<PAGE>
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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 NOVEMBER 29, 1997
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:
<TABLE>
<CAPTION>
Class Shares outstanding as of November 29, 1997
- ----------------------------- ------------------------------------------
<S> <C>
Common Stock ($.01 par value) 10,120,118
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</TABLE>
<PAGE>
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at November 29, 1997 and March 1, 1997............................................. 4
Consolidated Statements of Operations for the three and nine month periods ended
November 29, 1997 and November 30, 1996...................................................................... 5
Consolidated Statements of Cash Flows for the nine month periods ended
November 29, 1997 and November 30, 1996...................................................................... 6
Notes to Consolidated Financial Statements..................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................... 15
Item 2. Changes in Securities................................................................................. 15
Item 3. Defaults Upon Senior Securities....................................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................................................... 15
Item 5. Other Information..................................................................................... 15
Item 6. Exhibits and Reports on Form 8-K...................................................................... 16
</TABLE>
The following discussion 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, 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: general economic and business
conditions; competition; success of operating initiatives; development and
operating costs; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; catalog response rates, merchandise
return rates; 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; and construction costs; as well as those factors discussed in "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operation" and elsewhere in this Form 10-Q.
2
<PAGE>
Item 1. FINANCIAL STATEMENTS (unaudited)
3
<PAGE>
COLDWATER CREEK INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 29 MARCH 1
1997 1997
----------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34 $ 9,095
Receivables 7,353 2,342
Inventories 40,949 25,279
Prepaid expenses 2,089 456
Prepaid catalog costs 713 1,375
------- -------
TOTAL CURRENT ASSETS 51,138 38,547
Deferred catalog costs 10,878 3,347
Property and equipment, net of accumulated depreciation 24,573 20,080
Executive loans (Note 3) 1,286 --
------- -------
TOTAL ASSETS $87,875 $61,974
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts due banks $ 4,975 $ --
Accounts payable 28,556 18,061
Accrued expenses, including accrued sales returns 10,109 6,045
Income taxes payable -- 451
------- -------
TOTAL CURRENT LIABILITIES 43,640 24,557
Deferred income taxes 220 230
------- -------
TOTAL LIABILITIES 43,860 24,787
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued and outstanding -- --
Common stock, $.01 par value, 15,000,000 shares authorized,
10,120,118 shares issued and outstanding 101 101
Additional paid-in capital 38,748 38,748
Retained earnings (accumulated deficit) 5,166 (1,662)
------- -------
TOTAL STOCKHOLDERS' EQUITY 44,015 37,187
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $87,875 $61,974
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
<PAGE>
COLDWATER CREEK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
NOVEMBER 29 NOVEMBER 30 NOVEMBER 29 NOVEMBER 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $77,242 $45,325 $164,633 $84,710
Cost of sales 37,698 20,276 80,187 39,308
------- ------- -------- -------
GROSS PROFIT 39,544 25,049 84,446 45,402
Selling, general and
administrative expenses 32,397 20,203 73,266 39,239
------- ------- -------- -------
INCOME FROM OPERATIONS 7,147 4,846 11,180 6,163
Interest, net, and other (Note 3) (31) (156) 162 (200)
------- ------- -------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,116 4,690 11,342 5,963
Provision for income taxes 2,776 -- 4,514 --
------- ------- -------- -------
NET INCOME $ 4,340 4,690 6,828 5,963
======= ======= ======== =======
NET INCOME PER SHARE $ 0.41 n/a $ 0.65 n/a
======= ========
Weighted average shares
outstanding 10,676 n/a 10,586 n/a
======= ========
PRO FORMA INCOME DATA (NOTE 6):
Net income as reported above n/a $ 4,690 n/a $ 5,963
Pro forma provision for
income taxes n/a 1,853 n/a 2,355
------- -------
PRO FORMA NET INCOME n/a $ 2,837 n/a $ 3,608
======= =======
PRO FORMA NET INCOME
PER SHARE n/a $ 0.34 n/a $ 0.44
======= ======= ======== =======
Pro forma weighted average
shares outstanding n/a 8,288 n/a 8,288
======== ======= ======== =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
<PAGE>
COLDWATER CREEK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
NOVEMBER 29 NOVEMBER 30
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,828 $ 5,963
-------- --------
Noncash items:
Depreciation 2,817 1,357
Deferred income tax provision (10) --
Net change in current assets and liabilities:
Receivables (5,011) (1,980)
Inventories (15,670) (12,070)
Prepaid expenses (1,633) 387
Prepaid catalog costs 662 (296)
Accounts payable 10,495 13,065
Accrued expenses 4,064 4,011
Income taxes payable (451) --
Increase in deferred catalog costs (7,531) (5,260)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (5,440) 5,177
-------- --------
INVESTING ACTIVITIES:
Purchase of short term investments 5,106 --
Sale of short term investments (5,106) --
Loans to executives (Note 3) (1,286) --
Purchase of property and equipment (7,310) (10,187)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (8,596) (10,187)
-------- --------
FINANCING ACTIVITIES:
Payments on capital leases -- (132)
Amounts due banks 4,975 --
Advances under revolving line of credit 9,015 11,500
Repayment of advances under revolving line of credit (9,015) --
Distributions to stockholders -- (4,500)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,975 6,868
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (9,061) 1,858
Cash and cash equivalents, beginning 9,095 418
-------- --------
CASH AND CASH EQUIVALENTS, ENDING $ 34 $ 2,276
======== ========
SUPPLEMENTAL CASH FLOW DATA:
Cash paid for interest $ 74 $ 141
Cash paid for income taxes 5,008 --
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by Coldwater Creek Inc. (the Company), without audit, pursuant to the
rules and regulations of the 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 financial
position, results of operations and cash flows for the periods presented.
Certain information and footnote disclosures normally included in 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 results of operations 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 financial statements and the notes thereto included
in the Company's latest Annual Report on Form 10-K, which includes financial
statements for the fiscal year ended March 1, 1997.
References to a fiscal year refer to the calendar year in which such fiscal year
commenced. The Company's fiscal year ends on the Saturday closest to February
28. References to three and nine month periods refer to the thirteen and
thirty-nine weeks ended on the date indicated.
In March 1997, the Company incorporated Coldwater Creek Outlet Stores, Inc. as a
wholly-owned subsidiary.
2. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been reclassified
to be consistent with the current period presentation.
3. EXECUTIVE LOAN PROGRAM
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. On July 31, 1997, $1,286,000 in the
aggregate was loaned to six key executives. 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. If material, compensation expense is recognized by the Company for the
difference between the stated interest rate and the prevailing prime rate.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share," which will be implemented in the fourth quarter of fiscal
1997. The statement revises the computation and presentation of earnings per
share. Fully diluted earnings per share will be renamed diluted earnings per
share, and primary earnings per share will be replaced with basic earnings per
share. All previously reported amounts will be restated. For the three and nine
months ended November 29, 1997, SFAS No. 128 would not have had a material
impact on the Company's reported earnings per share.
7
<PAGE>
COLDWATER CREEK INC. AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
A reconciliation of the statutory U.S. Federal tax provision and the Company's
reported tax provisions for the three and nine months ended November 29, 1997 is
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 29, 1997 NOVEMBER 29, 1997
------------------ -----------------
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal income tax benefit 5.5 5.5
Other (1.5) (0.7)
---- ----
Effective tax rate 39.0% 39.8%
==== ====
</TABLE>
6. PRO FORMA ADJUSTMENTS
The pro forma data appearing on the statements of operations reflects historical
net income adjusted for pro forma income taxes. Pro forma income taxes are
reported at an assumed effective rate of 39.5%, reflecting prevailing federal
and state statutory rates at the time of the Company's initial public offering,
as if the Company had been a C corporation rather than an S corporation for the
three and nine months ended November 30, 1996. Pro forma net income per share is
based on the weighted average shares of common stock and stock equivalents
outstanding, consisting of (i) actual shares outstanding, (ii) shares issuable
under stock plans for which the effect of their inclusion would be dilutive, and
(iii) additional shares from which the proceeds, based on the Company's initial
public offering price of $15 per share, would have been necessary to fund an
assumed S corporation distribution of the retained earnings balance at November
30, 1996.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Form 10-Q contains certain forward-looking statements within the meaning of
the federal securities laws. Actual results and the timing of certain events
could differ materially from those projected in the forward-looking statements
due to a number of factors.
See Index to Form 10-Q for a more detailed description.
GENERAL
Coldwater Creek Inc. is a specialty direct mail retailer of apparel, gifts,
jewelry and home furnishings. The Company markets its merchandise primarily
through four distinct catalogs. NORTHCOUNTRY, which was introduced in 1985, is
the Company's core catalog and features casual, comfortable apparel,
hard-to-find jewelry, distinctive artwork, gifts and items for the home. The
Company's premium catalog for women, SPIRIT OF THE WEST, was introduced in the
Fall of 1993 and features fashionable, upscale apparel and hard-to-find jewelry
and accessories. Created in the Spring of 1996, MILEPOST FOUR features upscale,
yet relaxed, natural-fiber men's clothing. In response to customer demand for
selected, upscale bed and bath products periodically featured in Northcountry
and Spirit of the West, the Company introduced its BED & BATH catalog in
mid-August of this year.
Also, as part of the Company's brand building strategy, the Company operates a
unique complex of catalog-themed retail stores in Sandpoint, Idaho. As a
continuation of this strategy, the Company opened a similar complex in Jackson
Hole, Wyoming during June of 1997.
In analyzing the Company's financial position, results of operations, and cash
flows, it should be noted that the Company has experienced, and will continue to
experience, seasonal fluctuations in its sales and operating results as is
typical for many specialty retailers. In past fiscal years, the Company's net
sales and profits have been heavily reliant on the November and December holiday
season. Management believes that this seasonality will continue in the future
although to a lesser degree as a result of the increased representation of
apparel within the Company's overall merchandise mix.
In anticipation of the increased sales activity expected during November and
December, the Company incurs certain significant additional expenses, including
the hiring of a substantial number of temporary employees to supplement its
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, the Company expects higher gross margins in the second half of the
fiscal year than in the first half. If, for any reason, the Company's net sales
were to fall below its expectations during November and December, the Company's
financial condition, results of operations and cash flows would be adversely
affected.
It should be further noted that the Company's revenues and results of operations
have fluctuated, and are likely to continue to fluctuate, on a quarterly basis
as a result of a number of other 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 the
Company's merchandise mix.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table sets forth certain information regarding the Company's costs
and expenses expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
NOVEMBER 29 NOVEMBER 30 NOVEMBER 29 NOVEMBER 30
(AS A PERCENTAGE OF NET SALES) 1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 48.8 44.7 48.7 46.4
----- ----- ----- -----
Gross profit 51.2 55.3 51.3 53.6
Selling, general and
administrative expenses 41.9 44.6 44.5 46.3
----- ----- ----- -----
Income from operations 9.3 10.7 6.8 7.3
Interest, net, and other (0.1) (0.3) 0.1 (0.3)
----- ----- ----- -----
Income before provision for
income taxes 9.2 10.4 6.9 7.0
Provision for income taxes 3.6 -- 2.7 --
----- ----- ----- -----
Net income 5.6% 10.4% 4.2% 7.0%
===== ===== ===== =====
Pro forma provision for
income taxes n/a 4.1 n/a 2.8
----- ----- ----- -----
Pro forma net income n/a% 6.3% n/a% 4.2%
===== ===== ===== =====
</TABLE>
The following table sets forth certain information regarding the Company's
customer service:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
NOVEMBER 29 NOVEMBER 30 NOVEMBER 29 NOVEMBER 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVERAGE ANSWER SPEEDS
(in seconds) 3.18 5.30 3.34 4.12
AVERAGE CALL PROCESSING SPEEDS
(in minutes:seconds) 4:09 4:07 3:59 3:54
ABANDONED CALL RATE
(as a percent of total calls) 0.42% 0.46% 0.42% 0.49%
</TABLE>
Net sales increased by $31.9 million, or 70.4%, to $77.2 million during the
three months ended November 29, 1997 from $45.3 million during the three months
ended November 30, 1996. Net sales increased by $79.9 million, or 94.3%, to
$164.6 million during the nine months ended November 29, 1997 from $84.7 million
during the nine months ended November 30, 1996. These increases are primarily
attributable to favorable response rates to the Company's core Northcountry
catalog as well as increased circulation of, and favorable response rates to,
the Company's Spirit of the West and Milepost Four catalogs. Total catalog
mailings were 37.3 million and 79.4 million during the three and nine months
ended November 29, 1997, respectively, reflecting increases of approximately
44.6% and 71.9% from the 25.8 million and 46.2 million catalogs mailed during
the comparable periods in fiscal 1996.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
The investment made by the Company in increased catalog mailings resulted in the
active customer file, comprised of customers who have made a purchase in the
preceding twelve months, increasing to 1.5 million at November 29, 1997 from
1.1 million at March 1, 1997 and 0.9 million at November 30, 1996. The Company's
proprietary mailing list increased to 4.8 million names at November 29, 1997
from 3.7 million names at March 1, 1997 and 3.2 million names at November 30,
1996.
Gross profit increased $14.5 million, or 57.9%, to $39.5 million during the
three months ended November 29, 1997 from $25.0 million during the three months
ended November 30, 1996. Gross profit increased $39.0 million, or 86.0%, to
$84.4 million during the nine months ended November 29, 1997 from $45.4 million
during the nine months ended November 30, 1996. Gross profit decreased as a
percentage of net sales to 51.2% in the three months ended November 29, 1997
from 55.3% of net sales in the three months ended November 30, 1996. Gross
profit decreased as a percentage of net sales to 51.3% in the nine months ended
November 29, 1997 from 53.6% of net sales in the nine months ended November 30,
1996. The decreases in gross profit percentages are attributable to increased
sales of marked down merchandise associated with a greater percentage of apparel
and management's decision, in light of the continued growth in the Company's
overall merchandise offering, to more aggressively liquidate slow-moving
merchandise. The Company's fiscal 1997 gross margins also reflect the
increasingly favorable effects of lower inventory procurement costs as a
percentage of net sales.
Selling, general and administrative expenses primarily consist of marketing,
distribution and general and administrative expenses. Marketing expenses
primarily consist of catalog production and postage costs. Production costs
primarily consist of paper, printing, computer services and list rental costs
(net of list rental revenue). Selling, general and administrative expenses
increased by $12.2 million, or 60.4%, to $32.4 million during the three months
ended November 29, 1997 from $20.2 million in the three months ended November
30, 1996. Selling, general and administrative expenses increased by $34.0
million, or 86.7%, to $73.3 million during the nine months ended November 29,
1997 from $39.2 million in the nine months ended November 30, 1996. Selling,
general and administrative expenses decreased as percentages of net sales to
41.9% and 44.5% during the three and nine months ended November 29, 1997 from
44.6% and 46.3% during the three and nine months ended November 30, 1996,
respectively. The increases in selling, general and administrative expenses are
primarily attributable to the circulation costs incurred in connection with
increased catalog mailings and various infrastructure investments considered
necessary to support the Company's anticipated growth. The decreases in selling,
general and administrative expenses as percentages of net sales are attributable
to the growth in net sales and the fixed or semi-fixed nature of certain
infrastructure costs.
As a result of the foregoing, operating income increased by $2.3 million, or
47.5%, to $7.1 million for the three months ended November 29, 1997 from $4.8
million for the three months ended November 30, 1996. Similarly, operating
income increased by $5.0 million, or 81.4%, to $11.2 million for the nine months
ended November 29, 1997 from $6.2 million for the nine months ended November 30,
1996.
After applying a combined federal and state statutory income tax rate of 39.5%
to the fiscal 1996 periods when the Company remained an S-corporation, the
Company realized net income of $4.3 million and $6.8 million for the three and
nine months ended November 29, 1997 versus pro forma net income of $2.8 million
and $3.6 million for the three and nine months ended November 30, 1996,
respectively. This equates to net income per share of $0.41 and $0.65 for the
three and nine months ended November 29, 1997, versus pro forma net income per
share of $0.34 and $0.44 for the three and nine months ended November 30, 1996,
respectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Coldwater Creek has historically funded its growth through a combination of
funds generated from operations and short-term bank credit facilities. Working
capital requirements generally precede the realization of sales on a monthly
basis.
During the nine months ended November 29, 1997, operating activities used $5.4
million while financing activities provided $5.0 million. In contrast, during
the nine months ended November 30, 1996, operating activities provided $5.2
million while financing activities provided $6.9 million after distributions to
S-corporation shareholders of $4.5 million. The current period primarily
reflects the Company's partial financing via accounts payable and amounts due
bank of inventory purchases, as well as catalog production and distribution
costs, during the summer and early fall in anticipation of the increased
consumer demand traditionally realized during the late fall and winter. The
Company had no amounts outstanding under its revolving lines of credit at
November 29, 1997 and March 1, 1997, whereas the Company had $11.5 million
outstanding at November 30, 1996.
In January 1997, the Company amended its revolving lines of credit agreement
with U.S. Bank of Idaho to provide for: (i) an unsecured revolving line of
credit allowing the Company to borrow up to $17,500,000 at an interest rate, at
the option of the Company, which is five basis points below the bank's Prime
rate or LIBOR plus one and three quarters percent (1.75%); the unsecured line
expires on June 30, 1998; (ii) a secured line of credit which allows the Company
to borrow up to $17,500,000 at an interest rate equal to the bank's Prime rate
or LIBOR plus one and eighty five hundredths percent (1.85%) and is secured with
certain real property, equipment and fixtures of the Company; the secured line
expires on June 30, 2000; and (iii) a separate unsecured line of credit
exclusively for the purpose of issuing standby and commercial letters of credit
with an aggregate face value of no more than $1,000,000. Letters of credit under
this facility can be issued up through June 30, 1998 for expiration by no later
than June 30, 1999. As a condition of the unsecured line of credit only,
borrowings thereunder must be fully repaid for at least thirty consecutive days
during each twelve-month period.
Investing activities consumed $8.6 million during the nine months ended November
29, 1997, versus $10.2 million during the nine months ended November 30, 1996.
The current period primarily reflects the Company's continuing investment in
telecommunications and management information systems, and to a lesser degree,
leasehold improvements attributable to the Company's retail store complex in
Jackson Hole, Wyoming, which opened in June 1997.
The Company's fulfillment center in Sandpoint, Idaho is currently operating near
capacity. Additionally, a majority of the Company's net revenues are generated
from customers residing in the eastern United States. As a result, the Company
currently realizes certain operating inefficiencies and incremental shipping
costs in fulfilling the majority of its customer orders. Therefore, the Company
is currently negotiating a definitive agreement with the State of West Virginia
to establish a planned second fulfillment center in Parkersburg, West Virginia.
If completed, the new fulfillment center would approximate 650,000 square feet
and be situated on approximately 60 acres. It is contemplated that the new
fulfillment center would commence operations in the Spring of 1999. A condition
to any definitive agreement will be that the State of West Virginia must provide
the Company at a nominal annual lease cost with a temporary 120,000 square foot
facility in the Parkersburg area from which the Company may begin fulfillment
operations in the Spring of 1998. The temporary facility will remain available
to the Company until the new fulfillment center is operational.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Under the current negotiations, the Company would lease the land and building
components of the new fulfillment center for 15 to 20 years at an estimated
annual cost of $2.4 million to $2.7 million. The required machinery and
equipment components, which will be conventionally financed over a period of
approximately 3 to 10 years, are currently estimated by management to cost
approximately $25 million.
If a definitive agreement is reached with the State of West Virginia with
respect to the new fulfillment center, the Company would consider building a
planned third customer service call center on the same site. Management is
currently evaluating the related costs and financing alternatives.
Additionally, the Company has negotiated the purchase of real estate for a
planned new customer service call center in Coeur d'Alene, Idaho. This new call
center will replace the existing leased facilities in Coeur d'Alene and provide
for additional growth capacity. The estimated total cost for the new call
center, which is targeted for completion by the Fall of 1998, is estimated to be
approximately $6 million. It is expected that such amount will be conventionally
financed using the Company's established bank lines of credit.
The Company believes that cash flow from operations and borrowing capacity under
its existing credit facilities will be sufficient to support operations and
future growth through at least fiscal 1998. The Company may be required to seek
additional sources of funds for continued or accelerated growth after that
point, and there can be no assurance that such funds will be available on
satisfactory terms. Failure to obtain such financing could delay or prevent the
Company's planned growth, which could adversely affect the Company's business,
financial condition and results of operations.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<PAGE>
PART II
Item 1. Legal Proceedings
There are no material legal proceedings presently pending to which
Coldwater Creek, Inc. is a party or of which any of its property is
the subject.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Coldwater Creek Inc. (the
Company) was held on July 11, 1997. At such meeting, the following
proposals were voted upon and approved:
1. Proposal #1: Election of Directors:
<TABLE>
<CAPTION>
FOR WITHHOLD
--------- --------
<S> <C> <C>
Dennis C. Pence 9,702,430 4,239
Robert H. McCall 9,702,274 4,395
</TABLE>
2. Proposal #2: Ratify the appointment of Arthur Andersen LLP as
independent public accountants of the Company for the fiscal
year ending February 28, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C>
9,703,183 1,950 1,536
</TABLE>
3. Proposal #3: To transact such other business as may properly
come before the annual meeting or any adjournment or
postponement thereof.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--------- ------- -------
<S> <C> <C>
8,503,693 689,290 513,686
</TABLE>
Item 5. Other Information
None.
15
<PAGE>
PART II (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
NUMBER DESCRIPTION OF DOCUMENT
3.1 * Amended and Restate Certificate of Incorporation
3.2 * Bylaws
4.1 * Specimen of Stock Certificate
10.1.1 * Form of Indemnity Agreement between the Registrant and each of its
Directors
10.1.2 * Form of Agreement for Distribution of Retained Earnings and Tax
Indemnification between the Company and Dennis and Ann Pence
10.1.3 * Lease to Coeur d'Alene Call Facility
10.1.4 * Lease to Cedar Street Bridge Store
10.1.5 * Lease to Jackson Hole Retail Store
10.1.6 * Loan Agreement dated September 9, 1996 between the Company and
U.S. Bank of Idaho, formerly West One Bank, Idaho
10.1.7 * Credit Agreement with MBNA America
10.1.8 * Seaside Lease Agreement
10.2 * 1996 Stock Option/Stock Issuance Plan
10.2.1 * Form of Stock Option Agreement under 1996 Stock Option/Stock
Issuance Plan
10.2.2 * 1997 Employee Stock Purchase Plan
10.2.3 * Form of Executive Loan Agreement
11 Computation of Net Income Per Share
24.1 * Power of Attorney (included on the signature page to S-1)
27.1 Financial Data Schedule
* Previously filed
There were no reports filed on Form 8-K during the nine months ended November
29, 1997.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 13th day of January 1998.
COLDWATER CREEK INC.
By: * DENNIS PENCE
-------------------------------------------
Dennis Pence
President, Chief Executive Officer
and Vice Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* DENNIS PENCE President, Chief Executive Officer, Vice January 13, 1998
------------------------------------- Chairman of the Board of Directors, and Director
Dennis Pence
* ANN PENCE Chairman of the Board of Directors, Creative January 13, 1998
------------------------------------- Director and Director
Ann Pence
* DONALD ROBSON Chief Financial Officer, Vice President of January 13, 1998
----------------------------------- Finance and Administration, Treasurer,
Donald Robson Secretary, and Director (Principal Financial
and Accounting Officer)
* ROBERT H. MCCALL Director January 13, 1998
--------------------------------------
Robert H. McCall
* JAMES R. ALEXANDER Director January 13, 1998
--------------------------------------
James R. Alexander
* CURT HECKER Director January 13, 1998
--------------------------------------
Curt Hecker
* MICHELLE COLLINS Director January 13, 1998
--------------------------------------
Michelle Collins
*By: /s/ DONALD ROBSON January 13, 1998
--------------------------------
Donald Robson
(Attorney-in-fact)
</TABLE>
17
<PAGE>
COLDWATER CREEK INC. -- EXHIBIT 11
Schedule of Historical and Pro Forma Net Income (Loss) Per Common and Common
Equivalent Share Outstanding
Three and Nine Months Ended November 29, 1997 and November 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
NOVEMBER 29 NOVEMBER 30 NOVEMBER 29 NOVEMBER 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
- --------
Weighted Average Shares Outstanding:
Shares Outstanding at Beginning of Period 10,120,118 7,245,118 10,120,118 7,245,118
----------- ---------- ----------- ----------
Officer Options:
FY1997: 443,067 - [(443,067*$6.58)/$29.11] 342,917 -- -- --
FY1997: 443,067 - [(443,067*$6.58)/$22.83] -- -- 315,367 --
FY1996: 443,067 - [(443,067*$6.58)/$15.00] -- 248,708 -- --
FY1996: 443,067 - [(443,067*$6.58)/$15.00] -- -- -- 248,708
Employee Options:
FY1997: 439,128 - [(439,128*$15.00)/$29.11] 212,851 -- -- --
FY1997: 439,128 - [(439,128*$15.00)/$22.83] -- -- 150,608 --
S-Corp. Distribution:
Pro Forma FY1996: $11,915,000/$15.00 -- 794,333 -- 794,333
----------- ---------- ----------- ----------
Weighted Average Common and Common Equivalent
Shares Outstanding:
Historical 10,675,886 n/a 10,586,093 n/a
Pro Forma n/a 8,288,159 n/a 8,288,159
Net Income (Loss):
Historical $ 4,341,000 n/a $ 6,828,000 n/a
Pro Forma n/a $2,837,000 n/a $3,608,000
----------- ---------- ----------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARE OUTSTANDING:
HISTORICAL $ 0.41 n/a $ 0.65 n/a
PRO FORMA n/a $ 0.34 n/a $ 0.44
=========== ========== =========== ==========
</TABLE>
<PAGE>
COLDWATER CREEK INC. -- EXHIBIT 11 (CONTINUED)
Schedule of Historical and Pro Forma Net Income (Loss) Per Common and Common
Equivalent Share Outstanding Three and Nine Months Ended November 29, 1997 and
November 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------- --------------------------
NOVEMBER 29 NOVEMBER 30 NOVEMBER 29 NOVEMBER 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FULLY-DILUTED:
Weighted Average Shares Outstanding:
Shares Outstanding at Beginning of Period 10,120,118 7,245,118 10,120,118 7,245,118
----------- ---------- ----------- ----------
Officer Options:
FY1997: 443,067 - [(443,067*$6.58)/$31.00] 349,022 -- -- --
FY1997: 443,067 - [(443,067*$6.58)/$31.00] -- -- 349,022 --
FY1996: 443,067 - [(443,067*$6.58)/$15.00] -- 248,708 -- --
FY1996: 443,067 - [(443,067*$6.58)/$15.00] -- -- -- 248,708
Employee Options:
FY1997: 439,128 - [(439,128*$15.00)/$31.00] 226,647 -- -- --
FY1997: 439,128 - [(439,128*$15.00)/$31.00] -- -- 226,647 --
S-Corp. Distribution:
Pro Forma FY1996: $11,915,000/$15.00 -- 794,333 -- 794,333
----------- ---------- ----------- ----------
Weighted Average Common and Common Equivalent
Shares Outstanding:
Historical 10,695,787 n/a 10,695,787 n/a
Pro Forma n/a 8,288,159 n/a 8,288,159
Net Income (Loss):
Historical $ 4,341,000 n/a $ 6,828,000 n/a
Pro Forma n/a $2,837,000 n/a $3,608,000
----------- ---------- ----------- ----------
NET INCOME (LOSS) PER WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT SHARE OUTSTANDING:
HISTORICAL $0.41 n/a $0.64 n/a
PRO FORMA n/a $0.34 n/a $0.44
=========== ========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> FEB-28-1998 MAR-01-1997
<PERIOD-START> MAR-02-1997 MAR-03-1996
<PERIOD-END> NOV-29-1997 NOV-30-1996
<CASH> 34 0
<SECURITIES> 0 0
<RECEIVABLES> 7,353 0
<ALLOWANCES> 0 0
<INVENTORY> 40,949 0
<CURRENT-ASSETS> 51,138 0
<PP&E> 24,573 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 87,875 0
<CURRENT-LIABILITIES> 43,640 0
<BONDS> 0 0
0 0
0 0
<COMMON> 101 0
<OTHER-SE> 43,914 0
<TOTAL-LIABILITY-AND-EQUITY> 87,875 0
<SALES> 164,633 84,710
<TOTAL-REVENUES> 164,633 84,710
<CGS> 80,187 39,308
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 73,266 39,239
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 162 (200)
<INCOME-PRETAX> 11,342 5,963
<INCOME-TAX> 4,514 2,355
<INCOME-CONTINUING> 6,828 3,608
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,828 3,608
<EPS-PRIMARY> 0.65 0.44
<EPS-DILUTED> 0.64 0.44
</TABLE>
