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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter Ended August 26, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26772
COLDWATER CREEK INC.
(Exact name of registrant as specified in its charter)
DELAWARE 82-0419266
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE COLDWATER CREEK DRIVE, SANDPOINT, IDAHO 83864
(Address of principal executive offices)
(208) 263-2266
(Registrant's telephone number, including area code)
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Shares outstanding as of October 9, 2000
-------------------------------- -------------------------------------------
Common Stock ($.01 par value) 10,596,247
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<PAGE>
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
Item 1. Consolidated Financial Statements (unaudited) ----
<S> <C>
Consolidated Balance Sheets at August 26, 2000 and February 26, 2000......................................... 4
Consolidated Statements of Operations for the three and six month periods ended
August 26, 2000 and August 28, 1999........................................................................ 5
Consolidated Statements of Cash Flows for the six month periods ended
August 26, 2000 and August 28, 1999........................................................................ 6
Notes to Consolidated Financial Statements................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................... 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................................... 27
Item 2. Changes in Securities and Use of Proceeds........................................................... 27
Item 3. Defaults Upon Senior Securities..................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders................................................. 27
Item 5. Other Information................................................................................... 27
Item 6. Exhibits and Reports on Form 8-K.................................................................... 27
</TABLE>
This report may contain forward-looking statements that involve risks and
uncertainties. When used in this discussion, the words "anticipate," "believe,"
"estimate," "expect," and similar expressions as they relate to the Company or
its management are intended to identify such forward-looking statements. The
Company's actual results could differ materially from the results anticipated in
these forward-looking statements as a result of certain factors set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors" and elsewhere in this report.
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except for share data)
<TABLE>
<CAPTION>
August 26, February 26,
2000 2000
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,431 $ 7,533
Receivables 4,083 5,741
Inventories 79,649 60,203
Prepaid expenses 4,656 1,319
Prepaid catalog costs 5,447 3,994
Deferred income taxes 915 915
----------- -----------
Total current assets 104,181 79,705
Deferred catalog costs 7,760 2,817
Property and equipment, net 42,258 38,895
Executive loans 1,236 1,453
----------- -----------
Total assets $ 155,435 $ 122,870
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,675 $ 30,098
Accrued liabilities 16,041 13,549
Income taxes payable - 2,140
----------- -----------
Total current liabilities 69,716 45,787
Deferred income taxes 513 513
----------- -----------
Total liabilities 70,229 46,300
----------- -----------
Commitments and contingencies - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.01 par value, 60,000,000 shares authorized,
10,511,070 and 10,319,345 issued and
outstanding, respectively 105 103
Additional paid in capital 44,811 41,579
Retained earnings 40,290 34,888
----------- -----------
Total stockholders' equity 85,206 76,570
----------- -----------
Total liabilities and stockholders' equity $ 155,435 $ 122,870
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- ------------------------
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 78,033 $ 59,812 $ 164,924 $ 124,925
Cost of sales 36,977 29,883 79,948 60,795
---------- ---------- ---------- ----------
Gross profit 41,056 29,929 84,976 64,130
Selling, general and administrative expenses 38,427 28,522 76,663 60,150
---------- ---------- ---------- ----------
Income from operations 2,629 1,407 8,313 3,980
Interest, net, and other 329 161 548 201
Gain on sale of Milepost Four assets - 826 - 826
---------- ---------- ---------- ----------
Income before provision for income taxes 2,958 2,394 8,861 5,007
Provision for income taxes 1,151 948 3,459 1,992
---------- ---------- ---------- ----------
Net income $ 1,807 $ 1,446 $ 5,402 $ 3,015
========== ========== ========== ==========
Net income per share - Basic $ 0.17 $ 0.14 $ 0.52 $ 0.30
========== ========== ========== ==========
Net income per share - Diluted $ 0.17 $ 0.14 $ 0.50 $ 0.29
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
August 26, August 28,
2000 1999
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,402 $ 3,015
---------- ----------
Non cash items:
Depreciation and amortization 4,341 3,272
Deferred income tax benefit - (60)
Gain on sale - Milepost Four assets - (826)
Other non cash charges 230 -
Net change in current assets and liabilities:
Receivables 1,658 (1,467)
Inventories (19,446) 8,315
Prepaid expenses (2,094) (978)
Prepaid catalog costs (1,453) 9
Accounts payable 23,577 10,330
Accrued liabilities 2,492 2,500
Income taxes payable (2,140) (5,525)
Increase in deferred catalog costs (4,943) (1,993)
---------- ----------
Net cash provided by operating activities $ 7,624 $ 16,592
---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment $ (7,878) $ (6,117)
Repayments of loans to executives 161 -
Proceeds from sale of Milepost Four assets - 1,546
---------- ----------
Net cash used in investing activities $ (7,717) $ (4,571)
---------- ----------
FINANCING ACTIVITIES:
Net repayments of advances under revolving line of credit $ - $ (9,938)
Net proceeds from exercises of stock options 1,991 605
---------- ----------
Net cash provided by (used in) financing activities $ 1,991 $ (9,333)
---------- ----------
Net increase in cash and cash equivalents 1,898 2,688
Cash and cash equivalents, beginning 7,533 149
---------- ----------
Cash and cash equivalents, ending $ 9,431 $ 2,837
========== ==========
SUPPLEMENTAL CASH FLOW DATA:
----------------------------
Cash paid for interest $ - $ 45
Cash paid for income taxes 7,786 8,519
Tax benefit from exercises of stock options 1,243 -
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Condensed Consolidated Financial Statements
Organizational Structure and Nature of Operations
Coldwater Creek Inc. (the ''Company''), a Delaware corporation
headquartered in Sandpoint, Idaho, is a multi-channel retailer of women's
apparel, jewelry, gifts and soft home accessories, primarily marketing its
merchandise through targeted catalog mailings, an interactive e-commerce web
site (www.coldwatercreek.com) and full-line retail stores.
----------------------
Through its wholly owned subsidiary, Coldwater Creek Outlet Stores Inc.,
the Company also operates outlet stores, which along with the e-commerce web
site and periodic clearance catalogs, serve as disposition vehicles for excess
merchandise inventory. This subsidiary is consolidated in these financial
statements and all material intercompany transactions and balances have been
eliminated.
Preparation of Interim Condensed Consolidated Financial Statements
The interim condensed consolidated financial statements included herein
have been prepared by the management of Coldwater Creek Inc., without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission, and in the opinion of management, contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position, results of operations and cash
flows for the periods presented. Certain information and note disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. The
consolidated financial position, results of operations and cash flows for the
interim periods disclosed within this report are not necessarily indicative of
future financial results. These consolidated financial statements are condensed
and should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K
which includes audited consolidated financial statements and related notes
thereto for the fiscal year ended February 26, 2000.
Certain amounts in the condensed consolidated financial statements for the
prior fiscal year interim period have been reclassified to be consistent with
the current fiscal year's interim presentation.
Use of Estimates
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of contingent assets and
liabilities at the date of the condensed consolidated financial statements.
Actual results could differ from those estimates.
Fiscal Periods
References to a fiscal year refer to the calendar year in which such fiscal
year commences. The Company's fiscal year ends on the Saturday immediately
preceding or following February 28, whichever is chronologically closer. The
fiscal year is generally 52 weeks, but occasionally will consist of 53 weeks, as
will be the case in the current fiscal year 2000. References to three and six
month periods generally refer to the respective thirteen and twenty-six weeks
ended on the date indicated, as is the case for the interim periods presented
herein. The pending fourth quarter of fiscal 2000 will include a fourteenth
week, resulting in a 53 week fiscal year.
7
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COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Interim Condensed Consolidated Financial Statements (continued)
Recently Adopted Accounting Standards
In December 1999, the U.S. Securities and Exchange Commission released
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". SAB 101 provides interpretive guidance on the proper recognition,
presentation and disclosure of revenues in financial statements. As the
Company's revenue recognition policies previously complied with generally
accepted accounting principles and the related interpretive guidance set forth
in SAB 101, the adoption of SAB 101 did not have a material impact on the
Company's consolidated financial statements.
In May 2000, the Emerging Issues Task Force issued EITF 00-14, "Accounting
for Certain Sales Incentives" ("EITF 00-14"). Under the provisions of EITF 00-
14, for sales incentives that will not result in a loss on the sale of product
or service, a vendor should recognize the "cost" of the sales incentive at the
latter of the date the related revenue is recorded by the vendor or the date the
sales incentive is offered. The reduction to or refund of the selling price of
the product or service resulting from any cash sales incentive should be
classified as a reduction of revenue. The adoption of EITF 00-14 did not have a
material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. In June 1999, the FASB issued Statement of
Financial Accounting Standard No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" delaying the effective date of SFAS No. 133. In June 2000, the FASB issued
Statement of Financial Accounting Standard No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" amending certain
accounting and reporting standards of SFAS No. 133. SFAS No. 133, as amended, is
effective for the Company's fiscal 2001 financial statements. As the Company
currently is not a party to any derivative financial instruments and does not
anticipate becoming a party to any derivative instruments, management does not
currently expect the adoption of SFAS No. 133, as amended, to have a material
impact on the Company's consolidated financial statements.
In July 2000, the Emerging Issues Task Force issued EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs" ("EITF 00-10"). Under the provisions
of EITF 00-10, amounts billed to a customer in a sale transaction related to
shipping and handling represent revenues earned for the goods provided and
should be classified as sales revenue. However, the related shipping and
handling costs may not be netted against sales revenue. In September 2000, the
EITF made an addition to the final consensus reached at the July 2000 meeting
requiring that the dollar amount and income statement classification of any
significant shipping and handling costs be disclosed pursuant to APB Opinion No.
22, "Disclosure of Accounting Policies." The Company currently nets shipping and
handling fees earned against shipping and handling fees incurred within
"selling, general and administrative expenses." As required, the Company will
adopt EITF 00-10 in its consolidated financial statements for the third quarter
of fiscal 2000. The adoption of EITF 00-10 may materially impact selling,
general and administrative expenses and gross profit although it will have no
impact on the subsequent determination of income from operations or net income.
8
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Revolving Line of Credit
The Company maintains an aggregate $50.0 million bank credit facility,
consisting of an unsecured revolving line of credit of $47.4 million (with a
sub-limit of $7.0 million for letters of credit) and a term standby letter of
credit of $2.6 million. At the option of the Company, the interest rate is the
bank's Prime Rate or Adjusted LIBOR [i.e., rate per annum equal to the quotient
of the London Interbank Offered Rate divided by one (1) minus the Eurocurrency
Reserve Requirement for the applicable Interest Period, rounded upward, if
necessary, to the nearest one-sixteenth of one percent], increased or decreased
by a margin based upon the Company's then EBITDA Coverage Ratio, as defined. The
underlying bank credit agreement provides that the Company must satisfy certain
specified EBITDA, leverage and current ratio requirements and places
restrictions on the Company's ability to, among other things, sell assets,
participate in mergers, incur debt, pay dividends, and make investments or
guarantees. The credit facility has a maturity date of June 30, 2001. On July
10, 2000, the Company received a letter of commitment from its lead bank to
increase the aggregate borrowing capacity allowed under the above credit
facility by $30.0 million to $80.0 million and extending its maturity to July
31, 2003.
3. Key Executive Loan and Incentive Compensation Programs
Effective June 30, 1997, the Company established an Executive Loan Program
under which the Company may make, at its sole discretion and with prior
approvals from the Chief Executive Officer and the Board of Directors'
Compensation Committee, secured long-term loans to key executives other than
Dennis and Ann Pence. Each loan is secured by the executive's personal net
assets, inclusive of all vested stock options in the Company, bears interest at
three percent per annum, and becomes due and payable on the earlier of (i) the
date ten days before the date on which the vested stock options serving as
partial security expire or (ii) ninety days from the date on which the
executive's employment with the Company terminates for any reason.
During fiscal 1999, as an additional incentive to retain key executives,
the Board of Directors authorized a compensation bonus pool of up to $1.6
million. The portion of the compensation bonus pool designated to each key
executive will be payable in lump sum on September 25, 2001 provided that
certain specified performance criteria over a 24 month period have been met by
both the key executive and the Company as a whole. The Company is accruing the
related compensation expense to each key employee on a straight-line basis over
the period based on performance to date and the current expectation that the
specified performance criteria will be met by both the key employee and the
Company as a whole.
4. Capital Stock
On July 31, 2000, the Company obtained majority approval from its
shareholders to increase its common shares authorized for issuance from
15,000,000 common shares to 60,000,000 common shares.
5. 1996 Stock Option/Stock Issuance Plan
The Company's 1996 Stock Option/Stock Issuance Plan (the ''1996 Plan'') was
adopted by the Board of Directors and approved by the stockholders on March 4,
1996. Since February 13, 1998, 1,461,847 shares of common stock have been
authorized for issuance under the 1996 Plan. On May 20, 2000, the Company's
Board of Directors authorized an additional 100,000 shares of common stock for
issuance under the 1996 Plan. The addition of these 100,000 shares to the 1996
Plan was subsequently approved by a majority of shareholders at the Company's
annual meeting on July 15, 2000.
9
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Earnings Per Share
The following is a reconciliation of the number of common shares used in
the computations of net income per basic and diluted share. Net income per basic
common share is computed by dividing net income by the weighted average number
of common shares outstanding for the period. Net income per diluted common share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (e.g., stock options) were exercised or
converted into common stock. (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- --------------------------
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
------------------------- --------------------------
<S> <C> <C> <C> <C>
Net income $ 1,807 $ 1,446 $ 5,402 $ 3,015
======= ======= ======= =======
Average shares outstanding used to
determine net income per basic common
share 10,460 10,209 10,405 10,196
Net effect of dilutive stock options based
on the treasury stock method using
average market price (1) 455 376 406 289
------- ------- ------- -------
Average shares used to determine net
income per diluted common share 10,915 10,585 10,811 10,485
======= ======= ======= =======
</TABLE>
(1) Anti-dilutive stock options excluded from the above computations for the
three months ended August 26, 2000 and August 28, 1999 were 154 and 277,
respectively. Anti-dilutive stock options excluded from the above
computations for the six months ended August 26, 2000 and August 28, 1999
were 207 and 300, respectively.
7. Contingencies
The Company is involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, the Company's liability, if any, under any pending litigation or
administrative proceedings would not materially affect its financial position,
results of operations or cash flows.
The Company and its subsidiary only collect sales taxes from customers
transacting purchases in states which the Company or its subsidiary have
physically based some portion of their retailing business. The Company and its
subsidiary also pay applicable corporate income, franchise and other taxes to
states in which retail or outlet stores are physically located. Various states
have attempted to collect back sales and use taxes from direct marketers whose
only contacts with the taxing state are the distribution of catalogs and other
advertisement materials through the mail, and whose subsequent delivery of
purchased goods is by mail or interstate common carriers. The United States
Supreme Court has held that these states, absent congressional legislation, may
not impose tax collection obligations on an out-of-state mail order company. The
Company anticipates that any legislative changes regarding direct marketers, if
adopted, would be applied only on a prospective basis.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion may contain forward-looking statements, including
statements regarding our strategies, sales trends and operations, within the
meaning of the federal securities laws which involve risks and uncertainties.
When used in this discussion, the words "anticipate," "believe," "estimate,"
"expect," and similar expressions are intended to identify such forward-looking
statements. These statements are based on our current expectations and our
actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Factors
that could cause or contribute to such differences include, among others, the
following: those associated with offering apparel merchandise such as long lead
times, increased inventory requirements, merchandise returns, and high shipping
costs; general economic and business conditions and other factors outside our
control such as customer response rates, consumer preferences, and fluctuations
in paper, postage and telecommunication costs; competition; effects of shifting
patterns of e-commerce versus catalog purchases; success of operating and growth
initiatives; development and operating costs; advertising and promotional
efforts; brand awareness; the existence or absence of adverse publicity;
availability, locations and terms of sites for store development; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs;
uncertainties due to our relatively short experience in operating the e-commerce
and retail store aspects of our business; and construction costs; as well as
those factors discussed in this Form 10-Q Quarterly Report as well as in our
most recent Form 10-K Annual Report filed with the U.S. Securities and Exchange
Commission. References to a fiscal year refer to the calendar year in which such
fiscal year commences. Our fiscal year ends on the Saturday immediately
preceding or following February 28, whichever is chronologically closer. Our
fiscal year is generally 52 weeks, but occasionally will consist of 53 weeks, as
will be the case in the current fiscal year 2000. References to three and six
month periods generally refer to the respective thirteen and twenty-six weeks
ended on the date indicated, as is the case for the interim periods presented
herein. The pending fourth quarter of fiscal 2000 will include a fourteenth
week, resulting in a 53 week fiscal year.
Overview of Business and Recent Developments
---------------------------------------------
Coldwater Creek, Inc. ("the Company" or "Coldwater Creek") is a retailer of
women's apparel, jewelry, gifts and soft home accessories. Our long-standing
mission has been to differentiate ourself from other retailers by offering
exceptional value through superior customer service and a merchandise assortment
that reflects a relaxed and casual lifestyle. We endeavor to continually offer
unique assortments of merchandise targeted to our core customer demographic of
women between the ages of 35 to 55 with household incomes in excess of $50,000.
Our most recently completed fiscal year ended February 26, 2000 ("fiscal
1999") was a milestone year in the sixteen year history of Coldwater Creek as we
embarked on a major program of evolution and expansion. First and foremost, we
successfully transitioned the Company from its historical roots as a single-
channel catalog retailer into a more dynamic retailer with two distinct
channels, Direct and Retail. Our Direct Channel encompasses our traditional
catalog business and rapidly growing e-commerce business whereas our Retail
Channel encompasses our expanding base of full-line retail stores.
We will in the future continue to use the competitive advantages provided
by our well-established catalog infrastructure, a resource not available to
single-channel e-commerce retailers, to generate revenues across all of our
sales channels, target new customers and introduce new merchandise lines. We
believe that our new multi-channel structure positions us well for increased
growth and market share in the future.
Recognizing early into fiscal 1999 that our targeted core demographic of
customers was beginning to enthusiastically embrace the Internet as an exciting,
convenient and secure shopping medium, we evolved our previously modest and
largely informational web site into a fully-interactive, user-friendly e-
commerce web site (www.coldwatercreek.com) where current and prospective
----------------------
customers can enjoyably shop and purchase from our entire line of merchandise.
Our online sales for fiscal 1999 were profitable on a full-cost basis, unlike
those of many notable and highly touted e-commerce ventures, and contributed
$26.1 million, or 8.0% of consolidated net sales, as compared to only $400,000
for the prior fiscal year. Continuing the quarter-over-quarter sales increases
realized throughout fiscal 1999, our online sales momentum carried beyond the
third and fourth quarters of fiscal 1999, which encompassed the holiday shopping
season, and through the first and second quarters of fiscal 2000. Our online
sales, which remain profitable on a full-cost basis, accounted for $32.0
million, or 19.4%, of consolidated net sales for the six months ended August 26,
2000 versus only $3.1 million, or 2.5%, of consolidated net sales for the six
months ended August 28, 1999.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Overview of Business and Recent Developments (continued)
---------------------------------------------------------
We have also been very pleased that, on average, approximately one-quarter
of the customers patronizing our web site have had no previous history with the
Company and that our established e-commerce customers, on average, tend to be
more frequent purchasers than our traditional catalog customers. This indicates
to us that, in addition to providing for certain longer-term operating
efficiencies, our web site is not merely redistributing sales among our channels
but is significantly contributing to our overall consolidated sales growth.
Beginning in fiscal 1999, our web site also quickly became our most
effective and efficient promotional vehicle for the disposition of excess
catalog merchandise inventory, so much so, that we have subsequently closed
three outlet stores and are evaluating the possible closure of one or more of
our remaining ten leased outlet stores during the second half of fiscal 2000.
Encouraged by the ongoing success of our e-commerce web site, we have
continued to implement new technologies to further enhance its appeal,
informational content, functionality, and most importantly, user friendliness.
Currently, our web site offers with a click of a mouse button product search
capabilities, detailed product specifications and care instructions, real-time
inventory availability, live Quitnus-based customer service chat assistance with
an average response time of approximately 15 - 20 seconds and e-mail customer
service inquiry with an average response time of approximately 20 minutes. In
addition to advertising our web site in major national consumer publications
popular with our targeted demographic base (e.g., Martha Stewart Living, Better
Homes & Gardens, Vanity Fair, Harper's Bazaar and The New Yorker), we continue
to actively disseminate our web site's address (www.coldwatercreek.com) in all
of our catalogs and stores. We are further supplementing this migration effort
with weekly targeted e-mails using HTML to our approximately one million name e-
mail database, which we currently are expanding daily by approximately 2,000 to
3,000 e-mail addresses.
We believe that the success of our e-commerce efforts to date was recently
confirmed by Media Metrix/Jupiter Communications which named our web site as the
No. 2 e-commerce site in the United States for women ages 45 - 54, based on the
number of unique visitors. In another of its recent reports, Media Metrix ranked
our web site as the No. 1 apparel site for "stickiness", that being the average
number of minutes customers spend shopping on the site each month.
We continue to move forward with our international e-commerce efforts. In
July 2000, we added new functionality to our e-commerce web site to allow
international customers to place orders online. We currently are in the process
of expanding the functionality of this international service and anticipate that
fully translated versions of our e-commerce web site will be marketed in Japan
and Europe on or before the end of fiscal 2000. So as to better serve our
Japanese customers, we recently executed an agreement with the U.S. Postal
Service Global Package Link to ensure delivery to Japanese customers within
three to five days of their order and have established a dedicated Japanese
return center.
To accommodate our continuing growth in on-line customers, we are in the
process of bolstering our Internet infrastructure with the addition of four
geographically dispersed web server farms in California, New York, West Virginia
and Idaho. We believe that, in addition to providing substantial improvements in
the speed of our site, this national network of web server farms will add
protective redundancy to provide a higher degree of prevention against possible
disruptions of Internet sales traffic. Additionally, we have recently installed
image-caching technology by Akamai in order to ensure optimum performance for
our product image-intensive web pages.
Believing that the ability to occasionally "touch and feel" merchandise
will remain a coveted aspect of the American woman's shopping experience and to
provide another means by which to introduce current and prospective customers to
our catalogs and e-commerce web site, we have also embarked on a program
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Overview of Business and Recent Developments (continued)
---------------------------------------------------------
of selectively establishing for the first time full-line retail stores in
highly-trafficked urban areas. Just prior to the 1999 holiday shopping season,
we opened two full-line "urban" retail stores in the Seattle, Washington and
Kansas City, Kansas metropolitan areas. Based on the success realized by these
two "pilot" urban retail stores, we opened one additional full-line retail store
in the Dallas, Texas metropolitan area during the second quarter of fiscal 2000.
Subsequently, we have opened two more full-line retail stores in the
Cincinnatti, Ohio and Denver, Colorado metropolitan areas. These five full-line
"urban" retail stores are in addition to our two previously existing full-line
"destination" or "resort" retail stores in Sandpoint, Idaho and Jackson Hole,
Wyoming. Our new full-line retail stores, despite being in urban settings,
retain the Coldwater Creek ambience of soft woods, natural lighting and soothing
waterfalls. Each of the new "urban" retail stores continues to perform above our
initial expectations, currently averaging sales of approximately $500 per square
foot. Based on the success we have realized to date with these new "urban"
retail stores, we currently remain fully committed to further growing our Retail
Channel.
Using our Direct Channel's customer database to ascertain the level of
existing brand awareness in various geographic markets, we have identified a
total of 80 potential "urban" retail store sites in 29 states. Our current
schedule contemplates the opening of at least three additional full-line "urban"
retail stores during the balance of fiscal 2000, including stores in the
Chicago, Illinois and Mission Viejo, California metropolitan areas for which we
have recently executed leases. We have also recently executed leases for three
additional full-line "urban" retail stores scheduled to open during fiscal 2001
in the Salt Lake City, Utah, Aspen Grove, Colorado and Sagemore, New Jersey
metropolitan areas. Additional store openings will be influenced by, among other
factors, our ability to timely procure optimum locations within major urban
malls and lifestyle centers.
In an attempt to fulfill what we believe to be an underserved niche of
women's apparel, we introduced in February 2000 a new complementary apparel line
entitled Natural Elements which features mix and match, versatile, casual
separates in a vast array of colors and extended sizes. This complementary new
line, which we rolled-out across all of our sales channels, is in addition to
our three established merchandise lines. Our Northcountry line, first introduced
in 1985, remains our core line of merchandise and features casual, comfortable
apparel, hard-to-find jewelry, distinctive artwork, gifts and items for the
home. Introduced in 1993, our recently updated Spirit of the West line features
fashionable, upscale apparel and hard-to-find jewelry and accessories. Our Home
line, a recent expansion upon our previously successful Bed & Bath line first
introduced in 1997, features unique and comfortable textiles, decorative
accessories and upscale bed and bath products. It is our current growth plan for
the balance of fiscal 2000 to maintain the consistent performance of
Northcountry, escalate our catalog circulation of Spirit of the West and Natural
Elements, and add a lounge wear apparel category to Home.
So as to alleviate certain past capacity constraints at our distribution
center in Sandpoint, Idaho, reduce shipping costs to our largest customer
concentration in the eastern United States and accommodate our current and
future growth initiatives, we opened a new 600,000 square foot East Coast
Operations Center in Mineral Wells, West Virginia during July of 1999. This new
facility immediately met our initial minimum targets for order processing, which
we attribute to our extensive planning and piloting efforts, and has
subsequently continued to realize incremental productivity improvements which we
believe will continue into the foreseeable future. With the addition of this new
facility, we now have a consolidated base of operations capable of processing
approximately 120,000 customer orders per day.
Our revenues and results of operations have fluctuated and can be expected
to continue to fluctuate on a quarterly basis as a result of a number of
factors, including, among other things, the timing of new merchandise and
related offerings, recognition of net sales and costs contributed by new
merchandise and related offerings, fluctuations in customer response rates,
fluctuations in paper, production, postage and telecommunication costs and
expenses, merchandise returns, unseasonal weather conditions affecting customer
demand, adverse weather conditions affecting distribution or shipping, shifts in
the timing of holidays and changes in our merchandise mix.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Overview of Business and Recent Developments (continued)
---------------------------------------------------------
We defer the recognition of catalog development and production costs and
record them as related catalog sales are recognized. Consequently, quarter to
quarter revenue and expense comparisons will be impacted by the timing of the
mailing of our catalogs. Mailings may occur in different quarters from year to
year depending on the performance of third party couriers, the day of the week
on which certain holidays fall and our assessment of prevailing market
opportunities. Approximately three-quarters of the revenue generated by each
catalog mailing is recognized within the subsequent 30 to 45 days. A portion of
the revenue from a catalog mailing may also be recognized in the quarter after
the quarter in which the catalog was mailed and the revenue from a particular
catalog offering may be recognized in a quarter different from the quarter in
which the revenue from a similar catalog offering was recognized in the previous
year.
We have experienced, and will likely continue to experience, seasonal
fluctuations in our sales and operating results, which are typical of many
apparel retailers. Historically, each fiscal year's net sales and profits have
been heavily reliant on the November and December holiday season. In
anticipation of increased sales activity during November and December, we incur
significant additional expenses, including the hiring of a substantial number of
temporary employees to supplement our permanent, full-time staff. In addition,
due to the larger percentage of gifts and accessories offered in the second half
of the fiscal year related to holiday gift-giving, we normally expect higher
gross margins in the second half of the fiscal year than in the first half. If,
for any reason, our sales were to fall below expectations during November and
December, our financial condition, results of operations and cash flows could be
materially adversely affected.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Results of Operations
---------------------
The following table sets forth certain information regarding our costs and
expenses expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- -----------------------------------
August 26, August 28, August 26, August 28,
2000 1999 2000 1999
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 47.4 50.0 48.5 48.7
-------------- -------------- -------------- ---------------
Gross profit 52.6 50.0 51.5 51.3
Selling, general and
administrative expenses 49.2 47.7 46.5 48.2
-------------- -------------- -------------- ---------------
Income from operations 3.4 2.3 5.0 3.2
Interest, net, and other 0.4 0.3 0.3 0.2
Gain on sale of Milepost Four assets 0.0 1.4 0.0 0.7
-------------- -------------- -------------- ---------------
Income before provision for
income taxes 3.8 4.0 5.4 4.0
Provision for income taxes 1.5 1.6 2.1 1.6
-------------- -------------- -------------- ---------------
Net income 2.3% 2.4% 3.3% 2.4%
============== ============== ============== ===============
</TABLE>
Note: Certain of the above sub-totals and totals may vary arithmetically due to
the effects of rounding.
Our consolidated net sales for the three months ended August 26, 2000 ("the
fiscal 2000 second quarter") were $78.0 million, an increase of $18.2 million,
or 30.5%, from the $59.8 million in consolidated net sales realized during the
three months ended August 28, 1999 ("the fiscal 1999 second quarter"). For the
six months ended August 26, 2000 ("the first half of fiscal 2000"), our
consolidated net sales were $164.9 million, an increase of $40.0 million, or
32.0%, from the $124.9 million in consolidated net sales realized during the six
months ended August 28, 1999 ("the first half of fiscal 1999").
Our Direct Channel, which encompasses our catalog and Internet businesses,
contributed $72.0 million in net sales during the fiscal 2000 second quarter, an
increase of $15.5 million, or 27.4%, from the $56.5 million in net sales
contributed during the fiscal 1999 second quarter. For the first half of fiscal
2000, our Direct Channel contributed $155.1 million in net sales, an increase of
$35.0 million, or 29.1%, from the $120.1 million in net sales contributed during
the first half of fiscal 1999.
Our rapidly growing Internet e-commerce business accounted for $18.8
million, or 24.1%, of consolidated net sales for the fiscal 2000 second quarter
as compared to only $2.3 million, or 3.8%, of consolidated net sales for the
fiscal 1999 second quarter. On-line sales for the fiscal 2000 second quarter
also increased $5.6 million, or 42.4%, from the $13.2 million in on-line sales
realized during the immediately preceding fiscal 2000 first quarter. For the
first half of fiscal 2000, our Internet e-commerce business accounted for $32.0
million, or 19.4%, of consolidated net sales as compared to only $3.1 million,
or 2.5%, of consolidated net sales for the first half of fiscal 1999.
Our Retail Channel, which consisted of five full-line retail stores by the
end of the fiscal 2000 second quarter, contributed $6.1 million, or 7.8%, of
consolidated net sales for the fiscal 2000 second quarter, representing an
increase of $2.8 million, or 84.8%, from the $3.3 million, or 5.5%, of
consolidated net sales contributed by two full-line retail stores during the
fiscal 1999 second quarter. For the first half of fiscal 2000, these five full-
line retail stores contributed $9.8 million, or 5.9%, of consolidated net sales,
representing an increase of $4.9 million, or 100.0%, from the $4.9 million, or
3.9%, of consolidated net sales contributed by the two full-line retail stores
during the first half of fiscal 1999.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Results of Operations (continued)
---------------------------------
The net sales growth realized by our Direct Channel for the fiscal 2000 second
quarter and first half primarily is attributable to the increased customer
response received for our spring and summer merchandise offerings, including
that for our recently debuted Natural Elements merchandise line, and the
continued rapid growth in on-line sales realized through our e-commerce web
site, both from new and existing customers. The net sales growth realized by
our Retail Channel for the fiscal 2000 second quarter and first half primarily
is attributable to the addition of three full-line "urban" retail stores.
A key element of our overall marketing strategy has been to pursue an
aggressive circulation strategy when market conditions permit. Our catalog
mailings were 33.1 million during the fiscal 2000 second quarter, an increase of
8.5 million, or 34.6%, from the 24.6 million catalog mailings during the fiscal
1999 second quarter. For the first half of fiscal 2000, our catalog mailings
were 76.2 million, an increase of 15.1 million, or 24.7%, from the 61.1 million
catalog mailings during the first half of fiscal 1999. As a result of this
ongoing marketing investment in current and future customer growth, the costs of
which constitute the substantial majority of each fiscal period's selling,
general and administrative expenses, our proprietary mailing list increased to
9.3 million names at August 26, 2000 from 8.9 million names at February 26, 2000
and 8.1 million names at August 28, 1999. Active customers, defined as a
customer who has purchased from us during the preceding twelve months, were 2.3
million at August 26, 2000 as compared to 2.2 million names at February 26, 2000
and 2.0 million at August 28, 1999.
Our consolidated gross profit consists of net sales less cost of sales, with
cost of sales primarily being merchandise acquisition costs, freight in,
handling and storage costs. Our consolidated gross profit for the fiscal 2000
second quarter was $41.1 million, an increase of $11.1 million, or 37.2%, from
the $29.9 million realized during the fiscal 1999 second quarter. For the first
half of fiscal 2000, our consolidated gross profit was $85.0 million, an
increase of $20.8 million, or 32.5%, from the $64.1 million realized during the
first half of fiscal 1999. Our consolidated gross margins were 52.6% and 51.5%
for the fiscal 2000 second quarter and first half, respectively, versus 50.0%
and 51.3% for the fiscal 1999 second quarter and first half, respectively. The
increases in consolidated gross profit dollars for the fiscal 2000 second
quarter and first half primarily are attributable to the consolidated net sales
increases outlined above. The significantly improved gross margin realized
during the fiscal 2000 second quarter primarily is attributable to our ability
to maintain targeted gross margins in light of the aforementioned increased
customer response to our spring and summer merchandise offerings. For the first
half of fiscal 2000, the positive effects of this increased customer response
have been partially offset by increased distribution capacity costs incurred in
connection with the addition of our new East Coast Operations Center, certain
incremental inbound freight costs we elected to incur during the fiscal 2000
first quarter to meet the above-expectations customer demand for our recently
launched Natural Elements merchandise line, and increased sales of marked down
excess inventory arising from the demand-driven increase in overall inventory
throughput.
Selling, general and administrative expenses ("SG&A") primarily consist of
marketing, distribution and general and administrative expenses. The marketing
expense component primarily consists of catalog production and postage costs.
Production costs primarily consist of paper, printing, computer services and
list rental costs (net of list rental revenue). Our consolidated SG&A expenses
increased by $9.9 million, or 34.7%, to $38.4 million during the fiscal 2000
second quarter from $28.5 million in the fiscal 1999 second quarter. For the
first half of fiscal 2000, our consolidated SG&A expenses increased by $16.5
million, or 27.5%, to $76.7 million from $60.2 million in the first half of
fiscal 1999. Our consolidated SG&A expenses increased as a percentage of
consolidated net sales to 49.2% during the fiscal 2000 second quarter from 47.7%
in the fiscal 1999 second quarter. In contrast, our consolidated SG&A expenses
decreased as a percentage of consolidated net sales to 46.5% during the first
half of fiscal 2000 from 48.2% in the first half of fiscal 1999. The increases
in our consolidated SG&A expenses for the fiscal 2000 second quarter and first
half primarily are the result of the incremental variable marketing costs
incurred to achieve the above increases in consolidated net sales and, to a
lesser extent, incremental fixed infrastructure costs incurred with our new East
Coast Operations Center to support our continued sales growth. The increase in
our consolidated SG&A rate during the fiscal 2000 second quarter primarily is
attributable to incremental
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Results of Operations (continued)
---------------------------------
catalog costs incurred in connection with increased customer prospecting. The
decrease in our consolidated SG&A rate for the first half of fiscal 2000
primarily is attributable to increased sales leveraging of our fixed
infrastructure costs and, to a lesser extent, productivity improvements realized
at our new East Coast Operations Center.
As a result of the foregoing, our consolidated income from operations
increased by $1.2 million, or 86.9%, to $2.6 million for the fiscal 2000 second
quarter from $1.4 million for the fiscal 1999 second quarter. For the first
half of fiscal 2000, our consolidated income from operations increased by $4.3
million, or 108.9%, to $8.3 million from $4.0 million for the first half of
fiscal 1999. Expressed as a percentage of consolidated net sales, our
consolidated income from operations was 3.4% and 5.0% for the fiscal 2000 second
quarter and first half, respectively, versus 2.4% and 3.2% for the fiscal 1999
second quarter and first half, respectively.
Primarily as a result of our higher average cash and cash equivalents, we
realized consolidated net interest and other income of $0.3 million and $0.5
million during the fiscal 2000 second quarter and first half, respectively, as
compared to $0.2 million in the fiscal 1999 second quarter and first half. Our
non-operating results for the fiscal 1999 second quarter and first half
additionally reflect a non-recurring, pre-tax gain of $0.8 million from the sale
of assets related to our previously discontinued Milepost Four men's apparel
catalog.
As a percentage of our consolidated income before provision for income taxes,
our consolidated provisions for income taxes were 38.9% and 39.0% for the fiscal
2000 second quarter and first half, respectively, as compared to 39.6% and 39.8%
for the fiscal 1999 second quarter and first half, respectively. These rate
decreases primarily reflect the favorable recurring effects of certain tax
credits obtained in connection with the establishing of operations in West
Virginia.
We completed the fiscal 2000 second quarter realizing consolidated net income
of $1.8 million (net income per basic and diluted share of $0.17 and $0.17,
respectively) versus $1.4 million (net income per basic and diluted share of
$0.14 and $0.14, respectively) for the fiscal 1999 second quarter, an
improvement of $0.4 million or 25.0%. For the first half of fiscal 2000, we
realized consolidated net income of $5.4 million (net income per basic and
diluted share of $0.52 and $0.50, respectively) as compared to $3.0 million (net
income per basic and diluted share of $0.30 and $0.29, respectively) for the
first half of fiscal 1999, an improvement of $2.4 million or 79.2%.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Capital Resources
-------------------------------
We have historically funded our growth through a combination of funds
generated from operations, trade credit arrangements and short-term bank credit
facilities. As our working capital requirements generally precede the
realization of sales, we routinely draw on our revolving line of credit to
produce catalogs and increase inventory levels in anticipation of future sales
realization. Our standard trade credit arrangements for purchased inventory and
services typically require the net amount due to be paid by us within sixty days
of the invoice date.
We maintain an aggregate $50.0 million bank credit facility, consisting of an
unsecured revolving line of credit of $47.4 million (with a sub-limit of $7.0
million for letters of credit) and a term standby letter of credit of $2.6
million. At our option, the interest rate is the bank's Prime Rate or Adjusted
LIBOR [i.e., rate per annum equal to the quotient of the London Interbank
Offered Rate divided by one (1) minus the Eurocurrency Reserve Requirement for
the applicable Interest Period, rounded upward, if necessary, to the nearest
one-sixteenth of one percent], increased or decreased by a margin based upon our
then EBITDA Coverage Ratio, as defined. The underlying agreement provides that
we must satisfy certain specified EBITDA, leverage and current ratio
requirements and places restrictions on our ability to, among other things, sell
assets, participate in mergers, incur debt, pay dividends, and make investments
or guarantees. The credit facility has a maturity date of June 30, 2001. On July
10, 2000, we received a letter of commitment from our lead bank to increase the
aggregate borrowing capacity allowed under the above credit facility by $30.0
million to $80.0 million and extending its maturity to July 31, 2003.
Our consolidated operating activities generated $7.6 million of positive cash
flow during the first half of fiscal 2000 as compared to $16.6 million of
positive cash flow during the first half of fiscal 1999. On a comparative
period-to-period basis, the decrease for the first half of fiscal 2000 primarily
reflects the positive cash flow effects of higher net income and increased
accounts payable being more than offset by the negative cash flow effects of
increased inventories and catalog costs.
Our net positive operating cash flow of $7.6 million for the first half of
fiscal 2000, as well as $2.0 million in net proceeds from exercises of stock
options and $0.2 million in repayments of loans by executives, primarily were
utilized to fund $7.9 million of capital expenditures and to increase our cash
and cash equivalents balance by $1.9 million. For the first half of fiscal
1999, our net positive operating cash flow of $16.6 million, along with $1.5
million in proceeds from the sale of assets related to our previously
discontinued Milepost Four men's apparel catalog and $0.6 million in net
proceeeds from exercises of stock options, primarily were utilized to fully
repay our $9.9 million revolving line of credit balance, to increase our cash
and cash equivalents by $2.7 million and to fund $6.1 million of capital
expenditures.
Our consolidated investing activities consumed $7.7 million and $4.6 million
of cash during the first halves of fiscal 2000 and fiscal 1999, respectively,
with cash outlays being exclusively for capital expenditures. Our capital
expenditures for the first half of fiscal 2000 primarily reflect leasehold
improvements for our recently opened and currently planned full-line "urban"
retail stores, hardware and software additions and upgrades for our e-commerce
web site, a new point-of-sale computer system for our growing base of retail
stores, leasehold improvements and furnishings for our newly leased Coeur
d'Alene Customer Service Call Center discussed below, and miscellaneous hardware
and software upgrades for our corporate systems. Our capital expenditures for
the first half of fiscal 1999 primarily reflect the cost of material handling,
telecommunication and information systems for the new East Coast Operations
Center and, to a lesser extent, hardware and software additions and upgrades to
corporate systems, including the e-commerce web site.
Our consolidated financing activities provided $2.0 million of cash during the
first half of fiscal 2000 whereas financing activities used $9.3 million of cash
during the first half of fiscal 1999. The first half of fiscal 2000 solely
reflects net proceeds from exercises of stock options. The first half of fiscal
1999 reflects the full repayment of our $9.9 million revolving line of credit
balance and the receipt of $0.6 million in net proceeds from exercises of stock
options.
18
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
As a result of the foregoing, we had $34.5 million in consolidated working
capital at August 26, 2000 as compared to $33.9 million and $23.3 million at
February 26, 2000 and August 28, 1999, respectively. Our consolidated current
ratio was 1.5 at August 26, 2000 as compared to 1.7 and 1.6 at February 26, 2000
and August 28, 1999, respectively. We continue to have no outstanding short- or
long-term bank debt at August 26, 2000.
As previously discussed, we opened in July of 1999 our new 600,000 square foot
East Coast Operations Center. We will incur annual lease expense of
approximately $2.5 million over the twenty year lease term. The lease allows
us, at our option, to (i) purchase the underlying land and facility at a then
determined fair market value or (ii) exercise up to four successive five-year
extensions.
In February 2000, we entered into a build-to-suit, sale-lease agreement for
the construction of a new 60,000 square foot customer service call center in
Coeur d'Alene, Idaho to replace the leased 45,000 square foot facility there
which was not able to sufficiently accommodate the future technology and space
requirements of our Direct Channel. Construction of the new facility was
completed, as planned, during July 2000. We will incur annual lease expense of
approximately $0.7 million during the first three years of the fifteen year
lease term with subsequent annual lease payments adjusted based upon the
Northwest region's consumer price index.
Also, as previously discussed, we embarked on a program during fiscal 1999 of
selectively establishing for the first time full-line retail stores in highly
trafficked "urban" areas. Just prior to the 1999 holiday shopping season, we
opened two full-line "urban" retail stores in the Seattle, Washington and Kansas
City, Kansas metropolitan areas. Based on the success realized by these two
"pilot" urban retail stores, we opened one additional full-line retail store in
the Dallas, Texas metropolitan area during the second quarter of fiscal 2000.
Subsequently, we have opened two more full-line retail stores in the
Cincinnatti, Ohio and Denver, Colorado metropolitan areas. These five full-line
"urban" retail stores are in addition to our two previously existing full-line
"destination" or "resort" retail stores in Sandpoint, Idaho and Jackson Hole,
Wyoming.
Using our Direct Channel's customer database to ascertain the level of
existing brand awareness in various geographic markets, we have identified a
total of 80 potential "urban" retail store sites in 29 states. Our current
schedule contemplates the opening of at least three additional full-line "urban"
retail stores during the balance of fiscal 2000, including stores in the
Chicago, Illinois and Mission Viejo, California metropolitan areas for which we
have recently executed leases. We have also recently executed leases for three
additional full-line "urban" retail stores scheduled to open during fiscal 2001
in the Salt Lake City, Utah, Aspen Grove, Colorado and Sagemore, New Jersey
metropolitan areas. We currently estimate that each such retail store will be
leased, as are our existing stores, with an average initial cash investment per
store being limited to leasehold improvements and inventory in the approximate
range of $1.5 million to $2.0 million depending upon size and design elements.
Additional store openings will be influenced by, among other factors, our
ability to timely procure optimum locations within major urban malls and
lifestyle centers.
We currently estimate between $10.0 million and $14.0 million in total capital
expenditures during the balance of fiscal 2000 primarily consisting of leasehold
improvements for additional planned full-line "urban" retail stores, hardware
and software additions and upgrades for our corporate systems, including our e-
commerce web site and the retrofitting of a portion of our Sandpoint
Distribution Center into additional administrative office space. These
expenditures are expected to be primarily funded from operating cash flows, and
to the extent necessary, our existing bank credit facility.
We believe that cash flow from operations and borrowing capacity under our
bank credit facility will be sufficient to support operations and future growth
for the foreseeable future. Thereafter, we may be
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
required to seek additional sources of funds for continued or accelerated growth
and there can be no assurance that such funds will be available on satisfactory
terms. Failure to obtain such financing could delay or prevent our planned
growth, which could adversely affect our business, financial position, results
of operations and cash flows.
Other Matters
-------------
Year 2000 Compliance
----------------------
As a result of our planning and preparation efforts over the past two years,
we experienced no significant problems at the turn of the century with either
our own technology or that of our infrastructure providers. Contingency plans
to manage all identified areas of perceived risk will remain in place throughout
2000. The costs incurred by us in connection with our Year 2000 compliance
program have been and are expected to remain immaterial to our financial
position, results of operations and cash flows.
Recently Issued Accounting Standards Not Yet Adopted
----------------------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires
that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset
or liability measured at its fair value. In June 1999, the FASB issued
Statement of Financial Accounting Standard No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" delaying the effective date of SFAS No. 133. In June 2000,
the FASB issued Statement of Financial Accounting Standard No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities" amending
certain accounting and reporting standards of SFAS No. 133. SFAS No. 133, as
amended, is effective for the Company's fiscal 2001 financial statements. As
the Company currently is not a party to any derivative financial instruments and
does not anticipate becoming a party to any derivative instruments, management
does not currently expect the adoption of SFAS No. 133, as amended, to have a
material impact on the Company's consolidated financial statements.
In July 2000, the Emerging Issues Task Force issued EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs" ("EITF 00-10"). Under the provisions
of EITF 00-10, amounts billed to a customer in a sale transaction related to
shipping and handling represent revenues earned for the goods provided and
should be classified as sales revenue. However, the related shipping and
handling costs may not be netted against sales revenue. In September 2000, the
EITF made an addition to the final consensus reached at the July 2000 meeting
requiring that the dollar amount and income statement classification of any
significant shipping and handling costs be disclosed pursuant to APB Opinion No.
22, "Disclosure of Accounting Policies." The Company currently nets shipping and
handling fees earned against shipping and handling fees incurred within
"selling, general and administrative expenses." As required, the Company will
adopt EITF 00-10 in its consolidated financial statements for the third quarter
of fiscal 2000. The adoption of EITF 00-10 may materially impact selling,
general and administrative expenses and gross profit although it will have no
impact on the subsequent determination of income from operations or net income.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors
------------
Continued Dependence On and Risks Associated with Our Catalog Sales Channel
---------------------------------------------------------------------------
Our success as a Company for the foreseeable future will depend significantly
on the future success of our established Catalog Sales Channel. We believe that
the future success of our catalog business will be predicated upon the efficient
targeting of our catalog mailings, a high volume of prospect catalog mailing,
appropriate shifts in our merchandise mix and our ability to achieve adequate
response rates to our catalog mailings. Catalog mailings entail substantial
paper, postage, merchandise acquisition and human resource costs, including
costs associated with catalog development and increased inventories, virtually
all of which are incurred prior to the mailing of each catalog. As a result, we
are not able to adjust the costs being incurred in connection with a particular
catalog mailing to reflect the actual performance of the catalog. If, for any
reason, we were to experience a significant shortfall in anticipated revenue
from a particular catalog mailing, and thereby not recover the costs associated
with that catalog mailing, our financial condition, results of operations and
cash flows could be materially adversely affected. In addition, response rates
to our catalog mailings and, as a result, revenues generated by each catalog
mailing, can be affected by factors such as consumer preferences, economic
conditions, the timing and mix of catalog mailings and changes in the
merchandise mix, several of which factors may be outside our control. Further,
we have historically experienced fluctuations in the response rates to our
catalog mailings. Any inability we have to accurately target the appropriate
segment of the consumer catalog market or to achieve adequate response rates
could result in lower sales, significant markdowns or write-offs of inventory,
increased merchandise returns, and lower margins, which could have a material
adverse effect on our financial condition, results of operations and cash flows.
Our New Internet and Retail Sales Channels are Untested and Extremely Difficult
-------------------------------------------------------------------------------
to Evaluate
-----------
Although we have been in the catalog business for many years and certain of
our senior vice presidents gained significant retail experience with previous
employers, we have had only limited experience with our Internet and Retail
Sales Channels. Our approaches in these new sales channels are untested as a
business matter, and we cannot be sure that these approaches will provide the
value to us that we expect. Furthermore, our management does not have
significant experience operating in these new sales channels and our future
success will depend on recent, and possibly, future additions to our management
team. Additionally, because the Internet is constantly changing, we will likely
need to correspondingly alter our business in the future. Frequent changes could
impose significant burdens on our management and our employees and could result
in loss of productivity or even increased employee attrition. Any investment in
us must be considered in light of the problems frequently encountered by
companies at this stage of development in new and rapidly evolving markets. We
cannot be certain that our business strategy will be successful or that we will
successfully address the risks and challenges associated with the Internet and
Retail sales channels.
Risks Associated with Our Growth Strategy
-----------------------------------------
Our growth strategy primarily includes the following components: (i) further
development of our Catalog, Internet and Retail Sales Channels, (ii)
introduction of new merchandise lines, (iii) expansion of our existing
merchandise selection, and (iv) increased catalog circulation and response
rates. Our growth strategy involves various risks, including a reliance on a
high degree of prospect mailings, which may lead to less predictable response
rates, and increased patronage of our Internet web site. Our failure to
successfully implement any or all of our growth strategies would likely have a
material adverse effect on our financial condition, results of operations and
cash flows. We believe our growth has been attributable in large part to our
success in meeting the merchandise, timing and service demands of an expanding
customer base with certain demographic characteristics. There can be no
assurance that we will be able to continually identify and offer new merchandise
that appeals to our customer base or that the introduction of new merchandise
categories or new marketing or distribution strategies, such as the sale of our
merchandise in retail stores or through new catalog titles, will be successful
or profitable, or that any such efforts will achieve sustainable acceptance in
the marketplace. Any substantial inability on our part to
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors (continued)
------------------------
Risks Associated with Our Growth Strategy (continued)
-----------------------------------------------------
further develop and grow our Catalog, Internet and Retail Sales Channels, to
maintain our current average order size and response rates, and leverage the
success of existing catalog titles to new merchandise lines, catalogs, web site
and retail stores would likely have a material adverse effect on our financial
condition, results of operations and cash flows. As part of our Retail Sales
Channel strategy, we are currently establishing for the first time in our
history a base of full-line "urban" retail stores.
Using our Direct Channel's customer database to ascertain the level of
existing brand awareness in various geographic markets, we have identified a
total of 80 potential "urban" retail store sites in 29 states. Our current
schedule contemplates the opening of at least three additional full-line "urban"
retail stores during the balance of fiscal 2000, including stores in the
Chicago, Illinois and Mission Viejo, California metropolitan areas for which we
have recently executed leases. We have also recently executed leases for three
additional full-line "urban" retail stores scheduled to open during fiscal 2001
in the Salt Lake City, Utah, Aspen Grove, Colorado and Sagemore, New Jersey
metropolitan areas. These stores will be in addition to the five full-line
"urban" retail stores we recently opened and currently operate.
We have had limited experience operating retail stores and, other than
operating our Jackson Hole, Wyoming retail store since 1997, we have had no
significant experience operating stores outside the vicinity of our
headquarters. In addition, retail store operations entail substantial fixed
costs, including costs associated with real estate leases, inventory maintenance
and staffing. There can be no assurance that these stores will be opened, will
be opened in a timely manner, or, if opened, that these stores will be
profitable. Failure to successfully implement this store-based strategy could
result in significant write-offs of inventory and fixtures and would likely have
a material adverse effect on our financial condition, results of operations and
cash flows. We may need to raise additional funds in order to support greater
expansion, develop enhanced services, respond to competitive pressures, acquire
complementary businesses or respond to unanticipated or seasonal requirements.
In addition, various elements of our growth strategies, including our aggressive
catalog-mailing program, our aggressive Internet growth strategy, our plans to
introduce new merchandise and our plans to broaden existing merchandise lines,
may require additional capital. There can be no assurance that funds will be
available to us on terms satisfactory to us when needed.
Risks Affecting Our Ability to Fulfill Orders
-----------------------------------------------
Our ability to provide superior customer service, effectively and efficiently
target our merchandise offerings, and fulfill customer orders depends, to a
large degree, on the efficient and uninterrupted operation of our two customer
service call centers, two distribution centers, management information systems
and on the timely performance of third parties such as shipping companies and
the United States Postal Service. Although we believe we have built redundancy
into our telephone, Internet and management information systems and maintain
relationships with several different shipping companies, any material disruption
or slowdown in our order processing or fulfillment systems resulting from
strikes or labor disputes, telephone or Internet down times, electrical outages,
mechanical problems, human error or accidents, fire, natural disasters or
comparable events could cause delays in our ability to receive and distribute
orders and may cause orders to be lost or to be shipped or delivered late. As a
result, customers may cancel orders or refuse to receive goods on account of
late shipments which would result in a reduction of net sales and could mean
increased administrative and shipping costs. Excess order volume could result
in telephone or Internet answer delays and delays in placing orders. There can
be no assurance that volumes will not exceed present telephone or Internet
system capacities and that, as a result, answer delays and delays in placing
orders will not occur. We believe that our success to date has been based in
part on our reputation for levels of customer service substantially superior to
the standards in the catalog industry, any impairment of our superior customer
service reputation could have a material adverse effect on our business. Any
material disruption in or destruction of part or all of our distribution centers
caused by strike, fire or natural disaster would likely have a material adverse
effect on our ability to provide the timely delivery of merchandise and on our
financial condition, results of operations and cash flows.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors (continued)
------------------------
Risks Associated with System Disruptions
----------------------------------------
Our ability to attract and retain users and customers to our e-commerce web
site depends on the performance, reliability and availability of our web site
and network infrastructure. We have periodically experienced service
interruptions caused by temporary problems in our own systems or software or in
the systems or software of third parties. While we continue to implement
procedures to improve the reliability of our systems, these interruptions may
continue to occur from time to time. Third parties may not be liable to us for
any damage or loss they may cause to our business, and we may be unable to seek
reimbursement from them for losses that they cause. Our users also depend on
third party Internet service providers for access to our web site. These
entities have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures in the future
which are unrelated to our systems, but which could nonetheless adversely affect
our business.
We May Face Potential Business-Related Liabilities and Expenses
-----------------------------------------------------------------
As a result of doing business through our catalogs, e-commerce web site and
retail stores, we may be exposed to legal risks and uncertainties, including
potential liabilities to consumers of such products. Some of the risks that may
result from doing business via any of our three sales channels:
. product liability or other tort claims relating to goods;
. claims of consumer fraud and false or deceptive advertising
or sales practices;
. breach of contract claims relating to merchant transactions;
and
. claims relating to any failure to appropriately collect and
remit sales or other taxes arising from electronic commerce
transactions.
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could have a material adverse effect on
our business, financial condition, results of operations and cash flows.
Quarterly and Seasonal Fluctuations
------------------------------------
Our revenue and results of operations have fluctuated and can be expected to
continue to fluctuate on a quarterly basis as a result of a number of factors,
including, among other things, the timing of new merchandise and catalog
offerings, recognition of costs or net sales contributed by new merchandise and
catalog offerings, fluctuations in response rates, fluctuations in paper,
production and postage costs and expenses, merchandise returns, adverse weather
conditions that affect distribution or shipping, shifts in the timing of
holidays and changes in our merchandise mix. In addition, we maintain a common
industry policy of deferring the recognition of the costs of catalog development
and production until sales are realized on each mailing and recognize such costs
as sales are realized. Consequently, quarter to quarter revenue and expense
comparisons will be impacted by the timing of the mailing of our catalogs.
Catalog mailings may occur in different quarters from year to year depending on
the performance of third party couriers, the day of the week on which certain
holidays fall and our assessment of prevailing market opportunities. A portion
of the revenue from a catalog mailing may be recognized in the quarter after the
quarter in which the catalog was mailed and the revenue from a particular
catalog offering may be recognized in a quarter different from the quarter in
which the revenue from a similar offering was recognized in the previous year.
We have experienced, and may continue to experience, seasonal fluctuations in
our sales and operating results, which is typical of many apparel retailers. In
past fiscal years, our net sales and profits have been heavily reliant on the
November and December holiday season. We believe that in the future this
seasonality will continue. In anticipation of increased sales activity during
November and December, we incur significant additional expenses, including the
hiring of a
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors (continued)
------------------------
Quarterly and Seasonal Fluctuations (continued)
------------------------------------------------
substantial number of temporary employees to supplement our permanent, full-time
staff. If, for any reason, our sales were to fall below our expectations during
November and December, our financial condition, results of operations and cash
flows would likely be materially adversely affected.
Merchandise Returns
---------------------
As part of our customer service commitment, we maintain a liberal merchandise
return policy which allows customers to return any merchandise, virtually at any
time and for any reason, and regardless of merchantable condition. We make
allowances in our financial statements for anticipated merchandise returns based
on historical return rates and our future expectations. While we believe our
allowances are adequate, there can be no assurance that actual merchandise
returns will not exceed our allowances. In addition, there can be no assurance
that the introduction of new merchandise through our various channels, changes
in the merchandise mix or other factors will not cause actual returns to exceed
return allowances. Any significant increase in merchandise returns or
merchandise returns that exceed our allowances could materially adversely affect
our financial condition, results of operations and cash flows.
Ability to Manage Expanding Operations
----------------------------------------
Our growth has resulted in an increased demand on our managerial, operational
and administrative resources. However, in order to manage currently anticipated
levels of future demand, we will be required to continue, among other things, to
(i) improve and integrate our management information systems and controls,
including inventory management, (ii) adjust our distribution capabilities and
(iii) attract and retain qualified personnel, including middle management. In
addition, there can be no assurance that any upgrades, improvements and
expansions in our overall infrastructure and operations will increase the
productivity or efficiency of our operations or that the same will be adequate
to meet our present or future needs. Continued growth could result in a strain
on our management, financial, merchandising, marketing, distribution and other
resources and we may experience operating difficulties, including difficulties
in training and managing an increasing number of employees, difficulties in
obtaining sufficient materials and manufacturing capacity from vendors to
produce our merchandise, problems in upgrading our management information
systems and delays in production and shipments. There can be no assurance that
we will be able to manage future growth effectively and any failure to manage
growth effectively could have a material adverse effect on our financial
condition, results of operations and cash flows. Our inability to respond to
and manage these changing business conditions could have a material adverse
effect on our financial condition, results of operations and cash flows.
Competition
-----------
The markets for our merchandise are highly competitive, and the recent growth
in these markets has encouraged the entry of many new competitors as well as
increased competition from established companies. Although we believe that we
do not compete directly with any single company with respect to our entire range
of merchandise, within each merchandise category we have significant competitors
and may face new competition from new entrants or existing competitors who focus
on market segments currently served by us. These competitors include large
retail operations, including some with catalog and e-commerce operations, and
other catalog and direct marketing companies and international competitors.
With respect to the apparel merchandise offered by us, we are in direct
competition with more established catalog, Internet and retail operations, some
with substantially greater experience in selling apparel merchandise and which
may focus on prospective customers sharing some of the demographic
characteristics of our customers. Any failure on our part to successfully
market our apparel merchandise or compete effectively against such competitors
would likely have a material adverse effect on our growth and could adversely
affect our financial condition, results of operations and cash flows. Many of
these
24
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors (continued)
------------------------
Competition (continued)
-----------------------
competitors are larger and have significantly greater financial, marketing and
other resources than us. Increased catalog mailings by our competitors may
adversely affect response rates to our own catalog mailings. In addition,
because we source a significant percentage of our merchandise from suppliers and
manufacturers located in the United States, where labor and production costs may
be higher than in foreign countries, there can be no assurance that our
merchandise will or can be competitively priced when compared to merchandise
offered by other retailers. While we believe that we have been able to compete
successfully because of our brand recognition, the exclusivity and broad range
and quality of our merchandise, including our private label merchandise
offerings, and our superior customer service policies, there can be no assurance
that we will be able to maintain or increase our market share in the future.
Our failure to compete successfully would likely have a material adverse effect
our financial condition, results of operations and cash flows.
Changing Consumer Preferences; General Economic Conditions
------------------------------------------------------------
Although we believe that our business has benefited from increasing consumer
interest in merchandise that reflects a casual and relaxed lifestyle, there can
be no assurance that this belief is correct or that such trends will continue.
Any change in these trends could have a material adverse effect on our financial
condition, results of operations and cash flows. In addition, although we
believe that the sale of our merchandise historically has not been primarily
driven by fashion trends, all of our merchandise is subject to changing consumer
preferences. A shift in consumer preferences away from the merchandise which we
offer could have a material adverse effect on financial condition, results of
operations and cash flows. Our future success depends in part on our ability to
anticipate and respond to changes in consumer preferences and there can be no
assurance that we will respond in a timely or commercially appropriate manner to
such changes. Failure to anticipate and respond to changing consumer
preferences could lead to, among other things, lower sales of our products,
significant markdowns or write-offs of inventory, increased merchandise returns,
and lower margins, which would likely have a material adverse effect on our
financial condition, results of operations and cash flows. Our business is
sensitive to regional changes in customers' spending and discretionary income
patterns which, in turn, are controlled to a large extent by prevailing economic
conditions. Adverse economic conditions in one or more regions in which we have
significant sales could have a material adverse effect on sales of our
merchandise and, as a result, on our financial condition, results of operations
and cash flows.
Dependence on Key Personnel
-----------------------------
Our success depends largely on the efforts of our key personnel, including
Dennis and Ann Pence, our founders. In the past, Dennis and Ann Pence have been
involved in all aspects of our business, including marketing, merchandising and
operations. Recently, they have primarily focused on our long-term strategic
positioning and brand identity. The loss of either of their services would
likely have a material adverse effect on our financial condition, results of
operations and cash flows. In addition, several other key employees, including
Georgia Shonk-Simmons (Chief Merchant and President of Catalog & Retail Sales
Division), Don Robson (Senior Vice President and Chief Financial Officer) and
Tom Scott (Senior Vice President, Chief Operations Officer and Chief Information
Officer) occupy critical positions and continue to be increasingly responsible
for policy making and day-to-day operations. The loss of any of such key
employee could have a material adverse effect on our financial condition,
results of operations and cash flows. Other operational, marketing and
merchandising personnel are important to our financial condition, results of
operations and cash flows. Our ability to attract and retain well-qualified key
personnel, including, but not limited to, the above-named individuals, is
crucial to our successful continued operations and expansion, in particular with
respect to our new sales channels. In addition, our relatively remote location
may make it more difficult to replace key employees who leave us, or to add the
employees required to manage our further growth.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Risk Factors (continued)
------------------------
Possible Volatility of Our Stock Price
--------------------------------------
The market price for our common stock may be significantly affected by such
factors as our quarterly operating results, changes in any earnings estimates
publicly announced by us or by analysts, announcements of new merchandise
offerings by us or our competitors, seasonal effects on sales and various
factors affecting the economy in general. In addition, the Nasdaq National
Market has experienced a high level of price and volume volatility and market
prices for the stock of many companies have experienced wide price fluctuations
not necessarily related to the operating performance of such companies.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not exposed to financial market risks from changes in foreign currency
exchange rates and are only minimally impacted by changes in interest rates.
Borrowings under our bank credit facility are at a variable rate of interest
and, based on the current level of borrowings, we experience only modest changes
in interest expense when market interest rates change. However, in the future,
we may enter into transactions denominated in non-U.S. currencies or increase
the level of our borrowings, which could increase our exposure to these market
risks. We have not used, and currently do not contemplate using, any derivative
financial instruments.
26
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PART II
Item 1. Legal Proceedings
There are no material legal proceedings presently pending to which Coldwater
Creek Inc. or its subsidiary is a party or of which any of their properties are
the subject.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On July 31, 2000, the Company obtained majority approval from its shareholders
to increase its common shares authorized for issuance from 15,000,000 common
shares to 60,000,000 common shares.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
NUMBER DESCRIPTION OF DOCUMENT
------------------------------
27.1 Financial Data Schedule
There were no reports filed on Form 8-K during the three months ended August 26,
2000.
SIGNATURE
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, in the City of Sandpoint,
State of Idaho, on this 10th day of October 2000.
COLDWATER CREEK INC.
By: /s/ Donald A. Robson
--------------------------------------
Donald A. Robson
Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
27
