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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-K
                                        
        [X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                       OR
       [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998       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       (208) 263-2266
    (Address of principal executive offices)     (Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value

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 by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in a definitive proxy or information statement
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K  [ ]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $66,370,525 as of May 22,
1998, based upon the closing price on the Nasdaq National Market reported for
such date. As of May 22, 1998, 10,130,793 shares of the Registrant's $.01 par
value common stock were outstanding. Shares of common stock held by each
executive officer and director and by each person who beneficially owns more
than 5% of the outstanding common stock have been excluded in that such person
may under certain circumstances be deemed to be affiliates. This determination
for executive officer or affiliate status is not necessarily a conclusive
determination for other purposes.

                      DOCUMENTS INCORPORATED BY REFERENCE
                                        
The following documents (or portions thereof) are incorporated by reference into
the Parts of this Form 10-K noted:

Part III incorporates by reference from the definitive proxy statement for the
registrant's 1998 Annual Meeting of Stockholders to be filed with the Commission
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this Form.

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<PAGE>
 
                             Coldwater Creek Inc.

     ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
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                                                                                                                               Page
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PART 1
 
Item 1.        Business.....................................................................................................     3
Item 2.        Properties...................................................................................................    15
Item 3.        Legal Proceedings............................................................................................    14
Item 4.        Submission of Matters to a Vote of Security Holders..........................................................    15
 
PART II
 
Item 5.        Market for Registrant's Common Equity and Related Stockholder Matters........................................    18
Item 6.        Selected Financial and Operating Data........................................................................    20
Item 7.        Management's Discussion and Analysis.........................................................................    22
Item 7A.       Quantitative and Qualitative Disclosures About Market Risk...................................................    27
Item 8.        Financial Statements and Supplementary Data..................................................................    30
Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................    47
 
PART III
 
Item 10.       Directors and Executive Officers of the Registrant ..........................................................    47
Item 11.       Executive Compensation.......................................................................................    47
Item 12.       Security Ownership of Certain Beneficial Owners and Management...............................................    47
Item 13.       Certain Relationships and Related Transactions...............................................................    47
 
PART IV
 
Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................................    48
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                                     PART I
                                     ------
ITEM 1.  BUSINESS

The following discussion may contain forward-looking statements 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 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; 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 1 -
Business - Competition; Reliance on Catalog Operations; and Risks Associated
with Growth Strategy," "Item 7 - Management's Discussion and Analysis" and
elsewhere in this Form 10-K. 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 closest to February 28. The fiscal year is generally 52 weeks, as is
the case with all periods presented except fiscal 1994 which consisted of 53
weeks.


OVERVIEW

Coldwater Creek Inc. (the "Company") 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 the selected, upscale bed and bath products periodically
featured in Northcountry and Spirit of the West, the Company introduced its Bed
& Bath catalog in August of 1997.

As part of the Company's brand building strategy, the Company also operates
catalog-themed retail stores in Sandpoint, Idaho and Jackson Hole, Wyoming.
Through its wholly-owned subsidiary, Coldwater Creek Outlet Stores Inc., the
Company additionally operates outlet stores in Seaside, Oregon; Lee,
Massachusetts; Kittery, Maine; and Birch Run, Michigan.

Coldwater Creek targets well-educated, middle-to-upper-income households and
seeks to differentiate itself from other retail and catalog operations by
offering exceptional value through superior customer service and a merchandise
assortment that reflects a casual, uniquely American spirit.  The Company
believes that the successful execution of its marketing and merchandising
strategies, coupled with its high customer service standards and efficient order
entry and fulfillment operations, have allowed it to develop a unique brand
identity and strong relationships with its loyal customer base.

Coldwater Creek focuses on providing extraordinary customer service well above
industry standards.  All aspects of the Company's operations are designed to
provide a superior catalog buying experience as well as to strengthen
relationships with existing and new customers.  Coldwater Creek has strived to
make timely investments in its telephone and distribution infrastructure to
support its customer service-based strategy.  During fiscal 1997, the Company
achieved faster telephone answer times, lower abandoned call rates and faster
order processing than the most recently published industry averages. The Company
plans to stimulate future growth through a variety of strategic initiatives
designed to increase catalog circulation, yield higher customer response rates
and expand merchandise offerings. In addition, the Company believes that
significant opportunities exist to expand its customer base by targeting new
members of existing customer households with additional merchandise offerings
and catalog titles.

                                       1
<PAGE>
 
INDUSTRY OVERVIEW

The direct marketing industry has experienced substantial growth over the past
decade as many retail customers have migrated toward the convenience and service
offered by home shopping. According to statistics published by the Direct
Marketing Association, between 1991 and 1996, consumer catalog sales volume grew
at a compound annual growth rate of 7.9% to $46.0 billion in 1996. Additional
data published by the Direct Marketing Association estimates that consumer
catalog sales will grow to $62.8 billion by 2001. Between 1991 and 1996, catalog
sales growth outpaced the growth of traditional retail sales. The Company
believes that the catalog industry will continue to experience substantial
growth principally due to the convenience and security of shopping at home, the
increasing time constraints facing two-career families, the convenience and
availability of overnight delivery and favorable demographic trends.

The direct marketing industry is highly fragmented with over 7,000 catalog
titles currently in circulation, many of which generate limited revenue and
profitability.  Many smaller catalog companies are facing substantial challenges
in the current environment, including declines in profitability due to
significant fluctuations in postage, paper and other operating costs and
insufficient capital necessary to provide for growth or to access
technologically advanced database and customer service systems required in an
increasingly competitive market.  The Company believes that, as a result of its
having developed a large and loyal customer base and its recent investments in
infrastructure, it is well positioned to take advantage of emerging market and
distribution opportunities not available to smaller catalog companies.

HISTORY AND PHILOSOPHY OF COLDWATER CREEK

Coldwater Creek was founded on a shoestring budget in 1984 by Dennis and Ann
Pence.  In its infancy, Coldwater Creek operated out of a small apartment in
Sandpoint, Idaho, had one phone line and, through the use of flyers and magazine
advertisements, sold approximately 15 items including binoculars and
birdfeeders.  The Company's first customer database consisted of handwritten
customer information on 3x5 index cards.  Since its inception, the Company has
remained committed to the vision of providing extraordinary customer service and
offering high value merchandise as the primary means to develop a loyal customer
base.  Quick telephone answer speeds and rapid order fulfillment have also been
hallmarks of the Company since its founding.  As the Company pursued its growth,
Dennis and Ann hired individuals who shared their commitment to offering
extraordinary customer service.

The Company believes it is more than just a purveyor of goods.  The Company's
philosophy is closely aligned with the romance of wide open spaces and the
unhurried approach to living and familiarity found in small town settings.
Apparel and other merchandise is selected and displayed to promote the Company's
philosophy and enhance its image and is presented honestly without price
inflation in anticipation of planned sales.  The merchandise offering has
evolved over time away from the Company's original emphasis on nature related
gifts to a broader range of merchandise focusing on a casual lifestyle and on
the needs of its growing customer base.

The Company believes that its location in a small town setting in the mountains
of Northern Idaho allows it to draw upon a dedicated, unique workforce that
excels in delivering an enjoyable shopping and catalog buying experience to its
customers.  The Coldwater Creek philosophy is team-oriented, friendly, honest
and casual, with a commitment to building a loyal, actively purchasing customer
base within a rapidly growing, profitable enterprise.

BUSINESS STRATEGIES

Coldwater Creek's objective is to become the highest quality service provider in
the consumer catalog industry.  The Company attributes its success primarily to
its ability to execute this customer service objective and to offer a unique
assortment of high quality merchandise that appeals to a large, targeted group
of existing and new customers.  Each of the Company's catalog titles seeks to
convey a unique spirit and lifestyle orientation which the Company believes
attracts a distinct customer demographic and results in a larger overall
customer base.  The key elements of the Company's business strategy are set
forth below:

Provide Superior Catalog Buying Experience Through Exceptional Customer Service.
Offering a superior catalog buying experience through exceptional customer
service has been the hallmark of the Coldwater Creek strategy since its
inception. The Company believes that consistently providing its customers with
prompt, knowledgeable and courteous service as well as rapid order fulfillment
increases the Company's ability to attract and retain customers, builds customer
loyalty and promotes the purchase of its merchandise 

                                       2
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by the customer household. The Company's employee training programs, customer 
service call centers, telephone and management information systems, as well as
its order fulfillment and return policy, are all designed to carry out this
strategy through adherence to strict operating standards. For example, during
fiscal 1997, the Company achieved an average telephone answer speed of 3.9
seconds, an abandoned call rate of 0.45%, a distribution error rate of 0.11% and
shipped 95.9% of in-stock orders within one shipping day of order processing.

Offer a High Quality, Differentiated Merchandise Assortment. Coldwater Creek's
catalogs offer a broad assortment of high quality apparel, gifts, jewelry and
home furnishings which the Company believes is not commonly found in other
consumer catalogs.  The Company believes that its customers buy into a relaxed
lifestyle, not just clothing and collectibles, and it seeks to differentiate its
catalogs through the extensive use of spirited merchandise narratives, thematic
and seasonal photographs, and unique yet practical merchandise displays and
layouts.  The Company's merchandise mix is structured to reflect a uniquely
American, relaxed style.  In addition, the Company attempts to provide its
customers with a dynamic merchandise assortment by regularly test marketing new
merchandise and merchandise concepts and updating its merchandise selection
frequently.  For example, in recent years, the Company has shifted its
merchandise mix to include a greater percentage of apparel and home furnishings
and has introduced its own line of private label apparel offerings.

Promote Increased Household Purchasing. The Company attempts to promote purchase
relationships with different members of the target customer household and to
increase customer retention by increasing the frequency and variety of its
catalog mailings, by frequent merchandise turns and through the increased use of
its customer file and purchase analysis.  In addition, the Company's marketing
efforts are designed to promote additional purchase relationships within each
customer household by selectively cross-mailing the Company's other catalog
titles to existing customer households based on past merchandise purchases and
demographic overlay data.  The Company also maintains a Preferred Customer
Program which is designed to offer its best customers an enhanced level of
customer service including special purchasing and packaging services.

Continue Investment in Infrastructure. The Company is committed to ongoing
investment in infrastructure development in order to increase operating
efficiency, provide extraordinary customer service and maximize the Company's
growth potential.  The Company believes that investing in infrastructure in
anticipation of customer and sales growth allows it to maintain operational
flexibility to capture strategic or market opportunities, including increased
sales volumes and shifts in consumer preferences.  Between fiscal 1994 and
fiscal 1997, the Company hired key management personnel and invested $31.7
million in infrastructure improvements.  These investments were made primarily
to expand the Company's distribution facilities, upgrade its telecommunications
systems and install and implement more sophisticated database technologies and
management information systems.  The Company plans to continue to invest in
improving its management information systems, inventory controls and
distribution capabilities to support its growth.

Advance the Coldwater Creek Brand. In all aspects of its operations, from
catalog design to order fulfillment, the Company is committed to promoting
Coldwater Creek as a name that represents a superior catalog purchasing
experience.  The Company seeks to promote this brand image through its high
level of customer service and strict operating standards as well as by offering
unique, high quality merchandise assortments in its catalogs.  In addition,
the Company believes that increased efforts to develop its private label apparel
and expansion of its store-based operations will increase customer awareness of
the Coldwater Creek brand.

GROWTH STRATEGIES

Coldwater Creek believes that it has significant opportunities to attract and
retain new customers and increase sales through several strategic initiatives
which include the following:

Increase Catalog Circulation. Coldwater Creek pursues an aggressive mailing
strategy designed to attract new customers and to generate additional sales from
cross-mailings of the Company's catalogs to existing customer households.  The
Company continues its name acquisition and market segmentation program,
including the rental of other catalog customer lists and use of the Company's
database technologies to more efficiently analyze existing and prospective
customer files in an effort to increase response rates to each mailing.  In
addition, since the Company's Milepost Four and Bed & Bath catalog titles are at
the beginning of their respective life cycles, the Company believes that they
have significant opportunities for growth.

Expand Merchandise Selection; Increase Page Count of Catalogs. Coldwater Creek
believes that an important part of its overall growth strategy involves
expanding its merchandise selection and refining its existing assortment with
merchandise lines that can 

                                       3
<PAGE>
 
leverage the Company's purchase relationship with, and understanding of, the
target customer household. The Company regularly evaluates new merchandise in an
effort to increase the appeal of its merchandise offerings and expects to
increase catalog page counts to accommodate new merchandise in its catalogs. The
Company believes that a significant opportunity exists to generate additional
sales from existing customer households by expanding the merchandise selection
in its existing catalogs.

Introduce New Catalog Titles. Coldwater Creek intends to periodically offer new
catalog titles featuring complementary and new merchandise concepts that promote
the spirit of Coldwater Creek while allowing the Company to further penetrate
distinct segments of the market. The Company's goal is to create catalog titles
that leverage information gathered by the Company, including customer
characteristics and demographic information, purchase histories and merchandise
performance, to capture distinct and increasingly discrete segments of the
market. As part of this strategy, the Company introduced Bed & Bath, its home
furnishings catalog, in August of 1997. Based on favorable customer response to
this new catalog, the Company intends to expand the circulation of Bed & Bath
during fiscal 1998. The Company is currently evaluating other potential
merchandise categories that may be capable of supporting additional new catalog
introductions.

Expand International Sales. Coldwater Creek markets its merchandise to customers
in Canada and Japan. In fiscal 1997, such sales amounted to less than 5% of
total net sales. To accommodate its foreign customers, the Company employs sales
agents who are fluent in certain major foreign languages. The Company believes
that further opportunities exist to generate additional sales in international
markets and will pursue such opportunities, if and when, foreign market
conditions are favorable.

Expand Other Distribution Channels. Coldwater Creek is currently focusing on two
additional distribution channels for its merchandise: retail stores and the
Internet.  The Company currently operates catalog-themed retail stores in
Sandpoint, Idaho and Jackson Hole, Wyoming.  Management believes that the
building of a modest base of retail stores over time will provide a physical
presence that will help build Coldwater Creek's brand recognition with
existing and prospective customers.  Although there are no current commitments
to do so, the Company will continue to consider the selective opening of retail
stores in high traffic areas, including "destination points" such as national
parks, when attractive.  In addition, the Company has developed and posted a
"home-page" on the world-wide web through which potential customers can
receive and view general Company and merchandise information, make merchandise
inquiries and request a catalog.  The Company believes its current order entry,
credit approval and distribution capabilities position it to take advantage of
on-line ordering of merchandise, if and when, such on-line commerce becomes
commercially viable for the Company.

THE COLDWATER CREEK CATALOGS

Coldwater Creek currently publishes four primary catalogs, each with a distinct
merchandise mix and each designed to appeal to a different segment of the target
customer household.  The Company's family of catalogs include the following:

Northcountry. First introduced in 1985, Northcountry is the Company's most
established and highest volume catalog and features the broadest selection of
merchandise, including affordable natural fiber apparel, jewelry, art and gift
items, reflecting a uniquely American spirit and a casual and open lifestyle.
The Company believes that Northcountry has the broadest market appeal and
features merchandise that has demonstrated the most sustainable life cycles.
Most Northcountry items are priced between $15 and $100, generating an average
customer order of $123 during fiscal 1997.

Spirit of the West. First introduced in the Fall of 1993, Spirit of the West
features upscale women's apparel and jewelry, including dresses and coordinates,
blouses, shirts, jackets, pants and skirts, as well as high quality,
contemporary jewelry.  The apparel is office-appropriate, can also serve as
weekend-wear, and is typically made of linens, silks and cottons.  The quality
is typically higher than the women's apparel found in the Company's other
catalogs.  Most items are priced between $30 and $200, generating an average
customer order of $204 during fiscal 1997.

Milepost Four. First introduced in the Spring of 1996, Milepost Four is the
Company's men's apparel and accessory catalog.  Milepost Four is designed to
reinforce the household relationship by offering merchandise to the male members
of the target customer household.  Milepost Four attempts to capitalize on
purchases of the men's clothing featured in Northcountry and the trend towards
"casual Friday" office attire.  Coldwater Creek's Milepost Four catalog
features, among other things, traditional, natural fiber, casual yet office-
appropriate apparel, shoes and accessory items including shirts, shorts, pants,
jackets, caps, belts, ties, shoes, socks, watches 

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and carrying items, such as shaving kits and brief bags, in varying earth tones
and muted but rich colors. Most items are priced between $15 and $250,
generating an average customer order of $145 during fiscal 1997.

Bed & Bath Catalog. In August of 1997, the Company introduced a new catalog
featuring bed and bath products as well as other housewares. The Company
believes that significant opportunities exist in this segment of the
marketplace. Merchandise offered in Bed & Bath, which currently has the highest
rate of sales growth among the Company's catalogs, includes bed and bath linens,
bath accessories, sleepwear and a variety of decorative accessories such as wall
decor, lamps, rugs and accessory furniture. Most items are priced between $15
and $200, generating an average customer order of $137 since its inception.

Ecosong.  First introduced in the Fall of 1994, Ecosong featured merchandise
with environmental, nature and wildlife themes.  The merchandise selection in
Ecosong included gifts, tee-shirts, sweatshirts and jewelry designed to appeal
to the Company's early target audience that was drawn to Northcountry's
original emphasis on nature related themes.  Most Ecosong items were priced
between $10 and $50.  During fiscal 1997, the Company decided to discontinue
Ecosong as a stand-alone catalog and to instead feature such merchandise items
within the Company's other catalogs.

Additionally, in connection with the holiday buying season, the Company offers a
"Gifts-to-Go" catalog to its customers.  The "Gifts-to-Go" catalog, which is
mailed primarily to the Company's existing customers, consists of merchandise
selected from the Company's various catalogs and is not material to the
Company's annual sales.  The Company regularly evaluates the performance of its
catalogs and catalog mailings and adjusts its mailings in response to
anticipated market demand.

Coldwater Creek catalogs include full color photographs displaying the
merchandise and pricing information and feature original artwork or photographs
on the cover designed to appeal to the targeted customer of each catalog.  Each
catalog includes merchandise narratives describing the merchandise and their
specifications in a manner designed to stimulate the reader's interest, promote
purchasing decisions and convey the unique spirit of each item to the customer.
Apparel photographs often include the jewelry and accessories needed to complete
an outfit.  In certain catalogs, photographs of outfits are often placed against
lifestyle backgrounds and scenes that include mountain ranges, streams or tree
covered hills, while in others, apparel is placed against a color-coordinated,
textured backdrop to accentuate the colors of an outfit.  Merchandise narratives
are presented in a lyrical, thematic manner designed to deliver the Coldwater
Creek experience to each customer and to personalize the catalog shopping
experience.  Further, Coldwater Creek was one of the first catalog companies to
show apparel items "off-figure," leaving the customer to decide if an item of
merchandise is right for him or her based on the item's inherent style and not
on how the item looks on a model.

All catalogs are created and designed by an in-house team of artists, copy
writers and editors.  From conception to publication, the in-house team uses a
collaborative approach to design the catalog, make merchandise display and
placement decisions and monitor the overall look, feel and quality of each
catalog.  The Company maintains its own in-house photographic studio but also
regularly contracts with independent photographers.  These capabilities help the
Company to preserve each catalog's distinctive character and also allows the
Company greater control over the catalog production schedule, which the Company
believes reduces the lead time necessary to produce catalogs and reduces the
costs of preparing pages for printing.  These capabilities also provide the
Company with greater flexibility and creativity in catalog production and in
selecting the merchandise to be included in its catalogs.  The Company
continually strives to reduce the production time for its catalogs.

DEVELOPMENT OF CUSTOMER BASE AND MARKETING

As of February 28, 1998, Coldwater Creek had a proprietary mailing list of
approximately 5.4 million individuals.  The Company believes that building a
large and loyal customer base is critical to its growth strategy. Coldwater
Creek's various marketing programs and catalog mailings are designed to
accomplish the following three goals with respect to the Company's customer
base: (i) attract new customers, (ii) generate additional sales from existing
customers and (iii) generate sales from additional members of the target
customer household.  Attracting new customers is accomplished principally
through prospecting using targeted mailings to individuals identified through
rented mailing lists, outside marketing information services and the Company's
own market segmentation analysis.  Generating sales from existing customers and
additional members of the target customer household involves the use of
selective, directed mailings of the Company's catalogs based on existing
customers' past purchase histories and household demographic and other data.

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The Coldwater Creek Customer. Coldwater Creek sells its merchandise primarily
to, and believes it has gained a unique understanding of, a set of actively
purchasing customers with distinct demographic characteristics.  The typical
Coldwater Creek customer is a 35 to 65 year old college educated female and is
part of a dual income household with annual income above $50,000.  This customer
has a strong interest in such areas as culture, the arts, gourmet cooking and
politics.  The Company's analysis also indicates that the typical customer has
owned his or her home for at least five years.  The Company believes that it can
leverage its current customer base by targeting other members of the existing
customer household with additional catalogs that extend the unique Coldwater
Creek experience to such new members and which offer other related merchandise
lines.

Customer Prospecting; Growth of Mailing List. Coldwater Creek attempts to
attract new customers and generate additional sales from existing customer
households through targeted direct mailings.  During fiscal 1997, Coldwater
Creek mailed 113.7 million copies of four different catalog titles, of which
over 60% were mailed to prospective customers.  The Company's catalog mailings
to prospective customers historically have made a positive contribution to
operating income.  The Company believes that mailing additional catalog titles
to existing customer households produces higher revenue-per-catalog figures than
mailing to prospective customers who have no previous relationship with the
Company.  Since fiscal 1993, the Company has added over 3.7 million individuals
to its proprietary mailing list.

The Company uses its Northcountry catalog as its primary prospecting catalog.
The merchandise selection in Northcountry is competitively priced and includes
merchandise styles and types reflective of the Company's other catalogs.
Customers generally receive additional catalog titles and other mailings based
on past purchases, a strategy designed to promote continued merchandise
purchases and enhance the Company's understanding of the buying patterns of each
customer.  In addition, the Company regularly test-markets its catalogs to large
groups of prospective customers based on research conducted by third-party
marketing information services using criteria specified by the Company.  The
following table sets forth certain information with respect to the Company's
customer base during the five fiscal years ended February 28, 1998:

<TABLE>
<CAPTION>
                                       FISCAL 1997      FISCAL 1996      FISCAL 1995      FISCAL 1994      FISCAL 1993   
                                       -----------      -----------      -----------      -----------      -----------   
<S>                                  <C>               <C>              <C>              <C>              <C>            
  Active Customers................      1,614,000        1,100,000          747,000           494,000          383,000   
  Growth in Active Customers......             47%              47%              51%               29%              55%  
  Average Order...................     $      149       $      128         $     97          $     82         $     73    
</TABLE>

Customer Database Management; Customer Segmentation. Coldwater Creek uses a
proprietary customer database which stores detailed information on each customer
in the Company's customer file, including personal information, demographic data
and purchase history.  The customer database is updated regularly as new
transactions are recorded.  The database also is supplemented with names of
prospective customers obtained through rented and exchanged mailing lists,
outside marketing information services and other sources.  These lists include
other catalog and retail subscription lists and lists of compiled names from
businesses offering merchandise in the same broad categories as that of the
Company's merchandise.  The use of these outside sources for names of additional
prospective customers has been and is expected to continue to be a key component
of the Company's efforts to attract new customers.

In fiscal 1996, the Company began using a marketing database system to allow its
marketing and merchandising personnel to use more sophisticated and efficient
methods of analysis to determine the performance of each catalog mailing.  The
Company's marketing database system allows the Company to segment its customer
base according to many variables and analyze each segment's performance and
buying patterns.  The resulting information is used to refine the frequency and
selectivity of Coldwater Creek's various catalog mailings to maximize the
productivity of its mailings.  This analysis also enables the Company to
strengthen the merchandising of its catalogs through an analysis of product
profitability.

Customer Retention Program. Coldwater Creek offers customers who have met
certain purchase levels a unique customer service program called the "Preferred
Customer Program."  Services provided under the Preferred Customer Program
include correspondence tailored to repeat purchasers, preferential status for
back-order items, free gift-wrapping, special packaging services and a single
shipping and handling charge for multiple shipments.  The program also includes
personalized follow-up letters and telephone calls, and a preferred shopping
program that assists customers in locating and purchasing merchandise not found
in the Company's catalogs, including competitors' merchandise.  The Company
believes the Preferred Customer Program has resulted in higher retention rates
and higher average orders per customer.  During fiscal 1997, the Company
expanded its Preferred Customer Program to include 

                                       6
<PAGE>
 
multiple levels of customized service based on each customer's purchase history.
The Company believes that this program, coupled with the Company's other
customer service strategies, promotes greater customer loyalty and higher
retention rates.

Coldwater Creek Credit Card Program. Coldwater Creek previously offered a
proprietary credit card through a third-party administrator. The proprietary
card historically accounted for less than 8% of annual net sales. During the
Summer of 1997, the Company conducted an extensive review of the various
proprietary and third-party credit card programs available and elected to
convert its proprietary credit card to an affinity card offered by a major
credit card issuer. Credit cards issued under such program depict the Coldwater
Creek name and a nature-theme background.

MERCHANDISING

Coldwater Creek's merchandising strategy is to provide a differentiated
selection of high quality, casual merchandise which reflects a uniquely
American, relaxed lifestyle.  The Company markets each of its catalogs with a
distinct merchandise mix and each catalog title seeks to convey a unique spirit
and lifestyle orientation which the Company believes attracts a distinct
customer demographic.  All aspects of the Company's merchandising strategy are
designed to promote the Company's brand identity and make customers feel that
they are not just buying clothing and collectibles, but that they are buying
into a relaxed lifestyle.  Through its family of four catalogs and retail store
operations, Coldwater Creek currently offers over 7,000 different merchandise
items with price points ranging from approximately $10 to $500.

Merchandise Mix. Coldwater Creek's merchandise offerings have both evolved and
expanded significantly in recent years.  In the early 1990s, the Company's
offerings focused more heavily on jewelry and accessories than apparel.  By
calendar 1995, the Company's apparel offering represented approximately 50% of
the Company's net sales with jewelry and accessories representing approximately
25% each.  The Company has shifted its merchandise mix towards a greater
percentage of apparel as customer inquiries and the Company's market research
suggested that the Company's customers were willing to purchase apparel in the
styles, of the quality and at the price points selected and offered by the
Company.  During fiscal 1996, Coldwater Creek introduced a Spring edition of its
Spirit of the West women's apparel catalog as well as Milepost Four, its men's
apparel catalog.  In fiscal 1997, the Company introduced its newest catalog, Bed
& Bath.  As a result of these new catalogs and the initial success that they
have achieved, the Company believes that its apparel and home furnishings
offering will continue to represent a greater percentage of the Company's total
net sales.  The Company believes that it prices its apparel and home furnishings
competitively with that offered by other retailers.  In addition, the Company
believes that, because its apparel and home furnishings merchandise provides a
counter cyclical source of revenue, it will become less reliant on sales
generated during the holiday buying season.

New Product Introduction. A critical element of the Company's merchandising
strategy is the dynamic nature of its product assortment.  The Company seeks to
continually add new merchandise and to refine existing merchandise categories in
an effort to promote additional purchases from the target customer households
and increase retention rates by responding to customers' changing preferences.
The Company expects to increase the page counts of its catalogs to accommodate
the introduction of new, related or similar merchandise and merchandise
categories.  The Company's merchandising personnel continually evaluate the
performance of the Company's existing products, make merchandise placement and
promotion decisions based on item quality, sales trends, customer demand,
performance histories, current inventory positions and the projected success of
each item and plan the introduction and testing of new items.  Consequently, the
Company's merchandise mix continually is refined as new items are introduced and
tested and as items which do not meet the Company's performance standards are
replaced.

Private Label Merchandise. The Company maintains its own line of private label
apparel.  Management believes that the Company's commitment to offering a line
of high quality, Company-developed apparel is an important element in
differentiating its merchandise from other retailers.  The Company's design and
buying teams work closely together with selected vendors to choose color
schemes, materials and designs and to create an image consistent with the theme
for the Company's merchandise offerings.  The Company generally is able to
exercise greater control of these aspects of the merchandise development process
with its private label merchandise than with third party-sourced merchandise.
Management plans to expand its private label offerings and believes that such
merchandise will represent a larger percentage of total net sales in the future.

Merchandise Sourcing and Vendor Relationships. The Company purchases its
merchandise from over 400 vendors.  The Company's merchandise acquisition
strategy emphasizes relationships with domestic vendors which the Company
believes supports its inventory management processes, provides for greater
quality control and results in faster turnaround times for merchandise reorders.
In fiscal 1997, approximately two-thirds of the Company's merchandise was
manufactured in the United States. The Company's buyers work closely with its
suppliers to ensure high standards of merchandise quality.

In addition, Coldwater Creek seeks to offer unique merchandise which the Company
believes is not commonly found in other consumer catalogs.  Approximately 70% of
the merchandise purchased from its vendors is acquired with exclusive rights to
the 

                                       7
<PAGE>
 
Company's catalog distribution. The Company believes such exclusivity enhances
identity of the Coldwater Creek brand and reinforces the uniqueness of the
Company's offerings.

The Company believes it has an excellent relationship with its vendors.  No
single vendor accounted for more than 4% of total merchandise purchases in
fiscal 1997.  The Company does not have any long-term or exclusive commitments
with any of its vendors.

Alternative Distribution Strategies. The Company employs several alternative
distribution strategies to expeditiously liquidate slow moving, discontinued and
discounted catalog merchandise. These strategies include distributing a sale
flyer in shipped merchandise, selling such merchandise through the Company's
other catalogs, in some cases with price adjustments, and selling such
merchandise through the Company's retail and outlet stores. During fiscal 1997,
the Company opened stand-alone outlet stores in Seaside, Oregon; Lee,
Massachusetts; Kittery, Maine; and Birch Run, Michigan. The Company plans to
open additional outlet stores in the future commensurate with the Company's
growth.

CUSTOMER SERVICE AND OPERATIONS

Coldwater Creek believes that its emphasis on extraordinary customer service and
customer relations is critical to its ability to expand its customer base and
build brand recognition.  This customer service focus can be found at every
level of operations, including the Company's call center operations, its order
entry and fulfillment processes, its employee and sales agent training programs
and its merchandise return policy.  In addition, the Company's infrastructure
investments, such as its investment in telephone and management information
systems, have enabled the Company to continue to provide high levels of customer
service and adhere to strict operating standards throughout its development.

Customer Service Call Centers. The Company offers prompt, knowledgeable and
courteous order entry services through the use of its toll-free telephone
numbers which may be called 24 hours a day, seven days a week, to place orders,
request a catalog or make merchandise or catalog inquiries.  During fiscal 1997,
approximately 90% of the Company's orders were received by telephone with the
remaining 10% received by mail and facsimile.  During fiscal 1997, customer
calls were answered at an average rate of 3.9 seconds.  The Company's abandoned
call rate was 0.45%, 0.43% and 0.37% during fiscal years 1997, 1996 and 1995,
respectively.

The Company's two customer service call centers are organized to provide prompt,
seamless response to customer calls.  The Company's customer service call center
in Coeur d'Alene, Idaho is approximately 50 miles from the customer service call
center at the Company's headquarters in Sandpoint, Idaho.  Backup systems and
rerouting capabilities allow the Coeur d'Alene customer service call center to
service the Company's entire inbound 1-800 traffic if required by a failure of
the Sandpoint system.  As the Company grows, the Company expects the majority of
calls to be directed to the Coeur d'Alene customer service call center to take
advantage of its larger facilities and labor pool, and the facility's extensive
rerouting capabilities.  The Company's two customer service call centers are
equipped with a total of 452 stations, 102 of which are located at the Sandpoint
customer service call center and 350 of which are located at the Company's Coeur
d'Alene customer service call center.  The Company monitors and shifts calls
between the two customer service call centers if calls at either center become
backlogged.  In the event that either center reaches capacity, an all-hands bell
sounds throughout the facility, alerting Company personnel, including middle and
senior level personnel, to answer any waiting incoming calls.  During fiscal
1997, the Company handled approximately 3.6 million calls and received in excess
of 18,000 calls per day during peak sales periods.

Order Entry. The Company uses an integrated management information system which
allows telephone orders to be captured on-line and mail orders to be entered
efficiently.  The Company's system is an on-line transaction processing system
which handles all order entry and fulfillment tasks.  Specifically, this
includes the inputting of mail and telephone orders, credit authorization, order
processing and distribution and shipment.  The Company's sales agents process
orders directly into the Company's on-line data processing system which
provides, among other things, customer history information, merchandise
availability information, merchandise specifications, available substitutes and
accessories, expected ship date and order number.  The Company's sales agents
are knowledgeable in key merchandise specifications and features, and have ready
access to samples of the entire merchandise line, which enables the agents to
answer detailed merchandise inquiries from customers on-line.  The Company
completes telephone orders in approximately four minutes depending upon the
nature of the order and whether the customer is a first-time buyer or a repeat

                                       8
<PAGE>
 
customer.  Customers can pay with a major credit card, check or money order.
All credit charges are pre-authorized prior to shipping the order and credit
authorization occurs coincident with order processing.

Distribution and Order Fulfillment. The Company believes that delivery of
ordered merchandise promptly and in good condition promotes customer loyalty and
repeat buying.  During fiscal 1997, approximately 95.9% of in-stock orders were
shipped within one shipping day of order processing.  The Company has achieved
low distribution error rates of 0.11%, 0.17% and 0.22% during fiscal years 1997,
1996 and 1995, respectively.  The Company's customers normally receive their
items within three to five business days after shipping, although customers may
request overnight delivery for an extra charge.

Once a customer's telephone order is completed, the Company's computer system
prints the order in the Company's distribution center, where it is proofread and
all necessary distribution and shipping documents, including customs forms for
international orders, are attached to expedite processing.  Thereafter, the
orders are prepared, packed and shipped in batches three times a day during
normal operation, with extended distribution hours during peak periods.  Shipped
orders are bar-coded and scanned and the merchandise, quantity and ship date are
entered automatically into the customer order file for access by sales agents.

The Company uses a semi-automated picking, packing and shipping system with
numerous packing and gift wrapping stations.  Gift orders are gift wrapped and
handwritten notes accompany each gift as per the customer's instructions.
Employees process orders and generate warehouse selection tickets and packing
slips for order fulfillment operations.  The Company adjusts the number of
employees and the processing system to meet variable demand levels, particularly
during the peak selling season.  To meet increased order volume during the
Company's peak selling season, the Company has utilized temporary employees and
plans to continue this practice.  During fiscal 1997, approximately 73% of all
shipments were sent via first class mail through the U.S. Postal Service.
Typically, each order is charged a shipping and handling fee which is based upon
the total order price.  In fiscal 1997, the Company shipped approximately 3.2
million packages.

During fiscal 1996, the Company expanded its distribution facility and
capabilities to add approximately 48,000 square feet and a semi-automated system
for order processing.  The Company's shipping capacity currently is estimated at
40,000 packages per day.

Employee and Sales Agent Training. The Company's training is designed to instill
in each employee a commitment to provide a consistently high level of prompt,
knowledgeable and personal service to each customer.  The Company reinforces
this emphasis with internal programs, including posting customer comments and
operating statistics, which are designed to recognize and illustrate exceptional
service provided by the Company's personnel.  The Company does not maintain a
separate customer service department.  Instead, each sales agent receives
training to allow him/her to handle customer complaints and inquiries, ensuring
that a customer does not need to be transferred or placed on hold.

The Company seeks to create a supportive working environment.  When possible, it
is the philosophy of the Company to empower line employees to make decisions,
reducing the need for several management levels.  The Company encourages its
sales agents to seek out creative solutions to customer problems and concerns
and to remain responsive to each customer's needs.  The vision and Company goals
emphasizing "customers first" are well communicated throughout the Company.
This vision drives the training programs for new and existing employees.

Ongoing employee training at Coldwater Creek addresses professional and personal
development.  Training for all new employees, including temporary employees,
emphasizes serving the customer and seeks to instill in each employee the
commitment to deliver the Coldwater Creek experience.  Supervisory and
management training programs begin at the time of promotion and continue
throughout the employee's career.  Coldwater Creek provides opportunity for
advancement for each employee dependent on his/her skill level, personal effort
and future potential.  New sales agents participate in a ten-day training
program, which includes merchandise and computer system training, mock telephone
orders and a mentor system for working with more experienced personnel.  Sales
agents are monitored to review performance and are retrained periodically on an
as-needed basis.

Return Policy. The Company has an unconditional return policy for all of its
merchandise under which a customer can return an item for any reason at any time
at the Company's expense.  The Company believes that its return policy builds
customer loyalty and helps overcome a customer's initial reluctance to purchase
merchandise from catalogs.

                                       9
<PAGE>
 
Investment in Infrastructure. The Company has historically invested in
infrastructure improvements designed to increase the efficiency of its
operations and the level of customer service provided to its customers. Between
fiscal 1994 and fiscal 1997, the Company invested $31.7 million in
infrastructure improvements. These improvements include expanded distribution
facilities and upgraded telecommunications and management information systems
which the Company believes increases the efficiency of its operations and
provides the Company with greater market analysis and segmentation capabilities.
As a result, the Company believes it can more efficiently offer catalogs and
merchandise to discrete market segments.

INFORMATION SYSTEMS AND TECHNOLOGY

The Company has adopted a widely used catalog order processing system as the
cornerstone of its software strategy.  This system is widely used by leading
companies in the direct marketing industry for all order entry and fulfillment
tasks, the inputting of mail and telephone orders, credit authorization, order
processing and distribution and shipment.  In order to provide a key decision
support system, the Company maintains a marketing database system.  This system
allows customer data to be searched and segmented according to different
variables and allows application of demographic overlays.  The system is fully
compatible and interfaces with the Company's catalog system to perform monthly
batch downloads of ordering information into the database.  The Company believes
these systems and technologies help Coldwater Creek improve customer retention
through more efficient market modeling and segmentation.

Coldwater Creek's main hardware platform is the Hewlett Packard 3000 series of
computers. The Company believes its investments in the HP/3000 processors and
the installation of a Northern Telecom telephone switch at each customer service
call center provide the Company with a scaleable platform to accommodate future
growth.

The Company's telecommunications system strategy is designed to reduce the risk
of telephone delays and capacity constraints.  In the event either customer
service call center is unable to receive incoming calls due to factors such as
natural disasters, equipment or electrical problems or failures, calls are
routed to the other customer service call center in a process which is
transparent to the customer.  If neither customer service call center can be
accessed, the Company has contracted with its long-distance carriers to redirect
incoming calls to sales agents' homes to help ensure that uninterrupted service
can be provided to its customers.

The Company's management information system strategy is designed to reduce the
risk of lost data and delays in the order entry or order fulfillment processes.
In 1996, the Company installed information systems processors in its Coeur
d'Alene customer service call center that are largely identical to those in the
Sandpoint headquarters.  Software implemented in July 1996 renders the system
fully mirrored on a real-time basis such that customer orders as well as all
other operational data are entered simultaneously in each of the Sandpoint and
Coeur d'Alene customer service call centers.  The Company believes this
redundancy reduces the risk of interruption of customer service or other
critical operations due to failure of its computing system.

Coldwater Creek remains engaged in an enterprise-wide Year 2000 project. The 
project leader coordinates a team that includes representatives from every 
department. A comprehensive project plan that defines each objective and task in
detail currently is being finalized and prospectively will guide the team in its
efforts.

The Company does not sell any products that must be brought into Year 2000 
compliance. However, the Company does rely upon many vendors and suppliers for 
their products and services. The Company will evaluate key vendor preparedness, 
as well as its own, by conducting interviews, obtaining compliance 
representation letters, and when deemed necessary, conducting comprehensive 
tests. Such vendors will include, in addition to significant merchandise 
vendors, providers of hardware and software computing products, 
telecommunication systems and components, facilities and related systems, and 
office equipment. Although most of the Company's major systems are supplied by 
third-party vendors who bear the financial burden of bringing such systems into 
compliance, the Company's project team will maintain an active dialog with these
vendors to ensure the adequacy and timeliness of required modifications.

The Company expects to complete the project and related evaluations, including
development of contingency plans to manage areas of high identified risk, by
April 1999. The Company currently is in the process of finalizing its estimate
of the total project cost but expects such amount to be immaterial to the
Company's financial position, results of operations and cash flows.

RETAIL STORES

Coldwater Creek maintains retail store operations as part of its brand building
strategy.  In 1995, the Company leased the entire Cedar Street Bridge, a
beautifully renovated covered bridge spanning Sand Creek in Sandpoint, Idaho,
and created its first destination shopping environment for the Company's
customers.  The Company's store at the Cedar Street Bridge is a two level
structure with approximately 14,000 feet of prime retail space. Over the course
of 1995 and subsequent thereto, the Company developed the Cedar Street Bridge
into a unique Coldwater Creek shopping experience, with separate stores for each
of the Northcountry, Spirit of the West, Milepost Four and Bed & Bath
merchandise lines as well as an outlet store. Each store at the Cedar Street
Bridge is designed and fixtured different from the others, with basic themes
consistent with each catalog's image and customer segmentation.

As a continuation of the Company's retail store strategy, the Company opened a
similar retail store with approximately 16,000 feet of prime retail space in
Jackson Hole, Wyoming during June of 1997. Jackson Hole is the gateway to Grand
Teton and Yellowstone National Parks and a major ski resort.

The Company's retail store operations, which accounted for approximately 3% of
net sales in fiscal 1997, leverage the success of the Company's catalog
operations by offering, in some circumstances, a greater selection of catalog-
based merchandise as well as non-catalog merchandise. The Company will continue
to consider the selective opening of retail stores in high traffic areas,
including "destination

                                      10
<PAGE>
 
locations" such as near major national parks or other resort areas, where the
Company believes there is the greatest potential for name brand identification.
The Company believes its retail stores provide an additional source of demand
for its catalogs as individuals visit the stores and become acquainted with the
Company's merchandise. In addition, the Company believes the peak selling cycle
for many of these stores to include the months of June, July, August and
September and, as a result, the Company's retail stores may provide counter
cyclical cash flow that may improve overall second quarter performance.

EMPLOYEES

As of February 28, 1998, the Company had 649 full-time employees and 641
temporary employees.  During the peak selling season, which for the Company
includes the months of November and December, the Company utilizes a substantial
number of temporary employees, many of whom return year after year.  None of
these employees currently are covered by collective bargaining agreements.  The
Company considers its employee relations to be excellent.

TRADEMARKS

Coldwater Creek(R), Spirit of the West(R) and Milepost Four(R) are registered
trademarks of the Company.  The Company believes that its registered and common
law trademarks have significant value and that all of its trademarks are
instrumental to its ability to create and sustain demand for and market its
merchandise.

COMPETITION

The markets for the Company's 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 the Company
believes that it does not compete directly with any single company with respect
to its entire range of merchandise, within each merchandise category the Company
has significant competitors and may face new competition from new entrants or
existing competitors who focus on market segments currently served by the
Company.  These competitors include large retail operations, including some with
catalog operations, other catalog and direct marketing companies and
international competitors.  In addition, since fiscal 1995, the Company has
offered an increasingly higher volume and percentage of apparel merchandise.
With respect to the apparel merchandise offered by the Company, the Company is
in direct competition with more established catalog operations, some with
substantially greater experience in selling apparel merchandise and which may
focus on prospective customers sharing some of the demographic characteristics
of the Company's customers.  Any failure on the part of the Company to
successfully market its apparel merchandise or to compete effectively against
such competitors could have a material adverse affect on the Company's growth
and could adversely affect the Company's business, financial position, results
of operations and cash flows. Many of these competitors are larger and have
significantly greater financial, marketing and other resources than the Company.
Increased catalog mailings by the Company's competitors may adversely affect
response rates to the Company's own catalog mailings. In addition, because the
Company sources the majority of its 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 the Company's
merchandise will or can be competitively priced when compared to merchandise
offered by other retailers. While the Company believes that it has been able to
compete successfully because of its brand recognition, the exclusivity and broad
range and quality of its merchandise, including its private label merchandise
offerings, and its customer service policies, there can be no assurance that the
Company will be able to maintain or increase its market share in the future. The
failure of the Company to compete successfully could materially and adversely
affect the Company's business, financial position, results of operations and
cash flows.

RELIANCE ON CATALOG OPERATIONS

The Company's success depends predominately on the success of its catalog
operations, which the Company believes is achieved through the efficient
targeting of its mailings, a high volume of prospect mailing, appropriate shifts
in the Company's merchandise mix and the Company's ability to achieve adequate
response rates to its 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, the
Company is not able to adjust the costs being incurred in connection with a
particular mailing to reflect the actual performance of the catalog.  If, for
any reason, the Company were to experience a significant shortfall in
anticipated revenue from a particular mailing, and thereby not recover the costs
associated with 

                                      11
<PAGE>
 
that mailing, the Company's financial condition, results of operations and cash
flows could be adversely affected. In addition, response rates to the Company's
mailings and, as a result, revenues generated by each 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 may be
outside the Company's control. Further, the Company historically has experienced
fluctuations in the response rates to its catalog mailings. Any inability of the
Company 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 the Company's
business, financial position, results of operations and cash flows.

RISKS ASSOCIATED WITH GROWTH STRATEGY

The Company's growth strategy includes primarily the following components:
increasing catalog circulation, expanding the Company's customer base through
aggressive prospect mailings, introducing expanded catalog and merchandise
offerings, publishing new catalog titles, expanding international sales and
increasing the use of other marketing channels, such as retail stores and the
Internet. The Company's growth strategy involves various risks, including a
reliance on a high degree of prospect mailings, which may lead to less
predictable response rates. The failure of the Company to successfully implement
any or all of its growth strategies could have a material adverse effect on the
Company's business, financial position, results of operations and cash flows.

The Company believes its growth has been attributable in large part to the
Company's success in meeting the merchandise, timing and service demands of an
expanding customer base with certain demographic characteristics.  There can be
no assurance that the Company will be able to continually identify and offer new
merchandise that appeals to its customer base or that the introduction of new
merchandise categories or new marketing or distribution strategies, such as the
sale of the Company's 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 market.  Any substantial inability on the part of
the Company to sustain the growth of its catalog operations and sales, to
maintain its current average order size and response rates, to leverage the
success of existing catalog titles to new merchandise lines, catalogs and retail
stores or to cross sell the Company's merchandise to different members of the
target customer household could have a material adverse effect on the Company's 
business, financial position, results of operations and cash flows.

Management's long-term brand building strategy includes the selective opening of
highly visible retail stores in high traffic areas, including "destination
locations" such as locations near major national parks or other resort areas.
Consistent with such strategy, the Company opened a retail store complex in
Jackson Hole, Wyoming in June of 1997.  Management will continue to consider the
opening of similarly situated retail stores in the future as prime locations
become available.  To date, the Company has had limited experience operating
retail stores, particularly stores outside the vicinity of its headquarters.
The cost of opening a retail store varies dramatically depending on several
factors such as whether the Company purchases or leases the facilities in which
the store will be placed, the size of the store, the location of the store as
well as the attendant differences in the cost of real estate and the type and
range of merchandise to be offered at the store.  In addition, retail store
operations entail substantial fixed costs, including costs associated with real
estate, inventory maintenance and staffing.  Failure to successfully implement
this store-based strategy could result in significant write-offs of inventory
and fixtures and could have a material adverse effect on the Company's business,
financial position, results of operations and cash flows.

The Company 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 the Company's growth strategies, including its
aggressive mailing program, its plans to broaden existing merchandise lines,
including its private label offerings, and its plans to introduce new
merchandise, may require additional capital.  There can be no assurance that
funds will be available to the Company on terms satisfactory to the Company when
needed.

                                      12
<PAGE>
 
ITEM 2.          PROPERTIES

The principal executive and administrative offices of the Company are located at
One Coldwater Creek Drive, Sandpoint, Idaho 83864.  The telephone number of the
Company's principal executive and administrative offices is (208) 263-2266.  The
general location, use and approximate size of the Company's principal properties
are set forth below:
<TABLE>
<CAPTION>
                  FACILITY                                  ADDRESS                OWNED / LEASED        SIZE
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                <C>              <C>
Corporate Offices, including Sandpoint 
  Customer Service Call Center...............   One Coldwater Creek Drive              Owned        51,000 sq. ft. 
                                                Sandpoint, Idaho 83864                                              
Catalog Distribution/Warehousing.............   3333 McGee Road                        Owned       150,000 sq. ft.
                                                Sandpoint, Idaho 83864
Retail Distribution/Warehousing..............   1402 North Boyer Avenue                Leased       36,000 sq. ft.
                                                Sandpoint, Idaho 83864
Coeur d'Alene Customer Service Call Center...   1201 Ironwood Drive                    Leased       24,000 sq. ft.
                                                Coeur d'Alene, Idaho 83814
Sandpoint Retail Store.......................   334 North First Street                 Leased       14,000 sq. ft.
                                                Sandpoint, Idaho 83864
Jackson Hole Retail Store....................   10 East Broadway                       Leased       16,000 sq. ft.
                                                Jackson, Wyoming 83001
Seaside Outlet Store.........................   1111 N. Roosevelt, Suite 100           Leased        4,000 sq. ft.
                                                Seaside, Oregon 97139
Lee Outlet Store.............................   50 Water Street, Suite L670            Leased        4,000 sq. ft.
                                                Lee, Massachusetts 01238
Kittery Outlet Store.........................   Route 1, Wilson Road, Suite 102        Leased        4,000 sq. ft.
                                                Kittery, Maine 03904
Birch Run Outlet Store.......................   12156 Beyer Road                       Leased        4,000 sq. ft.
                                                Birch Run, Michigan 48415
</TABLE>

Because the Company's Sandpoint distribution/warehousing facilities currently
are operating near capacity and the majority of the Company's revenues originate
from customers residing in the eastern United States, the Company currently is
negotiating the establishment of a planned second catalog
distribution/warehousing facility in Parkersburg, West Virginia.  As a condition
to the transaction, the Company would be provided with a temporary catalog
distribution/warehousing facility from which to operate during construction of
the permanent facility.  If consummated, it currently is estimated that the
Company will begin operating out of the temporary facility during the summer of
1998 and transition into the permanent facility beginning the summer of 1999.

The Company believes that the balance of its properties are adequate to meet its
needs in the reasonably foreseeable future.  Refer to "Item 7 - Management's
Discussion and Analysis - Liquidity and Capital Resources" for further
information, including details regarding properties which may be purchased or
leased in connection with the Company's various growth initiatives.

                                      13
<PAGE>
 
ITEM 3.     LEGAL PROCEEDINGS

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 recovery, if any, or the Company's liability, if any, under any
pending litigation or administrative proceedings is not likely to materially
affect its financial position, results of operations or cash flows.

The direct response business as conducted by the Company is subject to the
merchandise Mail Order Rule and related regulations promulgated by the Federal
Trade Commission.  While the Company believes it is in material compliance with
such regulations, no assurance can be given that new laws or regulations will
not be enacted or adopted which might adversely affect the Company's operations.

The Company's direct mail business is based solely in the states of Idaho and
Wyoming, and accordingly, the Company only collects sales taxes from customers
residing in those states. Coldwater Creek Outlet Stores Inc., a wholly-owned
subsidiary of the Company, is engaged in the business of liquidating inventory
overstocks, owns and operates retail outlet stores in Oregon, Massachusetts,
Maine, and Michigan, and pays sales tax and applicable corporate income,
franchise and other taxes in those states. Various states have attempted to
collect back sales and use tax from direct marketers. The U.S. Supreme Court
has held that the various states, absent congressional legislation, may not
impose tax collection obligations on an out-of-state mail order company 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 Company has not
received an assessment from any state. The Company anticipates that any
legislative changes if adopted, would be applied only on a prospective basis.

                                     14
<PAGE>
 
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were brought to a vote of the Company's stockholders in the fourth
quarter of the fiscal year ended February 28, 1998.

                                      15
<PAGE>
 
                                   MANAGEMENT
                                        

DIRECTORS AND EXECUTIVE OFFICERS

Below is a table setting forth the name, age (as of the date of this filing)
and position of the Company's directors, executive officers and key employees:

<TABLE>
<CAPTION>
             Name                      Age                           POSITIONS HELD
             ----                      ---   ----------------------------------------------------------
<S>                                 <C>      <C>
Dennis Pence.....................     [48]   President, Chief Executive Officer, Vice Chairman of the
                                             Board of Directors and Director
Ann Pence........................     [48]   Creative Director, Chairman of the Board of Directors and
                                             Director
Donald Robson....................     [52]   Vice President of Finance and Administration, Chief
                                             Financial Officer, Treasurer, Secretary and Director
Tony Saulino.....................     [41]   Vice President of Operations
Robin Sheldon (3)................     [53]   Vice President of Merchandising
Mac Morgan.......................     [43]   Vice President of Advertising
Karen Reed.......................     [34]   Vice President of Catalog Marketing
Tom Scott........................     [42]   Vice President and Chief Information Officer
Randy Long.......................     [51]   Vice President of Human Resources
Robert H. McCall, CPA(1)(2)......     [52]   Director
James R. Alexander(1)............     [55]   Director
Curt Hecker(2)...................     [37]   Director
Michelle Collins.................     [38]   Director
</TABLE>
(1)   Member of the Compensation Committee.
(2)   Member of the Audit Committee.
(3)   Ms. Sheldon's employment with the Company terminated on April 15, 1998.

Dennis Pence co-founded the Company in 1984, and has served as President and
Chief Executive Officer and as a Director since its incorporation in 1988. Prior
to co-founding Coldwater Creek, Mr. Pence was employed by Sony Corp of America
from 1975 to 1983, where his final position was National Marketing Manager,
Consumer Video Products.

Ann Pence co-founded the Company in 1984, and has served as its Creative
Director. Since its incorporation in 1988, she also has served as a Director and
as the Chairman of the Board of Directors of the Company. Prior to co-founding
Coldwater Creek, Mrs. Pence had an eleven year career in retail advertising, and
was employed by Macy's California from 1974 to 1982 where her final position was
Copy Director.

Donald Robson has served as Vice President of Finance and Administration, Chief
Financial Officer, Secretary, Treasurer and as a Director of the Company since
January 1995. From 1992 to 1995, prior to joining the Company, Mr. Robson was a
Financial Executive Consultant. From 1978 to 1992, Mr. Robson held a number of
progressively responsible positions with, and ultimately served as Executive
Vice President and Chief Financial Officer for, Neiman Marcus Stores, a
nationally established high-end department store chain and cataloger. His
responsibilities ultimately included managing the Company's financial
operations, information services, merchandise distribution, investment
strategies, credit portfolio, central and store operations, and telemarketing
and distribution in the Direct Marketing Division.

Tony Saulino has served as Vice President of Operations of the Company since
March 1993. Mr. Saulino joined Coldwater Creek in September of 1992 as
Operations Manager. Prior to joining the Company, from 1991 to 1992, Mr. Saulino
was the Customer Service Director of Bear Creek Operations, Inc., servicing the
Harry & David and Jackson & Perkins catalogs where he managed a seasonal staff
of 75-250 employees. From 1988 to 1991, Mr. Saulino served as Customer Service
Manager of Current, Inc., a direct marketer of social expression and
personalized checks, where he managed a seasonal staff of 100-250 employees.

                                      16
<PAGE>
 
Robin Sheldon served as Vice President of Merchandising of the Company from June
1994 to April 1998. From 1989 to 1994, prior to joining the Company, Ms. Sheldon
served as Director of Catalogs and managed development and production of five
direct mail catalogs for the National Wildlife Federation where she also served
as Senior Merchant from 1988 to 1989. Prior to that, from 1983 to 1988, Ms.
Sheldon was President of Robin Clark Designs, Inc., an interior design firm. In
1979, Ms. Sheldon founded, developed and managed The Mixed Bag, an upscale gift
catalog business, where she served as President until 1983.

Mac Morgan has served as Vice President of Advertising of the Company since
September 1996 and, prior to that, as Senior Art Director beginning May 1992.
Mr. Morgan was Vice President of Production from 1991 to 1992 of Interlight
International, a producer of interactive CDR titles located in Florida. Prior to
1991, Mr. Morgan was Director of Marketing for VistaChrome, Inc./The Printing
House, a large separator/printer in Florida. From 1980 to 1988, Mr. Morgan
served as Senior Vice President of Operations of Homes & Land Publishing
Corporation, overseeing a graphics design operation of over 150 employees and
300 retail magazines monthly.

Karen Reed has served as Vice President of Catalog Marketing of the Company
since March 1997. From 1995 to 1997, Ms. Reed was the Director of Circulation
and from 1990 to 1995 she was the Company's Circulation Manager. Prior to
joining the Company, from 1988 to 1990, Ms. Reed served as a computer programmer
for Serac, a ski clothing manufacturer.  Prior to that, she worked in the
accounting profession in various capacities.

Tom Scott has served as Vice President and Chief Information Officer of the
Company since his arrival in November 1997.  Prior to joining the Company, Mr.
Scott was President of Gestalt Technologies, Inc., a developer of high
technology business systems.  From May 1992 to January 1996, Mr. Scott served as
Vice President of Business Systems for VF Corporation, a multi-billion dollar
global apparel manufacturer.  Prior thereto, from 1984 to 1992, Mr. Scott worked
in a variety of positions at Nordstrom, Inc., a multi-billion dollar apparel
retailer.  From 1981 to 1984, he was a consultant for Arthur Andersen & Co.

Randy Long has served as Vice President of Human Resources since January 1998
and, prior to that, as Director of Human Resources since June 1997.  From
September 1994 to June 1997, Mr. Long was Director of Human Resources for
Johnson Matthey Electronics, an international electronics company.  From July
1992 to August 1994, Mr. Long was Director of Human Resources for the Federal
Way School District in Federal Way, Washington. Prior thereto, Mr. Long held a
number of human resource positions primarily in the energy industry.

Robert H. McCall, a Certified Public Accountant, has served as a Director since
1994 and since February 1995 has served as Chairman of the Audit Committee and
as a member of the Compensation Committee. Since 1981 he has been President of
McCall & Landwehr, P.A., an accounting firm based in Hayden Lake, Idaho, which
provided accounting, tax and auditing services to the Company from 1984 to 1993,
and has provided a limited amount of other services since that time.

James R. Alexander has served as a Director since 1994 and is Chairman of the
Compensation Committee. He has been an independent consultant for the past 18
years, serving a variety of mail order companies selling upscale apparel, home
decor and gift merchandise.

Curt Hecker has served as a Director since August 1995 and is a member of the
Audit Committee. Since August 1995, his principal occupation has been President
and Chief Executive Officer of Panhandle State Bank in Sandpoint, Idaho. Prior
to Mr. Hecker's employment with Panhandle, he served as Vice President of West
One Bank (now US Bank) with which the Company has had its primary banking
relationship.

Michelle Collins has served as a Director since September 1997.  Since January
1998, she has served as Managing Director of Svoboda, Collins L.L.C.  Previously
thereto, Ms. Collins was a principal in the corporate finance department of
William Blair & Company, L.L.C., overseeing the firm's specialty retail sector.
Ms. Collins joined William Blair & Company, L.L.C as an associate in 1986 after
obtaining a Masters in Business Administration from the Harvard Business School.

No executive officer or director of the Company bears any relation by blood,
marriage or adoption to any other executive officer or director, except for
Dennis and Ann Pence, who are married to each other.

                                      17
<PAGE>
 
PART II
-------

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock has been quoted on the NASDAQ under the symbol "CWTR"
since the Company's initial public offering on January 29, 1997.  On February
28, 1998, the Company had 95 stockholders of record and 10,120,118 shares of
$.01 par value common stock outstanding.

The following table sets forth certain sales price and trading volume data for
the Company's common stock for the periods indicated:
<TABLE>
<CAPTION>

                                        High        Low           Close     Average Volume
                                        ----        ---           -----     --------------
<S>                                   <C>         <C>            <C>        <C>
Fiscal 1998:                                              
  First Quarter                                           
   (through May 22, 1998)              $41 1/2      $17 3/8       $23              142,899

Fiscal 1997:
  First Quarter                        $18 5/8     $10            $17               35,502
  Second Quarter                       $30 3/4     $14            $23 1/2           45,794
  Third Quarter                        $35         $24 1/2        $31               27,845
  Fourth Quarter                       $41 5/8     $28            $41 1/2           27,718

Fiscal 1996:                                                                              
  Fourth Quarter                                                           
   (commencing January 29, 1997)       $21 7/8     $15            $18 3/8          148,068 
</TABLE> 

                                      18
<PAGE>
 
                                DIVIDEND POLICY
                                        
The Company does not pay regular dividends and does not anticipate the
declaration of a cash dividend in the foreseeable future.

                                USE OF PROCEEDS
                                        
On January 27, 1997, a Registration Statement on Form S-1 (No. 333-16651 ) was
declared effective by the United States Securities and Exchange Commission,
pursuant to which 2,875,000 shares of the Company's common stock were offered
and sold for the account of the Company at a price of $15.00 per share,
generating gross offering proceeds of $43,125,000.  The managing underwriters
were Montgomery Securities and William Blair & Company.

In connection with the offering, the Company incurred $3,019,000 in underwriting
discounts and commissions, and $1,330,000 in other related expenses.  The net
proceeds of the offering, after deducting the foregoing expenses, were
$38,776,000.

The net proceeds from the offering were used as follows: (i) $18,429,000 in
earning distributions to the S-corporation shareholders, (ii) $7,645,000 to
repay outstanding indebtedness, (iii) $5,067,000 in short-term money market
investments and (iv) $7,655,000 as general working capital.

                                      19
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL AND OPERATING DATA

The selected financial and operating data in the following table sets forth (i)
balance sheet data as of February 28, 1998 and March 1, 1997, and statement of
operations data for the fiscal years ended February 28, 1998, March 1, 1997 and
March 2, 1996, derived from the Company's consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants, which are
included elsewhere in this Form 10-K Annual Report, (ii) balance sheet data as
of March 2, 1996, March 4, 1995 and February 26, 1994, and statement of
operations data for the fiscal years ended March 4, 1995 and February 26, 1994,
derived from the Company's consolidated financial statements audited by Arthur
Andersen LLP which are not presented herein, (iii) unaudited pro forma statement
of operations data, computed as indicated in the footnotes set forth below, and
(iv) selected operating data as of and for the periods indicated derived or
computed from the Company's circulation records or the statement of operations
data identified above. The information below should be read in conjunction with
"Item 7 -- Management's Discussion and Analysis" and "Item 8 Financial
Statements" included elsewhere.


                    SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
                                                                  Fiscal Years Ended (1)
                                                   -------------------------------------------------------------------
                                                   February 28     March 1       March 2       March 4     February 26
                                                       1998         1997          1996          1995          1994
                                                   -----------   -----------   -----------   -----------   -----------
                                                    (in thousands, except per share and selected operating data)
<S>                                                <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:                    
Net sales                                          $   246,697   $   143,059   $    75,905   $    45,223   $    31,763
Cost of sales                                          120,126        66,430        32,786        19,062        13,505
                                                   -----------   -----------   -----------   -----------   -----------
Gross profit                                           126,571        76,629        43,119        26,161        18,258
Selling, general and administrative expenses           107,083        64,463        37,356        21,502        12,937
                                                   -----------   -----------   -----------   -----------   -----------
Income from operations                                  19,488        12,166         5,763         4,659         5,321
Interest, net, and other                                    57          (153)         (149)           98            31
                                                   -----------   -----------   -----------   -----------   -----------
Income before provision for income taxes                19,545        12,013         5,614         4,757         5,352
Provision for income taxes (2)                           7,857         1,197            --            --            --
                                                   -----------   -----------   -----------   -----------   -----------
Net income                                         $    11,688   $    10,816   $     5,614   $     4,757   $     5,352
                                                   ===========   ===========   ===========   ===========   ===========
Net income per share - Basic (3)                   $      1.15   $      1.46   $      0.77   $      0.66   $      0.74
                                                   ===========   ===========   ===========   ===========   ===========
Weighted average shares outstanding- Basic (3)      10,120,000     7,390,000     7,245,000     7,245,000     7,245,000
                                                   ===========   ===========   ===========   ===========   ===========
Net income per share - Diluted (3)                 $      1.10   $      1.41   $      0.77   $      0.66   $      0.74
                                                   ===========   ===========   ===========   ===========   ===========
Weighted average shares outstanding - Diluted (3)   10,633,000     7,656,000     7,245,000     7,245,000     7,245,000
                                                   ===========   ===========   ===========   ===========   ===========
                                                         
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net income as reported above                               n/a   $    10,816   $     5,614   $     4,757   $     5,352
Pro forma provision for income taxes (2)                   n/a         4,929         2,218         1,903         2,114
                                                                 -----------   -----------   -----------   -----------
Pro forma net income                                       n/a   $     5,887   $     3,396   $     2,854   $     3,238
                                                                 ===========   ===========   ===========   ===========
Pro forma net income per share - Basic (4)                 n/a   $      0.68   $      0.41   $      0.36   $      0.42
                                                                 ===========   ===========   ===========   ===========
Pro forma weighted average shares 
  outstanding - Basic (4)                                  n/a     8,617,000     8,208,000     7,981,000     7,755,000
                                                                 ===========   ===========   ===========   ===========
Pro forma net income per share - Diluted (4)               n/a   $      0.66   $      0.41   $      0.36   $      0.42
                                                                 ===========   ===========   ===========   ===========
Pro forma weighted average shares 
  outstanding - Diluted (4)                                n/a     8,883,000     8,208,000     7,981,000     7,755,000
                                                                 ===========   ===========   ===========   ===========
                                                         
BALANCE SHEET DATA:
    Working capital                                $    13,949   $    13,990   $     2,169   $       623   $     4,095
    Total assets                                        98,225        61,974        23,450        19,032         9,820
    Long-term debt (net of current maturities)              --            --           100           248           408
    Stockholders' equity                                48,875        37,187        14,525        11,068         7,698
                                                         
Selected Operating Data:                                 
    Net sales growth                                      72.4%         88.5%         67.8%         42.4%         69.1%
    Total catalogs mailed                          113,717,000    63,520,000    45,868,000    31,625,000    19,045,000
    Total active customers (5)                       1,614,000     1,100,000       747,000       494,000       383,000
    Average order (6)                                  $149.00       $128.00        $97.00        $82.00        $73.00
</TABLE>

                                      20
<PAGE>
 
(1)  References to a fiscal year refer to the calendar year in which such fiscal
     year commences.  The Company has a 52/53 week fiscal year that ends on the
     Saturday closest to February 28.  Fiscal 1994 is the only fiscal year
     presented that consisted of 53 weeks.

(2)  Prior to the Company's initial public offering on January 29, 1997, the
     Company operated as an S-corporation and was not subject to federal and
     certain state income taxes.  Pro forma income taxes are depicted above at
     an assumed 39.5% effective rate as if the Company had been a C-corporation,
     rather than an S-corporation, for the pre-offering periods.  Upon
     terminating the Company's S-corporation status, the Company recognized a
     non-recurring, non-cash charge to earnings to recognize deferred income
     taxes in accordance with Statement of Financial Accounting Standard No.
     109 ("SFAS No. 109").  See Notes 1, 7 and 13 of Notes to Consolidated
     Financial Statements.

(3)  In February 1997, the Financial Accounting Standards Board issued SFAS No.
     128, "Earnings Per Share". SFAS No. 128 supercedes Accounting Principles
     Board Opinion No. 15. "Earnings Per Share," revises the computation and
     presentation of earnings per share, and was adopted by the company as
     required during the fourth quarter of fiscal 1997. Net income per share -
     Basic, which replaces primary earnings per share, excludes dilution and is
     computed by dividing net income by the weighted average number of common
     shares outstanding for the period. Net income per share - Diluted, which
     replaces fully diluted earnings per share, reflects the potential dilution
     that could occur under the treasury stock method if securities or other
     contracts to issue common stock (e.g., stock options) were exercised or
     converted into common stock. As required, all previously reported amounts
     have been restated.

(4)  Pro forma net income per share - Basic is based on basic net income per
     share, as computed above, but also gives pro forma effect to (i) income
     taxes at an assumed 39.5% effective rate as if the Company had been a C-
     corporation, rather than an S-corporation, for the pre-offering periods
     and (ii) that number of initial public offering common shares whose net
     proceeds were necessary to fund the distribution of the S-corporation
     retained earnings balance. Pro forma net income per share - Diluted
     additionally reflects the dilutive effect of common shares issuable under
     stock options as computed using the treasury stock method.

(5)  An "active customer" is defined as a customer who has purchased
     merchandise from the Company within the twelve month period preceding the
     end of the period indicated.

(6)  An "order" is defined as the dollar amount of a processed customer
     invoice or a pending order on file.  The "average order" is calculated by
     dividing the aggregate amount of all customer invoices and pending orders
     processed in a period by the number of customer orders placed in such
     period.

                                      21
<PAGE>
 
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion may contain forward-looking statements 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 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; 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 below and
elsewhere in this Form 10-K.

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 closest to February
28. The fiscal year is generally 52 weeks, as is the case with all periods
presented except fiscal 1994 which consisted of 53 weeks.

OVERVIEW

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 the
selected, upscale bed and bath products periodically featured in Northcountry
and Spirit of the West, the Company introduced its Bed & Bath catalog in August
of 1997.

As part of the Company's brand building strategy, the Company also operates
catalog-themed retail stores in Sandpoint, Idaho and Jackson Hole, Wyoming.
Through its wholly-owned subsidiary, Coldwater Creek Outlet Stores Inc., the
Company additionally operates outlet stores in Seaside, Oregon; Lee,
Massachusetts; Kittery, Maine; and Birch Run, Michigan.

The Company targets well-educated, middle-to-upper income households and seeks
to differentiate itself from other retail and catalog operations by offering
exceptional value through superior customer service and a merchandise assortment
that reflects a casual, uniquely American spirit.  The Company believes that the
successful execution of its marketing and merchandising strategies, coupled with
its high customer service standards and efficient order entry and fulfillment
operations, have allowed it to develop a unique brand identity and strong
relationships with its loyal customer base.  As a result, the Company's average
customer order increased to $149 during fiscal 1997 as compared to $128 and $97
during fiscal 1996 and 1995, respectively.

A key element of the Company's overall marketing strategy has been to pursue an
aggressive circulation strategy.  During fiscal years 1997, 1996 and 1995, the
Company mailed 113.7 million, 63.5 million and 45.9 million catalogs,
respectively.  The Company's proprietary mailing list stood at 5.4 million names
at February 28, 1998, up significantly from the 3.7 million and 2.5 million
names at March 1, 1997 and March 2, 1996, respectively.  Similarly, the
Company's active customer file grew to 1.6 million names at February 28, 1998 as
compared to 1.1 million and 0.7 million names at March 1, 1997 and March 2,
1996, respectively.

The Company focuses on providing extraordinary customer service well above
industry standards. All aspects of the Company's operations are designed to
provide a superior catalog buying experience and to strengthen relationships
with existing and new customers. To that end, the Company has strived to make
timely investments in its telephone and distribution infrastructure to
support its customer service-based strategy. During fiscal 1997, the Company
continued to achieve faster telephone answer times, lower abandoned call rates,
and faster order processing than the most recently published industry averages.
The Company plans to stimulate future growth through a variety of strategic
initiatives designed to increase catalog circulation, yield higher customer
response rates and expand merchandise offerings. In addition, the Company
believes that significant opportunities exist to expand its customer base by
targeting new members of existing customer households with additional
merchandise offerings and catalog titles.

                                      22
<PAGE>
 
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>
                                                                            Fiscal
                                                          --------------------------------------------
                                                             1997            1996              1995
                                                          ---------       ----------       -----------
<S>                                                      <C>             <C>               <C> 
Net sales                                                     100.0%           100.0%            100.0%
Cost of sales                                                  48.7             46.4              43.2
                                                          ---------       ----------       -----------
Gross profit                                                   51.3             53.6              56.8
Selling, general and administrative expenses                   43.4             45.1              49.2
                                                          ---------       ----------       -----------
Income from operations                                          7.9              8.5               7.6
Interest, net, and other                                          -             (0.1)             (0.2)
                                                          ---------       ----------       -----------
Income before provision for income taxes                        7.9              8.4               7.4
Provision for income taxes                                      3.2              0.8                 -
                                                          ---------       ----------       ----------- 
Net income                                                      4.7%             7.6%              7.4%
                                                          =========       ==========       =========== 
 
Pro forma provision for income taxes                              -              3.5               2.9
                                                          ---------       ----------       -----------
Pro forma net income                                              -              4.1%              4.5%
                                                          =========       ==========       ===========
</TABLE>

FISCAL 1997 COMPARED TO FISCAL 1996
-----------------------------------

Net sales increased by $103.6 million, or 72.4%, to $246.7 million during fiscal
1997 from $143.1 million during fiscal 1996. This increase primarily is
attributable to increased circulation of and order volume and average dollars
from the Company's Northcountry and Spirit of the West catalogs, and to a lesser
extent, the Company's Milepost Four and Bed & Bath catalogs. While the overall
growth in net sales remained strong throughout fiscal 1997, a softening of
demand for the upscale fashion apparel featured in the Spirit of the West
catalog was noted during the fourth quarter. Management believes that the
historical rate of growth for this catalog will moderate for the foreseeable
future, and the previous high growth rates achieved by this catalog will not
continue. Nevertheless, management believes that Spirit of the West will
continue to represent a substantial portion of the Company's overall profit.

Gross profit consists of net sales minus cost of sales, which primarily consists
of merchandise acquisition costs, freight in and storage costs. Gross profit
increased $49.9 million, or 65.2%, to $126.6 million during fiscal 1997 from
$76.6 million during fiscal 1996. Gross profit decreased as a percentage of net
sales to 51.3% for fiscal 1997 from 53.6% for fiscal 1996. The decrease in gross
profit percentage primarily is 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 or excess merchandise.
Additionally, the higher gross margins traditionally realized in the fourth
quarter as a result of increased gift and accessories sales associated with the
holiday season were offset substantially by increased writedowns of Spirit of
the West excess stock.

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 $42.6 million, or 66.1%, to $107.1 million during fiscal 1997 from
$64.5 million in fiscal 1996.  Selling, general and administrative expenses
decreased as a percentage of net sales to 43.4% during fiscal 1997 from 45.1%
during fiscal 1996.  The increase in selling, general and administrative
expenses primarily is 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 decrease in selling, general and administrative expenses as a percentage of
net sales primarily is attributable to the growth in net sales and the
leveraging of certain fixed and semi-fixed infrastructure costs.

As a result of the foregoing, operating income increased by $7.3 million, or
60.2%, to $19.5 million for fiscal 1997 from $12.2 million for fiscal 1996.  As
a percentage of net sales, operating income was 7.9% in fiscal 1997 as compared
to 8.5% in fiscal 1996.

Net income increased by $872,000 to $11.7 million for fiscal 1997 from $10.8
million for fiscal 1996. Net income per basic and diluted share was $1.15 and
$1.10, respectively, for fiscal 1997, versus net income per basic and diluted
share of $1.46 and $1.41, respectively, for fiscal 1996. However, after applying
a pro forma combined effective federal and state income tax rate of 39.5% to
fiscal 1996 when the Company operated as an S-corporation for a substantial
portion of the year, the Company realized pro forma net income of $5.9 million
for fiscal 1996. This equates to pro forma net income per basic and diluted
share of $0.68 and $0.66, respectively, for fiscal 1996.

                                      23
<PAGE>
 
FISCAL 1996 COMPARED TO FISCAL 1995
-----------------------------------

Net sales increased by $67.2 million, or 88.5%, to $143.1 million during fiscal
1996 from $75.9 million during fiscal 1995.  This increase primarily was
attributable to unusually strong response rates to and higher average orders
realized from the Company's Spirit of the West catalog and to certain new
merchandise offerings in the Company's Northcountry catalog.  To a lesser
extent, the Company realized additional net sales from the introduction of its
Milepost Four catalog in the spring of 1996.

Gross profit increased $33.5 million, or 77.7%, to $76.6 million during fiscal
1996 from $43.1 million during fiscal 1995. Gross profit decreased as a
percentage of net sales to 53.6% for fiscal 1996 from 56.8% in fiscal 1995. The
decrease in gross profit percentage primarily was attributable to increased
merchandise markdowns associated with offering a greater percentage of apparel
merchandise versus higher net margin jewelry and gifts. As part of the Company's
marketing strategy, the Company also reduced prices on selected items in its
catalogs during fiscal 1996.

Selling, general and administrative expenses increased by $27.1 million to $64.5
million during fiscal 1996 from $37.4 million during fiscal 1995.  Selling,
general and administrative expenses decreased as a percentage of net sales to
45.1% during fiscal 1996 from 49.2% during fiscal 1995.  The increase in
selling, general and administrative expenses primarily was 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 decrease in selling, general and administrative
expenses as a percentage of net sales primarily was attributable to the
leveraging of certain fixed and semi-fixed infrastructure costs coupled with
favorable paper prices in catalog production.

As a result of the foregoing, operating income increased by $6.4 million, or
111.1%, to $12.2 million for fiscal 1996 from $5.8 million for fiscal 1995.  As
a percentage of net sales, operating income increased to 8.5% in fiscal 1996 as
compared to 7.6% in fiscal 1995.

In fiscal 1996, the Company recognized a $1.4 million non-recurring, non-cash
charge in connection with the termination of its S-corporation status.  This
charge, along with the recognition of a $0.2 million tax benefit,  resulted in a
net income tax provision of $1.2 million.

Net income increased by $5.2 million to $10.8 million for fiscal 1996 from $5.6
million for fiscal 1995.  Net income per basic and diluted share was $1.46 and
$1.41, respectively, for fiscal 1996, versus net income per basic and diluted
share of $0.77 and $0.77, respectively, for fiscal 1995.  However, after
applying a pro forma combined effective federal and state income tax rate of
39.5% to fiscal 1996 and 1995 when the Company operated as an S-corporation, the
Company realized pro forma net income of $5.9 million for fiscal 1996 versus pro
forma net income of $3.4 million for fiscal 1995.  This equates to pro forma net
income per basic and diluted share of $0.68 and $0.66, respectively, for fiscal
1996, versus basic and diluted pro forma net income per share of $0.41 and
$0.41, respectively, for fiscal 1995.

QUARTERLY AND SEASONAL FLUCTUATIONS
-----------------------------------

The Company's 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
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.

                                      24
<PAGE>
 
The Company defers the recognition of the costs of catalog development and
production and records them as sales are recognized.  Consequently, quarter to
quarter revenue and expense comparisons will be impacted by the timing of the
mailing of the Company's 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 the Company's assessment of
prevailing market opportunities.  Approximately three-quarters of the revenue
generated by each mailing is recognized within 30 to 45 days after such mailing.
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 the offering was recognized in the previous
year.

The Company has experienced, and may continue to experience, seasonal
fluctuations in its sales and operating results, which are typical of 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.  The
Company believes that in the future this seasonality will continue, although to
a diminished degree due to the increased representation of apparel and home
furnishings in the Company's overall merchandise mix.  In anticipation of
increased sales activity during November and December, the Company incurs
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 normally expects
higher gross margins in the second half of the fiscal year than in the first
half.  If, for any reason, the Company's sales were to fall below its
expectations during November and December, the Company's financial position
results of operations and cash flows could be materially adversely affected.

The following table contains selected unaudited quarterly financial data for
fiscal 1997 and fiscal 1996.  The disproportionally lower results of operations
realized during the second fiscal quarters are due to lower sales volumes
realized in such quarters due to seasonal trends.  In the opinion of management,
this unaudited information has been prepared on the same basis as the audited
information and includes all adjustments, solely of a normal recurring nature,
necessary to present fairly, in all material respects, the information set forth
therein.

<TABLE>
<CAPTION>
                                                                             FISCAL 1997
                                                           -----------------------------------------------
                                                             FIRST        SECOND       THIRD      FOURTH
                                                            QUARTER      QUARTER      QUARTER     QUARTER
                                                           ----------   ----------   ---------   ---------
<S>                                                        <C>          <C>          <C>         <C>
                                                                (in thousands, except per share data)
      Net sales.........................................      $51,002      $36,389     $77,242     $82,064
      Gross profit......................................       26,665       18,237      39,544      42,125
      Selling, general and administrative expenses......       23,374       17,495      32,397      33,817
      Income from operations............................        3,291          742       7,147       8,308
      Net income........................................      $ 2,073      $   415     $ 4,340     $ 4,860
      Net income per share - Basic......................      $  0.20      $  0.04     $  0.43     $  0.48
      Net income per share - Diluted....................      $  0.20      $  0.04     $  0.41     $  0.45
</TABLE>

<TABLE>
<CAPTION>
                                                                             FISCAL 1996
                                                           ------------------------------------------------
                                                             FIRST        SECOND        THIRD      FOURTH
                                                            QUARTER       QUARTER      QUARTER     QUARTER
                                                           ----------   -----------   ---------   ---------
<S>                                                        <C>          <C>           <C>         <C>
                                                                (in thousands, except per share data)
      Net sales..........................................     $23,604      $15,781      $45,325     $58,349
      Gross profit.......................................      12,091        8,262       25,049      31,227
      Selling, general and administrative expenses.......      10,540        8,488       20,211      25,224
      Income (loss) from operations......................       1,551         (226)       4,838       6,003
      Net income (loss)..................................     $ 1,528      $  (258)     $ 4,690     $ 4,853
      Net income (loss) per share - Basic................     $  0.21      $ (0.04)     $  0.65     $  0.62
      Net income (loss) per share - Diluted..............     $  0.20      $ (0.04)     $  0.63     $  0.60

      Pro forma net income (loss)........................     $   924      $  (156)     $ 2,837     $ 2,280
      Pro forma net income (loss) per share - Basic......     $  0.11      $ (0.02)     $  0.35     $  0.25
      Pro forma net income (loss) per share - Diluted....     $  0.11      $ (0.02)     $  0.34     $  0.24
</TABLE>
* Note: The aggregate of certain of the above amounts may differ from that
  reported for the full fiscal year due to the effects of rounding.

                                      25
<PAGE>
 
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.  The Company
draws on its working capital lines to produce catalogs and increase inventory
levels in anticipation of future sales realization.  In addition, the Company
regularly relies on standard trade credit arrangements in purchasing inventory
and services.  These arrangements typically require the net amount due to be
paid within sixty days of receipt.

The Company's lines of credit agreement with US Bank of Idaho provides 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 allowing the Company to borrow up to $17,500,000 at an interest
rate, at the option of the Company, equal to the bank's Prime rate or LIBOR plus
one and eighty five hundredths percent (1.85%) which is secured by 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 revolving line of credit only, borrowings
thereunder must be fully repaid for at least thirty consecutive days during each
twelve-month period. Subsequent to the fiscal 1997 year-end, the Company
negotiated a one year extension of the expiration dates for the unsecured lines
to June 30, 1999. All related terms, conditions and covenants remained
materially unchanged.

Operating activities consummed $6.0 million in net cash during fiscal 1997 as
compared to the generation of $7.8 million and $6.2 million in net cash during
fiscal 1996 and 1995, respectively. The net use of cash for operating activities
during fiscal 1997 primarily reflects management's strategic marketing decision
to further emphasize customer order fill rates by increasing in-stock levels of
certain seasonal carryover merchandise. The increased levels of inventories and
accounts payable at February 28, 1998 similarly reflect management's commitment
to improving initial customer order fill rates by taking delivery of certain
summer and fall apparel at earlier dates than in prior years.

Financing activities for fiscal 1997 consisted of $10.3 million of net advances
under the Company's unsecured revolving line of credit and the final $1.1
million cash payment of the $26.9 million distribution declared in fiscal 1996
to the S-corporation shareholders prior to the Company terminating its S-
corporation status.  This contrasts to $12.8 million in net financing proceeds
during fiscal 1996 primarily from the receipt of $38.8 million in initial public
offering proceeds, net of $25.8 million in cash distributions to S-corporation
shareholders.  The net cash generated by financing activities in both fiscal
years primarily was used to fund inventory purchases and infrastructure
improvements considered necessary to support significantly increasing sales
while maintaining superior customer service.  The Company's capital expenditures
totaled $10.3 million, $11.9 million and $2.6 million in fiscal years 1997, 1996
and 1995, respectively, and primarily reflect upgrades in telecommunications and
management information systems and expanded distribution facilities and
administrative offices.  To a lesser extent, fiscal 1997 also reflects leasehold
improvements to the Company's retail store in Jackson Hole, Wyoming and secured
loans made to certain of the Company's key executives.  Management's
expectations with respect to capital improvements during fiscal 1998 are
outlined below.

The Company's fulfillment center in Sandpoint, Idaho currently is operating near
capacity.  Additionally, a majority of the Company's net sales are derived 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
currently is 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 575,000 square feet
and be situated on approximately 60 acres.  It is anticipated that the new
fulfillment center will commence operations in the Summer of 1999.

In exchange for the Company's willingness to explore the possibility of
establishing a long-term presence, the State of West Virginia agreed to provide
the Company with, at a nominal annual lease cost, a temporary 120,000 square
foot facility in the Parkersburg area from which the Company can conduct
fulfillment operations until a definitive agreement is reached and a long-term
facility is constructed and available.  Construction of the temporary facility
recently has been completed and the Company is proceeding with the installation
of the related material handling and information systems.  Fulfillment
operations are scheduled to begin, as planned, in the Summer of 1998.

If the Company were to ultimately purchase or lease the land and building
components of the new fulfillment center, it is currently estimated that the
associated annual financing or lease costs would approximate $2 million to $3
million over approximately 15 to 20 years.  The nature, cost and manner of
financing the required machinery and equipment components are continuing to be
evaluated by management.

The Company is proceeding with the establishment of a planned third customer
service call center in Parkersburg, West Virginia by the Fall of 1998. Although
the related plans and negotiations are not yet finalized, it currently is
expected that the Company would lease approximately 20,000 square feet of
existing office space in Parkersburg for two years at an estimated initial
annual lease cost of $300,000. The cost of the required telecommunications
equipment and furnishings are not expected to be material to the Company's 
financial position, results of operation and cash flows. If a definitive
agreement is reached with the State of West Virginia with respect to the new
fulfillment center, the Company will consider building a long-term facility for
its customer service call center on the same site as the fulfillment center. The
completion and availability of any long-term facility would be planned to
coincide with the expiration of the above office space lease.

During the fourth quarter of fiscal 1997, the Company purchased a 25 acre parcel
of real estate in Coeur d'Alene, Idaho as the site for potential construction of
a new customer service call center to replace existing leased facilities there
and to provide for additional growth capacity.  As the existing lease is in
effect through September 1999, management will use the available time to further
assess the availability and cost of labor in the Coeur d'Alene area.

Management's long-term brand building strategy includes the selective opening of
highly visible retail stores in high traffic areas, including "destination
locations" such as locations near major national parks or other resort areas.
Consistent with such strategy, the Company opened a retail store complex in
Jackson Hole, Wyoming in June of 1997.  Management will continue to consider the
opening of similarly situated retail stores in the future as prime locations
become available.  It is contemplated that each such retail store would be
leased with the initial cash investment per store being limited to leasehold
improvements and inventory in the approximate range of $2 million to $4 million.

As an integral part of management's planned strategy for efficiently liquidating
merchandise overstocks, the Company successfully opened an outlet store in
Seaside, Oregon in April of 1997. As a continuation of this strategy, the
Company subsequently opened additional outlet stores in Lee, Massachusetts;
Kittery, Maine; and Birch Run, Michigan. Management currently plans to open
approximately seven additional outlet stores throughout the United States during
fiscal 1998. It is contemplated that each such store would be leased with the
initial cash investment per store being limited to approximately $50,000 to
$100,000 in leasehold improvements.

The Company believes that cash flow from operations and borrowing capacity under
its existing and anticipated credit facilities will be sufficient to support
operations and future growth through fiscal 1998.  Thereafter, the Company may
be 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 the
Company's planned growth, which could adversely affect the Company's business,
financial position, results of operations and cash flows.

                                      26
<PAGE>
 
OTHER MATTERS
-------------

Year 2000 Compliance
--------------------

Coldwater Creek remains engaged in an enterprise-wide Year 2000 project.  The
project leader coordinates a team that includes representatives from every
department.  A comprehensive project plan that defines each objective and task
in detail currently is being finalized and prospectively will guide the team in
its efforts.

The Company does not sell any products that must be brought into Year 2000
compliance. However, the Company does rely upon many vendors and suppliers for
their products and services. The Company will evaluate key vendor preparedness,
as well as its own, by conducting interviews, obtaining compliance
representation letters, and when deemed necessary, conducting comprehensive
tests. Such vendors will include, in addition to significant merchandise
vendors, providers of hardware and software computing products,
telecommunication systems and components, facilities and related systems, and
office equipment. Although most of the Company's major systems are supplied by
third-party vendors who bear the financial burden of bringing such systems into
compliance, the Company's project team will maintain an active dialog with these
vendors to ensure the adequacy and timeliness of required modifications.

The Company expects to complete the project and related evaluations, including
development of contingency plans to manage areas of high identified risk, by
April 1999. The Company currently is in the process of finalizing its estimate
of the total project cost but expects such amount to be immaterial to the 
Company's financial position, results of operations and cash flows.

Recently Issued Accounting Standards Not Yet Adopted
----------------------------------------------------

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information".  SFAS No. 130 is designed to improve
the reporting of changes in equity from period to period.  SFAS No. 131 requires
that an enterprise disclose certain information about operating segments.  SFAS
Nos. 130 and 131 are effective for the Company's fiscal 1998 financial
statements.  Management does not expect these standards, individually or
collectively, to have a significant impact on the Company's financial statements
or related note disclosures.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  Not Applicable

                                      27
<PAGE>
 
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>                                        
                                                                                                                    PAGE
                                                                                                                    ----
<S>                                                                                                               <C>
Report of Independent Public Accountants...........................................................................   F-1
Consolidated Balance Sheets as of February 28, 1998 and March 1, 1997..............................................   F-2
Consolidated Statements of Operations for the fiscal years ended February 28, 1998, March 1, 1997 and
 March 2, 1996.....................................................................................................   F-3
Consolidated Statements of Stockholders' Equity for the fiscal years ended February 28, 1998, March 1, 1997 and
 March 2, 1996.....................................................................................................   F-4
Consolidated Statements of Cash Flows for the fiscal years ended February 28, 1998, March 1, 1997 and
 March 2, 1996.....................................................................................................   F-5
Notes to Consolidated Financial Statements.........................................................................   F-6
</TABLE>

                                      28
<PAGE>
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                        
To the Stockholders of Coldwater Creek Inc.:

  We have audited the accompanying consolidated balance sheets of Coldwater
Creek Inc. (a Delaware corporation) and subsidiary as of February 28, 1998 and
March 1, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal years ended  February 28,
1998, March 1, 1997 and March 2, 1996.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coldwater Creek Inc. and
subsidiary as of  February 28, 1998 and March 1, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1998, in conformity with generally accepted accounting principles.


                                                        /s/ ARTHUR ANDERSEN LLP

Boise, Idaho
March 20, 1998

                                      29
<PAGE>
 
                      COLDWATER CREEK INC. AND SUBSIDIARY
                          CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)
 
<TABLE>
<CAPTION> 
 
 
                                                                                FEBRUARY 28,                    MARCH 1,
                                                                                   1998                          1997
                                                                                -----------                     -------     
<S>                                                                             <C>                             <C> 
                                  ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                     $   331                       $ 9,095
    Receivables                                                                     4,019                         2,342
    Inventories                                                                    53,051                        25,279
    Prepaid expenses                                                                2,729                           456
    Prepaid catalog costs                                                           2,794                         1,375
                                                                                ---------                     ---------     
          TOTAL CURRENT ASSETS                                                     62,924                        38,547
 
Deferred catalog costs                                                              7,020                         3,347
Property and equipment, net                                                        26,661                        20,080
Executive loans                                                                     1,620                             -
                                                                                ---------                     ---------     
          TOTAL ASSETS                                                            $98,225                       $61,974
                                                                                =========                     ========= 
 
 
                     LIABILITIES AND STOCKHOLDERS' EQUITY
 
CURRENT LIABILITIES:
    Revolving line of credit                                                      $10,264                       $     -
    Accounts payable                                                               27,275                        18,061
    Accrued liabilities                                                            10,517                         5,969
    Income taxes payable                                                                -                           451
    Deferred income taxes                                                             919                            76
                                                                                ---------                     ---------     
          TOTAL CURRENT LIABILITIES                                                48,975                        24,557

Deferred income taxes                                                                 375                           230
                                                                                ---------                     ---------     
          TOTAL LIABILITIES                                                        49,350                        24,787
                                                                                ---------                     ---------     
Commitments and contingencies
 
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 issued and outstanding                                    101                           101
    Additional paid-in capital                                                     38,748                        38,748
    Retained earnings (accumulated deficit)                                        10,026                        (1,662)
                                                                                ---------                     ---------     
          TOTAL STOCKHOLDERS' EQUITY                                               48,875                        37,187
                                                                                ---------                     ---------     
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $98,225                       $61,974
                                                                                =========                     ========= 
</TABLE> 

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                      32
<PAGE>
 
<TABLE>
<CAPTION>

                                                COLDWATER CREEK INC. AND SUBSIDIARY
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                               (in thousands, except per share data)
 
 
 
                                                                             FISCAL YEAR ENDED
                                                       -----------------------------------------------------------
                                                           FEBRUARY 28,           MARCH 1,              MARCH 2,
                                                              1998                 1997                  1996
                                                       ----------------     ----------------      ----------------
 
<S>                                                     <C>                   <C>                  <C>  
Net sales                                                    $246,697             $143,059               $75,905
 
Cost of sales                                                 120,126               66,430                32,786
                                                        ----------------     ----------------      ----------------
 
          GROSS PROFIT                                        126,571               76,629                43,119
 
Selling, general and administrative expenses                  107,083               64,463                37,356
                                                        ----------------     ----------------      ----------------
 
          INCOME FROM OPERATIONS                               19,488               12,166                 5,763
 
Interest, net, and other                                           57                 (153)                 (149)
                                                        ----------------     ----------------      ----------------
 
          INCOME BEFORE PROVISION FOR INCOME TAXES             19,545               12,013                 5,614
 
Provision for income taxes                                      7,857                1,197                     -
                                                        ----------------     ----------------      ----------------
 
          NET INCOME                                         $ 11,688             $ 10,816               $ 5,614
                                                        ================     ================      ================
 
          NET INCOME PER SHARE - BASIC                       $   1.15             $   1.46               $  0.77
                                                        ================     ================      ================
 
          NET INCOME PER SHARE - DILUTED                     $   1.10             $   1.41               $  0.77
                                                        ================     ================      ================
 
 
PRO FORMA INCOME DATA (UNAUDITED):
----------------------------------
 
          Net income as reported above                            n/a             $ 10,816               $ 5,614
 
          Pro forma provision for income taxes                    n/a                4,929                 2,218
                                                                             ----------------      ----------------
 
          PRO FORMA NET INCOME                                    n/a             $  5,887               $ 3,396
                                                                             ================      ================
 
          PRO FORMA NET INCOME PER SHARE - BASIC                  n/a             $   0.68               $  0.41
                                                                             ================      ================
 
          PRO FORMA NET INCOME PER SHARE - DILUTED                n/a             $   0.66               $  0.41
                                                                             ================      ================
</TABLE>

  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                      31
<PAGE>
 
<TABLE>
<CAPTION>
                                                COLDWATER CREEK INS. AND SUBSIDIARY
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                          (in thousands)
 
 
                                                   COMMON STOCK                          
                                        -------------------------------------                               RETAINED 
                                                                                      ADDITIONAL            EARNINGS
                                                                                       PAID-IN             ACCUMULATED
                                            SHARES              PAR VALUE              CAPITAL              (DEFICIT)       TOTAL
                                        ---------------     -----------------     ------------------     ---------------   --------
 <S>                                     <C>                 <C>                   <C>                    <C>                  <C>
 BALANCE, MARCH 4, 1995                      7,245                $ 72                $     1              $ 10,995        $ 11,068
 Net income                                      -                   -                      -                 5,614           5,614
 Distributions to Stockholders                   -                   -                      -                (2,157)         (2,157)

                                        ----------           ----------------     ------------------      --------------   ---------

 
 BALANCE, MARCH 2, 1996                      7,245                $ 72                $     1              $ 14,452        $ 14,525
 Net income                                      -                   -                      -                10,816          10,816
 Initial public offering                     2,875                  29                 38,747                     -          38,776
 Distributions to Stockholders                   -                   -                      -               (26,930)        (26,930)

                                        ---------------     -----------------     ------------------      --------------    --------

 
 BALANCE, MARCH 1, 1997                     10,120                $101                $38,748              $ (1,662)       $ 37,187
 Net income                                      -                   -                      -                11,688          11,688
                                        ---------------     -----------------     ------------------     ---------------    --------

 
 BALANCE, FEBRUARY 28, 1998                 10,120                $101                $38,748              $ 10,026        $ 48,875
                                        ===============     =================     ==================     ===============   =========

</TABLE>

   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
                                                                                
                                      32
<PAGE>
 
<TABLE>
<CAPTION>
                                                COLDWATER CREEK INC. AND SUBSIDIARY
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                          (in thousands)
 
 
 
                                                                                            FISCAL YEAR ENDED
                                                                  ------------------------------------------------------------------

                                                                  FEBRUARY 28,                MARCH 1,                 MARCH 2,
                                                                      1998                      1997                     1996
                                                                  ------------              -----------               --------------

<S>                                                                <C>                       <C>                        <C>  
OPERATING ACTIVITIES:
Net income                                                         $ 11,688                   $ 10,816                  $ 5,614
                                                                   --------                   --------                  -------
Noncash items:
    Depreciation                                                      3,738                      2,176                      995
    Deferred income tax provision                                       988                        746                        -
Net change in current assets and liabilities:
    Receivables                                                      (1,677)                      (769)                  (1,299)
    Inventories                                                     (27,772)                   (17,027)                  (2,441)
    Prepaid expenses                                                 (2,273)                      (308)                      (5)
    Prepaid catalog costs                                            (1,419)                      (797)                    (189)
    Accounts payable                                                  9,924                     10,715                    2,685
    Accrued liabilities                                               4,968                      3,019                    2,112
    Income taxes payable                                               (451)                       451                        -
Increase in deferred catalog costs                                   (3,673)                    (1,265)                  (1,271)
                                                                   --------                   --------                  -------
 
         NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES       $ (5,959)                  $  7,757                  $ 6,201
                                                                   --------                   --------                  -------
 
INVESTING ACTIVITIES:
    Purchase of property and equipment                            $(10,319)                  $(11,883)                 $(2,590)
    Proceeds on sale of equipment                                        -                          -                    1,105
    Loans to executives                                             (1,620)                         -                        -
                                                                   --------                   --------                  -------
         NET CASH USED IN INVESTING ACTIVITIES                     $(11,939)                  $(11,883)                 $(1,485)
                                                                   --------                   --------                  -------
 
FINANCING ACTIVITIES:
    Payments on capital leases                                     $      -                   $   (173)                 $  (136)
    Net advances (repayments) under revolving line of credit         10,264                          -                   (3,700)
    Net proceeds from initial public offering of common shares            -                     38,776                        -
    Distributions to stockholders                                    (1,130)                   (25,800)                  (2,157)
                                                                   --------                   --------                  -------
 
        NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES        $  9,134                   $ 12,803                  $(5,993)
                                                                   --------                   --------                  -------
 
        NET (DECREASE) INCREASE IN CASH AND
          CASH EQUIVALENTS                                           (8,764)                     8,677                   (1,277)
        Cash and cash equivalents, beginning                          9,095                        418                    1,695
                                                                   --------                   --------                  -------
 
        CASH AND CASH EQUIVALENTS, ENDING                          $    331                   $  9,095                  $   418
                                                                   ========                   ========                  =======
 
 
SUPPLEMENTAL CASH FLOW DATA:
----------------------------
    Cash paid for interest                                         $     99                   $    243                  $   339
    Cash paid for income taxes                                        8,170                          -                        -
 
</TABLE> 
  
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS

                                      33
<PAGE>
 
                      COLDWATER CREEK INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                        

1. SIGNIFICANT ACCOUNTING POLICIES

Organizational Structure and Nature of Operations

  Coldwater Creek Inc. (the "Company"), a Delaware corporation headquartered
in Sandpoint, Idaho, is a specialty direct mail retailer of apparel, gifts,
jewelry and home furnishings, marketing its merchandise through regular catalog
mailings.  The principal markets for the Company's merchandise are individuals
within the United States.  Net sales realized from other geographic markets,
principally Canada and Japan, have been less than five percent of net sales in
each reported period.

  The Company also operates retail stores in Sandpoint, Idaho and Jackson Hole,
Wyoming where it sells catalog items and unique store merchandise.
Additionally, the Company operates four outlet stores through its wholly-owned
subsidiary, Coldwater Creek Outlet Stores Inc., which is consolidated in these
financial statements.  All material intercompany balances and transactions have
been eliminated.

Use of Estimates

  The preparation of 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 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 closest to
February 28.  The fiscal year is generally 52 weeks, as is the case with all
periods presented, and occasionally consists of 53 weeks.

Reclassifications

   Certain amounts in the financial statements for the prior fiscal year periods
have been reclassified to be consistent with the current fiscal year's
presentation.

Revenue Recognition

  The Company recognizes sales and the related cost of sales at the time
merchandise is shipped to customers. The Company provides an allowance for
returns based on historical experience. Shipping and handling fees charged to
customers and list rental income are netted against selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Collections for unshipped orders are reflected as a component of
accounts payable.

Cash and Cash Equivalents

  Cash equivalents consist of highly liquid debt instruments with a maturity
date of three months or less at the date of purchase.

Inventories

  Inventories consist primarily of merchandise purchased for resale and are
stated at the lower of first-in, first-out cost or market.

                                      34
<PAGE>
 
Catalog Costs

  Catalog costs include all direct costs associated with the production and
mailing of the Company's direct mail catalogs and are classified as prepaid
catalog costs until they are mailed.

  When the Company's catalogs are mailed, these costs are reclassified as
deferred catalog costs and amortized over the periods in which the related
revenues are expected to be realized.  Substantially all revenues are generated
within the first three months after a catalog is mailed.  Amortization of
deferred catalog costs was $66.6 million in fiscal 1997, $38.7 million in fiscal
1996 and $24.8 million in fiscal 1995.

Property and Equipment

  Property and equipment are recorded at cost.  Cost includes expenditures for
major additions and improvements as well as any incremental interest costs
incurred during the period in which activities necessary to get the asset ready
for its intended use are in progress (amounts not significant for any period
presented).  Maintenance and repairs which do not extend the useful life of
property or equipment are charged to operations as incurred.

  The net book value of property or equipment sold or retired is removed from
the asset and related depreciation accounts with the resulting net gain or loss
included in the determination of net income.

  The provision for depreciation is computed using the straight-line method. The
estimated useful lives are fifteen to thirty years for buildings and land
improvements and three to seven years for furniture and fixtures and machinery
and equipment, including immaterial assets under capital leases.

  Effective as of the beginning of fiscal 1996, Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting For the Impairment of
Long-lived Assets and For Long-lived Assets to be Disposed Of", was adopted with
no material impact on the financial statements. SFAS No. 121 establishes
recognition and measurement criteria for impairment losses when a company no
longer expects to recover the carrying value of a long-lived asset. Based on
management's evaluation, there were no material impairments of long-lived assets
during the reported periods.

Leases

  Any leased asset for which the Company assumes substantially all risks and
rewards of ownership is capitalized as property and equipment with a
corresponding liability recorded (amounts not significant for any period
presented).  All other leases are accounted for as operating leases with the
related rental payments charged to operations as incurred.

Income Taxes

  In accordance with Statement of Financial Accounting Standards No. 109 ("SFAS
No. 109"), "Accounting for Income Taxes," deferred income taxes are provided to
recognize the effect of temporary differences between tax and financial
statement reporting. Prior to its initial public offering of common stock on
January 29, 1997, the Company elected to be treated as an S-corporation for
federal and state income tax purposes. Accordingly, the consolidated statements
of operations for fiscal years 1996 and 1995 do not include a provision for
income taxes for results relating to the period in which the Company was an S-
corporation as the taxable income of the Company was included in the individual
tax returns of the stockholders. The unaudited pro forma provisions for income
taxes included in the consolidated statements of operations represent the
estimated federal and state income tax provisions that would have been incurred
had the Company been treated as a C-corporation for tax purposes.

  The consummation of the initial public offering terminated the Company's
S-corporation status. The Company retained the tax basis of the assets and
liabilities of the S-corporation as of the termination date and recorded
deferred income taxes of approximately $1.4 million for the tax effect of
cumulative temporary differences which existed at that date, in accordance with
SFAS No. 109.

                                      35
<PAGE>
 
Fair Value of Financial Instruments

  The Company's financial instruments consist mainly of cash and cash
equivalents, trade receivables and payables, executive loans and borrowings
under revolving lines of credit for which the carrying amounts materially
approximate fair value.

Earnings Per Share

    In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". The statement supercedes Accounting Principles Board
Opinion No. 15, "Earnings Per Share," and revises the computation and
presentation of earnings per share. Basic earnings per share, which replaces
primary earnings per share, excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted earnings per share, which replaces fully diluted earnings per
share, reflects the potential dilution that could occur under the treasury stock
method if securities or other contracts to issue common stock (e.g., stock
options) were exercised or converted into common stock. As required, all
previously reported amounts have been restated.

Recently Issued Accounting Standards Not Yet Adopted

  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information".  SFAS No. 130 is designed to improve
the reporting of changes in equity from period to period.  SFAS No. 131 requires
that an enterprise disclose certain information about operating segments.  SFAS
Nos. 130 and 131 are effective for the Company's fiscal 1998 financial
statements. Management does not expect these standards, individually or
collectively, to have a significant impact on the Company's consolidated
financial statements or related note disclosures.

2. LINES OF CREDIT

  In January 1997, the Company amended its lines of credit agreement with US
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, at the option of the Company, equal to the
bank's Prime rate or LIBOR plus one and eighty five hundredths percent (1.85%)
which is secured by 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. The agreement provides
that the Company must maintain specified levels of insurance, tangible net worth
and debt service coverage and places restrictions on indebtedness to tangible
net worth, mergers and other items. As a condition of the unsecured revolving
line of credit only, borrowings thereunder must be fully repaid for at least
thirty consecutive days during each twelve month period.

  At February 28, 1998, the Company had outstanding letters of credit totaling
$180,000.  In the Company's past experience, no material claims have been made
against these financial instruments.  Management does not expect any material
losses to result from these off-balance-sheet instruments because performance is
not expected to be required.

                                      36
<PAGE>
 
3. PROPERTY AND EQUIPMENT

  Property and equipment, net, consists of:

<TABLE>
<CAPTION>
                                                                      FEBRUARY 28,    MARCH 1,
                                                                          1998          1997
                                                                      ------------------------
                                                                           (in thousands)
<S>                                                                   <C>            <C>
  Land............................................                       $ 1,899       $   150
  Building and land improvements..................                        14,383        12,028
  Furniture and fixtures..........................                         2,434         1,751
  Machinery and equipment.........................                        16,018        10,486
                                                                      ------------------------
                                                                          34,734        24,415
  Less: accumulated depreciation..................                         8,073         4,335
                                                                      ------------------------
                                                                         $26,661       $20,080
                                                                      ------------------------
</TABLE>


  The Company leases primarily retail space under operating leases.  Certain of
the retail space leases provide for percentage rentals on sales above specified
minimums and contain renewal options.  Aggregate rent expense incurred under
operating leases was $1,042,000, $508,000 and $356,000 for the fiscal years
1997, 1996 and 1995, respectively.  Certain of these operating leases are
noncancellable and have aggregate minimum lease payment requirements as of
February 28, 1998 of $1,167,000 in fiscal 1998, $1,056,000 in fiscal 1999,
$726,000 in fiscal 2000, $660,000 in fiscal 2001, and $572,000 in fiscal 2002,
with total payments thereafter of $1,447,000.

4. ACCRUED LIABILITIES

  Accrued liabilities consist of:

<TABLE>
<CAPTION>
                                                                       FEBRUARY 28,    MARCH 1,
                                                                        1998          1997
                                                                       -----------------------
                                                                            (in thousands)
<S>                                                                    <C>            <C>
  Accrued payroll, related taxes and benefits.....                       $ 3,754        $2,022
  Accrued sales returns...........................                         6,035         3,309
  Other...........................................                           728           638
                                                                        ----------------------
                                                                         $10,517        $5,969
                                                                        ----------------------
</TABLE>

5. 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.  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.

                                      37
<PAGE>
 
6. EARNINGS PER SHARE

  The following is a reconciliation of the number of common shares used in the
computations of historical and pro forma net income per basic and diluted share
(in thousands):


<TABLE>
<CAPTION>
                                                                                 FISCAL YEARS ENDED           
                                                                      FEBRUARY 28,      MARCH 1,        MARCH 2,
                                                                         1998             1997            1996
                                                                                         (pro forma, unaudited)
                                                              -------------------------------------------------
<S>                                                              <C>             <C>             <C>
    Net income                                                         $11,688         $10,816           $5,614
                                                              -------------------------------------------------
    Average shares outstanding used to determine net income
        per basic common share                                          10,120           7,390            7,245
 
    Net effect of dilutive stock options based on the treasury
        stock method using average market price (1)                        513             266                -
                                                              -------------------------------------------------
 
    Average shares used to determine net income per diluted
        common share                                                    10,633           7,656            7,245
                                                              -------------------------------------------------
 



 
    Pro forma net income                                               $     -         $ 5,887           $3,396
                                                              -------------------------------------------------
 
    Average shares outstanding used to determine net income
        per basic common share                                               -           7,390            7,245
 
    Initial public offering common shares necessary to fund
        distribution of S-corporation retained earnings                      -           1,227              963
                                                              -------------------------------------------------
 
    Average shares used to determine pro forma net income
        per basic common share                                               -           8,617            8,208
 
    Net effect of dilutive stock options based on the treasury
        stock method using average market price (1)                          -             266                -
                                                              -------------------------------------------------
 
    Average shares used to determine pro forma net income
        per diluted common share                                             -           8,883            8,208
                                                              -------------------------------------------------
</TABLE>

(1)  Anti-dilutive stock options excluded from the above computations were
     226,992, 0 and 0 for fiscal years 1997, 1996 and 1995, respectively.

                                      38
<PAGE>
 
7. Income Taxes

  The Company's income tax provisions include the following:

<TABLE>
<CAPTION>
                                                                       FISCAL YEARS ENDED
                                                                    FEBRUARY 28,    MARCH 1,
                                                                        1998          1997
                                                                    -----------------------
                                                                        (IN THOUSANDS)
<S>                                                                 <C>           <C>
Current income tax provision:
  Federal................................................            $5,980        $  388
  State..................................................               889            63
Deferred income tax provision:
  Federal................................................               860           642
  State..................................................               128           104
                                                                    ----------------------
Total income tax provision...............................            $7,857        $1,197
                                                                    ----------------------
</TABLE>

Reconciliations of the statutory U.S. federal income tax rate and the Company's
effective income tax rates are as follows:
<TABLE>
<CAPTION>
                                                                       FISCAL YEARS ENDED
                                                                    FEBRUARY 28,      MARCH 1,
                                                                        1998            1997
                                                                 ------------------------------
<S>                                                                 <C>             <C>
Statutory rate...........................................             35.0%          34.0%
State income taxes, net of federal benefit...............              5.2           (0.2)
S-corporation income taxed to shareholders...............                -          (35.3)
S-corporation termination................................                -           11.3
Other....................................................                -            0.2
                                                                 ------------------------------
      Effective rate.....................................             40.2%          10.0%
                                                                 ------------------------------
</TABLE>

  Deferred income taxes reflect the tax effect of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and
amounts as measured for tax purposes.  The tax effect of temporary differences
and carryforwards that cause significant portions of the deferred tax assets and
liabilities as of February 28, 1998 and March 1, 1997 are as follows (in 
thousands):
<TABLE>
<CAPTION>
                                                          FEBRUARY 28, 1998                MARCH 1, 1997
                                                        CURRENT       NONCURRENT       CURRENT       NONCURRENT
                                                    ------------------------------------------------------------
<S>                                                  <C>             <C>            <C>             <C>
        Assets:
          Inventories.............................        $  (362)      $    -           $  (362)      $    -
          Accrued sales returns...................         (2,426)           -            (1,307)           -
          Other...................................           (238)           -              (120)           -
                                                    ------------------------------------------------------------
             Total deferred tax assets............        $(3,026)      $    -           $(1,789)      $    -
                                                    ------------------------------------------------------------
        Liabilities:
          Prepaid and deferred catalog costs......        $ 3,945       $    -           $ 1,865       $    -
          Tax basis depreciation..................              -          375                 -          230
          Other...................................              -            -                 -            -
                                                    ------------------------------------------------------------
             Total deferred tax liabilities.......        $ 3,945       $  375           $ 1,865       $  230
                                                    ------------------------------------------------------------
             Net deferred tax liabilities.........        $   919       $  375           $    76       $  230
                                                    ------------------------------------------------------------
</TABLE>
                                      39
<PAGE>
 
8. RETIREMENT PLAN

  Effective October 1, 1988, and as amended from time to time, the Company
adopted a tax-qualified employee savings, retirement and profit sharing plan
qualified under Section 401(k) of the Internal Revenue Code (the "401(k)
Plan") under which eligible employees may elect to defer their current
compensation by up to certain statutorily prescribed annual limits and to
contribute such amounts to the 401(k) Plan.  Contributions to the 401(k) Plan
and income earned on the contributions are not taxable to employees until
withdrawn from the 401(k) Plan.  All employees twenty-one years of age and older
with 1,000 hours of service who have been working with the Company for one year
are eligible to participate in the 401(k) Plan.  The Company matches a certain
percentage of the employees' contribution and provides a discretionary profit
sharing contribution based on overall profitability of the Company.  The Company
recognized contribution expense of $445,000, $251,000 and $83,000 for the fiscal
years 1997, 1996 and 1995, respectively.

9. 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.  Under the 1996 Plan, 1,111,847 shares of common stock were initially
authorized for issuance.  On February 13, 1998, the Company's Board of Directors
authorized an additional 350,000 shares of common stock for issuance subject to
the approval of a majority of shareholders at the Company's Annual Meeting
scheduled for July 11, 1998.  The Board may amend or modify the 1996 Plan at any
time, subject to certain limitations.  The 1996 Plan will terminate on March 3,
2006, unless sooner terminated by the Board.

  The 1996 Plan is divided into three separate components: (i) the Discretionary
Option Grant Program under which eligible individuals, which include officers
and other key employees, non-employee directors and consultants and other
independent advisors, may, at the discretion of the Plan Administrator, be
granted options to purchase shares of common stock at an exercise price not less
than 85% of their fair market value for non-statutory options and 100% of their
fair market value for incentive options on the grant date, (ii) the Stock
Issuance Program under which such individuals may, at the Plan Administrator's
discretion, be issued shares of common stock directly at a price not less than
100% of their fair market value at the time of issuance or as a bonus tied to
the performance of services and/or achievement of performance goals, and (iii)
the Automatic Option Grant Program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of common stock at an exercise price equal to 100% of their fair market
value on the grant date.

  Under the Discretionary Option Grant component of the 1996 Plan, certain key
management employees and several hundred other employees have been granted
options which remain outstanding at February 28, 1998 to purchase 503,067 shares
and 576,100 shares of common stock, respectively. Similarly, under the Automatic
Option Grant Program component of the 1996 Plan, non-employee Board members have
been granted options which remain outstanding at February 28, 1998 to purchase
58,520 shares of common stock. Options granted under the Discretionary Option
Grant Program to employees vest and become exercisable on a pro rata basis over
four years. The initial and subsequent annual allotments of options granted
under the Automatic Option Grant Program to non-employee directors are
immediately exercisable and vest on a pro rata basis over three years and one
year, respectively. The options expire ten years from date of issue under the
Discretionary Option Grant Program subject to earlier expiration for vested
options not exercised following termination of employment and have a maximum
term of ten years under the Automatic Option Grant Program subject to earlier
expiration for vested options not exercised two years following the optionee's
cessation of Board service.

  A summary of the status of the Company's stock options as of February 28, 1998
and March 1, 1997, and changes during the fiscal years then ended, are presented
below:




<TABLE>
<CAPTION>
                                                     FEBRUARY 28, 1998                             MARCH 1, 1997
                                          -----------------------------------------      ------------------------------------ 
                                                                           WEIGHTED                                  WEIGHTED
                                                                           AVERAGE                                   AVERAGE
                                                             EXERCISE      EXERCISE                    EXERCISE      EXERCISE
                                              OPTIONS         PRICE         PRICE        OPTIONS        PRICE         PRICE
                                          -----------------------------------------      ------------------------------------
<S>                                          <C>          <C>              <C>           <C>        <C>              <C>
        Outstanding at beginning of period      874,795   $ 6.58 - 20.25     $10.77            -    $          -     $      -
</TABLE> 

                                      40
<PAGE>
 
<TABLE> 
<S>                                          <C>          <C>              <C>           <C>        <C>              <C>
        Granted                                 346,792    12.38 - 41.50      28.55      890,195      6.58 - 20.25      10.77
        Exercised                                     -                -          -            -                 -          -
        Forfeited                               (83,900)   12.38 - 29.00      16.22      (15,400)            15.00      15.00
                                          -----------------------------------------------------------------------------------
        Outstanding at end of period          1,137,687   $ 6.58 - 41.50     $15.77      874,795     $6.58 - 20.25     $10.77
                                          -----------------------------------------------------------------------------------
        Exercisable                             218,699   $ 6.58 - 20.25     $10.75            -     $           -     $    -
                                          -----------------------------------------------------------------------------------
</TABLE>

  The Financial Accounting Standards Board issued Statement No. 123 ("SFAS No.
123"), "Accounting for Stock-Based Compensation", in 1995. As allowed by SFAS
No. 123, the Company elected to retain the compensation measurement principles
of Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees", and its related interpretations, for stock options.
Under APB No. 25, compensation expense is recognized based upon the difference
between the market value of the stock and the option exercise price at the
measurement date. The measurement date is the date at which both the number of
options and the exercise price for each option are known.

  Beginning in fiscal 1996, the year the stock option plan was adopted, the fair
value of each option grant was estimated on the date of grant using the Black-
Scholes option-pricing model and the following weighted average assumptions: 
(i) risk free interest rate of 6.2%; (ii) expected life of seven years; (iii) 
no expected volatility as options were granted prior to and concurrent with the 
initial public offering; and (iv) no expected dividends. For fiscal 1997, the 
following weighted average assumptions were applied: (i) risk free interest 
rate of 6.0%; (ii) expected life of seven years; (iii) expected volatility of 
54.7%; and (iv) no expected dividends.

  Had compensation cost for the 1996 Plan been determined consistent with SFAS
No. 123, the Company's net income amounts for the fiscal year ended March 1,
1997 would not have been reduced materially. For the fiscal year ended February
28, 1998, net income would have been reduced by $811,000 ($0.08 per basic and
diluted share).

  The above effects of applying SFAS No. 123 are not indicative of future
amounts. Additional awards in future years are anticipated.

                                      41
<PAGE>
 
   The following table provides summarized information about stock options
outstanding at February 28, 1998:


<TABLE>
<CAPTION>
                                                                OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                                      -------------------------------------   ----------------------
                                                                      WEIGHTED
                                                                      AVERAGE      WEIGHTED                 WEIGHTED
                                                                    CONTRACTUAL    AVERAGE                  AVERAGE
                                                        OPTIONS         LIFE       EXERCISE     OPTIONS     EXERCISE
RANGE OF EXERCISE PRICES                              OUTSTANDING     (YEARS)       PRICE     EXERCISABLE    PRICE
--------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>            <C>        <C>           <C>
$00.00 - $09.99                                           443,067           8.1      $ 6.58       110,767    $ 6.58
$10.00 - $19.99                                           432,328           8.9      $15.14       107,307    $15.01
$20.00 - $29.99                                            84,316           9.5      $26.45           625    $20.25
$30.00 - $39.99                                           133,076           9.8      $33.01             -         -
$40.00 - $49.99                                            44,900          10.0      $41.50             -         -
</TABLE>

10. REINCORPORATION, COMMON AND PREFERRED STOCK

  On March 4, 1996, the Board approved the reincorporation of the Company in
Delaware and the merger of Coldwater Creek Inc. (an Idaho corporation) with and
into Coldwater Creek Inc. (a Delaware corporation) effective April 17, 1996.
The Certificate of Incorporation filed with the State of Delaware authorized
1,000,000 shares of $.01 par value preferred stock and 15,000,000 shares of $.01
par value common stock. As a result of the merger, each share of the Idaho
corporation common stock, $1.00 par value, issued and outstanding was converted
into and exchanged for 140 shares (pre-split) of $.01 par value common stock of
the Delaware corporation.

  In January 1997, the Company's Board of Directors approved a 1.67 for 1 stock
split, in the form of a stock dividend, of the Company's outstanding common
stock.  All common share and per share amounts in the accompanying financial
statements have been adjusted retroactively to give effect to this stock split
and the stock conversion discussed above.

11. DISTRIBUTIONS TO STOCKHOLDERS

  Immediately prior to the consummation of the Company's initial public offering
of common stock on January  29, 1997, the then stockholders of the Company and
the Company entered into an Agreement for Distribution of Retained Earnings and
Tax Indemnification (the "Agreement").  Pursuant to the Agreement, the
undistributed accumulated S-corporation earnings as of the date the Company's S-
corporation status was terminated were distributed in the form of promissory
notes which were paid in full promptly after the closing of the offering.

  The Agreement continues to provide that (i) the existing stockholders will be
indemnified by the Company with respect to federal and state income tax
liabilities as a result of an adjustment to the Company's taxable income which
increases the tax liability of the existing stockholders for taxable periods
ending prior to the termination of the S-corporation status, and (ii) the
existing stockholders will indemnify the Company with respect to any federal and
state tax liabilities as a result of an adjustment which decreases the existing
stockholders' tax liability for taxable periods ending prior to the termination
of the Company's S-corporation status and correspondingly increases the tax
liability of the Company for a taxable period commencing on or after the
termination of the Company's S-corporation status.

                                      42
<PAGE>
 
12. 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 recovery, if any, or 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's direct mail business is based solely in the states of Idaho and
Wyoming, and accordingly, the Company only collect sales taxes from customers
residing in those states. Coldwater Creek Outlet Stores, Inc., a wholly-owned
subsidiary of the Company, is engaged in the business of liquidating inventory
overstocks, owns and operates retail outlet stores in Oregon, Massachusetts,
Maine, and Michigan, and pays sales tax and applicable corporate income,
franchise and other taxes in those states. Various states have attempted to
collect back sales and use tax from direct marketers. The U.S. Supreme Court has
held that the various states, absent congressional legislation, may not impose
tax collection obligations on an out-of-state mail order company 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 Company has not
received an assessment from any state. The Company anticipates that any
legislative changes, if adopted, would be applied only on a prospective basis.

13.  PRO FORMA STATEMENTS OF OPERATIONS DATA (UNAUDITED)

     The unaudited pro forma income 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 39.5% effective rate,
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 fiscal periods preceding its initial public
offering on January 29, 1997.  The historical and pro forma net income for
fiscal year 1996 includes a non-recurring, non-cash charge of $1.4 million to
recognize deferred income taxes related to the termination of the Company's S-
corporation status.  Pro forma net income per share - basic is based on the pro
forma weighted average number of common shares outstanding consisting of (i) the
actual weighted average shares outstanding and (ii) the additional shares from
which the net proceeds, based on the Company's initial public offering price of
$15 per share, would have been necessary to fund an assumed distribution of the
S-corporation retained earnings balance at January 29, 1997 and March 2, 1996,
as applicable.  Pro forma net income per share - diluted additionally includes
the dilutive effects of common shares issuable under outstanding stock options
based on the treasury stock method.  The funding shares deemed to have been
outstanding were 1,227,000 in fiscal 1996 and 963,000 in fiscal 1995.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        FISCAL 1997
                                                      -----------------------------------------------
                                                        FIRST        SECOND       THIRD      FOURTH
                                                       QUARTER      QUARTER      QUARTER     QUARTER
                                                      ----------   ----------   ---------   ---------
                                                           (in thousands, except per share data)
<S>                                                   <C>          <C>          <C>         <C>
      Net sales....................................      $51,002      $36,389     $77,242     $82,064
      Gross profit.................................       26,665       18,237      39,544      42,125
      Selling, general and administrative expenses.       23,374       17,495      32,397      33,817
      Income from operations.......................        3,291          742       7,147       8,308
      Net income...................................      $ 2,073      $   415     $ 4,340     $ 4,860
      Net income per share - Basic.................      $  0.20      $  0.04     $  0.43     $  0.48
      Net income per share - Diluted...............      $  0.20      $  0.04     $  0.41     $  0.45
</TABLE>

                                     43
<PAGE>
 
<TABLE>
<CAPTION>
                                                                        FISCAL 1996
                                                      ------------------------------------------------
                                                        FIRST        SECOND        THIRD      FOURTH
                                                       QUARTER       QUARTER      QUARTER     QUARTER
                                                      ----------   -----------   ---------   ---------
                                                           (in thousands, except per share data)
<S>                                                   <C>          <C>           <C>         <C>
      Net sales....................................      $23,604      $15,781      $45,325     $58,349
      Gross profit.................................       12,091        8,262       25,049      31,227
      Selling, general and administrative expenses.       10,540        8,488       20,211      25,224
      Income (loss) from operations................        1,551         (226)       4,838       6,003
      Net income (loss)............................      $ 1,528      $  (258)     $ 4,690     $ 4,853
      Net income (loss) per share - Basic..........      $  0.21      $ (0.04)     $  0.65     $  0.62
      Net income (loss) per share - Diluted........      $  0.20      $ (0.04)     $  0.63     $  0.60
                                                    
      Pro forma net income (loss)..................      $   924      $  (156)     $ 2,837     $ 2,280
      Pro forma net income (loss) per share - Basic      $  0.11      $ (0.02)     $  0.35     $  0.25
      Pro forma net income (loss) per share - Diluted    $  0.11      $ (0.02)     $  0.34     $  0.24
</TABLE>

Note: The aggregate of certain of the above amounts may differ from that
reported for the full fiscal year due to the effects of rounding.

                                      44
<PAGE>
 
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
          AND FINANCIAL DISCLOSURE

None

                                    PART III
                                    --------

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  For information with respect to the executive officers of the Registrants, See
Item 4 -- "Directors and Executive Officers" at the end of Part I of this
report.  The information required by this Item concerning the Directors and
nominees for Director of the Company is incorporated herein by reference to the
Company's Proxy Statement for its Annual Meeting of Stockholders, to be held on
July 11, 1998, to be filed with the Commission pursuant to Regulation 14A.

ITEM 11.  EXECUTIVE COMPENSATION

  The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for its Annual Meeting of Stockholders, to be held
on July 11, 1998, to be filed with the Commission pursuant to Regulation 14A.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for its Annual Meeting of Stockholders to be held
on July 11, 1998, to be filed with the Commission pursuant to Regulation 14A.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement for its Annual Meeting of Stockholders, to be held
on July 11, 1998, to be filed with the Commission pursuant to Regulation 14A.


                                      45
<PAGE>
 
 PART IV
--------

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A)  Documents filed as part of this report are as follows:
    1.  Financial Statements.
            See listing of Financial Statements included as part of this Form
            10-K in Item 8 of Part II.

    2.  Financial Statement Schedules:
            None Required

(B)  No reports on Form 8-K were filed during the last quarter of the period
            covered by this Annual Report.
 
(C)  Exhibits:

    1.  The following exhibits are incorporated by reference:
<TABLE>
<CAPTION>

   EXHIBIT
   NUMBER              DESCRIPTION OF DOCUMENT
   ------              -----------------------
<C>        <S> 
   3.1*     Amended and Restated 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 Company and   
            Dennis and Ann Pence
            Earnings and Tax Indemnification between the
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, Idaho
            Bank of Idaho, formerly West One
  10.2*     1996 Stock Option/Stock Issuance Plan
10.2.1*     Form of Stock Option Agreement under 1996 Stock
            Option/Stock Issuance Plan
  23        Consent of Arthur Andersen LLP
  24.1*     Power of Attorney (included on the signature page to S-1)
  27.1      Financial Data Schedule
  27.2      Financial Data Schedule
  27.3      Financial Data Schedule
  27.4      Financial Data Schedule

</TABLE>
          *  PREVIOUSLY FILED

                                      46

<PAGE>
 
SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sandpoint,
State of Idaho, on this 29th day of May, 1998.

                                           COLDWATER CREEK INC.

                                           By:  * Dennis Pence
                                               -------------------   
                                                 Dennis Pence
                                       President and Chief Executive Officer
                                    and Vice Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange 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 Chairman of            May 29, 1998
      Dennis Pence                            the Board of Directors, and Director

    * Ann Pence
-------------------------------------         Chairman of the Board of Directors, Creative                    May 29, 1998
      Ann Pence                               Director, and Director

    * Donald Robson
------------------------------------          Vice President of Finance and Administration,                   May 29, 1998
      Donald Robson                           Chief Financial Officer, Treasurer, Secretary, and
                                              Director (Principal Financial and Accounting Officer)

    * Robert H. McCall
------------------------------------          Director                                                        May 29, 1998
      Robert H. McCall

    * James R. Alexander
------------------------------------          Director                                                        May 29, 1998
      James R. Alexander

    * Curt Hecker
------------------------------------          Director                                                        May 29, 1998
      Curt Hecker


    * Michelle Collins
------------------------------------          Director                                                        May 29, 1998
      Michelle Collins

*By:     /s/  Donald Robson
     --------------------------------                                                                         May 29, 1998
              Donald Robson
            (Attorney-in-fact)
</TABLE> 


                                      47
<PAGE>

<TABLE>
<CAPTION>

   EXHIBIT
   NUMBER              DESCRIPTION OF DOCUMENT
   ------              -----------------------
<C>        <S> 
   3.1*     Amended and Restated 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 Company and   
            Dennis and Ann Pence
            Earnings and Tax Indemnification between the
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, Idaho
            Bank of Idaho, formerly West One
  10.2*     1996 Stock Option/Stock Issuance Plan
10.2.1*     Form of Stock Option Agreement under 1996 Stock
            Option/Stock Issuance Plan
  23        Consent of Arthur Andersen LLP
  24.1*     Power of Attorney (included on the signature page to S-1)
  27.1      Financial Data Schedule
  27.2      Financial Data Schedule
  27.3      Financial Data Schedule
  27.4      Financial Data Schedule

</TABLE>
          *  PREVIOUSLY FILED

                                      48