UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

|(Mark One)                                 |                                                                                         
|------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended January 31, 2004
|or                                        
|o                                          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

| |  | Commission
File Number |  | Registrant, State of Incorporation
Address and Telephone Number                            |  | I.R.S. Employer
Identification No. |  | 
| |  | ---------------------- |  | ------------------------------------------------------------------------------------------ |  | ---------------------------------- |  | 
| |  | 333-42427              |  | J. CREW GROUP, INC.                                                                        |  | 22-2894486                         |  | 
| |  |                        |  | (Incorporated in New York)
770 Broadway
New York, New York 10003
Telephone: (212) 209-2500 |  |                                    |  | 
| |  | 333-42423              |  | J. CREW OPERATING CORP.                                                                    |  | 22-3540930                         |  | 
| |  |                        |  | (Incorporated in Delaware)
770 Broadway
New York, New York 10003
Telephone: (212) 209-2500 |  |                                    |  | 
| |  | 333-107211             |  | J.CREW INTERMEDIATE LLC                                                                    |  | N/A                                |  | 
| |  |                        |  | (Formed in Delaware)
770 Broadway
New York, New York 10003
Telephone: (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 each 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 ý    No o

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 each 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. ý

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

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

As
of April 15, 2004, there were 12,197,978 shares of common stock, par value $.01 per share, of J. Crew Group, Inc. outstanding and 100 shares of common stock, par value $.01 per share,
of J. Crew Operating Corp. outstanding (all of which are owned beneficially and of record by J. Crew Intermediate LLC). J. Crew Group, Inc. is the sole member of J. Crew Intermediate LLC.

Documents
incorporated by reference:            None

J.
Crew Operating Corp. and J.Crew Intermediate LLC meet the conditions set forth in General Instruction (I)(1)(a) and (b) of the Form 10-K and are therefore filing this
Form 10-K with the reduced disclosure format.



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FILING FORMAT

This Annual Report on Form 10-K is a combined report being filed by three different registrants: J. Crew Group, Inc. ("Holdings"), J.
Crew Intermediate LLC, a wholly owned subsidiary of Holdings ("Intermediate"), and J. Crew Operating Corp., a wholly-owned subsidiary of Intermediate ("Operating Corp."). Except where the content
clearly indicates otherwise, any references in this report to the "Company," "J. Crew" or "Holdings" include all subsidiaries of Holdings, including Intermediate and Operating Corp. Neither
Intermediate nor Operating Corp. make any representation as to the information contained in this report in relation to Holdings and its subsidiaries other than Intermediate and Operating Corp., as the
case may be.

References
herein to fiscal years are to the fiscal years of J. Crew Group, Inc., J. Crew Intermediate LLC and J. Crew Operating Corp., which end on the Saturday closest to
January 31 in the following calendar year for fiscal years 1999, 2000, 2001, 2002 and 2003. Accordingly, fiscal years 1999, 2000, 2001, 2002 and 2003 ended on January 29, 2000,
February 3, 2001, February 2, 2002, February 1, 2003 and January 31, 2004. All fiscal years for which financial information is included had 52 weeks, except fiscal year
2000 which had 53 weeks.

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PART I    BUSINESS

In this section, "we," "us" and "our" refer to Holdings and our wholly owned subsidiaries, including Operating Corp. and
Intermediate.

General

We are a nationally recognized retailer of women's and men's apparel, shoes, and accessories sold under the "J. Crew" brand name. Started in 1983, we have built
and reinforced our brand name and image through the circulation of catalogs that use magazine-quality photography to portray a classic American perspective and aspirational lifestyle and the operation
of our stores and internet website. We believe that the "J. Crew" brand name is widely recognized for its timeless styles at price points that represent exceptional product value. We offer a full line
of men's and women's clothing, including basic durables (casual weekend), workwear (casual weekday), swimwear, sport, accessories and shoes to meet our customers lifestyle needs. Many of the original
items introduced by us 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 our core
product offerings.

J.
Crew products are distributed exclusively through our retail and factory stores, our catalog and our internet website located at www.jcrew.com. As of January 31, 2004, we
operated 154 retail stores and 42 factory outlet stores in the United States. We believe that our customer base consists primarily of college-educated, professional and upscale customers who in our
experience have demonstrated strong brand loyalty and a tendency to make repeated purchases. In addition, J. Crew products are distributed through 45 freestanding and
shop-in-shop stores in Japan under a licensing agreement with Itochu Corporation.

We
have three major operating divisions: J. Crew Retail, J. Crew Direct, and J. Crew Factory, each of which operate under the J. Crew brand name. In fiscal 2003, products sold under the
J. Crew brand contributed $660.6 million in revenues, comprised of:



In
addition, in fiscal 2003, we generated licensing revenues of $2.5 million and shipping and handling revenues of $25.2 million.

Merchandising and Design

Over time, the J. Crew merchandising strategy has evolved from providing unisex products to creating full lines of men's and women's clothing, shoes and
accessories. This strategy had the effect of increasing overall J. Crew brand sales volume and significantly increasing revenues from sales of women's apparel to 75% of J. Crew brand sales in fiscal
2003.

All
of our products are designed by an in-house design staff to reflect a classic, clean aesthetic that is consistent with our American lifestyle brand image. Design teams
are formed around J. Crew product lines and categories to develop concepts, themes and products for each of our J. Crew businesses. Our technical design teams develop construction and fit
specifications for every product to ensure quality workmanship and consistency across product lines. These teams work in close collaboration with the merchandising, production and quality assurance
staffs in order to gain market and other input and ensure quality of the J. Crew products.

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Sourcing and Production

Our merchandise is produced for us by a variety of manufacturers in 23 countries. We do not own or operate any manufacturing facilities and instead contract with
third-party vendors for production of our merchandise. In fiscal 2003, approximately 80% of our merchandise was sourced in Asia, 5% was sourced in the United States and 15% was sourced in Europe and
other regions. Any event causing a sudden disruption of manufacturing or imports from China, including the imposition of additional import restrictions, could have a material adverse impact on our
operations. In addition, one vendor supplies approximately 20% of our merchandise, but we believe that the loss of this vendor would not have a material adverse impact on our ability to source our
products. Substantially all of our foreign purchases are negotiated and paid for in U.S. dollars.

We
cannot predict whether any of the countries in which our merchandise is currently produced or may be produced in the future will be subject to additional trade restrictions imposed by
the United States and other foreign governments, nor can we predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, against apparel
and other items sold by us could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition and results of operations. Our sourcing
operations may also be adversely affected by political and financial instability in any country in which our goods are produced or by acts of war or terrorism in the United States or worldwide to the
extent these acts impact the production, shipment or receipt of merchandise. Sourcing operations may also be adversely affected by significant fluctuation in the value of the U.S. dollar against
foreign currencies or restrictions on the transfer of funds.

Distribution

We operate two major customer contact and distribution facilities for our operations. Order fulfillment for J. Crew Direct takes place primarily at a 406,500
square foot facility located in Lynchburg, Virginia. The Lynchburg facility processes catalog and internet website orders and serves as the distribution center for our factory store operations. This
facility employs approximately 500 full and part-time employees during our non-peak season and additional employees during our peak season. The main distribution center
for our retail store operations is located in a 192,500 square foot facility in Asheville, North Carolina. This facility employs approximately 150 full- and part-time
employees during our non-peak season and additional employees during our peak season. Orders for merchandise may be received by telephone, facsimile, mail and through our internet website.
Each customer contact associate is trained to assist customers in determining the customer's correct size and describing merchandise fabric, texture and function. We believe that our fulfillment and
distribution operations are designed to process and ship customer orders in a customer-friendly, quick, and cost-effective manner.

We
ship merchandise via the United States Postal Service and FedEx. To enhance efficiency, each facility is fully equipped with an advanced telephone system, automated warehouse locator
system and inventory bar coding system. In addition, our Lynchburg facility has automated packing and shipping sorters.

Information Systems

Our management information systems are designed to provide, among other things, comprehensive order processing, production, accounting and management information
for the marketing, manufacturing, importing and distribution functions of our business. We have point-of-sale registers in our retail and factory outlet stores that enable us
to track inventory from store receipt to final sale on a real-time basis. We believe our merchandising and financial systems, coupled with our point-of-sale
registers and software programs, allow for rapid stock replenishment, concise merchandise planning and real-time inventory accounting practices. Our telephone and telemarketing systems,
warehouse package

2

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sorting
systems, automated warehouse locator and inventory bar coding systems utilize advanced technology. These systems have provided us with a number of benefits in the form of enhanced customer
service, improved operational efficiency and increased management control and reporting. In addition, our real-time inventory systems provide inventory management on a stock keeping unit
basis and allow for an efficient fulfillment process.

We
have installed a SAP enterprise resource planning system for our information technology requirements. This system was implemented in fiscal years 2000 and 2001. In fiscal 2000, our
accounting systems were implemented. A corporate-wide purchasing system, a retail sales and inventory system (including new point-of-sale registers) and a human
resource and payroll system were completed in fiscal 2001. In November 2000, we outsourced our data center, desktop, network and telecommunication services management and operations support. In
February 2001, we outsourced the hosting and support of our internet website to a third-party vendor.

Trademarks and Licensing

The "J. Crew" trademark and variations thereon, and certain other trademarks, are registered or are subject to pending trademark applications with the United
States Patent and Trademark Office and with the registries of many foreign countries.

In
addition, we license our "J. Crew" trademark to Itochu Corporation in Japan for which we receive percentage royalty fees. Under the license agreement, we retain a high degree of
control over the manufacture, design, marketing and sale of merchandise by Itochu Corporation under the J. Crew trademark. This agreement expires in January 2007. In fiscal 2003, licensing
revenues totaled $2.5 million.

Employees

As of January 31, 2004, we had approximately 5,500 associates, of whom approximately 1,700 were full-time associates and 3,800 were
part-time associates. In addition, approximately 1,900 associates are hired on a seasonal basis to meet demand during the peak season. None of our associates are represented by a
union. We believe that our relationship with our associates is good.

Competition

All aspects of our business are highly competitive. We compete primarily with specialty brand retailers, other catalog and internet operations, department stores
and mass merchandisers that offer similar merchandise. We believe that the principal bases upon which we compete are quality, design, efficient service, selection and price. Many of our competitors
are substantially larger, have a more established retail store presence and experience and have greater financial, marketing and other resources than us. There is no assurance that we will be able to
successfully compete with our competitors in the future. In addition, our business is sensitive to a number of factors that could affect the level of consumer spending, including the following:



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Our Business

J. Crew Retail

As of January 31, 2004, we operated 154 retail stores throughout the United States, of which 4 stores were opened during fiscal 2003. These stores are
located in upscale regional malls, lifestyle centers, shopping centers and street locations. During fiscal 2003, J. Crew Retail generated revenues of $408.1 million, representing 59.3% of our
total revenues.

An
important aspect of our business strategy has been an expansion program designed to reach new and existing customers through the opening of J. Crew Retail stores. As a result of the
slowdown in the overall economic environment and our declining comparable store sales trends for the last three years, we have decided to curtail the number of new store openings. We opened
4 stores in fiscal 2003 and plan to open 5 stores in fiscal 2004. In addition to generating sales of J. Crew products, J. Crew Retail stores help set and reinforce the J. Crew brand image. The
stores are designed in-house and fixtured to create a distinctive J. Crew environment and store associates are trained to maintain high standards of visual presentation and customer
service. Store locations are determined based on several factors, including the following:



J.
Crew Retail stores that were open during all of fiscal 2003 averaged $2.7 million per store in sales and produced sales per gross square foot of $345. J. Crew Retail stores
have an average size of 7,680 total square feet.

The
table below highlights certain information regarding J. Crew Retail stores opened through fiscal 2003.

|Fiscal Year |  | Stores Open At Beginning of Fiscal Year |  | Stores Opened During Fiscal Year |  | Stores Closed During Fiscal Year |  | Stores Open at End of Fiscal Year |  | Total Square Footage (in thousands) |  | Average Store Square Footage
|----------- |  | --------------------------------------- |  | -------------------------------- |  | -------------------------------- |  | --------------------------------- |  | ----------------------------------- |  | ----------------------------
|1999        |  | 65                                      |  | 16                               |  |                                 |  | 81                                |  | 668                                 |  | 8,243                       
|2000        |  | 81                                      |  | 24                               |  |                                 |  | 105                               |  | 833                                 |  | 7,933                       
|2001        |  | 105                                     |  | 34                               |  | 3                                |  | 136                               |  | 1,054                               |  | 7,752                       
|2002        |  | 136                                     |  | 16                               |  |                                 |  | 152                               |  | 1,172                               |  | 7,712                       
|2003        |  | 152                                     |  | 4                                |  | 2                                |  | 154                               |  | 1,183                               |  | 7,680                       

J. Crew Direct

J. Crew Direct consists of our catalog and internet website operations. During fiscal 2003, J. Crew Direct generated $173.5 million in revenues, including
$61.9 million from the catalog and $111.6 million from the internet website, representing 25.2% of our total J. Crew revenues.

We
believe we have distinguished ourselves from other catalog retailers by our award-winning catalog which utilizes magazine-quality, "real moment" pictures to depict an aspirational
lifestyle image. In fiscal 2003, we distributed 28 catalog editions with a total circulation of approximately 53 million and pages circulated of approximately 5.8 billion. This
represented a decrease from fiscal 2002 in which we had total circulation of approximately 66 million and pages circulated of approximately 7.8 billion.

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J.
Crew Direct's circulation strategy focuses on continually improving the segmentation of customer files and the acquisition of additional customer names. In fiscal 2003, approximately
65% of J. Crew Direct revenues were from customers who had made a purchase from any J. Crew catalog or on the internet in the prior 12 months. We segment our customer file and tailor our
catalog offerings to address the different product needs of our customer segments. To increase core catalog productivity and improve the effectiveness of marginal and prospecting circulation, each
customer segment is offered appropriate catalog editions. We also acquire new names from various sources, including the following:



We
have installed telephones in all of our J. Crew Retail stores with direct access to the J. Crew Direct telemarketing center to allow customers in the stores to order catalog-specific
or out-of-stock items.

All
creative work on the catalogs is coordinated by J. Crew personnel to maintain and reinforce the J. Crew brand image. Photography is executed both on location and in studios, and
creative design and copy writing are executed on a desktop publishing system. Digital images are transmitted directly to outside printers, thereby reducing lead times and improving reproduction
quality. We believe that appropriate page presentation of our merchandise stimulates demand, and therefore we place great emphasis on page layout.

J.
Crew Direct does not have long-term contracts with paper mills. Projected paper requirements are communicated on an annual basis to paper mills to ensure the availability
of an adequate supply. Management believes that our long-standing relationships with a number of the largest coated paper mills in the United States allow us to purchase paper at favorable
prices commensurate with the volume of our purchases.

In
1996, we launched our internet website located at www.jcrew.com, making J. Crew merchandise available to our customers over the internet. In fiscal 2003, the website logged over
38 million unique visitors and represents 65% of the J. Crew Direct business. We design and operate our website using an in-house technical staff and our website emphasizes
simplicity and ease of customer use while integrating the J. Crew brand's aspirational lifestyle imagery used in the catalog.

J. Crew Factory

As of January 31, 2004, we operated 42 factory stores in the United States. The factory stores target value-oriented customers and also serve to liquidate
excess, irregular and out-of-season J. Crew merchandise. In the 2003 Fall season, our Factory division began creating and selling its own merchandise. During fiscal 2003, J.
Crew Factory generated revenues of $79.0 million, representing 11.5% of our total revenues.

J.
Crew Factory stores have an average size of 6,500 total square feet and are generally located in major regional outlet centers in 24 states across the United States. We believe that
the factory stores, which are designed in-house, maintain fixturing, visual presentation and service standards comparable to those typically associated with outlet stores.

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Forward Looking Statements

Certain statements in this Annual Report on Form 10-K under the captions "Business," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Financial Statements and Supplementary Data" and elsewhere constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. We may also make written or oral forward looking statements in our periodic reports to the Securities and Exchange Commission on Forms 10-Q,
8-K, etc., in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from historical results, any future results, performance or achievements expressed
or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, competitive pressures in the apparel industry, changes in levels of consumer spending or
preferences in apparel and acceptance by customers of the Company's products, overall economic conditions, governmental regulations and trade restrictions, acts of war or terrorism in the United
States or worldwide, political or financial instability in the countries where the Company's goods are manufactured, postal rate increases, paper and printing costs, availability of suitable store
locations at appropriate terms, 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.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act). We therefore file periodic reports and other information
with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street NW, Washington, D.C. 20549, or by calling the SEC
at (800) SEC-0330. In addition, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy information statements and other information regarding issuers that
file electronically.

Our
filings under the Exchange Act (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to these reports) are also available free of charge on our internet website at www.jcrew.com. These reports are available as soon as reasonably
practicable after such material is electronically filed with or furnished to the SEC. The reference to the Company's website address does not constitute incorporation by reference of the information
contained on the website, and the information contained on the website is not part of this document.

ITEM 2. PROPERTIES

We are headquartered in New York City. The New York City headquarter offices are leased under a lease agreement expiring in 2012, with an option to renew
thereafter. We own two customer contact and distribution facilities: a 406,500-square-foot customer contact and distribution center for J. Crew Direct operations in Lynchburg,
Virginia and a 192,500-square-foot distribution center in Asheville, North Carolina servicing the J. Crew Retail operations.

As
of January 31, 2004, we operated 154 J. Crew retail stores and 42 factory stores in 38 states and the District of Columbia. All of the retail and factory stores are leased from
third parties, and the

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leases
in most cases have terms of 10 to 12 years, with options to renew for periods typically ranging from five to ten years. 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 generally comprised of annual base rent plus a contingent rent payment
based on the store's sales in excess of a specified threshold. Some of the leases also contain early termination options, which can be exercised by us or in some cases the landlord under certain
conditions. The leases also generally require us to pay real estate taxes, insurance and certain common area costs. Substantially all of the leases are guaranteed by us.

The
table below sets forth the number of stores by state operated by us in the United States as of January 31, 2004.

|                     |  | Retail
Stores |  | Factory
Stores |  | Total
Number
Of Stores
|-------------------- |  | ------------- |  | -------------- |  | ----------------------
|Alabama              |  | 2             |  | 1              |  | 3                     
|Arizona              |  | 4             |  |               |  | 4                     
|California           |  | 20            |  | 3              |  | 23                    
|Colorado             |  | 4             |  | 2              |  | 6                     
|Connecticut          |  | 5             |  | 1              |  | 6                     
|Delaware             |  | 1             |  | 1              |  | 2                     
|Florida              |  | 4             |  | 3              |  | 7                     
|Georgia              |  | 4             |  | 2              |  | 6                     
|Illinois             |  | 9             |  |               |  | 9                     
|Indiana              |  | 2             |  | 2              |  | 4                     
|Kansas               |  | 1             |  |               |  | 1                     
|Kentucky             |  | 2             |  |               |  | 2                     
|Louisiana            |  | 1             |  |               |  | 1                     
|Maine                |  |              |  | 2              |  | 2                     
|Maryland             |  | 3             |  | 1              |  | 4                     
|Massachusetts        |  | 6             |  | 2              |  | 8                     
|Michigan             |  | 6             |  | 1              |  | 7                     
|Minnesota            |  | 3             |  |               |  | 3                     
|Missouri             |  | 2             |  | 1              |  | 3                     
|Nevada               |  | 1             |  |               |  | 1                     
|New Hampshire        |  | 1             |  | 2              |  | 3                     
|New Jersey           |  | 9             |  | 1              |  | 10                    
|New Mexico           |  | 1             |  |               |  | 1                     
|New York             |  | 15            |  | 4              |  | 19                    
|North Carolina       |  | 4             |  |               |  | 4                     
|Ohio                 |  | 7             |  |               |  | 7                     
|Oklahoma             |  | 2             |  |               |  | 2                     
|Oregon               |  | 2             |  |               |  | 2                     
|Pennsylvania         |  | 8             |  | 3              |  | 11                    
|Rhode Island         |  | 1             |  |               |  | 1                     
|South Carolina       |  | 2             |  | 2              |  | 4                     
|Tennessee            |  | 3             |  | 1              |  | 4                     
|Texas                |  | 6             |  | 2              |  | 8                     
|Utah                 |  | 2             |  |               |  | 2                     
|Vermont              |  | 1             |  | 1              |  | 2                     
|Virginia             |  | 5             |  | 2              |  | 7                     
|Washington           |  | 2             |  | 1              |  | 3                     
|Wisconsin            |  | 1             |  | 1              |  | 2                     
|District of Columbia |  | 2             |  |               |  | 2                     
|                     |  |               |  |                |  |                       
|Total                |  | 154           |  | 42             |  | 196                   
|                     |  |               |  |                |  |                       

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ITEM 3. LEGAL PROCEEDINGS

Charles E. Hill & Associates, Inc., or Hill, filed a lawsuit on August 16, 2002 in the U. S. District Court for the Eastern District of Texas
against us and seventeen other defendants, primarily large retailers, alleging infringement of three patents registered to Hill relating to electronic catalog systems and methods for processing data
at a remote location and updating and displaying that data. The suit seeks an injunction against continuing infringement, unspecified damages, including treble damages for willful infringement, and
interest, costs, expenses and fees. We believe that we have meritorious defenses and intend to defend ourselves vigorously.

In
addition, we are subject to various legal proceedings and claims that arise in the ordinary conduct of our business. Although the outcome of these other claims cannot be predicted
with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition or results of operations.

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

No matters were submitted to a vote of security holders during the quarter ended January 31, 2004.

PART II

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

There is no established public trading market for Holdings or Operating Corp. common stock or for Intermediate's equity. As of April 15, 2004, there were
44 shareholders of record of the Holdings common stock. See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for a discussion of the ownership of Holdings. Holdings is the
sole member of Intermediate, and Intermediate owns 100% of the common stock of Operating Corp.

Holdings
has not paid cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. Operating Corp. may from time to time pay cash
dividends on its common stock to permit Holdings to make required payments relating to its 131/8% senior discount debentures.

Our
credit facility with Wachovia Bank, N.A., as arranger, Congress Financial Corporation, as administrative and collateral agent, and a syndicate of lenders (the "Congress Credit
Facility") and the Indenture relating to the 131/8% senior discount debentures of Holdings (the "Holdings Indenture") prohibit the payment of dividends by Holdings on shares of common
stock (other than dividends payable solely in shares of capital stock of Holdings). Additionally, because Holdings is a holding company, its ability to pay dividends is dependent upon the receipt of
dividends from its direct and indirect subsidiaries. Each of the Congress Credit Facility, the Holdings Indenture and the Indenture relating to the 103/8% senior subordinated notes of
Operating Corp., contains covenants which impose substantial restrictions on Operating Corp.'s ability to pay dividends or make distributions to Holdings.

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Equity Compensation Plan Information

The following table summarizes information about the Amended and Restated J. Crew Group, Inc. 1997 Stock Option Plan and the J. Crew Group, Inc.
2003 Equity Incentive Plan (the "2003 Plan"), as of January 31, 2004. Our shareholders have approved both of these plans.

|                                                       |  | (a)       |  | (b) |      | (c)
|------------------------------------------------------ |  | --------- |  | --- | ---- | ---
|
|Equity Compensation Plans Approved by Shareholders     |  | 2,410,606 |  | $   | 8.37 |    
|Equity Compensation Plans Not Approved by Shareholders |  | 0         |  |     | N/A  |    
|                                                       |  |           |  |     |      |    
|TOTAL                                                  |  | 2,410,606 |  | $   | 8.37 |    
|                                                       |  |           |  |     |      |    

In addition to options, the 2003 Plan authorizes the issuance of restricted stock of Holdings. The 2003 Plan contains a sub-limit of
1,450,724 shares on the aggregate number of shares of restricted Holdings common stock which may be issued, of which 1,144,979 shares are outstanding and 305,745 shares are available.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated historical financial, operating, balance sheet and other data of the Company. The selected income statement
and balance sheet data for each of the five fiscal years ended January 31, 2004 are derived from the Consolidated Financial Statements of the Company, which have been audited by KPMG LLP,
independent auditors. The data presented below should be read in conjunction with the Consolidated Financial Statements, including the related Notes thereto, included herein, the other financial
information included herein, and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

|                                             |                                                                        | Fiscal Year Ended |        
|-------------------------------------------- | ---------------------------------------------------------------------- | ----------------- | -------
|
|
|Income Statement Data:                       |                                                                        |                   |        
|                                             | Revenues                                                               |                   | $      
|                                             | Cost of goods sold(b)(c)                                               |                   |        
|                                             | Selling, general and administrative expenses(c)                        |                   |        
|                                             | Other charges                                                          |                   |        
|                                             | Charges incurred in connection with discontinuance of Clifford & Wills |                   |        
|                                             | Income/(loss) from operations                                          |                   |        
|                                             | Interest expense-net                                                   |                   |        
|                                             | Gain on exchange of debt                                               |                   |        
|                                             | Insurance proceeds                                                     |                   |        
|                                             | Gain on sale of Popular Club Plan                                      |                   |        
|                                             | (Provision) benefit for income taxes                                   |                   |        
|                                             |                                                                        |                   |        
|                                             | Net income (loss)                                                      |                   | $      
|                                             |                                                                        |                   |        
|Balance Sheet Data (at period end):          |                                                                        |                   |        
|                                             | Cash and cash equivalents                                              |                   | $      
|                                             | Working capital                                                        |                   |        
|                                             | Total assets                                                           |                   |        
|                                             | Total long term debt and preferred stock                               |                   |        
|                                             | Stockholders' deficit                                                  |                   | $      
|Operating Data:                              |                                                                        |                   |        
|Revenues:                                    |                                                                        |                   |        
|J. Crew retail                               |                                                                        | $                 | 333,575
|J. Crew direct                               |                                                                        |                   |        
|                                             | Catalog                                                                |                   |        
|                                             | Internet                                                               |                   |        
|                                             |                                                                        |                   |        
|                                             |                                                                        |                   | 278,557
|                                             |                                                                        |                   |        
|J. Crew factory                              |                                                                        |                   | 101,987
|J. Crew licensing                            |                                                                        |                   | 2,505  
|J. Crew shipping & handling fees             |                                                                        |                   | 34,072 
|                                             |                                                                        |                   |        
|Total                                        |                                                                        |                   | 750,696
|J. Crew Direct:                              |                                                                        |                   |        
|Number of catalogs circulated (in thousands) |                                                                        |                   | 75,479 
|Number of pages circulated (in millions)     |                                                                        |                   | 9,319  
|J. Crew Retail:                              |                                                                        |                   |        
|Sales per gross square foot(d)               |                                                                        | $                 | 571    
|Number of stores open at end of period       |                                                                        |                   | 81     
|Comparable store sales change(e)             |                                                                        |                   | 1.8    
|Depreciation and amortization(c)             |                                                                        | $                 | 23,970 
|Net capital expenditures(f)                  |                                                                        |                   |        
|New store openings                           |                                                                        | $                 | 13,300 
|Other                                        |                                                                        |                   | 27,953 
|                                             |                                                                        |                   |        
|Total net capital expenditures               |                                                                        | $                 | 41,253 
|                                             |                                                                        |                   |        

---

10

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

This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity during the
three-year period ended January 31, 2004. You should read the following discussion and analysis in conjunction with our audited consolidated financial statements for the
three-year period ended January 31, 2004 and the related notes thereto included herein.

Management's
discussion and analysis of the results of operations are provided solely with respect to J.Crew Operating Corp. and its subsidiaries since substantially all of the Company's
operations are conducted by J.Crew Operating Corp. However, J.Crew Intermediate LLC and J.Crew Group, Inc. have outstanding additional debt securities. Accordingly, information with respect to
interest income and expense of each of those entities is also provided herein. The discussion of liquidity and capital resources pertains to J.Crew Group, Inc. and its consolidated
subsidiaries, including J.Crew Intermediate LLC and J.Crew Operating Corp.

Management Overview

The fashion and apparel industry is highly competitive. We compete primarily with specialty brand retailers, department stores, mass merchandisers, other catalog
operations, and internet businesses that engage in the retail sale of men's and women's apparel, accessories, footwear and general merchandise. We believe that the principal bases upon which we
compete are quality, design, efficient service, selection and price. We believe that our success depends in substantial part on our ability to originate and define product and fashion trends as well
as to anticipate, gauge and react to changing consumer demands in a timely manner.

The
industry in which we operate is cyclical. Purchases of apparel and related merchandise is sensitive to a number of factors that influence the levels of consumer spending including
economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence. The recent economic environment had a negative impact on our sales and
contributed to a higher level of promotional sales activities which adversely affected our profitability. We believe our comparable store sales results in fiscal 2001 and 2002 also resulted from
customer dissatisfaction with our product offerings. When our new management took over in January 2003, they initiated a program to upgrade the quality and style of our merchandise assortments.
These changes were not implemented until our Fall and Holiday 2003 product offerings.

As
part of our growth strategy, we intend to expand our base of J.Crew retail stores. This expansion has been curtailed recently as the number of new stores opened decreased to four in
fiscal 2003 and the anticipated openings in fiscal 2004 is five. We have decided to concentrate our efforts on increasing the sales productivity (as measured by sales per square foot) of our current
stores before we resume our store opening program.

Results of Operations

Our consolidated statements of operations presented as a percentage of revenues are as follows:

|                                                               |  | Fiscal Year Ended |   
|-------------------------------------------------------------- |  | ----------------- | --
|
|Revenues(1)                                                    |  | 100.0             | % 
|Cost of goods sold, including buying and occupancy costs(2)(3) |  | 63.3              |   
|Selling, general and administrative expenses(2)(3)             |  | 40.7              |   
|Income/(loss) from operations                                  |  | (4.0              | ) 
|Interest expense, net                                          |  | (9.3              | ) 
|Gain on exchange of debt                                       |  | 6.0               |   
|Insurance proceeds                                             |  | .5                |   
|Loss before income taxes                                       |  | (6.8              | ) 
|Income taxes                                                   |  | (.1               | ) 
|                                                               |  |                   |   
|Net loss                                                       |  | (6.9              | )%
|                                                               |  |                   |   

---

11

---



Revenues

Consolidated revenues for fiscal years 2003, 2002 and 2001 by channel of distribution were, as follows:

2003

2002

2001(in millions)Retail

$
408.1

$
408.0

$
398.0Direct


173.5


248.0


258.2Factory


79.0


76.3


85.0Other


27.7


34.1


36.7$
688.3

$
766.4

$
777.9


Revenues
of J. Crew Retail for fiscal years 2003, 2002 and 2001 were, as follows:

2003

2002

2001($ in millions)Comparable store sales

$
390.5

$
352.0

$
331.0Noncomparable store sales


17.6


56.0


67.0$
408.1

$
408.0

$
398.0Number of stores open


154


152


136Sales per gross square foot

$
345

$
365

$
439Comparable stores sales change


(3.4
)%

(10.4
)%

(15.5
)%


Net
sales in 2003 were $408.1 million flat with fiscal 2002. A decline of 3.4% in comparable store sales was offset by sales from four stores opened in fiscal 2003 and 16
stores opened in 2002 that were open for a full year in fiscal 2003. The improvement in comparable store sales results in 2003 is the result of an improving economy and an upgrade in the quality and
style of our merchandise assortments in the second half of the year. The increase in net sales of 2.5% in fiscal 2002 compared to fiscal 2001 was derived from the sales of 16 new stores opened during
2002 and the 34 stores opened in 2001 that were open for a full year in fiscal 2002, which offset a decline of 10.4% in comparable store sales. We believe this decrease in comparable store sales was
attributable to the effect of the continuing slow economy on consumer spending and customer dissatisfaction with our product offerings.

Revenues
of J. Crew Direct for fiscal years 2003, 2002 and 2001 were, as follows:

2003

2002

2001(in millions)Internet

$
111.7

$
139.4

$
122.9Catalog


61.8


108.6


135.3$
173.5

$
248.0

$
258.2


Net
sales in the Direct business decreased from $248.0 million in 2002 to $173.5 million in 2003, a decrease of 30%. This decrease resulted from (a) a 25% decrease
in catalog circulation from 7.8 billion pages in 2002 to 5.8 billion pages in 2003 including the elimination of women's only and clearance catalogs in the second half of the year
(b) a decrease in density (items per page) resulting from a 30% reduction in style counts and (c) the reduction in promotional practices, including promotional e-mails.

The
decrease in net sales of 4% from $258.2 million in 2001 to $248.0 million in 2002 resulted from a decrease in catalog sales not offset by the increase in Internet
sales. Pages circulated decreased by 6% from 8.3 billion pages in 2001 to 7.8 billion pages in 2002 while internet sales increased from the efforts to migrate customers to the Internet
through promotional e-mails and other activities.

12

---



Revenues
of J. Crew Factory for fiscal years 2003, 2002 and 2001 were, as follows:

2003

2002

2001($ in millions)Comparable store sales

$
77.7

$
72.3

$
85.0Noncomparable store sales


1.3


4.0


$
79.0

$
76.3

$
85.0Number of stores open


42


42


41Comparable stores sales change


2.9
%

(14.1
)%

(10.5
)%


The
increase in factory store sales in 2003 resulted from the increase in comparable store sales. We strengthened our factory business in fiscal 2003 by moving away from deep discounting
of prior season's merchandise carried over from our Retail and Direct channels to having our factory channel create and sell its own merchandise. This change was effective in the 2003 Fall season and
contributed to a 9% increase in comparable store sales in the Fall season. The decline in factory store sales in 2002 from 2001 resulted from higher markdowns to clear excess prior season inventories.

Other
revenues for fiscal years 2003, 2002 and 2001 were, as follows:

2003

2002

2001($ in millions)Royalties

$
2.5

$
2.3

$
2.6Shipping and handling fees


25.2


31.8


34.1$
27.7

$
34.1

$
36.7


The
decline in other revenues during the three year period resulted from a decrease in shipping and handling fees which is directly attributable to the downward trend in net sales of the
Direct business.

Cost of sales including buying and occupancy costs

2003

2002

2001Cost of sales including buying and occupancy costs

63.3
%
61.4
%
58.4
%Gross margin

36.7
%
38.6
%
41.6
%


The
decrease in gross margin from 2002 to 2003 resulted primarily from a 140 basis point increase in buying and occupancy costs as a percentage of revenues because of the decrease in
revenues not offset by a decrease in buying and occupancy costs which are primarily fixed expenses and a decrease of 50 basis points in merchandise margins primarily from the liquidation of prior
season's inventories in the first half of 2003.

The
decrease in gross margin from 2002 to 2001 was caused by an increase of 120 basis points in buying and occupancy costs as a percentage of revenues because of the decrease in revenues
not offset by a decrease in buying and occupancy costs which are primarily fixed expenses and a 180 basis point decrease in merchandise margins from the markdowns taken to clear inventories in the
fourth quarter of 2002. The fourth quarter of 2002 also included a $9 million charge as result of the decision to modify our disposition strategy to accelerate inventory clearing at the end of
each selling season.

13

---



Selling, general and administrative expenses

2003

2002

2001($ in millions)Selling

$
40.0

$
53.2

$
60.8General and administrative


240.4


248.5


242.6$
280.4

$
301.7

$
303.4% of revenues


40.7
%

39.3
%

39.0
%


Selling
expenses consist of catalog production and mailing costs. Pages circulated were 5.8 billion, 7.8 billion and 8.3 billion in fiscal 2003, 2002 and 2001. The
decreases in selling expenses during the period were related primarily to the reduction in pages circulated and the elimination of women's only editions and clearance catalogs in the second half of
2003. A decrease in the cost of paper also contributed to the decrease from 2001 to 2002.

The
decrease in general and administrative expenses in 2003 compared to 2002 resulted primarily from a decrease in severance and other one time employment related charges of
$10 million partially offset by store expenses from additional stores in operation in 2003.

The
increase in general and administrative expenses in 2002 compared to 2001 resulted from (a) severance and other one time employment related charges of $13.7 million and
(b) store expenses related to the additional stores in operation in 2002 partially offset by the cost reduction initiatives instituted in the first quarter of 2002.

14

---



Interest Expense

|                                                                                                                |                       | 2003 |      | 2002 |   | 2001 |     
|--------------------------------------------------------------------------------------------------------------- | --------------------- | ---- | ---- | ---- | - | ---- | ----
|
|Operating Corp.:                                                                                                |                       |      |      |      |   |      |     
|Working capital credit facility                                                                                 |                       | $    | 2.4  |      | $ | 3.4  |     
|5% notes payable                                                                                                |                       |      | 1.0  |      |   |     |     
|103/8% senior subordinated notes                                                                                |                       |      | 15.6 |      |   | 15.6 |     
|Amortization of deferred financing costs                                                                        |                       |      | 1.7  |      |   | 4.2  |     
|Interest income                                                                                                 |                       |      | (.2  | )    |   |     |     
|                                                                                                                |                       |      |      |      |   |      |     
|                                                                                                                | Total Operating Corp. |      |      | 20.5 |   |      | 23.2
|Intermediate:                                                                                                   |                       |      |      |      |   |      |     
|16% senior discount contingent principal notes                                                                  |                       |      | 16.0 |      |   |     |     
|Amortization of debt issuance discount                                                                          |                       |      | 5.4  |      |   |     |     
|Amortization of deferred financing costs                                                                        |                       |      | .4   |      |   |     |     
|                                                                                                                |                       |      |      |      |   |      |     
|                                                                                                                | Total Intermediate    |      |      | 42.3 |   |      |     
|Holdings:                                                                                                       |                       |      |      |      |   |      |     
|131/8% senior discount debentures                                                                               |                       |      | 7.2  |      |   | 17.6 |     
|Dividends on redeemable preferred stock                                                                         |                       |      | 14.2 |      |   |     |     
|Amortization of deferred financing costs                                                                        |                       |      | .1   |      |   | .2   |     
|                                                                                                                |                       |      |      |      |   |      |     
|                                                                                                                | Total Holdings        |      | $    | 63.8 |   | $    | 41.0
|                                                                                                                |                       |      |      |      |   |      |     
|A significant amount of interest expense during the three year period was non-cash interest as indicated below: |                      
|Cash interest                                                                                                   |                       | $    | 20.5 |      | $ | 24.3 |     
|Non cash interest                                                                                               |                       |      | 43.3 |      |   | 16.7 |     
|                                                                                                                |                       |      |      |      |   |      |     
|                                                                                                                |                       | $    | 63.8 |      | $ | 41.0 |     
|                                                                                                                |                       |      |      |      |   |      |     

The
change in interest expense for Operating Corp. during the three year period related primarily to the increase in amortization of deferred financing costs in fiscal 2002, which
resulted primarily from a write off of $1.8 million related to the refinancing of our working capital credit facility.

Intermediate
was formed in March 2003 in connection with an offer to exchange 16% senior discount contingent principal notes of Intermediate for the outstanding
131/8% senior discount debentures of Holdings, which was completed on May 6, 2003. The interest expense for Intermediate for fiscal 2003
relates to interest expense and amortization of debt issuance costs for the 16% senior discount notes issued by Intermediate in exchange for the 131/8% senior discount debentures of
Holdings.

The
interest expense for Holdings in 2001 and 2002 relates to the amount of 131/8% senior discount debentures outstanding during the periods while the amount of interest
expense in 2003 includes interest on $142.0 million of the outstanding 131/8% senior discount debentures prior to the exchange offer and on $21.6 million subsequent to the
exchange offer. Holdings interest expense also includes dividends related to mandatorily redeemable preferred stock for the third and fourth quarters of fiscal 2003.

Gain on exchange of debt

The net consolidated gain on exchange of debt of $41.1 million reflects the difference between the fair value of the 16% senior discount notes at date of
issuance and the carrying value of the 131/8% senior discount debentures of $44.1 million recorded by Intermediate less Holdings related expenses which consist of (a) the
additional expense of 27/8% from October 15, 2002 to May 6, 2003 paid to the

15

---



note
holders who accepted the exchange offer $(1.9 million) and (b) the write off of unamortized deferred financing costs related to the debentures exchanged ($1.1 million).

Income Taxes

Holdings files a consolidated federal tax return which includes all of its wholly owned subsidiaries. Accordingly, the following discussion pertains to Holdings.

The
effective tax rate was a benefit of 9.4% in fiscal 2002 compared to a benefit of 33.3% in fiscal 2001. The lower effective rate in 2002 resulted from the establishment of a valuation
allowance of $21.0 million to reduce the net deferred tax assets to estimated recoverable amount at February 1, 2003, offset by a benefit of $9.0 million from the reversal of
prior years' tax accruals. The valuation allowance was recorded in fiscal 2002 as a result of the significance of our net loss in fiscal 2002 and management's projection of taxable income/loss in the
near future. Management had previously concluded that considering all factors, including available tax planning strategies and projections of future taxable income, it was more likely than not that
the net deferred income tax assets would be realized. However, considering our substantially increased losses and declining trends and projections of operating losses in the near future, the fact that
our operating results for fiscal 2002 were significantly worse than originally forecasted and the downward revision of the outlook for fiscal year 2003 and forward, we reassessed the need for a
valuation allowance. We believed in fiscal 2002 that the "positive
evidence" no longer outweighed the "negative evidence" and a valuation allowance was, therefore, necessary. The tax accruals were reversed in 2002 based on a proposed IRS settlement of open years and
results of state audits at amounts less than the accrued amounts. We do not expect to recognize any tax benefits in future results of operations until an appropriate level of profitability is
sustained.

In
fiscal 2003 there was a tax provision of $500,000 for state and foreign taxes. We established an additional valuation allowance of $5.0 million to fully reserve the net
deferred tax assets at January 31, 2004. This increase was offset by additional tax refunds and a reduction in prior year tax accruals as a result of the finalization of certain tax audits.

Insurance Proceeds

Insurance proceeds in fiscal 2002 and 2003 represent recoveries for claims related to the destruction of our World Trade Center store on September 11,
2001. The recovery in fiscal 2003 is the final settlement of this claim.

Liquidity and Capital Resources

Our sources of liquidity are primarily cash flows from operations and borrowings under our working capital credit facility. Our primary cash needs are for capital
expenditures incurred primarily for opening new stores and system enhancements, debt service requirements and working capital.

On
December 23, 2002, Operating Corp. entered into a Loan and Security Agreement with Wachovia Bank, N.A., as arranger, Congress Financial Corporation, as administrative and
collateral agent, and a syndicate of lenders which provides for maximum credit availability of up to $180.0 million. The Congress Credit Facility provides for revolving loans of up to
$160.0 million; supplemental loans of up to $20.0 million each year during the period from April 15 to September 15; and letter of credit accommodations. The Congress
Credit Facility expires in December 2005. The total amount of availability is limited to the sum of 85% of eligible receivables, 90% of the net recovery percentage of inventories (as determined
by inventory appraisal) for the period of August 1 through November 30, 85% of the net recovery percentage of inventories for the period December 1 through July 31 and the
real estate availability of $5.8 million.

16

---



The
Congress Credit Facility includes restrictions, including the incurrence of additional indebtedness, the payment of dividends and other distributions, the making of investments, the
granting of loans and the making of capital expenditures. We are required to maintain minimum levels of earnings before interest, taxes, depreciation, amortization and certain non-cash
items ("EBITDA") if excess availability is less than $15.0 million for any 30 consecutive day period. We have at all times been in compliance with all financial covenants under the Congress
Credit Facility.

The
Congress Credit Facility permits restricted payments (by way of dividends or other distributions) with respect to, among other things, our capital stock payable solely in additional
shares of our capital stock, our tax sharing agreement, the Series A Preferred Stock of Holdings, the Series B Preferred Stock of Holdings and the 131/8% senior discount
debentures due 2008 of Holdings. Our ability to declare dividends on our capital stock is also limited by Delaware law, which permits a company to pay dividends on its capital stock only out of its
surplus or, in the event that it has no surplus, out of its net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. Under the Congress Credit Facility,
the assets of Intermediate and its subsidiaries are restricted.

Cash
provided by operating activities was $16.2 million in fiscal 2003, $25.3 million in fiscal 2002 and $25.8 million in fiscal 2001. The increases in net losses in
2003 and 2002 were offset by improvements in working capital, primarily reductions in inventories of $41.3 million in 2003 and $31.6 million in 2002.

Capital
expenditures, net of construction allowances were $7.9 million in fiscal 2003, $20.4 million in fiscal 2002 and $42.6 million in 2001. Capital expenditures
related to new stores were $3.5 million, $11.4 million and $17.6 million during the three years. Furthermore, fiscal 2001 included software development costs of
$8.5 million. Anticipated capital expenditures in fiscal 2004 are approximately $9 million, which includes 5 new stores.

There
were no borrowings under the Congress Credit Facility at January 31, 2004 and February 1, 2003. Average borrowings under the Congress Credit Facility were
$1.0 million for fiscal 2003, $40.4 million for fiscal 2002 and $43.1 million for fiscal 2001. Long-term indebtedness increased by $25.8 million in fiscal 2003
consisting of $20.0 million of TPG-MD Investment notes payable due in 2008 and $5.8 million under the Congress Credit Facility repayable over a period of 60 months,
commencing June 1, 2003. As of January 31, 2004, there was $18.9 million in availability under the Congress Credit Facility.

On
May 6, 2003, we (through our wholly-owned subsidiary, Intermediate) completed an offer to exchange 16% senior discount contingent principal notes for the outstanding
131/8% senior discount debentures of Holdings. Approximately 85% of the outstanding senior discount debentures of Holdings were tendered for exchange. Effective October 15, 2002,
the interest payments accruing on the senior discount debentures of Holdings became payable in cash on April 15 and October 15 of each year subsequent thereto. We did not pay the accrued
and unpaid interest on the senior discount debentures of Holdings on the scheduled interest payment date of April 15, 2003. Rather, we paid such interest on May 6, 2003, the settlement
date of the exchange offer, together with interest thereon at a rate of 131/8% per annum from April 15, 2003 to May 5, 2003, to the holders of the senior discount
debentures of Holdings who did not tender their debentures for the initial notes in the exchange offer. Interest on the
16% notes becomes payable in cash commencing on November 15, 2005 and is payable on each May 15 and November 15 thereafter through May 15, 2008.

Management
believes that invested cash, cash flow from operations and availability under the Congress Credit Facility will provide adequate funds for our foreseeable working capital
needs, planned capital expenditures and debt service obligations. Our ability to fund our operations and make planned capital expenditures, to make scheduled debt payments, to refinance indebtedness
and to remain in compliance with the financial covenants under our debt agreements depends on our future operating performance and cash flow, which in turn, are subject to prevailing economic
conditions and to financial, business and other factors, some of which are beyond our control.

17

---





Off Balance Sheet Arrangements

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

|Letters of Credit |         |   |      |      |   |   |   |   |   |   |   |     |     |   |     
|----------------- | ------- | - | ---- | ---- | - | - | - | - | - | - | - | --- | --- | - | ----
|                  | Standby |   | $    | .7   |   | $ |  |   | $ |  |   | $   | 2.8 |   | $   
|                  | Import  |   |      | 36.0 |   |   |  |   |   |  |   |     |    |   |     
|                  |         |   |      |      |   |   |   |   |   |  
|                  |         | $ | 36.7 |      | $ |  |   | $ |  |   | $ | 2.8 |     | $ | 39.5
|                  |         |   |      |      |   |   |   |   |   |  

Contractual Obligations

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

|                               |                       | Within 1
year |       | 2-3 years |   | 4-5 years |     | After 5
years |       | Total
|------------------------------ | --------------------- | ------------- | ----- | --------- | - | --------- | --- | ------------- | ----- | -----
|
|Long term debt obligations(1)  |                       | $             | 1.2   |           | $ | 2.4       |     | $             | 341.2 |      
|Redeemable preferred stock     |                       |               |      |           |   |          |     |               |      |      
|Operating lease obligations(2) |                       |               | 52.4  |           |   | 96.4      |     |               | 84.3  |      
|Purchase obligations           |                       |               |       |           |   |           |     |               |       |      
|                               | Inventory commitments |               |       | 144.0     |   |           |    |               |       |     
|                               | Other                 |               | $     | 4.8       |   | $         | 9.1 |               | $     | 8.1  
|                               | Employment agreements |               |       | 1.5       |   | $         | 1.5 |               | $     | 1.5  
|                               |                       |               | 150.3 |           |   | 10.6      |     |               | 9.6   |      
|                               |                       |               |       |           |   |           |     |               |       |      
|                               |                       |               | 203.9 |           |   | 109.4     |     |               | 435.1 |      

---

Impact of Inflation

Our results of operations and financial condition are presented based upon historical cost. While it is difficult to accurately measure the impact of inflation
due to the imprecise nature of the estimates required, we believe that the effects of inflation, if any, on our results of operations and financial condition have been minor. However, there can be no
assurance that during a period of significant inflation, our results of operations would not be adversely affected.

Seasonality

We experience two distinct selling seasons, spring and fall. The spring season is comprised of the first and second quarters and the fall season is comprised of
the third and fourth quarters. Net sales are usually substantially higher in the fall season and selling, general and administrative expenses as a percentage of net sales are usually higher in the
spring season. Approximately 31% of annual net sales in fiscal 2003 occurred in the fourth quarter. Our working capital requirements also fluctuate throughout the year, increasing substantially in
September and October in anticipation of the holiday season inventory requirements.

Recent Accounting Pronouncements

In April 2003, the FASB issuedSFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities."This statement amends and clarifies financial accounting and

18

---



reporting
for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The provisions of this statement are effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after
June 30, 2003. The provisions of the statement related to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003 should
continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a significant effect on our financial statements.

In
May 2003, the FASB issuedSFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity."This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The
provisions of this statement were effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 resulted in a reclassification of the
liquidation value and accumulated and unpaid dividends of the Series B preferred stock and the accumulated and unpaid dividends related to the Series A preferred stock to liabilities,
which totaled $211.7 million as of January 31, 2004. After such reclassification, the dividends related to the Series B preferred stock and the accreted dividends of the
Series A Preferred Stock will be treated as interest expense.

In
December 2003, the FASB revised and reissuedFASB Interpretation No. 46, "Consolidation of Variable Interest Entities."FIN No. 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively dispense the risks and rewards of ownership
among their owners and other parties involved. The provisions of FIN No. 46 must be applied no later than as of the end of the first reporting period ending after March 15, 2004. The
adoption of FASB Interpretation No. 46 will not have a significant effect on our financial statements.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of operations is based upon the consolidated financial statements which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances and evaluate these estimates
on an on-going basis. Actual results may differ from these estimates under different assumptions or conditions.

The
following critical accounting policies, which we have discussed with our audit committee, reflect the more significant estimates and judgments used in the preparation of our
consolidated financial statements. We do not believe that changes in these assumptions and estimates are likely to have a material impact on our consolidated financial statements.



Merchandise inventories are carried at the lower of cost or market. We evaluate all of our inventories to determine excess inventories based on estimated future
sales. Excess inventories may be disposed of through factory, clearance catalogs, internet clearance sales and other liquidations. Based on historical results experienced through various methods of
disposition, we write down the carrying value of inventories that are not expected to be sold at or above costs.



The costs associated with direct response advertising, which consist primarily of catalog production and mailing costs, are capitalized and amortized over the
expected future revenue stream of the catalog

19

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mailings,
which approximates four months. The expected future revenue stream is determined based on historical revenue trends developed over an extended period of time. If the current revenue streams
were to diverge from the expected trend, our future revenue streams would be adjusted accordingly.



We are exposed to potential impairment if the book value of our assets exceeds their future cash flows. The major components of our long-lived assets
are store fixtures, equipment and leasehold improvements. The impairment of unamortized costs is measured at the store level and the unamortized cost is reduced to fair value if it is determined that
the sum of expected future net cash flows is less than net book value.



We must make estimates of future sales returns related to current period sales. Management analyzes historical returns, current economic trends and changes in
customer acceptance of our products when evaluating the adequacy of the reserve for sales returns.



We have significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which will reduce taxable income in
future periods. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" states that a valuation allowance is required when it is more likely than not that
all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence needs to be considered, including a company's current and past performance, the
market environment in which a company operates, length of carryback and carryforward periods, existing contracts or sales backlog that will result in future profits, etc. Forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Cumulative losses weigh heavily in the overall assessment. As a result of our
assessments, we established a valuation allowance to reduce our net deferred tax assets to their estimated realizable value of $5.0 million at February 1, 2003 and we provided an
additional allowance at January 31, 2004 to fully reserve our net deferred tax assets. We do not expect to recognize any tax benefit in future results of operations until an appropriate level
of profitability is sustained.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

We
enter 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 31, 2004 were $39.5 million, including $3.5 million of standby letters of credit.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

20

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

With the participation of the company's management, including the Chief Executive Officer and the Acting Chief Financial Officer, the company has conducted an
evaluation of its disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the company's Chief Executive Officer and the Acting Chief Financial
Officer have concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Such
officers also confirm that there were no significant changes in the company's internal controls over financial reporting during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting.

21

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PART III

Information required by items 10 - 14 with respect to Operating Corp. and Intermediate have been omitted pursuant to General Instruction
I of Form 10-K. Information required by items 10 -14 with respect to Holdings is described below.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of individuals who are serving as directors and executive officers of Holdings as of April 1,
2004.

|Name              |  | Age |  | Position                                                      
|----------------- |  | --- |  | --------------------------------------------------------------
|Millard Drexler   |  | 59  |  | Chief Executive Officer, Chairman of the Board and Director   
|Jeffrey Pfeifle   |  | 45  |  | President                                                     
|Roxane Al-Fayez   |  | 47  |  | Executive Vice President, Catalog & e-Commerce                
|Michael Dadario   |  | 45  |  | Executive Vice President, Stores                              
|Tracy Gardner     |  | 39  |  | Executive Vice President, Merchandising, Planning & Production
|Paul Fusco        |  | 55  |  | Senior Vice President, Chief Information Officer              
|Scott Hyatt       |  | 46  |  | Senior Vice President, Manufacturing                          
|Nicholas Lamberti |  | 61  |  | Vice President, Corporate Controller                          
|Richard Boyce     |  | 49  |  | Director                                                      
|Jonathan Coslet   |  | 39  |  | Director                                                      
|James Coulter     |  | 44  |  | Director                                                      
|Steven Grand-Jean |  | 61  |  | Director                                                      
|Thomas Scott      |  | 38  |  | Director                                                      
|Stuart Sloan      |  | 60  |  | Director                                                      
|Josh Weston       |  | 75  |  | Director                                                      
|Emily Woods       |  | 42  |  | Director                                                      

---

Millard Drexler.Mr. Drexler became Chief Executive Officer in January 2003 and Chairman of the
Board and Director in March 2003. Before joining Holdings, Mr. Drexler was Chief Executive Officer of The Gap, Inc. from 1995 until September 2002, and prior thereto he was
President of The Gap, Inc. since 1987. Mr. Drexler also serves on the Board of Directors of Apple Computer Inc.

Jeffrey Pfeifle.Mr. Pfeifle became President in February 2003. Before joining Holdings, Mr. Pfeifle was
Executive Vice President, Product and Design of the Old Navy division of The Gap, Inc. from 1995.

Roxane Al-Fayez.Ms. Al-Fayez became Executive Vice President, Catalog &
e-Commerce in October 2003. Before joining Holdings, she was Vice President of Operations, Gap, Inc. Direct for six years.

Michael Dadario.Mr. Dadario became Executive Vice President, Stores in January 2003. Before joining Holdings,
Mr. Dadario was a retail consultant with Sense Consulting from February 2000 until the end of 2002 and Executive Vice President (retail store operations) of the Banana Republic division
of The Gap, Inc. for more than five years.

Tracy Gardner.Ms. Gardner became Executive Vice President, Merchandise, Planning & Production in
March 2004. Prior to joining Holdings, Ms. Gardner held various positions at The Gap, Inc., including Senior Vice President of Adult Merchandising for GAP brand from 2002 to
March 2004, Vice-President of Womens' Merchandising for the Banana Republic division from 2001 to 2002, Vice-President of Mens' Merchandising for the Banana Republic division from 1999 to 2001,
and Divisional Merchandising Manager of Mens' Wovens for the Banana Republic division prior to 1999.

22

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Paul Fusco.Mr. Fusco has been Senior Vice President, Chief Information Officer since 2000 and prior to that he was
Vice PresidentApplication Development from 1999. Before joining Holdings, Mr. Fusco was Vice PresidentClient Relationship Executive for Enterprise Applications of
Metropolitan Life Insurance Company from 1996.

Scott Hyatt.Mr. Hyatt has been Senior Vice President, Manufacturing since 1998. Before joining Holdings,
Mr. Hyatt was Vice President, Production and Sourcing of the Express division of Limited Brands, a retail apparel company, from 1996 to 1998.

Nicholas Lamberti.Mr. Lamberti has been Vice President, Corporate Controller for more than five years. Effective
August 22, 2003, Mr. Lamberti became acting Chief Financial Officer and will continue to serve in such role until Ms. Bokman commences employment on May 10, 2004.

Richard Boyce.Mr. Boyce has been a Director since 1997 and has periodically served as Chief Executive Officer between
1997 and 1999 while also providing operating oversight to the remainder of the Texas Pacific Group portfolio. Mr. Boyce is a Senior Operating Partner of Texas Pacific Group and joined Texas
Pacific Group in 1997. He served as Chairman of Favorite Brands International Holding Corp., which filed for protection under Chapter 11 of the Bankruptcy Code in 1999. Mr. Boyce is also the
Chairman of the Board of Directors of Burger King Corporation and a Director of ON Semiconductor Corporation, Spirit Group Holdings, Ltd. and Kraton Polymers.

Jonathan Coslet.Mr. Coslet became a Director in 2003. Mr. Coslet is a senior Partner of Texas Pacific Group
and is responsible for the investment firm's generalist and healthcare investment activities. Prior to joining Texas Pacific Group, Mr. Coslet worked in the investment banking department of
Donaldson, Lufkin & Jenrette, specializing in leveraged acquisitions and high yield finance from 1991 to 1993. Mr. Coslet also serves on the Board of Directors of Burger King
Corporation, Endurance Specialty Holdings Ltd., Oxford Health Plans, Inc., Petco Animal Supplies, Inc. and Quintiles Transnational Corp.

James Coulter.Mr. Coulter has been a Director since 1997. Mr. Coulter is a founding Partner of Texas Pacific
Group, and has been Managing General Partner of Texas Pacific Group for more than eight
years. Mr. Coulter also serves on the Board of Directors of Conexant Systems, Inc., Seagate Technology, Inc. and Zhone Technologies.

Steven Grand-Jean.Mr. Grand-Jean became a Director in 2003. Mr. Grand-Jean
has been President of Grand-Jean Capital Management for more than five years.

Thomas Scott.Mr. Scott has been a Director since 2002. Mr. Scott is a founding partner of Plum TV, a
television station network in select resort markets, and served as its Chief Executive Officer and Executive Co-Chairman since September 2003. He is also a founding partner of
Nantucket Allserve Inc., a beverage supplier, and has served as Co-Chairman thereof since 1989 and Co-Chairman and Co-Chief Executive Officer from 1989 to
2000. Mr. Scott has also served as Co-Chairman of Shelflink, a supply chain software company, since 2000. Mr. Scott is married to Emily Woods, a Director of Holdings.

Stuart Sloan.Mr. Sloan has been a Director since September 2003. Mr. Sloan is the founder of Sloan
Capital Companies, a private investment company, and has been a Principal thereof since 1984. Mr. Sloan also serves on the Board of Directors of Anixter International, Inc. and Rite Aid
Corp.

Josh Weston.Mr. Weston has been a Director since 1998. Mr. Weston has also served as Honorary Chairman of the
Board of Directors of Automatic Data Processing, a computing services business, since 1998. Mr. Weston was Chairman of the Board of Automatic Data Processing from 1996 until 1998, and Chairman
and Chief Executive Officer for more than five years prior thereto. Mr. Weston also serves on the Board of Directors of Gentiva Health Services, Inc., Aegis Communications
Group, Inc. and Russ Berrie & Company, Inc.

23

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Emily Woods.Ms. Woods has served as Chairman of the Board of Directors of Holdings since 1997 and resigned from this
position in March 2003, although she continues to serve as a Director. Ms. Woods started work at J. Crew the year that it was founded in 1983 and has served as Chief Executive Officer
from 1997 to 2000 and Vice Chairman of Holdings prior thereto. Ms. Woods is married to Thomas Scott, a Director of Holdings.

Our Board of Directors

Our Board of Directors currently has 9 members. Directors serve until the next annual meeting of shareholders or until his or her successor has been elected and
qualified. Directors may be removed at any time, with or without cause, by vote of our shareholders. Our board of directors currently has two standing committeesan Audit Committee and a
Compensation Committee.

Audit Committee.The primary duties of the Audit Committee include assisting the Board of Directors
in its oversight of (i) the integrity of the Company's financial statements and financial reporting process; (ii) the integrity of the company's internal controls regarding finance,
accounting and legal compliance; and (iii) the independence and performance of the company's independent auditors and internal audit function. The Committee also reviews our critical accounting
policies, our annual and quarterly reports on Form 10-K and Form 10-Q, and our earnings releases before they are published. The Committee has sole authority to
engage, evaluate and replace the independent auditor. The Committee also has the authority to retain special legal, accounting and other consultants it deems necessary in the performance of its
duties. The Committee meets regularly with our management, independent auditors and internal auditors to discuss our internal controls and financial reporting process and also meets regularly with the
independent auditors and internal auditors in private.

The
current members of the Audit Committee are Messrs. Boyce, Grand-Jean and Weston (Chairperson). The Board of Directors has determined that Josh Weston qualifies as
an "audit committee financial expert" and is independent under the applicable rules of the Securities and Exchange Commission.

Compensation Committee.The primary duty of the Compensation Committee is to discharge the
responsibilities of the Board of Directors relating to compensation practices for the company's executive officers and other key employees, as the Committee may determine, to ensure that management's
interests are aligned with the interests of company's equity holders. The Committee also review and makes recommendations to the Board of Directors with respect to the company's employee benefits
plans, compensation and equity based plans and compensation of Directors. The current members of the Compensation Committee are Messrs. Coulter (Chairperson) and Sloan and Ms. Woods.

Compensation of Directors.Directors who are employees or representatives of Texas Pacific Group do
not receive any compensation for their services. In fiscal 2003, all other Directors received a non-qualified stock option to purchase 5,000 shares of Holdings common stock as compensation
for their services. These options have an exercise price equal to $6.82 per share, have a term of 10 years and become exercisable and vest in equal annual installments over a four year period.
If a Director ceases to serve as a Director for any reason, other than removal for cause, any options vested at the time of the termination of his or her services will remain exercisable for
90 days (but not longer than the 10 year term of the options).

24

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Code of Ethics and Business Practices

We have a Code of Ethics and Business Practices that applies to all of our directors and employees, including to our chief executive officer, chief financial
officer, controller and our other senior financial officers. A copy of the Code is filed as an exhibit to this Annual Report on Form 10-K and is available free of charge upon
written request to the Corporate Secretary, J.Crew Group, Inc., 770 Broadway, New York, NY 10003.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth compensation paid by Holdings for fiscal 2003, 2002 and 2001:



|                                                              |  |                |  |                         |  |               |     |           |     |       |    | Long-Term Compensation |      |          
|------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | ------------- | --- | --------- | --- | ----- | -- | ---------------------- | ---- | ---------
|
|
|
|Millard Drexler
Chief Executive Officer and Chairman          |  | 2003
2002      |  | 200,000
               |  | 
           |     | 500,000
 | (3) | (4
(5 | )) | 
2,231,704            | (11) | 
      
|Jeffrey Pfeifle
President                                     |  | 2003
2002      |  | 760,000
               |  | 2,400,000
   | (6) | 
       |     | (7
  | )  | 
390,548              | (11) | 400,000

|Kathy Boyer(8)
Former Executive Vice-President, Merchandising |  | 2003
2002      |  | 370,308
218,700         |  | 
           |     | 
       |     | 
   |    | 
35,000               |      | 
      
|Michael Dadario
Executive Vice-President, Stores              |  | 2003
2002      |  | 425,000
96,400          |  | 25,000
25,000 |     | 
       |     | 
   |    | 
50,000               |      | 
      
|Paul Fusco
Senior Vice President,
Chief Information Officer   |  | 2003
2002
2001 |  | 265,000
265,000
245,800 |  | 

126,000   |     | 

     |     | 

 |    | 15,000

15,000        |      | 

    
|Scott Hyatt
Senior Vice President, Manufacturing              |  | 2003
2002
2001 |  | 364,000
364,000
353,200 |  | 

183,800   |     | 

     |     | 

 |    | 

10,000             |      | 

    
|Scott Gilbertson(9)
Former Chief Operating Officer            |  | 2003
2002      |  | 450,000
               |  | 250,000
     |     | 
       |     | 
(10 | )  | 
245,487              |      | 
      

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25

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26

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The following table shows information concerning stock options to purchase shares of Holdings common stock granted to any of the named executive officers during
fiscal 2003.

|                    |  |                         |        |          |     |     |                  |  |                | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
|------------------- |  | ----------------------- | ------ | -------- | --- | --- | ---------------- |  | -------------- | -------------------------------------------------------------------------------------------------
|
|
|
|
|Millard Drexler     |  | 557,926
836,889
836,889 | (3)(3) | 47
82
82 | %%% | $$$ | 6.82
25.00
35.00 |  | 2013
2013
2013 |                                                                                                  
|Scott Gilbertson(4) |  | 111,585
66,951
66,951   |        | 9
7
7    | %%% | $$$ | 6.82
25.00
35.00 |  | 2013
2013
2013 |                                                                                                  
|Jeffrey Pfeifle(3)  |  | 167,378
111,585
111,585 | (3)(3) | 14
11
11 | %%% | $$$ | 6.82
25.00
35.00 |  | 2013
2013
2013 |                                                                                                  
|Paul Fusco          |  | 15,000                  |        | 1        | %   | $   | 6.82             |  | 2013           |                                                                                                  

---

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The following table shows the number of stock options held to purchase shares of Holdings common stock by the named executive officers of Holdings at the end of
fiscal 2003. The named executive officers did not exercise any stock options in fiscal 2003.

|Name                |  | Shares Acquired on Exercise(#) |  | Value Realized(#) |  | Number of Securities Underlying Unexercised Options at Fiscal Year End
Exercisable/Unexercisable |  | Value of Unexercised In-the-Money Options at Fiscal Year End($)(1)
Exercisable/Unexercisable
|------------------- |  | ------------------------------ |  | ----------------- |  | ------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|Millard Drexler(2)  |  | 0                              |  |                   |  | 0/557,926                                                                                        |  | 0/0                                                                                         
|Jeffrey Pfeifle(2)  |  | 0                              |  |                   |  | 0/167,378                                                                                        |  | 0/0                                                                                         
|Kathy Boyer(3)      |  | 0                              |  |                   |  | 7,000/0                                                                                          |  | 0/0                                                                                         
|Michael Dadario     |  | 0                              |  |                   |  | 10,000/40,000                                                                                    |  | 0/0                                                                                         
|Paul Fusco          |  | 0                              |  |                   |  | 16,600/28,400                                                                                    |  | 0/0                                                                                         
|Scott Gilbertson(4) |  | 0                              |  |                   |  | 114,372/0                                                                                        |  | 0/0                                                                                         
|Scott Hyatt         |  | 0                              |  |                   |  | 29,000/6,000                                                                                     |  | 0/0                                                                                         

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Long Term Incentive Plan

The following table shows the eligibility of our President to receive long-term incentive compensation pursuant to our employment agreement with him.
At the end of fiscal 2003, Mr. Pfeifle received a payment equal to $400,000 under this arrangement. We refer you to "Employment Agreements and Other Compensation
ArrangementsEmployment Agreements" for information on the payout schedule.

Long Term Incentive Plan/Awards in Last Fiscal Year

|                |  |   |         |  |                 | Estimated Future Payouts under
Non-Stock-Price-Based Plans
|--------------- |  | - | ------- |  | --------------- | ----------------------------------------------------------
|
|
|Jeffrey Pfeifle |  | $ | 400,000 |  | 1/31/03-4/30/05 |                                                           

28

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Employment Agreements and Other Compensation Arrangements



Millard Drexler.Mr. Drexler has a services agreement with the Company pursuant to which he will serve as Chief
Executive Officer for five years beginning on January 27, 2003, provided that Mr. Drexler can step down as Chief Executive Officer after January 2006 and serve only as Executive
Chairman. The agreement provides for a minimum annual base salary of $200,000, an annual bonus based on the achievement of earnings objectives to be determined each year, and reimbursement of business
expenses, provided that such total compensation not exceed $700,000 per year. The agreement also provides for (i) the grant of options to purchase 557,926 shares of Holdings common stock at an
exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of premium options to purchase an additional 836,889 shares at an exercise price equal to
$25.00 per share and 836,889 shares at an exercise price equal to $35.00 per share, which we refer to as premium options. The initial options and the premium options vest in equal annual installments
over four years commencing on the second anniversary of the grant date. The agreement also provides for the grant of 55,793 immediately vested shares of Holdings common stock and the grant of 725,303
shares of Holdings common stock, which we refer to as the "Drexler Restricted Shares." Mr. Drexler paid Holdings $200,000 for the initial options and $800,000 for the Drexler Restricted Shares.

Pursuant
to the agreement, if Mr. Drexler's employment is terminated without "cause" or for "good reason" (each as defined in the services agreement), Mr. Drexler will be
entitled to receive his base salary for one year, the immediate vesting of any unvested Drexler Restricted Shares and the immediate vesting of that portion of the initial options and the premium
options that would have become vested and exercisable on the anniversary of the grant date immediately following the termination date. If such termination occurs after a "change in control" (as
defined in the services agreement), all of the unvested initial options and premium options will immediately vest and become exercisable.

In
September 2003, Mr. Drexler received an additional grant of 83,689 Drexler Restricted Shares, of which 5,976 shares vested immediately and the remainder vest over time.
Mr. Drexler also surrendered all of his premium options to Holdings in September 2003. In consideration of the surrender, we agreed to grant to Mr. Drexler replacement premium
options following a six month period at exercise prices not less than fair market value on the date of grant with the same vesting schedule and other terms and conditions as the surrendered premium
options. This agreement was approved by a majority of the Board of Directors.

We
refer you to footnotes 4 and 5 to the Executive Compensation Table for information on the vesting of the Drexler Restricted Shares.

Jeffrey Pfeifle.Mr. Pfeifle has an employment agreement with the Company pursuant to which he will serve as President
for five years beginning on February 1, 2003, subject to automatic one-year renewals. The agreement provides for a minimum annual base salary of $760,000; one-time
bonuses in the total amount of $2,000,000 payable after his commencement date; an annual bonus based on the achievement of earnings objectives to be determined each year provided that the minimum
bonus payable for fiscal year 2003 would be $400,000; a long-term cash incentive payment between $800,000 and $1,200,000 based on the achievement of performance objectives to be determined
each year payable in installments at the end of fiscal years 2003 and 2004; and reimbursement of business expenses. The agreement also provides for (i) the grant of options to purchase 167,378
shares of Holdings common stock at an exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of premium options to purchase an additional 111,585
shares at an exercise price equal to $25.00 per share and 111,585 shares at an exercise price equal to $35.00 per share, which we refer to as premium options. The initial options and the premium
options vest in equal annual installments over four years commencing on the second anniversary of the grant date. The agreement

29

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also
provides for the grant of 111,585 shares of Holdings common stock, which we refer to as the "Pfeifle Restricted Shares."

Pursuant
to the agreement, if Mr. Pfeifle's employment is terminated without "cause" or for "good reason" (each as defined in the employment agreement), Mr. Pfeifle will be
entitled to receive his base salary for two years, a pro-rated amount of any bonus that he would have otherwise received for the fiscal year ending before the termination date, and the
immediate vesting of that portion of the initial options, premium options and Pfeifle Restricted Shares that would have become vested and exercisable on the anniversary of the grant date immediately
following the termination date. If such termination occurs after a "change in control" (as defined in the services agreement) or within six months before a "change in control" if in contemplation
thereof, all of the unvested initial options, premium options and Pfeifle Restricted Shares will immediately vest and become exercisable. If such termination occurs before February 1, 2006,
Mr. Pfeifle is entitled to receive a minimum of $2,000,000 in the form of cash severance compensation.

In
September 2003, Mr. Pfeifle received an additional grant of 50,213 Pfeifle Restricted Shares to vest over time. He also surrendered all of his premium options to
Holdings in September 2003. In consideration of the surrender, we agreed to grant to Mr. Pfeifle replacement premium options following a six month period at exercise prices not less than fair
market value on the date of grant with the same vesting schedule and other terms and conditions as the surrendered premium options. This agreement was approved by a majority of the Board of Directors.

We
refer you to footnote 7 to the Executive Compensation Table for information on the vesting of the Pfeifle Restricted Shares.



Kathy Boyer.Ms. Boyer's employment terminated effective January 5, 2004. Pursuant to her separation agreement,
she received a lump sum amount of $103,750 and the continuation of her base salary and medical benefits for three months after her termination date.

Scott Gilbertson.Mr. Gilbertson had an employment agreement with the Company pursuant to which he would serve as
Chief Operating Officer for five years commencing January 27, 2003, subject to automatic one-year renewals. The agreement provided for a minimum annual base salary of $450,000 and
an annual bonus based on achievement of earnings objectives to be determined each year provided that the minimum bonus payable for fiscal year 2003 would be $250,000. The agreement also provided for
(i) the grant of options to purchase 111,585 shares of Holdings common stock at an exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of
premium options to purchase an additional 66,951 shares at an exercise price equal to $25.00 per share and 66,951 shares at an exercise price equal to $35.00 per share, which we refer to as premium
options. The initial options and the premium options were to vest over a four year period in equal annual installments commencing on the second anniversary of the grant date. The agreement also
provided for the grant of 111,585 shares of Holdings common stock, which we refer to as the "Gilbertson Restricted Shares." We refer you to footnote 10 to the Executive Compensation Table for
information on the scheduled vesting of the Gilbertson Restricted Shares.

Pursuant
to the agreement, if Mr. Gilbertson's employment was terminated without "cause" or for "good reason" (each as defined in the employment agreement), Mr. Gilbertson
would be entitled to receive his base salary for eighteen months, a pro-rated amount of any bonus that he would have otherwise received for the fiscal year ending before the termination
date, and the immediate vesting of that portion of the initial options, premium options and restricted stock that would have become vested and exercisable on the anniversary of the grant date
immediately following the termination date. If such termination occurs after a "change in control" (as defined in employment agreement), all of the

30

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unvested
initial options, premium options and restricted stock would immediately vest and become exercisable.

Mr. Gilberton's
employment terminated in January 2004. Pursuant to his separation agreement, he is entitled to the continuation of his base salary for eighteen months and
he received the payment of his guaranteed minimum bonus payable for fiscal year 2003. In addition, an initial option to purchase 27,896 shares, premium options to purchase 33,476 shares and 27,896
Gilbertson Restricted Shares vested upon his termination and the remainder of his initial options, premium options and Gilbertson Restricted Shares were forfeited immediately. These vested options
will terminate on January 31, 2006. At the time of his termination, Mr. Gilbertson also had vested options to purchase 25,000 shares at an exercise price equal to $6.82 per share
and 28,000 shares at an exercise price equal to $10.00 per share from prior grants.



Messrs. Fusco and Hyatt each have an agreement with the Company which provides that, in the event of a termination without "cause" (as defined in the
agreement), he will receive a continuation of his base salary and medical benefits for a period of one year after the termination date and the payment of any bonus that he would otherwise have
received for the fiscal year ending before the termination date.



The Drexler Restricted Shares, the Pfeifle Restricted Shares, the Gilbertson Restricted Shares and any shares of Holdings common stock acquired by any of the
named executive officers described above pursuant to the exercise of options are subject to a shareholders' agreement providing for certain transfer restrictions, registration rights and customary
tag-along and drag-along rights.

In
addition, Mr. Drexler's shareholders' agreement provides him with certain rights to appoint three directors by himself and three additional directors by mutual agreement with
Texas Pacific Group, consent to our operating/capital budgets, and antidilution and co-investment rights. Pursuant to this right, Mr. Drexler appointed Steven Grand-Jean
as a director in March 2003 and Stuart Sloan as a director in September 2003. The agreement also requires Mr. Drexler to pay $1.0 million to us if Jeffrey Pfeifle, current
President of the Company is terminated for cause or resigns without good reason, or if Mr. Pfeifle is terminated without cause with Mr. Drexler's consent or for good reason as a result
of actions approved by Mr. Drexler before February 1, 2005. Mr. Drexler is also required to pay the excess of $480,000 over Mr. Pfeifle's pro-rata bonus if such
termination is without cause or for good reason. If such termination occurs between February 1, 2004 and February 1, 2005, Mr. Drexler is also required to pay us the amount of any
long-term incentive paid to Mr. Pfeifle, not to exceed $400,000.

Compensation Committee Interlocks and Insider Participation

In fiscal 2003, the members of our Compensation Committee were Messrs. Coulter (Chairman) and Sloan and Ms. Woods. Prior to August 2003,
Mr. Boyce was Chairman of the Compensation Committee. Ms. Woods is a former Chairman, former Chief Executive Officer and former Vice-Chairman of the company. Mr. Boyce
is also a former Chief Executive Officer of the company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of the common stock of Holdings as of April 1, 2004 for each person who is
known to Holdings to be the beneficial owner of

31

---



5%
or more of Holdings common stock. The holders listed have sole voting power and investment power over the shares held by them, except as indicated by the notes following the table.

|Title of Class |  | Name and Address
of Beneficial Owner                                       |  | Amount and Nature of
Beneficial Ownership |  | Percent of
Class |  
|-------------- |  | -------------------------------------------------------------------------- |  | ----------------------------------------- |  | ---------------- | -
|Common stock   |  | TPG Partners II, L.P.
301 Commerce Street,
Suite 3300
Fort Worth, TX 76102 |  | 8,853,386 shares(1)(4)                    |  | 58               | %
|Common stock   |  | Emily Woods
J. Crew Group, Inc.
770 Broadway
New York, NY 10003            |  | 2,429,177 shares(2)                       |  | 16               | %
|Common stock   |  | Millard S. Drexler
J. Crew Group, Inc.
770 Broadway
New York, NY 10003     |  | 1,802,112 shares(3)                       |  | 11               | %

---

The
following table sets forth information regarding the beneficial ownership of each class of equity securities of Holdings as of April 1, 2004 for (a) each director,
(b) each of the named executive officers and (c) all directors and executive officers as a group. The holders listed have sole voting

32

---



power
and investment power over the shares held by them, except as indicated by the notes following the table.

|Title of Class           |  | Name of Beneficial Owner                        |  | Amount and Nature of
Beneficial Ownership |     | Percent of
Class |  
|------------------------ |  | ----------------------------------------------- |  | ----------------------------------------- | --- | ---------------- | -
|Common stock             |  | Richard Boyce                                   |  | 55,200                                    | (1) | *                |  
|Common stock             |  | Jonathan Coslet                                 |  | 8,853,386                                 | (2) | 58               | %
|Common stock             |  | James Coulter                                   |  | 8,853,386                                 | (2) | 58               | %
|Common stock             |  | Steven Grand-Jean                               |  | 1,250                                     | (1) | *                |  
|Common stock             |  | Thomas Scott                                    |  | 1,250                                     | (1) | *                |  
|Common stock             |  | Stuart Sloan                                    |  | 1,250                                     | (1) | *                |  
|Common stock             |  | Josh Weston                                     |  | 26,728                                    | (3) | *                |  
|Common stock             |  | Emily Woods                                     |  | 2,429,177                                 | (4) | 15               | %
|Common stock             |  | Kathy Boyer(5)                                  |  | 0                                         |     | *                |  
|Common stock             |  | Michael Dadario                                 |  | 10,000                                    | (1) | *                |  
|Common stock             |  | Millard Drexler                                 |  | 1,802,112                                 | (6) | 11               | %
|Common stock             |  | Paul Fusco                                      |  | 21,350                                    | (1) | *                |  
|Common stock             |  | Scott Gilbertson(7)                             |  | 108,792                                   |     | *                |  
|Common stock             |  | Scott Hyatt                                     |  | 29,000                                    | (1) | *                |  
|Common stock             |  | Jeffrey Pfeifle                                 |  | 40,449                                    |     | *                |  
|Common stock             |  | All directors and executive officers as a group |  | 13,379,944                                |     | 87               | %
|Series A preferred stock |  | Jonathan Coslet                                 |  | 73,475                                    | (2) | 79               | %
|Series A preferred stock |  | James Coulter                                   |  | 73,475                                    | (2) | 79               | %
|Series A preferred stock |  | Josh Weston                                     |  | 60                                        |     | *                |  
|Series A preferred stock |  | Emily Woods                                     |  | 2,979                                     |     | 3                | %
|Series A preferred stock |  | All directors and executive officers as a group |  | 76,514                                    | (2) | 83               | %

---

33

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We
know of no arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the
company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Tax Sharing Arrangement

Holdings and its subsidiaries entered into a tax sharing agreement providing (among other things) that each of the subsidiaries will reimburse Holdings for its
share of income taxes determined as if such subsidiary had filed its tax returns on a "separate return" basis.

TPG-MD Investment Notes Payable

On February 4, 2003, Operating Corp. entered into a credit agreement with TPG-MD Investment, LLC, an entity controlled by Texas Pacific Group
and Millard Drexler, which provides for:



The
loans are due in February 2008 and bear interest at 5.0% per annum payable semi-annually in arrears on January 31 and July 31, commencing on
July 31, 2003. Interest will compound and be capitalized and added to the principal amount on each interest payment date. Payment of the loans is subordinated in right of payment to the prior
payment of all senior debt and on the same terms as Operating Corp.'s senior subordinated notes. The loans are guaranteed by certain subsidiaries of Operating Corp.

The
lender has the right, exercisable at anytime prior to the maturity date, to exchange the principal amount of and accrued and unpaid interest on the loans into shares of common stock
of Holdings at an exercise price of $6.82 per share. The lender also has the right to require Operating Corp. to prepay the Tranche B loan without premium or penalty under certain circumstances.

Under
the terms of TPG-MD Investment, LLC's operating agreement, the distributions payable to Mr. Drexler under this credit agreement go directly to MDJC LLC, an
entity whose sole members are Mr. Drexler and Grand-Jean Capital Management, which is turn is owned by Steven Grand-Jean, a director of the company. As payment for
certain financial advisory services that Mr. Grand-Jean rendered to Mr. Drexler and pursuant to MDJC LLC's operating agreement, Mr. Grand-Jean is entitled
to distributions under certain circumstances from his equity interest in MDJC LLC.

University Village Lease

Stuart Sloan is the President of UV, Inc., which is the general partner of University Village Limited Partnership, the owner and operator of University
Village Shopping Center in Seattle, Washington. On October 14, 2003, we entered into a lease agreement with University Village Limited Partnership with respect to the lease of 7,400 square feet
at the University Village Shopping Center for the operation of one of our retail stores. The term of the lease is 10 years. We expect to receive an allowance for tenant's improvements in the
amount of $450,000 from University Village Limited Partnership. Annual rent due under the lease is comprised of (i) base rent payment of $296,000 for years one through five and $320,000 for
years six through ten and (ii) contingent rent payment based on the store's sales in excess of a specified threshold. The lease also requires us to pay real estate taxes, insurance and certain
common area costs. Mr. Sloan's sons are the beneficiaries of trusts that are limited partners of University Village Limited Partnership.

34

---



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees.The aggregate fees billed to us by the independent auditors, KPMG LLP for professional services rendered in
connection with the audit of our financial statements included in this Annual Report on Form 10-K for fiscal 2003, and for review of our statements included in our Quarterly Reports
on Form 10-Q during fiscal 2003, totaled approximately $668,350. The aggregate fees billed to us by KPMG for professional services rendered in connection with the audit of our
financial statements included in our Annual Report on Form 10-K for fiscal 2002, and for the review of our financial statements included in our Quarterly Reports on
Form 10-Q during fiscal 2002, totaled approximately $546,200.

Audit-Related Fees.The aggregate fees billed to us by KPMG for assurance and related services that are reasonably related to
the performance of the audit and review of our financial statements that are not already reported in the paragraph immediately above totaled approximately $279,300 and $18,000 for fiscal 2003 and
2002, respectively. These costs primarily related to services provided in connection with our exchange offer of outstanding senior discount debentures of Holdings for senior discount contingent
principal notes of Intermediate in 2003 and for review of executive compensation agreements in 2002.

Pre-Approval Policy.The Audit Committee has established policies on the pre-approval of audit and
other services that the independent auditor may perform for the company. The Committee must pre-approve the annual audit fees payable to the independent auditor on an annual basis. The
Committee must also approve on a case-by-case basis their engagement for any other work to be performed for the company that is not an integral component of the audit services
as well as the compensation payable to the independent auditor therefore.

35

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



J.
Crew Group, Inc. and subsidiaries



J.
Crew Intermediate, LLC and subsidiaries



J.
Crew Operating Corp. and subsidiaries







36

---



EXHIBIT INDEX

Articles of Incorporation and By-Laws

|3.1                                                                       |  | Restated Certificate of Incorporation of J. Crew Group, Inc. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4, File No. 333-42427, filed December 16, 1997 (the
"Holdings Registration Statement").                         
|------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2                                                                       |  | By-laws of J. Crew Group, Inc., as amended. Incorporated by reference to Exhibit 3.2 to the Form 10-K for the fiscal year ended February 3, 2001.                                                                                                             
|3.3                                                                       |  | Certificate of Incorporation of J.Crew Operating Corp., as amended. Incorporated by reference to Exhibits 3.1 and 3.2 to the Registration Statement on Form S-4, File No. 333-4243, filed December 16, 1997 (the "Operating Registration
Statement").         
|3.4                                                                       |  | By-laws of J.Crew Operating Corp., as amended. Incorporated by reference to Exhibit 3 to the Form 10-Q for the period ended October 31, 1998 and Exhibit 3.14 to the Operating Registration Statement.                                                        
|3.5                                                                       |  | Certificate of Formation of J.Crew Intermediate LLC. Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4, File No. 333-107211, filed July 21, 2003 (the "Intermediate Registration
Statement").                                
|3.6                                                                       |  | Limited Liability Company Agreement of J.Crew Intermediate LLC. Incorporated by reference to Exhibit 3.2 to the Intermediate Registration Statement.                                                                                                          
|Instruments Defining the Rights of Security Holders, Including Indentures
|4.1                                                                       |  | Indenture, dated as of October 17, 1997, between J.Crew Group, Inc. and State Street Bank and Trust Company. Incorporated by reference to Exhibit 4.3 to the Holdings Registration Statement.                                                                 
|4.2                                                                       |  | Indenture, dated as of October 17, 1997, between J.Crew Operating Corp. and State Street Bank and Trust Company. Incorporated by reference to Exhibit 4.1 to the Operating Registration Statement.                                                            
|4.3                                                                       |  | 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
Holdings Registration Statement.
|4.4                                                                       |  | Stockholders' Agreement, dated as of October 17, 1997, between J. Crew Group, Inc. and the Stockholder signatories thereto. Incorporated by reference to Exhibit 4.1 to the Holdings Registration Statement.                                                  
|4.5(a)                                                                    |  | Stockholders' Agreement, dated as of October 17, 1997, among J. Crew Group, Inc., TPG Partners II, L.P. and Emily Woods. Incorporated by reference to Exhibit 10.1 to the Group Registration Statement.                                                       
|4.5(b)                                                                    |  | Amendment to Stockholders' Agreement, dated as of February 3, 2003, among J. Crew Group, Inc., TPG Partners II, L.P. and Emily Woods. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on February 7,
2003.                                     
|4.6                                                                       |  | Stockholders' Agreement, dated as of September 9, 2002, between J. Crew Group, Inc., TPG Partners II, L.P. and Kenneth Pilot. Incorporated by reference to Exhibit 4.6 to the Form 10-K for fiscal year ended February 1,
2003.                               
|                                                                          |  |                                                                                                                                                                                                                                                               

37

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|4.7                                                          |  | Stockholders' Agreement, dated as of January 24, 2003, among J. Crew Group, Inc., TPG Partners II, L.P. and Millard Drexler. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on February 3, 2003.                                                                                                                                                                                                                                                           
|------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.8                                                          |  | Stockholders' Agreement, dated as of February 20, 2003, among J. Crew Group, Inc., TPG Partners II, L.P. and Jeffrey Pfeifle. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on February 26, 2003.                                                                                                                                                                                                                                                         
|4.9                                                          |  | Stockholders' Agreement, dated as of February 12, 2003, among J. Crew Group, Inc., TPG Partners II, L.P. and Scott Gilbertson. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on February 14, 2003.                                                                                                                                                                                                                                                        
|4.10                                                         |  | Credit Agreement, dated as of February 4, 2003, among J. Crew Group, Inc., J. Crew Operating Corp. and certain subsidiaries thereof, and TPGMD Investment LLC. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on
February 7, 2003.                                                                                                                                                                                                                           
|4.11                                                         |  | Indenture, dated as of May 6, 2003, between J. Crew Intermediate LLC and U.S. Bank National Association. Incorporated by reference to Exhibit 4.1 to the Form 8-K filed on May 6, 2003.                                                                                                                                                                                                                                                                                    
|4.12                                                         |  | Registration Rights Agreement, dated as of May 6, 2003, between J. Crew Intermediate LLC and U.S. Bank National Association. Incorporated by reference to Exhibit 4.2 to the Form 8-K filed on May 6, 2003.                                                                                                                                                                                                                                                                
|4.13                                                         |  | First Supplemental Indenture, dated as of May 6, 2003, between J. Crew Intermediate LLC and U.S. Bank National Association, as successor trustee to State Street Bank and Trust Company. Incorporated by reference as Exhibit 4.3 to the
Form 8-K filed on May 6, 2003.                                                                                                                                                                                                    
|Material Contracts                                          
|10.1(a)                                                      |  | Loan and Security Agreement, dated as of December 23, 2002, by and among J. Crew Operating Corp., J. Crew Inc., Grace Holmes, Inc. and H.F.D. No. 55, Inc. as Borrowers, J. Crew Group, Inc. and J. Crew International,
 Inc. as Guarantors, Wachovia Bank, National Association as Arranger, Congress Financial Corporation as Administrative and Collateral Agent, and the Lenders. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on
December 27, 2002.
|10.1(b)                                                      |  | Amendment No. 1, dated as of February 7, 2003, to the Loan and Security Agreement. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on February 14, 2003.                                                                                                                                                                                                                                                                                                   
|10.1(c)                                                      |  | Amendment No. 2, dated as of April 4, 2003, to the Loan and Security Agreement. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 8, 2003.                                                                                                                                                                                                                                                                                                          
|10.2                                                         |  | Credit Agreement, dated as of February 4, 2003, by and between J. Crew Group, Inc., J. Crew Operating Corp., and certain subsidiaries thereof, and TPG-MD Investment, LLC. Incorporated by reference to Exhibit 10.1 of the Form 8-K
filed on February 7, 2003.                                                                                                                                                                                                            
|Management Contracts and Compensatory Plans and Arrangements
|10.3                                                         |  | Amended and Restated J. Crew Group, Inc. 1997 Stock Option Plan. Incorporated by reference to Exhibit 10.1 to the Form 10-Q for the period ended August 3, 2002.                                                                                                                                                                                                                                                                                                           
|10.4(a)                                                      |  | J. Crew Group, Inc. 2003 Equity Incentive Plan (the "2003 Plan"). Incorporated by reference to Exhibit 10.4 to the Form 10-K for the fiscal year ended February 1, 2003.                                                                                                                                                                                                                                                                                                   
|10.4(b)*                                                     |  | Amendment No. 1 to the 2003 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

38

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|10.5      |  | Separation Agreement, dated April 29, 2002, between the Company and Mark Sarvary. Incorporated by reference to Exhibit 10.5(d) to the Form 10-K for the fiscal year ended February 1, 2003.                          
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6      |  | Separation Agreement, dated October 17, 2002, between the Company and Michael Scandiffio. Incorporated by reference to Exhibit 10.12 to the Form 10-K for the fiscal year ended February 1, 2003.                    
|10.7      |  | Separation Agreement, dated January 30, 2003, between the Company and Blair Gordon. Incorporated by reference to Exhibit 10.7(b) to the Form 10-K for the fiscal year ended February 1, 2003.                        
|10.8(a)   |  | Employment Agreement, dated August 26, 2002, between the Company and Kenneth Pilot. Incorporated by reference to Exhibit 10.2 to the Form 10-Q for the period ended August 3, 2002.                                  
|10.8(b)   |  | Separation Agreement, dated January 29, 2003, between the Company and Kenneth Pilot. Incorporated by reference to Exhibit 10.8(b) to the Form 10-K for the fiscal year ended February 1, 2003.                       
|10.9(a)   |  | Services Agreement, dated January 24, 2003, between the Company, Millard S. Drexler, Inc. and Millard Drexler. Incorporated by reference to Exhibit 10.9 to the Form 10-K for the fiscal year ended February 1, 2003.
|10.9(b)*  |  | Option Surrender Agreement, dated September 25, 2003, between the Company and Millard Drexler.                                                                                                                       
|10.10(a)  |  | Employment Agreement, dated January 24, 2003, between the Company and Jeffrey Pfeifle. Incorporated by reference to Exhibit 10.10 to the Form 10-K for the fiscal year ended February 1, 2003.                       
|10.10(b)* |  | Option Surrender Agreement, dated September 25, 2003, between the Company and Jeffrey Pfeifle.                                                                                                                       
|10.11(a)  |  | Employment Agreement, dated January 27, 2003, between the Company and Scott Gilbertson. Incorporated by reference to Exhibit 10.11 to the Form 10-K for the fiscal year ended February 1, 2003.                      
|10.11(b)* |  | Separation Agreement, dated January 20, 2004, between the Company and Scott Gilbertson.                                                                                                                              
|10.12     |  | Separation Agreement, dated March 7, 2003, between the Company and Walter Killough. Incorporated by reference to Exhibit 10.12 to the Form 10-K for the fiscal year ended February 1, 2003.                          
|10.13     |  | Form of Executive Severance Agreement between the Company and certain executives thereof. Incorporated by reference to Exhibit 10.14 to Form 10-K for the fiscal year ended February 2, 2002.                        
|10.14*    |  | Employment Agreement, dated January 23, 2004, between the Company and Tracy Gardner.                                                                                                                                 
|10.15*    |  | Separation Agreement, dated December 23, 2003, and letter agreement dated, January 26, 2004, between the Company and Kathy Boyer.                                                                                    
|10.16*    |  | Employment Agreement, dated April 10, 2004, between the Company and Amanda Bokman.                                                                                                                                   
|          |  |                                                                                                                                                                                                                      

39

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|Other Exhibits
|--------------
|14*           
|21.1*         
|23.1*         
|31.1*         
|31.2*         
|32.1*         

---

40

---





SIGNATURES

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

|Date: April 29, 2004 |  | J. CREW GROUP, INC.
J. CREW OPERATING CORP.
J. CREW INTERMEDIATE LLC
|-------------------- |  | --------------------------------------------------------------------
|                     |  | By:                                                                 

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities
indicated, on April 29, 2004.

|Signature                             |  | Title                                                                                                               
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------
|                                      |  |                                                                                                                     
|/s/MILLARD DREXLERMillard Drexler     |  | Chairman of the Board, Chief Executive Officer and a Director (Principal Executive Officer)                         
|/s/NICHOLAS LAMBERTINicholas Lamberti |  | Vice President, Corporate Controller and Acting Chief Financial Officer (Principal Financial and Accounting Officer)
|/s/RICHARD BOYCERichard Boyce         |  | Director                                                                                                            
|/s/JONATHAN COSLETJonathan Coslet     |  | Director                                                                                                            
|/s/JAMES COULTERJames Coulter         |  | Director                                                                                                            
|/s/STEVEN GRAND-JEANSteven Grand-Jean |  | Director                                                                                                            
|/s/THOMAS SCOTTThomas Scott           |  | Director                                                                                                            
|                                      |  |                                                                                                                     

41

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|/s/STUART SLOANStuart Sloan |  | Director
|--------------------------- |  | --------
|/s/JOSH WESTONJosh Weston   |  | Director
|/s/EMILY WOODSEmily Woods   |  | Director

42

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INDEX TO FINANCIAL STATEMENTS

|Report of KPMG LLP, Independent Auditors    |                                                                                                                                          | F-2 
|------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ----
|J. Crew Group, Inc. and subsidiaries:       |                                                                                                                                          |     
|                                            | Consolidated Balance Sheets as of January 31, 2004
and February 1, 2003                                                                  |     
|                                            | Consolidated Statements of OperationsYears Ended
January 31, 2004, February 1, 2003 and February 2, 2002                                |     
|                                            | Consolidated Statements of Changes in Stockholders' Deficit
Years Ended January 31, 2004, February 1, 2003 and February 2, 2002         |     
|                                            | Consolidated Statements of Cash FlowsYears Ended January 31,
2004, February 1, 2003 and February 2, 2002                                |     
|J. Crew Intermediate, LLC and subsidiaries: |                                                                                                                                          |     
|                                            | Consolidated Balance Sheets as of January 31, 2004
and February 1, 2003                                                                  |     
|                                            | Consolidated Statements of OperationsYears Ended
January 31, 2004, February 1, 2003 and February 2, 2002                                |     
|                                            | Consolidated Statements of Changes in Membership Interests
Years Ended January 31, 2004, February 1, 2003 and February 2, 2002          |     
|                                            | Consolidated Statements of Cash FlowsYears Ended January 31,
2004, February 1, 2003 and February 2, 2002                                |     
|J. Crew Operating Corp. and subsidiaries:   |                                                                                                                                          |     
|                                            | Consolidated Balance Sheets as of January 31, 2004
and February 1, 2003                                                                  |     
|                                            | Consolidated Statements of OperationsYears Ended
January 31, 2004, February 1, 2003 and February 2, 2002                                |     
|                                            | Consolidated Statements of Changes in Stockholders' Equity
(Deficit)Years Ended January 31, 2004, February 1, 2003 and February 2, 2002 |     
|                                            | Consolidated Statements of Cash FlowsYears Ended January 31,
2004, February 1, 2003 and February 2, 2002                                |     
|Notes to Consolidated Financial Statements  |                                                                                                                                          | F-15
|Financial Statement Schedules:              |                                                                                                                                          |     
|                                            | Schedule IIValuation and Qualifying AccountsYears Ended
January 31, 2004, February 1, 2003 and February 2, 2002                        |     

F-1

---



The Board of Directors and Stockholders
J. Crew Group, Inc, J. Crew Intermediate LLC, and J. Crew Operating Corp.

We
have audited the consolidated financial statements of J. Crew Group, Inc. ("Holdings"), J. Crew Intermediate LLC, a wholly-owned subsidiary of Holdings ("Intermediate"), and J. Crew Operating
Corp., a wholly-owned subsidiary of Intermediate ("Operating Corp.") 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 Companies management. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Holdings, Intermediate, and Operating Corp. as of
January 31, 2004 and February 1, 2003 and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2004, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 5 to the consolidated financial statements, in the third quarter of fiscal 2003, Holdings adopted Statement of Financial Accounting Standards No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity".



March
25, 2004
New York, NY

F-2

---





J. CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Balance Sheets        (in thousands)

|                                      |                                           | January 31,
2004                               |          | February 1,
2003 |        
|------------------------------------- | ----------------------------------------- | ---------------------------------------------- | -------- | ---------------- | -------
|Assets                                |                                           |                                                |          |                  |        
|Current assets:                       |                                           |                                                |          |                  |        
|                                      | Cash and cash equivalents                 |                                                | $        | 49,650           |        
|                                      | Merchandise inventories                   |                                                |          | 66,028           |        
|                                      | Prepaid expenses and other current assets |                                                |          | 23,633           |        
|                                      | Refundable income taxes                   |                                                |          | 9,320            |        
|                                      |                                           |                                                |          |                  |        
|                                      |                                           | Total current assets                           |          |                  | 148,631
|                                      |                                           |                                                |          |                  |        
|Property and equipment  at cost:     |                                           |                                                |          |                  |        
|                                      | Land                                      |                                                |          | 1,710            |        
|                                      | Buildings and improvements                |                                                |          | 11,705           |        
|                                      | Furniture, fixtures and equipment         |                                                |          | 90,898           |        
|                                      | Leasehold improvements                    |                                                |          | 176,740          |        
|                                      | Construction in progress                  |                                                |          | 3,892            |        
|                                      |                                           |                                                |          |                  |        
|                                      |                                           |                                                | 284,945  |                  |        
|                                      |                                           | Less accumulated depreciation and amortization |          |                  | 146,565
|                                      |                                           |                                                |          |                  |        
|                                      |                                           |                                                | 138,380  |                  |        
|                                      |                                           |                                                |          |                  |        
|Deferred income tax assets            |                                           |                                                |         |                  |        
|Other assets                          |                                           |                                                | 13,500   |                  |        
|                                      |                                           |                                                |          |                  |        
|                                      |                                           | Total assets                                   |          | $                | 300,511
|                                      |                                           |                                                |          |                  |        
|Liabilities and Stockholders' Deficit |                                           |                                                |          |                  |        
|Current liabilities:                  |                                           |                                                |          |                  |        
|                                      | Current portion of long term debt         |                                                | $        | 1,164            |        
|                                      | Accounts payable                          |                                                |          | 49,386           |        
|                                      | Other current liabilities                 |                                                |          | 47,789           |        
|                                      | Income taxes payable                      |                                                |          | 1,175            |        
|                                      |                                           |                                                |          |                  |        
|                                      |                                           | Total current liabilities                      |          |                  | 99,514 
|                                      |                                           |                                                |          |                  |        
|Deferred credits                      |                                           |                                                | 56,723   |                  |        
|                                      |                                           |                                                |          |                  |        
|Long-term debt                        |                                           |                                                | 516,640  |                  |        
|                                      |                                           |                                                |          |                  |        
|Preferred stock                       |                                           |                                                | 92,800   |                  |        
|                                      |                                           |                                                |          |                  |        
|Stockholders' deficit                 |                                           |                                                | (465,166 | )                |        
|                                      |                                           |                                                |          |                  |        
|                                      |                                           | Total liabilities and stockholders' deficit    |          | $                | 300,511
|                                      |                                           |                                                |          |                  |        

See
accompanying notes to consolidated financial statements.

F-3

---





J. CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Operations        (in thousands)

|                                                     |                                                          | Years ended                   |        
|---------------------------------------------------- | -------------------------------------------------------- | ----------------------------- | -------
|
|Revenues:                                            |                                                          |                               |        
|                                                     | Net sales                                                |                               | $      
|                                                     | Other                                                    |                               |        
|                                                     |                                                          |                               |        
|                                                     |                                                          |                               | 688,289
|Operating costs and expenses:                        |                                                          |                               |        
|                                                     | Cost of goods sold, including buying and occupancy costs |                               |        
|                                                     | Selling, general and administrative expenses             |                               |        
|                                                     |                                                          |                               |        
|                                                     |                                                          |                               | 716,164
|                                                     |                                                          |                               |        
|                                                     |                                                          | Income/(loss) from operations |        
|Interest expensenet                                 |                                                          |                               | (63,844
|Gain on exchange of debt (net of expenses of $2,922) |                                                          |                               | 41,085 
|Insurance proceeds                                   |                                                          |                               | 3,850  
|                                                     |                                                          |                               |        
|                                                     |                                                          | Loss before income taxes      |        
|Income taxes                                         |                                                          |                               | (500   
|                                                     |                                                          |                               |        
|                                                     |                                                          | Net loss                      |        
|                                                     |                                                          |                               |        

See
accompanying notes to consolidated financial statements.

F-4

---





J. CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Changes in Stockholders' Deficit        (in thousands, except shares)

|                                 |  | Common stock |  |   |   |  |   |        |  |   |          |   |  
|-------------------------------- |  | ------------ |  | - | - |  | - | ------ |  | - | -------- | - | -
|
|
|Balance at February 3, 2001      |  | 12,232,665   |  | $ | 1 |  | $ | 70,715 |  | $ | (345,733 | ) | $
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Net loss                         |  |             |  |   |  |  |   |       |  |   | (11,011  | ) |  
|Preferred stock dividends        |  |             |  |   |  |  |   |       |  |   | (30,442  | ) |  
|Issuance of common stock         |  | 5,524        |  |   |  |  |   | 96     |  |   |         |   |  
|Amortization of restricted stock |  |             |  |   |  |  |   |       |  |   |         |   |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Balance at February 2, 2002      |  | 12,238,189   |  |   | 1 |  |   | 70,811 |  |   | (387,186 | ) |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Net loss                         |  |             |  |   |  |  |   |       |  |   | (40,590  | ) |  
|Preferred stock dividends        |  |             |  |   |  |  |   |       |  |   | (33,578  | ) |  
|Issuance of common stock         |  | 12,318       |  |   |  |  |   | 284    |  |   |         |   |  
|Issuance of restricted stock     |  | 1,109,266    |  |   |  |  |   | 1,111  |  |   |         |   |  
|Amortization of restricted stock |  |             |  |   |  |  |   |       |  |   |         |   |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Balance at February 1, 2003      |  | 13,359,773   |  |   | 1 |  |   | 72,206 |  |   | (461,354 | ) |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Net loss                         |  |             |  |   |  |  |   |       |  |   | (47,284  | ) |  
|Preferred stock dividends        |  |             |  |   |  |  |   |       |  |   | (26,260  | ) |  
|Issuance of restricted stock     |  | 224,402      |  |   |  |  |   | 165    |  |   |         |   |  
|Amortization of restricted stock |  |             |  |   |  |  |   |       |  |   |         |   |  
|Forfeiture of restricted stock   |  |             |  |   |  |  |   |       |  |   |         |   |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  
|Balance at January 31, 2004      |  | 13,584,175   |  |   | 1 |  |   | 72,371 |  |   | (534,898 | ) |  
|                                 |  |              |  |   |   |  |   |        |  |   |          |   |  

See
accompanying notes to consolidated financial statements.

F-5

---





J. CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Cash Flows        (in thousands)

|                                                                                         |                                                  | Years ended                                                                                                                                                                                                         |        
|---------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|
|Cash flows from operating activities:                                                    |                                                  |                                                                                                                                                                                                                     |        
|Net loss                                                                                 |                                                  | $                                                                                                                                                                                                                   | (47,284
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Depreciation and amortization                                                                                                                                                                                       |        
|                                                                                         |                                                  | Amortization of deferred financing costs                                                                                                                                                                            |        
|                                                                                         |                                                  | Non-cash interest expense                                                                                                                                                                                           |        
|                                                                                         |                                                  | Non-cash preferred stock dividends (included in interest expense)                                                                                                                                                   |        
|                                                                                         |                                                  | Deferred income taxes                                                                                                                                                                                               |        
|                                                                                         |                                                  | Non-cash compensation expense                                                                                                                                                                                       |        
|                                                                                         |                                                  | Gain on exchange of debt                                                                                                                                                                                            |        
|Changes in operating assets and liabilities:                                             |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         | Merchandise inventories                          |                                                                                                                                                                                                                     |        
|                                                                                         | Prepaid expenses and other current assets        |                                                                                                                                                                                                                     |        
|                                                                                         | Other assets                                     |                                                                                                                                                                                                                     |        
|                                                                                         | Accounts payable                                 |                                                                                                                                                                                                                     |        
|                                                                                         | Other liabilities                                |                                                                                                                                                                                                                     |        
|                                                                                         | Income taxes payable                             |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Net cash provided by operating activities                                                                                                                                                                           |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|Cash flows from investing activities:                                                    |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         | Capital expenditures                             |                                                                                                                                                                                                                     |        
|                                                                                         | Proceeds from construction allowances            |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Net cash used in investing activities                                                                                                                                                                               |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|Cash flows from financing activities:                                                    |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         | Proceeds from long term debt                     |                                                                                                                                                                                                                     |        
|                                                                                         | Costs incurred in refinancing debt               |                                                                                                                                                                                                                     |        
|                                                                                         | Repayment of long-term debt                      |                                                                                                                                                                                                                     |        
|                                                                                         | Proceeds from the issuance of common stock       |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Net cash provided by/(used in) financing activities                                                                                                                                                                 |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         | Increase (decrease) in cash and cash equivalents |                                                                                                                                                                                                                     |        
|Cash and cash equivalents at beginning of year                                           |                                                  |                                                                                                                                                                                                                     | 18,895 
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|Cash and cash equivalents at end of year                                                 |                                                  | $                                                                                                                                                                                                                   | 49,650 
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|Supplementary cash flow information:                                                     |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Income taxes paid                                                                                                                                                                                                   |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Interest paid                                                                                                                                                                                                       |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|Noncash financing activities:                                                            |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Dividends on redeemable preferred stock                                                                                                                                                                             |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Interest payable on 131/8% Senior Discount Debentures at February 1, 2003 capitalized and added to the principal amount of the debt                                                                                 |        
|                                                                                         |                                                  |                                                                                                                                                                                                                     |        
|                                                                                         |                                                  | Exchange of 16% Senior Discount Contingent Principal Notes of J. Crew Intermediate LLC with a fair value of $87,006,000 for $131,083,000 carrying value of 131/8% Senior Discount Debentures of J.
Crew Group, Inc. |        

See accompanying notes to consolidated financial statements.

F-6

---





J. CREW INTERMEDIATE LLC    Consolidated Balance Sheets    (in thousands)

|                                                                           |                                                | January 31,
2004                           |         | February 1,
2003
|-------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------ | ------- | ----------------
|Assets                                                                     |                                                |                                            |         |                 
|Current assets:                                                            |                                                |                                            |         |                 
|                                                                           | Cash and cash equivalents                      |                                            | $       | 49,650          
|                                                                           | Merchandise inventories                        |                                            |         | 66,028          
|                                                                           | Prepaid expenses and other current assets      |                                            |         | 23,633          
|                                                                           | Refundable income taxes                        |                                            |         | 9,320           
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                | Total current assets                       |         |                 
|                                                                           |                                                |                                            |         |                 
|Property and equipmentat cost:                                            |                                                |                                            |         |                 
|                                                                           | Land                                           |                                            |         | 1,710           
|                                                                           | Buildings and improvements                     |                                            |         | 11,705          
|                                                                           | Furniture, fixtures and equipment              |                                            |         | 90,898          
|                                                                           | Leasehold improvements                         |                                            |         | 176,740         
|                                                                           | Construction in progress                       |                                            |         | 3,892           
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                |                                            | 284,945 |                 
|                                                                           | Less accumulated depreciation and amortization |                                            |         | 146,565         
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                |                                            | 138,380 |                 
|                                                                           |                                                |                                            |         |                 
|Investment in 131/8% Senior subordinated debentures of J. Crew Group, Inc. |                                                |                                            | 131,083 |                 
|                                                                           |                                                |                                            |         |                 
|Accrued interest receivable                                                |                                                |                                            | 12,665  |                 
|                                                                           |                                                |                                            |         |                 
|Other assets                                                               |                                                |                                            | 13,333  |                 
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                | Total assets                               |         | $               
|                                                                           |                                                |                                            |         |                 
|Liabilities and Membership Interests                                       |                                                |                                            |         |                 
|Current liabilities:                                                       |                                                |                                            |         |                 
|                                                                           | Current portion of long term debt              |                                            | $       | 1,164           
|                                                                           | Accounts payable                               |                                            |         | 49,386          
|                                                                           | Other current liabilities                      |                                            |         | 46,949          
|                                                                           | Income taxes payable                           |                                            |         | 1,175           
|                                                                           | Deferred income taxes                          |                                            |         |                
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                | Total current liabilities                  |         |                 
|                                                                           |                                                |                                            |         |                 
|Long-term debt                                                             |                                                |                                            | 283,269 |                 
|                                                                           |                                                |                                            |         |                 
|Deferred credits                                                           |                                                |                                            | 56,723  |                 
|                                                                           |                                                |                                            |         |                 
|Due to J. Crew Group, Inc.                                                 |                                                |                                            | 8,506   |                 
|                                                                           |                                                |                                            |         |                 
|Membership interests                                                       |                                                |                                            | (3,080  | )               
|                                                                           |                                                |                                            |         |                 
|                                                                           |                                                | Total liabilities and membership interests |         | $               
|                                                                           |                                                |                                            |         |                 

See
accompanying notes to consolidated financial statements.

F-7

---





J. CREW INTERMEDIATE LLC    Consolidated Statements of Operations    (in thousands)

|                              |                                                          | Years Ended                   |        
|----------------------------- | -------------------------------------------------------- | ----------------------------- | -------
|
|Revenues:                     |                                                          |                               |        
|                              | Net sales                                                |                               | $      
|                              | Other                                                    |                               |        
|                              |                                                          |                               |        
|                              |                                                          |                               | 688,289
|Operating costs and expenses: |                                                          |                               |        
|                              | Cost of goods sold, including buying and occupancy costs |                               |        
|                              | Selling, general and administrative expenses             |                               |        
|                              |                                                          |                               |        
|                              |                                                          |                               | 716,123
|                              |                                                          |                               |        
|                              |                                                          | Income/(loss) from operations |        
|Interest expensenet          |                                                          |                               | (42,253
|Insurance proceeds            |                                                          |                               | 3,850  
|Gain on exchange of debt      |                                                          |                               | 44,077 
|Intercompany interest income  |                                                          |                               | 12,665 
|                              |                                                          |                               |        
|                              |                                                          | Loss before income taxes      |        
|Income taxes                  |                                                          |                               | 5,410  
|                              |                                                          |                               |        
|                              |                                                          | Net loss                      |        
|                              |                                                          |                               |        

See
accompanying notes to consolidated financial statements.

F-8

---



J. CREW INTERMEDIATE LLC
Consolidated Statement of Changes in Membership Interests
($ in thousands)

|Balance at February 3, 2001 |  | $ | 19,208 |  
|--------------------------- |  | - | ------ | -
|Net loss                    |  |   | (61    | )
|                            |  |   |       
|Balance at February 2, 2002 |  |   | 19,147 |  
|Net loss                    |  |   | (8,822 | )
|                            |  |   |       
|Balance at February 1, 2003 |  |   | 10,325 |  
|Net loss                    |  |   | (4,085 | )
|Dividends to affiliates     |  |   | (9,320 | )
|                            |  |   |       
|Balance at January 31, 2004 |  | $ | (3,080 | )
|                            |  |   |       

See
accompanying notes to consolidated financial statements.

F-9

---





J. CREW INTERMEDIATE LLC    Consolidated Statements of Cash Flows    (in thousands)

|                                                                                         |                                                                                                                                                                                                                     | Years ended                                      |       
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------
|
|Cash flows from operating activities:                                                    |                                                                                                                                                                                                                     |                                                  |       
|Net income/(loss)                                                                        |                                                                                                                                                                                                                     | $                                                | (4,085
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Depreciation and amortization                                                                                                                                                                                       |                                                  |       
|                                                                                         | Amortization of deferred financing costs                                                                                                                                                                            |                                                  |       
|                                                                                         | Deferred income taxes                                                                                                                                                                                               |                                                  |       
|                                                                                         | Non-cash interest expense/interest income                                                                                                                                                                           |                                                  |       
|                                                                                         | Gain on exchange of debt                                                                                                                                                                                            |                                                  |       
|Changes in operating assets and liabilities:                                             |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Merchandise inventories                                                                                                                                                                                             |                                                  |       
|                                                                                         | Prepaid expenses and other current assets                                                                                                                                                                           |                                                  |       
|                                                                                         | Other assets                                                                                                                                                                                                        |                                                  |       
|                                                                                         | Accounts payable                                                                                                                                                                                                    |                                                  |       
|                                                                                         | Other liabilities                                                                                                                                                                                                   |                                                  |       
|                                                                                         | Income taxes payable                                                                                                                                                                                                |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     | Net cash provided by operating activities        |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|Cash flows from investing activities:                                                    |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Capital expenditures                                                                                                                                                                                                |                                                  |       
|                                                                                         | Proceeds from construction allowances                                                                                                                                                                               |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     | Net cash used in investing activities            |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|Cash flows from financing activities:                                                    |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Proceeds from long term debt                                                                                                                                                                                        |                                                  |       
|                                                                                         | Transfers to affiliate                                                                                                                                                                                              |                                                  |       
|                                                                                         | Costs incurred in refinancing debt                                                                                                                                                                                  |                                                  |       
|                                                                                         | Repayment of long-term debt                                                                                                                                                                                         |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         |                                                                                                                                                                                                                     | Net cash provided/(used) in financing activities |       
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Increase (decrease) in cash and cash equivalents                                                                                                                                                                    |                                                  |       
|Cash and cash equivalents at beginning of year                                           |                                                                                                                                                                                                                     |                                                  | 18,895
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|Cash and cash equivalents at end of year                                                 |                                                                                                                                                                                                                     | $                                                | 49,650
|                                                                                         |                                                                                                                                                                                                                     |                                                  |       
|Non cash financing activities:                                                           |                                                                                                                                                                                                                     |                                                  |       
|                                                                                         | Exchange of 16% Senior Discount Contingent Principal Notes of J. Crew Intermediate LLC with a face value of $87,006,000 for $131,083,000 carrying value of 131/8% Senior Discount Debentures of
J. Crew Group, Inc. |                                                  |       

See
accompanying notes to consolidated financial statements.

F-10

---





J. CREW OPERATING CORP. AND  SUBSIDIARIES    Consolidated Balance Sheets    (in thousands)

|                                               |                                                | January 31,
2004                           |         | February 1,
2003
|---------------------------------------------- | ---------------------------------------------- | ------------------------------------------ | ------- | ----------------
|Assets                                         |                                                |                                            |         |                 
|Current assets:                                |                                                |                                            |         |                 
|                                               | Cash and cash equivalents                      |                                            | $       | 49,650          
|                                               | Merchandise inventories                        |                                            |         | 66,028          
|                                               | Prepaid expenses and other current assets      |                                            |         | 23,633          
|                                               | Refundable income taxes                        |                                            |         | 9,320           
|                                               |                                                |                                            |         |                 
|                                               |                                                | Total current assets                       |         |                 
|                                               |                                                |                                            |         |                 
|Property and equipmentat cost:                |                                                |                                            |         |                 
|                                               | Land                                           |                                            |         | 1,710           
|                                               | Buildings and improvements                     |                                            |         | 11,705          
|                                               | Furniture, fixtures and equipment              |                                            |         | 90,898          
|                                               | Leasehold improvements                         |                                            |         | 176,740         
|                                               | Construction in progress                       |                                            |         | 3,892           
|                                               |                                                |                                            |         |                 
|                                               |                                                |                                            | 284,945 |                 
|                                               | Less accumulated depreciation and amortization |                                            |         | 146,565         
|                                               |                                                |                                            |         |                 
|                                               |                                                |                                            | 138,380 |                 
|                                               |                                                |                                            |         |                 
|Other assets                                   |                                                |                                            | 11,091  |                 
|                                               |                                                |                                            |         |                 
|                                               |                                                | Total assets                               |         | $               
|                                               |                                                |                                            |         |                 
|Liabilities and Stockholder's Equity (Deficit) |                                                |                                            |         |                 
|Current liabilities:                           |                                                |                                            |         |                 
|                                               | Current portion of long term debt              |                                            | $       | 1,164           
|                                               | Accounts payable                               |                                            |         | 49,386          
|                                               | Other current liabilities                      |                                            |         | 46,942          
|                                               | Income taxes payable                           |                                            |         | 1,175           
|                                               | Deferred income taxes                          |                                            |         |                
|                                               |                                                |                                            |         |                 
|                                               |                                                | Total current liabilities                  |         |                 
|                                               |                                                |                                            |         |                 
|Long-term debt                                 |                                                |                                            | 174,880 |                 
|                                               |                                                |                                            |         |                 
|Deferred credits                               |                                                |                                            | 56,723  |                 
|                                               |                                                |                                            |         |                 
|Due to J. Crew Group, Inc.                     |                                                |                                            | 5,897   |                 
|                                               |                                                |                                            |         |                 
|Stockholder's equity (deficit)                 |                                                |                                            | (38,065 | )               
|                                               |                                                |                                            |         |                 
|                                               |                                                | Total liabilities and stockholder's equity |         | $               
|                                               |                                                |                                            |         |                 

See
accompanying notes to consolidated financial statements.

F-11

---



J. CREW OPERATING CORP. AND
SUBSIDIARIES

Consolidated Statements of Operations

(in thousands)

|                              |                                                          | Years ended                   |        
|----------------------------- | -------------------------------------------------------- | ----------------------------- | -------
|
|Revenues:                     |                                                          |                               |        
|                              | Net sales                                                |                               | $      
|                              | Other                                                    |                               |        
|                              |                                                          |                               |        
|                              |                                                          |                               | 688,289
|Operating costs and expenses: |                                                          |                               |        
|                              | Cost of goods sold, including buying and occupancy costs |                               |        
|                              | Selling, general and administrative expenses             |                               |        
|                              |                                                          |                               |        
|                              |                                                          |                               | 716,123
|                              |                                                          |                               |        
|                              |                                                          | Income/(loss) from operations |        
|Interest expensenet          |                                                          |                               | (20,496
|Insurance proceeds            |                                                          |                               | 3,850  
|                              |                                                          |                               |        
|                              |                                                          | Loss before income taxes      |        
|Income taxes                  |                                                          |                               | 5,410  
|                              |                                                          |                               |        
|                              |                                                          | Net loss                      |        
|                              |                                                          |                               |        

See
accompanying notes to consolidated financial statements.

F-12

---



J. CREW OPERATING CORP. AND
SUBSIDIARIES
Statement of Changes in Stockholder's Equity (Deficit)
($ in thousands)

|                             |  |   |        
|---------------------------- |  | - | -------
|Balance, at February 3, 2001 |  | $ | 19,208 
|Net loss                     |  |   | (61    
|                             |  |   |        
|Balance, at February 2, 2002 |  |   | 19,147 
|Net loss                     |  |   | (8,822 
|                             |  |   |        
|Balance, at February 1, 2003 |  |   | 10,325 
|Net loss                     |  |   | (39,070
|Dividends                    |  |   | (9,320 
|                             |  |   |        
|Balance, at January 31, 2004 |  | $ | (38,065
|                             |  |   |        

Note:    Operating
Corp. has authorized 100 shares of common stock, par value $.01 per share, all of which were issued and outstanding during the three year period ended January 31,
2004.

F-13

---



J. CREW OPERATING CORP. AND
SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands)

|                                                                                         |                                                  | Years ended                                      |        
|---------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | -------
|
|Cash flows from operating activities:                                                    |                                                  |                                                  |        
|Net income/(loss)                                                                        |                                                  | $                                                | (39,070
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities: |                                                  |                                                  |        
|                                                                                         | Depreciation and amortization                    |                                                  |        
|                                                                                         | Amortization of deferred financing costs         |                                                  |        
|                                                                                         | Deferred income taxes                            |                                                  |        
|                                                                                         | Non-cash compensation expense                    |                                                  |        
|                                                                                         | Non-cash interest expense                        |                                                  |        
|Changes in operating assets and liabilities:                                             |                                                  |                                                  |        
|                                                                                         | Merchandise inventories                          |                                                  |        
|                                                                                         | Prepaid expenses and other current assets        |                                                  |        
|                                                                                         | Other assets                                     |                                                  |        
|                                                                                         | Accounts payable                                 |                                                  |        
|                                                                                         | Other liabilities                                |                                                  |        
|                                                                                         | Income taxes payable                             |                                                  |        
|                                                                                         |                                                  |                                                  |        
|                                                                                         |                                                  | Net cash provided by operating activities        |        
|                                                                                         |                                                  |                                                  |        
|Cash flows from investing activities:                                                    |                                                  |                                                  |        
|                                                                                         | Capital expenditures                             |                                                  |        
|                                                                                         | Proceeds from construction allowances            |                                                  |        
|                                                                                         |                                                  |                                                  |        
|                                                                                         |                                                  | Net cash used in investing activities            |        
|                                                                                         |                                                  |                                                  |        
|Cash flows from financing activities:                                                    |                                                  |                                                  |        
|                                                                                         | Proceeds from long term debt                     |                                                  |        
|                                                                                         | Transfers to affiliate                           |                                                  |        
|                                                                                         | Costs incurred in refinancing debt               |                                                  |        
|                                                                                         | Repayment of long-term debt                      |                                                  |        
|                                                                                         |                                                  |                                                  |        
|                                                                                         |                                                  | Net cash provided/(used) in financing activities |        
|                                                                                         |                                                  |                                                  |        
|                                                                                         | Increase (decrease) in cash and cash equivalents |                                                  |        
|Cash and cash equivalents at beginning of year                                           |                                                  |                                                  | 18,895 
|                                                                                         |                                                  |                                                  |        
|Cash and cash equivalents at end of year                                                 |                                                  | $                                                | 49,774 
|                                                                                         |                                                  |                                                  |        

See
accompanying notes to consolidated financial statements.

F-14

---





J. CREW GROUP, INC. AND  SUBSIDIARIES        Notes to Consolidated Financial Statements        Years ended January 31, 2004, February 1, 2003 and February 2, 2002

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

(a) Business

The Company designs, contracts for the manufacture of, markets and distributes men's and women's apparel, shoes and accessories under the J.Crew brand name. The
Company's products are marketed, primarily in the United States, through various channels of distribution, including retail and factory 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.

(b)Basis of Presentation

The
consolidated financial statements included herein are:



All
significant intercompany balances and transactions are eliminated in consolidation.

Intermediate
was formed in Delaware as a limited liability company on March 27, 2003. 100% of the membership interests of Intermediate are owned by J. Crew Group, Inc..
Effective May 2003, Holdings transferred its investment in J. Crew Operating Corp. and subsidiaries to Intermediate. This combination of entities under common control was accounted for in a
manner similar to a pooling of interests.

On
May 6, 2003, Intermediate issued $193,346,138 aggregate principal amount at maturity of 16% Senior Discount Contingent Principal Notes due 2008 in exchange for $131,083,000 in
aggregate principal amount (including accrued interest of $10,750,000) of outstanding 131/8% Senior Discount Debentures of J. Crew Group, Inc. The 131/8% Senior
Discount Debentures of J. Crew Group, Inc. that were exchanged are being held as an asset by Intermediate.

F-15

---



The
accompanying financial statements of Intermediate include the balance sheet of Intermediate and its subsidiaries at January 31, 2004. The statement of operations for the year
ended January 31, 2004 includes the operations of J. Crew Operating Corp. and subsidiaries from February 2, 2003 (the predecessor business) and the operations of Intermediate from date
of formation in March 2003 through January 31, 2004. The financial statements for all years prior to March 2003 are the financial statements of J. Crew Operating Corp. and
subsidiaries.

(c) Segment Information

The Company operates in one reportable business segment. All of the Company's identifiable assets are located in the United States. Export sales are not
significant.

(d) Fiscal Year

The Company's fiscal year ends on the Saturday closest to January 31. The fiscal years 2003, 2002 and 2001 ended on January 31, 2004,
February 1, 2003 and February 2, 2002 and each fiscal year consisted of 52 weeks.

(e) 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 $43,312,000 and $11,224,000 at January 31, 2004 and February 1, 2003, are stated at cost, which approximates market
value.

(f) Merchandise Inventories

Merchandise inventories are stated at the lower of average cost or market. The Company capitalizes certain design, purchasing and warehousing costs in inventory
and these costs are included in cost of goods sold as the inventories are sold.

(g) 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. The capitalized costs of direct response advertising are amortized, commencing with the date catalogs are mailed, over the duration of the expected revenue stream,
which was four months for the fiscal years 2002, 2003 and 2004. Deferred catalog costs, included in prepaid expenses and other current assets, as of January 31, 2004 and February 1, 2003
were $6,411,000 and $6,197,000. Catalog costs, which are reflected in selling and administrative expenses, for the fiscal years 2003, 2002 and 2001were $43,978,000, $56,695,000 and $65,477,000.

All
other advertising costs, which are not significant, are expensed as incurred.

F-16

---



(h) Property and Equipment

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

Systems
development costs are capitalized and amortized on a straight-line basis over periods ranging from three to five years.

(i) Debt Issuance Costs

Debt issuance costs (included in other assets) are amortized over the term of the related debt agreements. Unamortized debt issuance costs are as follows:

January 31, 2004

February 1, 2003Holdings

$
167,000

$
1,308,000Intermediate


2,242,000


Operating Corp.


3,966,000


5,435,000$
6,375,000

$
6,743,000


(j) Income Taxes

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

(k) 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. Shipping terms for catalog
and internet sales are FOB shipping point, and title passes to the customer at the time and place of shipment. Prices for all merchandise are listed in the Company's catalogs and website and are
confirmed with the customer upon order. The customer has no cancellation privileges other than customary rights of return that are accounted for in accordance with SFAS No. 48
"Revenue Recognition When Right of Return Exists." The Company accrues a sales return allowance for estimated returns of merchandise subsequent to the
balance sheet date that relate to sales prior to the balance sheet date. Amounts billed to customers for shipping and handling fees related to catalog and internet sales are included in other revenues
at the time of shipment. Royalty revenue is recognized as it is earned based on contractually specified percentages applied to

F-17

---



reported
sales. Advance royalty payments are deferred and recorded as revenue when the related sales occur.

(l) Operating Expenses

Cost of goods sold (including buying and occupancy costs) includes the direct cost of purchased merchandise, inbound freight, design, buying and manufacturing
costs, occupancy costs related to store operations and all shipping and handling and delivery costs associated with our direct business.

Selling,
general and administrative expenses include all operating expenses not included in cost of goods sold, primarily catalog production and mailing costs, certain warehousing
expenses, which aggregated $9,860,000, $10,440,000 and $10,725,000 for fiscal years 2003, 2002 and 2001, respectively, administrative payroll, store expenses other than occupancy costs, depreciation
and amortization and credit card fees.

(m) Store Preopening Costs

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

(n) Derivative Financial Instruments

Derivative financial instruments are used by the Company from time to time 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.

(o) 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.

(p) Impairment of Long-Lived Assets

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. A charge of $675,000 was incurred in fiscal
2003 to writedown the carrying value of certain long-lived assets.

(q) 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

F-18

---



Compensation".
Accordingly, compensation expense is not recorded for options granted if the option price is equal to or in excess of the fair market price at the date of grant. If the Company had
adopted the fair value recognition provisions of SFAS No. 123, the effect on net income would not be material.

Restricted
stock awards result in the recognition of deferred compensation, which is charged to expense over the vesting period of the awards. Deferred compensation is presented as a
reduction of stockholders' equity. Total compensation expense recorded with respect to stock-based compensation, all of which related to restricted stock awards, amounted to $41,000, $464,000 and
$661,000 in 2003, 2002 and 2001, respectively.

(r) Deferred rent and lease incentives

Rental payments under operating leases are charged to expense on a straight-line basis after consideration of step rent provisions and escalation
clauses. Differences between rental expense and actual rental payments are recorded as deferred rent and included in deferred credits. The Company receives construction allowances upon entering into
certain store leases. These construction allowances are recorded as deferred credits and are amortized as a reduction of rent expense over the term of the related lease. Deferred construction
allowances were $43,668,000 and $52,061,000 at January 31, 2004 and February 1, 2003, respectively.

(s) Reclassification

Certain prior year amounts have been reclassified to conform with current year's presentation.

(2)    Events of September 11, 2001

The terrorist events of September 11, 2001 resulted in the destruction of the Company's retail store located at the World Trade Center in New York City,
resulting in the loss of inventories and store fixtures, equipment and leasehold improvements. These losses and the resulting business interruption were covered by insurance policies maintained by the
Company.

The
statement of operations for the year ended February 2, 2002 included losses of $1.9 million relating to inventories and stores fixtures, equipment and leasehold
improvements. Insurance recoveries in fiscal 2001 were recorded to the extent of the losses recognized. The statement of operations for the years ended January 31, 2004 and February 1,
2003 include gains of $3,850,000 and $1,800,000 as a result of additional insurance recoveries. No additional insurance recoveries are payable to the Company relating to this loss.

F-19

---



(3)    Other Current Liabilities

Other current liabilities consist of:

January 31, 2004

February 1, 2003Customer liabilities

$
9,089,000

$
9,993,000Accrued catalog and marketing costs


2,505,000


2,536,000Taxes, other than income taxes


3,046,000


2,670,000Accrued interest


5,330,000


9,598,000Accrued occupancy


817,000


1,024,000Reserve for sales returns


2,988,000


5,313,000Accrued compensation


3,535,000


7,475,000Other


20,479,000


22,854,000$
47,789,000

$
61,463,000


(4)    Lines of Credit

Operating Corp. entered into a Loan and Security Agreement with Wachovia Bank, N.A., as arranger, Congress Financial Corporation, as administrative and collateral
agent, and a syndicate of lenders which provides for a maximum credit availability of up to $180.0 million (the "Congress Credit Facility").

The
Congress Credit Facility provides for revolving loans of up to $160.0 million; supplemental loans of up to $20.0 million each year during the period from
April 15 to September 15; and letter of credit accommodations. The Congress Credit Facility expires in December 2005. The total amount of availability is subject to limitations
based on specified percentages of eligible receivables, inventories and real property. Real property availability is limited to $5.8 million. As of January 31, 2004, there was
$18.9 million in availability under the Congress Credit Facility.

Borrowings
are secured by a perfected first priority security interest in all the assets of Intermediate and its subsidiaries and bear interest, at the Company's option, at the prime
rate plus 0.5% or the Eurodollar rate plus 2.5%. Supplemental loans bear interest at the prime rate plus 3.0%.

The
Congress Credit Facility includes restrictions, including the incurrence of additional indebtedness, the payment of dividends and other distributions, the making of investments, the
granting of loans and the making of capital expenditures. The Congress Credit Facility permits restricted payments (by way of dividends or other distributions) with respect to, among other things, the
Company's capital stock payable solely in additional shares of its capital stock, the Company's tax sharing agreement, the Series A Preferred Stock of Holdings, the Series B Preferred
Stock of Holdings and the 131/8% Senior Discount Debentures due 2008 of Holdings. The ability of Operating Corp. to declare dividends on its capital stock is also limited by Delaware
law, which permits a company to pay dividends on its capital stock only out of its surplus or, in the event that it has no surplus, out of its net profits for the year in which a dividend is declared
or for the immediately preceding fiscal year. Under the Congress Credit Facility, Operating Corp. is required to maintain minimum levels of earnings before interest, taxes, depreciation, amortization
and certain non-cash items, ("EBITDA") if excess availability is less than $15.0 million for any 30 consecutive day period. Under the Congress Credit Facility, the assets of
Operating Corp. and its subsidiaries are restricted. Operating Corp. has at all times been in compliance with all financial covenants.

F-20

---



The
Congress Credit Facility was amended (a) on February 7, 2003 to provide for an exclusion from the definition of consolidated net income for severance and other
one-time employment-related charges of up to $6.7 million in the last quarter of fiscal 2002 and $3.0 million in the first quarter of fiscal 2003 and (b) on
April 4, 2003 to (i) consent to the formation of J. Crew Intermediate LLC and the exchange offer; (ii) carve-out from the EBITDA covenant for fiscal 2002 a
$9.0 million one-time charge for non-current inventory; (iii) modify required EBITDA covenant levels and (iv) eliminate the supplemental loan availability
in fiscal 2003. Costs incurred in connection with the February 7, 2003 amendment were insignificant and were expensed. Costs incurred in connection with the April 4, 2003 amendment of
$450,000 are being amortized over the remaining term of the agreement.

Maximum
borrowings under revolving credit agreements were $10,000,000, $63,000,000 and $95,000,000 and average borrowings were $1,020,000, $40,400,000 and $43,100,000 during fiscal years
2003, 2002 and 2001. There were no borrowings outstanding at January 31, 2004 and February 1, 2003.

Outstanding
letters of credit established primarily to facilitate international merchandise purchases at January 31, 2004 and February 1, 2003 amounted to $39,500,000 and
$45,900,000.

(5)    Long-Term Debt and Preferred Stock

January 31, 2004

February 1, 2003OPERATING:Congress facility(a)

$
5,044,000

$
5% notes payable(b)


21,000,000


103/8% senior subordinated notes(c)


150,000,000


150,000,000Less amount due within one year


(1,164,000
)

Total Operating


174,880,000


150,000,000INTERMEDIATE:16% senior discount contingent principal notes (net of unamortized debt issuance discount of $38,677,000)(d)


108,389,000


Total Intermediate


283,269,000


150,000,000HOLDINGS:131/8% senior discount debentures(e)


21,667,000

$
142,000,000Mandatorily redeemable preferred stock(f)


211,704,000


Total Holdings long term debt


516,640,000


292,000,000Holdings preferred stock(f)


92,800,000


264,038,000Total long term debt and preferred stock

$
609,440,000

$
556,038,000


The
scheduled payments of long term debt are $1.2 million in 2004, $1.2 million in 2005, $1.2 million in 2006, $151.2 million in 2007 and
$190.1 million in 2008 (excluding the debt issuance discount).

F-21

---





F-22

---









On
October 17, 2009, Holdings is required to redeem the Series B Preferred Stock and to pay all accumulated but unpaid dividends on the Series A Preferred Stock.
Thereafter, the Series A Preferred

F-23

---



Stock
will accumulate dividends at the rate of 16.5% per annum. Subject to restrictions imposed by certain indebtedness of the Company, Holdings may redeem shares of the Preferred Stock at
October 17, 2000 and thereafter at a redemption price equal to 100% of liquidation value plus accumulated and unpaid dividends at October 17, 2000 and thereafter.

In
certain circumstances (including a change of control of Holdings), subject to restrictions imposed by certain indebtedness of the Company, Holdings may be required to repurchase
shares of the Preferred Stock at liquidation value plus accumulated and unpaid dividends. If Holdings liquidates, dissolves or winds up, whether voluntary or involuntary, no distribution shall be made
either (i) to those holders of stock ranking junior to the Preferred Stock, unless prior thereto the holders of the Preferred Stock receive the total value for each share of Preferred Stock
plus an amount equal to all accrued dividends thereon as of the date of such payment or (ii) to the holders of stock rankingpari passuwith the
Preferred Stock (which we refer to as the "parity stock"), except distributions made ratably on the Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon liquidation, dissolution or winding up of Holdings.

Effective
at the beginning of the third quarter of 2003, the Company adopted SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity". This pronouncement required the reclassification to long term debt of the liquidation value of Holdings' Series B Preferred Stock and the related accumulated and unpaid dividends
and the accumulated and unpaid dividends related to the Series A Preferred Stock since these amounts are required to be redeemed in October 2009. The preferred dividends related to the
liquidation value of the Series B Preferred Stock and to the accumulated and unpaid dividends of the Series A and Series B Preferred stock for the third and fourth quarters of
2003 are included in interest expense. The Series A preferred stock is only redeemable in certain circumstances (including a change of control at Holdings) and does not qualify for
reclassification under SFAS No. 150. Accordingly, the dividends related to the Series A Preferred Stock were deducted from stockholders' deficit.

Accumulated
but unpaid dividends amounted to $179,204,000 at January 31, 2004.

(6)    Common Stock

The restated certificate of incorporation authorizes Holdings to issue up to 100,000,000 shares of common stock; par value $.01per share. At January 31,
2004, shares issued were 13,584,175 and shares outstanding were 13,011,086. During 2001and 2002 directors converted fees into 5,524 and 12,318 shares of Holdings common stock.

(7)    Commitments and Contingencies

(a) Operating Leases

As of January 31, 2004, Operating Corp. was obligated under various long-term operating leases for retail and outlet stores, warehouses, office
space and equipment requiring minimum annual rentals.

F-24

---



These
operating leases expire on varying dates through 2014. At January 31, 2004 aggregate minimum rentals in future periods are, as follows:

Fiscal year

Amount2004

$
52,351,0002005


49,607,0002006


46,838,0002007


44,970,0002008


39,377,000Thereafter


116,189,000


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 2003, 2002 and 2001 was $42,997,000, $41,657,000 and $38,326,000 including contingent rent based on store sales of $814,000, $1,187,000, and $1,023,000.

(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 it is reasonably possible that resolution of these legal proceedings will result in unaccrued losses that would be material.

(8)    Employee Benefit Plan

The Company has a thrift/savings plan pursuant to Section 401 of the Internal Revenue Code whereby all eligible employees may contribute up to 15% of their
annual base salaries subject to certain limitations. The Company's contribution is based on a percentage formula set forth in the plan agreement. Company contributions to the thrift/savings plan were
$1,288,000, $1,834,000 and $1,334,000 for fiscal 2003, 2002 and 2001.

(9)    License Agreement

Operating Corp. has a licensing agreement through January 2007 with Itochu Corporation, a Japanese trading company. The agreement permits Itochu to
distribute J. Crew merchandise in Japan.

Operating
Corp. earns royalty payments under the agreement based on the sales of its merchandise. Royalty income, which is included in other revenues, for fiscal 2003, 2002, and 2001 was $2,456,000,
$2,280,000 and $2,560,000, respectively.

F-25

---



(10)    Interest Expensenet

Interest expense, net consists of the following:

2003

2002

2001HoldingsInterest expense

$
7,305,000

$
17,521,000

$
15,395,000Dividends related to mandatorily redeemable preferred stock


14,206,000





Amortization of deferred financing costs


80,000


233,000


227,00021,591,000


17,754,000


15,622,000IntermediateInterest expense


15,982,000





Amortization of debt issuance discount


5,400,000





Amortization of deferred financing costs


375,000





21,757,000





Operating Corp.Interest expense


18,946,000


19,027,000


19,415,000Amortization


1,712,000


4,202,000


1,770,000Interest income


(162,000
)

(29,000
)

(295,000
)20,496,000


23,200,000


20,890,000Total

$
63,844,000

$
40,954,000

$
36,512,000




(11)    Other Revenues

Other revenues consist of the following:

2003

2002

2001Shipping and handling fees

$
25,205,000

$
31,823,000

$
34,100,000Royalties


2,456,000


2,280,000


2,560,000$
27,661,000

$
34,103,000

$
36,660,000


(12)    Financial Instruments

The fair value of the Company's long-term debt is estimated to be approximately $293,896,000 and $238,692,000 at January 31, 2004 and
February 1, 2003 and is based on dealer quotes or quoted market prices of the same or similar instruments. The carrying amounts of long-term debt were $306,100,000 and $292,000,000
at January 31, 2004 and February 1, 2003. The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, 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.

F-26

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J. CREW GROUP, INC. AND  SUBSIDIARIES        Notes to Consolidated Financial Statements        Years ended January 31, 2004, February 1, 2003 and February 2, 2002

(13)    Income Taxes

Holdings files a consolidated federal tax return which includes all its wholly owned subsidiaries. Each subsidiary files separate state tax returns in the
required jurisdictions. Holdings and its subsidiaries have entered into a tax sharing agreement providing (among other things) that each of the subsidiaries will reimburse Holdings for its share of
income taxes determined as if such subsidiary had filed its tax returns on a separate return basis.

Holdings

The income tax provision/benefit of Holdings consists of:

|         |                 | 2003  |            | 2002       |         | 2001        |            
|-------- | --------------- | ----- | ---------- | ---------- | ------- | ----------- | -----------
|Current: |                 |       |            |            |         |             |            
|         | Foreign         |       | $          | 250,000    |         | $           | 193,000    
|         | Federal         |       |            | (3,744,000 | )       |             | (12,014,000
|         | State and local |       |            | (1,006,000 | )       |             | 200,000    
|         |                 |       |            |            |         |             |            
|         |                 |       | (4,500,000 | )          |         | (11,621,000 | )          
|         |                 |       |            |            |         |             |            
|Deferred |                 |       | 5,000,000  |            |         | 7,421,000   |            
|         |                 |       |            |            |         |             |            
|         |                 | Total |            | $          | 500,000 |             | $          
|         |                 |       |            |            |         |             |            

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.

|                                                     |  | 2003  |    | 2002  |    | 2001  |   
|---------------------------------------------------- |  | ----- | -- | ----- | -- | ----- | --
|Federal income tax rate                              |  | (35.0 | )% | (35.0 | )% | (35.0 | )%
|State and local income taxes, net of federal benefit |  | .9    |    |      |    | (2.3  | ) 
|Valuation allowance                                  |  | 65.8  |    | 47.0  |    |      |   
|Additional NOL carryback                             |  | (8.0  | )  |      |    |      |   
|Reversal of prior tax accruals                       |  | (2.7  | )  | (20.9 | )  |      |   
|Nondeductible expenses and other                     |  | 8.9   |    | (0.5  | )  | 4.0   |   
|Non-recognized gain on exchange of debt              |  | (28.8 | )  |      |    |      |   
|                                                     |  |       |    |       |    |       |   
|Effective tax rate                                   |  | 1.1   | %  | (9.4  | )% | (33.3 | )%
|                                                     |  |       |    |       |    |       |   

F-27

---



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

|                          |                                                             | January 31, 2004              |             | February 1, 2003 |  
|------------------------- | ----------------------------------------------------------- | ----------------------------- | ----------- | ---------------- | -
|Deferred tax assets:      |                                                             |                               |             |                  |  
|                          | Original issue discount                                     |                               | $           | 33,660,000       |  
|                          | Rent                                                        |                               |             | 17,514,000       |  
|                          | Federal NOL carryforwards                                   |                               |             | 19,600,000       |  
|                          | State and local NOL carryforwards                           |                               |             | 4,485,000        |  
|                          | Reserve for sales returns                                   |                               |             | 1,207,000        |  
|                          | Other                                                       |                               |             | 5,057,000        |  
|                          |                                                             |                               |             |                  |  
|                          |                                                             |                               | 81,523,000  |                  |  
|                          | Valuation allowance                                         |                               |             | (56,823,000      | )
|                          |                                                             |                               |             |                  |  
|                          |                                                             |                               | 24,700,000  |                  |  
|Deferred tax liabilities: |                                                             |                               |             |                  |  
|                          | Prepaid catalog and other prepaid expenses                  |                               |             | (9,570,000       | )
|                          | Difference in book and tax basis for property and equipment |                               |             | (15,130,000      | )
|                          |                                                             |                               |             |                  |  
|                          |                                                             |                               | (24,700,000 | )                |  
|                          |                                                             |                               |             |                  |  
|                          |                                                             | Net deferred income tax asset |             |                  | 
|                          |                                                             |                               |             |                  |  

Operating Corp.

The income tax provision/benefit of Operating Corp. consists of:

|         |                 | 2003  |            | 2002       |            | 2001        |            
|-------- | --------------- | ----- | ---------- | ---------- | ---------- | ----------- | -----------
|Current: |                 |       |            |            |            |             |            
|         | Foreign         |       | $          | 250,000    |            | $           | 193,000    
|         | Federal         |       |            | (3,744,000 | )          |             | (13,449,000
|         | State and local |       |            | (1,006,000 | )          |             | 200,000    
|         |                 |       |            |            |            |             |            
|         |                 |       | (4,500,000 | )          |            | (13,056,000 | )          
|         |                 |       |            |            |            |             |            
|Deferred |                 |       | (910,000   | )          |            | (4,694,000  | )          
|         |                 |       |            |            |            |             |            
|         |                 | Total |            | $          | (5,410,000 | )           | $          
|         |                 |       |            |            |            |             |            

F-28

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

|                                                     |  | 2003  |    | 2002  |    | 2001   |   
|---------------------------------------------------- |  | ----- | -- | ----- | -- | ------ | --
|Federal income tax rate                              |  | (35.0 | )% | (35.0 | )% | (35.0  | )%
|State and local income taxes, net of federal benefit |  | 0.9   |    |      |    | 134.6  |   
|Valuation allowance                                  |  | 37.1  |    |      |    |        |   
|Additional NOL carryback                             |  | (8.4  | )  |      |    |       |   
|Reversal of prior tax accruals                       |  | (2.9  | )  | (38.6 | )  |       |   
|Nondeductible expenses and other                     |  | (3.9  | )  | 6.8   |    | (172.8 | ) 
|                                                     |  |       |    |       |    |        |   
|Effective tax rate                                   |  | (12.2 | )% | (66.8 | )% | (73.2  | )%
|                                                     |  |       |    |       |    |        |   

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

|                          |                                                             | January 31,
2004                  |             | February 1,
2003 |            
|------------------------- | ----------------------------------------------------------- | --------------------------------- | ----------- | ---------------- | -----------
|Deferred tax assets:      |                                                             |                                   |             |                  |            
|                          | Federal NOL carryforwards                                   |                                   | 17,540,000  |                  |            
|                          | State and local NOL carryforwards                           |                                   | 4,485,000   |                  |            
|                          | Reserve for sales returns                                   |                                   | 1,207,000   |                  |            
|                          | Rent                                                        |                                   | 17,514,000  |                  |            
|                          | Other                                                       |                                   | 5,459,000   |                  |            
|                          |                                                             |                                   |             |                  |            
|                          |                                                             | 46,205,000                        |             |                  | 33,510,000 
|Valuation allowance       |                                                             | 21,505,000                        |             |                  |           
|                          |                                                             |                                   |             |                  |            
|                          |                                                             | 24,700,000                        |             |                  | 33,510,000 
|Deferred tax liabilities: |                                                             |                                   |             |                  |            
|                          | Prepaid catalog and other prepaid expenses                  |                                   | (9,570,000  | )                |            
|                          | Difference in book and tax basis for property and equipment |                                   | (15,130,000 | )                |            
|                          |                                                             |                                   |             |                  |            
|                          |                                                             | 24,700,000                        |             |                  | (34,420,000
|                          |                                                             |                                   |             |                  |            
|                          |                                                             | Net deferred income tax liability |             |                 |            
|                          |                                                             |                                   |             |                  |            

The
Company has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which will reduce taxable income in future periods.
SFAS No. 109 "Accounting for Income Taxes" states that a valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A
review of all available positive and negative evidence needs to be considered, including a company's current and past performance, the market environment in which a company operates, length of
carryback and carryforward periods, existing contracts or sales backlog that will result in future profits, etc. Forming a conclusion that a valuation allowance is not needed is difficult when there
is negative evidence such as cumulative losses in recent years. Cumulative losses weigh heavily in the overall assessment. As a result

F-29

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of
our assessment, we established a valuation allowance for the net deferred tax assets at February 1, 2003. The valuation allowance was increased at January 31, 2004 to fully reserve
net deferred tax assets at that date. The Company does not expect to recognize any tax benefits in future results of operations until an appropriate level of profitability is sustained.

The
Company has state and local income tax net operating loss carryforwards of varying amounts.

(14) Stock Compensation Plans

1997 Stock Option Plan

Under the terms of the 1997 Stock Option Plan, an aggregate of 1,910,000 shares are available for grant to certain key employees or consultants. The options have
terms of seven to ten years and become exercisable over a period of four to five years. Options granted under the Option Plan are subject to various conditions, including under some circumstances, the
achievement of certain performance objectives.

2003 Equity Incentive Plan

In January 2003, the Board of Directors of Holdings approved the adoption of the 2003 Equity Incentive Plan. Under the terms of the 2003 Plan, an aggregate
of 4,798,160 shares of common stock are available for award to key employees and consultants in the form of non-qualified stock options and restricted shares, as follows:



The
options have terms of ten years and become exercisable over the period provided in each grant agreement.

F-30

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A
summary of stock option activity for the three years ended January 31, 2004, is as follows:

|                                   |  | 2003       |   | 2002 |       | 2001
|---------------------------------- |  | ---------- | - | ---- | ----- | ----
|
|Outstanding, beginning of year     |  | 4,474,469  |   | $    | 18.22 |     
|Granted                            |  | 377,750    |   |      | 6.85  |     
|Exercised                          |  |           |   |      |       |     
|Cancelled                          |  | (2,441,613 | ) |      | 26.19 |     
|                                   |  |            |   |      |       |     
|Outstanding, end of year           |  | 2,410,606  |   | $    | 8.37  |     
|                                   |  |            |   |      |       |     
|Options exercisable at
end of year |  | 849,302    |   | $    | 10.59 |     
|                                   |  |            |   |      |       |     

The
following table summarizes information about stock options outstanding as of January 31, 2004.

|              |  | Outstanding |  | Weighted
average
remaining
contractual life
(in months) |       | Exercisable
|------------- |  | ----------- |  | ------------------------------------------------------- | ----- | -----------
|
|$6.82$8.53   |  | 1,798,240   |  | $                                                       | 6.85  |            
|$10.00$35.00 |  | 612,366     |  |                                                         | 12.83 |            
|              |  |             |  |                                                         |       |            
|$6.82$35.00  |  | 2,410,606   |  | $                                                       | 8.37  |            

Under
the 2003 Plan 1,004,266 and 224,402 restricted shares were issued in fiscal 2002 and 2003 and 83,689 restricted shares were forfeited in fiscal 2003. The fair value of the
restricted stock at date of issuance was $0.74 per share.

(15)    Recent Accounting Pronouncements

In April 2003, the FASB issuedSFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities."This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement are effective for contracts
entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The provisions of the statement related to Statement 133 Implementation
Issues that have been effective for fiscal quarters that began prior to June 15, 2003 should continue to be applied in accordance with their respective effective dates. The adoption of SFAS
No. 149 did not have a significant effect on our financial statements.

In
May 2003, the FASB issuedSFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity."This statement establishes standards for how an issuer

F-31

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classifies
and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. The provisions of this statement were effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 resulted in a reclassification of the liquidation value and accumulated and unpaid dividends of the Series B
preferred stock and the accumulated and unpaid dividends related to the Series A preferred stock to liabilities, which totaled $211.7 million as of January 31, 2004. After such
reclassification, the dividends related to the Series B preferred stock and the accreted dividends of the Series A Preferred Stock will be treated as interest expense.

In
December 2003, the FASB revised and reissuedFASB Interpretation No. 46, "Consolidation of Variable Interest Entities."FIN
No. 46 requires unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively dispense the risks and rewards of ownership among
their owners and other parties involved. The provisions of FIN No. 46 must be applied no later than as of the end of the first reporting period ending after March 15, 2004. The adoption
of FASB Interpretation No. 46 will not have a significant effect on our financial statements.

(16)    Quarterly Financial Information (Unaudited)

|                        |  | 13 weeks
ended
5/4/02(a) |       | 13 weeks
ended
8/3/02 |   | 13 weeks
ended
11/2/02 |   | 13 weeks
ended
2/1/03(b) |       | 52 weeks
ended
2/1/03 |  
|----------------------- |  | ------------------------ | ----- | --------------------- | - | ---------------------- | - | ------------------------ | ----- | --------------------- | -
|Net sales               |  | $                        | 157.9 |                       | $ | 160.9                  |   | $                        | 181.9 |                       | $
|Gross profit(d)         |  |                          | 69.2  |                       |   | 63.0                   |   |                          | 77.9  |                       |  
|Net loss Holdings       |  | $                        | (12.1 | )                     | $ | (7.1                   | ) | $                        | (0.7  | )                     | $
|Net loss Operating Corp |  |                          | (9.2  | )                     |   | (4.1                   | ) |                          | 2.1   |                       |  

|                        |  | 13 weeks
ended
5/3/03 |       | 13 weeks
ended
8/2/03(c) |   | 13 weeks
ended
11/1/03 |   | 13 weeks
ended
1/31/04 |       | 52 weeks
ended
1/31/04 |  
|----------------------- |  | --------------------- | ----- | ------------------------ | - | ---------------------- | - | ---------------------- | ----- | ---------------------- | -
|Net sales               |  | $                     | 152.6 |                          | $ | 159.2                  |   | $                      | 146.4 |                        | $
|Gross profit(d)         |  |                       | 48.5  |                          |   | 51.5                   |   |                        | 60.9  |                        |  
|Net loss Holdings       |  | $                     | (19.6 | )                        | $ | 15.2                   |   | $                      | (23.6 | )                      | $
|Net loss Intermediate   |  |                       | (14.9 | )                        |   | 24.1                   |   |                        | (11.9 | )                      |  
|Net loss Operating Corp |  |                       | (14.9 | )                        |   | (17.8                  | ) |                        | (8.3  | )                      |  

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F-32

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F-33

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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

|                                                                   |  | beginning balance |        | charged to cost and expenses |        | charged to other accounts |   | deductions |       | ending balance
|------------------------------------------------------------------ |  | ----------------- | ------ | ---------------------------- | ------ | ------------------------- | - | ---------- | ----- | --------------
|
|Inventory reserve(deducted from inventories)                       |  |                   |        |                              |        |                           |   |            |       |               
|fiscal year ended:                                                 |  |                   |        |                              |        |                           |   |            |       |               
|January 31, 2004                                                   |  | $                 | 12,420 |                              |       | (a)                       |  | (a)        | 7,380 | (a)           
|February 1, 2003                                                   |  |                   | 8,367  |                              | 4,053  | (a)                       |  |            |      |               
|February 2, 2002                                                   |  |                   | 7,360  |                              | 1,007  | (a)                       |  |            |      |               
|Allowance for sales returns(included in other current liabilities) |  |                   |        |                              |        |                           |   |            |       |               
|fiscal year ended:                                                 |  |                   |        |                              |        |                           |   |            |       |               
|January 31, 2004                                                   |  | $                 | 5,313  |                              |       | (a)                       |  | (a)        | 2,309 | (a)           
|February 1, 2003                                                   |  |                   | 6,475  |                              | (1,162 | )(a)                      |  |            |      |               
|February 2, 2002                                                   |  |                   | 6,530  |                              | (55    | )(a)                      |  |            |      |               

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F-34

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