J. Crew Group, Inc.
Annual Report 2012

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K(Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended February 2, 2013or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 CommissionFile Number Registrant, State of IncorporationAddress and Telephone Number I.R.S. EmployerIdentification No.333-175075 J.CREW GROUP, INC. 22-2894486(Incorporated in Delaware)770 BroadwayNew York, New York 10003Telephone: (212) 209 2500Securities Registered Pursuant to Section 12(b) and 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.¨ Yes x NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.x Yes ¨ NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during 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 filingrequirements for the past 90 days.¨ Yes x NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).x Yes ¨ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company ¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).¨ Yes x NoAs of July 28, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public tradingmarket for the common stock of the registrant and therefore, an aggregate market value of the registrant’s common stock is not determinable.There were 1,000 shares of the Company’s $0.01 par value common stock outstanding on March 15, 2013. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTSThis report contains “forward-looking statements,” which include information concerning our plans, objectives, goals, strategies, future events, futurerevenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear underthe headings “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” particularly under the sub-heading“Outlook.” When used in this report, the words “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “believe” and variations of such words orsimilar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination ofoperating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, butthere can be no assurance that we will realize our expectations or that our beliefs will prove correct.There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained inthis report. Important factors that could cause our actual results to differ include, but are not limited to, our substantial indebtedness and lease obligations, thestrength of the global economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, our abilityto anticipate and timely respond to changes in trends and consumer preferences, our ability to successfully develop, launch and grow our newer concepts andexecute on strategic initiatives, product offerings, sales channels and businesses, material disruption to our information systems, our ability to implement ourreal estate strategy, our ability to attract and retain key personnel, interruptions in our foreign sourcing operations, and other factors which are set forth underthe heading “Risk Factors.” There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differmaterially from the forward-looking statements.All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date they are made and are expressly qualified intheir entirety by the cautionary statements included in this report. Except as may be required by law, we undertake no obligation to publicly update or reviseany forward-looking statement to reflect events or circumstances occurring after the date they were made or to reflect the occurrence of unanticipated events. 2PART I ITEM 1.BUSINESS.“J.Crew,” the “Company,” “we,” “us” and “our” refer to J.Crew Group, Inc. (“Group”) and its wholly owned subsidiaries, includingJ.Crew Operating Corp. (“Operating”). “Parent” refers to Group’s ultimate parent, Chinos Holdings, Inc.OverviewJ.Crew is a nationally recognized apparel and accessories retailer that differentiates itself through high standards of quality, style, design and fabricswith consistent fits and authentic details. We are an integrated multi-channel, multi-brand specialty retailer that operates stores and websites to consistentlycommunicate with our customers. We design, market and sell our products, including those under the J.Crew, crewcuts and Madewell brands, offeringcomplete assortments of women’s, men’s and children’s apparel and accessories. We believe our customer base consists primarily of affluent, college-educated, professional and fashion-conscious women and men.We conduct our business through two primary sales channels: (1) Stores, which consists of our retail, factory and Madewell stores, and (2) Direct,which consists of our websites and catalogs. As of February 2, 2013, we operated 295 retail stores (including eight crewcuts and 48 Madewell stores), 106factory stores (including four crewcuts factory stores), and three clearance stores, throughout the United States and Canada; compared to 266 retail stores(including 10 crewcuts and 32 Madewell stores), 96 factory stores (including four crewcuts factory stores) and three clearance stores as of January 28, 2012.Our fiscal year ends on the Saturday closest to January 31, typically resulting in a 52-week year, but occasionally includes an additional week,resulting in a 53-week year. All references to fiscal 2012 reflect the results of the 53-week period ended February 2, 2013; all references to fiscal 2011 reflectthe results of the 52-week period ended January 28, 2012; and all references to fiscal 2010 reflect the results of the 52-week period ended January 29, 2011.In addition, all references to fiscal 2013 reflect the 52-week period ending February 1, 2014.We were incorporated in the State of New York in 1988 and reincorporated in the State of Delaware in October 2005. Our principal executive offices arelocated at 770 Broadway, New York, NY 10003, and our telephone number is (212) 209-2500.On March 7, 2011, J.Crew Group, Inc. was acquired by affiliates of TPG Capital, L.P. (together with such affiliates, “TPG”) and Leonard Green &Partners, L.P. (“LGP” and together with TPG, the “Sponsors”) in a transaction, referred to as the “Acquisition,” valued at approximately $3.1 billion,including the incurrence of $1.6 billion of debt and approximately $152 million of transaction costs. As a result of the Acquisition, our stock is no longerpublicly traded. Currently, the issued and outstanding shares of J.Crew Group, Inc. are indirectly owned by affiliates of the Sponsors, certain co-investorsand members of management.To consummate the Acquisition, we entered into new debt financing consisting of (i) $1,450 million of senior secured credit facilities (the “Senior CreditFacilities”) consisting of (a) a $250 million, 5-year asset-based revolving credit facility (the “ABL Facility”), which was undrawn at closing, but utilized inFebruary and March of 2013 with $8 million in loans outstanding as of the filing date of this report, and (b) a $1,200 million, 7-year term loan credit facility(the “Term Loan Facility”) and (ii) $400 million of 8.125% senior notes due 2019 (the “Notes”). We refer to the Acquisition and the related transactions,including the issuance and sale of the Notes and the borrowings under our Senior Credit Facilities, as the “Transactions.”Although the Company continued as the same legal entity after the Acquisition, in fiscal 2011, we determined our consolidated operating results for:(i) the period succeeding the Acquisition from March 8, 2011 to January 28, 2012 (“Successor”) and (ii) the period preceding the Acquisition fromJanuary 30, 2011 to 3®®®March 7, 2011 (“Predecessor”). Where meaningful, we have presented disclosures with respect to the combination of the Successor and Predecessor periods,on a pro forma basis, which we refer to as “pro forma fiscal 2011.” The pro forma results of operations for fiscal 2011 give effect to the Acquisition as if itoccurred on the first day of the fiscal year.Brands and MerchandiseWe project our brand image through consistent creative messaging in our store environments, websites and catalogs and with our superior customerservice. We maintain our brand image by exercising substantial control over the design, production, presentation and pricing of our merchandise and byselling our products ourselves. Senior management is extensively involved in all phases of our business including product design and sourcing, assortmentplanning, store selection and design, website experience and the selection of photography for each catalog.J.Crew. Introduced in 1983, J.Crew offers a complete assortment of women’s and men’s apparel and accessories, including outerwear, loungewear,wedding attire, swimwear, shoes, bags, belts, hair accessories and jewelry. J.Crew offers products ranging from casual t-shirts and broken-in chinos to Italiancashmere and leather items and limited edition “collection” items, such as hand-beaded skirts, double-faced cashmere jackets, and Italian cashmere andfootwear. We also offer a curated selection of partnerships with other brands which represent quality, craftsmanship and style. J.Crew products are soldthrough our J.Crew retail and factory stores and our J.Crew website. Our J.Crew catalog provides a branding vehicle that supports all channels of distribution.crewcuts. Introduced in 2006, crewcuts reflects the same high standard of quality, style and design that we offer under the J.Crew brand. Crewcutsoffers a product assortment of apparel and accessories for the children’s market from infant to children size 14. Crewcuts products are sold through crewcutsstand-alone retail and factory stores, shop-in-shops in our J.Crew retail and factory stores and our J.Crew website.Madewell. Introduced in 2006, Madewell is a modern-day interpretation of an American clothing label originally founded in 1937. Madewell offersproducts exclusively for women, including perfect-fitting, heritage-inspired jeans and all the downtown-cool pieces to wear with them, from vintage-influencedtees, cardigans and blazers, to boots and jewelry. Madewell products are sold through Madewell retail stores and our Madewell website.ChannelsWe conduct our business through two primary sales channels: (1) Stores, which consists of our retail, factory, and Madewell stores, and (2) Direct,which consists of our websites and catalogs. The following is a summary of our revenues by channel: (in millions, except percentages) Fiscal 2012(b) Pro formaFiscal 2011 Fiscal 2010 Amount Percent ofTotal Amount Percent ofTotal Amount Percent ofTotal Stores $1,546.6 69.4% $1,280.7 69.0% $1,192.9 69.2% Direct 651.5 29.3 545.7 29.4 490.6 28.5 Other(a) 29.6 1.3 28.6 1.6 38.7 2.3 Total $2,227.7 100.0% $1,855.0 100.0% $1,722.2 100.0% (a)Consists primarily of shipping and handling fees.(b)Consists of 53 weeks. 4StoresJ.Crew Retail. Our J.Crew retail stores are located in upscale regional malls, lifestyle centers and street locations. Our retail stores are designed andfixtured with the goal of creating a distinctive, sophisticated and inviting atmosphere, with displays and information about product quality. We believesituating our stores in desirable locations is critical to the success of our business, and we determine store locations, as well as individual store sizes, based onseveral factors, including geographic location, demographic information, presence of anchor tenants in mall locations and proximity to other high-end specialtyretail stores. As of February 2, 2013, we operated 247 J.Crew retail stores (including eight crewcuts stores) throughout the United States and Canada.Our J.Crew retail stores averaged approximately 6,400 total square feet as of February 2, 2013, but are “sized to the market,” which means that weadjust the size of a particular retail store based on the projected revenues from that particular store. For example, at the end of fiscal 2012, our largest retailstore, located in New York, was approximately 21,000 square feet, and our smallest retail store, a crewcuts store located in Connecticut, was approximately900 square feet.J.Crew Factory. Our J.Crew factory stores are located primarily in large outlet malls and are designed with simple, volume driving visuals to maximizethe sale of key items. We design and develop a specific line of merchandise for our J.Crew factory stores based on products sold in previous seasons in ourJ.Crew retail stores and through our Direct channel. As of February 2, 2013, we operated 106 J.Crew factory stores (including four crewcuts factory stores)throughout the United States and Canada.Our J.Crew factory stores averaged approximately 5,500 total square feet as of February 2, 2013, and are also “sized to the market.” For example, at theend of fiscal 2012, our largest factory store, located in New York, was approximately 10,300 square feet, and our smallest factory store, a factory crewcutsstore located in Florida, was approximately 1,500 square feet.Madewell. Similar to J.Crew retail stores, our Madewell stores are located in upscale trade areas that include malls, lifestyle centers and street locations.Our Madewell store environments are carefully designed with the goal of capturing the look and feel of a downtown boutique, while still reflecting the qualityand sophistication of our J.Crew stores. As of February 2, 2013, we operated 48 Madewell stores throughout the United States.Our Madewell stores averaged approximately 3,700 total square feet as of February 2, 2013. At the end of fiscal 2012, our largest Madewell store, locatedin Washington, D.C., was approximately 9,600 square feet, and our smallest Madewell store, located in Washington, was approximately 2,600 square feet. 5The following table details the number of stores that we operated for the past three fiscal years: Retail stores Factory stores J.Crew crewcuts Madewell Total J.Crew crewcuts Total Total(a) Fiscal 2010: Beginning of year 217 9 17 243 77 1 78 321 New 5 — 3 8 6 1 7 15 Closed (3) — — (3) — — — (3) End of year 219 9 20 248 83 2 85 333 Fiscal 2011: Beginning of year 219 9 20 248 83 2 85 333 New 8 1 13 22 9 2 11 33 Closed (3) — (1) (4) — — — (4) End of year 224 10 32 266 92 4 96 362 Fiscal 2012: Beginning of year 224 10 32 266 92 4 96 362 New 19 — 17 36 10 — 10 46 Closed (4) (2) (1) (7) — — — (7) End of year 239 8 48 295 102 4 106 401 (a)Excludes three clearance stores.DirectOur Direct channel serves customers through websites for the J.Crew, crewcuts and Madewell brands. Our websites allow customers to purchase ourmerchandise over the Internet and include jcrew.com, madewell.com and jcrewfactory.com. In fiscal 2011 we entered into an arrangement with a third partywhich gives us the ability to accept and fulfill orders from residents of certain countries outside of the United States and Canada. We also use the Directchannel to sell exclusive styles not available in stores, introduce and test new product offerings, offer extended sizes and colors on various products, and drivetargeted marketing campaigns. Our catalogs serve as an important branding vehicle to communicate to our customers across all channels. In fiscal 2012, wecirculated approximately 4.2 billion catalog pages.Financial Information about SegmentsWe have determined our operating segments on the same basis that we use to internally evaluate performance and allocate resources. Our operatingsegments are Stores and Direct, which have been aggregated into one reportable financial segment. We aggregate our operating segments because they havesimilar class of consumer, economic characteristics, nature of products, nature of production and distribution methods.Shared Resources That Support Our BrandsDesign and MerchandisingWe believe one of our key strengths is our design team, who designs products that reinforce our constantly evolving brand image. Our products aredesigned to reflect a clean and fashionable aesthetic that incorporates high quality fabrics and construction as well as comfortable, consistent fits and detailing.Our products are developed in four seasonal collections and are rolled-out for monthly product introductions in our periodic catalog mailings and in ourstores. The design process begins with our designers developing seasonal collections eight to twelve months in advance. Our designers regularly traveldomestically and internationally to develop color and design ideas. Once the design team has developed a season’s color palette 6and design concepts, they order a sample assortment in order to evaluate the details of the collection, such as how color takes to a particular fabric. The designteam then presents the collection to senior management. The presentation reflects the design team’s vision, from color direction and flow, to styling andsilhouette evolution.Our teams work closely with each other in order to leverage market data, ensure the quality of our products and remain true to our unified brand image.Our technical design team develops construction and fit specifications for every product, ensuring quality workmanship and consistency across productlines.Because our product offerings originate from a single concept assortment, we believe that we are able to efficiently offer an assortment of styles withineach season’s line while still maintaining a unified brand image. As a final step that is intended to ensure image consistency, our senior management reviewsthe full line of products for each season across all of our sales channels before they are manufactured.Marketing and AdvertisingThe J.Crew catalog is the primary branding and advertising vehicle for the J.Crew brand. We believe our catalog reinforces the J.Crew mission andbrand image, while driving sales in all of our channels. We believe we have distinguished ourselves from other catalog retailers by utilizing high qualityphotography and art direction. We have also expanded our marketing strategy to include online, print and outdoor advertising.We offer a private-label credit card through an agreement with Comenity Bank, under which Comenity Bank owns the credit card accounts and AllianceData Systems Corporation provides services to our private-label credit card customers. In fiscal 2012, sales on J.Crew credit cards made up approximately16% of our total net sales. We believe that our credit card program encourages frequent store and website visits and catalog sales and promotes multiple-itempurchases, thereby cultivating customer loyalty to the J.Crew brand and increasing sales. We also maintain a loyalty program by offering rewards forcustomer spending on J.Crew credit cards.SourcingWe source our merchandise in two ways: (i) through the use of buying agents, and (ii) by purchasing merchandise directly from trading companies andmanufacturers. We have no long-term merchandise supply contracts, and we typically transact business on an order-by-order basis. In fiscal 2012, weworked with 10 buying agents, who supported our relationships with vendors that supplied approximately 62% of our merchandise, with one of these buyingagents supporting our relationships with vendors that supplied approximately 47% of our merchandise. In exchange for a commission, our buying agentsidentify suitable vendors and coordinate our purchasing requirements with the vendors by placing orders for merchandise on our behalf, ensuring the timelydelivery of goods to us, obtaining samples of merchandise produced in the factories, inspecting finished merchandise and carrying out other administrativecommunications on our behalf. In fiscal 2012, we worked with a number of trading companies, and purchased approximately 23% of our merchandise fromtwo of these companies. Trading companies control factories which manufacture merchandise and also handle certain other shipping and customs mattersrelated to importing the merchandise into the United States. We sourced the remaining 15% of our merchandise directly from manufacturers both within theUnited States and overseas with the majority of whom we have long-term, and what we believe to be, stable relationships.Our sourcing base currently consists of 184 vendors who operate 299 factories in 20 countries. Our top 10 vendors supply 46% of our merchandise.Each of our top 10 vendors uses multiple factories to produce its merchandise, which we believe gives us a high degree of flexibility in placing production ofour merchandise. We believe we have developed strong relationships with our vendors, some of which rely upon us for a significant portion of their business.In fiscal 2012, approximately 85% of our merchandise was sourced in Asia (with 72% of our products sourced from China, Hong Kong and Macau),11% was sourced in Europe and other regions, and 4% was sourced in the United States. Substantially all of our foreign purchases are negotiated and paid forin U.S. dollars. 7DistributionWe own a 282,000 square foot facility in Asheville, North Carolina that houses our distribution operations for our stores. This facility currentlyemploys approximately 250 full and part-time associates during our non-peak season and approximately 20 additional associates during our peak season.Merchandise is transported from this distribution center to our stores by independent trucking companies or UPS, with a transit time of approximately two tofive days.We also own two facilities in Lynchburg, Virginia: a 425,000 square foot facility and a 63,700 square foot facility, which was purchased in February2013 for $2 million. These facilities contain a customer call center and order fulfillment operations for our Direct channel. In fiscal 2012, we completedconstruction to expand the primary facility by approximately 155,000 square feet. The Lynchburg facilities currently employ approximately 1,200 full andpart-time associates during our non-peak season and approximately 420 additional associates during our peak season. Merchandise sold via our Direct channelis sent directly to customers from this distribution center via the United States Postal Service, UPS or Federal Express.We lease a 45,800 square foot customer call center in San Antonio, Texas. This facility currently employs approximately 230 full and part-timeassociates during our non-peak season and approximately 200 additional associates during our peak season.Management Information SystemsOur management information systems are designed to provide comprehensive order processing, production, accounting and management information forthe marketing, manufacturing, importing and distribution functions of our business. We also have point-of-sale systems in our stores that enable us to trackinventory from store receipt to final sale on a real-time basis. We have an agreement with a third party to provide hosting services and administrative supportfor portions of our infrastructure. In addition, our websites are hosted by a third party at its data center.We believe our merchandising and financial systems, coupled with our point-of-sale systems and software programs, allow for item-level stockreplenishment, merchandise planning and real-time inventory accounting practices. Our telephone and telemarketing systems, warehouse package sortingsystems, automated warehouse locator and inventory bar coding systems use current technology, and are designed with our highest-volume periods in mind,which results in substantial flexibility and ample capacity in our lower-volume periods. We also stress test our systems during low-volume periods to ensureoptimal performance during our peak season. We are investing significantly in expanding and upgrading our information systems, networks andinfrastructure to support recent and expected future growth.PricingWe offer our customers a mix of select designer-quality products and more casual items at various price points, consistent with our signature stylingstrategy of pairing luxury items with more casual items. We offer limited edition “collection” items such as hand-beaded skirts, double-faced cashmerejackets, and Italian cashmere and footwear, which we believe elevates the overall perception of our brand. We believe offering a broad range of price pointsmaintains a more accessible, less intimidating atmosphere.Cyclicality and SeasonalityOur industry is cyclical and our revenues are affected by general economic conditions. Purchases of apparel and accessories are sensitive to a number offactors that influence the levels of consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interestrates and consumer confidence. 8Our business is seasonal and as a result, our revenues fluctuate from quarter to quarter. We have four distinct selling seasons that align with our fourfiscal quarters. Revenues are usually higher in our fourth fiscal quarter, particularly December when customers make holiday purchases. In fiscal 2012, werealized approximately 29% of our revenues in the fourth fiscal quarter.CompetitionThe specialty retail industry is highly competitive. We compete primarily with specialty retailers, department stores, catalog retailers and Internetbusinesses that engage in the sale of women’s, men’s and children’s apparel, accessories, shoes and similar merchandise. We compete on quality, design,customer service and price. We believe that our primary competitive advantages are consumer recognition of our brands, as well as our multiple sellingchannels that enable our customers to shop in the setting they prefer. We believe that we also differentiate ourselves from competitors on the basis of oursignature product design, our ability to offer both designer-quality products at higher price points and more casual items at lower price points, our focus on thequality of our product offerings and our customer-service oriented culture. We believe our success depends in substantial part on our ability to originate anddefine product and fashion trends as well as to timely anticipate, gauge and react to changing consumer demands. Some of our competitors are larger and mayhave greater financial, marketing and other resources than us. Accordingly, there can be no assurance that we will be able to compete successfully with them inthe future.AssociatesAs of February 2, 2013, we had approximately 13,900 associates, of whom approximately 4,600 were full-time associates and 9,300 were part-timeassociates. Approximately 1,200 of these associates are employed in our customer call center and Direct order fulfillment operations facilities in Lynchburg,Virginia, approximately 250 of these associates work in our store distribution center in Asheville, North Carolina, and approximately 230 of these associateswork in our call center in San Antonio, Texas. In addition, approximately 3,200 associates are hired on a seasonal basis in these facilities and our stores tomeet demand during the peak season. None of our associates are represented by a union. We have had no labor-related work stoppages and we believe ourrelationship with our associates is good.Trademarks and LicensingThe J.Crew and Madewell trademarks and variations thereon, such as crewcuts, are registered or are subject to pending trademark applications with theUnited States Patent and Trademark Office and with the registries of many foreign countries. We believe our trademarks have significant value and we intendto continue to vigorously protect them against infringement.Government RegulationWe are subject to customs, truth-in-advertising, consumer protection and other laws, including zoning and occupancy ordinances that regulate retailersand/or govern the promotion and sale of merchandise and the operation of retail stores and warehouse facilities. We monitor changes in these laws and believethat we are in material compliance with applicable laws.A substantial portion of our products are manufactured outside the United States. These products are imported and are subject to U.S. customs laws,which impose tariffs as well as import quota restrictions for textiles and apparel. Some of our imported products are eligible for duty-advantaged programs.While importation of goods from foreign countries from which we buy our products may be subject to embargo by U.S. Customs authorities if shipmentsexceed quota limits, we closely monitor import quotas and believe we have the sourcing network to efficiently shift production to factories located in countrieswith available quotas. The existence of import quotas has, therefore, not had a material adverse effect on our business. 9Available InformationWe make available free of charge on our Internet website, www.jcrew.com, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended (the “Exchange Act”), as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it to, the Securitiesand Exchange Commission (the “SEC”). The reference to our website address does not constitute incorporation by reference of the information contained on thewebsite, and the information contained on the website is not part of this document.Copies of the reports and other information we file with the SEC may also be examined by the public without charge at 100 F Street, N.E., Room 1580,Washington, D.C. 20549, or on the Internet at http://www.sec.gov. Copies of all or a portion of such materials can be obtained from the SEC upon paymentof prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information. ITEM 1A.RISK FACTORS.We face a variety of risks that are substantial and inherent in our business. The following are some of the more important risk factors that could affectour business.Risks Related to Our BusinessUnfavorable economic conditions could materially adversely affect our financial condition and results of operations.Economic conditions around the world can impact our customers and affect the general business environment in which we operate and compete. Ourresults can be impacted by a number of macroeconomic factors, including, but not limited to, consumer confidence and spending levels, employment rates,consumer credit availability, fuel and energy costs, raw materials costs, global factory production, commercial real estate market conditions, credit marketconditions, interest rates, taxation and the level of customer traffic in malls and shopping centers and changing demographic patterns.Demand for our merchandise is significantly impacted by negative trends in consumer confidence and other economic factors affecting consumerspending behavior. Because apparel and accessories generally are discretionary purchases, consumer purchases of our products may decline duringrecessionary periods or when disposable income is lower. As a result, our sales, growth and profitability may be adversely affected by unfavorable economicconditions at a regional or national level. In addition, unfavorable economic conditions abroad may impact our ability to meet quality and production goals.We believe that our current cash balance, cash flow from operations and availability under our Senior Credit Facilities provide us with sufficientliquidity. However, a decrease in liquidity of our customers and suppliers could have a material adverse effect on our results of operations and liquidity.Periods of economic uncertainty or volatility make it difficult to plan, budget and forecast our business. Incorrect assumptions concerning economictrends, customer requirements, distribution models, demand forecasts, interest rate trends and availability of resources may result in our failure to accuratelyforecast results and to achieve forecasted results or budget targets.Failure to achieve sufficient levels of revenue and cash flow at individual store locations could result in impairment charges related to our stores. Variousuncertainties, including changes in consumer preferences or continued deterioration in the economic environment could impact the expected cash flows to begenerated by our store locations, and may result in an impairment of those assets. Although such an impairment charge would be a non-cash expense, anyimpairment charges could materially increase our expenses and reduce our profitability. 10The specialty retail industry is cyclical, and a decline in consumer spending on apparel and accessories could reduce our sales and slow ourgrowth.The industry in which we operate is cyclical. Purchases of apparel and accessories are sensitive to a number of factors that influence the levels ofconsumer spending, including general economic conditions and the level of disposable consumer income, the availability of consumer credit, interest rates,taxation, consumer confidence in future economic conditions and demographic patterns. Because apparel and accessories generally are discretionarypurchases, declines in consumer spending patterns may impact us more negatively as a specialty retailer. Therefore, we may not be able to grow revenues orincrease profitability if there is a decline in consumer spending patterns or we decide to slow or alter our growth plans in anticipation of or in response to adecline in consumer spending.We operate in the highly competitive specialty retail industry and the size and resources of some of our competitors may allow them to competemore effectively than we can, which could result in loss of our market share.We face intense competition in the specialty retail industry. We compete primarily with specialty retailers, department stores, catalog retailers and Internetbusinesses that engage in the sale of women’s, men’s and children’s apparel, accessories, and similar merchandise. We compete on quality, design, customerservice and price. Many of our competitors are, and many of our potential competitors may be, larger and have greater financial, marketing and otherresources, devote greater resources to the marketing and sale of their products, generate greater national brand recognition or adopt more aggressive pricingpolicies than we can. In addition, increased levels of promotional activity by our competitors, both online and in stores, may negatively impact our revenuesand gross profit.In addition, a significant portion of our revenues come from our Direct channel, which is subject to intense competition. In order to retain customers andattract new customers to our website, we may have to offer promotional prices and reduced rate or free shipping offers. For our international customers online,we may also face pricing and competitive pressures as a result of import costs and currency conversion. Finally, the rapid pace of technological change mayrequire us to incur costs to implement new systems and platforms in order to meet customer demand and to provide a desirable online shopping experience forour customers.If we are unable to gauge fashion trends and react to changing consumer preferences in a timely manner, our sales will decrease.We believe our success depends in substantial part on our ability to: • originate and define product and fashion trends, • anticipate, gauge and react to changing consumer demands in a timely manner, and • translate market trends into appropriate, saleable product offerings far in advance of their sale in our stores, our Internet websites and ourcatalogs.Because we enter into agreements for the manufacture and purchase of merchandise well in advance of the season in which merchandise will be sold, weare vulnerable to changes in consumer demand, pricing shifts and suboptimal merchandise selection and timing of merchandise purchases. We attempt toreduce the risks of changing fashion trends and product acceptance in part by devoting a portion of our product line to classic styles that are not significantlymodified from year to year. Nevertheless, if we misjudge the market for our products or overall level of consumer demand, we may be faced with significantexcess inventories for some products and missed opportunities for others. Our brand image may also suffer if customers believe we are no longer able to offerthe latest fashions or if we fail to address and respond to customer feedback or complaints. The occurrence of these events, among others, could hurt ourfinancial results by decreasing sales. We may respond by increasing markdowns or initiating marketing promotions to reduce excess inventory, which wouldfurther decrease our gross profits and net income. 11We rely on the experience and skills of key personnel, the loss of whom could damage our brand image and our ability to sell our merchandise.We believe we have benefited substantially from the leadership and strategic guidance of our chief executive officer, and other key executives andmembers of our creative team, who are primarily responsible for developing our strategy. The loss, for any reason, of the services of any of these individualsand any negative market or industry perception arising from such loss could damage our brand image. Our executive and creative teams have substantialexperience and expertise in the specialty retail industry and have made significant contributions to our growth and success. The unexpected loss of one or moreof these individuals could delay the development and introduction of, and harm our ability to sell, our merchandise. In addition, products we develop withoutthe guidance and direction of these key personnel may not receive the same level of acceptance.Our success depends in part on our ability to attract and retain key personnel. Competition for these personnel is intense, and we may not be able toattract and retain a sufficient number of qualified personnel in the future.Our expanded product offerings, new sales channels, new brand concepts and plans to expand internationally may not be successful, andimplementation of these strategies may divert our operational, managerial and administrative resources, which could impact our competitiveposition.We have grown our business in recent years by expanding our product offerings and sales channels, including by marketing our crewcuts line ofchildren’s apparel and accessories and our Madewell brand of women’s apparel, footwear and accessories. We have opened a small number of free-standingstores dedicated to men’s wear, crewcuts and “collection” items. We have recently opened stores in Canada, expanded our international shipping, and we areplanning to further expand internationally in the future. These strategies involve various risks discussed elsewhere in these risk factors, including: • implementation may be delayed or may not be successful, • if our expanded product offerings and sales channels or our international growth efforts fail to maintain and enhance our distinctive brandidentity, our brand image may be diminished and our sales may decrease, • if customers (domestic or international) do not respond to these product offerings and sales channels as anticipated, these strategies may not beprofitable on a larger scale, and • implementation of these plans may divert management’s attention from other aspects of our business, increase costs and place a strain on ourmanagement, operational and financial resources, as well as our information systems.In addition, our new product offerings, new brand concepts, new sales channels and international expansion may be affected by, among other things,economic, demographic and competitive conditions, changes in consumer spending patterns and changes in consumer preferences and style trends. Furtherrollout of these strategies could be delayed or abandoned, could cost more than anticipated and could divert resources from other areas of our business, any ofwhich could impact our competitive position and reduce our revenue and profitability.Our growth strategy depends on the successful execution of our efforts to grow the Direct business and expand internationally.Our current growth strategy includes international expansion through both the Direct and retail channels. We have recently opened stores in Canada andexpanded our online presence to a number of countries. We plan to open stores in additional countries in the future, including locations in Asia and Europe,where brand recognition may be limited. We do not have experience operating in these regions and we will face established competition in most of thesemarkets. Many of these countries have different operational requirements, including 12but not limited to employment and labor, transportation, logistics, real estate and local reporting or legal requirements. Consumer tastes and trends may differfrom country to country and there may be seasonal differences, which may result in lower sales and/or margins for our products. Our success internationallycould also be adversely impacted by the global economy, fluctuations in foreign currency exchange rates, changes in diplomatic or trade relationships, politicalinstability and foreign government regulation.In addition, as we continue to expand our overseas operations, we are subject to certain U.S. laws, including the Foreign Corrupt Practices Act, inaddition to the laws of the foreign countries in which we operate. We must use all commercially reasonable efforts to ensure our associates and agents complywith these laws. If any of our associates or agents violate such laws we could become subject to sanctions or other penalties that could negatively affect ourreputation, business and operating results.Any material disruption of our information systems could disrupt our business and reduce our sales.We are increasingly dependent on information systems to operate our websites, process transactions, respond to customer inquiries, manage inventory,purchase, sell and ship goods on a timely basis and maintain cost-efficient operations. Previously, we have experienced interruptions resulting from upgradesto certain of our information systems which temporarily impaired our ability to capture, process and ship customer orders, and transfer product betweenchannels. We may experience operational problems with our information systems as a result of system failures, viruses, computer “hackers” or other causes.Any material disruption or slowdown of our systems, including a disruption or slowdown caused by our failure to successfully upgrade our systems, couldcause information, including data related to customer orders, to be lost or delayed which could—especially if the disruption or slowdown occurred during theholiday season—result in delays in the delivery of merchandise to our stores and customers or lost sales, which could reduce demand for our merchandiseand cause our sales to decline. Moreover, we may not be successful in developing or acquiring technology that is competitive and responsive to the needs of ourcustomers and might lack sufficient resources to make the necessary investments in technology to compete with our competitors. Accordingly, if changes intechnology cause our information systems to become obsolete, or if our information systems are inadequate to handle our growth, we could lose customers.Our Direct operations are a substantial part of our business. In addition to changing consumer preferences and buying trends relating to Internet usage,we are vulnerable to certain additional risks and uncertainties associated with the Internet, including changes in required technology interfaces, websitedowntime and other technical failures, security breaches, and consumer privacy concerns. Our failure to successfully respond to these risks and uncertaintiescould reduce Internet sales, increase costs and damage our brand’s reputation. Data privacy and information security is regulated at the international, federaland state levels, and compliance with any changes in the laws and regulations enacted by these governments will likely increase the cost of doing business.Management uses information systems to support decision making and to monitor business performance. We may fail to generate accurate and completefinancial and operational reports essential for making decisions at various levels of management, which could lead to decisions being made that have adverseresults. Failure to adopt systematic procedures to initiate change requests, test changes, document changes, and authorize changes to systems and processesprior to deployment may result in unsuccessful changes and could disrupt our business and reduce sales. In addition, if we do not maintain adequate controlssuch as reconciliations, segregation of duties and verification to prevent errors or incomplete information, our ability to operate our business could be limited.If we fail to maintain the value of our brand and protect our trademarks, our sales are likely to decline.Our success depends on the value of the J.Crew brand and our corporate reputation. The J.Crew name is integral to our business as well as to theimplementation of our strategies for expanding our business. Maintaining, promoting and positioning our brand will depend largely on the success of ourmarketing and 13merchandising efforts and our ability to provide a consistent, high quality customer experience. Our brand could be adversely affected if we fail to achievethese objectives or if our public image or reputation were to be tarnished by negative publicity. Any of these events could result in decreases in sales.The J.Crew and Madewell trademarks and variations thereon, such as crewcuts, are valuable assets that are critical to our success. We intend tocontinue to vigorously protect our trademarks against infringement, but we may not be successful in doing so. The unauthorized reproduction or othermisappropriation of our trademarks would diminish the value of our brand, which could reduce demand for our products or the prices at which we can sellour products.Our real estate strategy may not be successful, and new store locations may fail to produce desired results, which could impact our competitiveposition and profitability.We expanded our store base by 39 net new stores in fiscal 2012. We are also reviewing our existing store base and identifying opportunities, whereavailable, to renegotiate the terms of those leases. The success of our business depends, in part, on our ability to open new stores and renew our existing storeleases on terms that meet our financial targets. Our ability to open new stores on schedule or at all, to renew our existing store leases on favorable terms or tooperate them on a profitable basis will depend on various factors, including our ability to: • identify suitable markets for new stores and available store locations, • anticipate the impact of changing economic and demographic conditions for new and existing store locations, • negotiate acceptable lease terms for new locations or renewal terms for existing locations, • hire and train qualified sales associates, • develop new merchandise and manage inventory effectively to meet the needs of new and existing stores on a timely basis, • foster current relationships and develop new relationships with vendors that are capable of supplying a greater volume of merchandise, and • avoid construction delays and cost overruns in connection with the build-out of new stores.New stores and stores with renewed lease terms may not produce anticipated levels of revenue even though they increase our costs. As a result, ourexpenses as a percentage of sales would increase and our profitability would be adversely affected.Reductions in the volume of mall traffic or closing of shopping malls as a result of unfavorable economic conditions or changing demographicpatterns could significantly reduce our sales and leave us with unsold inventory.Most of our stores are located in shopping malls. Sales at these stores are derived, in part, from the volume of traffic in those malls. Our stores benefitfrom the ability of the malls’ “anchor” tenants, generally large department stores and other area attractions, to generate consumer traffic in the vicinity of ourstores and the continuing popularity of the malls as shopping destinations. Unfavorable economic conditions, particularly in certain regions, have adverselyaffected mall traffic and resulted in the closing of certain anchor stores and has threatened the viability of certain commercial real estate firms which operatemajor shopping malls. A continuation of this trend, including failure of a large commercial landlord or continued declines in the popularity of mall shoppinggenerally among our customers, would reduce our sales and leave us with excess inventory. We may respond by increasing markdowns or initiating marketingpromotions to reduce excess inventory, which would further decrease our gross profits and net income. 14Our inability to maintain or increase levels of comparable company sales could cause our earnings to decline.If our future comparable company sales fail to meet expectations, our earnings could decline. In addition, our results have fluctuated in the past and canbe expected to continue to fluctuate in the future. For example, in the previous three fiscal years, our quarterly comparable company sales changes have rangedfrom an increase of 16.0% to a decrease of 2.8%. A variety of factors affect comparable company sales, including fashion trends, competition, currenteconomic conditions, pricing, inflation, the timing of the release of new merchandise and promotional events, changes in our merchandise mix, the success ofmarketing programs, timing and level of markdowns and weather conditions. These factors may cause our comparable company sales to be materially lowerthan previous periods and our expectations, which could impact our ability to leverage fixed expenses, such as store rent and store asset depreciation, whichmay adversely affect our financial condition or results of operations.Interruption in our foreign sourcing operations could disrupt production, shipment or receipt of our merchandise, which would result in lostsales and could increase our costs.We do not own or operate any manufacturing facilities and therefore depend upon independent third-party vendors for the manufacture of all of ourproducts. Our products are manufactured to our specifications primarily by foreign manufacturers. We cannot control all of the various factors, whichinclude inclement weather, natural disasters, political and financial instability, strikes, health concerns regarding infectious diseases in countries in which ourmerchandise is produced, and acts of terrorism that might affect a manufacturer’s ability to ship orders of our products in a timely manner or to meet ourquality standards. Late delivery of products or delivery of products that do not meet our quality standards could cause us to miss the delivery daterequirements of our customers or delay timely delivery of merchandise to our stores for those items. These events could cause us to fail to meet customerexpectations, cause our customers to cancel orders or cause us to be unable to deliver merchandise in sufficient quantities or of sufficient quality to our stores,which could result in lost sales.In fiscal 2012, approximately 96% of our merchandise was sourced from foreign factories. In particular, approximately 72% of our merchandise wassourced from China, Hong Kong and Macau. Any event causing a sudden disruption of manufacturing or imports from Asia or elsewhere, including theimposition of additional import restrictions, could materially harm our operations. We have no long-term merchandise supply contracts, and many of ourimports 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 UnitedStates from countries in Asia or elsewhere. We compete with other companies for production facilities and import quota capacity. While substantially all of ourforeign purchases of our products are negotiated and paid for in U.S. dollars, the cost of our products may be affected by fluctuations in the value of relevantforeign currencies. Our business is also subject to a variety of other risks generally associated with doing business abroad, such as political instability,economic conditions, disruption of imports by labor disputes and local business practices.Increases in the demand for, or the price of, raw materials used to manufacture our products or other fluctuations in sourcing costs couldincrease our costs and hurt our profitability.The raw materials used to manufacture our products are subject to availability constraints and price volatility caused by high demand for fabrics,weather, supply conditions, government regulations, economic climate and other unpredictable factors. In addition, our sourcing costs may also fluctuate dueto labor conditions, transportation or freight costs, energy prices, currency fluctuations or other unpredictable factors. For example, we have experiencedfluctuations in the price of cotton that is used to manufacture some of our merchandise. In addition, the cost of labor at many of our third-party manufacturersand the cost of transportation have been increasing and it is unlikely that such cost pressures will abate.We believe that we have strong vendor relationships and we are working with our suppliers to manage cost increases. Our overall profitability depends,in part, on the success of our ability to mitigate rising costs or shortages of raw materials used to manufacture our products. 15Any significant interruption in the operations of our customer call, order fulfillment and distribution facilities could disrupt our ability to processcustomer orders and to deliver our merchandise in a timely manner.Our Direct order fulfillment operations are housed in a single facility along with one of our customer call centers, while distribution operations for ourstores are housed in another single facility. Although we maintain back-up systems for these facilities, they may not be able to prevent a significantinterruption in the operation of these facilities due to natural disasters, accidents, failures of the inventory locator or automated packing and shipping systemswe use or other events. In addition, we have upgraded certain Direct channel systems, including our web platform, order management system and warehousemanagement system in order to support recent and expected future growth. We experienced some interruptions in the past in connection with our Direct channelsystems and while we made progress in stabilizing these systems, there can be no assurance that future interruptions will not occur. Any significantinterruption in the operation of these facilities, including an interruption caused by our failure to successfully expand or upgrade our systems or manage ourtransition to utilizing the expansions or upgrades, could reduce our ability to receive and process orders and provide products and services to our stores andcustomers, which could result in lost sales, cancelled sales and a loss of loyalty to our brand.Third party failure to deliver merchandise from our distribution centers to our stores and to customers or a disruption or adverse conditionaffecting our distribution centers could result in lost sales or reduced demand for our merchandise.The success of our stores depends on their timely receipt of merchandise from our distribution facilities, and the success of our Direct channel dependson the timely delivery of merchandise to our customers. Independent third-party transportation companies deliver our merchandise to our stores and to ourcustomers. Some of these third parties employ personnel represented by labor unions. Disruptions in the delivery of merchandise or work stoppages byemployees of these third parties could delay the timely receipt of merchandise, which could result in cancelled sales, a loss of loyalty to our brand, increasedlogistics costs and excess inventory. Timely receipt of merchandise by our stores and our customers may also be affected by factors such as inclementweather, natural disasters, accidents, system failures and acts of terrorism. We may respond by increasing markdowns or initiating marketing promotions,which would decrease our gross profits and net income. Inability to recover from a business interruption and return to normal operations within a reasonableperiod of time could have a material adverse impact on our results of operations and damage our brand reputation.Our ability to source our merchandise profitably or at all could be hurt if new trade restrictions are imposed or existing trade restrictions becomemore burdensome.Trade restrictions, including increased tariffs, safeguards or quotas, on apparel and accessories could increase the cost or reduce the supply ofmerchandise available to us. We source our merchandise through buying agents and by purchasing directly from trading companies and manufacturers,predominately in various foreign countries. There are quotas and trade restrictions on certain categories of goods and apparel from China and countries whichare not subject to the World Trade Organization Agreement which could have a significant impact on our sourcing patterns in the future. New initiatives maybe proposed that may have an impact on our sourcing from certain countries and may include retaliatory duties or other trade sanctions that, if enacted, wouldincrease the cost of products we purchase. We cannot predict whether any of the countries in which our merchandise is currently manufactured or may bemanufactured in the future will be subject to additional trade restrictions imposed by the U.S. and foreign governments, nor can we predict the likelihood, typeor effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions against apparelitems, as well as U.S. or foreign labor strikes, work stoppages or boycotts or enhanced security measures at U.S. ports could increase the cost, delayshipping or reduce the supply of apparel available to us or may require us to modify our current business practices, any of which could hurt our profitability. 16If our independent manufacturers do not use ethical business practices or comply with applicable laws and regulations, the J.Crew brand namecould be harmed due to negative publicity.While our internal and vendor operating guidelines, as outlined in our Vendor Code of Conduct, promote ethical business practices and we, along withthird parties that we retain for this purpose, monitor compliance with those guidelines, we do not control our independent manufacturers. Accordingly, wecannot guarantee their compliance with our guidelines. Our Vendor Code of Conduct is designed to ensure that each of our suppliers’ operations is conductedin a legal, ethical, and responsible manner. Our Vendor Code of Conduct requires that each of our suppliers operates in compliance with applicable wagebenefit, working hours and other local laws, and forbids the use of practices such as child labor or forced labor.Violation of labor or other laws by our independent manufacturers, or the divergence of an independent manufacturer’s practices from those generallyaccepted as ethical in the United States could diminish the value of the J.Crew brand and reduce demand for our merchandise if, as a result of such violation,we were to attract negative publicity.We are subject to customs, advertising, consumer protection, privacy, zoning and occupancy and labor and employment laws that could require usto modify our current business practices, incur increased costs or harm our reputation if we do not comply.We are subject to numerous laws and regulations, including customs, truth-in-advertising, consumer protection, general privacy, health informationprivacy, identity theft, online privacy, unsolicited commercial communication and zoning and occupancy laws and ordinances that regulate retailers generallyand/or govern the importation, promotion and sale of merchandise and the operation of retail stores and warehouse facilities. If these regulations were to changeor were violated by our management, associates, suppliers, buying agents or trading companies, the costs of certain goods could increase, or we couldexperience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm, which could reduce demand for our merchandise andhurt our business and results of operations. Failure to protect personally identifiable information of our customers or associates could subject us toconsiderable reputational harm as well as significant fines, penalties and sanctions. In addition, changes in federal and state minimum wage laws and otherlaws relating to employee benefits could cause us to incur additional wage and benefits costs, which could hurt our profitability.Legal requirements are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with theserequirements or their effect on our operations. Failure to define clear roles and responsibilities or to regularly communicate with and train our associates mayresult in noncompliance with applicable laws and regulations. We may be required to make significant expenditures or modify our business practices tocomply with existing or future laws and regulations, which may increase our costs and materially limit our ability to operate our business.Fluctuations in our results of operations for the fourth fiscal quarter would have a disproportionate effect on our overall financial condition andresults of operations.Our revenues are generally lower during the first and second fiscal quarters. In addition, any factors that harm our fourth fiscal quarter operatingresults, including adverse weather or unfavorable economic conditions, could have a disproportionate effect on our results of operations for the entire fiscalyear.In order to prepare for our peak shopping season, we must order and keep in stock significantly more merchandise than we would carry at other timesof the year. Any unanticipated decrease in demand for our products during our peak shopping season could require us to sell excess inventory at a substantialmarkdown, which could reduce our net sales and gross profit. Additional unplanned decreases in demand for our products could produce further reductionsto our net sales and gross profit. 17Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new store openingsand of catalog mailings and the revenues contributed by new stores, merchandise mix and the timing and level of inventory markdowns. As a result, historicalperiod-to-period comparisons of our revenues and operating results are not necessarily indicative of future period-to-period results.Impairment of our goodwill or our intangible assets could negatively impact our net income and stockholders’ equity.A substantial portion of our total assets consists of goodwill and intangible assets. Goodwill and certain intangible assets are not amortized, but aretested for impairment at least annually and between annual tests if events or circumstances indicate that it is more likely than not that the fair value of our netassets is less than its carrying amount. Testing for impairment involves an estimation of the fair value of our net assets and other factors and involves a highdegree of judgment and subjectivity. There are numerous risks that may cause the fair value of our net assets to fall below its carrying amount, including thosedescribed elsewhere in this annual report on Form 10-K. If we have an impairment of our goodwill or intangible assets, the amount of any impairment could besignificant and could negatively impact our net income and stockholders’ equity for the period in which the impairment charge is recorded.We may be a party to legal proceedings in the future that could adversely affect our business.From time to time, we are a party to other legal proceedings, including matters involving personnel and employment issues, personal injury, intellectualproperty and other proceedings arising in the ordinary course of business. In addition, there are an increasing number of cases being filed in the retail industrygenerally that contain class action allegations, such as those relating to privacy and wage and hour laws. We evaluate our exposure to these legal proceedingsand establish reserves for the estimated liabilities in accordance with generally accepted accounting principles. Assessing and predicting the outcome of thesematters involves substantial uncertainties. Although not currently anticipated by management, unexpected outcomes in these legal proceedings, or changes inmanagement’s evaluations or predictions and accompanying changes in established reserves, could have a material adverse impact on our financial results.Risks Related to Our Indebtedness and Certain Other ObligationsOur substantial indebtedness and lease obligations could adversely affect our ability to raise additional capital to fund our operations and makestrategic acquisitions, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of ourvariable rate debt and prevent us from meeting our obligations under our indebtedness.We are highly leveraged. Our total indebtedness at February 2, 2013 was $1,579 million, consisting of borrowings under our Term Loan Facility of$1,179 million and $400 million of outstanding Notes. We can also borrow up to $250 million under our ABL Facility, subject to a borrowing baselimitation. Our Senior Credit Facilities also allow an aggregate of $350 million in uncommitted incremental facilities, the availability of which is subject to ourmeeting certain conditions, including, in the case of $200 million of incremental term facilities, a pro forma total senior secured leverage ratio of less than orequal to 3.75 to 1.00. No incremental facilities are currently in effect. See “Management’s Discussion and Analysis of Financial Condition and Results ofOperations—Liquidity and Capital Resources.”We also have, and will continue to have, significant lease obligations. As of February 2, 2013, our minimum annual rental obligations under long-termoperating leases for fiscal 2013 and fiscal 2014 are $134 million and $134 million, respectively. 18Our high degree of leverage and significant lease obligations could have important consequences for our creditors, including holders of our Notes. Forexample, they could: • limit our ability to obtain additional financing for working capital (including vendor payment terms), capital expenditures, research anddevelopment, debt service requirements, acquisitions and general corporate or other purposes; • restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; • limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors who are not ashighly leveraged; • increase our vulnerability to general economic and industry conditions; • expose us to the risk of increased interest rates as the borrowings under our Senior Credit Facilities are subject to variable rates of interest; • make it more difficult for us to make payments on our indebtedness; and • require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therebyreducing our ability to use our cash flow to fund our operations, capital expenditures and future strategic initiatives.Our cash interest expense in fiscal 2012 was $92.1 million.Despite current indebtedness levels and restrictive covenants, we and our subsidiaries may incur additional indebtedness in the future. This couldfurther exacerbate the risks associated with our substantial financial leverage.The terms of the indenture governing our Notes and the credit agreements governing our Senior Credit Facilities permit us to incur a substantial amountof additional debt, including secured debt. Any additional borrowings under our Senior Credit Facilities, and any other secured debt, would be effectivelysenior to the Notes and the guarantees thereto to the extent of the value of the assets securing such indebtedness. If new debt is added to our and oursubsidiaries’ current debt levels, the risks that we now face as a result of our leverage would intensify and could have a negative impact on our credit rating.See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”Our debt agreements contain restrictions that limit our flexibility in operating our business.The credit agreements governing our Senior Credit Facilities and the indenture governing our Notes contain various covenants that limit our ability toengage in specified types of transactions. These covenants limit our, our immediate parent’s (solely with respect to the Senior Credit Facilities) and ourrestricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, our capitalstock, make certain acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates orsell our assets to, or merge or consolidate with or into, another company. In addition, the credit agreement governing our ABL Facility requires us to satisfy aminimum fixed charge coverage ratio if our excess availability falls below a certain threshold. Our ability to satisfy these financial tests and ratios may beaffected by events outside of our control.Upon the occurrence of an event of default under our Senior Credit Facilities, the lenders thereunder could elect to declare all amounts outstanding underour Senior Credit Facilities to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay thoseamounts, the lenders under our Senior Credit Facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged asignificant portion of our assets as collateral under our Senior Credit Facilities. If the lenders under our Senior Credit Facilities accelerate the repayment ofborrowings, we may not have sufficient assets to repay our Senior Credit Facilities, as well as our other secured and unsecured indebtedness, including ouroutstanding Notes. 19To service our indebtedness, we will require a significant amount of cash and our ability to generate cash depends on many factors beyond ourcontrol.Our ability to make cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generatesignificant operating cash flow in the future. This ability is, to a significant extent, subject to general economic, financial, competitive, legislative, regulatoryand other factors that are beyond our control.Our business may not generate sufficient cash flow from operations, and future borrowings may not be available under our Senior Credit Facilities, inan amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. In any such circumstance, we may need to refinance all or aportion of our indebtedness, including our Senior Credit Facilities and the notes, on or before maturity. We may not be able to refinance any of ourindebtedness, including our Senior Credit Facilities and the Notes, on commercially reasonable terms or at all. If we cannot service our indebtedness, we mayhave to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions and investments. Anysuch action, if necessary, may not be effected on commercially reasonable terms or at all. The credit agreements governing our Senior Credit Facilities and theindenture governing the Notes restrict our ability to sell assets and use the proceeds from such sales.If we are unable to generate sufficient cash flow or are otherwise unable to obtain funds necessary to meet required payments of principal, premium, ifany, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants in the instruments governing our indebtedness (includingcovenants in our Senior Credit Facilities and the indenture governing the Notes), we could be in default under the terms of the agreements governing suchindebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable,together with accrued and unpaid interest, the lenders under our Senior Credit Facilities could elect to terminate their commitments thereunder, cease makingfurther loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performancedeclines, we may in the future need to obtain waivers from the required lenders under our Senior Credit Facilities to avoid being in default. If we breach ourcovenants under the credit agreements governing our Senior Credit Facilities and seek a waiver, we may not be able to obtain a waiver from the requiredlenders. If this occurs, we would be in default under our Senior Credit Facilities, the lenders could exercise their rights, as described above, and we could beforced into bankruptcy or liquidation.Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.Borrowings under our Senior Credit Facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt serviceobligations on our variable rate indebtedness will increase even though the amount borrowed would remain the same, and our net income and cash flow,including cash available for servicing our indebtedness, will correspondingly decrease. If LIBOR increases above 1.25%, a 0.125% increase in the floatingrate applicable to the $1,179 million outstanding under the Term Loan Facility would result in a $1.5 million increase in our annual interest expense.Assuming all revolving loans are drawn under the $250 million ABL Facility, a 0.125% change in the floating rate would result in a $0.3 million change inour annual interest expense. Although we have entered into swap agreements to hedge the variability of cash flows related to a portion of our floating rateindebtedness, these measures may not fully mitigate our risk or may not be effective. With respect to our interest rate swaps, we expect to reclassify unrealizedlosses of approximately $7 million, net of tax, previously recorded in accumulated other comprehensive loss, thereby increasing interest expense by $12million in our Statement of Operations and Comprehensive Income (Loss) in fiscal 2013. ITEM 1B.UNRESOLVED STAFF COMMENTS.None. 20ITEM 2.PROPERTIES.We are headquartered in New York City. Our headquarter offices are leased under a lease agreement expiring in 2022, with an option to renew thereafter.We own three facilities: (i) a 425,000 square foot customer call center, order fulfillment and distribution center in Lynchburg, Virginia (during fiscal 2012, wecompleted construction to expand this facility by approximately 155,000 square feet), (ii) a 282,000 square foot distribution center in Asheville, NorthCarolina and (iii) a 63,700 square foot facility in Lynchburg, Virginia, which we purchased in February 2013 for $2 million. We also lease a 45,800 squarefoot customer call center in San Antonio, Texas under a lease agreement expiring in October 2021.As of February 2, 2013, we operated 295 retail stores (including eight crewcuts and 48 Madewell stores), 106 factory stores (including four crewcutsfactory stores), and three clearance stores, in 44 states, the District of Columbia, and Canada. All of the retail and factory stores are leased from third partieswith terms, in most cases, of 5 to 10 years. A portion of our leases have options to renew for periods typically ranging from 5 to 10 years. Generally, the leasescontain standard provisions concerning the payment of rent, events of default and the rights and obligations of each party. Rent due under the leases isgenerally comprised of annual base rent plus a contingent rent payment based on the store’s sales in excess of a specified threshold. Some of the leases alsocontain early termination options, which can be exercised by us or the landlord under certain conditions. The leases also generally require us to pay real estatetaxes, insurance and certain common area costs. We renegotiate with landlords to obtain more favorable terms as opportunities arise. We consider theseproperties to be in good condition and believe that our facilities are adequate for operations and provide sufficient capacity to meet our anticipated futurerequirements. 21The table below sets forth the number of retail (including crewcuts and Madewell stores) and factory stores operated by us in the United States andCanada as of February 2, 2013. Retail stores Factory stores Total(a) J.Crew crewcuts Madewell Total J.Crew crewcuts Total Alabama 2 — — 2 1 — 1 3 Arizona 4 — 1 5 2 — 2 7 Arkansas 1 — — 1 — — — 1 California 32 — 8 40 9 — 9 49 Colorado 4 — 2 6 3 — 3 9 Connecticut 10 1 2 13 2 — 2 15 Delaware 1 — — 1 1 — 1 2 Florida 12 1 1 14 8 1 9 23 Georgia 6 — 2 8 3 — 3 11 Hawaii 1 — — 1 — — — 1 Idaho 1 — — 1 — — — 1 Illinois 8 — 2 10 2 — 2 12 Indiana 2 — 1 3 2 — 2 5 Iowa 1 — — 1 1 — 1 2 Kansas 1 — 1 2 1 — 1 3 Kentucky 2 — — 2 — — — 2 Louisiana 3 — — 3 — — — 3 Maine 1 — — 1 2 — 2 3 Maryland 5 — 2 7 3 — 3 10 Massachusetts 12 1 2 15 2 1 3 18 Michigan 6 — 1 7 3 — 3 10 Minnesota 5 — 1 6 — — — 6 Mississippi 1 — — 1 1 — 1 2 Missouri 3 — — 3 1 — 1 4 Nebraska 1 — — 1 — — — 1 Nevada 1 — — 1 1 — 1 2 New Hampshire 2 — — 2 3 — 3 5 New Jersey 14 — 2 16 5 1 6 22 New Mexico 2 — — 2 — — — 2 New York 23 2 5 30 6 1 7 37 North Carolina 7 — 2 9 4 — 4 13 Ohio 7 — 3 10 2 — 2 12 Oklahoma 2 — — 2 1 — 1 3 Oregon 3 — — 3 1 — 1 4 Pennsylvania 9 1 2 12 6 — 6 18 Rhode Island 2 — — 2 — — — 2 South Carolina 2 — — 2 5 — 5 7 Tennessee 4 — — 4 2 — 2 6 Texas 12 1 4 17 8 — 8 25 Utah 2 — — 2 2 — 2 4 Vermont 1 — — 1 1 — 1 2 Virginia 7 — 1 8 3 — 3 11 Washington 3 1 2 6 1 — 1 7 Wisconsin 3 — — 3 2 — 2 5 District of Columbia 3 — 1 4 — — — 4 Alberta, Canada 1 — — 1 1 — 1 2 British Columbia, Canada 1 — — 1 — — — 1 Ontario, Canada 3 — — 3 1 — 1 4 Total 239 8 48 295 102 4 106 401 (a)Excludes three clearance stores, two located in Virginia and one in North Carolina. 22ITEM 3.LEGAL PROCEEDINGS.We are subject to various other legal proceedings and claims arising in the ordinary course of business. Management does not expect that the results ofany of these other legal proceedings, either individually or in the aggregate, would have a material adverse effect on our financial position, results of operationsor cash flows. ITEM 4.MINE SAFETY DISCLOSURE.Not applicable. 23PART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.Prior to the Acquisition, our Common Stock was traded on the New York Stock Exchange under the symbol “JCG.” Subsequent to the Acquisition, ouroutstanding Common Stock is privately held and therefore there is no established public trading market.Record HoldersAs of March 15, 2013, Chinos Intermediate Holdings B, Inc. (our direct owner and an indirect, wholly owned subsidiary of our Parent) was the onlyholder of record of our Common Stock.DividendsOn December 21, 2012, the Company paid a one-time special dividend of $197.5 million to stockholders of record of the Parent on December 17,2012. This amount was paid from cash on hand and permitted through amendment of our Term Loan Facility (see “Management’s Discussion and Analysis—Liquidity and Capital Resources” for further discussion). We do not expect for the foreseeable future to pay any additional dividends. Any futuredetermination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements,restrictions contained in current and future financing agreements and other factors that our Board deems relevant. 24ITEM 6.SELECTED CONSOLIDATED FINANCIAL DATA.The selected historical consolidated financial data for the fiscal year ended February 2, 2013, the periods March 8, 2011 to January 28,2012, January 30, 2011 to March 7, 2011, and the fiscal year ended January 29, 2011 and as of February 2, 2013 and January 28, 2012 have been derivedfrom our audited consolidated financial statements included elsewhere in this annual report on Form 10-K. The selected historical consolidated financial datafor each of the years in the two-year period ended January 30, 2010 have been derived from our audited consolidated financial statements which are notincluded in this annual report on Form 10-K.The historical results presented below are not necessarily indicative of the results to be expected for any future period. The information should be read inconjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the relatednotes included herein. Year Ended For the Period Year Ended (in thousands, unless otherwise indicated) February 2,2013(a) March 8,2011 toJanuary 28,2012 January 30,2011 toMarch 7,2011 January 29,2011 January 30,2010 January 31,2009 (Successor) (Successor) (Predecessor) (Predecessor) (Predecessor) (Predecessor) Income Statement Data: Total revenues $2,227,717 $1,721,750 $133,238 $1,722,227 $1,578,042 $1,427,970 Cost of goods sold, including buying andoccupancy costs 1,240,989 1,042,197 70,284 975,230 882,385 872,547 Gross profit 986,728 679,553 62,954 746,997 695,657 555,423 Selling, general and administrative expenses 733,070 574,877 79,736 533,029 484,396 458,738 Income (loss) from operations 253,658 104,676 (16,782) 213,968 211,261 96,685 Interest expense, net 101,684 91,683 1,166 3,914 5,384 5,940 Provision (benefit) for income taxes 55,887 584 (1,798) 88,549 82,517 36,628 Net income (loss) $96,087 $12,409 $(16,150) $121,505 $123,360 $54,117 Operating Data: Revenues: Stores $1,546,619 $1,194,276 $86,474 $1,192,876 $1,110,932 $974,284 Direct 651,480 502,033 43,642 490,594 428,186 408,916 Other 29,618 25,441 3,122 38,757 38,924 44,770 Total revenues $2,227,717 $1,721,750 $133,238 $1,722,227 $1,578,042 $1,427,970 Increase in comparable company sales 12.6% N/A N/A 6.7% 3.9% (0.2)% Stores: Sales per gross square foot $686 N/A N/A $601 $577 $551 Stores open at end of period 401 362 334 333 321 300 Direct: Millions of catalogs circulated 39.6 N/A N/A 41.1 36.4 44.4 Billions of pages circulated 4.2 N/A N/A 3.9 4.0 5.2 Capital expenditures: New stores $51,868 $29,820 $626 $14,873 $19,954 $41,700 Other 80,142 63,088 2,018 37,478 24,751 35,826 Total capital expenditures $132,010 $92,908 $2,644 $52,351 $44,705 $77,526 Depreciation of property and equipment $72,471 $59,595 $3,929 $49,756 $51,765 $44,143 Amortization of intangible assets $9,805 $8,988 $— $— $— $— (a)Consists of 53 weeks 25 As of February 2,2013 January 28,2012 January 29,2011 January 30,2010 January 31,2009 (Successor) (Successor) (Predecessor) (Predecessor) (Predecessor) Balance Sheet Data: Cash and cash equivalents $68,399 $221,852 $381,360 $298,107 $146,430 Working capital $85,764 $210,431 $364,220 $283,972 $183,059 Total assets $3,486,714 $3,573,522 $860,166 $738,558 $613,809 Total debt $1,579,000 $1,594,000 $— $49,229 $99,200 Stockholders’ equity $1,091,491 $1,177,052 $511,121 $375,878 $224,949 26ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.On March 7, 2011, the Company was acquired by Chinos Holdings, Inc., a company formed by TPG and LGP. Although the Company continued asthe same legal entity after the Acquisition, we have prepared separate discussion and analysis of our consolidated operating results, financial condition andliquidity for the following periods: (i) fiscal 2012 (Successor), (ii) March 8, 2011 to January 28, 2012 (Successor), and (iii) January 30, 2011 to March 7,2011 (Predecessor). Additionally, we have prepared supplemental discussion and analysis of the combination of the periods: (i) March 8, 2011 to January 28,2012 and (ii) January 30, 2011 to March 7, 2011, on a pro forma basis, (“pro forma fiscal 2011”) for purposes of comparison with fiscal 2012. The proforma results of operations for fiscal 2011 give effect to the Acquisition as if it occurred on the first day of the fiscal year.Our fiscal year ends on the Saturday closest to January 31. Fiscal 2011 and fiscal 2010 ended on January 28, 2012 and January 29, 2011,respectively, and consisted of 52 weeks each. Fiscal 2012 ended on February 2, 2013 and consisted of 53 weeks. The following discussion and analysisshould be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 10-K.Executive OverviewAs of February 2, 2013, we operated 295 retail stores (including eight crewcuts and 48 Madewell stores), 106 factory stores (including four crewcutsfactory store), and three clearance stores, throughout the United States and Canada.The following is a summary of fiscal 2012 (compared with pro forma fiscal 2011) highlights: • Revenues increased 20.1% to $2,227.7 million. • Comparable company sales increased 12.6%. • Direct net sales increased 19.4% to $651.5 million. • Income from operations increased $67.9 million to $253.7 million, or 11.4% of revenues. • We declared and paid a one-time special dividend of $197.5 million. • We opened 19 J.Crew retail stores, 10 J.Crew factory stores, and 17 Madewell stores. We closed four J.Crew retail stores, two crewcuts stores,and one Madewell store. • We launched a new website dedicated to our J.Crew factory business.Sales ChannelsWe have two primary sales channels: (1) Stores, which consists of our retail, crewcuts, clearance, Madewell and factory stores, and (2) Direct, whichconsists of our websites and catalogs. The following is a summary of our revenues: (Dollars in millions) Fiscal2012(a) Pro formaFiscal 2011 Fiscal2010 Stores $1,546.6 $1,280.7 $1,192.9 Direct 651.5 545.7 490.6 Net sales 2,198.1 1,826.4 1,683.5 Other, primarily shipping and handling fees 29.6 28.6 38.7 Total revenues $2,227.7 $1,855.0 $1,722.2 (a)consists of 53 weeks. 27How We Assess the Performance of Our BusinessIn assessing the performance of our business, we consider a variety of performance and financial measures. A key measure used in evaluating ourbusiness is comparable company sales. We also consider gross profit and selling, general and administrative expenses in assessing the performance of ourbusiness.Net SalesNet sales reflect our revenues from the sale of our merchandise less returns and discounts. We aggregate our merchandise into four sales categories:(i) women’s apparel, (ii) men’s apparel, (iii) children’s apparel, and (iv) accessories, which include shoes, socks, jewelry, bags, belts and hair accessories.The approximate percentage of our sales derived from these four categories is as follows: Fiscal2012 Pro formaFiscal 2011 Fiscal2010 Apparel Women’s 57% 58% 62% Men’s 24 23 21 Children’s 6 6 5 Accessories 13 13 12 100% 100% 100% Comparable Company SalesComparable company sales reflect: (i) net sales at stores that have been open for at least twelve months, (ii) direct net sales, and (iii) shipping andhandling fees, which are recorded as other revenues on our statements of operations. Comparable company sales exclude net sales from: (i) new stores thathave not been open for twelve months, (ii) the 53 week, if applicable, (iii) stores that experience a square footage change of at least 15 percent, (iv) stores thathave been temporarily closed for at least 30 consecutive days, (v) permanently closed stores, and (vi) temporary “pop up” stores.Measuring the change in year-over-year comparable company sales allows us to evaluate the performance of our business. Various factors affectcomparable company sales, including: • consumer preferences, fashion trends, buying trends and overall economic trends, • competition, • changes in our merchandise mix, • pricing, • the timing of our releases of new merchandise and promotional events, • the level of customer service that we provide, • our ability to source and distribute products efficiently, and • the number of stores we open, close (including on a temporary basis for renovations) and expand in any period.Cyclicality and SeasonalityThe industry in which we operate is cyclical, and consequently, our revenues are affected by general economic conditions. Purchases of apparel andaccessories are sensitive to a number of factors that influence the levels of consumer spending, including economic conditions and the level of disposableconsumer income, consumer debt, interest rates and consumer confidence. 28rdOur business is seasonal and as a result, our revenues fluctuate from quarter to quarter. We have four distinct selling seasons that align with our fourfiscal quarters. Revenues are usually higher in our fourth fiscal quarter, particularly December when customers make holiday purchases. In fiscal 2012, werealized approximately 29% of our revenues in the fourth fiscal quarter.Gross ProfitGross profit is determined by subtracting our cost of goods sold from our revenues. Cost of goods sold includes the direct cost of purchasedmerchandise, freight, design, buying and production costs, occupancy costs related to store operations (such as rent and utilities) and all shipping costsassociated with our Direct channel. Cost of goods sold varies directly with revenues, and therefore, is usually higher in our fourth fiscal quarter. Cost of goodssold also changes as we expand or contract our store base and incur higher or lower store occupancy costs. The primary drivers of the costs of individualgoods are the costs of raw materials and labor in the countries where we source our merchandise. Gross margin measures gross profit as a percentage of ourrevenues.Our gross profit may not be comparable to other specialty retailers, as some companies include all of the costs related to their distribution network incost of goods sold while others, like us, exclude all or a portion of them from cost of goods sold and include them in selling, general and administrativeexpenses.Selling, General and Administrative ExpensesSelling, general and administrative expenses include all operating expenses not included in cost of goods sold, primarily catalog production and mailingcosts, certain warehousing expenses, administrative payroll, store expenses other than occupancy costs, depreciation and amortization and credit card fees.These expenses do not necessarily vary proportionally with net sales.Results of OperationsThe following table presents our operating results as a percentage of revenues as well as selected store data: Fiscal2012 Pro formaFiscal 2011 Fiscal2010 Revenues 100.0% 100.0% 100.0% Cost of goods sold, including buying and occupancy costs(1) 55.7 58.3 56.6 Gross profit(1) 44.3 41.7 43.4 Selling, general and administrative expenses(1) 32.9 31.7 30.9 Income from operations 11.4 10.0 12.4 Interest expense, net 4.6 5.5 0.2 Income before income taxes 6.8 4.6 12.2 Provision for income taxes 2.5 1.8 5.1 Net income 4.3% 2.8% 7.1% Fiscal2012 Pro formaFiscal 2011 Fiscal2010 Selected company data: Number of stores open at end of period 401 362 333 Store sales per gross square foot(2) $686 $618 $601 Increase in comparable company sales(2) 12.6% 3.3% 6.7% (1)We exclude a portion of our distribution network costs from the cost of goods sold and include them in selling, general and administrative expenses. Ourgross profit therefore may not be directly comparable to that of some of our competitors.(2)Calculated on a 52-week basis. 29Results of Operations—Fiscal 2012 (Successor) Fiscal 2012(a) (Dollars in millions) Amount Percent ofRevenues Revenues $2,227.7 100.0% Gross profit 986.7 44.3 Selling, general & administrative expenses 733.1 32.9 Income from operations 253.7 11.4 Interest expense, net 101.7 4.6 Provision for income taxes 55.9 2.5 Net income $96.1 4.3% (a)Consists of 53 weeks.RevenuesRevenues were $2,227.7 million in fiscal 2012. Revenues consisted of (i) Stores sales of $1,546.6 million, or 69.4% of revenues, (ii) Direct sales of$651.5 million, or 29.3% of revenues, and (iii) other revenues (primarily shipping and handling fees) of $29.6 million, or 1.3% of revenues. Revenuesreflect higher than planned Stores sales.Gross ProfitGross profit was $986.7 million, or 44.3% of revenues in fiscal 2012. Gross profit was impacted by lower than planned markdowns.Selling, General and Administrative ExpensesSelling, general and administrative expenses were $733.1 million, 32.9% of revenues in fiscal 2012.Interest Expense, NetInterest expense, net of interest income, was $101.7 million in fiscal 2012. Interest expense reflects debt service on borrowings used to finance theAcquisition of the Company on March 7, 2011.Provision for Income TaxesThe effective tax rate was 36.7% in fiscal 2012. The difference between the statutory rate of 35% and the effective tax rate was driven primarily by stateand local income taxes, partially offset by a reduction in uncertain tax positions due to the expiration of statute of limitations.Net IncomeNet income was $96.1 million in fiscal 2012 driven primarily by gross profit of $986.7 million offset by selling, general and administrative expensesof $733.1 million and interest expense of $101.7 million. 30Results of Operations—For the Period March 8, 2011 to January 28, 2012 (Successor) For the PeriodMarch 8, 2011 toJanuary 28, 2012 (Dollars in millions) Amount Percent ofRevenues Revenues $1,721.8 100.0% Gross profit 679.6 39.5 Selling, general & administrative expenses 574.9 33.4 Income from operations 104.7 6.1 Interest expense, net 91.7 5.3 Provision for income taxes 0.6 0.0 Net income $12.4 0.7% RevenuesRevenues were $1,721.8 million for the period March 8, 2011 to January 28, 2012. Revenues consisted of (i) Stores sales of $1,194.3 million, or69.4% of revenues, (ii) Direct sales of $502.0 million, or 29.2% of revenues, and (iii) other revenues (primarily shipping and handling fees) of $25.5million, or 1.5% of revenues. Revenues reflect lower than planned Stores sales and shipping and handling fees.Gross ProfitGross profit was $679.6 million, or 39.5% of revenues, for the period March 8, 2011 to January 28, 2012. Gross profit was impacted by higher thanplanned markdowns, and includes the impact of purchase accounting of $36.1 million.Selling, General and Administrative ExpensesSelling, general and administrative expenses were $574.9 million, 33.4% of revenues, for the period March 8, 2011 to January 28, 2012, and includethe impact of purchase accounting and transaction costs relating to the Acquisition of $64.9 million.Interest Expense, NetInterest expense, net of interest income, was $91.7 million for the period March 8, 2011 to January 28, 2012. Interest expense reflects debt service onborrowings used to finance the Acquisition of the Company on March 7, 2011.Provision for Income TaxesThe effective tax rate was 4.5% for the period March 8, 2011 to January 28, 2012. The difference between the statutory rate of 35% and the effective taxrate was driven primarily by non-deductible transaction costs relating to the Acquisition.Net IncomeNet income was $12.4 million for the period March 8, 2011 to January 28, 2012 driven primarily by gross profit of $679.6 million offset by selling,general and administrative expenses of $574.9 million (including the impact of purchase accounting and transaction costs relating to the Acquisition of $101.0million) and interest expense of $91.7 million. 31Results of Operations—For the Period January 30, 2011 to March 7, 2011 (Predecessor) For the PeriodJanuary 30, 2011 toMarch 7, 2011 (Dollars in millions) Amount Percent ofRevenues Revenues $133.2 100.0% Gross profit 62.9 47.2 Selling, general & administrative expenses 79.7 59.8 Loss from operations (16.8) (12.6) Interest expense, net 1.2 0.9 Benefit for income taxes (1.8) (1.3) Net loss $(16.1) (12.1)% RevenuesRevenues were $133.2 million for the period January 30, 2011 to March 7, 2011. Revenues consisted of (i) Stores sales of $86.5 million, or 64.9% ofrevenues, (ii) Direct sales of $43.6 million, or 32.8% of revenues, and (iii) other revenues (primarily shipping and handling fees) of $3.1 million, or 2.3% ofrevenues. Revenues reflect lower than planned Stores sales.Gross ProfitGross profit was $62.9 million, or 47.2% of revenues, for the period January 30, 2011 to March 7, 2011. Gross profit was impacted by higher thanplanned markdowns.Selling, General and Administrative ExpensesSelling, general and administrative expenses were $79.7 million, 59.8% of revenues, for the period January 30, 2011 to March 7, 2011, and includetransaction costs relating to the Acquisition of $32.2 million.Interest Expense, NetInterest expense, net of interest income, was $1.2 million for the period January 30, 2011 to March 7, 2011. Interest expense reflects primarily the writeoff of the remaining unamortized deferred financing costs associated with the credit facility terminated in connection with the Acquisition.Provision for Income TaxesThe effective tax rate was 10% for the period January 30, 2011 to March 7, 2011. The difference between the statutory rate of 35% and the effective taxrate was driven primarily by non-deductible transaction costs relating to the Acquisition.Net LossNet loss was $16.1 million for the period January 30, 2011 to March 7, 2011 driven primarily by selling, general and administrative expenses of$79.7 million (including transaction costs relating to the Acquisition of $32.2 million), offset by gross profit of $62.9 million. 32Supplemental MD&A—Results of Operations—Fiscal 2012 compared with Pro forma Fiscal 2011 (Dollars in millions) For the PeriodMarch 8, 2011 toJanuary 28,2012 For the PeriodJanuary 30, 2011 toMarch 7, 2011 Adjustments Pro formaFiscal 2011 (Successor) (Predecessor) Revenues $1,721.8 $133.2 $— $1,855.0 Gross profit 679.6 62.9 30.7(a) 773.2 Selling, general and administrative expenses 574.9 79.7 (67.2)(a) 587.4 Income (loss) from operations 104.7 (16.8) 97.9(a) 185.8 Interest expense, net 91.7 1.1 8.5(b) 101.3 Provision (benefit) for income taxes 0.6 (1.8) 34.1(c) 32.9 Net income (loss) $12.4 $(16.1) $55.2 $51.5 Notes:(a)To give effect to the following adjustments: (Dollars in millions) Adjustments Amortization expense(1) $0.8 Depreciation expense(2) 0.9 Sponsor monitoring fees(3) 0.6 Amortization of lease commitments, net(4) 2.2 Elimination of non-recurring charges(5) (102.4) Total pro forma adjustment $(97.9) Pro forma adjustment: Recorded in cost of goods sold $(30.7) Recorded in selling, general and administrative expenses (67.2) Total $(97.9) (1)To record five weeks of additional amortization expense to reflect a full year of amortization of intangible assets for our Madewell brandname, loyalty program and customer lists amortized on a straight-line basis over their respective useful lives. (2)To record five weeks of additional depreciation expense to reflect a full year of depreciation of the step-up of property and equipmentallocated on a straight-line basis over a weighted average remaining useful life of 8.2 years. (3)To record five weeks of additional expense to reflect a full year of an annual monitoring fee (calculated as the greater of 40 basis points ofannual revenues or $8 million) to be paid to the Sponsors in accordance with a management services agreement. (4)To record five weeks of additional amortization expense to reflect a full year of amortization of favorable and unfavorable leasecommitments amortized on a straight-line basis over the remaining lease life, offset by the elimination of the amortization of historicaldeferred rent credits. (5)To eliminate non-recurring charges that were incurred in connection with the Acquisition, including related share based compensation,transaction costs, transaction-related litigation recoveries, and amortization of the step-up in the carrying value of inventory. 33(b)To give effect to the following adjustments: (Dollars in millions) Adjustments Pro forma cash interest expense(1) $91.7 Pro forma amortization of deferred financing costs(1) 9.6 Less historical interest expense, net (92.8) Total pro forma adjustment to interest expense, net $8.5 (1)To record a full year of interest expense associated with borrowings under the Term Loan Facility and the Notes, and the amortization ofdeferred financing costs. Pro forma cash interest expense reflects a weighted-average interest rate of 5.6%. If LIBOR increases above1.25%, a 0.125% increase would increase annual interest expense under the Term Loan Facility by $1.5 million. (c)To reflect our expected annual effective tax rate of approximately 39%. Fiscal 2012(a) Pro formaFiscal 2011 VarianceIncrease / (Decrease) (Dollars in millions) Amount Percent ofRevenues Amount Percent ofRevenues Dollars Percentage Revenues $2,227.7 100.0% $1,855.0 100.0% $372.7 20.1% Gross profit 986.7 44.3 773.2 41.7 213.5 27.6 Selling, general and administrative expenses 733.1 32.9 587.4 31.7 145.7 24.8 Income from operations 253.7 11.4 185.8 10.0 67.9 36.5 Interest expense, net 101.7 4.6 101.3 5.5 0.4 0.3 Provision for income taxes 55.9 2.5 32.9 1.8 23.0 69.7 Net income $96.1 4.3% $51.5 2.8% $44.6 86.5% (a)Consists of 53 weeks.RevenuesRevenues increased $372.7 million, or 20.1%, to $2,227.7 million in fiscal 2012 from $1,855.0 million last year, driven primarily by an increase insales of women’s apparel, specifically sweaters, knits, and shirts. Revenues generated in the 53 week were $20.9 million. Comparable company salesincreased 12.6% in fiscal 2012. Comparable company sales increased 3.3% in pro forma fiscal 2011.Stores sales increased $265.8 million, or 20.8%, to $1,546.6 million in fiscal 2012 from $1,280.8 million last year. Store sales increased 7.4% in proforma fiscal 2011. Sales from stores that have been open for less than twelve months were $187.4 million in fiscal 2012.Direct sales increased $105.8 million, or 19.4%, to $651.5 million in fiscal 2012 from $545.7 million last year. Direct sales increased $55.1 million,or 11.2%, in fiscal 2011.Other revenues, which consist primarily of shipping and handling fees, increased $1.1 million, or 3.7%, to $29.6 million in fiscal 2012 from $28.6million last year. This increase resulted primarily from revenues from third party resellers, offset by decreased shipping and handling fees. 34rdGross ProfitGross profit increased $213.5 million to $986.7 million in fiscal 2012 from $773.2 million last year. This increase resulted from the following factors: (Dollars in millions) Increase Increase in revenues $201.1 Increase in merchandise margin 35.7 Increase in buying and occupancy costs (23.3) Total increase in gross profit $213.5 Gross margin increased to 44.3% in fiscal 2012 from 41.7% last year. The increase in gross margin was driven by: (i) a 160 basis point expansion inmerchandise margin due to decreased markdowns and (ii) a 100 basis point decrease in buying and occupancy costs as a percentage of revenues.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $145.7 million, or 24.8%, to $733.1 million in fiscal 2012 from $587.4 million last year. Thisincrease primarily resulted from the following: (Dollars in millions) Increase Increase in operating expenses, primarily non-comparable store expenses and payroll $73.2 Increase in share-based and incentive compensation 34.4 Increase in advertising and catalog costs 8.2 Increase in depreciation 8.1 Increase in other selling, general and administrative expenses, net 21.8 Total increase in selling, general and administrative expenses $145.7 As a percentage of revenues, selling, general and administrative expenses increased to 32.9% in fiscal 2012 from 31.7% last year.Interest Expense, NetInterest expense, net of interest income, increased $0.4 million to $101.7 million in fiscal 2012 from $101.3 million last year. A summary of interestexpense is as follows: (Dollars in millions) Fiscal 2012 Pro formaFiscal 2011 Term Loan $57.9 $57.2 Notes 32.5 32.5 Amortization of deferred financing costs 9.6 9.6 Other, net of interest income 1.7 2.0 Interest expense, net $101.7 $101.3 Income TaxesThe effective tax rate for fiscal 2012 was 36.7%. The difference between the statutory rate of 35% and the effective rate was driven primarily by stateand local income taxes, partially offset by a reduction in uncertain tax positions due to the expiration of statute of limitations. 35Net IncomeNet income increased $44.6 million to $96.1 million in fiscal 2012 from $51.5 million last year. This increase was due to an: (i) increase in grossprofit of $213.5 million, partially offset by (ii) increase in selling, general and administrative expenses of $145.7 million, (iii) increase in provision forincome taxes of $23.0 million and (iv) increase in interest expense of $0.4 million.Pro forma Fiscal 2011 compared with Fiscal 2010 Pro formaFiscal 2011 Fiscal 2010 VarianceIncrease / (Decrease) (Dollars in millions) Amount Percent ofRevenues Amount Percent ofRevenues Dollars Percentage Revenues $1,855.0 100.0% $1,722.2 100.0% $132.8 7.7% Gross profit 773.2 41.7 747.0 43.4 26.2 3.5 Selling, general and administrative expenses 587.4 31.7 533.0 30.9 54.4 10.2 Income from operations 185.8 10.0 214.0 12.4 (28.2) (13.2) Interest expense, net 101.3 5.5 3.9 0.2 97.4 NM Provision for income taxes 32.9 1.8 88.5 5.1 (55.6) (62.8) Net income $51.5 2.8% $121.5 7.1% $(70.0) (57.6)% RevenuesRevenues increased $132.8 million, or 7.7%, to $1,855.0 million in pro forma fiscal 2011 from $1,722.2 million in fiscal 2010, driven primarily byan increase in men’s apparel, specifically woven shirts, pants and knits. Comparable company sales increased 3.3% in pro forma fiscal 2011.Stores sales increased $87.9 million, or 7.4%, to $1,280.8 million in pro forma fiscal 2011 from $1,192.9 million in fiscal 2010. Stores salesincreased 7.4% in fiscal 2010. Sales from stores that have been open for less than twelve months were $133.8 million in pro forma fiscal 2011.Direct sales increased $55.1 million, or 11.2%, to $545.7 million in pro forma fiscal 2011 from $490.6 million in fiscal 2010. Direct sales increased$62.4 million, or 14.6%, in fiscal 2010.Other revenues, which consist primarily of shipping and handling fees, decreased $10.2 million, or 26.3%, to $28.6 million in pro forma fiscal 2011from $38.8 million in fiscal 2010. This decrease resulted primarily from shipping and handling promotions partially offset by the impact of shipping andhandling fees from increased Direct sales.Gross ProfitGross profit increased $26.2 million to $773.2 million in pro forma fiscal 2011 from $747.0 million in fiscal 2010. This increase resulted from thefollowing factors: Increase (decrease) (Dollars in millions) Before PurchaseAccounting Related toPurchaseAccounting(1) Total Increase in revenues $72.6 $— $72.6 Decrease in merchandise margin (46.0) — (46.0) Increase (decrease) in buying and occupancy costs 3.6 (4.0) (0.4) Total increase (decrease) in gross profit $30.2 $(4.0) $26.2 (1)Represents amortization of favorable and unfavorable store lease commitments. 36Gross margin decreased to 41.7% in pro forma fiscal 2011 from 43.4% in fiscal 2010. The decrease in gross margin was driven by: (i) a 250 basis pointdeterioration in merchandise margin due to increased markdowns, (ii) a 20 basis point decrease from the purchase accounting adjustments described in thetable above, offset by (iii) a 100 basis point decrease in buying and occupancy costs as a percentage of revenues.Selling, General and Administrative ExpensesSelling, general and administrative expenses increased $54.4 million, or 10.2%, to $587.4 million in pro forma fiscal 2011 from $533.0 million infiscal 2010. This increase primarily resulted from the following: Increase (decrease) (Dollars in millions) BeforePurchaseAccounting Related toPurchaseAccounting &Acquisition Total Increase in operating expenses, primarily non-comparable stores expenses and payroll $30.6 $— $30.6 Increase in advertising and catalog costs 14.8 — 14.8 Increase in depreciation 5.5 — 5.5 Decrease in share-based and incentive compensation (11.0) — (11.0) Amortization of acquisition-related intangible assets — 9.8 9.8 Depreciation of step-up in carrying value of fixed assets — 9.2 9.2 Sponsor monitoring fees — 8.0 8.0 Amortization of favorable corporate lease commitments — 2.7 2.7 Decrease in transaction costs — (20.0) (20.0) Increase in other selling, general and administrative expenses, net 4.8 — 4.8 Total increase in selling, general and administrative expenses $44.7 $9.7 $54.4 As a percentage of revenues, selling, general and administrative expenses increased to 31.7% in pro forma fiscal 2011 from 30.9% in fiscal 2010. As apercentage of revenues, selling, general and administrative expenses, without the impact of purchase accounting, decreased to 30.1% in pro forma fiscal 2011from 30.9% in fiscal 2010.Interest Expense, NetInterest expense, net of interest income, increased $97.4 million to $101.3 million in pro forma fiscal 2011 from $3.9 million in fiscal 2010 due toborrowings to finance the Acquisition. A summary of interest expense is as follows: (Dollars in millions) Pro formaFiscal 2011 Fiscal 2010 Term Loan $57.2 $— Notes 32.5 — Former term loan (extinguished in August 2010) — 0.6 Amortization of deferred financing costs 9.6 2.1 Other, net of interest income 2.0 1.2 Interest expense, net $101.3 $3.9 Income TaxesThe effective tax rate of 39% for pro forma fiscal 2011 reflects our expected annual effective tax rate.Net IncomeNet income decreased $70.0 million to a net income of $51.5 million in pro forma fiscal 2011 from $121.5 million in fiscal 2010. This decrease wasdue to: (i) an increase in selling, general and administrative expenses of $54.4 million and (ii) an increase in interest expense of $97.4 million, partially offsetby (iv) an increase in gross profit of $26.2 million and (iv) a decrease in the provision for income taxes of $55.6 million. 37Liquidity and Capital ResourcesOur primary sources of liquidity are our current balances of cash and cash equivalents, cash flows from operations and availability under the ABLFacility. Our primary cash requirements consist principally of the funding of our merchandise inventory purchases, capital expenditures in connection withnew store construction and remodeling our existing stores, upgrades in our distribution network, and management information technology, debt servicerequirements and income tax obligations.On February 2, 2013, cash and cash equivalents were $68.4 million compared to $221.9 million at January 28, 2012. In addition to the cash generatedby our operating activities, net of working capital requirements, a significant change in cash flows in fiscal 2012 included a one-time special dividend of$197.5 million paid in December 2012. See note 1 to the consolidated financial statements for further information with respect to this dividend.See “—Outlook” below.Operating Activities For the Year Ended For the Period For the Year Ended February 2,2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011to March 7, 2011 January 29,2011 (Successor) (Successor) (Predecessor) (Predecessor) Net income (loss) $96.1 $12.4 $(16.1) $121.5 Adjustments to reconcile to cash flows fromoperating activities: Depreciation of property and equipment 72.5 59.6 3.9 49.8 Share-based compensation 5.3 48.0 1.1 10.7 Non-cash charge related to step-up incarrying value of inventory — 32.5 — — Deferred income taxes (8.9) (29.8) 2.7 (2.0) Amortization of favorable leasecommitments 13.8 12.1 — — Amortization of intangible assets 9.8 9.0 — — Amortization of deferred financing costs 9.6 8.8 1.0 2.1 Excess tax benefits from share-basedawards — — (74.5) (0.4) Changes in inventories (23.0) (8.0) (20.2) (24.2) Changes in accounts payable and other currentliabilities 29.9 58.6 (2.4) 30.3 Changes in other operating assets andliabilities (10.9) 43.1 3.4 (6.0) Net cash provided by (used in) operatingactivities $194.2 $246.3 $(101.1) $181.8 Cash provided by operating activities in fiscal 2012 was $194.2 million and consisted of (i) net income of $96.1 million, (ii) adjustments to net incomeof $102.1 million, offset by (iii) changes in operating assets and liabilities of $4.0 million due primarily to increases in prepaid income taxes and inventories. 38Cash provided by operating activities from March 8, 2011 to January 28, 2012 (Successor) was $246.3 million and consisted of (i) net income of$12.4 million, (ii) adjustments to net income of $140.2 million, and (iii) changes in operating assets and liabilities of $93.7 million due primarily to adecrease in prepaid income taxes, offset by an increase in inventories and related accounts payable.Cash used in operating activities from January 30, 2011 to March 7, 2011 (Predecessor) was $101.1 million and resulted from (i) net loss of $16.1million, (ii) adjustments to net loss of $65.8 million, and (iii) changes in operating assets and liabilities of $19.2 million due primarily to an increase ininventories and related accounts payable.Cash provided by operating activities in fiscal 2010 was $181.8 million and consisted of (i) net income of $121.5 million, (ii) adjustments to netincome of $60.2 million, and (iii) changes in operating assets and liabilities of $0.1 million due primarily to increases in inventories and related accountspayable, offset by an accrual for litigation costs in connection with the Acquisition.Investing Activities For the Year Ended For the Period For the Year Ended February 2, 2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011 toMarch 7, 2011 January 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Capital expenditures: New stores $51.9 $29.8 $0.6 $14.9 Information technology 37.1 20.5 1.1 22.6 Other(1) 43.0 42.6 0.9 14.9 Net cash used in investing activities $132.0 $92.9 $2.6 $52.4 (1)Includes capital expenditures for warehouse and corporate office expansion, store renovations and general corporate purposes.Capital expenditures are planned at approximately $135 to $145 million for fiscal 2013, including $55 to $60 million for new stores, $40 to $45million for information technology enhancements, $15 to $20 million for warehouse and corporate office expansion, and the remainder for store renovationsand general corporate purposes. 39Financing Activities For the Year Ended For the Period For the Year Ended February 2, 2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011to March 7, 2011 January 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Proceeds from debt $— $1,600.0 $— $— Proceeds from equity contributions — 1,170.7 — — Payment of dividend (197.5) — — — Excess tax benefit from share-based awards — — 74.5 0.4 Payment of debt issuance costs — (67.5) — — Proceeds from share-based compensationplans — — 1.1 5.6 Repayment of debt (15.0) (6.0) — (49.2) Costs incurred in refinancing debt (2.7) Repurchases of common stock — — — (2.9) Contribution to Parent (0.5) — — — Net cash provided by (used in) financingactivities $(215.7) $2,697.2 $75.6 $(46.1) Cash used in financing activities was $215.7 million in fiscal 2012 resulting primarily from the payment of a one-time special dividend and repaymentof debt.Cash provided by financing activities was $2,697.2 million from March 8, 2011 to January 28, 2012 resulting from the net proceeds from debt andequity contributions, offset primarily by the payment of debt issuance costs.Cash provided by financing activities was $75.6 million from January 30, 2011 to March 7, 2011 resulting primarily from the tax benefits from sharebased compensation plans.Cash used in financing activities was $46.1 million in fiscal 2010 resulting primarily from the voluntary prepayment on the prior term loan.Financing ArrangementsABL FacilityIn connection with the Acquisition, on March 7, 2011, we entered into the ABL Facility, governed by an asset-based credit agreement with Bank ofAmerica, N.A., as administrative agent and the other agents and lenders party thereto, that provides senior secured financing of $250 million (which may beincreased by up to $75 million in certain circumstances), subject to a borrowing base limitation. On October 11, 2012, we entered into an amendment to theABL Facility (the “First ABL Amendment”), with Bank of America, N.A., as administrative agent, and the other lenders party thereto. The borrowing baseunder the ABL Facility equals the sum of: 90% of the eligible credit card receivables; plus, 85% of eligible accounts; plus, 90% (or 92.5% for the period ofAugust 1 through December 31 of any fiscal year) of the net recovery percentage of eligible inventory multiplied by the cost of eligible inventory; plus, 85% ofthe net recovery percentage of eligible letters of credit inventory, multiplied by the cost of eligible letter of credit inventory; plus, 85% of the net recoverypercentage of eligible in-transit inventory, multiplied by the cost of eligible in-transit inventory; plus, 100% of qualified cash; minus, all availability andinventory reserves. The ABL Facility includes borrowing capacity in the form of letters of credit up to the entire amount of the facility, and up to $25 millionin U.S. dollars for loans on same-day 40notice, referred to as swingline loans, and is available in U.S. dollars, Canadian dollars and Euros. Any amounts outstanding under the ABL Facility are dueand payable in full on the fifth anniversary of the First ABL Amendment.Loans drawn under the ABL Facility bear interest at a rate per annum equal to, at Group’s option, any of the following, plus, in each case, anapplicable margin: (a) in the case of loans in U.S. dollars, a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A.,(2) the federal funds effective rate plus 0.50% and (3) a LIBOR determined by reference to the costs of funds for U.S. dollar deposits for an interest period ofone month adjusted for certain additional costs, plus 1.00%; (b) in the case of loans in U.S. dollars or in Euros, a LIBOR determined by reference to the costsof funds for deposits in the relevant currency for the interest period relevant to such loan adjusted for certain additional costs; (c) in the case of loans inCanadian dollars, the average offered rate for Canadian dollar bankers’ acceptances having an identical term of the applicable loan; and (d) in the case ofloans in Canadian dollars, a fluctuating rate determined by reference to the higher of (1) the average offered rate for 30 day Canadian dollar bankers’acceptances plus 0.50% and (2) the prime rate of Bank of America, N.A. for loans in Canadian dollars. The applicable margin for loans under the ABLFacility varies based on Group’s average historical excess availability and ranges from 0.50% to 1.00% with respect to base rate loans and loans in Canadiandollars bearing interest at the rate described in the immediately preceding clause (d), and from 1.50% to 2.00% with respect to LIBOR loans and loans inCanadian dollars bearing interest at the rate described in the immediately preceding clause (c). In addition, Group is required to pay a commitment fees of0.25% per annum, in respect of the unused commitments as well as customary letter of credit and agency fees.On February 2, 2013, outstanding standby letters of credit were $6.4 million and excess availability, as defined, was $243.6 million. We incurred loansunder the ABL Facility in February and March of 2013, of which $8 million remains outstanding as of the filing date of this report. We did not incur loansunder the ABL Facility in fiscal years 2011 and 2012.See note 9 to the consolidated financial statements for a further description of the terms of the ABL Facility.Demand Letter of Credit FacilityThe Company has an unsecured, demand letter of credit facility with HSBC which provides for the issuance of up to $35 million of documentaryletters of credit on a no fee basis. On February 2, 2013, outstanding documentary letters of credit were $7.8 million and availability was $27.2 million underthis facility.Term LoanIn connection with the Acquisition, on March 7, 2011, we entered into the Term Loan Facility, governed by a $1,200 million term loan credit agreementwith Bank of America, N.A., as administrative agent and the other agents and lenders party thereto. On December 18, 2012, the Term Loan Facility wasamended to (i) permit a one-time dividend to Chinos Intermediate Holdings B, Inc. (and by Chinos Intermediate Holdings B, Inc. to any direct or indirectparent of Holdings) in an amount up to $200 million and (ii) modify certain exceptions to the restrictive covenants in the credit agreement governing the TermLoan Facility that restrict the ability of Holdings, Group and its subsidiaries to pay dividends on, or redeem or repurchase capital stock, prepay indebtednessand make investments.We are required to make principal repayments equal to 0.25% of the original principal amount of the term loan, or $3 million, on the last business dayof January, April, July, and October. We are also required to repay the term loan based on annual excess cash flow as defined in the agreement, under certaincircumstances. Borrowings under the Term Loan mature on the seventh anniversary of the closing date of the Acquisition.Borrowings under the Term Loan Facility bear interest at a rate per annum equal to an applicable margin plus, at Group’s option, either (a) a base ratedetermined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBORdetermined by reference to the 41costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or (b) a LIBOR determined byreference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which shall be noless than 1.25% (the “LIBOR Floor”). The applicable margin for borrowings under the Term Loan Facility varies based upon Group’s senior secured netleverage ratio and ranges between 2.25% to 2.50% with respect to base rate borrowings and from 3.25% to 3.50% with respect to LIBOR borrowings.The interest rate on the $1,179 million in outstanding borrowings pursuant to the Term Loan Facility was 4.50% on February 2, 2013. The applicablemargin with respect to base rate borrowings was 2.25% and the LIBOR Floor and applicable margin with respect to LIBOR borrowings were 1.25% and3.25%, respectively, at February 2, 2013.On February 4, 2013, we further amended the Term Loan Facility to, among other things, replace the $1,179 million in outstanding term loans with anew class of term loans, and reduce the applicable margin and LIBOR Floor with respect to the new class of term loans. Following the amendment, theapplicable margin with respect to base rate borrowings is 2.00% and the LIBOR Floor and applicable margin with respect to LIBOR borrowings are 1.00% and3.00%, respectively.See note 9 to the consolidated financial statements for a further description of the terms of the Term Loan.OutlookOur short-term and long-term liquidity needs arise primarily from (i) debt service requirements, including principal repayments required pursuant to theTerm Loan Facility, (ii) capital expenditures and (iii) working capital needs. Management anticipates that capital expenditures in fiscal 2013 will beapproximately $135 to $145 million, primarily for opening new stores, information technology enhancements, store renovations and corporate facilities.Management believes that our current balances of cash and cash equivalents, cash flow from operations and amounts available pursuant to the ABL Facilitywill be adequate to fund our planned debt service requirements, capital expenditures and working capital requirements for the next twelve months. Our abilityto fund our debt service requirements and to remain in compliance with the financial covenants, to make planned capital expenditures and to fund ouroperations depends on our future operating performance, which in turn, may be impacted by prevailing economic conditions and other financial and businessfactors, some of which are beyond our control. See Item 1A. “Risk Factors” in part II of this report.Off Balance Sheet ArrangementsWe enter into documentary letters of credit to facilitate a portion of our international purchase of merchandise. We also enter into standby letters of creditas required primarily to secure certain of our insurance obligations. As of February 2, 2013, we had the following obligations under letters of credit in futureperiods. Letters of Credit Total Within1 Year 2-3Years 4-5Years After 5Years (in millions) Standby $6.4 $6.4 $— $— $— Documentary 7.8 7.8 — — — $14.2 $14.2 $— $— $— 42Contractual ObligationsThe following table summarizes our contractual obligations as of February 2, 2013 and the effect such obligations are expected to have on our liquidityand cash flows in future periods: Total Within1 Year 2-3Years 4-5Years After 5Years (in millions) Operating lease obligations(1) $1,010.1 $134.4 $265.2 $242.4 $368.1 Liabilities associated with uncertain tax positions(2) Purchase obligations: Inventory commitments 509.8 509.8 — — — Employment agreements 4.2 1.5 2.6 0.1 — Millrace purchase(5) 2.0 2.0 — — — Other 3.0 1.6 1.4 — — Total purchase obligations 519.0 514.9 4.0 0.1 — Senior Credit Facilities(3)(4) 1,179.0 12.0 24.0 24.0 1,119.0 Notes(4) 400.0 — — — 400.0 Total $3,108.1 $661.3 $293.2 $266.5 $1,887.1 (1)Operating lease obligations represent obligations under various long-term operating leases entered in the normal course of business for retail and factorystores, warehouses, office space and equipment requiring minimum annual rentals. Operating lease expense is a significant component of our operatingexpenses. The lease terms range for various periods of time in various rental markets and are entered into at different times, which mitigates exposure tomarket changes that could have a material effect on our results of operations within any given year. Operating lease obligations do not include commonarea maintenance, insurance, taxes and other occupancy costs, which constitute approximately 45% of the minimum lease obligations.(2)As of February 2, 2013, we have recorded $5.2 million in liabilities associated with uncertain tax positions, which are included in other liabilities on theconsolidated balance sheet. While these tax liabilities may result in future cash outflows, management cannot make reliable estimates of the cash flowsby period due to the inherent uncertainty surrounding the effective settlement of these positions.(3)Our Senior Credit Facilities are comprised of a $1,179 million Term Loan Facility and a $250 million ABL Facility. The amount reflected does not takeinto account any amounts that may be required to be prepaid from time to time with our free cash flow.(4)Amounts shown do not include interest.(5)On February 4, 2013, we purchased for $2 million an additional facility (which we formerly leased) near our distribution center in Lynchburg, Virginia.Impact of InflationOur results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflationdue to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our results of operations and financial condition have notbeen significant.Recent Accounting PronouncementsIn May 2011, a pronouncement was issued providing consistent definitions and disclosure requirements of fair value with respect to U.S. GAAP andInternational Financial Reporting Standards. The pronouncement changed certain fair value measurement principles and enhanced the disclosure requirements,particularly for Level 3 measurements. The changes were effective prospectively for interim and annual periods beginning after December 15, 2011. Weadopted this pronouncement on January 29, 2012. The adoption of this guidance did not have a significant impact on our condensed consolidated financialstatements. 43In June 2011, a pronouncement was issued that amended the guidance relating to the presentation of comprehensive income and its components. Thepronouncement eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity topresent the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuousstatement of comprehensive income or in two separate but consecutive statements. We adopted this pronouncement on January 29, 2012. The adoption of thisguidance required changes in presentation only and therefore did not have a significant impact on our condensed consolidated financial statements.In September 2011, a pronouncement was issued that amended the guidance for goodwill impairment testing. The pronouncement allows the entity toperform an initial qualitative assessment to determine whether it is “more likely than not” that the fair value of the reporting unit is less than its carryingamount. This assessment is used as a basis for determining whether it is necessary to perform the two step goodwill impairment test. The methodology forhow goodwill is calculated, assigned to reporting units, and the application of the two step goodwill impairment test have not been revised. The pronouncementis effective for fiscal years beginning after December 15, 2011. We adopted this pronouncement in the fourth quarter of fiscal 2011. The adoption did not havea significant impact on our condensed consolidated financial statements.In December 2011, a pronouncement was issued that amended the guidance related to the disclosure of recognized financial instruments and derivativeinstruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The amended provisions areeffective for fiscal years beginning on or after January 1, 2013, and are required to be applied retrospectively for all prior periods presented. As thispronouncement relates to disclosure only, the adoption of this amendment will not have a significant impact on our condensed consolidated financialstatements.Critical Accounting PoliciesManagement’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statementsrequires estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses. Management bases estimates on historicalexperience and other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results maydiffer from these estimates under different assumptions or conditions.The following critical accounting policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorableor unfavorable impact on subsequent consolidated results of operations. For more information on our accounting policies, please refer to the Notes toConsolidated Financial Statements in this annual report on Form 10-K.Revenue Recognition • We recognize Store sales at the point of sale, and Direct sales at an estimated date of receipt by the customer. Amounts billed to customers forshipping and handling of Direct sales are classified as other revenues. We must make estimates of future sales returns related to current periodsales. Management analyzes historical returns, current economic trends and changes in customer acceptance of our products when evaluating theadequacy of the reserve for sales returns. • Employee discounts are classified as a reduction of revenue. • We account for gift cards by recognizing a liability at the time a gift card is sold and recognizing revenue at the time the gift card is redeemed formerchandise. We review our gift card liability on an ongoing basis and recognize our estimate of the unredeemed gift card liability on a ratablebasis over 44 the estimated period of redemption. We defer revenue and recognize a liability for gift cards issued in connection with our customer loyaltyprogram. Any unredeemed loyalty gift cards are recognized as income in the period in which they expire.Inventory ValuationMerchandise inventories are carried at the lower of average cost or market value. We capitalize certain design, purchasing and warehousing costs ininventory. We evaluate all of our inventories to determine excess inventories based on estimated future sales. Excess inventories may be disposed of through ourDirect channel, factory stores and other liquidations. Based on historical results experienced through various methods of disposition, we write down thecarrying value of inventories that are not expected to be sold at or above cost. Additionally, we reduce the cost of inventories based on an estimate of lost orstolen items each period.Deferred Catalog CostsThe costs associated with direct response advertising, which consist primarily of catalog production and mailing costs, are capitalized and amortizedover the expected future revenue stream of the catalog mailings, which we currently estimate to be approximately two months. The expected future revenuestream is determined based on historical revenue trends developed over an extended period of time. If the current revenue streams were to diverge from theexpected trend, our amortization of deferred catalog costs would be adjusted accordingly.Goodwill and Intangible AssetsThe Acquisition of the Company was accounted for as a purchase business combination, whereby the purchase price paid was allocated to recognize theacquired assets and liabilities at fair value. In connection with the purchase price allocation, intangible assets were established for the J.Crew and Madewelltrade names, loyalty program, customer lists and favorable lease commitments. The purchase price in excess of the fair value of assets and liabilities wasrecorded as goodwill, which consists primarily of intangible assets related to the knowhow, design and merchandising of the Company’s brands that do notqualify for separate recognition.Indefinite-lived intangible assets, such as the J.Crew trade name and goodwill, are not subject to amortization. The Company assesses the recoverabilityof indefinite-lived intangibles whenever there are indicators of impairment, or at least annually in the fourth quarter. If the recorded carrying value of anintangible asset exceeds its estimated fair value, the Company records a charge to write the intangible asset down to its fair value. Definite-lived intangibles,such as the Madewell trade name, loyalty program, customer lists and favorable lease commitments, are amortized on a straight line basis over their useful lifeor remaining lease term.We assess the recoverability of goodwill at the reporting unit level, which consists of our operating segments, Stores and Direct. In this assessment, wefirst compare the estimated enterprise fair value of each of our reporting units to its recorded carrying value. We estimate the enterprise fair value based ondiscounted cash flow techniques. If the recorded carrying value of a reporting unit exceeds its estimated enterprise fair value in the first step, a second step isperformed in which we allocate the enterprise fair value to the fair value of the reporting unit’s net assets. The second step of the impairment testing processrequires, among other things, estimates of fair values of substantially all of our tangible and intangible assets. Any enterprise fair value in excess of amountsallocated to such net assets represents the implied fair value of goodwill for that reporting unit. If the recorded goodwill balance for a reporting unit exceeds theimplied fair value of goodwill, an impairment charge is recorded to write goodwill down to its fair value.Asset ImpairmentWe are exposed to potential impairment if the book value of our assets exceeds their expected future cash flows. The major components of our long-livedassets are store fixtures, equipment and leasehold improvements. The impairment of unamortized costs is measured at the store level and the unamortized costis reduced to fair value if it is determined that the sum of expected discounted future net cash flows is less than net book value. 45Income TaxesAn asset and liability method is used to account for income taxes. Deferred tax assets and deferred tax liabilities are recognized based on the differencebetween the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred taxes are measured using currentenacted tax rates in effect in the years in which those temporary differences are expected to reverse. Inherent in the measurement of deferred taxes are certainjudgments and interpretations of enacted tax law and published guidance.Management believes it is more likely than not that forecasted income, together with the tax effects of the deferred tax liabilities, will be sufficient to fullyrecover the remaining deferred tax assets. In the event that all or part of the net deferred tax assets are determined not to be realizable in the future, a valuationallowance would be charged to earnings in the period such determination is made. Similarly, if we subsequently realize deferred tax assets that were previouslydetermined unrealizable, any valuation allowance would be reversed into income in the period such determination is made. In addition, the calculation ofcurrent and deferred taxes involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of theseuncertainties in a manner inconsistent with management’s expectation could have a material impact on our results of operations and financial position.With respect to uncertain tax positions that we have taken or expected to be taken on a tax return, we recognize in our financial statements the impact oftax positions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized from uncertain positionsare measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon effective settlement.Share Based CompensationThe fair value of employee share-based awards is recognized as compensation expense in the statement of operations. Determining the fair value ofoptions at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associatedvolatility and the expected dividend yield. Upon grant of awards, we also estimate an amount of forfeitures that will occur prior to vesting. If actual forfeituresdiffer significantly from the estimates, share-based compensation expense could be materially impacted. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or netassets. Our Senior Credit Facilities carry floating rates of interest that are a function of prime rate and LIBOR. If LIBOR increases above 1.25%, a 0.125%increase in the floating rate applicable to the $1,179 million outstanding under the Term Loan Facility would result in a $1.5 million increase in our annualinterest expense. Assuming all revolving loans are drawn under the $250 million ABL Facility, a 0.125% change in the floating rate would result in a $0.3million change in our annual interest expense. For more information with respect to our interest rate risk, see Risks Related to Our Indebtedness and CertainOther Obligations in Item 1A. ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.See “Index to Financial Statements”, which is located on page F-1 of this report. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None. 46ITEM 9A.CONTROLS AND PROCEDURES.Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, carried out anevaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosedin the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rulesand forms.Management’s Report on Internal Control over Financial ReportingThe Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. The Company’sinternal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fairpresentation of published financial statements. Management evaluated the effectiveness of the Company’s internal control over financial reporting using thecriteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control-Integrated Framework.Management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed theeffectiveness of the Company’s internal control over financial reporting as of February 2, 2013 and concluded that it is effective.Changes in Internal Control over Financial ReportingThere were no changes in internal control over financial reporting that occurred during the fourth fiscal quarter that have materially affected, or arereasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B.OTHER INFORMATION.None. 47PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE REGISTRANT.DIRECTORSOur current Board consists of six members, who have been elected pursuant to a stockholders’ agreement between our Sponsors and Mr. Drexler. All ofthe directors, except Mr. Squeri and Mr. Drexler, are employees of our Sponsors and are therefore deemed to be affiliates. The names of our current directors,along with their present positions and qualifications, their principal occupations and directorships held with public corporations during the past five years,their ages and the year first elected as a director are set forth below. Name Age Year First Elected DirectorJames Coulter 53 1997John Danhakl 56 2011Millard Drexler 68 2003Jonathan Sokoloff 55 2011Stephen Squeri 54 2012Carrie Wheeler 41 2011James Coulter (53). Mr. Coulter has been a director since 1997. Mr. Coulter is a TPG Founding Partner. Mr. Coulter serves as a member on numerouscorporate and charitable boards including Lenovo, The Neiman Marcus Group, Inc., Creative Artist Agency, IMS Health, Inc., and the Vincraft Group. Webelieve Mr. Coulter’s qualifications to sit on our Board include his experience in finance and extensive and diverse experience in domestic and internationalbusiness.John Danhakl (56). Mr. Danhakl has been a director since 2011. Mr. Danhakl has been a Managing Partner of Leonard Green & Partners, L.P. since1995. He serves on the board of directors of Air Lease Corp., Animal Health, Inc., Arden Group, Inc., Horseshows In the Sun, Inc., IMS Health Inc., Leslie’sPoolmart, Inc., The Neiman Marcus Group, Inc., Petco Animal Supplies, Inc. and The Tire Rack, Inc. He previously served on the Boards of AsianMediaGroup LLC, Big 5 Sporting Goods Corporation, Communications and Power Industries, Inc., Diamond Triumph Auto Glass, Inc., Liberty GroupPublishing, Inc., MEMC Electronic Materials, Inc., Phoenix Scientific, Inc., Rite Aid Corporation, Sagittarius Brands, and VCA Antech, Inc. We believeMr. Danhakl’s qualifications to sit on our Board include his experience as a private equity investor and his experience as a director of numerous privately-heldand publicly-held companies.Millard Drexler (68). Mr. Drexler has been our Chief Executive Officer, Chairman of the Board and a director since 2003. Before joining J.Crew,Mr. Drexler was Chief Executive Officer of The Gap, Inc. from 1995 until 2002, and was President of The Gap, Inc. from 1987 to 1995. Mr. Drexler alsoserves on the board of directors and compensation and nominating and corporate governance committees of Apple, Inc. We believe Mr. Drexler’s qualificationsto sit on our Board include his extensive experience as a CEO in the retail industry, his executive leadership and management experience, and his experience asa board member of a leading consumer products company.Jonathan Sokoloff (55). Mr. Sokoloff has been a director since 2011. Mr. Sokoloff has been a Managing Partner of Leonard Green & Partners, L.P.since 1994 and joined Leonard Green & Partners, L.P. in 1990. Mr. Sokoloff also serves on the boards of directors of Whole Foods Market, Inc. and severalprivate companies in the retail consumer area and served on the board of directors of Rite Aid Corporation until May 2011. We believe Mr. Sokoloff’squalifications to sit on our Board include his experience as a private equity investor and his experience as a director of other retail companies.Stephen Squeri (54). Mr. Squeri was a director of J.Crew Group, Inc. from September 2010 until March 2011 and he rejoined the Company’s board ofdirectors in June 2012. Mr. Squeri has been Group President, Global Corporate Services at American Express Company since November 2011. Prior to that,he was Group 48President, Global Services since 2009. In addition, from July 2008 to September 2010, he was the head of Corporate Development, overseeing mergers andacquisitions for American Express. Mr. Squeri joined American Express in 1985. Prior to joining American Express, Mr. Squeri was a managementconsultant at Arthur Andersen and Company from 1982 to 1985.Carrie Wheeler (41). Ms. Wheeler has been a director since 2011. Ms. Wheeler is a TPG Partner, which she joined in 1996. Prior to TPG, she waswith Goldman, Sachs & Co. from 1993 to 1996. Ms. Wheeler also serves on the board of directors of The Neiman Marcus Group, Inc. and Petco AnimalSupplies, Inc. We believe Ms. Wheeler’s qualifications to sit on our Board include her financial expertise as well as her experience as a director of two otherretail companies.See “Item 13. Certain Relationships and Related Party Transactions, and Director Independence” below for a discussion of certain arrangements andunderstandings regarding the nomination and selection of certain of our directors.EXECUTIVE OFFICERSThe names and ages of our executive officers, along with their positions and qualifications, are set forth below. Name Age PositionMillard Drexler 68 Chairman and Chief Executive OfficerStuart Haselden 43 Senior Vice President, Chief Financial OfficerJenna Lyons 44 President, Executive Creative DirectorLynda Markoe 46 Executive Vice President, Human ResourcesJames Scully 48 Chief Administrative OfficerLibby Wadle 40 Executive Vice President, J.CrewMillard Drexler. Mr. Drexler has been our Chief Executive Officer, Chairman of the Board and a director since 2003. Before joining J.Crew, Mr. Drexlerwas Chief Executive Officer of The Gap, Inc. from 1995 until 2002, and was President of The Gap, Inc. from 1987 to 1995. Mr. Drexler also serves on theboard of directors and compensation and nominating and corporate governance committees of Apple, Inc.Stuart Haselden. Mr. Haselden has been the Company’s Senior Vice President, Chief Financial Officer since May 2012. Prior to that, he was ourSenior Vice President of Finance and Treasurer since 2009 and served as our Vice President of Financial Planning & Analysis from 2006 to 2009. Beforejoining J.Crew, Mr. Haselden served as the Vice President of Strategic Planning for Saks Incorporated where he held a variety of positions from 1999 to 2005.Jenna Lyons. Ms. Lyons has been the Company’s President, Executive Creative Director since July 2010, and before that served as Executive CreativeDirector since April 2010. Prior to that, she was Creative Director since 2007 and, before that, was Senior Vice President of Women’s Design since 2005.Ms. Lyons joined J.Crew in 1990 as an Assistant Designer and has held a variety of positions within the Company, including Designer from 1994 to 1995,Design Director from 1996 to 1998, Senior Design Director in 1999, and Vice President of Women’s Design from 1999 to 2005.Lynda Markoe. Ms. Markoe has been the Company’s Executive Vice President, Human Resources since 2007 and was previously Vice President andthen Senior Vice President, Human Resources since 2003. Before joining J.Crew, Ms. Markoe worked at The Gap, Inc. where she held a variety of positionsover 15 years.James Scully. Mr. Scully has been the Company’s Chief Administrative Officer since 2008 and was also Chief Financial Officer from 2005 to 2012.Prior to joining J.Crew, Mr. Scully served as Executive Vice President of Human Resources and Strategic Planning of Saks Incorporated from 2004. Before thatMr. Scully served as Saks Incorporated’s Senior Vice President of Strategic and Financial Planning from 1999 to 2004 and as Senior Vice President,Treasurer from 1997 to 1999. Prior to joining Saks Incorporated, Mr. Scully held the position of Senior Vice President of Corporate Finance at Bank ofAmerica (formerly NationsBank) from 1994 to 1997. 49Libby Wadle. Ms. Wadle has been the Company’s Executive Vice President—J.Crew since September 2011, and before that, served as Executive VicePresident—Retail and Factory since July 2010, and as Executive Vice President—Factory and Madewell since 2007. Before that Ms. Wadle served as VicePresident and then Senior Vice President of J.Crew Factory since 2004. Prior to joining J.Crew, Ms. Wadle was Division Vice President of Women’sMerchandising at Coach, Inc. from 2003 to 2004 and held various merchandising positions at The Gap, Inc. from 1995 to 2003.CORPORATE GOVERNANCEElection of Members to the Board of DirectorsAs a private company, members of the Board of Directors are nominated and elected in accordance with the provisions of the Company’s Amended andRestated Certificate of Incorporation, as filed with the Delaware Secretary of State, the Company’s Amended and Restated Bylaws and the stockholdersagreement with the Sponsors.Code of Ethics and Business PracticesThe Company has a Code of Ethics and Business Practices that applies to all Company associates, including its Chief Executive Officer, ChiefFinancial Officer, principal accounting officer and controller, as well as members of the Board. The Code of Ethics and Business Practices is available free ofcharge on the investor relations section of our website at www.jcrew.com or upon written request to the Secretary of the Company, J.Crew Group, Inc., 770Broadway, New York, New York 10003. Any updates or amendments to the Code of Ethics and Business Practices, and any waiver that applies to the ChiefExecutive Officer, Chief Financial Officer, principal accounting officer or controller will also be posted on the website. There were no such waivers in fiscal2012.Board CommitteesOur Board has established an audit committee and a compensation committee. Ms. Wheeler and Mr. Squeri are currently the members of our auditcommittee. The audit committee recommends the annual appointment of auditors with whom the audit committee reviews the scope of audit and non-auditassignments and related fees, accounting principles we use in financial reporting, internal auditing procedures and the adequacy of our internal controlprocedures. Though not formally considered by our Board given that our securities are not traded on any national securities exchange, based upon the listingstandards of the New York Stock Exchange, the national securities exchange upon which our common stock was previously listed, we believe that Mr. Squeriwould be considered independent but Ms. Wheeler would not be considered independent because of her employment by one of the Sponsors. The members ofour compensation committee are Mr. Coulter, Mr. Sokoloff, Mr. Squeri and Ms. Wheeler. The compensation committee reviews and approves thecompensation of our executive officers, authorizes and ratifies stock option and/or restricted stock grants and other incentive arrangements, and authorizesemployment agreements with our executive officers.Each of the Sponsors has the right to have at least one of its directors sit on each committee of the Board of Directors, to the extent permitted byapplicable laws and regulation.Director IndependenceBecause of our status as a voluntary filer and because our securities are not traded on any national securities exchange, the Board has not formallyreviewed whether Mr. Squeri can be considered independent under the independence standards of the New York Stock Exchange. Messrs. Coulter, Danhakland Sokoloff and Ms. Wheeler are employees of our Sponsors and therefore would not be considered independent under these standards. In addition,Mr. Drexler, who is an employee of the Company, would also not be considered independent. 50Audit Committee Financial ExpertIn light of our status as a privately held company and the absence of a public listing or trading market for our common stock, we are not required tohave an “audit committee financial expert,” however we have determined that neither Ms. Wheeler nor Mr. Squeri would qualify for this designation.Section 16(a) Beneficial Ownership Reporting ComplianceIn light of our status as a privately held company, Section 16(a) of the Securities Exchange Act of 1934, as amended, does not apply to our directors,executive officers and significant stockholders. ITEM 11.EXECUTIVE COMPENSATION.Compensation Discussion and AnalysisIn general, this section focuses on, and provides a description of, our executive compensation process and a detailed discussion of each of the keyelements of our compensation program for fiscal 2012 as they apply to the individuals named in the Summary Compensation Table (the “Named ExecutiveOfficers”). Our compensation committee (the “Committee”) consists of representatives from our Sponsors and Mr. Squeri. The following is a discussion of thecurrent compensation philosophy and programs applicable to our executive officers in fiscal 2012.2012 Compensation Philosophy and Compensation Program ObjectivesWe place high value on attracting and retaining our executives and associates since their talent and performance are essential to our long-term success.Our compensation philosophy places high value on performance-based and discretionary compensation. Accordingly, our compensation program is designedto be both competitive and fiscally responsible and seeks to: • attract the highest caliber of talent required for the success of our business, • retain those associates capable of achieving challenging performance standards, • incent associates to strive for superior Company and individual performance, • align the interests of our executives with the financial and strategic objectives of our Sponsors, and • encourage and reward the achievement of our short and long-term goals and operating plans.We seek to achieve the objectives of our executive compensation program by offering a compensation package that utilizes three key elements: (1) basesalary, (2) annual cash incentives, and (3) long-term equity incentives. We believe that together these elements support the objectives of our compensationprogram without encouraging unnecessary or excessive risk taking on the part of the Company’s associates. • Base Salaries. We seek to provide competitive base salaries factoring in the responsibilities associated with the executive’s position, the executive’sskills and experience, and the executive’s performance as well as other factors. We believe appropriate base salary levels are critical in helping usattract and retain talented associates. • Annual Cash Incentives. The aim of this element of compensation is to reward individual and group contributions to the Company’s annualoperating performance based upon the achievement of pre-established performance standards in the most recent completed fiscal year. • Long-Term Equity Incentives. The long-term element of our compensation program consists of the opportunity for our executive officers toparticipate directly as equity owners of the Company, combined with an up-front grant of stock options. The equity component is the mostsignificant element of our executive compensation program because we believe that a meaningful equity interest by our executive officers andmanagement team will provide a strong incentive to drive top line growth, increase margins and pursue growth opportunities, which we believewill lead to increased equity value and returns to investors. 51The 2012 Executive Compensation ProcessThe Compensation CommitteeThe Committee oversees our executive compensation program. The Committee meets regularly, both with and without management. The Committee’sresponsibilities are detailed in its charter, which can be found on the investor relations section of our website at www.jcrew.com. These responsibilities include,but are not limited to, the following: • reviewing and approving our compensation philosophy, • determining executive compensation levels, • annually reviewing and assessing performance goals and objectives for all executive officers, including the Chief Executive Officer (“CEO”), and • determining short-term and long-term incentive compensation for all executive officers, including the CEO.The Committee is responsible for making all decisions with respect to the compensation of the executive officers. With respect to the executive officersother than the CEO, the Committee’s compensation decisions involve the review of recommendations made by our CEO and Executive Vice President ofHuman Resources (“EVP—HR”). The CEO and EVP—HR attend the Committee’s meetings and provide input to the Committee regarding the effectiveness ofthe compensation program in attracting and retaining key talent. They make recommendations to the Committee regarding executive merit increases, short-termand long-term incentive awards and compensation packages for executives being hired or promoted. The Committee also considers the CEO’s evaluation of theperformance of the executive officers (other than the CEO), each of whom report to him.The compensation of the CEO is determined by the Committee independently of management. The Committee makes decisions about the CEO’scompensation during executive session outside the presence of the CEO. Annually, outside directors of the Board evaluate the performance of the CEO and thatevaluation is then communicated to the CEO by the Chairman of the Committee.The Committee’s process for determining executive compensation is straightforward. In the first quarter of each fiscal year, the Committee’s primaryfocus is to review base salaries, determine payout amounts for annual cash incentives in respect of the prior fiscal year for the executive officers, and reviewlong-term equity for the senior officers and certain other key associates. At this time, the Committee also reviews and establishes performance metrics for thecurrent fiscal year’s annual cash incentive plan.The Committee considers both external and internal factors when making decisions about executive compensation. External factors include thecompetitiveness of each element of our compensation program relative to peer companies and the market demand for executives with specific skills orexperience in the specialty apparel industry. Internal factors include an executive’s level of responsibility, level of performance, long-term potential and previouslevels of compensation, including outstanding equity awards. While all of these factors provide useful data points in setting compensation levels, we take intoaccount the fact that external data typically reflects pay decisions made during a prior year. We also consider the state of the overall retail industry, theeconomy and general business conditions.Outside Compensation ConsultantNo independent executive compensation consultants were retained by the Compensation Committee during fiscal 2012. 52Benchmarking ProcessIn making compensation decisions for fiscal 2012, the Committee considered the competitive market for executives and compensation levels provided bycomparable companies. The comparative group used to benchmark compensation with respect to our executive officers and other key associates is composedof specialty retailers with highly visible brands that we view as competitors for customers and/or executive talent. For fiscal 2012, the peer companies wereAbercrombie & Fitch Co., Aéropostale Inc., American Eagle Outfitters, Inc., ANN, Inc., Chico’s FAS, Inc., Coach, Inc., The Gap, Inc., Guess, Inc.,Limited Brands, Ralph Lauren Corp., Under Armour, Inc. and Urban Outfitters, Inc. In addition, we monitor the marketplace for innovative and creativecompensation programs of those companies that we view as leading their industry.We also consider compensation survey data from surveys in which we participate or purchase from a variety of publishers which may incorporate datafrom other industries. Though the Company generally targets salary levels at the median of our peer group, total compensation may exceed or fall below themedian for certain of our executive officers and other key associates since one of the objectives of our compensation program is to consistently reward andretain top performers and to differentiate compensation based upon individual and Company performance.CEO CompensationAt the time Mr. Drexler joined the Company in 2003, he invested $10 million of his own funds to purchase a substantial equity ownership interest in theCompany. He also paid us $1 million as consideration for a grant of stock options and a grant of restricted stock. His annual base salary was set at $200,000in 2003 and has not increased.In connection with the Acquisition, Mr. Drexler contributed an aggregate amount of 2,287,545 shares worth approximately $99.5 million in exchangefor an ownership interest in Parent following the Acquisition. Following the Acquisition, in accordance with his new employment agreement, Mr. Drexler wasawarded 32,109,219 non-qualified stock options, a portion of which vest over time and a portion of which are subject to performance-based vestingconditions.Mr. Drexler’s substantial investment in the Company and the size of his equity incentive awards are consistent with his role as an owner-manager andare designed to ensure his commitment to the long-term future of the Company. Details regarding Mr. Drexler’s compensation package are contained in tablesthat follow. In addition, a description of his employment agreement, entered into in connection with the consummation of the Acquisition (the “DrexlerAgreement”), begins on page 51. We intend to continue to evaluate the components and level of our CEO’s compensation on an ongoing basis.Components of the Executive Compensation ProgramWe believe that a substantial portion of executive compensation should be performance-based. We believe it is essential for executives to have ameaningful equity stake linked to the long-term performance of the Company and, therefore, we have created compensation packages that aim to foster anowner-operator culture. As such, other than base salary, compensation of our executive officers is largely comprised of variable or “at-risk” incentive paylinked to the Company’s financial performance and individual contributions. Other factors we consider in evaluating executive compensation include internalpay equity, external market and competitive information, assessment of individual performance, level of responsibility, and the overall expense of the program.In addition, we also strive to offer benefits competitive with those of our peer group and appropriate perquisites. 53Base SalaryBase salary represents the fixed component of our executive officers’ compensation. The Committee sets base salary levels based upon experience andskills, position, level of responsibility, the ability to replace the individual, and market practices. The Committee reviews base salaries of the executive officersannually and approves all salary increases for the executive officers, including Mr. Drexler. Increases are based on several factors, including the Committee’sassessment of individual performance and contribution, promotions, level of responsibility, scope of position, competitive market data, and general economic,retail and business industry conditions, as well as, with respect to our executive officers other than Mr. Drexler, input from Mr. Drexler and the EVP—HR.In spring 2012, in conjunction with its annual review process, the Committee reviewed base salaries for the Named Executive Officers. The Committeedecided that Mr. Drexler’s base salary was to remain at $200,000 given his role as owner-manager. This salary is well below the salary level normally providedto a Chief Executive Officer of a company of comparable size, complexity, and performance and below the median level of our peer group. Ms. Lyons,Mr. Scully, Ms. Wadle and Ms. Markoe did not receive salary increases at the time of the annual review based upon the Company’s business results, externalmarket conditions and internal comparisons. In connection with his promotion to Chief Financial Officer in May 2012, Mr. Haselden received a salaryincrease of 18%.Annual Cash IncentivesOur Named Executive Officers typically have the opportunity to earn cash incentives for meeting annual performance goals. Historically, before the endof the first quarter of the relevant fiscal year, the Committee establishes financial and performance targets and opportunities for such year, which are basedupon the Company’s goals for Earnings Before Interest Taxes Depreciation and Amortization (EBITDA).The Company’s goals for EBITDA are linked to our budget and plan for long-term success. These EBITDA performance targets are the key measuresused to determine whether an incentive award will be paid for the fiscal year and, to the extent achieved, determine the range of the incentive award opportunityfor the Named Executive Officers. We calculate EBITDA using the net income recorded for the Company in accordance with Generally Accepted AccountingPrinciples (GAAP), adding back interest, depreciation, amortization and income tax expenses for the applicable fiscal year. We also adjust for items such asnon-cash share-based compensation as well as the impact of purchase accounting resulting from the Acquisition.Annual incentive awards to our Named Executive Officers are paid from the same incentive pool used for all of our eligible associates. For fiscal 2012,the potential size of the total pool was determined by the Company’s performance against pre-established Adjusted EBITDA goals for the fiscal year endedFebruary 2, 2013, which were approved by the Committee on April 11, 2012 as follows: Threshold Target Max Super Max % of Target Incentive Pool Funded 33% 100% 200% 250% Adjusted EBITDA goal (in millions) $315 $322 $360 $380 To develop the target incentive pool, we add up the target incentive awards assigned to each plan participant. Mr. Drexler’s target award for fiscal 2012was $1,200,000, as defined in his employment agreement, with a range of potential payment from $0 to $3,000,000. Target awards of the Named ExecutiveOfficers, other than Mr. Drexler, are expressed as a percentage of salary for the relevant fiscal year. The target award for Ms. Lyons, Mr. Scully andMs. Wadle for fiscal 2012 was 75%, with a range of potential payments from zero to 187.5% of annual base salary. The target percentage for Ms. Markoewas 50%, with a range of potential payments from zero to 125% of annual base salary. The target percentage for Mr. Haselden was 35%, with a range ofpotential payments from zero to 87.5% of annual base salary. 54If the Company does not meet the threshold Adjusted EBITDA target, then no payments are made with respect to the annual incentive awards plan,including to the Named Executive Officers.The Committee determines the amount of Mr. Drexler’s annual incentive award independently of management, with no fixed or specific mathematicalweighting applied to the performance metrics or any element of his individual performance. The Committee approves his incentive award based upon theAdjusted EBITDA targets, the performance metrics and other business performance factors they deem relevant.The Committee determines the amount of the annual incentive awards for the other Named Executive Officers using its discretion, subject to themaximum specified in the plan. In making this determination, the Committee takes into account the recommendations of Mr. Drexler. Each of the other NamedExecutive Officers reports directly to Mr. Drexler, except for Mr. Haselden who reports to Mr. Scully. Mr. Drexler takes significant time to review both thequantitative and qualitative performance results of each such executive and recommends to the Committee an incentive award amount for each of them.Provided the threshold Adjusted EBITDA target is achieved, Mr. Drexler then considers whether to recommend payouts for individuals at the level establishedby Adjusted EBITDA results and within the range established by each Named Executive Officer’s target incentive. Final annual incentive awards areestablished based on the overall judgment of the Committee, taking into account the recommendations made by Mr. Drexler, with no fixed or specificmathematical weighting applied to any element of individual performance.For fiscal 2012, the Company achieved a level of Adjusted EBITDA that resulted in the incentive pool being funded at the maximum level. As of thefiling date of this report, the Committee has not yet determined the amount of the annual cash incentive awards payable to each of the Named ExecutiveOfficers, but the Committee expects to make such a determination by April 15, 2013 and will file a current report on Form 8-K at such time. As with prioryears, the Committee may exercise its judgment to set the awards at the specified level for each individual, taking into account the Company’s performanceagainst the Adjusted EBITDA target and the performance metrics, each individual’s contributions to the Company’s fiscal 2012 performance, and eachindividual’s performance and the results achieved in the business areas for which they had responsibility during fiscal 2012.Long-Term Equity IncentivesOur Named Executive Officers’ compensation is heavily weighted in long-term equity as we believe stockholder value is achieved through an ownershipculture that encourages a focus on long-term performance by our Named Executive Officers and other key associates. By providing our executives with anequity stake in the Company, we are better able to align the interests of our Named Executive Officers and our Sponsors. In establishing long-term equityincentive grants for our Named Executive Officers, the Committee reviews certain factors, including the outstanding equity investment and grants held bothby the individual and by our executives as a group, total compensation, performance, vesting dates of outstanding grants, tax and accounting costs, potentialdilution and other factors.In 2011, our Named Executive Officers and certain key members of management were provided the opportunity to roll over on a tax deferred basis,shares of J.Crew Group, Inc. stock and stock options they held into shares or stock options, as applicable, of the Parent in connection with the consummationof the Acquisition. They were also provided the opportunity to purchase shares of the Parent. As a result, Mr. Drexler contributed an aggregate amount of2,287,545 shares worth approximately $99.5 million in exchange for an ownership interest in Parent following the Acquisition. Mr. Haselden contributed12,221 stock options, 500 shares and $50,913 cash in exchange for an ownership interest of approximately $218,000. Ms. Lyons contributed 30,651 sharesand 218,401 stock options in exchange for an ownership interest of approximately $4 million. Mr. Scully contributed 19,157 shares and 102,491 stockoptions in exchange for an ownership interest of approximately $2.5 million. Ms. Wadle contributed 100,590 stock options, 6,804 shares and $370,692cash in exchange for an ownership interest of approximately $2 million. Ms. Markoe contributed 7,663 shares and 45,129 stock options in exchange for anownership interest of approximately $1 million. 55Also in 2011, the compensation committee approved stock option awards to the Named Executive Officers under a new equity incentive plan, consistentwith their view of long-term equity incentives as an important part of an ownership culture that encourages a focus on long-term performance by our NamedExecutive Officers and other key associates. The number of options awarded to each individual was “front-loaded” and intended to represent a long-termequity opportunity. The options will vest upon meeting certain time- and performance-based conditions. The Committee does not expect to make equity awardson an annual basis. As a result, no equity awards were made to Messrs. Drexler and Scully and Mss. Lyons, Markoe and Wadle in fiscal 2012. Mr. Haseldendid receive an award of 300,000 stock options in May 2012 in connection with his promotion to Chief Financial Officer. The grant date fair value of theoptions awarded to Mr. Haselden is shown in the Grants of Plan-Based Awards table shown on page 53.Equity Ownership. We believe that Company executives should have a meaningful ownership stake in the Company to underscore the importance oflinking executive and investor interests, and to encourage an owner-manager and long-term perspective in managing the business. This ownership stake hasbeen achieved through the roll over of shares and stock options, the opportunity for cash investment and the award of stock options in 2011.Benefits and Perquisites. Benefits are provided to our Named Executive Officers in the same manner that they are provided to all other associates. OurNamed Executive Officers are eligible to participate in the Company’s 401(k) plan (which includes a Company match component) and receive the same health,life, and disability benefits available to our associates generally.We offer all of our associates (including the Named Executive Officers) and directors a discount on most merchandise in our stores, and through ourDirect channel. We offer this discount because it is beneficial to our Company to encourage associates and directors to shop in our stores and online.Additionally, this discount represents common practice in the retail industry. This discount is extended to IRS qualified dependents, spouses and same-sexdomestic partners. Federal tax law requires that the value of any discount extended to a same sex domestic partner be taxed as wages to the associate and furtherrequires the Company to include the value of the discount as income to the associate.We do not offer a defined benefit pension, supplemental executive retirement plan (SERP) or a non-qualified deferred compensation plan to our associatesor Named Executive Officers.In addition, from time to time the Company agrees to provide certain executives with perquisites. The Company provides these perquisites on a limitedbasis in order to attract key talent and to enhance business efficiency. We believe these perquisites are in line with market practice. For fiscal 2012, weprovided certain Named Executive Officers with the following perquisites:Driver. We provide Mr. Drexler with a driver for all business needs. Mr. Drexler reimburses the Company for his personal use of the driver, includingcommuting to and from work.Legal Fees. We reimbursed Mr. Drexler for certain legal fees paid to his personal attorneys in connection with his role with the Company.Medical Concierge Service. We provide Mr. Drexler with 24/7, on-call worldwide medical care for himself and his immediate family members, up to amaximum of $50,000 per year.The cost incurred by the Company for certain of these perquisites is detailed in the Summary Compensation Table on page 50.Tax Gross-ups. Pursuant to the terms of Mr. Drexler’s employment agreement, Mr. Drexler is entitled to receive a gross up in the event that any paymentor benefit provided to him in connection with a change in control (as defined in Section 280G of the Code) occurring after our equity securities once again arepublicly traded is subject to the excise taxes imposed by Section 4999 of the Code. If a change in control occurs while the 56Company is private, the Company and Mr. Drexler will use their reasonable best efforts to seek shareholder approval of any parachute payments. Theseprovisions were negotiated as a part of Mr. Drexler’s employment agreement in connection with the Acquisition. While other executive officers may also haveexcess parachute payments that are subject to the excise taxes, no such other executive officer is entitled to a tax gross up from the Company.Sections 280G and 4999 of the Code impose a 20% non-deductible excise tax on certain employees in connection with change in control payments.Generally, Section 280G applies to any employee, director or independent contractor of a company who is also (i) a 1% or greater stockholder of the company,(ii) one of the 50 highest compensated officers of the company or (iii) a highly compensated individual (an individual whose annual compensation equals orexceeds a threshold ($115,000 for 2012) and who is also a member of the smaller of the following two groups: (1) the highest paid 1% of individualsperforming services for the company and (2) the highest paid 250 employees of the company) who receive compensation above specified levels in connectionwith a change in control of their employer. The excise tax applies if the amounts received by an employee in connection with the change in control (the“parachute payments”) (including any value attributed to the accelerated vesting of options in connection with a change in control) exceed three times suchemployee’s average W-2 compensation for the five years prior to the year in which the change in control occurs. Amounts subject to the excise tax are also notpermitted to be deducted as compensation for federal income tax purposes by the employer.Employment AgreementsFrom time to time, the Company enters into employment agreements in order to attract and retain key executives. Messrs. Drexler, Haselden and Scullyand Mss. Lyons and Wadle are parties to an employment agreement. As described beginning on page 51, the employment agreements generally define theexecutive’s position, specify a minimum base salary, and provide for participation in our annual and long-term incentive plans, as well as other benefits. Mostof the agreements contain covenants that limit the executives’ ability to compete with us or solicit our associates or customers for a specified period followingtermination. The agreements also provide for various benefits under certain termination scenarios, as detailed beginning on page 55. In general, these benefitsconsist of salary continuation for periods ranging from twelve (12) to eighteen (18) months, a pro-rata cash incentive award for the year in which terminationoccurred, and in some cases, the acceleration or continued vesting (in accordance with the original vesting schedule) of a portion of unvested equity. Theagreements provide for automatic renewal upon the same terms and conditions, unless either party gives written notice of its intent not to renew. The provisionsvary by executive because each agreement is negotiated by the Company and the Named Executive Officer on an individual basis at the time of hire or renewal,as applicable. We believe that these agreements enhance our ability to recruit and retain the Named Executive Officers, offer them a degree of security in thevery dynamic environment of the retail industry, and protect us competitively through non-competition and non-solicitation requirements if executivesterminate their employment with us.The section below contains information, both narrative and tabular, regarding the types of compensation paid to (i) our principal executive officer,(ii) our principal financial officer and (iii) and our remaining Named Executive Officers as of the end of fiscal 2012. The Summary Compensation Tablecontains an overview of the amounts paid to our Named Executive Officers for fiscal years 2012, 2011 and 2010. The tables following the SummaryCompensation Table—the Grants of Plan-Based Awards, Outstanding Equity Awards at Fiscal Year-End, and Option Exercises and Stock Vested—containdetails of our Named Executive Officers’ recent non-equity incentive and equity grants, past equity awards, general equity holdings, and option exercises.Finally, we have included a table showing potential severance payments to our Named Executive Officers pursuant to their individual employment agreementsand certain of our equity incentive plans, assuming, for these purposes that the relevant triggering event occurred on February 2, 2013. 57SUMMARY COMPENSATION TABLEThe following table sets forth the compensation paid to or earned during fiscal years 2012, 2011 and 2010 by our Named Executive Officers: Name and Principal Position FiscalYear Salary(1)($) Bonus(2)($) StockAwards(3)($) OptionAwards(3)($) All OtherComp-ensation(4)($) Total($) Millard Drexler, 2012 $203,846 (2) $0 $0 $45,487 $249,333 Chairman and Chief 2011 $200,000 0 $0 $11,318,500 $1,668,809 $13,187,309 Executive Officer 2010 $200,000 0 $0 $4,676,750 $44,439 $4,921,189 Stuart Haselden, 2012 $390,154 (2) $0 $70,500 $52,229 $512,883 Senior Vice President and Chief Financial Officer Jenna Lyons, 2012 $1,019,231 (2) $0 $0 $784,850 $1,804,081 President— 2011 $1,000,000 0 $0 $2,013,693 $9,800 $3,023,493 Executive Creative Director 2010 $885,096 $175,000 $1,050,600 $2,518,250 $9,800 $4,638,746 James Scully, 2012 $713,462 (2) $0 $0 $494,281 $1,207,743 Executive Vice President and 2011 $700,000 $500,000 $0 $754,585 $9,800 $1,964,385 Chief Administrative Officer(5) 2010 $661,154 0 $525,300 $863,400 $9,800 $2,059,654 Libby Wadle, 2012 $713,462 (2) $0 $0 $397,425 $1,110,887 Executive Vice President— 2011 $650,000 0 $0 $646,767 $9,800 $1,306,567 J. Crew 2010 $551,442 0 $875,500 $1,079,250 $9,800 $2,515,992 Lynda Markoe, 2012 $433,173 (2) $0 $0 $203,712 $636,885 Executive Vice President— 2011 $420,673 $300,000 $0 $377,293 $9,800 $1,107,766 Human Resources (1)With respect to fiscal 2012, represents the total amount earned by each Named Executive Officer during the fifty-three week fiscal year. Fiscal years2011 and 2010 consisted of fifty-two weeks.(2)Represents the annual cash incentive awards under our Company annual cash incentive plan and discretionary bonus awards earned by each NamedExecutive Officer. As of the filing date of this report, the Committee has not yet determined the amount of the annual cash incentive awards payable inrespect of fiscal 2012, but expects to make such determination by April 15, 2013. See page 47 for a description of our annual cash incentive plan. Forfiscal years 2011 and 2010, no annual cash incentive awards were paid to the Named Executive Officers; however, discretionary cash bonuses werepaid to Mr. Scully and Ms. Markoe in fiscal year 2011 in the amount of $500,000 and $300,000, respectively, in recognition of their significant role inleading the Company through the Acquisition. In addition, for Ms. Lyons, represents a $175,000 payment in fiscal year 2010 with respect to a long-term incentive award made in April 2006.(3)For each of the Named Executive Officers, represents the grant date fair value we calculated under Accounting Standards Codification (ASC)718—Compensation—Stock Compensation as share-based compensation in our financial statements for fiscal years 2012, 2011 and 2010 ofrestricted stock awards and stock option grants made in those fiscal years. For awards subject to performance conditions, the amount reflects the fullgrant date fair value of the awards based on the probable outcome of the performance conditions. For restricted stock awards and stock option grantsthat were rolled over in connection with the Acquisition, there was no incremental increase in the fair value of such shares as the number of options andexercise price were adjusted to maintain the intrinsic value on the date of the modification. See note 6, “Share Based Compensation” to our consolidatedfinancial statements for a description of assumptions underlying valuation of equity awards. 58(4)All other compensation for fiscal year 2012 consisted of the following: MatchingContributions (i) LegalFees (ii) MedicalConcierge (iii) DividendEquivalents (iv) Total Millard Drexler $— $8,584 $36,903 $— $45,487 Stuart Haselden $10,000 $— $— $42,229 $52,229 Jenna Lyons $10,000 $— $— $774,850 $784,850 James Scully $10,000 $— $— $484,281 $494,281 Libby Wadle $10,000 $— $— $387,425 $397,425 Lynda Markoe $10,000 $— $— $193,712 $203,712 (i)Represents total Company contributions to each Named Executive Officer’s account in the Company’s tax-qualified 401(k) Plan. (ii)Represents the Company’s reimbursement for certain legal fees paid to Mr. Drexler’s personal attorneys in connection with his role with theCompany, including in connection with the Acquisition. (iii)Represents Company payment for medical concierge services, as provided by Mr. Drexler’s employment agreement. (iv)Represents cash equivalent payments made in connection with the declaration of a special cash dividend to stockholders of record onDecember 17, 2012 of the Parent’s Class A common stock and Class L common stock. The Named Executive Officers, other thanMr. Drexler, received aggregate dividend equivalent payments based on the number of shares of vested rollover stock options that they heldat the time of the dividend.(5)Mr. Scully also served as Chief Financial Officer until Mr. Haselden was promoted to the position, effective May 15, 2012.Named Executive Officer Employment AgreementsMillard DrexlerMr. Drexler entered into an employment agreement with us, effective March 7, 2011, pursuant to which Mr. Drexler will continue to serve as our ChiefExecutive Officer and as the Chairman of our Board. The agreement provides for an initial term of employment through March 7, 2015, subject to automaticrenewal for successive one-year period thereafter unless either Mr. Drexler or the Company provides a notice of non-renewal at least 90 days before theexpiration of the then current term. Pursuant to the employment agreement, Mr. Drexler receives a base salary of $200,000 and has an opportunity to earn anannual bonus award, with a target opportunity of $1,200,000, based on the achievement of certain performance metrics determined by the Board or acommittee thereof. Mr. Drexler is eligible to participate in the Company’s employee benefit plans and the Company will pay or reimburse Mr. Drexler for anamount of up to $50,000 per year for the cost of maintaining the benefits provided under one or more concierge medical services arrangements to be selected byMr. Drexler. In the event that Mr. Drexler’s employment is terminated prior to the end of the initial four-year term or any subsequent one-year extension termwithout cause or by Mr. Drexler for good reason (each as defined in the agreement), Mr. Drexler will receive, among other things (i) a payment equal to anyaccrued but unpaid base salary as of the date of termination, the value of any accrued vacation pay, and the amount of any expenses properly incurred byMr. Drexler prior to the termination date and not yet reimbursed, (ii) a payment equal to one year’s base salary plus Mr. Drexler’s target bonus, (iii) a paymentequal to the pro-rated annual bonus that Mr. Drexler would have earned for the year in which his termination occurs, based on the actual achievement ofapplicable performance objectives in the performance year in which the termination date occurs; and (iv) the immediate vesting of all equity awards previouslygranted to Mr. Drexler that remain outstanding as of the termination date. The agreement also provides that Mr. Drexler is entitled to a full gross up for excisetaxes incurred under Sections 280G and 4999 of the Code in connection with any change in control occurring after our equity securities once again becomepublicly traded.As described above, pursuant to the terms of the agreement Mr. Drexler received an option grant under the Company’s equity incentive plan in fiscalyear 2011. These options will vest upon meeting certain time- and 59performance-based vesting conditions and will vest in full upon the occurrence of a change in control or, as described above, a termination of his employmentwithout cause or by him for good reason. The agreement also provides that Mr. Drexler will be subject to non-solicitation and non-competition covenants duringhis employment and for a period of two years and one year, respectively, following the termination of his employment, regardless of the reason for suchtermination.Stuart HaseldenMr. Haselden entered into an employment agreement with us pursuant to which he has agreed to serve as Chief Financial Officer for three yearsbeginning in May 2012, subject to automatic one-year renewals unless we provide two month’s written notice or Mr. Haselden provides four month’s writtennotice, in each case prior to the expiration of the current term. The agreement provides for a minimum annual base salary of $400,000, which will be reviewedannually by us, and an annual cash incentive award with a target of 35% of base salary, up to a maximum bonus of 87.5% of base salary. The agreementalso subjects Mr. Haselden to non-competition covenants during his employment and for a period of twelve (12) months and non-solicitation covenants duringhis employment and for a period of eighteen (18) months, each following termination of employment for any reason. In the event his employment is terminatedwithout “cause,” for “good reason,” or as a result of the Company’s non-renewal of the agreement, Mr. Haselden is entitled under the agreement to certain post-employment compensation, as detailed beginning on page 56.Jenna LyonsMs. Lyons entered into a second amended and restated employment agreement with us pursuant to which she has agreed to serve as Creative Director forfive years beginning in December 2007, subject to automatic one-year renewals unless we or Ms. Lyons provide four month’s written notice prior to theexpiration of the current term. The agreement provides for a minimum annual base salary of $675,000, which will be reviewed annually by us, and anannual cash incentive award with a target of 50% of base salary. In addition, the agreement provided for payment by the Company of a cash contractsupplement of $2,000,000 which was paid to Ms. Lyons in January 2008. The agreement also subjects Ms. Lyons to non-competition and non-solicitationcovenants during her employment and for a period of twelve (12) months following termination of employment for any reason (except that the non-competitioncovenant will not apply in the event Ms. Lyons’ employment is terminated by the Company “without cause,” by Ms. Lyons for “good reason” or because theCompany provides Ms. Lyons with written notice of our intention not to renew the employment agreement). In the event her employment is terminated without“cause” or for “good reason,” Ms. Lyons is entitled under the agreement to certain post-employment compensation, as detailed beginning on page 57.Ms. Lyons also entered into a long-term incentive agreement with us in April 2006, pursuant to which she received a long-term cash incentive award anda restricted stock grant provided she remains employed with us through the vesting and payment dates of each award. The agreement provides for a cashincentive award of $350,000, which was paid in two equal annual installments of $175,000 on August 28, 2009 and August 27, 2010. In addition, under theterms of the agreement, she was awarded 15,000 shares of restricted stock which vested on August 1, 2010.James ScullyMr. Scully has entered into an amended and restated employment agreement with us, effective April 6, 2008, pursuant to which he has agreed to serveas our Chief Administrative Officer for three years beginning in April 2008, subject to automatic one-year renewals unless we or Mr. Scully provide fourmonth’s written notice prior to the expiration of the then current term. The agreement provides for a base salary of $600,000, which will be reviewed annuallyby us. Mr. Scully is eligible to receive an annual cash incentive award with a target of 75% of base salary based upon the achievement of certain Companyand individual performance objectives to be determined each year. The agreement subjects Mr. Scully to non-competition and non-solicitation covenants duringhis employment and for a period of twelve (12) and eighteen (18) months, respectively, following 60termination of employment for any reason (except that the non-competition covenant will not apply in the event Mr. Scully’s employment is terminated by theCompany without “cause,” by Mr. Scully for “good reason” or because the Company provides Mr. Scully written notice of our intention not to renew theagreement). In the event his employment is terminated without “cause” or for “good reason,” Mr. Scully is entitled under the agreement to certain post-employment compensation, as detailed beginning on page 58.Libby WadleMs. Wadle entered into an employment agreement with us pursuant to which she has agreed to serve as Executive Vice President—J.Crew for three yearsbeginning in November 2011, subject to automatic one-year renewals unless we or Ms. Wadle provide two month’s written notice prior to the expiration of thecurrent term. The agreement provides for a minimum annual base salary of $700,000, which will be reviewed annually by us, and an annual cash incentiveaward with a target of 75% of base salary, up to a maximum bonus of 187.5% of base salary. The agreement also subjects Ms. Wadle to non-competition andnon-solicitation covenants during her employment and for a period of twelve (12) months following termination of employment for any reason (except that thenon-competition covenant will not apply in the event Ms. Wadle’s employment is terminated by the Company “without cause” or by Ms. Wadle for “goodreason”). In the event her employment is terminated without “cause,” for “good reason,” or as a result of the Company’s non-renewal of the agreement,Ms. Wadle is entitled under the agreement to certain post-employment compensation, as detailed beginning on page 59. 61GRANTS OF PLAN-BASED AWARDS—FISCAL 2012The following table sets forth the non-equity and equity incentive awards and other equity awards granted to our Named Executive Officers for fiscal2012. For fiscal 2012, the Company achieved the maximum Adjusted EBITDA goal under the annual cash incentive plan. As of the filing date of this report,the Committee has not yet determined the amount of the annual cash incentive awards payable in respect of fiscal year 2012, but expects to make suchdetermination by April 15, 2013. Name GrantDate (1) Estimated Future PayoutsUnder Non-Equity IncentivePlan Awards(2) Estimated Future PayoutsUnder Equity Incentive PlanAwards(3) All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions(3)(#) Exerciseor BasePrice ofOptionAwards(4)($/sh) Grant DateFair Valueof Stockand OptionAwards(5)($) Thresh-old($) Target($) Maximum($) Threshold(#) Target(#) Maximum(#) Millard Drexler — $400,000 $1,200,000 $3,000,000 — — — — — — Stuart Haselden — $44,666 $134,000 $335,000 — — — — — — 5/15/12 — — — — 150,000 — 150,000 $0.78 $70,500 Jenna Lyons — $250,000 $750,000 $1,875,000 — — — — — — Jim Scully — $175,000 $525,000 $1,312,500 — — — — — — Libby Wadle — $175,000 $525,000 $1,312,500 — — — — — — Lynda Markoe — $70,833 $212,500 $531,250 — — — — — — (1)The Committee approved the May 15, 2012 option award to Mr. Haselden by a unanimous written consent approved by all Committee members onApril 11, 2012, subject to the execution of a signed employment agreement by Mr. Haselden.(2)Represents possible payouts under the Company’s annual cash incentive plan for fiscal 2012. Amounts listed in the maximum column related toachievement of “Super Max” Adjusted EBITDA goal, as discussed beginning on page 47. Achievement of “Max” Adjusted EBITDA goals could resultin payouts for Messrs. Drexler, Haselden and Scully and Mss. Lyons, Wadle and Markoe of $2,400,000; $268,000; $1,050,000; $1,500,000;$1,050,000; and $425,000, respectively.(3)Under the 2011 Equity Incentive Plan, Mr. Haselden was awarded non-qualified stock options on May 15, 2012 which will vest upon meeting certaintime- and performance-based vesting conditions. The number of shares reflected in the table as the “target” payout under equity incentive plan awards isthe number of shares that would vest if the performance condition were met with respect to the tranche of the options subject to the performancecondition. If the performance condition was not achieved, the entire tranche would be forfeited. The tranche of the options subject only to time-basedvesting conditions is reflected in the column titled, “All Other Option Awards: Number of Securities Underlying Options.”(4)In accordance with the provisions of the Parent 2011 Equity Incentive Plan, exercise price is determined to be 100% of the fair market value of a sharethe Class A common stock, as of the date of grant. In December 2012, in connection with payment of a one-time special dividend to stockholders,Parent adjusted the exercise prices of outstanding stock options (other than rollover options) by reducing them in an amount equal to the dividend pershare.(5)These amounts represent the grant date fair value calculated in accordance with ASC 718—Compensation—Stock Compensation. In each case, theamount was calculated excluding forfeiture assumptions. The assumptions used in calculating these amounts are described in note 6, “Share BasedCompensation” to our consolidated financial statements. For the performance-based portion of the awards, no expense will be recognized until certainowners of our Parent receive a specified level of cash proceeds from the sale of their initial investment. 62OUTSTANDING EQUITY AWARDS AT FISCAL 2012 YEAR-ENDThe following table sets forth information regarding the outstanding awards under our long-term equity incentive plans held by our Named ExecutiveOfficers at the end of fiscal 2012. Option Awards(1) Grant Year ofOptions Number ofSecuritiesUnderlyingUnexercisedOptions(#)Exercisable Number ofSecuritiesUnderlyingUnexercisedOptions(#)Unexercisable(2) Equity IncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions(#)(2) OptionExercisePrice($) OptionExpiration Date Millard Drexler 2011 6,020,478 18,061,436 8,027,305 0.78 4/14/21 Stuart Haselden 2012 — 150,000 150,000 0.78 5/15/22 2011 113,066 — — 0.25 9/15/17 2011 80,711 — — 0.25 4/15/16 2011 45,000 180,000 225,000 0.78 4/14/21 Total 238,777 330,000 375,000 — — Jenna Lyons 2011 1,978,666 — — 0.25 9/15/17 2011 1,576,888 0.25 4/15/16 2011 458,700 3,669,600 2,293,500 0.78 4/14/21 Total 4,014,254 3,669,600 2,293,500 — — James Scully 2011 678,400 — — 0.25 9/15/17 2011 1,543,822 — — 0.25 4/15/16 2011 321,100 1,284,400 1,605,500 0.78 4/14/21 Total 2,543,322 1,284,400 1,605,500 — — Libby Wadle 2011 848,000 — — 0.25 9/15/17 2011 929,777 — — 0.25 4/15/16 2011 275,220 1,100,880 1,376,100 0.78 4/14/21 Total 2,052,997 1,100,880 1,376,100 — — Lynda Markoe 2011 339,200 — — 0.25 9/15/17 2011 549,688 — — 0.25 4/15/16 2011 160,550 642,200 802,750 0.78 4/14/21 Total 1,049,438 642,200 802,750 — — (1)Represents (i) stock options awarded prior to the Acquisition, which were rolled over into vested options of Parent, effective March 7, 2011, with anexercise price of $0.25, (ii) stock options that were granted to our Named Executive Officers on April 14, 2011 following the Acquisition and (iii) stockoptions that were granted to Mr. Haselden on May 15, 2012 in connection with his promotion to Chief Financial Officer. 63(2)The options granted on April 14, 2011 have an exercise price of $0.78 per share and vest as follows: Tranche 1 Vesting Schedule Tranche 2 Vesting Schedule Tranche 3 Vesting ScheduleDrexler 24,081,914 options vesting25% annually beginning on 4/14/12 8,027,305 options with performance-based vesting — Haselden 225,000 options vesting 20%annually beginning on 4/14/12 225,000 options with performance-based vesting — Lyons 2,293,500 options vesting 20%annually beginning on 4/14/12 2,293,500 options with performance-based vesting 1,834,800 options vesting 50% on4/14/15 and 50% on 4/14/18Scully 1,605,500 options vesting 20%annually beginning on 4/14/12 1,605,500 options with performance-based vesting — Wadle 1,376,100 options vesting 20%annually beginning on 4/14/12 1,376,100 options with performance-based vesting — Markoe 802,750 options vesting 20%annually beginning on 4/14/12 802,750 options with performance-based vesting — The options granted on May 15, 2012 have an exercise price of $0.78 per share and vest as follows: Tranche 1 Vesting Schedule Tranche 2 Vesting Schedule Haselden 150,000 options vesting 20%annually beginning on 5/15/13 150,000 options with performance-based vesting OPTION EXERCISES AND STOCK VESTED—FISCAL 2012There were no option exercises or vesting of stock for the Named Executive Officers during fiscal 2012.POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROLAs described above under Employment Agreements, we have employment agreements with Messrs. Drexler, Haselden and Scully and Mss. Lyons andWadle under which we are required to pay severance benefits in connection with certain terminations of employment. The agreements with Mr. Drexler andMs. Lyons also provide for accelerated vesting of certain equity awards in connection with certain terminations of employment. In addition, portions of certainawards made under our equity incentive plan provide for the accelerated payment or vesting of awards in connection with a termination of employment withintwo (2) years following a change in control. The following is a description of the severance, termination and change in control benefits payable to each of ourNamed Executive Officers pursuant to their respective agreements and our equity incentive plans as in effect during fiscal 2012. This disclosure assumes theapplicable triggering date occurred on February 1, 2013, the last business day of our 2012 fiscal year.For these purposes, “change in control” is generally defined as (a) any change in the ownership of the capital stock of the Company if, immediately aftergiving effect thereto, any person (or group of persons acting in concert) other than TPG and LGP and their affiliates will have the direct or indirect power toelect a majority of the members of the Board; (b) any change in the ownership of the capital stock of the Company if, immediately after giving effect thereto,TPG and LGP and their affiliates own less than 25% of the outstanding shares of the Company (taking into account options, warrants or convertiblesecurities which may be exercised, converted or exchanged into shares), or (c) the sale of all or substantially all of the assets of the Company and itssubsidiaries. 64Pursuant to employment agreement between us and Mr. Drexler, executed on March 7, 2011 (the “Drexler Agreement”), the payments and/or benefits weagreed to pay or provide to Mr. Drexler upon a termination of his employment vary depending on the reason for such termination.We may terminate Mr. Drexler’s employment with us upon his disability, which is generally defined in the Drexler Agreement as Mr. Drexler’s inabilityto perform his duties for a period of six (6) consecutive months or for 180 days within any 365 day period as a result of his incapacity due to physical ormental illness. In addition, we may terminate Mr. Drexler’s employment for cause or at any time without cause. For these purposes, “cause” is generallydefined under the Drexler Agreement as Mr. Drexler’s (a) willful and continued failure to substantially perform his duties, after written demand for substantialperformance by our Board; (b) willful engagement in illegal conduct or gross misconduct which is materially and demonstrably injurious to us; or (c) breachof the non-solicitation, non-competition and confidential information obligations described below.Mr. Drexler may terminate his employment with us with good reason or at any time, upon at least three (3) months’ advance written notice, without goodreason. For these purposes, “good reason” is generally defined under the Drexler Agreement as (a) the diminution of, or appointment of anyone other thanMr. Drexler to serve in or handle, his positions, authority, duties, and responsibilities without his consent; (b) any purported termination of his employmentby us for a reason or in a manner not expressly permitted by the Drexler Agreement; (c) relocation of more than fifty (50) miles of Mr. Drexler’s principal worklocation; (d) material breach of the Drexler Agreement by us; or (e) removal of Mr. Drexler from the Board.In addition, Mr. Drexler’s employment will terminate upon his death or in the event either party provides notice to the other party not to renew the DrexlerAgreement at least ninety (90) days prior to the expiration of its term.If Mr. Drexler’s employment with us is terminated (i) as a result of his death, disability or either party’s failure to renew the term, (ii) by us for cause, or(iii) by Mr. Drexler without good reason, then Mr. Drexler will only be entitled to any accrued but unpaid salary, accrued but unused vacation, and any un-reimbursed expenses, in each case through the date of his termination.If we terminate Mr. Drexler’s employment without cause or he terminates his employment with good reason, Mr. Drexler will be entitled to receive (i) apayment of his earned but unpaid annual base salary through the termination date, any accrued vacation pay and any un-reimbursed expenses, and(ii) subject to Mr. Drexler’s execution of a valid general release and waiver of claims against us, as well as his compliance with the non-competition, non-solicitation and confidential information restrictions described below, (a) a payment equal to his annual base salary and target cash incentive award, one-halfof such payment to be paid on the first business day that is six (6) months and one (1) day following the termination date and the remaining one-half of suchpayment to be paid in six equal monthly installments commencing on the first business day of the seventh calendar month following the termination date, (b) apayment equal to the pro-rated amount of any annual cash incentive award that he would have otherwise received, based on actual performance, for the fiscalyear in which he was terminated, such amount to be paid when annual bonuses are generally paid but in any event no later than the date that is 2.5 monthsfollowing the end of the year in which the termination date occurs, and (c) the immediate vesting of all then outstanding equity awards previously granted toMr. Drexler.In addition, upon any termination of Mr. Drexler’s employment with us, Mr. Drexler will be entitled to any benefit or right under the Company employeebenefit plans in which he is vested (except for any additional severance or termination payments). At this time, Mr. Drexler is not vested in any benefits orrights under our employee benefit plans.In addition, pursuant to the Drexler Agreement, in the event that any payment or benefit provided to Mr. Drexler under the Drexler Agreement or underany other plan, program or arrangement of ours in connection with a change in control (as defined in Section 280G of the Code) becomes subject to the excisetaxes imposed by Section 4999 of the Code, Mr. Drexler will be entitled to receive a “gross-up” payment in connection with any 65such excise taxes. We have also agreed to purchase and maintain, at our own expense, directors and officers liability insurance providing coverage forMr. Drexler for the six (6) year period following his termination of employment in the same amount as our other executive officers and directors.Pursuant to the Drexler Agreement, for the two (2) year period following the termination of Mr. Drexler’s employment, Mr. Drexler has agreed not to solicitor hire any of our associates. In addition, Mr. Drexler has agreed that, for the one (1) year period following his termination of employment (other than atermination by the Company “without cause,” by Mr. Drexler for “good reason” or as a result of the nonrenewal of the employment agreement by the Companyor Mr. Drexler), he will not compete with us in the retail apparel business in any geographic area in which we are engaged in such business. Mr. Drexler is alsosubject to standard non-disclosure of confidential information restrictions.Stuart HaseldenPursuant to the Letter Agreement between us and Mr. Haselden, dated May 15, 2012 (the “Haselden Agreement”), the payments and/or benefits we haveagreed to pay or provide Mr. Haselden on a termination of his employment vary depending on the reason for such termination.Pursuant to the Haselden Agreement, we may terminate Mr. Haselden’s employment with us upon his disability, which is generally defined in theHaselden Agreement as Mr. Haselden’s inability to perform his duties for a ninety (90) day period as a result of his incapacity due to physical or mental illnessor injury. In addition, we may terminate Mr. Haselden’s employment for cause or at any time without cause. For these purposes, “cause” is generally definedunder the Haselden Agreement as Mr. Haselden’s (a) indictment for a felony or any crime involving moral turpitude or being charged or sanctioned by thefederal or state government or governmental authority or agency with violations of applicable laws, or having been found by any court or governmentalauthority or agency to have committed any such violation; (b) willful misconduct or gross negligence in connection with his performance of duties; (c) materialbreach of the Haselden Agreement, including without limitation, his failure to perform his duties and responsibilities thereunder (provided that he has 30 daysto cure to the extent such violation is reasonably susceptible to cure); (d) fraudulent act or omission adverse to our reputation; (e) willful disclosure of anyconfidential information to persons not authorized to know such information; or (f) his violation of or failure to comply with any material Company policy orany legal or regulatory obligations or requirements, including without limitation, our Code of Ethics and Business Practices or any legal or regulatoryobligations or requirements (provided that he has 30 days to cure to the extent such violation is reasonably susceptible to cure). Furthermore, if subsequent tothe termination of Mr. Haselden’s employment it is determined that he could have been terminated for cause and there is a reasonable basis for suchdetermination, Mr. Haselden’s employment, at our election, shall be deemed to have been terminated for cause, in which event we would be entitled toimmediately cease providing any severance benefits described below and to recover any severance benefits previously paid to Mr. Haselden.Pursuant to the Haselden Agreement, Mr. Haselden may terminate his employment with us with good reason or at any time, upon at least four(4) months’ advance notice, without good reason. For these purposes, “good reason” is generally defined under the Haselden Agreement as (a) any action by usthat results in a material and continuing diminution of Mr. Haselden’s duties or responsibilities (including, without limitation, an adverse change inMr. Haselden’s title), (b) a material reduction by us of Mr. Haselden’s base salary or annual cash incentive award opportunity as in effect from time to time, or(iii) a relocation of more than fifty (50) miles of his principal place of employment, in each case without Mr. Haselden’s written consent. Mr. Haselden’semployment will also terminate upon his death.Pursuant to the Haselden Agreement, if Mr. Haselden’s employment with us is terminated (i) by us without cause (ii) by Mr. Haselden with good reasonor (iii) by us as a result of non-renewal of the agreement, then Mr. Haselden will be entitled to, subject to his execution of a valid general release and waiver ofany claims he may have against us, (a) continued payment of base salary and continued medical benefits (which may consist of 66our reimbursement of COBRA payments) for a period of twelve (12) months following his termination date and (b) the annual bonus earned for the yearimmediately prior to the year that includes the termination date, to the extent not yet paid. However, Mr. Haselden’s right to the continuation of his base salaryand medical benefits for twelve (12) months following the termination of his employment will cease, respectively, upon the date that he becomes employed by anew employer or otherwise begins providing services for another entity and the date he becomes eligible for coverage under another group health plan, providedthat if the cash compensation he receives from his new employer or otherwise is less than his base salary in effect immediately prior to his termination date, hewill be entitled to receive the difference between his base salary and his new amount of cash compensation during the remainder of the severance period. Inaddition, if Mr. Haselden’s employment with us is terminated for any reason, Mr. Haselden will also be entitled to any earned but unpaid salary.Amounts payable to Mr. Haselden as a result of termination by us without cause or by Mr. Haselden with good reason, may be deferred andaccumulated for six months, then paid in a lump-sum on the first day of the seventh month following termination, if required for compliance with the deferredcompensation rules under Section 409A of the Code.Pursuant to the Haselden Agreement, Mr. Haselden has agreed that, for the twelve (12) month period following the termination of his employment (otherthan a termination by us without cause, by Mr. Haselden with good reason or as a result of our election not to renew the employment period), he will not engagein or perform services for any entity in the retail, mail order and Internet specialty apparel and accessories business within a 100 mile radius of any of ourstore locations or in the same area as we direct our mail order operations or solicit any of our customers or suppliers. In addition, for the eighteen (18) monthperiod following the termination of his employment for any reason, Mr. Haselden has agreed not to solicit or hire any of our associates. Mr. Haselden is alsosubject to standard non-disclosure of confidential information restrictions.Jenna LyonsPursuant to the second amended and restated employment agreement between us and Ms. Lyons, dated July 1, 2010 (the “Lyons Agreement”), thepayments and/or benefits we have agreed to pay or provide Ms. Lyons on a termination of her employment vary depending on the reason for such termination.Pursuant to the Lyons Agreement, we may terminate Ms. Lyons’ employment with us upon her disability, which is generally defined in the LyonsAgreement as Ms. Lyons’ inability to perform her duties for a ninety (90) day period as a result of her incapacity due to physical or mental illness. Inaddition, we may terminate Ms. Lyons’ employment for cause or at any time without cause. For these purposes, “cause” is generally defined under the LyonsAgreement as Ms. Lyons’ (a) indictment for a felony; (b) willful misconduct or gross negligence in connection with her performance of duties; (c) willful andmaterial breach of the Lyons Agreement, including without limitation, her failure to perform her duties and responsibilities; (d) fraudulent act or omission byMs. Lyons adverse to our reputation; or (e) disclosure of any confidential information to persons not authorized to know such information. Furthermore, ifsubsequent to the termination of Ms. Lyons’ employment it is determined that she could have been terminated for cause and there is a reasonable basis forsuch determination, Ms. Lyons’ employment, at our election, shall be deemed to have been terminated for cause, in which event we would be entitled toimmediately cease providing any severance benefits described below and to recover any severance benefits previously paid to Ms. Lyons.Pursuant to the Lyons Agreement, Ms. Lyons may terminate her employment with us with good reason or at any time, upon at least two (2) months’advance notice, without good reason. For these purposes, “good reason” is generally defined under the Lyons Agreement as either (a) any action by us thatresults in a material and continuing diminution of Ms. Lyons’ duties or responsibilities, including an adverse change in her title from Creative Director or achange such that she will no longer report directly to the Chief Executive Officer; or (b) a material reduction by us of Ms. Lyons’ base salary or annual cashincentive award opportunity as in effect from time to time, or (c) a relocation of more than fifty (50) miles of her principal place of employment, in each case 67without Ms. Lyons’ written consent. Ms. Lyons’ employment will also terminate upon her death or disability, which is generally defined as Ms. Lyons’incapacity due to physical or mental illness or injury, which results in her being unable to perform her duties for ninety (90) consecutive working days.Pursuant to the Lyons Agreement, if Ms. Lyons’ employment with us is terminated (i) by us without cause or (ii) by Ms. Lyons with good reason, thenMs. Lyons will be entitled to, subject to her execution of a valid general release and waiver of any claims she may have against us, (a) continued payment ofbase salary and continued medical benefits for a period of one (1) year following her termination date and (b) a lump sum in an amount equal to the annualcash incentive award that she received for the fiscal prior to her termination. However, Ms. Lyons’ right to the continuation of her base salary and medicalbenefits for one (1) year following the termination of her employment will cease, respectively, upon the date that she becomes employed by a new employer orotherwise begins providing services for another entity and the date she becomes eligible for coverage under another group health plan; provided that if the cashcompensation she receives from her new employer or otherwise is less than her base salary in effect immediately prior to her termination date, she will beentitled to receive the difference between her base salary and her new amount of cash compensation during the remainder of the severance period. In addition, ifMs. Lyons’ employment with us is terminated for any reason, Ms. Lyons will also be entitled to any earned but unpaid base salary.Amounts payable to Ms. Lyons as a result of termination by us without cause or by Ms. Lyons with good reason, may be deferred and accumulated forsix months, then paid in a lump-sum on the first day of the seventh month following termination, if required for compliance with the deferred compensationrules under Section 409A of the Code.Pursuant to the Lyons Agreement, Ms. Lyons has agreed that, for the twelve (12) month period following the termination of her employment (other than atermination by us “without cause,” by Ms. Lyons with “good reason,” or as a result of our election not to renew the employment period), she will not engage inor perform services for certain competitive entities in the retail, mail order and Internet apparel and accessories business within a 100 mile radius of any of ourstore locations or in the same area as we direct our mail order operations or solicit any of our customers or suppliers. In addition, for the twelve (12) monthperiod following the termination of her employment for any reason, Ms. Lyons has agreed not to solicit or hire any of our associates. Ms. Lyons is also subjectto standard non-disclosure of confidential information and non-disparagement restrictions.James ScullyPursuant to the amended and restated employment agreement between us and Mr. Scully, dated September 10, 2008 (the “Scully Agreement”), thepayments and/or benefits we have agreed to pay or provide Mr. Scully on a termination of his employment vary depending on the reason for such termination.Pursuant to the Scully Agreement, we may terminate Mr. Scully’s employment with us upon his disability, which is generally defined in the ScullyAgreement as Mr. Scully’s inability to perform his duties for a ninety (90) day period as a result of his incapacity due to physical or mental illness or injury.In addition, we may terminate Mr. Scully’s employment for cause or at any time without cause. For these purposes, “cause” is generally defined under theScully Agreement as Mr. Scully’s (a) indictment for a felony or any crime involving moral turpitude or being charged or sanctioned by the federal or stategovernment or governmental authority or agency with violations of securities laws, or having been found by any court or governmental authority or agency tohave committed any such violation; (b) willful misconduct or gross negligence in connection with his performance of duties; (c) willful and material breach ofthe Scully Agreement, including without limitation, his failure to perform his duties and responsibilities thereunder (provided that he has 30 days to cure to theextent such violation is reasonably susceptible to cure); (d) fraudulent act or omission adverse to our reputation; (e) willful disclosure of any confidentialinformation to persons not authorized to know such information; or 68(f) his violation of or failure to comply with any material Company policy or any legal or regulatory obligations or requirements, including without limitation,failure to provide certifications as may be required by law (provided that he has 30 days to cure to the extent such violation is reasonably susceptible to cure).Furthermore, if subsequent to the termination of Mr. Scully’s employment it is determined that he could have been terminated for cause and there is areasonable basis for such determination, Mr. Scully’s employment, at our election, shall be deemed to have been terminated for cause, in which event wewould be entitled to immediately cease providing any severance benefits described below and to recover any severance benefits previously paid to Mr. Scully.Pursuant to the Scully Agreement, Mr. Scully may terminate his employment with us with good reason or at any time, upon at least two (2) months’advance notice, without good reason. For these purposes, “good reason” is generally defined under the Scully Agreement as (a) any action by us that results ina material and continuing diminution of Mr. Scully’s duties or responsibilities (including, without limitation, the appointment by the Company of a ChiefFinancial Officer who is not required to report to Mr. Scully), (b) a reduction by us of Mr. Scully’s base salary or annual cash incentive award opportunity asin effect from time to time, or (iii) a relocation of more than fifty (50) miles of his principal place of employment, in each case without Mr. Scully’s writtenconsent. Mr. Scully’s employment will also terminate upon his death.Pursuant to the Scully Agreement, if Mr. Scully’s employment with us is terminated (i) by us without cause or (ii) by Mr. Scully with good reason, thenMr. Scully will be entitled to, subject to his execution of a valid general release and waiver of any claims he may have against us, (a) continued payment ofbase salary and continued medical benefits (which may consist of our reimbursement of COBRA payments) for a period of eighteen (18) months following histermination date and (b) a lump sum in an amount equal to the pro-rated amount of any annual cash incentive award that he would have otherwise received,based on actual performance, for the fiscal year in which he was terminated. However, Mr. Scully’s right to the continuation of his base salary and medicalbenefits for eighteen (18) months following the termination of his employment will cease, respectively, upon the date that he becomes employed by a newemployer or otherwise begins providing services for another entity and the date he becomes eligible for coverage under another group health plan, provided thatif the cash compensation he receives from his new employer or otherwise is less than his base salary in effect immediately prior to his termination date, he willbe entitled to receive the difference between his base salary and his new amount of cash compensation during the remainder of the severance period. Inaddition, if Mr. Scully’s employment with us is terminated for any reason, Mr. Scully will also be entitled to any earned but unpaid salary.Amounts payable to Mr. Scully as a result of termination by us without cause or by Mr. Scully with good reason, may be deferred and accumulated forsix months, then paid in a lump-sum on the first day of the seventh month following termination, if required for compliance with the deferred compensationrules under Section 409A of the Code.Pursuant to the Scully Agreement, Mr. Scully has agreed that, for the twelve (12) month period following the termination of his employment (other than atermination by us without cause, by Mr. Scully with good reason or as a result of our election not to renew the employment period), he will not engage in orperform services for any entity in the retail, mail order and Internet specialty apparel and accessories business within a 100 mile radius of any of our storelocations or in the same area as we direct our mail order operations or solicit any of our customers or suppliers. In addition, for the eighteen (18) month periodfollowing the termination of his employment for any reason, Mr. Scully has agreed not to solicit or hire any of our associates. Mr. Scully is also subject tostandard non-disclosure of confidential information restrictions.Libby WadlePursuant to the Letter Agreement between us and Ms. Wadle, dated November 28, 2011 (the “Wadle Agreement”), the payments and/or benefits we haveagreed to pay or provide Ms. Wadle on a termination of his employment vary depending on the reason for such termination. 69Pursuant to the Wadle Agreement, we may terminate Ms. Wadle’s employment with us upon her disability, which is generally defined in the WadleAgreement as Ms. Wadle’s inability to perform her duties for a ninety (90) day period as a result of her incapacity due to physical or mental illness or injury.In addition, we may terminate Ms. Wadle’s employment for cause or at any time without cause. For these purposes, “cause” is generally defined under theWadle Agreement as Ms. Wadle’s (a) indictment for a felony or any crime involving moral turpitude or being charged or sanctioned by the federal or stategovernment or governmental authority or agency with violations of applicable laws, or having been found by any court or governmental authority or agency tohave committed any such violation; (b) willful misconduct or gross negligence in connection with her performance of duties; (c) willful and material breach ofthe Wadle Agreement, including without limitation, her failure to perform his duties and responsibilities thereunder (provided that she has 30 days to cure tothe extent such violation is reasonably susceptible to cure); (d) fraudulent act or omission adverse to our reputation; (e) willful disclosure of any confidentialinformation to persons not authorized to know such information; or (f) her violation of or failure to comply with any material Company policy or any legal orregulatory obligations or requirements, including without limitation, our Code of Ethics and Business Practices or any legal or regulatory obligations orrequirements (provided that she has 30 days to cure to the extent such violation is reasonably susceptible to cure). Furthermore, if subsequent to the terminationof Ms. Wadle’s employment it is determined that she could have been terminated for cause and there is a reasonable basis for such determination, Ms. Wadle’semployment, at our election, shall be deemed to have been terminated for cause, in which event we would be entitled to immediately cease providing anyseverance benefits described below and to recover any severance benefits previously paid to Ms. Wadle.Pursuant to the Wadle Agreement, Ms. Wadle may terminate her employment with us with good reason or at any time, upon at least two (2) months’advance notice, without good reason. For these purposes, “good reason” is generally defined under the Wadle Agreement as (a) any action by us that results ina material and continuing diminution of Ms. Wadle’s duties or responsibilities (including, without limitation, an adverse change in Ms. Wadle’s title or achange such that she no longer reports directly to the CEO), (b) a reduction by us of Ms. Wadle’s base salary or annual cash incentive award opportunity asin effect from time to time, or (iii) a relocation of more than fifty (50) miles of her principal place of employment, in each case without Ms. Wadle’s writtenconsent. Ms. Wadle’s employment will also terminate upon her death.Pursuant to the Wadle Agreement, if Ms. Wadle’s employment with us is terminated (i) by us without cause (ii) by Ms. Wadle with good reason or(iii) by us as a result of non-renewal of the agreement, then Ms. Wadle will be entitled to, subject to her execution of a valid general release and waiver of anyclaims she may have against us, (a) continued payment of base salary and continued medical benefits (which may consist of our reimbursement of COBRApayments) for a period of twelve (12) months following her termination date and (b) a lump sum in an amount equal to the pro-rated amount of any annualcash incentive award that she would have otherwise received, based on actual performance, for the fiscal year in which she was terminated. However, except inthe event Ms. Wadle is terminated in the twenty-four (24) months following a change in control, Ms. Wadle’s right to the continuation of her base salary andmedical benefits for twelve (12) months following the termination of her employment will cease, respectively, upon the date that she becomes employed by anew employer or otherwise begins providing services for another entity and the date she becomes eligible for coverage under another group health plan,provided that if the cash compensation she receives from her new employer or otherwise is less than her base salary in effect immediately prior to hertermination date, she will be entitled to receive the difference between her base salary and her new amount of cash compensation during the remainder of theseverance period. In addition, if Ms. Wadle’s employment with us is terminated for any reason, Ms. Wadle will also be entitled to any earned but unpaidsalary.Amounts payable to Ms. Wadle as a result of termination by us without cause or by Ms. Wadle with good reason, may be deferred and accumulated forsix months, then paid in a lump-sum on the first day of the seventh month following termination, if required for compliance with the deferred compensationrules under Section 409A of the Code. 70Pursuant to the Wadle Agreement, Ms. Wadle has agreed that, for the twelve (12) month period following the termination of her employment (other than atermination by us without cause, by Ms. Wadle with good reason or as a result of our election not to renew the employment period), she will not engage in orperform services for any entity in the retail, mail order and Internet specialty apparel and accessories business within a 100 mile radius of any of our storelocations or in the same area as we direct our mail order operations or solicit any of our customers or suppliers. In addition, for the twelve (12) month periodfollowing the termination of her employment for any reason, Ms. Wadle has agreed not to solicit or hire any of our associates. Ms. Wadle is also subject tostandard non-disclosure of confidential information restrictions.Equity PlanNone of the options to purchase shares of our common stock held by our Named Executive Officers and granted under our Parent 2011 Equity IncentivePlan will vest solely because of a “change in control” of our Company. However, stock options and/or restricted shares granted to our Named ExecutiveOfficers under the plan may provide for the acceleration of the vesting schedule in the event of the termination by us of a Named Executive Officer’semployment without cause or the termination by the Named Executive Officer for good reason within two (2) years following a change in control.In addition, in the event of (i) a consolidation, merger or similar transaction or series of related transactions, including a sale or disposition of stock, inwhich the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company’s then outstanding commonstock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale of all or substantially all of the Company’s assets, (iii) achange in control as defined in the Management Stockholders Agreement, or (iv) a dissolution or liquidation of the Company, the compensation committee ofthe Company has the right, in its discretion, to cancel all outstanding equity awards (whether vested or unvested) and, in full consideration of suchcancellation, pay to the holder of such award an amount in cash, for each share of common stock subject to the award, equal to, (A) with respect to an option,the excess of (x) the value, as determined by the compensation committee, of securities and property (including cash) received by ordinary stockholders as aresult of such event over (y) the exercise price of such option or (B) with respect to restricted shares, the value, as determined by the compensation committee,of securities and property (including cash) received by the ordinary stockholders as a result of such event.If any of the events described above had occurred on February 2, 2013 and the compensation committee of the Company exercised its discretion to cash-out each outstanding and unvested equity award (including performance-based awards) held by the Named Executive Officers as of such date, then eachNamed Executive Officer would have received an amount equal to the amount disclosed with respect to such Named Executive Officer in “Equity-BasedIncentive Compensation” row of the tables below. For purposes of this calculation, we have assumed that the value per share received in connection with suchevent would be equal to $1.10 per share for Class A common stock, which was the valuation of this class of stock on the last business day of our fiscal year2012. 71The following tables estimate the amounts that would be payable to our Named Executive Officers if their employment terminated on February 2, 2013.Millard Drexler Termination by(i) Executive WithoutGood Reason,(ii) by Executive’sNotice ofNon-Renewal or(iii) by Company forCause Termination(i) by the Company“without Cause,” or(ii) by Executive for“Good Reason”(1) Death/Disability Terminationas a result ofCompanyNotice ofNon-Renewal Change inControl-Terminationof Employmentby the Company“without Cause”or by Executive for“Good Reason”(1) Cash Severance — $2,600,000(2) — — $2,600,000(2) Equity-Based IncentiveCompensation — $8,348,397(3) — — $8,348,397(3) Other Benefits/ Tax Gross-Ups — — — — $0(4) (1)All severance payments and benefits payable to our Named Executive Officers upon a termination of employment by us without cause or by theexecutive with good reason are subject to the Named Executive Officer’s execution of a valid general release and waiver of all claims against the Companyand compliance with applicable non-competition, non-solicitation and confidential information restrictions.(2)Represents amount equal to (i) Mr. Drexler’s base salary ($200,000) and target cash incentive award ($1,200,000) (one half of such payment to be paidon the first business day that is six (6) months and one (1) day following the assumed termination date and the remaining one half of such payment tobe paid in six (6) equal monthly installments commencing on the first business day of the seventh calendar month following such date) and (ii) pro-rated lump sum payment of any annual cash incentive award he would have otherwise received for fiscal 2012 (assumes payout of target bonus of$1,200,000).(3)Represents an amount equal to the number of shares underlying all of Mr. Drexler’s unvested stock options as of February 2, 2013 multiplied by thespread between the valuation of the applicable class of common stock as of that date and the applicable exercise price of each stock option.(4)Represents the estimated amount, that was calculated in connection with the merger, of the “gross-up” payment that Mr. Drexler would be entitled toreceive in connection with any excise taxes imposed by Section 4999 of the Code as a result of a change in control (as defined by Section 280G of theCode). Since the Company was privately-owned as of February 2, 2013, no such gross-up payment would have been made.Stuart Haselden Termination by(i) Executive WithoutGood Reason,(ii) by Executive’sNotice ofNon-Renewal or(iii) by Company forCause Termination(i) by the Company“without Cause,” or(ii) by Executive for“Good Reason”(1) Death/Disability Terminationas a result ofCompanyNotice ofNon-Renewal Change inControl-Terminationof Employment bythe Company“without Cause” orby Executive for“Good Reason”(1) Cash Severance — $534,000(2) — — $534,000(2) Equity-Based IncentiveCompensation — — — — $225,600(2) Other Benefits/ Tax Gross-Ups — $17,434(4) — — — 72 (1)All severance payments and benefits payable to our Named Executive Officers upon a termination of employment by us without cause or by theexecutive with good reason are subject to the Named Executive Officer’s execution of a valid general release and waiver of all claims against the Companyand compliance with applicable non-solicitation and confidential information restrictions.(2)Represents amount equal to (i) continued payment of base salary ($400,000) for twelve (12) months following termination assuming that Mr. Haseldendoes not obtain other paid employment during that period and (ii) pro-rated lump sum payment of any annual cash incentive award he would haveotherwise received for fiscal 2012 (assumes payout of target bonus of $134,000).(3)Represents an amount equal to the number of shares underlying all of Mr. Haselden’s unvested stock options as of February 2, 2013 multiplied by thespread between the valuation of the applicable class of common stock as of that date and the applicable exercise price of each stock option.(4)Represents an amount equal to the Company’s total COBRA cost for Mr. Haselden to continue coverage under the Company’s health insurance plan fortwelve (12) months assuming that Mr. Haselden did not obtain other employment during that period.Jenna Lyons Termination by (i)Executive WithoutGood Reason,(ii) by Executive’sNotice of Non-Renewal or(iii) by Company forCause Termination(i) by the Company“without Cause,” or(ii) by Executive for“Good Reason”(1) Death/Disability Terminationas a result ofCompanyNotice ofNon-Renewal Change inControl-Terminationof Employment bythe Company“without Cause” orby Executive for“Good Reason”(1) Cash Severance — $1,000,000(2) — — $1,000,000(2) Equity-Based IncentiveCompensation — — — — $1,908,192(3) Other Benefits/Tax Gross-Ups — $17,434(4) — — — (1)All severance payments and benefits payable to our Named Executive Officers upon a termination of employment by us without cause or by theexecutive with good reason are subject to the Named Executive Officer’s execution of a valid general release and waiver of all claims against the Companyand compliance with applicable non-competition, non-solicitation and confidential information restrictions.(2)Represents amount equal to (i) continued payment of base salary ($1,000,000) for one (1) year following termination assuming that Ms. Lyons does notobtain other paid employment during that period and (ii) a lump sum payment equal to the annual cash incentive award, if any, that she received for thefiscal year ended prior to the fiscal year which includes the assumed termination date (which was $0 for fiscal 2011).(3)Represents an amount equal to the number of shares underlying all of Ms. Lyons’ unvested stock options as of February 2, 2013 multiplied by thespread between the valuation of the applicable class of common stock as of that date and the applicable exercise price of each stock option.(4)Represents an amount equal to the Company’s total COBRA cost for Ms. Lyons to continue coverage under the Company’s health insurance plan forone (1) year assuming that Ms. Lyons did not obtain other employment during that period. 73James Scully Termination by(i) Executive WithoutGood Reason,(ii) by Executive’sNotice ofNon-Renewal or(iii) by Company forCause Termination(i) by the Company“without Cause,” or(ii) by Executive for“Good Reason”(1) Death/Disability Terminationas a result ofCompanyNotice ofNon-Renewal Change inControl-Terminationof Employment bythe Company“without Cause” orby Executive for“Good Reason”(1) Cash Severance — $1,575,000(2) — — $1,575,000(2) Equity-Based IncentiveCompensation — — — — $924,768(3) Other Benefits/ Tax Gross-Ups — $26,151(4) — — — (1)All severance payments and benefits payable to our Named Executive Officers upon a termination of employment by us without cause or by theexecutive with good reason are subject to the Named Executive Officer’s execution of a valid general release and waiver of all claims against the Companyand compliance with applicable non-solicitation and confidential information restrictions.(2)Represents amount equal to (i) continued payment of base salary ($700,000) for eighteen (18) months following termination assuming that Mr. Scullydoes not obtain other paid employment during that period and (ii) pro-rated lump sum payment of any annual cash incentive award he would haveotherwise received for fiscal 2012 (assumes payout of target bonus of $525,000).(3)Represents an amount equal to the number of shares underlying all of Mr. Scully’s unvested stock options as of February 2, 2013 multiplied by thespread between the valuation of the applicable class of common stock as of that date and the applicable exercise price of each stock option.(4)Represents an amount equal to the Company’s total COBRA cost for Mr. Scully to continue coverage under the Company’s health insurance plan foreighteen (18) months assuming that Mr. Scully did not obtain other employment during that period.Libby Wadle Termination by(i) Executive WithoutGood Reason,(ii) by Executive’sNotice ofNon-Renewal or(iii) by Company forCause Termination(i) by the Company“without Cause,” or(ii) by Executive for“Good Reason”(1) Death/Disability Terminationas a result ofCompanyNotice ofNon-Renewal Change inControl-Terminationof Employment bythe Company“without Cause” orby Executive for“Good Reason”(1) Cash Severance — $1,225,000(2) — — $1,225,000(2) Equity-Based IncentiveCompensation — — — — $792,634(2) Other Benefits/Tax Gross-Ups — $17,434(4) — — — (1)All severance payments and benefits payable to our Named Executive Officers upon a termination of employment by us without cause or by theexecutive with good reason are subject to the Named Executive Officer’s execution of a valid general release and waiver of all claims against the Companyand compliance with applicable non-competition, non-solicitation and confidential information restrictions.(2)Represents amount equal to (i) continued payment of base salary ($700,000) for one (1) year following termination assuming that Ms. Wadle does notobtain other paid employment during that period and (ii) pro-rated lump sum payment of any annual cash incentive award that she would haveotherwise received for fiscal 2012 (assumes payout of target bonus of $525,000). 74(3)Represents an amount equal to the number of shares underlying all of Ms. Wadle’s unvested stock options as of February 2, 2013 multiplied by thespread between the valuation of the applicable class of common stock as of that date and the applicable exercise price of each stock option.(4)Represents an amount equal to the Company’s total COBRA cost for Ms. Wadle to continue coverage under the Company’s health insurance plan forone (1) year assuming that Ms. Wadle did not obtain other employment during that period.DIRECTOR COMPENSATIONThe following table sets forth information regarding compensation for each of the Company’s non-management directors for fiscal 2012. The directorsnamed in the table are those who served during any part of fiscal 2012. Messrs. Coulter, Danhakl and Sokoloff and Ms. Wheeler are representatives of ourSponsors. As a result, these directors are not individually compensated by the Company. Name Fees earned orpaid in cash($)(1) StockAwards($)(2) OptionAwards($)(2) All OtherCompensation($) Total($) James Coulter $— $— $— $— $— John Danhakl $— $— $— $— $— Jonathan Sokoloff $— $— $— $— $— Stephen Squeri $30,000 $18,800 $37,600 $ — $86,400 Carrie Wheeler $— $— $— $— $— (1)Represents pro-rated amount of annual cash retainer payable at the end of the fiscal year (as Mr. Squeri was appointed to the Board in May 2012).(2)Represents the grant date fair value we calculated under Accounting Standards Codification (ASC) 718—Compensation—Stock Compensation asshare-based compensation in our financial statements for fiscal year 2012 of restricted stock awards and stock option grants made to directors in thatfiscal year. See note 6 to the consolidated financial statements for a description of assumptions underlying the valuation of equity awards.The stock award granted to Mr. Squeri during fiscal 2012 and listed in the table above was an award of 40,000 shares of restricted stock with a grantdate fair value of $18,800. The option award granted to Mr. Squeri during fiscal 2012 and listed in the table above was an award of 80,000 stockoptions on June 7, 2012 with a grant date fair value of $37,600. The aggregate number of stock options held by Mr. Squeri as of February 2, 2013 is80,000. There are no other outstanding equity awards for the non-employee directors.Compensation of Directors for Fiscal 2012Neither Mr. Drexler nor the representatives of our Sponsors receive individual compensation from us for serving on the Board. In May 2012, the Boardappointed Stephen Squeri as a director. Mr. Squeri was previously a director of the Company from September 2010 until March 2011.In exchange for his services as a director in 2012, Mr. Squeri received: (1) an annual cash retainer of $30,000 (which represents the pro-rated amountbased on the date of appointment); (2) a one-time grant of non-qualified stock options to purchase 80,000 shares of Parent’s common stock, and (3) an awardof 40,000 shares of restricted stock. The options were granted on June 7, 2012, have an exercise price of $0.78 per share, a term of ten years and becomeexercisable ratably over five years from the grant date. The restricted stock was granted on June 7, 2012 and vests ratably over two years from the grant date.Mr. Squeri was also permitted, as a new director, to purchase shares in Parent, subject to a minimum investment of $100,000.Each of our directors receives a discount on most merchandise in our stores and through our Direct channel, which we believe is a common practice inthe retail industry. 75Compensation Committee Interlocks and Insider ParticipationThe members of the compensation committee of the Board of the Company are Mr. Coulter, Mr. Sokoloff, Mr. Squeri and Ms. Wheeler. None of thesecommittee members were officers or employees of the Company during fiscal year 2012, were formerly Company officers or had any relationship otherwiserequiring disclosure. There were no interlocks or insider participation between any member of the Board or compensation committee and any member of theBoard or compensation committee of another company.REPORT OF THE COMPENSATION COMMITTEEThe compensation committee of our Board has reviewed and discussed the “Compensation Discussion and Analysis” section with management. Basedon the review and discussions, the compensation committee recommended that the Board include the “Compensation Discussion and Analysis” in this annualreport on Form 10-K.COMPENSATION COMMITTEEJames Coulter, ChairmanJonathan SokoloffStephen SqueriCarrie Wheeler 76ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.All of the outstanding shares of common stock of J.Crew Group, Inc. are held indirectly by Parent.The following table describes the beneficial ownership of Parent’s common stock, consisting of both Class A common stock and Class L commonstock, as of March 1, 2013 by each person known to the Company to beneficially own more than five percent of Parent’s common stock, each director, eachexecutive officer named in the “Summary Compensation Table,” and all directors and executive officers as a group. The number of shares of common stockoutstanding used in calculating the percentage for each listed person includes the shares of Class A common stock underlying options beneficially owned bythat person that are exercisable within 60 days following March 1, 2013. The beneficial ownership percentages reflected in the table below are based on91,465,196 shares of Parent’s Class L common stock and 814,303,795 shares of Parent’s Class A common stock outstanding as of March 1, 2013. Name of Beneficial Owner Amount and Natureof BeneficiallyOwned Class L Percent ofClass L Amount and Natureof BeneficiallyOwned Class A Percent ofClass A 5% Shareholders Affiliates of TPG 60,275,627(1) 65.90% 542,480,716(2) 66.62% Affiliates of LGP 22,666,665(3) 24.78% 203,999,999(4) 25.05% Directors and Executive Officers James Coulter 60,275,627(1) 65.90% 542,480,716(2) 66.62% Millard S. Drexler 7,370,977(5) 8.06% 78,379,762(6) 9.49% John G. Danhakl 22,666,665(7) 24.78% 203,999,999(7) 25.05% Jonathan D. Sokoloff 22,666,665(8) 24.78% 203,999,999(8) 25.05% Stephen J. Squeri 28,148(9) * 160,000(10) * Carrie Wheeler — (11) * — (11) * Stuart Haselden 16,148 * 283,777(12) * Jenna Lyons 296,296 * 4,472,955(13) * Lynda Markoe 74,074 * 1,209,988(14) * James Scully 185,185 * 2,864,422(15) * Libby Wadle 148,148 * 2,328,217(16) * All Executive Officers and Directors as a Group 91,061,268 99.56% 836,179,836 99.84% *Indicates less than one percent of common stock.Except as described in the agreements mentioned above or as otherwise indicated in a footnote, each of the beneficial owners listed has, to our knowledge,sole voting, dispositive and investment power with respect to the indicated shares of common stock beneficially owned by them. Unless otherwise indicated ina footnote, the address for each individual listed below is c/o J.Crew Group, Inc. 770 Broadway, New York NY 10003. (1)Represents 60,275,627 shares of Class L common stock of Chinos Holdings, Inc. (the “TPG Class L Stock”) held by TPG Chinos, L.P., a Delawarelimited partnership (“TPG Chinos”), whose general partner is TPG Advisors VI, Inc., a Delaware corporation (“Advisors VI”). Messrs. James G.Coulter and David Bonderman are officers, directors and sole shareholders of Advisors VI and may therefore be deemed to beneficially own the TPGstock. Messrs. Bonderman and Coulter disclaim beneficial ownership of the TPG stock held by Advisors VI except to the extent of their pecuniaryinterest therein. The address of Advisors VI and Messrs. Bonderman and Coulter is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, FortWorth, TX 76102.(2)Represents 542,480,716 shares of Class A common stock of Chinos Holdings, Inc. (the “TPG Class A Stock” and, together with the TPG Class LStock, the “TPG Stock”) held by TPG Chinos.(3)Represents 17,091,769 shares of Class L common stock held by Green Equity Investors V, L.P., a Delaware limited partnership (“GEI V”),5,127,119 shares of Class L common stock held by Green Equity Investors Side V, L.P., a Delaware limited partnership (“GEI Side”) and 447,777shares of Class L common stock held by LGP Chino Coinvest LLC, a Delaware limited Liability Company (“LGP Chino Coinvest” and, 77 together with GEI V and GEI Side, the “LGP Funds”). GEI Capital V, LLC, a Delaware limited liability company (“GEI Capital”), is the general partnerof each of GEI V and GEI Side. GEI Capital may be deemed to have voting and dispositive power with respect to the 22,218,888 shares of Class Lcommon stock held by GEI V and GEI Side. GEI Capital expressly disclaims beneficial ownership of any securities owned beneficially or of record byany person or persons other than itself for purposes of Section 13(d)(3) and Rule 13d-3 of the Exchange Act and expressly disclaims beneficialownership of any such securities except to the extent of its pecuniary interest therein. Leonard Green & Partners, L.P., a Delaware limited partnership(“LGP”) is the manager of LGP Chino Coinvest and serves as the management company of GEI V and GEI Side. LGP may be deemed to have votingand dispositive power with respect to the 22,666,665 shares of Class L common stock held by the LGP Funds. LGP expressly disclaims beneficialownership of any securities owned beneficially or of record by any person or persons other than itself for purposes of Section 13(d)(3) and Rule 13d-3 ofthe Exchange Act and expressly disclaims beneficial ownership of any such securities except to the extent of its pecuniary interest therein. The businessaddress of each of the LGP Funds and LGP is c/o Leonard Green & Partners, 11111 Santa Monica Boulevard Suite 2000, Los Angeles, CA 90025.(4)Represents 153,825,921 shares of Class A common stock held by GEI V, 46,144,078 shares of Class A common stock held by GEI Side and4,030,000 shares of Class A common stock held by LGP Chino Coinvest. GEI Capital is the general partner of each of GEI V and GEI Side. GEICapital may be deemed to have voting and dispositive power with respect to the 199,969,999 shares of Class A common stock held by GEI V andGEI Side. GEI Capital expressly disclaims beneficial ownership of any securities owned beneficially or of record by any person or persons other thanitself for purposes of Section 13(d)(3) and Rule 13d-3 of the Exchange Act and expressly disclaims beneficial ownership of any such securities except tothe extent of its pecuniary interest therein. LGP is the manager of LGP Chino Coinvest and serves as the management company of GEI V and GEI Side.LGP may be deemed to have voting and dispositive power with respect to the 203,999,999 shares of Class A common stock held by the LGP Funds.LGP expressly disclaims beneficial ownership of any securities owned beneficially or of record by any person or persons other than itself for purposesof Section 13(d)(3) and Rule 13d-3 of the Exchange Act and expressly disclaims beneficial ownership of any such securities except to the extent of itspecuniary interest therein.(5)Represents 3,571,978 shares of Class L common stock held by The Drexler Family Revocable Trust, 1,867,278 shares of Class L common stockheld by The Drexler 2008 Family Trust f/b/o Alexander Fischman Drexler, 1,867,277 shares of Class L common stock held by The Drexler 2008Family Trust f/b/o Katherine Elizabeth Fischman Drexler, and 64,444 shares of Class L common stock held by Millard S. Drexler.(6)Represents 32,147,805 shares of Class A common stock held by The Drexler Family Revocable Trust, 16,805,500 shares of Class A common stockheld by The Drexler 2008 Family Trust f/b/o Alexander Fischman Drexler, 16,805,500 shares of Class A common stock held by The Drexler 2008Family Trust f/b/o Katherine Elizabeth Fischman Drexler and 580,000 shares of Class A common stock held by Millard S. Drexler. Also includes12,040,957 shares of Class A common stock that Mr. Drexler has the right to acquire within 60 days of March 1, 2013 upon the exercise of stockoptions at an exercise price of $0.78 per share.(7)Mr. Danhakl is a Managing Partner of LGP, and by virtue of this and the relationships described in Footnotes (3) and (4) above, may be deemed to sharevoting and dispositive power with respect to the 22,666,665 shares of Class L common stock and 203,999,999 shares of Class A common stockbeneficially owned by the LGP Funds. Mr. Danhakl disclaims beneficial ownership of all such shares except to the extent of his pecuniary interesttherein. The business address of Mr. Danhakl is c/o Leonard Green & Partners, 11111 Santa Monica Boulevard Suite 2000, Los Angeles, CA 90025.(8)Mr. Sokoloff is a Managing Partner of LGP, and by virtue of this and the relationships described in Footnote (3) and (4) above, may be deemed to sharevoting and dispositive power with respect to the 22,666,665 shares of Class L common stock and 203,999,999 shares of Class A common stockbeneficially owned by the LGP Funds. Mr. Sokoloff disclaims beneficial ownership of all such shares except to the extent of his pecuniary interesttherein. The business address of Mr. Sokoloff is c/o Leonard Green & Partners, 11111 Santa Monica Boulevard Suite 2000, Los Angeles, CA 90025.(9)Includes 14,815 shares of Class L common stock held by Mr. Squeri and 13,333 shares of Class L restricted common stock. 78(10)Includes 133,333 shares of Class A common stock held by Mr. Squeri and 26,667 shares of Class A restricted common stock.(11)Ms. Wheeler is a TPG Partner. Ms. Wheeler does not have voting or dispositive power over and disclaims beneficial ownership of the TPG Stock. Thebusiness address of Ms. Wheeler is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102.(12)Includes shares of Class A common stock that Mr. Haselden has the right to acquire within 60 days of March 1, 2013 upon the exercise of stockoptions as follows: 193,777 shares at an exercise price of $0.25 per share, and 90,000 shares at an exercise price of $0.78 per share.(13)Includes shares of Class A common stock that Ms. Lyons has the right to acquire within 60 days of March 1, 2013 upon the exercise of stock optionsas follows: 3,555,555 shares at an exercise price of $0.25 per share, and 917,400 shares at an exercise price of $0.78 per share.(14)Includes shares of Class A common stock that Ms. Markoe has the right to acquire within 60 days of March 1, 2013 upon the exercise of stock optionsas follows: 888,888 shares at an exercise price of $0.25 per share, and 321,100 shares at an exercise price of $0.78 per share.(15)Includes shares of Class A common stock that Mr. Scully has the right to acquire within 60 days of March 1, 2013 upon the exercise of stock optionsas follows: 2,222,222 shares at an exercise price of $0.25 per share, and 642,200 shares at an exercise price of $0.78 per share.(16)Includes shares of Class A common stock that Ms. Wadle has the right to acquire within 60 days of March 1, 2013 upon the exercise of stock optionsas follows: 1,777,777 shares at an exercise price of $0.25 per share, and 550,440 shares at an exercise price of $0.78 per share. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSStockholders AgreementsThe Company has entered into each of a Principal Investors Stockholders’ Agreement and a Management Stockholders’ Agreement with the Sponsors,certain parent companies of the Company (including Parent), certain other stockholders of Parent party thereto and, with respect to the ManagementStockholders’ Agreement, certain members of management party thereto including but not limited to Mss. Lyons, Markoe and Wadle and Messrs. Haseldenand Scully (collectively, the “Stockholders Agreements”). These agreements contain arrangements among the parties thereto with respect to the business andaffairs of the Company and the ownership of securities of Parent, including with respect to election of the Company’s directors and the directors of its parentcompanies, restrictions on the issuance or transfer of interests in the Company and its parent entities and other corporate governance provisions (including theright to approve various corporate actions).Pursuant to the Stockholders Agreements, (i) the LGP Funds have the right to nominate, and have nominated, two directors to the Company’s Board,(ii) Millard S. Drexler has been nominated to the Board and will serve so long as he is the chief executive officer of the Company and (iii) TPG has the right toset the size of the Board and nominate the remaining directors. At the closing of the Acquisition in March 2011, TPG nominated two directors to theCompany’s Board. In May 2012, Stephen Squeri was unanimously appointed to the Board, such that the Board is currently comprised of six directors.Pursuant to the Amended and Restated Certificate of Incorporation of the Company as well as the Stockholders Agreements, each director nominated by TPGhas four votes for purposes of any Board action and each other director has one vote for purposes of any Board action. All decisions of the Board require theapproval of a majority of the voting power held by the directors appointed in accordance with the Stockholders Agreements. In addition, the StockholdersAgreements provide that certain significant transactions regarding the Company and its parent companies require the consent of the LGP Funds.The Stockholders Agreements contain customary agreements with respect to restrictions on the issuance or transfer of shares of common stock in theCompany and its parent entities, including preemptive rights, rights of first offer upon a disposition of shares, tag along rights and drag along rights. 79The Principal Investors Stockholders’ Agreement contains customary demand and piggyback registration rights in favor of the Sponsors and the otherstockholders party thereto. The Management Stockholders’ Agreement also contains call rights allowing Parent and, in certain circumstances, the Sponsors, topurchase shares of Parent held by members of management party thereto in the event of a termination of employment of such member of management.Agreements with the SponsorsIn connection with the Transactions, we entered into a management services agreement with the Sponsors, and/or affiliates of the Sponsors if theSponsors so choose (the “Managers”), pursuant to which the Managers will provide us with certain management services until December 31, 2021, withevergreen one year extensions thereafter. The management services agreement provides that the Managers will receive an aggregate annual retainer fee equal to thegreater of 40 basis points of annual revenue and $8 million to be allocated between the Managers as set forth in the management agreement. The managementservices agreement provides that the Managers will be entitled to receive fees in connection with certain subsequent financing, acquisition, disposition andchange of control transactions equal to customary fees charged by internationally-recognized investment banks for serving as financial advisor in similartransactions. The management agreement also provides for reimbursement for out-of-pocket expenses incurred by the Managers or their designees after theconsummation of the Acquisition.The management services agreement includes customary exculpation and indemnification provisions in favor of the Managers, their designees and eachof their respective affiliates. The management services agreement may be terminated by TPG, the board of directors of Parent or upon an initial public offeringor change of control unless TPG determines otherwise. In the event the management services agreement is terminated, we expect to pay the Managers or theirdesignees all unpaid fees plus the sum of the net present values of the aggregate annual retainer fees that would have been payable with respect to the periodfrom the date of termination until the expiration date in effect immediately prior to such termination.Pursuant to the management services agreement, the Managers received on the closing date of the Acquisition an aggregate transaction fee of $35 million.Additionally, in connection with the Acquisition, the Managers incurred certain costs, aggregating to $19.9 million, which were either (i) paid for on behalf ofthe Managers or (ii) reimbursed to the Managers by the Company. These costs are reflected as a reduction of stockholders’ equity in the consolidated financialstatements of the Company.Indemnification of Directors and Officers; Directors’ and Officers’ InsuranceThe current directors and officers of J.Crew and its subsidiaries are entitled under the Merger Agreement relating to the Acquisition to continuedindemnification and insurance coverage.Certain Charter and Bylaws ProvisionsOur amended and restated certificate of incorporation and our amended and restated bylaws contain provisions limiting directors’ obligations in respectof corporate opportunities. In addition, our amended and restated certificate of incorporation provides that Section 203 of the Delaware General CorporationLaw will not apply to the Company. Section 203 restricts “business combinations” between a corporation and “interested stockholders,” generally defined asstockholders owning 15% or more of the voting stock of a corporation.Private AircraftMr. Drexler travels extensively for Company business, including for purposes of site visitations to the Company’s stores. For purposes of businessefficiency, Mr. Drexler uses his private airplane. Mr. Drexler’s airplane is owned by an entity which he controls. We pay an established charter rate to a third-party commercial aircraft operator for business use of his airplane. Mr. Drexler also has a fractional interest in a helicopter and we 80reimburse him for business use of the helicopter at an established rate. The audit committee has reviewed the terms of these arrangements to ensure they are at,or below, market and in the best interests of the Company. During fiscal 2012, we paid $1,413,000 pursuant to these arrangements.Review, Approval or Ratification of Transactions with Related PersonsThe Board has adopted a written policy regarding the approval or ratification of all transactions required to be reported under the SEC’s rules regardingtransactions with related persons. In accordance with this policy, the audit committee of the Board will evaluate each related person transaction for the purposeof recommending to the disinterested members of the Board that the transactions are fair, reasonable and within Company policy, and should be ratified andapproved by the Board. At least semi-annually, management will provide the audit committee with information pertaining to related person transactions. Theaudit committee will consider each related person transaction in light of all relevant factors and the controls implemented to protect the interests of the Companyand its stockholders. Relevant factors will include: • the benefits of the transaction to the Company; • the terms of the transaction and whether they are arm’s-length and in the ordinary course of the Company’s business; • the direct or indirect nature of the related person’s interest in the transaction; • the size and expected term of the transaction; and • other facts and circumstances that bear on the materiality of the related person transaction under applicable law.Approval by the Board of any related person transaction involving a director will also be made in accordance with applicable law and the Company’sorganizational documents as from time to time in effect. Where a vote of the disinterested directors is required, such vote will be called only following fulldisclosure to such directors of the facts and circumstances of the relevant related person transaction. Related person transactions entered into, but not approvedor ratified as required by the Board’s policy, will be subject to termination by the Company (or any relevant subsidiary), if so directed by the audit committeeor the Board, as applicable, taking into account such factors as such body deems appropriate and relevant. ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.During fiscal years 2012, 2011 and 2010, KMPG LLP served as our independent registered public accounting firm and in that capacity rendered anunqualified opinion on our consolidated financial statements as of and for the three years ended February 2, 2013. For purposes of this disclosure, fiscal 2011includes both the Predecessor period from January 30, 2011 to March 7, 2011 and the Successor period from March 8, 2011 to January 28, 2012.The following table sets forth the aggregate fees billed or expected to be billed to us by our independent registered public accounting firm in each of thelast two fiscal years: Fiscal 2012 Fiscal 2011 Audit Fees $1,284,000 $1,490,000 Audit-Related Fees — 400,000 Tax Fees 90,000 — All Other Fees — — Total Fees $1,374,000 $1,890,000 81Audit FeesThese amounts represent fees billed or expected to be billed by KPMG LLP for professional services rendered for the audits of the Company’s annualfinancial statements for fiscal 2012 and fiscal 2011 and the reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q.Audit-Related FeesThis amount represents fees billed by KPMG LLP for professional services rendered that were not included under “Audit Fees.” Audit-Related Fees infiscal 2011 were related to procedures performed in connection with debt issuance and the filing of our Form S-4 Registration statement.Tax FeesThis amount represents fees billed or expected to be billed by KPMG LLP for professional services rendered in connection with sales and use taxcompliance.All Other FeesNoneAuditor IndependenceThe audit committee has considered whether the provision of the above-noted services is compatible with maintaining the auditor’s independence and hasdetermined that the provision of such services has not adversely affected the auditor’s independence.Policy on Audit Committee Pre-Approval of Audit and Permitted Non-Audit ServicesThe audit committee has established policies and procedures regarding the pre-approval of audit and other services that our independent auditor mayperform for us. Under the policy, the audit committee has pre-approved the engagement of our independent auditors to perform certain work for us that is notan integral component of the audit services (“Non-Audit Services”) from time to time up to a maximum compensation amount of $20,000 per year, abovewhich amount any additional Non-Audit Services and compensation payable therefore would be required to be approved in advance by the audit committee.The audit committee is governed by a written charter, which is available free of charge on the investor relations section of our website at www.jcrew.comor upon written request to the Secretary of the Company, J.Crew Group, Inc., 770 Broadway, New York, New York 10003. The audit committee held eightmeetings in fiscal 2012. 82PART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (a)Financial Statements and Financial Statement Schedules. See “Index to Financial Statements” which is located on page F-1 of this report. (b)Exhibits. See the exhibit index which is included herein. 83SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. J.CREW GROUP, INC.Date: March 20, 2013 By: /S/ MILLARD DREXLER Millard DrexlerChief 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 theregistrant and in the capacities indicated, on March 20, 2013. Signature Title/S/ MILLARD DREXLER Millard Drexler Chairman of the Board,Chief Executive Officer and a Director(Principal Executive Officer)/S/ STUART C. HASELDEN Stuart C. Haselden Chief Financial Officer (Principal Financial and Accounting Officer)*James Coulter Director*John Danhakl Director*Jonathan Sokoloff Director*Stephen Squeri Director*Carrie Wheeler Director*By: /s/ STUART C. HASELDEN Stuart C. Haselden,Attorney-in-Fact 84J.Crew Group, Inc.INDEX TO FINANCIAL STATEMENTS Audited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets at February 2, 2013 and January 28, 2012 F-3 Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended February 2, 2013 (Successor), for the periodsMarch 8, 2011 to January 28, 2012 (Successor) and January 30, 2011 to March 7, 2011 (Predecessor) and for the year ended January 29, 2011(Predecessor) F-4 Consolidated Statements of Changes in Stockholders’ Equity for the year ended February 2, 2013 (Successor), for the periods March 8, 2011 toJanuary 28, 2012 (Successor) and January 30, 2011 to March 7, 2011 (Predecessor) and for the year ended January 29, 2011 (Predecessor) F-5 Consolidated Statements of Cash Flows for the year ended February 2, 2013 (Successor), for the periods March 8, 2011 to January 28, 2012(Successor) and January 30, 2011 to March 7, 2011 (Predecessor) and for the year ended January 29, 2011 (Predecessor) F-6 Notes to Consolidated Financial Statements F-7 Financial Statement Schedules Schedule II—Valuation and Qualifying Accounts for the years ended February 2, 2013, January 28, 2012 and January 29, 2011 F-29 F-1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersJ.Crew Group, Inc.:We have audited the accompanying consolidated balance sheets of J.Crew Group, Inc. and subsidiaries as of February 2, 2013 and January 28, 2012,and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year endedFebruary 2, 2013 (Successor), the periods March 8, 2011 to January 28, 2012 (Successor) and January 30, 2011 to March 7, 2011 (Predecessor), and theyear ended January 29, 2011 (Predecessor). In connection with our audits of the consolidated financial statements, we also have audited financial statementschedule II. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibilityis to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Thosestandards 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 assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat 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 2, 2013 and January 28, 2012, and the related consolidated statements of operations and comprehensive income (loss),changes in stockholders’ equity, and cash flows for the year ended February 2, 2013 (Successor), the periods March 8, 2011 to January 28, 2012(Successor) and January 30, 2011 to March 7, 2011 (Predecessor), and the year ended January 29, 2011 (Predecessor) in conformity with U.S. generallyaccepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the consolidated financialstatements taken as a whole, present fairly, in all material respects, the information set forth therein./s/ KPMG LLPNew York, New YorkMarch 20, 2013 F-2J.CREW GROUP, INC.Consolidated Balance Sheets(in thousands, except share data) February 2,2013 January 28,2012 ASSETS Current assets: Cash and cash equivalents $68,399 $221,852 Merchandise inventories 265,628 242,659 Prepaid expenses and other current assets 51,105 48,052 Deferred income taxes, net 14,686 9,971 Prepaid income taxes 11,620 4,087 Total current assets 411,438 526,621 Property and equipment, at cost 399,270 281,518 Less accumulated depreciation (75,159) (16,946) Property and equipment, net 324,111 264,572 Favorable lease commitments, net 35,104 48,930 Deferred financing costs, net 51,851 58,729 Intangible assets, net 975,517 985,322 Goodwill 1,686,915 1,686,915 Other assets 1,778 2,433 Total assets $3,486,714 $3,573,522 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $141,119 $158,116 Other current liabilities 153,743 116,339 Interest payable 18,812 26,735 Current portion of long-term debt 12,000 15,000 Total current liabilities 325,674 316,190 Long-term debt 1,567,000 1,579,000 Unfavorable lease commitments and deferred credits, net 71,146 53,700 Deferred income taxes, net 392,984 410,515 Other liabilities 38,419 37,065 Total liabilities 2,395,223 2,396,470 Stockholders’ equity: Common stock $0.01 par value; 1,000 shares authorized, issued and outstanding — — Additional paid-in capital 1,003,184 1,183,606 Accumulated other comprehensive loss (20,189) (18,963) Retained earnings 108,496 12,409 Total stockholders’ equity 1,091,491 1,177,052 Total liabilities and stockholders’ equity $3,486,714 $3,573,522 The accompanying notes are an integral part of these consolidated financial statements. F-3J.CREW GROUP, INC.Consolidated Statements of Operations and Comprehensive Income (Loss)(in thousands) For the YearEnded For the Period For the YearEnded February 2,2013(a) March 8, 2011 toJanuary 28, 2012 January 30, 2011 toMarch 7, 2011 January 29,2011 (Successor) (Successor) (Predecessor) (Predecessor) Revenues: Net sales $2,198,099 $1,696,309 $130,116 $1,683,470 Other 29,618 25,441 3,122 38,757 Total revenues 2,227,717 1,721,750 133,238 1,722,227 Cost of goods sold, including buying and occupancy costs 1,240,989 1,042,197 70,284 975,230 Gross profit 986,728 679,553 62,954 746,997 Selling, general and administrative expenses 733,070 574,877 79,736 533,029 Income (loss) from operations 253,658 104,676 (16,782) 213,968 Interest expense, net of interest income of $276, $192, $61, and$284. 101,684 91,683 1,166 3,914 Income (loss) before income taxes 151,974 12,993 (17,948) 210,054 Provision (benefit) for income taxes 55,887 584 (1,798) 88,549 Net income (loss) $96,087 $12,409 $(16,150) $121,505 Other comprehensive income: Net loss on cash flow hedge, net of tax (1,226) (18,963) — — Comprehensive income (loss) $94,861 $(6,554) $(16,150) $121,505 (a)consists of 53 weeksThe accompanying notes are an integral part of these consolidated financial statements. F-4J.CREW GROUP, INC.Consolidated Statements of Changes in Stockholders’ Equity(in thousands, except shares) Common Stock Additionalpaid-incapital Retainedearnings(accumulateddeficit) Accumulatedothercomprehensiveloss Treasurystock Totalstockholders’equity Shares Amount Balance at January 30, 2010 65,069,863 $649 $613,383 $(233,731) $— $(4,423) $375,878 Net income — — — 121,505 — — 121,505 Share-based compensation — — 10,697 — — — 10,697 Exercise of stock options 265,806 3 4,604 — — — 4,607 Excess tax benefit from share-based awards — — 356 — — — 356 Issuance of common stock under ASPP 33,128 1 985 — — — 986 Issuance of restricted stock 151,365 2 (2) — — — — Net settlement of share-based awards — — — — — (2,908) (2,908) Forfeiture of restricted stock (257,483) (2) 2 — — — — Balance at January 29, 2011 65,262,679 $653 $630,025 $(112,226) $— $(7,331) $511,121 Net loss — — — (16,150) — — (16,150) Share-based compensation — — 1,080 — — — 1,080 Exercise of stock options 6,025 — 79 — — — 79 Excess tax benefit from share-based awards — — 74,495 — — — 74,495 Issuance of common stock under ASPP 33,912 — 1,051 — — — 1,051 Net settlement of share-based awards — — — — — (20) (20) Other — — — (12) — — (12) Balance at March 7, 2011 65,302,616 $653 $706,730 $(128,388) $— $(7,351) $571,644 Issuance of 1,000 shares of common stock 1,000 $— $1,170,693 $— $— $— $1,170,693 Net income — — — 12,409 — — 12,409 Share-based compensation — — 12,913 — — — 12,913 Unrealized losses on cash flow hedges, net of tax — — — — (18,963) — (18,963) Balance at January 28, 2012 1,000 $— $1,183,606 $12,409 $(18,963) $— $1,177,052 Net income — — — 96,087 — — 96,087 Share-based compensation — — 5,284 — — — 5,284 Contribution from Parent, net — — 11,744 — — — 11,744 Dividend — — (197,450) — — — (197,450) Net losses on cash flow hedges, net of tax — — — — (1,226) — (1,226) Balance at February 2, 2013 1,000 $— $1,003,184 $108,496 $(20,189) $— $1,091,491 The accompanying notes are an integral part of these consolidated financial statements. F-5J.CREW GROUP, INC.Consolidated Statements of Cash Flows(in thousands) For the Year Ended For the Period For the Year Ended February 2,2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011to March 7, 2011 January 29,2011 (Successor) (Successor) (Predecessor) (Predecessor) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $96,087 $12,409 $(16,150) $121,505 Adjustments to reconcile to cash flows from operatingactivities: Depreciation of property and equipment 72,471 59,595 3,929 49,756 Share-based compensation 5,284 48,037 1,080 10,697 Non-cash charge related to step-up in carrying valueof inventory — 32,500 — — Deferred income taxes (8,945) (29,768) 2,668 (2,001) Amortization of favorable lease commitments 13,826 12,080 — — Amortization of intangible assets 9,805 8,988 — — Amortization of deferred financing costs 9,606 8,801 970 2,058 Excess tax benefits from share-based awards — — (74,495) (356) Changes in operating assets and liabilities: Merchandise inventories (22,969) (8,024) (20,204) (24,200) Prepaid expenses and other current assets (3,053) (12,126) 3,178 (9,582) Other assets 655 961 (825) (171) Accounts payable and other liabilities 29,930 58,637 (2,440) 30,359 Federal and state income taxes (8,474) 54,197 1,179 3,727 Net cash provided by (used in) operating activities 194,223 246,287 (101,110) 181,792 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of J.Crew Group, Inc. — (2,981,901) — — Capital expenditures (132,010) (92,908) (2,644) (52,351) Net cash used in investing activities (132,010) (3,074,809) (2,644) (52,351) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt — 1,600,000 — — Proceeds from equity contributions — 1,170,693 — — Payment of dividend (197,450) — — — Excess tax benefit from share-based awards — — 74,495 356 Payment of debt issuance costs — (67,530) — — Proceeds from share-based compensation plans — — 1,130 5,593 Repayment of debt (15,000) (6,000) — (49,229) Costs incurred in refinancing debt (2,728) — — — Repurchases of common stock — — (20) (2,908) Contribution to Parent (488) — — — Net cash provided by (used in) financing activities (215,666) 2,697,163 75,605 (46,188) Increase (decrease) in cash and cash equivalents (153,453) (131,359) (28,149) 83,253 Beginning balance 221,852 353,211 381,360 298,107 Ending balance $68,399 $221,852 $353,211 $381,360 Supplemental cash flow information: Income taxes paid $74,088 $35,477 $— $87,157 Interest paid $99,227 $55,973 $35 $1,105 Non-cash equity contribution from managementshareholders $— $102,483 $— $— The accompanying notes are an integral part of these consolidated financial statements. F-6J.CREW GROUP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the Year Ended February 2, 2013 (Successor), the Periods March 8, 2011 to January 28, 2012 (Successor), January 30, 2011 to March 7, 2011(Predecessor), and the Year Ended January 29, 2011 (Predecessor)(Dollars in thousands, unless otherwise indicated)1. Nature of Business and Summary of Significant Accounting Policies(a) Basis of PresentationJ.Crew Group, Inc. and its wholly owned subsidiaries (the “Company” or “Group”) was acquired (the “Acquisition”) on March 7, 2011 through amerger with Chinos Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of Chinos Holdings, Inc. (the “Parent”). The Parent was formed byinvestment funds affiliated with TPG Capital, L.P. (“TPG”) and Leonard Green & Partners, L.P. (“LGP” and together with TPG, the “Sponsors”).Subsequent to the Acquisition, Group became an indirect, wholly owned subsidiary of Parent, which is owned by affiliates of the Sponsors, co-investors andmembers of management. Prior to March 7, 2011, the Company operated as a public company with its common stock traded on the New York StockExchange.Although the Company continued as the same legal entity after the Acquisition, the accompanying consolidated statements of operations andcomprehensive income (loss), stockholders’ equity and cash flows are presented for two periods: Predecessor and Successor, which relate to the period beforeand after the Acquisition. The period March 8, 2011 to January 28, 2012 is referred to as the “Successor period” and the period January 30, 2011 to March 7,2011 is referred to as the “Predecessor period.” The Acquisition and the allocation of the purchase price were recorded as of March 7, 2011.All significant intercompany balances and transactions are eliminated in consolidation.(b) BusinessThe Company designs, contracts for the manufacture of, markets and distributes women’s, men’s and children’s apparel, shoes and accessories underthe J.Crew, crewcuts and Madewell brand names. The Company’s products are marketed primarily in the United States and Canada through two primarysales channels: (i) Stores, which consists of retail, factory and Madewell stores, and (ii) Direct, which consists of websites and catalogs.The Company is subject to seasonal fluctuations in its merchandise sales and results of operations. The Company expects its revenues generally to belower in the first and second quarters than in the third and fourth quarters (which includes the holiday season) of each fiscal year.A significant amount of the Company’s products are produced in Asia through arrangements with independent contractors. As a result, the Company’soperations could be adversely affected by political instability resulting in the disruption of trade from the countries in which these contractors are located or bythe imposition of additional duties or regulations relating to imports or by the contractor’s inability to meet the Company’s production requirements.(c) Fiscal YearThe Company’s fiscal year ends on the Saturday closest to January 31. The fiscal years 2012, 2011 (which reflects the Predecessor and Successorperiods), and 2010 ended on February 2, 2013, January 28, 2012 and January 29, 2011, respectively. Fiscal year 2012 consisted of 53 weeks and fiscalyears 2011 and 2010 consisted of 52 weeks. F-7(d) Use of Estimates in the Preparation of Financial StatementsManagement of the Company is required to make estimates and assumptions about future events in preparing financial statements in conformity withgenerally accepted accounting principles (“GAAP”). These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses and thedisclosure of loss contingencies at the date of the consolidated financial statements. While management believes that past estimates and assumptions have beenmaterially accurate, current estimates are subject to change if different assumptions as to the outcome of future events are made. Management evaluatesestimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on reasonable factors. Since futureevents and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanyingconsolidated financial statements.(e) Revenue RecognitionRevenue is recognized at the point of sale in the Stores channel, and at an estimated date of receipt by the customer in the Direct channel. Prices for allmerchandise are listed in the Company’s catalogs and website and are confirmed with the customer upon order. The customer has no cancellation privilegesother than customary rights of return. The Company accrues a sales return allowance for estimated returns of merchandise that will occur subsequent to thebalance sheet date, but relate to sales prior to the balance sheet date. The Company presents taxes collected from customers and remitted to governmentalauthorities on a net basis on the consolidated statements of operations and comprehensive income (loss).A liability is recognized at the time a gift card is sold, and revenue is recognized at the time the gift card is redeemed for merchandise. Revenue isdeferred and a liability is recognized for gift cards issued in connection with the Company’s customer loyalty program. Any unredeemed loyalty gift cards arerecognized as income in the period in which they expire.Amounts billed to customers for shipping and handling fees related to Direct sales are recorded in other revenues. Other revenues also includes incomefrom unredeemed gift cards, estimated based on Company specific historical trends, which amounted to $2,508 in fiscal 2012, $476 in the Successorperiod, $244 in the Predecessor period and $3,130 in fiscal 2010.(f) Merchandise InventoriesMerchandise inventories are stated at the lower of average cost or market. The Company capitalizes certain design, purchasing and warehousing costs ininventory and these costs are included in cost of goods sold as the inventories are sold.(g) Advertising and Catalog CostsDirect response advertising, which consists primarily of catalog production and mailing costs, are capitalized and amortized over the expected futurerevenue stream. Amortization of capitalized advertising costs is computed using the ratio of current period revenues for the catalog cost pool to the total ofcurrent and estimated future period revenues for that catalog cost pool. The capitalized costs of direct response advertising are amortized, commencing with thedate catalogs are mailed, over the duration of the expected revenue stream, which is approximately two months. Deferred catalog costs, included in prepaidexpenses and other current assets, as of February 2, 2013 and January 28, 2012 were $9,643 and $7,620 respectively. Catalog costs, which are reflected inselling, general and administrative expenses, were $44,525 in fiscal 2012, $43,533 in the Successor period, $4,201 in the Predecessor period and $41,859fiscal 2010.All other advertising costs, which are expensed as incurred, were $39,093 in fiscal 2012, $25,704 in the Successor period, $1,998 in the Predecessorperiod and $18,802 in fiscal 2010. F-8(h) Deferred Rent and Lease IncentivesRental payments under operating leases are charged to expense on a straight-line basis after consideration of rent holidays, step rent provisions andescalation clauses. Differences between rental expense (recognized from the date of possession) and actual rental payments are recorded as deferred rent andincluded in deferred credits.The Company receives construction allowances upon entering into certain store leases. These construction allowances are recorded as deferred creditsand are amortized as a reduction of rent expense over the term of the related lease. Deferred construction allowances were $34,088 and $15,016 at February 2,2013 and January 28, 2012, respectively.Deferred credits were eliminated in the allocation of purchase price on March 7, 2011. Deferred credits as of February 2, 2013 reflect deferred rent andlease incentives for properties which the Company took possession subsequent to the Acquisition. Additionally, in the allocation of purchase price, theCompany recorded assets and liabilities for favorable and unfavorable lease commitments, which are amortized on a straight-line basis over the remaininglease life. See note 3 for more information regarding the allocation of the purchase price.(i) Share-Based CompensationThe fair value of employee share-based awards is recognized as compensation expense on a straight line basis over the requisite service period of theaward. Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstandingprior to exercise, the associated volatility and the expected dividend yield. Upon grant of awards, the Company also estimates an amount of forfeitures that willoccur prior to vesting. See note 6 for a complete description of the accounting for share-based awards.(j) Property and EquipmentProperty and equipment are stated at cost and are depreciated over the estimated useful lives using the straight-line method. Buildings and improvementsare depreciated over estimated useful lives of twenty years. Furniture, fixtures and equipment are depreciated over estimated useful lives, ranging from three toten years. Leasehold improvements are depreciated over the shorter of their useful lives or related lease terms (without consideration of optional renewalperiods).The Company capitalizes certain costs (included in fixtures and equipment) related to the acquisition and development of software and amortizes thesecosts using the straight line method over the estimated useful life of the software, which is three to five years. Certain development costs not meeting the criteriafor capitalization are expensed as incurred.Property and equipment was increased to its fair market value in the allocation of purchase price on March 7, 2011. The revised carrying values of theproperty and equipment are depreciated over their remaining useful lives. See note 3 for more information regarding the allocation of purchase price.(k) Impairment of Long-Lived AssetsThe Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. The Company assesses the recoverability of such assets based upon estimated cash flow forecasts.Charges for impairment were $631 in fiscal 2012, $1,908 in the Successor period, none in the Predecessor period and $535 in fiscal 2010. See note 11 formore information regarding impairment of long-lived assets. F-9(l) Income TaxesThe Company accounts for income taxes using an asset and liability method. Deferred tax assets and deferred tax liabilities are recognized based on thedifference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred taxes are measured usingcurrent enacted tax rates in effect in the years in which those temporary differences are expected to reverse. The provision for income taxes includes taxescurrently payable and deferred taxes resulting from the tax effects of temporary differences between the financial statement and tax bases of assets andliabilities.The Company maintains valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes inthe valuation allowances are included in the Company’s tax provision in the period of change. In determining whether a valuation allowance is warranted, theCompany evaluates factors such as prior earnings history, expected future earnings, carry-back and carry-forward periods and tax strategies that couldpotentially enhance the likelihood of the realization of a deferred tax asset.With respect to uncertain tax positions taken or expected to be taken on a tax return, the Company recognizes in its financial statements the impact of taxpositions that meet a “more likely than not” threshold, based on the technical merits of the position. The tax benefits recognized from uncertain positions aremeasured based on the largest benefit that has a greater than 50% likelihood of being realized upon effective settlement.The Company recognizes interest expense and income related to income taxes as a component of interest expense, and penalties as a component of selling,general and administrative expenses.(m) Segment InformationThe Company has two operating segments, Stores and Direct, which are aggregated into one reportable segment. The Company’s identifiable assets arelocated primarily in the United States. Export sales are not significant.(n) Cash and Cash EquivalentsThe Company considers all highly liquid marketable securities, with maturities of 90 days or less when purchased, to be cash equivalents. Cashequivalents, which were $41,613 and $201,933 at February 2, 2013 and January 28, 2012, respectively, are stated at cost, which approximates marketvalue.(o) Operating ExpensesCost of goods sold (including buying and occupancy costs) includes the direct cost of purchased merchandise, freight, design, buying and productioncosts, occupancy costs related to store operations, and all shipping and handling and delivery costs associated with the Direct channel.Selling, general and administrative expenses include all operating expenses not included in cost of goods sold, primarily catalog production and mailingcosts, administrative payroll, store expenses other than occupancy costs, depreciation and amortization, certain warehousing expenses (aggregating to $29,673in fiscal 2012, $24,888 in the Successor period, $1,494 in the Predecessor period and $26,932 in fiscal 2010), and credit card fees.(p) Deferred Financing CostsDeferred financing costs are amortized over the term of the related debt agreements. The amortization is included in interest expense, net.(q) Store Pre-opening CostsCosts associated with the opening of new stores are expensed as incurred. F-10(r) Goodwill and Intangible AssetsThe Acquisition of the Company was accounted for as a purchase business combination, whereby the purchase price paid was allocated to recognize theacquired assets and liabilities at fair value. In connection with the purchase price allocation, intangible assets were established for the J.Crew and Madewelltrade names, loyalty program, customer lists and favorable lease commitments. The purchase price in excess of the fair value of assets and liabilities wasrecorded as goodwill, which consists primarily of intangible assets related to the knowhow, design and merchandising of the Company’s brands that do notqualify for separate recognition.Indefinite-lived intangible assets, such as the J.Crew trade name and goodwill, are not subject to amortization. The Company assesses the recoverabilityof indefinite-lived intangibles whenever there are indicators of impairment, or at least annually in the fourth quarter. If the recorded carrying value of anintangible asset exceeds its estimated fair value, the Company records a charge to write the intangible asset down to its fair value. Definite-lived intangibles,such as the Madewell trade name, loyalty program, customer lists and favorable lease commitments, are amortized on a straight line basis over their useful lifeor remaining lease term. See note 5 for more information regarding goodwill and intangible assets of the Company.The Company assesses the recoverability of goodwill at the reporting unit level, which consists of its operating segments, Stores and Direct. In thisassessment, the Company first compares the estimated enterprise fair value of each of the reporting units to its recorded carrying value. The Companyestimates the enterprise fair value based on discounted cash flow techniques. If the recorded carrying value of a reporting unit exceeds its estimated enterprisefair value in the first step, a second step is performed in which the Company allocates the enterprise fair value to the fair value of the reporting unit’s netassets. The second step of the impairment testing process requires, among other things, estimates of fair values of substantially all of the Company’s tangibleand intangible assets. Any enterprise fair value in excess of amounts allocated to such net assets represents the implied fair value of goodwill for that reportingunit. If the recorded goodwill balance for a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded to write goodwill down toits fair value.(s) DividendsDividends are recorded at the declaration date as a reduction of retained earnings included in stockholders’ equity. If the amount of the dividend exceedsretained earnings, the dividend is recorded as a reduction of additional paid-in capital. On December 21, 2012, the Company paid a dividend of $197,450 tostockholders of record of the Parent on December 17, 2012, and reduced additional paid-in capital. No dividends were declared or paid in the Successor andPredecessor periods, or in fiscal 2010.(t) ReclassificationCertain prior year amounts have been reclassified to conform to the current year’s presentation.2. The TransactionsAs discussed in note 1, the Acquisition was completed on March 7, 2011 and was financed with: • Senior Credit Facilities of $1,450 million consisting of: (i) a $250 million, 5-year asset-based revolving credit facility (the “ABL Facility”),which was undrawn at closing and (ii) a $1,200 million, 7-year term loan credit facility (the “Term Loan”); • Senior unsecured 8.125% senior unsecured notes due 2019 (the “Notes”) of $400 million; and • Equity investments of approximately $1.2 billion from Parent funded by the Sponsors, co-investors and management.The Acquisition occurred simultaneously with: • The closing of the financing transactions and equity investments described above; and • The termination of the Company’s previous $200 million asset-based revolving credit facility.These transactions, the Acquisition and payment of any costs related to these transactions are collectively herein referred to as the “Transactions.” F-113. Purchase AccountingThe Acquisition was accounted for as a purchase business combination in accordance with ASC 805, Business Combinations, whereby the purchaseprice paid to effect the Acquisition was allocated to recognize the acquired assets and liabilities at fair value. The sources and uses of funds in connection withthe Transactions are summarized below: Sources: Proceeds from Term Loan $1,200,000 Proceeds from Notes 400,000 Proceeds from equity contributions 1,225,911 Cash on hand 307,150 Total sources $3,133,061 Uses: Equity purchase price $2,981,415 Transaction costs 151,646 Total uses $3,133,061 In connection with the purchase price allocation, fair values of long-lived and intangible assets were determined based upon assumptions related to thefuture cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuationspecialists. The allocation of purchase price is as follows: Purchase price $2,981,415 Less: net assets acquired (571,644) Less: after tax cost of post-combination share-based awards. (21,425) Excess of purchase price over book value of net assets acquired $2,388,346 Write up of tangible assets: Property and equipment $35,334 Merchandise inventories 32,500 Fair market value of favorable leases 61,010 Acquisition-related intangible assets: J.Crew brand name (indefinite lived) 885,300 Madewell brand name (20 year life) 82,000 Loyalty program and customer lists (5 year life) 27,010 Less: historical intangible assets (4,351) Acquisition-related intangibles 989,959 Write down/(up) of liabilities: Gift card liability revaluation 7,737 Deferred rent and lease incentive revaluation 66,880 Fair market value of unfavorable leases (40,920) Deferred income taxes: Long-term deferred tax asset (20,171) Short-term deferred tax liability (5,678) Long-term deferred tax liability (425,220) Residual goodwill(1) 1,686,915 Total allocated excess purchase price $2,388,346 (1)Residual goodwill consists primarily of intangible assets related to the knowhow, design and merchandising of the Company’s brands that do notqualify for separate recognition in accordance with ASC 805. F-12Pro forma financial informationThe following unaudited pro forma results of operations gives effect to the Transactions as if they had occurred on the first day of fiscal 2011(January 30, 2011). The pro forma results of operations reflects adjustments (i) to record amortization and depreciation resulting from purchase accounting,(ii) to record Sponsor monitoring fees, and (iii) to eliminate non-recurring charges that were incurred in connection with the Transactions, includingacquisition-related share-based compensation, transaction costs, transaction-related litigation costs and recoveries, and amortization of the step-up in thecarrying value of inventories. This unaudited pro forma financial information should not be relied upon as necessarily being indicative of the historical resultsthat would have been obtained if the Transactions had actually occurred on that date, nor the results of operations in the future. (Dollars in millions) For the PeriodJanuary 30, 2011 toJanuary 28, 2012 As reported Pro forma Total revenues $1,854,988 $1,854,988 Net income (loss) $(3,741) $51,514 4. Transactions with SponsorsIn connection with the Transactions, the Company entered into a management services agreement with the Sponsors pursuant to which they received onthe closing date an aggregate transaction fee of $35 million. In addition, pursuant to such agreement, and in exchange for on-going consulting and managementadvisory services, the Sponsors receive an aggregate annual monitoring fee prepaid quarterly equal to the greater of (i) 40 basis points of consolidated annualrevenues or (ii) $8 million. The Sponsors also receive reimbursement for out-of-pocket expenses incurred in connection with services provided pursuant to theagreement. The Company recorded an expense of $9.1 million in fiscal 2012 and $7.4 million in the Successor period for monitoring fees and out-of-pocketexpenses, included in selling, general and administrative expenses in the statement of operations and comprehensive income (loss).5. Goodwill and Intangible AssetsThe significant components of intangible assets and goodwill are as follows: Loyalty Programand Customer Lists Favorable LeaseCommitments MadewellBrand Name J.CrewBrand Name Goodwill Balance at January 28, 2012 $21,780 $48,930 $78,242 $885,300 $1,686,915 Amortization expense (5,705) (13,826) (4,100) — — Balance at February 2, 2013 $16,075 $35,104 $74,142 $885,300 $1,686,915 Total accumulated amortization at February 2,2013 $(10,935) $(25,906) $(7,858) 6. Share Based CompensationSuccessor share-based compensationChinos Holdings, Inc. 2011 Equity Incentive PlanOn March 4, 2011, the Parent adopted the Chinos Holdings, Inc. 2011 Equity Incentive Plan (the “2011 Plan”), which authorizes equity awards to begranted for up to 91,740,627 shares of the common stock of the Parent, of which options for 66,871,219 shares have been issued to certain members ofmanagement and are outstanding, including (i) 41,909,564 options with an exercise price of $1.00 that become exercisable over the requisite service periodand (ii) 24,961,655 options with an exercise price of $1.00 that only become exercisable when certain owners of the Parent F-13receive a specified level of cash proceeds, as defined in the equity incentive plan, from the sale of their initial investment. The options have terms of up to tenyears and become exercisable over a period up to seven years.Accounting for Share-Based CompensationThe fair value of the time-based awards is recognized as compensation expense on a straight line basis over the requisite service period of the award,included in selling, general and administrative expenses on the statement of operations and comprehensive income (loss). The fair value of the optionsexercisable when certain owners of the Parent receive a specified level of cash proceeds will not be recognized until such event occurs. Determining the fairvalue of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, theassociated volatility, and the expected dividend yield. At grant date, the Company estimates an amount of forfeitures that will occur prior to vesting.The fair value of stock options was estimated at the date of grant using an option pricing model with the following weighted average assumptions: Option Valuation Assumptions Risk-free interest rates(1) 2.6% Dividend yield — Expected volatility(2) 44.2% Expected term(3) 6.4 (1)Based on the U.S. Treasury yield curve in effect at the time of grant.(2)Based on average volatility of stock prices of companies in a peer group analysis.(3)Represents the period of time (in years) options are expected to be outstanding.Accounting for Option ModificationOn December 21, 2012, the Company paid a dividend of $197.5 million to stockholders of record of the Parent on December 17, 2012. In conjunctionwith the declaration and payment of the dividend, the Board of Directors of the Company approved a modification of certain outstanding vested and unvestedoptions in the form of a reduced exercise price to $0.78 from $1.00. As a result of the modification, the Company recorded additional share-basedcompensation based on the difference between the fair value of the options immediately preceding and immediately following the modification. The incrementalfair value of $0.9 million attributable to vested options was recognized in the fourth quarter of fiscal 2012. The incremental fair value of $3.0 millionattributable to unvested options will be recognized over the remaining weighted-average vesting period of 3.0 years.As of February 2, 2013, there was $14.5 million of total unrecognized compensation cost related to non-vested options that is expected to be recognizedover the remaining weighted-average vesting period of 3.0 years. The weighted-average grant-date fair value of options granted was $0.47.The following table summarizes stock option activity for fiscal 2012: Shares Weighted AverageExercise Price Weighted AverageRemainingContractual Term AggregateIntrinsicValue (in years) (in millions) Outstanding at January 28, 2012 65,167,719 $0.78 Granted 4,178,000 $0.78 Exercised (39,000) $0.78 Forfeited (2,435,500) $0.78 Outstanding at February 2, 2013 66,871,219 $0.78 8.3 $21.4 Exercisable at February 2, 2013 8,909,049 $0.78 8.2 $2.9 Expected to vest at February 2, 2013 64,643,467 $0.78 8.3 $20.7 F-14The following table summarizes stock option vesting activity for the Successor period: Shares Weighted AverageGrant Date Fair Value Unvested at January 28, 2012 65,167,719 $0.47 Granted 4,178,000 $0.47 Vested (8,948,049) $0.47 Forfeited (2,435,500) $0.47 Unvested at February 2, 2013 57,962,170 $0.47 The following table summarizes the shares available for grant as stock options or other share-based awards under the 2011 Plan: Shares Available for grant at January 28, 2012 26,572,908 Granted (4,178,000) Forfeited and available for reissuance 2,435,500 Available for grant at February 2, 2013 24,830,408 Acquisition-related share-based compensationIn connection with the Acquisition, all outstanding share-based awards granted prior to the Transactions became fully vested. Because the acceleration ofthe awards was not a term of the original award agreements, but was provided for in the merger agreement, the acceleration was determined to be a modificationof the original awards. This modification required the Company to calculate a revised fair value of the awards, which totaled (i) $213.1 million for awardssettled in cash and (ii) $9.6 million for awards rolled over by members of management.Awards settled in cashThe total pre-tax revised fair value attributable to pre-combination service was $178.0 million. This amount was recorded as consideration transferred toacquire the Company. The total pre-tax revised fair value attributable to post-combination service was $35.1 million. Because there was no future servicerequirement to the Parent, this amount was immediately recorded as share-based compensation expense in the statement of operations of the Successor.Awards rolled over by managementThe total pre-tax revised fair value attributable to pre-combination service was not material. Therefore, the entire pre-tax revised fair value of $9.6million associated with the awards rolled over by management was deemed attributable to post-combination service. Because there was no future servicerequirement to the Parent, this amount was immediately recorded as share-based compensation expense in the statement of operations of the Successor.The total acquisition-related share-based compensation expense recorded by the Successor from the awards settled in cash and rolled over bymanagement was $44.7 million.Predecessor share-based compensationShare-based compensation of Predecessor reflects the fair value of employee share-based awards, including stock options, time and performance-basedrestricted stock, and associate stock purchase plans, recognized as compensation expense on a straight-line basis over the requisite service period of the award.All outstanding share-based awards granted as of immediately prior to the Transactions became fully vested in connection with the Acquisition. The equityincentive plans of the Predecessor no longer exist. F-157. Property and EquipmentProperty and equipment, net consists of: February 2,2013 January 28,2012 Land $3,361 $3,361 Buildings and improvements 27,873 14,168 Fixtures and equipment 155,689 99,005 Leasehold improvements 185,476 135,218 Construction in progress 26,871 29,766 399,270 281,518 Less accumulated depreciation and amortization (75,159) (16,946) $324,111 $264,572 8. Other Current LiabilitiesOther current liabilities consist of: February 2,2013 January 28,2012 Customer liabilities $35,699 $29,593 Taxes, other than income taxes 8,180 6,305 Accrued occupancy 4,625 2,615 Reserve for sales returns 9,110 8,953 Accrued compensation 36,429 7,812 Other 59,700 61,061 $153,743 $116,339 9. Long-term Debt and Credit ArrangementsLong-term debt consisted of the following: February 2,2013 January 28,2012 Term Loan $1,179,000 $1,194,000 Notes 400,000 400,000 Less: current portion of Term Loan (12,000) (15,000) Long-term debt $1,567,000 $1,579,000 ABL FacilityIn connection with the Acquisition, on March 7, 2011, the Company entered into the ABL Facility, governed by an asset-based credit agreement withBank of America, N.A., as administrative agent and the other agents and lenders party thereto, that provides senior secured financing of $250 million (whichmay be increased by up to $75 million in certain circumstances), subject to a borrowing base limitation. On October 11, 2012, the Company entered into anamendment to the ABL Facility (the “First ABL Amendment”), with Bank of America, N.A., as administrative agent, and the other lenders party thereto. Theborrowing base under the ABL Facility equals the sum of: 90% of the eligible credit card receivables; plus, 85% of eligible accounts; plus, 90% (or 92.5% forthe period of August 1 through December 31 of any fiscal year) of the net recovery percentage of eligible inventory multiplied by the cost of eligible inventory;plus, 85% of the net recovery percentage of eligible letters of credit inventory, multiplied by the cost of eligible letter of credit inventory; plus, 85% of the netrecovery percentage of eligible in-transit inventory, multiplied by the cost of eligible in-transit inventory; plus, F-16100% of qualified cash; minus, all availability and inventory reserves. The ABL Facility includes borrowing capacity in the form of letters of credit up to theentire amount of the facility, and up to $25 million in U.S. dollars for loans on same-day notice, referred to as swingline loans, and is available in U.S.dollars, Canadian dollars and Euros. Any amounts outstanding under the ABL Facility are due and payable in full on the fifth anniversary of the First ABLAmendment.Loans drawn under the ABL Facility bear interest at a rate per annum equal to, at Group’s option, any of the following, plus, in each case, anapplicable margin: (a) in the case of loans in U.S. dollars, a base rate determined by reference to the highest of (1) the prime rate of Bank of America, N.A.,(2) the federal funds effective rate plus 0.50% and (3) a LIBOR determined by reference to the costs of funds for U.S. dollar deposits for an interest period ofone month adjusted for certain additional costs, plus 1.00%; (b) in the case of loans in U.S. dollars or in Euros, a LIBOR determined by reference to the costsof funds for deposits in the relevant currency for the interest period relevant to such loan adjusted for certain additional costs; (c) in the case of loans inCanadian dollars, the average offered rate for Canadian dollar bankers’ acceptances having an identical term of the applicable loan; and (d) in the case ofloans in Canadian dollars, a fluctuating rate determined by reference to the higher of (1) the average offered rate for 30 day Canadian dollar bankers’acceptances plus 0.50% and (2) the prime rate of Bank of America, N.A. for loans in Canadian dollars. The applicable margin for loans under the ABLFacility varies based on Group’s average historical excess availability and ranges from 0.50% to 1.00% with respect to base rate loans and loans in Canadiandollars bearing interest at the rate described in the immediately preceding clause (d), and from 1.50% to 2.00% with respect to LIBOR loans and loans inCanadian dollars bearing interest at the rate described in the immediately preceding clause (c). In addition, Group is required to pay a commitment fee of0.25% per annum, in respect of the unused commitments under the ABL Facility, as well as customary letter of credit and agency fees.All obligations under the ABL Facility are unconditionally guaranteed by Group’s immediate parent and certain of Group’s existing and future whollyowned domestic subsidiaries (referred to herein as the subsidiary guarantors) and are secured, subject to certain exceptions, by substantially all of Group’sassets and the assets of Group’s immediate parent and the subsidiary guarantors, including, in each case subject to customary exceptions and exclusions: • a first-priority security interest in personal property consisting of accounts receivable, inventory, cash, deposit accounts (other than anydesignated deposit accounts containing solely the proceeds of collateral with respect to which the obligations under the ABL Facility have only asecond-priority security interest), securities accounts, commodities accounts and certain assets related to the foregoing and, in each case, proceedsthereof (such property, the “Current Asset Collateral”); • a second-priority pledge of all of Group’s capital stock directly held by Group’s immediate parent and a second priority pledge of all of the capitalstock directly held by Group and any subsidiary guarantors (which pledge, in the case of the capital stock of each (a) domestic subsidiary that isdirectly owned by Group or by any subsidiary guarantor and that is a disregarded entity for United States Federal income tax purposessubstantially all of the assets of which consist of equity interests in one or more foreign subsidiaries or (b) foreign subsidiary, is limited to 65%of the stock of such subsidiary); and • a second-priority security interest in substantially all other tangible and intangible assets, including substantially all of the Company’s owned realproperty and intellectual property.The ABL Facility includes restrictions on Group’s ability and the ability of certain of its subsidiaries to, among other things, incur or guaranteeadditional indebtedness, pay dividends (including to the Parent) on, or redeem or repurchase, capital stock, make certain acquisitions or investments,materially change its business, incur or permit to exist certain liens, enter into transactions with affiliates or sell its assets to, or merge or consolidate with orinto, another company. In addition, from the time when excess availability under the ABL Facility is less than the greater of (a) 10.0% of the lesser of (1) thecommitment amount and (2) the borrowing base and (b) $20 million, until the time when Group has excess availability under the ABL Facility equal to or F-17greater than the greater of (a) 10.0% of the lesser of (1) the commitment amount and (2) the borrowing base and (b) $20 million for 30 consecutive days, thecredit agreement governing the ABL Facility requires Group to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Facility) tested as of the last dayof each fiscal quarter that shall not be less than 1.0.Although Group’s immediate parent is not generally subject to the negative covenants under the ABL Facility, such parent is subject to a holdingcompany covenant that limits its ability to engage in certain activities.The credit agreement governing the ABL Facility additionally contains certain customary representations and warranties, affirmative covenants andprovisions relating to events of default, including without limitation, a cross-default according to the terms of any indebtedness with an aggregate principalamount of $35 million or more. If an event of default occurs under the ABL Facility, the lenders may declare all amounts outstanding under the ABL Facilityimmediately due and payable. In such event, the lenders may exercise any rights and remedies they may have by law or agreement, including the ability tocause all or any part of the collateral securing the ABL Facility to be sold.On February 2, 2013, outstanding stand-by letters of credit were $6.4 million and excess availability, as defined, was $243.6 million. The Companydid not incur loans under the ABL Facility during fiscal 2012.Demand Letter of Credit FacilityThe Company has an unsecured, demand letter of credit facility with HSBC which provides for the issuance of up to $35 million of documentaryletters of credit on a no fee basis. On February 2, 2013, outstanding documentary letters of credit were $7.8 million and availability was $27.2 million underthis facility.Term LoanIn connection with the Acquisition, on March 7, 2011, the Company entered into the Term Loan Facility, governed by a $1,200 million term loan creditagreement with Bank of America, N.A., as administrative agent and the other agents and lenders party thereto. On December 18, 2012, the Term Loan Facilitywas amended to (i) permit a one-time dividend to Chinos Intermediate Holdings B, Inc. (and by Chinos Intermediate Holdings B, Inc. to any direct or indirectparent of Holdings) in an amount up to $200 million and (ii) modify certain exceptions to the restrictive covenants in the credit agreement governing the TermLoan Facility that restrict the ability of Chinos Intermediate Holdings B, Inc., the Company and its subsidiaries to pay dividends on, or redeem or repurchasecapital stock, prepay indebtedness and make investments.The Company is required to make principal repayments equal to 0.25% of the original principal amount of the Term Loan, or $3 million, on the lastday of January, April, July, and October. The Company is also required to repay the Term Loan based on annual excess cash flow as defined in the agreementunder certain circumstances. Borrowings under the Term Loan mature on the seventh anniversary of the closing date of the Acquisition.Borrowings under the Term Loan Facility bear interest at a rate per annum equal to an applicable margin plus, at Group’s option, either (a) a base ratedetermined by reference to the highest of (1) the prime rate of Bank of America, N.A., (2) the federal funds effective rate plus 0.50% and (3) a LIBORdetermined by reference to the costs of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00% or(b) a LIBOR determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certainadditional costs, which shall be no less than 1.25% (the “LIBOR Floor”). The applicable margin for borrowings under the Term Loan Facility varies basedupon Group’s senior secured net leverage ratio and ranges between 2.25% to 2.50% with respect to base rate borrowings and from 3.25% to 3.50% with respectto LIBOR borrowings. F-18All obligations under the Term Loan Facility are unconditionally guaranteed by Group’s immediate parent and the subsidiary guarantors and aresecured, subject to certain exceptions, by substantially all of Group’s assets and the assets of Group’s immediate parent and the subsidiary guarantors,including, in each case subject to customary exceptions and exclusions: • a first-priority pledge of all of Group’s capital stock directly held by Group’s immediate parent and a first-priority pledge of all of the capital stockdirectly held by Group and the subsidiary guarantors (which pledge, in the case of the capital stock of each (a) domestic subsidiary that isdirectly owned by Group or by any subsidiary guarantor and that is a disregarded entity for United States Federal income tax purposessubstantially all of the assets of which consist of equity interests in one or more foreign subsidiaries or (b) foreign subsidiary, is limited to 65%of the stock of such subsidiary); • a first-priority security interest in substantially all of Group’s immediate parent’s, Group’s and the subsidiary guarantor’s other tangible andintangible assets (other than the assets described in the following bullet point), including substantially all of the Company’s real property andintellectual property, and designated deposit accounts containing solely the proceeds of collateral with respect to which the obligations under theTerm Loan Facility have a first-priority security interest; and • a second-priority security interest in Current Asset Collateral.The Term Loan Facility includes restrictions on Group’s ability and the ability of Group’s immediate parent and certain of Group’s subsidiaries to,among other things, incur or guarantee additional indebtedness, pay dividends (including to the Parent) on, or redeem or repurchase, capital stock, makecertain acquisitions or investments, materially change the business of the Company, incur or permit to exist certain liens, enter into transactions with affiliatesor sell the Company’s assets to, or merge or consolidate with or into, another company.The credit agreement governing the Term Loan Facility does not require the Company to comply with any financial maintenance covenants, but containscertain customary representations and warranties, affirmative covenants and provisions relating to events of default, including without limitation, a cross-default according to the terms of any indebtedness with an aggregate principal amount of $35 million or more. If an event of default occurs under the TermLoan Facility, the lenders may declare all amounts outstanding under the Term Loan Facility immediately due and payable. In such event, the lenders mayexercise any rights and remedies they may have by law or agreement, including the ability to cause all or any part of the collateral securing the Term LoanFacility to be sold.The interest rate on the $1,179 million in outstanding borrowings pursuant to the Term Loan Facility was 4.50% on February 2, 2013. The applicablemargin with respect to base rate borrowings was 2.25% and the LIBOR Floor and applicable margin with respect to LIBOR borrowings were 1.25% and3.25%, respectively, at February 2, 2013.On February 4, 2013, the Company further amended its Term Loan Facility to, among other things, replace the $1,179 million in outstanding termloans with a new class of term loans, and reduce the applicable margin and LIBOR Floor with respect to the new class of term loans. Following theamendment, the applicable margin with respect to base rate borrowings is 2.00% and the LIBOR Floor and applicable margin with respect to LIBORborrowings are 1.00% and 3.00%, respectively. See note 20 for more information with respect to the subsequent event.8.125% Senior Notes due 2019On March 7, 2011, Group (as successor by merger with Chinos Acquisition Corporation) issued $400 million in principal amount of Notes. The Notesbear interest at a rate of 8.125% per annum, and interest is payable semi-annually on March 1 and September 1 of each year, commencing on September 1,2011. The Notes mature on March 1, 2019. F-19Subject to certain exceptions, the Notes are guaranteed on a senior unsecured basis by each of Group’s current and future wholly owned domesticrestricted subsidiaries (and non-wholly owned restricted subsidiaries if such non-wholly owned restricted subsidiaries guarantee Group’s or anotherguarantor’s other capital market debt securities) that is a guarantor of Group’s or another guarantor’s debt, including the Senior Credit Facilities. The Notes areGroup’s senior unsecured obligations and rank equally in right of payment with all of its existing and future indebtedness that is not expressly subordinated inright of payment thereto. The Notes will be senior in right of payment to any future indebtedness that is expressly subordinated in right of payment thereto andeffectively junior to (a) Group’s existing and future secured indebtedness, including the ABL Facility and Term Loan Facility described above, to the extent ofthe value of the collateral securing such indebtedness and (b) all existing and future liabilities of Group’s non-guarantor subsidiaries.The indenture governing the Notes contains certain customary representations and warranties, provisions relating to events of default and covenants,including, without limitation, a cross-payment default provision and cross-acceleration provision in the case of a payment default or acceleration according tothe terms of any indebtedness with an aggregate principal amount of $50 million or more, restrictions on Group’s and certain of its subsidiaries’ ability to,among other things incur or guarantee indebtedness; pay dividends on, redeem or repurchase capital stock; make investments; issue certain preferred equity;create liens; enter into transactions with the Company’s affiliates; designate Group’s subsidiaries as Unrestricted Subsidiaries (as defined in the indenture);and consolidate, merge, or transfer all or substantially all of the Company’s assets. The covenants are subject to a number of exceptions and qualifications.Certain of these covenants, excluding without limitation those relating to transactions with the Company’s affiliates and consolidation, merger, or transfer ofall or substantially all of the Company’s assets, will be suspended during any period of time that (1) the Notes have Investment Grade Ratings (as defined inthe indenture) from both Moody’s Investors Service, Inc. and Standard & Poor’s and (2) no default has occurred and is continuing under the indenture. In theevent that the Notes are downgraded to below an Investment Grade Rating, Group and certain subsidiaries will again be subject to the suspended covenantswith respect to future events.Group has been in compliance with its covenants during the terms of these agreements.The components of interest expense are as follows: For the Year Ended For the Period For the Year Ended February 2, 2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011 toMarch 7, 2011 January 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Term Loan $57,887 $51,824 $— $— Notes 32,500 29,674 — — Former term loan (extinguished in August 2010) — — — 606 Amortization of deferred financing costs 9,606 8,802 970 2,058 Other, net of interest income 1,691 1,383 196 1,250 Interest expense, net $101,684 $91,683 $1,166 $3,914 10. Derivative Financial InstrumentsInterest Rate CapsIn April 2011, the Company entered into interest rate cap agreements for an aggregate notional amount of $600 million in order to hedge the variability ofcash flows related to a portion of the Company’s floating rate indebtedness. These cap agreements, effective in March 2012, hedge a portion of contractualfloating rate interest commitments through the expiration of the agreements in March 2013. Pursuant to the agreements, the Company F-20has capped LIBOR at 3.5% with respect to the aggregate notional amount of $600 million. In the event LIBOR exceeds 3.5% the Company will pay interest atthe capped rate. In the event LIBOR is less than 3.5%, the Company will pay interest at the prevailing LIBOR. In fiscal 2012, the Company paid interestunder the Term Loan at the prevailing LIBOR.Interest Rate SwapsIn April 2011, the Company entered into floating-to-fixed interest rate swap agreements for an initial aggregate notional amount of $600 million to limitexposure to interest rate increases related to a portion of the Company’s floating rate indebtedness once the Company’s interest rate cap agreements expire. Theseswap agreements, effective March 2013, hedge a portion of contractual floating rate interest commitments through the expiration of the agreements in March2016. As a result of the agreements, the Company’s effective fixed interest rate on the notional amount of floating rate indebtedness will be 3.56% plus the thenapplicable margin.Fair ValueAs of the effective date, the Company designated the interest rate cap and interest rate swap agreements as cash flow hedges. As cash flow hedges,unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate cap and interest rate swap agreements are highlycorrelated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these instruments are designated as effective orineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffectiveportion of such gains or losses will be recorded as a component of interest expense. Future realized gains and losses in connection with each required interestpayment will be reclassified from accumulated other comprehensive income or loss to interest expense.The fair values of the interest rate cap and swap agreements are estimated using industry standard valuation models using market-based observableinputs, including interest rate curves (level 2). A summary of the recorded assets (liabilities) included in the condensed consolidated balance sheet is asfollows: February 2,2013 January 28,2012 Interest rate caps (included in other assets) $— $6 Interest rate swaps (included in other liabilities) $(33,266) $(30,358) Accumulated other comprehensive loss, net of tax $20,189 $18,963 A rollforward of the accumulated other comprehensive loss, net of tax recorded is as follows: February 2,2013 January 28,2012 Accumulated other comprehensive loss, net of tax at the beginning of the year $(18,963) $— Unrealized loss on cash flow hedge, net of tax (1,777) (18,963) Reclassifications to interest expense, net 551 — Accumulated other comprehensive loss, net of tax at the end of the year $(20,189) $(18,963) With respect to its interest rate swaps, the Company expects to reclassify unrealized losses of approximately $7 million, net of tax, previously recordedin accumulated other comprehensive loss, thereby increasing interest expense by $12 million in its Consolidated Statement of Operations and ComprehensiveIncome (Loss) in fiscal 2013. F-2111. Fair Value MeasurementsThe Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximizethe use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: • Level 1 – Quoted prices in active markets for identical assets or liabilities. • Level 2 – Observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputsthat are observable or can be corroborated by observable market data. • Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.Financial assets and liabilitiesThe fair value of the Company’s debt is estimated to be $1,617 million and $1,542 million at February 2, 2013 and January 28, 2012 based onquoted market prices of the debt (level 1 inputs).In April 2011, the Company entered into interest rate cap and swap agreements in order to hedge the variability of cash flows related to a portion of theCompany’s floating rate indebtedness, which are measured in the financial statements at fair value on a recurring basis. See note 10 for more informationregarding the fair value of these financial assets and liabilities.The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts payable and other current liabilitiesapproximate fair value because of their short-term nature.Non-financial assets and liabilitiesExcept for certain leasehold improvements, the Company does not have any non-financial assets or liabilities as of February 2, 2013 or January 28,2012 that are measured in the financial statements at fair value.The Company performs impairment tests of certain long-lived assets whenever there are indicators of impairment. These tests typically contemplateassets at a store level (e.g. leasehold improvements). The Company recognizes an impairment loss when the carrying value of a long-lived asset is notrecoverable in light of the undiscounted future cash flows and measures an impairment loss as the difference between the carrying amount and fair value of theasset based on discounted future cash flows. The Company has determined that the future cash flow approach (level 3 inputs) provides the most relevant andreliable means by which to determine fair value in this circumstance.A summary of the impact of the impairment of certain long-lived assets on financial condition and results of operations is as follows: For the Year Ended For the Period For the Year Ended February 2, 2013 March 8, 2011 toJanuary 28, 2012 January 30, 2011 toMarch 7, 2011 January 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Carrying value of long-term assets writtendown to fair value $631 $1,908 $— $535 Impairment charge $631 $1,908 $— $535 F-2212. Commitments and Contingencies(a) Operating LeasesAs of February 2, 2013, the Company was obligated under various long-term operating leases, which require minimum annual rent for retail andfactory stores, warehouses, office space and equipment.These operating leases expire on varying dates through 2025. At February 2, 2013 aggregate minimum rent is as follows: Fiscal year Amount 2013 $134,379 2014 $133,839 2015 $131,344 2016 $125,971 2017 $116,411 Thereafter $368,121 Certain of these leases include renewal options and escalation clauses and provide for contingent rent based upon sales and require the lessee to paytaxes, insurance and other occupancy costs.Rent expense was $132,363 in fiscal 2012, $101,766 in the Successor period, $9,534 in the Predecessor period and $93,619 in fiscal 2010(including contingent rent, based on store sales, of $8,553, $5,000, $251 and $5,306, respectively).(b) Employment AgreementsThe Company is party to employment agreements with certain executives, which provide for compensation and certain other benefits. The agreementsalso provide for severance payments under certain circumstances.(c) LitigationThe Company is subject to various legal proceedings and claims that arise in the ordinary conduct of its business. Although the outcome of these claimscannot be predicted with certainty, management does not believe that it is reasonably possible that resolution of these legal proceedings will result in unaccruedlosses that would be material.13. Employee Benefit PlanThe Company has a 401(K) Savings Plan pursuant to Section 401 of the Internal Revenue Code whereby all eligible associates may contribute up to25% 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 401(K) Savings Plan were $4,085 in fiscal 2012, $3,238 in the Successor period, $320 in the Predecessor period and $3,352in fiscal 2010.14. Other RevenuesOther revenues consist of the following: For theYear EndedFebruary 2, 2013 For the PeriodMarch 8, 2011 toJanuary 28, 2012 For the PeriodJanuary 30, 2011 toMarch 7, 2011 For theYear EndedJanuary 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Shipping and handling fees $21,176 $21,633 $2,395 $34,090 Other 8,442 3,808 727 4,667 Other revenues $29,618 $25,441 $3,122 $38,757 F-2315. Income TaxesGroup files a consolidated federal income tax return, which includes all of its wholly owned subsidiaries. Each subsidiary files separate, or combinedwhere required, state tax returns in required jurisdictions. Group and its subsidiaries have entered into a tax sharing agreement providing that each of thesubsidiaries will reimburse Group for its share of income taxes based on the proportion of such subsidiaries’ tax liability on a separate return basis to the totaltax liability of Group. Effective for the tax year ended January 2013, the Company will file as a member of the consolidated group of Parent.The following table summarizes the components of the provision for income taxes: (Dollars in millions) For theYear EndedFebruary 2, 2013 For the PeriodMarch 8, 2011 toJanuary 28, 2012 For the PeriodJanuary 30, 2011 toMarch 7, 2011 For theYear EndedJanuary 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Current: Federal $57.9 $30.6 $(4.5) $73.3 State and local 6.8 (0.4) — 17.2 Foreign 0.1 0.2 — — 64.8 30.4 (4.5) 90.5 Deferred: Federal (12.0) (31.4) 3.0 (0.7) State and local 3.3 1.7 (0.3) (1.3) Foreign (0.2) (0.1) — (8.9) (29.8) 2.7 (2.0) Total $55.9 $0.6 $(1.8) $88.5 The following table summarizes the principal reasons for the difference between the effective tax and the U.S. federal statutory income tax rate: For theYear EndedFebruary 2, 2013 For the PeriodMarch 8, 2011 toJanuary 28, 2012 For the PeriodJanuary 30, 2011 toMarch 7, 2011 For theYear EndedJanuary 29, 2011 (Successor) (Successor) (Predecessor) (Predecessor) Federal income tax rate 35.0% 35.0% 35.0% 35.0% State and local income taxes, net of federalbenefit 4.3 6.4 1.0 5.0 Non-deductible Transaction costs — (18.7) (25.8) 2.5 Uncertain tax positions (1.3) (13.8) — — Other (1.3) (4.4) (0.2) (0.3) Effective tax rate 36.7% 4.5% 10.0% 42.2% F-24The tax effect of temporary differences which give rise to deferred tax assets and liabilities are as follows: (Dollars in millions) February 2,2013 January 28,2012 Deferred tax assets: Customer liabilities $11.3 $— Rent 26.0 22.9 Financial instruments 13.3 12.1 Reserve for sales returns 3.6 3.5 Share-based payments 7.1 5.1 State net operating losses 1.0 4.9 Intangible assets — 3.7 State taxes and interest 1.8 1.7 Transaction costs 10.7 — Other 5.2 12.6 80.0 66.5 Deferred tax liabilities: Intangible assets (380.6) (388.2) Difference in book and tax basis for property and equipment (49.9) (45.6) Rent (13.7) (21.4) Prepaid catalog and other prepaid expenses (14.1) (11.1) Other — (0.7) (458.3) (467.0) Net deferred income tax assets (liability) $(378.3) $(400.5) Amounts included in consolidated balance sheets: Current assets $14.7 $10.0 Non-current assets — — Current liabilities — — Non-current liabilities (393.0) (410.5) $(378.3) $(400.5) Management believes that it is more likely than not that the deferred tax asset balance of $80.0 million as of February 2, 2013 will be realized. TheCompany recorded significant deferred taxes in connection with its Acquisition on March 7, 2011. See note 3 for more information regarding the allocation ofpurchase price.As of February 2, 2013, the Company has $5.2 million in liabilities associated with uncertain tax positions (including interest and penalties of $1.0million) reflected in other liabilities. The amount, if recognized, that would affect the effective tax rate is $6.0 million. While the Company expects the amountof unrecognized tax benefits to change in the next twelve months, the change is not expected to have a significant effect on the estimated effective annual taxrate, the results of operations or financial position. However, the outcome of tax matters is uncertain and unforeseen results can occur. F-25A reconciliation of unrecognized tax benefits is as follows: (Dollars in millions) For theYear EndedFebruary 2, 2013 For the PeriodMarch 8, 2011 toJanuary 28, 2012 For the PeriodJanuary 30, 2011 toMarch 7, 2011 (Successor) (Successor) (Predecessor) Balance at beginning of period $7.7 $9.5 $9.5 Additions for tax positions taken during current year 3.4 2.2 — Additions for tax positions taken during prior years 0.7 — — Reductions for tax positions taken during prior years — (1.4) — Settlements (0.4) — — Expirations of statutes of limitations (2.1) (2.6) — Balance at end of period $9.3 $7.7 $9.5 Tax returns for periods ended January 2010 through January 2012 are subject to examination by the Internal Revenue Service. The tax returns for theperiod ended January 2010 through March 7, 2011 are currently under examination. Various state and local jurisdiction tax authorities are in the process ofexamining income tax returns or hearing appeals for certain tax years ranging from 2008 to 2010. The results of these audits and appeals are not expected tohave a significant effect on the results of operations or financial position.As of February 2, 2013, the Company has state and local net operating loss carryovers of approximately $89.5 million. These carryovers are availableto offset future taxable income for state and local tax purposes and expire primarily in March 2031.16. Related Party TransactionIn connection with the Transactions, the Company entered into a management services agreement with the Sponsors pursuant to which they received onthe closing date an aggregate transaction fee of $35 million. Additionally, in connection with the Acquisition, the Sponsors incurred certain costs, aggregatingto $19.9 million, which were either (i) paid for on behalf of the Sponsors or (ii) reimbursed to the Sponsors by the Company. These costs are reflected as areduction of stockholders’ equity in the consolidated financial statements of the Company.On October 20, 2005, the Company, Millard Drexler, Chairman of the Board and Chief Executive Officer and Millard S. Drexler, Inc. entered into aTrademark License Agreement whereby Mr. Drexler granted the Company a thirty-year exclusive, worldwide license to use the Madewell trademark andassociated intellectual property rights owned by him (the “Properties”). In consideration for the license, the Company reimbursed Mr. Drexler’s actual costsexpended in acquiring and developing the Properties (which amounted to $242,300) and agreed to pay royalties of $1 per year during the term of the license. InJanuary 2007, the Company provided notice to Mr. Drexler that the Company had met certain conditions outlined in the agreement, and Mr. Drexler assigned tothe Company all of his residual rights in the Properties. The Company also agreed that it would not assign or spin off ownership of the Properties during theterm of Mr. Drexler’s employment without his consent other than as part of a sale of the entire Company (except that the Company may pledge or hypothecateits interest in the Properties as part of a bank or other financings).17. LitigationThe Company is subject to various other legal proceedings and claims arising in the ordinary course of business. Management does not expect that theresults of any of these other legal proceedings, either individually or in the aggregate, would have a material adverse effect on the Company’s financialposition, results of operations or cash flows. F-2618. Quarterly Financial Information (Unaudited)Summarized quarterly financial results for fiscal 2012 and fiscal 2011 follow: (in thousands) FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (Successor) (Successor) (Successor) (Successor) Fiscal 2012 Total revenues $503,523 $525,488 $555,808 $642,898 Gross profit 239,788 236,737 263,070 247,133 Net income $30,697 $22,007 $33,179 $10,204 First Quarter January 30, 2011 toMarch 7, 2011 March 8, 2011 toApril 30, 2011 SecondQuarter ThirdQuarter FourthQuarter (Predecessor) (Successor) (Successor) (Successor) (Successor) Fiscal 2011 Total revenues $133,238 $276,218 $435,015 $479,575 $530,942 Gross profit 62,954 118,308 158,665 201,769 200,811 Net income (loss) $(16,150) $(13,794) $(10,544) $21,600 $15,147 19. Recent Accounting PronouncementsRecently Adopted Accounting PronouncementsIn May 2011, a pronouncement was issued providing consistent definitions and disclosure requirements of fair value with respect to U.S. GAAP andInternational Financial Reporting Standards. The pronouncement changed certain fair value measurement principles and enhanced the disclosure requirements,particularly for Level 3 measurements. The changes were effective prospectively for interim and annual periods beginning after December 15, 2011. TheCompany adopted this pronouncement on January 29, 2012. The adoption of this guidance did not have a significant impact on the Company’s condensedconsolidated financial statements.In June 2011, a pronouncement was issued that amended the guidance relating to the presentation of comprehensive income and its components. Thepronouncement eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity topresent the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuousstatement of comprehensive income or in two separate but consecutive statements. The Company adopted this pronouncement on January 29, 2012. Theadoption of this guidance required changes in presentation only and therefore did not have a significant impact on the Company’s condensed consolidatedfinancial statements.In September 2011, a pronouncement was issued that amended the guidance for goodwill impairment testing. The pronouncement allows the entity toperform an initial qualitative assessment to determine whether it is “more likely than not” that the fair value of the reporting unit is less than its carryingamount. This assessment is used as a basis for determining whether it is necessary to perform the two step goodwill impairment test. The methodology forhow goodwill is calculated, assigned to reporting units, and the application of the two step goodwill impairment test have not been revised. The pronouncementis effective for fiscal years beginning after December 15, 2011. The Company adopted this pronouncement in the fourth quarter of fiscal 2011. The adoptiondid not have a significant impact on the Company’s condensed consolidated financial statements.Recently Issued Accounting PronouncementsIn December 2011, a pronouncement was issued that amended the guidance related to the disclosure of recognized financial instruments and derivativeinstruments that are either offset on the balance sheet or subject F-27to an enforceable master netting arrangement or similar agreement. The amended provisions are effective for fiscal years beginning on or after January 1, 2013,and are required to be applied retrospectively for all prior periods presented. As this pronouncement relates to disclosure only, the adoption of this amendmentwill not have a significant impact on the Company’s condensed consolidated financial statements.20. Subsequent EventTerm Loan AmendmentOn February 4, 2013 (the “Second Amendment Effective Date”), the Company, Chinos Intermediate Holdings B, Inc., Bank of America, N.A., asadministrative agent, and each lender party thereto entered into Amendment No. 2 to the Credit Agreement (the “Second Term Loan Amendment”), whichmodified the Company’s Term Loan Facility. The Second Term Loan Amendment replaced loans outstanding under the Term Loan Facility with a new classof term loans in an aggregate principal amount of $1,179 million (the “New Term Loans”). The maturity date of the New Term Loans is March 7, 2018 andwas not modified as part of the amendment.Borrowings under the Term Loan Facility bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR(subject to a floor) or the base rate, as defined. Pursuant to the Second Term Loan Amendment, the applicable margin on New Term Loans is reduced by0.25% to 3.00% for LIBOR borrowings and 2.00% for base rate borrowings. In addition, the floor with respect to LIBOR borrowings is reduced by 0.25% to1.00%. The Second Term Loan Amendment also provides for an incremental 0.25% step-down in applicable margin at any time on and after May 6, 2013when the Company’s corporate family rating, as publicly announced by Moody’s, is B1 or better. Following the amendment, the applicable margin withrespect to base rate borrowings is 2.00% and the LIBOR Floor and applicable margin with respect to LIBOR borrowings are 1.00% and 3.00%, respectivelyThe Second Term Loan Amendment provided for a soft-call option, whereby the Company will pay a premium equal to 1.0% of the outstandingprincipal amount of New Term Loans prepaid, refinanced, substituted or otherwise replaced, or the terms of which are amended, in connection with certainrepricing transactions occurring on or prior to the date that is six months after February 4, 2013. F-28SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS BeginningBalance Charged toCost andExpenses(a) Charged tootherAccounts Deductions(a) EndingBalance (in thousands) Inventory reserve (deducted from merchandise inventories) Year ended February 2, 2013 (Successor) $6,253 $1,055 $— $— $7,308 Period ended January 28, 2012 (Successor) 5,312 941 — — 6,253 Period ended March 7, 2011 (Predecessor) 6,503 — — 1,191 5,312 Year ended January 29, 2011 (Predecessor) 7,087 — — 584 6,503 Allowance for sales returns (included in other current liabilities) Year ended February 2, 2013 (Successor) $8,953 $157 $— $— $9,110 Period ended January 28, 2012 (Successor) 10,591 — — 1,638 8,953 Period ended March 7, 2011 (Predecessor) 8,781 1,810 — — 10,591 Year ended January 29, 2011 (Predecessor) 8,300 481 — — 8,781 (a)The inventory reserve and allowance for sales returns are evaluated at the end of each fiscal quarter and adjusted (increased or decreased) based on thequarterly evaluation. During each period, inventory write-downs and sales returns are charged to the statement of operations as incurred. F-29EXHIBIT INDEX Exhibit No. Document 2.1 Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., Chinos Holdings, Inc. and ChinosAcquisitions Corporation. Incorporated by reference to Exhibit 2.1 to the Form 8-K filed on November 26, 2010. 2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., ChinosHoldings, Inc. and Chinos Acquisitions Corporation, dated January 18, 2011. Incorporated by reference to Exhibit 2.1 to the Form 8-K filed on January 18, 2011. 3.1 Amended and Restated Certificate of Incorporation of J.Crew Group, Inc., adopted March 7, 2011. Incorporated by reference to Exhibit3.1 to the Form 8-K filed on March 10, 2011. 3.2 Amended and Restated By-laws of J.Crew Group, Inc., adopted March 7, 2011. Incorporated by reference to Exhibit 3.2 to the Form 8-K filed on March 10, 2011.Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Senior Notes Indenture, dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7, 2011 was mergedwith and into J.Crew Group, Inc., and Wells Fargo Bank, National Association, as Trustee. Incorporated by reference to Exhibit 4.1 tothe Form 8-K filed on March 10, 2011. 4.2 Supplemental Indenture, dated as of March 7, 2011 among J.Crew Group, Inc., the Guarantors named therein and Wells Fargo Bank,National Association, as Trustee. Incorporated by reference to Exhibit 4.2 to the Form 8-K filed on March 10, 2011. 4.3 Form of 8.125% Senior Notes due 2019. Incorporated by reference to Exhibit 4.3 to the Form 8-K filed on March 10, 2011. 4.4 Exchange and Registration Rights Agreement, dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7,2011 was merged with and into J.Crew Group, Inc., Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & SmithIncorporated, as representatives of the several Purchasers named therein. Incorporated by reference to Exhibit 4.4 to the Form 8-K filedon March 10, 2011. 4.5 Registration Rights Agreement Joinder, dated as of March 7, 2011 among J.Crew Group, Inc., the Guarantors named therein andGoldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several Purchasers namedtherein. Incorporated by reference to Exhibit 4.5 to the Form 8-K filed on March 10, 2011.Material Contracts10.1 Credit Agreement dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7, 2011 was merged with andinto J.Crew Group, Inc., with J.Crew Group, Inc. surviving such merger as the Borrower, Chinos Intermediate Holdings B, Inc., asHoldings, Bank of America, N.A., as Administrative Agent and Issuer, and the other Lenders and Issuers party thereto. Incorporatedby reference to Exhibit 10.1 to the Form 8-K filed on March 10, 2011.10.2 Credit Agreement dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7, 2011 was merged with andinto J.Crew Group, Inc., with J.Crew Group, Inc. surviving such merger as the Borrower, Chinos Intermediate Holdings B, Inc. asHoldings, Bank of America, N.A., as Administrative Agent, and the other Lenders party thereto. Incorporated by reference to Exhibit10.2 to the Form 8-K filed on March 10, 2011. 1Exhibit No. Document10.3 Security Agreement dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7, 2011 was merged with andinto J.Crew Group, Inc., with J.Crew Group, Inc. surviving such merger as the Borrower, Chinos Intermediate Holdings B, Inc., asHoldings, the subsidiary guarantors party thereto from time to time, and Bank of America, N.A., as Collateral Agent under the ABLFacility. Incorporated by reference to Exhibit 10.3 to the Form 8-K filed on March 10, 2011.10.4 Security Agreement dated as of March 7, 2011 among Chinos Acquisition Corporation, which on March 7, 2011 was merged with andinto J.Crew Group, Inc., with J.Crew Group, Inc. surviving such merger as the Borrower, Chinos Intermediate Holdings B, Inc., asHoldings, the subsidiary guarantors party thereto from time to time, and Bank of America, N.A., as Collateral Agent under the TermLoan Facility. Incorporated by reference to Exhibit 10.4 to the Form 8-K filed on March 10, 2011.10.5 Guaranty dated as of March 7, 2011 among Chinos Intermediate Holdings B, Inc., as Holdings, the other guarantors party hereto fromtime to time, and Bank of America, N.A., as Administrative Agent and Collateral Agent under the ABL Facility. Incorporated byreference to Exhibit 10.5 to the Form 8-K filed on March 10, 2011.10.6 Guaranty dated as of March 7, 2011 among Chinos Intermediate Holdings B, Inc., as Holdings, the other guarantors party hereto fromtime to time, and Bank of America, N.A., as the Administrative Agent and Collateral Agent under the Term Loan Facility. Incorporatedby reference to Exhibit 10.6 to the Form 8-K filed on March 10, 2011.10.7 First Amendment to the Credit Agreement, dated as of October 11, 2012, by and among J.Crew Group, Inc., Chinos IntermediateHoldings B, Inc., Bank of America, N.A., as administrative agent and as collateral agent, and each lender party thereto. Incorporatedby reference to Exhibit 10.1 to the Form 8-K filed on October 15, 2012.10.8 Amendment No. 1 to the Credit Agreement, dated as of December 18, 2012, by and among J.Crew Group, Inc., Chinos IntermediateHoldings B, Inc., Bank of America, N.A., as administrative agent and each lender party thereto. Incorporated by reference to Exhibit10.1 to the Form 8-K filed on December 18, 2012.10.9 Amendment No. 2 to the Credit Agreement, dated as of February 4, 2013, by and among J.Crew Group, Inc., Chinos IntermediateHoldings B, Inc., Bank of America, N.A., as administrative agent and each lender party thereto. Incorporated by reference to Exhibit10.1 to the Form 8-K filed on February 4, 2013.10.10 Trademark License Agreement by and among J.Crew Group, Inc., Millard S. Drexler and Millard S. Drexler, Inc. dated as of October20, 2005. Incorporated by reference to Exhibit 10.2 to the Form 8-K filed on October 21, 2005.10.11 Employment Agreement by and among J.Crew Group, Inc., Chinos Holdings, Inc. and Millard S. Drexler dated as of March 7, 2011.Incorporated by reference to Exhibit 10.8 to the Form 10-K filed on March 21, 2011.10.12 Amended and Restated Employment Agreement, dated September 10, 2008, between the Company and James Scully. Incorporated byreference to Exhibit 10.1 to the Form 8-K filed on September 11, 2008.10.13 Amended and Restated Employment Agreement, dated July 15, 2010, between J.Crew Group, Inc. and Jenna Lyons. Incorporated byreference to Exhibit 10.8 to the Form 10-Q filed on September 3, 2010. 2Exhibit No. Document10.14 Special Bonus Agreement, dated October 26, 2009, between J.Crew Group, Inc. and Jenna Lyons. Incorporated by reference to Exhibit10.1 to the Form 8-K filed on October 29, 2009.10.15 Letter Agreement, dated November 28, 2011, between J.Crew Group, Inc. and Libby Wadle. Incorporated by reference to Exhibit 10.1 tothe Form 8-K filed on November 29, 2011.10.16 Letter Agreement, dated May 15, 2012, between J.Crew Group, Inc. and Stuart Haselden. Incorporated by reference to Exhibit 10.1 tothe Form 10-Q filed on May 30, 2012.10.17 Management Services Agreement, entered into as of March 7, 2011, between Chinos Acquisition Corporation, Chinos IntermediateHoldings A, Inc., Chinos Intermediate Holdings B, Inc., Chinos Holdings, Inc., TPG Capital, L.P., and Leonard Green and Partners,L.P. Incorporated by reference to Exhibit 10.14 to the Form S-4 filed on June 22, 2011.10.18 Principal Investors Stockholders’ Agreement, dated as of March 7, 2011, by and among Chinos Holdings, Inc., Chinos AcquisitionCorporation, Chinos Intermediate Holdings A, Inc., Chinos Intermediate Holdings B, Inc. and the stockholder parties thereto.Incorporated by reference to Exhibit 10.15 to the Form S-4 filed on June 22, 2011.10.19 Management Stockholders’ Agreement, dated as of March 7, 2011, by and among Chinos Holdings, Inc., Chinos IntermediateHoldings A, Inc., Chinos Intermediate Holdings B, Inc., Chinos Acquisition Corporation, and the Principal Investors, the MD Investorsand Managers named therein. Incorporated by reference to Exhibit 10.2 to the Form 10-Q filed on September 1, 2011.Other Exhibits21.1 Subsidiaries of J.Crew Group, Inc.†24.1 Power of Attorney†31.1 Certification of chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†31.2 Certification of chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.†32.1 Certification of chief executive officer and chief financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at February 2, 2013 (Successor) andJanuary 28, 2012 (Successor), (ii) the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year endedFebruary 2, 2013 (Successor), for the periods March 8, 2011 to January 28, 2012 (Successor) and January 30, 2011 to March 7, 2011(Predecessor) and for the year ended January 29, 2011 (Predecessor), (iii) the Consolidated Statements of Changes in Stockholders’Equity for the year ended February 2, 2013 (Successor), for the periods March 8, 2011 to January 28, 2012 (Successor) and January30, 2011 to March 7, 2011 (Predecessor) and for the year ended January 29, 2011 (Predecessor), (iv) the Consolidated Statements ofCash Flows for the year ended February 2, 2013 (Successor), for the periods March 8, 2011 to January 28, 2012 (Successor) andJanuary 30, 2011 to March 7, 2011 (Predecessor) and for the year ended January 29, 2011 (Predecessor), and (v) the Notes to theConsolidated Financial Statements.* †Filed herewith.*Furnished herewith 3EXHIBIT 21.1Subsidiaries of J.Crew Group, Inc. Name of Subsidiary Jurisdiction of Incorporation Name under which SubsidiaryDoes BusinessJ.Crew Operating Corp. Delaware J.Crew Operating Corp.J.Crew Inc. Delaware J.Crew Inc.Grace Holmes, Inc. Delaware J.Crew Retail StoresH.F.D. No. 55, Inc. Delaware J.Crew Factory StoresMadewell Inc. Delaware Madewell Retail StoresJ.Crew Virginia, Inc. Virginia J.Crew Virginia, Inc.J.Crew International, Inc. Delaware J.Crew International, Inc.J.Crew Canada Inc. Ontario J.Crew Canada Inc.J.Crew U.K. Limited. United Kingdom J.Crew U.K. LimitedJ.Crew Japan, Ltd. Japan J.Crew Japan, Ltd.Exhibit 24.1POWER OF ATTORNEYI hereby appoint Millard Drexler, Stuart Haselden and Jennifer Meeker my true and lawful attorneys-in-fact, each with full power to act without the otherand each with full power of substitution, to sign on my behalf, as an individual and in the capacity stated below, and to file the Annual Report on Form 10-Kof J.Crew Group, Inc. for its fiscal year ended February 2, 2013 and any amendment that such attorney-in-fact may deem appropriate or necessary. I furthergrant unto such attorneys and each of them full power and authority to perform each and every act necessary to be done in order to accomplish the foregoing asfully as I might do.IN WITNESS WHEREOF, I have executed this power of attorney as of the 12th day of March, 2013. Signature: /s/ MILLARD DREXLERPrint Name: Millard DrexlerTitle: DirectorSignature: /s/ JAMES COULTERPrint Name: James CoulterTitle: DirectorSignature: /s/ JOHN DANHAKLPrint Name: John DanhaklTitle: DirectorSignature: /s/ JONATHAN SOKOLOFFPrint Name: Jonathan SokoloffTitle: DirectorSignature: /s/ STEPHEN SQUERIPrint Name: Stephen SqueriTitle: DirectorSignature: /s/ CARRIE WHEELERPrint Name: Carrie WheelerTitle: DirectorEXHIBIT 31.1CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Millard Drexler, certify that: 1.I have reviewed this Annual Report on Form 10-K of J.Crew Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 20, 2013 /S/ MILLARD DREXLERMillard DrexlerChief Executive OfficerEXHIBIT 31.2CERTIFICATION PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002I, Stuart C. Haselden, certify that: 1.I have reviewed this Annual Report on Form 10-K of J.Crew Group, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: March 20, 2013 /S/ STUART C. HASELDENStuart C. HaseldenChief Financial OfficerEXHIBIT 32.1CERTIFICATION PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of J.Crew Group, Inc. (the “Company”) on Form 10-K for the period ended February 2, 2013 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), we, Millard S. Drexler, Chief Executive Officer of the Company, and Stuart C.Haselden, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002, that: 1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.Date: March 20, 2013 /S/ MILLARD DREXLERMillard DrexlerChief Executive Officer/S/ STUART C. HASELDENStuart C. HaseldenChief Financial OfficerThe foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is notbeing filed as part of the Report or as a separate disclosure document.A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company andfurnished to the Securities and Exchange Commission or its staff upon request.

Continue reading text version or see original annual report in PDF format above