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Table of Contents
 
 
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 June 1, 2002
 
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
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
 
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 July 12, 2002
Common Stock ($.01 par value)
   
10,631,574
 

Table of Contents
 
INDEX TO FORM 10-Q
 
PART I.    FINANCIAL INFORMATION
     
         
Page
Item 1.
      
3
       
3
       
4
       
5
       
6
Item 2.
      
14
Item 3.
      
34
PART II.    OTHER INFORMATION
     
Item 1.
      
35
Item 2.
      
35
Item 3.
      
35
Item 4.
      
35
Item 5.
      
36
Item 6.
      
36

2

Table of Contents
PART I.    FINANCIAL INFORMATION
 
Item 1.     Condensed Consolidated Financial Statements (unaudited)
 
COLDWATER CREEK INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except for share data)
 
    
June 1, 2002
     
March 2, 2002
  
ASSETS
                  
CURRENT ASSETS:
                  
Cash and cash equivalents
   
$
4,698
 
   
$
4,989
 
Receivables
   
 
6,168
 
   
 
4,927
 
Inventories
   
 
60,551
 
   
 
64,295
 
Prepaid and other
   
 
4,021
 
   
 
5,923
 
Prepaid and deferred catalog costs
   
 
5,035
 
   
 
7,770
 
Deferred income taxes
   
 
2,250
 
   
 
2,250
 
    
  
Total current assets
   
 
82,723
 
   
 
90,154
 
Property and equipment, net
   
 
79,933
 
   
 
78,282
 
Executive loans
   
 
548
 
   
 
811
 
    
  
Total assets
   
$
163,204
 
   
$
169,247
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
CURRENT LIABILITIES:
                  
Accounts payable
   
$
33,377
 
   
$
46,514
 
Accrued liabilities
   
 
18,892
 
   
 
16,961
 
    
  
Total current liabilities
   
 
52,269
 
   
 
63,475
 
Deferred income taxes
   
 
3,794
 
   
 
3,794
 
Deferred rents
   
 
8,555
 
   
 
7,050
 
    
  
Total liabilities
   
 
64,618
 
   
 
74,319
 
    
  
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, 10,820,124 and 10,768,282 shares issued, respectively
   
 
108
 
   
 
108
 
Additional paid-in capital
   
 
50,495
 
   
 
49,609
 
Treasury shares, at cost, 209,100 shares
   
 
(4,715
)
   
 
(4,715
)
Retained earnings
   
 
52,698
 
   
 
49,926
 
    
  
Total stockholders’ equity
   
 
98,586
 
   
 
94,928
 
    
  
Total liabilities and stockholders’ equity
   
$
163,204
 
   
$
169,247
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
 
COLDWATER CREEK INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands except for per share data)
 
    
Three Months Ended
    
June 1,
2002
   
June 2,
2001
Net sales
   
$
112,027
   
$
112,868
Cost of sales
   
 
63,035
   
 
63,300
    
  
Gross profit
   
 
48,992
   
 
49,568
Selling, general and administrative expenses
   
 
44,322
   
 
47,429
    
  
Income from operations
   
 
4,670
   
 
2,139
Interest, net, and other
   
 
33
   
 
107
    
  
Income before income taxes
   
 
4,703
   
 
2,246
Income tax provision
   
 
1,931
   
 
869
    
  
Net income
   
$
2,772
   
$
1,377
    
  
    
  
Net income per share—Basic
   
$
0.26
   
$
0.13
    
  
    
  
Net income per share—Diluted
   
$
0.26
   
$
0.13
    
  
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
 
COLDWATER CREEK INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
 
    
Three Months Ended
  
    
June 1,
2002
     
June 2,
2001
  
OPERATING ACTIVITIES:
                  
Net income
   
$
2,772
 
   
$
1,377
 
Non cash items:
                  
Depreciation and amortization
   
 
3,574
 
   
 
2,845
 
Other, net
   
 
70
 
   
 
4
 
Net change in current assets and liabilities:
                  
Receivables
   
 
510
 
   
 
2,066
 
Inventories
   
 
3,744
 
   
 
(1,415
)
Prepaid and other
   
 
2,091
 
   
 
645
 
Prepaid and deferred catalog costs
   
 
2,735
 
   
 
6,071
 
Accounts payable
   
 
(13,137
)
   
 
3,171
 
Accrued liabilities
   
 
2,468
 
   
 
2,277
 
    
  
Net cash provided by operating activities
   
 
4,827
 
   
 
17,041
 
    
  
INVESTING ACTIVITIES:
                  
Purchase of property and equipment
   
 
(5,914
)
   
 
(5,036
)
Repayments of loans to executives
   
 
263
 
   
 
—  
 
    
  
Net cash used in investing activities
   
 
(5,651
)
   
 
(5,036
)
    
  
FINANCING ACTIVITIES:
                  
Net proceeds from exercises of stock options
   
 
533
 
   
 
109
 
    
  
Net cash provided by financing activities
   
 
533
 
   
 
109
 
    
  
Net (decrease) increase in cash and cash equivalents
   
 
(291
)
   
 
12,114
 
Cash and cash equivalents, beginning
   
 
4,989
 
   
 
4,600
 
    
  
Cash and cash equivalents, ending
   
$
4,698
 
   
$
16,714
 
    
  
SUPPLEMENTAL CASH FLOW DATA:
                  
Cash paid for interest
   
$
—  
 
   
$
7
 
Cash paid for income taxes
   
 
101
 
   
 
90
 
Tax benefit from exercises of stock options
   
 
202
 
   
 
25
 
Deferred rent
   
 
1,750
 
   
 
525
 
Accrued property, plant and equipment
   
 
713
 
   
 
—  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Table of Contents
 
COLDWATER CREEK INC. AND SUBSIDIARIES
 
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1.    Interim Condensed Consolidated Financial Statements
 
Nature of Business and Organizational Structure
 
Coldwater Creek Inc., together with its wholly-owned subsidiaries (the “Company”), a Delaware corporation headquartered in Sandpoint, Idaho, is a triple-sales channel, two-operating segment retailer of women’s apparel, jewelry, footwear, gift items and home merchandise. The Company’s Direct Segment encompasses its traditional catalog business and Internet-based, e-commerce business, as well as its merchandise clearance outlet stores, whereas its Retail Segment encompasses its expanding base of full-line retail stores throughout the United States (“U.S.”).
 
The Company’s wholly-owned subsidiary, Coldwater Creek Outlet Stores, Inc. encompasses the Company’s merchandise clearance outlet stores. The Company’s two other wholly-owned subsidiaries are currently dormant with no substantive assets, liabilities, revenues or expenses.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.
 
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 28th, whichever is chronologically closer. This floating fiscal year-end typically results in thirteen-week fiscal quarters and a fifty-two week fiscal year but will occasionally give rise to an additional week resulting in a fourteen-week fiscal fourth quarter and a fifty-three week fiscal year. References herein to three-month periods or fiscal quarters refer to the respective thirteen weeks ended on the date indicated.
 
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 accounting principles generally accepted in the United States 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 depicted herein are not necessarily indicative of that to be realized in future interim periods or for the fiscal year in its entirety as a result of, among other possible factors, the seasonal nature of the retail industry, in general, and the Company, in particular. As these consolidated financial statements are condensed, they should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended March 2, 2002.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and the disclosure of contingent assets and liabilities. These estimates and assumptions are

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COLDWATER CREEK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
1.    Interim Condensed Consolidated Financial Statements (continued)
 
Use of Estimates (continued)
 
based on the Company’s historical results as well as management’s future expectations. The Company’s actual results could vary from management’s estimates and assumptions.
 
Reclassifications
 
Certain amounts in the accompanying condensed consolidated financial statements for the comparative prior fiscal year’s interim periods have been reclassified to be consistent with the current fiscal year’s interim presentations.
 
In particular, during the preceding fourth quarter of fiscal 2001, the Company elected to retroactively reclassify its deferred catalog costs as a current asset in light of their historically short economic life and prevailing industry accounting practice. The Company’s condensed consolidated statement of cash flows for the comparative first quarter of fiscal 2001 herein reflects this reclassification so as to present it on a consistent basis. This reclassification had no impact on net income, retained earnings or cash flows for any reported period.
 
Recently Adopted Accounting Standards
 
In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), which revises the accounting for purchased goodwill and other intangible assets. Under SFAS No. 142, goodwill and other intangible assets with indefinite lives will no longer be systematically amortized into operating results. Instead, each of these assets will be tested for impairment, in the absence of an indicator of possible impairment, at least annually, and upon an indicator of possible impairment, immediately. The Company adopted SFAS No. 142 effective March 3, 2002 for its fiscal 2002 consolidated financial statements with no material impact.
 
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), which modifies and expands the financial accounting and reporting for the impairment or disposal of long-lived assets other than goodwill, which is specifically addressed by SFAS No. 142. SFAS No. 144 maintains the requirement that an impairment loss be recognized for a long-lived asset to be held and used if its carrying value is not recoverable from its undiscounted cash flows, with the recognized impairment being the difference between the carrying amount and fair value of the asset. With respect to long-lived assets to be disposed of other than by sale, SFAS No. 144 requires that the asset be considered held and used until it is actually disposed of but requires that its depreciable life be revised in accordance with APB Opinion No. 20, “Accounting Changes.” SFAS No. 144 also requires that an impairment loss be recognized at the date a long-lived asset is exchanged for a similar productive asset or distributed to its owners in a spin-off if the carrying amount of the asset exceeds its fair value. With respect to long-lived assets to be disposed of by sale, SFAS No. 144 requires that the asset classified as held for sale be measured at the lower of its carrying amount or fair value less selling costs, with no further depreciation or amortization. As such, discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. SFAS No. 144 also broadens the previously existing income statement presentation requirements for discontinued operations to include a component of a business, that being the operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. A component of an entity that is classified as held for sale or that has been disposed of is presented as a discontinued operation if the operations and cash flows of the component have been or will be eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Company adopted SFAS No. 144 effective March 3, 2002 for its fiscal 2002 consolidated financial statements with no material impact.

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COLDWATER CREEK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 
 
1.    Interim Condensed Consolidated Financial Statements (continued)
 
Recently Issued Accounting Standards Not Yet Adopted or Fully Adopted
 
In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”), which sets forth the financial accounting and reporting to be followed for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are to be capitalized as part of the carrying amount of the long-lived asset. Subsequently, the recorded liability will be accreted to its present value and the capitalized costs will be depreciated. The Company will adopt SFAS No. 143, as required, effective March 2, 2003 for its fiscal 2003 consolidated financial statements. Management is continuing to assess the provisions of SFAS No. 143 and the likely impact of its adoption on the Company’s consolidated financial statements.
 
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS No. 145”). SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements, by rescinding SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion No. 30 will now be used to classify those gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. Finally, SFAS No. 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company adopted the provisions of SFAS No. 145 that amended SFAS No. 13 for transactions occurring after May 15, 2002 in its consolidated financial statements for the fiscal 2002 first quarter with no material impact. The Company will adopt all other provisions of SFAS No. 145, as required, effective March 2, 2003 for its fiscal 2003 consolidated financial statements. Management is continuing to assess these other provisions of SFAS No. 145 and the likely impact of their adoption on the Company’s consolidated financial statements.
 
2.    Receivables
 
Receivables consist of the following:
 
    
June 1, 2002
     
March 2, 2002
    
(in thousands)
Trade receivables
   
$
4,106
     
$
2,640
Tenant allowance reimbursements
   
 
1,636
     
 
1,428
List rentals
   
 
384
     
 
530
Other
   
 
42
     
 
329
    
    
    
$
6,168
     
$
4,927
    
    
 
The Company evaluates the credit risk associated with its receivables. At June 1, 2002 and March 2, 2002 no allowance for doubtful receivables was deemed necessary.

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COLDWATER CREEK INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3.     Accrued Liabilities
 
Accrued liabilities consist of the following: