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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 August 31, 2002
 
OR
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 0-21915
 
 
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 October 11, 2002
Common Stock ($.01 par value)
  
10,844,774
 

Table of Contents
 
INDEX TO FORM 10-Q
 
    
Page
PART I.    FINANCIAL INFORMATION
     
Item 1.    Condensed Consolidated Financial Statements (unaudited)
     
  
3
  
4
  
5
  
6
  
15
  
35
  
35
PART II.    OTHER INFORMATION
     
  
36
  
36
  
36
  
36
  
37
  
37

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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)
 
    
August 31, 2002
     
March 2, 2002
  
ASSETS
                  
CURRENT ASSETS:
                  
Cash and cash equivalents
   
$
425
 
   
$
4,989
 
Receivables
   
 
7,591
 
   
 
4,927
 
Inventories
   
 
68,784
 
   
 
64,295
 
Prepaid and other
   
 
5,125
 
   
 
5,923
 
Prepaid and deferred catalog costs
   
 
13,099
 
   
 
7,770
 
Deferred income taxes
   
 
2,250
 
   
 
2,250
 
    
  
Total current assets
   
 
97,274
 
   
 
90,154
 
Property and equipment, net
   
 
82,068
 
   
 
78,282
 
Executive Loans
   
 
548
 
   
 
811
 
    
  
Total assets
   
$
179,890
 
   
$
169,247
 
    
  
LIABILITIES AND STOCKHOLDERS' EQUITY
                  
CURRENT LIABILITIES:
                  
Revolving line of credit
   
$
731
 
   
$
—  
 
Accounts payable
   
 
50,317
 
   
 
46,514
 
Accrued liabilities
   
 
18,990
 
   
 
16,961
 
    
  
Total current liabilities
   
 
70,038
 
   
 
63,475
 
Deferred income taxes
   
 
1,794
 
   
 
3,794
 
Deferred rents
   
 
9,621
 
   
 
7,050
 
    
  
Total liabilities
   
 
81,453
 
   
 
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, 10,843,999 and 10,768,282 shares issued, respectively
   
 
108
 
   
 
108
 
Additional paid-in capital
   
 
50,996
 
   
 
49,609
 
Treasury shares, at cost, 209,100 shares
   
 
(4,715
)
   
 
(4,715
)
Retained earnings
   
 
52,048
 
   
 
49,926
 
    
  
Total stockholders’ equity
   
 
98,437
 
   
 
94,928
 
    
  
Total liabilities and stockholders’ equity
   
$
179,890
 
   
$
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
   
Six Months Ended
    
August 31, 2002
     
September 1, 2001
   
August 31, 2002
   
September 1, 2001
Statements of Operations:
                              
Net sales
   
$
92,794
 
   
$
92,848
   
$
204,821
   
$
205,716
Cost of sales
   
 
56,730
 
   
 
53,686
   
 
119,765
   
 
117,002
    
  
  
  
Gross profit
   
 
36,064
 
   
 
39,162
   
 
85,056
   
 
88,714
Selling, general and administrative expenses
   
 
37,085
 
   
 
37,177
   
 
81,407
   
 
84,590
    
  
  
  
(Loss) income from operations
   
 
(1,021
)
   
 
1,985
   
 
3,649
   
 
4,124
Interest, net, and other
   
 
(7
)
   
 
130
   
 
26
   
 
237
    
  
  
  
(Loss) income before income taxes
   
 
(1,028
)
   
 
2,115
   
 
3,675
   
 
4,361
Income tax (benefit) provision
   
 
(378
)
   
 
819
   
 
1,553
   
 
1,688
    
  
  
  
Net (loss) income
   
$
(650
)
   
$
1,296
   
$
2,122
   
$
2,673
    
  
  
  
Net (loss) income per share—Basic
   
$
(0.06
)
   
$
0.12
   
$
0.20
   
$
0.25
    
  
  
  
Weighted average shares outstanding—Basic
   
 
10,626
 
   
 
10,646
   
 
10,606
   
 
10,603
Net (loss) income per share—Diluted
   
$
(0.06
)
   
$
0.12
   
$
0.20
   
$
0.25
    
  
  
  
Weighted average shares outstanding—Diluted
   
 
10,626
 
   
 
10,937
   
 
10,733
   
 
10,862
 
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)
 
    
Six Months Ended
  
    
August 31, 2002
     
September 1, 2001
  
OPERATING ACTIVITIES:
                  
Net income
   
$
2,122
 
   
$
2,673
 
Non cash items:
                  
Depreciation and amortization
   
 
7,679
 
   
 
5,706
 
Other, net
   
 
31
 
   
 
(11
)
Deferred income taxes
   
 
(2,000
)
   
 
—  
 
Net change in current assets and liabilities:
                  
Receivables
   
 
359
 
   
 
(230
)
Inventories
   
 
(4,489
)
   
 
(3,384
)
Prepaid and other
   
 
1,052
 
   
 
1,163
 
Prepaid and deferred catalog costs
   
 
(5,329
)
   
 
1,733
 
Accounts payable
   
 
3,803
 
   
 
7,898
 
Accrued liabilities
   
 
(1,755
)
   
 
842
 
    
  
Net cash provided by operating activities
   
 
1,473
 
   
 
16,390
 
    
  
INVESTING ACTIVITIES:
                  
Purchase of property and equipment
   
 
(10,620
)
   
 
(11,954
)
Repayments of loans to executives
   
 
263
 
   
 
—  
 
    
  
Net cash used in investing activities
   
 
(10,357
)
   
 
(11,954
)
    
  
FINANCING ACTIVITIES:
                  
Net proceeds from advances under revolving line of credit
   
 
731
 
   
 
—  
 
Net proceeds from exercises of stock options
   
 
904
 
   
 
647
 
Checks written in excess of cash
   
 
2,685
 
   
 
—  
 
Common shares repurchased for treasury
   
 
—  
 
   
 
(2,628
)
    
  
Net cash provided by (used in) financing activities
   
 
4,320
 
   
 
(1,981
)
    
  
Net (decrease) increase in cash and cash equivalents
   
 
(4,564
)
   
 
2,455
 
Cash and cash equivalents, beginning
   
 
4,989
 
   
 
4,600
 
    
  
Cash and cash equivalents, ending
   
$
425
 
   
$
7,055
 
    
  
SUPPLEMENTAL CASH FLOW DATA:
                  
Cash paid for interest
   
$
—  
 
   
$
8
 
Cash paid for income taxes
   
 
1,097
 
   
 
128
 
Tax benefit from exercises of stock options
   
 
281
 
   
 
187
 
Deferred rent
   
 
3,027
 
   
 
1,218
 
 
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 has three wholly owned subsidiaries which currently have 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 and six-month periods, or fiscal quarters and halves refer to the respective thirteen and twenty-six 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, except as noted below) 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.
 
During the fiscal 2002 second quarter the Company recorded a non-recurring adjustment to increase leasehold amortization in the pre-tax amount of approximately $0.3 million. This cumulative adjustment was related to a correction of the number of years over which the leasehold improvements of two of the Company’s retail stores were being amortized. The adjustment was considered immaterial to the period and, therefore, the treatment of this correction as a prior period adjustment was not required by accounting principles generally accepted in the United States.

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Use of Estimates