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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended February 2, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File No. 1-10738

For the transition period from
 to





ANNTAYLOR STORES CORPORATION

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|DELAWARE                                                       |  | 13-3499319                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



|                                         |  |           
|---------------------------------------- |  | ----------
|7 Times Square, New York, NY             |  | 10036     
|(Address of principal executive offices) |  | (Zip Code)

(212) 541-3300

(Registrants telephone number, including area code)





Securities registered
pursuant to Section 12(b) of the Act:



|                               |  |                                          
|------------------------------ |  | -----------------------------------------
|Title of Each Class            |  | Name of each exchange on which registered
|Common Stock, $.0068 Par Value |  | The New York Stock Exchange              



Securities registered
pursuant to Section 12(g) of the Act: None.





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No   ̈.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x.

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈.

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.x.

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer   ̈    Non-accelerated filer   ̈    Smaller
reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x.

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant as of August 4, 2007 was $1,795,639,780.

The number of shares of the registrant's common stock outstanding as of February 29, 2008 was 60,879,663.

Documents Incorporated by Reference:

Portions of the Registrant's Proxy Statement for the Registrant's 2008 Annual Meeting of Stockholders to be held on May 15, 2008 are incorporated by reference into Part III.









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ANNTAYLOR STORES CORPORATION

ANNUAL REPORT ON FORM 10-K INDEX



|                                  |  |                                                                                                                  |  |         
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- |  | --------
|                                  |  |                                                                                                                  |  | Page No.
|PART I.                           |  |                                                                                                                  |  |         
|ITEM 1.                           |  | Business                                                                                                         |  | 2       
|ITEM 1A.                          |  | Risk Factors                                                                                                     |  | 7       
|ITEM 1B.                          |  | Unresolved Staff Comments                                                                                        |  | 10      
|ITEM 2.                           |  | Properties                                                                                                       |  | 11      
|ITEM 3.                           |  | Legal Proceedings                                                                                                |  | 11      
|ITEM 4.                           |  | Submission of Matters to a Vote of Security Holders                                                              |  | 11      
|                                  |  |                                                                                                                 
|PART II.                          |  |                                                                                                                  |  |         
|ITEM 5.                           |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 12      
|ITEM 6.                           |  | Selected Financial Data                                                                                          |  | 14      
|ITEM 7.                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 16      
|ITEM 7A.                          |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 28      
|ITEM 8.                           |  | Financial Statements and Supplementary Data                                                                      |  | 29      
|ITEM 9.                           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 29      
|ITEM 9A.                          |  | Controls and Procedures                                                                                          |  | 29      
|ITEM 9B.                          |  | Other Information                                                                                                |  | 30      
|                                  |  |                                                                                                                 
|PART III.                         |  |                                                                                                                  |  |         
|ITEM 10.                          |  | Directors, Executive Officers and Corporate Governance                                                           |  | 31      
|ITEM 11.                          |  | Executive Compensation                                                                                           |  | 31      
|ITEM 12.                          |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 31      
|ITEM 13.                          |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 31      
|ITEM 14.                          |  | Principal Accounting Fees and Services                                                                           |  | 31      
|                                  |  |                                                                                                                 
|PART IV.                          |  |                                                                                                                  |  |         
|ITEM 15.                          |  | Exhibits and Financial Statement Schedules                                                                       |  | 32      
|                                  | 
|SIGNATURES                        |  | 33                                                                                                              
|                                  | 
|CONSOLIDATED FINANCIAL STATEMENTS |  | 34                                                                                                              
|                                  | 
|EXHIBIT INDEX                     |  | 64                                                                                                              



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Statement Regarding Forward-Looking Disclosures

This Annual Report on Form 10-K (this Report) includes, and incorporates by reference, certain forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may use the words expect, anticipate, plan, intend, project, may,
believe and similar expressions. These forward-looking statements reflect the current expectations of AnnTaylor Stores Corporation concerning future events, and actual results may differ materially from current expectations or historical
results. Any such forward-looking statements are subject to various risks and uncertainties, including without limitation those discussed in the sections of this Report entitled Business, Managements Discussion and Analysis
of Financial Condition and Results of Operations and Risk Factors. AnnTaylor Stores Corporation does not assume any obligation to publicly update or revise any forward-looking statements at any time for any reason.

PART I



|ITEM 1. | Business.
|------- | ---------

General

AnnTaylor Stores Corporation, through its wholly-owned subsidiaries, is a leading national specialty retailer of women's apparel, shoes and accessories
sold primarily under the Ann Taylor, Loft and Ann Taylor Loft (LOFT) and Ann Taylor Factory brands. Our stores offer a full range of career and casual separates, dresses, tops,
weekend wear, shoes and accessories, coordinated as part of a total wardrobing strategy. This total wardrobing strategy is reinforced by an emphasis on client service. Ann Taylor sales associates are trained to assist clients in merchandise
selection and wardrobe coordination, helping them achieve the Ann Taylor look and LOFT look while reflecting the clients personal styles. As used in this report, all references to we, our,
us, and the Company refer to AnnTaylor Stores Corporation and its wholly-owned subsidiaries.

We are dedicated to
maintaining the right merchandise mix in our stores among suits and separates, tops, footwear and accessories. We concentrate on calibrating the timing of our product offerings to address clients wardrobing needs, anticipating fabric and yarn
preferences on a regional and seasonal basis, and timing direct marketing efforts accordingly.

We believe that Ann Taylor and
LOFT are highly recognized national brands with distinct fashion points of view, though both are equally committed to providing clients with updated classics that are feminine, stylish, versatile and polished and that wardrobe her across
all aspects of her evolving lifestyle. The Ann Taylor brand is focused on updated classic, yet stylish, professional and special occasion dressing that is sophisticated and versatile and always of high quality. The LOFT brand is focused on
fashionable updated classics that are relaxed and casual and that offer good quality and value. Our Ann Taylor Factory business offers factory-direct product exclusively in the outlet environment. In addition, clients may shop online at
anntaylor.com and anntaylorLOFT.com or by phone at 1-800-DIAL-ANN.

As of February 2, 2008, we operated 929 retail stores in 46
states, the District of Columbia and Puerto Rico, of which 349 were Ann Taylor stores, 512 were LOFT stores and 68 were Ann Taylor Factory stores. See Stores and Expansion for further discussion.

Merchandise Design and Production

Substantially all
merchandise offered in our stores is developed by our in-house product design and development teams, which design merchandise exclusively for the Company. Our merchandising groups determine inventory needs for the upcoming season, edit the
assortments developed by the design teams, plan monthly merchandise flows, and arrange for the production of merchandise by independent manufacturers, primarily through our sourcing division or through private label specialists.



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Our production management and quality assurance departments establish the technical specifications for
all Company merchandise, inspect factories in which the merchandise is produced, including periodic in-line inspections while goods are in production to identify potential problems prior to shipment, and, upon receipt, inspect merchandise on a test
basis for uniformity of size and color, as well as for conformity with specifications and overall quality of manufacturing.

We source
merchandise from approximately 231 manufacturers and vendors, none of which accounted for more than 4% of our merchandise purchases in Fiscal 2007. In Fiscal 2007, we sourced our merchandise from 15 countries, with approximately 38% of our
merchandise manufactured in China, 17% in the Philippines, 9% in Indonesia and 5% in both Hong Kong and Thailand. Any event causing a sudden disruption of manufacturing or imports from China, the Philippines, Indonesia, Hong Kong or Thailand,
including the imposition of additional import restrictions, could have a material adverse effect on our operations. Substantially all of our foreign purchases are negotiated and paid for in U.S. dollars.

We have a social compliance program that requires substantially all of our suppliers, factories, and subcontractors to comply with our Global Supplier
Principles and Guidelines and the local laws and regulations in the country of manufacture. We also conduct unannounced third-party audits to confirm manufacturer compliance with our compliance standards.

We cannot predict with certainty whether any of the foreign countries in which our products are currently manufactured or any of the countries in which
we may manufacture our products in the future will be subject to future import restrictions by the U.S. government, including the likelihood, type or degree of effect of any such new trade restriction. Trade restrictions, including increased tariffs
or quotas, on apparel, or other items sold by us could affect the importation of such merchandise and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of
operations and liquidity. Although we cannot predict with certainty the effect of future trade restrictions on our business, we believe that any impact on operations will not be material. Further, the U.S. may impose additional duties in response to
an investigation as to whether a particular product being sold in the United States at less than fair value may cause (or threaten to cause) material injury to the relevant domestic industry as claimed by such industry. This is generally known as
anti-dumping action.

Our merchandise flow may also be adversely affected by financial or political instability in any of the
countries in which our goods are manufactured, the potential impact of natural disasters and health concerns relating to severe infectious diseases, particularly on manufacturing operations of our vendors, or acts of war or terrorism in the United
States or worldwide, if they affect the production, shipment or receipt of merchandise from such countries. Merchandise flow may also be adversely affected by significant fluctuation in the value of the U.S. dollar against foreign currencies or
restrictions on the transfer of funds. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources and  Statement Regarding Forward-Looking
Disclosures.

We generally do not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any
single supplier. We believe we have good relationships with our suppliers and that, subject to the discussion above, we will continue to have adequate sources to produce a sufficient supply of quality goods in a timely manner and on satisfactory
economic terms.

Inventory Control and Merchandise Allocation

Our planning department analyzes historical product demand data as well as size, location, demographics, sales and inventory history of store clusters to determine the quantity of merchandise to be purchased for, and
the allocation of merchandise to, our stores. Merchandise is allocated to achieve an emphasis that is suited to each stores client base. Merchandise typically is sold at its original marked price for several weeks, with the length of time
varying by item. We review inventory levels on an ongoing basis to identify slow-moving merchandise styles and broken assortments (items no longer in stock in a sufficient range of sizes) and use markdowns to clear this merchandise. Markdowns may
also be used if inventory exceeds client demand for reasons of design, seasonal adaptation or changes in client preference, or if it is determined that the inventory will not sell at its currently marked price. Any remaining excess inventory is
liquidated to unaffiliated third parties.



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Our core merchandising system is the central repository for inventory data and related business
activities that affect inventory levels such as purchasing, receiving, allocation, and distribution.

We use a centralized distribution
system under which nearly all merchandise is distributed to our stores through our distribution center, located in Louisville, Kentucky. See Properties. Merchandise is shipped by the distribution center to our stores several times each
week.

Stores and Expansion

An
important aspect of our business strategy is a real estate expansion program designed to reach new clients through the opening of new stores. We open new stores in markets that we believe have a sufficient concentration of our target clients. We
also add stores, or expand the size of existing stores, in markets where we already have a presence, as market conditions warrant and sites become available. In addition, we reinvest in our current store fleet to elevate and modernize the in-store
experience we are providing our clients. Store locations are determined on the basis of various factors, including geographic location, demographic studies, anchor tenants in a mall location, other specialty stores in a mall or specialty center
location or in the vicinity of a village location, and the proximity to professional offices in a downtown or village location. Stores opened in factory outlet centers are located in factory outlet malls in which co-tenants generally include a
significant number of outlet or discount stores operated under nationally recognized upscale brand names. Store size also is determined on the basis of various factors, including merchandise needs, geographic location, demographic studies, and space
availability.

As of February 2, 2008, we operated 929 retail stores throughout the United States, the District of Columbia and Puerto
Rico, of which 349 were Ann Taylor stores, 512 were LOFT stores and 68 were Ann Taylor Factory stores.

The average Ann Taylor store is
approximately 5,200 square feet in size. We also have two flagship Ann Taylor stores located in New York City and Chicago, which offer the largest assortment of Ann Taylor merchandise. In Fiscal 2007, we opened 14 Ann Taylor stores that averaged
approximately 5,300 square feet. In Fiscal 2008, we plan to open 4 Ann Taylor stores, which are expected to average approximately 4,500 square feet.

LOFT stores average approximately 5,900 square feet. We have one LOFT flagship store on the ground floor of 7 Times Square, our corporate headquarters, in New York City. In Fiscal 2007, we opened 52 LOFT stores that
averaged approximately 5,700 square feet. In Fiscal 2008, we plan to open approximately 15 LOFT stores, which are expected to average approximately 5,700 square feet.

Our 68 Ann Taylor Factory stores average approximately 7,500 square feet. In Fiscal 2007, we opened 11 Ann Taylor Factory stores that averaged approximately 6,500 square feet. In Fiscal 2008, we plan to open
approximately 20 to 25 Ann Taylor Factory stores, which are expected to average approximately 6,700 square feet. In Fiscal 2008, the Company plans to build on its LOFT brand by opening 10 LOFT Outlet Stores, which are expected to average
approximately 7,100 square feet.

Our stores typically have approximately 20% of their total square footage allocated to stockroom and
other non-selling space.



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The following table sets forth certain information regarding store openings, expansions and closings for
Ann Taylor stores (ATS), LOFT stores (ATL), and Ann Taylor Factory stores (ATF) over the past five years:



|            |  |                                             |  |                                    |  |                                     |  |                                     |     |       |     |                                       |     |     |  |    |  |     |  |   
|----------- |  | ------------------------------------------- |  | ---------------------------------- |  | ----------------------------------- |  | ----------------------------------- | --- | ----- | --- | ------------------------------------- | --- | --- |  | -- |  | --- |  | --
|Fiscal Year |  | Total Stores Openat Beginning ofFiscal Year |  | No. StoresOpened DuringFiscal Year |  | No. Stores ClosedDuring Fiscal Year |  | No. Stores Openat End ofFiscal Year |     | Total |     | No. Stores ExpandedDuring Fiscal
Year
|            |  | ATS                                         |  | ATL                                |  | ATF                                 |  |                                     | ATS |       | ATL |                                       | ATF |     | 
|2003        |  | 584                                         |  | 8                                  |  | 61                                  |  | 1                                   |     | 6     |     | 354                                   |     | 268 |  | 26 |  | 648 |  | 8 
|2004        |  | 648                                         |  | 10                                 |  | 77                                  |  | 8                                   |     | 5     |     | 359                                   |     | 343 |  | 36 |  | 738 |  | 6 
|2005        |  | 738                                         |  | 9                                  |  | 73                                  |  | 15                                  |     | 11    |     | 357                                   |     | 416 |  | 51 |  | 824 |  | 12
|2006        |  | 824                                         |  | 11                                 |  | 52                                  |  | 7                                   |     | 25    |     | 348                                   |     | 464 |  | 57 |  | 869 |  | 16
|2007        |  | 869                                         |  | 14                                 |  | 52                                  |  | 11                                  |     | 17    |     | 349                                   |     | 512 |  | 68 |  | 929 |  | 14

We believe that our existing store base is a significant strategic asset of our business. We have
invested approximately $555 million in our store base since the beginning of Fiscal 2003; approximately 69% of our stores are either new, expanded or have been remodeled or refurbished in the last five years. Our stores are located in some of the
most productive retail centers in the United States.

Our Fiscal 2007 real estate expansion plan resulted in an increase in our total store
square footage of approximately 330,000 square feet (net of store closings), or 7.0%, from approximately 5.1 million square feet at the end of Fiscal 2006 to approximately 5.4 million square feet at the end of Fiscal 2007. During Fiscal
2008, we plan to open approximately 50 stores and, as part of our restructuring plan announced in January 2008, close 64 stores, for a net reduction in square footage of approximately 2%. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Liquidity and Capital Resources for further discussion of our restructuring plan.

Capital expenditures for our Fiscal 2007 store expansion program totaled approximately $100 million and expenditures for store remodeling and refurbishment totaled approximately $23 million. We expect that capital expenditures for our
Fiscal 2008 store expansion program will be approximately $60 million to $65 million and expenditures for store renovations and refurbishing will be approximately $15 million to $20 million.

Our ability to continue to increase store square footage will be dependent upon, among other things, general economic and business conditions affecting
consumer confidence and spending, the availability of desirable locations and the negotiation of acceptable lease terms. See Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital Resources.

Information Systems

During Fiscal 2007, we continued our investment in information services and technology, enhancing the systems we use to support our E-Commerce, sourcing,
point of sale and workforce management functions. These enhancements are generally aimed at driving traffic and online sales as well as improving inventory management and providing speed, flexibility and cost reduction in our supply chain.

Brand Building and Marketing

We
believe that our Ann Taylor and LOFT brands are among our most important assets and that these brands and their relationship with our clients are key to our competitive advantage. We continuously evolve these brands to appeal to the changing needs
of our target clients and stay competitive in the market.

We control all aspects of brand development for our retail concepts, including
product design, store merchandising and design, channels of distribution, and marketing and advertising. We continue to invest in the development of these brands through, among other things, client research, advertising, in-store and direct
marketing, and our online sites. We also make investments to enhance the overall client experience through the opening of new stores, the expansion and remodeling of existing stores, and a focus on client service.



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We believe it is strategically important to communicate on a regular basis directly with our current
client base and with potential clients, through national and regional advertising, as well as through direct mail marketing and in-store presentation. Marketing expenditures as a percentage of sales were 2.6% in Fiscal 2007, 2.8% in Fiscal 2006 and
2.7% in Fiscal 2005.

Trademarks and Service Marks

The AnnTaylor®,
Loft® and AnnTaylor Loft® trademarks are registered with the United States Patent and Trademark Office
and with the trademark registries of many foreign countries. Our rights in these marks are a significant part of our business, as we believe they are famous and well-known in the womens apparel industry. Accordingly, we intend to maintain our
trademarks and related registrations and vigorously protect them against infringement. We have also registered the Celebrations® trademark with the United States Patent and
Trademark Office.

We currently have a license agreement with a third party for the right to use the Ann Taylor trademark for
manufacturing and exporting purposes in the Peoples Republic of China. The license agreement expires on June 30, 2015. Subject to certain exceptions, the license agreement also provides us with a right of first refusal in the event that
the third party proposes to assign, sell or transfer its Ann Taylor trademark. See Statement Regarding Forward-Looking Disclosures and Risk Factors.

Competition

The womens retail apparel industry is highly competitive. Our stores compete with
certain departments in international, national and local department stores and with other specialty stores, catalog and internet businesses that offer similar categories of merchandise. We believe that our focused merchandise selection, exclusive
fashions and service distinguish us from other apparel retailers. Our competitors range from smaller, growing companies to considerably larger players with substantially greater financial, marketing and other resources. There is no assurance that we
will be able to compete successfully with them in the future. See Statement Regarding Forward-Looking Disclosures and Risk Factors.

Employees

As of February 2, 2008, we had approximately 18,400 employees, of which approximately 1,900 were full-time
salaried employees, 3,600 were full-time hourly employees and 12,900 were part-time hourly employees working less than 30 hours per week. None of our employees are represented by a labor union. We believe that our relationship with our employees is
good.

Available Information

We make
available free of charge on our website, http://anntaylorstorescorp.com, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such reports are filed electronically with, or otherwise furnished to, the United States Securities and Exchange Commission (the
SEC). Copies of the charters of each of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as our Corporate Governance Guidelines and Business Conduct Guidelines, are also available on
our website or in print free of charge upon written request by any shareholder to the Corporate Secretary at 7 Times Square, New York, New York 10036.



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|ITEM 1A. | Risk Factors.
|-------- | -------------

The following risk factors should be
considered carefully in evaluating our business and the forward-looking information in this document. Please also see Statement Regarding Forward-Looking Disclosures. The risks described below are not the only risks our business faces.
We may also be adversely affected by additional risks not presently known to us or that we currently deem immaterial.

Our ability to anticipate and
respond to changing client preferences and fashion trends in a timely manner

Our success largely depends on our ability to
consistently gauge fashion trends and provide merchandise that satisfies client demands in a timely manner. Any missteps may affect merchandise quality and inventory levels, since we enter into agreements to manufacture and purchase our merchandise
well in advance of the applicable selling season. Our failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends could lead to lower sales, missed opportunities, excess inventories and more frequent
markdowns, which could have a material adverse impact on our business. Merchandise misjudgments could also negatively impact our image with our clients.

The effect of competitive pressures from other retailers

The specialty retail industry is highly competitive. We
compete with national, international and local department stores, specialty and discount stores, catalogs and internet businesses offering similar categories of merchandise. Many of our competitors are companies with substantially greater financial,
marketing and other resources. There is no assurance that we can compete successfully with them in the future. In addition to competing for sales, we compete for favorable store locations and lease terms. We also face competition from retailers that
recently have been developing brand extensions and new concepts targeted at our client base. Increased competition could reduce our sales and margins and adversely affect results of operations.

Our ability to secure and protect trademarks and other intellectual property rights

We believe that our AnnTaylor, AnnTaylor Loft and LOFT trademarks are important to our success. Even though we
register and protect our trademarks and other intellectual property rights, there is no assurance that our actions will protect us from the prior registration by others or prevent others from infringing our trademarks and proprietary rights or
seeking to block sales of our products as infringements of their trademarks and proprietary rights. In addition, our license to use the Ann Taylor trademark for manufacturing and exporting purposes in the Peoples Republic of China
expires on June 30, 2015 unless the parties agree to an extension. See Business  Trademarks and Service Marks.

The effect of
general economic conditions

The success of our business depends to a significant extent upon a number of factors impacting
discretionary consumer spending, including general economic conditions, employment, consumer debt, taxation, fuel and energy prices, interest rates, political conditions such as war, terrorism and political unrest, and consumer confidence. Consumer
purchases of discretionary items, including our merchandise, may decline during recessionary periods and other periods where disposable income is adversely affected. A downturn in the economy may affect consumer purchases of our merchandise and
adversely impact our continued growth and results of operations.

Our ability to grow through new store openings and existing store remodels and
expansions

Our continued growth and success depends in part on our ability to open and operate new stores and expand and remodel
existing stores on a timely and profitable basis. Accomplishing our store expansion goals depends upon a number of factors, including locating suitable sites, negotiating favorable lease terms and hiring and training qualified associates,
particularly at the store management level. We must also be able to effectively renew and negotiate expansion terms in existing store leases. There is no assurance that we will achieve our store expansion goals, manage our growth effectively or
operate our new and remodeled stores profitably.



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Our ability to maintain the value of our brand

Our success depends on the value of our Ann Taylor and LOFT brands. The Ann Taylor and LOFT names are integral to our business as well as to the
implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brands will depend largely on the success of our design, merchandising, and marketing efforts and our ability to provide a consistent, high
quality client experience. Our brands could be adversely affected if we fail to achieve these objectives or if our public image or reputation were to be tarnished by negative publicity. Any of these events could negatively impact sales.

Our ability to execute brand extensions and new concepts

In addition to our store growth strategy, part of our business strategy is to grow our existing brands and identify and develop new growth opportunities. Our success with new product offerings or concepts requires
significant capital expenditures and management attention. Any such plan is subject to risks such as client acceptance, competition, product differentiation, challenges to economies of scale in merchandise sourcing and the ability to attract and
retain qualified associates, including management and designers. There is no assurance that these product offerings or concepts will be successful or that our overall profitability will increase as a result. Our failure to successfully execute our
growth strategies may adversely impact our financial condition and results of operations.

Fluctuation in our level of sales and earnings growth

A variety of factors have historically affected, and will continue to affect, our comparable stores sales results and margins.
These factors include client trends and preferences, competition, economic conditions, weather, effective inventory management and new store openings. There is no assurance that we will achieve positive levels of sales and earnings growth, and any
decline in our future growth or performance could have a material adverse effect on the market price of our common stock.

Our reliance on foreign
sources of production

We purchase a significant portion of our merchandise from foreign suppliers. As a result, we are subject to
the various risks of doing business in foreign markets and importing merchandise from abroad, such as:



| |  |  | imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of goods that may be imported into the United States from
countries in regions where we do business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | imposition of new legislation relating to port security that may create congestion and/or disrupt merchandise flow;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | imposition of duties, taxes, and other charges on imports;
| | - |  | ----------------------------------------------------------



| |  |  | imposition of anti-dumping or countervailing duties in response to an investigation as to whether a particular product being sold in the United States at less than
fair value may cause (or threaten to cause) material injury to the relevant domestic industry;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | financial or political instability in any of the countries in which our goods are manufactured;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | impact of natural disasters and public health concerns on our foreign sourcing offices and vendor manufacturing operations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | fluctuation in the value of the U.S. dollar against foreign currencies or restrictions on the transfer of funds;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | potential recalls for any merchandise that does not meet our quality standards; and
| | - |  | -----------------------------------------------------------------------------------



| |  |  | disruption of imports by labor disputes and local business practices.
| | - |  | ---------------------------------------------------------------------

We cannot predict whether any of the foreign countries in which our goods are manufactured, or in which our goods may be manufactured in the future, will
be subject to import restrictions by the U.S. government. Any sudden disruption of manufacturing or imposition of trade restrictions, such as increased tariffs or more restrictive quotas on apparel or other items we sell could affect the import
of such merchandise and could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition, results of operations and liquidity.



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In addition, the raw materials used to manufacture our products are subject to availability constraints
and price volatility caused by high demand for fabrics, weather conditions, supply conditions, government regulations, economic climate and other unpredictable factors. Increases in the demand for, or the price of, raw materials used to manufacture
our merchandise could have a material adverse effect on our cost of sales or our ability to meet our clients demands. We may not be able to pass all or a portion of such higher raw material costs onto our clients, which could negatively impact
our profitability.

Our reliance on third party manufacturers

We do not own or operate any manufacturing facilities and depend on independent third parties to manufacture our merchandise. We cannot be certain that we will not experience operational difficulties with our
manufacturers, such as reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. A
manufacturers failure to ship merchandise to us on a timely basis or to meet the required quality standards could cause supply shortages and failure to meet client expectations, which could result in lost sales.

Manufacturer compliance with our social practices requirements

While we require our independent manufacturers to comply with the Ann Taylor Global Supplier Principles and Guidelines and monitor their compliance with these guidelines, we do not control the manufacturers or their
labor practices. Any failure of our independent manufacturers to comply with our Global Supplier Principles and Guidelines, local labor laws in the country of manufacture or divergence of a manufacturers labor practices from those generally
acceptable as ethical in the United States could disrupt the shipment of finished product to us, force us to locate alternative manufacturing sources, reduce demand for our merchandise or damage our reputation.

Our reliance on key management

Our success
depends to a significant extent both upon the continued services of our current executive and senior management team, as well as our ability to attract, hire, motivate and retain additional qualified management in the future. Competition for key
executives in the retail industry is intense, and our operations could be adversely affected if we cannot attract and retain qualified associates.

Our ability to successfully upgrade and maintain our information systems

We rely heavily on information systems to
manage our operations, including a full range of retail, financial, sourcing and merchandising systems, and regularly make investments to upgrade, enhance or replace these systems. Any delays or difficulties in transitioning to these or other new
systems, or in integrating these systems with our current systems, or any other disruptions affecting our information systems, could have a material adverse impact on our business. Any failure to maintain adequate system security controls to protect
our computer assets and sensitive data, including client data, from unauthorized access, disclosure or use could also damage our reputation with our clients.

In addition, our ability to continue to operate our business without significant interruption in the event of a disaster or other disruption depends in part on the ability of our information systems to operate in
accordance with our business continuity plan.

Our dependence on a single distribution facility

We handle merchandise distribution for all of our stores from a single facility in Louisville, Kentucky. Independent third party transportation companies
deliver our merchandise to our stores and our clients. Any significant interruption in the operation of the distribution facility or the domestic transportation infrastructure due to natural disasters, accidents, inclement weather, system failures,
work stoppages by employees of the transportation companies, or other unforeseen causes could delay or impair our ability to distribute merchandise to our stores, which could result in lower sales, a loss of loyalty to our brands and excess
inventory.



9



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Risks associated with Internet sales

We sell merchandise over the Internet through our websites, www.anntaylor.com and www.anntaylorloft.com. Our Internet operations are subject to numerous
risks, including:



| |  |  | reliance on third party computer hardware/software and order fulfillment providers;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | rapid technological change;
| | - |  | ---------------------------



| |  |  | diversion of sales from our stores;
| | - |  | -----------------------------------



| |  |  | liability for online content;
| | - |  | -----------------------------



| |  |  | violations of state or federal privacy laws;
| | - |  | --------------------------------------------



| |  |  | credit card fraud;
| | - |  | ------------------



| |  |  | risks related to the failure of the computer systems that operate our websites and their related support systems, including computer viruses; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | telecommunications failures and electronic break-ins and similar disruptions.
| | - |  | -----------------------------------------------------------------------------

There is no assurance that our Internet operations will achieve sales and profitability growth.

Effects of war, terrorism or other catastrophes

Threat of terrorist attacks or actual terrorist events in the United States and worldwide could disrupt the production, shipment or receipt of our merchandise or lead to lower client traffic in regional shopping centers. Natural disasters
could also impact our ability to open and run our stores in affected areas. Lower client traffic due to security concerns, war or the threat of war and natural disasters could result in decreased sales that would have a material adverse impact on
our business, financial condition and results of operations.

Our ability to achieve the results of our restructuring program

In January 2008, we announced a multi-year restructuring program as part of a major drive to enhance profitability and improve overall operating
effectiveness. The key elements of our restructuring program include: optimization of our store portfolio, organizational streamlining, and a broad-based productivity initiative. The estimated costs and charges associated with the restructuring
program are preliminary and may vary materially based on various factors, including the timing in execution of the restructuring plan; outcome of negotiations with landlords and other third parties; inventory levels; and changes in managements
assumptions and projections. As a result of these events and circumstances, delays and unexpected costs may occur, which could result in our not realizing all or any of the anticipated benefits of the restructuring program.



|ITEM 1B. | Unresolved Staff Comments.
|-------- | --------------------------

None.



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##### Table of Contents

|ITEM 2. | Properties.
|------- | -----------

As of February 2, 2008, we
operated 929 retail stores in 46 states, the District of Columbia and Puerto Rico, all of which were leased. Store leases typically provide for initial terms of ten years, although some leases have shorter or longer initial periods. Some of the
leases grant us the right to extend the term for one or two additional five-year periods. Some leases also contain early termination options, which can be exercised by us under specific conditions. Most of the store leases require us to pay a
specified minimum rent, plus a contingent rent based on a percentage of the stores net sales in excess of a specified threshold. Most of the leases also require us to pay real estate taxes, insurance and certain common area and maintenance
costs. The current terms of our leases expire as follows:



|                                |  |                
|------------------------------- |  | ---------------
|Fiscal Years Lease Terms Expire |  | Number ofStores
|20082010                       |  | 300            
|20112013                       |  | 210            
|20142016                       |  | 322            
|2017 and later                  |  | 97             

We lease our corporate offices at 7 Times Square in New York City (approximately 297,000 square
feet) under a lease expiring in 2020. We lease an additional 93,000 square feet of office space in New York City under leases expiring through 2020. In addition, we maintain 47,000 square feet of office space in Milford, Connecticut under a lease
which expires in 2019.

Ann Taylors wholly owned subsidiary, AnnTaylor Distribution Services, Inc., owns our 256,000 square foot
distribution center located in Louisville, Kentucky. Nearly all our merchandise is distributed to stores through this facility. The distribution center is located on approximately 27 acres, which could accommodate possible future expansion of the
facility.



|ITEM 3. | Legal Proceedings.
|------- | ------------------

We are subject to various legal
proceedings and claims that arise in the ordinary course of our business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in our opinion, any such liability will not have a material
adverse effect on our consolidated financial position, consolidated results of operations or liquidity.



|ITEM 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

None.



11



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##### Table of Contents

PART II



|ITEM 5. | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|------- | -----------------------------------------------------------------------------------------------------------------

Our common stock is listed and traded on the New York Stock Exchange under the symbol ANN. The number of holders of record of common stock at
February 29, 2008 was 600. The following table sets forth the high and low sale prices per share of the common stock on the New York Stock Exchange for the periods indicated:



|                 |  |              |       |     |   |      
|---------------- |  | ------------ | ----- | --- | - | -----
|                 |  | Market Price
|                 |  | High         |       | Low
|Fiscal Year 2007 |  |              |       |     |   |      
|Fourth quarter   |  | $            | 33.28 |     | $ | 18.70
|Third quarter    |  |              | 36.81 |     |   | 27.05
|Second quarter   |  |              | 39.46 |     |   | 29.15
|First quarter    |  |              | 39.92 |     |   | 34.09
|                 |  |             
|Fiscal Year 2006 |  |              |       |     |   |      
|Fourth quarter   |  | $            | 45.15 |     | $ | 32.25
|Third quarter    |  |              | 44.64 |     |   | 36.80
|Second quarter   |  |              | 44.27 |     |   | 35.57
|First quarter    |  |              | 38.30 |     |   | 32.18

STOCK PERFORMANCE GRAPH

The following graph compares the percentage changes in the cumulative total stockholder return on the Companys Common Stock for the five-year
period ended February 2, 2008, with the cumulative total return on the Standard & Poors 500 Stock Index (S&P 500) and the Dow Jones U.S. Retailers, Apparel Index for the same period. In accordance with the rules
of the SEC, the returns are indexed to a value of $100 at February 1, 2003 and assume that all dividends, if any, were reinvested. This performance graph shall not be deemed filed for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended or the Exchange Act.

LOGO



12



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##### Table of Contents

We have never paid cash dividends on our common stock. Any determination to pay cash dividends is at the
discretion of our Board of Directors, which considers it on a periodic basis. In addition, as a holding company, our ability to pay dividends is dependent upon the receipt of dividends or other payments from our subsidiaries, including our wholly
owned subsidiary Ann Taylor, Inc. The payment of dividends by Ann Taylor, Inc. to us is subject to certain restrictions under Ann Taylor Inc.s $175 million Second Amended and Restated Credit Agreement (the Credit Facility). We are
also subject to certain restrictions contained in the Credit Facility on the payment of cash dividends on our common stock. See Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital Resources.

The following table sets forth information concerning purchases of our common stock for the periods indicated,
which became treasury shares available for general corporate and other purposes upon repurchase:



|                                     |  |                                  |  |                            |       |                                                                    |         |                                                                                        |   |        
|------------------------------------ |  | -------------------------------- |  | -------------------------- | ----- | ------------------------------------------------------------------ | ------- | -------------------------------------------------------------------------------------- | - | -------
|                                     |  | TotalNumberof
SharesPurchased(a) |  | AveragePrice PaidPer Share |       | TotalNumber ofSharesPurchasedas Partof PubliclyAnnouncedProgram(b) |         | ApproximateDollar Valueof Sharesthat May YetBe PurchasedUnder PubliclyAnnouncedProgram
|                                     |  |                                  |  |                            |       |                                                                    |         | (in thousands)                                                                        
|November 4, 2007 to December 1, 2007 |  | 349,993                          |  | $                          | 29.72 |                                                                    | 347,200 |                                                                                        | $ | 275,112
|December 2, 2007 to January 5, 2008  |  | 533,644                          |  |                            | 28.49 |                                                                    | 533,533 |                                                                                        |   | 259,913
|January 6, 2008 to February 2, 2008  |  | 6,169                            |  |                            | 22.36 |                                                                    |        |                                                                                        |   | 259,913
|                                     |  |                                  |  |                            |       |                                                                    |         |                                                                                        |   |        
|                                     |  | 889,806                          |  |                            |       |                                                                    | 880,733 |                                                                                        |   |        
|                                     |  |                                  |  |                            |       |                                                                    |         |                                                                                        |   |        



|(a) | Includes 9,073 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under our
publicly announced program.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | These shares were part of the $300 million securities repurchase program approved by our Board of Directors on August 23, 2007. The repurchase program will expire when the
Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by resolution of the Board of Directors.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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##### Table of Contents

|ITEM 6. | Selected Financial Data.
|------- | ------------------------

The following historical
consolidated income statement and consolidated balance sheet information has been derived from our audited consolidated financial statements. The information set forth below should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included elsewhere in this document. All references to years are to our fiscal year, which ends on the Saturday nearest
January 31 in the following calendar year. All fiscal years for which financial information is set forth below contain 52 weeks except for the fiscal year ended February 3, 2007 which includes 53 weeks.



|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|--------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | --------- | -- | --------------- | - | --------- | --------------- |  | - | --------------- | - |  | --------------- | --------- | - |  | - | --------- | -
|                                                                      |  | Fiscal Years Ended                                                     |          
|                                                                      |  | February 2,2008                                                        |           |    | February 3,2007 |   |           | January 28,2006 |  |   | January 29,2005 |   |  | January 31,2004 |          
|                                                                      |  | (dollars in thousands, except per square foot data and per share data) |          
|Consolidated Income Statement Information:                            |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Net sales                                                             |  | $                                                                      | 2,396,510 |    |                 | $ | 2,342,907 |                 |  | $ | 2,073,146       |   |  | $               | 1,853,583 |   |  | $ | 1,587,708 |  
|Cost of sales                                                         |  |                                                                        | 1,145,246 |    |                 |   | 1,085,897 |                 |  |   | 1,017,122       |   |  |                 | 906,035   |   |  |   | 721,463   |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Gross margin                                                          |  |                                                                        | 1,251,264 |    |                 |   | 1,257,010 |                 |  |   | 1,056,024       |   |  |                 | 947,548   |   |  |   | 866,245   |  
|Selling, general and administrative expenses                          |  |                                                                        | 1,063,623 |    |                 |   | 1,033,173 |                 |  |   | 924,998         |   |  |                 | 842,590   |   |  |   | 694,958   |  
|Restructuring and asset impairment charges                            |  |                                                                        | 32,255    |    |                 |   |          |                 |  |   |                |   |  |                 |          |   |  |   |          |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Operating income                                                      |  |                                                                        | 155,386   |    |                 |   | 223,837   |                 |  |   | 131,026         |   |  |                 | 104,958   |   |  |   | 171,287   |  
|Interest income                                                       |  |                                                                        | 7,826     |    |                 |   | 17,174    |                 |  |   | 9,318           |   |  |                 | 5,037     |   |  |   | 3,298     |  
|Interest expense (a)                                                  |  |                                                                        | 2,172     |    |                 |   | 2,230     |                 |  |   | 2,083           |   |  |                 | 3,641     |   |  |   | 6,665     |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Income before income taxes                                            |  |                                                                        | 161,040   |    |                 |   | 238,781   |                 |  |   | 138,261         |   |  |                 | 106,354   |   |  |   | 167,920   |  
|Income tax provision                                                  |  |                                                                        | 63,805    |    |                 |   | 95,799    |                 |  |   | 56,389          |   |  |                 | 43,078    |   |  |   | 67,193    |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Net income                                                            |  | $                                                                      | 97,235    |    |                 | $ | 142,982   |                 |  | $ | 81,872          |   |  | $               | 63,276    |   |  | $ | 100,727   |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Basic earnings per share (b)                                          |  | $                                                                      | 1.55      |    |                 | $ | 2.01      |                 |  | $ | 1.14            |   |  | $               | 0.91      |   |  | $ | 1.51      |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Diluted earnings per share (b)                                        |  | $                                                                      | 1.53      |    |                 | $ | 1.98      |                 |  | $ | 1.13            |   |  | $               | 0.88      |   |  | $ | 1.42      |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Weighted average shares outstanding, (in 000s) (b)                   |  |                                                                        | 62,753    |    |                 |   | 70,993    |                 |  |   | 71,554          |   |  |                 | 69,607    |   |  |   | 66,614    |  
|Weighted average shares outstanding, assuming dilution (in 000s) (b) |  |                                                                        | 63,452    |    |                 |   | 72,107    |                 |  |   | 72,270          |   |  |                 | 72,933    |   |  |   | 73,145    |  
|                                                                      |  |                                                                        |           |    |                
|Consolidated Operating Information:                                   |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Percentage increase (decrease) in comparable store sales (c)          |  |                                                                        | (3.3      | )% |                 |   | 2.8       | %               |  |   | 0.1             | % |  |                 | 3.6       | % |  |   | 5.3       | %
|Net sales per average gross square foot (d)                           |  | $                                                                      | 457       |    |                 | $ | 474       |                 |  | $ | 461             |   |  | $               | 471       |   |  | $ | 456       |  
|Number of stores:                                                     |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Open at beginning of period                                           |  |                                                                        | 869       |    |                 |   | 824       |                 |  |   | 738             |   |  |                 | 648       |   |  |   | 584       |  
|Opened during the period                                              |  |                                                                        | 77        |    |                 |   | 70        |                 |  |   | 97              |   |  |                 | 95        |   |  |   | 70        |  
|Closed during the period                                              |  |                                                                        | 17        |    |                 |   | 25        |                 |  |   | 11              |   |  |                 | 5         |   |  |   | 6         |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Open at the end of the period                                         |  |                                                                        | 929       |    |                 |   | 869       |                 |  |   | 824             |   |  |                 | 738       |   |  |   | 648       |  
|                                                                      |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Expanded/Relocated during the period                                  |  |                                                                        | 14        |    |                 |   | 16        |                 |  |   | 12              |   |  |                 | 6         |   |  |   | 8         |  
|Total store square footage at end of period, (000s)                  |  |                                                                        | 5,410     |    |                 |   | 5,079     |                 |  |   | 4,801           |   |  |                 | 4,202     |   |  |   | 3,662     |  
|Capital expenditures (e)                                              |  | $                                                                      | 145,852   |    |                 | $ | 165,129   |                 |  | $ | 174,895         |   |  | $               | 152,483   |   |  | $ | 97,300    |  
|Depreciation and amortization                                         |  | $                                                                      | 116,804   |    |                 | $ | 105,890   |                 |  | $ | 93,786          |   |  | $               | 78,657    |   |  | $ | 66,798    |  
|Working capital turnover (f)                                          |  |                                                                        | 8.2       | x  |                 |   | 5.8       | x               |  |   | 5.4             | x |  |                 | 5.0       | x |  |   | 4.6       | x
|Inventory turnover (g)                                                |  |                                                                        | 4.7       | x  |                 |   | 5.0       | x               |  |   | 4.7             | x |  |                 | 4.5       | x |  |   | 4.1       | x
|                                                                      |  |                                                                        |           |    |                
|Consolidated Balance Sheet Information:                               |  |                                                                        |           |    |                 |   |           |                 |  |   |                 |   |  |                 |           |   |  |   |           |  
|Working capital                                                       |  | $                                                                      | 195,015   |    |                 | $ | 391,187   |                 |  | $ | 418,626         |   |  | $               | 343,568   |   |  | $ | 400,298   |  
|Goodwill, net                                                         |  |                                                                        | 286,579   |    |                 |   | 286,579   |                 |  |   | 286,579         |   |  |                 | 286,579   |   |  |   | 286,579   |  
|Total assets                                                          |  |                                                                        | 1,393,755 |    |                 |   | 1,568,503 |                 |  |   | 1,492,906       |   |  |                 | 1,327,338 |   |  |   | 1,256,397 |  
|Total debt                                                            |  |                                                                        |          |    |                 |   |          |                 |  |   |                |   |  |                 |          |   |  |   | 125,152   |  
|Stockholders equity                                                  |  |                                                                        | 839,484   |    |                 |   | 1,049,911 |                 |  |   | 1,034,482       |   |  |                 | 926,744   |   |  |   | 818,856   |  

(Footnotes on following page)



14



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##### Table of Contents

(Footnotes for preceding page)



|(a) | Includes non-cash interest expense of approximately $0.4 million, $0.5 million, $0.8 million, $1.9 million and $4.3 million, in Fiscal 2007, 2006, 2005, 2004 and 2003, respectively,
primarily from amortization of deferred financing costs and in Fiscal 2004 and prior, accretion of original issue discount. See Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | In Fiscal 2004, we effected a 3-for-2 split of our common stock, in the form of a stock dividend. All share and per share amounts for Fiscal 2003 have been restated to reflect the
split.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | A store is included in comparable store sales in its thirteenth month of operation. A store with a square footage change of more than 15% is treated as a new store for the first
year following its reopening. In addition, in a year with 53 weeks, sales in the last week of that year are not included in comparable store sales.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Net sales per average gross square foot is determined by dividing net sales for the period by the average of the gross square feet at the beginning and end of each period. Unless
otherwise indicated, references herein to square feet are to gross square feet, rather than net selling space.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Capital expenditures are accounted for on the accrual basis and include net non-cash transactions totaling $5.9 million, $(0.8) million, $(14.3) million, $15.3 million and $7.6
million in Fiscal 2007, 2006, 2005, 2004 and 2003, respectively. The non-cash transactions are primarily related to the purchase of property and equipment on account.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Working capital turnover is determined by dividing net sales by the average of the amount of working capital at the beginning and end of the period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Inventory turnover is determined by dividing cost of sales by the average of the cost of inventory at the beginning and end of the period.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

|ITEM 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------

The following discussion and analysis should be read together with our consolidated financial statements and related notes thereto included elsewhere in
this Annual Report on Form 10-K.

Management Overview

Following a year of record growth in Fiscal 2006, Fiscal 2007 was more challenging. In addition to the slowdown in the macro-economy, which caused retail traffic trends to slow considerably, our results were also
impacted by remaining product issues in the first-half at LOFT and an overall slowdown in the missy sector that impacted Ann Taylor. Importantly, we successfully transitioned LOFT in the second half of the year and, while business at Ann Taylor was
soft for much of 2007, we have embarked on a major strategic effort to evolve and elevate the brand. In addition, during the year we aggressively repurchased our common stock, buying back 9.3 million shares at a total cost of $340.1 million,
and we initiated a multi-year, restructuring program, designed to further enhance profitability and improve overall operating effectiveness.

Ann Taylor was solid overall in the first half of Fiscal 2007 but turned softer in the second half, as the division was slow to respond to changing preferences of our clients. Net sales were down 5.1%, reflecting the effect of 53 weeks of
sales in Fiscal 2006 versus only 52 weeks in fiscal 2007, as well as a decline of 3.7% in comparable store sales. Importantly, Ann Taylor managed its in-store metrics and inventory levels well all year, which helped to offset some of the softness
resulting from the macro environment. On the product side, our overall assortments throughout the year were brand-appropriate, although we could have been more compelling to respond to our clients changing needs. We expect our strategic work
to evolve the brand to begin generating better results in the second half of Fiscal 2008.

At LOFT, we effectively resolved the product
issues that began in Fall 2006, with the Fall 2007 season marking a return to more brand-appropriate merchandise. Net sales increased 2.4% versus Fiscal 2006, reflecting growth in the store base, partially offset by the impact of the extra week of
sales in Fiscal 2006 and a 5.4% decline in comparable store sales, which was driven by softness in the first half. Comparable store sales improved dramatically in the second half of Fiscal 2007, despite the softening of the macro environment, due to
better product assortments and very strong in-store metrics. Gross margin at LOFT improved in the Fall, and we successfully managed inventory levels to end the year down 7% on a per square foot basis.

Our Factory and online businesses delivered another strong year and contributed positively to our overall sales and margin performance. We believe these
businesses continue to offer attractive growth for the Company. Plans are also on track for a Summer 2008 launch of LOFT Outlet, which is expected to further the reach of the LOFT brand, as Ann Taylor Factory did for Ann Taylor. Finally, while we
have delayed the launch of our new concept, we continue to believe it represents a significant growth opportunity.

Our restructuring
program, which resulted in a $32.3 million pre-tax charge in Fiscal 2007, was the result of a comprehensive review of our entire cost structure, and includes closing 117 underperforming stores over a three-year period, a 13% reduction in our
corporate staff and a broad-based productivity initiative including, among other things, the strategic procurement of non-merchandise goods and services. We believe these actions were key to positioning us for solid future growth. In addition, due
to the ongoing macroeconomic softness and uncertainty in the retail sector, we have adopted a more conservative approach to pursuing new store growth in Fiscal 2008, and are delaying the launch of our new concept.

Our key priorities in Fiscal 2008 include evolving and strengthening our core brands, tightly managing inventory levels, successfully launching LOFT
Outlet, achieving the expected benefits of our restructuring program, and continuing to repurchase our stock. We expect this approach to our business in 2008 to position us well for growth in 2009 and beyond.



16



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##### Table of Contents

Key Performance Indicators

In evaluating our performance, senior management reviews certain key performance indicators, including:

Comparable store
sales  Comparable store sales provide a measure of existing store sales performance. A store is included in comparable store sales in its thirteenth month of operation. A store with a square footage change of more than 15% is treated as a new
store for the first year following its reopening.

Gross margin  Gross margin measures our ability to control the direct costs of merchandise sold
during the period. Gross margin is the difference between net sales and cost of sales, which is comprised of direct inventory costs for merchandise sold, including all costs to transport merchandise from third-party suppliers to our distribution
center. Buying and occupancy costs are excluded from cost of sales.

Operating income  Because retailers do not uniformly record supply chain costs
as a component of cost of sales or selling, general and administrative expenses, operating income allows us to benchmark our performance relative to other retailers. Operating income represents earnings before interest and income taxes and measures
our earnings power from ongoing operations.

Store productivity  Store productivity, including sales per square foot, average unit retail price
(AUR), units per transaction (UPT), dollars per transaction (DPT), traffic and conversion, is evaluated by management in assessing our operating performance.

Inventory turnover  Inventory turnover measures our ability to sell our merchandise and how many times it is replaced over time. This ratio is important in determining the need for markdowns, planning future inventory levels and
assessing client response to our merchandise.

Quality of merchandise offerings  To monitor and maintain client acceptance of our merchandise
offerings, we monitor sell-through levels, inventory turnover, gross margin, returns and markdown rates at a class and style level. This analysis helps identify merchandise issues at an early date and helps us plan future product development and
buying.

Results of Operations

The
following table sets forth consolidated income statement data expressed as a percentage of net sales. All fiscal years presented contain 52 weeks, except for the fiscal year ended February 3, 2007, which contains 53 weeks:



|                                             |  |                    |   |  |                 |   |  |                 |  
|-------------------------------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                                             |  | Fiscal Years Ended |  
|                                             |  | February 2,2008    |   |  | February 3,2007 |   |  | January 28,2006 |  
|Net sales                                    |  | 100.0              | % |  | 100.0           | % |  | 100.0           | %
|Cost of sales                                |  | 47.8               |   |  | 46.3            |   |  | 49.1            |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Gross margin                                 |  | 52.2               |   |  | 53.7            |   |  | 50.9            |  
|Selling, general and administrative expenses |  | 44.4               |   |  | 44.1            |   |  | 44.6            |  
|Restructuring and asset impairment charges   |  | 1.3                |   |  |                |   |  |                |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Operating income                             |  | 6.5                |   |  | 9.6             |   |  | 6.3             |  
|Interest income                              |  | 0.3                |   |  | 0.7             |   |  | 0.4             |  
|Interest expense                             |  | 0.1                |   |  | 0.1             |   |  | 0.1             |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Income before income taxes                   |  | 6.7                |   |  | 10.2            |   |  | 6.6             |  
|Income tax provision                         |  | 2.6                |   |  | 4.1             |   |  | 2.7             |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Net income                                   |  | 4.1                | % |  | 6.1             | % |  | 3.9             | %
|                                             |  |                    |   |  |                 |   |  |                 |  



17



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##### Table of Contents

The following table sets forth selected consolidated income statement data expressed as a percentage
change from the prior period. All fiscal years presented contain 52 weeks, except for the fiscal year ended February 3, 2007, which contains 53 weeks:



|                 |  |                     |    |  |                 |   |  |                 |  
|---------------- |  | ------------------- | -- |  | --------------- | - |  | --------------- | -
|                 |  | Fiscal Years Ended  |   
|                 |  | February 2,2008     |    |  | February 3,2007 |   |  | January 28,2006 |  
|                 |  | increase (decrease) |   
|Net sales        |  | 2.3                 | %  |  | 13.0            | % |  | 11.8            | %
|Operating income |  | (30.6               | )% |  | 70.8            | % |  | 24.8            | %
|Net income       |  | (32.0               | )% |  | 74.6            | % |  | 29.4            | %

Sales and Store Data

The following table sets forth certain sales and store data. All fiscal years presented contain 52 weeks, except for the fiscal year ended February 3, 2007, which contains 53 weeks:



|                                                          |  |                    |           |    |                 |   |           |                 |  |   |           |   
|--------------------------------------------------------- |  | ------------------ | --------- | -- | --------------- | - | --------- | --------------- |  | - | --------- | --
|                                                          |  | Fiscal Years Ended |          
|                                                          |  | February 2,2008    |           |    | February 3,2007 |   |           | January 28,2006 | 
|Net sales (in thousands)                                  |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  | $                  | 2,396,510 |    |                 | $ | 2,342,907 |                 |  | $ | 2,073,146 |   
|Ann Taylor                                                |  |                    | 866,555   |    |                 |   | 912,753   |                 |  |   | 873,886   |   
|LOFT                                                      |  |                    | 1,174,401 |    |                 |   | 1,146,471 |                 |  |   | 991,940   |   
|Other                                                     |  |                    | 355,554   |    |                 |   | 283,683   |                 |  |   | 207,320   |   
|                                                          |  |                    |          
|Comparable store sales percentage increase (decrease) (a) |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  |                    | (3.3      | )% |                 |   | 2.8       | %               |  |   | 0.1       | % 
|Ann Taylor                                                |  |                    | (3.7      | )% |                 |   | 3.1       | %               |  |   | 0.6       | % 
|LOFT                                                      |  |                    | (5.4      | )% |                 |   | 1.9       | %               |  |   | (0.3      | )%
|                                                          |  |                    |          
|Average dollars per transaction                           |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  | $                  | 75.28     |    |                 | $ | 75.45     |                 |  | $ | 72.94     |   
|Ann Taylor                                                |  |                    | 90.03     |    |                 |   | 89.36     |                 |  |   | 85.79     |   
|LOFT                                                      |  |                    | 67.49     |    |                 |   | 68.28     |                 |  |   | 67.58     |   
|                                                          |  |                    |          
|Average units per transaction                             |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  |                    | 2.34      |    |                 |   | 2.21      |                 |  |   | 2.28      |   
|Ann Taylor                                                |  |                    | 2.02      |    |                 |   | 1.92      |                 |  |   | 1.98      |   
|LOFT                                                      |  |                    | 2.41      |    |                 |   | 2.28      |                 |  |   | 2.36      |   
|                                                          |  |                    |          
|Average unit retail sold                                  |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  | $                  | 32.17     |    |                 | $ | 34.14     |                 |  | $ | 31.99     |   
|Ann Taylor                                                |  |                    | 44.57     |    |                 |   | 46.54     |                 |  |   | 43.33     |   
|LOFT                                                      |  |                    | 28.00     |    |                 |   | 29.95     |                 |  |   | 28.64     |   
|                                                          |  |                    |          
|Net sales per average gross square foot (b)               |  |                    |           |    |                 |   |           |                 |  |   |           |   
|Total Company                                             |  | $                  | 457       |    |                 | $ | 474       |                 |  | $ | 461       |   
|Ann Taylor                                                |  |                    | 465       |    |                 |   | 483       |                 |  |   | 460       |   
|LOFT                                                      |  |                    | 406       |    |                 |   | 439       |                 |  |   | 444       |   



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##### Table of Contents

Sales and Store Data(Continued)



|                                                               |  |                    |  |                 |  |                
|-------------------------------------------------------------- |  | ------------------ |  | --------------- |  | ---------------
|                                                               |  | Fiscal Years Ended
|                                                               |  | February 2,2008    |  | February 3,2007 |  | January 28,2006
|Total store square footage at end of period (in thousands) (b) |  |                    |  |                 |  |                
|Total Company                                                  |  | 5,410              |  | 5,079           |  | 4,801          
|Ann Taylor                                                     |  | 1,866              |  | 1,870           |  | 1,912          
|LOFT                                                           |  | 3,030              |  | 2,757           |  | 2,461          
|                                                               |  |                    | 
|Number of:                                                     |  |                    |  |                 |  |                
|Stores open at beginning of period                             |  | 869                |  | 824             |  | 738            
|New stores                                                     |  | 77                 |  | 70              |  | 97             
|Closed stores                                                  |  | 17                 |  | 25              |  | 11             
|                                                               |  |                    |  |                 |  |                
|Stores open at end of period                                   |  | 929                |  | 869             |  | 824            
|                                                               |  |                    |  |                 |  |                
|Expanded stores                                                |  | 14                 |  | 16              |  | 12             



| | (a) | A store is included in comparable store sales in its thirteenth month of operation. A store with a square footage change of more than 15% is treated as a new store for the first
year following its reopening. Since the fiscal year ended February 3, 2007 included 53 weeks, sales in the last week of the fiscal year were not included in determining Fiscal 2006 comparable store sales.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Net sales per average gross square foot is determined by dividing net sales for the period by the average of the gross square feet at the beginning and end of each period. Unless
otherwise indicated, references herein to square feet are to gross square feet, rather than net selling space.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net sales
increased approximately $53.6 million, or 2.3% in Fiscal 2007 from Fiscal 2006 due to the net addition of 60 stores (new stores opened, less stores closed) and strength at Factory, partially offset by lower comparable store sales and the impact of
53 weeks of sales in Fiscal 2006. The extra week of sales in Fiscal 2006 benefited the fourth quarter and full year of Fiscal 2006 by approximately $31 million. Comparable store sales were negatively impacted by lower AUR due to the promotional
stance we took during much of Fiscal 2007 as well as an overall decrease in traffic, particularly in the fourth quarter. By division, net sales at Ann Taylor decreased 5.1% to $866.6 million in Fiscal 2007, compared with net sales of $912.8 million
in Fiscal 2006. At LOFT, net sales increased 2.4% to $1,174.4 million in Fiscal 2007, compared with net sales of $1,146.5 million in Fiscal 2006.

Net sales increased approximately $269.8 million, or 13.0% in Fiscal 2006 from Fiscal 2005 due to
the net addition of 45 stores (new stores opened, less stores closed), the effect of 53 weeks of sales in Fiscal 2006 versus 52 weeks in Fiscal 2005 and higher overall comparable store sales, largely due to an increase in full-price selling. By
division, net sales at Ann Taylor grew 4.4% to $912.8 million in Fiscal 2006, compared with net sales of $873.9 million in Fiscal 2005. At LOFT, net sales increased 15.6% to $1,146.5 million in Fiscal 2006, compared with net sales of $991.9 million
in Fiscal 2005.

Our net sales do not show significant seasonal variation. As a result, we have not had significant overhead and other
costs generally associated with large seasonal variations.

Cost of Sales and Gross Margin

Because retailers do not uniformly record supply chain costs as cost of sales or selling, general and administrative expenses, our gross margin and
selling, general and administrative expenses as a percentage of net sales may not be comparable to certain other retailers. For additional information regarding costs classified in cost of sales and selling, general and administrative expenses,
refer to Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.



19



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##### Table of Contents

The following table shows cost of sales and gross margin in dollars and the related gross margin
percentages for the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006. All fiscal years presented contain 52 weeks except for the fiscal year ended February 3, 2007, which contains 53 weeks:



|                        |  |                        |           |   |                 |   |           |                 |  |   |           |  
|----------------------- |  | ---------------------- | --------- | - | --------------- | - | --------- | --------------- |  | - | --------- | -
|                        |  | Fiscal Years Ended     |          
|                        |  | February 2,2008        |           |   | February 3,2007 |   |           | January 28,2006 | 
|                        |  | (dollars in thousands) |          
|Cost of sales           |  | $                      | 1,145,246 |   |                 | $ | 1,085,897 |                 |  | $ | 1,017,122 |  
|Gross margin            |  | $                      | 1,251,264 |   |                 | $ | 1,257,010 |                 |  | $ | 1,056,024 |  
|Percentage of net sales |  |                        | 52.2      | % |                 |   | 53.7      | %               |  |   | 50.9      | %

The decline in gross margin as a percentage of net sales in Fiscal 2007 as compared to Fiscal 2006
was due to the combined effect of lower full price sales and lower margin rates achieved on non-full price sales at both Ann Taylor and LOFT, partially offset by continued strength at Factory.

The improvement in gross margin from Fiscal 2005 to Fiscal 2006 largely reflected our success throughout the year in improving the product offering and
managing inventory at Ann Taylor. Also driving the improvement in gross margin was the successful conversion during the year of Ann Taylor Factory to a full-price business and the continued growth and margin expansion of our Internet businesses.

Selling, General and Administrative Expenses

The following table shows selling, general and administrative expenses in dollars and as a percentage of net sales for the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006:



|                                             |  |                        |           |   |                 |   |           |                 |  |   |         |  
|-------------------------------------------- |  | ---------------------- | --------- | - | --------------- | - | --------- | --------------- |  | - | ------- | -
|                                             |  | Fiscal Years Ended     |          
|                                             |  | February 2,2008        |           |   | February 3,2007 |   |           | January 28,2006 | 
|                                             |  | (dollars in thousands) |          
|Selling, general and administrative expenses |  | $                      | 1,063,623 |   |                 | $ | 1,033,173 |                 |  | $ | 924,998 |  
|Percentage of net sales                      |  |                        | 44.4      | % |                 |   | 44.1      | %               |  |   | 44.6    | %

The increase in selling, general and administrative expenses as a percentage of net
sales was due to the impact of fixed cost deleveraging as a result of lower comparable store sales, partially offset by lower performance-based compensation costs.

The decrease in selling general and administrative expense as a percentage of net sales from Fiscal 2006 to Fiscal 2005 largely reflected the benefit of
fixed cost leverage, stemming from the increase in comparable store sales, and the absence of costs totaling $16 million associated with the relocation of our corporate headquarters and a one-time charge related to a legal settlement in the year-ago
period. Partially offsetting these benefits were higher stock- and performance-based compensation expenses in Fiscal 2006.

We adopted
Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107 (SFAS No. 123(R)) in Fiscal 2006, and record stock-based compensation
expense under the fair value method. In Fiscal 2005 and prior, we accounted for stock-based compensation under APB 25 and used the intrinsic value method. For the fiscal years ended February 2, 2008, February 3, 2007 and
January 28, 2006 we recorded $19.0 million, $24.7 million and $10.4 million, respectively, of stock-based compensation expense. This stock-based compensation expense has been included on the same income statement line as the cash
compensation paid to the recipient of the stock-based award.



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##### Table of Contents

Restructuring and Asset Impairment Charges

In Fiscal 2007, we recorded pre-tax restructuring charges of approximately $32.3 million, or 1.3% of net sales, related to the non-cash write-down of
store assets, severance and other related costs. See Liquidity and Capital Resources and Note 2, Restructuring in the Notes to Consolidated Financial Statements for further discussion.

Depreciation and Amortization

The following table
shows depreciation and amortization expense in dollars and as a percentage of net sales for Fiscal 2007, 2006 and 2005:



|                              |  |                        |         |   |                 |   |         |                 |  |   |        |  
|----------------------------- |  | ---------------------- | ------- | - | --------------- | - | ------- | --------------- |  | - | ------ | -
|                              |  | Fiscal Years Ended     |        
|                              |  | February 2,2008        |         |   | February 3,2007 |   |         | January 28,2006 | 
|                              |  | (dollars in thousands) |        
|Depreciation and amortization |  | $                      | 116,804 |   |                 | $ | 105,890 |                 |  | $ | 93,786 |  
|Percentage of net sales       |  |                        | 4.9     | % |                 |   | 4.5     | %               |  |   | 4.5    | %

The increase in depreciation and amortization expense from Fiscal 2006 to Fiscal 2007 was
primarily due to capital expenditures related to new, remodeled and expanded stores. The increase in depreciation and amortization expense from Fiscal 2005 to Fiscal 2006 was primarily due to capital expenditures related to new, remodeled and
expanded stores, as well as our corporate offices and information systems.

Interest Income

The following table shows interest income in dollars and as a percentage of net sales for Fiscal 2007, 2006 and 2005:



|                        |  |                        |       |   |                 |   |        |                 |  |   |       |  
|----------------------- |  | ---------------------- | ----- | - | --------------- | - | ------ | --------------- |  | - | ----- | -
|                        |  | Fiscal Years Ended     |      
|                        |  | February 2,2008        |       |   | February 3,2007 |   |        | January 28,2006 | 
|                        |  | (dollars in thousands) |      
|Interest income         |  | $                      | 7,826 |   |                 | $ | 17,174 |                 |  | $ | 9,318 |  
|Percentage of net sales |  |                        | 0.3   | % |                 |   | 0.7    | %               |  |   | 0.4   | %

Interest income decreased in Fiscal 2007 primarily due to lower cash balances due to our stock
repurchase activity over the past year. The increase in interest income in Fiscal 2006 was primarily attributable to higher investment balances as well as higher interest rates.

Interest Expense

The following table shows interest expense in dollars and as a percentage of net
sales for Fiscal 2007, 2006 and 2005:



|                        |  |                        |       |   |                 |   |       |                 |  |   |       |  
|----------------------- |  | ---------------------- | ----- | - | --------------- | - | ----- | --------------- |  | - | ----- | -
|                        |  | Fiscal Years Ended     |      
|                        |  | February 2,2008        |       |   | February 3,2007 |   |       | January 28,2006 | 
|                        |  | (dollars in thousands) |      
|Interest expense        |  | $                      | 2,172 |   |                 | $ | 2,230 |                 |  | $ | 2,083 |  
|Percentage of net sales |  |                        | 0.1   | % |                 |   | 0.1   | %               |  |   | 0.1   | %

Interest expense includes various charges, the largest of which are fees related to our Credit
Facility. See Liquidity and Capital Resources and Note 5, Long-Term Debt in the Notes to Consolidated Financial Statements for further discussion of our Credit Facility.



21



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##### Table of Contents

Income Taxes

The following table shows our effective income tax rate for Fiscal 2007, 2006 and 2005:



|                          |  |                        |   |  |                 |   |  |                 |  
|------------------------- |  | ---------------------- | - |  | --------------- | - |  | --------------- | -
|                          |  | Fiscal Years Ended     |  
|                          |  | February 2,2008        |   |  | February 3,2007 |   |  | January 28,2006 |  
|                          |  | (dollars in thousands) |  
|Effective income tax rate |  | 39.6                   | % |  | 40.1            | % |  | 40.8            | %

The decrease in our effective income tax rate in Fiscal 2007 was primarily due to a reduction in
state income taxes. The decrease in our effective income tax rate in Fiscal 2006 was due to the combined effect of increased investment in tax exempt securities and lower state income taxes.

Liquidity and Capital Resources

Our primary source
of working capital is cash flow from operations. The following table sets forth material measures of our liquidity:



|                                      |  |                        |         |                 |   |                 |  |   |        
|------------------------------------- |  | ---------------------- | ------- | --------------- | - | --------------- |  | - | -------
|                                      |  | Fiscal Years Ended    
|                                      |  | February 2,2008        |         | February 3,2007 |   | January 28,2006
|                                      |  | (dollars in thousands)
|Cash provided by operating activities |  | $                      | 257,197 |                 | $ | 295,931         |  | $ | 311,323
|Working capital                       |  | $                      | 195,015 |                 | $ | 391,187         |  | $ | 418,626
|Current ratio                         |  |                        | 1.62:1  |                 |   | 2.31:1          |  |   | 2.63:1 

Operating Activities

The decrease in cash provided by operating activities for Fiscal 2007, compared with Fiscal 2006, was due to decreased net income, in part due to restructuring charges and an increase in prepaid income taxes partially
offset by a decrease in accrued performance-based compensation.

Merchandise inventories increased approximately $17.1 million, or 7.3% in
Fiscal 2007 from Fiscal 2006. Merchandise inventory on a per-square-foot basis was approximately $46 at the end of both Fiscal 2007 and Fiscal 2006. Inventory turned 4.7 times in Fiscal 2007 compared to 5.0 times in Fiscal 2006.

Investing Activities

Cash used for investing
activities was $156.4 million in Fiscal 2007, compared with $165.9 million in Fiscal 2006 and cash provided by investing activities of $4.8 million in Fiscal 2005. The decrease in cash used for investing activities in Fiscal 2007 compared with
Fiscal 2006 was primarily due to a decrease in cash used for the purchase of property and equipment, partially offset by the cash impact associated with the purchase and maturity of short-term investments. In Fiscal 2007, we used cash for the
construction of new retail locations, other store projects, including relocations and refurbishment and information systems. The primary purposes of the cash investment activity were to support our store and infrastructure expansion plans and
improve operational efficiency.

At February 2, 2008, we had $15.1 million invested in auction rate securities. In accordance with
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried at cost or par value, which approximates fair market value. These securities have
stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 28 or 35 days.



22



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##### Table of Contents

As a result of recent uncertainties in the global credit market, we have reduced our investment in
auction rate securities to $6 million as of March 14, 2008. While we were successful liquidating $9.1 million in auction rate securities since February 2, 2008, in February and March 2008, auctions failed for our remaining $6 million
investment. We do not currently believe that the carrying value of our remaining investment in auction rate securities, which are rated AAA by Standard & Poors and backed by student loans, to be impaired, however if the credit rating
of the security issuers deteriorates, we may be required to record an impairment charge on these investments. We do not believe the amount of any such charge would be material.

We believe it is likely that auctions related to these securities will continue to be unsuccessful in the near term. Unsuccessful auctions limit the
short-term liquidity of these investments, therefore we have reclassified our remaining $6 million investment in auction rate securities as of March 14, 2008 to long-term, included in Other Assets on our Consolidated Balance Sheet as of
February 2, 2008. While recent failures in the auction process have affected our ability to access these funds in the near term, we do not believe that the underlying securities or collateral have been affected. We expect to continue to earn
interest at the prevailing rates on our remaining auction rate securities. Further, based on our available cash reserves, our expected operating cash flows and other sources of cash, we do not anticipate the current lack of liquidity of these
investments will have a material effect on our liquidity or working capital.

Financing Activities

Cash used for financing activities was $327.3 million in Fiscal 2007, compared with $150.1 million in Fiscal 2006 and cash provided by financing
activities of $2.1 million in Fiscal 2005. The change in cash used for financing activities in Fiscal 2007 compared with Fiscal 2006 was due primarily to increased stock repurchase activity, partially offset by lower proceeds from the exercise of
stock options. During Fiscal 2007, we repurchased $340.1 million of our common stock, compared with $179.8 million in Fiscal 2006.

In
November 2003, Ann Taylor, Inc. and certain of its subsidiaries entered into a Second Amended and Restated $175 million senior secured revolving credit facility (the Credit Facility) with Bank of America N.A. and a syndicate of lenders.
The Credit Facility which, at our option, provides for an increase in the total facility and the aggregate commitments thereunder up to $250 million, matures on November 14, 2008 (unless terminated earlier) and may be used by Ann Taylor, Inc.
and certain of its subsidiaries for working capital, letters of credit and other general corporate purposes. The Credit Facility permits the payment of cash dividends by the Company (and dividends by AnnTaylor, Inc. to fund such cash dividends) if,
after the payment of such dividends, liquidity (as defined in the Credit Facility) is greater than $35 million. Certain of our subsidiaries are also permitted to: pay dividends to us to fund certain taxes owed by us; fund ordinary operating expenses
not in excess of $500,000 in any fiscal year; repurchase common stock held by employees not in excess of $100,000 in any fiscal year (with certain specified exceptions); and for certain other stated purposes. There were no borrowings outstanding
under the Credit Facility at any point during Fiscal 2007 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $111.1 million and $170.5 million as of February 2,
2008 and February 3, 2007, respectively, leaving a remaining available balance for loans and letters of credit of $63.9 million and $4.5 million as of February 2, 2008 and February 3, 2007, respectively. We plan to renew our Credit
Facility prior to its expiration. See Note 5, Long-Term Debt, in the Notes to Consolidated Financial Statements for further discussion of the Credit Facility.

On January 30, 2008, we initiated a multi-year restructuring program designed to enhance profitability and improve our overall operating effectiveness. The restructuring program, the result of a comprehensive
review of our cost structure, includes closing 117 underperforming stores over a three-year period, reducing corporate staff by approximately 13% and undertaking a broad-based productivity initiative that includes, among other things, the strategic
procurement of non-merchandise goods and services. In addition, in light of ongoing macroeconomic softness and uncertainty in the retail sector, we are adopting a more conservative approach to pursuing new store growth in Fiscal 2008.



23



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##### Table of Contents

Based on a review of our store portfolio and assessment of individual store productivity, we identified
117 stores, comprised of 39 Ann Taylor stores and 78 LOFT stores, that failed to deliver an acceptable long-term return on investment. We have adopted a staged approach to closing these stores over the Fiscal 2008 to Fiscal 2010 period. As such, we
plan to close 64 stores during Fiscal 2008, with the balance to be closed in Fiscal 2009 and Fiscal 2010.

We also streamlined the
organization by eliminating 180 corporate positions. This organizational streamlining was designed to increase span of control and improve operating efficiency and effectiveness. In addition, as part of a broad-based productivity initiative, we plan
to consolidate all non-merchandise purchasing activities under a centralized strategic procurement organization, outsource various activities where cost efficiencies can be achieved and optimize store productivity and effectiveness.

We expect pre-tax expenses associated with the restructuring program to total approximately $40 to $45 million. The total program cost includes
approximately $25 million in non-cash expenses, primarily associated with the write-down of assets related to store closures. The balance of approximately $15 to $20 million in expenses are cash charges and relate primarily to severance and
various other costs to implement the restructuring program. In Fiscal 2007, we recorded pre-tax restructuring charges of approximately $32.3 million related to the non-cash write-down of store assets, severance and other related costs. Of this
amount, $30.1 million was recognized in the fourth quarter of fiscal 2007. Costs expected to be incurred in Fiscal 2008 total approximately $7 to $10 million, with the balance of the program costs to be incurred during Fiscal 2009 and Fiscal 2010.

The above estimated costs and charges are preliminary and may vary materially based on various factors, including timing in execution of
the restructuring plan, outcome of negotiations with landlords and other third parties, inventory levels, and changes in managements assumptions and projections.

The following table sets forth our capital expenditures (in thousands):



|                                      |  |                    |         |                 |   |                 |  |   |        
|------------------------------------- |  | ------------------ | ------- | --------------- | - | --------------- |  | - | -------
|                                      |  | Fiscal Years Ended
|                                      |  | February 2,2008    |         | February 3,2007 |   | January 28,2006
|New store construction                |  | $                  | 99,649  |                 | $ | 94,657          |  | $ | 96,857 
|Store renovation/refurbishment        |  |                    | 22,970  |                 |   | 36,466          |  |   | 19,016 
|Information systems                   |  |                    | 14,900  |                 |   | 26,375          |  |   | 21,212 
|Corporate offices/distribution center |  |                    | 7,642   |                 |   | 7,397           |  |   | 35,704 
|Other                                 |  |                    | 691     |                 |   | 234             |  |   | 2,106  
|                                      |  |                    |         |                 |   |                 |  |   |        
|Total                                 |  | $                  | 145,852 |                 | $ | 165,129         |  | $ | 174,895
|                                      |  |                    |         |                 |   |                 |  |   |        

We expect our total capital expenditure requirements in Fiscal 2008 will be approximately $115 to
$130 million. Approximately $60 to $65 million will be spent on new store construction, store expansion and relocation, for a planned opening of approximately 50 stores, representing an increase in store square footage of approximately 331,000
square feet, or 6.1%. Approximately $15 to $20 million is planned for store renovation and refurbishment programs. Approximately $35 million will be spent to support continued investments in information systems, and approximately $5 to $10 million
is planned for corporate office and distribution center initiatives and other general corporate purposes. The actual amount of our capital expenditures will depend in part on the number of stores opened, expanded and refurbished. See
Business-Stores and Expansion.

A portion of the capital expenditures in
Fiscal 2005 relates to costs associated with the June 2005 relocation of our corporate offices in New York City. As a result of this relocation, we adjusted the remaining lives of certain fixed assets at our former corporate offices to correlate to
the expected move, the impact of which was not significant to the results of operations. In addition, we recorded a one-time write-off of approximately $9.5 million in the second quarter of Fiscal 2005 for lease costs related to our former offices
at 142 West 57thStreet in New York City. The related lease expired in September 2006.

To finance our operations and capital requirements, we expect to use internally generated funds. We believe that cash flow from operations will be
sufficient to enable us to meet the ongoing cash needs of our business, as presently conducted, for the foreseeable future.



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On August 23, 2007, our Board of Directors approved a $300 million securities repurchase program
(the August 2007 Program), which replaced the $300 million securities repurchase program approved in March 2007 (the March 2007 Program). Under the August 2007 Program, purchases of shares of common stock may be made from
time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury shares available for general corporate and other
purposes. During the fiscal year ended February 2, 2008, we repurchased 9,301,633 shares of our common stock at a cost of approximately $340.1 million. Of this amount, 1,347,286 shares were repurchased under the August 2007 Program at a cost of
approximately $40 million and 7,952,879 shares were repurchased under the March 2007 program at a cost of approximately $300 million. In addition, we repurchased 1,468 shares under an earlier $125 million August 2006 program at a cost of
approximately $0.1 million.

On October 1, 2007, the Company froze its noncontributory defined benefit pension plan (the Pension
Plan). As a result of the freeze, only those associates who were eligible under the Pension Plan on or before September 30, 2007 (substantially all associates of the Company who completed 1,000 hours of service during a consecutive
12 month period prior to that date) are eligible to receive benefits from the Pension Plan once they have completed the five years of service required to become fully vested. No associate may become a participant in the Pension Plan on or after
October 1, 2007. No additional benefits will be earned under the Pension Plan on or after October 1, 2007. Our funding obligations and liability under the terms of the Pension Plan are determined using certain actuarial assumptions,
including a discount rate and an expected long-term rate of return on plan assets. The discount rate enables us to state expected future cash payments for pension benefits as a present value on the measurement date. A lower discount rate increases
the present value of the benefit obligations and increases pension expense. The discount rate selected was based on a yield curve which uses expected cash flows from the Pension Plan, and then discounts those cash flows with the bond rate for that
period. This resulted in a discount rate of 5.8%. A one percent decrease in the assumed discount rate would increase total net periodic pension expense for Fiscal 2008 by $2.4 million and would increase the liability for pension benefits at
February 2, 2008 by $11.6 million. A one percent increase in the assumed discount rate would cause a decrease in the liability and Fiscal 2008 pension expense by $8.5 million and $1.3 million, respectively.

Pension Plan assets as of February 2, 2008 were allocated 62% in equities, 36% in bond-related funds and 2% in short-term investments. For the
purposes of developing long-term rates of return, it was assumed that the short-term investments were reallocated to equities and bond-related funds, yielding assumed long-term rates of return of 8.5% and 5.0%, respectively. To develop the expected
long-term rate of return on plan assets, we considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. A lower expected rate of return on pension
plan assets would increase pension expense. Our expected long-term rate of return on plan assets was 7.25% in both Fiscal 2007 and Fiscal 2006. A one percent change in the long-term rate of return assumption would impact Fiscal 2008 pension expense
by approximately $0.4 million. We were not required to make and did not make any contributions to the Pension Plan in Fiscal 2007. We contributed $7.7 million to the Pension Plan in Fiscal 2006.

Effective February 3, 2007, we began recognizing the funded status of our Pension Plan in accordance with SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS No. 158). SFAS No. 158 requires company plan sponsors to display the net
funded position of a defined benefit postretirement plan as an asset or liability, with any unrecognized prior service costs, transition obligations or actuarial gains/losses reported as a component of accumulated other comprehensive income in
stockholders equity. Prior to February 3, 2007, we had accounted for the Pension Plan according to the provisions of SFAS No. 87, Employers Accounting for Pensions, and related interpretations, and therefore the funded
status of our noncontributory defined benefit pension plan was not reflected on our consolidated balance sheets. As a result of the adoption of SFAS No. 158, we recorded $5.4 million, net of taxes, in accumulated other comprehensive loss on the
February 3, 2007 consolidated balance sheet. See Note 10, Retirement Plans, in the Notes to Consolidated Financial Statements for further discussion.



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In May 2000, our Board of Directors adopted a Stockholder Rights Plan (Rights Plan). Rights
under the Rights Plan (Rights) were distributed as a dividend at the rate of one Right for each share of our common stock held by stockholders of record as of the close of business on May 30, 2000. As a result of the May 2004 and an
earlier May 2002 3-for-2 splits of our common stock, each share of common stock now represents four-ninths of a Right. Each Right entitles stockholders to buy one unit of a share of a new series of preferred stock for $125. Under certain
circumstances, if a person or group acquires beneficial ownership of 15% or more of the voting power of the Company as represented by our common stock, or commences a tender or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the voting power of the Company as represented by our common stock, holders of the Rights, other than the person or group triggering their exercise, will be able to purchase, in exchange for the $125 exercise price,
shares of our common stock or of any company into which the Company is merged having a value of $250. The Rights will expire on May 18, 2010. No Rights were exercised under the Rights Plan during Fiscal 2007.

We are self-insured for expenses related to our employee point of service medical and dental plans, our workers compensation plan and for
short-term disability, up to certain thresholds. Claims filed, as well as claims incurred but not reported, are accrued based on management's estimates, using information received from plan administrators, third party actuaries, historical analysis,
and other relevant data. We believe we have taken reasonable steps to ensure that we are adequately accrued for incurred costs related to these programs at February 2, 2008.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements as defined by Item 303
(a) (4) of Regulation S-K.

Contractual Obligations

The following table sets forth our contractual obligations as of February 2, 2008 (in thousands):



|                           |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        
|-------------------------- |  | ----- | --------- | --------------- | - | -------- |  | -------- | ------- | ---------------- | - | ------- |  | - | -------
|                           |  | Total |           | Less than1 Year |   | 1-3Years |  | 4-5Years |         | More than5 Years
|Operating leases (a)       |  | $     | 1,332,169 |                 | $ | 191,646  |  | $        | 346,196 |                  | $ | 284,535 |  | $ | 509,792
|Purchase obligations: (b)  |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        
|Merchandise (c)            |  |       | 205,407   |                 |   | 205,407  |  |          |        |                  |   |        |  |   |       
|New store construction (d) |  |       | 1,583     |                 |   | 1,583    |  |          |        |                  |   |        |  |   |       
|Information systems (e)    |  |       | 8,509     |                 |   | 5,825    |  |          | 2,684   |                  |   |        |  |   |       
|Employment agreements      |  |       | 1,788     |                 |   | 1,350    |  |          | 438     |                  |   |        |  |   |       
|Other (f)                  |  |       | 32,242    |                 |   | 12,735   |  |          | 14,823  |                  |   | 3,934   |  |   | 750    
|                           |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        
|Total                      |  | $     | 1,581,698 |                 | $ | 418,546  |  | $        | 364,141 |                  | $ | 288,469 |  | $ | 510,542
|                           |  |       |           |                 |   |          |  |          |         |                  |   |         |  |   |        



|(a) | Represents future minimum lease payments under non-cancelable operating leases as of February 2, 2008. The minimum lease payments above do not include common area
maintenance (CAM) charges or real estate taxes, which are also required contractual obligations under our store and office operating leases. In many of our leases, CAM charges are not fixed and can fluctuate from year to year. Total CAM charges
and real estate taxes for Fiscal 2007, Fiscal 2006 and Fiscal 2005 were $76.2 million, $70.9 million and $63.3 million, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Purchase obligations do not include agreements that are cancelable without penalty.
|--- | -----------------------------------------------------------------------------------

|(c) | Represents open purchase orders with vendors for merchandise not yet received or recorded on our Consolidated Balance Sheet.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(d) | Represents commitments for Fiscal 2007 store construction not recorded on our Consolidated Balance Sheet.
|--- | ---------------------------------------------------------------------------------------------------------

|(e) | Represents maintenance and license agreements for services to be provided and/or software not yet received or recorded on our Consolidated Balance Sheet.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Represents contractual commitments or open purchase orders for goods or services not received or recorded on our Consolidated Balance Sheet.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

As discussed in Note 10 to the Consolidated Financial Statements, we have a long-term liability for our Pension Plan. Minimum pension funding
requirements are not included above as such amounts are not determinable. We are not required to make a contribution to the Pension Plan next year. In addition, the table excludes $8.2 million of tax reserves, accrued interest and penalties under
FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as we are unable to reasonably estimate the ultimate amount or timing of settlement. See Note 9, Income Taxes, in the Notes to Consolidated
Financial Statements for further discussion.



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Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements  an
amendment of ARB No. 51, (SFAS No. 160). SFAS No. 160 was issued to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS No. 160 shall be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. We do not expect SFAS No. 160 to have an impact on our consolidated financial statements upon adoption.

In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, (SFAS No. 141(R)). SFAS No. 141
(R) establishes principles and requirements for how the acquirer in a business combination should recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree, recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase and determine what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The provisions of SFAS No. 141(R) shall be applied prospectively to business combinations with acquisition dates on or after the beginning of the first annual reporting period in which it is initially
applied. SFAS No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not expect SFAS No. 141(R) to have an impact on our consolidated financial
statements upon adoption.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities  Including an Amendment of FASB Statement No. 115. SFAS No. 159 allows companies the choice to measure many financial instruments and certain other items at fair value. This gives a company the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We do
not expect SFAS No. 159 to have an impact on our consolidated financial statements upon adoption.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value
measurements. On February 12, 2008, the FASB issued FASB Staff Position 157-2 that partially defers the effective date of SFAS No. 157 for one year for non-financial assets and non-financial liabilities that are recognized or disclosed at
fair value in the financial statements on a nonrecurring basis. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The
provisions of SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained
earnings. Notwithstanding the potential effective date deferral discussed above, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We do not expect SFAS No. 157 to have a material impact on our consolidated
financial statements upon adoption.

Critical Accounting Policies

Managements Discussion and Analysis of Financial Condition and Results of Operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. Our significant accounting policies are more fully described in Note 1, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements. The preparation of
these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from these estimates.

Based on the above, we have determined that our most critical accounting policies are those related to merchandise inventory valuation, asset impairment,
income taxes and stock-based compensation.These policies are also discussed in the Notes to Consolidated Financial Statements, and in relevant sections of this discussion and analysis.



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##### Table of Contents

Merchandise Inventory ValuationMerchandise inventories are valued at the lower of average
cost or market, at the individual item level. Market is determined based on the estimated net realizable value, which is generally the merchandise selling price. Merchandise inventory levels are monitored to identify slow-moving items and broken
assortments (items no longer in stock in a sufficient range of sizes) and markdowns are used to clear such merchandise. Merchandise inventory value is reduced if the selling price is marked below cost. Physical inventory counts are performed
annually in January, and estimates are made for any shortage between the date of the physical inventory count and the balance sheet date.

Asset ImpairmentWe adopted SFAS No. 142, Goodwill and Other Intangible Assets on February 3, 2002. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the
goodwills impairment. We perform an annual impairment test which considers the Companys fair value to determine whether an impairment charge related to the carrying value of our recorded goodwill is necessary. The most recent impairment
test did not result in an impairment charge. In the case of long-lived tangible assets under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, if the undiscounted future cash flows related to the long-lived
assets are less than the assets carrying value, a similar impairment charge would be considered. Managements estimate of future cash flows is based on historical experience, knowledge, and market data. These estimates can be affected by
factors such as those outlined in Risk Factors.

Income TaxesIncome Taxes are accounted for under SFAS
No. 109 Accounting for Income Taxes, which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing assets and
liabilities and their respective tax bases. Inherent in the measurement of these deferred balances are certain judgments and interpretations of existing tax law and other published guidance as applied to our operations. No valuation allowance has
been provided for deferred tax assets, since management anticipates that the full amount of these assets should be realized in the future. Our effective tax rate considers managements judgment of expected tax liabilities in the various taxing
jurisdictions within which we are subject to tax. We are currently involved in federal, state and local tax audits. Further, at any given time, many tax years are subject to audit by various taxing authorities. The recorded amounts of income tax are
subject to adjustment upon audit, changes in interpretation and changes in judgment utilized in determining estimates. While no adjustments to recorded amounts are anticipated, a 1% variance in our effective tax rate would affect net income after
taxes by approximately $1.6 million in Fiscal 2007.

Stock-based compensationEffective January 29, 2006, we adopted SFAS
No. 123(R) using the modified prospective method. The calculation of stock-based compensation expense requires the input of highly subjective assumptions, including the expected term of the stock-based awards, stock price volatility, and
pre-vesting forfeitures. We estimate the expected life of shares granted in connection with stock-based awards using historical exercise patterns, which we believe are representative of future behavior. We estimate the volatility of our
common stock at the date of grant based on an average of our historical volatility and the implied volatility of publicly traded options on our common stock. The assumptions used in calculating the fair value of stock-based awards represent our
best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we were to use different assumptions, our stock-based compensation expense could be materially
different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate forfeitures based on our historical experience of stock-based awards
granted, exercised and cancelled, as well as considering future expected behavior. If the actual forfeiture rate is materially different from our estimate, stock-based compensation expense could be different from what we have recorded in the
current period. See Note 8, Other Equity and Stock Incentive Plans, in the Notes to Consolidated Financial Statements for additional information.



|ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk.
|-------- | -----------------------------------------------------------

Ann Taylor Inc.s Second Amended and Restated $175 million senior secured revolving credit facility allows for investments in financial instruments with original maturity dates of up to 360 days. Generally, less than 20% of these
financial instruments have a fixed rate of return and are therefore subject to interest rate risk. Any fixed rate investments (such as auction rate securities) will decline in value if interest rates increase. Due to the short
duration of these financial instruments and the percentage of the Companys investment portfolio they comprise, a change of 100 basis points in interest rates would not have a material effect on the Companys financial condition.



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At February 2, 2008, the Company had $15.1 million invested in auction rate securities. In
accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried at cost or par value, which approximates fair market
value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 28 or 35 days.

As a result of recent uncertainties in the global credit market, the Company has reduced its investment in auction rate securities to $6 million as of
March 14, 2008. While the Company was successful liquidating $9.1 million in auction rate securities since February 2, 2008, in February and March 2008, auctions failed for its remaining $6 million investment. The Company does not
currently believe that the carrying value of its remaining investment in auction rate securities, which are rated AAA by Standard & Poors and backed by student loans, to be impaired, however if the credit rating of the security
issuers deteriorates, the Company may be required to record an impairment charge on these investments. The Company does not believe the amount of any such charge would be material.

The Company believes it is likely that auctions related to these securities will continue to be unsuccessful in the near term. Unsuccessful auctions
limit the short-term liquidity of these investments, therefore the Company has reclassified its remaining $6 million investment in auction rate securities as of March 14, 2008 to long-term, included in Other Assets on its Consolidated Balance
Sheet as of February 2, 2008. While recent failures in the auction process have affected the Companys ability to access these funds in the near term, it does not believe that the underlying securities or collateral have been affected. The
Company expects to continue to earn interest at the prevailing rates on its remaining auction rate securities.



|ITEM 8. | Financial Statements and Supplementary Data.
|------- | --------------------------------------------

The
following consolidated financial statements of the Company for the years ended February 2, 2008, February 3, 2007 and January 28, 2006 are included as part of this Report (See Item 15):

Consolidated Statements of Income for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and January 28, 2006
(52 weeks).

Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007.

Consolidated Statements of Stockholders Equity for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and
January 28, 2006 (52 weeks).

Consolidated Statements of Cash Flows for the Fiscal Years Ended February 2, 2008 (52 weeks),
February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks).

Notes to Consolidated Financial Statements.



|ITEM 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|------- | -------------------------------------------------------------------------------------

None.



|ITEM 9A. | Controls and Procedures.
|-------- | ------------------------

Disclosure Controls and Procedures

The Company conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on such evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report in alerting them on a timely basis to material information relating to the Company (including
its consolidated subsidiaries) required to be included in our reports filed or submitted under the Exchange Act.



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Managements Report on Internal Control over Financial Reporting

The management of AnnTaylor Stores Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Companys internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.

Because of inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Companys internal
control over financial reporting as of February 2, 2008. In making this assessment, management used the criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on the assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of February 2, 2008.

Changes in Internal Control over Financial Reporting

During the Companys fourth fiscal quarter, there were no changes in the Companys internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.



|ITEM 9B. | Other Information.
|-------- | ------------------

None.



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PART III



|ITEM 10. | Directors, Executive Officers and Corporate Governance.
|-------- | -------------------------------------------------------

The information required by this item is incorporated herein by reference to the Sections entitled Election of Class II Directors, Executive Officers, Corporate Governance and Section 16(a)
Beneficial Ownership Reporting Compliance in the Companys Proxy Statement for its 2008 Annual Meeting of Stockholders.

The
Company has Business Conduct Guidelines that apply to all Ann Taylor associates, including its chief executive officer, chief financial officer/principal accounting officer and controller, as well as members of the Companys Board of Directors.
The Business Conduct Guidelines are available on the Companys Investor Relations website at http://investor.anntaylor.com or in print free of charge to any shareholder upon request. Any changes or amendments to the Business Conduct Guidelines,
and any waiver that applies to the Companys chief executive officer, chief financial officer/principal accounting officer or controller, will also be posted on the website.



|ITEM 11. | Executive Compensation.
|-------- | -----------------------

The information required
by this item is incorporated herein by reference to the Sections entitled Executive Compensation, Director Compensation, Compensation Committee Interlocks and Insider Participation and Compensation Committee
Report in the Companys Proxy Statement for its 2008 Annual Meeting of Stockholders.



|ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- | -----------------------------------------------------------------------------------------------

The information required by this item is incorporated herein by reference to the Section entitled Beneficial Ownership of Common Stock and
Equity Compensation Plans in the Companys Proxy Statement for its 2008 Annual Meeting of Stockholders.



|ITEM 13. | Certain Relationships and Related Transactions, and Director Independence.
|-------- | --------------------------------------------------------------------------

The information required by this item is incorporated herein by reference to the Sections entitled Related Person Transactions, Related Person Transactions Policy and Procedures and
Corporate Governance in the Companys Proxy Statement for its 2008 Annual Meeting of Stockholders.



|ITEM 14. | Principal Accounting Fees and Services.
|-------- | ---------------------------------------

The
information required by this item is incorporated herein by reference to the Section entitled Ratification of the Appointment of Independent Registered Public Accounting Firm in the Companys Proxy Statement for its 2008 Annual
Meeting of Stockholders.



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PART IV



|ITEM 15. | Exhibits and Financial Statement Schedules.
|-------- | -------------------------------------------



| | (a) | List of documents filed as part of this Annual Report:
| | --- | ------------------------------------------------------



| | 1. | The following consolidated financial statements of the Company are filed as part of this Annual Report:
| | -- | -------------------------------------------------------------------------------------------------------

Report of Independent Registered Public Accounting Firm; Consolidated Statements of Income for the Fiscal Years Ended February 2, 2008 (52 weeks),
February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks); Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007; Consolidated Statements of Stockholders Equity for the Fiscal Years Ended
February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks); Consolidated Statements of Cash Flows for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and
January 28, 2006 (52 weeks); Notes to Consolidated Financial Statements.



| | 2. | Schedules other than the above have been omitted because they are not applicable.
| | -- | ---------------------------------------------------------------------------------



| | 3. | The exhibits filed as a part of this Annual Report are listed in the Exhibit Index.
| | -- | -----------------------------------------------------------------------------------



| | (b) | The exhibits listed in the Exhibit Index attached hereto are filed as part of this Annual Report and incorporated herein by reference.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Not applicable.
| | --- | ---------------



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SIGNATURES

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



|                     |  |                              |  |                                      
|-------------------- |  | ---------------------------- |  | -------------------------------------
|                     |  | ANNTAYLOR STORES CORPORATION
|                     |  |                             
|                     |  | By:                          |  | /s/ Kay Krill                        
|                     |  |                              |  | Kay Krill                            
|                     |  |                              |  | President and Chief Executive Officer
|Date: March 20, 2008 |  |                              |  |                                      

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



|                         |  |                                                                 |  |               
|------------------------ |  | --------------------------------------------------------------- |  | --------------
|/s/ Kay Krill            |  | President, Chief Executive Officer and Director                 |  | March 20, 2008
|Kay Krill                |  | (Principal Executive Officer)                                   |  | Date          
|                         |  |                                                                
|/s/ Michael J. Nicholson |  | Executive Vice President, Chief Financial Officer and Treasurer |  | March 20, 2008
|Michael J. Nicholson     |  | (Principal Financial Officer and Principal Accounting Officer)  |  | Date          
|                         |  |                                                                
|/s/ Ronald W. Hovsepian  |  | Non-Executive Chairman of the Board and Director                |  | March 20, 2008
|Ronald W. Hovsepian      |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ James J. Burke, Jr.  |  | Director                                                        |  | March 20, 2008
|James J. Burke, Jr.      |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ Wesley E. Cantrell   |  | Director                                                        |  | March 20, 2008
|Wesley E. Cantrell       |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ Dale W. Hilpert      |  | Director                                                        |  | March 20, 2008
|Dale W. Hilpert          |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ Linda A. Huett       |  | Director                                                        |  | March 20, 2008
|Linda A. Huett           |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ Michael W. Trapp     |  | Director                                                        |  | March 20, 2008
|Michael W. Trapp         |  |                                                                 |  | Date          
|                         |  |                                                                
|/s/ Daniel W. Yih        |  | Director                                                        |  | March 20, 2008
|Daniel W. Yih            |  |                                                                 |  | Date          



33



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                                                    |  |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                                                    |  | Page No.
|Report of Independent Registered Public Accounting Firm                                                                                                             |  | 35      
|                                                                                                                                                                    | 
|Consolidated Financial Statements:                                                                                                                                  |  |         
|                                                                                                                                                                    | 
|Consolidated Statements of Income for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks)               |  | 36      
|                                                                                                                                                                    | 
|Consolidated Balance Sheets as of February 2, 2008 and February 3, 2007                                                                                             |  | 37      
|                                                                                                                                                                    | 
|Consolidated Statements of Stockholders Equity for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks) |  | 38      
|                                                                                                                                                                    | 
|Consolidated Statements of Cash Flows for the Fiscal Years Ended February 2, 2008 (52 weeks), February 3, 2007 (53 weeks) and January 28, 2006 (52 weeks)           |  | 39      
|                                                                                                                                                                    | 
|Notes to Consolidated Financial Statements                                                                                                                          |  | 40      



34



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

AnnTaylor Stores Corporation

New York, NY

We have audited the accompanying consolidated balance sheets of AnnTaylor Stores Corporation and subsidiaries (the Company) as of
February 2, 2008 and February 3, 2007, and the related consolidated statements of income, changes in stockholders equity, and cash flows for each of the three years in the period ended February 2, 2008. We also have audited the
Companys internal control over financial reporting as of February 2, 2008, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management Report on Internal Control. Our responsibility is to express an opinion on these financial statements and an opinion on the Companys internal control over financial reporting based on our
audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A companys internal
control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of
directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent
limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of AnnTaylor Stores Corporation and subsidiaries as of February 2, 2008 and February 3, 2007, and the results of their operations and their cash flows for each of the three years in the
period ended February 2, 2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of February 2, 2008, based on the criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



|                     
|---------------------
|/s/ DELOITTE & TOUCHE
|                     
|New York, New York   
|March 20, 2008       



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ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006



|                                                       |  |                                          |           |                 |   |                 |  |   |          
|------------------------------------------------------ |  | ---------------------------------------- | --------- | --------------- | - | --------------- |  | - | ---------
|                                                       |  | Fiscal Years Ended                      
|                                                       |  | February 2,2008                          |           | February 3,2007 |   | January 28,2006
|                                                       |  | (in thousands, except per share amounts)
|Net sales                                              |  | $                                        | 2,396,510 |                 | $ | 2,342,907       |  | $ | 2,073,146
|Cost of sales                                          |  |                                          | 1,145,246 |                 |   | 1,085,897       |  |   | 1,017,122
|                                                       |  |                                          |           |                 |   |                 |  |   |          
|Gross margin                                           |  |                                          | 1,251,264 |                 |   | 1,257,010       |  |   | 1,056,024
|Selling, general and administrative expenses           |  |                                          | 1,063,623 |                 |   | 1,033,173       |  |   | 924,998  
|Restructuring and asset impairment charges             |  |                                          | 32,255    |                 |   |                |  |   |         
|                                                       |  |                                          |           |                 |   |                 |  |   |          
|Operating income                                       |  |                                          | 155,386   |                 |   | 223,837         |  |   | 131,026  
|Interest income                                        |  |                                          | 7,826     |                 |   | 17,174          |  |   | 9,318    
|Interest expense                                       |  |                                          | 2,172     |                 |   | 2,230           |  |   | 2,083    
|                                                       |  |                                          |           |                 |   |                 |  |   |          
|Income before income taxes                             |  |                                          | 161,040   |                 |   | 238,781         |  |   | 138,261  
|Income tax provision                                   |  |                                          | 63,805    |                 |   | 95,799          |  |   | 56,389   
|                                                       |  |                                          |           |                 |   |                 |  |   |          
|Net income                                             |  | $                                        | 97,235    |                 | $ | 142,982         |  | $ | 81,872   
|                                                       |  |                                          |           |                 |   |                 |  |   |          
|Basic earnings per share                               |  | $                                        | 1.55      |                 | $ | 2.01            |  | $ | 1.14     
|                                                       |  |                                          |          
|Weighted average shares outstanding                    |  |                                          | 62,753    |                 |   | 70,993          |  |   | 71,554   
|                                                       |  |                                          |          
|Diluted earnings per share                             |  | $                                        | 1.53      |                 | $ | 1.98            |  | $ | 1.13     
|                                                       |  |                                          |          
|Weighted average shares outstanding, assuming dilution |  |                                          | 63,452    |                 |   | 72,107          |  |   | 72,270   

See accompanying Notes to Consolidated Financial Statements.



36



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ANNTAYLOR STORES CORPORATION

CONSOLIDATED BALANCE SHEETS

February 2, 2008 and February 3, 2007



|                                                                                                                     |  |                 |           |   |                 |   |           |  
|-------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | --------------- | - | --------- | -
|                                                                                                                     |  | February 2,2008 |           |   | February 3,2007 |  
|                                                                                                                     |  | (in thousands)  |          
|Assets                                                                                                               |  |                 |           |  
|Current assets                                                                                                       |  |                 |           |   |                 |   |           |  
|Cash and cash equivalents                                                                                            |  | $               | 134,025   |   |                 | $ | 360,560   |  
|Short-term investments                                                                                               |  |                 | 9,110     |   |                 |   |          |  
|Accounts receivable                                                                                                  |  |                 | 16,944    |   |                 |   | 16,489    |  
|Merchandise inventories                                                                                              |  |                 | 250,697   |   |                 |   | 233,606   |  
|Deferred income taxes                                                                                                |  |                 | 29,161    |   |                 |   | 25,595    |  
|Prepaid expenses and other current assets                                                                            |  |                 | 67,954    |   |                 |   | 54,355    |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total current assets                                                                                                 |  |                 | 507,891   |   |                 |   | 690,605   |  
|Property and equipment, net                                                                                          |  |                 | 561,270   |   |                 |   | 564,108   |  
|Goodwill                                                                                                             |  |                 | 286,579   |   |                 |   | 286,579   |  
|Deferred financing costs, net                                                                                        |  |                 | 288       |   |                 |   | 652       |  
|Deferred income taxes                                                                                                |  |                 | 23,314    |   |                 |   | 18,390    |  
|Other assets                                                                                                         |  |                 | 14,413    |   |                 |   | 8,169     |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total assets                                                                                                         |  | $               | 1,393,755 |   |                 | $ | 1,568,503 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Liabilities and Stockholders Equity                                                                                 |  |                 |           |   |                 |   |           |  
|Current liabilities                                                                                                  |  |                 |           |   |                 |   |           |  
|Accounts payable                                                                                                     |  | $               | 125,388   |   |                 | $ | 106,519   |  
|Accrued salaries and bonus                                                                                           |  |                 | 13,000    |   |                 |   | 28,304    |  
|Accrued tenancy                                                                                                      |  |                 | 44,945    |   |                 |   | 45,024    |  
|Gift certificates and merchandise credits redeemable                                                                 |  |                 | 54,564    |   |                 |   | 52,989    |  
|Accrued expenses                                                                                                     |  |                 | 74,979    |   |                 |   | 66,582    |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total current liabilities                                                                                            |  |                 | 312,876   |   |                 |   | 299,418   |  
|Deferred lease costs                                                                                                 |  |                 | 230,052   |   |                 |   | 214,466   |  
|Deferred income taxes                                                                                                |  |                 | 1,960     |   |                 |   | 1,591     |  
|Other liabilities                                                                                                    |  |                 | 9,383     |   |                 |   | 3,117     |  
|Commitments and contingencies (see note 6)                                                                           |  |                 |           |   |                 |   |           |  
|Stockholders equity                                                                                                 |  |                 |           |   |                 |   |           |  
|Common stock, $.0068 par value; 200,000,000 shares authorized; 82,288,607 and 82,155,607 shares issued, respectively |  |                 | 560       |   |                 |   | 559       |  
|Additional paid-in capital                                                                                           |  |                 | 781,048   |   |                 |   | 753,030   |  
|Retained earnings                                                                                                    |  |                 | 766,408   |   |                 |   | 670,307   |  
|Accumulated other comprehensive loss                                                                                 |  |                 | (3,460    | ) |                 |   | (5,373    | )
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|                                                                                                                     |  |                 | 1,544,556 |   |                 |   | 1,418,523 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Treasury stock, 21,408,843 and 12,782,533 shares respectively, at cost                                               |  |                 | (705,072  | ) |                 |   | (368,612  | )
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total stockholders equity                                                                                           |  |                 | 839,484   |   |                 |   | 1,049,911 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total liabilities and stockholders equity                                                                           |  | $               | 1,393,755 |   |                 | $ | 1,568,503 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  

See accompanying Notes to Consolidated Financial Statements.



37



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ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

For the Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006

(in thousands)



|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|------------------------------------------------------------------------------ |  | ------------ |  | ------------------------ | --- |  | ---------------- | ------- | - | --------------------------------- | - | ------- | --------------------- |  | - | -------- | - |  | ----- | ------- | - |  | ------ | - |  | - | -------- | - |  | - | --------- | -
|                                                                               |  | Common Stock |  | AdditionalPaid-inCapital |     |  | RetainedEarnings |         |   | AccumulatedOtherComprehensiveLoss |   |         | RestrictedStockAwards |  |   | Treasury |   |  | Total |        
|                                                                               |  | Shares       |  | Amount                   |     |  |                  |         |   | Shares                            |   |         | Amount                |  |  
|Balance at January 29, 2005                                                    |  | 80,086       |  | $                        | 545 |  | $                | 669,128 |   |                                   | $ | 445,410 |                       |  | $ |         |   |  | $     | (11,746 | ) |  | 9,453  |   |  | $ | (176,593 | ) |  | $ | 926,744   |  
|Net income                                                                     |  |             |  |                          |    |  |                  |        |   |                                   |   | 81,872  |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 81,872    |  
|Exercise of stock options and related tax benefit                              |  | 1,758        |  |                          | 12  |  |                  | 44,729  |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | (1,386 | ) |  |   | 15,872   |   |  |   | 60,613    |  
|Amortization of stock awards                                                   |  |             |  |                          |    |  |                  | 32      |   |                                   |   |        |                       |  |   |         |   |  |       | 10,368  |   |  |       |   |  |   |         |   |  |   | 10,400    |  
|Issuance of restricted stock, net of forfeitures                               |  | 8            |  |                          |    |  |                  | 6,336   |   |                                   |   | 43      |                       |  |   |         |   |  |       | (10,628 | ) |  | (384   | ) |  |   | 4,249    |   |  |   |          |  
|Repurchase of common and restricted stock                                      |  |             |  |                          |    |  |                  |        |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | 1,824  |   |  |   | (48,153  | ) |  |   | (48,153   | )
|Issuance of common stock pursuant to Associate Discount Stock Purchase Plan    |  | 147          |  |                          | 1   |  |                  | 3,005   |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 3,006     |  
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Balance at January 28, 2006                                                    |  | 81,999       |  |                          | 558 |  |                  | 723,230 |   |                                   |   | 527,325 |                       |  |   |         |   |  |       | (12,006 | ) |  | 9,507  |   |  |   | (204,625 | ) |  |   | 1,034,482 |  
|Net income                                                                     |  |             |  |                          |    |  |                  |        |   |                                   |   | 142,982 |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 142,982   |  
|Adjustment for the adoption of FAS 123(R)                                      |  |             |  |                          |    |  |                  | (12,006 | ) |                                   |   |        |                       |  |   |         |   |  |       | 12,006  |   |  |       |   |  |   |         |   |  |   |          |  
|Exercise of stock options and related tax benefit                              |  | 50           |  |                          |    |  |                  | 20,734  |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | (1,214 | ) |  |   | 14,261   |   |  |   | 34,995    |  
|Amortization of stock awards                                                   |  |             |  |                          |    |  |                  | 24,659  |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 24,659    |  
|Issuance of restricted stock, net of forfeitures                               |  |             |  |                          |    |  |                  | (6,881  | ) |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | (633   | ) |  |   | 6,881    |   |  |   |          |  
|Repurchase of common and restricted stock                                      |  |             |  |                          |    |  |                  |        |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | 5,123  |   |  |   | (185,129 | ) |  |   | (185,129  | )
|Issuance of common stock pursuant to Associate Discount Stock Purchase Plan    |  | 107          |  |                          | 1   |  |                  | 3,294   |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 3,295     |  
|Cumulative adjustment to adopt FAS 158, net of taxes of $3,928                 |  |             |  |                          |    |  |                  |        |   |                                   |   |        |                       |  |   | (5,373   | ) |  |       |        |   |  |       |   |  |   |         |   |  |   | (5,373    | )
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Balance at February 3, 2007                                                    |  | 82,156       |  |                          | 559 |  |                  | 753,030 |   |                                   |   | 670,307 |                       |  |   | (5,373   | ) |  |       |        |   |  | 12,783 |   |  |   | (368,612 | ) |  |   | 1,049,911 |  
|Net income                                                                     |  |             |  |                          |    |  |                  |        |   |                                   |   | 97,235  |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 97,235    |  
|Other comprehensive income, net of tax:                                        |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Defined benefit pension plan adjustments, net of taxes of $1,787 (See Note 10) |  |             |  |                          |    |  |                  |        |   |                                   |   |        |                       |  |   | 1,913    |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 1,913     |  
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Total comprehensive income                                                     |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   | 99,148    |  
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Adjustment for the adoption of FIN 48                                          |  |             |  |                          |    |  |                  |        |   |                                   |   | (1,134  | )                     |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | (1,134    | )
|Exercise of stock options and related tax benefit                              |  |             |  |                          |    |  |                  | 8,906   |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | (606   | ) |  |   | 7,683    |   |  |   | 16,589    |  
|Amortization of stock awards                                                   |  |             |  |                          |    |  |                  | 19,019  |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 19,019    |  
|Issuance of restricted stock, net of forfeitures                               |  |             |  |                          |    |  |                  | (3,432  | ) |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | (280   | ) |  |   | 3,432    |   |  |   |          |  
|Repurchase of common and restricted stock                                      |  |             |  |                          |    |  |                  |        |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  | 9,512  |   |  |   | (347,575 | ) |  |   | (347,575  | )
|Issuance of common stock pursuant to Associate Discount Stock Purchase Plan    |  | 133          |  |                          | 1   |  |                  | 3,525   |   |                                   |   |        |                       |  |   |         |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 3,526     |  
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Balance at February 2, 2008                                                    |  | 82,289       |  | $                        | 560 |  | $                | 781,048 |   |                                   | $ | 766,408 |                       |  | $ | (3,460   | ) |  | $     |        |   |  | 21,409 |   |  | $ | (705,072 | ) |  | $ | 839,484   |  
|                                                                               |  |              |  |                          |     |  |                  |         |   |                                   |   |         |                       |  |   |          |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  

See accompanying Notes to Consolidated Financial Statements.



38



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended February 2, 2008, February 3, 2007 and January 28, 2006



|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|--------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | --------------- | - | -------- | --------------- |  | - | -------- | -
|                                                                                              |  | Fiscal Years Ended |         
|                                                                                              |  | February 2,2008    |          |   | February 3,2007 |   |          | January 28,2006 | 
|                                                                                              |  | (in thousands)     |         
|Operating activities:                                                                         |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net income                                                                                    |  | $                  | 97,235   |   |                 | $ | 142,982  |                 |  | $ | 81,872   |  
|Adjustments to reconcile net income to net cash provided by operating activities              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Deferred income taxes                                                                         |  |                    | (9,361   | ) |                 |   | (10,809  | )               |  |   | (15,421  | )
|Depreciation and amortization                                                                 |  |                    | 116,804  |   |                 |   | 105,890  |                 |  |   | 93,786   |  
|Loss on disposal and write-down of property and equipment                                     |  |                    | 6,736    |   |                 |   | 7,896    |                 |  |   | 3,497    |  
|Non-cash compensation expense                                                                 |  |                    | 19,019   |   |                 |   | 24,722   |                 |  |   | 11,170   |  
|Non-cash interest and other non-cash items                                                    |  |                    | 1,039    |   |                 |   | 483      |                 |  |   | 789      |  
|Non-cash restructuring and asset impairment charges                                           |  |                    | 29,876   |   |                 |   |         |                 |  |   |         |  
|Tax benefit from exercise of stock options                                                    |  |                    | 2,180    |   |                 |   | 8,189    |                 |  |   | 12,566   |  
|Changes in assets and liabilities:                                                            |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Accounts receivable                                                                           |  |                    | (455     | ) |                 |   | 602      |                 |  |   | (5,024   | )
|Merchandise inventories                                                                       |  |                    | (17,091  | ) |                 |   | (29,103  | )               |  |   | 24,715   |  
|Prepaid expenses and other current assets                                                     |  |                    | (13,599  | ) |                 |   | (13,543  | )               |  |   | 24,678   |  
|Other non-current assets and liabilities, net                                                 |  |                    | 24,264   |   |                 |   | 21,042   |                 |  |   | 50,510   |  
|Accounts payable and accrued expenses                                                         |  |                    | 550      |   |                 |   | 37,580   |                 |  |   | 28,185   |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash provided by operating activities                                                     |  |                    | 257,197  |   |                 |   | 295,931  |                 |  |   | 311,323  |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Investing activities:                                                                         |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Purchases of marketable securities                                                            |  |                    | (70,947  | ) |                 |   |         |                 |  |   | (20,600  | )
|Sales of marketable securities                                                                |  |                    | 54,525   |   |                 |   |         |                 |  |   | 213,000  |  
|Purchases of property and equipment                                                           |  |                    | (139,998 | ) |                 |   | (165,926 | )               |  |   | (187,613 | )
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash (used for) provided by investing activities                                          |  |                    | (156,420 | ) |                 |   | (165,926 | )               |  |   | 4,787    |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Financing activities:                                                                         |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Proceeds from the issuance of common stock pursuant to Associate Discount Stock Purchase Plan |  |                    | 3,526    |   |                 |   | 3,295    |                 |  |   | 3,006    |  
|Proceeds from exercise of stock options                                                       |  |                    | 14,409   |   |                 |   | 26,743   |                 |  |   | 47,279   |  
|Excess tax benefits from stock-based compensation                                             |  |                    | 2,328    |   |                 |   | 4,992    |                 |  |   |         |  
|Repurchases of common and restricted stock                                                    |  |                    | (347,575 | ) |                 |   | (185,129 | )               |  |   | (48,153  | )
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash (used for) provided by financing activities                                          |  |                    | (327,312 | ) |                 |   | (150,099 | )               |  |   | 2,132    |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net (decrease) increase in cash                                                               |  |                    | (226,535 | ) |                 |   | (20,094  | )               |  |   | 318,242  |  
|Cash and cash equivalents, beginning of year                                                  |  |                    | 360,560  |   |                 |   | 380,654  |                 |  |   | 62,412   |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Cash and cash equivalents, end of year                                                        |  | $                  | 134,025  |   |                 | $ | 360,560  |                 |  | $ | 380,654  |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Supplemental disclosures of cash flow information:                                            |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Cash paid during the year for:                                                                |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Interest                                                                                      |  | $                  | 1,723    |   |                 | $ | 1,769    |                 |  | $ | 1,483    |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Income taxes                                                                                  |  | $                  | 77,355   |   |                 | $ | 94,723   |                 |  | $ | 47,030   |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Accrual for purchases of property and equipment                                               |  | $                  | 22,213   |   |                 | $ | 16,359   |                 |  | $ | 17,157   |  
|                                                                                              |  |                    |          |   |                 |   |          |                 |  |   |          |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

AnnTaylor Stores Corporation (the Company) is a leading national specialty retailer of womens apparel, shoes and accessories sold primarily under the Ann Taylor, Ann Taylor
Loft (LOFT) and Ann Taylor Factory brands. Its principal market consists of the United States. The Company sells its products through traditional retail stores and over the Internet at anntaylor.com and
anntaylorLOFT.com (together, the Online Stores) or by phone at 1-800-DIAL-ANN.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries, including AnnTaylor, Inc. The Company has no material
assets other than the common stock of Ann Taylor, Inc. and conducts no business other than the management of Ann Taylor, Inc. All intercompany accounts have been eliminated in consolidation.

Reclassification

Deferred income taxes
previously included in prepaid and other current assets, other assets and other liabilities on the consolidated balance sheet in Fiscal 2006 have been reclassified to separate line items to conform to the Fiscal 2007 presentation.

Fiscal Year

The Company follows the standard
fiscal year of the retail industry, which is a 52- or 53-week period ending on the Saturday closest to January 31. Fiscal 2007 and Fiscal 2005 include 52 weeks, while Fiscal 2006 includes 53 weeks.

Use of Estimates

The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Revenue Recognition

The Company records
revenue as merchandise is sold to clients. The Companys policy with respect to gift certificates and gift cards is to record revenue as they are redeemed for merchandise. Prior to their redemption, these gift certificates and gift cards are
recorded as a liability.While the Company will continue to honor all gift certificates and gift cards presented for payment, management reviews unclaimed property laws to determine gift certificate and gift card balances required for
escheatment to the appropriate government agency. Amounts related to shipping and handling billed to clients in a sales transaction are classified as revenue and the costs related to shipping product to clients (billed and unbilled) are classified
as cost of sales. A reserve for estimated returns is established when sales are recorded. The Company excludes sales taxes collected from customers from net sales in its consolidated statement of income.

Cash and Cash Equivalents

Cash and short-term
highly liquid investments with original maturity dates of 3 months or less are considered cash or cash equivalents. The Company invests excess cash primarily in money market accounts and short-term commercial paper.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|1. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



Merchandise Inventories

Merchandise
inventories are valued at the lower of average cost or market, at the individual item level. Merchandise inventory value is reduced if the selling price is marked below cost. Physical inventory counts are performed annually in January, and estimates
are made for any shortage between the date of the physical inventory count and the balance sheet date.

Cost of Sales and Selling, General and
Administrative Expenses

The following table illustrates the primary costs classified in each major expense category:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Cost of Sales                                                                                                                                                                                                                                                                                                                                                                                                                                           |  | Selling, General and Administrative Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     Cost of merchandise sold;       Freight costs associated
with moving merchandise from our suppliers to our distribution center;       Costs associated with the movement of merchandise through customs;       Costs associated with the fulfillment of online customer orders;       Depreciation related to
merchandise management systems;       Sample development costs;       Merchandise shortage; and       Client shipping costs. |  |      Payroll, bonus and benefit costs for retail and corporate associates;       Design
and merchandising costs;       Occupancy costs for retail and corporate facilities;       Depreciation related to retail and corporate assets;       Advertising and
marketing costs;       Occupancy and other costs associated with operating our distribution center;       Freight expenses associated with moving merchandise from our distribution center to our
retail stores; and       Legal, finance, information systems and other corporate overhead costs.

Store Pre-Opening Costs

Non-capital expenditures, such as rent, advertising and payroll costs incurred prior to the opening of a new store are charged to expense in the period
they are incurred.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives:



|                                  |  |                                      
|--------------------------------- |  | -------------------------------------
|Building                          |  | 40 years                             
|Leasehold improvements            |  | 10 years or term of lease, if shorter
|Furniture, fixtures and equipment |  | 2-10 years                           
|Software                          |  | 5 years                              



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|1. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



Deferred Rent Obligations

Rent expense under
non-cancelable operating leases with scheduled rent increases or free rent periods is accounted for on a straight-line basis over the initial lease term beginning on the date of initial possession, which is generally when the Company enters the
space and begins construction build-out. Any reasonably assured renewals are considered. The amount of the excess of straight-line rent expense over scheduled payments is recorded as a deferred liability. Construction allowances and other such lease
incentives are recorded as deferred credits, and are amortized on a straight-line basis as a reduction of rent expense beginning in the period they are deemed to be earned, which often is subsequent to the date of initial possession and generally
coincides with the store opening date. The current portion of unamortized deferred lease costs and construction allowances is included in Accrued tenancy, and the long-term portion is included in Deferred lease costs on the
Companys Consolidated Balance Sheets.

Deferred Financing Costs

Deferred financing costs are amortized using the interest method over the term of the related debt. Accumulated amortization at February 2, 2008 and
February 3, 2007 was approximately $5.6 million and $5.3 million respectively. Amortization expense recognized was approximately $365,000 in each of Fiscal 2007, 2006 and 2005.

Goodwill and Other Long-Lived Assets

The Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142) on February 3, 2002. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill for
impairment. The Company performs annual impairment testing which considers the Companys fair value to determine whether an impairment charge related to the carrying value of the Companys recorded goodwill is necessary. As a result of
this testing, the Company concluded that there was no such impairment loss in Fiscal 2007, 2006 or 2005. This is reevaluated annually during the fourth quarter, or more frequently if necessary, using similar testing.

In the case of long-lived tangible assets under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the assessment
of possible impairment is based on the Companys ability to recover the carrying value of the long-lived asset from the expected future pre-tax cash flows (undiscounted and without interest charges). If these cash flows are less than the
carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows. The measurement of impairment requires
management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations. See Note 2, Restructuring, for discussion of the impairment charge recorded in Fiscal 2007. No other material
impairment losses were recorded in Fiscal 2007, 2006 or 2005.

Advertising

Costs associated with the production of advertising, such as printing and other costs, as well as costs associated with communicating advertising that has
been produced, such as magazine ads, are expensed when the advertising first appears in print. Costs of direct mail catalogs and postcards are fully expensed when the advertising is scheduled to first arrive in clients homes. Advertising costs
were approximately $63.4 million, $65.7 million and $55.6 million in Fiscal 2007, 2006 and 2005, respectively.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|1. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



Stock-based Awards

In Fiscal 2006, the Company
began recording compensation expense associated with stock options and other forms of equity awards in accordance with SFAS No. 123(R), Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 29,
2006, the Company had accounted for stock options according to the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related
compensation expense was recorded for awards granted with no intrinsic value (defined as the excess of the fair market value on date of grant of an option over its exercise price). On January 29, 2006, the Company adopted the modified
prospective transition method provided under SFAS No. 123(R), and, accordingly, has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options recognized in Fiscal 2007
and Fiscal 2006 include: 1) amortization related to the remaining unvested portion of all stock option awards granted prior to January 29, 2006, net of forfeitures, based on the grant-date fair value estimated in accordance with the original
provisions of SFAS No. 123; and 2) amortization related to all stock option awards granted on or after January 29, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R).

Income Taxes

The Company accounts for income
taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the use of the liability method. Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying
value of existing assets and liabilities and their respective tax bases. No valuation allowance has been provided for deferred tax assets, since management anticipates that the full amount of these assets will be realized in the future.

Under the asset and liability method, deferred tax assets and liabilities are recognized, and income or expense is recorded, for the estimated future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Company and its domestic subsidiaries file a consolidated Federal income tax return,
while the Companys foreign subsidiaries file in their respective local jurisdictions.

In July 2006, the FASB issued FASB
Interpretation Number 48, Accounting for Uncertainty in Income Taxes, (FIN No. 48) which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or
expected to be taken in a tax return. Additionally, FIN No. 48 provides guidance on the derecognition, classification, accounting and disclosure requirements for uncertain tax positions.

Segments

The Company has aggregated its Ann
Taylor, LOFT and Ann Taylor Factory brands (collectively the Companys brands) based on the aggregation criteria outlined in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which states
that two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the objective and basic principles of the Statement, if the segments have similar economic characteristics, similar product,
similar production processes, similar clients, and similar methods of distribution.

The Companys brands have similar economic
characteristics and similar operating, financial and competitive risks. They are similar in nature of product, as they all offer womens apparel, shoes and accessories. Merchandise inventory for the Companys brands is sourced from the
same countries and some of the same vendors, using similar production processes. Clients of the Companys brands have similar characteristics. Merchandise for the Companys brands is distributed to retail stores in a similar manner through
the Companys Louisville Distribution Center, and is subsequently distributed to clients in a similar manner, through its retail stores. The Company also sells Ann Taylor and LOFT merchandise through its Online Stores.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|1. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



Comprehensive Income

Comprehensive income
consists of two components, net income and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that under generally accepted accounting principles are recorded as an element of stockholders
equity but are excluded from net income. The Companys accumulated other comprehensive loss includes the effect of adopting SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans,
an amendment of FASB Statements No. 87, 88, 106, and 132(R).(See Note 10, Retirement Plans, for further discussion).

Fair
Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires management
to disclose the estimated fair value of certain assets and liabilities defined by SFAS No. 107 as financial instruments. At February 2, 2008 and February 3, 2007, management believes that the carrying amounts of cash and cash
equivalents, short-term investments, receivables and payables approximate fair value because of the short maturity of these financial instruments.

Self Insurance

The Company is self-insured for certain losses related to its employee point of service medical and
dental plans, its workers compensation plan and for short-term disability up to certain thresholds. Costs for self-insurance claims filed, as well as claims incurred but not reported, are accrued based on managements estimates, using
information received from plan administrators, third party activities, historical analysis, and other relevant data. Costs for self-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical
experience. Management believes that it has adequately reserved for its self-insurance liability, which is capped through the use of stop loss contracts with insurance companies. However, any significant variation in claims incurred but not paid
from historical trends could cause actual expense to differ from the accrued liability.

Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51. SFAS No. 160 was issued to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS No. 160 shall be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, except for the presentation and disclosure requirements, which shall be applied retrospectively for all periods presented. SFAS No. 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. The Company does not expect SFAS No. 160 to have an impact on its consolidated financial statements upon adoption.

In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, (SFAS No. 141(R)). SFAS No. 141
(R) establishes principles and requirements for how the acquirer in a business combination should recognize and measure in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree, recognize and measure the goodwill acquired in the business combination or a gain from a bargain purchase and determine what information to disclose to enable users of the financial statements to evaluate the nature and financial
effects of the business combination. The provisions of SFAS No. 141(R) shall be applied prospectively to business combinations with acquisition dates on or after the beginning of the first annual reporting period in which it is initially
applied. SFAS No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect SFAS No. 141(R) to have an impact on its consolidated
financial statements upon adoption.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|1. | Summary of Significant Accounting Policies (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements (Continued)



In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment
of FASB Statement No. 115. SFAS No. 159 allows companies the choice to measure many financial instruments and certain other items at fair value. This gives a company the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 159
to have an impact on its consolidated financial statements upon adoption.

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. On February 12,
2008, the FASB issued FASB Staff Position 157-2 that partially defers the effective date of SFAS No. 157 for one year for non-financial assets and non-financial liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. SFAS No. 157 does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157
are to be applied prospectively as of the beginning of the fiscal year in which it is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. Notwithstanding the
potential effective date deferral discussed above, SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company does not expect SFAS No. 157 to have a material impact on its consolidated financial
statements upon adoption.



|2. | Restructuring
|-- | -------------

On January 30, 2008, the
Company initiated a multi-year restructuring program designed to enhance profitability and improve overall operating effectiveness. The restructuring program, the result of a comprehensive review of the Companys cost structure, includes
closing 117 underperforming stores over a three-year period, reducing the Companys corporate staff by approximately 13% and undertaking a broad-based productivity initiative that includes, among other things, the strategic procurement of
non-merchandise goods and services.

Based on a review of its store portfolio and assessment of individual store productivity, the Company
identified 117 stores, comprised of 39 Ann Taylor stores and 78 LOFT stores, that failed to deliver an acceptable long-term return on investment. The Company has adopted a staged approach to closing these stores over the Fiscal 2008 to Fiscal 2010
period. As such, the Company plans to close 64 stores during Fiscal 2008, with the balance to be closed in Fiscal 2009 and Fiscal 2010.

The Company also streamlined the organization by eliminating 180 corporate positions. This organizational streamlining was designed to increase span of control and improve operating efficiency and effectiveness. In addition, as part of a
broad-based productivity initiative, the Company plans to consolidate all non-merchandise purchasing activities under a centralized strategic procurement organization, outsource various activities where cost efficiencies can be achieved and optimize
store productivity and effectiveness.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|2. | Restructuring (Continued)
|-- | -------------------------



The Company expects pre-tax expenses associated with the restructuring program to total approximately $40 to $45 million. The total program cost includes
approximately $25 million in non-cash expenses, primarily associated with the write-down of assets related to store closures. The balance of approximately $15 to $20 million in expenses are cash charges and relate primarily to severance and
various other costs to implement the restructuring program.

In Fiscal 2007, the Company recorded restructuring charges of $32.3 million
related to the non-cash write-down of store assets, severance and other related costs in connection with the restructuring. Of this amount $30.1 million was recorded during the fourth fiscal quarter. The restructuring and asset impairment charges
are included as a separate line item in the accompanying consolidated statements of income. Costs expected to be incurred in Fiscal 2008 total approximately $7 to $10 million, with the balance of the program costs to be incurred during Fiscal 2009
and Fiscal 2010.

The following table details information related to restructuring charges recorded during the fiscal year ended
February 2, 2008:



|                                |  |                           |        |   |                     |   |         |                         |  |   |        |   |  |   |         |  
|------------------------------- |  | ------------------------- | ------ | - | ------------------- | - | ------- | ----------------------- |  | - | ------ | - |  | - | ------- | -
|                                |  | Severanceand RelatedCosts |        |   | AssetImpairment (1) |   |         | OtherRestructuringCosts |  |   | Total  |  
|Balance at February 3, 2007     |  | $                         |       |   |                     | $ |        |                         |  | $ |       |   |  | $ |        |  
|Restructuring provision         |  |                           | (4,227 | ) |                     |   | (25,150 | )                       |  |   | (2,878 | ) |  |   | (32,255 | )
|                                |  |                           |        |   |                     |   |         |                         |  |   |        |   |  |   |         |  
|Net current year charges        |  |                           | (4,227 | ) |                     |   | (25,150 | )                       |  |   | (2,878 | ) |  |   | (32,255 | )
|Cash payments                   |  |                           |       |   |                     |   |        |                         |  |   | 2,800  |   |  |   | 2,800   |  
|Non-cash adjustments            |  |                           |       |   |                     |   | 25,150  |                         |  |   | (422   | ) |  |   | 24,728  |  
|                                |  |                           |        |   |                     |   |         |                         |  |   |        |   |  |   |         |  
|Ending Balance February 2, 2008 |  | $                         | (4,227 | ) |                     | $ |        |                         |  | $ | (500   | ) |  | $ | (4,727  | )
|                                |  |                           |        |   |                     |   |         |                         |  |   |        |   |  |   |         |  



|(1) | Asset impairment charges represent the write-down of store assets to their estimated fair value.
|--- | ------------------------------------------------------------------------------------------------



|3. | Investments
|-- | -----------

At February 2, 2008, the Company
had $15.1 million invested in auction rate securities. In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, these auction rate securities are classified as available-for-sale and are carried
at cost or par value, which approximates fair market value. These securities have stated maturities beyond three months but are priced and traded as short-term instruments due to the liquidity provided through the interest rate reset mechanism of 28
or 35 days.

As a result of recent uncertainties in the global credit market, the Company has reduced its investment in auction rate
securities to $6 million as of March 14, 2008. While the Company was successful liquidating $9.1 million in auction rate securities since February 2, 2008, in February and March 2008, auctions failed for its remaining $6 million
investment. The Company does not currently believe that the carrying value of its remaining investment in auction rate securities, which are rated AAA by Standard & Poors and backed by student loans, to be impaired, however if the
credit rating of the security issuers deteriorates, the Company may be required to record an impairment charge on these investments. The Company does not believe the amount of any such charge would be material.

The Company believes it is likely that auctions related to these securities will continue to be unsuccessful in the near term. Unsuccessful auctions
limit the short-term liquidity of these investments, therefore the Company has reclassified its remaining $6 million investment in auction rate securities as of March 14, 2008 to long-term, included in Other Assets on its Consolidated Balance
Sheet as of February 2, 2008. While recent failures in the auction process have affected the Companys ability to access these funds in the near term, it does not believe that the underlying securities or collateral have been affected. The
Company expects to continue to earn interest at the prevailing rates on its remaining auction rate securities.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|3. | Investments (Continued)
|-- | -----------------------



The investments held in trust for the Non-Qualified Deferred Compensation Plan (the Deferred Compensation Plan) are classified as trading
securities and are classified as a long-term asset on the consolidated balance sheet included in other assets. Unrealized holding gains and losses on trading securities are included in interest income on the consolidated statements of income. See
Note 10, Retirement Plans, for discussion of the Deferred Compensation Plan.



|4. | Property and Equipment
|-- | ----------------------

Property and equipment
consists of the following:



|                                               |  |                 |           |                 |   |          
|---------------------------------------------- |  | --------------- | --------- | --------------- | - | ---------
|                                               |  | February 2,2008 |           | February 3,2007
|                                               |  | (in thousands) 
|Land and building                              |  | $               | 11,897    |                 | $ | 10,436   
|Leasehold improvements                         |  |                 | 596,876   |                 |   | 579,821  
|Furniture, fixtures, equipment and software    |  |                 | 495,842   |                 |   | 482,669  
|Construction in progress                       |  |                 | 43,388    |                 |   | 32,314   
|                                               |  |                 |           |                 |   |          
|                                               |  |                 | 1,148,003 |                 |   | 1,105,240
|Less accumulated depreciation and amortization |  |                 | 586,733   |                 |   | 541,132  
|                                               |  |                 |           |                 |   |          
|Net property and equipment                     |  | $               | 561,270   |                 | $ | 564,108  
|                                               |  |                 |           |                 |   |          

Depreciation and amortization expense was approximately $116.8 million, $105.9 million and $93.8
million in Fiscal 2007, 2006 and 2005, respectively.



|5. | Long-Term Debt
|-- | --------------

In November 2003, Ann Taylor, Inc.
and certain of its subsidiaries entered into a Second Amended and Restated $175 million senior secured revolving credit facility (the Credit Facility) with Bank of America N.A. and a syndicate of lenders. The Credit Facility, which, at
the Borrowers (as defined in the Credit Facility) option, provides for an increase in the total facility and the aggregate commitments thereunder up to $250 million, matures on November 14, 2008 (unless terminated earlier) and may be used
by Ann Taylor, Inc. and certain of its subsidiaries for working capital, letters of credit and other general corporate purposes.

Maximum
availability for loans and letters of credit under the Credit Facility is governed by a monthly borrowing base, determined by the application of specified advance rates against certain eligible assets. There were no borrowings outstanding under the
Credit Facility at any point during Fiscal 2007 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $111.1 million and $170.5 million as of February 2, 2008 and
February 3, 2007, respectively, leaving a remaining available balance for loans and letters of credit of $63.9 million and $4.5 million as of February 2, 2008 and February 3, 2007, respectively.

Amounts outstanding under the Credit Facility bear interest at a rate equal to, at the option of Ann Taylor, Inc., the Bank of America Base Rate, or
LIBOR Rate, plus a margin of up to 0.25%, and 1.25% to 2.00%, respectively. In addition, Ann Taylor, Inc. is required to pay the lenders a monthly commitment fee on the unused revolving loan commitment amount at a rate ranging from 0.325% to
0.40% per annum. Fees for outstanding commercial and standby letters of credit range from 0.50% to 0.75% and from 1.25% to 2.00%, respectively. The Credit Facility contains financial and other covenants, including limitations on indebtedness
and liens.



47



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|5. | Long-Term Debt(Continued)
|-- | -------------------------



The Credit Facility permits the payment of cash dividends by the Company (and dividends by AnnTaylor, Inc. to fund such cash dividends) if, after the
payment of such dividends, liquidity (as defined in the Credit Facility) is greater than $35 million. Certain subsidiaries of the Company are also permitted to: pay dividends to the Company to fund certain taxes owed by the Company; fund ordinary
operating expenses of the Company not in excess of $500,000 in any fiscal year; repurchase common stock held by employees not in excess of $100,000 in any fiscal year; and for certain other stated purposes (subject to certain exceptions).

The lenders have been granted a pledge of the common stock of Ann Taylor, Inc. and certain of its subsidiaries, and a security interest in
substantially all real and personal property (other than leasehold interests) and all other assets of Ann Taylor, Inc. and certain of its subsidiaries, as collateral for Ann Taylor, Inc.s obligations under the Credit Facility.



|6. | Commitments and Contingencies
|-- | -----------------------------

Leases

The Company occupies its retail stores and administrative facilities under operating leases, most of which are non-cancelable. Some of the store leases
grant the Company the right to extend the term for one or two additional five-year periods under substantially the same terms and conditions as the original leases. Some store leases also contain early termination options, which can be exercised by
the Company under specific conditions. Most of the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the stores net sales in excess of a specified threshold. In addition, most of the
leases require payment of real estate taxes, insurance and certain common area and maintenance costs in addition to the future minimum lease payments.

The Company also leases certain office equipment for its corporate offices and store locations under non-cancelable operating leases, all of which have 3-year terms.

Future minimum lease payments under non-cancelable operating leases as of February 2, 2008 are as follows:



|            |  |                |          
|----------- |  | -------------- | ---------
|Fiscal Year |  | (in thousands)
|2008        |  | $              | 191,646  
|2009        |  |                | 178,752  
|2010        |  |                | 167,444  
|2011        |  |                | 150,643  
|2012        |  |                | 133,892  
|Thereafter  |  |                | 509,792  
|            |  |                |          
|Total       |  | $              | 1,332,169
|            |  |                |          

The minimum lease payments presented above do not include common area maintenance
(CAM) charges or real estate taxes, which are also required contractual obligations under our store and office operating leases. In many of our leases, CAM charges are not fixed and can fluctuate from year to year. Total CAM charges and real
estate taxes for Fiscal 2007, Fiscal 2006 and Fiscal 2005 were $76.2 million, $70.9 million and $63.3 million, respectively.



48



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Commitments and Contingencies(Continued)
|-- | ----------------------------------------



Leases (Continued)



Rent expense for the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006 was as follows:



|                |  |                    |         |                 |   |                 |  |   |        
|--------------- |  | ------------------ | ------- | --------------- | - | --------------- |  | - | -------
|                |  | Fiscal Years Ended
|                |  | February 2,2008    |         | February 3,2007 |   | January 28,2006
|                |  | (in thousands)    
|Minimum rent    |  | $                  | 206,058 |                 | $ | 193,675         |  | $ | 186,522
|Percentage rent |  |                    | 3,506   |                 |   | 3,116           |  |   | 2,809  
|                |  |                    |         |                 |   |                 |  |   |        
|Total           |  | $                  | 209,564 |                 | $ | 196,791         |  | $ | 189,331
|                |  |                    |         |                 |   |                 |  |   |        

Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be
accurately predicted, in our opinion, any such liability will not have a material adverse effect on the Companys consolidated financial position, consolidated results of operations or liquidity.



|7. | Net Income per Share
|-- | --------------------

Basic earnings per share is
calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share assumes the issuance of additional shares of common stock by the Company upon exercise of all outstanding
stock options and vesting of unvested restricted stock, if the effect is dilutive.



|                                   |  |                                          |        |                  |        |                  |   |        |  |        |         |                |        |        |   |        |  |                |        |  |        |  |   |     
|---------------------------------- |  | ---------------------------------------- | ------ | ---------------- | ------ | ---------------- | - | ------ |  | ------ | ------- | -------------- | ------ | ------ | - | ------ |  | -------------- | ------ |  | ------ |  | - | ----
|                                   |  | Fiscal Years Ended                      
|                                   |  | February 2, 2008                         |        | February 3, 2007 |        | January 28, 2006
|                                   |  | (in thousands, except per share amounts)
|                                   |  | Income                                   |        | Shares           |        | PerShareAmount   |   | Income |  | Shares |         | PerShareAmount |        | Income |   | Shares |  | PerShareAmount
|Basic Earnings per Share           |  | $                                        | 97,235 |                  | 62,753 |                  | $ | 1.55   |  | $      | 142,982 |                | 70,993 |        | $ | 2.01   |  | $              | 81,872 |  | 71,554 |  | $ | 1.14
|Effect of Dilutive Securities      |  |                                          |        |                  |        |                  |   |        |  |        |         |                |        |        |   |        |  |                |        |  |        |  |   |     
|Stock options and restricted stock |  |                                          |       |                  | 699    |                  |   |        |  |        |        |                | 1,114  |        |   |        |  |                |       |  | 716    |  |   |     
|                                   |  |                                          |        |                  |        |                  |   |        |  |        |         |                |        |        |   |        |  |                |        |  |        |  |   |     
|Diluted Earnings per Share         |  | $                                        | 97,235 |                  | 63,452 |                  | $ | 1.53   |  | $      | 142,982 |                | 72,107 |        | $ | 1.98   |  | $              | 81,872 |  | 72,270 |  | $ | 1.13
|                                   |  |                                          |        |                  |        |                  |   |        |  |        |         |                |        |        |   |        |  |                |        |  |        |  |   |     

Options to purchase 1,012,406, 194,817 and 1,508,726 shares of common stock were excluded from the
above computations of weighted average shares for diluted earnings per share for Fiscal 2007, 2006 and 2005, respectively. This was due to the antidilutive effect of the options exercise prices as compared to the average market price of the
common shares during those periods. In addition, 225,667 shares and 266,667 shares of unvested restricted stock were excluded from the above calculations for the fiscal years ended February 2, 2008 and February 3, 2007, respectively, due
to contingencies placed on their vesting which had not yet been satisfied as of those dates.



49



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Other Equity and Stock Incentive Plans
|-- | --------------------------------------

Preferred Stock

At February 2, 2008, February 3, 2007 and January 28, 2006, there were 2 million shares of preferred
stock, par value $0.01, authorized and unissued.

Repurchase Program

On August 23, 2007, the Companys Board of Directors approved a $300 million securities repurchase program (the August 2007
Program), which replaced the $300 million securities repurchase program approved by the Companys Board of Directors in March 2007 (the March 2007 Program). Under the August 2007 Program, purchases of shares of the
Companys common stock may be made from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock increase treasury
shares available for general corporate and other purposes. During the fiscal year ended February 2, 2008, the Company repurchased 9,301,633 shares of its common stock at a cost of approximately $340.1 million. Of this amount, 1,347,286 shares
were repurchased under the August 2007 Program at a cost of approximately $40 million and 7,952,879 shares were repurchased under the March 2007 program at a cost of approximately $300 million. In addition, the Company repurchased 1,468 shares under
an earlier $125 million August 2006 program at a cost of approximately $0.1 million.

Associate Discount Stock Purchase Plan

In Fiscal 1999, the Company established an Associate Discount Stock Purchase Plan (the Stock Purchase Plan). Under the terms of the Stock
Purchase Plan, as amended, eligible employees may purchase shares of the Companys common stock quarterly, at a price equal to 85% of the lower of the closing price of the Companys common stock at the beginning or end of each quarterly
stock purchase period. Participating employees pay for their stock purchases under the Stock Purchase Plan by authorizing limited payroll deductions of up to a maximum of 15% of their compensation. During Fiscal 2007, 132,815 shares were issued
pursuant to the Stock Purchase Plan, at an average discount of $4.65 per share. At February 2, 2008, there were 190,253 shares available for future issuance under the Stock Purchase Plan. As a result of the adoption of SFAS No. 123(R), the
Company recorded approximately $1.0 million and $0.9 million in compensation expense related to the Stock Purchase Plan during Fiscal 2007 and Fiscal 2006, respectively.

Stock Incentive Plans

The Company has established four stock incentive plans (the
Plans), which are summarized below:



|                 |  |              |                     |                                                            |                 |                 |  |                                                |  |                                |  |        
|---------------- |  | ------------ | ------------------- | ---------------------------------------------------------- | --------------- | --------------- |  | ---------------------------------------------- |  | ------------------------------ |  | -------
|Year Established |  | Defined Name |                     | Plan Name                                                  |                 | Shares Reserved |  | Shares Reservedfor Issuance
atFebruary 2, 2008 |  | SharesAvailablefor FutureGrant
|                 |  |              | RestrictedStock (a) |                                                            | TotalAuthorized |                 | 
|1992             |  | 1992 Plan    |                     | 1992 Stock Option and Restricted Stock and Unit Award Plan |                 | 713,250         |  | 7,200,000                                      |  | 178,313                        |  |       
|2000             |  | 2000 Plan    |                     | 2000 Stock Option and Restricted Stock Award Plan          |                 | 562,500         |  | 2,250,000                                      |  | 69,652                         |  | 40,134 
|2001             |  | 2002 Plan    |                     | 2002 Stock Option and Restricted Stock and Unit Award Plan |                 | 787,500         |  | 4,500,000                                      |  | 1,288,644                      |  | 382,009
|2003             |  | 2003 Plan    |                     | 2003 Equity Incentive Plan                                 |                 | 1,760,000       |  | 5,500,000                                      |  | 3,288,534                      |  | 704,051



|(a) | Included in the number of total authorized shares. The Company may issue restricted stock grants up to the levels provided under each plan, however shares not used for this
purpose are available for issuance as stock option grants, except for 150,750 shares under the 1992 Plan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Other Equity and Stock Incentive Plans(Continued)
|-- | -------------------------------------------------



Stock Incentive Plans (Continued)



Stock option awards outstanding under the Companys Plans have been granted at exercise prices which are equal to the market value of the
Companys common stock on the grant date (determined in accordance with the applicable Plan), generally vest over four years and expire no later than ten years after the grant date. Each of the Plans also includes an acceleration clause by
which all options not exercisable by their terms will, upon the occurrence of certain events, become exercisable. Shares underlying stock award grants are generally issued out of treasury stock. All the Plans allow for restricted stock awards, and
the 2002 Plan and 2003 Plan also include restricted unit awards. A restricted unit represents the right to receive a share of common stock and/or the cash value of a share of common stock on the date the restrictions on the restricted unit lapse. No
restricted units have been granted under the Plans. The restrictions on restricted stock or restricted unit grants generally lapse over a four-year period from the date of the grant. Certain executives also receive performance-based restricted stock
grants, which generally vest over three years if certain pre-established goals are met. In the event a grantee terminates employment with the Company, any restricted stock or restricted units remaining subject to restrictions are generally
forfeited.

Stock Options

In
accordance with SFAS No. 123(R), in Fiscal 2006 the Company began recognizing stock option expense on a straight-line basis over the vesting period, net of estimated forfeitures. As of February 2, 2008, there was $16.4 million of
unrecognized compensation cost related to unvested options, which is expected to be recognized over a remaining weighted-average vesting period of 2.5 years. The total intrinsic value of options exercised during the fiscal years ended
February 2, 2008, February 3, 2007 and January 28, 2006 was approximately $7.7 million, $20.5 million and $34.1 million, respectively.

The following table summarizes stock option activity for the fiscal year ended February 2, 2008:



|                                             |  |           |   |  |                                  |      
|-------------------------------------------- |  | --------- | - |  | -------------------------------- | -----
|                                             |  | Shares    |   |  | Weighted - AverageExercise Price
|Options outstanding at February 3, 2007      |  | 3,769,832 |   |  | $                                | 26.35
|Granted                                      |  | 1,187,150 |   |  |                                  | 35.10
|Forfeited or expired                         |  | (651,416  | ) |  |                                  | 31.64
|Exercised                                    |  | (606,617  | ) |  |                                  | 23.74
|                                             |  |           |   |  |                                  |      
|Options outstanding at February 2, 2008      |  | 3,698,949 |   |  | $                                | 28.65
|                                             |  |           |   |  |                                  |      
|Vested and exercisable at February 2, 2008   |  | 1,627,637 |   |  | $                                | 23.83
|                                             |  |           |   |  |                                  |      
|Options expected to vest at February 2, 2008 |  | 1,418,350 |   |  | $                                | 32.91
|                                             |  |           |   |  |                                  |      

The weighted-average fair value of options granted during the fiscal years ended February 2,
2008, February 3, 2007 and January 28, 2006, estimated as of the grant date using the Black-Scholes option pricing model, was $12.00, $14.96 and $7.26 per share, respectively. The weighted-average remaining contractual term for
options outstanding at both February 2, 2008 and February 3, 2007 was 7.3 years. The weighted-average remaining contractual term for options vested and exercisable at February 2, 2008 was 5.9 years. The weighted-average remaining
contractual term for options expected to vest at February 2, 2008 was 8.5 years. At February 2, 2008, the aggregate intrinsic value was $6.0 million for options outstanding, $5.8 million for options vested and exercisable and $0.2 million
for options expected to vest.



51



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Other Equity and Stock Incentive Plans(Continued)
|-- | -------------------------------------------------



Stock Options (Continued)



Option valuation models require input of highly subjective assumptions including the expected stock price volatility. The Black-Scholes option pricing
model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. The fair value of options granted under the Companys stock option Plans was estimated on the date of
grant using the Black-Scholes option pricing model with the following assumptions:



|                        |  |                    |   |  |                 |   |  |                 |  
|----------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                        |  | Fiscal Years Ended |  
|                        |  | February 2,2008    |   |  | February 3,2007 |   |  | January 28,2006 |  
|Expected volatility     |  | 33.1               | % |  | 38.6            | % |  | 30.7            | %
|Risk-free interest rate |  | 4.4                | % |  | 4.8             | % |  | 3.0             | %
|Expected life (years)   |  | 4.4                |   |  | 4.7             |   |  | 4.1             |  
|Dividend yield          |  |                   |   |  |                |   |  |                |  

The risk-free rate is based on a zero-coupon U.S. Treasury rate in effect at the time of grant
with maturity dates that coincide with the expected life of the options. The expected life of the options is based on a calculation of the Companys historical exercise patterns to estimate future exercise patterns. The expected volatility for
grants made subsequent to the adoption of SFAS No. 123(R) is based on a simple average of (i) historical volatility of stock price returns using daily closing prices and (ii) the volatility implied by exchange-traded call options to
purchase the Companys common stock. The expected volatility for grants made prior to the adoption of SFAS No. 123(R) was based on historical volatility of stock price returns using daily closing prices. Historical volatility was
calculated as of the grant date using stock price data over periods of time equal in duration to the expected life of the options granted. In assessing implied volatility data, the Company analyzed call option market activity during the three month
period preceding the grant date. The Company also considered the volume of market activity of the underlying shares and traded options, the similarity of the exercise prices of the traded options to the exercise price of the employee stock
options during the period, and considered traded options whose term is close to the expected term of the employee stock option.

Restricted
Stock

In accordance with SFAS No. 123(R), the fair value of restricted stock awards is based on the market price of the
Companys stock on the date of grant (determined in accordance with the applicable Plan) and is amortized to compensation expense on a straight-line basis over the related vesting period, net of estimated forfeitures. As of February 2,
2008, there was $15.5 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.4 years. SFAS No. 123(R) requires that
the deferred stock-based compensation on the consolidated balance sheet on the date of adoption be netted against additional paid-in capital. As of January 28, 2006, there was approximately $12.0 million of deferred stock-based compensation
that was netted against additional paid-in capital on January 29, 2006 in accordance with SFAS No. 123(R). The total fair value of restricted stock awards vested during the fiscal years ended February 2, 2008, February 3,
2007 and January 28, 2006 was $17.5 million, $14.8 million and $7.1 million, respectively.



52



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Other Equity and Stock Incentive Plans (Continued)
|-- | --------------------------------------------------



Restricted Stock (Continued)



The following table summarizes restricted stock activity for the fiscal year ended February 2, 2008:



|                                            |  |                 |   |  |                                        |      
|------------------------------------------- |  | --------------- | - |  | -------------------------------------- | -----
|                                            |  | Number ofShares |   |  | Weighted - AverageGrant DateFair Value
|Restricted stock awards at February 3, 2007 |  | 1,171,086       |   |  | $                                      | 32.55
|Granted                                     |  | 457,912         |   |  |                                        | 35.02
|Vested                                      |  | (495,791        | ) |  |                                        | 35.23
|Forfeited                                   |  | (178,488        | ) |  |                                        | 32.32
|                                            |  |                 |   |  |                                        |      
|Restricted stock awards at February 2, 2008 |  | 954,719         |   |  | $                                      | 32.39
|                                            |  |                 |   |  |                                        |      

At February 2, 2008, 119,667 shares of performance-based awards included in the total
restricted stock awards outstanding on that date will be forfeited in the first quarter of Fiscal 2008, since the performance targets necessary to vest in these awards were not achieved.

General

SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. In Fiscal 2007 and Fiscal 2006, stock-based compensation expense was recorded net of estimated forfeitures, such that expense was recorded only for
those stock-based awards that are expected to vest. Previously, under APB No. 25, to the extent awards were forfeited prior to vesting, any corresponding previously recognized compensation expense was reversed in the period of forfeiture. Upon
adoption of SFAS No. 123(R), the Company recorded an adjustment to account for the expected forfeitures of stock-based awards granted prior to January 29, 2006, for which the Company previously recorded compensation expense. This
adjustment was not material.

Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits resulting from
stock-based compensation arrangements as operating cash flows in the Consolidated Statements of Cash Flows. SFAS No. 123(R) requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for
stock-based compensation arrangements (excess tax benefits) be classified as financing cash flows. For the fiscal year ended February 2, 2008, excess tax benefits realized from stock-based compensation arrangements were $2.3
million. The Company received $14.4 million, $26.7 million and $47.3 million cash from the exercise of stock options during the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006, respectively.

During the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006, the Company recognized approximately $19.0
million, $24.7 million and $10.4 million, respectively, in total share-based compensation expense. The total tax benefit recognized in the Consolidated Statements of Income for the fiscal years ended February 2, 2008, February 3, 2007
and January 28, 2006 was approximately $6.1 million, $9.3 million and $4.6 million, respectively.



53



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Other Equity and Stock Incentive Plans (Continued)
|-- | --------------------------------------------------



General (Continued)



For Fiscal 2005, had the compensation cost of stock option awards been determined under a fair value alternative method as stated in SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure, an amendment of FASB Statement No. 123, the Company would have been required to prepare a fair value model for such options, and record such amount in the
consolidated financial statements as compensation expense and the Companys net income and earnings per share for the fiscal year ended January 28, 2006 would have been reduced to the following pro forma amounts:



|                                                                                                                                            |  |                                     |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | -
|                                                                                                                                            |  | Fiscal Year EndedJanuary 28, 2006   |        
|                                                                                                                                            |  | (in thousands,except per sharedata) |        
|Net income:                                                                                                                                 |  |                                     |         |  
|As reported                                                                                                                                 |  | $                                   | 81,872  |  
|Add: Stock-based employee compensation expense included in net income, net of related tax effects                                           |  |                                     | 6,613   |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                                     | (10,162 | )
|                                                                                                                                            |  |                                     |         |  
|Pro forma                                                                                                                                   |  | $                                   | 78,323  |  
|                                                                                                                                            |  |                                     |         |  
|Basic earnings per share:                                                                                                                   |  |                                     |         |  
|As reported                                                                                                                                 |  | $                                   | 1.14    |  
|                                                                                                                                            |  |                                     |         |  
|Pro forma                                                                                                                                   |  | $                                   | 1.09    |  
|                                                                                                                                            |  |                                     |         |  
|Diluted earnings per share:                                                                                                                 |  |                                     |         |  
|As reported                                                                                                                                 |  | $                                   | 1.13    |  
|                                                                                                                                            |  |                                     |         |  
|Pro forma                                                                                                                                   |  | $                                   | 1.08    |  
|                                                                                                                                            |  |                                     |         |  

Stockholder Rights Plan

In Fiscal 2000, the Companys Board of Directors adopted a Stockholder Rights Plan (Rights Plan). Rights under the Rights Plan
(Rights) were distributed as a dividend at the rate of one Right for each share of common stock of the Company held by stockholders of record as of the close of business on May 30, 2000. As a result of the 2004 and 2002 3-for-2
splits of the Companys common stock, each share of common stock now represents four-ninths of a Right. Each Right entitles stockholders to buy one unit of a share of a new series of preferred stock for $125. Under certain circumstances, if a
person or group acquires beneficial ownership of 15% or more of the voting power of the Company as represented by the Companys common stock, or commences a tender or exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the voting power of the Company as represented by the Companys common stock, holders of the Rights, other than the person or group triggering their exercise, will be able to purchase, in exchange for the $125
exercise price, shares of the Companys common stock or of any company into which the Company is merged having a value of $250. The Rights will expire on May 18, 2010. No Rights were exercised under the Rights Plan in Fiscal 2007.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|9. | Income Taxes
|-- | ------------

The provision for income taxes for
the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006 consists of the following:



|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|--------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | --------------- |  | - | ------- | -
|                      |  | Fiscal Years Ended |       
|                      |  | February 2,2008    |        |   | February 3,2007 |   |        | January 28,2006 | 
|                      |  | (in thousands)     |       
|Federal:              |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Current               |  | $                  | 56,109 |   |                 | $ | 80,923 |                 |  | $ | 58,024  |  
|Deferred              |  |                    | (7,286 | ) |                 |   | (8,565 | )               |  |   | (13,632 | )
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Total federal         |  |                    | 48,823 |   |                 |   | 72,358 |                 |  |   | 44,392  |  
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|State and local:      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Current               |  |                    | 11,279 |   |                 |   | 20,268 |                 |  |   | 12,661  |  
|Deferred              |  |                    | (707   | ) |                 |   | (2,115 | )               |  |   | (1,731  | )
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Total state and local |  |                    | 10,572 |   |                 |   | 18,153 |                 |  |   | 10,930  |  
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Foreign:              |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Current               |  |                    | 5,778  |   |                 |   | 5,417  |                 |  |   | 1,075   |  
|Deferred              |  |                    | (1,368 | ) |                 |   | (129   | )               |  |   | (8      | )
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Total foreign         |  |                    | 4,410  |   |                 |   | 5,288  |                 |  |   | 1,067   |  
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  
|Total                 |  | $                  | 63,805 |   |                 | $ | 95,799 |                 |  | $ | 56,389  |  
|                      |  |                    |        |   |                 |   |        |                 |  |   |         |  

The reconciliation between the provision for income taxes and the provision for income taxes at
the federal statutory rate for the fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006 is as follows:



|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|--------------------------------------------------------------- |  | ---------------------------------- | ------- | - | --------------- | - | ------- | --------------- |  | - | ------- | -
|                                                                |  | Fiscal Years Ended                 |        
|                                                                |  | February 2,2008                    |         |   | February 3,2007 |   |         | January 28,2006 | 
|                                                                |  | (in thousands, except percentages) |        
|Income before income taxes                                      |  | $                                  | 161,040 |   |                 | $ | 238,781 |                 |  | $ | 138,261 |  
|Federal statutory rate                                          |  |                                    | 35      | % |                 |   | 35      | %               |  |   | 35      | %
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|Provision for income taxes at federal statutory rate            |  |                                    | 56,364  |   |                 |   | 83,573  |                 |  |   | 48,391  |  
|State and local income taxes, net of federal income tax benefit |  |                                    | 6,872   |   |                 |   | 11,799  |                 |  |   | 7,108   |  
|Other                                                           |  |                                    | 569     |   |                 |   | 427     |                 |  |   | 890     |  
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|Provision for income taxes                                      |  | $                                  | 63,805  |   |                 | $ | 95,799  |                 |  | $ | 56,389  |  
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  



55



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|9. | Income Taxes(Continued)
|-- | -----------------------



The tax effects of significant items comprising the Companys deferred tax assets (liabilities) as of February 2, 2008 and February 3, 2007
are as follows:



|                                                         |  |                 |         |   |                 |   |         |  
|-------------------------------------------------------- |  | --------------- | ------- | - | --------------- | - | ------- | -
|                                                         |  | February 2,2008 |         |   | February 3,2007 |  
|                                                         |  | (in thousands)  |        
|Current:                                                 |  |                 |         |   |                 |   |         |  
|Inventory                                                |  | $               | 8,380   |   |                 | $ | 9,339   |  
|Accrued expenses and other                               |  |                 | 13,088  |   |                 |   | 9,617   |  
|Real estate                                              |  |                 | 7,693   |   |                 |   | 6,639   |  
|                                                         |  |                 |         |   |                 |   |         |  
|Total current                                            |  | $               | 29,161  |   |                 | $ | 25,595  |  
|                                                         |  |                 |         |   |                 |   |         |  
|Non-current:                                             |  |                 |         |   |                 |   |         |  
|Accrued expenses                                         |  | $               | 1,511   |   |                 | $ | 1,211   |  
|Depreciation and amortization                            |  |                 | (80,753 | ) |                 |   | (78,078 | )
|Rent expense                                             |  |                 | 92,154  |   |                 |   | 87,671  |  
|Other                                                    |  |                 | 6,301   |   |                 |   | 2,067   |  
|Amounts included in accumulated other comprehensive loss |  |                 | 2,141   |   |                 |   | 3,928   |  
|                                                         |  |                 |         |   |                 |   |         |  
|Total non-current                                        |  | $               | 21,354  |   |                 | $ | 16,799  |  
|                                                         |  |                 |         |   |                 |   |         |  

The income tax provision reflects the current and deferred tax consequences of events that have
been recognized in the Company's consolidated financial statements or tax returns. U.S. federal income taxes are provided on unremitted foreign earnings, except those that are considered permanently reinvested, which at February 2, 2008
amounted to approximately $6.6 million. However, if these earnings were not considered permanently reinvested, under current law, the incremental tax on such undistributed earnings would be approximately $0.9 million.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions, and generally remains open to income tax
examinations by relevant tax authorities for tax years beginning with Fiscal 2003. The Company also files in foreign jurisdictions and generally remains open to income tax examinations for tax years beginning with Fiscal 2001.

On February 4, 2007, the Company adopted the provisions of FIN No. 48 (see Note 1). The cumulative effect of applying FIN No. 48 was
recorded as a $1.1 million charge to retained earnings on February 4, 2007. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



|                                                             |  |                                 |        |  
|------------------------------------------------------------ |  | ------------------------------- | ------ | -
|                                                             |  | Fiscal YearEndedFebruary 2,2008 |       
|                                                             |  | (in thousands)                  |       
|Balance at February 4, 2007                                  |  | $                               | 5,789  |  
|Additions based on tax positions related to the current year |  |                                 | 1,002  |  
|Additions for tax positions of prior years                   |  |                                 | 817    |  
|Reductions for tax positions of prior years                  |  |                                 | (1,672 | )
|Lapses in statutes of limitation                             |  |                                 | (490   | )
|                                                             |  |                                 |        |  
|Balance at February 2, 2008                                  |  | $                               | 5,446  |  
|                                                             |  |                                 |        |  



56



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|9. | Income Taxes(Continued)
|-- | -----------------------



To the extent these unrecognized tax benefits are ultimately recognized, they will impact the Companys effective tax rate in a future period. The
Company anticipates that the amount of unrecognized tax benefits may change in the next twelve months, however it does not expect the change to have a significant impact on its financial statements.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its provision for income taxes. During the years ended
February 2, 2008, February 3, 2007, and January 28, 2006, the Company recognized an immaterial amount of interest and penalties. The Company had approximately $2.8 and $1.8 million for the payment of interest and penalties
accrued at February 2, 2008 and February 3, 2007, respectively.

In October 2004, the American Jobs Creation Act (Jobs
Act) was signed into law. The Jobs Act includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the Jobs Act. Under the Jobs Act, the Company may elect to apply this provision to qualifying earnings
repatriations occurring in its 2004 or 2005 taxable years. The Company elected not to apply the provision to any distributions occurring in either of these taxable years.

The Company is subject to periodic audits of its various tax returns by government agencies which could result in possible income tax liabilities. Although the outcome of these matters cannot currently be determined,
the Company believes adequate provision has been made for any potential unfavorable financial statement impact.



|10. | Retirement Plans
|--- | ----------------

Non-Qualified Deferred Compensation Plan

Under the Companys Deferred Compensation Plan, certain executives, including the named executive officers, may defer up to
50% of salary as well as up to 100% of cash performance compensation earned during the calendar year.

Under the Deferred Compensation
Plan, beginning on the anniversary of the executives date of hire, the Company will match the amount of the base and bonus compensation deferred by the executive during the Plan year minus the Internal Revenue Code Section 401(a)(17)
qualified plan compensation limit as indexed on an annual basis (Eligible Compensation). If an executive elects to defer up to 3% of his or her Eligible Compensation, the Company matches 100% of the deferral. If an executive elects to
defer more than 3% of his or her Eligible Compensation, the Company matches amounts deferred over 3% and up to 6% of Eligible Compensation at a rate of 50%. The amounts deferred by the executive and credited under the executives deferred
compensation account are at all times fully vested. The Companys matching deferral credited to an executives deferred compensation account vests upon the second anniversary of the executives date of hire, or earlier upon a change
in control (as defined under the Deferred Compensation Plan).

The Deferred Compensation Plan became effective January 1, 2008 and
replaces an earlier non-qualified deferred compensation plan which did not provide for matching employer contributions and under which executives could defer only up to 25% of base salary and 100% of bonus awards, with interest earned on the amounts
deferred.

Savings Plan and Pension Plan

In June 2007, the Companys Board of Directors authorized management to freeze its non-contributory defined benefit pension plan (the Pension Plan) and enhance its defined contribution 401(k) savings plan (the 401(k)
Plan). These plan changes became effective on October 1, 2007.



57



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. | Retirement Plans (Continued)
|--- | ----------------------------



Savings Plan

Substantially all employees of
the Company and its subsidiaries who work at least 30 hours per week or who work 1,000 hours during a consecutive 12 month period are eligible to participate in the Companys 401(k) Plan. Prior to October 1, 2007, participants could
contribute to the 401(k) Plan an aggregate of up to 75% of their annual earnings in any combination of pre-tax and after-tax contributions, subject to certain limitations. The Company made a matching contribution of 50% with respect to the first 3%
of each participants contributions to the 401(k) Plan prior to October 1, 2007. Beginning October 1, 2007, the Company match was increased to 100% with respect to the first 3% and 50% with respect to the second 3% of each
participants contributions to the 401(k) Plan made on or after October 1, 2007. The Companys contributions to the 401(k) Plan for Fiscal 2007, Fiscal 2006 and Fiscal 2005 were approximately $2.6 million, $1.5 million and $1.3
million, respectively.

Pension Plan

Substantially all employees of the Company who began employment prior to October 1, 2007, and completed 1,000 hours of service during a consecutive 12 month period prior to that date are eligible for benefits under the Companys
Pension Plan. The Pension Plan calculates benefits based on a career average formula. Only those associates who were eligible under the Pension Plan on or before September 30, 2007 are eligible to receive benefits from the Pension Plan once
they have completed the five years of service required to become fully vested. As a result of the Pension Plan freeze, no associate may become a participant in the Pension Plan on or after October 1, 2007, and no additional benefits will be
earned under the Pension Plan on or after October 1, 2007.

In connection with the Pension Plan freeze, the Company
remeasured its accumulated benefit obligation under the Pension Plan as of October 1, 2007. As a result of the remeasurement, the Pension Plans funded status increased, and the Company recognized
a one-time curtailment gain of $0.9 million.

On February 3, 2007, the Company began recognizing the funded
status of its Pension Plan in accordance with SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 requires
company plan sponsors to record the net over- or under-funded position of a defined benefit postretirement plan as an asset or liability, with any unrecognized prior service costs, transition obligations or actuarial gains/losses reported as a
component of accumulated other comprehensive income in stockholders equity. Prior to February 3, 2007, the Company had accounted for its Pension Plan according to the provisions of SFAS No. 87, Employers Accounting for
Pensions, and related interpretations, and therefore the funded status of the Companys Pension Plan was not reflected in its Consolidated Balance Sheets.



58



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. | Retirement Plans (Continued)
|--- | ----------------------------



Pension Plan (Continued)



The following table provides information for the pension plan at February 2, 2008 and February 3, 2007:



|                                                  |  |                    |        |   |                 |   |        |  
|------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | -
|                                                  |  | Fiscal Years Ended |       
|                                                  |  | February 2,2008    |        |   | February 3,2007 |  
|                                                  |  | (in thousands)     |       
|Change in benefit obligation:                     |  |                    |        |   |                 |   |        |  
|Projected benefit obligation at beginning of year |  | $                  | 41,801 |   |                 | $ | 37,607 |  
|Prior service and interest cost                   |  |                    |       |   |                 |   |       |  
|Service cost                                      |  |                    | 4,063  |   |                 |   | 5,878  |  
|Interest cost                                     |  |                    | 2,086  |   |                 |   | 1,912  |  
|Actuarial gain                                    |  |                    | (2,121 | ) |                 |   | (375   | )
|Benefits paid                                     |  |                    | (3,565 | ) |                 |   | (3,221 | )
|Plan curtailment                                  |  |                    | (4,136 | ) |                 |   |       |  
|                                                  |  |                    |        |   |                 |   |        |  
|Projected benefit obligation at end of year       |  |                    | 38,128 |   |                 |   | 41,801 |  
|                                                  |  |                    |        |   |                 |   |        |  
|Change in plan assets:                            |  |                    |        |   |                 |   |        |  
|Fair value of plan assets at beginning of year    |  |                    | 42,539 |   |                 |   | 33,163 |  
|Actual return on plan assets                      |  |                    | 842    |   |                 |   | 4,897  |  
|Employer contribution                             |  |                    |       |   |                 |   | 7,700  |  
|Benefits paid                                     |  |                    | (3,565 | ) |                 |   | (3,221 | )
|                                                  |  |                    |        |   |                 |   |        |  
|Fair value of plan assets at end of year          |  |                    | 39,816 |   |                 |   | 42,539 |  
|                                                  |  |                    |        |   |                 |   |        |  
|Funded status at end of year                      |  |                    | 1,688  |   |                 |   | 738    |  
|                                                  |  |                    |        |   |                 |   |        |  
|Unrecognized net actuarial loss                   |  |                    |       |   |                 |   |       |  
|Unrecognized prior service cost                   |  |                    |       |   |                 |   |       |  
|                                                  |  |                    |        |   |                 |   |        |  
|Net amount included in other assets               |  | $                  | 1,688  |   |                 | $ | 738    |  
|                                                  |  |                    |        |   |                 |   |        |  

Amounts recognized in the Companys Consolidated Balance Sheets consist of:



|                   |  |                 |       |                 |   |    
|------------------ |  | --------------- | ----- | --------------- | - | ---
|                   |  | February 2,2008 |       | February 3,2007
|                   |  | (in thousands) 
|Non-current assets |  | $               | 1,688 |                 | $ | 738
|                   |  |                 |       |                 |   |    
|Total              |  | $               | 1,688 |                 | $ | 738
|                   |  |                 |       |                 |   |    

The accumulated benefit obligation for the Companys defined benefit pension plan was
approximately $38.1 million and $37.4 million at February 2, 2008 and February 3, 2007, respectively. As a result of the Pension Plan freeze, the accumulated benefit obligation equals the projected benefit obligation.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. | Retirement Plans (Continued)
|--- | ----------------------------



Pension Plan (Continued)



The following table summarizes the components of Net Periodic Benefit Cost and other amounts recognized in accumulated other comprehensive loss:



|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                                                                                             |  | Fiscal Years Ended |       
|                                                                                             |  | February 2,2008    |        |   | February 3,2007 |   |        | January 28,2006 | 
|                                                                                             |  | (in thousands)     |       
|Net periodic benefit cost                                                                    |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Service cost                                                                                 |  | $                  | 4,063  |   |                 | $ | 5,878  |                 |  | $ | 4,973  |  
|Interest cost                                                                                |  |                    | 2,086  |   |                 |   | 1,912  |                 |  |   | 1,730  |  
|Prior service and interest cost                                                              |  |                    |       |   |                 |   |       |                 |  |   | 226    |  
|Expected return on plan assets                                                               |  |                    | (2,864 | ) |                 |   | (2,435 | )               |  |   | (2,098 | )
|Amortization of prior service cost                                                           |  |                    | 57     |   |                 |   | 86     |                 |  |   | 86     |  
|Amortization of net loss                                                                     |  |                    | 265    |   |                 |   | 1,610  |                 |  |   | 1,557  |  
|Gain on curtailment                                                                          |  |                    | (857   | ) |                 |   |       |                 |  |   |       |  
|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Net periodic benefit cost                                                                    |  | $                  | 2,750  |   |                 | $ | 7,051  |                 |  | $ | 6,474  |  
|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Other changes in plan assets and benefit obligations recognized in other comprehensive loss: |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Net gain arising during the year                                                             |  | $                  | (99    | ) |                 | $ |       |                 |  | $ |       |  
|Curtailment gain                                                                             |  |                    | (3,279 | ) |                 |   |       |                 |  |   |       |  
|Amortization of net gain                                                                     |  |                    | (322   | ) |                 |   |       |                 |  |   |       |  
|Increase in accumulated other comprehensive loss to reflect the adoption of SFAS No. 158     |  |                    |       |   |                 |   | 9,301  |                 |  |   |       |  
|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Total recognized in other other comprehensive (income) loss                                  |  | $                  | (3,700 | ) |                 | $ | 9,301  |                 |  | $ |       |  
|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Total recognized in net periodic benefit cost and other comprehensive (income) loss          |  | $                  | (950   | ) |                 | $ | 16,352 |                 |  | $ | 6,474  |  
|                                                                                             |  |                    |        |   |                 |   |        |                 |  |   |        |  

As a result of the Pension Plan freeze, the Company has no remaining prior service cost that will
be amortized from accumulated other comprehensive loss into net periodic benefit cost.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. | Retirement Plans (Continued)
|--- | ----------------------------



Pension Plan (Continued)



Amounts recognized in accumulated other comprehensive loss consist of:



|                    |  |                    |       |                 |   |      
|------------------- |  | ------------------ | ----- | --------------- | - | -----
|                    |  | Fiscal Years Ended
|                    |  | February 2,2008    |       | February 3,2007
|Net actuarial loss  |  | $                  | 5,601 |                 | $ | 9,039
|Prior service costs |  |                    |      |                 |   | 262  
|                    |  |                    |       |                 |   |      
|Total               |  | $                  | 5,601 |                 | $ | 9,301
|                    |  |                    |       |                 |   |      

For the fiscal years ended February 2, 2008 and February 3, 2007 the following
weighted-average assumptions were used to determine benefit obligations at the end of the fiscal years:



|                                        |  |                    |   |  |                 |  
|--------------------------------------- |  | ------------------ | - |  | --------------- | -
|                                        |  | Fiscal Years Ended |  
|                                        |  | February 2,2008    |   |  | February 3,2007 |  
|Discount rate                           |  | 5.80               | % |  | 5.80            | %
|Rate of increase in future compensation |  | 3.00               | % |  | 4.00            | %

For the fiscal years ended February 2, 2008, February 3, 2007 and January 8,
2006 the following weighted-average assumptions were used to determine net periodic benefit cost for the fiscal years shown:



|                                        |  |                    |   |  |                 |   |  |                 |  
|--------------------------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                                        |  | Fiscal Years Ended |  
|                                        |  | February 2,2008    |   |  | February 3,2007 |   |  | January 28,2006 |  
|Discount rate                           |  | 5.80               | % |  | 5.55            | % |  | 5.75            | %
|Long-term rate of return on assets      |  | 7.25               | % |  | 7.25            | % |  | 7.25            | %
|Rate of increase in future compensation |  | 4.00               | % |  | 4.00            | % |  | 4.00            | %

To develop the expected long-term rate of return on plan assets, the Company considered the
historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. The Company assumes that all employees will take a lump-sum payout based on the historical payout
trends.

The Companys pension plan weighted-average asset allocation at the end of the fiscal year, by asset category, is as follows:



|                  |  |                    |   |  |                 |  
|----------------- |  | ------------------ | - |  | --------------- | -
|                  |  | Fiscal Years Ended |  
|                  |  | February 2,2008    |   |  | February 3,2007 |  
|Asset Category    |  |                    |   |  |                 |  
|Equity securities |  | 62                 | % |  | 68              | %
|Debt securities   |  | 36                 | % |  | 31              | %
|Other             |  | 2                  | % |  | 1               | %
|                  |  |                    |   |  |                 |  
|Total             |  | 100                | % |  | 100             | %
|                  |  |                    |   |  |                 |  



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. | Retirement Plans (Continued)
|--- | ----------------------------



Pension Plan (Continued)



The Companys investment policy specifies a minimum investment of 50% but not more than 70% in equity securities, a minimum of 30% but not more than
50% in debt securities, and up to 20% in other short-term investments. Plan assets consist primarily of equity and fixed income funds or cash and equivalents. The equity securities do not include any of the Companys common stock. The plan
prohibits transactions investing in commodities, direct real estate, venture capital, private placements and purchasing securities on margin. The plan goal is to comply with all applicable state and federal requirements to meet pension funding
requirements. Principal investment objectives are: to meet the financial needs of the plan, to maximize the investment return within plan guidelines and within set risk tolerance levels, and to broadly diversify the plan investments against any
negative impact within any one given market. The plans investment performance guidelines are set and measured against appropriate portfolio benchmarks. The plan goals, objectives, asset allocation policies and funding forecasts are reviewed
periodically within any given plan year, or when significant changes have occurred in plan benefits, participant demographics or funded status.

The benefits expected to be paid under the pension plan as of February 2, 2008 are as follows:



|            |  |                |      
|----------- |  | -------------- | -----
|Fiscal Year |  | (in thousands)
|2008        |  | $              | 5,450
|2009        |  |                | 4,442
|2010        |  |                | 3,651
|2011        |  |                | 3,108
|2012        |  |                | 2,162
|2013  2017 |  |                | 9,029

The Company made no contributions to the Pension Plan in Fiscal 2007. The Company contributed $7.7
million to the Pension Plan in Fiscal 2006. Although not required to make a contribution to the Pension Plan next year, the Company may make a contribution in Fiscal 2008.



|11. | Selected Quarterly Financial Data  Unaudited
|--- | ---------------------------------------------



|                           |  |                                          |         |        |   |         |  |        |         |  |   |         |  
|-------------------------- |  | ---------------------------------------- | ------- | ------ | - | ------- |  | ------ | ------- |  | - | ------- | -
|                           |  | Quarter                                  |        
|                           |  | First                                    |         | Second |   | Third   |  | Fourth |        
|                           |  | (in thousands, except per share amounts) |        
|Fiscal 2007                |  |                                          |         |        |   |         |  |        |         |  |   |         |  
|Net sales                  |  | $                                        | 580,266 |        | $ | 614,494 |  | $      | 600,949 |  | $ | 600,801 |  
|Gross margin               |  | $                                        | 310,996 |        | $ | 311,053 |  | $      | 336,843 |  | $ | 292,372 |  
|Net income                 |  | $                                        | 31,455  |        | $ | 31,692  |  | $      | 40,759  |  | $ | (6,671  | )
|Basic earnings per share   |  | $                                        | 0.47    |        | $ | 0.51    |  | $      | 0.67    |  | $ | (0.11   | )
|Diluted earnings per share |  | $                                        | 0.46    |        | $ | 0.50    |  | $      | 0.66    |  | $ | (0.11   | )

The Fourth Quarter of Fiscal 2007 contained 13 weeks compared to the Fourth Quarter of Fiscal
2006, which contained 14 weeks. During the fourth quarter of Fiscal 2007, the Company recorded a $30.1 million charge related to its restructuring program. See Note 2, Restructuring, for further discussion.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|11. | Selected Quarterly Financial Data  Unaudited (Continued)
|--- | ---------------------------------------------------------



|                           |  |                                          |         |        |   |         |  |        |         |  |   |        
|-------------------------- |  | ---------------------------------------- | ------- | ------ | - | ------- |  | ------ | ------- |  | - | -------
|                           |  | Quarter                                 
|                           |  | First                                    |         | Second |   | Third   |  | Fourth
|                           |  | (in thousands, except per share amounts)
|Fiscal 2006                |  |                                          |         |        |   |         |  |        |         |  |   |        
|Net sales                  |  | $                                        | 556,173 |        | $ | 609,998 |  | $      | 566,261 |  | $ | 610,475
|Gross margin               |  | $                                        | 315,112 |        | $ | 330,702 |  | $      | 320,665 |  | $ | 290,531
|Net income                 |  | $                                        | 38,989  |        | $ | 43,198  |  | $      | 39,264  |  | $ | 21,531 
|Basic earnings per share   |  | $                                        | 0.54    |        | $ | 0.60    |  | $      | 0.55    |  | $ | 0.31   
|Diluted earnings per share |  | $                                        | 0.53    |        | $ | 0.59    |  | $      | 0.54    |  | $ | 0.31   

The sum of the quarterly per share data may not equal the annual amounts due to changes in the
weighted average shares and share equivalents outstanding.



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EXHIBIT INDEX

EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                              
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the Form 10-Q of the Company for the Quarter ended April 29, 2006 filed on June 7,
2006.                                                                   
|        | 
|3.2     |  | By-laws of the Company, as amended through August 23, 2007. Incorporated by reference to Exhibit 3.2 to the Form 8-K of the Company filed on August 24, 2007.                                                                                                
|        | 
|4.1     |  | Amended and Restated Rights Agreement, dated as of May 1, 2001, between the Company and Mellon Investor Services LLC. Incorporated by reference to Exhibit 1 of Form 8-A/A No. 1 of the Company
filed on May 24, 2001.                                       
|        | 
|10.1    |  | Agreement of Lease, dated as of August 3, 2004, between the Company and No. 1 Times Square Development LLC. Incorporated by reference to Exhibit 10.5 to the Form 10-Q of the Company filed on
September 8, 2004.                                            
|        | 
|10.2    |  | Amended and Restated Tax Sharing Agreement, dated as of November 10, 2003, between the Company and Ann Taylor. Incorporated by reference to Exhibit 10.2 to the Form 10-K of the Company filed on
March 25, 2004.                                            
|        | 
|10.3   |  | The AnnTaylor Stores Corporation 1992 Stock Option and Restricted Stock and Unit Award Plan, Amended and Restated as of February 23, 1994 (the 1992 Plan). Incorporated by reference
to Exhibit 10.15 to the Form 10-K of the Company filed on May 1, 1997.
|        | 
|10.3.1 |  | Amendment to the 1992 Plan, as approved by stockholders on June 18, 1997. Incorporated by reference to Exhibit 10.15.1 to the Form 10-Q of the Company for the Quarter ended August 2, 1997 filed
on September 12, 1997.                                     
|        | 
|10.3.2 |  | Amendment to the 1992 Plan dated as of January 16, 1998. Incorporated by reference to Exhibit 10 to the Form 8-K of the Company filed on March 12, 1998.                                                                                                     
|        | 
|10.3.3 |  | Amendment to the 1992 Plan dated as of May 12, 1998. Incorporated by reference to Exhibit 10.16.3 to the Form 10-Q of the Company for the Quarter ended April 2, 1998 filed on June 16,
1998.                                                                
|        | 
|10.3.4 |  | Amendment to the 1992 Plan dated as of March 10, 2000. Incorporated by reference to Exhibit 10.8.4 to the Form 10-K of the Company filed on April 18, 2000.                                                                                                  
|        | 
|10.3.5 |  | Amendment to the 1992 Plan effective as of March 9, 2004. Incorporated by reference to Exhibit 10.3.5 to the Form 10-K of the Company filed on March 25, 2004.                                                                                               
|        | 
|10.3.6 |  | Restated Amendment to the 1992 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.1 of Form 10-Q of the Company filed on June 4, 2004.                                                                                             
|        | 
|10.3.7 |  | Second Restated Amendment to the 1992 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company filed on September 8, 2004.                                                                             
|        | 
|10.3.8 |  | Amendment to the 1992 Plan, effective as of January 26, 2006. Incorporated by reference to Exhibit 10.4.8 to the Form 10-K of the Company filed on March 23, 2006.                                                                                           
|        | 
|10.4   |  | The AnnTaylor Stores Corporation 2000 Stock Option and Restricted Stock Award Plan (the 2000 Plan). Incorporated by reference to Exhibit 10.4 to the Form 10-K of the Company filed on
April 1, 2003.                                                      
|        | 
|10.4.1 |  | First Amendment to the 2000 Plan, adopted January 29, 2002. Incorporated by reference to Exhibit 10.8.1 to the Form 10-K of the Company filed on April 4, 2002.                                                                                              
|        | 
|10.4.2 |  | Second Amendment to the 2000 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.4.2 to the Form 10-K of the Company filed on March 25, 2004.                                                                                       



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EXHIBIT INDEX



|         |  |                                                                                                                                                                                                                                              
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.4.3  |  | Restated Second Amendment to the 2000 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.2 to the Form 10-Q of the Company filed on June 4,
2004.                                                                  
|         | 
|10.4.4  |  | Second Restated Second Amendment to the 2000 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.2 to the Form 10-Q of the Company filed on September 8,
2004.                                                      
|         | 
|10.4.5  |  | Third Amendment to the 2000 Plan, effective as of January 26, 2006. Incorporated by reference to Exhibit 10.5.5 to the Form 10-K of the Company filed on March 23, 2006.                                                                     
|         | 
|10.5    |  | AnnTaylor Stores Corporation 2002 Stock Option and Restricted Stock and Unit Award Plan (the 2002 Plan). Incorporated by reference to Exhibit 10.9 to the Form 10-K of the Company
filed on April 4, 2002.                                 
|         | 
|10.5.1  |  | First Amendment to the 2002 Plan, effective as of March 11, 2003. Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company for the Quarter ended May 3, 2003 filed on June 13,
2003.                                        
|         | 
|10.5.2  |  | Second Amendment to the 2002 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.5.2 to the Form 10-K of the Company filed on March 25, 2004.                                                                       
|         | 
|10.5.3  |  | Restated Second Amendment to the 2002 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.3 to the Form 10-Q of the Company filed on June 4, 2004.                                                                  
|         | 
|10.5.4  |  | Second Restated Second Amendment to the 2002 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.3 to the Form 10-Q of the Company filed on September 8,
2004.                                                      
|         | 
|10.5.5  |  | Third Amendment to the 2002 Plan, effective as of January 26, 2006. Incorporated by reference to Exhibit 10.6.5 to the Form 10-K of the Company filed on March 23, 2006.                                                                     
|         | 
|10.6    |  | AnnTaylor Stores Corporation 2003 Equity Incentive Plan (the 2003 Plan) as amended through March 9, 2006. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company
filed on May 2, 2006.                                   
|         | 
|10.7    |  | AnnTaylor Stores Corporation Amended and Restated Management Performance Compensation Plan. Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 18, 2007.                                                                 
|         | 
|10.8    |  | AnnTaylor Stores Corporation Deferred Compensation Plan, as amended through August 18, 2005. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on August 24, 2005.                                              
|         | 
|10.9    |  | AnnTaylor Stores Corporation 2004 Long-Term Cash Incentive Plan. Incorporated by reference to Exhibit B to the Proxy Statement of the Company filed on March 25, 2004.                                                                       
|         | 
|10.10   |  | AnnTaylor Stores Corporation Special Severance Plan, dated as of March 10, 2000. Incorporated by reference to Exhibit 10.18 to the Form 10-K of the Company filed on April 18,
2000.                                                         
|         | 
|10.10.1 |  | First Amendment to AnnTaylor Stores Corporation Special Severance Plan, effective as of November 16, 2006. Incorporated by reference to Exhibit 10.1 to the Form 10-Q of the Company filed on
November 29, 2006.                             
|         | 
|10.11   |  | Employment Agreement, dated as of February 1, 1994, between the Company and Sallie Frame Kasaks. Incorporated by reference to Exhibit 10.8 to the Form 10-Q of the Company for the Quarter ended
October 29, 1994 filed on December 12, 1994.
|         | 
|10.12   |  | Letter Agreement, dated March 16, 2005, between the Company and J. Patrick Spainhour. Incorporated by reference to Exhibit 10.18 to the Form 10-K of the Company filed on April 1,
2005.                                                     
|         | 
|10.13   |  | Separation Agreement, dated as of March 9, 2004, between the Company and Barry Erdos. Incorporated by reference to Exhibit 10.17 to the Form 10-K of the Company filed on March 25,
2004.                                                    



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EXHIBIT INDEX



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Employment Agreement, effective as of October 1, 2005, between the Company and Katherine Lawther Krill. Incorporated by reference to Exhibit 10 to the Form 8-K of the Company filed on
November 23, 2005.                                                                                                                                                                                                                                
|       | 
|10.15 |  | Agreement, dated as of August 29, 2005, between the Company and Laura Weil. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on September 1, 2005.                                                                                                                                                                                                                                                          
|       | 
|10.16 |  | Form of 2002 Plan Director Non-Qualified Stock Option Agreement, as amended. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on October 29, 2004.                                                                                                                                                                                                                                                          
|       | 
|10.17 |  | Form of 2003 Plan Director Non-Statutory Stock Option Agreement, as amended. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on October 29, 2004.                                                                                                                                                                                                                                                          
|       | 
|10.18 |  | Form of 2003 Plan Restricted Stock Award Agreement for Non-Employee Directors. Incorporated by reference to Exhibit 10.3 to the Form 8-K of the Company filed on May 16, 2006.                                                                                                                                                                                                                                                            
|       | 
|10.19 |  | Form of 2003 Plan Non-Statutory Stock Option Agreement, as amended. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on May 16, 2006.                                                                                                                                                                                                                                                                       
|       | 
|10.20 |  | Form of Non-Statutory Stock Option Agreement (not under a Plan). Incorporated by reference to Exhibit 10.11 to the Form 10-Q of the Company filed on June 7, 2006.                                                                                                                                                                                                                                                                        
|       | 
|10.21 |  | Form of 2000 Plan Restricted Stock Agreement, as amended. Incorporated by reference to Exhibit 10.9 to the Form 10-Q of the Company filed on June 7, 2006.                                                                                                                                                                                                                                                                                
|       | 
|10.22 |  | Form of 2002 Plan Restricted Stock Award Agreement, as amended. Incorporated by reference to Exhibit 10.7 to the Form 10-Q of the Company filed on June 7, 2006.                                                                                                                                                                                                                                                                          
|       | 
|10.23 |  | Form of 2003 Plan Restricted Stock Award Agreement, as amended. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on May 16, 2006.                                                                                                                                                                                                                                                                           
|       | 
|10.24 |  | Form of Restricted Stock Award Agreement (not under a Plan). Incorporated by reference to Exhibit 10.10 to the Form 10-Q of the Company filed on June 7, 2006.                                                                                                                                                                                                                                                                            
|       | 
|10.25 |  | Form of 2002 Plan Restricted Stock Award Agreement (performance-vesting). Incorporated by reference to Exhibit 10.29 to the Form 10-K of the Company filed on April 1, 2005.                                                                                                                                                                                                                                                              
|       | 
|10.26 |  | Form of 2003 Plan Restricted Stock Award Agreement (performance-vesting). Incorporated by reference to Exhibit 10.30 to the Form 10-K of the Company filed on April 1, 2005.                                                                                                                                                                                                                                                              
|       | 
|10.27 |  | Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on August 24, 2005.                                                                                                                                                                                                                                                                                                     
|       | 
|10.28  |  | Second Amended and Restated Credit Agreement, dated as of November 14, 2003, by and among Ann Taylor, Annco, Inc., AnnTaylor Distribution Services, Inc., AnnTaylor Retail, Inc., the financial
institutions from time to time parties thereto, and Bank of America, N.A., as Administrative Agent and as Collateral Agent. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on November 14, 2003.          
|       | 
|10.29  |  | Second Amended and Restated Pledge and Security Agreement, dated as of November 14, 2003, by the Company, Ann Taylor, Annco, Inc., AnnTaylor Distribution Services, Inc., and AnnTaylor Retail,
Inc. in favor of Bank of America, N.A. in its capacity as administrative agent for each of the Lenders party to the Credit Agreement. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on November 14,
2003.
|       | 
|10.30  |  | Second Amended and Restated Parent Guaranty, dated as of November 14, 2003 made by the Company in favor of Bank of America, N.A. in its capacity as administrative agent for each of the Lenders
party to the Credit Agreement. Incorporated by reference to Exhibit 10.3 to the Form 8-K of the Company filed on November 14, 2003.                                                                                                      



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EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31   |  | Trademark License Agreement, dated August 2, 2005, between AnnTaylor, Inc. and Guangzhou Pan Yu San Yuet Fashion Manufactory Ltd. Incorporated by reference to Exhibit 10.1 to the Form
8-K of the Company filed on August 8, 2005.                              
|        | 
|10.32   |  | Stipulation of Settlement and Release of Certain Class Action and Individual Claims. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on August 25,
2006.                                                                          
|        | 
|10.33  |  | Agreement, effective as of April 10, 2007, between the Company and Adrienne Lazarus. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on April 13,
2007.                                                                           
|        | 
|10.34  |  | Summary of Compensation Arrangements for Non-Employee Directors. Incorporated by reference to Exhibit 10.2 to the Form 10-Q of the Company for the Quarter ended May 5, 2007 filed on June 8,
2007.                                                              
|        | 
|10.35  |  | Summary of Compensation Arrangements for Certain Officers. Incorporated by reference to Exhibit 10.3 to Exhibit 10 to the Form 8-K of the Company filed on March 20, 2007.                                                                                       
|        | 
|10.36  |  | Form of 2000 Non-Qualified Stock Option and Restricted Stock Award Plan updated Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.5 to the Form 10-Q of the Company
for the Quarter ended May 5, 2007 filed on June 8, 2007.         
|        | 
|10.37  |  | Form of 2002 Non-Qualified Stock Option and Restricted Stock and Unit Award Plan updated Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.6 to the Form 10-Q of the
Company for the Quarter ended May 5, 2007 filed on June 8, 2007.
|        | 
|10.38  |  | Separation Agreement, dated as of August 16, 2007, between AnnTaylor, Inc. and James Smith. Incorporated by reference to Exhibit 10.1 to the Form 8-Kof the Company filed on August 16,
2007.                                                                    
|        | 
|10.39  |  | Letter Agreement, dated September 11, 2007, between the Company and Brian Lynch. Incorporated by reference to Exhibit 10.2 to the Form 10-Q of the Company for the Quarter ended August 4, 2007
filed on September 11, 2007.                                     
|        | 
|10.40  |  | Letter Agreement, dated as of September 5, 2007, between the Company and Michael J. Nicholson. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on September 17,
2007.                                                             
|        | 
|10.41  |  | Agreement, dated September 5, 2007, between the Company and Michael J. Nicholson. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on September 17,
2007.                                                                          
|        | 
|*10.42 |  | AnnTaylor Stores Corporation 2008 Non-Qualified Deferred Compensation Plan.                                                                                                                                                                                      
|        | 
|21      |  | Subsidiaries of the Company. Incorporated by reference to Exhibit 21 to the Form 10-K of the Company filed on April 1, 2003.                                                                                                                                     
|        | 
|*23     |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                        
|        | 
|*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.                                                                                                                                  



|* | Filed electronically herewith.
|- | ------------------------------

| | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



67