fund 2,255,340 2,003,077 Scudder Growth and Income Fund 2,207,603 2,023,589 Scudder U.S. Treasury Fund 2,091,751 - Scudder 21st Century Fund 1,618,844 - Scudder International Fund 668,218 - Scudder Cash Investment Trust 463 2,008,561 Franklin Small Cap Growth Fund - Class A - 705,645 Other 336,321 612,706 Investments at Estimated Fair Value: Participant Loans 398,379 336,038 ----------- ---------- $10,210,215 $8,645,645 =========== ========== The Plan's investments (including investments bought, sold, and held during the year) appreciation (depreciated) in value for the years ended December 31, 1999 and 1998, is set forth below: 1999 1998 ---------- --------- Investments at Fair Value as Determined by Quoted Market Price: Shares of Registered Investment Companies $1,256,231 $ 206,740 Common Stock (182,314) 531,660 ---------- --------- $1,073,917 $ 738,400 ========== ========= The Plan allows participants to direct the investment of their contributions and the related Employer's matching contributions among several investment funds. As of December 31, 1999 and 1998, the Plan provided the following investment funds that the participant had to select from: Scudder U.S. Treasury Money Fund: Invests primarily in short-term U.S. treasury obligations and repurchase agreements, seeking to minimize credit risk and generate current income. This fund option was not available to participants until 1999. Scudder Cash Investment Trust: Invests primarily in Treasury Bills, certificates of deposit from U.S. banks, and commercial paper, seeking current income and principal stability. This fund option was eliminated to participants during 1999. Scudder Short Term Bond Fund: Invests primarily in high-quality short-term U.S. government and high-quality corporate bonds, seeking higher than money market yields with capital preservation. This investment option was not available to participants until 1999. Scudder Balanced Fund: Invests in a diversified portfolio of stocks of larger, seasoned companies and high-grade bonds, seeking a balance of growth and current income as well as long-term preservation of capital. Scudder Growth and Income Fund: Invests primarily in common stocks, preferred stocks, and securities convertible into common stocks, seeking long-term growth of capital while paying current dividends. Scudder S&P 500 Index Fund: Invests primarily all of its assets in the Scudder Equity Index Portfolio, which has the same investment objective as the fund, by investing in a diversified stock portfolio of the companies that comprise the S&P 500 Index, seeking long-term growth of capital through broad diversification. This investment option was not available to participants until 1999. Scudder International Fund: Invests primarily in foreign stocks of established companies, seeking long-term growth of capital primarily through international diversification. This investment option was not available to participants until 1999. Warburg Pincus International Equity Fund: Invests primarily in a broadly diversified portfolio of equity securities of companies that have their principal business activities and interest outside the U.S., seeking long-term growth of capital. This investment option was eliminated to participants during 1999. Janus Overseas Fund: Invests primarily in foreign equity and debt securities of issuers from at least five different countries, excluding the United States, seeking long-term growth of capital. This investment option was made available and eliminated to participants during 1999. Scudder Large Company Value Fund: Invests primarily in common stocks in all sectors of the stock market, seeking maximized long-term growth of capital. This investment option was not available to participants until 1999. Scudder 21st Century Growth Fund: Invests primarily in small U.S. companies, seeking long-term growth of capital. This investment option was not available to participants until 1999. Franklin Templeton Small Cap Growth Fund: Invests primarily in common stocks of small-capitalization companies, seeking long-term growth of capital. This investment option was eliminated to participants during 1999. United Retail Group Stock Fund: Seeks to achieve long-term capital appreciation by investing in the common stock of United Retail Group, Inc. Self-Directed Brokerage Account: Allowing the participant to invest in securities not offered otherwise. (4) PLAN ADMINISTRATION The Plan is administered by a Committee, the members of which are appointed by the Board of Directors of the Employer. (5) PLAN TERMINATION Although the Employer has not expressed any intent, the Employer has the right under the Plan to discontinue their contributions at any time. United Retail Group, Inc. has the right at any time, by action of its Board of Directors, to terminate the Plan subject to the provisions of ERISA. Upon Plan termination or partial termination, participants will become fully vested in their accounts. (6) RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500: 1999 1998 ----------- ----------- Net assets available for benefits per the financial statements $10,205,098 $ 8,639,918 Amounts allocated to withdrawing participants (16,404) (3,906) Amounts relating to deemed participant loans not yet distributable (6,577) - ----------- ----------- Net assets Available for benefits per Form 5500 $10,182,117 $ 8,636,012 =========== =========== The following is a reconciliation of benefits paid to participants per the financial statements to Form 5500: 1999 --------- Benefits paid to participants per the financial statements $832,784 Amounts allocated to withdrawing participants at: December 31, 1999 16,404 December 31, 1998 (3,906) -------- Benefits paid to participants per Form 5500 $845,282 ======== Amounts allocated to withdrawing participants are recorded on Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of that date. 1999 ------- Deemed distributions of participant loans per the financial statements $ - Deemed distributions of participant loans for which no distributable event has occurred 6,877 ------ Deemed distributions of participant loans per Form 5500 $6,877 ====== Defaulted loans to participants which by the terms of the plan can not be distributed are reported as an investment for financial statement, but are recorded on the Form 5500 as a deemed distribution. SCHEDULE I UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END DECEMBER 31, 1999
(a) (b) (c) (d) (e) Description of investment including Identity of issue, maturity date, rate borrower, lessor, or of interest, collateral, Current similar party par or maturity value Cost value -------------------- ------------------------ ---------- ---------- * United Retail Group, 69,573 shares of common $ 576,302 $ 573,977 Inc. stock of United Retail Group, Inc., par value $0.001 * Scudder Kemper 2,091,750.780 shares of 2,091,751 2,091,751 Investments, Inc. Scudder U.S. Treasury Money Fund, $1.00 net asset value, 7 day annualized yield of 4.79% * Scudder Kemper 463.000 shares of Scudder 463 463 Investments, Inc. Cash Investment Trust, $1.00 net asset value, 7 day annualized yield of 5.29% * Scudder Kemper 561.439 shares of Scudder 5,928 5,861 Investments, Inc. Short Term Bond Fund, $10.44 net asset value * Scudder Kemper 106,635.478 shares of 1,750,537 2,255,340 Investments, Inc. Scudder Balanced Fund, $21.15 net asset value * Scudder Kemper 82,712.720 shares of 2,117,993 2,207,603 Investments, Inc. Scudder Growth and Income Fund, $26.69 net asset value * Scudder Kemper 133.048 shares of Scudder 2,566 2,608 Investments, Inc. S&P 500 Index Fund, $19.60 net asset value * Scudder Kemper 9,446.109 shares of Scudder 622,336 668,218 Investments, Inc. International Fund, $70.74 net asset value * Represents a party in interest
SCHEDULE I UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END DECEMBER 31, 1999
(a) (b) (c) (d) (e) Description of investment including Identity of issue, maturity date, rate borrower, lessor, or of interest, collateral, Current similar party par or maturity value Cost value -------------------- ------------------------- -------- --------- * Scudder Kemper 16.159 shares of Scudder 453 435 Investments, Inc. Large Company Value Fund, $26.91 net asset value * Scudder Kemper 55,137.739 shares of 1,434,786 1,618,844 Investments, Inc. Scudder 21st Century Growth Fund, $29.36 net asset value State Street 304,074.130 shares of Seven 304,074 304,074 Seas Money Market Fund, $1.00 net asset value, 7 day average net yield of 5.25% Philip Morris, Inc. 132 shares of common stock 5,995 3,036 of Philip Morris, Inc., par value $0.33 1/3 American Online, Inc. 160 shares of common stock 10,114 12,140 of American Online, Inc., par value $0.01 American Express 80 shares of common stock 9,784 13,300 Company of American Express Company, par value $0.60 Walt Disney Company 300 shares of common stock 9,983 8,775 of Walt Disney Company, par value $0.01 Microsoft Corporation 110 shares of common stock 9,872 12,843 of Microsoft Corp., par value $0.0000125 * Represents a party in interest
SCHEDULE I UNITED RETAIL GROUP RETIREMENT SAVINGS PLAN EIN #51-0303670 PLAN #003 SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT YEAR END DECEMBER 31, 1999
(a) (b) (c) (d) (e) Description of investment including Identity of issue, maturity date, rate borrower, lessor, or of interest, collateral, Current similar party par or maturity value Cost value ------------------- ------------------------- -------- -------- Restoration Hardware, 400 shares of common stock 5,893 2,725 Inc. of Restoration Hardware, Inc., par value $0.01 Fidelity Investments 464.901 shares of Fidelity 10,984 16,986 Advisor Technology Class T Fund, $36.54 net asset value WWW Advisors, Inc. 151.442 shares of WWW 6,250 6,356 Internet Fund, $41.97 net asset value Mortgage.Com, Inc. 200 shares of common stock 1,575 1,163 of Mortgage.Com, Inc., par value $0.01 Networks Associates, 200 shares of common stock 5,459 5,338 Inc. of Networks Associates, Inc., par value $0.001 Participant loans Interest from 7.50% - 9.25% - 391,802
EX-13 6 EXHIBIT 13 EXHIBIT 13 Sections of 1999 Annual Report to Stockholders (including opinion of Independent Public Accountants) that are incorporated by reference in response to the items of the Annual Report on Form 10-K * * * * * * * * * * * * Report of Independent Accountants...........................................14 Consolidated Balance Sheets as of January 30, 1999 and January 29, 2000..........................................................15 Consolidated Statements of Income for each of the three fiscal years ended January 29, 2000....................................................16 Consolidated Statements of Cash Flows for each of the three fiscal years ended January 29, 2000..............................................17 Consolidated Statements of Stockholders' Equity for each of the three fiscal years ended January 29, 2000.......................................18 Notes to Consolidated Financial Statements..................................19 UNITED RETAIL GROUP, INC. AND SUBSIDIARIES REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of UNITED RETAIL GROUP, INC.: In our opinion the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and stockholders' equity present fairly, in all material respects, the financial position of United Retail Group, Inc. and its subsidiaries (the "Company") at January 30, 1999 and January 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended January 29, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP New York, New York February 12, 2000
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) JANUARY 30, JANUARY 29, 1999 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents.......................... $54,398 $45,223 Accounts receivable................................ 513 1,146 Inventory.......................................... 45,564 55,323 Prepaid rents...................................... 3,946 3,900 Deferred income taxes.............................. - 1,647 Other prepaid expenses............................. 2,429 2,365 ------------ ------------ Total current assets.............................. $106,850 $109,604 Property and equipment, net.......................... 48,017 63,302 Deferred charges and other intangible assets, net of accumulated amortization of $2,130 and $2,495............................................. 6,746 7,010 Deferred income taxes................................ 1,120 - Other assets......................................... 363 422 ------------ ------------ Total assets....................................... $163,096 $180,338 ============ ============ LIABILITIES Current liabilities: Current portion of distribution center financing... $1,136 $1,228 Accounts payable and other......................... 22,712 26,993 Accrued expenses................................... 22,659 20,285 ------------ ------------ Total current liabilities......................... 46,507 48,506 Distribution center financing........................ 9,172 7,944 Other long-term liabilities ......................... 6,270 6,131 ------------ ------------ Total liabilities................................. 61,949 62,581 ------------ ------------ Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 1,000,000; none issued Series A junior participating preferred stock, $.001 par value; authorized 150,000; none issued Common stock, $.001 par value; authorized 30,000,000; issued 13,762,900 and 14,190,800; outstanding 13,089,588 and 13,289,433.......................... 14 14 Additional paid-in capital........................... 77,458 80,143 Retained earnings.................................... 25,334 41,483 Treasury stock (673,312 and 901,367 shares), at cost. (1,659) (3,883) ------------ ------------ Total stockholders' equity......................... 101,147 117,757 ------------ ------------ Total liabilities and stockholders' equity......... $163,096 $180,338 ============ ============
The accompanying notes are an integral part of the Consolidated Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FISCAL YEAR FISCAL YEAR FISCAL YEAR ENDED ENDED ENDED JANUARY 31, JANUARY 30, JANUARY 29, 1998 1999 2000 ------------ ------------ ------------ Net Sales.............................. $361,751 $378,562 $382,631 Cost of goods sold, including buying and occupancy costs...................... 278,078 275,811 282,754 ------------ ------------ ------------ Gross profit......................... 83,673 102,751 99,877 General, administrative and store operating expenses................... 80,469 79,221 77,778 ------------ ------------ ------------ Operating income..................... 3,204 23,530 22,099 Non-operating income - 3,113 - Interest (expense) income, net......... (154) 1,201 1,688 ------------ ------------ ------------ Income before income taxes........... 3,050 27,844 23,787 (Benefit from) provision for income taxes (828) 10,077 7,638 Benefit from write-up of the compensa- tion related deferred tax asset...... (953) (213) - ------------ ------------ ------------ Net income........................... $4,831 $17,980 $16,149 ============ ============ ============ NET INCOME PER SHARE Basic................................ $0.40 $1.38 $1.23 ============ ============ ============ Diluted.............................. $0.37 $1.31 $1.17 ============ ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic................................ 12,190,375 13,055,673 13,156,310 Common stock equivalents (stock options)........................... 997,234 680,340 695,794 ------------ ------------ ------------ Diluted.............................. 13,187,609 13,736,013 13,852,104 ============ ============ ============
The accompanying notes are an integral part of the Consolidated Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (DOLLARS IN THOUSANDS) FISCAL YEAR FISCAL YEAR FISCAL YEAR ENDED ENDED ENDED JANUARY 31 JANUARY 30, JANUARY 29, 1998 1999 2000 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................. $4,831 $17,980 $16,149 Adjustments to reconcile net income to net cash provided from the activities: Depreciation and amortization of property and equipment............................. 8,540 7,027 7,031 Amortization of deferred charges and other intangible assets......................... 287 353 416 Loss (gain) on disposal of assets........... 496 (30) 568 Gain on sale of investments................. (43) (3,113) - Compensation expense........................ - 216 311 (Benefit from) provision for deferred income taxes..................................... (2,685) 1,956 (527) Deferred lease assumption revenue amortiza- tion...................................... (655) (648) (402) Changes in operating assets and liabilities: Accounts receivable......................... 726 58 (633) Income taxes receivable..................... 229 - - Inventory................................... 2,775 (7,561) (9,759) Accounts payable and accrued expenses....... 126 6,725 2,443 Prepaid expenses............................ 535 231 110 Income taxes payable........................ 1,379 (469) (402) Other assets and liabilities................ (606) (643) (878) ---------- ---------- --------- Net Cash Provided from Operating Activities... 15,935 22,082 14,427 ---------- ---------- --------- INVESTING ACTIVITIES: Capital expenditures........................ (2,375) (7,003) (23,271) Deferred payment for property and equipment. 40 110 268 Proceeds from sale of investment and lease.. 410 3,345 387 ---------- ---------- --------- Net Cash Used in Investing Activities......... (1,925) (3,548) (22,616) ---------- ---------- --------- FINANCING ACTIVITIES: Issuance of loans to officers............... - (2,113) (604) Treasury stock acquired..................... - - (214) Proceeds from exercise of stock options..... - 20 373 Tax benefit from exercise of stock options.. - - 710 Debt issuance costs......................... (276) - - Repayments of long-term debt................ (973) (1,052) (1,136) Other....................................... - - (115) ---------- ---------- --------- Net Cash Used in Financing Activities......... (1,249) (3,145) (986) ---------- ---------- --------- Net increase (decrease) in cash and cash equivalents................................. 12,761 15,389 (9,175) Cash and cash equivalents, beginning of period 26,248 39,009 54,398 ---------- ---------- --------- Cash and cash equivalents, end of period...... $39,009 $54,398 $45,223 ========== ========== =========
The accompanying notes are an integral part of the Consolidated Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (SHARES AND DOLLARS IN THOUSANDS) COMMON COMMON TREASURY STOCK STOCK ADDITION STOCK, TOTAL SHARES $.001 PAID-IN RETAINED AT STOCKHOLDERS' OUTSTANDING PAR VALUE CAPITAL EARNINGS COST EQUITY ----------- --------- -------- -------- -------- ------------ Balance, February 1, 1997................... $12,190 $13 $78,259 $2,523 $(582) $80,213 ----------- --------- -------- -------- -------- ------------ Net income............ 4,831 4,831 ----------- --------- -------- -------- -------- ------------ Balance, January 31, 1998................ 12,190 13 78,259 7,354 (582) 85,044 ----------- --------- -------- -------- -------- ------------ Exercise of stock options............. 1,083 1 1,096 1,097 Treasury stock........ (183) (1,077) (1,077) Loans to officers..... (2,113) (2,113) Compensation expense.. 216 216 Net income............ 17,980 17,980 ----------- --------- -------- -------- -------- ------------ Balance, January 30, 1999................ 13,090 14 77,458 25,334 (1,659) 101,147 ----------- --------- -------- -------- -------- ------------ Exercise of stock options............. 427 2,123 2,123 Treasury stock........ (228) (2,224) (2,224) Loans to officers..... (344) (344) Compensation expense.. 311 311 Tax Benefit from exer- cise of stock options............. 710 710 Other................. (115) (115) Net income............ 16,149 16,149 ----------- --------- -------- -------- -------- ----------- Balance, January 29, 2000................ $13,289 $14 $80,143 $41,483 $(3,883) $117,757 =========== ========= ======== ======== ======== ===========
The accompanying notes are an integral part of the Consolidated Financial Statements. UNITED RETAIL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. COMPANY DESCRIPTION AND BASIS OF PRESENTATION United Retail Group, Inc. ("United Retail") is a specialty retailer of large-size women's fashion apparel, footwear and accessories, featuring AVENUE(R) brand merchandise operating approximately 500 stores throughout the United States. The consolidated financial statements include the accounts of United Retail and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year balances have been reclassified to conform with the current year presentation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the financial statements and notes by the calendar year in which the fiscal year commences. Fiscal 1997, fiscal 1998 and fiscal 1999 consisted of 52 weeks and ended on January 31, 1998, January 30, 1999, and January 29, 2000, respectively. NET SALES Sales are net of returns and exclude sales tax. Sales from all stores operating during the period, the Company's catalog and its website operations are included. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 related to revenue recognition, including layaway sales. The pronouncement requires adoption by the second quarter of fiscal 2000. The Company will adopt this pronouncement by recording a cumulative effect adjustment in the first quarter of fiscal 2000. The Company believes this pronouncement will not have a material effect on the Company's financial position or annual results of operations, but will impact interim reporting of results. The Company recognizes sales upon redemption of gift certificates. MARKETING COSTS The Company expenses marketing costs when the event occurs. Marketing expense, included in cost of goods sold in the accompanying consolidated statements of income, was $6.7 million, $9.5 million, and $12.6 million in fiscal 1997, 1998, and 1999, respectively. CASH AND CASH EQUIVALENTS The Company considers cash on hand, bank deposits, money market funds and short term investments with maturities of less than 90 days as cash and cash equivalents. INVENTORY Inventory is stated at the lower of cost or market, utilizing the retail method. An average cost flow assumption is used. LONG-LIVED ASSETS Depreciation and amortization of property and equipment are computed for financial reporting purposes on a straight-line basis, using service lives of 40 years for the distribution center building, the life of the lease for leasehold improvements and furniture and fixtures, 20 years for material handling equipment and 5 years for other property. The cost of assets sold or retired and the related accumulated depreciation or amortization are removed from the accounts with any resulting gain or loss included in net income. Maintenance, repairs and minor renewals are charged to expense as incurred. Renewals and betterments which extend service lives are capitalized. Certain loan facility fees and other costs of obtaining financing are being amortized on a straight-line basis over the term of the related loan. The difference that would result from amortization using the effective interest method is not material. Goodwill, as of January 30, 1999 and January 29, 2000 of $6.2 million and $6.0 million, respectively, represents the excess cost over the fair market value of the net assets of the businesses acquired. Goodwill is being amortized over a 40-year period using the straight-line method. The Company acquired certain trademarks during fiscal 1998 and fiscal 1999 in the amounts of $39,000 and $318,000, respectively. These trademarks are being amortized over 15-year periods using the straight-line method. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that the asset should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net cash flows over the remaining life of the asset in measuring whether the asset is recoverable. COMPUTATION OF INCOME PER COMMON SHARE The computation of income per basic common share has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data has been computed on the basic plus the dilution of stock options. Options to purchase shares of common stock which were outstanding but were not included in the computation of diluted net income per share because the exercise prices were greater than the average market price of the common shares were as follows: FISCAL FISCAL FISCAL 1997 1998 1999 ---------------------------------------------- Options 271,000 58,000 65,500 Range of option prices per share $5.625 - $26.75 $10.75 - $26.75 $11.50 - $26.75 CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk, are primarily cash and cash equivalents. The Company places its cash and cash equivalents in highly liquid investments with high quality financial institutions. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant estimates and assumptions relate to deferred tax assets, inventory and useful lives of assets. STORE OPENING COSTS All costs associated with the opening of new stores are expensed as incurred. 3. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of (dollars in thousands): JANUARY 30, JANUARY 29, 1999 2000 ----------- ----------- Land $2,176 $2,176 Buildings 10,574 10,574 Furniture, fixtures and equipment 59,817 70,439 Leasehold improvements 26,826 31,389 Beneficial leaseholds 8,560 6,942 Construction in progress 2,378 1,321 ----------------------- 110,331 122,841 Accumulated depreciation and amortization, including beneficial leaseholds of $7,586 and $6,272 (62,314) (59,539) ------------------------- Property and equipment, net $48,017 $63,302 ======================== 4. ACCRUED EXPENSES Accrued expenses consist of (dollars in thousands): JANUARY 30, JANUARY 29, 1999 2000 ------------ ---------- Occupancy expenses $3,907 $3,649 Payroll related expenses 4,771 3,011 Insurance payable 4,684 2,131 Sales taxes payable 1,149 1,152 Credit processing ---- 1,508 Marketing 972 2,027 Other 7,176 6,807 ----------------------- $22,659 $20,285 ======================= 5. LEASED FACILITIES AND COMMITMENTS Annual store rent is composed of a fixed minimum amount, plus contingent rent based upon a percentage of sales exceeding a stipulated amount. Store lease terms generally require additional payments to the landlord covering taxes, maintenance and certain other expenses. Rent expense was as follows (dollars in thousands): FISCAL FISCAL FISCAL 1997 1998 1999 ------------------------- Store rent Fixed minimum $39,423 $36,986 $36,815 Percentage 32 77 126 ------------------------- Total store rent 39,455 37,063 36,941 Equipment and other 411 360 381 ------------------------- Total rent expense $39,866 $37,423 $37,322 ========================= At January 29, 2000, the Company was committed under store leases with initial terms ranging from 1 to 20 years and with varying renewal options. At January 31, 1998, January 30, 1999 and January 29, 2000, accrued rent expense amounted to $5.7 million, $5.8 million and $6.0 million, respectively, of which $5.3 million, $5.1 million and $5.3 million, respectively, is included in "Other long-term liabilities". A summary of approximate non-cancelable lease commitments under leases follows (dollars in thousands) for the fiscal years: 2000 $33,563 2001 30,169 2002 30,275 2003 24,482 2004 21,285 Thereafter 71,539 -------- Total minimum obligations $211,313 ======== 6. LONG-TERM DEBT Long-term debt consists of (dollars in thousands): JANUARY 30, JANUARY 29, 1999 2000 ----------------------- Distribution center financing: 7.30% Note due 2003 $3,873 $3,151 8.64% Mortgage due 2009 6,435 6,021 --------------------- Total distribution center financing $10,308 $9,172 Less current maturities 1,136 1,228 --------------------- Long-term portion of distribution center financing $ 9,172 $7,944 ===================== In 1993, the Company executed a ten-year $7.0 million note bearing interest at 7.3%. Interest and principal are payable in equal monthly installments beginning November 1993. The note is collateralized by the material handling equipment in the distribution center. In 1994, the Company executed a fifteen-year $8.0 million loan bearing interest at 8.64%. Interest and principal are payable in equal monthly installments beginning May 1, 1994. The loan is collateralized by a mortgage on the national distribution center owned by the Company in Troy, Ohio. The Company and certain of its subsidiaries, (collectively, the "Companies") are parties to a Financing Agreement, dated August 15, 1997, as amended (the "Financing Agreement"), with The CIT Group/Business Credit, Inc.("CIT"). The Financing Agreement provides a revolving line of credit for a term ending August 15, 2001 in the aggregate amount of $40 million for the Companies to support trade letters of credit and standby letters of credit and to finance loans. The Companies are required to maintain unused at all times combined availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any financial covenants. In the event a loan is made to one of the Companies, interest is payable monthly based on a 360-day year at the prime rate or at two percent plus the LIBOR rate on a per annum basis, at the borrower's option. The line of credit is secured by a security interest in inventory and proceeds and by the balance on deposit from time to time in an account that has been pledged to the lenders. At January 29, 2000, the combined availability of the Companies was $13.1 million, no balance was in the pledged account, the aggregate outstanding amount of letters of credit arranged by CIT was $26.9 million and no loan had been drawn down. The Company's cash on hand was unrestricted. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents and trade payables approximate fair value because of the short-term maturity of these instruments. An advance to an officer approximates fair value because interest is payable annually in cash at the prime rate. The fair value of long-term debt, including the current portion, is estimated to be $8.9 million for fiscal 1999 based on the current rates quoted to the Company for debt of the same or similar issues. 8. INCOME TAXES The Company provides for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes". This statement requires the use of the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense (benefit) represents the change in the deferred tax asset/liability balance. The (benefit from) provision for income taxes consists of (dollars in thousands): FISCAL FISCAL FISCAL 1997 1998 1999 ------------------------------ Currently payable: Federal $722 $7,350 $7,539 State 182 558 626 ---------------------------------- 904 7,908 8,165 ---------------------------------- Deferred: Federal (2,419) 1,899 537 State (266) 57 (1,064) ---------------------------------- (2,685) 1,956 (527) ---------------------------------- ($1,781) $9,864 $7,638 ================================== Reconciliation of the (benefit from) provision for income taxes from the U.S. Federal statutory rate to the Company's effective rate is as follows: FISCAL FISCAL FISCAL 1997 1998 1999 ------------------------------ Statutory Federal income tax rate 34.0% 35.0% 35.0% State income taxes, net of Federal benefit 3.9 3.7 4.1 Benefit from state net operating losses ("NOL's") 0.0 (2.2) (2.1) Goodwill amortization 2.3 0.3 0.3 Other 0.7 (0.6) (0.3) ---------------------------- Sub-total 40.9 36.2 37.1 Deferred tax asset recognized for state NOL's 0.0 0.0 (5.0) Write-up of the compensation related deferred tax asset (31.3) (0.8) (0.0) Valuation allowance (68.0) 0.0 0.0 ----------------------------- (58.4%) 35.4% 32.1% ============================= The Company's net deferred tax asset reflects the tax impact of temporary differences. The components of the net deferred tax asset are as follows (dollars in thousands): JANUARY 30, JANUARY 29, 1999 2000 ----------- ----------- Assets: Inventory $658 $550 Accruals and reserves 2,591 2,832 Compensation 308 205 State NOL's 0 1,180 --------------------- 3,557 4,767 -------------------- Liabilities: Depreciation 2,437 3,120 -------------------- Net deferred tax asset $1,120 $1,647 ====================== Included in the fiscal 1997 and fiscal 1998 income tax expense (benefit) is a ($1.0 million) write-up and a ($0.2 million) write-up of the compensation related deferred tax asset, respectively, which had been recorded in fiscal 1992 based upon the initial public offering price of $15 per share. On February 13, 1998, underlying stock options relating to $1.822 million of the compensation related deferred tax asset were exercised, which resulted in an additional $0.2 million tax benefit in fiscal 1998. In fiscal 1999, the Company recorded a $1.2 million deferred tax asset related to state NOL's, which had previously not been recognized because the realization of any tax benefit from the state NOL's had been considered remote. Future realization of the tax benefits attributable to the existing deductible temporary differences and NOL carryforwards ultimately depends on the existence of sufficient taxable income within the carryback and/or carryforward period available under the tax law at the time of the tax deduction. Based on management's assessment, it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or available carrybacks. 9. RELATED PARTY TRANSACTIONS The Company shares a store location with a subsidiary of The Limited, Inc. ("The Limited") and is charged by The Limited for occupancy costs. The impact on the statements of income of these occupancy charges was as follows (dollars in thousands): FISCAL FISCAL FISCAL 1997 1998 1999 -------------------------- Cost of goods sold, including buying and occupancy costs $74 $73 $73 An affiliate of the Chairman of the Board of the Company, American Licensing Group, L.P. ("ALGLP"), (in which he holds an 80% interest) provides management and administrative services to a subsidiary of The Limited, American Licensing Group, Inc., for a base annual fee and profit sharing fee, the profit sharing fee being the lower of one-third of net profits or $150,000 per annum. During fiscal 1997, fiscal 1998, and fiscal 1999, the Company incurred expenses under certain Sublicensing Agreements with respect to trademarks to American Licensing Group, Inc. in the amounts of $395,000, $361,000, and $353,000, respectively, and to ALGLP in the amounts of $599,000, $442,000 and $365,000 respectively. American Licensing Group, Inc. and ALGLP, in turn, incurred expenses with respect to the trademarks under certain Licensing Agreements with the owner of the trademarks. The Company made investments in a vendor from which the Company purchased apparel. In fiscal 1998, the Company realized a capital gain of $3.1 million on the sale of its investments back to the vendor. The gain was reported as non-operating income. Purchases of apparel during fiscal 1997 and fiscal 1998 totalled $600,000 and $12,000, respectively. 10. RETIREMENT PLAN The Company maintains a defined contribution pension plan. Generally, an employee is eligible to participate in the plan if the employee has completed one year of full-time continuous service. The Company makes a 50% match of a portion of employee savings contributions. The Company also maintains a non-qualified defined contribution pension plan, known as the Supplemental Retirement Savings Plan. The Company makes a 50% match of a portion of employee savings contributions for those associates whose contributions to the qualified plan are limited by IRS regulations, as well as retirement contributions for certain grandfathered associates equal to 6% of those associates' compensation. Pension costs for all benefits charged to income during fiscal 1997, fiscal 1998 and fiscal 1999 approximated $278,000, $522,000 and $365,000, respectively. 11. STOCKHOLDERS' EQUITY Coincident with the completion of its initial public offering on March 17, 1992, the Company's certificate of incorporation was amended to provide for only one class of Common Stock, par value $.001 per share, with 30 million shares authorized. The Company also authorized 1,000,000 shares of Preferred Stock, par value $.001 per share, to be issued from time to time, in one or more classes or series, each such class or series to have such preferences, voting powers, qualifications and special or relative rights and privileges as shall be determined by the Board of Directors in a resolution or resolutions providing for the issuance of such class or series of Preferred Stock. The Company has paid no cash dividends and expects to retain any future earnings for expansion of its business rather than to pay cash dividends in the foreseeable future. Additionally, certain loan agreements, to which the Company is a party, impose restrictions on the payments of dividends. In September 1999, the Company entered into right of first refusal agreements for any proposed sales of shares of its Common Stock held by Limited Direct Associates, L.P. and The Limited/Intimate Brands Foundation (collectively, "Limited"). Each right has a term of one year, subject to extension by mutual agreement, and applies to any sales that Limited may propose to make from time to time on the Nasdaq National Market System and in negotiated or block transactions. If the Company exercises the right of first refusal, any shares that are proposed to be sold on the Nasdaq National Market System will be sold to the Company instead (i) after the market closes and before it opens again and (ii) at a purchase price equal to that day's closing price. The Company has no obligation, however, to exercise the right and purchase shares. Limited holds 1,600,000 shares of the Company's common stock, representing approximately 12% of the shares outstanding. In September 1999, the Company adopted a Shareholder Rights Plan and distributed rights as a dividend at the rate of one Right for each share of Common Stock of the Company held by shareholders of record as of the close of business on September 27, 1999. The rights will expire on September 28, 2009. Each Right initially entitles a shareholder to buy one one-hundredth of a share of a series of preferred stock for $65. Among other things, the Rights will be exercisable, subject to certain exceptions, if a person or group acquires beneficial ownership of 15% or more of the Company's Common Stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company's Common Stock. Until the Rights become exercisable, each share of common stock of the Company has a Right attached and the securities trade as a unit. 12. STOCK OPTIONS Under the 1989 Management Stock Option Plan (the "1989 Plan") established on July 17, 1989, options to purchase 1,078,125 shares and 50,000 shares at exercise prices of $1.00 and $5.00 per share, respectively, were granted. All options granted under the 1989 Plan became vested and exercisable upon completion of the IPO and the payment of certain obligations to The Limited Inc. On February 13, 1998, 1,078,125 of the 1989 Plan options were exercised by management. On November 18, 1999, the remaining 50,000 options were exercised. Under 1991 Stock Option Agreements between the Company and certain executive officers (the "1991 Options"), the Board of Directors approved and granted, on July 24, 1991, options to purchase 300,000 shares at an exercise price of $5.00 per share. These options became vested and exercisable upon completion of the initial public offering and the payment of certain obligations to The Limited Inc. On November 18, 1999, all 300,000 options were exercised by management. The Restated 1990 Stock Option Plan (as amended, the "1990 Plan") was established in June 1990, amended in November 1991, December 1992 and May 1993, and terminated in May 1996. Exercise prices were not less than fair market value of the Company's common stock on the date of grant. The options granted under the 1990 Plan expire between seven and ten years after the date of grant. As of January 31, 1998, January 30, 1999, and January 29, 2000 options to purchase 619,300, 612,300, and 537,300 shares, respectively, were outstanding under the Plan at average exercise prices of $6.89, $6.90 and $6.75 per share, respectively. The options granted vest beginning one year from the date of grant, and vest fully after four or five years, subject to acceleration under certain circumstances. Options were granted, and the 1990 Plan is administered, by the Compensation Committee of the Board of Directors, composed of non- employees of the Company. A summary of stock option transactions under the 1990 Plan is as follows:
FISCAL FISCAL FISCAL 1997 1998 1999 -------------------------------------- Options outstanding at beginning of period 658,000 619,300 612,300 Options granted 0 0 0 Options exercised 0 3,200 45,500 Options expired 22,500 0 0 Options canceled 16,200 3,800 29,500 Options outstanding at end of period 619,300 612,300 537,300 Options available for grant at end of period 0 0 0 Options vested and outstanding at end of period 198,783 323,570 385,406 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 86,500 305,570 377,406 Range of option prices per share for outstanding options $4.125-$26.75 $4.125-$26.75 $4.125-$26.75
The 1996 Stock Option Plan (the "1996 Plan") was established in May 1996 and terminated in May 1999. Exercise prices were not less than fair market value of the Company's common stock on the date of grant. The options granted under the 1996 Plan expire ten years after the date of grant. As of January 31, 1998, January 30, 1999, and January 29, 2000 options to purchase 163,000, 373,300 and 345,500 shares were outstanding under the Plan at an average exercise price of $3.22, $5.24 and $5.78 per share. The options granted vest beginning one year from the date of grant, and vest fully after five years, subject to acceleration under certain circumstances. Options were granted, and the 1996 Plan is administered, by the Compensation Committee of the Board of Directors, composed of non-employees of the Company A summary of stock option transactions under the 1996 Plan follows:
FISCAL FISCAL FISCAL 1997 1998 1999 -------------------------------------- Options outstanding at beginning of period 45,000 163,000 373,300 Options granted 145,000 253,500 37,000 Options exercised 0 1,200 32,400 Options canceled 27,000 42,000 32,400 Options outstanding at end of period 163,000 373,300 345,500 Options available for grant at end of period 277,000 65,500 0 Options vested and outstanding at end of period 4,000 30,900 69,000 Options exercisable at end of period and having an exercise price that is less than the respective year end common stock closing price 4,000 30,900 67,200 Range of option prices per share for outstanding options $2.625-$5.625 $2.625-$11.50 $2.625-$11.50
In May 1998, the Company issued non-qualified stock options to purchase a total of 300,000 shares at $6.3125 per share (the fair market value on the date of Board action) to two officers of the Company. These options expire ten years after the date of grant. The options vest beginning one year from the date of grant and vest fully after five years, subject to acceleration under certain circumstances. The options described in the preceding paragraph were approved by the Company's stockholders. The 1999 Stock Option Plan (the "1999" Plan) was established in May 1999. Exercise prices are required by the 1999 Plan to be not less than the fair market value of the Company's common stock on the date of grant. The total number of shares that may be optioned under the 1999 Plan is 400,000 shares. The options granted under the 1999 Plan expire ten years after the date of grant. As of January 29, 2000 outstanding options to purchase 47,500 shares have been granted under the Plan at an average exercise price of $12.34 per share. The options granted vest beginning one year from the date of grant, and vest fully after five years, subject to acceleration under certain circumstances. Employees of the Company whose judgment, initiative and efforts may be expected to contribute materially to the successful performance of the Company are eligible to receive options. Non-employee Directors receive annual grants of options under the 1999 Plan. Options are granted, and the 1999 Plan is administered, by the Compensation Committee of the Board of Directors, composed of non-employees of the Company. The Company records compensation expense for all stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Under Opinion No. 25, compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price on the measurement date. In May 1998, the Company issued non-qualified stock options whose market price at the date of grant exceeded the exercise price, which equaled the market price on the date of Board action. In accordance with Opinion No. 25, compensation expense is recorded ratably over the five-year vesting period of the options. The Company recognized $216,000 and $311,000 of related compensation expense in fiscal 1998 and fiscal 1999, respectively. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which encourages companies to recognize expense for stock-based awards based on their estimated value on the date of grant. SFAS No. 123 does not require companies to change their existing accounting for stock-based awards. The Company continues to account for stock-based compensation plans using the intrinsic value method, and has supplementally disclosed the following pro forma information required by SFAS No. 123. FISCAL FISCAL FISCAL 1997 1998 1999 ----------------------------- Net income-as reported (dollars in thousands) $4,831 $17,980 $16,149 Net income - pro forma (dollars in thousands) $4,532 $17,483 $15,585 Earnings per diluted share - as reported $0.37 $1.31 $1.17 Earnings per diluted share - pro forma $0.34 $1.27 $1.13 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: FISCAL FISCAL FISCAL 1997 1998 1999 -------------------------- Expected dividend yield 0.00% 0.00% 0.00% Expected stock price volatility 50.00% 50.00% 50.00% Risk-free interest rate 5.39% 4.55% 6.60% Expected life of options 5 years 5 years 5 years The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 13. ADVANCES TO OFFICERS Advances were made by the Company in February, 1998 and February, 1999 in the amounts of $1.6 million and $0.1 million to Raphael Benaroya, the Company's Chairman of the Board, President and Chief Executive Officer. The purpose of the advances was to finance payment of income taxes incurred in connection with the exercise of stock options. These advances and their related interest were refinanced as part of an issuance of a new note which aggregated $2.4 million, which includes an additional advance of $0.7 million, in November 1999. The additional advance was to finance payment of income taxes incurred in connection with the exercise of stock options and to pay interest accrued on the note that was refinanced. Interest is payable annually in cash at the prime rate. The note has a term of four years subject to acceleration under certain circumstances and to call by the Company after two years with respect to half of the principal amount. Payment of the advances to Mr. Benaroya is secured by a pledge of the shares of the Company's Common Stock issued upon the option exercises in the amount of 899,719 shares. The note is a full recourse obligation of the borrower. An advance was made to George R. Remeta, the Company's Vice Chairman and Chief Administrative Officer in the amount of $0.2 million in February, 1998 to finance payment of income taxes incurred in connection with the exercise of stock options. Mr. Remeta repaid the advance in November, 1999 by surrendering shares of common stock having an equivalent market value. 14. SUPPLEMENTAL CASH FLOW INFORMATION Net cash flow from operating activities reflects cash payments for interest and income taxes as follows (dollars in thousands): FISCAL FISCAL FISCAL 1997 1998 1999 ----------------------- Interest (expense) income, net per statements of income ($154) $1,201 $1,688 Non-cash interest 63 72 12 -------------------- Net cash interest (expense) income, including interest income of $984, $2,235 and $2,429 ($91) $1,273 $1,700 ======================= Income taxes paid $531 $8,376 $7,843 ====================== Financing activities include the non-cash exercise of 1,076,955 and 350,000 stock options, in fiscal 1998 and fiscal 1999, respectively with the exercise price paid by surrendering common stock held with a market value equal to the cash payment in lieu of cash payment. Also included in financing activities is a repayment of an officer loan in fiscal 1999 with the repayment made by surrendering common stock to the Company held with a market value equal to the loan, in lieu of cash payment. 15. CONTINGENCIES The Company is involved in legal actions and claims arising in the ordinary course of business. Management believes (based on advice of legal counsel) that such litigation and claims will not have a material adverse effect on the Company's financial position or results of operations. United Retail Group, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FISCAL 1999 VERSUS FISCAL 1998 Net sales for fiscal 1999 increased 1.1% from fiscal 1998, to $382.6 million from $378.6 million. Average stores open decreased 2.4% from 514 to 502 as underperforming stores were closed selectively. Comparable store sales for fiscal 1999 increased 2.5%. There is no assurance that sales and comparable store sales will continue to increase. Sales in channels of distribution other than retail stores were not material (see, "Shop-At-Home"). Gross profit was $99.9 million in fiscal 1999 compared with $102.8 million in fiscal 1998, decreasing as a percentage of net sales to 26.1% from 27.1%. The decrease in gross profit as a percentage of net sales was attributable primarily to an increase in marketing expenses as a percentage of net sales. In addition, the merchandise margin rate decreased. The increase in marketing expenses related principally to the conversion of stores and proprietary credit cards to the Company's AVENUE(R) trade name (see, "Stores") and to shop-at-home tests in the second half of fiscal 1999. The rate of shop-at-home marketing expenses incurred in the second half of fiscal 1999 is expected to continue or increase. General, administrative and store operating expenses declined to $77.8 million in fiscal 1999 from $79.2 million in fiscal 1998, principally as a result of reductions in incentive compensation and insurance costs. As a percentage of net sales, general, administrative and store operating expenses decreased to 20.3% from 20.9%. During fiscal 1999, operating income was $22.1 million compared with operating income of $23.5 million in fiscal 1998. Net interest income increased to $1.7 million in fiscal 1999 from $1.2 million in fiscal 1998, from a higher level of cash and cash equivalents and higher interest rates. The Company had a provision for income taxes of $7.6 million in fiscal 1999, which included recording a deferred tax asset of $1.2 million from the establishment of state net operating loss carryforwards. The Company had a provision for income taxes of $10.1 million in fiscal 1998. The Company had net income of $16.1 million for fiscal 1999. The Company had net income of $18.0 million for fiscal 1998. Net income for fiscal 1998 included both a capital gain on the sale of the Company's minority interest in a privately held apparel design and manufacturing concern of $3.1 million ($2.0 million after tax) and a $0.2 million write-up of the deferred tax asset relating to compensation (see, "Fiscal 1998 Versus Fiscal 1997"). Excluding the $1.2 million benefit from the deferred tax asset in fiscal 1999 and the $3.1 million capital gain and the $0.2 million write-up of the deferred tax asset in fiscal 1998, the Company would have had net income of $14.9 million for fiscal 1999 and $15.8 million for fiscal 1998. The decline was attributable to the trade name conversion to AVENUE(R) and to the shop-at-home tests that commenced in the third quarter of fiscal 1999. Shop-at-home tests are continuing and are expected to continue to reduce net income from retail store sales. FISCAL 1998 VERSUS FISCAL 1997 Net sales for fiscal 1998 increased 4.6% from fiscal 1997, to $378.6 million from $361.8 million, principally from an increase in average price. Average stores open decreased 7.7% from 557 to 514 as underperforming stores were closed selectively. Comparable store sales for fiscal 1998 increased 10.4%. Gross profit increased to $102.8 in fiscal 1998 from $83.7 million in fiscal 1997, increasing as a percentage of net sales to 27.1% from 23.1%. The increase in gross profit as a percentage of net sales was primarily attributable to a decrease in buying and occupancy costs as a percentage of net sales and an increase in the merchandise margin rate. General, administrative and store operating expenses were $79.2 million in fiscal 1998 compared to $80.5 million in fiscal 1997, decreasing principally as a result of premiums received by the Company from a bank on proprietary credit card purchases of Company merchandise and of reduced store payroll expenses. As a percentage of net sales, general, administrative and store operating expenses decreased to 20.9% from 22.2%. During fiscal 1998, the Company had operating income of $23.5 million compared to operating income of $3.2 million in fiscal 1997. Fiscal 1998 operating income excludes the capital gain referred to in the last paragraph of this section. Net interest income was $1.2 million in fiscal 1998 compared to net interest expense of $0.2 million in fiscal 1997, primarily from interest earned on a higher level of cash and cash equivalents. The Company had a provision for income taxes of $10.1 million in fiscal 1998 compared with an income tax benefit of $0.8 million in fiscal 1997. Included in the fiscal 1997 income tax benefit is the reversal of a $1.8 million valuation allowance established in fiscal 1996 with respect to the deferred tax asset. Write-ups of the deferred tax asset were made of $0.2 million in fiscal 1998 and $1.0 million in fiscal 1997, respectively. These write-ups were based on the year end market value of the Company's Common Stock and arose from certain non-recurring charges in fiscal 1992. In fiscal 1992, the Company incurred a non-cash compensation expense of $15.6 million related to certain management stock options ("Performance Options"). The non-cash compensation expense resulted in the recognition of certain future tax benefits realizable at the time Performance Options are exercised based on an assumption that the market price of the Common Stock at the time of exercise would be $15 per share (the price of the initial public offering in fiscal 1992). The Company had net income of $18.0 million for fiscal 1998, which included the write- up of the compensation related deferred tax asset. Net income for fiscal 1998 included a capital gain on the sale of the Company's minority interest in a privately held apparel design and manufacturing concern of $3.1 million ($2.0 million after tax). The Company had net income of $4.8 million for fiscal 1997, which included the write-up of the compensation related deferred tax asset and the reversal of the valuation allowance. Excluding the capital gain, the write-ups and the allowance, the Company would have had net income of $15.8 million for fiscal 1998 and $2.0 million for fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES Net cash provided from operating activities in fiscal 1999 was $14.4 million. The Company's cash and cash equivalents decreased to $45.2 million at January 29, 2000 from $54.4 million at January 30, 1999. Inventory increased to $55.3 million at January 29, 2000 from $45.6 million at January 30, 1999. The Company's inventory levels peak in early May and November/December. During fiscal 1999, the highest inventory level was $66.5 million. Inventory levels increased in fiscal 1998 and in fiscal 1999, respectively, to build inventories for the Company's developing shoe business and to maintain higher levels of inventories of basic items of apparel to assure availability. In addition, in fiscal 1998 deliveries of Spring merchandise were received earlier than usual. Short-term trade credit represents a significant source of financing for domestic merchandise purchases. Trade credit arises from the willingness of the Company's domestic vendors to grant extended payment terms for inventory purchases and is generally financed either by the vendor or a third-party factor. Import purchases are made in U.S. dollars, are generally financed by trade letters of credit and constituted approximately 60% of total purchases in fiscal 1999. Accounts payable increased in fiscal 1998 and fiscal 1999, respectively, as a result of increased inventory levels. United Retail Group, Inc. and certain of its subsidiaries (collectively, the "Companies") are parties to a Financing Agreement, dated August 15, 1997, as amended (the "Financing Agreement"), with The CIT Group/Business Credit, Inc. ("CIT"). The Financing Agreement provides a revolving line of credit for a term ending August 15, 2001 in the aggregate amount of $40 million for the Companies, subject to availability of credit as described in the following paragraphs. The line of credit may be used on a revolving basis by any of the Companies to support trade letters of credit and standby letters of credit and to finance loans. As of January 29, 2000, trade letters of credit for the account of the Companies and supported by CIT were outstanding in the amount of $26.9 million. Subject to the following paragraph, the availability of credit (within the aggregate $40 million line of credit) to any of the Companies at any time is the excess of its borrowing base over the sum of (x) the aggregate outstanding amount of its letters of credit and its revolving loans, if any, and (y) at CIT's option, the sum of (i) unpaid sales taxes, and (ii) up to $500,000 in total liabilities of the Companies under permitted encumbrances (as defined in the Financing Agreement). The borrowing base, as to any of the Companies, is the sum of (x) a percentage of the book value of its eligible inventory (both on hand and unfilled purchase orders financed with letters of credit), ranging from 60% to 65% depending on the season, and (y) the balance in an account in its name that has been pledged to the lenders (a "Pledged Account"). (At January 29, 2000, the combined availability of the Companies was $13.1 million; the Pledged Account had a zero balance; the Company's cash on hand was unrestricted; and no loan had been drawn down.) The provisions of the preceding paragraph to the contrary notwithstanding, the Companies are required to maintain unused at all times combined availability of at least $5 million. Except for the maintenance of a minimum availability of $5 million and a limit on capital expenditures, the Financing Agreement does not contain any financial covenants. In the event a revolving loan is made to one of the Companies, interest is payable monthly based on a 360-day year at the prime rate or at two percent plus the LIBOR rate on a per annum basis, at the borrower's option. The line of credit is secured by a security interest in inventory and proceeds and by the balance from time to time in the Pledged Account. The Financing Agreement also includes certain restrictive covenants that impose limitations (subject to certain exceptions) on the Companies with respect to, among other things, making certain investments, declaring or paying dividends, making loans, engaging in certain transactions with affiliates, or consolidating, merging or making acquisitions outside the ordinary course of business. The Company's Board of Directors has authorized management, in its discretion, to repurchase up to 1,600,000 shares of Common Stock of the Company. No shares have been repurchased except in connection with the exercise of employee stock options in which a portion of the shares otherwise issuable has been classified as treasury shares (i) in lieu of the payment by the optionholder of the exercise price in cash and (ii) to finance the payment of income taxes incurred by the optionholder upon exercise of the option. The Company believes that its cash on hand, the availability of credit under the Financing Agreement on a revolving basis and cash flows from future operating activities will be adequate for the next 12 months to meet anticipated working capital needs, including seasonal inventory financing, the cost of developing and marketing the AVENUE(R) internet test site (see "Shop-at-Home") and increased retail store construction costs (see, "Stores"), and to pay for any purchases of Common Stock of the Company that may be made. This paragraph constitutes forward-looking information under the 1995 Private Securities Litigation Reform Act (the "Reform Act") and is subject to the uncertainties and other risk factors referred to under the caption "Future Results." STORES The Company leased 496 retail stores at January 29, 2000, of which 310 stores were located in strip shopping centers, 164 stores were located in malls and 22 stores were located in downtown shopping districts. Total retail square footage was 2.0 million square feet both at January 29, 2000 and a year earlier. The stores and proprietary credit cards under Company trade names that predate the Company's AVENUE(R) trade name were converted to the AVENUE(R) trade name in the third quarter of fiscal 1999. The Company's apparel and accessories bear the AVENUE(R) trademark, so the Company is now able to project a consistent brand image-to be "a brand that is a store." During the next 12 months, the Company plans to open from 35 to 50 new stores and to pay the costs of opening new stores and remodeling certain existing stores from its cash on hand. Substantially all of these costs will be capitalized although start-up costs are expensed. This paragraph constitutes forward-looking information under the Reform Act, which is subject to the uncertainties and other risk factors referred to under the caption "Future Results". SHOP-AT-HOME The Company intends to enter a new channel of distribution for its merchandise, internet and catalog sales ("shop-at-home"), in order to expand its customer base and attract more business from its existing customers. The Company has operated a test site (www.cloudwalkers.com) for the sale of its Cloudwalkers.com(TM) brand women's shoes on the internet since the third quarter of fiscal 1999. Catalogs for Cloudwalkers.com(TM) have also been distributed. Shop-at-home sales of Cloudwalkers.com(TM) have not been material. Fulfillment of shop-at-home sales has been outsourced. The Company plans to launch a site (www.avenue.com) during the second half of fiscal 2000 for the sale of its AVENUE(R) brand apparel and accessories on the internet. The Company may also distribute a catalogue for AVENUE(R) merchandise. This paragraph constitutes forward looking information under the Reform Act, which is subject to the uncertainties and other risk factors referred to under the caption "Future Results." There is no assurance of gross profit on shop-at-home sales. TAX MATTERS The Company's federal income tax returns for fiscal 1994, fiscal 1995 and fiscal 1996 were audited by the Internal Revenue Service and settled except for the auditor's disallowance of a refund claim, which the Company protested. The refund claim, which would affect stockholders' equity rather than the Company's earnings, is being reviewed by an IRS appeals officer pursuant to the Company's protest. RENOVATING COMPUTERIZED SYSTEMS The Company's operations are heavily dependent on date sensitive computerized systems, including (i) its management information systems, (ii) the technology, including microcontrollers, at the Company's national distribution center, (iii) the system for issuing and processing a trade letter of credit for each of the Company's purchase orders used to finance the Company's purchases of inventory abroad and (iv) links to a bank to authorize purchases by customers using the Company's proprietary credit card. The Company's management information systems department (the "MIS Department") renovated substantially all of the Company's applications software, systems software and hardware (collectively referred to as "Systems") to accommodate dates after 1999 (the "Year 2000 Project"). A few ancillary Systems failed to accommodate dates after 1999 in actual practice but the failures did not have a material adverse effect on the Company's operations and were promptly remedied. The Company's internal costs for the Year 2000 Project were principally the related payroll costs for the MIS Department, estimated to have been $1.1 million. The Company did not have a project tracking system for the time that its associates spent on the Year 2000 Project. The cost of special purchases for the Year 2000 Project was approximately $0.6 million, substantially all of which was incurred in fiscal 1998. Amounts equal to the internal and external costs of the Year 2000 Project, however, probably would have been spent on other software development projects, if the Year 2000 Project had not been necessary. Other software development projects deferred because of the Year 2000 Project probably would have improved the Company's operational efficiency but management does not believe that any of the deferred operational improvements would have been material to its operations. FUTURE RESULTS Future results could differ materially from those currently anticipated by the Company due to unforeseeable problems that might arise and possible (i) extreme or unseasonable weather conditions, (ii) miscalculation of fashion trends, (iii) shifting shopping patterns, both within the specialty store sector and in the shop-at-home channel of distribution, (iv) economic downturns, weakness in overall consumer demand, and variations in the demand for women's fashion apparel, (v) increase in prevailing rents, (vi) cost overruns, (vii) imposition by vendors, or their third-party factors, of more onerous payment terms for domestic merchandise purchases, (viii) acceleration in the rate of business failures and inventory liquidations in the specialty store sector of the women's apparel industry, and (ix) disruptions in the sourcing of merchandise abroad, including (a) political instability and economic distress in South Asia, (b) China's claims to sovereignty over Taiwan, (c) North Korea's claims to sovereignty over South Korea, (d) exchange rate fluctuations, (e) trade sanctions or restrictions, (f) changes in quota and duty regulations, (g) delays in shipping, or (h) increased costs of transportation. FISCAL FISCAL FISCAL FISCAL FISCAL YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED FEB. 3, FEB. 1, JAN. 31, JAN. 30, JAN. 29, 1996 1997 1998 1999 2000 -------- -------- -------- --------- -------- (SHARES AND DOLLARS IN THOUSANDS) INCOME STATEMENT DATA: Net Sales......................$369,173 $363,074 $361,751 $ 378,562 $382,631 Cost of goods sold, including buying and occupancy costs... 292,790 289,421 278,078 275,811 282,754 Gross profit................... 76,383 73,653 83,673 102,751 99,877 General, administrative and store operating expenses..... 80,170 80,063 80,469 79,221 77,778 Operating (loss) income........ (3,787) (6,410) 3,204 23,530 22,099 Non-operating income........... 0 0 0 3,113 0 Interest income (expense), net. 119 (413) (154) 1,201 1,688 (Loss) Income before taxes..... (3,668) (6,823) 3,050 27,844 23,787 (Benefit from) provision for income....................... (957) (1,018) (828) 10,077 7,638 Provision for (benefit from) write-down (write-up) of the compensation related deferred tax asset.................... 1,928 342 (953) (213) 0 Net (loss) income.............. (4,639) (6,147) 4,831 17,980 16,149 Net (loss) income per common share: Basic....................... ($.38) ($.50) $.40 $1.38 $1.23 Diluted..................... ($.38) ($.50) $.37 $1.31 $1.17 Weighted average number of common shares outstanding: Basic....................... 12,190 12,190 12,190 13,056 13,156 Diluted..................... 12,190 12,190 13,187 13,736 13,852 BALANCE SHEET DATA (AT PERIOD END): Working capital................$ 38,394 $ 36,941 $ 43,875 $ 60,343 $ 61,098 Total assets................... 143,955 138,331 142,614 163,096 180,338 Long-term debt................. 0 0 0 0 0 Distribution center financing.. 12,333 11,355 10,308 9,172 7,944 Total stockholders' equity..... 86,283 80,213 85,044 101,147 117,757 The Selected Financial Data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's Consolidated Financial Statements, including the notes thereto. The data for the periods indicated has been derived from the Company's Consolidated Financial Statements, which have been audited by Pricewaterhouse Coopers LLP, independent accountants, whose report for the three fiscal years ended January 29, 2000 appears elsewhere in this Annual Report. * * * * * * * * * * * * United Retail Group, Inc. is a leading specialty retailer of products including AVENUE(R) brand apparel and accessories for large-size women and Cloudwalkers.com(TM) brand shoes. The Company's brands present a fashion-current, upscale image at prices that target the middle mass market. The Company operates a nationwide chain of retail stores and intends to enter the internet and catalog channel of distribution to expand its customer base and attract more business from its existing customers. * * * * * * * * * * * * UNITED RETAIL GROUP CORPORATE OFFICERS & DIRECTORS Raphael Benaroya Chairman of the Board, President and Chief Executive Officer* George R. Remeta Vice Chairman - Chief Administrative Officer, Secretary and Director* Kenneth P. Carroll Senior Vice President - General Counsel* Ellen Demaio Senior Vice President - Merchandise James Broderick Vice President - Shop-At-Home Raymond W. Brown Vice President - Associate Services Carrie Cline-Tunick Vice President - Product Design and Development Julie L. Daly Vice President - Strategic Planning Jeff Fink Vice President - Real Estate Kent Frauenberger Vice President - Logistics Jon Grossman Vice President - Finance* Charles E. Naff Vice President - Sales Bradley Orloff Vice President - Marketing Robert Portante Vice President - MIS Gerald Schleiffer Vice President - Planning and Distribution Fredric E. Stern Vice President - Controller Joseph A. Alutto A Director of the Company, is the Dean of Max M. Fisher School of Business at Ohio State University Russell Berrie A Director of the Company, is the Chairman of the Board and Chief Executive Officer of Russ Berrie and Company, Inc., an international toy manufacturer Joseph Ciechanover A Director of the Company, is the Chairman of the Board of El Al Israel Airlines Ltd. Michael Goldstein A Director of the Company, is the Chairman of the Board of Toys "R" Us, a retailer Ilan Kaufthal A Director of the Company, is a Vice Chairman of Schroder & Co., Inc., an investment banking firm Vincent P. Langone A Director of the Company, is Chief Executive Officer of Formica Corporation, a manufacturer of Formica (R) brand laminate Richard W. Rubenstein A Director of the Company, is a Partner of Squire, Sanders & Dempsey, a law firm *An officer of the parent holding company rather than the operating subsidiary, United Retail Incorporated or United Retail Logistics Operations Incorporated * * * * * * * * * * * * SHAREHOLDER INFORMATION The Company's Annual Report on Form 10-K, including financial statement schedules, filed with the Securities and Exchange Commission ("SEC"), is available without charge upon written request to Kenneth P. Carroll, Esq., Senior Vice President -- General Counsel, at the Company's headquarters. Mail should be addressed to 365 West Passaic Street, Rochelle Park, New Jersey 07622; e-mail should be addressed to kcarroll@unitedretail.com. The Annual Report on Form 10-K is also available through the SEC at http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market under the symbol "URGI." The last reported sale price of the Common Stock on the Nasdaq National Market on April 10, 2000 was 9-5/8. The following table sets forth the reported high and low sales prices of the Common Stock as reported by Nasdaq for each calendar quarter indicated. High Low High Low -------------------------------------------- 1998 1999 ---- ---- First Quarter $6-3/4 $3-5/8 $11-5/8 $9-3/8 Second Quarter $16-13/16 $3-5/16 $15-5/16 $10-1/2 Third Quarter $16-1/8 $7-5/8 $15-1/8 $9-5/8 Fourth Quarter $12-1/8 $6-7/8 $12-1/2 $7-15/16 The Company has not paid dividends on its Common Stock and has no present intention of doing so. Also, the Financing Agreement between the Company and certain of its subsidiaries and The CIT Group/Business Credit, Inc., dated August 15, 1997, as amended, forbids the payment of dividends. The Company's transfer agent and registrar is Continental Stock Transfer and Trust Co., 2 Broadway, New York, New York 10004. At April 6, 2000 there were 430 record owners of Common Stock. This report contains certain forward-looking statements concerning the Company's operations and performance. (In making these statements, the Company intends to take advantage of the provisions of the 1995 Private Securities Litigation Reform Act.) Such forward-looking statements are subject to uncertainties and other risk factors that could cause future results to differ materially from those currently anticipated by the Company. Certain risk factors are referred to in this report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Future Results." Other factors are detailed in the Company's filings with the SEC, including the Company's Annual Report on Form 10-K. EX-23 7 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-47407, 33-48500, 33-48501, 333-64643 and 33-67288) of United Retail Group, Inc. and Subsidiaries (the "Company") of our report dated February 12, 2000, relating to the financial statements, which appears in the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Selected Financial Data" which appears in the Annual Report to Stockholders. /s/ Pricewaterhousecoopers LLP PRICEWATERHOUSECOOPERS LLP New York, New York April 21, 2000 EX-23 8 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS The undersigned hereby consents to the inclusion as an exhibit to this Annual Report on Form 10-K for the year ended January 29, 2000 of our report dated February 24, 2000, on our audits of the statements of net assets available for benefits of the United Retail Group Retirement Savings Plan (the "Plan") as of December 31, 1999 and 1998, and the related statements of changes in net assets available for benefits for the years then ended. The undersigned also hereby consents to the incorporation of such report by reference in the Registration Statement on Form S-8 of United Retail Group, Inc. (the "Company") with respect to the plan and its investment in shares of common stock of the Company. /s/ ARY, EARMAN AND ROEPCKE ARY, EARMAN AND ROEPCKE Columbus, Ohio March 31, 2000 EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-29-2000 JAN-31-1999 JAN-29-2000 45,223 0 1,146 0 55,323 109,604 122,841 59,539 180,338 48,506 7,944 0 0 14 117,743 180,338 382,631 382,631 282,754 282,754 77,778 0 (1,688) 23,787 7,638 16,149 0 0 0 16,149 $1.23 $1.17
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