<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   __________
                                   FORM 10-K

        ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended February 3, 2001

                       Commission File Number  333-42423
                                               ---------

                            J. CREW OPERATING CORP.
             (Exact name of registrant as specified in its charter)

           Delaware                                    22-3540930
           --------                                    ----------
      (State or other jurisdiction of        (IRS Employer Identification No.)
     incorporation or organization)

            770 Broadway, New York, New York                          10003
            (Address of principal executive offices)                (Zip Code)

            Registrant's telephone number, including area code: (212) 209-2500

            Securities registered pursuant to Section 12(b) of the Act:  None

            Securities registered pursuant to Section 12(g) of the Act:  None

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

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

The common stock of the registrant is not publicly traded. Therefore, the
aggregate market value is not readily determinable.

As of April 1, 2001, there were 100 shares of Common Stock, par value $.01 per
share, outstanding.

Documents incorporated by reference:  None

The Registrant meets the conditions set forth in General Instructions I 1(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
<PAGE>

Forward Looking Statements

Certain statements in this Annual Report on Form 10-K under the captions
"Business", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", "Financial Statements and Supplementary Data" and
elsewhere constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. We may also make written or
oral forward looking statements in our periodic reports to the Securities and
Exchange Commission on Forms 10-Q, 8-K, etc., in press releases and other
written materials and in oral statements made by our officers, directors or
employees to third parties. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from
historical results, any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks and uncertainties
include, but are not limited to, competitive pressures in the apparel industry,
changes in levels of consumer spending or preferences in apparel and acceptance
by customers of the Company's products, overall economic conditions,
governmental regulations and trade restrictions, political or financial
instability in the countries where the Company's goods are manufactured, postal
rate increases, paper and printing costs, the level of the Company's
indebtedness and exposure to interest rate fluctuations, and other risks and
uncertainties described in this report and the Company's other reports and
documents filed or which may be filed, from time to time, with the Securities
and Exchange Commission. These statements are based on current plans, estimates
and projections, and therefore you should not place undue reliance on them.
Forward looking statements speak only as of the date they are made and we
undertake no obligation to update publicly any of them in light of new
information or future events.

References herein to fiscal years are to the fiscal years of J. Crew Operating
Corp., which ended on the Friday closest to January 31 in the following calendar
year for fiscal year 1996 and on the Saturday closest to January 31 in the
following calendar year for fiscal years 1997, 1998, 1999 and 2000. Accordingly,
fiscal years 1996, 1997, 1998, 1999 and 2000 ended on January 31, 1997, January
31, 1998, January 30, 1999, January 29, 2000 and February 3, 2001. All fiscal
years for which financial information is included had 52 weeks, except fiscal
year 2000 which had 53 weeks.

References in this Report to the "Company" "Operating Corp." and "J. Crew" mean
J. Crew Operating Corp. and its subsidiaries, unless the context requires
otherwise, and references to "Holdings" means J.Crew Group, Inc., the parent
company of J.Crew Operating Corp.

                                     Part I

ITEM 1.  BUSINESS

General

The Company is a leading retailer of women's and men's apparel, shoes and
accessories operating   under the J.Crew (R)   brand name. The Company has built
a strong and widely recognized brand name known for its timeless styles at price
points that the Company believes represent exceptional product value. The J.
Crew image has been built and reinforced over its 18-year history through the
circulation of more than 800 million catalogs that use magazine-quality
photography to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company in the early
1980s (such as the rollneck sweater, weathered chino, barn jacket and pocket
tee) were instrumental in establishing the J. Crew brand and continue to be core
product offerings. The Company has capitalized on the strength of the J. Crew
brand to provide customers with clothing to meet more of their lifestyle needs,
including casual, career and sport.

The J. Crew merchandising strategy emphasizes timeless styles and a broad
assortment of high-quality products designed to provide customers with one-stop
shopping opportunities at attractive prices. J. Crew retail stores, catalogs and
its Internet site offer a full line of men's and women's basic durables (casual
weekend wear), work wear (casual weekday wear), sport, swimwear, accessories and
shoes, as well as the more tailored men's and women's "Classics" lines.

                                       1
<PAGE>

Approximately, 60% of the Company's J. Crew brand sales are derived from its
core offerings of classics, durables and sport clothing, the demand for which
the Company believes is stable and resistant to changing fashion trends. The
Company believes that the J. Crew image and merchandising strategy appeal to
college-educated, professional and affluent customers who, in the Company's
experience, have demonstrated strong brand loyalty and a tendency to make repeat
purchases.

J. Crew products are distributed exclusively through the Company's retail and
factory outlet stores, catalogs and the Company's Internet site, jcrew.com. The
Company currently circulates over 70 million J. Crew catalogs per annum and
operates 105 J. Crew retail stores and 41 J. Crew factory outlet stores. In
addition, J. Crew products are distributed through 70 free-standing and shop-in-
shop stores in Japan under a licensing agreement with Itochu Corporation.

The Company has three major operating divisions: J. Crew Retail, J. Crew Direct,
and J. Crew Factory Outlets, each of which operate under the J. Crew brand name.
In 2000, products sold under the J. Crew brand contributed $787.7 million in net
sales. J. Crew brand net sales in 2000 were comprised of $406.8 million from J.
Crew Retail, $284.8 million from J. Crew Direct and $96.1 million from J. Crew
Factory Outlet.  The Company also markets to its customers through its Internet
site (jcrew.com).  Net sales derived from the Internet, which were $107.3
million for 2000, are included in J. Crew Direct net sales.  The Company also
generated licensing revenues of $3.0 million and shipping and handling fees of
$35.3 million.

Effective as of October 30, 1998 the Company sold Popular Club Plan, Inc. and
subsidiaries (PCP) to The Fingerhut Companies, Inc. for $42.0 million and the
assumption of an accounts receivable securitization facility. Revenues for the
nine months ended October 30, 1998 were $130.6 million. A gain on the sale of
$10.0 million was included in the results of operations in fiscal 1998.  An
additional gain of $1.0 million was recognized in fiscal 1999 from the reversal
of certain estimated liabilities recorded at the date of sale.

In 1998, management of the Company made a decision to exit the operations of its
Clifford & Wills catalog and factory outlet subsidiaries (C&W). Revenues for the
year ended January 30, 1999 were $83.8 million. A charge of $13.3 million was
included in fiscal 1998 operations to write down the assets of C&W to net
realizable value and to provide for certain additional costs in connection with
the discontinuance of the C&W operations, including severance and lease
termination costs. Additionally, fourth quarter charges of $1.7 million,
included in selling expense, were incurred relating to deferred catalog costs.
In February 2000 the Company sold certain intellectual property assets of C&W to
Spiegel Catalog Inc. for $3.9 million.  In connection with this sale the Company
agreed to cease the fulfillment of catalog orders but retained the right to
operate its outlet stores and conduct other liquidation sales of inventories
through December 31, 2000.  After consideration of the proceeds of the sale and
other terms of the agreement the Company provided an additional $4,000,000 to
write down inventories to net realizable value as of January 29, 2000.  During
the year ended February 3, 2001 the remaining balance of net assets applicable
to C&W of $4.1 million was written off.

ITEM 2.  PROPERTIES

The Company is headquartered in New York City. The New York City headquarters'
offices are leased under a lease agreement expiring in 2012 (not including
renewal options). The Company owns two telemarketing and distribution
facilities: a 406,500-square-foot telemarketing and distribution center for J.
Crew Direct operations in Lynchburg, Virginia and a 192,500-square-foot
telemarketing and distribution center in Asheville, North Carolina servicing the
J. Crew Retail operations.

As of February 3, 2001, the Company operated 105 J. Crew retail stores and 41
factory outlet stores in 36 states and the District of Columbia. All of the
retail and factory outlet stores are leased from third parties, and the leases
in most cases have terms of 10 to 12 years, not including renewal options. As a
general matter, the leases contain standard provisions concerning the payment of
rent, events of default and the rights and obligations of each party. Rent due
under the leases is comprised of annual base rent plus a contingent rent payment
based on the store's sales in excess of a specified threshold. Substantially all
the leases are guaranteed by Holdings.

                                       2
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

      Routine litigation is pending against the Company with respect to matters
incidental to its business. Although the outcome of litigation cannot be
predicted with certainty, in the opinion of the Company, none of those actions
should have a material adverse effect on the consolidated financial condition or
results of operations of the Company.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Omitted pursuant to General Instruction I of Form 10-K.

                                    PART II

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

There is no established public market for any class of Operating Corp. capital
stock. Holdings owns 100% of the common stock of Operating Corp.  ("Common
Stock").

Operating Corp. may from time to time pay cash dividends on the Common Stock to
permit Holdings to make required payments relating to its senior discount
debentures.

The indenture relating to the Senior Subordinated Notes and the Credit Agreement
to which Operating Corp. is a party contain covenants which impose substantial
restrictions on Operating Corp's ability to make dividends or distributions to
Holdings.

ITEM 6.    SELECTED FINANCIAL DATA

Omitted pursuant to General Instruction I of Form 10-K.

                                       3
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This discussion should be read in conjunction with the audited consolidated
financial statements of the Company for the two-year period ended February 3,
2001 and notes thereto included elsewhere in this Annual Report on Form 10-K.

Fiscal 2000 Compared to Fiscal 1999

Revenues
--------

Revenues increased 10.0% to $826.0 million in the fiscal year ended February 3,
2001 from $750.7 million in the fiscal year ended January 29, 2000.  The fiscal
year ended February 3, 2001 consisted of  53 weeks compared to 52 weeks in the
prior year.  Net sales for the fifty-third week were $10.8 million.  The
increase in revenues was due primarily to the increase of $73.2 million in the
net sales for J.Crew Retail.

J. Crew Retail net sales increased by 21.9% from $333.6 million in fiscal 1999
to $406.8 million in fiscal 2000. The percentage of the Company's total net
sales derived from J. Crew Retail increased to 51.6% in fiscal year 2000
compared to 46.7% in fiscal 1999. This increase was attributed primarily to net
sales from stores not opened for a full fiscal year. Comparable store sales
increased by 1.7% in fiscal 2000. The number of stores opened at February 3,
2001 increased to 105 from 81 at January 29, 2000.

J. Crew Direct net sales (which includes net sales from catalog and internet
operations) increased by 2.2% from $278.6 million in fiscal 1999 to $284.8
million in fiscal 2000. The percentage of the Company's total net sales derived
from J. Crew Direct decreased to 36.2% in fiscal 2000 from 39.0% in fiscal 1999.
Catalog net sales decreased to $177.5 million in fiscal 2000 from $213.3 million
in fiscal 1999.  Internet net sales increased to $107.3 million in fiscal 2000
from $65.3 million in fiscal 1999 as the Company continued to migrate catalog
customers to the Internet.

J.Crew Factory Outlet net sales decreased by 5.8% from $102.0 million in fiscal
1999 to $96.1 million in fiscal 2000. The percentage of the Company's total net
sales derived from J. Crew Factory Outlet decreased to 12.2% in fiscal 2000 from
14.3% in fiscal 1999.  Comparable store sales for J. Crew Factory Outlet
decreased by 2.9% in fiscal 2000. J. Crew Factory Outlet closed one store in
fiscal 2000 and 41 stores were open at February 3, 2001.

Other revenues which consist of shipping and handling fees and royalties
increased from $36.6 million to $38.3 million, primarily as a result of an
increase in shipping and handling fees.

Cost of sales, including buying and occupancy costs
---------------------------------------------------

Cost of sales, including buying and occupancy costs as a percentage of revenues
decreased to 56.2% in fiscal 2000 from 57.4% in fiscal 1999.  This decrease was
caused primarily by an increase in initial mark up due to a decrease in the cost
of merchandise and an improvement in inventory mix in our factory division.

Selling, general and administrative expenses
--------------------------------------------

Selling, general and administrative expenses increased to $301.2 million in
fiscal 2000 (36.5% of revenues) from $278.7 million in fiscal 1999 (37.1% of
revenues).

General and administrative expenses of the J.Crew brand increased to $238.5
million in fiscal 2000 (28.9% of revenues) from $203.0 million in fiscal 1999
(27.0% of revenues).  This increase resulted primarily from (a) an increase in
the expenses attributable to the increased number of retail stores in operation
during fiscal 2000 compared to fiscal 1999 and (b) an increase in bonus
provision in fiscal 2000 as a result of the increase in operating income.

                                       4
<PAGE>

Selling expenses were $62.7 million in fiscal 2000 (7.6% of revenues) compared
to $75.7 million in fiscal 1999 (10.1% of revenues).  This decrease was due
primarily to $6.0 million of direct advertising related to the Internet that was
incurred in fiscal 1999, a decrease in pages circulated from 9.3 billion pages
in fiscal 1999 to 8.7 billion pages in fiscal year 2000 and catalog production
efficiencies.

Write-down of assets and other charges in connection with the discontinuance of
-------------------------------------------------------------------------------
Clifford & Wills
----------------

An additional charge of $4.1 million was incurred in fiscal 2000 to write off
the remaining balance of the net assets of Clifford & Wills, primarily
inventories.

Interest expense
----------------

Interest expense, net decreased to $22.8 million in fiscal 2000 from $26.6
million in fiscal 1999. This decrease resulted from lower average borrowings
during fiscal 2000 under the Revolving Credit Facility and the reduced term loan
balance.  Average borrowings under the Revolving Credit Facility required to
fund inventories and capital expenditures were $9.8 million in fiscal 2000
compared to $30.8 million in fiscal 1999.

Income Taxes
------------

The effective tax rate was 35.9% in fiscal 2000 compared to 54.7% in fiscal
1999.  The effective tax rate in 1999 was higher than the normal rate due
primarily to the inability of certain subsidiaries to deduct net operating
losses for state tax purposes.


ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's principal market risk relates to interest rate sensitivity which
is the risk that future changes in interest rates will reduce net income or the
net assets of the Company.  The Company' variable rate debt consists of
borrowings under the Revolving Credit Facility and the Term Loan Facility.   In
order to manage this interest rate risk, the Company entered into an interest
rate swap agreement in October 1997 which converted the variable rate interest
for $50 million of debt to a fixed rate of 6.23%.  The swap agreement expired in
October 2000 and was not renewed because the Company's exposure under the
Revolving Credit Facility and Term Loan Facility has been substantially reduced.

The Company enters into letters of credit to facilitate the international
purchase of merchandise.  The letters of credit are primarily denominated in
U.S. dollars. Outstanding letters of credit at February 3, 2001 were
approximately $50.9 million.

The Company has a licensing agreement in Japan which provides for royalty
payments based on sales of J.Crew merchandise as denominated in yen.  The
Company has from time to time entered into forward foreign exchange contracts to
minimize the risk.  At February 3, 2001 there were no forward foreign exchange
contracts outstanding.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements are set forth herein commencing on page F-1 of this
Report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

Not applicable

                                       5
<PAGE>

                                    PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 11.    EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I of Form 10-K.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I of Form 10-K.

                                       6
<PAGE>

                                    PART IV


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

(a)   1.    Financial Statements

            The following financial statements of J. Crew Operating Corp. and
            subsidiaries are included in Item 8:

            (i)    Report of KPMG LLP, Independent Auditors
            (ii)   Consolidated Balance Sheets - as of February 3, 2001 and
                   January 29, 2000
            (iii)  Consolidated Statements of Operations - Years ended February
                   3, 2001, January 29, 2000 and January 30, 1999
            (iv)   Consolidated Statements of Cash Flows - Years ended February
                   3, 2001, January 29, 2000 and January 30, 1999
            (v)    Notes to consolidated financial statements

      2.    Financial Statements Schedules

            Schedule II  Valuation and Qualifying Accounts.

      3.    Exhibits

            The exhibits listed on the accompanying Exhibit Index are
            incorporated by reference herein and filed as part of this report.

(b)   Reports on Form 8-K

      The Company has not filed any reports on Form 8-K during the fiscal
      quarter ended February 3, 2001.

(c)   Exhibits

      See Item 14(a)3 above.

(d)   Financial Statements Schedules

      See Item 14(a)1 and 14(a)2 above.

                                       7
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      J. CREW OPERATING CORP.
Date: April 20, 2001
                                            By:  /s/ Mark A. Sarvary
                                               ----------------------
                                                 Mark A. Sarvary
                                                 Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on April 20, 2001.

          Signature                      Title
          ---------                      -----



     /s/ Mark A. Sarvary           Chief Executive Officer
     -------------------------     (Principal Executive Officer)
     Mark A. Sarvary


     /s/ Scott M. Rosen            Executive Vice President, Chief Financial
     -------------------------     Officer (Principal Financial Officer)
     Scott M. Rosen


     /s/ Nicholas Lamberti         Vice President, Corporate Controller
     -------------------------     (Principal Accounting Officer)
     Nicholas Lamberti


     /s/ David Bonderman           Director
     -------------------------
     David Bonderman


     /s/ Richard W. Boyce          Director
     -------------------------
     Richard W. Boyce

     /s/ James G. Coulter          Director
     -------------------------
     James G. Coulter


     /s/ Emily Woods               Director
     -------------------------
     Emily Woods

                                      S-1
<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
J. Crew Operating Corp. and Subsidiaries:

We have audited the consolidated financial statements of J. Crew Operating Corp.
and subsidiaries (the "Company") as listed in the accompanying Index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. Crew Operating
Corp. and subsidiaries as of February 3, 2001 and January 29, 2000 and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 3, 2001, in conformity with  accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects the information set forth therein.


                                                   KPMG LLP

March 30, 2001

                                      F-1
<PAGE>

                          J. CREW OPERATING CORP. AND
                                 SUBSIDIARIES

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                        February 3,     January 29,
                 Assets                                    2001           2000
                 ------                                    ----           ----
                                                             (in thousands)
<S>                                                     <C>             <C>
Current assets:
 Cash and cash equivalents                              $  32,930      $  38,693
 Merchandise inventories                                  140,667        129,928
 Prepaid expenses and other current assets                 23,740         30,083
 Net assets held for disposal                                  --          8,927
                                                        ---------      ---------

     Total current assets                                 197,337        207,631
                                                        ---------      ---------

Property and equipment - at cost:

 Land                                                       1,460          1,460
 Buildings and improvements                                11,432         11,363
 Furniture, fixtures and equipment                         70,541         60,355
 Leasehold improvements                                   144,906        130,054
 Construction in progress                                  22,983         12,851
                                                        ---------      ---------
                                                          251,322        216,083
     Less accumulated depreciation and amortization        85,746         77,683
                                                        ---------      ---------
                                                          165,576        138,400
                                                        ---------      ---------

Deferred income taxes                                          --          6,817

Other assets                                               10,839         10,758
                                                        ---------      ---------

     Total assets                                       $ 373,752      $ 363,606
                                                        =========      =========
                Liabilities and Stockholder's Equity(Deficit)
                ------------------------------------

Current liabilities:
 Accounts payable                                       $  49,705      $  40,951
 Other current liabilities                                 75,168         70,222
 Federal and state income taxes payable                    18,850         15,956
 Deferred income taxes                                      3,731          5,842
                                                        ---------      ---------

     Total current liabilities                            147,454        132,971
                                                        ---------      ---------

Long-term debt                                            150,000        184,000
                                                        ---------      ---------

Deferred credits and other long-term liabilities           56,043         48,277
                                                        ---------      ---------

Due to J.Crew Group, Inc.                                   1,047            903
                                                        ---------      ---------

Stockholder's equity(deficit)                              19,208         (2,545)
                                                        ---------      ---------

     Total liabilities and stockholder's equity(deficit)$ 373,752      $ 363,606
                                                        =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                     Consolidated Statements of Operations
<TABLE>
<CAPTION>


                                                                         Years ended
                                                                          ----------
                                                          February 3,    January 29,    January 30,
                                                          -----------    -----------    -----------
                                                              2001          2000           1999
                                                              ----          ----           ----
                                                                        (in thousands)
<S>                                                       <C>            <C>            <C>
Revenues:

 Net sales                                                 $787,658        $714,119      $816,221
 Other                                                       38,317          36,577        54,621
                                                           --------        --------      --------
                                                            825,975         750,696       870,842

Operating costs and expenses:

 Cost of goods sold, including buying and occupancy
  costs                                                     463,909         431,193       511,716
 Selling, general and administrative expenses               301,216         278,666       331,169
 Write off of software development costs                         --           7,018            --
 Write down of assets and other charges in
  connection with discontinuance of Clifford & Wills          4,130           4,000        13,300
 Termination costs and other nonrecurring
  employment contract charges                                    --               -         7,995
                                                           --------        --------      --------
                                                            769,255         720,877       864,180
                                                           --------        --------      --------

     Income from operations                                  56,720          29,819         6,662

Interest expense - net                                      (22,787)        (26,626)      (28,560)

Gain on sale of Popular Club Plan                                --           1,000        10,000
                                                           --------        --------      --------

     Income/(loss) before income taxes                       33,933           4,193       (11,898)

(Provision) benefit for income taxes                        (12,180)         (2,293)        4,227
                                                           --------        --------      ----------


     Net income/(loss)                                     $ 21,753        $  1,900      $ (7,671)
                                                           ========        ========      ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                              Years ended
                                                                              -----------
                                                               February 3,    January 29,    January 30,
                                                               -----------    -----------    -----------
                                                                  2001            2000          1999
                                                                  ----            ----          ----
                                                                             (in thousands)
<S>                                                           <C>           <C>             <C>
Cash flows from operating activities:
Net income/(loss)                                               $ 21,753        $  1,900      $ (7,671)
Adjustments to reconcile net income/(loss) to net cash
 provided by operating activities:
  Depreciation and amortization                                   22,600          19,241        15,972
  Write off of software development costs                             --           7,018            --
  Amortization of deferred financing costs                         2,548           1,950         1,891
  Deferred income taxes                                            4,706          (2,497)       (7,464)
  Provision for losses on accounts receivable                         --              --         5,627
  Gain on sale of subsidiary                                          --          (1,000)      (10,000)
  Write down of assets and other charges
  in connection with discontinued catalog                          4,130           4,000        15,000
Changes in operating assets and liabilities:
 Accounts receivable                                                  --              --        (8,242)
 Merchandise inventories                                         (10,739)         26,094       (15,608)
 Net assets held for disposal                                      4,797           4,450            --
 Prepaid expenses and other current assets                         6,343          16,646          (536)
 Other assets                                                     (2,781)           (770)       (2,559)
 Accounts payable                                                  8,754             821         7,415
 Other liabilities                                                 5,407          13,044         2,550
 Federal and state income taxes payable                            2,894           3,406        12,299
                                                                --------        --------      --------
  Net cash provided by operating activities                       70,412          94,303         8,674
                                                                --------        --------      --------

Cash flows from investing activities:
 Capital expenditures                                            (55,694)        (48,684)      (41,177)
 Proceeds from construction allowances                            13,519           7,431         4,823
 Proceeds from sale of subsidiary, net of related expenses             -              --        37,157
                                                                --------        --------      --------
  Net cash provided by (used in) investing activities            (42,175)        (41,253)          803
                                                                --------        --------      --------

Cash flows from financing activities:
 (Decrease)/increase in notes payable, bank                           --         (14,000)       14,000
 Repayment of long-term debt                                     (34,000)        (10,000)      (26,000)
                                                                --------        --------      --------
  Net cash used in financing activities                          (34,000)        (24,000)      (12,000)
                                                                --------        --------      --------

Increase (decrease) in cash and cash equivalents                  (5,763)         29,050        (2,523)

Cash and cash equivalents at beginning of year                    38,693           9,643        12,166
                                                                --------        --------      --------
Cash and cash equivalents at end of year                        $ 32,930        $ 38,693      $  9,643
                                                                ========        ========      ========

Supplementary cash flow information:
 Income taxes paid (refunded)                                   $  4,279        $ (7,570)     $   (515)
 Interest paid                                                  $ 20,513        $ 24,792      $ 27,763
                                                                ========        ========      ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

(1) Nature Of Business And Summary Of Significant Accounting Policies

    (a)  Principles of Consolidation

         The accompanying consolidated financial statements include the accounts
         of J. Crew Operating Corp. ("Operating Corp") and its wholly-owned
         subsidiaries (collectively, the "Company"). Operating Corp. is a
         wholly-owned subsidiary of J. Crew Group, Inc. ("Holdings").  All
         significant intercompany balances and transactions have been
         eliminated in consolidation.

    (b)  Business

         The Company designs, contracts for the manufacture of, markets and
         distributes men's and women's apparel and accessories. The Company's
         products are marketed, primarily in the United States, through retail
         stores, catalogs, and the Internet. The Company is also party to a
         licensing agreement which grants the licensee exclusive rights to use
         the Company's trademarks in connection with the manufacture and sale of
         products in Japan. The license agreement provides for payments based on
         a specified percentage of net sales.

         The Company is subject to seasonal fluctuations in its merchandise
         sales and results of operations. The Company expects its sales and
         operating results generally to be lower in the first and second
         quarters than in the third and fourth quarters (which include the back-
         to-school and holiday seasons) of each fiscal year.

         A significant amount of the Company's products are produced in the Far
         East through arrangements with independent contractors. As a result,
         the Company's operations could be adversely affected by political
         instability resulting in the disruption of trade from the countries in
         which these contractors are located or by the imposition of additional
         duties or regulations relating to imports or by the contractor's
         inability to meet the Company's production requirements.

    (c)  Fiscal Year

         The Company's fiscal year ends on the Saturday closest to January 31.
         The fiscal years 2000, 1999, and 1998 ended on February 3, 2001 (53
         weeks), January 29, 2000 (52 weeks) and January 30, 1999 (52 weeks).

    (d)  Cash Equivalents

         For purposes of the consolidated statements of cash flows, the Company
         considers all highly liquid debt instruments, with maturities of 90
         days or less when purchased, to be cash equivalents. Cash equivalents,
         which were $18,331,000 and $23,896,000 at February 3, 2001 and January
         29, 2000, are stated at cost, which approximates market value.

                                      F-5
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999


  (e)   Merchandise Inventories

        Merchandise inventories are stated at the lower of cost (determined on a
        first-in, first-out basis) or market. The Company capitalizes certain
        design, purchasing and warehousing costs in inventory.

  (f)   Advertising and Catalog Costs

        Direct response advertising which consists primarily of catalog
        production and mailing costs, are capitalized and amortized over the
        expected future revenue stream. The Company accounts for catalog costs
        in accordance with the AICPA Statement of Position ("SOP") 93-7,
        "Reporting on Advertising Costs." SOP 93-7 requires that the
        amortization of capitalized advertising costs be the amount computed
        using the ratio that current period revenues for the catalog cost pool
        bear to the total of current and estimated future period revenues for
        that catalog cost pool. Deferred catalog costs, included in prepaid
        expenses and other current assets, as of February 3, 2001 and January
        29, 2000 were $10,600,000 and $14,300,000. Catalog costs, which are
        reflected in selling and administrative expenses, for the fiscal years
        2000, 1999, and 1998 were $69,000,000, $84,077,000, and $116,515,000.

        All other advertising costs are expensed as incurred. Advertising
        expenses were $6,671,000 for fiscal year 1999. Advertising costs were
        not significant in all other years.

  (g)   Property and Equipment

        Property and equipment are stated at cost. Buildings and improvements
        are depreciated by the straight-line method over the estimated useful
        lives of twenty years. Furniture, fixtures and equipment are depreciated
        by the straight-line method over the estimated useful lives, ranging
        from three to ten years. Leasehold improvements are amortized over the
        shorter of their useful lives or related lease terms.

        Significant systems development costs are capitalized and amortized on a
        straight-line basis over periods ranging from three to five years.
        Approximately $15.0 million and $6.0 million of systems development
        costs were capitalized in fiscal years 2000 and 1999.

        The Company receives construction allowances upon entering into certain
        store leases. These construction allowances are recorded as deferred
        credits and are amortized over the term of the related lease.

  (h)   Other Assets

        Other assets consist primarily of debt issuance costs of $6,956,000 and
        $9,297,000 at February 3, 2001 and January 29, 2000, which are amortized
        over the term of the related debt agreements.

  (i)   Income Taxes

        The provision for income taxes includes taxes currently payable and
        deferred taxes resulting from the tax effects of temporary differences
        between the financial statement and tax bases of assets and liabilities,
        in accordance with Statement of Financial Accounting Standards ("SFAS")
        No. 109, "Accounting for Income Taxes."

                                      F-6
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

  (j)   Revenue Recognition

        Revenue is recognized for catalog and internet sales when merchandise is
        shipped to customers, and at the time of sale for retail sales. The
        Company accrues a sales return allowance for estimated returns of
        merchandise subsequent to the balance sheet date that relate to sales
        prior to the balance sheet date. Amounts billed to customers for
        shipping and handling fees related to catalog and internet sales are
        included in other revenues at the time of shipment.

  (k)   Store Preopening Costs

        Costs associated with the opening of new retail and outlet stores are
        expensed as incurred.

  (l)   Derivative Financial Instruments

        Derivative financial instruments are used by the Company to manage its
        interest rate and foreign currency exposures. For interest rate swap
        agreements, the net interest paid is recorded as interest expense on a
        current basis. Gains or losses resulting from market fluctuations are
        not recognized. The Company from time to time enters into forward
        foreign exchange contracts as hedges relating to identifiable currency
        positions to reduce the risk from exchange rate fluctuations. Gains and
        losses on contracts accounted for as hedges are deferred and recognized
        as adjustments to the bases of those assets. Contracts accounted for as
        speculative are marked to market and gains and losses are recorded
        currently. Such gains and losses were not material for the fiscal years
        ended February 3, 2001, January 29, 2000 and January 30, 1999.

  (m)   Use of Estimates in the Preparation of Financial Statements

        The preparation of financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities
        and disclosure of contingent assets and liabilities at the date of the
        financial statements and the reported amounts of revenues and expenses
        during the reporting period. Actual results could differ from those
        estimates.

  (n)   Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
        of

        The Company reviews long-lived assets and certain identifiable
        intangibles for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may not be recoverable.
        The Company assesses the recoverability of such assets based upon
        estimated cash flow forecasts.

        During fiscal 1999 the Company wrote off $7,018,000 of capitalized
        computer software costs which were impaired by the Company's decision to
        adopt an enterprise resource planning system for its future information
        technology requirements.

  (o)   Stock Based Compensation

        The Company accounts for stock-based compensation using the intrinsic
        value method of accounting for employee stock options as permitted by
        SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly
        compensation expense is not recorded for options granted if the option
        price is equal to the fair market price at the date of grant, as
        determined by management.

  (p)   Reclassifications

        Certain amounts in the prior year have been reclassified to conform with
        the current year presentation.

                                      F-7
<PAGE>

                           J. CREW OPERATING CORP AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999


(2)   Shipping and Handling Revenues

      In July 2000 the Emerging Issues Task Force of the Financial Accounting
      Standards Board issued EITF 00-10 "Accounting for Shipping and Handling
      Fees and Costs", which requires that amounts billed to a customer in a
      sale transaction related to shipping and handling should be classified as
      revenues. The Company adopted EITF 00-10 in its consolidated financial
      statements during the fourth quarter of fiscal 2000 and has restated all
      comparative prior period financial statements.

      Previously, the Company netted shipping and handling fees against third-
      party shipping costs in cost of sales. Handling costs, including shipping
      supplies and labor to assemble and ship the product, were included in
      selling, general and administrative expenses. After the restatement,
      shipping and handling fees are included in other revenues and shipping and
      handling costs are included in cost of sales.

(3)   Disposal of Businesses

      (a)   Popular Club Plan

      In accordance with a sale agreement dated November 24, 1998 the Company
      sold all of the capital stock of Popular Club Plan, Inc. and subsidiaries
      ("PCP") to The Fingerhut Companies, Inc. effective as of October 30, 1998
      for gross proceeds of $42.0 million in cash.

      A gain on the sale of PCP of $10.0 million is included in the statement of
      operations for fiscal 1998. An additional gain of $1.0 million was
      recognized in fiscal 1999 from the reversal of certain estimated
      liabilities recorded at the date of sale. For the nine months ended
      October 30, 1998 revenues of $130.6 million were included in the statement
      of operations.

      (b)   Clifford & Wills

      In 1998, management of the Company made a decision to exit the catalog and
      outlet store operations of Clifford & Wills ("C&W"). Revenues of C&W
      included in the statement of operations for the year ended January 30,
      1999 were $83.8 million. Revenues and expenses for fiscal 1999 and 2000
      were not material and as a result have been netted in the accompanying
      consolidated statement of operations.

      The statement of operations for fiscal year 1998 includes a charge of
      $13,300,000 to write down assets to net realizable value and provide for
      other costs to be incurred in the discontinuance of operations including
      lease termination and severance costs. This loss includes the write down
      of inventories of $9,400,000; the estimated loss on cancellation of leases
      of $1,000,000, severance costs of $1,100,000, write down of property and
      equipment of $600,000, and other related costs of $1,200,000. The
      inventory write down of $9,400,000 was required due to lower than
      anticipated recovery rates on the liquidation of these inventories.
      Additionally fourth quarter charges of $1,700,000 included in selling
      expense were incurred relating to deferred catalog costs.

      In February 2000 the Company sold certain intellectual property assets to
      Spiegel Catalog Inc. for $3.9 million. In connection with this sale the
      Company agreed to cease the fulfillment of catalog orders but retained the
      right to operate its outlet stores and conduct other liquidation sales of
      inventories through December 31, 2000. After consideration of the proceeds
      from the sale and other terms of the agreement the Company provided an
      additional $4,000,000 to write down inventories to net realizable value as
      of January 29, 2000.

                                      F-8
<PAGE>

                          J. CREW OPERATING CORP. AND
                                 SUBSIDIARIES

                  Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999


       At February 3, 2001 the Company determined that the realizable value of
       the remaining net assets of C&W, primarily inventories, was less than
       their carrying amounts and an additional charge of $4,130,000 was taken.


(4)  Other Current Liabilities

     Other current liabilities consist of:

<TABLE>
<CAPTION>
                                                        February 3,          January 29,
                                                           2001                 2000
                                                           ----                 ----
<S>                                                     <C>                 <C>
     Customer liabilities                               $ 12,251,000        $  8,855,000
     Accrued catalog and marketing costs                   4,515,000          11,503,000
     Taxes, other than income taxes                        3,686,000           2,372,000
     Accrued interest                                      4,746,000           4,926,000
     Accrued occupancy                                     2,339,000           6,957,000
     Reserve for sales returns                             6,530,000           5,011,000
     Accrued compensation                                 11,051,000           7,411,000
     Other                                                30,050,000          23,187,000
                                                        ------------        ------------
                                                        $ 75,168,000        $  70,222,00
                                                        ------------        ------------

<CAPTION>
(5)  Long-Term Debt
                                                         February 3,         January 29,
                                                            2001                2000
                                                            ----                ----
     <S>                                                <C>                 <C>
     Term loan (a)                                      $         --        $ 34,000,000
     10-3/8% senior subordinated notes (b)               150,000,000         150,000,000
                                                        ------------        ------------
        Total                                           $150,000,000        $184,000,000
                                                        ============        ============
</TABLE>

    (a) The term loan was subject to the same interest rates and security terms
        as the Revolving Credit Agreement and was fully repaid in January 2001.
        Weighted average interest rate was 8.5% at January 29, 2000.

    (b) The senior subordinated notes are unsecured general obligations of J.
        Crew Operating Corp., a subsidiary of Holdings, and are subordinated in
        right of payment to all senior debt. Interest on the notes accrues at
        the rate of 10-3/8% per annum and is payable semi-annually in arrears on
        April 15 and October 15. The notes mature on October 15, 2007 and may be
        redeemed at the option of the issuer subsequent to October 15, 2002 at
        prices ranging from 105.188% of principal in 2002 to 100% in 2005 and
        thereafter.

        There are no maturities of long-term debt required during the next five
        years.

                                      F-9
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

(6)  Lines of Credit

     On October 17, 1997, the Company entered into a syndicated revolving credit
     agreement of up to $200.0 million (the "Revolving Credit Agreement") with a
     group of banks. This agreement was amended on March 18, 1998, November 23,
     1998 and April 20, 1999. Borrowings may be utilized to fund the working
     capital requirements of the Company including issuance of stand-by and
     trade letters of credit and bankers' acceptances.

     Borrowings are secured by a perfected first priority security interest in
     all assets of the Company's subsidiaries and bear interest, at the
     Company's option, at a base rate equal to the Administrative Agent's
     Eurodollar rate plus an applicable margin or an alternate base rate equal
     to the highest of the Administrative Agent's prime rate, a certificate of
     deposit rate plus 1% or the Federal Funds effective rate plus one-half of
     1% plus, in each case, an applicable margin. The Revolving Credit Agreement
     matures on October 17, 2003.

     Maximum borrowings under revolving credit agreements were $34,000,000,
     $58,000,000 and $104,000,000 during fiscal years 2000, 1999 and 1998 and
     average borrowings were $9,800,000, $30,800,000, and $47,500,000.  There
     were no borrowings outstanding at February 3, 2001 and  January 29, 2000.

     Outstanding letters of credit established to facilitate international
     merchandise purchases at February 3, 2001 January 29, 2000 amounted to
     $50,948,000 and $38,315,000.

     The provisions of the Revolving Credit Agreement, as amended, require that
     the Company maintain certain levels of (i) leverage ratio, (ii) interest
     coverage ratio and (iii) inventory coverage ratio; provide for limitations
     on capital expenditures, sale and leaseback transactions, liens,
     investments, sales of assets and indebtedness; and prohibit the payment of
     cash dividends on shares of common stock.


(7)  Commitments and Contingencies

     (a)  Operating Leases

          As of February 3, 2001, the Company was obligated under various long-
          term operating leases for retail and outlet stores, warehouses, office
          space and equipment requiring minimum annual rentals. These operating
          leases expire on varying dates through 2012. At February 3, 2001
          aggregate minimum rentals in future periods are, as follows:


          Fiscal year                                   Amount
          -----------                                   ------
             2001                                   $ 42,131,000
             2002                                     40,095,000
             2003                                     38,917,000
             2004                                     35,864,000
             2005                                     33,212,000
             Thereafter                              139,432,000

                                     F-10
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999


          Certain of these leases include renewal options and escalation clauses
          and provide for contingent rentals based upon sales and require the
          lessee to pay taxes, insurance and other occupancy costs.

          Rent expense for fiscal 2000, 1999, and 1998 was $45,138,000, $
          39,474,000, and $42,347,000, including contingent rent based on store
          sales of $1,974,000, $2,600,000, and $3,270,000.

     (b)  Employment Agreements

          The Company is party to employment agreements with certain executives
          which provide for compensation and certain other benefits. The
          agreements also provide for severance payments under certain
          circumstances.

     (c)  Litigation

          The Company is subject to various legal proceedings and claims that
          arise in the ordinary conduct of its business. Although the outcome of
          these claims cannot be predicted with certainty, management does not
          believe that the ultimate resolution of these matters will have a
          material adverse effect on the Company's financial condition or
          results of operations.


(8)  Employee Benefit Plan

     The Company has a thrift/savings plan pursuant to Section 401 of the
     Internal Revenue Code whereby all eligible employees may contribute up to
     15% of their annual base salaries subject to certain limitations. The
     Company's contribution is based on a percentage formula set forth in the
     plan agreement. Company contributions to the thrift/savings plan were
     $1,241,000, $1,320,000 and $1,780,000 for fiscal 2000, 1999 and 1998.

(9)  License Agreement

     The Company has a licensing agreement through January 2003 with Itochu
     Corporation, a Japanese trading company. The agreement permits Itochu to
     distribute J. Crew merchandise in Japan. The Company earns royalty payments
     under the agreement based on the sales of its merchandise. Royalty income,
     which is included in other revenues, for fiscal 2000, 1999, and 1998 was
     $3,020,000, $2,505,000, and $2,712,000.

(10) Interest Expense - Net

     Interest expense, net consists of the following:

<TABLE>
<CAPTION>

                                                       2000          1999          1998
                                                       ----          ----          ----
<S>                                                 <C>           <C>           <C>
        Interest expense                            $20,780,000   $24,914,000   $27,725,000
        Amortization of deferred financing costs      2,548,000     1,950,000     1,891,000
        Interest income                                (541,000)     (238,000)   (1,056,000)
                                                    -----------   -----------   -----------
        Interest expense, net                       $22,787,000   $26,626,000   $28,560,000
                                                    -----------   -----------   -----------
</TABLE>

     Interest expense in fiscal 1999 includes $1,029,000 incurred in connection
     with the settlement of a sales and use tax assessment.  Interest income in
     fiscal 1998 includes $979,000 related to a federal income tax refund.

                                     F-11
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

(11)   Other Revenues

       Other revenues consist of the following:

<TABLE>
<CAPTION>
                                                2000          1999           1998
                                                ----          ----           ----
           <S>                               <C>           <C>            <C>
           Shipping and handling fees        $35,297,000   $34,072,000    $46,584,000
           Royalties                           3,020,000     2,505,000      2,712,000
           Finance charge income                      --            --      5,325,000
                                             -----------   -----------    -----------
                                             $38,317,000   $36,577,000    $54,621,000
                                             ===========   ===========    ===========
</TABLE>

(12)   Financial Instruments

       The following disclosure about the fair value of financial instruments is
       made in accordance with the requirements of SFAS No. 107, "Disclosures
       About Fair Value of Financial Instruments." The fair value of the
       Company's long-term debt is estimated to be approximately $132,504,000
       and $160,310,000 at February 3, 2001 and January 29, 2000, and is based
       on dealer quotes or quoted market prices of the same or similar
       instruments The carrying amounts of long-term debt were $150,000,000 and
       $184,684,000 at February 3, 2001 and January 29, 2000. The carrying
       amounts reported in the consolidated balance sheets for cash and cash
       equivalents, notes payable-bank, accounts payable and other current
       liabilities approximate fair value because of the short-term maturity of
       those financial instruments. The estimates presented herein are not
       necessarily indicative of amounts the Company could realize in a current
       market exchange.

(13)   Income Taxes

       The Company accounts for income taxes in accordance with SFAS No. 109,
       "Accounting for Income Taxes". This statement requires the use of the
       liability method of accounting for income taxes. Under the liability
       method, deferred taxes are determined based on the difference between the
       financial reporting and tax bases of assets and liabilities using enacted
       tax rates in effect in the years in which the differences are expected to
       reverse.

       The income tax provision/(benefit) consists of:

<TABLE>
<CAPTION>
                                                      2000             1999             1998
                                                      ----             ----             ----
       <S>                                        <C>              <C>               <C>
       Current:
       Foreign                                    $   300,000      $   250,000      $   270,000
       Federal                                      6,253,000        3,100,000        1,870,000
       State and local                                920,000        1,440,000        1,097,000
                                                  -----------      -----------      -----------
                                                    7,473,000        4,790,000        3,237,000
                                                  -----------      -----------      -----------
       Deferred - Federal, state and local          4,707,000       (2,497,000)      (7,464,000)
                                                  -----------      -----------      -----------
           Total                                  $12,180,000      $ 2,293,000      $(4,227,000)
                                                  ===========      ===========      ===========
 </TABLE>

                                     F-12
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

A reconciliation between the provision/(benefit) for income taxes based on the
U.S. Federal statutory rate and the Company's effective rate is as follows.

<TABLE>
<CAPTION>
                                                                                         2000        1999       1998
                                                                                         ----        ----       ----
          <S>                                                                            <C>         <C>       <C>
          Federal income tax rate                                                        35.0%       35.0%     (35.0)%
          State and local income taxes, net
           of federal benefit                                                             3.2        14.4       (2.1)
          Nondeductible expenses and other                                               (2.3)        5.3        1.6
                                                                                         ----        ----       -----
          Effective tax rate                                                             35.9%       54.7%     (35.5)%
                                                                                         ====        ====      =====
</TABLE>

The tax effect of temporary differences which give rise to deferred tax assets
and liabilities are:

<TABLE>
<CAPTION>
                                                                                               February 3,           January 29,
                                                                                                  2001                  2000
                                                                                                  ----                  ----
     <S>                                                                                      <C>                   <C>
     Deferred tax assets:

          Reserve for sales returns                                                           $  2,625,000          $ 2,012,000
          State and local net operating loss carryforwards                                       1,900,000            3,034,000
          Other                                                                                  5,727,000            2,914,000
                                                                                              ------------          -----------
                                                                                                10,252,000            7,960,000
                                                                                              ------------          -----------
     Deferred tax liabilities:

          Prepaid catalog and other prepaid expenses                                            (8,026,000)          (8,870,000)
          Difference in book and tax basis
            for property and equipment                                                          (5,957,000)           1,885,000
                                                                                              ------------          -----------
                                                                                               (13,983,000)          (6,985,000)
                                                                                              ------------          -----------

             Net deferred income taxes                                                        $ (3,731,000)         $   975,000
                                                                                              ============          ===========
</TABLE>

     Management believes that it is more likely than not that the results of
     future operations will generate sufficient taxable income to realize the
     deferred tax assets. The Company has state and local income tax net
     operating loss carryforwards of varying amounts.

                                     F-13
<PAGE>

                          J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999


(14)   Stockholder's Equity(Deficit)

       The Company has authorized 100 shares of common stock par value $1 per
       share, all of which was issued and outstanding at February 3, 2001 and
       January 29, 2000. A reconciliation of stockholder's equity is as follows:

<TABLE>
<CAPTION>

                                                                    Year Ended
                                                    February 3, 2001           January 29, 2000
                                                    ----------------           ----------------
                   <S>                              <C>                        <C>
                   Balance, beginning of year         $(2,545,000)               $(4,445,000)
                   Net income                          21,753,000                  1,900,000
                                                      -----------                -----------
                   Balance, end of year               $19,208,000                $(2,545,000)
                                                      ===========                ===========
</TABLE>

(15)   Termination costs and other non-recurring employment contract charges

       Charges of $2,850,000 were incurred in fiscal 1998 in connection with the
       termination of the employment contracts of two senior executives
       including the former Chief Executive Officer. Additionally, during fiscal
       1998, tax gross-up payments of $5,145,000 were made on behalf of senior
       executives relating to restricted stock grants.

(16)   Segment Information

       The Company designs, contracts to manufacture and markets men's, women's,
       and children's apparel, accessories and home furnishings primarily under
       Company owned brand names. The brands are marketed through various
       channels of distribution including retail and factory outlet stores,
       catalogs, the Internet and licensing arrangements with third parties.
       These operations have been aggregated into three reportable segments
       based on brand identification: J. Crew, Clifford & Wills and Popular Club
       Plan. Management evaluates the results of operations of its segments
       based on income from operations.

       All of the Company's identifiable assets are located in the United
       States. Export sales are not significant.

       During 1998, the Company sold PCP to The Fingerhut Companies, Inc. and
       decided to discontinue the operations of its C&W brand. The revenues and
       operating income of PCP are included through October 30, 1998 and through
       January 30, 1999 for C&W.

       Income from operations relating to Clifford & Wills for fiscal 1998
       includes a non cash write-down of $13,300,000 relating to the
       discontinuance of C&W operations and $1,700,000 of fourth quarter charges
       to write off deferred catalog costs. Fiscal 1999 and 2000 include
       additional charges of $4,000,000 and $4,130,000 primarily to write down
       inventories to net realizable value. (See note 3 to the consolidated
       financial statements).

                                     F-14
<PAGE>

                          J. CREW OPERATING CORP. AND
                                 SUBSIDIARIES

                  Notes to Consolidated Financial Statements

      Years ended February 3, 2001, January 29, 2000 and January 30, 1999

Corporate and other expenses include expenses incurred by the corporate office
and certain non-recurring expenses that are not allocated to specific business
units. Corporate and other expenses in fiscal 1999 include the write off of
impaired software development costs. Corporate and other expenses in fiscal 1998
include tax gross-up payments related to restricted stock grants and employee
contract termination costs.

Segment assets represent the assets used directly in the operations of each
business unit such as inventories and property and equipment. Corporate assets
consist principally of investments, deferred financing costs and certain
capitalized software.

The accounting policies used for segment reporting are consistent with those
described in the summary of significant accounting policies.

<TABLE>
<CAPTION>
                                                                     [$ in thousands]
Revenues                                                 2000              1999              1998
                                                         ----              ----              ----
<S>                                                    <C>               <C>               <C>
J. Crew                                                $825,975          $750,696          $656,472
Clifford & Wills                                             --                --            83,796
PCP                                                           -                 -           130,574
                                                       --------          --------          --------
                                                        825,975           750,696           870,842
                                                       ========          ========          ========

Income from operations

J. Crew                                                  61,094            41,052            34,736
Clifford & Wills                                         (4,130)           (4,000)          (16,694)
PCP                                                          --                --            (2,701)
Corporate and other expenses                               (244)           (7,869)           (9,560)
                                                       --------          --------          --------
Income from operations                                   56,720            29,819             6,662

Interest expense, net                                   (22,787)          (26,626)          (28,560)
Gain on sale of PCP                                         ---             1,000            10,000
                                                       --------          --------          --------
Income/(loss) before income taxes                      $ 33,933          $  4,193          $(11,898)
                                                       ========          ========          ========

Depreciation and amortization
J. Crew                                                $ 22,448          $ 19,051          $ 14,455
Clifford & Wills                                            ---                 -               327
PCP                                                         ---                 -             1,015
Corporate                                                   152               190               175
                                                       --------          --------          --------
                                                       $ 22,600          $ 19,241          $ 15,972
                                                       ========          ========          ========

Identifiable assets
J. Crew                                                $328,180          $305,552          $324,949
Clifford & Wills                                             --             8,927            17,377
Corporate                                                45,572            49,127            28,110
                                                       --------          --------          --------
                                                       $373,752          $363,606          $370,436
                                                       ========          ========          ========

Capital expenditures (net of disposals)
J. Crew                                                $ 55,394          $ 39,435          $ 34,084
Clifford & Wills                                             --                --               (59)
PCP                                                          --                --             5,264
Corporate                                                   300             9,249             1,888
                                                       --------          --------          --------
                                                       $ 55,694          $ 48,684          $ 41,177
                                                       ========          ========          ========
</TABLE>

                                      F-15
<PAGE>

(17)   Quarterly Financial Information (Unaudited)
       -------------------------------

<TABLE>
<CAPTION>

                                                               ($ in millions)

                                13 weeks          13 weeks          13 weeks         14 weeks         53 weeks
                                   ended             ended             ended            ended            ended
                                 4/29/00           7/29/00          10/28/00           2/3/01(a)        2/3/01
                                --------          --------          --------         --------         --------
<S>                             <C>               <C>               <C>              <C>              <C>
Net sales                       $  158.0          $  162.2          $  194.0         $  273.5         $  787.7
Gross profit                        72.8              71.0              90.2            128.1            362.1
Net income (loss)               $   (3.1)         $   (2.9)         $    6.7         $   21.1         $   21.8

<CAPTION>
                                 13 weeks         13 weeks          13 weeks         13 weeks         52 weeks
                                   ended             ended             ended            ended            ended
                                  5/1/99           7/31/99          10/30/99          1/29/00(b)       1/29/00
                                --------          --------          --------         --------         --------
<S>                             <C>               <C>               <C>              <C>              <C>
Net sales                       $  142.3          $  148.0          $  173.7         $  250.1         $  714.1
Gross profit                        63.6              60.8              77.7            117.4            319.5
Net income (loss)               $   (6.2)         $   (4.8)         $    3.1         $    9.8         $    1.9
</TABLE>

(a)  includes $4.1 million writedown of net assets of C&W.

(b)  includes $4.0 million writedown of net assets of C&W and $6.3 million
     writeoff of software development costs.

                                      F-16
<PAGE>

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            beginning    charged to cost    charged to other                   ending
                                             balance      and expenses          accounts         deductions    balance
<S>                                         <C>          <C>                <C>                  <C>           <C>
                                                                         ($ in thousands)
Allowance for doubtful accounts
-------------------------------
(deducted from accounts receivable)

fiscal year ended:
                                                                                                 $(5,486)(a)
January 30, 1999                             $5,438          $5,627              $ ---            (5,579)(c)   $  ---

Inventory reserve
-----------------
(deducted from inventories)

fiscal year ended:

February 3, 2001                             $4,447          $2,913(b)           $  --           $    --       $7,360

January 29, 2000                              6,122          (1,675)(b)            ---                --        4,447
                                                                                                  (2,200)(c)
January 30, 1999                              4,400           4,929(b)             ---            (1,007)(d)    6,122

Allowance for sales returns
---------------------------
(included in other current liabilities)


fiscal year ended:

February 3, 2001                             $5,011          $1,519(b)           $  --           $    --       $6,530

January 29, 2000                              3,473           1,538(b)            ----                          5,011

January 30, 1999                              3,529             844(b)            ----               500(c)     3,473
                                                                                                     400(d)
</TABLE>

(a)  accounts deemed to be uncollectible
(b)  The inventory reserve and allowance for sales returns are evaluated at the
     end of each fiscal quarter and adjusted (plus or minus) based on the
     quarterly evaluation. During each period inventory write-downs and sales
     returns are charged to the statement of operations as incurred.
(c)  charged to gain on sale of Popular Club Plan, Inc.
(d)  reclassified to net assets held for disposal (relating to discontinuance of
     Clifford & Wills operation)

                                      F-17
<PAGE>

                                 EXHIBIT INDEX
Exhibit
  No.                             Description
  --                              -----------

3.1       Restated Certificate of Incorporation of J. Crew Operating Corp.
          (incorporated by reference to Exhibit 3.1 to the Registrant's
          Registration Statement on Form S-4, File No. 333-42423, filed December
          16, 1997 (the "Operating Registration Statement")).

3.2       By-laws of J. Crew Operating Corp., as amended (incorporated by
          reference to Exhibit 3.14 to the Operating Registration Statement).

4.1       Indenture, dated as of October 17, 1997, between J. Crew Group, Inc.,
          as issuer, and State Street Bank and Trust Company, as trustee,
          relating to the Debentures (incorporated by reference to Exhibit 4.3
          to the Registration Statement).

4.2(a)    Credit Agreement, dated as of October 17, 1997 ("Credit Agreement"),
          among J. Crew Group, Inc., J. Crew Operating Corp., the Lenders Party
          thereto, the Chase Manhattan Bank, as Administrative Agent, and
          Donaldson, Lufkin & Jenrette Securities Corporation, as Syndication
          Agent (incorporated by reference to Exhibit 4.5 to Amendment No. 1 to
          the Registration Statement, filed February 6, 1998).

4.2(b)    Amendment, dated as of November 23, 1998, to the Credit Agreement
          (incorporated by reference to Exhibit 4.2(b) to the Registrant's
          Annual Report on Form 10-K for the fiscal year ended January 30, 1999
          (the "1998 Form 10-K")).

4.2(c)    Amendment, dated as of March 18, 1998, to the Credit Agreement
          (incorporated by reference to Exhibit 4.2(c) of the 1998 Form 10-K).
4.2(d)    Amendment and Restatement Agreement, dated as of April 20, 1999,
          relating to the Credit Agreement (incorporated by reference to Exhibit
          4.2(d) of the 1998 Form 10-K).

4.3       Guarantee Agreement, dated as of October 17, 1997, among J. Crew
          Group, Inc., the subsidiary guarantors of J. Crew Operating Corp. that
          are signatories thereto and The Chase Manhattan Bank (incorporated by
          reference to Exhibit 4.6 to the Registration Statement).

4.4       Indemnity, Subrogation and Contribution Agreement, dated as of October
          17, 1997, among J. Crew Operating Corp., the subsidiary guarantors of
          J. Crew Operating Corp. that are signatories thereto and The Chase
          Manhattan Bank (incorporated by reference to Exhibit 4.7 to the
          Registration Statement).

4.5       Pledge Agreement, dated as of October 17, 1997, among J. Crew
          Operating Corp., J. Crew Group, Inc., the subsidiary guarantors of J.
          Crew Operating Corp. that are signatories thereto and The Chase
          Manhattan Bank (incorporated by reference to Exhibit 4.8 to the
          Registration Statement).

4.6       Security Agreement, dated as of October 17, 1997, among J. Crew
          Operating Corp., J. Crew Group, Inc., the subsidiary guarantors of J.
          Crew Operating Corp. that are signatories thereto and The Chase
          Manhattan Bank (incorporated by reference to Exhibit 4.9 to the
          Registration Statement).

4.7       Registration Rights Agreement, dated as of October 17, 1997, by and
          among J. Crew Group, Inc., Donaldson, Lufkin & Jenrette Securities
          Corporation and Chase Securities Inc. (incorporated by reference to
          Exhibit 4.10 to the Registration Statement).

          NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of Item 601
          of Regulation S-K, the Registrant hereby undertakes to furnish to the
          Commission upon request copies of the instruments pursuant to which
          various entities hold long-term debt of the Company or its parent or
          subsidiaries, none of which instruments govern indebtedness exceeding
          10 percent of the total assets of the Company and its subsidiaries on
          a consolidated basis.
<PAGE>

Exhibit
  No.                             Description
  --                              -----------

10.1(a)+    Employment Agreement, dated October 17, 1997, among J. Crew Group,
            Inc., J. Crew Operating Corp., TPG Partners II, L.P. (only with
            respect to Section 2(c) therein) and Emily Woods (the "Woods
            Employment Agreement") (incorporated by reference to Exhibit 10.1 to
            the Registration Statement).

10.1(b)+    Letter Agreement, dated February 4, 2000, between J. Crew Group,
            Inc. and Emily Woods (incorporated by reference to Exhibit 10.1 (b)
            to the Registrant's Annual Report on Form 10-K for the fiscal year
            ended January 29, 2000 (the "1999 Form 10-K")).

10.2+       J. Crew Operating Corp. Senior Executive Bonus Plan (included as
            Exhibit A to the Woods Employment Agreement filed as Exhibit 10.1(a)
            above).

10.3+       Stock Option Grant Agreement, made as of October 17, 1997, between
            J. Crew Group, Inc. and Emily Woods (time based) (incorporated by
            reference to Exhibit 10.3 to the Registration Statement).

10.4+       Stock Option Grant Agreement, made as of October 17, 1997, between
            J. Crew Group, Inc. and Emily Woods (performance based)
            (incorporated by reference to Exhibit 10.4 to the Registration
            Statement).

10.5(a)+    Employment Agreement, dated May 3, 1999, between J.Crew Group, Inc.
            and Mark Sarvary (incorporated by reference to Exhibit 10.1 to the
            Registrant's Quarterly Report on Form 10-Q for the period ended May
            1, 1999).

10.5(b)+    Letter Agreement, dated August 9, 1999, between Mark Sarvary and J.
            Crew Operating Corp. (incorporated by reference to Exhibit 10.5(b)
            to the 1999 Form 10-K).

10.6+       Agreement, dated September 30, 1999, between J. Crew Operating Corp.
            and Carol Sharpe (incorporated by reference to Exhibit 10.6 to the
            1999 Form 10-K).

10.7+ *     Employment Agreement, dated February 18, 2000, between J. Crew
            Operating Corp. and Trudy Sullivan.

10.8(a)+ *  Employment Agreement, dated April 18, 1999, between J. Crew Group,
            Inc. and Richard Anders.

10.8(b)+ *  Letter Agreement, dated January 29, 2001, between J. Crew Group,
            Inc. and Richard Anders.

10.9        Stockholders' Agreement, dated as of October 17, 1997, among J. Crew
            Group, Inc. and the Stockholder signatories thereto (incorporated by
            reference to Exhibit 4.1 to the Registration Statement).

10.10       Stockholders' Agreement, dated as of October 17, 1997, among J. Crew
            Group, Inc., TPG Partners II, L.P. and Emily Woods (included as
            Exhibit B to the Woods Employment Agreement filed as Exhibit 10.1 to
            the Registration Statement).

10.11(a)+   J. Crew Group, Inc. 1997 Stock Option Plan (the "1997 Plan")
            (incorporated by reference to Exhibit 10.13 to the Registration
            Statement).

10.11(b)+ * Amendment to the 1997 Plan, dated July 24, 2000.

10.11(c)+ * Amendment to the 1997 Plan, dated February 2, 2001.
<PAGE>

Exhibit
  No.                             Description
  --                              -----------

10.12     Agreement, dated August 14, 1997, between R.R. Donnelley & Sons
          Company and J. Crew Inc. (incorporated by reference to Exhibit 10.11
          to the Registration Statement).

+Management contract or compensatory plan or arrangement.

* Filed herewith