<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 January 29, 2000

                        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, 2000, 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 Instruction I (1) (a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
<PAGE>

Certain statements in this Annual Report on Form 10K 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 Form 10Q, 8K, 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 end on the Friday closest to January 31 in the following calendar
year for fiscal years 1995 and 1996 and on the Saturday closest to January 31 in
the following calendar year for fiscal years 1997, 1998 and 1999. Accordingly,
fiscal years 1995, 1996, 1997, 1998 and 1999 ended on February 2, 1996, January
31, 1997, January 31, 1998, January 30, 1999 and January 29, 2000. All fiscal
years for which financial information is included had 52 weeks.

In connection with the recapitalization (the "Recapitalization") of J.Crew
Group, Inc., a New York corporation ("Holdings"), Holdings organized J.Crew
Operating Corp., a Delaware corporation ("Operating Corp."), and immediately
prior to the consummation of the Recapitalization, Holdings transferred
substantially all of its assets and liabilities to Operating Corp.

References in this Report to the "Company" and "J. Crew" mean J. Crew Operating
Corp. and its subsidiaries, unless the context requires otherwise.


                                     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 17-year history through the
circulation of more than 700 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), sport, swimwear, accessories and shoes, as well as the more
tailored men's and women's "Classics" lines. Approximately 60% of the Company's

                                       1
<PAGE>

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 75 million J. Crew catalogs per annum and
operates 81 J. Crew retail stores and 42 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 Direct, J. Crew Retail,
and J. Crew Factory Outlets, each of which operate under the J. Crew brand name.
In 1999, products sold under the J. Crew brand contributed $716.6 million in
revenues. J. Crew brand revenues in 1999 were comprised of $333.6 million from
J. Crew Retail, $278.5 million from J. Crew Direct, $102.0 million from J. Crew
Factory Outlet and $2.5 million of licensing revenues. The Company also markets
to its customers through its Internet site (jcrew.com). Revenues derived from
the Internet, which were $65.2 million for 1999, are included in J. Crew Direct
revenues.

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 $124.1 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 mail order and factory outlet subsidiaries (C&W). Revenues for
the year ended January 30, 1999 were $74.3 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 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.

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 and Factory Outlet store operations.

As of January 29, 2000, the Company operated 81 J. Crew retail stores and 42
factory outlet stores in 34 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 financial condition of the Company.


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

Omitted pursuant to General Instruction I 1(a) and (b) 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 1(a) and (b) 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 three-year period ended January 29,
2000 and notes thereto included elsewhere in this Annual Report on Form 10-K.

Fiscal 1999 Compared to Fiscal 1998

Revenues
--------

Revenues decreased 13.1% to $716.6 million in the fiscal year ended January 29,
2000 from $824.3 million in the fiscal year ended January 30, 1999. The decrease
in revenues was attributable to the sale of Popular Club Plan, effective as of
October 30, 1998 and the discontinuance of Clifford & Wills operations which
resulted in a decrease of $198.4 million. This decrease was offset by increases
of $59.6 million in J. Crew Retail and $25.8 million in J.Crew Direct. Excluding
Popular Club Plan and Clifford & Wills, revenues increased 14.5% from $625.9
million in fiscal 1998 to $716.6 million in fiscal 1999.

J. Crew Retail revenues increased by 21.8% from $274.0 million in fiscal 1998 to
$333.6 million in fiscal 1999. The percentage of the Company's total revenues
derived from J. Crew Retail increased to 46.6% in fiscal 1999 compared to 33.2%
in fiscal 1998. This increase was attributed to $54.6 million from the opening
of new stores and $5.0 million from an increase in comparable store sales of
1.8%. The number of stores opened at January 29, 2000 increased to 81 from 65 at
January 30, 1999.

J. Crew Direct revenues (which includes revenues from catalog and internet
operations) increased by 10.2% from $252.8 million in fiscal 1998 to $278.5
million in fiscal 1999. The percentage of the Company's total revenues derived
from J. Crew Direct increased to 38.9% in fiscal 1999 from 30.7% in fiscal 1998.
This increase was primarily due to an increase in net sales from j.crew.com
which increased to $65.2 million fiscal 1999 from $21.6 million in fiscal
1998.Catalog sales decreased to $213.3 million in fiscal 1999 from $231.2
million in fiscal 1998 as the Company adopted initiatives to migrate catalog
customers to the Internet.

J. Crew Factory Outlet revenues increased by 5.7% from $96.5 million in fiscal
1998 to $102.0 million in fiscal 1999. The percentage of the Company's total
revenues derived from J. Crew Factory Outlet increased to 14.2% in fiscal 1999
from 11.7% in fiscal 1998. Comparable store sales for J. Crew Factory Outlet
increased by 3.8% in fiscal 1999. J. Crew Factory Outlet closed three stores in
fiscal 1999 and 42 stores were open at January 29, 2000.


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

Cost of sales, including buying and occupancy costs as a percentage of revenues
decreased to 55.1% in fiscal 1999 compared to 55.9% in fiscal 1998. Excluding
the operations of PCP and C&W, cost of sales including buying and occupancy
costs decreased to 55.1% in fiscal 1999 from 56.2% in fiscal 1998. This decrease
was caused primarily by an increase in initial mark up caused by a decrease in
the cost of merchandise.

                                       4
<PAGE>

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

Selling, general and administrative expenses decreased to $281.0 million in
fiscal 1999 (39.2% of revenues) from $335.7 million in fiscal 1998 (40.7% of
revenues). Approximately $94.4 million of selling, general, and administrative
expenses in fiscal 1998 resulted from the operations of PCP and C&W.

Selling, general and administrative expenses of the J.Crew brand increased to
$281.0 million in fiscal 1999 (39.2% of revenues) from $241.3 million in fiscal
1998 (38.6% of revenues). This increase resulted primarily from an increase in
general and administrative expenses of $31.8 million due to (a) an increase in
the number of retail stores in operation during fiscal 1999 compared to fiscal
1998; (b) an increase in consulting fees and other expenses attributable to
information technology initiatives; and (c) an increase in marketing expenses of
approximately $8 million, primarily direct advertising, devoted to increasing
customer awareness of the Company's Internet site.

Selling expenses were $75.7 million in fiscal 1999 (10.6% of revenues) compared
to $67.8 million in fiscal 1998 (10.8% of revenues). This increase was due to
$6.0 million of direct advertising related to the Internet and an increase in
pages circulated from 8.8 billion pages in fiscal 1998 to 9.3 billion pages in
fiscal year 1999, an increase of 5.7%. These increases in selling expenses were
partially offset by decreases related to efficiencies in the catalog production
process.

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


An additional charge of $4.0 million was incurred in fiscal 1999 to write down
the carrying value of inventories to net realizable value. (See note 2 to the
consolidated financial statements).

Other charges
-------------

Other charges in fiscal 1999 include $7.0 million relating to the write off of
certain software development costs which were impaired by the decision of the
Company to adopt an enterprise resource planning system for its future
information technology requirements.

Gain on sale of subsidiary
--------------------------

An additional gain of $1.0 million was recognized in fiscal 1999 from a
reduction in certain estimated liabilities established at the time of sale.(See
note 2 to the consolidated financial statements).

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

Interest expense, net decreased to $26.6 million in fiscal 1999 from $28.6
million in fiscal 1998. This decrease resulted primarily from lower average
borrowings during fiscal 1999 under the Revolving Credit Facility and the
reduced term loan balances which was offset by interest related to the
settlement of a sales and use tax assessment. Average borrowings under a
Revolving Credit Facility required to fund inventories and capital expenditures
were $30.8 million in fiscal 1999 and $47.5 million in fiscal 1998.

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

The effective tax rate was 54.7% in fiscal 1999 compared to (35.5)% in fiscal
1998. The increase in the effective tax rate in 1999 was primarily due to
pre-tax earnings in fiscal 1999 compared to pre-tax losses in fiscal 1998. The
excess of the effective rate in fiscal 1999 over the normal statutory rates
resulted from the inability of certain subsidiaries to deduct net operating
losses for state tax purposes.

                                       5
<PAGE>

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's 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 for a notional principal amount of $50 million which expires
in October 2000. This agreement converts the interest rate to a fixed rate of
6.23%. If this interest rate swap agreement was settled on January 29, 2000 the
Company would have received $62,000.

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 January 29, 2000 were approximately
$38.3 million.

Furthermore, 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 this risk. At January 29, 2000, there was a forward
foreign exchange contract outstanding to sell 120 million Yen which expires on
March 31, 2000.

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.

                                    PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Omitted pursuant to General Instruction I 1(a) and (b) of Form 10-K.

ITEM 11     EXECUTIVE COMPENSATION

Omitted pursuant to General Instruction I 1(a) and (b) of Form 10-K.

ITEM 12     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Omitted pursuant to General Instruction I 1(a) and (b) of Form 10-K.

ITEM 13     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Omitted pursuant to General Instruction I 1(a) and (b) 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 January 29, 2000 and
                     January 30, 1999
              (iii)  Consolidated Statements of Operations - Years ended January
                     29, 2000, January 30, 1999 and January 31, 1998
              (iv)   Consolidated Statements of Cash Flows - Years ended January
                     29, 2000, January 30, 1999 and January 31, 1998
              (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 January 29, 2000.

(c)    Exhibits

       See Item 14(a)3 above.

(d)    Financial Statement 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 17, 2000
                                    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 and on the dates indicated.


<TABLE>
<CAPTION>

                Signature                                 Title                                 Date
                ---------                                 -----                                 ----

<S>                                               <C>                                         <C>
           /s/ Mark A. Sarvary                      Chief Executive Officer                    April 17, 2000
           ------------------------------           (Principal Executive Officer)
           Mark A. Sarvary


           /s/ Scott M. Rosen                       Executive Vice President, Chief Financial  April 17, 2000
           ------------------------------           Officer (Principal Financial Officer)
           Scott M. Rosen


           /s/ Nicholas Lamberti                    Vice President, Corporate Controller       April 17, 2000
           ------------------------------           (Principal Accounting Officer)
           Nicholas Lamberti


           /s/ David Bonderman                      Director                                   April 17, 2000
           ------------------------------
           David Bonderman


           /s/ Richard W. Boyce                     Director                                   April 17, 2000
           ------------------------------
           Richard W. Boyce


           /s/ James G. Coulter                     Director                                   April 17, 2000
           ------------------------------
           James G. Coulter


            /s/ Emily Woods                         Director                                   April 17, 2000
           ------------------------------
           Emily Woods
</TABLE>




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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. Crew Operating
Corp. and subsidiaries as of January 29, 2000 and January 30, 1999 and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 29, 2000, in conformity with generally accepted
accounting principles. 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 31, 2000

                                      F-1
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                           Consolidated Balance Sheets
<TABLE>
<CAPTION>


                                                                                January 29,                January 30,
                                       Assets                                      2000                       1999
                                       ------                                      ----                       ----
                                                                                            (in thousands)
Current assets:
<S>                                                                               <C>                      <C>
      Cash and cash equivalents                                                   $ 38,693                 $      9,643
      Merchandise inventories                                                      129,928                      156,022
      Prepaid expenses and other current assets                                     30,083                       46,729
      Net assets held for disposal                                                   8,927                       17,377
                                                                               -----------                   ----------

            Total current assets                                                   207,631                      229,771
                                                                               ===========                   ==========
Property and equipment - at cost:

      Land                                                                           1,460                        1,460
      Buildings and improvements                                                    11,363                       11,167
      Furniture, fixtures and equipment                                             60,355                       53,344
      Leasehold improvements                                                       130,054                      114,424
      Construction in progress                                                      12,851                        3,932
                                                                               -----------                   ----------
                                                                                   216,083                      184,327
            Less accumulated depreciation and amortization                          77,683                       64,577
                                                                               -----------                   ----------
                                                                                   138,400                      119,750
                                                                               -----------                   ----------
Deferred income tax assets                                                           6,817                        7,954
Other assets                                                                        10,758                       12,961
                                                                               -----------                   ----------

            Total assets                                                       $   363,606                   $  370,436
                                                                               ===========                   ==========

                      Liabilities and Stockholder's Deficit
                      -------------------------------------

Current liabilities:
      Notes payable - bank                                                   $          --                      $14,000
      Accounts payable                                                              40,951                       40,130
      Other current liabilities                                                     70,222                       59,175
      Federal and state income taxes payable                                        15,956                       12,550
      Deferred income tax liabilities                                                5,842                        9,476
                                                                               -----------                   ----------

             Total current liabilities                                             132,971                      135,331
                                                                               -----------                   ----------

Long-term debt                                                                     184,000                      194,000
                                                                               -----------                   ----------

Deferred credits and other long-term liabilities                                    48,277                       44,799
                                                                               -----------                   ----------

Due to J.Crew Group, Inc.                                                              903                          751
                                                                               -----------                   ----------

Stockholder's deficit                                                              (2,545)                      (4,445)
                                                                               -----------                   ----------

Total liabilities and stockholder's deficit                                    $   363,606                  $   370,436
                                                                               ===========                   ==========

</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
                                                                                        -----------
                                                                        January 29,      January 30,     January 31,
                                                                        -----------      ----------      -----------
                                                                         2000                1999              1998
                                                                         ----                ----              ----
                                                                                         (in thousands)
Revenues:

<S>                                                                     <C>                <C>                <C>
    Net sales                                                           $714,119           $816,221           $822,840
    Other                                                                  2,505              8,037             11,191
                                                                           -----              -----             ------
                                                                         716,624            824,258            834,031

Operating costs and expenses:

    Cost of goods sold, including buying and occupancy
      costs                                                              394,813            460,592            465,168
    Selling, general and administrative expenses                         280,974            335,709            359,811
    Write off of software development costs                                7,018                 --
    Write down of assets and other charges in
      connection with discontinuance of Clifford & Wills                   4,000             13,300                 --
    Termination costs and other non-recurring employment
      contract charges                                                         -              7,995                 --
                                                                   -------------              -----                 --
                                                                         686,805            817,596            824,979
                                                                         -------            -------            -------

      Income from operations                                              29,819              6,662              9,052

Interest expense - net                                                    26,626             28,560             17,524

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

Expenses incurred in connection with the Recapitalization                     --                 --             20,707
                                                                    ------------      -------------             ------

      Income (loss) before income taxes and extraordinary item             4,193           (11,898)           (29,179)

(Provision) benefit for income taxes                                     (2,293)              4,227              4,257
                                                                         -------              -----              -----

      Income/(loss) before extraordinary item                              1,900            (7,671)           (24,922)
                                                                           -----            -------           --------

Extraordinary item - loss on early retirement of debt
    (net of income tax benefit of $3,127)                                     --                 --            (4,500)
                                                                              --                 --            -------

      Net income (loss)                                                   $1,900           $(7,671)          $(29,422)
                                                                          ======           ========           ========

</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
                                                                                         -----------
                                                                        January 29,       January 30,        January 31,
                                                                        -----------       -----------        -----------
                                                                          2000               1999               1998
                                                                          ----               ----               ----
                                                                                         (in thousands)
Cash flows from operating activities:
<S>                                                                     <C>                <C>               <C>
Net income (loss)                                                       $ 1,900            $ (7,671)         $ (29,422)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
      Depreciation and amortization                                      19,241               15,972             15,255
      Write off of software development costs                             7,018                   --                 --
      Amortization of deferred financing costs                            1,950                1,891                892
      Deferred income taxes                                             (2,497)              (7,464)            (4,005)
      Gain on sale of subsidiary                                        (1,000)             (10,000)
      Write down of assets and other charges
           in connection with discontinued catalog                        4,000               15,000                 --
      Loss on early retirement of debt                                      ---                   --              7,627
      Provision for losses on accounts receivable                            --                5,627              7,343

Changes in operating assets and liabilities:
  Accounts receivable                                                        --              (8,242)             33,902
  Merchandise inventories                                                26,094             (15,608)            (5,106)
  Prepaid expenses and other current assets                              16,646                (536)            (4,081)
  Net assets held for disposal                                            4,450                   --                 --
  Other assets                                                            (770)              (2,559)              (587)
  Accounts payable                                                          821                7,415           (37,726)
  Other liabilities                                                      13,044                2,550             17,727
  Federal and state income taxes payable                                  3,406               12,299            (9,268)
                                                                    -----------           ----------        -----------
      Net cash (used in) provided by operating activities                94,303                8,674            (7,449)
                                                                    -----------           ----------        -----------

Cash flows from investing activities:
  Capital expenditures                                                 (48,684)             (41,177)           (43,134)
  Proceeds from construction allowances                                   7,431                4,823             11,767
  Proceeds from sale of subsidiary, net of related expenses                   -               37,157                  -
                                                                    -----------           ----------        -----------
      Net cash provided by (used in) investing activities              (41,253)                  803           (31,367)
                                                                    -----------           ----------        -----------

Cash flows from financing activities:
  (Decrease)/increase in notes payable, bank                           (14,000)               14,000                 --
  Issuance of long-term debt                                                 --                   --            220,000
  Repayment of long-term debt                                          (10,000)             (26,000)           (92,863)
  Costs incurred in connection with the issuance of debt                     --                   --           (13,929)
  Dividends paid                                                             --                   --           (69,358)
                                                                    -----------           ----------        -----------
      Net cash provided by (used in) financing activities              (24,000)             (12,000)             43,850
                                                                    -----------           ----------        -----------

  Increase (decrease) in cash and cash equivalents                       29,050              (2,523)              5,034

  Cash and cash equivalents at beginning of year                          9,643               12,166              7,132
                                                                    -----------           ----------        -----------
  Cash and cash equivalents at end of year                              $38,693               $9,643            $12,166
                                                                    ===========           ==========        ===========

  Supplementary cash flow information:
      Income taxes paid (refunded)                                     $(7,570)               $(515)            $ 5,180
                                                                    ===========           ==========        ===========
      Interest paid                                                    $ 24,792             $ 27,763            $12,655
                                                                    ===========           ==========        ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999, and January 31, 1998

(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 it's
          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.

          Prior to the Recapitalization (see Note 3), Holdings owned all of the
          stock, directly or indirectly, of its various operating subsidiaries.
          In connection with the Recapitalization, Holdings formed Operating
          Corp. and immediately prior to the consummation of the
          Recapitalization, Holdings transferred substantially all of its assets
          and liabilities to Operating Corp. On October 17, 1997, Operating
          Corp. made a cash distribution of $69,358,000 to permit Holdings to
          make certain payments in connection with the Recapitalization.

     (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 1999, 1998 and 1997 ended on January 29, 2000 (52
          weeks), January 30, 1999 (52 weeks) and January 31, 1998 (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 $23,896,000 and $755,000 at January 29, 2000 and January
          30, 1999, are stated at cost, which approximates market value.

                                      F-5
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

      (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 into 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 January 29, 2000
           and January 30, 1999 were $14,300,000 and $21,130,000. Catalog costs,
           which are reflected in selling and administrative expenses, for the
           fiscal years 1999, 1998 and 1997 were $84,077,000, $116,515,000, and
           $131,103,000.

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

      (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 $6.0 million of systems development costs were
           capitalized in fiscal 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 $9,297,000
           and $10,633,000 at January 29, 2000 and January 30, 1999, 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 January 29, 2000, January 30, 1999 and January 31, 1998


     (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.

     (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 January 29, 2000, January 30, 1999 and January
          31, 1998.

     (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 January 29, 2000, January 30, 1999 and January 31, 1998

     (2)  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 $124.1 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 $74.3 million. Revenues and expenses for fiscal 1999
          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 January 29, 2000, January 30, 1999 and January 31, 1998

(3)  Recapitalization Transaction

     In October 1997, the Company entered into a recapitalization transaction
     (the "Recapitalization"). Holdings purchased from the existing Shareholders
     for an aggregate purchase price of approximately $316,688,000 all of the
     outstanding shares of Holdings' capital stock, other than a certain number
     of shares of Holdings' common stock held by existing shareholders which
     represented 14.8% of the outstanding shares of Holdings' common stock
     immediately following consummation of the Recapitalization. The purchase of
     such outstanding shares of capital stock was financed in part by (a)
     issuing to TPG Partners II, L.P., its affiliates and other investors shares
     of common stock of Holdings for approximately $63,891,000 and shares of
     preferred stock of Holdings for $125,000,000 and (b) consummating the debt
     and securitization transactions described in Notes 5, 6 and 7. In
     connection with the Recapitalization, the Company repaid substantially all
     of its preexisting debt obligations immediately before the consummation of
     the Recapitalization.

     Expenses incurred in connection with the Recapitalization consisted of:

           Management bonuses                       $12,163,000
           TPG financial advisory fee                 5,550,000
           Legal and accounting fees                  1,454,000
           Consulting fee                             1,000,000
           Other                                        540,000
                                                    -----------
           Total                                    $20,707,000
                                                    -----------

(4)  Other Current Liabilities

     Other current liabilities consist of:
<TABLE>
<CAPTION>
                                                          January 29,             January 30,
                                                             2000                    1999
                                                             ----                    ----

<S>                                                       <C>                     <C>
           Customer liabilities                           $8,855,000              $6,861,000
           Accrued catalog and marketing costs            11,503,000               5,155,000
           Taxes, other than income taxes                  2,372,000               3,834,000
           Accrued interest                                4,926,000               5,042,000
           Accrued occupancy                               6,957,000               4,059,000
           Reserve for sales returns                       5,011,000               3,473,000
           Accrued compensation (including employment
           contract termination costs of $2,850,000 at
           January 30, 1999)                               7,411,000              11,984,000
           Other                                          23,187,000              18,767,000
                                                         -----------             -----------
                                                         $70,222,000             $59,175,000
                                                         -----------             -----------
</TABLE>

                                      F-9
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

(5)  Sale of Accounts Receivable

     In October 1997, the Company entered into an agreement to securitize
     certain customer installment receivables of Popular Club Plan, Inc. on a
     revolving basis. The Company had no obligation to reimburse the trust or
     the purchasers of beneficial interests for credit losses. The transactions
     were accounted for as a sale in accordance with the provisions of SFAS No.
     125 "Accounting for Transfers and Servicing of Financial Assets and
     Extinguishment of Liabilities." Under SFAS No. 125, no servicing asset or
     liability was recorded as fees charged were expected to cover related
     expenses.

     At January 31, 1998, $46,000,000 of accounts receivable had been sold
     pursuant to this agreement. The sale of receivables resulted in a gain of
     $1,472,000 during the year ended January 31, 1998. Finance charge income,
     including the gain on sale, was $5,325,000 and $8,294,000 for fiscal years
     1998 and 1997.

     Obligations under the securitization agreement were assumed by the acquiror
     under the terms of the sale agreement with The Fingerhut Companies, Inc.
     (see Note 2).

(6)  Long-Term Debt

                                                  January 29,    January 30,
                                                     2000           1999
                                                     ----           ----

           Term loan (a)                           $34,000,000    $44,000,000
           10-3/8% senior subordinated notes (b)   150,000,000    150,000,000
                                                   -----------    -----------
                 Total                            $184,000,000   $194,000,000
                                                  ============    ===========

      (a)  The term loan is subject to the same interest rates and security
           terms as the Revolving Credit Agreement. Weighted average interest
           rates were 8.5% at January 29, 2000 and January 30, 1999 (see Note
           7). The term loan is repayable in quarterly installments of
           $1,925,000 from February 2001 through November 2001 and $3,287,500
           from February 2002 through November 2003. Proceeds of $26.0 million
           from the sale of PCP were used to prepay the term loan in 1998 and
           proceeds of $10.0 million from the sale of assets of its discontinued
           C&W subsidiary were used to prepay the term loan in 1999.

       (b) The senior subordinated notes are unsecured general obligations of
           the Company 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% in 2002 to 100% in 2005 and thereafter.

                                      F-10
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

The maturities of long-term debt required during the next five years are:


           Fiscal year                      Amount
           -----------                      ------
           2000                                $--
           2001                          7,700,000
           2002                         13,150,000
           2003                         13,150,000
           2004                                 --

 (7)       Lines of Credit

           On October 17, 1997, in connection with the Recapitalization, 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 $58,000,000
           during fiscal year 1999 and $104,000,000 during fiscal years 1998 and
           1997; and average borrowings were $30,800,000, $47,500,000, and
           $54,300,000. Borrowings outstanding under the Company's revolving
           credit agreement were $14,000,000 at January 30, 1999. There were no
           borrowings outstanding at January 29, 2000.

           Outstanding letters of credit established to facilitate international
           merchandise purchases at January 29, 2000 and January 30, 1999
           amounted to $38,315,000 and $41,628,000.

           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.

                                      F-11
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998

 (8)       Commitments and Contingencies

           (a)  Operating Leases
                As of January 29, 2000, 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 to 2012.
                At January 29, 2000 aggregate minimum rentals in future periods
                are as follows:

                  Fiscal year                   Amount
                  -----------                   ------
                     2000                     $36,900,000
                     2001                      34,720,000
                     2002                      33,611,000
                     2003                      33,317,000
                     2004                      29,609,000
                     Thereafter               132,817,000

                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 1999, 1998 and 1997 was $ 39,474,000,
                $42,347,000 and $35,753,000, including contingent rent based on
                store sales of $2,600,000, $3,270,000, and $2,877,000.

           (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.


 (9)       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 $1,320,000 for fiscal 1999 and $1,780,000
           for fiscal 1998 and 1997.

(10)       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 1999, 1998 and 1997 was $2,505,000, $2,712,000 and $2,897,000.

                                      F-12
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998

 (11)      Interest Expense - Net

           Interest expense, net consists of the following:
<TABLE>
<CAPTION>

                                                         1999                1998                    1997
                                                         ----                ----                    ----
<S>                                                  <C>                  <C>                     <C>
                  Interest expense                   $26,864,000          $29,616,000             $17,666,000
                  Interest income                      (238,000)          (1,056,000)               (142,000)
                                                       ---------          -----------               ---------
                  Interest expense, net              $26,626,000          $28,560,000             $17,524,000
                                                     -----------           ----------              ----------
</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.

(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 $160,310,000 and $178,520,000 at January 29, 2000 and
           January 30, 1999, and is based on dealer quotes or quoted market
           prices of the same or similar instruments The carrying amounts of
           long-term debt were $184,000,000 and $194,000,000 at January 29, 2000
           and January 30, 1999. 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.

           In October 1997 the Company entered into an interest rate swap
           agreement for $70 million notional amount, which was reduced to $50
           million in October 1998. This agreement effectively converted the
           interest rate on its term loan and borrowings on the Revolving Credit
           Agreement from a variable rate to a fixed rate of 6.23% through
           October 2000. If this agreement had been settled on January 29, 2000,
           the Company would have received $62,000.

           At January 29, 2000, the Company had a forward foreign exchange
           contract outstanding to sell 120 million yen on March 31, 2000. At
           January 30, 1999 the company had two forward foreign exchange
           contracts outstanding to sell 130 million yen each on March 31, 1999
           at different rates of exchange. These contracts are entered into to
           manage the foreign exchange rate exposure relating to foreign
           licensing revenues. The fair value of the contracts approximate
           carrying value. The Company is exposed to credit losses in the event
           of nonperformance by the counterparties to these contracts, but it
           does not expect any counterparties to fail to meet their obligation
           given their high-credit rating.

(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.

                                      F-13
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

The income tax provision (benefit) consists of:
<TABLE>
<CAPTION>
                                                                          1999              1998              1997
                                                                          ----              ----              ----
           Current:
<S>                                                                      <C>               <C>                <C>
           Foreign                                                       $250,000          $270,000           $309,000
           Federal                                                      3,100,000         1,870,000          (866,000)
           State and local                                              1,440,000         1,097,000            305,000
                                                                     ------------     -------------       ------------
                                                                        4,790,000         3,237,000          (252,000)
                                                                     ------------     -------------       ------------
           Deferred - Federal, state and local                        (2,497,000)       (7,464,000)        (4,005,0000
                                                                     ------------     -------------       ------------
           Income taxes before tax effect of extraordinary items        2,293,000       (4,227,000)        (4,257,000)
           Tax effect of extraordinary items                                    -                --        (3,127,000)
                                                                     ------------     -------------       ------------
                  Total                                                $2,293,000      $(4,227,000)       $(7,384,000)
                                                                     ============     =============       ============

</TABLE>

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>
                                                                                        1999           1998        1997
                                                                                        ----           ----        ----
<S>                                                                                    <C>          <C>           <C>
                Federal income tax rate                                                35.0%        (35.0)%       (35.0)%
                State and local income taxes, net
                    of federal benefit                                                  14.4          (2.1)         (2.0)
                Nondeductible expenses and other                                         5.3            1.6          16.9
                                                                                       -----        -------       -------
                Effective tax rate                                                     54.7%        (35.5)%       (20.1)%
                                                                                       =====        =======       =======
</TABLE>

The tax effect of temporary differences which give rise to deferred tax assets
and liabilities are:
<TABLE>
<CAPTION>
                                                                              January 29,         January 30,
                                                                                 2000                1999
                                                                                ----                 ----
           Deferred tax assets:

<S>                                                                            <C>                 <C>
                State and local net operating loss carryforwards               $3,034,000          $4,132,000
                Difference in book and tax basis
                     for property and equipment                                 1,885,000           2,302,000
                Reserve for sales returns                                       2,012,000           1,396,000
                Other                                                           2,914,000           1,922,000
                                                                          ---------------       -------------
                                                                                9,845,000           9,752,000
                                                                          ---------------       -------------
           Deferred tax liabilities:

                Prepaid catalog expenses and other
                prepaid expenses                                              (8,870,000)        (11,274,000)
                                                                          ---------------       -------------

                  Net deferred income tax assets/(liabilities)            $       975,000       $ (1,522,000)
                                                                          ===============       =============
</TABLE>

                                      F-14
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

           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.

(14)       Extraordinary Item

           In October 1997, the Company prepaid $85 million principal amount of
           senior notes and recorded an extraordinary loss of $4,500,000 (net of
           an income tax benefit of $3,127,000) consisting of the write-off of
           deferred financing costs and redemption premiums related to the early
           retirement of debt.

(15)       Stockholder's Deficit

           The Company has authorized 100 shares of common stock, par value $.01
           per share, all of which was issued and outstanding at January 30,
           1999 and January 31, 1998.

           A reconciliation of stockholder's deficit is as follows:
<TABLE>
<CAPTION>
                                                                              Year Ended
                                                             January 29, 2000          January 30, 1999
                                                             ----------------          ----------------
<S>                                                            <C>                        <C>
           Balance-beginning of year....................       $(4,445,000)               $3,226,000
           Net income/(loss)............................         1,900,000                (7,671,000)
                                                                 ---------               -----------
           Balance-end of year..........................       $(2,545,000)              $(4,445,000)
                                                              ============              ============

</TABLE>

(16)       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.


(17)       Segment Information

           On January 1, 1998, the Company adopted SFAS 131, "Disclosure About
           Segments of An Enterprise and Related Information". This statement
           does not affect the Company's financial position or results of
           operations.

           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.

                                      F-15
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998

Income from operations relating to Clifford & Wills for fiscal 1998 includes a
noncash 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 includes an additional charge of $4,000,000 to write
down inventories to net realizable value. (See note 2 to the consolidated
financial statements).

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. Corporate and other expenses in fiscal 1997 include
a one-time bonus expense related to the employment of a senior executive and
non-recurring consulting fees incurred as a result of the Recapitalization.

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 costs.

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

                                                           [$ in thousands]
Revenues                                   1999                  1998                  1997
                                           ----                  ----                  ----
<S>                                      <C>                   <C>                    <C>
J. Crew                                  $ 716,624             $ 625,897              $ 577,594
Clifford & Wills                               ---                74,303                 72,063
PCP                                            ---               124,058                184,374
                                               ---               -------                -------
                                           716,624               824,258                834,031
                                           =======               =======                =======

Income from operations

J. Crew                                     41,052                34,736                  8,393
Clifford & Wills                           (4,000)              (16,694)                (1,186)
PCP                                             --               (2,701)                  7,550
Corporate and other expenses               (7,233)               (8,679)                (5,705)
                                           -------               -------                -------
Income from operations                      29,819                 6,662                  9,052
                                            ------                 -----                  -----

Interest expense, net                     (26,626)              (28,560)               (17,524)
Gain on sale of PCP                          1,000                10,000                      -
Expenses incurred in connection with the
   Recapitalization                              -                  ----               (20,707)
                                                 -                  ----               --------

Income/(loss) before income taxes           $4,193             $(11,898)              $(29,179)
                                            ======             =========              =========

Depreciation and amortization
J. Crew                                    $19,051               $14,455                $13,645
Clifford & Wills                               ---                   327                    199
PCP                                            ---                 1,015                  1,279
Corporate                                      190                   175                    132
                                         ---------                   ---                    ---

                                           $19,241               $15,972                $15,255
                                           =======               =======                =======
</TABLE>

                                      F-16
<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31, 1998

<TABLE>
<CAPTION>

                                                                          [$ in thousands]
Identifiable assets                                        1999                  1998                  1997
                                                           ----                  ----                  ----
<S>                                                     <C>                    <C>                   <C>
J. Crew                                                 $305,552               $324,949              $314,186
Clifford & Wills                                           8,927                 17,377                29,078
PCP                                                          ---                     --                57,811
Corporate                                                 49,127                 28,110                18,369
                                                        --------                 ------                ------
                                                        $363,606               $370,436              $419,444
                                                        ========               ========              ========

Capital expenditures (net of disposals)

J. Crew                                                  $39,435                $34,084               $41,149
Clifford & Wills                                              --                   (59)                  (98)
PCP                                                           --                  5,264                 2,058
Corporate                                                  9,249                  1,888                    25
                                                           -----                  -----                    --
                                                         $48,684                $41,177               $43,134
                                                         =======                =======               =======
</TABLE>

                                      F-17
<PAGE>

SCHEDULE II          VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                            beginning         charged to cost      charged to other                     ending
                                             balance           and expenses            accounts          deductions     balance

                                                                                   ($ in thousands)
Allowance for doubtful accounts
-------------------------------
 (deducted from accounts receivable)

fiscal year ended:
     <S>                              <C>                   <C>                 <C>                  <C>               <C>
       January 29, 2000                  $---------           $---------         $---------            $-----------     $--------
                                                                                                         (5,486)(a)
       January 30, 1999                       5,438               5,627                ----              (5,579)(c)           ---
       January 31, 1998                       4,357               7,343                ----              (6,262)(a)         5,438

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

fiscal year ended:
       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
       January 31, 1998                       3,289             1,111(b)               ----                    ----         4,400

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

fiscal year ended:
       January 29, 2000                      $3,473             1,538(b)               ----                                $5,011
                                                                                                             500(c)           ---
       January 30, 1999                       3,529               844(b)               ----                  400(d)         3,473
       January 31, 1998                       2,406             1,123(b)               ----                    ----         3,529
</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-18
<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 Registrant's
                 Form S-4 Registration Statement, File No. 333-42423, filed
                 December 16, 1997 (the "Registration Statement")

3.2              By-laws of Registrant (incorporated by reference to Exhibit
                 3.14 to the 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 (the "Indenture")
                 (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 (the "Amendment No. 1"))

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

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

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.

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

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

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 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.

10.6+            Letter Agreement, dated September 30, 1999, between J. Crew
                 Operating Corp. and Carol Sharpe

10.7             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)

10.8             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)

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

10.10            Contract Carrier Agreement, between J. Crew Group, Inc. and
                 United Parcel Service, Inc. (incorporated by reference to
                 Exhibit 10.6 to the Registration Statement)
<PAGE>

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

10.11            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)

27.1             Financial Data Schedule



----------
+Management contract or compensatory plan or arrangement.