<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------
                                    FORM 10-K

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

                   For the fiscal year ended February 1, 2003

Commission         Registrant, State of Incorporation         I.R.S. Employer
File Number        Address and Telephone Number               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

                   Securities Registered Pursuant to section 12(b) of the Act:

                   J. Crew Group, Inc.      None
                   J. Crew Operating Corp.  None

                   Securities Registered Pursuant to section 12(g) of the Act:

                   J. Crew Group, Inc.      None
                   J. Crew Operating Corp.  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   X    No
      -

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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.   [X]

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

                                       S-1

<PAGE>

As of March 15, 2003, there were 12,870,373 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 Group, Inc.).

Documents incorporated by reference:        None

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

This combined Form 10-K is separately filed by each of J. Crew Group, Inc. and
J. Crew Operating Corp. The information contained herein relating to each
individual registrant is filed by such registrant on its own behalf. No
registrant makes any representation as to information relating to the other
registrant.

                                       S-2

<PAGE>

FILING FORMAT

This Annual Report on Form 10-K is a combined report being filed by two
different registrants: J. Crew Group, Inc. ("Holdings") and J. Crew Operating
Corp., a wholly-owned subsidiary of Holdings ("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 Operating Corp. Operating Corp. makes no representation as to the
information contained in this report in relation to Holdings and its
subsidiaries other than Operating Corp.


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.

References herein to fiscal years are to the fiscal years of J. Crew Group, Inc.
and J. Crew Operating Corp., which end on the Saturday closest to January 31 in
the following calendar year for fiscal years 1998, 1999, 2000, 2001 and 2002.
Accordingly, fiscal years 1998, 1999, 2000, 2001 and 2002 ended on January 30,
1999, January 29, 2000, February 3, 2001, February 2, 2002 and February 1, 2003.
All fiscal years for which financial information is included had 52 weeks,
except fiscal year 2000 which had 53 weeks.


WEBSITE ACCESS TO COMPANY REPORTS

The Company's filings under the Securities Exchange Act of 1934 (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 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.

                                     Part I

         In this section, "we," "us" and "our" refer to Holdings and its
subsidiaries.

General

         We are a leading 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

                                       S-3

<PAGE>

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 February 1, 2003, we operated 152 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 50
free-standing 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 2002, products sold under the J. Crew brand contributed $732.2 million
in revenues, comprised of:

         .    $408.0 million from J. Crew Retail;

         .    $248.0 million from J. Crew Direct; and

         .    $76.2 million from J. Crew Factory.

         In addition, in fiscal 2002, we generated licensing revenues of $2.3
million and shipping and handling revenues of $31.8 million. We refer you to "J.
Crew Retail," "J. Crew Factory," "J. Crew Direct," "Trademarks and Licensing"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Holdings."

         Holdings was incorporated in the State of New York in 1988. Our
principal executive offices are located at 770 Broadway, New York, NY 10003, and
our telephone number is (202) 209-2500.

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 2002.

         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 team 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.

Sourcing and Production

         All of our merchandise is produced for us by a variety of manufacturers
in over 22 countries. We do not own or operate any manufacturing facilities and
instead contract with third-party vendors for production of our merchandise. In
fiscal 2002, 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 16% 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.

                                       S-4

<PAGE>

         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 U.S. and other foreign governments,
including 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 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 800 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 and a back-up order taking facility for catalog
orders is located in a 192,500 square foot facility in Asheville, North
Carolina. This facility employs approximately 300 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.

         In March 2003, we announced our plan to permanently close the customer
contact department of the Asheville facility in May 2003.

         We ship merchandise via the United States Postal Service, Airborne 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 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.

J. Crew Retail

         At February 1, 2003, we operated 152 retail stores throughout the
United States, of which 16 stores were opened during fiscal 2002. These stores
are located in upscale regional malls, lifestyle centers, shopping centers and
street

                                       S-5

<PAGE>

locations. During fiscal 2002, J. Crew Retail generated revenues of $408.0
million, representing 55.7% of our total revenues.

         An important aspect of our business strategy is 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 two years, we have
decided to restrict the number of new store openings in fiscal 2003 to four. We
do not plan to close any retail stores in 2003. 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:

         .    geographic location;

         .    demographic information;

         .    anchor tenants in mall locations; and

         .    proximity to other specialty retail stores in mall and street
              locations.

         J. Crew Retail stores that were open during all of fiscal 2002 averaged
$2.8 million per store in sales, produced sales per gross square foot of $365
and generated store contribution margins of approximately 14%. J. Crew Retail
stores have an average size of 7,712 total square feet.

         The table below highlights certain information regarding J. Crew Retail
stores opened through fiscal 2002.

<TABLE>
<CAPTION>
                                     Stores Open       Stores        Stores
                                    At Beginning       Opened        Closed       Stores Open    Total Square       Average
                                      of Fiscal        During        During        at End of     Footage (in     Store Square
Fiscal Year                             Year        Fiscal Year    Fiscal Year    Fiscal Year     thousands)        Footage
-----------                        --------------  -------------  -------------  -------------  --------------  --------------
<S>                                <C>             <C>            <C>            <C>            <C>             <C>
1998 ............................         51            14             --              65            530             8,150
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
</TABLE>

J. Crew Direct

         J. Crew Direct consists of our catalog and Internet website operations.
During fiscal 2002, J. Crew Direct generated $248.0 million in revenues
(including $108.6 from the catalog and $139.4 million from the Internet
website), representing 33.9% 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 2002, we
distributed 32 catalog editions with a total circulation of approximately 66
million and pages circulated of approximately 7.8 billion. This represented a
decrease from fiscal 2001's total circulation of approximately 71 million and
pages circulated of approximately 8.3 billion.

         J. Crew Direct's circulation strategy focuses on continually improving
the segmentation of customer files and the acquisition of additional customer
names. In fiscal 2002, approximately 65% of J. Crew Direct revenues were from
customers who have 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:

         .    our retail stores;

         .    our Internet website;

                                       S-6

<PAGE>

     .    list rentals;

     .    exchanges with other catalog companies; and

     .    "friend's names" card inserts.

     We are in the process of placing 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 our size.

     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
2002, the website logged over 41 million unique visitors and represents over 50%
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. A significant aspect of our Internet marketing
strategy is to utilize an email program to generate repeat and new customers,
and we deliver weekly marketing emails targeted to customers based upon certain
demographic and purchase transaction information.

J. Crew Factory

     As of February 1, 2003, we operated 42 factory stores in the United States,
which offer J. Crew merchandise at an average of 30% below retail prices. The
factory stores target value-oriented customers and also serve to liquidate
excess, irregular or out-of-season J. Crew merchandise. During fiscal 2002, J.
Crew Factory generated revenues of $76.2 million, representing 10.4% 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.

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 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 2005. In fiscal 2002, licensing revenues totaled $2.3
million.

Employees

     As of February 1, 2003, we had approximately 5,600 associates, of whom
approximately 1,800 were full-time associates and 3,800 were part-time
associates. In addition, approximately 2,600 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.

                                       S-7

<PAGE>

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:

     .    adverse economic conditions;

     .    the levels of disposable consumer income;

     .    consumer confidence; and

     .    interest rates.

     We have suffered a substantial loss of customer sales and traffic in the
recent past and the continuation of this as well as further declines in the
current economic conditions and declines in consumer spending on apparel and
accessories could have a material adverse effect on our financial condition and
operating results.

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. In March
2003, we announced our plan to permanently close the customer contact department
of the Asheville facility in May 2003.

     As of February 1, 2003, we operated 152 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 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. Substantially all of the leases are guaranteed
by us.

                                       S-8

<PAGE>

     The table below sets forth the number of stores by state operated by us in
the United States as of February 1, 2003.

                                                                       Total
                                                                       -----
                                      Retail           Factory         Number
                                      ------           -------         ------
                                      Stores           Stores         Of Stores
                                      ------           ------         ---------
Alabama                                  1                1                2
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                                 1               --                1
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                             7                3               10
Rhode Island                             1                -                1
South Carolina                           2                2                4
Tennessee                                3                1                4
Texas                                    7                2                9
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.                                 152               42              194
                                       ===              ===              ===

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.

                                       S-9

<PAGE>

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
February 1, 2003.

                                    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. As of March 15, 2003, there were 39 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
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 Senior Discount Debentures.

The credit agreement (the "Credit Agreement") and the Indenture relating to the
Senior Discount Debentures (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 Credit
Agreement, the Holdings Indenture and the Indenture relating to the 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.

The Directors of Holdings have the right to receive all or a portion of the fees
for their services as a Director in Common Stock. In fiscal year 2002, certain
Directors elected to receive a total of 12,318 shares of Common Stock in payment
of their fees, at purchase price per share equal to the fair market value
thereof. Holdings issued the Common Stock to the Directors in transactions which
did not involve any public offering in reliance upon Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act").

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 February 1, 2003. Our shareholders have
approved both of these plans.

<TABLE>
<CAPTION>
                                           (a)                        (b)                      (c)
                                                                                        Number of Securites
                                   Number of Securities                                Remaining Available for
                                    to be Issued Upon          Weighted Average        Future Issuance Under
                                       Exercise of             Exercise Price of     Equity Compensation Plans
                                   Outstanding Options        Outstanding Options,     (Excluding Securites
   Plan Category                   Warrants and Rights        Warrants and Rights    Reflected in Column (a))
   -------------                   -------------------        -------------------    ------------------------
<S>                                <C>                        <C>                    <C>
Equity Compensation
Plans Approved by
Shareholders                            4,474,469                   $18.10                   782,967

Equity Compensation
Plans Not Approved by
Shareholders                                    0                      N/A                         0
                                       ----------                  -------                  --------

TOTAL                                   4,474,469                   $18.10                   782,967
                                       ==========                  =======                  ========
</TABLE>

                                      S-10

<PAGE>

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.

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
February 1, 2003 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."

                                      S-11

<PAGE>

<TABLE>
<CAPTION>
                                                                                       Fiscal Year Ended
                                                            January 30,    January 29,    February 3,    February 2,    February 1,
                                                            -----------    -----------    -----------    -----------    -----------
                                                                1999           2000           2001           2002           2003
                                                                ----           ----           ----           ----           ----
                                                                      (dollars in thousands, except per square foot data)
<S>                                                         <C>            <C>            <C>            <C>            <C>
Income Statement Data:
  Revenues                                                   $ 870,842      $ 750,696      $ 825,975      $ 777,940      $ 766,382
  Cost of goods sold(a)                                        511,716        431,193        463,909        462,371        478,700
  Selling, general and administrative expenses                 332,050        279,302        301,865        295,568        291,518
  Other charges                                                  7,995          7,018             --             --             --
  Charges incurred in connection with discontinuance of
   Clifford & Wills                                             13,300          4,000          4,130             --             --
  Income/(loss) from operations                                  5,781         29,183         56,071         20,001         (3,836)
  Interest expense-net                                          39,323         38,861         36,642         36,512         40,954
  Gain on sale of Popular Club Plan                            (10,000)        (1,000)            --             --             --
  Provision (benefit) for income taxes                          (8,162)        (2,050)         7,500         (5,500)        (4,200)
                                                             ---------      ---------      ---------      ---------      ---------
  Net income (loss)                                          $ (15,380)     $  (6,628)     $  11,929      $ (11,011)     $ (40,590)
                                                             =========      =========      =========      =========      =========

Balance Sheet Data (at period end):
  Cash and cash equivalents                                  $   9,643      $  38,693      $  32,930      $  16,201      $  18,895
  Working capital                                               95,710         75,929         49,482         39,164         38,015
  Total assets                                                 376,330        373,604        389,861        401,320        348,878
  Total long term debt and redeemable preferred stock          433,243        458,218        464,310        510,147        556,038
  Stockholders' deficit                                      $(235,773)     $(264,593)     $(278,347)     $(319,043)     $(391,663)

Operating Data:
Revenues:
J. Crew retail                                               $ 273,972      $ 333,575      $ 406,784      $ 397,998      $ 408,028
J. Crew direct
    Catalog                                                    230,752        213,308        177,535        135,353        108,531
    Internet                                                    22,000         65,249        107,225        122,844        139,456
                                                             ---------      ---------      ---------      ---------      ---------
                                                               252,752        278,557        284,760        258,197        247,987
                                                             ---------      ---------      ---------      ---------      ---------

J. Crew factory                                                 96,461        101,987         96,114         85,085         76,264
J. Crew licensing                                                2,712          2,505          3,020          2,560          2,280
J. Crew shipping & handling fees                                30,575         34,072         35,297         34,100         31,823
                                                             ---------      ---------      ---------      ---------      ---------

Total J. Crew brand                                            656,472        750,696        825,975        777,940        766,382
Other divisions(b)                                             214,370             --             --             --             --
                                                             ---------      ---------      ---------      ---------      ---------

Total                                                        $ 870,842      $ 750,696      $ 825,975      $ 777,940      $ 766,382
                                                             =========      =========      =========      =========      =========

J. Crew Direct:

Number of catalogs circulated (in thousands)                    73,440         75,479         72,522         71,000         66,000
Number of pages circulated (in millions)                         8,819          9,319          8,677          8,300          7,800

J. Crew Retail:

Sales per gross square foot(c)                               $     558      $     571      $     567      $     439      $     365
Store contribution margin(c)                                      25.0%          26.0%          23.9%          18.0%          14.1%
Number of stores open at end of period                              65             81            105            136            152
Comparable store sales change(c)                                   9.0%           1.8%           1.7%         (15.5)%        (10.4)%

Depreciation and amortization                                $  15,972      $  19,241      $  22,600      $  31,718      $  34,451

Net capital expenditures(d)
New store openings                                           $  14,749      $  13,300      $  16,700      $  17,572      $  11,400
Other                                                           21,605         27,953         25,475         25,003          9,018
                                                             ---------      ---------      ---------      ---------      ---------

Total net capital expenditures                               $  36,354      $  41,253      $  42,175      $  42,575      $  20,418
                                                             =========      =========      =========      =========      =========
</TABLE>

                                      S-12

<PAGE>

(a) Includes buying and occupancy costs.
(b) Includes revenues from the Company's Popular Club Plan, Inc. ("PCP") and
    Clifford & Wills, Inc. ("C&W") divisions and finance charge income from PCP
    installment sales. PCP was sold effective October 30, 1998 and the Company
    made a decision in 1998 to exit the catalog and outlet store operations of
    C&W.
(c) Includes stores that have been opened for a full twelve month period.
(d) Capital expenditures are net of proceeds from construction allowances.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - J.CREW GROUP, INC.

This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of J. Crew Group, Inc. and
subsidiaries during the three-year period ended February 1, 2003. This
discussion should be read in conjunction with the audited consolidated financial
statements of J. Crew Group, Inc. and subsidiaries for the three-year period
ended February 1, 2003 and notes thereto included elsewhere herein.

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 judgements that effect the reported amounts of assets, liabilities, revenues
and expenses. The Company bases its estimates on historical experience and other
assumptions that are believed to be reasonable under the circumstances and
evaluates these estimates on an on-going basis. Actual results may differ from
these estimates under different assumptions or conditions.

The following critical accounting policies reflect the more significant
estimates and judgements used in the preparation of the consolidated financial
statements.

     (a)  Inventory valuation

          Merchandise inventories are carried at the lower of average 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 outlet stores, clearance catalogs, Internet
          clearance sales and other liquidations. Based on the historical
          results experienced by the Company through the various methods of
          disposition the Company writes down the carrying value of inventories
          which are not expected to be sold at or above costs.

          In March 2003 the Company decided to modify its strategy on the
          disposition of inventory to achieve inventory clearing at the end of
          each selling season. Under its previous disposition strategy, excess
          prior season inventories would have been carried over for sale in
          subsequent seasons. Under its new strategy, the Company will
          accelerate the disposition of these excess inventories through factory
          stores, Internet promotions, clearance catalogs and warehouse sales.
          These changes in the method and timing of inventory disposition are
          expected to result in a decrease in the amounts ultimately received
          for these inventories. Accordingly, the Company took additional
          inventory reserves of $9.0 million as of February 1, 2003.

     (b)  Deferred catalog 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
          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, the future revenue streams would be
          adjusted accordingly.

     (c)  Asset impairment

          The Company is exposed to potential impairment if the book value of
          its assets exceeds their future cash flows. The major component of our
          long lived assets represents store fixtures, equipment and leasehold
          improvements. The impairment of unamortized costs is measured at the
          store level and the unamortized cost

                                      S-13

<PAGE>

          is reduced to fair value if it is determined that the sum of expected
          future net cash flows is less than net book value.

     (d)  Sales returns

          The Company 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 its products
          when evaluating the adequacy of the reserve for sales returns.

     (e)  Deferred income taxes

          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 of our assessment, we established
          a valuation allowance for the net deferred tax assets at February 1,
          2003. The Company does not expect to recognize any tax benefit in
          future results of operations until an appropriate level of
          profitability is sustained.

Results of Operations

Consolidated statements of operations presented as a percentage of revenues are
as follows:

<TABLE>
<CAPTION>
                                                                         Fiscal year ended
                                                               February 1,  February 2,  February 3,
                                                                  2003         2002         2001
                                                                  ----         ----         ----
<S>                                                              <C>          <C>          <C>
Revenues                                                         100.0%       100.0%       100.0%
Cost of goods sold, including buying and occupancy costs          62.5         59.4         56.2
Selling, general and administrative expenses                      38.0         38.0         36.5
Charges incurred in connection with discontinuance of C&W           --           --           .5
Income/(loss) from operations                                      (.5)         2.6          6.8
Interest expense, net                                             (5.3)        (4.7)        (4.4)
Income/(loss) before income taxes                                 (5.8)        (2.1)         2.4
Income taxes                                                        .5           .7          (.9)
                                                                 -----        -----        -----
Net income/(loss)                                                 (5.3)%       (1.4)%        1.5%
                                                                 =====        =====        =====
</TABLE>

Fiscal 2002 Compared to Fiscal 2001

Revenues

Revenues in the fiscal year ended February 1, 2003 decreased 1.5% to $766.4
million from $778.0 million in the fiscal year ended February 2, 2002.

J. Crew Retail net sales increased by 2.5% from $398.0 million in fiscal 2001 to
$408.0 million in fiscal 2002. The percentage of the Company's total net sales
derived from J. Crew Retail increased to 55.7% in fiscal year 2002 compared to
53.7% in fiscal 2001. The increase in net sales was due to net sales from stores
opened for less than a full fiscal year. This increase was offset by a decrease
of 10.4% in comparable store sales. The decrease in comparable store sales was
primarily attributable to a decrease in store traffic. There were 152 retail
stores open at February 1, 2003 compared to 136 at February 2, 2002.

J. Crew Direct net sales (which includes net sales from catalog and internet
operations) decreased by 4.0% from $258.2 million in fiscal 2001 to $248.0
million in fiscal 2002. The percentage of the Company's total net sales derived
from J. Crew Direct decreased to 33.9% in fiscal 2002 from 34.8% in fiscal 2001.
Catalog net sales decreased to $108.6 million in fiscal 2002 from $135.3 million
in fiscal 2001. Pages circulated decreased from 8.3 billion in fiscal 2001 to
7.8 billion

                                      S-14

<PAGE>

in fiscal 2002. Internet net sales increased to $139.4 million in fiscal 2002
from $122.9 million in fiscal 2001 as the Company continued to migrate catalog
customers to the Internet.

J.Crew Factory net sales decreased by 10.5% from $85.1 million in fiscal 2001 to
$76.2 million in fiscal 2002. The percentage of the Company's total net sales
derived from J. Crew Factory decreased to 10.4% in fiscal 2002 from 11.5% in
fiscal 2001. Comparable store sales for J. Crew Factory decreased by 14.1% in
fiscal 2002. There were 42 J. Crew Factory outlet stores open at February 1,
2003 compared to 41 at February 2, 2002.

Other revenues which consist of shipping and handling fees and royalties
decreased to $34.1 million in fiscal 2002 from $36.7 million in fiscal 2001,
primarily as a result of a decrease in shipping and handling fees which is
attributable to the decrease in net sales of J.Crew Direct.

Cost of sales, including buying and occupancy costs

Cost of sales (including buying and occupancy costs) as a percentage of revenues
increased to 62.5% in fiscal 2002 from 59.4% in fiscal 2001. This increase was
caused by a 130 basis point increase in buying and occupancy costs caused by a
decrease in leverage related to the decline in comp store sales and a 180 basis
point decrease in merchandising margin due to markdowns taken to clear
inventories in the fourth quarter which contributed to the improvement in our
year-end inventory position compared to the prior year. The fourth quarter also
included a $9,000,000 charge as a result of the Company's decision to modify its
strategy on the disposition of inventory to accelerate inventory clearing at the
end of each selling season.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to $291.5 million in
fiscal 2002 (38.0% of revenues) from $295.6 million in fiscal 2001 (38.0% of
revenues).

Selling expenses were $53.2 million in fiscal 2002 (6.9% of revenues) compared
to $60.8 million in fiscal 2001 (7.8% of revenues). This decrease was due to a
decrease in pages circulated from 8.3 billion pages in fiscal year 2001 to 7.8
billion pages in fiscal 2002 and a decrease in paper costs.

General and administrative expenses increased to $238.3 million in fiscal 2002
(31.0% of revenues) from $234.8 million in fiscal 2001 (30.2% of revenues). This
increase resulted from severance and other one-time employment related charges
of $13.7 million in fiscal year 2002 versus $3.2 million last year and
additional retail stores in operation in 2002 partially offset by the cost
reduction initiatives instituted in the first quarter of 2002.

Interest expense

Interest expense, net was $41.0 million in fiscal year 2002 compared to $36.5
million in fiscal 2001. The increase in interest expense resulted primarily from
(a) an increase of $2.1 million relating to the 13-1/8% Senior Discount Notes
and (b) an increase of $2.4 million in amortization of deferred financing costs,
including $1.8 million written off in December 2002 related to the refinancing
of the revolving credit arrangement with a new lender. Average borrowings under
the Revolving Credit Facility were $40.4 million in fiscal year 2002 compared to
$43.1 million in fiscal 2001.

Interest expense included non-cash interest and amortization of deferred
financing costs of $16.7 million in fiscal 2002 compared to $17.4 million in
fiscal 2001. Interest expense related to the 13 1/8% Senior Discount Debentures
became cash pay commencing in October 2002 with the first semi-annual payment of
$9.3 million due in April 2003.

Income Taxes

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 non-recognition of a full tax benefit due to the establishment of a
valuation allowance to reduce the net deferred tax assets to estimated
recoverable amount at February 1, 2003. The Company does not expect to recognize
any tax benefits in future results of operations until an appropriate level of
profitability is sustained.

                                      S-15

<PAGE>

Fiscal 2001 Compared to Fiscal 2000

Revenues

Revenues in the fiscal year ended February 2, 2002 decreased 5.8% to $778.0
million from $826.0 million in the fiscal year ended February 3, 2001. The
fiscal year ended February 2, 2002 consisted of 52 weeks compared to 53 weeks in
fiscal year 2000. Net sales for the fifty-third week were $10.8 million.

J. Crew Retail net sales decreased by 2.2% from $406.8 million in fiscal 2000 to
$398.0 million in fiscal 2001. The percentage of the Company's total net sales
derived from J. Crew Retail increased to 53.7% in fiscal year 2001 compared to
51.6% in fiscal 2000. The decrease in net sales was due to a decrease of 15.5%
in comparable store sales. This decrease offset a 30% increase in the number of
stores from 105 at February 3, 2001 to 136 at February 2, 2002.

J.Crew Direct net sales (which includes net sales from catalog and internet
operations) decreased by 9.3% from $284.8 million in fiscal 2000 to $258.2
million in fiscal 2001. The percentage of the Company's total net sales derived
from J. Crew Direct decreased to 34.8% in fiscal 2001 from 36.2% in fiscal 2000.
Catalog net sales decreased to $135.3 million in fiscal 2001 from $177.5 million
in fiscal 2000. Pages circulated decreased from 8.7 billion in fiscal 2000 to
8.3 billion in fiscal 2001. Internet net sales increased to $122.9 million in
fiscal 2001 from $107.3 million in fiscal 2000 as the Company continued to
migrate catalog customers to the Internet.

J.Crew Factory net sales decreased from $96.1 million in fiscal 2000 to $85.1
million in fiscal 2001. The percentage of the Company's total net sales derived
from J. Crew Factory decreased to 11.5% in fiscal 2001 from 12.2% in fiscal
2000. Comparable store sales for J. Crew Factory decreased by 10.5% in fiscal
2001. There were 41 J. Crew Factory outlet stores at February 2, 2002 and
February 3, 2001.

Other revenues which consist of shipping and handling fees and royalties
decreased to $36.7 million in fiscal 2001 from $38.3 million in fiscal 2000,
primarily as a result of a decrease in shipping and handling fees which is
attributable to the decrease in net sales of J.Crew Direct.

Cost of sales, including buying and occupancy costs

Cost of sales (including buying and occupancy costs) as a percentage of revenues
increased to 59.4% in fiscal 2001 from 56.2% in fiscal 2000. This increase was
caused by a significant increase in markdowns as a result of the highly
promotional retail environment and an increase in buying and occupancy costs
caused by a decrease in leverage related to the decline in comp store sales.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to $295.6 million in
fiscal 2001 (38.0% of revenues) from $301.9 million in fiscal 2000 (36.6% of
revenues).

General and administrative expenses of the J.Crew brand decreased to $234.8
million in fiscal 2001 (30.2% of revenues) from $239.2 million in fiscal 2000
(29.0% of revenues). This decrease resulted from a decrease in bonus provision
in fiscal 2001 and the cost cutting initiatives instituted in the first quarter
of 2001 which were offset by the additional retail stores in operation during
fiscal 2001 and a $10.1 million increase in depreciation and amortization.

Selling expenses were $60.8 million in fiscal 2001 (7.8% of revenues) compared
to $62.7 million in fiscal 2000 (7.6% of revenues). This decrease was due to a
decrease in pages circulated from 8.7 billion pages in fiscal year 2000 to 8.3
billion pages in fiscal 2001.

Interest expense

Interest expense, net was $36.5 million in fiscal year 2001 compared to $36.6
million in fiscal 2000. The increase resulting from higher average borrowings in
fiscal 2001 under the Revolving Credit Facility and higher non-cash interest was
offset by the pay off of the term loan in January 2001 and a decrease in
interest rates. Average borrowings under the Revolving Credit Facility required
to fund inventories and capital expenditures were $43.1 million in fiscal 2001
compared to $9.8 million in fiscal 2000.

                                      S-16

<PAGE>

Interest expense included non-cash interest and amortization of deferred
financing costs of $17.4 million in fiscal 2001 compared to $16.4 million in
fiscal 2000.

Income Taxes

The effective tax rate was a benefit of 33.3% in fiscal 2001 compared to a
provision of 38.6% in fiscal 2000. The effective rate in 2001 was less than the
normal rate due primarily to the inability of subsidiaries to carry back net
operating losses for state tax purposes.

Liquidity and Capital Resources

The Company's sources of liquidity have been primarily cash flows from
operations and borrowings under the Revolving Credit Facility. The Company's
primary cash needs have been for capital expenditures incurred primarily for
opening new stores and system enhancements, debt service requirements and
working capital.

On December 23, 2002 the Company 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"). The Congress Credit Facility replaced a revolving credit facility
which was scheduled to expire in October 2003. 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.
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 Company 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.

Cash provided by operating activities was $24.7 million in fiscal 2002 compared
to $25.8 million in fiscal 2001. The increase in net loss in 2002 was offset by
an improvement in working capital, primarily a $31.6 million decrease in
inventories, net of an $11.8 million decrease in accounts payable.

Capital expenditures, net of construction allowances, were $20.4 million in
fiscal 2002 compared to $42.6 million in fiscal 2001. Capital expenditures in
2002 related primarily to the opening of 16 retail stores during the year.
Capital expenditures in 2001 related primarily to the opening of 34 retail
stores and for systems enhancements, primarily the SAP enterprise resource
planning system.

Capital expenditures are expected to be approximately $10.0 million in fiscal
2003, primarily for the opening of four retail stores. The expected capital
expenditures will be funded from internally generated cash flows and by
borrowings from available financing sources.

There were no borrowings under the Revolving Credit Facility at February 1, 2003
and February 2, 2002. Average borrowings under the Revolving Credit Facility
were $40.4 million for fiscal 2002 and $43.1 million for fiscal 2001.

Effective October 15, 2002, the interest payments accruing on the 13 1/8% Senior
Discount Debentures became payable in cash on April 15 and October 15 of each
year subsequent thereto. The annual cash payments will be approximately $18.6
million. On April 4, 2003, Holdings commenced through J. Crew Intermediate LLC,
its newly formed wholly-owned subsidiary ("Intermediate"), an offer to exchange
the outstanding 13 1/8% Senior Discount Debentures due 2008 issued by Holdings
for Intermediate's unissued 16.0% Senior Discount Contingent Principal Notes due
2008.

Holdings will not pay accrued and unpaid interest on the existing debentures on
the scheduled interest payment date of April 15, 2003. Rather, Holdings will pay
such interest on the settlement date of the exchange offer (which is expected to
occur on or about May 6, 2003) together with interest thereon at a rate of
13 1/8% per annum from April 15, 2003 to the settlement date, to the holders of
the existing debentures who do not tender their existing debentures in the
exchange offer.

                                      S-17

<PAGE>

Management believes that cash flow from operations and availability under the
Congress Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to refinance indebtedness
and to remain in compliance with the financial covenants under its debt
agreements depends on its 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 its control.

Contractual Obligations And Other Commercial Commitments

The following summarizes the Company's contractual and other commercial
obligations as of February 1, 2003 and the effect such obligations are expected
to have on its liquidity and cash flows in future periods.

<TABLE>
<CAPTION>
Contractual Obligations              Within 1 year     2 - 3 years     4 - 5 years     after 5 years        Total
-----------------------              -------------     -----------     -----------     -------------        -----
                                                                      ($ in millions)
<S>                                  <C>               <C>             <C>             <C>                <C>
Long term debt                             $    --         $    --         $ 150.0          $  142.0      $ 292.0
Operating lease obligations                   52.4            97.3            88.8             143.9        382.4
Inventory purchase commitments               110.2              --              --                --        110.2
                                           -------         -------         -------          --------      -------
                                           $ 162.6         $  97.3         $ 238.8          $  285.9      $ 784.6
                                           =======         =======         =======          ========      =======

<CAPTION>
Other commercial commitments         Within 1 year     2 - 3 years     4 - 5 years     after 5 years        Total
----------------------------         -------------     -----------     -----------     -------------        -----
<S>                                  <C>               <C>             <C>             <C>                <C>
Letters of Credit

       Stand by                            $    .7         $    --         $    --          $    1.9      $   2.6
       Import                                 43.3              --              --                --         43.3
                                           -------         -------         -------          --------      -------
                                           $  44.0         $    --         $    --          $    1.9      $  45.9
                                           =======         =======         =======          ========      =======
</TABLE>

Impact of Inflation

The Company's 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, the Company
believes that the effects of inflation, if any, on its results of operations and
financial condition have been minor. However, there can be no assurance that
during a period of significant inflation, the Company's results of operations
would not be adversely affected.

Seasonality

The Company's retail and direct businesses 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 32% of annual net sales in fiscal 2002 occurred
in the fourth quarter. The Company's working capital requirements also fluctuate
throughout the year, increasing substantially in September and October in
anticipation of the holiday season inventory requirements.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - J.CREW OPERATING CORP.

This discussion should be read in conjunction with the audited consolidated
financial statement of J.Crew Operating Corp. and subsidiaries for the two year
period ended February 1, 2003 and notes thereto included elsewhere in this
Annual Report on Form 10-K.

                                      S-18

<PAGE>

Results of Operations

Fiscal 2002 Compared to Fiscal 2001

Revenues

Revenues in the fiscal year ended February 1, 2003 decreased 1.5% to $766.4
million from $778.0 million in the fiscal year ended February 2, 2002.

J. Crew Retail net sales increased by 2.5% from $398.0 million in fiscal 2001 to
$408.0 million in fiscal 2002. The percentage of the Company's total net sales
derived from J. Crew Retail increased to 55.7% in fiscal year 2002 compared to
53.7% in fiscal 2001. The increase in net sales was due to net sales from stores
opened for less than a full fiscal year. This increase was offset by a decrease
of 10.4% in comparable store sales. The decrease in comparable store sales was
primarily attributable to a decrease in store traffic. There were 152 retail
stores open at February 1, 2003 compared to 136 at February 2, 2002.

J. Crew Direct net sales (which includes net sales from catalog and internet
operations) decreased by 4.0% from $258.2 million in fiscal 2001 to $248.0
million in fiscal 2002. The percentage of the Company's total net sales derived
from J. Crew Direct decreased to 33.9% in fiscal 2002 from 34.8% in fiscal 2001.
Catalog net sales decreased to $108.6 million in fiscal 2002 from $135.3 million
in fiscal 2001. Pages circulated decreased from 8.3 billion in fiscal 2001 to
7.8 billion in fiscal 2002. Internet net sales increased to $139.4 million in
fiscal 2002 from $122.9 million in fiscal 2001 as the Company continued to
migrate catalog customers to the Internet.

J.Crew Factory net sales decreased from $85.1 million in fiscal 2001 to $76.2
million in fiscal 2002. The percentage of the Company's total net sales derived
from J. Crew Factory decreased to 10.4% in fiscal 2002 from 11.5% in fiscal
2001. Comparable store sales for J. Crew Factory decreased by 14.1% in fiscal
2002. There were 42 J. Crew Factory stores open at February 1, 2003 compared to
41 at February 2, 2002.

Other revenues which consist of shipping and handling fees and royalties
decreased to $34.1 million in fiscal 2002 from $36.7 million in fiscal 2001,
primarily as a result of a decrease in shipping and handling fees which is
attributable to the decrease in net sales of J.Crew Direct.

Cost of sales, including buying and occupancy costs

Cost of sales (including buying and occupancy costs) as a percentage of revenues
increased to 62.5% in fiscal 2002 from 59.4% in fiscal 2001. This increase was
caused by a 130 basis point increase in buying and occupancy costs caused by a
decrease in leverage related to the decline in comp store sales and an 180 basis
point decrease in merchandising margin due to markdowns taken to clear
inventories in the fourth quarter which contributed to the improvement in our
year-end inventory position compared to the prior year. The fourth quarter also
included a $9,000,000 charge as a result of the Company's decision to modify its
strategy on the disposition of inventory to accelerate inventory clearing at the
end of each selling season.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased to $291.1 million in
fiscal 2002 (38.0% of revenues) from $294.9 million in fiscal 2001 (37.9% of
revenues).

Selling expenses were $53.2 million in fiscal 2002 (6.9% of revenues) compared
to $60.8 million in fiscal 2001 (7.8% of revenues). This decrease was due to a
decrease in pages circulated from 8.3 billion pages in fiscal year 2001 to 7.8
billion pages in fiscal 2002 and a decrease in paper costs.

General and administrative expenses increased to $237.9 million in fiscal 2002
(31.0% of revenues) from $234.1 million in fiscal 2001 (30.1% of revenues). This
increase resulted from severance and other one-time employment related charges
of $13.7 million in fiscal year 2002 versus $3.2 million last year and
additional retail stores in operation in 2002 partially offset by the cost
reduction initiatives instituted in the first quarter of 2002.

                                      S-19

<PAGE>

Interest expense

Interest expense, net was $23.4 million in fiscal year 2002 compared to $20.9
million in fiscal 2001. The increase in interest expense resulted primarily from
an increase of $2.5 million in amortization of deferred financing costs,
including $1.8 million related to the old revolving credit arrangement which
were written off in December 2002. Average borrowings under the Revolving Credit
Facility were $40.4 million in fiscal year 2002 compared to $43.1 million in
fiscal 2001.

Income Taxes

The effective tax rate was a benefit of 66.8% in fiscal 2002 compared to a
benefit of 73.2% in fiscal 2001. The benefit in 2002 resulted from the reversal
of prior year tax accruals, whereas the 2001 effective rate was effected by the
low dollar amount of pre-tax income.

Factors Affecting Future Results of Operations

We must successfully gauge fashion trends and changing consumer preferences to
succeed.

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. There can be no
assurance that we will be successful in this regard. We attempt to reduce the
risks of changing fashion trends and product acceptance by devoting a
substantial portion of our product line to basic durables which are not
significantly modified from year to year. Nevertheless, if we misjudge the
market for our products, we may be faced with significant excess inventories for
some products and missed opportunities with others.

The fashion and apparel industry is highly competitive.

The fashion and apparel industry is highly competitive. We compete primarily
with other catalog operations, specialty brand retailers, department stores,
mass merchandisers 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. However, many of our competitors are
larger and have greater financial, marketing and other resources, and there can
be no assurance that we will be able to compete successfully with them in the
future. We have lost market share to some of our competitors in the recent past,
and we may not recover that share and could also lose additional market share in
the future if we do not strengthen our competitive position.

Competition for qualified personnel is intense in the fashion and apparel
industry.

Our ability to anticipate and effectively respond to changing fashion trends
depends in part on our ability to attract and retain key personnel in our
design, merchandising and marketing staff. Competition for these personnel is
intense, and there can be no assurance that we will be able to attract and
retain a sufficient number of qualified personnel in the future. Our future
performance depends, in substantial part, on the performance of our new
management team implemented in January 2003. We rely, in particular, on the
strategic guidance of Millard S. Drexler, our Chief Executive Officer, and
Jeffrey A. Pfeifle, our President. The loss, for any reason, of the services of
either of these individuals could have a material adverse effect on us.

The fashion and apparel industry is cyclical and further decline in consumer
spending on apparel and accessories could have an adverse effect on our results
of operation.

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
general consumer spending, including economic conditions and the level of
disposable consumer income, consumer debt, interest rates and consumer
confidence. The recent and current recessionary economic environment has had a
negative impact on our sales and has contributed to a higher level of
promotional sales activities, which have adversely affected our profitability.
The war in Iraq or acts of terrorism in the United States or world wide

                                      S-20

<PAGE>

may prolong the current recessionary economic environment. A further decline in
consumer spending on apparel and accessories could have an adverse effect on our
financial condition and results of operations.

Increase in costs of mailing, paper and printing will have an adverse effect on
our results of operations.

Postal rate increases and paper and printing costs affect the cost of our
catalog and promotional mailings. We rely on discounts from the basic postal
rate structure, such as discounts for bulk mailings and sorting by zip code and
carrier routes. We are not a party to any long-term contracts for the supply of
paper. Our cost of paper has fluctuated significantly, and our future paper
costs are subject to supply and demand forces external to our business.
Consequently, there can be no assurance that we will not be subject to an
increase in paper costs. Future increases in postal rates or paper or printing
costs would have a negative impact on our earnings to the extent that we are
unable to pass such increases directly to customers or offset such increases by
raising selling prices or by implementing more efficient mailings.

We rely on foreign sourcing and are subject to a variety of risks associated
with doing business abroad.

In fiscal 2002, approximately 95% of our merchandise was sourced from
independent foreign factories located primarily in Asia, and many of our
domestic vendors import a substantial portion of their merchandise from abroad.
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. We have no long-term merchandise
supply contracts, and many of our imports are subject to existing or potential
duties, tariffs or quotas that may limit the quantity of certain types of goods
that may be imported into the United States from countries in those regions. We
compete with other companies for production facilities and import quota
capacity. Our business is also subject to a variety of other risks generally
associated with doing business abroad, such as political instability, currency
and exchange risks and potential local issues. 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 acts of
war or terrorism in the United States or worldwide to the extent these acts
impact the production, shipment or receipt of merchandise. Our future
performance will be subject to such factors, which are beyond our control, and
there can be no assurance that such factors would not have a material adverse
effect on our financial condition and results of operations.

We require our licensing partner and independent manufacturers to operate in
compliance with applicable laws and regulations. While our internal and vendor
operating guidelines promote ethical business practices, we do not control such
manufacturers or their labor practices. Violation of labor or other laws by our
independent manufacturers or our licensing partner, or the divergence of an
independent manufacturer's or our licensing partner's labor practices from those
generally accepted as ethical in the United States, could have a material
adverse effect on our financial condition and results of operations if, as a
result of such violation, we were to incur substantial liability or attract
negative publicity that damaged our brand.

Success of J.Crew Retail growth strategy remains uncertain.

We intend to expand our base of J.Crew retail stores as part of our growth
strategy. There can be no assurance that this strategy will be successful. Our
success depends, in part on our ability to improve sales and margins in our
stores. Actual number and type of such stores to be opened and their success
will be dependent upon a number of factors, including, among other things, the
ability to manage such expansion and hire and train qualified associates, the
availability of suitable store locations and the negotiation of acceptable lease
terms for new locations and upon lease renewals for existing locations. There
can be no assurance that we will be able to open and operate new stores on a
timely or profitable basis. We believe that the opening of J.Crew retail stores
has diverted some revenues from the J.Crew Direct operations. There can be no
assurance that future store openings will not continue to have such an effect.

Our quarterly results of operations fluctuate significantly due to seasonality
and a variety of other factors.

We experience seasonal fluctuations in revenues and operating income, with a
disproportionate amount of our revenues and a majority of our income from
operations typically realized during the fourth quarter of each fiscal year.
Revenues and income from operations are generally weakest during the first and
second quarters of each fiscal year. Our quarterly results of operations may
also fluctuate significantly as a result of variety of other factors, including
the timing of new

                                      S-21

<PAGE>

store openings and of catalog mailings, and the revenues contributed by new
stores, merchandise mix and the timing and level of markdowns.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's principal market risk relates to interest rate sensitivity, which
is the risk that future changes in interest rates will reduce net income or the
net assets of the Company. The Company's variable rate debt consists of
borrowings under the Congress Credit Facility. The interest rates are a function
of the bank prime rate or LIBOR. A one percentage point change in the base
interest rate would result in approximately $400,000 change in income before
taxes.

The Company enters into letters of credit to facilitate the international
purchase of merchandise. The letters of credit are primarily denominated in U.S.
dollars. Outstanding letters of credit at February 1, 2003 were approximately
$45.9 million.

The Company has a licensing agreement in Japan which provides for royalty
payments based on sales of J. Crew merchandise as denominated in yen. The
Company has from time to time entered into forward foreign exchange contracts to
minimize this risk. There were no forward foreign exchange contracts outstanding
during fiscal year 2002.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

Not applicable.

                                      S-22

<PAGE>

                                    PART III

Information required by items 10 - 14 with respect to Operating Corp. has 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, 2003.
Each director of Holdings will hold office until the next annual meeting of
shareholders or until his or her successor has been elected and qualified.
Officers are elected by the Board of Directors and serve at the discretion of
the Board.

<TABLE>
<CAPTION>
Name                                   Age    Position
----                                   ---    --------
<S>                                     <C>   <C>
Millard S. Drexler ...................  58    Chief Executive Officer, Chairman of the Board and Director
Jeffrey A. Pfeifle ...................  44    President
Kathy Boyer ..........................  54    Executive Vice President, Merchandising
Michael Dadario ......................  44    Executive Vice President, Stores
Scott M. Rosen .......................  44    Executive Vice President, Chief Financial Officer
Scott Gilbertson .....................  34    Chief Operating Officer
Scott D. Hyatt .......................  45    Senior Vice President, Manufacturing
Nicholas Lamberti ....................  60    Vice President, Corporate Controller

Richard W. Boyce .....................  48    Director
Jonathan J. Coslet ...................  38    Director
James G. Coulter .....................  43    Director
Steven Grand-Jean ....................  60    Director
Thomas W. Scott ......................  37    Director
Josh S. Weston .......................  74    Director
Emily Woods ..........................  41    Director
</TABLE>

  Millard S. Drexler

     Mr. Drexler has been Chief Executive Officer since January 2003 and became
Chairman of the Board and a Director in March 2003. Before joining Holdings, he
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 as a director of Apple Computer Inc.

  Jeffrey A. Pfeifle

     Mr. Pfeifle has been President since February 2003. Before joining
Holdings, he was Executive Vice President, Product and Design of the Old Navy
division of The Gap, Inc. from 1995.

  Kathy Boyer

     Ms. Boyer has been Executive Vice President, Merchandising since June 2002.
Before joining Holdings, she was Senior Vice President, Merchandising of the
Banana Republic division of The Gap, Inc. from 1995 to September 2001.

  Michael Dadario

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

                                      S-23

<PAGE>

  Scott M. Rosen

     Mr. Rosen has been Executive Vice President and Chief Financial Officer
since 1999. He was Senior Vice President and Chief Financial Officer from 1998
to 1999 and prior thereto he was Chief Financial Officer of the Mail Order
Division for four years.

  Scott Gilbertson

     Mr. Gilbertson has been Chief Operating Officer since January 2003. Before
joining Holdings, he was a principal of Texas Pacific Group from January 2001 to
January 2003 and a portion of 1998. He was a founding partner of eVolution
Global Partners (a private venture capital company) from March 2000 to January
2001 and held various positions at Holdings from September 1998 to April 2000,
including President of e-commerce.

  Scott D. Hyatt

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

  Nicholas Lamberti

     Mr. Lamberti has been Vice President, Corporate Controller for more than
five years.

  Richard W. Boyce

     Mr. Boyce became a director in 1997 and has served as Chief Executive
Officer during portions of 1997 and 1999 while also providing operating
oversight to the remainder of the Texas Pacific Group portfolio. He is the
senior operating partner of Texas Pacific Group and joined Texas Pacific Group
in 1997. He was Chairman of Favorite Brands International Holding Corp., which
filed for protection under Chapter 11 of the Bankruptcy Code in 1999. He is also
a director of Burger King Corp., ON Semiconductor Corporation and Spirit Group
Holdings, Ltd.

  Jonathan J. Coslet

     Mr. Coslet became a director in 2003. He is a senior partner of Texas
Pacific Group, responsible for the firm's generalist and healthcare investment
activities. Prior to joining Texas Pacific Group, Mr. Coslet worked in the
investment banking department of Donaldson, Lufkin & Jenrett, specializing in
leveraged acquisitions and high-yield finance from 1991 to 1993. He is a
director of Magellan Health Services, Inc., Oxford Health Plans, Inc., Petco
Animal Supplies, Inc., Endurance Specialty and Burger King Corporation.

  James G. Coulter

     Mr. Coulter became a director in 1997. He is a founding partner of Texas
Pacific Group and has been Managing General Partner of Texas Pacific Group for
more than eight years. He is a director of Genesis Health Ventures, Inc.,
Globespan, Inc., Seagate Technology, Inc., MEMC Electronic Materials, Inc.,
Evolution Global Partners and Zhone Technologies.

  Steven Grand-Jean

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

  Thomas W. Scott

     Mr. Scott became a director in January 2002. He is a founding partner of
Nantucket Allserve Inc. (beverage supplier) and has been Co-Chairman thereof
since 1989 and Co-Chairman and Co-Chief Executive Officer from 1989 to

                                      S-24

<PAGE>

2000. He has also been Co-Chairman of Shelflink (supply chain software company)
since 2000. Mr. Scott is married to Emily Woods, the Chairperson of the Board of
Directors of Holdings.

  Josh S. Weston

     Mr. Weston became a director in 1998. He has been Honorary Chairman of the
Board of Directors of Automatic Data Processing (computing services business)
since 1998. He 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. He is also a director of Gentiva Health Services, Inc., Aegis
Communications Group, Inc. and Russ Berrie & Company, Inc.

  Emily Woods

     Ms. Woods resigned as Chairperson of the Board of Directors of Holdings in
March 2003 but continues to serve as director. She co-founded the J. Crew brand
in 1983 and has served as Chief Executive Officer and Vice Chairperson of
Holdings and as Chief Executive Officer of Operating Corp. She is also a
director of Yankee Candle Company, Inc. Ms. Woods is married to Thomas Scott, a
director of Holdings.

                                      S-25

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth compensation paid by Holdings for fiscal
2002, 2001, and 2000:

         .    to each individual serving as our chief executive officer during
              fiscal 2002;

         .    to each of the four other most highly compensated executive
              officers as of the end of fiscal 2002; and

         .    to two additional executive officers who were not employed as of
              the end of fiscal 2002.

<TABLE>
<CAPTION>
                                                                                      Long-Term Compensation
                                                  Annual Compensation           Awards                     Payouts
                                                  -------------------           ------                     -------
                                                                                            Numbers of
                                                                              Restricted    Securities
           Name                                                                 Stock       Underlying      LTIP        All Other
           And                     Fiscal    Salary     Bonus        Other     Award(s)      Options/      Payouts     Compensation
                                                                               --------
    Principal Position              Year       ($)        ($)         ($)        (1)         SARS (1)        ($)         ($) (2)
    ------------------              ----       ---        ---         ---        ---         --------        ---         -------

<S>                                <C>       <C>        <C>          <C>      <C>           <C>            <C>         <C>
Millard S. Drexler ...............  2002          --         --        --            (4)     2,231,704        --                --
   Chief Executive Officer
    And Chairman (3)

Kenneth S. Pilot .................  2002     201,900    520,000(5)     --       105,000        150,000        --         3,341,900
   Chief Executive Officer (6)

Mark A. Sarvary ..................  2002     247,700         --        --            --             --        --         1,407,500
   Chief Executive Officer (7)      2001     675,000         --        --            --             --        --             5,250
                                    2000     675,000    502,500        --            --             --        --             5,250

Emily Woods ......................  2002     886,900         --        --            --             --        --             7,600
   Director (8)                     2001   1,000,000         --        --            --             --        --             5,250
                                    2000   1,000,000  1,000,000        --            --             --        --             5,250

Blair Gordon (9) .................  2002     400,000         --        --            --         30,000        --                --
   Executive Vice President,
   Creative Director

Scott D. Hyatt ...................  2002     364,000         --        --            --             --        --             9,700
   Senior Vice President,           2001     364,000         --        --            --         10,000        --             5,250
   Manufacturing                    2000     350,000    183,800        --            --             --        --             5,250

Walter Killough (10) .............  2002     390,000         --        --            --             --        --             7,400
   Executive Vice President,        2001     390,000         --        --            --         25,000        --             5,250
   Direct and Supply Chain          2000     390,000    429,400        --            --         18,600        --             5,250

Scott M. Rosen ...................  2002     365,000         --        --            --             --        --             7,400
   Executive Vice President,        2001     365,000         --        --            --             --        --             5,250
   Chief Financial Officer          2000     357,000    298,800        --            --         18,600        --             5,250

Michael Scandiffio (11) ..........  2002     402,000                   --            --             --        --           157,900
   Executive Vice President, Mens   2001     262,800    100,000(5)     --            --         40,000        --           223,600
</TABLE>

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

(1)  There is no established public market for shares of Holdings common stock.
     Holders of restricted stock have the same right to receive dividends as
     other holders of Holdings common stock. Holdings has not paid any cash
     dividends on its common stock.

(2)  For Mr. Pilot, this includes $2,494,500 in severance compensation paid upon
     the termination of his employment and $847,400 in relocation compensation.
     For Mr. Sarvary, this includes $1,400,000 in severance compensation paid
     upon the termination of his employment. For Mr. Scandiffio, this includes
     $293,900 in relocation compensation and $85,000 in severance compensation.
     The remaining amounts represent Holdings' matching contributions to its
     401(k) plan.

(3)  Mr. Drexler became Chief Executive Officer in January 2003 and Chairman of
     the Board of Directors in March 2003.

(4)  Mr. Drexler was granted 725,303 shares of Holdings common stock on February
     12, 2003, of which 181,326 shares will vest on each January 27 of 2004,
     2005 and 2006 and 181,325 shares will vest on January 27, 2007. Mr. Drexler
     paid $800,000 to Holdings for these shares, which was in excess of their
     fair market value at the time of grant. A corporation of which Mr. Drexler
     is a principal was also granted 55,793 shares of Holdings common stock on
     February 12, 2003, all of which vested immediately upon grant.

(5)  Represents sign-on bonus.

(6)  Mr. Pilot was Chief Executive Officer from September 2002 to January 2003.

(7)  Mr. Sarvary's employment terminated in April 2002.

(8)  Ms. Woods was granted 661,600 shares of Holdings common stock on October
     17, 1997, all of which are currently vested. Ms. Woods was Chairperson of
     the Board until her resignation from this position in March 2003.

(9)  Mr. Gordon's employment commenced in January 2002 and terminated in January
     2003.

(10) Mr. Killough's employment terminated in March 2003.

                                       S-26

<PAGE>

(11) Mr. Scandiffio's employment commenced in June 2001 and terminated in
     October 2002.

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 2002.

<TABLE>
<CAPTION>
                                                                                    Potential Realizable Value at  Assumed Annual
                                                                                        Rates of Stock Price Appreciation for
                              Individual Grants                                                     Option Term (2)
                              -----------------                                                     ---------------
                          Number of    Percent of
                          Securities  Total Options
                          Underlying   Granted to
                           Options    Employees in    Exercise        Expiration
Name                     Granted (1)   Fiscal Year   Price($/Sh)         Date               5%($)                     10% ($)
----                     -----------   -----------   -----------         ----               -----                     -------
<S>                      <C>          <C>            <C>              <C>                   <C>                       <C>
Blair Gordon (2) ......     30,000         7%          $10.00         2/28/2012              --                         --
</TABLE>

(1)  Holdings has not granted any SARs.

(2)  Mr. Gordon's employment terminated in January 2003, at which time all of
     these options were forfeited automatically pursuant to Holdings' Stock
     Option Plan. As a result, the potential realizable value for these options
     is zero.

The following table shows the number of stock options held to purchase shares of
Holdings common stock by the named executive officers at the end of fiscal 2002.
The named executive officers did not exercise any stock options in fiscal 2002.

<TABLE>
<CAPTION>
                                                                                                     Value of Unexercised
                                                                    Number of Securities             In-the-Money Options/
                                                                   Underlying Unexercised           SARs at Fiscal Year End
                                                                 Options at Fiscal Year End                 ($) (1)
Name                                                              Exercisable/Unexercisable        Exercisable/Unexercisable
----                                                           ------------------------------    -----------------------------
<S>                                                            <C>                               <C>
Millard S. Drexler (2) .....................................             0/2,231,704                           0/0
Kenneth S. Pilot (3) .......................................                     0/0                           0/0
Mark A. Sarvary (4) ........................................               163,200/0                           0/0
Scott D. Hyatt .............................................           22,000/13,000                           0/0
Walter Killough (5) ........................................           47,560/27,440                           0/0
Scott M. Rosen .............................................           47,560/27,440                           0/0
Emily Woods ................................................         164,000/328,200                           0/0
Blair Gordon (6) ...........................................                     0/0                           0/0
Michael Scandiffio (7) .....................................                     0/0                           0/0
</TABLE>

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

(1)  There is no established public market for shares of Holdings common stock.

(2)  Mr. Drexler became Chief Executive Officer in January 2003.

(3)  Mr. Pilot was Chief Executive Officer from September 2002 to January 2003.

(4)  Mr. Sarvary resigned as Chief Executive Officer in April 2002.

(5)  Mr. Killough's employment terminated in March 2003.

(6)  Mr. Gordon's employment terminated in January 2003.

(7)  Mr. Scandiffio's employment terminated in October 2002.

Employment Agreements and Other Compensation Arrangements

     Employment Agreements

     Emily Woods. Ms. Woods had an employment agreement with Holdings and
Operating Corp. pursuant to which she served as Chairperson of the Board of
Directors of Holdings for five years beginning on October 17, 1997. The
agreement provided for a minimum annual base salary of $1.0 million, an annual
bonus of up to $1.0 million based on achievement of earnings objectives to be
determined each year, the grant of 661,600 shares of Holdings Common Stock,
which we refer to as the "Woods Restricted Shares", the reimbursement of income
taxes incurred by Ms. Woods in connection with such grant, and various executive
benefits and perquisites. The employment agreement expired by its terms on
October 17, 2002. Ms. Woods currently receives an annual base salary of
$200,000.

                                       S-27

<PAGE>

         Under the terms of stock options awarded to Ms. Woods under Holdings'
stock option plan, all unvested options shall become exercisable (1) if Ms.
Woods' employment is terminated by Holdings without cause, by Ms. Woods for good
reason or by reason of death or disability or (2) in the event of a change in
control of Holdings.

         Millard S. Drexler. Mr. Drexler has a services agreement with Holdings
and Operating Corp. 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 the
grant of options to purchase 557,926 shares of Holdings common stock, which we
refer to as initial options, and the grant of premium options to purchase an
additional 1,673,778 shares of Holdings common stock, which we refer to as
premium options. 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". We
refer you to footnote 4 to the Executive Compensation Table for information on
the vesting of the Drexler Restricted Shares. Mr. Drexler paid Holdings $200,000
for the Initial Options and $800,000 for the Drexler Restricted Shares.

         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.

         Kenneth S. Pilot. Mr. Pilot had an employment agreement with Holdings
and Operating Corp. pursuant to which he would serve as Chief Executive Officer
for five years commencing on September 9, 2002. Holdings would also cause Mr.
Pilot to be elected as a director. The agreement provided for a minimum annual
base salary of $700,000, a signing bonus of $520,000, two additional payments of
$60,000 payable in September 2003 and 2004, and certain relocation benefits. The
agreement also provided for an annual bonus based on the achievement of earnings
objectives to be determined each year, provided that he was guaranteed prorated
bonuses for fiscal 2002 equal to 85% of his base salary and 42.5% of his base
salary for fiscal 2003. He also received a grant of 105,000 shares of Holdings
common stock, which we refer to as the "Pilot Restricted Shares", of which
35,000 shares would vest over time and 70,000 shares vested immediately, and a
grant of options to purchase 150,000 shares of Holdings common stock. If Mr.
Pilot was terminated without "cause" or for "good reason" (as defined in the
employment agreement), he was entitled to receive any accrued bonus and a
lump-sum payment equal to two times his base salary.

         Mr. Pilot resigned effective January 29, 2003. Pursuant to his
separation agreement, Mr. Pilot was entitled to $2,494,500 in severance
compensation, the immediate vesting of 35,000 Pilot Restricted Shares, the
continuation of his medical benefits for the eighteen month period following his
resignation and certain outplacement benefits. In addition, Holdings waived the
call rights it had in respect of such Pilot Restricted Shares.

         Mark A. Sarvary. Mr. Sarvary had an employment agreement with Holdings
and Operating Corp. pursuant to which he would serve as Chief Executive Officer
for a period of five years commencing on May 10, 1999. Holdings would also cause
Mr. Sarvary to be elected as a director.

         The agreement provided for a minimum annual base salary of $670,000, a
$1,000,000 signing bonus, and an annual target bonus of 50% of his annual base
salary based on achievement of earnings objectives to be determined each year.
The agreement also provided for the grant of options to purchase 272,000 shares
of Holdings common stock and the grant of additional options to purchase 68,000
shares on the earlier of the date of an initial public offering of Holdings
common stock or May 10, 2004. In the event of a change in Mr. Sarvary's duties
and responsibilities, upon the termination of Mr. Sarvary's employment, he was
entitled to receive severance and other benefits described in the January 15,
2002 amendment to his employment agreement. These included a lump-sum payment
equal to two times his base salary and the continuation of medical and life
insurance benefits for a period of time after the termination date. In addition,
all of his vested options will remain exercisable for three years.

         Mr. Sarvary resigned effective April 30, 2002. Pursuant to his
separation agreement, he is entitled to $1,400,000

                                       S-28

<PAGE>

in severance compensation and the continuation of medical benefits for two years
and life insurance benefits for 21 months. In addition, the portion of his stock
options scheduled to vest on the anniversary of their grant date following the
termination date was permitted to vest and become exercisable.

         Blair Gordon. Mr. Gordon had an employment agreement with Holdings and
Operating Corp. pursuant to which he would serve as Executive Vice-President and
Creative Director for three years commencing on January 7, 2002. The agreement
provided for a minimum annual base salary of $400,000, an annual bonus based on
achievement of earnings objectives to be determined each year, and the grant of
options to purchase 30,000 shares of Holdings common stock. The agreement also
provided for the continuation of Mr. Gordon's base salary and medical benefits
for one year if he was terminated without "cause" (as defined in the employment
agreement). Mr. Gordon's employment terminated effective January 30, 2003.
Pursuant to his separation agreement, he is entitled to these payments and
benefits.

         Walter Killough. Mr. Killough had a severance agreement with Holdings
and Operating Corp. which provided that, in the event of a termination for any
reason other than death, disability or cause, as defined in the severance
agreement, he will receive a continuation of his base salary and certain expense
reimbursement for a period of one year, subject to offset if he obtains new
full-time employment during that period. Mr. Killough's employment terminated
effective March 14, 2003. Pursuant to his agreement, he is entitled to these
payments and benefits.

         Michael Scandiffio. Mr. Scandiffio had an employment agreement with
Holdings and Operating Corp. pursuant to which he would serve as Executive
Vice-President of Mens for three years commencing June 12, 2001. The agreement
provided for a minimum annual base salary of $480,000, a $100,000 signing bonus,
an annual bonus based on achievement of earnings objectives to be determined
each year, and the grant of options to purchase 40,000 shares of Holdings common
stock. The agreement also provided for relocation benefits and the continuation
of base salary and medical benefits for one year if Mr. Scandiffio is terminated
without "cause" (as defined in the employment agreement). Mr. Scandiffio's
employment terminated effective October 17, 2002 as a result of which he is
entitled to these payments and benefits.

    Executive Severance Arrangements

         Messrs. Hyatt and Rosen each have an agreement with Holdings and
Operating Corp. 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.

    Shareholders Agreements

         The Woods Restricted Shares, the Pilot Restricted Shares, and the
Drexler 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. The agreement also requires Mr. Drexler to pay $1.0 million to us if
Jeffrey Pfeifle, current President of Holdings and Operating Corp. 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.

                                      S-29

<PAGE>

    Compensation Committee Interlocks and Insider Participation

         Ms. Woods, a director, and Mr. Boyce, a director and former Chief
Executive Officer, are members of the Compensation Committee of Holdings.

    Compensation of Directors

An attendance fee of $10,000 for each Board of Directors meeting (up to a
maximum of $40,000 per year) is paid to each director who is neither an employee
of Holdings nor a representative of Texas Pacific Group. Directors have the
option to receive all or a portion of that fee paid in cash or in shares of
Holdings common stock at a per share purchase price equal to the fair market
value.

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, 2003 for each person who is known to
Holdings to be the beneficial owner of 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.

<TABLE>
<CAPTION>
                                     Name and Address            Amount and Nature of         Percent of
Title of Class                     of Beneficial Owner           Beneficial Ownership            Class
--------------                     -------------------           --------------------            -----
<S>                          <C>                               <C>                            <C>
Common stock ..............  TPG Partners II, L.P.             8,780,073 shares (1) (4)           59%
                             301 Commerce Street, Suite 3300
                             Fort Worth, TX 76102

Common stock ..............  Emily Woods                       2,429,177 shares (2)               16%
                             J. Crew Group, Inc.
                             770 Broadway
                             New York, NY 10003

Common stock ..............  Millard S. Drexler                1,522,249 shares (3) (4)           10%
                             J. Crew Group, Inc.
                             770 Broadway
                             New York, NY 10003
</TABLE>

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

(1)  These shares of common stock are beneficially owned by Texas Pacific Group
     and the following affiliates of Texas Pacific Group (collectively, "TPG
     Affiliates"): TPG Parallel II L.P., TPG Partners II L.P., TPG Investors II,
     L.P., and TPG Bacchus II, LLC.

(2)  Includes 164,000 shares not currently owned but which are issuable upon the
     exercise of stock options awarded under stock option plan that are
     currently exercisable.

(3)  These shares of common stock are beneficially owned by a company of which
     Mr. Drexler is a principal.

(4)  Includes 1,466,276 shares not currently owned but which are issuable to
     each of TPG Bacchus II, LLC and Mr. Drexler's company upon the exercise by
     each of them of an exchange right. We refer you to "Certain Relationships
     and Related Transactions" for more information.

The following table sets forth information regarding the beneficial ownership of
each class of equity securities of Holdings as of April 1, 2003 for (a) each
director, (b) each of the executive officers identified in the table set forth
under Management and (c) all directors and executive officers as a group. 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.

                                      S-30

<PAGE>

<TABLE>
<CAPTION>
                                                                        Number of Shares
                                                                          and Nature of              Percent of
Title of Class                      Name of Beneficial Owner          Beneficial Ownership             Class
--------------                      ------------------------          --------------------             -----
<S>                                 <C>                               <C>                            <C>
Common stock .....................  Richard W. Boyce                         55,200 (1)                  *
Common stock .....................  Jonathan J. Coslet                    8,780,073 (2)                 59%
Common stock .....................  James G. Coulter                      8,780,073 (2)                 59%
Common stock .....................  Millard S. Drexler                    1,522,249 (3)                 10%
Common stock .....................  Scott D. Hyatt                           22,000 (1)
Common stock .....................  Steven Grand-Jean
Common stock .....................  Walter Killough (4)                      47,560 (1)                  *
Common stock .....................  Kenneth S. Pilot (5)                    105,000
Common stock .....................  Scott M. Rosen                           47,560 (1)
Common stock .....................  Mark A. Sarvary (6)                     163,200 (1)                  *
Common stock .....................  Thomas W. Scott                               0                      *
Common stock .....................  Josh S. Weston                           25,478                      *
Common stock .....................  Emily Woods                           2,429,177 (7)                 16%
Common stock .....................  All directors and executive          13,197,497 (1)(2)(3)(7)        89%
                                     officers as a group
Series A preferred stock .........  Jonathan J. Coslet                       73,475 (2)                 79%
Series A preferred stock .........  James G. Coulter                         73,475 (2)                 79%
Series A preferred stock .........  Josh S. Weston                               60                      *
Series A preferred stock .........  Emily Woods                               2,979                      3%
Series A preferred stock .........  All directors and executive              76,514 (2)                 83%
                                     officers as a group
</TABLE>

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

*    Represents less than 1% of the class.

(1)  These are shares not currently owned but which are issuable upon the
     exercise of stock options awarded under the stock option plan that are
     currently exercisable or become exercisable within 60 days.

(2)  Attributes ownership of the shares beneficially owned by TPG Affiliates to
     Messrs. Coslet and Coulter, who are partners of Texas Pacific Group.
     Includes 1,466,276 shares not currently owned but which are issuable to TPG
     Bacchus II, LLC upon the exercise of an exchange right. We refer you to
     "Certain Relationships and Related Transactions" for more information.
     Messrs. Coslet and Coulter disclaim beneficial ownership of the shares
     owned by TPG Affiliates.

(3)  Attributes ownership of the shares beneficially owned by Mr. Drexler's
     company to Mr. Drexler. Includes 1,466,276 shares not currently owned but
     which are issuable to Mr. Drexler's company upon the exercise of an
     exchange right. We refer you to "Certain Relationships and Related
     Transactions" for more information.

(4)  Mr. Killough's employment terminated in March 2003.

(5)  Mr. Pilot was Chief Executive Officer from September 2002 to January 2003.

(6)  Mr. Sarvary resigned as Chief Executive Officer in April 2002.

(7)  Includes 164,000 shares not currently owned but which are issuable upon the
     exercise of stock options awarded under the stock option plan that are
     currently exercisable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mark Sarvary Loan

         In connection with Mr. Sarvary's relocation to our headquarters,
Holdings loaned Mr. Sarvary $1.0 million on an interest-free basis to purchase a
residence, which loan was secured by a mortgage on that residence. The largest
amount outstanding in fiscal 2002 was $850,000. As part of Mr. Sarvary's
separation from Holdings in April 2002, Mr. Sarvary agreed to repay the loan on
the earlier of (a) June 1, 2005, (b) the sale of his residence and (c) the first
anniversary of his employment with a new employer. In October 2002, Mr. Sarvary
paid $782,000 to Holdings in full satisfaction of the loan in exchange for a
$68,000 present value discount granted by us in consideration of his early
repayment.

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 S. Drexler, which provides for:

                                      S-31

<PAGE>

         .    Tranche A loan in an aggregate principal amount of $10.0 million;
              and

         .    Tranche B loan in an aggregate principal amount of $10.0 million.

         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.

ITEM 14.   CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this Annual Report on Form 10-K, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of disclosure controls and
procedures as provided in Rule 13a-14 under the Securities Exchange Act of 1934,
as amended. There are inherent limitations on the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and
the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable
assurance of achieving their control objectives. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this annual report has been made known to
them in a timely fashion. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                      S-32

<PAGE>

                                     PART IV

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

J. Crew Group, Inc.

(a)    1.    Financial Statements

             The following financial statements of J. Crew Group, Inc. and
             subsidiaries are included in Item 8:

             (i)     Report of KPMG LLP, Independent Auditors
             (ii)    Consolidated Balance Sheets as of February 1, 2003 and
                     February 2, 2002
             (iii)   Consolidated Statements of Operations - Years ended
                     February 1, 2003, February 2, 2002 and February 3, 2001
             (iv)    Consolidated Statements of changes in Stockholders' Deficit
                     - Years ended February 1, 2003, February 2, 2002 and
                     February 3, 2001
             (v)     Consolidated Statements of Cash Flows - Years ended
                     February 1, 2003, February 2, 2002 and February 3, 2001
             (vi)    Notes to consolidated financial statements

       2.    Financial Statement Schedules

             Schedule II       Valuation and Qualifying Accounts.

       3.    Exhibits

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

(b)    Reports on Form 8-K

       The Company filed the following reports on Form 8-K during the quarter
       ended February 1, 2003:

                  Date of Report            Item(s) Reported
                  --------------            ----------------
                  Dec. 27, 2002             Item 5
                  Jan. 27, 2003             Item 5

(c)    Exhibits

       See Item 15(a) 3 above.

(d)    Financial Statement Schedules

       See Item 15(a) 1 and 15(a) 2 above.

                                      S-33

<PAGE>

J. Crew Operating Corp.

(a)    1.    Financial Statements

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

             (i)      Report of KPMG LLP, Independent Auditors
             (ii)     Consolidated Balance Sheets as of February 1, 2003 and
                      February 2, 2002
             (iii)    Consolidated Statements of Operations - Years ended
                      February 1, 2003, February 2, 2002 and February 3, 2001
             (iv)     Consolidated Statements of Cash Flows - Years ended
                      February 1, 2003, February 2, 2002 and February 3, 2001
             (v)      Notes to consolidated financial statements

       2.    Financial Statement Schedules

             Schedule II       Valuation and Qualifying Accounts.

                                      S-34

<PAGE>

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.

                                                   J. CREW GROUP, INC.
Date: April 21, 2003                               J. CREW OPERATING CORP.

                                                   By: /s/ Millard S. Drexler
                                                     ------------------------
                                                       Millard S. Drexler
                                                       Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of each
registrant and in the capacities indicated, on April 21, 2003.

<TABLE>
<CAPTION>
              Signature                                     Title
              ---------                                     -----
         <S>                                  <C>
         /s/ Millard S. Drexler               Chairman of the Board, Chief Executive Officer
         ---------------------------          and a Director (Principal Executive Officer)
         Millard S. Drexler

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

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

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

         /s/ Jonathan J. Coslet               Director
         ---------------------------
         Jonathan J. Coslet

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

         /s/ Steven Grand-Jean                Director
         ---------------------------
         Steven Grand-Jean

         /s/ Thomas W. Scott                  Director
         ---------------------------
         Thomas W. Scott

         /s/ Josh Weston                      Director
         ---------------------------
         Josh Weston

         /s/ Emily Woods                      Director
         ---------------------------
         Emily Woods
</TABLE>

                                      S-35

<PAGE>

CERTIFICATION

I, Millard S. Drexler, certify that:

1.     I have reviewed this annual report on Form 10-K of J. Crew Group, Inc.
       and J. Crew Operating Corp.;

2.     Based on my knowledge, this annual report does not contain any untrue
       statement of a material fact or omit to state a material fact necessary
       to make the statements made, in light of the circumstances under which
       such statements were made, not misleading with respect to the period
       covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial
       information included in this annual report, fairly present in all
       material respects the financial condition, results of operations and cash
       flows of each registrant as of, and for, the periods presented in this
       annual report.

4.     Each registrant's other certifying officers and I are responsible for
       establishing and maintaining disclosure controls and procedures (as
       defined in Exchange Act Rules 13a-14 and 15d-14) for such registrant and
       we have:

       a)    designed such disclosure controls and procedures to ensure that
             material information relating to such registrant, including its
             consolidated subsidiaries, is made known to us by others within
             those entities, particularly during the period in which this annual
             report is being prepared;

       b)    evaluated the effectiveness of such registrant's disclosure
             controls and procedures as of a date within 90 days prior to the
             filing date of this annual report (the "Evaluation Report"); and

       c)    presented in this annual report our conclusions about the
             effectiveness of the disclosure controls and procedures based on
             our evaluation as of the Evaluation Date;

5.     Each registrant's other certifying officers and I have disclosed, based
       on our most recent evaluation, to such registrant's auditors and the
       audit committee of such registrant's board of directors (or persons
       performing the equivalent function);

       a)    all significant deficiencies in the design or operation of internal
             controls which could adversely affect such registrant's ability to
             record, process, summarize and report financial data and have
             identified for such registrant's auditors any material weaknesses
             in internal controls; and

       b)    any fraud, whether or not material, that involves management or
             other employees who have a significant role in such registrant's
             internal controls; and

6.     Each registrant's other certifying officers and I have indicated in this
       annual report whether or not there were any significant changes in
       internal controls or in other factors that could significantly affect
       internal controls subsequent to the date of our most recent evaluation,
       including any corrective actions with regard to significant deficiencies
       and material weaknesses.



April 21, 2003                                    /s/ Millard S. Drexler
                                                  ----------------------
                                                  Millard S. Drexler
                                                  Chief Executive Officer

                                      S-36

<PAGE>

CERTIFICATION

I, Scott M. Rosen, certify that:

1.     I have reviewed this annual report on Form 10-K of J. Crew Group, Inc.
       and J. Crew Operating Corp.;

2.     Based on my knowledge, this annual report does not contain any untrue
       statement of a material fact or omit to state a material fact necessary
       to make the statements made, in light of the circumstances under which
       such statements were made, not misleading with respect to the period
       covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial
       information included in this annual report, fairly present in all
       material respects the financial condition, results of operations and cash
       flows of each registrant as of, and for, the periods presented in this
       annual report.

4.     Each registrant's other certifying officers and I are responsible for
       establishing and maintaining disclosure controls and procedures (as
       defined in Exchange Act Rules 13a-14 and 15d-14) for such registrant and
       we have:

       a)    designed such disclosure controls and procedures to ensure that
             material information relating to such registrant, including its
             consolidated subsidiaries, is made known to us by others within
             those entities, particularly during the period in which this annual
             report is being prepared;

       b)    evaluated the effectiveness of such registrant's disclosure
             controls and procedures as of a date within 90 days prior to the
             filing date of this annual report (the "Evaluation Report"); and

       c)    presented in this annual report our conclusions about the
             effectiveness of the disclosure controls and procedures based on
             our evaluation as of the Evaluation Date;

5.     Each registrant's other certifying officers and I have disclosed, based
       on our most recent evaluation, to such registrant's auditors and the
       audit committee of such registrant's board of directors (or persons
       performing the equivalent function);

       a)    all significant deficiencies in the design or operation of internal
             controls which could adversely affect such registrant's ability to
             record, process, summarize and report financial data and have
             identified for such registrant's auditors any material weaknesses
             in internal controls; and

       b)    any fraud, whether or not material, that involves management or
             other employees who have a significant role in such registrant's
             internal controls; and

6.     Each registrant's other certifying officers and I have indicated in this
       annual report whether or not there were any significant changes in
       internal controls or in other factors that could significantly affect
       internal controls subsequent to the date of our most recent evaluation,
       including any corrective actions with regard to significant deficiencies
       and material weaknesses.


April 21, 2003                                 /s/ Scott M. Rosen
                                               ------------------
                                               Scott M. Rosen
                                               Executive Vice-President
                                               and Chief Financial Officer

                                      S-37

<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
J. Crew Group, Inc. and Subsidiaries:

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. Crew Group, Inc.
and subsidiaries as of February 1, 2003 and February 2, 2002 and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 1, 2003, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.

                                                        KPMG LLP

March 25, 2003,
except as to note 17, which is as of
April 4, 2003

                                       F-1

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                February 1,             February 2,
                                 Assets                                            2003                    2002
                                 ------                                            ----                    ----
                                                                                          (in thousands)
<S>                                                                             <C>                     <C>
Current assets:
     Cash and cash equivalents                                                   $  18,895               $  16,201
     Merchandise inventories                                                       107,318                 138,918
     Prepaid expenses and other current assets                                      24,886                  27,026
     Refundable income taxes                                                         6,278                       -
                                                                                 ---------               ---------

          Total current assets                                                     157,377                 182,145
                                                                                 ---------               ---------

Property and equipment - at cost:
     Land                                                                            1,710                   1,610
     Buildings and improvements                                                     11,705                  11,700
     Furniture, fixtures and equipment                                             102,108                 105,292
     Leasehold improvements                                                        182,226                 170,195
     Construction in progress                                                        3,161                   4,903
                                                                                 ---------               ---------
                                                                                   300,910                 293,700

          Less accumulated depreciation and amortization                           129,363                 106,427
                                                                                 ---------               ---------
                                                                                   171,547                 187,273
                                                                                 ---------               ---------

Deferred income tax assets                                                           5,000                  18,071

Other assets                                                                        14,954                  13,831
                                                                                 ---------               ---------

          Total assets                                                           $ 348,878               $ 401,320
                                                                                 =========               =========

                                 Liabilities and Stockholders' Deficit
                                 -------------------------------------

Current liabilities:
     Accounts payable                                                            $  54,921               $  66,703
     Other current liabilities                                                      61,463                  61,788
     Income taxes payable                                                            2,978                   8,840
     Deferred income tax liabilities                                                     -                   5,650
                                                                                 ---------               ---------

          Total current liabilities                                                119,362                 142,981
                                                                                 ---------               ---------

Deferred credits and other long-term liabilities                                    65,141                  67,235
                                                                                 ---------               ---------

Long-term debt                                                                     292,000                 279,687
                                                                                 ---------               ---------

Redeemable preferred stock                                                         264,038                 230,460
                                                                                 ---------               ---------

Stockholders' deficit                                                             (391,663)               (319,043)
                                                                                 ---------               ---------

          Total liabilities and stockholders' deficit                            $ 348,878               $ 401,320
                                                                                 =========               =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-2

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                     Years ended
                                                                                     -----------
                                                                       February 1,   February 2,   February 3,
                                                                       -----------   -----------   -----------
                                                                           2003          2002         2001
                                                                           ----          ----         ----
                                                                                   (in thousands)
<S>                                                                    <C>           <C>           <C>
Revenues:

   Net sales                                                            $ 732,279     $ 741,280     $ 787,658
   Other                                                                   34,103        36,660        38,317
                                                                        ---------     ---------     ---------
                                                                          766,382       777,940       825,975

Operating costs and expenses:

   Cost of goods sold, including buying and occupancy costs               478,700       462,371       463,909
   Selling, general and administrative expenses                           291,518       295,568       301,865
   Write down of assets and other charges in
     connection with discontinuance of Clifford & Wills                        --            --         4,130
                                                                        ---------     ---------     ---------
                                                                          770,218       757,939       769,904
                                                                        ---------     ---------     ---------

         Income/(loss) from operations                                     (3,836)       20,001        56,071

Interest expense - net                                                     40,954        36,512        36,642

         Income/(loss) before income taxes                                (44,790)      (16,511)       19,429

(Provision) benefit for income taxes                                        4,200         5,500        (7,500)
                                                                        ---------     ---------     ---------

         Net income/(loss)                                              $ (40,590)    $ (11,011)    $  11,929
                                                                        =========     =========     =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-3

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     Years ended
                                                                                     -----------
                                                                       February 1,   February 2,   February 3,
                                                                       -----------   -----------   -----------
                                                                           2003          2002          2001
                                                                           ----          ----          ----
                                                                                   (in thousands)
<S>                                                                    <C>           <C>           <C>
Cash flows from operating activities:
Net income/(loss)                                                       $ (40,590)    $ (11,011)    $  11,929
Adjustments to reconcile net income/(loss) to net cash
  provided by operating activities:
     Depreciation and amortization                                         34,451        31,718        22,600
     Amortization of deferred financing costs                               4,435         1,997         2,793
     Non-cash interest expense                                             12,313        15,395        13,608
     Deferred income taxes                                                  7,421        (3,460)           27
     Non-cash compensation expense                                           (589)        1,574           649
     Write down of assets and other charges
     in connection with discontinued catalog                                   --            --         4,130
Changes in operating assets and liabilities:

  Merchandise inventories                                                  31,600         1,749       (10,739)
  Prepaid expenses and other current assets                                 2,140        (3,286)        6,343
  Other assets                                                             (2,470)       (3,416)       (2,788)
  Net assets held for disposal                                                 --            --         4,797
  Accounts payable                                                        (11,782)       16,998         8,754
  Other liabilities                                                           495       (13,767)        5,263
  Income taxes payable                                                    (12,140)       (8,741)        2,894
                                                                        ---------     ---------     ---------
     Net cash provided by operating activities                             25,284        25,750        70,260
                                                                        ---------     ---------     ---------

Cash flows from investing activities:
  Capital expenditures                                                    (26,920)      (61,862)      (55,694)
  Proceeds from construction allowances                                     6,502        19,287        13,519
                                                                        ---------     ---------     ---------
     Net cash used in investing activities                                (20,418)      (42,575)      (42,175)
                                                                        ---------     ---------     ---------

Cash flows from financing activities:
  Costs incurred in refinancing Credit Facility                            (3,256)           --            --
  Repayment of long-term debt                                                  --            --       (34,000)
  Proceeds from the issuance of common stock                                1,084            96           178
  Repurchase of common stock                                                   --            --           (26)
                                                                        ---------     ---------     ---------
     Net cash provided by/(used in) financing activities                   (2,172)           96       (33,848)
                                                                        ---------     ---------     ---------

  Increase (decrease) in cash and cash equivalents                          2,694       (16,729)       (5,763)

Cash and cash equivalents at beginning of year                             16,201        32,930        38,693
                                                                        ---------     ---------     ---------
Cash and cash equivalents at end of year                                $  18,895     $  16,201     $  32,930
                                                                        =========     =========     =========

Supplementary cash flow information:
     Income taxes paid                                                  $     453     $   6,442     $   4,279
                                                                        =========     =========     =========
     Interest paid                                                      $  19,380     $  19,389     $  20,513
                                                                        =========     =========     =========

Noncash financing activities:
     Dividends on redeemable preferred stock                            $  33,578     $  30,442     $  26,484
                                                                        =========     =========     =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-4

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Deficit

                          (in thousands, except shares)


<TABLE>
<CAPTION>
                                            Common stock      Additional   Retained                    Deferred     Stock-
                                            ------------       paid-in     earnings      Treasury       compen-    holders'
                                        Shares       Amount    capital     (deficit)       stock        sation     deficit
                                        ------       ------    -------     ---------       -----        ------     -------
<S>                                 <C>                 <C>    <C>       <C>             <C>          <C>        <C>
Balance at January 29, 2000         12,214,265          $ 1    $ 70,537  $  (331,178)    $  (2,325)   $  (1,628) $ (264,593)
                                                        ===    ========  ===========     =========    =========  ==========
Net loss                                    --           --          --       11,929            --           --      11,929
Preferred stock dividends                   --           --          --      (26,484)           --           --     (26,484)
Issuance of common stock                18,400           --         178           --            --           --         178
Amortization of restricted stock            --           --          --           --            --          649         649
Repurchase of common stock                  --           --          --           --           (26)          --         (26)
                                    ----------          ---    --------  -----------     ---------      ------- -----------
Balance at February 3, 2001         12,232,665            1      70,715     (345,733)       (2,351)        (979)   (278,347)
                                                        ===    ========  ===========     =========    =========  ==========
Net loss                                    --           --          --      (11,011)           --           --     (11,011)
Preferred stock dividends                   --           --          --      (30,442)           --           --     (30,442)
Issuance of common stock                 5,524           --          96           --            --           --          96
Amortization of restricted stock            --           --          --           --            --          661         661
                                    ----------          ---    --------  -----------     ---------      ------- -----------
Balance at February 2, 2002         12,238,189            1      70,811     (387,186)       (2,351)        (318)   (319,043)
                                    ==========          ===    ========  ===========     =========    =========  ==========
Net loss                                    --           --          --      (40,590)           --           --     (40,590)
Preferred stock dividends                   --           --          --      (33,578)           --           --     (33,578)
Issuance of common stock               737,621           --       1,084           --            --           --       1,084
Issuance of restricted stock           383,963           --         311           --            --         (311)         --
Amortization of restricted stock            --           --          --           --            --          464         464
                                    ----------          ---    --------  -----------     ---------      ------- -----------
Balance at February 1, 2003         13,359,773            1      72,206     (461,354)       (2,351)        (165)   (391,663)
                                    ==========          ===    ========  ===========     =========    =========  ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-5

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

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

     (a)  Principles of Consolidation

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

     (b)  Business

          The Company designs, contracts for the manufacture of, markets and
          distributes men's and women's apparel, 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.

     (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 2002, 2001, and 2000 ended on February 1, 2003 (52
          weeks), February 2, 2002 (52 weeks), and February 3, 2001 (53 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 $11,224,000 and $7,895,000 at February 1, 2003 and February
          2, 2002, are stated at cost, which approximates market value.

                                       F-6

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     (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.

     (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. Deferred catalog costs, included in prepaid
          expenses and other current assets, as of February 1, 2003 and February
          2, 2002 were $6,197,000 and $7,959,000. Catalog costs, which are
          reflected in selling and administrative expenses, for the fiscal years
          2002, 2001, and 2000 were $56,695,000 $65,477,000 and $69,000,000.

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

     (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.

          Significant systems development costs are capitalized and amortized on
          a straight-line basis over periods ranging from three to five years.
          Approximately $.6 million and $8.5 million of system development costs
          were capitalized in fiscal years 2002 and 2001.

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

     (i)  Debt Issuance Costs

          Debt issuance costs (included in other assets) of $6,743,000 and
          $6,906,000 at February 1, 2003 and February 2, 2002 are amortized over
          the term of the related debt agreements.

     (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.

                                       F-7

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     (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. 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.

     (l)  Store Preopening Costs

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

     (m)  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.

     (n)  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.

     (o)  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.

     (p)  Stock Based Compensation

          The Company accounts for stock-based compensation using the intrinsic
          value method of accounting for employee stock options as permitted by
          SFAS No. 123, "Accounting for Stock-Based Compensation". Accordingly,
          compensation expense is not recorded for options granted if the option
          price is equal to 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 which are granted at less than fair market
          value result in the recognition of deferred compensation, which is
          charged to expense over the vesting period of the awards. Deferred
          compensation is shown as a reduction of stockholders' equity.


                                       F-8

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(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 are 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 year ended February 1, 2003 includes a gain of
     $1,420,000, as a result of additional insurance recoveries during fiscal
     2002. This gain was classified as a reduction of selling, general and
     administrative expenses. Additional insurance recoveries, which may be
     received in the future including recoveries for business interruption, will
     be recorded at the time of settlement.

(3)  Disposal of a Business

     In 1998, management of the Company made a decision to exit the catalog and
     outlet store operations of Clifford & Wills ("C&W"). Revenues and expenses
     of C&W for fiscal 2000 were not material and as a result have been netted
     in the accompanying consolidated statements of operations.

     In February 2000, the Company sold certain intellectual property assets to
     Spiegel Catalog Inc. for $3.9 million. In connection with this sale the
     Company agreed to cease the fulfillment of catalog orders but retained the
     right to operate C&W outlet stores and conduct other liquidation sales of
     inventories through December 31, 2000. After consideration of the proceeds
     from the sale of assets and other terms of the agreement the Company
     provided $4,000,000 to write down inventories to net realizable value as of
     January 29, 2000. At February 3, 2001, the Company determined that the
     realizable value of the remaining net assets of C&W, primarily inventories,
     was less than their carrying amounts and an additional charge of $4,130,000
     was taken.

(4)  Other Current Liabilities

     Other current liabilities consist of:

                                                     February 1,     February 2,
                                                        2003            2002
                                                        ----            ----

     Customer liabilities                            $9,993,000      $11,381,000
     Accrued catalog and marketing costs              2,536,000        3,655,000
     Taxes, other than income taxes                   2,670,000        2,930,000
     Accrued interest                                 9,598,000        4,690,000
     Accrued occupancy                                1,024,000        1,036,000
     Reserve for sales returns                        5,313,000        6,475,000
     Accrued compensation                             7,475,000        1,697,000
     Other                                           22,854,000       29,924,000
                                                    -----------      -----------
                                                    $61,463,000      $61,788,000
                                                    -----------      -----------

                                       F-9

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(5)  Lines of Credit

     On December 23, 2002 the Company 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 replaced a
     revolving credit facility which was scheduled to expire in October 2003.

     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 and will be reduced at a rate of
     $97,000 per month commencing June 1, 2003.

     Borrowings are secured by a perfected first priority security interest in
     all the assets of the Company's 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 Company 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.

     The Congress Credit Facility was amended on February 7, 2003 to provide for
     an exclusion from the definition of consolidated net income of 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.

     Maximum borrowings under revolving credit agreements were $63,000,000,
     $95,000,000 and $34,000,000 during fiscal years 2002, 2001 and 2000 and
     average borrowings were $40,400,000, $43,100,000 and $9,800,000. There were
     no borrowings outstanding at February 1, 2003 and February 2, 2002.

     Outstanding letters of credit established primarily to facilitate
     international merchandise purchases at February 1, 2003 and February 2,
     2002 amounted to $45,900,000 and $46,300,000.

(6)  Long-Term Debt

     Long term debt consists of:

                                                 February 1,      February 2,
                                                    2003             2002
                                                    ----             ----

     10-3/8% senior subordinated notes (a)      $150,000,000     $150,000,000
     13-1/8% senior discount debentures (b)      142,000,000      129,687,000
                                                ------------     ------------
           Total                                $292,000,000     $279,687,000
                                                ============     ============

                                      F-10

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

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

 (b) The senior discount debentures were issued in aggregate principal amount of
     $142.0 million at maturity and mature on October 15, 2008. These debentures
     are senior unsecured obligations of Holdings. Cash interest did not accrue
     prior to October 15, 2002. However, the Company recorded non-cash interest
     expense as an accretion of the principal amount of the debentures at a rate
     of 13-1/8% per annum. Interest will be payable in arrears on April 15 and
     October 15 of each year subsequent to October 15, 2002. The senior discount
     debentures may be redeemed at the option of Holdings on or after October
     15, 2002 at prices ranging from 106.563% of principal to 100% in 2005 and
     thereafter.

     Long term debt of $150,000,000 matures in fiscal 2007.

(7)  Redeemable Preferred Stock

     The restated certificate of incorporation authorizes Holdings to issue up
     to:

     (a)  1,000,000 shares of Series A cumulative preferred stock; par value
          $.01 per share; and

     (b)  1,000,000 shares of Series B cumulative preferred stock; par value
          $.01 per share.

     At February 1, 2003, 92,800 shares of Series A Preferred Stock and 32,500
     shares of Series B Preferred Stock were outstanding.

     The Preferred Stock accumulates dividends at the rate of 14.5% per annum
     (payable quarterly) for periods ending on or prior to October 17, 2009.
     Dividends compound to the extent not paid in cash. 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 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 any time at redemption prices ranging from 103% of liquidation
     value plus accumulated and unpaid dividends at October 17, 1998 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.

     Accumulated but unpaid dividends amounted to $138,738,000 at February 1,
     2003. Dividends are recorded as an increase to redeemable preferred stock
     and a reduction of retained earnings.

(8)  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 February
     1, 2003, shares issued were 13,359,773 and shares outstanding were
     12,870,373. During 2000, 2001 and 2002 directors converted fees into
     18,400, 5,524 and 12,318 shares of Holdings common stock.

                                      F-11

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(9)  Commitments and Contingencies

     (a)  Operating Leases

          As of February 1, 2003, the Company was obligated under various
          long-term operating leases for retail and outlet stores, warehouses,
          office space and equipment requiring minimum annual rentals. These
          operating leases expire on varying dates through 2014. At February 1,
          2003 aggregate minimum rentals in future periods are, as follows:

               Fiscal year                      Amount
               -----------                      ------
                  2003                      52,372,000
                  2004                      49,867,000
                  2005                      47,396,000
                  2006                      45,192,000
                  2007                      43,636,000
                  Thereafter               143,875,000

          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 2002, 2001, and 2000 was $50,403,000,
          $46,573,000 and $45,138,000 including contingent rent based on store
          sales of $1,187,000, $1,023,000, and $1,974,000.

     (b)  Employment Agreements

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

     (c)  Litigation

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

(10) 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
     $1,834,000, $1,334,000 and $1,241,000 for fiscal 2002, 2001 and 2000.

(11) License Agreement

     The Company has a licensing agreement through January 2005 with Itochu
     Corporation, a Japanese trading company. The agreement permits Itochu to
     distribute J. Crew merchandise in Japan. The Company earns royalty payments
     under the agreement based on the sales of its merchandise. Royalty income,
     which is included in other revenues, for fiscal 2002, 2001, and 2000 was
     $2,280,000, $2,560,000 and $3,020,000.

                                      F-12

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(12) Interest Expense - Net

     Interest expense, net consists of the following:

<TABLE>
<CAPTION>
                                                       2002           2001           2000
                                                       ----           ----           ----
<S>                                                <C>            <C>            <C>
        Interest expense                           $36,548,000    $34,810,000    $34,390,000
        Amortization of deferred financing costs     4,435,000      1,997,000      2,793,000
        Interest income                                (29,000)      (295,000)      (541,000)
                                                   -----------    -----------    -----------
        Interest expense, net                      $40,954,000    $36,512,000    $36,642,000
                                                   -----------    -----------    -----------
</TABLE>

     Deferred financing costs of $1,800,000 were written off in connection with
     the refinancing of our revolving credit facility in December 2002.

(13) Other Revenues

     Other revenues consist of the following:

                                          2002           2001           2000
                                          ----           ----           ----
        Shipping and handling fees    $31,823,000    $34,100,000    $35,297,000
        Royalties                       2,280,000      2,560,000      3,020,000
                                      -----------    -----------    -----------
                                      $34,103,000    $36,660,000    $38,317,000
                                      ===========    ===========    ===========

(14) Financial Instruments

     The following disclosure about the fair value of financial instruments is
     made in accordance with the requirements of SFAS No. 107, "Disclosures
     About Fair Value of Financial Instruments." The fair value of the Company's
     long-term debt is estimated to be approximately $238,692,000 and
     $187,191,000 at February 1, 2003 and February 2, 2002, and is based on
     dealer quotes or quoted market prices of the same or similar instruments.
     The carrying amounts of long-term debt were $292,000,000 and 279,687,000 at
     February 1, 2003 and February 2, 2002. The carrying amounts reported in the
     consolidated balance sheets for cash and cash equivalents, notes
     payable-bank, accounts payable and other current liabilities approximate
     fair value because of the short-term maturity of those financial
     instruments. The estimates presented herein are not necessarily indicative
     of amounts the Company could realize in a current market exchange.

(15) Income Taxes

     The income tax provision/benefit consists of:

                                          2002            2001        2000
                                          ----            ----        ----
         Current:
             Foreign                $     193,000   $    260,000  $   300,000
             Federal                  (12,014,000)    (2,400,000)   6,253,000
             State and local              200,000        100,000      920,000
                                    -------------   ------------  -----------
                                      (11,621,000)    (2,040,000)   7,473,000
                                    -------------   ------------  -----------
         Deferred                       7,421,000     (3,460,000)      27,000
                                    -------------   ------------  -----------
                 Total              $  (4,200,000)  $ (5,500,000) $ 7,500,000
                                    =============   ============  ===========


                                      F-13

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     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.

                                                  2002       2001       2000
                                                  ----       ----       ----
          Federal income tax rate                (35.0)%    (35.0)%     35.0%
          State and local income taxes, net
           of federal benefit                        -       (2.3)       7.6
          Valuation allowance                     47.0          -          -
          Reversal of prior tax accruals         (20.9)         -          -
          Nondeductible expenses and other         (.5)       4.0       (4.0)
                                               -------     ------      -----
          Effective tax rate                      (9.4)%    (33.3)%     38.6%
                                               =======     =======     =====

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

<TABLE>
<CAPTION>
                                                      February 1,   February 2,
                                                         2003          2002
                                                         ----          ----
<S>                                                 <C>            <C>
        Deferred tax assets:

          Original issue discount                    $ 24,896,000  $  20,836,000
          Federal NOL carryforwards                     7,100,000              -
          State and local NOL carryforwards             1,400,000      1,900,000
          Reserve for sales returns                     2,202,000      2,603,000
          Other                                         3,873,000      3,826,000
                                                     ------------  -------------
                                                       39,471,000     29,165,000
                                                     ------------  -------------

          Valuation allowance                         (21,046,000)            --
                                                     ------------  -------------
                                                       18,425,000     29,165,000

        Deferred tax liabilities:

          Prepaid catalog and other prepaid expenses   (9,872,000)    (8,841,000)
          Difference in book and tax basis
            for property and equipment                 (3,553,000)    (7,903,000)
                                                     ------------  -------------
                                                      (13,425,000)   (16,744,000)
                                                     ------------  -------------

            Net deferred income tax asset            $  5,000,000  $  12,421,000
                                                     ============  =============
</TABLE>

     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 of our assessment, we established a valuation
     allowance for the net deferred tax

                                      F-14

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     assets at February 1, 2003. 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.

(16) 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 five years. Options granted under the Option Plan are subject to
     various conditions, including under some circumstances, the achievement of
     certain performance objectives.

     A summary of stock option activity for the 1997 Plan was, as follows:

<TABLE>
<CAPTION>
                                             2002                        2001                       2000
                                             ----                        ----                       ----
                                                     Weighted                   Weighted                    Weighted
                                                     --------                   --------                    --------
                                                      average                    average                     average
                                                      -------                    -------                     -------
                                        Shares exercise price     Shares  exercise price      Shares  exercise price
                                        ------ --------------     ------  --------------      ------  --------------
<S>                                  <C>               <C>     <C>                <C>      <C>                <C>
     Outstanding, beginning of year  1,808,790         $ 9.97  1,788,750          $ 9.15   1,532,800          $ 8.87
     Granted                           395,500           7.64    283,000           14.53     374,700           10.17
     Exercised                              --             --         --              --      (2,000)           6.82
     Cancelled                        (597,560)         10.29   (262,960)           9.31    (116,750)           8.72
                                     ---------         ------  ---------          ------   ---------          ------
     Outstanding, end of year        1,606,730         $ 9.27  1,808,790          $ 9.97   1,788,750          $ 9.15
                                     ---------         ------  ---------          ------   =========          ======
     Options exercisable
        at end of year                 842,340         $ 9.81    728,950          $ 9.21     583,000          $ 9.24
                                    ==========         ======  =========          ======   =========          ======
</TABLE>

     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:

          .    1,115,812 shares are reserved for the issuance of stock options
               at an exercise price of $6.82 of fair market value, whichever is
               greater;

          .    1,115,812 shares are reserved for the issuance of stock options
               at an exercise price of $25.00 or fair market value, whichever is
               greater;

          .    1,115,812 shares are reserved for the issuance of stock options
               at an exercise price of $35.00 or fair market value, whichever is
               greater;

          .    1,450,724 shares are reserved for the issuance of restricted
               shares.

                                      F-15

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

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

     During fiscal 2002, Holdings granted 836,889 options with an exercise price
     of $6.82, 1,015,425 options with an exercise price of $25.00 and 1,015,425
     options with an exercise price of $35.00, and issued 1,004,266 restricted
     shares under the 2003 plan.

(17) Subsequent Events

     TPG - MD Investment Loans

     On February 4, 2003, Operating Corp. entered into a credit agreement with
     TPG-MD Investment, LLC, a related party, which provides for a Tranche A
     loan to Operating Corp. in an aggregate principal amount of $10.0 million
     and a Tranche B loan to Operating Corp. in an aggregate principal amount of
     $10.0 million. 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 10-3/8% senior
     subordinated notes due 2008.

     Exchange Offer

     On April 4, 2003, Holdings commenced through J. Crew Intermediate LLC, its
     newly formed wholly-owned subsidiary ("Intermediate"), an offer to exchange
     the outstanding 13 1/8% Senior Discount Debentures due 2008 issued by
     Holdings for Intermediate's unissued 16.0% Senior Discount Contingent
     Principal Notes due 2008.

     Holdings will not pay accrued and unpaid interest on the existing
     debentures on the scheduled interest payment date of April 15, 2003.
     Rather, Holdings will pay such interest on the settlement date of the
     exchange offer (which is expected to occur on or about May 6, 2003)
     together with interest thereon at a rate of 13 1/8% per annum from
     April 15, 2003 to the settlement date, to the holders of the existing
     debentures who do not tender their existing debentures in the exchange
     offer.

     Congress Credit Facility

     The Congress Credit Facility was amended on April 4, 2003 to (a) consent to
     the formation of J.Crew Intermediate LLC and the Exchange Offer; (b)
     carve-out a $9.0 million one-time charge for non-current inventory from the
     EBITDA covenant; (c) modify required EBITDA covenant levels and (d)
     eliminate the supplemental loan availability in fiscal 2003.

(18) Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board, ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
     for Asset Retirement Obligations". SFAS No. 143 requires the Company to
     record the fair value of an asset retirement obligation as a liability in
     the period in which it incurs a legal obligation associated with the
     retirement of tangible long-lived assets and a corresponding asset which is
     depreciated over the life of the asset. Subsequent to the initial
     measurement of the asset retirement obligation, the obligation will be
     adjusted at the end of each period to reflect the passage of time and
     changes in the estimated future cash flows underlying the obligation. SFAS
     No. 143 is effective for fiscal years beginning after

                                      F-16

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     June 15, 2002. Management does not believe that the adoption of SFAS No.
     143 will have a significant impact on the Company's financial statements.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
     SFAS No. 142., "Goodwill and Other Intangible Assets". SFAS No. 141
     eliminates the pooling-of-interests method of accounting for business
     combinations initiated after June 30, 2001 and modifies the application of
     the purchase accounting method effective for transactions that are
     completed after June 30, 2001. SFAS No. 142 eliminated the requirement to
     amortize goodwill and intangible assets having indefinite useful lives but
     requires testing at least annually for impairment. Intangible assets that
     have finite lives will continue to be amortized over their useful lives.
     SFAS No. 142 applies to goodwill and intangible assets arising from
     transactions completed before and after the statement's effective dated of
     January 1, 2002. The adoption of these statements in fiscal 2002 did not
     have any effect on the Company's financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
     financial accounting and reporting for the impairment of disposal of
     long-lived assets and requires companies to separately report discontinued
     operations and extends that reporting to a component of an entity that
     either has been disposed of or is classified as held for sale. This
     statement requires that long-lived assets be reviewed for impairment
     whenever events or changes in circumstances indicate that the carrying
     amount of an asset may not be recoverable. SFAS No. 144 was effective for
     fiscal years beginning after December 15, 2001. The adoption of SFAS No.
     144 did not have a significant impact on the Company's financial
     statements.

     EITF Issue No. 01-9 "Accounting for Consideration Given to a Customer or a
     Reseller of the Vendor's Products" (formerly EITF Issue 00-14) became
     effective in the first quarter of fiscal 2002. This EITF addresses the
     accounting for and classification of consideration given to a customer from
     a vendor in connection with the purchase or promotion of the vendor's
     product. The adoption of the EITF did not have a significant effect on the
     Company's financial statements.

     In June 2002, the FASB issued SFAS No. 146 - "Accounting for Costs
     Associated with Exit or Disposal Activities". SFAS No. 146 addresses
     accounting and reporting for costs associated with exit or disposal
     activities. SFAS No. 146 requires that a liability for a cost associated
     with an exit or disposal activity be recognized and measured initially at
     fair value when the liability is incurred. SFAS No. 146 is effective for
     exit or disposal activities that are initiated after December 31, 2002. The
     adoption of SFAS No. 146 in the fourth quarter of 2002 did not have an
     impact on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB statements
     No. 4, 44, and 64, Amendment of FASB Statement No 13, and Technical
     Corrections". SFAS No. 145 primarily affects the reporting requirements and
     classification of gains and losses from the extinguishment of debt,
     rescinds the transitional accounting requirement for intangible assets of
     motor carriers, and requires that certain lease modifications with economic
     effects similar to sale-leaseback transactions be accounted for in the same
     manner as sale-leaseback transactions. SFAS No. 145 is effective for
     financial statements issued after April 2003, with the exception of the
     provisions affecting the accounting for lease transactions, which should be
     applied for transactions entered into after May 15, 2002, and the
     provisions affecting classification of gains and losses from the
     extinguishment of debt, which should be applied in fiscal years after May
     15, 2002. Management has classified the loss from the refinancing of its
     credit facility in December 2002 as a component of interest expense in the
     Company's financial statements.

                                      F-17

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     In November 2002, the FASB issued FASB interpretation ("FIN") No. 45 -
     "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others". This
     interpretation elaborates on the disclosures to be made by a guarantor in
     its interim and annual financial statements about its obligations under
     certain guarantees that it has issued and requires that they be recorded at
     fair value. The initial recognition and measurement provisions of this
     interpretation are to be applied on a prospective basis to guarantees
     issued or modified after December 31, 2002. The disclosure requirements of
     this interpretation are effective for periods ending after December 15,
     2002.

     In December 2002, the FASB issued SFAS No. 148, - "Accounting for
     Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
     Statement No. 123". This Statement amends SFAS No. 123, Accounting for
     Stock-Based Compensation, to provide alternate methods of transition for a
     voluntary change to the fair value based method of accounting for
     stock-based employee compensation. This Statement also amends the
     disclosure requirements of SFAS 123 to require prominent disclosures in
     both annual and interim financial statements about the method of accounting
     for stock-based employee compensation and the effect of the method used on
     reported results. The amendments to SFAS 123 regarding disclosure are
     effective for fiscal years ending after December 15, 2002. The Company
     applies APB Opinion No. 25 in accounting for its employee stock option
     plans.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
     Interest Entities - and Interpretation of Accounting Research Bulletin No.
     51". FIN No. 46 requires unconsolidated variable interest entities to be
     consolidated by their primary beneficiaries if the entities do not
     effectively disperse the risks and rewards of ownership among their owners
     and other parties involved. The provisions of FIN No. 46 are applicable
     immediately to all variable interest entities created after January 31,
     2003 and variable interest entities in which a company obtains an interest
     after that date. For variable interest entities created before January 31,
     2003, the provisions of this interpretation are effective July 1, 2003. The
     adoption of FIN No. 46 is not expected to have any effect on the Company's
     financial statements.

                                      F-18

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(19) Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                           ($ in millions)

                            13 weeks         13 weeks          13 weeks         13 weeks          52 weeks
                               ended            ended             ended            ended             ended
                              5/4/02 (a)       8/3/02           11/2/02           2/1/03 (b)        2/1/03
                              ------           ------           -------           ------            ------
<S>                          <C>               <C>               <C>             <C>               <C>
Net sales                    $ 157.9           $160.9            $181.9          $ 231.6           $ 732.3
Gross profit                    67.0             61.0              75.9             83.8             287.7
Net income (loss)            $ (12.1)          $ (7.1)           $  (.7)         $ (20.7)          $ (40.6)

<CAPTION>
                            13 weeks         13 weeks          13 weeks         14 weeks          53 weeks
                               ended            ended             ended            ended             ended
                              5/5/01           8/4/01           11/3/01           2/2/02            2/2/02
                              ------           ------           -------           ------            ------
<S>                          <C>               <C>               <C>             <C>               <C>
Net sales                    $ 158.9           $160.5            $187.1          $ 234.8           $ 741.3
Gross profit                    68.2             60.5              82.8            104.1             315.6
Net income (loss)            $  (9.3)          $ (8.6)           $   .3          $   6.6           $ (11.0)
</TABLE>


(a)  Net income (loss) includes a pre-tax charge of $4.6 million for severance
     charges.

(b)  Net income (loss) includes (a) pre-tax charges of $7.7 million for
     severance and other one-time employment related charges, (b) $1.8 million
     to write-off deferred financing charges in connection with the refinancing
     of our credit facility (c) a $9,000,000 inventory writedown as a result of
     the Company's decision to modify its strategy on the disposition of
     inventory to accelerate inventory clearing at the end of each selling
     season and (d) a tax provision of $6.5 million on a pre-tax loss of $14.2
     million as a result of providing a valuation allowance against deferred tax
     assets at February 1, 2003.

                                      F-19

<PAGE>

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

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

                                                                             ($ in thousands)
<S>                                           <C>            <C>                <C>             <C>             <C>
Inventory reserve
-----------------
 (deducted from inventories)

fiscal year ended:

February 1, 2003                               $8,367         $4,053 (a)        $      --        $    --        $12,420
February 2, 2002                                7,360          1,007 (a)               --             --          8,367
February 3, 2001                                4,447          2,913 (a)               --             --          7,360

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

fiscal year ended:
February 1, 2003                               $6,475        $(1,162)(a)        $      --       $     --         $5,313
February 2, 2002                                6,530            (55)(a)               --             --          6,475
February 3, 2001                                5,011          1,519(a)                --             --          6,530
</TABLE>

(a)  The inventory reserve and allowance for sales returns are evaluated at the
     end of each fiscal quarter and adjusted (plus or minus) based on the
     quarterly evaluation. During each period inventory write-downs and sales
     returns are charged to the statement of operations as incurred.

                                      F-20

<PAGE>

Independent Auditors' Report

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

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of J. Crew Operating
Corp. and subsidiaries as of February 1, 2003 and February 2, 2002 and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 1, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

                                                            KPMG LLP

March 25, 2003,
except as to note 15, the date of which is
April 4, 2003

                                      F-21

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                February 1,             February 2,
                                 Assets                                            2003                    2002
                                 ------                                            ----                    ----
                                                                                          (in thousands)
<S>                                                                             <C>                      <C>
Current assets:
     Cash and cash equivalents                                                  $   18,895                 $ 16,201
     Merchandise inventories                                                       107,318                  138,918
     Prepaid expenses and other current assets                                      24,886                   27,026
     Refundable income taxes                                                         6,278                       --
                                                                                ----------                 --------
           Total current assets                                                    157,377                  182,145
                                                                                ----------                 --------

Property and equipment - at cost:

     Land                                                                            1,710                    1,610
     Buildings and improvements                                                     11,705                   11,700
     Furniture, fixtures and equipment                                             102,108                  105,292
     Leasehold improvements                                                        182,226                  170,195
     Construction in progress                                                        3,161                    4,903
                                                                                ----------                 --------
                                                                                   300,910                  293,700

     Less accumulated depreciation and amortization                                129,363                  106,427
                                                                                ----------                 --------
                                                                                   171,547                  187,273
                                                                                ----------                 --------

Other assets                                                                        13,646                   12,310
                                                                                ----------                 --------

           Total assets                                                         $  342,570                 $381,728
                                                                                ==========                 ========
                                             Liabilities and Stockholder's Equity
                                             ------------------------------------
Current liabilities:
     Accounts payable                                                           $   54,921                 $ 66,703
     Other current liabilities                                                      56,255                   61,788
     Income taxes payable                                                            2,978                   10,109
     Deferred income taxes                                                             910                    5,604
                                                                                ----------                 --------

           Total current liabilities                                               115,064                  144,204
                                                                                ----------                 --------

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

Deferred credits and other long-term liabilities                                    65,141                   67,235
                                                                                ----------                 --------

Due to J.Crew Group, Inc.                                                            2,040                    1,142
                                                                                ----------                 --------

Stockholder's equity                                                                10,325                   19,147
                                                                                ----------                 --------

           Total liabilities and stockholder's equity                           $  342,570                 $381,728
                                                                                ==========                 ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-22

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                           Years ended
                                                                                           -----------
                                                                            February 1,     February 2,    February 3,
                                                                            -----------     ----------     -----------
                                                                               2003            2002           2001
                                                                               ----            ----           ----
                                                                                          (in thousands)
<S>                                                                         <C>             <C>            <C>
Revenues:

   Net sales                                                                $732,279        $741,280       $ 787,658
   Other                                                                      34,103          36,660          38,317
                                                                            --------        --------       ---------
                                                                             766,382         777,940         825,975

Operating costs and expenses:

   Cost of goods sold, including buying and occupancy
     costs                                                                   478,700         462,371         463,909
   Selling, general and administrative expenses                              291,054         294,907         301,216
   Write down of assets and other charges in
     connection with discontinuance of Clifford & Wills                           --               -           4,130
                                                                            --------        --------       ---------
                                                                             769,754         757,278         769,255
                                                                            --------        --------       ---------

         Income/(loss) from operations                                        (3,372)         20,662          56,720

Interest expense - net                                                        23,200          20,890          22,787

         Income/(loss) before income taxes                                   (26,572)           (228)         33,933

(Provision) benefit for income taxes                                          17,750             167         (12,180)
                                                                            --------        --------       ---------

         Net income/(loss)                                                  $ (8,822)       $    (61)      $  21,753
                                                                            ========        ========       =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-23

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                            Years ended
                                                                            -----------
                                                            February 1,     February 2,     February 3,
                                                            -----------     -----------     -----------
                                                               2003             2002           2001
                                                               ----             ----           ----
                                                                           (in thousands)
<S>                                                         <C>              <C>            <C>
Cash flows from operating activities:
Net income/(loss)                                           $  (8,822)       $    (61)      $  21,753
Adjustments to reconcile net income/(loss) to net cash
  provided by operating activities:
     Depreciation and amortization                             34,451          31,718          22,600
     Amortization of deferred financing costs                   4,202           1,770           2,548
     Deferred income taxes                                     (4,694)          1,873           4,706
     Non-cash compensation expense                             (1,053)            913              --
     Write down of assets and other charges
       in connection with discontinued catalog                     --              --           4,130
Changes in operating assets and liabilities:
  Merchandise inventories                                      31,600           1,749         (10,739)
  Prepaid expenses and other current assets                     2,140          (3,286)          6,343
  Other assets                                                 (2,470)         (3,416)         (2,781)
  Net assets held for disposal                                     --              --           4,797
  Accounts payable                                            (11,782)         16,998           8,754
  Other liabilities                                            (3,835)        (13,671)          5,407
  Income taxes payable                                        (13,409)         (8,741)          2,894
                                                            ---------        --------       ---------
     Net cash provided by operating activities                 26,368          25,846          70,412
                                                            ---------        --------       ---------
Cash flows from investing activities:
  Capital expenditures                                        (26,920)        (61,862)        (55,694)
  Proceeds from construction allowances                         6,502          19,287          13,519
                                                            ---------        --------       ---------
     Net cash used in investing activities                    (20,418)        (42,575)        (42,175)
                                                            ---------        --------       ---------
Cash flows from financing activities:
  Costs incurred in refinancing Credit Facility                (3,256)             --              --
  Repayment of long-term debt                                      --              --         (34,000)
                                                            ---------        --------       ---------
     Net cash used in financing activities                     (3,256)             --         (34,000)
                                                            ---------        --------       ---------
  Increase (decrease) in cash and cash equivalents              2,694         (16,729)         (5,763)
Cash and cash equivalents at beginning of year                 16,201          32,930          38,693
                                                            ---------        --------       ---------
Cash and cash equivalents at end of year                    $  18,895        $ 16,201       $  32,930
                                                            =========        ========       =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-24

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

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

     (a) Principles of Consolidation

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

     (b) Business

         The Company designs, contracts for the manufacture of, markets and
         distributes men's and women's apparel, 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.

     (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 2002, 2001, and 2000 ended on February 1, 2003 (52
         weeks), February 2, 2002 (52 weeks), and February 3, 2001 (53 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 $11,224,000 and $7,895,000 at February 1, 2003 and February
         2, 2002, 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.

                                      F-25

<PAGE>
                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     (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. Deferred catalog costs, included in prepaid
         expenses and other current assets, as of February 1, 2003 and February
         2, 2002 were $6,197,000 and $7,959,000. Catalog costs, which are
         reflected in selling and administrative expenses, for the fiscal years
         2002, 2001, and 2000 were $56,695,000, $65,477,000 and $69,000,000.

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

     (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.

         Significant systems development costs are capitalized and amortized on
         a straight-line basis over periods ranging from three to five years.
         Approximately $.6 million and $8.5 million of system development costs
         were capitalized in fiscal years 2002 and 2001.

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

     (i) Debt Issuance Costs

         Debt issuance costs (included in other assets) of $5,435,000 and
         $5,195,000 at February 1, 2003 and February 2, 2002 are amortized over
         the term of the related debt agreements.

     (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. The
         Company accrues a sales return allowance for estimated returns of
         merchandise

                                      F-26

<PAGE>
                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

         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.

     (l) Store Preopening Costs

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

     (m) 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.

     (n) 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.

     (o) 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.

     (p) Stock Based Compensation

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


                                      F-27

<PAGE>
                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(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 are 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 year ended February 1, 2003 includes a
         gain of $1,420,000, as a result of additional insurance recoveries
         during fiscal 2002. This gain was classified as a reduction of selling,
         general and administrative expenses. Additional insurance recoveries,
         which may be received in the future including recoveries for business
         interruption, will be recorded at the time of settlement.

(3)      Disposal of a Business

         In 1998, management of the Company made a decision to exit the catalog
         and outlet store operations of Clifford & Wills ("C&W"). Revenues and
         expenses of C&W for fiscal 2000 were not material and as a result have
         been netted in the accompanying consolidated statements of operations.

         In February 2000, the Company sold certain intellectual property assets
         to Spiegel Catalog Inc. for $3.9 million. In connection with this sale
         the Company agreed to cease the fulfillment of catalog orders but
         retained the right to operate C&W outlet stores and conduct other
         liquidation sales of inventories through December 31, 2000. After
         consideration of the proceeds from the sale of assets and other terms
         of the agreement the Company provided $4,000,000 to write down
         inventories to net realizable value as of January 29, 2000. At February
         3, 2001, the Company determined that the realizable value of the
         remaining net assets of C&W, primarily inventories, was less than their
         carrying amounts and an additional charge of $4,130,000 was taken.

(4)      Other Current Liabilities

         Other current liabilities consist of:

<TABLE>
<CAPTION>
                                                                     February 1,     February 2,
                                                                        2003            2002
                                                                        ----            ----
<S>                                                                 <C>             <C>
         Customer liabilities                                        $ 9,993,000     $11,381,000
         Accrued catalog and marketing costs                           2,536,000       3,655,000
         Taxes, other than income taxes                                2,670,000       2,930,000
         Accrued interest                                              4,390,000       4,690,000
         Accrued occupancy                                             1,024,000       1,036,000
         Reserve for sales returns                                     5,313,000       6,475,000
         Accrued compensation                                          7,475,000       1,697,000
         Other                                                        22,854,000      29,924,000
                                                                    ------------    ------------
                                                                     $56,255,000     $61,788,000
                                                                    ------------    ------------
</TABLE>

                                      F-28

<PAGE>


                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(5)      Lines of Credit

         On December 23, 2002 the Company 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 replaced a revolving credit facility which was scheduled to
         expire in October 2003.

         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 and
         will be reduced at a rate of $97,000 per month commencing June 1, 2003.

         Borrowings are secured by a perfected first priority security interest
         in all the assets of the Company's 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 Company 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.

         The Congress Credit Facility was amended on February 7, 2003 to provide
         for an exclusion from the definition of consolidated net income of
         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.

         Maximum borrowings under revolving credit agreements were $63,000,000,
         $95,000,000 and $34,000,000 during fiscal years 2002, 2001 and 2000 and
         average borrowings were $40,400,000, $43,100,000 and $9,800,000. There
         were no borrowings outstanding at February 1, 2003 and February 2,
         2002.

         Outstanding letters of credit established primarily to facilitate
         international merchandise purchases at February 1, 2003 and February 2,
         2002 amounted to $45,900,000 and $46,300,000.

(6)      Long-Term Debt

         Long term debt consists of:
<TABLE>
<CAPTION>
                                                                   February 1,      February 2,
                                                                      2003             2002
                                                                      ----             ----
         <S>                                                      <C>              <C>
         10-3/8% senior subordinated notes                        $150,000,000     $150,000,000
                                                                  ============     ============
</TABLE>

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

                                      F-29

<PAGE>
                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(7)      Commitments and Contingencies

         (a)  Operating Leases

              As of February 1, 2003, the Company was obligated under various
              long-term operating leases for retail and outlet stores,
              warehouses, office space and equipment requiring minimum annual
              rentals. These operating leases expire on varying dates through
              2014. At February 1, 2003 aggregate minimum rentals in future
              periods are, as follows:

               Fiscal year                                     Amount
               -----------                                     ------
                  2003                                     52,372,000
                  2004                                     49,867,000
                  2005                                     47,396,000
                  2006                                     45,192,000
                  2007                                     43,636,000

                  Thereafter                              143,875,000

              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 2002, 2001, and 2000 was $50,403,000,
              $46,573,000 and $45,138,000 including contingent rent based on
              store sales of $1,187,000, $1,023,000, and $1,974,000.

         (b)  Employment Agreements

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

         (c)  Litigation

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

(8)      Employee Benefit Plan

         The Company has a thrift/savings plan pursuant to Section 401 of the
         Internal Revenue Code whereby all eligible employees may contribute up
         to 15% of their annual base salaries subject to certain limitations.
         The Company's contribution is based on a percentage formula set forth
         in the plan agreement. Company contributions to the thrift/savings plan
         were $1,834,000, $1,334,000 and $1,241,000 for fiscal 2002, 2001 and
         2000.

(9)      License Agreement

         The Company has a licensing agreement through January 2005 with Itochu
         Corporation, a Japanese trading company. The agreement permits Itochu
         to distribute J. Crew merchandise in Japan. The Company earns royalty
         payments under the agreement based on the sales of its merchandise.
         Royalty income, which is included in other revenues, for fiscal 2002,
         2001, and 2000 was $2,280,000, $2,560,000 and $3,020,000.

                                      F-30

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

(10)     Interest Expense - Net

         Interest expense, net consists of the following:

<TABLE>
<CAPTION>
                                                                        2002             2001              2000
                                                                        ----             ----              -----
               <S>                                                  <C>              <C>               <C>
               Interest expense                                      $19,027,000      $19,415,000       $20,780,000
               Amortization of deferred financing costs                4,202,000        1,770,000         2,548,000
               Interest income                                           (29,000)        (295,000)         (541,000)
                                                                    ------------     ------------      ------------
               Interest expense, net                                 $23,200,000      $20,890,000       $22,787,000
                                                                    ------------     ------------      ------------
</TABLE>

         Deferred financing costs of $1,800,000 were written off in connection
         with the refinancing of our revolving credit facility in December 2002.

(11)     Other Revenues

         Other revenues consist of the following:

<TABLE>
<CAPTION>
                                                                        2002             2001              2000
                                                                        ----             ----              ----
               <S>                                                  <C>              <C>               <C>
               Shipping and handling fees                           $ 31,823,000     $ 34,100,000      $ 35,297,000
               Royalties                                               2,280,000        2,560,000         3,020,000
                                                                    ------------     ------------      ------------
                                                                    $ 34,103,000     $ 36,660,000      $ 38,317,000
                                                                    ============     ============      ============
</TABLE>

(12)     Financial Instruments

         The following disclosure about the fair value of financial instruments
         is made in accordance with the requirements of SFAS No. 107,
         "Disclosures About Fair Value of Financial Instruments." The fair value
         of the Company's long-term debt is estimated to be approximately
         $138,110,000 and $119,754,000 at February 1, 2003 and February 2, 2002,
         and is based on dealer quotes or quoted market prices of the same or
         similar instruments. The carrying amount of long-term debt was
         $150,000,000 at February 1, 2003 and February 2, 2002. The carrying
         amount reported in the consolidated balance sheets for cash and cash
         equivalents, notes payable-bank, accounts payable and other current
         liabilities approximate fair value because of the short-term maturity
         of those financial instruments. The estimates presented herein are not
         necessarily indicative of amounts the Company could realize in a
         current market exchange.

(13)     Income Taxes

         The income tax provision/benefit consists of:

<TABLE>
<CAPTION>
                                                                        2002             2001              2000
                                                                        ----             ----              ----
         <S>                                                      <C>                <C>               <C>
         Current:

             Foreign                                              $      193,000     $    260,000      $    300,000
             Federal                                                 (13,449,000)      (2,400,000)        6,253,000
             State and local                                             200,000          100,000           920,000
                                                                  --------------     ------------      ------------
                                                                     (13,056,000)      (2,040,000)        7,473,000
                                                                  --------------     ------------      ------------
         Deferred                                                     (4,694,000)       1,873,000         4,707,000
                                                                  --------------     ------------      ------------
                 Total                                            $  (17,750,000)    $   (167,000)     $ 12,180,000
                                                                  ==============     ============      ============
</TABLE>

                                      F-31

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

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

<TABLE>
<CAPTION>
                                                                        2002            2001           2000
                                                                      --------        --------       --------
              <S>                                                     <C>             <C>            <C>
              Federal income tax rate                                    (35.0)%         (35.0)%         35.0%
              State and local income taxes, net
                 of federal benefit                                         --           134.6            3.2
              Reversal of prior year tax accruals                        (38.6)             --             --
              Nondeductible expenses and other                             6.8          (172.8)          (2.3)
                                                                      --------        --------       --------
              Effective tax rate                                         (66.8)%         (73.2)%         35.9%
                                                                      ========        ========       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           February 1,       February 2,
                                                                              2003              2002
                                                                          ------------      ------------
         <S>                                                              <C>               <C>
         Deferred tax assets:

              Federal NOL carryforwards                                   $  5,040,000      $         --
              State and local NOL carryforwards                              1,400,000         1,900,000
              Reserve for sales returns                                      2,202,000         2,603,000
              Other                                                          3,873,000         6,637,000
                                                                          ------------      ------------
                                                                            12,515,000        11,140,000
                                                                          ------------      ------------

         Deferred tax liabilities:

              Prepaid catalog and other prepaid expenses                    (9,872,000)       (8,841,000)
              Difference in book and tax basis
                  for property and equipment                                (3,553,000)       (7,903,000)
                                                                          ------------      ------------
                                                                           (13,425,000)      (16,744,000)
                                                                          ------------      ------------

                Net deferred income tax liabilities                       $   (910,000)     $ (5,604,000)
                                                                          ============      ============
</TABLE>

         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 five years. Options granted under the
         Option Plan are subject to various conditions, including under some
         circumstances, the achievement of certain performance objectives.

                                      F-32

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

         A summary of stock option activity for the 1997 Plan was, as follows:

<TABLE>
<CAPTION>
                                                       2002                       2001                       2000
                                                       ----                       ----                       ----
                                                            Weighted                   Weighted                    Weighted
                                                            --------                   --------                    --------
                                                             average                    average                     average
                                                             -------                    -------                     -------
                                                            exercise                   exercise                    exercise
                                                            --------                   --------                    --------
                                              Shares         price        Shares        price         Shares        price
                                            ----------      -------     ----------     -------       ---------     --------
         <S>                                <C>             <C>         <C>            <C>           <C>           <C>
         Outstanding, beginning of year      1,808,790      $  9.97      1,788,750     $  9.15       1,532,800     $   8.87

         Granted                               395,500         7.64        283,000       14.53         374,700        10.17

         Exercised                                  --           --             --          --          (2,000)        6.82

         Cancelled                            (597,560)       10.29       (262,960)       9.31        (116,750)        8.72
                                            ----------      -------     ----------     -------       ---------     --------
         Outstanding, end of year            1,606,730      $  9.27      1,808,790     $  9.97       1,788,750     $  9.15
                                            ----------      -------     ----------     -------       =========     ========

         Options exercisable
            at end of year                     842,340      $  9.81        728,950     $  9.21         583,000     $   9.24
                                            ==========      =======     ==========     =======       =========     ========
</TABLE>

         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:

              .      1,115,812 shares are reserved for the issuance of stock
                     options at an exercise price of $6.82 of fair market value,
                     whichever is greater;

              .      1,115,812 shares are reserved for the issuance of stock
                     options at an exercise price of $25.00 or fair market
                     value, whichever is greater;

              .      1,115,812 shares are reserved for the issuance of stock
                     options at an exercise price of $35.00 or fair market
                     value, whichever is greater;

              .      1,450,724 shares are reserved for the issuance of
                     restricted shares.

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

         During fiscal 2002, Holdings granted 836,889 options with an exercise
         price of $6.82, 1,015,425 options with an exercise price of $25.00 and
         1,015,425 options with an exercise price of $35.00, and issued
         1,004,266 restricted shares under the 2003 plan.


(15)     Stockholder's Equity

                  The Company has authorized 100 shares of common stock par
         value $1 per share, all of which was issued and outstanding at February
         1, 2003 and February 2, 2002.

         A reconciliation of stockholder's equity is, as follows:
<TABLE>

                                                Year ended
                                       February 1,         February 2,
                                         2003                2002
                                      -------------        -----------
<S>                                    <C>               <C>

Balance, beginning of year            $ 19,147,000        $ 19,208,000
Net loss                                (8,822,000)            (61,000)
                                      -------------       ------------
Balance, end of year                  $ 10,325,000        $ 19,147,000
                                      ============        ============
</TABLE>

(16)     Subsequent Events

         TPG - MD Investment Loans

                  On February 4, 2003, Operating Corp. entered into a credit
         agreement with TPG-MD Investment, LLC, a related party, which provides
         for a Tranche A loan to Operating Corp. in an aggregate principal
         amount of $10.0 million and a Tranche B loan to Operating Corp. in an
         aggregate principal amount of $10.0 million. 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 10-3/8% senior
         subordinated notes due 2008.

                                      F-33

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     Exchange Offer

     On April 4, 2003, Holdings commenced through J. Crew Intermediate LLC, its
     newly formed wholly-owned subsidiary ("Intermediate"), an offer to exchange
     the outstanding 13 1/8% Senior Discount Debentures due 2008 issued by
     Holdings for Intermediate's unissued 16.0% Senior Discount Contingent
     Principal Notes due 2008.

     Holdings will not pay accrued and unpaid interest on the existing
     debentures on the scheduled interest payment date of April 15, 2003.
     Rather, Holdings will pay such interest on the settlement date of the
     exchange offer (which is expected to occur on or about May 6, 2003)
     together with interest thereon at a rate of 13 1/8% per annum from
     April 15, 2003 to the settlement date, to the holders of the existing
     debentures who do not tender their existing debentures in the exchange
     offer.

     Congress Credit Facility

     The Congress Credit Facility was amended on April 4, 2003 to (a) consent to
     the formation of J.Crew Intermediate LLC and the Exchange Offer; (b)
     carve-out a $9.0 million one-time charge for non-current inventory from the
     EBITDA covenant; (c) modify required EBITDA covenant levels and (d)
     eliminate the supplemental loan availability in fiscal 2003.

(17) Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board, ("FASB") issued
     Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
     for Asset Retirement Obligations". SFAS No. 143 requires the Company to
     record the fair value of an asset retirement obligation as a liability in
     the period in which it incurs a legal obligation associated with the
     retirement of tangible long-lived assets and a corresponding asset which is
     depreciated over the life of the asset. Subsequent to the initial
     measurement of the asset retirement obligation, the obligation will be
     adjusted at the end of each period to reflect the passage of time and
     changes in the estimated future cash flows underlying the obligation. SFAS
     No. 143 is effective for fiscal years beginning after June 15, 2002.
     Management does not believe that the adoption of SFAS No. 143 will have a
     significant impact on the Company's financial statements.

     In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and
     SFAS No. 142., "Goodwill and Other Intangible Assets". SFAS No. 141
     eliminates the pooling-of-interests method of accounting for business
     combinations initiated after June 30, 2001 and modifies the application of
     the purchase accounting method effective for transactions that are
     completed after June 30, 2001. SFAS No. 142 eliminated the requirement to
     amortize goodwill and intangible assets having indefinite useful lives but
     requires testing at least annually for impairment. Intangible assets that
     have finite lives will continue to be amortized over their useful lives.
     SFAS No. 142 applies to goodwill and intangible assets arising from
     transactions completed before and after the statement's effective dated of
     January 1, 2002. The adoption of these statements in fiscal 2002 did not
     have any effect on the Company's financial statements.

     In August 2001, the FASB issued SFAS No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses
     financial accounting and reporting for the impairment of disposal of
     long-lived assets and requires companies to separately report discontinued
     operations and extends that reporting to a component of an entity that
     either has been disposed of or is classified as held for sale. This
     statement requires

                                      F-34

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     that long-lived assets be reviewed for impairment whenever events or
     changes in circumstances indicate that the carrying amount of an asset may
     not be recoverable. SFAS No. 144 was effective for fiscal years beginning
     after December 15, 2001. The adoption of SFAS No. 144 did not have a
     significant impact on the Company's financial statements.

     EITF Issue No. 01-9 "Accounting for Consideration Given to a Customer or a
     Reseller of the Vendor's Products" (formerly EITF Issue 00-14) became
     effective in the first quarter of fiscal 2002. This EITF addresses the
     accounting for and classification of consideration given to a customer from
     a vendor in connection with the purchase or promotion of the vendor's
     product. The adoption of the EITF did not have a significant effect on the
     Company's financial statements.

     In June 2002, the FASB issued SFAS No. 146 - "Accounting for Costs
     Associated with Exit or Disposal Activities". SFAS No. 146 addresses
     accounting and reporting for costs associated with exit or disposal
     activities. SFAS No. 146 requires that a liability for a cost associated
     with an exit or disposal activity be recognized and measured initially at
     fair value when the liability is incurred. SFAS No. 146 is effective for
     exit or disposal activities that are initiated after December 31, 2002. The
     adoption of SFAS No. 146 in the fourth quarter of 2002 did not have an
     impact on the Company's financial statements.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB statements
     No. 4, 44, and 64, Amendment of FASB Statement No 13, and Technical
     Corrections". SFAS No. 145 primarily affects the reporting requirements and
     classification of gains and losses from the extinguishment of debt,
     rescinds the transitional accounting requirement for intangible assets of
     motor carriers, and requires that certain lease modifications with economic
     effects similar to sale-leaseback transactions be accounted for in the same
     manner as sale-leaseback transactions. SFAS No. 145 is effective for
     financial statements issued after April 2003, with the exception of the
     provisions affecting the accounting for lease transactions, which should be
     applied for transactions entered into after May 15, 2002, and the
     provisions affecting classification of gains and losses from the
     extinguishment of debt, which should be applied in fiscal years after May
     15, 2002. Management has classified the loss from the refinancing of its
     credit facility in December 2002 as a component of interest expense in the
     Company's financial statements.

     In November, 2002, the FASB issued FASB interpretation ("FIN") No. 45 -
     "Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others". This
     interpretation elaborates on the disclosures to be made by a guarantor in
     its interim and annual financial statements about its obligations under
     certain guarantees that it has issued and requires that they be recorded at
     fair value. The initial recognition and measurement provisions of this
     interpretation are to be applied on a prospective basis to guarantees
     issued or modified after December 31, 2002. The disclosure requirements of
     this interpretation are effective for periods ending after December 15,
     2002.

     In December 2002, the FASB issued No. 148, - "Accounting for Stock-Based
     Compensation - Transition and Disclosure, an amendment of FASB Statement
     No. 123" ("SFAS 148"). This Statement amends FASB Statement No. 123,
     Accounting for Stock-Based Compensation, to provide alternate methods of
     transition for a voluntary change to the fair value based method of
     accounting for stock-based employee compensation. This Statement also
     amends the disclosure requirements of Statement 123 to require prominent
     disclosures in both annual and interim financial statements about the
     method of accounting for stock-based employee compensation and the effect
     of the method used on reported results. The amendments to Statement 123
     regarding disclosure are effective for fiscal years ending after December
     15, 2002. The Company applies APB Opinion No. 25 in accounting for its
     employee stock option plans.

     In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
     Interest Entities - an Interpretation of Accounting Research Bulletin No.
     51". FIN No. 46 requires unconsolidated variable interest entities to be

                                      F-35

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended February 1, 2003, February 2, 2002 and February 3, 2001

     consolidated by their primary beneficiaries if the entities do not
     effectively disperse the risks and rewards of ownership among their owners
     and other parties involved. The provisions of FIN No. 46 are applicable
     immediately to all variable interest entities created after January 31,
     2003 and variable interest entities in which a company obtains an interest
     after that date. For variable interest entities created before January 31,
     2003, the provisions of this interpretation are effective July 1, 2003. The
     adoption of FIN No. 46 is not expected to have any effect on the Company's
     financial statements.

(17) Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                           ($ in millions)

                            13 weeks         13 weeks          13 weeks         13 weeks          52 weeks
                               ended            ended             ended            ended             ended
                              5/4/02 (a)       8/3/02           11/2/02           2/1/03 (b)        2/1/03
                              ------           ------           -------           ------             ------
<S>                          <C>              <C>               <C>              <C>               <C>
Net sales                    $ 157.9          $ 160.9           $ 181.9          $ 231.6           $ 732.3

Gross profit                    67.0             61.0              75.9             83.8             287.7

Net income (loss)            $  (9.1)         $  (4.1)          $   2.1          $   2.3           $  (8.8)

<CAPTION>
                            13 weeks         13 weeks          13 weeks         14 weeks          53 weeks
                               ended            ended             ended            ended             ended
                              5/5/01           8/4/01           11/3/01           2/2/02            2/2/02
                              ------           ------           -------           ------            ------
<S>                          <C>              <C>               <C>              <C>               <C>
Net sales                    $ 158.9          $ 160.5           $ 187.1          $ 234.8           $ 741.3

Gross profit                    68.2             60.5              82.8            104.1             315.6

Net income (loss)            $  (7.1)         $  (6.1)          $   2.7          $  10.4           $   (.1)
</TABLE>

(a) Net income (loss) includes a pre-tax charge of $4.6 million for severance
    charges.

(b) Net income (loss) includes pre-tax charges of (a) $7.7 million for severance
    and other one-time employment related charges, (b) $1.8 million to write-off
    deferred financing charges in connection with the refinancing of our credit
    facility and (c) a $9,000,000 inventory writedown as a result of the
    Company's decision to modify its strategy on the disposition of inventory to
    accelerate inventory clearing at the end of each selling season and (d) a
    tax benefit of $11.8 million on a pre-tax loss of $9.5 million as a result
    of the reversal of $10.3 million of prior year tax accruals at February 1,
    2003.

                                      F-36

<PAGE>

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

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

                                                                             ($ in thousands)
<S>                                          <C>          <C>               <C>                <C>            <C>
Inventory reserve
-----------------
 (deducted from inventories)

fiscal year ended:

February 1, 2003                              $ 8,367       $ 4,053 (a)        $      --          $    --    $ 12,420

February 2, 2002                                7,360         1,007 (a)               --               --       8,367

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

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

fiscal year ended:

February 1, 2003                              $ 6,475       $(1,162)(a)        $      --          $    --    $  5,313

February 2, 2002                                6,530           (55)(a)               --               --       6,475

February 3, 2001                                5,011         1,519 (a)               --               --       6,530
</TABLE>

(a)  The inventory reserve and allowance for sales returns are evaluated at the
     end of each fiscal quarter and adjusted (plus or minus) based on the
     quarterly evaluation. During each period inventory write-downs and sales
     returns are charged to the statement of operations as incurred.

                                      F-37

<PAGE>

                                  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 Company's Registration
          Statement on Form S-4, File No. 333-42427, filed December 16, 1997
          (the "Group Registration Statement").

3.2       By-laws of J. Crew Group, Inc., as amended. Incorporated by reference
          to Exhibit 3.2 to the Company's Annual Report on 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 Company's
          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 Company's Quarterly Report on Form 10-Q
          for the period ended October 31, 1998 and Exhibit 3.14 to the
          Operating 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 Group 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 the Company, Donaldson, Lufkin & Jenrette Securities Corporation
          and Chase Securities Inc. Incorporated by reference to Exhibit 4.10 to
          the Group Registration Statement.

4.4       Stockholders' Agreement, dated as of October 17, 1997, between the
          Company and the Stockholder signatories thereto. Incorporated by
          reference to Exhibit 4.1 to the Group Registration Statement.

4.5(a)    Stockholders' Agreement, dated as of October 17, 1997, among the
          Company, 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 the Company, TPG Partners II, L.P. and Emily Woods. Incorporated
          by reference to Exhibit 4.1 of the Company's Form 8-K filed on
          February 7, 2003.

4.6*      Stockholders' Agreement, dated as of September 9, 2002, between the
          Company, TPG Partners II, L.P. and Kenneth Pilot.

4.7       Stockholders' Agreement, dated as of January 24, 2003, among the
          Company, TPG Partners II, L.P. and Millard S. Drexler. Incorporated by
          reference to Exhibit 4.1 of the Company's Form 8-K filed on February
          3, 2003.

4.8       Stockholders' Agreement, dated as of February 20, 2003, among the
          Company, TPG Partners II, L.P. and Jeffrey A. Pfeifle. Incorporated by
          reference to Exhibit 4.1 of the Company's Form 8-K filed on February
          26, 2003.

4.9       Stockholders' Agreement, dated as of February 12, 2003, among the
          Company, TPG Partners II, L.P. and Scott Gilbertson. Incorporated by
          reference to Exhibit 4.1 of the Company's Form 8-K filed on February
          14, 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

                                       I-1

<PAGE>


          Collateral Agent, and the Lenders. Incorporated by reference to
          Exhibit 10.1 of the Company's 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
          Company's 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 Company's
          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 Company's 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 Company's Quarterly
          Report on Form 10-Q for the period ended August 3, 2002.


10.4*     J. Crew Group, Inc. 2003 Equity Incentive Plan.


10.5(a)   Employment Agreement, dated May 3, 1999, between the Company and Mark
          Sarvary. Incorporated by reference to Exhibit 10.1 to the Company's
          Quarterly Report on Form 10-Q for the period ended May 1, 1999.

10.5(b)   Letter Agreement, dated August 9, 1999, between the Company and Mark
          Sarvary. Incorporated by reference to Exhibit 10.5(b) to the Company's
          Annual Report on Form 10-K for the fiscal year ended January 29, 2000.

10.5(c)   Letter Agreement, dated January 15, 2002, between the Company and Mark
          Sarvary. Incorporated by reference to Exhibit 10.5(c) of the Company's
          Annual Report on Form 10-K for the fiscal year ended February 2, 2002.

10.5(d)*  Separation Agreement, dated April 29, 2002, between the Company and
          Mark Sarvary.


10.6(a)   Employment Agreement, dated May 17, 2001, between the Company and
          Michael Scandiffio. Incorporated by reference to Exhibit 10.12 of the
          Company's Annual Report on Form 10-K for the fiscal year ended
          February 2, 2002.

10.6(b)*  Separation Agreement, dated October 17, 2002, between the Company and
          Michael Scandiffio.


10.7(a)   Employment Agreement, dated December 12, 2001, between the Company and
          Blair Gordon. Incorporated by reference to Exhibit 10.13 of the
          Company's Annual Report on Form 10-K for the fiscal year ended
          February 2, 2002.

10.7(b)*  Separation Agreement, dated January 30, 2003, between the Company and
          Blair Gordon.


10.8(a)   Employment Agreement, dated August 26, 2002, between the Company and
          Kenneth Pilot. Incorporated by reference to Exhibit 10.2 to the
          Company's Quarterly Report on 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.

10.9*     Services Agreement, dated January 24, 2003, between the Company,
          Millard S. Drexler, Inc. and Millard S. Drexler.

                                       I-2

<PAGE>

10.10*    Employment Agreement, dated January 24, 2003, between the Company and
          Jeffrey A. Pfeifle.

10.11*    Employment Agreement, dated January 27, 2003, between the Company and
          Scott Gilbertson.

10.12*    Separation Agreement, dated March 7, 2003, between the Company and
          Walter Killough.

                                 Other Exhibits

21.1*     Subsidiaries of J. Crew Group, Inc.

23.1*     Consent of KPMG LLP, Independent Auditors.

99.1*     Certification of Chief Executive Officer, pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
          Oxley Act of 2002.

99.2*     Certification of Chief Financial Officer, pursuant to 18 U.S.C.
          Section 1350, as adopted pursuant to Section 906 of the Sarbanes -
          Oxley Act of 2002.

_____________
* Filed herewith

                                       I-3