J.Crew Group, Inc.

- LBO Model for Private Equity Interview Case Study

($ in Millions Except Per Share Data)

Transaction Assumptions

Company Name: J.Crew Group, Inc. Transaction Close Date: 1/31/2011

Current Share Price: $ 37.65 Equity Purchase Price: $ 2,591
Offer Premium: 15.6% Transaction Enterprise Value: 2,183
Offer Price Per Share: $ 37.65 EBITDA Purchase Multiple: 6.3 x
% Debt Used: 61% Debt Used: 1,036

Purchase Price Calculations: Diluted Shares:

Common Shares: 63.79

Diluted Shares: 68.82 Exercise
Name Number Price Dilution
Diluted Equity Value: $ 2,591 Tranche A 0.761 $ 3.53 0.690
Less: Cash & Investments (432) Tranche B 1.974 7.62 1.574
Plus: Debt 24 Tranche C 3.027 14.29 1.878
Plus: Noncontrolling Interests - Tranche D 2.215 32.73 0.289
Plus: Preferred Stock - RSUs 0.598 0.598
Plus: Other Liabilities - Total 5.030
Enterprise Value: $ 2,183

Debt Assumptions

%: $ Amount:
Total Debt Used: $ 1,036 Interest Rates:
Revolver: 14% 175 Revolver:
Term Loan A: 27% 280 Term Loan A:
Term Loan B: 27% 280 Term Loan B:
Subordinated Note: 32% 336 Subordinated Note:

Sources & Uses

Sources: Uses:

Term Loan A: $ 280 Equity Value of Company:

Term Loan B: 280 Repay Existing Debt:
Subordinated Note: 336 Advisory Fees:
Investor Equity: 1,738 Capitalized Financing Fees:
Total Sources: $ 2,636 Legal & Misc. Fees:
Total Uses:
Goodwill Creation & Balance Sheet Adjustments

Goodwill Calculation: Fixed Asset Write-Up:

Equity Purchase Price: $ 3,015 PP&E Write-Up %:
Less: Seller Book Value: (562) PP&E Write-Up Amount:
Plus: Write-Off of Existing Goodwill: - Depreciation Period (Years):
Total Allocable Purchase Premium: $ 2,453
Intangible Asset Write-Up:
Less: Write-Up of PP&E: $ (21) Purchase Price to Allocate:
Less: Write-Up of Intangibles: (491) % Allocated to Intangibles:
Less: Write-Down of DTL: - Intangibles Write-Up Amount:
Plus: New Deferred Tax Liability: 206 Amortization Period (Years):
Total Goodwill Created: $ 2,147

Financing Fees Amortization Period: 5 New Deferred Tax Liability:

Operating Assumptions

Historical Transaction Adjustments

2009 2010 2011 Debit Credit

Revenue Growth %: 7.0% 10.5% 12.5%

COGS % Revenue: 61.1% 55.9% 53.9%
SG&A % Revenue: 28.9% 27.2% 26.5%
D&A % Revenue: 3.2% 3.5% 3.5%
Effective Tax Rate: 40.4% 40.1% 40.3%

Inventory % COGS: 21.4% 21.6% 21.5%

Prepaid Expenses & Other % SG&A: 14.1% 7.2% 10.5%
Accounts Payable % COGS: 13.7% 14.5% 14.1%
Other Liabilities % SG&A: 21.3% 25.0% 22.9%

CapEx % Revenue: 5.4% 2.8% 4.1%

Income Statement
Historical Transaction Adjustments
2009 2010 2011 Debit Credit

Revenue: $ 1,335 $ 1,428 $ 1,578 $ 1,775

Cost of Goods Sold: 873 882 957
Gross Profit: 555 696 818

SG&A Expense: 412 430 470

Depreciation & Amortization: 46 55 63
Depreciation of PP&E Write-Up: - - -
 New Intangibles Amortization: - - -
Amortization of Financing Fees: - - -
Operating Income: 97 211 285

Interest Income / (Expense): (6) (5) (2)

Pre-Tax Income: 91 206 283
Income Tax Provision: 37 83 114

Net Income: 54 123 169

EBITDA: $ 143 $ 266 $ 348

Balance Sheet
Historical Transaction Adjustments
2009 2010 2011 Debit Credit
Assets:
Current Assets:
Cash & Cash-Equivalents: $ 146 $ 298 $ 432 $ - $ -
Merchandise Inventories: 187 190 206 - -
Prepaid Expenses & Other: 58 31 49 - -
Total Current Assets: 392 519 687

Long-Term Assets:
Net PP&E: 202 195 205 21 -
Goodwill: - - - 2,147 -
Intangible Assets: - - - 491 -
Capitalized Financing Fees: - - - 11 -
Other Assets: 21 25 20 - -
Total Long-Term Assets: 222 219 225

Total Assets: $ 614 $ 739 $ 912

Liabilities & Shareholders' Equity:

Current Liabilities:
Revolver: $ - $ - $ - $ - $ -
Accounts Payable: 120 128 135 - -
Other Current Liabilities: 88 108 108 - -
Total Current Liabilities: 208 235 243

Long-Term Liabilities:
Existing Long-Term Debt: 100 49 24 24 -
Term Loan A: - - - - 280
Term Loan B: - - - - 280
Subordinated Note: - - - - 336
Long-Term Deferred Tax Liability: - - - - 206
Other Long-Term Liabilities: 81 78 83 - -
Total Long-Term Liabilities: 181 127 107

Total Liabilities: $ 389 $ 363 $ 350

Shareholders' Equity:
Common Stock & APIC: 586 614 631 631 -
Treasury Stock: (4) (4) (4) (4) -
Sponsor Common Equity: - 1,464
Retained Earnings: (357) (234) (65) (50) -
Total Shareholders' Equity: $ 225 $ 376 $ 562

Total Liabilities & SE: $ 614 $ 739 $ 912

BALANCE CHECK: $ - $ - $ -

Cash Flow Statement

Historical Transaction Adjustments
2009 2010 2011 Debit Credit

Net Income:
Depreciation & Amortization:
Depreciation of PP&E Write-Up:
New Intangibles Amortization:
Amortization of Financing Fees:
Changes in Operating Assets & Liabilities:
Merchandise Inventories:
Prepaid Expenses & Other:
Other Assets:
Accounts Payable & Other:
Other Liabilities:
Cash Flow from Operations:

Capital Expenditures:
Cash Flow from Investing:

Cash Flow Available for Debt Repayment:

Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Total Cash Flow Used to Repay Debt:

Net Change in Cash & Cash Equivalents:

 Beginning Cash Balance:
Ending Cash Balance:

Debt & Interest Schedules

LIBOR Curve:
Fixed
Interest Rate Assumptions: LIBOR + Interest
Revolver: 2.50%
Term Loan A: 3.50%
Term Loan B: 5.00%
Subordinated Note: 11.00%

Interest Income / (Expense) Calculations:

Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Cash:
Net Interest Income / (Expense):

Sources of Funds:
Beginning Cash Balance:
Less: Minimum Cash Balance:
Plus: Cash Flow Available for Debt Repay:
Subtotal Before Revolver:
Revolver Borrowing Required:
Total Sources of Funds:

Uses of Funds:
Mandatory Debt Repayment:
Term Loan A:
Term Loan B:
Subordinated Note:
Mandatory Repayment Total:

Optional Debt Repayment:

Revolver:
Term Loan A:
Term Loan B:
Subordinated Note:
Optional Repayment Total:
 Cash Generated on Balance Sheet:
Total Uses of Funds:

Investor Returns

EBITDA:
EBITDA Multiple:
Enterprise Value:
Investor Equity:

IRR:

Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Exit Multiple

Exit Multiple:
2.4% 3.0 x 4.0 x 5.0 x 6.0 x 7.0 x 8.0 x
$ 54.59 45.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
Purchase Premium / Per-Share

$ 52.71 40.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%

$ 50.83 35.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
$ 48.95 30.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
$ 47.06 25.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
Price

$ 45.18 20.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%

$ 43.30 15.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
$ 41.42 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
$ 39.53 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%
$ 37.65 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.3%

Sensitivity Analysis - 5-Year IRR and Purchase Premium vs. Leverage Ratio:

% Debt Used:
2.4% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0%
$ 54.59 45.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
Purchase Premium / Per-Share

$ 52.71 40.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%

$ 50.83 35.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
$ 48.95 30.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
$ 47.06 25.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
Price

$ 45.18 20.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%

$ 43.30 15.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
$ 41.42 10.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
$ 39.53 5.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
$ 37.65 0.0% 2.4% 2.9% 3.5% 4.1% 4.7% 5.7%
 Base EBITDA Exit Multiple: 7.0 x

Advisory Fee %: 0.30%

Financing Fee %: 0.60%
Legal & Misc. Fees: $5

LIBOR Units: 10,000

Minimum Cash Balance: $ 50

Rates: Principal Repayment %:

L + 250 Revolver: N/A
L + 350 Term Loan A: 10.0%
L + 500 Term Loan B: 5.0%
11.00% Subordinated Note: 0.0%

Uses:

$ 2,591
24
8
6
5
$ 2,634
 10.0%
21
8

2,453
20.0%
491
5

$ 206

ction Adjustments Projected

2011 2012 2013 2014 2015 2016

12.0% 11.0% 10.0% 9.0% 8.0%

57.0% 57.0% 57.0% 57.0% 57.0%
27.5% 27.5% 27.5% 27.5% 27.5%
3.4% 3.4% 3.4% 3.4% 3.4%
40.2% 40.2% 40.2% 40.2% 40.2%

21.5% 21.5% 21.5% 21.5% 21.5%

10.6% 10.6% 10.6% 10.6% 10.6%
14.1% 14.1% 14.1% 14.1% 14.1%
23.1% 23.1% 23.1% 23.1% 23.1%

4.1% 4.1% 4.1% 4.1% 4.1%

ction Adjustments Projected

2011 2012 2013 2014 2015 2016

$ 1,988 $ 2,207 $ 2,428 $ 2,646 $ 2,858

1,133 1,257 1,383 1,508 1,628
855 949 1,044 1,138 1,230

547 608 668 729 787

68 75 83 90 98
3 3 3 3 3
 98 98 98 98 98
2 2 2 2 2
137 164 190 217 242

(93) (80) (72) (66) (60)

44 84 118 151 182
18 34 47 61 73

27 50 71 90 109
$ 308 $ 342 $ 376 $ 410 $ 443

ction Adjustments Projected

2011 2012 2013 2014 2015 2016

$ 432 $ 50 $ 50 $ 50 $ 181 $ 370

206 244 270 297 324 350
49 58 64 71 77 83
687 352 385 418 582 804

226 237 251 265 282 300

2,147 2,147 2,147 2,147 2,147 2,147
491 392 294 196 98 -
11 9 7 4 2 -
20 20 20 20 20 20
2,894 2,806 2,718 2,633 2,549 2,467

$ 3,581 $ 3,157 $ 3,103 $ 3,051 $ 3,131 $ 3,270

$ - $ - $ - $ - $ - $ -
135 160 177 195 213 230
108 126 140 154 168 182
243 286 318 349 381 411

- - - - - -
280 - - - - -
280 331 196 41 - -
336 600 600 600 600 600
206 206 206 206 206 206
83 83 83 83 83 83
 1,969 1,220 1,084 930 889 889

$ 2,212 $ 1,506 $ 1,402 $ 1,279 $ 1,269 $ 1,300

- - - - - -
- - - - - -
1,464 1,464 1,464 1,464 1,464 1,464
(14) 12 63 133 223 332
$ 1,450 $ 1,477 $ 1,527 $ 1,597 $ 1,687 $ 1,796

$ 3,662 $ 2,982 $ 2,928 $ 2,876 $ 2,957 $ 3,096

$ (81) $ 175 $ 175 $ 175 $ 175 $ 175

ction Adjustments Projected

2011 2012 2013 2014 2015 2016

$ 27 $ 50 $ 71 $ 90 $ 109
68 75 83 90 98
3 3 3 3 3
98 98 98 98 98
2 2 2 2 2

(38) (27) (27) (27) (26)

(9) (6) (6) (6) (6)
- - - - -
25 18 18 18 17
19 14 14 14 13
194 227 255 282 307

(82) (91) (100) (109) (118)

(82) (91) (100) (109) (118)

112 135 154 172 189

- - - - -
(413) - - - -
(82) (135) (154) (41) -
- - - - -
(494) (135) (154) (41) -

(382) (0) - 131 189

 432 50 50 50 181
$ 50 $ 50 $ 50 $ 181 $ 370

Projected
2012 2013 2014 2015 2016

0.30% 0.30% 0.50% 1.00% 2.00%

2.80% 2.80% 3.00% 3.50% 4.50%

3.80% 3.80% 4.00% 4.50% 5.50%
5.30% 5.30% 5.50% 6.00% 7.00%
11.00% 11.00% 11.00% 11.00% 11.00%

$ - $ - $ - $ - $ -
(8) - - - -
(20) (14) (7) (1) -
(66) (66) (66) (66) (66)
1 0 0 1 6
(93) (80) (72) (66) (60)

432 50 50 50 181
(50) (50) (50) (50) (50)
112 135 154 172 189
494 135 154 172 320
- - - - -
494 135 154 172 320

28 - - - -
14 21 21 21 -
- - - - -
42 21 21 21 -

- - - - -
371 - - - -
61 115 134 21 -
- - - - -
432 115 134 21 -
 20 - - 131 320
$ 494 $ 135 $ 154 $ 172 $ 320

2011 2012 2013 2014 2015 2016

$ 348 $ 443
6.3 x 7.0 x
2,183 3,099
(1,738) - - - - 2,869

2.4%

9.0 x 10.0 x 11.0 x

5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%
5.0% 5.0% 5.0%

70.0% 75.0% 80.0%

6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%
6.4% 7.5% 9.1%