**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

----

 

**FORM 10-Q**

 

**(Mark One)**

| ý                                                | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|-------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|
| ** **                                            | ** ** | ** **                                                                                          |
| **For the quarterly period ended July 31, 2004** |
| ** **                                            | ** ** | ** **                                                                                          |
| **Or**                                                |
|                                                  |       |                                                                                                |
| o                                                     | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

 

| **Commission  File Number** | ** ** | **Registrant, State of Incorporation  Address and Telephone Number**                                                                   | ** ** | **I.R.S. Employer  Identification No.** |
|-----------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|
| ** **                  | ** ** | ** **                                                                                                                             | ** ** | ** **                              |
| **333-42427**               | ** ** | **J. CREW GROUP, INC.**

(Incorporated in New York)

**770 Broadway**

**New York, New York 10003**

**Telephone: (212) 209-2500**     | ** ** | **22-2894486**                          |
| ** **                  | ** ** | ** **                                                                                                                             | ** ** | ** **                              |
| **333-107211**              | ** ** | **J. CREW INTERMEDIATE LLC**

(Formed in Delaware)

**770 Broadway**

**New York, New York 10003**

**Telephone: (212) 209-2500**      | ** ** | **N/A**                                 |
| ** **                  | ** ** | ** **                                                                                                                             | ** ** | ** **                              |
| **333-42423**               | ** ** | **J. CREW OPERATING CORP.**

(Incorporated in Delaware)

**770 Broadway**

**New York, New York 10003**

**Telephone: (212) 209-2500** | ** ** | **22-3540930**                          |

 

Indicateby check mark whether each registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes ý    No o

 

Indicateby a check mark whether any of the registrants is an accelerated filer (asdefined in Rule 12b-2 of the Exchange Act). Yes o    No ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

APPLICABLEONLY TO CORPORATE ISSUERS:

 

Outstandingat August 31, 2004

 

----

 
| J. Crew Group, Inc.      |   | 12,197,978 shares of  common stock, par value $.01 per share                                                |
|--------------------------|--------|-------------------------------------------------------------------------------------------------------------|
| J. Crew Intermediate LLC |   | 100% of its membership  interests are owned by J. Crew Group, Inc.                                          |
| J. Crew Operating Corp.  |   | 100 shares of common  stock, par value $.01 per share (all of which are owned by J. Crew  Intermediate LLC) |

 

ThisQuarterly Report on Form 10-Q is a combined report being filed by threedifferent registrants: J. Crew Group, Inc., J. Crew Intermediate LLC (awholly-owned subsidiary of J. Crew Group, Inc.) and J. Crew Operating Corp. (awholly-owned subsidiary of J. Crew Intermediate LLC).  The information contained herein relating toeach individual registrant is filed by such registrant on its own behalf. Noregistrant makes any representation as to information relating to any otherregistrant.

 

J.Crew Intermediate LLC and J. Crew Operating Corp. meet the conditions set forthin General Instruction (I)(1)(a) and (b) of the Form 10-Q and aretherefore filing this Form 10-Q with the reduced disclosure format.

 

 

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**PART I –FINANCIAL INFORMATION**

 

**ITEM I. FINANCIAL STATEMENTS**

 

**J. CREWGROUP, INC.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Balance Sheets**

 
| ** **                                            | ** ** | **July 31,  2004** | ** ** | **January 31,  2004** | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | ** **              | ** ** | **(as restated)**          | ** ** |
| ** **                                            | ** ** | **(unaudited)**         | ** ** |
| ** **                                            |       | **(in thousands)**      |       |
| ** **                                            |       | ** **              |       |
| Assets                                                |       | ** **              |       |
|                                                  |       | ** **              |       |
| Current assets:                                       |       |                    |       |                       |       |
| Cash and cash equivalents                             |       | $                       | 35,014     |                       | $          | 49,650 |   |
| Merchandise inventories                               |       | 94,377                  |       | 66,028                     |       |
| Prepaid expenses and other current assets             |       | 15,958                  |       | 20,733                     |       |
| Refundable income taxes                               |       | 9,320                   |       | 9,320                      |       |
| Total current assets                                  |       | 154,669                 |       | 145,731                    |       |
|                                                  |       |                    |       |                       |       |
| Property and equipment - at cost                      |       | 288,467                 |       | 284,945                    |       |
| Less accumulated depreciation and  amortization       |       | (161,689                | )          | (146,565                   | )          |
| Property and equipment, net                           |       | 126,778                 |       | 138,380                    |       |
|                                                  |       |                    |       |                       |       |
| Other assets                                          |       | 11,898                  |       | 13,500                     |       |
| Total assets                                          |       | $                       | 293,345    |                       | $          | 297,611 |   |
|                                                  |       |                    |       |                       |       |
| Liabilities and Stockholders’ Deficit            |       |                    |       |                       |       |
|                                                  |       |                    |       |                       |       |
| Current liabilities:                                  |       |                    |       |                       |       |
| Current portion of long-term debt                     |       | $                       | 1,164      |                       | $          | 1,164 |   |
| Accounts payable and other current  liabilities       |       | 101,974                 |       | 97,175                     |       |
| Federal and state income taxes                        |       | 761                     |       | 1,175                      |       |
| Total current liabilities                             |       | 103,899                 |       | 99,514                     |       |
|                                                  |       |                    |       |                       |       |
| Deferred credits                                      |       | 54,422                  |       | 56,723                     |       |
|                                                  |       |                    |       |                       |       |
| Long-term debt (includes redeemable  preferred stock) |       | 554,546                 |       | 516,640                    |       |
|                                                  |       |                    |       |                       |       |
| Preferred stock                                       |       | 92,800                  |       | 92,800                     |       |
|                                                  |       |                    |       |                       |       |
| Stockholders’ deficit                            |       | (512,322                | )          | (468,066                   | )          |
|                                                  |       |                    |       |                       |       |
| Total liabilities and stockholders’ deficit      |       | $                       | 293,345    |                       | $          | 297,611 |   |

 

See notes to unaudited condensed consolidated financial statements.

 

2

----

 

**J. CREWGROUP, INC.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Operations**

 
| ** **                                                    | ** ** | **Thirteen weeks ended** | ** ** |
|---------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                    | ** ** | **July 31,  2004**  | ** ** | **August 2,  2003** | ** ** |
| ** **                                                    | ** ** | ** **               | ** ** | **(as restated)** | ** ** |
| ** **                                                    | ** ** | **(unaudited)**          | ** ** |
| ** **                                                    | ** ** | **(in thousands)**       | ** ** |
| ** **                                                    | ** ** | ** **               | ** ** |
| Revenues:                                                     |       |                     |       |   |   |
| Net sales                                                     |       | $                        | 182,106    |   | $ | 159,186 |   |
| Other                                                         |       | 6,222                    |       | 7,881 |   |
|                                                          |       | 188,328                  |       | 167,067 |   |
|                                                          |       |                     |       |   |   |
| Cost of goods sold, including buying and  occupancy costs     |       | 114,108                  |       | 115,722 |   |
|                                                          |       |                     |       |   |   |
| Gross profit                                                  |       | 74,220                   |       | 51,345 |   |
|                                                          |       |                     |       |   |   |
| Selling, general and administrative  expenses                 |       | 65,872                   |       | 65,989 |   |
|                                                          |       |                     |       |   |   |
| Income (loss) from operations                                 |       | 8,348                    |       | (14,644 | ) |
|                                                          |       |                     |       |   |   |
| Interest expense – net                                   |       | (22,110                  | )          | (13,028 | ) |
|                                                          |       |                     |       |   |   |
| Gain on exchange of debt (net of related  expenses of $2,992) |       | —                   |       | 41,085 |   |
|                                                          |       |                     |       |   |   |
| Insurance proceeds                                            |       | —                   |       | 1,600 |   |
|                                                          |       |                     |       |   |   |
| Income (loss) before income taxes                             |       | (13,762                  | )          | 15,013 |   |
|                                                          |       |                     |       |   |   |
| Income taxes                                                  |       | —                   |       | — |   |
|                                                          |       |                     |       |   |   |
| Net income (loss)                                             |       | $                        | (13,762    | ) | $ | 15,013 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

3

----

 
| ** **                                                    | ** ** | **Twenty-six weeks ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                    | ** ** | **July 31,  2004**    | ** ** | **August 2,  2003** | ** ** |
| ** **                                                    | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                    | ** ** | **(unaudited)**            | ** ** |
| ** **                                                    | ** ** | **(in thousands)**         | ** ** |
|                                                          |       |                       |       |   |   |
| Revenues:                                                     |       |                       |       |   |   |
| Net sales                                                     |       | $                          | 322,681    |   | $ | 311,778 |   |
| Other                                                         |       | 11,059                     |       | 16,784 |   |
|                                                          |       | 333,740                    |       | 328,562 |   |
|                                                          |       |                       |       |   |   |
| Cost of goods sold, including buying and  occupancy costs     |       | 198,788                    |       | 219,382 |   |
|                                                          |       |                       |       |   |   |
| Gross profit                                                  |       | 134,952                    |       | 109,180 |   |
|                                                          |       |                       |       |   |   |
| Selling, general and administrative  expenses                 |       | 129,429                    |       | 134,319 |   |
|                                                          |       |                       |       |   |   |
| Income (loss) from operations                                 |       | 5,523                      |       | (25,139 | ) |
|                                                          |       |                       |       |   |   |
| Interest expense – net                                   |       | (43,072                    | )          | (22,790 | ) |
|                                                          |       |                       |       |   |   |
| Gain on exchange of debt (net of related  expenses of $2,992) |       | —                     |       | 41,085 |   |
|                                                          |       |                       |       |   |   |
| Insurance proceeds                                            |       | —                     |       | 1,600 |   |
|                                                          |       |                       |       |   |   |
| Loss before income taxes                                      |       | (37,549                    | )          | (5,244 | ) |
|                                                          |       |                       |       |   |   |
| Income taxes                                                  |       | —                     |       | — |   |
|                                                          |       |                       |       |   |   |
| Net loss                                                      |       | $                          | (37,549    | ) | $ | (5,244 | ) |

 

See notes to unauditedcondensed consolidated financial statements.

 

4

----

 

**J. CREWGROUP, INC.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Cash Flows**

 
| ** **                                                                                                                                                                                                                          | ** ** | **Twenty-six weeks ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                          | ** ** | **July 31,**          | ** ** | **August 2,** | ** ** |
| ** **                                                                                                                                                                                                                          | ** ** | **2004**                   | ** ** | **2003** | ** ** |
| ** **                                                                                                                                                                                                                          | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                                                                                                                                                                                          | ** ** | **(unaudited)**            | ** ** |
| ** **                                                                                                                                                                                                                          | ** ** | **(in thousands)**         | ** ** |
| ** **                                                                                                                                                                                                                          | ** ** | ** **                 | ** ** |
| Cash flow from operating activities:                                                                                                                                                                                                |       |                       |       |   |   |
| Net loss                                                                                                                                                                                                                            |       | $                          | (37,549    | ) | $ | (5,244 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                                                                                                                                                        |       |                       |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                       |       | 17,546                     |       | 21,485 |   |
| Amortization of deferred compensation                                                                                                                                                                                               |       | 21                         |       | 21 |   |
| Non-cash interest expense (including  non-cash preferred stock dividends of $15,716 and none in 2004 and 2003,  respectively)                                                                                                       |       | 32,923                     |       | 12,655 |   |
| Gain on exchange of debt                                                                                                                                                                                                            |       | —                     |       | (41,085 | ) |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                       |       |                       |       |   |   |
| Merchandise inventories                                                                                                                                                                                                             |       | (28,349                    | )          | 22,508 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                           |       | 4,775                      |       | 7,425 |   |
| Other assets                                                                                                                                                                                                                        |       | 439                        |       | 11 |   |
| Accounts payable and other liabilities                                                                                                                                                                                              |       | 721                        |       | (23,049 | ) |
| Federal and state income taxes                                                                                                                                                                                                      |       | (414                       | )          | (262 | ) |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Net cash used in operating activities                                                                                                                                                                                               |       | (9,887                     | )          | (5,535 | ) |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Cash flow from investing activities:                                                                                                                                                                                                |       |                       |       |   |   |
| Capital expenditures                                                                                                                                                                                                                |       | (5,944                     | )          | (5,800 | ) |
| Proceeds from construction allowances                                                                                                                                                                                               |       | 1,777                      |       | 1,000 |   |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Net cash used in investing activities                                                                                                                                                                                               |       | (4,167                     | )          | (4,800 | ) |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Cash flow from financing activities:                                                                                                                                                                                                |       |                       |       |   |   |
| Additional long-term debt                                                                                                                                                                                                           |       | —                     |       | 25,820 |   |
| Costs incurred in connection with debt  financing                                                                                                                                                                                   |       | —                     |       | (2,592 | ) |
| Repayment of long-term debt                                                                                                                                                                                                         |       | (582                       | )          | (291 | ) |
| Net cash provided by/(used in) financing  activities                                                                                                                                                                                |       | (582                       | )          | 22,937 |   |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Increase/(decrease) in cash and cash  equivalents                                                                                                                                                                                   |       | (14,636                    | )          | 12,602 |   |
| Cash and cash equivalents - beginning of period                                                                                                                                                                                     |       | 49,650                     |       | 18,895 |   |
| Cash and cash equivalents - end of period                                                                                                                                                                                           |       | $                          | 35,014     |   | $ | 31,497 |   |
|                                                                                                                                                                                                                                |       |                       |       |   |   |
| Non-cash financing activities:                                                                                                                                                                                                      |       |                       |       |   |   |
| Dividends on preferred stock (reflected  directly in stockholders’ deficit)                                                                                                                                                    |       | $                          | 6,728      |   | $ | 19,532 |   |
| Interest payable on 13 1/8% Senior Discount  Debentures at February 1, 2003 that was added to the principal amount of  debt                                                                                                    |       | $                          | —     |   | $ | 4,416 |   |
| Exchange of 16% Senior Discount Contingent  Principal Notes of J.Crew Intermediate LLC with a fair value of $87,006 for  $131,083 carrying value of 13 1/8% Senior Discount Debentures of J.Crew Group  Inc., effective May 6, 2003 |       | $                          | —     |   | $ | — |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

5

----

 

**J. CREWINTERMEDIATE LLC**

**AND SUBSIDIARIES**

 

**CondensedConsolidated Balance Sheets**

 
| ** **                                       | ** ** | **July 31,  2004** | ** ** | **January 31,  2004** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | ** **              | ** ** | **(as restated)**          | ** ** |
| ** **                                       | ** ** | **(unaudited)**         | ** ** |
| ** **                                       | ** ** | **(in thousands)**      | ** ** |
| ** **                                       | ** ** | ** **              | ** ** |
| Assets                                           |       |                    |       |                       |       |
| Current assets:                                  |       |                    |       |                       |       |
| Cash and cash equivalents                        |       | $                       | 35,014     |                       | $          | 49,650 |   |
| Merchandise inventories                          |       | 94,377                  |       | 66,028                     |       |
| Prepaid expenses and other current assets        |       | 15,958                  |       | 20,733                     |       |
| Refundable income taxes                          |       | 9,320                   |       | 9,320                      |       |
| Total current assets                             |       | 154,669                 |       | 145,731                    |       |
|                                             |       |                    |       |                       |       |
| Property and equipment - at cost                 |       | 288,467                 |       | 284,945                    |       |
| Less accumulated depreciation and  amortization  |       | (161,689                | )          | (146,565                   | )          |
| Property and equipment, net                      |       | 126,778                 |       | 138,380                    |       |
|                                             |       |                    |       |                       |       |
| Investment in debentures of J. Crew Group,  Inc. |       | 131,083                 |       | 131,083                    |       |
|                                             |       |                    |       |                       |       |
| Intercompany interest receivable                 |       | 21,267                  |       | 12,665                     |       |
| Other assets                                     |       | 11,749                  |       | 13,333                     |       |
| Total assets                                     |       | $                       | 445,546    |                       | $          | 441,192 |   |
|                                             |       |                    |       |                       |       |
| Liabilities and Membership Interests             |       |                    |       |                       |       |
| Current liabilities:                             |       |                    |       |                       |       |
| Current portion of long-term debt                |       | $                       | 1,164      |                       | $          | 1,164 |   |
| Accounts payable and other current  liabilities  |       | 101,136                 |       | 96,335                     |       |
| Federal and state income taxes                   |       | 761                     |       | 1,175                      |       |
| Total current liabilities                        |       | 103,061                 |       | 98,674                     |       |
|                                             |       |                    |       |                       |       |
| Long-term debt                                   |       | 298,731                 |       | 283,269                    |       |
|                                             |       |                    |       |                       |       |
| Deferred credits                                 |       | 54,422                  |       | 56,723                     |       |
|                                             |       |                    |       |                       |       |
| Due to J. Crew Group, Inc.                       |       | 7,086                   |       | 8,506                      |       |
|                                             |       |                    |       |                       |       |
| Membership interests                             |       | (17,754                 | )          | (5,980                     | )          |
| Total liabilities and membership interests       |       | $                       | 445,546    |                       | $          | 441,192 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

6

----

 

**J. CREWINTERMEDIATE LLC**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Operations**

 
| ** **                                                | ** ** | **Thirteen weeks ended** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                | ** ** | **July 31,  2004**  | ** ** | **August 2,  2003** | ** ** |
| ** **                                                | ** ** | ** **               | ** ** | **(as restated)** | ** ** |
| ** **                                                | ** ** | **(unaudited)**          | ** ** |
| ** **                                                | ** ** | **(in thousands)**       | ** ** |
|                                                      |       |                     |       |   |   |
| Revenues:                                                 |       |                     |       |   |   |
| Net sales                                                 |       | $                        | 182,106    |   | $ | 159,186 |   |
| Other                                                     |       | 6,222                    |       | 7,881 |   |
|                                                      |       | 188,328                  |       | 167,067 |   |
|                                                      |       |                     |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 114,108                  |       | 115,722 |   |
|                                                      |       |                     |       |   |   |
| Gross profit                                              |       | 74,220                   |       | 51,345 |   |
|                                                      |       |                     |       |   |   |
| Selling, general and administrative  expenses             |       | 65,872                   |       | 65,978 |   |
|                                                      |       |                     |       |   |   |
| Income (loss) from operations                             |       | 8,348                    |       | (14,633 | ) |
|                                                      |       |                     |       |   |   |
| Interest expense – net                               |       | (13,352                  | )          | (11,280 | ) |
|                                                      |       |                     |       |   |   |
| Intercompany interest income                              |       | 4,301                    |       | 4,160 |   |
|                                                      |       |                     |       |   |   |
| Gain on exchange of debt                                  |       | —                   |       | 44,077 |   |
|                                                      |       |                     |       |   |   |
| Insurance proceeds                                        |       | —                   |       | 1,600 |   |
|                                                      |       |                     |       |   |   |
| Income (loss) before income taxes                         |       | (703                     | )          | 23,924 |   |
|                                                      |       |                     |       |   |   |
| Income taxes                                              |       | —                   |       | — |   |
|                                                      |       |                     |       |   |   |
| Net income (loss)                                         |       | $                        | (703       | ) | $ | 23,924 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

7

----

 
| ** **                                                | ** ** | **Twenty-six weeks ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                | ** ** | **July 31,  2004**    | ** ** | **August 2,  2003** | ** ** |
| ** **                                                | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                | ** ** | **(unaudited)**            | ** ** |
| ** **                                                | ** ** | **(in thousands)**         | ** ** |
|                                                      |       |                       |       |   |   |
| Revenues:                                                 |       |                       |       |   |   |
| Net sales                                                 |       | $                          | 322,681    |   | $ | 311,778 |   |
| Other                                                     |       | 11,059                     |       | 16,784 |   |
|                                                      |       | 333,740                    |       | 328,562 |   |
|                                                      |       |                       |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 198,788                    |       | 219,382 |   |
|                                                      |       |                       |       |   |   |
| Gross profit                                              |       | 134,952                    |       | 109,180 |   |
|                                                      |       |                       |       |   |   |
| Selling, general and administrative  expenses             |       | 129,408                    |       | 134,298 |   |
|                                                      |       |                       |       |   |   |
| Income (loss) from operations                             |       | 5,544                      |       | (25,118 | ) |
|                                                      |       |                       |       |   |   |
| Interest expense – net                               |       | (25,920                    | )          | (16,340 | ) |
|                                                      |       |                       |       |   |   |
| Intercompany interest income                              |       | 8,602                      |       | 4,160 |   |
|                                                      |       |                       |       |   |   |
| Gain on exchange of debt                                  |       | —                     |       | 44,077 |   |
|                                                      |       |                       |       |   |   |
| Insurance proceeds                                        |       | —                     |       | 1,600 |   |
|                                                      |       |                       |       |   |   |
| Income (loss) before income taxes                         |       | (11,774                    | )          | 8,379 |   |
|                                                      |       |                       |       |   |   |
| Income taxes                                              |       | —                     |       | — |   |
|                                                      |       |                       |       |   |   |
| Net income (loss)                                         |       | $                          | (11,774    | ) | $ | 8,379 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

8

----

 

**J. CREWINTERMEDIATE LLC**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Cash Flows**

 
| ** **                                                                                                                                                                                                                           | ** ** | **Twenty-six weeks ended** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                           | ** ** | **July 31,  2004**    | ** ** | **August 2,  2003** | ** ** |
| ** **                                                                                                                                                                                                                           | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                                                                                                                                                                                           | ** ** | **(unaudited)**            | ** ** |
| ** **                                                                                                                                                                                                                           | ** ** | **(in thousands)**         | ** ** |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Cash flow from operating activities:                                                                                                                                                                                                 |       |                       |       |   |   |
| Net income (loss)                                                                                                                                                                                                                    |       | $                          | (11,774    | ) | $ | 8,379 |   |
| Adjustments to reconcile net loss to net  cash used in operating activities:                                                                                                                                                         |       |                       |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                        |       | 17,546                     |       | 21,485 |   |
| Non-cash interest expense                                                                                                                                                                                                            |       | 17,189                     |       | 7,575 |   |
| Gain on exchange of debt                                                                                                                                                                                                             |       | —                     |       | (44,077 | ) |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                        |       |                       |       |   |   |
| Merchandise inventories                                                                                                                                                                                                              |       | (28,349                    | )          | 22,508 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                            |       | 4,775                      |       | 7,425 |   |
| Other assets                                                                                                                                                                                                                         |       | 439                        |       | 11 |   |
| Accounts payable and other liabilities                                                                                                                                                                                               |       | 723                        |       | (23,049 | ) |
| Federal and state income taxes                                                                                                                                                                                                       |       | (414                       | )          | (262 | ) |
| Net cash provided by/(used in) operating  activities                                                                                                                                                                                 |       | 135                        |       | (5 | ) |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Cash flow from investing activities:                                                                                                                                                                                                 |       |                       |       |   |   |
| Capital expenditures                                                                                                                                                                                                                 |       | (5,944                     | )          | (5,800 | ) |
| Proceeds from construction allowances                                                                                                                                                                                                |       | 1,777                      |       | 1,000 |   |
| Net cash used in investing activities                                                                                                                                                                                                |       | (4,167                     | )          | (4,800 | ) |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Cash flow from financing activities:                                                                                                                                                                                                 |       |                       |       |   |   |
| Additional long-term debt                                                                                                                                                                                                            |       | —                     |       | 25,820 |   |
| Costs incurred in connection with debt  financing                                                                                                                                                                                    |       | —                     |       | (2,500 | ) |
| Repayment of long-term debt                                                                                                                                                                                                          |       | (582                       | )          | (291 | ) |
| Transfer to affiliates                                                                                                                                                                                                               |       | (10,022                    | )          | (5,622 | ) |
| Net cash provided by/(used in) financing  activities                                                                                                                                                                                 |       | (10,604                    | )          | 17,407 |   |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Increase/(decrease) in cash and cash  equivalents                                                                                                                                                                                    |       | (14,636                    | )          | 12,602 |   |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Cash and cash equivalents - beginning of  period                                                                                                                                                                                     |       | 49,650                     |       | 18,895 |   |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Cash and cash equivalents - end of period                                                                                                                                                                                            |       | $                          | 35,014     |   | $ | 31,497 |   |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Non-cash financing activities:                                                                                                                                                                                                       |       |                       |       |   |   |
|                                                                                                                                                                                                                                 |       |                       |       |   |   |
| Exchange of 16% Senior Discount Contingent  Principal Notes of J.Crew  Intermediate LLC with a fair value of $87,006 for $131,083 carrying value of  13 1/8% Senior Discount Debentures of J.Crew Group Inc., effective May 6,  2003 |       | $                          | —     |   | $ | — |   |

 

See notes to unauditedcondensed financial statements.

 

9

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**J. CREWOPERATING CORP.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Balance Sheets**

 
| ** **                                       | ** ** | **July 31,  2004** | ** ** | **January 31,  2004** | ** ** |
|--------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | ** **              | ** ** | **(as restated)**          | ** ** |
| ** **                                       | ** ** | **(unaudited)**         | ** ** |
| ** **                                       | ** ** | **(in thousands)**      | ** ** |
| ** **                                       | ** ** | ** **              | ** ** |
| Assets                                           |       |                    |       |                       |       |
|                                             |       |                    |       |                       |       |
| Current assets:                                  |       |                    |       |                       |       |
| Cash and cash equivalents                        |       | $                       | 35,014     |                       | $          | 49,650 |   |
| Merchandise inventories                          |       | 94,377                  |       | 66,028                     |       |
| Prepaid expenses and other current assets        |       | 15,958                  |       | 20,733                     |       |
| Refundable income taxes                          |       | 9,320                   |       | 9,320                      |       |
| Total current assets                             |       | 154,669                 |       | 145,731                    |       |
|                                             |       |                    |       |                       |       |
| Property and equipment - at cost                 |       | 288,467                 |       | 284,945                    |       |
| Less accumulated depreciation and  amortization  |       | 161,689                 |       | (146,565                   | )          |
| Property and equipment, net                      |       | 126,778                 |       | 138,380                    |       |
|                                             |       |                    |       |                       |       |
| Other assets                                     |       | 9,786                   |       | 11,091                     |       |
| Total assets                                     |       | $                       | 291,233    |                       | $          | 295,202 |   |
|                                             |       |                    |       |                       |       |
| Liabilities and Stockholder’s Deficit       |       |                    |       |                       |       |
|                                             |       |                    |       |                       |       |
| Current liabilities:                             |       |                    |       |                       |       |
| Current portion of long-term debt                |       | $                       | 1,164      |                       | $          | 1,164 |   |
| Accounts payable and other current  liabilities  |       | 101,128                 |       | 96,328                     |       |
| Federal and state income taxes                   |       | 761                     |       | 1,175                      |       |
| Total current liabilities                        |       | 103,053                 |       | 98,667                     |       |
|                                             |       |                    |       |                       |       |
| Long-term debt                                   |       | 174,798                 |       | 174,880                    |       |
|                                             |       |                    |       |                       |       |
| Deferred credits                                 |       | 54,422                  |       | 56,723                     |       |
|                                             |       |                    |       |                       |       |
| Due to J. Crew Group, Inc.                       |       | 4,473                   |       | 5,897                      |       |
|                                             |       |                    |       |                       |       |
| Stockholder’s deficit                       |       | (45,513                 | )          | (40,965                    | )          |
|                                             |       |                    |       |                       |       |
| Total liabilities and stockholder’s deficit |       | $                       | 291,233    |                       | $          | 295,202 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

10

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**J. CREWOPERATING CORP.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Operations**

 
| ** **                                                | ** ** | **Thirteen weeks ended** | ** ** |
|-----------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                | ** ** | **July 31,  2004**  | ** ** | **August 2,  2003** | ** ** |
| ** **                                                | ** ** | ** **               | ** ** | **(as restated)** | ** ** |
| ** **                                                | ** ** | **(unaudited)**          | ** ** |
| ** **                                                | ** ** | **(in thousands)**       | ** ** |
| ** **                                                | ** ** | ** **               | ** ** |
| Revenues                                                  |       |                     |       |   |   |
| Net sales                                                 |       | $                        | 182,106    |   | $ | 159,186 |   |
| Other                                                     |       | 6,222                    |       | 7,881 |   |
|                                                      |       | 188,328                  |       | 167,067 |   |
|                                                      |       |                     |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 114,108                  |       | 115,722 |   |
|                                                      |       |                     |       |   |   |
| Gross profit                                              |       | 74,220                   |       | 51,345 |   |
|                                                      |       |                     |       |   |   |
| Selling, general and administrative  expenses             |       | 65,872                   |       | 65,978 |   |
|                                                      |       |                     |       |   |   |
| Income (loss) from operations                             |       | 8,348                    |       | (14,633 | ) |
|                                                      |       |                     |       |   |   |
| Interest expense – net                               |       | (5,179                   | )          | (4,970 | ) |
|                                                      |       |                     |       |   |   |
| Insurance proceeds                                        |       | —                   |       | 1,600 |   |
|                                                      |       |                     |       |   |   |
| Income (loss) before income taxes                         |       | 3,169                    |       | (18,003 | ) |
|                                                      |       |                     |       |   |   |
| Income taxes                                              |       | —                   |       | — |   |
|                                                      |       |                     |       |   |   |
| Net income (loss)                                         |       | $                        | 3,169      |   | $ | (18,003 | ) |

 

See notes to unauditedcondensed consolidated financial statements.

 

11

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| ** **                                                | ** ** | **Twenty-six weeks ended** | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                | ** ** | **July 31,  2004**    | ** ** | **August 2,  2003** | ** ** |
| ** **                                                | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                | ** ** | **(unaudited)**            | ** ** |
| ** **                                                | ** ** | **(in thousands)**         | ** ** |
|                                                      |       |                       |       |   |   |
| Revenues                                                  |       |                       |       |   |   |
| Net sales                                                 |       | $                          | 322,681    |   | $ | 311,778 |   |
| Other                                                     |       | 11,059                     |       | 16,784 |   |
|                                                      |       | 333,740                    |       | 328,562 |   |
|                                                      |       |                       |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 198,788                    |       | 219,382 |   |
|                                                      |       |                       |       |   |   |
| Gross profit                                              |       | 134,952                    |       | 109,180 |   |
|                                                      |       |                       |       |   |   |
| Selling, general and administrative  expenses             |       | 129,408                    |       | 134,298 |   |
|                                                      |       |                       |       |   |   |
| Income (loss) from operations                             |       | 5,544                      |       | (25,118 | ) |
|                                                      |       |                       |       |   |   |
| Interest expense – net                               |       | (10,092                    | )          | (10,030 | ) |
|                                                      |       |                       |       |   |   |
| Insurance proceeds                                        |       | —                     |       | 1,600 |   |
|                                                      |       |                       |       |   |   |
| Loss before income taxes                                  |       | (4,548                     | )          | (33,548 | ) |
|                                                      |       |                       |       |   |   |
| Income taxes                                              |       | —                     |       | — |   |
|                                                      |       |                       |       |   |   |
| Net loss                                                  |       | $                          | (4,548     | ) | $ | (33,548 | ) |

 

See notes to unauditedcondensed consolidated financial statements.

 

12

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**J. CREWOPERATING CORP.**

**ANDSUBSIDIARIES**

 

**CondensedConsolidated Statements of Cash Flows**

 
| ** **                                                                   | ** ** | **Twenty-six weeks ended** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                                   | ** ** | **July 31,  2004**    | ** ** | **August 2,  2003** | ** ** |
| ** **                                                                   | ** ** | ** **                 | ** ** | **(as restated)** | ** ** |
| ** **                                                                   | ** ** | **(unaudited)**            | ** ** |
| ** **                                                                   | ** ** | **(in thousands)**         | ** ** |
|                                                                         |       |                       |       |   |   |
| Cash flow from operating activities:                                         |       |                       |       |   |   |
|                                                                         |       |                       |       |   |   |
| Net loss                                                                     |       | $                          | (4,548     | ) | $ | (33,548 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                       |       |   |   |
| Depreciation and amortization                                                |       | 17,546                     |       | 21,485 |   |
| Non-cash interest expense                                                    |       | 1,361                      |       | 1,265 |   |
|                                                                         |       |                       |       |   |   |
| Changes in operating assets and  liabilities:                                |       |                       |       |   |   |
| Merchandise inventories                                                      |       | (28,349                    | )          | 22,508 |   |
| Prepaid expenses and other current assets                                    |       | 4,775                      |       | 7,425 |   |
| Other assets                                                                 |       | 439                        |       | 11 |   |
| Accounts payable and other liabilities                                       |       | 727                        |       | (23,784 | ) |
| Federal and state income taxes                                               |       | (414                       | )          | (262 | ) |
| Net cash used in operating activities                                        |       | (8,463                     | )          | (4,900 | ) |
|                                                                         |       |                       |       |   |   |
| Cash flow from investing activities:                                         |       |                       |       |   |   |
| Capital expenditures                                                         |       | (5,944                     | )          | (5,800 | ) |
| Proceeds from construction allowances                                        |       | 1,777                      |       | 1,000 |   |
| Net cash used in investing activities                                        |       | (4,167                     | )          | (4,800 | ) |
|                                                                         |       |                       |       |   |   |
| Cash flow from financing activities:                                         |       |                       |       |   |   |
| Additional long-term debt                                                    |       | —                     |       | 25,820 |   |
| Costs incurred in connection with debt  financing                            |       | —                     |       | (92 | ) |
| Repayment of long-term debt                                                  |       | (582                       | )          | (291 | ) |
| Transfers to affiliates                                                      |       | (1,424                     | )          | (3,135 | ) |
| Net cash provided by/(used in) financing  activities                         |       | (2,006                     | )          | 22,302 |   |
|                                                                         |       |                       |       |   |   |
| Increase/(decrease) in cash and cash  equivalents                            |       | (14,636                    | )          | 12,602 |   |
| Cash and cash equivalents - beginning of  period                             |       | 49,650                     |       | 18,895 |   |
| Cash and cash equivalents - end of period                                    |       | $                          | 35,014     |   | $ | 31,497 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

13

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**J. CREW GROUP, INC. AND SUBSIDIARIES**

 

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**Thirteen and twenty-six weeks endedJuly 31, 2004 and August 2, 2003**

 

**1.****                   Basis ofPresentation**

 

The consolidated financial statements presented herein are as follows:

 

a.                    J. Crew Operating Corp. and itswholly-owned subsidiaries (collectively, “Operating Corp.”), which consist ofthe accounts of J. Crew Operating Corp. and its wholly-owned subsidiaries.

 

b.                   J. Crew Intermediate LLC and itswholly-owned subsidiaries (collectively, “Intermediate”), which consist of theaccounts of J. Crew Intermediate LLC and Operating Corp.

 

c.                    J. Crew Group, Inc. and itswholly-owned subsidiaries (collectively, “Group”), which consist of theaccounts of J. Crew Group, Inc. and Intermediate.

 

All significant intercompany balances andtransactions are eliminated in consolidation.

 

Intermediate was formed in Delaware as a limited liability company onMarch 27, 2003.  100% of themembership interests of Intermediate are owned by Group.  Effective May 2003, Group transferred itsinvestment in J. Crew Operating Corp. and subsidiaries to Intermediate.  This combination of entities under commoncontrol was accounted for in a manner similar to a pooling of interests.  On May 6, 2003, Intermediate issued$193,346,138 aggregate principal amount at maturity of 16% senior discountcontingent principal notes due 2008 in exchange for $131,083,000 in aggregateprincipal amount (including accrued interest of $10,750,000) of outstanding 131/8% senior discount debentures of Group. The 13 1/8% Senior Discount Debentures of Group that were exchanged arebeing held as an intercompany asset by Intermediate, and interest incomereceived by Intermediate from Group during the twenty-six weeks endedJuly 31, 2004 and August 2, 2003 was $8.6 million and $4.2 million.

 

The statements of operationsand cash flows of Intermediate for the period prior to May 2003 consist of theoperations and cash flows of Operating Corp. (the predecessor business).

 

The condensedconsolidated balance sheets as of July 31, 2004 and the condensedconsolidated statements of operations and cash flows for the thirteen andtwenty-six week periods ended July 31, 2004 and August 2, 2003 havebeen prepared by the Company and have not been audited.  In the opinion of management, alladjustments, consisting of only normal recurring adjustments necessary for thefair presentation of the financial position, results of operations and cashflows, have been made.

 

Certain information andfootnote disclosure normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted. These financial statements should be read in conjunction with thefinancial statements and notes thereto included in the consolidated financialstatements for the fiscal year ended January 31, 2004.

 

The results of operationsfor the twenty-six-week period ended July 31, 2004 are not necessarilyindicative of the operating results for the full fiscal year.

 

**2**.**                 Recent AccountingPronouncements**

 

In May 2003, the FASBissued SFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity”.  This statement establishes standards for howan issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  Many of those instruments were previouslyclassified as equity.  The provisions ofthis statement were effective at the beginning of the first interim periodbeginning after June 15, 2003.  Theadoption of SFAS No. 150 at the beginning of the third quarter of 2003 resultedin a reclassification of the liquidation value and accumulated and unpaiddividends of the Series B preferred stock and the accumulated and unpaiddividends related to the Series A preferred stock to liabilities, which total$234.1 million as of July 31, 2004. In connection with this reclassification, the dividends related to theSeries B preferred stock and the accreted dividends of the Series A preferredstock are included in interest expense.

 

In December 2003,the FASB revised and reissued FASB Interpretation No. 46, “Consolidation ofVariable Interest Entities”.  FIN No. 46requires unconsolidated variable interest entities to be consolidated by theirprimary beneficiaries if the

 

14

----

 

entities do noteffectively dispense the risks and rewards of ownership among their owners andother parties involved.  The provisionsof FIN No. 46 must be applied no later than as of the end of the firstreporting period ending after March 5, 2004.  The adoption of FASB Interpretation No. 46did not have any effect on our financial statements.

 

**3.****                 Long-term debt**

 

Long-term debt consistsof the following:

 
| ** **                                                                                            | ** ** | **July 31,  2004** | ** ** | **January 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                                                                            | ** ** | **(in thousands)**      | ** ** |
| Operating Corp.:                                                                                      |       |                    |       |                  |       |
| Congress Credit Facility                                                                              |       | $                       | 4,462      |                  | $          | 5,044 |   |
| 5% notes payable                                                                                      |       | 21,500                  |       | 21,000                |       |
| 10 3/8% senior subordinated notes                                                                     |       | 150,000                 |       | 150,000               |       |
|                                                                                                  |       | 175,962                 |       | 176,044               |       |
| Less amount due within one year                                                                       |       | (1,164                  | )          | (1,164                | )          |
| Total Operating Corp.                                                                                 |       | 174,798                 |       | 174,880               |       |
|                                                                                                  |       |                    |       |                  |       |
| Intermediate:                                                                                         |       |                    |       |                  |       |
| 16% senior discount contingent principal  notes, net of debt issuance discount of $34,865 and $38,677 |       | 123,933                 |       | 108,389               |       |
| Total Intermediate                                                                                    |       | 298,731                 |       | 283,269               |       |
|                                                                                                  |       |                    |       |                  |       |
| Group:                                                                                                |       |                    |       |                  |       |
| 13 1/8% senior discount debentures                                                                    |       | 21,667                  |       | 21,667                |       |
| Mandatorily redeemable preferred stock                                                                |       | 234,148                 |       | 211,704               |       |
| Total Group                                                                                           |       | $                       | 554,546    |                  | $          | 516,640 |   |

 

**4.****                 Restatement**

 

The consolidated financial statements for the year endedJanuary 31, 2004 and the thirteen weeks ended May 1, 2004 have beenrestated to reflect the write-off of prepaid sample costs that should have beenexpensed as incurred.  The corrections,which are reflected in the financial statements as a reduction of prepaidexpenses and other current assets and an increase in cost of goods sold, are asfollows:

 

Net income (loss)

 
| ** **                  | ** ** | **Group**    | ** ** | **Intermediate** | ** ** | **Operating** | ** ** |
|-----------------------------|------------|--------------|------------|------------------|------------|---------------|------------|
| ** **                  | ** ** | **As**       | ** ** | **As**           | ** ** | **As**        | ** ** | **As** | ** ** | **As** | ** ** | **As** | ** ** |
| **Period  Ended**           | ** ** | **Reported** | ** ** | **Adjusted**     | ** ** | **Reported**  | ** ** | **Adjusted** | ** ** | **Reported** | ** ** | **Adjusted** | ** ** |
| ** **                  | ** ** | ** **   | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 13 weeks ended:             | ** ** | ** **   | ** ** | ** **       | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| May 3, 2003                 |       | $            | (19.6      | )                | $          | (20.2         | )          | $ | (14.9 | ) | $ | (15.5 | ) | $ | (14.9 | ) | $ | (15.5 | ) |
| Aug 2, 2003                 |       | 15.2         |       | 15.0             |       | 24.1          |       | 23.9 |   | (17.8 | ) | (18.0 | ) |
| Nov 1, 2003                 |       | (23.6        | )          | (24.6            | )          | (11.9         | )          | (12.9 | ) | (8.3 | ) | (9.3 | ) |
| Jan 31, 2004                |       | (19.3        | )          | (20.4            | )          | (1.4          | )          | (2.5 | ) | 1.9 |   | 0.8 |   |
| Year ended  Jan 31, 2004    |       | (47.3        | )          | (50.2            | )          | (4.1          | )          | (7.0 | ) | (39.1 | ) | (42.0 | ) |
|                        |       |         |       |             |       |          |       |   |   |   |   |   |   |
| 13 weeks ended  May 1, 2004 |       | (23.3        | )          | (23.8            | )          | (10.6         | )          | (11.1 | ) | (7.3 | ) | (7.8 | ) |
|                             |            |              |            |                  |            |               |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Stockholder’sdeficit

 
| ** **   | ** ** | **Group**        | ** ** | **Intermediate** | ** ** | **Operating  Corp** | ** ** |
|--------------|------------|------------------|------------|------------------|------------|---------------------|------------|
| **as of**    | ** ** | **as  reported** | ** ** | **as  restated** | ** ** | **as  reported**    | ** ** | **as  restated** | ** ** | **as  reported** | ** ** | **as  restated** | ** ** |
| May 3, 2003  |       | (420.9           | )     | (421.5           | )     | (13.9               | )     | (14.5 | )  | (13.9 | ) | (14.5 | ) |
|         |       |             |       |             |       |                |       |   |   |   |   |   |   |
| Aug 2, 2003  |       | (415.6           | )          | (416.4           | )          | 10.2                |       | 9.4 |   | (31.7 | ) | (32.5 | ) |
|         |       |             |       |             |       |                |       |   |   |   |   |   |   |
| Nov 1, 2003  |       | (442.3           | )          | (441.1           | )          | (1.7                | )          | (3.5 | ) | (40.0 | ) | (41.8 | ) |
|         |       |             |       |             |       |                |       |   |   |   |   |   |   |
| Jan 31, 2004 |       | (465.2           | )          | (468.1           | )          | (3.1                | )          | (6.0 | ) | (38.1 | ) | (41.0 | ) |
|         |       |             |       |             |       |                |       |   |   |   |   |   |   |
| May 1, 2004  |       | (491.8           | )          | (495.2           | )          | (13.7               | )          | (17.1 | ) | (45.3 | ) | (48.7 | ) |

 

**5.****                 Reclassification**

 

Certainprior year amounts have been reclassified to conform to current year’spresentation.

 

15

----

 

**Forward-LookingStatements**

 

Certainstatements in this Report on Form 10-Q constitute “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995. Wemay also make written or oral forward-looking statements in our periodicreports to the Securities and Exchange Commission on Forms 10-K, 10-Q, 8-K,etc., in press releases and other written materials and in oral statements madeby our officers, directors or employees to third parties. Statements that arenot historical facts, including statements about our beliefs and expectations,are forward-looking statements. Such forward-looking statements involve knownand unknown risks, uncertainties and other important factors that could causethe actual results, performance or achievements of the Company, or industry results,to differ materially from historical results, any future results, performanceor achievements expressed or implied by such forward-looking statements. Suchrisks and uncertainties include, but are not limited to, competitive pressuresin the apparel industry, changes in levels of consumer spending or preferencesin apparel and acceptance by customers of the Company’s products, overalleconomic conditions, governmental regulations and trade restrictions, acts ofwar or terrorism in the United States or worldwide, political or financialinstability in the countries where the Company’s goods are manufactured, postalrate increases, paper and printing costs, availability of suitable storelocations at appropriate terms, the level of the Company’s indebtedness andexposure to interest rate fluctuations, and other risks and uncertaintiesdescribed in this report and the Company’s other reports and documents filed orwhich may be filed, from time to time, with the Securities and ExchangeCommission. These statements are based on current plans, estimates andprojections, and therefore, you should not place undue reliance on them.Forward-looking statements speak only as of the date they are made and weundertake no obligation to update publicly any of them in light of newinformation or future events.

 

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

Management’sdiscussion and analysis of the results of operations are provided solely withrespect to J. Crew Operating Corp. and its subsidiaries since substantially allof our operations are conducted by J. Crew Operating Corp.  However, J. Crew Intermediate LLC and J. CrewGroup, Inc. have outstanding additional debt securities and preferred stock anddebt securities of J. Crew Group, Inc. are being held as an intercompany assetby Intermediate.  Accordingly,information with respect to interest income and expense of each of thoseentities is also provided herein.  Thediscussion of liquidity and capital resources pertains to J. Crew Group, Inc.and its consolidated subsidiaries, including J. Crew Intermediate LLC and J.Crew Operating Corp.

 

This document should beread in conjunction with the Management’s Discussion and Analysis section ofour Annual Report on Form 10-K for the year ended January 31, 2004 filed withthe Securities and Exchange Commission.

 

**Restatement**

 

As disclosed in theCompany’s Form 8-K filed with the SEC on September 10, 2004, the Companyhas restated its financial statements for the fiscal year endedJanuary 31, 2004 and first quarter ended May 1, 2004 to reflect thewrite-off of prepaid sample costs that should have been expensed during theseperiods.  (See Note 4 to the condensedconsolidated financial statements.)

 

**Resultsof Operations – Thirteen Weeks Ended July 31, 2004 Compared to ThirteenWeeks Ended August 2, 2003**

 

Revenues for the thirteenweeks ended July 31, 2004 increased to $188.3 million from $167.1 millionin the thirteen weeks ended August 2, 2003, an increase of 12.7%.

 

Revenues of the Retaildivision (which consists of J. Crew Retail stores and J. Crew Factory stores)increased by 14.6% to $138.7 million in the second quarter of 2004 from $121.0million in the second quarter of 2003. This increase was due to an increase of 12.4% in comparable store salesin the second quarter of 2004, which reflects the continuing increase in thecustomer acceptance of our merchandise assortment.  There were 155 J. Crew Retail stores and 42J. Crew Factory stores open at July 31, 2004 and August 2, 2003.

 

Revenues of the Directdivision (which consists of Internet and catalog operations) increased by 13.6%to $43.4 million in the second quarter of 2004 from $38.2 million in the secondquarter of 2003.  The increase in Directrevenues was due to (a) the increase in customer acceptance of our merchandiseassortment and (b) the negative impact that clearance sales had on the revenuesin the second quarter of 2003.

 

Other revenues, whichconsist of shipping and handling fees and royalties, decreased to $6.2 millionin the second quarter of 2004 from $7.9 million in the second quarter of2003.  This was due to a decrease inshipping and handling fees which resulted from a reduction in the number oforders shipped in the Direct division.

 

Grossmargin increased as a percentage of revenues to 39.4% in the second quarter of2004 from 30.7% in the second quarter of 2003, an increase of 870 basispoints.  This increase is attributable toan increase in merchandise margins 

 

16

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resultingfrom decreased markdowns across all channels and a significant reduction inclearance activities.

 

Selling,general and administrative expenses decreased to $65.9 million (35.0% ofrevenues) in the second quarter of 2004 from $66.0 million (39.5% of revenues)in the second quarter of 2003.  Thisdecrease can be attributed primarily to a reduction in catalog selling expensein the Direct division due to a decrease in circulation and a decrease indepreciation and amortization, which was largely offset by increases inemployment expense.  Selling, general andadministrative expenses decreased as a percentage of revenues primarily as aresult of the increase in sales.

 

Interestexpense, net, consists of:

 
| ** **                                           | ** ** | **Operating Corp.** | ** ** | **Intermediate** | ** ** | **Group** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|------------------|------------|-----------|------------|
|                                                 |       |                |       |             |       |      |       |
| Thirteen weeks ended July 31, 2004:             |       |                |       |             |       |      |       |
| Cash interest                                        |       | $                   | 4,500      |             | $          | 4,500     |       | $ | 5,209 |   |
| Non-cash interest:                                   |       |                |       |             |       |      |       |
| Interest on notes                                    |       | 250                 |       | 6,342            |       | 6,342     |       |
| Amortization of deferred financing costs             |       | 429                 |       | 585              |       | 593       |       |
| Amortization of debt issuance costs                  |       | —              |       | 1,925            |       | 1,925     |       |
| Dividends on mandatorily redeemable  preferred stock |       | —              |       | —           |       | 8,041     |       |
| Total non-cash interest                              |       | 679                 |       | 8,852            |       | 16,901    |       |
| Total interest expense                               |       | $                   | 5,179      |             | $          | 13,352    |       | $ | 22,110 |   |
|                                                 |       |                |       |             |       |      |       |
| Thirteen weeks ended August 2, 2003:            |       |                |       |             |       |      |       |
| Cash interest                                        |       | $                   | 4,377      |             | $          | 4,377     |       | $ | 5,479 |   |
| Non-cash interest:                                   |       |                |       |             |       |      |       |
| Interest on notes                                    |       | 250                 |       | 4,684            |       | 5,324     |       |
| Amortization of deferred financing costs             |       | 343                 |       | 460              |       | 466       |       |
| Amortization of debt issuance costs                  |       | —              |       | 1,759            |       | 1,759     |       |
| Total non-cash interest                              |       | 593                 |       | 6,903            |       | 7,549     |       |
| Total interest expense                               |       | $                   | 4,970      |             | $          | 11,280    |       | $ | 13,028 |   |
|                                                 |       |                |       |             |       |      |       |
| Increase in interest expense                         |       | $                   | 209        |             | $          | 2,072     |       | $ | 9,082 |   |

 

Theincrease in interest expense at Intermediate of $2.1 million results primarilyfrom additional interest and amortization of debt issuance costs as a result ofthe issuance of the 16% senior discount contingent principal notes due 2008 inconnection with the exchange offer completed on May 6, 2003.

 

Group’sinterest expense increased by $9.1 million due primarily to the classificationof $8.0 million of dividends on mandatorily redeemable preferred stock asinterest expense commencing in the third quarter of 2003 (which were recordedas a direct charge to stockholders deficit prior to the third quarter of 2003),and additional interest and amortization of debt issuance costs of $1.3 millionresulting from the exchange of Group’s 13 1/8% senior discount debentures forthe 16% senior discount contingent principal notes of Intermediate.

 

Thesecond quarter of 2003 includes a gain on the exchange of debt of $41.1million, (net of related expenses of $3.0 million) and insurance proceeds of$1.6 million related to our World Trade Center store.

 

No tax benefit was attributed to the pre-tax loss in the second quarterof 2004 and 2003.  The net deferred taxassets at January 31, 2004 were fully reserved.  No tax benefits are expected to be recognizedin future results of operations until an appropriate level of profitability issustained.

 

**Resultsof Operations – Twenty-six Weeks Ended July 31, 2004 Compared toTwenty-six Weeks Ended August 2, 2003**

 

Revenues for thetwenty-six weeks ended July 31, 2004 increased to $333.7 million from$328.6 million in the twenty-six weeks ended August 2, 2003, an increaseof 1.6%.

 

Revenues of the Retaildivision (which consists of J. Crew Retail stores and J. Crew Factory stores)increased to $242.7 million in the first half of 2004 from $218.6 million inthe first half of 2003.  This increasewas due to an increase of 8.6% in comparable store sales in the first half of2004 and sales from stores not open in the first half of 2003.

 

17

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Revenues of the Directdivision (which consists of Internet and catalog operations) decreased to $80.0million in the first half of 2004 from $93.2 million in the first half of2003.  The decrease in Direct revenueswas due to the decrease of $18.4 million in Direct revenues in the 2004 firstquarter which resulted from (a) reduced circulation, (b) the reduction inclearance activities which particularly impacted the revenues of the Internetoperation and (c) reduced inventory levels.

 

Other revenues, whichconsist of shipping and handling fees and royalties, decreased to $11.0 millionin the first half of 2004 from $16.8 million in the first half of 2003.  This was due to a reduction in shipping andhandling fees as a result of the decline in the revenues of the Direct divisionand a reduction in the number of orders shipped.

 

Grossmargin increased as a percentage of revenues to 40.4% in the first half of 2004from 33.2% in the first half of 2003. This increase of 720 basis points was attributable primarily to anincrease in merchandise margins from decreased markdowns across all channelsand a significant reduction in clearance activities, reduced by increasedbuying and occupancy costs due to additional merchandise design expenses.  The first half of 2003 was negativelyimpacted by clearance activities as we adopted a new inventory strategy ofliquidating current season inventories in season and disposed of prior seasoninventories.

 

Selling,general and administrative expenses decreased to $129.4 million (38.8% ofrevenues) in the first half of 2004 from $134.3 million (40.9% of revenues) inthe first half of 2003.  This decreasecan be attributed primarily to a reduction of $3.1 million in selling expensein the Direct division due to a decrease in circulation and a $3.9 milliondecrease in depreciation and amortization, which were partially offset byincreases in employment expense. Selling, general and administrative expenses decreased as a percentageof revenues primarily as a result of the sales increase in the second quarter.

 

Interestexpense, net, consists of:

 
| ** **                                           | ** ** | **Operating Corp.** | ** ** | **Intermediate** | ** ** | **Group** | ** ** |
|------------------------------------------------------|------------|---------------------|------------|------------------|------------|-----------|------------|
| Twenty-six weeks ended July 31, 2004:           |       |                |       |             |       |      |       |
| Cash interest                                        |       | $                   | 8,731      |             | $          | 8,731     |       | $ | 10,149 |   |
| Non-cash interest:                                   |       |                |       |             |       |      |       |
| Interest on notes                                    |       | 500                 |       | 12,233           |       | 12,233    |       |
| Amortization of deferred financing costs             |       | 861                 |       | 1,145            |       | 1,163     |       |
| Amortization of debt issuance costs                  |       | —              |       | 3,811            |       | 3,811     |       |
| Dividends on mandatorily redeemable  preferred stock |       | —              |       | —           |       | 15,716    |       |
| Total non-cash interest                              |       | 1,361               |       | 17,189           |       | 32,923    |       |
| Total interest expense                               |       | $                   | 10,092     |             | $          | 25,920    |       | $ | 43,072 |   |
|                                                 |       |                |       |             |       |      |       |
| Twenty-six weeks ended August 2, 2003:          |       |                |       |             |       |      |       |
| Cash interest                                        |       | $                   | 8,765      |             | $          | 8,765     |       | $ | 10,135 |   |
| Non-cash interest:                                   |       |                |       |             |       |      |       |
| Interest on notes                                    |       | 500                 |       | 4,866            |       | 9,963     |       |
| Amortization of deferred financing costs             |       | 765                 |       | 890              |       | 933       |       |
| Amortization of debt issuance costs                  |       | —              |       | 1,759            |       | 1,759     |       |
| Total non-cash interest                              |       | 1,265               |       | 7,575            |       | 12,655    |       |
| Total interest expense                               |       | $                   | 10,030     |             | $          | 16,340    |       | $ | 22,790 |   |
|                                                 |       |                |       |             |       |      |       |
| Increase in interest expense                         |       | $                   | 62         |             | $          | 9,580     |       | $ | 20,282 |   |

 

Theincrease in interest expense at Intermediate of $9.6 million results primarilyfrom additional interest expense of $6.7 million and amortization of debtissuance discount and deferred financing costs of $2.3 million associated withthe issuance of the 16% senior discount contingent principal notes due 2008 inconnection with the exchange offer completed on May 6, 2003.

 

Group’sinterest expense increased by $20.3 million due to the classification of $15.7million of dividends on mandatorily redeemable preferred stock as interestexpense commencing in the third quarter of 2003, (which were recorded as adirect charge to stockholders deficit prior to the third quarter of 2003) andadditional interest and amortization of debt issuance costs resulting from theexchange of Group’s 13 1/8% senior discount debentures for the 16% seniordiscount contingent principal notes of Intermediate.

 

The2003 first half includes a gain on exchange of debt of $41.1 million (net ofrelated expenses of $3.0 million) and insurance proceeds of $1.6 millionrelated to our World Trade Center store.

 

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No tax benefit was attributed to the pre-tax loss in the first half of2004 and 2003.  The net deferred taxassets at January 31, 2004 were fully reserved and no tax benefits areexpected to be recognized in future results of operations until an appropriatelevel of profitability is sustained.

 

**Liquidity and Capital Resources**

 

Oursources of liquidity are primarily cash flows from operations and borrowingsunder our working capital credit facility. Our primary cash needs are for capital expenditures, incurred primarilyfor opening new stores and system maintenance and enhancements, debt servicerequirements and working capital.

 

OnDecember 23, 2002, Operating Corp. entered into a Loan and SecurityAgreement with Wachovia Bank, N.A., as arranger, Congress FinancialCorporation, as administrative and collateral agent, and a syndicate oflenders, which provides for maximum credit availability of up to $180.0 million(the “Congress Credit Facility”).  TheCongress Credit Facility expires in December 2005 and provides forrevolving loans of up to $160.0 million; supplemental loans of up to $20.0million each year during the period from April 15 to September 15;and letter of credit accommodations.  Thetotal amount of availability is limited to the sum of (a) 85% of eligiblereceivables, (b) 90% of the net recovery percentage of inventories (asdetermined by inventory appraisal) for the period of August 1 throughNovember 30, or 85% of the net recovery percentage of inventories for theperiod December 1 through July 31 and (c) the remaining outstandingbalance of the real estate availability loan.

 

The Congress Credit Facility includes restrictions, including theincurrence of additional indebtedness, the payment of dividends and otherdistributions, the making of investments, the granting of loans and the makingof capital expenditures.  We are requiredto maintain minimum levels of earnings before interest, taxes, depreciation, amortizationand certain non-cash items (“EBITDA”) if excess availability is less than $15.0million for any 30 consecutive day period. We have at all times been in compliance with all financial covenantsunder the Congress Credit Facility.

 

At July 31, 2004, there was $21.2 million in availability underthe Congress Credit Facility.  There wereno short-term borrowings under the Congress Credit Facility during the sixmonth period ended July 31, 2004 and average short-term borrowings of $200thousand during the six month period ended August 2, 2003.

 

Cash used in operations increased to $9.9 million in the first half of2004 from $5.5 million in the first half of 2003, primarily as a result of theincrease in inventories, which more than offset the increase in operatingincome.

 

Capital expenditures, net of construction allowances, were $4.2 millionfor the first half of 2004 compared to $4.8 million in the first half of2003.  Capital expenditures for fiscalyear 2004 are expected to be approximately $10.0 million.  Four new stores have opened to date in fiscal2004 and an additional store is scheduled to open in October 2004.

 

Long-term indebtedness increased by $25.8 million in 2003, consistingof $20.0 million of notes payable due in 2008 and $5.8 million under theCongress Credit Facility which is repayable over a period of 60 monthscommencing June 1, 2003.

 

Management believes that invested cash, cash flow from operations, andavailability under the Congress Credit Facility will provide adequate funds forour foreseeable working capital needs, planned capital expenditures and debtservice obligations.  Our ability to fundour operations and make planned capital expenditures, to make scheduled debtpayments, to refinance indebtedness and to remain in compliance with thefinancial covenants under our debt agreements depends on our future operatingperformance and cash flow, which in turn, are subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond our control.

 

**OffBalance Sheet Arrangements**

 

We enter into letters of credit to facilitate the internationalpurchase of merchandise.  Standby lettersof credit are required to secure certain obligations.

 
| ** **        | ** ** | **Within 1  Year**        | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5  Years** | ** ** | **Total** | ** ** |
|-------------------|------------|---------------------------|------------|---------------|------------|---------------|------------|--------------------|------------|-----------|------------|
| ** **        | ** ** | **(dollars in millions)** | ** ** |
| Letters of Credit |       |                      |       |          |       |          |       |               |       |      |       |
| Standby           |       | $                         | —     |          | $          | —        |       | $                  | —     |      | $          | 4.2 |   | $ | 4.2 |   |
| Import            |       | 62.9                      |       | —        |       | —        |       | —             |       | 62.9      |       |
|              |       | $                         | 62.9       |          | $          | —        |       | $                  | —     |      | $          | 4.2 |   | $ | 67.1 |   |

 

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**ContractualObligations**

 

The following summarizes our contractual obligations as ofJuly 31, 2004 and the effect such obligations are expected to have on ourliquidity and cash flows in future periods.

 
| ** **                     | ** ** | **Within 1  Year**        | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5  Years** | ** ** | **Total** | ** ** |
|--------------------------------|------------|---------------------------|------------|---------------|------------|---------------|------------|--------------------|------------|-----------|------------|
| ** **                     | ** ** | **(dollars in millions)** | ** ** |
| Long-term debt obligations(1)  |       | $                         | 1.2        |          | $          | 2.4           |       | $                  | 351.7      |      | $          | — |   | $ | 355.3 |   |
| Redeemable preferred stock(2)  |       | —                    |       | —        |       | —        |       | 234.1              |       | 234.1     |       |
| Operating lease obligations(3) |       | 52.4                      |       | 96.4          |       | 84.3          |       | 116.2              |       | 349.3     |       |
| Purchase obligations:          |       |                      |       |          |       |          |       |               |       |      |       |
| Inventory commitments          |       | 200.0                     |       | —        |       | —        |       | —             |       | 200.0     |       |
| Other                          |       | 4.5                       |       | 9.0           |       | 2.4           |       | —             |       | 15.9      |       |
| Employment agreements          |       | 1.8                       |       | 3.6           |       | 3.6           |       | —             |       | 9.0       |       |
|                           |       | $                         | 259.9      |          | $          | 111.4         |       | $                  | 442.0      |      | $          | 350.3 |   | $ | 1,163.6 |   |

 

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(1)               Excludes unamortized debt issuancediscount.

(2)               Included in long-term debt in thefinancial statements.

(3)               Operating lease obligations representobligations under various long-term operating leases entered in the normalcourse of business for retail and factory stores, warehouses, office space andequipment requiring minimum annual rentals. Operating lease expense is a significant component of our operatingexpenses.  The lease terms range forvarious rental markets and are entered into at different times, which mitigatesexposure to market changes which could have a material effect on our results ofoperations within any given year.

 

**Seasonality**

 

We experience two distinct selling seasons, spring and fall.  The spring season is comprised of the firstand second quarters and the fall season is comprised of the third and fourthquarters.  Net sales are usuallysubstantially higher in the fall season, and selling, general andadministrative expenses as a percentage of net sales are usually higher in thespring season.  Approximately 31% ofannual net sales in fiscal year 2003 occurred in the fourth quarter.  Our working capital requirements alsofluctuate throughout the year, increasing substantially in September andOctober in anticipation of the holiday season inventory requirements.

 

**CriticalAccounting Policies**

 

A summary of our criticalaccounting policies is included in the Management’s Discussion and Analysissection of our Annual Report on Form 10-K for the year endedJanuary 31, 2004 filed with the Securities and Exchange Commission.

 

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUTMARKET RISK**

 

Our principal market risk relates to interest rate sensitivity, whichis the risk that future changes in interest rates will reduce our net income ornet assets.  Our variable rate debtconsists of borrowings under the Congress Credit Facility.  The interest rates are a function of the bankprime rate or LIBOR.  A one percentagepoint increase in the base interest rate would result in approximately $100,000change in income before taxes for each $10 million of borrowings.

 

We have a licensing agreement in Japan which provides for royaltypayments based on sales of J. Crew merchandise as denominated in yen.  We have entered into forward foreign exchangecontracts from time to time in order to minimize this risk.  At July 31, 2004, there were no forwardforeign exchange contracts outstanding.

 

We enter into letters of credit to facilitate the internationalpurchase of merchandise.  The letters ofcredit are denominated in U.S. dollars. Outstanding letters of credit at July 31, 2004 were $67.1 million.

 

**ITEM4.  CONTROLS AND PROCEDURES**

 

Withthe participation of the Company’s management, including the Chief ExecutiveOfficer and the Chief Financial Officer, the Company has conducted anevaluation of its disclosure controls and procedures as of the end of theperiod covered by this Report. Based on such evaluation, the Company’s ChiefExecutive Officer and the Chief Financial Officer have concluded that theCompany’s disclosure controls and procedures were effective as of the end ofthe period covered by this Report.

 

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There were nosignificant changes in the Company’s internal controls over financial reportingduring the period covered by this Report that have materially affected, or arereasonably likely to materially affect, the Company’s internal controls overfinancial reporting.

 

**PART II – OTHER INFORMATION**

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

A special meeting of the Company’s shareholders was held onJune 16, 2004.  At the meeting, thegrants of certain replacement equity awards under the Company’s 2003 EquityIncentive Plan to Millard Drexler and Jeffrey Pfeifle were voted on andapproved by the Company’s shareholders for purposes of exempting them from theGolden Parachute Rules of Section 280G of the Internal Revenue Code.  10,666,753 shares were voted in favor of suchawards and no shares were voted against or abstained from voting on thisproposal.

###### ** **

###### **ITEM 6.**               EXHIBITSAND REPORTS ON FORM 8-K

 

(a)                      Exhibits.

 

10.1*  Stock Option GrantAgreement, dated as of May 12, 2004, between the Company and Millard

Drexler.

 

10.2*  Stock Option GrantAgreement, dated as of May 12, 2004, between the Company and Jeffrey Pfeifle.

 

31.1*  Certification of ChiefExecutive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of2002.

 

31.2*  Certification of ChiefFinancial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of2002.

 

32.1*  Certification of ChiefExecutive Officer and Chief Financial Officer pursuant to Section 906 ofthe Sarbanes - Oxley Act of 2002.

 

(b)                     Reports on Form 8-K.

 

Thefollowing report on Form 8-K was filed during the quarter covered by thisreport:

 

1.                    Form 8-K filed June 4, 2004 relating tothe Company’s financial results for the quarter ended May 1, 2004.

 

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*Filed herewith

 

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#### **SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, each Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.  The signature for each undersigned companyshall be deemed to relate only to matters having reference to such company.

 
|   |                    | J. CREW GROUP, INC.      |
|--------|-------------------------|--------------------------|
|   |                    | (Registrant)             |
|   |                    |                     |
| Date:  | September 14, 2004 | By:                      |   | /s/ Millard S. Drexler |   |
|   |                    |                     |   | Millard S. Drexler |   |
|   |                    |                     |   | Chairman of the Board and |   |
|   |                    |                     |   | Chief Executive Officer |   |
|   |                    |                     |   |   |   |
| Date:  | September 14, 2004 | By:                      |   | /s/ Amanda J. Bokman |   |
|   |                    |                     |   | Amanda J. Bokman |   |
|   |                    |                     |   | Executive Vice-President and |   |
|   |                    |                     |   | Chief Financial Officer |   |
|   |                    |                     |   |   |   |
|   |                    |                     |   |   |   |
|   |                    | J. CREW INTERMEDIATE LLC |
|   |                    | (Registrant)             |
|   |                    |                     |
| Date:  | September 14, 2004 | By:                      |   | /s/ Millard S. Drexler |   |
|   |                    |                     |   | Millard S. Drexler |   |
|   |                    |                     |   | Chairman of the Board and |   |
|   |                    |                     |   | Chief Executive Officer |   |
|   |                    |                     |   |   |   |
| Date:  | September 14, 2004 | By:                      |   | /s/ Amanda J. Bokman |   |
|   |                    |                     |   | Amanda J. Bokman |   |
|   |                    |                     |   | Executive Vice-President and |   |
|   |                    |                     |   | Chief Financial Officer |   |
|   |                    |                     |   |   |   |
|   |                    |                     |   |   |
|   |                    | J. CREW OPERATING CORP.  |
|   |                    | (Registrant)             |
|   |                    |                     |
| Date:  | September 14, 2004 | By:                      |   | /s/ Millard S. Drexler |   |
|   |                    |                     |   | Millard S. Drexler |   |
|   |                    |                     |   | Chairman of the Board and |   |
|   |                    |                     |   | Chief Executive Officer |   |
|   |                    |                     |   |   |   |
| Date:  | September 14, 2004 | By:                      |   | /s/ Amanda J. Bokman |   |
|   |                    |                     |   | Amanda J. Bokman |   |
|   |                    |                     |   | Executive Vice-President and |   |
|   |                    |                     |   | Chief Financial Officer |   |

 

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