10-Q 1 august10q.txt QUARTERLY REPORT FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 3, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to _____________________ Commission file number 00019774 ---------- United Retail Group, Inc. ------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 51 0303670 --------------------------- ----------------------- State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 365 West Passaic Street, Rochelle Park, NJ 07662 ------------------------------------------ ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 845-0880 --------------- ----------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 _______ APPLICABLE ONLY TO ISSUERS 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 ISSUERS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of August 3, 2002, 12,937,304 units, each consisting of one share of the registrant's common stock, $.001 par value per share, and one stock purchase right, were outstanding. The units are referred to herein as "shares." PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (dollars in thousands) August 3, February 2, August 4, 2002 2002 2001 -------------- ------------- -------------- ASSETS (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $28,978 $27,812 $37,873 Accounts receivable 1,721 1,455 1,959 Inventory 58,148 61,793 56,463 Prepaid rents 4,921 4,860 4,719 Other prepaid expenses 3,913 3,454 3,839 -------------- ------------- -------------- Total current assets 97,681 99,374 104,853 Property and equipment, net 89,397 88,621 82,053 Deferred charges and other intangible assets, net of accumulated amortization of $2,793, $2,761 and $2,868 6,200 6,232 7,339 Deferred income taxes 1,839 1,184 1,078 Other assets 1,059 1,871 249 -------------- ------------- -------------- Total assets $196,176 $197,282 $195,572 ============== ============= ============== LIABILITIES Current liabilities: Short-term distribution center financing $1,491 $1,435 $1,449 Short-term capital leases 1,803 1,491 - Accounts payable and other 31,494 32,963 33,567 Accrued expenses 23,386 20,339 23,212 Deferred income taxes 138 423 32 -------------- ------------- -------------- Total current liabilities 58,312 56,651 58,260 Long-term distribution center financing 4,421 5,181 5,913 Long-term capital leases 6,506 7,213 - Other long-term liabilities 6,756 6,433 6,267 -------------- ------------- -------------- Total liabilities 75,995 75,478 70,440 -------------- ------------- -------------- STOCKHOLDERS' EQUITY Preferred stock, $.001 par value; authorized 1,000,000 shares; 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 shares; issued 14,248,200; 14,236,000; 14,236,000 shares; outstanding 12,937,304; 13,203,633; 13,263,633 shares 14 14 14 Additional paid-in capital 83,473 80,408 80,351 Retained earnings 44,370 46,133 49,043 Treasury stock (1,310,896; 1,032,367; 972,367 shares) at cost (7,676) (4,751) (4,276) -------------- ------------- -------------- Total stockholders' equity 120,181 121,804 125,132 -------------- ------------- -------------- Total liabilities and stockholders' equity $196,176 $197,282 $195,572 ============== ============= ============== The accompanying notes are an integral part of the Consolidated Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (dollars in thousands, except per share amounts) (Unaudited) Thirteen Weeks Ended Twenty-Six Weeks Ended -------------------------------- ------------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 -------------- --------------- -------------- -------------- Net sales $113,674 $107,272 $229,248 $216,149 Cost of goods sold, including buying and occupancy costs 92,609 82,082 177,398 162,597 -------------- --------------- -------------- -------------- Gross profit 21,065 25,190 51,850 53,552 General, administrative and store operating expenses 28,142 25,063 54,155 48,622 -------------- --------------- -------------- -------------- Operating (loss) income (7,077) 127 (2,305) 4,930 Interest (expense) income, net (184) 214 (388) 408 -------------- --------------- -------------- -------------- (Loss) income before income taxes (7,261) 341 (2,693) 5,338 (Benefit) provision for income taxes (2,622) 134 (930) 1,998 -------------- --------------- -------------- -------------- Net (loss) income ($4,639) $207 ($1,763) $3,340 ============== =============== ============== ============== Net (loss) income per share Basic ($0.35) $0.02 ($0.13) $0.25 ============== =============== ============== ============== Diluted ($0.35) $0.02 ($0.13) $0.25 ============== =============== ============== ============== Weighted average number of shares outstanding Basic 13,107,544 13,272,787 13,155,831 13,263,732 Common stock equivalents (stock options) 0 359,230 0 267,826 -------------- --------------- -------------- -------------- Diluted 13,107,544 13,632,017 13,155,831 13,531,558 ============== =============== ============== ============== The accompanying notes are an integral part of the Consolidated Financial Statements.
UNITED RETAIL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited) Twenty-Six Weeks Ended ---------------------------------- August 3, August 4, 2002 2001 -------------- ------------- Cash Flows From Operating Activities: Net (loss) income ($1,763) $3,340 Adjustments to reconcile net (loss) income to net cash provided from operating activities: Depreciation and amortization of property and equipment 6,053 5,247 Amortization of deferred charges and other intangible assets 311 224 Loss on disposal of assets 254 71 Deferred compensation 156 166 Provision for deferred income taxes (940) (740) Deferred lease assumption revenue amortization (76) (157) Changes in operating assets and liabilities: Accounts receivable (266) 614 Income taxes 1,899 3,499 Inventory 3,645 2,539 Accounts payable and accrued expenses (308) (1,544) Prepaid expenses (520) (578) Other assets and liabilities 856 (940) -------------- ------------- Net Cash Provided from Operating Activities 9,301 11,741 -------------- ------------- Investing Activities: Capital expenditures (7,084) (9,720) Deferred payment for property and equipment 528 (148) -------------- ------------- Net Cash Used in Investing Activities (6,556) (9,868) -------------- ------------- Financing Activities: Repayments of long-term debt (704) (621) Payments on capital lease obligations (859) - Issuance of loans to officers (52) (100) Treasury stock acquired - (86) Proceeds from exercise of stock options 36 26 -------------- ------------- Net Cash Used in Financing Activities (1,579) (781) -------------- ------------- Net increase in cash and cash equivalents 1,166 1,092 Cash and cash equivalents, beginning of period 27,812 36,781 -------------- ------------- Cash and cash equivalents, end of period $28,978 $37,873 ============== =============
UNITED RETAIL GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The consolidated financial statements include the accounts of United Retail Group, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated. The consolidated financial statements as of and for the thirteen weeks ended August 3, 2002 and August 4, 2001 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, the consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the Company's 2001 Annual Report and 2001 Form 10-K. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments necessary (which are of a normal recurring nature) to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year. Certain prior year balances have been reclassified to conform with the current year presentation. 2. Net (Loss) Income Per Share Basic per share data has been computed based on the weighted average number of shares of common stock outstanding. Diluted per share data has been computed on the basic plus the dilution of stock options with the exception of the thirteen and twenty-six weeks ended August 3, 2002, where the effect of stock options is anti-dilutive. Options to purchase shares of common stock which 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:
Thirteen Weeks Ended Twenty-Six Weeks Ended ----------------------------- ------------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 ----------- ---------- ---------- --------- Options 791,072 542,500 798,572 832,572 Range of option prices per share $8.50 - $15.13 $9.13 - $15.13 $8.13 - $15.13 $7.56 - $15.13
3. Financing Arrangements 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 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 (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, 2005 in the aggregate amount of $40 million for the Companies, subject to availability of credit according to a borrowing base computation. 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. 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 significant 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 a bank account that has been pledged to the lenders. 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. At August 3, 2002, the combined availability of the Companies was $15.0 million, no balance was in the pledged account, the aggregate outstanding amount of letters of credit, including $1.6 million of standby letters of credit, arranged by CIT was $25.0 million and no loan had been drawn down. The Company's cash on hand was unrestricted. In January 2002, the Company executed a five-year $8.2 million sale and lease back agreement for certain fixtures in new and remodeled stores. The lease bears an interest rate of 7.0% per annum. The Company was required to pay sales tax as part of the agreement. The agreement provides for equal monthly rent payments beginning February 2002 and gives the Company the option of buying back the fixtures at the end of the term for a nominal price. Between January 2002 and July 2002, the Company executed a series of three-year capital lease agreements bearing interest at rates from 6.09% to 6.44% per annum in the aggregate of approximately $1.0 million for call center systems at the Company's national distribution center in Troy, Ohio. The Company has the option of buying the systems at the end of the term for a nominal price. 4. Income Taxes The (benefit) provision for income taxes consists of (dollars in thousands):
Thirteen Weeks Ended Twenty-Six Weeks Ended ------------------------ -------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 --------- --------- --------- --------- Currently payable: Federal ($1,720) $665 ($156) $2,483 State 30 96 166 255 ------- ---- ------ ------- (1,690) 761 10 2,738 ------- ---- ------ ------- Deferred: Federal (767) (516) (774) (609) State (165) (111) (166) (131) ---- ------ ----- ----- (932) (627) (940) (740) -------- ------ ----- ------- ($2,622) $134 ($930) $1,998 ======== ====== ===== =======
Reconciliation of the (benefit) provision for income taxes from the U.S. Federal statutory rate to the Company's effective rate is as follows (dollars in thousands):
Thirteen Weeks Ended ----------------------------------------------- August 3, 2002 August 4, 2001 ------------------ ------------------ Tax at Federal rate ($2,541) (35.0%) $ 119 35.0% State income taxes, net of Federal benefit (88) (1.2%) (9) (2.7%) Other 7 0.1% 6 1.7% Goodwill amortization - 0.0% 18 5.3% --------- ------ ------ ----- ($2,622) (36.1%) $ 134 39.3% ========== ======= ======= ===== Twenty-Six Weeks Ended --------------------------------------------- August 3, 2002 August 4, 2001 ------------------ ------------------- Tax at Federal rate ($943) (35.0%) $ 1,868 35.0% State income taxes, net of federal benefit - 0.0% 81 1.5% Goodwill amortization - 0.0% 36 0.7% Other 13 0.5% 13 0.2% ----- ------ ------- ------- ($930) (34.5%) $ 1,998 37.4% ====== ======= ======= =======
The net deferred tax asset reflects the tax impact of temporary differences. The components of the net deferred tax asset as of August 3, 2002 are as follows (dollars in thousands): Net long-term asset: Accruals and reserves $3,171 State NOL's 1,240 Compensation 504 Depreciation (3,076) ------- $1,839 Net current liability: Prepaid rent $1,861 State NOL's (120) Accruals and reserves (583) Inventory (1,020) ------- $138 ------- Net deferred tax asset $1,701 ======== 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 carryforward period available under the tax law at the time of the tax deduction. Based on management's assessment, it is more likely than not that the net deferred tax asset will be realized through future taxable earnings or available carrybacks. The NOL's are scheduled to expire beginning in tax years ending fiscal 2003 through fiscal 2017. 5. Advances To Officers Advances were made by the Company in February 1998, February 1999 and November 1999 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, totaling approximately $2.3 million. Cumulative interest on the advances at the prime rate through November 30, 2001 was approximately $0.5 million. On November 30, 2001 Mr. Benaroya signed a consolidated promissory note in the amount of approximately $2.8 million, representing the cumulative advances and accrued interest as of that date, with a term of two years. Mr. Benaroya repaid the note with accrued interest as of July 1, 2002 by surrendering 278,529 shares of Company common stock. The surrendered shares had a value equivalent to the consolidated note based on the closing price on the NASDAQ Stock Market on the preceding trading day. The Compensation Committee of the Board of Directors, which administers the stock option program, met on the morning of July 1, 2002, and approved the transaction. 6. Stock Appreciation Rights Plan In May 2000, May 2001 and May 2002, each non-management Director received an annual award (a "SAR Award") under the Company's Stock Appreciation Rights Plan that provides for a cash payment by the Company when the Director exercises the stock option granted to him contemporaneously. The payment will be an amount equivalent to the after tax equity in the option that is being exercised, that is, the excess of the then current market price of the shares issued over the exercise price of the corresponding option net of any personal income tax withholding on the gain arising from the exercise. 7. Segment Information The Company operates its business in two reportable segments: Avenue Retail and Shop @ Home (see Management's Discussion and Analysis of Financial Condition and Results of Operations in the Quarterly Report on Form 10-Q for the period ended August 3, 2002). In deciding how to allocate resources and assess performance, the Company regularly evaluates the performance of its operating segments on the basis of net sales and earnings from operations. Certain information relating to the Company's reportable operating segments is set forth below (dollars in thousands):
Thirteen Weeks Ended Twenty-Six Weeks Ended ------------------------- ---------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 -------------- --------- --------- --------- Net sales: Avenue Retail $111,946 $103,790 $225,120 $208,811 Shop @ Home 1,728 3,482 4,128 7,338 -------- -------- -------- -------- $113,674 $107,272 $229,248 $216,149 ======== ======== ======== ======== (Loss) Earnings from operations*: Avenue Retail ($2,849) $4,382 $5,187 $13,226 Shop @ Home (1,429) (1,259) (2,513) (3,324) -------- -------- ------- -------- ($4,278) $3,123 $2,674 $9,902 ======== ======== ======= ========
* Represents (loss) earnings from operations before unallocated corporate expenses. The Company evaluates the performance of its assets on a consolidated basis. Therefore, separate financial information for the Company's assets on a segment basis is not available. The following table sets forth a reconciliation of the reportable segment's earnings from operations to the Company's consolidated income before income taxes (dollars in thousands):
Thirteen Weeks Ended Twenty-Six Weeks Ended ---------------------------- ------------------------- August 3, August 4, August 3, August 4, 2002 2001 2002 2001 --------- ---------- --------- --------- (Loss) Earnings from operations for reportable segments ($4,278) $ 3,123 $ 2,674 $ 9,902 Unallocated corporate expenses (2,799) (2,996) (4,979) (4,972) Interest (expense) income, net (184) 214 (388) 408 ------- ------- ------- ------- (Loss) income before income taxes ($7,261) $ 341 ($2,693) $ 5,338 ======= ======= ======= =======
8. New Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). This statement is effective for fiscal years beginning after December 15, 2001 and may not be retroactively applied to financial statements of prior periods. Companies are required to reassess the useful lives of all intangible assets and will no longer amortize goodwill. Additionally, goodwill will be subject to an impairment test initially and annually thereafter. The impairment test for goodwill is a two-step process. The first step of the transitional impairment test consists of comparing the carrying amount of the net assets of each reporting unit identified (a concept introduced within SFAS No. 142), including goodwill, to its fair value. If the carrying amount exceeds the fair value, the second step of the goodwill impairment test must be completed as soon as possible, but no later than the end of the year of adoption. The second impairment test consists of comparing the implied fair value (as defined in SFAS No. 142) of the reporting unit's goodwill to its carrying value. The Company adopted SFAS No. 142 in the first quarter of fiscal 2002. The Company has approximately $5,611,000 in goodwill as of February 2, 2002 and amortized approximately $206,000 in fiscal 2001. As a result of the adoption of SFAS No. 142, the Company will no longer amortize its goodwill, which will reduce operating expense. (The Company does not have any intangible assets with indefinite lives, other than goodwill.) Management has completed the transitional goodwill impairment test and has determined that no impairment exists as a result of the adoption of SFAS No. 142. The Company will continue to test goodwill for impairment on an annual basis and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). This statement is effective for fiscal years beginning after December 15, 2001. The objectives of SFAS No. 144 are to address significant issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Assets to be Disposed Of," establish a single accounting model for the disposal of long-lived assets, provide impairment criteria for all amortizable intangible assets and eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 extends discontinued operations reporting to any component of an entity with operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. SFAS No. 144 was adopted by the Company at the beginning of fiscal 2002. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement rescinds or amends existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. SFAS No. 145 is effective for transactions occurring after May 15, 2002. The Company has adopted the provisions of this standard and such adoption had no impact on the Company's financial position, results of operations or cash flows. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. This statement nullifies EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. FASB Concept Statement No. 6, "Elements of Financial Statements" defines when a liability is incurred. 9. Supplemental Cash Flow Information Non-cash financing activities include the repayment of an officer loan with accrued interest as of July 1, 2002 with the repayment made by surrendering 278,529 shares of Company common stock with a market value equal to the principal and interest, in lieu of cash payment. Non-cash investing activities include $0.5 million related to capital lease obligations incurred during fiscal 2002. 10. 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, annual results of operations or cash flows. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Second quarter of fiscal 2002 versus second quarter of fiscal 2001 Net sales for the second quarter of fiscal 2002 increased 6.0% from the second quarter of fiscal 2001, to $113.7 million from $107.3 million from an increase in units sold. Comparable store sales for the second quarter of fiscal 2002 increased 3.7%. Average stores open increased from 538 to 555. Internet and catalog (collectively, "shop@home") sales were $1.7 million in the second quarter of fiscal 2002 compared with $3.5 million in the second quarter of fiscal 2001, primarily from a reduction in the number of catalogs mailed. Gross profit was $21.1 million in the second quarter of fiscal 2002 compared with $25.2 million in the second quarter of fiscal 2001, decreasing as a percentage of net sales to 18.5% from 23.5%. The decrease in gross profit as a percentage of net sales was from lower merchandise margins. Gross profit levels in the future will be subject to the uncertainties and other risk factors referred to under the caption "Future Results." General, administrative and store operating expenses increased to $28.1 million in the second quarter of fiscal 2002 from $25.1 million in the second quarter of fiscal 2001, primarily from increases in insurance expense, store payroll and group health insurance claims as percentages of net sales. As a percentage of net sales, general, administrative and store operating expenses increased to 24.8% from 23.4%. The Company incurred an operating loss of $7.1 million in the second quarter of fiscal 2002 compared with operating income of $0.1 million in the second quarter of the previous year. Operating income reflects the combined results of two business segments, retail store sales and shop@home sales. During the second quarter of fiscal 2002, the loss from operations before unallocated corporate expenses was $2.8 million from retail store sales and $1.4 million from shop@home sales. During the second quarter of fiscal 2001, income (loss) from operations before unallocated corporate expenses was $4.4 million from retail store sales and ($1.3 million) from shop@home sales. Net interest expense was $0.2 million in the second quarter of fiscal 2002 and net interest income was $0.2 million in the second quarter of fiscal 2001, as a result of lower cash balances, lower interest rates on cash balances and higher borrowings. The Company had a (benefit) provision for income taxes of ($2.6 million) in the second quarter of fiscal 2002 and $0.1 million in the second quarter of fiscal 2001. The Company incurred a net loss of $4.6 million in the second quarter of fiscal 2002 and had net income of $0.2 million in the second quarter of fiscal 2001. See, "Critical Accounting Policies" for a discussion of estimates made by management in preparing financial statements in accordance with generally accepted accounting principles. First half of fiscal 2002 versus first half of fiscal 2001 Net sales for the first half of fiscal 2002 increased 6.1% from the first half of fiscal 2001 to $229.2 million from $216.1 million from an increase in units sold. The average number of transactions per store increased. Comparable store sales for the first half of fiscal 2002 increased 3.2%. Average stores open increased from 532 to 555. Shop@home sales were $4.1 million in the first half of fiscal 2002 compared with $7.3 million in the first half of fiscal 2001, primarily from a reduction in the number of catalogs mailed. Gross profit was $51.9 million in the first half of fiscal 2002 compared with $53.6 million in the first half of fiscal 2001, decreasing as a percentage of net sales to 22.6% from 24.8%. The decrease in gross profit as a percentage of net sales was from lower merchandise margins. General administrative and store operating expenses increased to $54.2 million in the first half of fiscal 2002 from $48.6 million in the first half of fiscal 2001, primarily from increases in insurance expense, store payroll and group health insurance claims as percentages of net sales. As a percentage of net sales, general, administrative and store operating expenses increased to 23.6% from 22.5%. The Company incurred an operating loss of $2.3 million in the first half of fiscal 2002 compared with operating income of $4.9 million in the first half of the previous year. Operating income reflects the combined results of two business segments, retail store sales and shop@home sales. During the first half of fiscal 2002, the income (loss) from operations before unallocated corporate expenses was $5.2 million from retail store sales and ($2.5 million) from shop@home sales. During the first half of fiscal 2001, income (loss) from operations before unallocated corporate expenses was $13.2 million from retail store sales and ($3.3 million) from shop@home sales. Net interest expense was $0.4 million in the first half of fiscal 2002 and net interest income was $0.4 million in the first half of fiscal 2001, as a result of lower cash balances, lower interest rates on cash balances and higher borrowings. The Company had a (benefit) provision for income taxes of ($0.9 million) in the first half of fiscal 2002 and $2.0 million in the first half of fiscal 2001. The Company incurred a net loss of $1.8 million in the first half of fiscal 2002 and had net income of $3.3 million in the first half of fiscal 2001. August Sales Net sales for August 2002 increased 3.6% from August 2001, to $27.3 million from $26.3 million. Comparable store sales for the month increased 1.7%. Liquidity and Capital Resources Net Cash from Operations During the 26 weeks ended August 3, 2002, net cash provided from operating activities was $9.3 million. Balance Sheet Sources of Liquidity The Company's cash and cash equivalents decreased to $29.0 million at August 3, 2002 from $37.9 million at August 4, 2001, principally from capital expenditures and an increase in inventory. Cash and cash equivalents were $27.8 million at February 2, 2002. Inventory increased to $58.1 million at August 3, 2002 from $56.5 million at August 4, 2001 principally as a result of a 3.8 % increase in retail selling square footage. At February 2, 2002, inventory was $61.8 million. See, "Critical Accounting Policies - Inventory" for a discussion of estimates made by management in stating inventory in financial statements prepared in accordance with generally accepted accounting principles. Property and equipment, net increased to $89.4 million at August 3, 2002 from $82.1 million at August 4, 2001 and $88.6 million at February 2, 2002, primarily from a new shop@home call center and fulfillment capability at the Company's national distribution center in Troy, Ohio, and from constructing new stores and remodeling existing stores. Other Liquidity Sources Import purchases by the Company are made in U.S. dollars, are generally financed by trade letters of credit and constituted approximately 54% of total purchases in fiscal 2001. 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, 2005 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 August 3, 2002, trade letters of credit for the account of the Companies and supported by CIT were outstanding in the amount of $23.4 million and standby letters of credit were outstanding in the amount of $1.6 million, principally in connection with insurance policies issued to the Company. 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 from time to time in an account in its name that has been pledged to the lenders (a "Pledged Account"). (At August 3, 2002, the combined availability of the Companies was $15.0 million; the Pledged Account had a zero balance; the Companies' 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. 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 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. 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 LIBOR plus two percent on a per annum basis, at the borrower's option. 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. The availability of trade credit depends on the Company's liquidity in general and the amount of its cash and cash equivalents and availability of unused credit under the Financing Agreement in particular. As of July 1, 2002, an outstanding loan to an officer in the principal amount of approximately $2.8 million plus accrued interest was paid by the surrender and cancellation of 278,529 shares of Company stock that the officer owned. The cancelled shares became treasury stock. The cancelled shares had a value equivalent to the loan based on the closing price on the NASDAQ Stock Market on the preceding trading day. (The exchange was approved in advance by the Compensation Committee of the Board of Directors on the morning of July 1, 2002.) Capital Expenditure Budget, Principal Contractual Obligations and Other Commercial Commitments Capital expenditures for the second half of fiscal 2002 are budgeted at approximately $7.9 million. See, "Store Expansion." The Company's principal contractual obligations and commercial commitments at August 3, 2002 (see, also "Critical Accounting Policies - Incurred But Not Reported Claims For Personal Injuries and Medical Benefits" and "Store Expansion") are summarized in the following charts.
----------------------------- --------------- ------------------------------------------------------------------ Payments Due by Period (000's omitted) ----------------------------- --------------- ------------------------------------------------------------------ Principal Contractual Item Total Less than After Obligations (000's 1 Year 1-3 Years 4-5 Years 5 Years omitted) ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Distribution Center Note $1,095 $933 $162 $0 $0 ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Distribution Center Mortgage $4,817 $558 $1,273 $1,512 $1,474 ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Fixture Sale and Lease Back $7,428 $1,487 $3,305 $2,636 $0 ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Call Center Capital Lease $881 $316 $565 $0 $0 ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Total Obligations $14,221 $3,294 $5,305 $4,148 $1,474 ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- ----------------------------- --------------- ---------------- ---------------- ---------------- --------------- Amount of Commitment per Period (000's omitted) ----------------------------- --------------- ------------------------------------------------------------------ Other Commercial Commitments Item Total Less than Over (000's 1 Year 1-3 Years 4-5 Years 5 Years omitted) ----------------------------- --------------- --------------- ---------------- ---------------- ---------------- Trade Letters of Credit $23,384 $23,384 $0 $0 $0 ----------------------------- --------------- --------------- ---------------- ---------------- ----------------- Standby Letters of Credit $1,613 $ 1,613 $0 $0 $0 ----------------------------- --------------- --------------- ---------------- ---------------- ----------------- Operating Leases $322,729 $44,334 $82,211 $67,785 $128,399 ----------------------------- --------------- --------------- ---------------- ---------------- ----------------- Total Commitments $347,726 $69,331 $82,211 $67,785 $128,399 ----------------------------- --------------- --------------- ---------------- ---------------- -----------------
The Company expects that net cash will be provided from operating activities during the second half of fiscal 2002 and the first half of fiscal 2003. On that assumption, the Company believes that its cash on hand and the availability of short-term trade credit and of credit under the Financing Agreement on a revolving basis will be adequate for the next 12 months to meet its cash requirements, including (i) anticipated working capital needs, including seasonal inventory financing, (ii) investing activities, including construction costs for the stores that it is committed to open (see, "Store Expansion") and (iii) financing activities, including payments due on its principal contractual obligations. This paragraph constitutes forward-looking information under the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and is subject to the uncertainties and other risk factors referred to under the caption "Future Results." Critical Accounting Policies Introduction Financial statements prepared by companies in accordance with generally accepted accounting principles are affected by the policies followed by their managements in preparing them. Some accounting policies require difficult, subjective or complex judgments by corporate management, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Among the most important accounting policies of the Company that involve such management judgments are (i) the use of the retail method of accounting for inventory, (ii) the use of estimates of incurred but not reported claims for uninsured damages for personal injuries, for self-insured workers' compensation benefits and for benefits under the Company's self-insured medical, dental and prescription plans for its associates, as well as future development costs of reported claims (collectively, "IBNR Claims") and (iii) the treatment of tax benefits from the Company's net deferred tax asset. Inventory The margins at which the Company's inventories can be sold are central to its business. In accordance with generally accepted accounting principles, inventories are stated at the lower of cost or market. At August 3, 2002, inventories were stated at $58.1 million. The Company utilizes the retail method, under which a cost-to-price relationship is developed on the basis of original cost as compared to initial retail selling price. The valuation of inventories at cost and the resulting margins are calculated by applying this cost-to-price relationship to the retail value of inventories. Permanent markdowns, when taken, reduce both the price and cost components of inventory on hand, which maintains the established cost-to-price relationship. Consequently, the use of the retail inventory method results in valuing inventories at lower of cost or market. Inherent in the retail inventory method are management estimates on current and future selling value of the inventory which can significantly impact the ending inventory valuation at cost, as well as resulting margins. The necessity for management estimates, coupled with the fact that the retail inventory method is an averaging process, can produce inventory valuations at any point in time that are inexact. Further, deferred markdowns can result in an overstatement of inventory cost under the lower of cost or market principle. Accordingly, at the end of each fiscal quarter, management conducts a thorough review of inventory on hand and, based on its business judgment, may reduce further the carrying value of inventory by recording a markdown reserve for inventory with sales performance below expectations and/or unsold quantities in excess of expectations. Taking a markdown reserve reduces the inventory recorded on the Company's balance sheet and is charged against the Company's cost of goods sold for the quarter just ended. If inventories, net of reserves, were overestimated at the end of a quarter, assets and income for that quarter would be overstated and margins for the beginning of the next quarter would come in lower. (The opposite would be true if inventories were underestimated.) Consistency in inventory valuation practices is one of the Company's important accounting objectives. The Company's management believes that the inventory shown on the balance sheets at August 3, 2002 and August 4, 2001 included in the financial statements contained in this Quarterly Report (this "Report") were properly stated in all material respects, subject to (i) changes in consumer spending patterns, consumer preferences and overall economic conditions, (ii) changes in weather patterns, (iii) the seasonality of the retail industry, (iv) risks related to consumer acceptance of the Company's products, and (v) war risks. Incurred But Not Reported Claims For Personal Injuries and Medical Benefits In accordance with generally accepted accounting principles, the Company records a liability for IBNR Claims, which is reflected in general, administrative and store operating expenses as at the end of each fiscal quarter. This liability is based on (i) the number and size of outstanding claims, (ii) a comparison between the dates claims were incurred in prior years and the dates they were paid, (iii) an analysis of the amounts previously paid, (iv) projections of inflation in medical costs and (v) advice from time to time from its insurance broker and carriers with respect to damages for personal injuries and for workers' compensation benefits and from an insurance consultant with respect to its benefit plans for associates. (The Company has insurance policies with coverage for personal injury claims but it remains liable for a self-insured retention. The Company is self-insured for most workers' compensation benefits and for its medical, dental and prescription plans for associates but it has stop loss insurance policies to limit its liability.) If the subsequent outcome of IBNR Claims were to exceed the IBNR liability as at the end of a fiscal quarter, the liabilities on the balance sheet would have been understated and income would have been overstated for the quarter in question. A consistent approach to estimating liability for IBNR Claims reflected in the Company's balance sheet is one of the Company's important accounting objectives. The estimates underlying the liability for IBNR Claims are matters of judgment on which insurance experts may differ. The use of different estimates or assumptions would change the amount recorded. The Company's management believes that the liability for IBNR Claims reflected in the balance sheets at August 3, 2002 and August 4, 2001 included in the financial statements contained in this Report were fairly stated in all material respects, subject to the uncertainties of litigation and the risk of greater than anticipated inflation in medical costs and delays in submitting claims. Realization of Net Deferred Tax Asset Future realization of the tax benefits, which totaled $1.7 million at August 3, 2002, attributable to the Company's net deferred tax asset ultimately depends on the existence of sufficient taxable income in the pertinent tax jurisdictions within the carryback and/or carryforward period available under the relevant tax law at the time of the tax deduction. Management's assessment is that the Company's net deferred tax asset will be realized through future taxable earnings or available carrybacks, subject to (i) changes in consumer spending patterns, consumer preferences and overall economic conditions, (ii) the impact of competition and pricing, (iii) changes in weather patterns, (iv) the seasonality of the retail industry, (v) risks related to consumer acceptance of the Company's products, and (vi) war risks. In assessing the likelihood of future taxable income, management analyzes taxable income (loss) reported in recent years, current national retail industry sales trends and long term national economic trends. Management's assessment is most reliable with respect to the assets with expiration dates farthest in the future because of the longer time in which income can be earned to make the tax benefits from those assets available. (The state tax net operating loss carryforwards included in the Company's net deferred tax asset expire in 2003 through 2017.) In the event new circumstances make the future realization of these tax benefits less likely than not, the asset will be written off and charged to income. Private Label Credit Cards Issued By The Bank The Company and World Financial Network National Bank (the "Bank") are parties to a Private Label Credit Card Program Agreement, dated January 27, 1998 (as amended, the "Credit Card Program Agreement"). Under the Credit Card Program Agreement, the Bank issues credit cards to Company customers who apply to the Bank. Net credit transaction volume with the Bank was $52.1 million in the first half of fiscal 2002 and $49.3 million in the first half of fiscal 2001. Customers must meet standards for creditworthiness set by the Bank with the approval of the Company, provided, however, that the Bank shall take any actions required to prevent unsafe and unsound banking practices. The credit cards issued by the Bank are co-branded with both the Company's AVENUE(R) service mark and the Bank's name. The credit cards are used only for merchandise offered by the Company. Credit card holders remit payments to the Bank, generally by mailing personal checks. The Bank also handles all statement processing, payment processing, cardholder customer service and collections from delinquent cardholders. In accordance with generally accepted accounting principles, the Company does not include the receivable asset created under the Credit Card Program Agreement in the Company's accounts receivable on its balance sheets because the Company has no interest in the customer accounts or receivables and, depending on the circumstances, might not purchase the accounts from the Bank upon the expiration of the contractual term. In this connection, it should be noted that the Credit Card Program Agreement states that (i) the Bank is the sole and exclusive owner of all customer accounts, (ii) the Company has no interest in the customer accounts and (iii) the Bank is the creditor in respect of receivables (defined in the Credit Card Program Agreement as amounts owed with respect to retail purchases, finance charges, deferred finance charges, other fees and charges for sales tax). Receivables as defined in the Credit Card Program Agreement were $74.0 million at August 3, 2002 and $76.0 million at August 4, 2001. Also, when the Credit Card Program Agreement expires, currently scheduled for February 28, 2007, the Company shall have the right to purchase the customer accounts from the Bank for a price equal to the receivables and the Bank shall have the right to require the Company to purchase the customer accounts at that price if the Company decides to commence a private label credit card program on its own or through another issuer of credit cards. As to the Company's income statements, general, administrative and store operating expenses were offset in part by premiums received from the Bank of $1.0 million in the first half of fiscal 2002 and $1.2 million in the first half of fiscal 2001. The decrease in premiums from the Bank was due to a decrease in finance income. The credit card program premium (or discount) reflected in general, administrative and store operating expenses is an amount equal to royalties paid to the Company by the Bank minus costs charged by the Bank based on the volume of credit card program processing activities performed by the Bank. Royalties are based on program revenues minus receivables written off by the Bank and the cost of funds for the program, which, for up to the first $85 million of receivables, means the one-year Constant Maturities Treasury ("CMT") rate plus 25 basis points to be reset every three months (the published CMT rate was 1.68% per annum at August 3, 2002), provided, however, that the total contractual interest rate shall not be more than 7.00% per annum and shall not be less than 5.25% per annum. (The Bank's receivables for the program were less than $85 million at August 3, 2002, but, if they grew larger than that amount, the cost of funds for the excess would be based primarily on the cost of borrowing of a trust for the purpose of securitizing receivables.) Store Expansion The Company leased 551 stores at August 3, 2002, of which 400 stores were in strip shopping centers, 124 stores were in malls, 21 stores were in downtown shopping districts and 6 stores were in outlet malls. Retail selling space averaged 2.4 million square feet during the first half of fiscal 2002 and 2.2 million square feet during the first half of the previous year. In the first half of fiscal 2002, the Company opened six new stores with an average of approximately 4,700 square feet of retail selling space and closed ten smaller stores. Substantially all the construction cost of new stores has been capitalized. Depreciation and amortization of property and equipment were related principally to assets in stores and amounted to $6.1 million in the first half of fiscal 2002 and $5.2 million in the first half of fiscal 2001. The Company has made commitments to lease and open approximately 17 new stores during the second half of fiscal 2002. Start-up costs will be expensed but are not expected to have a material effect on general, administrative and store operating expenses. 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@Home The Company has a supplemental channel of distribution for its merchandise, Internet and catalog (collectively, "shop@home") sales. The Company has mailed AVENUE catalogs since September 2000. The Company has operated an Internet site (www.avenue.com) since November 2000. The catalog and website feature the Company's proprietary brands, AVENUE(R) apparel and accessories, AVENUE BODY(R) lingerie and CLOUDWALKERS(R) footwear. CLOUDWALKERS(R) footwear is also available at another Internet site (www.cloudwalkers.com) operated by the Company. The Company operates a call center and fulfillment operation at its national distribution center in Troy, Ohio. There is no assurance of gross profit on shop@home sales. Other Matters Corporate Acquisition Reviews As a matter of routine, the Company from time to time conducts "due diligence" reviews of businesses that are either for sale as a going concern or are in liquidation. The Company would consider making a bid on a suitable corporate acquisition at an opportune price if adequate financing at acceptable rates were available. 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 disallowance of a refund claim. The disallowance by the auditor was affirmed by an IRS appeals officer and was the subject of mediation but is still unresolved. The refund claim, which has not been recorded, would affect stockholders' equity positively rather than increasing the Company's earnings, if the disallowance were reversed or reduced as a result of judicial proceedings. Future Results The Company cautions that any forward-looking statements (as such term is defined in the Reform Act) contained in this Report or otherwise made by management of the Company involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. The following factors, among others, could affect the Company's actual results and could cause actual results for fiscal 2002 to differ materially from those expressed or implied in any forward-looking statements included in this Report or otherwise made by management: war risk; changes in consumer spending patterns, consumer preferences and overall economic conditions; the impact of competition and pricing; changes in weather patterns; the seasonality of the retail industry; risks related to consumer acceptance of the Company's products and the ability to develop new merchandise; risks associated with the financial performance of the World Financial Network National Bank private label credit card program; increases in interest rates; the ability to retain, hire and train key personnel; risks associated with the ability of the Company's manufacturers to deliver products in a timely manner; political instability and other risks associated with foreign sources of production; postal rate increases; increases in paper and printing costs; and availability of suitable store locations on appropriate terms. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not hold or issue financial instruments for trading purposes. Management of the Company believes that its exposure to interest rate and market risk associated with financial instruments is not material. See, however, (i) the last paragraph under the Item 2 caption "Private Label Credit Cards Issued By The Bank" for a discussion of the cost of funds associated with the credit cards that are co-branded with the Company's AVENUE(R) service mark and the name of the issuer of the cards, World Financial Network National Bank, and (ii) the sixth paragraph under the Item 2 caption "Liquidity and Capital Resources - Other Liquidity Sources" for a description of the variable interest rate that would be payable if a revolving loan were outstanding (none is outstanding at present). The Company has no foreign currency exchange rate risk. PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The 10th Annual Meeting of Stockholders (the "Meeting") was held on May 30, 2002. (c) (i) The Meeting elected directors for terms ending at the 11th Annual Meeting of Stockholders, by the following vote:
Name For Withhold Authority to Vote ---- --- -------------------------- Joseph A. Alutto 8,277,803 6,503 Raphael Benaroya 7,162,804 1,121,502 Russell Berrie 8,277,803 6,503 Joseph Ciechanover 8,277,803 6,503 Michael Goldstein 8,277,803 6,503 Ilan Kaufthal 8,276,903 7,403 Vincent P. Langone 8,277,803 6,503 George R. Remeta 8,277,803 6,503 Richard W. Rubenstein 8,275,803 8,503
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. The following exhibits are filed herewith: Number Description 10.1 Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent and Lender ("CIT") 10.2 Amendment to Restated Supplemental Retirement Savings Plan 10.3 Purchase and Sale Agreement, dated as of July 1, 2002, between Raphael Benaroya and the Corporation The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 2002 is incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated May 30, 2002, to Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya ("Benaroya Employment Agreement") The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended February 2, 2002 are incorporated herein by reference: Number in Filing Description 10.1 Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank ("Private Label Credit Card Program Agreement") 10.2 Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement 10.3 Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement 10.4* Letter, dated March 1, 2002, from the Corporation to Raphael Benaroya with respect to the cost of living adjustment under the Benaroya Employment Agreement 10.5 Financial Statements of the Corporation's Retirement Savings Plan for the year ended December 31, 2001 The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended November 3, 2001 are incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated November 29, 2001, to Benaroya Employment Agreement 10.2* Amendment, dated November 29, 2001, to Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta ("Remeta Employment Agreement") 10.3* Amendment, dated November 29, 2001, to Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll ("Carroll Employment Agreement") 10.4* Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives 10.5 Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement (Confidential portions filed separately with the Secretary of the Commission) 10.6* Promissory note, dated November 30, 2001, from Raphael Benaroya to the Corporation (cancelled as of July 1, 2002) The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended August 4, 2001 is incorporated herein by reference: Number in Filing Description 10.1* Restated Stock Appreciation Rights Plan The 2001 Stock Option Plan set forth as an appendix to the Corporation's proxy statement on Schedule 14A for its 2001 annual meeting of stockholders is incorporated herein by reference.* The following exhibit to the Corporation's Registration Statement on Form S-8 (Registration No. 333-44868) is incorporated herein by reference: Number in Filing Description 10 Amendment, dated August 21, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 28, 2000 are incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated August 18, 2000, to Benaroya Employment Agreement 10.2* Amendment, dated August 18, 2000, to Carroll Employment Agreement The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 29, 2000 are incorporated herein by reference: Number in Filing Description 10.2 Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT ("Financing Agreement") 10.3 Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT 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 The following exhibit to the Corporation's Current Report on Form 8-K, filed September 23, 1999, is incorporated herein by reference: Number in Filing Description 3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 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 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* Benaroya Employment Agreement 10.2* Remeta Employment Agreement 10.3* Carroll Employment Agreement 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 Card Program Agreement 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 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 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 10.2* Amendment 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 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 the Corporation 4.1 Specimen Certificate for Common Stock of the Corporation 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) ("Software License") 10.2.2 Amendment, dated December 10, 1991, to Software License ____________________ *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 August 3, 2002. 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. Date: September 9, 2002 UNITED RETAIL GROUP, INC. (Registrant) By: /s/ GEORGE R. REMETA ------------------------------------------- George R. Remeta, Vice Chairman of the Board and Chief Administrative Officer - Authorized Signatory By: /s/ JON GROSSMAN ------------------------------------------- Jon Grossman, Vice President - Finance and Chief Accounting Officer CERTIFICATIONS -------------- I, Raphael Benaroya, Chief Executive Officer of United Retail Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Retail Group, Inc.; 2. based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 9, 2002 /s/ RAPHAEL BENAROYA --------------------------- Chief Executive Officer I, George R. Remeta, Chief Administrative Officer and Chief Financial Officer of United Retail Group, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of United Retail Group, Inc.; 2. based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: September 9, 2002 /s/ GEORGE R. REMETA --------------------------- Chief Financial Officer EXHIBIT INDEX ITEM 14. EXHIBITS. The following exhibits are filed herewith: Number in Filing Description 10.1 Amendment, dated August 2, 2002, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and The CIT Group/Business Credit, Inc., as Agent and Lender ("CIT") 10.2 Amendment to Restated Supplemental Retirement Savings Plan 10.3 Purchase and Sale Agreement, dated as of July 1, 2002, between Raphael Benaroya and the Corporation The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended May 4, 2002 is incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated May 30, 2002, to Employment Agreement, dated November 20, 1998, between the Corporation and Raphael Benaroya ("Benaroya Employment Agreement") The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended February 2, 2002 are incorporated herein by reference: Number in Filing Description 10.1 Amendment, dated April 5, 2002, to Private Label Credit Card Program Agreement, dated January 27, 1998, between the Corporation, United Retail Incorporated and World Financial Network National Bank ("Private Label Credit Card Program Agreement") 10.2 Amendment, dated December 29, 1999, to Private Label Credit Card Program Agreement 10.3 Amendment, dated August 19, 1999, to Private Label Credit Card Program Agreement 10.4* Letter, dated March 1, 2002, from the Corporation to Raphael Benaroya with respect to the cost of living adjustment under the Benaroya Employment Agreement 10.5 Financial Statements of the Corporation's Retirement Savings Plan for the year ended December 31, 2001 The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended November 3, 2001 are incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated November 29, 2001, to Benaroya Employment Agreement 10.2* Amendment, dated November 29, 2001, to Employment Agreement, dated November 20, 1998, between the Corporation and George R. Remeta ("Remeta Employment Agreement") 10.3* Amendment, dated November 29, 2001, to Employment Agreement, dated November 20, 1998, between the Corporation and Kenneth P. Carroll ("Carroll Employment Agreement") 10.4* Summary Plan Description for United Retail Group, Inc. Incentive Compensation Program for Executives 10.5 Amendment, dated October 1, 2001, to Private Label Credit Card Program Agreement (Confidential portions filed separately with the Secretary of the Commission) 10.6* Promissory note, dated November 30, 2001, from Raphael Benaroya to the Corporation (cancelled as of July 1, 2002) The following exhibit to the Corporation's Quarterly Report on Form 10-Q for the period ended August 4, 2001 is incorporated herein by reference: Number in Filing Description 10.1* Restated Stock Appreciation Rights Plan The 2001 Stock Option Plan set forth as an appendix to the Corporation's proxy statement on Schedule 14A for its 2001 annual meeting of stockholders is incorporated herein by reference.* The following exhibit to the Corporation's Registration Statement on Form S-8 (Registration No. 333-44868) is incorporated herein by reference: Number in Filing Description 10 Amendment, dated August 21, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT The following exhibits to the Corporation's Quarterly Report on Form 10-Q for the period ended October 28, 2000 are incorporated herein by reference: Number in Filing Description 10.1* Amendment, dated August 18, 2000, to Benaroya Employment Agreement 10.2* Amendment, dated August 18, 2000, to Carroll Employment Agreement The following exhibits to the Corporation's Annual Report on Form 10-K for the year ended January 29, 2000 are incorporated herein by reference: Number in Filing Description 10.2 Amendment, dated December 28, 1999, to Financing Agreement among the Corporation, United Retail Incorporated and CIT ("Financing Agreement") 10.3 Amendment, dated January 31, 2000, to Financing Agreement among the Corporation, United Retail Incorporated, Cloudwalkers, Inc. and CIT 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 The following exhibit to the Corporation's Current Report on Form 8-K, filed September 23, 1999, is incorporated herein by reference: Number in Filing Description 3 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock 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 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* Benaroya Employment Agreement 10.2* Remeta Employment Agreement 10.3* Carroll Employment Agreement 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 Card Program Agreement 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 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 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 10.2* Amendment 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 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 the Corporation 4.1 Specimen Certificate for Common Stock of the Corporation 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) ("Software License") 10.2.2 Amendment, dated December 10, 1991, to Software License ____________________ *A compensatory plan for the benefit of the Corporation's management or a management contract.