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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 January 28, 2006

OR



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

Commission File No. 1-10738

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)



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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.



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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  þ    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  þ.

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  þ    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. ̈.

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



|                           |  |                    |  |                       
|-------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer  þ |  | Accelerated filer ̈ |  | Non-accelerated filer ̈

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

The aggregate market value of the registrants voting stock held by non-affiliates of the registrant as of July 29, 2005 was $2,100,848,888.

The number of shares of the registrants common stock outstanding as of February 28, 2006 was 72,524,654.

Documents Incorporated by Reference:

Portions of the Registrants Proxy Statement for the Registrants 2006 Annual Meeting of Stockholders to be held on April 27, 2006 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                                                                                                         |  | 3       
|                                  |  |                                                                                                                 
|ITEM 1A.                          |  | Risk Factors                                                                                                     |  | 7       
|                                  |  |                                                                                                                 
|ITEM 1B.                          |  | Unresolved Staff Comments                                                                                        |  | 9       
|                                  |  |                                                                                                                 
|ITEM 2.                           |  | Properties                                                                                                       |  | 10      
|                                  |  |                                                                                                                 
|ITEM 3.                           |  | Legal Proceedings                                                                                                |  | 10      
|                                  |  |                                                                                                                 
|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                                                                                          |  | 13      
|                                  |  |                                                                                                                 
|ITEM 7.                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 15      
|                                  |  |                                                                                                                 
|ITEM 7A.                          |  | Quantitative and Qualitative Disclosures About Market Risk                                                       |  | 24      
|                                  |  |                                                                                                                 
|ITEM 8.                           |  | Consolidated Financial Statements and Supplementary Data                                                         |  | 24      
|                                  |  |                                                                                                                 
|ITEM 9.                           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures                            |  | 24      
|                                  |  |                                                                                                                 
|ITEM 9A.                          |  | Controls and Procedures                                                                                          |  | 24      
|                                  |  |                                                                                                                 
|ITEM 9B.                          |  | Other Information                                                                                                |  | 26      
|                                  | 
|PART III.                         |  |                                                                                                                 
|                                  |  |                                                                                                                 
|ITEM 10.                          |  | Directors and Executive Officers of the Registrant                                                               |  | 27      
|                                  |  |                                                                                                                 
|ITEM 11.                          |  | Executive Compensation                                                                                           |  | 27      
|                                  |  |                                                                                                                 
|ITEM 12.                          |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 27      
|                                  |  |                                                                                                                 
|ITEM 13.                          |  | Certain Relationships and Related Transactions                                                                   |  | 27      
|                                  |  |                                                                                                                 
|ITEM 14.                          |  | Principal Accounting Fees and Services                                                                           |  | 27      
|                                  | 
|PART IV.                          |  |                                                                                                                 
|                                  |  |                                                                                                                 
|ITEM 15.                          |  | Exhibits and Financial Statement Schedules                                                                       |  | 28      
|                                  | 
|SIGNATURES                        |  | 29                                                                                                              
|                                  | 
|CONSOLIDATED FINANCIAL STATEMENTS |  | 30                                                                                                              
|                                  | 
|EXHIBIT INDEX                     |  | 54                                                                                                              



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Statement Regarding Forward-Looking Disclosures

This Annual Report on Form 10-K 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 Companys current expectations 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. The Company 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, Ann Taylor 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 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 Ann Taylor Loft (LOFT) are
highly recognized national brands with distinct fashion points of view. Our client base consists primarily of fashion conscious women from the ages of 25 to 55. Ann Taylor stores offer polished, sophisticated updated classic styles while LOFT stores
focus on relaxed, fashionable styles at a great value. Ann Taylor Factory stores are primarily found in outlet malls and offer a mix of factory-direct and clearance product. In addition, clients may shop online at anntaylor.com and anntaylorLOFT.com
or by phone at 1-800-DIAL-ANN.

As of January 28, 2006, we operated 824 retail stores in 46 states, the District of Columbia and
Puerto Rico, of which 357 were Ann Taylor stores, 416 were LOFT stores and 51 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 us. Our merchandising groups determine inventory needs for the upcoming season, edit the assortments developed by the design teams, plan merchandise
flows, and arrange for the production of merchandise by independent manufacturers, primarily through our sourcing division or through private label specialists.

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.



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We source merchandise from approximately 285 manufacturers and vendors, none of which accounted for more
than 4% of our merchandise purchases in Fiscal 2005. Our merchandise is manufactured in over 25 countries, with approximately 28% of our merchandise manufactured in China, 15% in Hong Kong and 13% in the Philippines. Any event causing a sudden
disruption of manufacturing or imports from those countries, or 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 human rights compliance program that requires all of our suppliers, facilities, and subcontractors to comply with our
Global Supplier Principles & Guidelines. We also conduct unannounced third-party audits to confirm manufacturer compliance with our human rights 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. 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 factors discussed in Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources.

We 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 and in the Statement Regarding Forward-Looking Disclosures and Risk Factors, 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 departments analyze each stores size, location, demographics, sales and inventory history to determine the quantity of merchandise
to be purchased for, and the allocation of merchandise to our stores. Upon receipt, 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 our inventory levels on an ongoing basis in order 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 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.

In Fiscal 2005, inventory turned 4.7 times, compared to 4.5 times in Fiscal 2004 and 4.1 times in Fiscal 2003. Inventory turnover
is determined by dividing cost of sales by the average of the cost of inventory at the beginning and the end of the period. As a result of an increased focus on inventory management in the last half of Fiscal 2005, and an increase in comparable
store sales, merchandise inventories decreased approximately $24.7 million, or 10.8% in Fiscal 2005 from Fiscal 2004.

Our comprehensive
merchandising information system provides systems support for our merchandising functions. This system serves as our central source of information regarding merchandise items, inventory management, purchasing, replenishment, receiving 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.



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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. 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 geographic location, demographic studies, and space availability.

As of January 28, 2006, we operated 824 retail stores throughout the United States, the District of Columbia and Puerto Rico, of which 357 were Ann Taylor stores, 416 were LOFT stores, and 51 were Ann Taylor Factory stores.

The average Ann Taylor store is approximately 5,200 square feet in size. We also have three flagship Ann Taylor stores in New York City, San Francisco
and Chicago, which represent the fullest assortment of Ann Taylor merchandise. In Fiscal 2005, we opened 9 Ann Taylor stores that averaged approximately 5,300 square feet. In Fiscal 2006, we plan to open approximately 8-10 Ann Taylor stores, which
are expected to average approximately 5,200 square feet.

LOFT stores average approximately 5,900 square feet. In Fiscal 2005, we opened 73
LOFT stores that averaged approximately 6,200 square feet. In Fiscal 2006, we plan to open approximately 55-60 LOFT stores, which are expected to average approximately 6,000 square feet.

Our 51 Ann Taylor Factory stores average approximately 8,400 square feet. In Fiscal 2005, we opened 15 Ann Taylor Factory stores that averaged
approximately 7,400 square feet. In Fiscal 2006, we plan to open approximately 3-5 Ann Taylor Factory stores, which are expected to average approximately 7,000 square feet.

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

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:



|            |  |     |  |                                            |     |                                     |     |                                     |     |                                  |  |                                       |     |     |     |     |     |    |       |     |  | 
|----------- |  | --- |  | ------------------------------------------ | --- | ----------------------------------- | --- | ----------------------------------- | --- | -------------------------------- |  | ------------------------------------- | --- | --- | --- | --- | --- | -- | ----- | --- |  | 
|            |  |     |  | Total StoresOpen atBeginningof
Fiscal Year |     | No. Stores Opened DuringFiscal Year |     | No.Stores ExpandedDuringFiscal Year |     | No.StoresClosedDuringFiscal Year |  | No. Stores Open at End of Fiscal
Year
|Fiscal Year |  |     |  |                                            | ATS |                                     | ATL |                                     | ATF |                                  |  |                                       | ATS |     | ATL |     | ATF |    | Total
|2001        |  | 478 |  | 10                                         |     | 57                                  |     |                                    |     | 6                                |  | 7                                     |     | 342 |     | 186 |     | 10 |       | 538
|2002        |  | 538 |  | 10                                         |     | 39                                  |     |                                    |     |                                 |  | 3                                     |     | 350 |     | 207 |     | 27 |       | 584
|2003        |  | 584 |  | 8                                          |     | 61                                  |     | 1                                   |     | 8                                |  | 6                                     |     | 354 |     | 268 |     | 26 |       | 648
|2004        |  | 648 |  | 10                                         |     | 77                                  |     | 8                                   |     | 6                                |  | 5                                     |     | 359 |     | 343 |     | 36 |       | 738
|2005        |  | 738 |  | 9                                          |     | 73                                  |     | 15                                  |     | 12                               |  | 11                                    |     | 357 |     | 416 |     | 51 |       | 824

We believe that our existing store base is a significant strategic asset of our business, and our
stores are located in some of the most productive retail centers in the United States. We have invested approximately $427 million in our store base since the beginning of Fiscal 2001; approximately 50% of our stores are either new or have been
remodeled, as a result of an expansion or relocation, in the last five years.

Our Fiscal 2005 real estate expansion plan resulted in an
increase in our total store square footage of approximately 600,000 square feet (net of store closings), or 14.3%, from approximately 4.2 million square feet at the end of Fiscal 2004 to approximately 4.8 million square feet at the end of
Fiscal 2005. During Fiscal 2006, we intend to open approximately 66 to 75 stores, increasing store square footage by approximately 432,000 square feet, or 9.0%.



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Capital expenditures for our Fiscal 2005 store expansion program totaled approximately $96.9 million and
expenditures for store remodeling and refurbishing totaled approximately $19.0 million. We expect that capital expenditures for our Fiscal 2006 store expansion program will be approximately $82 - $85 million and expenditures for store renovations
and refurbishing will be approximately $38 - $40 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 2005, we continued our investment in information services and technology, enhancing the systems we use to support our
merchandising, sourcing, logistics, point of sale and finance operations. These enhancements are generally aimed at supporting more refined merchandise assortments, improving inventory management and providing speed, flexibility and cost reduction
in our supply chain. In addition, we relocated our primary data center to a new facility in Connecticut.

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.

All aspects of brand development for both retail concepts, including product design, store merchandising and design, channels of distribution, and marketing and advertising, are controlled by us. 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.

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
2.7% in Fiscal 2005, 3.4% in Fiscal 2004 and 2.5% in Fiscal 2003.

Trademarks and Service Marks

The AnnTaylor 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 the AnnTaylor and AnnTaylor Loft marks are a significant part of our business, as we believe those trademarks are famous and well- known in the womens
apparel industry. Accordingly, we intend to maintain our AnnTaylor and AnnTaylor Loft trademarks and related registrations and vigorously protect our trademarks against infringement.

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
national or 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.



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Employees

As of January 28, 2006, we had approximately 16,900 employees, of which approximately 3,000 were full-time salaried employees, 2,900 were full-time hourly employees and 11,000 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://investor.anntaylor.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 filing such material
electronically with, or otherwise furnishing it 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 the 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.



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

The following risk factors should be
read carefully in connection with evaluating our business and the forward-looking information in this document. See Statement Regarding Forward-Looking Disclosures.

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

The specialty retail apparel business fluctuates according to changes in the economy and customer preferences. These fluctuations especially affect the inventory owned by apparel retailers since we enter into
agreements for the manufacture and purchase of our private label apparel well in advance of the applicable selling season. As a result, we are vulnerable to changes in consumer demand, pricing shifts, and the timing and selection of merchandise
purchases.

Our success is largely dependent upon our ability to consistently gauge fashion trends and to provide merchandise that
satisfies client demands in a timely manner. Our failure to anticipate, identify or react appropriately in a timely manner to changes in fashion trends could lead to lower sales, excess inventories and more frequent markdowns, which could have a
material adverse impact on our business.

The effect of competitive pressures from other retailers

The specialty retail industry is highly competitive. Our stores compete with certain departments in national or local department stores and with other
specialty stores, catalogs and internet businesses that offer similar categories of merchandise. Many of our competitors are 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. In addition to competing for sales, we compete for favorable store locations and lease terms. We also face competition from other retailers that recently have been developing brand
extensions and new concepts targeted at our client base.

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

We believe that our AnnTaylor and AnnTaylor Loft trademarks are important to our success. Even though we
take action to establish, register and protect our trademarks and other intellectual proprietary rights, there can be no assurance that these actions will be adequate to prevent infringement of our trademarks and proprietary rights by others. The
laws of some foreign countries may not protect proprietary rights to the same extent as do the laws of the U.S., and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries. 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.



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The effect of general economic conditions

The success of our operations depends to a significant extent upon a number of factors impacting discretionary consumer spending, including economic
conditions affecting disposable consumer income such as employment, consumer debt, taxation, energy prices, interest rates and consumer confidence. There can be no assurance that consumer spending will not be negatively affected by general or local
economic conditions, thereby adversely impacting 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 will depend 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 will depend upon a number of factors, including locating suitable sites, negotiating favorable lease terms and hiring and
training qualified personnel, particularly at the store management level. There can be no assurance that we will be able to achieve our store expansion goals, manage our growth effectively or operate our new and remodeled stores profitably.

Fluctuation in our level of sales and earnings growth

A variety of factors have historically affected, and will continue to affect, our rate of growth and performance. These factors include, among other things, client trends and preferences, competition, economic
conditions, managing inventory effectively and new store openings. There can be 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

While we purchase merchandise from domestic and foreign suppliers, a majority of our merchandise is purchased from foreign suppliers. Any event causing a
sudden disruption of manufacturing or imports from those countries, or the imposition of additional import restrictions, could have a material adverse effect on our operations.

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. 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.

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 public health concerns, particularly on our foreign sourcing offices and manufacturing operations of our vendors, 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.

In addition, the violation of labor or other laws by any of our independent manufacturers, or the divergence of an
independent manufacturers labor practices from those specified in our human rights compliance program or otherwise generally accepted as ethical by others in the U.S., could damage our reputation and force us to locate alternative
manufacturing sources.

Our reliance on key personnel

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 and retain additional qualified management personnel
in the future. Our operations could be adversely affected if, for any reason, one or more key executive officers ceased to be active in our management.



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Our ability to successfully upgrade and maintain our information systems

We rely upon our various information systems to manage our operations 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 is dependent
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

Our distribution functions for all of our stores are handled from a single facility in Louisville, Kentucky.
Any significant interruption in the operation of the distribution facility due to natural disasters, accidents, system failures or other unforeseen causes could delay or impair our ability to distribute merchandise to our stores, which could cause
sales to decline.

The impact of the Ann Taylor Factory business strategy

Our product strategy at Ann Taylor Factory stores is evolving to a more direct merchandise approach, with product designed specifically to carry the Ann
Taylor Factory label. The success of this strategy is dependent on a number of factors, including client acceptance of the Factory label merchandise, the effect on gross margin rates at Ann Taylor and LOFT of selling clearance merchandise formerly
sold at Ann Taylor Factory stores, as well as the impact on the look of our Ann Taylor and LOFT stores and the effect that might have on sales at those divisions. There can be no assurance that our Ann Taylor Factory store merchandise strategy will
deliver sales and margin gains and increase overall profitability.

Risks associated with Internet sales

We sell merchandise over the Internet through our websites, www.anntaylor.com and www.anntaylorLOFT.com. Although our Internet operations encompass only a
small percentage of our total sales, our Internet operations are subject to numerous risks, including unanticipated operating problems, reliance on third party computer hardware and software providers, system failures and the need to invest in
additional computer systems. Our Internet operations also involve other risks that could have an impact on our results of operations including diversion of sales from our stores, rapid technological change, 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 the websites and their related support systems, including computer viruses, telecommunication failures and electronic break-ins
and similar disruptions. There can be no assurance about the performance of our Internet operations or their ability to 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 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, such as when we closed certain stores in the New Orleans area
temporarily in the wake of Hurricane Katrina. Lower client traffic due to security concerns and 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.



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

None.



9



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##### Table of Contents

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

As of January 28, 2006, we
operated 824 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
|2006 - 2008                     |  | 238
|2009 - 2011                     |  | 239
|2012 - 2014                     |  | 231
|2015 and later                  |  | 116

In 2005, we relocated our corporate offices to 7 Times Square in New York City (containing
approximately 297,000 square feet) under a lease expiring in 2020. The lease for our former offices at 142 West 57th Street in New York City (containing approximately 140,000 square feet) expires in 2006. We also lease office space at 1372 Broadway
in New York City containing approximately 93,000 square feet, the lease for which expires in 2010. In addition, we maintain office space in Milford, Connecticut containing approximately 47,000 square feet. The Milford lease expires in 2019.

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



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

During Fiscal 2005, we were
served with three putative class action lawsuits in California relating to how we classified certain of our employees under California overtime laws. These actions are similar to numerous suits that have been filed against retailers and others with
operations in California.

On February 15, 2005, two former managers of our California stores filed a putative class action against
AnnTaylor Retail, Inc. in Los Angeles County Superior Court alleging that we misclassified our store managers and senior assistant and assistant store managers as exempt from California overtime wage and hour laws, thereby depriving them of overtime
pay and adequate meal breaks. On May 5, 2005, a second putative class action was filed against AnnTaylor Stores Corporation in San Francisco County Superior Court by a former senior assistant manager of one of our stores in California alleging
violations of California labor laws with respect to overtime pay as well as adequate meal and rest periods. On December 12, 2005, another former senior assistant manager of one of our California stores filed a third putative class action in Los
Angeles Superior Court against both of these AnnTaylor entities and AnnTaylor, Inc. alleging that we misclassified senior assistant and assistant managers as exempt from California overtime laws, thereby denying them overtime pay and required meal
and rest periods.

The plaintiffs in these three actions seek recovery in an unstated dollar amount for alleged unpaid wages, statutory
penalties, interest, attorneys fees and costs and injunctive relief. In addition, in the third putative class action, the plaintiff seeks punitive damages. As of this date, there has been no decision by the court on whether a class will be
certified or on the merits of the plaintiffs misclassification claim.

On February 28, 2006, we reached a tentative agreement to
settle the first two of these putative class action lawsuits. The tentative settlement agreement, which is subject to final documentation and court approval, provides for a settlement payment of approximately $6.5 million. Since the first two
lawsuits cover the same employees and the same claims as those covered in the third lawsuit, if the settlement is approved, it is expected to dispose of the class claims in all three lawsuits, including penalties, interest and attorneys fees.



10



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##### Table of Contents

While we deny the allegations underlying the lawsuits, we have agreed to the tentative settlement to
avoid significant legal fees, other expenses and management time that would have to be devoted to protracted litigation. The proposed settlement class covers our store managers, senior assistant managers and assistant managers employed in California
during the period from February 15, 2001 to the date of final approval of the settlement.

While the first two cases are awaiting
court approval of the settlement, we have asked the court to dismiss portions of and/or stay the third putative class action. That motion is pending.

In addition, a former employee of one of our California stores served AnnTaylor Retail, Inc. on October 3, 2005 with a putative class action lawsuit in Santa Clara County Superior Court alleging that we deny our
California employees earned vacation pay through our allegedly unlawful policies related to vacation, personal days and holidays. The putative class members seek recovery in an unstated dollar amount for alleged unpaid vacation wages for former and
current associates, waiting time penalties, prejudgment interest and injunctive relief. A non-binding mediation with respect to this action is scheduled to take place in May 2006. This action is at a preliminary stage and, accordingly, it is too
early to evaluate the outcome.

We are also a party to routine litigation incidental to 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 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 28, 2006 was 72,524,654. 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.

In April 2004, our Board of Directors approved a 3-for-2 split of our common stock, in the form of a stock dividend. One additional share of common stock
for every two shares owned was distributed on May 26, 2004 to stockholders of record at the close of business on May 11, 2004. All share and per share data throughout this document are presented on a post-split basis.



|                 |  |              |       |     |   |      
|---------------- |  | ------------ | ----- | --- | - | -----
|                 |  | Market Price
|                 |  | High         |       | Low
|Fiscal Year 2005 |  |              |       |     |   |      
|Fourth quarter   |  | $            | 35.20 |     | $ | 23.75
|Third quarter    |  |              | 28.75 |     |   | 23.05
|Second quarter   |  |              | 26.89 |     |   | 23.09
|First quarter    |  |              | 27.80 |     |   | 21.11
|Fiscal Year 2004 |  |              |       |     |   |      
|Fourth quarter   |  | $            | 24.38 |     | $ | 19.98
|Third quarter    |  |              | 27.24 |     |   | 21.20
|Second quarter   |  |              | 30.34 |     |   | 25.11
|First quarter    |  |              | 31.43 |     |   | 26.59

We have never paid cash dividends on our common stock. 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 AnnTaylor, Inc. In addition, any determination to pay cash dividends is at the discretion of our Board of Directors.
The payment of dividends by Ann Taylor, Inc. to us is subject to certain restrictions under Ann Taylor Inc.s 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:



|                                       |  |                                    |  |                            |       |                                                                   |         |                                                                                      |   |       
|-------------------------------------- |  | ---------------------------------- |  | -------------------------- | ----- | ----------------------------------------------------------------- | ------- | ------------------------------------------------------------------------------------ | - | ------
|                                       |  | Total Numberof SharesPurchased (a) |  | AveragePrice PaidPer Share |       | TotalNumber ofSharesPurchasedas Part of PubliclyAnnouncedPlan (b) |         | ApproximateDollar Value ofShares that
MayYetBe PurchasedUnder PubliclyAnnounced Plan
|                                       |  |                                    |  |                            |       |                                                                   |         | (in thousands)                                                                      
|October 30, 2005 to November 26, 2005  |  | 1,745                              |  | $                          | 27.03 |                                                                   |        |                                                                                      | $ | 82,374
|November 27, 2005 to December 31, 2005 |  | 50,000                             |  |                            | 33.57 |                                                                   | 50,000  |                                                                                      |   | 80,696
|January 1, 2006 to January 28, 2006    |  | 310,548                            |  |                            | 31.93 |                                                                   | 275,000 |                                                                                      |   | 71,663
|                                       |  |                                    |  |                            |       |                                                                   |         |                                                                                      |   |       
|                                       |  | 362,293                            |  | $                          | 32.13 |                                                                   | 325,000 |                                                                                      |   |       
|                                       |  |                                    |  |                            |       |                                                                   |         |                                                                                      |   |       



|(a) | Includes 37,293 shares of restricted stock repurchased in connection with employee tax withholding obligations under employee compensation plans, which are not purchases under
our publicly announced Plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | These shares were purchased under a $100.0 million securities repurchase plan, approved by the Companys Board of Directors in August 2005. This plan replaced the August
2004 plan and will expire when the Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by resolution of the Board of Directors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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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 contained 52 weeks.



|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|-------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | --------- | - | --------------- | - | --------- | --------------- |  | - | --------------- | - |  | --------------- | --------- | -- |  | - | --------- | --
|                                                                     |  | Fiscal Years Ended                                                     |          
|                                                                     |  | January 28,2006                                                        |           |   | January 29,2005 |   |           | January 31,2004 |  |   | February 1,2003 |   |  | February 2,2002 |          
|                                                                     |  | (dollars in thousands, except per square foot data and per share data) |          
|Consolidated Income Statement Information:                           |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Net sales                                                            |  | $                                                                      | 2,073,146 |   |                 | $ | 1,853,583 |                 |  | $ | 1,587,708       |   |  | $               | 1,380,966 |    |  | $ | 1,299,573 |   
|Cost of sales                                                        |  |                                                                        | 1,017,122 |   |                 |   | 906,035   |                 |  |   | 721,463         |   |  |                 | 633,473   |    |  |   | 651,808   |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Gross margin                                                         |  |                                                                        | 1,056,024 |   |                 |   | 947,548   |                 |  |   | 866,245         |   |  |                 | 747,493   |    |  |   | 647,765   |   
|Selling, general and administrative expenses                         |  |                                                                        | 924,998   |   |                 |   | 842,590   |                 |  |   | 694,958         |   |  |                 | 612,698   |    |  |   | 580,199   |   
|Amortization of goodwill (a)                                         |  |                                                                        |          |   |                 |   |          |                 |  |   |                |   |  |                 |          |    |  |   | 11,040    |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Operating income                                                     |  |                                                                        | 131,026   |   |                 |   | 104,958   |                 |  |   | 171,287         |   |  |                 | 134,795   |    |  |   | 56,526    |   
|Interest income                                                      |  |                                                                        | 9,318     |   |                 |   | 5,037     |                 |  |   | 3,298           |   |  |                 | 3,279     |    |  |   | 1,390     |   
|Interest expense (b)                                                 |  |                                                                        | 2,083     |   |                 |   | 3,641     |                 |  |   | 6,665           |   |  |                 | 6,886     |    |  |   | 6,869     |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Income before income taxes                                           |  |                                                                        | 138,261   |   |                 |   | 106,354   |                 |  |   | 167,920         |   |  |                 | 131,188   |    |  |   | 51,047    |   
|Income tax provision                                                 |  |                                                                        | 56,389    |   |                 |   | 43,078    |                 |  |   | 67,193          |   |  |                 | 51,158    |    |  |   | 24,054    |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Net income                                                           |  | $                                                                      | 81,872    |   |                 | $ | 63,276    |                 |  | $ | 100,727         |   |  | $               | 80,030    |    |  | $ | 26,993    |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Basic earnings per share (c)                                         |  | $                                                                      | 1.14      |   |                 | $ | 0.91      |                 |  | $ | 1.51            |   |  | $               | 1.21      |    |  | $ | 0.42      |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Diluted earnings per share (c)                                       |  | $                                                                      | 1.13      |   |                 | $ | 0.88      |                 |  | $ | 1.42            |   |  | $               | 1.14      |    |  | $ | 0.41      |   
|                                                                     |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Weighted average shares outstanding, (in 000s) (c)                   |  |                                                                        | 71,554    |   |                 |   | 69,607    |                 |  |   | 66,614          |   |  |                 | 66,372    |    |  |   | 64,988    |   
|Weighted average shares outstanding, assuming dilution (in 000s) (c) |  |                                                                        | 72,270    |   |                 |   | 72,933    |                 |  |   | 73,145          |   |  |                 | 72,452    |    |  |   | 65,492    |   
|Consolidated Operating Information:                                  |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Percentage increase (decrease) in comparable store sales (d)         |  |                                                                        | 0.1       | % |                 |   | 3.6       | %               |  |   | 5.3             | % |  |                 | (3.9      | )% |  |   | (6.1      | )%
|Net sales per gross square foot (e)                                  |  | $                                                                      | 461       |   |                 | $ | 471       |                 |  | $ | 456             |   |  | $               | 434       |    |  | $ | 452       |   
|Number of stores:                                                    |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Open at beginning of period                                          |  |                                                                        | 738       |   |                 |   | 648       |                 |  |   | 584             |   |  |                 | 538       |    |  |   | 478       |   
|Opened during the period                                             |  |                                                                        | 97        |   |                 |   | 95        |                 |  |   | 70              |   |  |                 | 49        |    |  |   | 67        |   
|Expanded during the period                                           |  |                                                                        | 12        |   |                 |   | 6         |                 |  |   | 8               |   |  |                 |          |    |  |   | 6         |   
|Closed during the period                                             |  |                                                                        | 11        |   |                 |   | 5         |                 |  |   | 6               |   |  |                 | 3         |    |  |   | 7         |   
|Open at the end of the period                                        |  |                                                                        | 824       |   |                 |   | 738       |                 |  |   | 648             |   |  |                 | 584       |    |  |   | 538       |   
|Total store square footage at end of period, (000s)                 |  |                                                                        | 4,801     |   |                 |   | 4,202     |                 |  |   | 3,662           |   |  |                 | 3,305     |    |  |   | 3,057     |   
|Capital expenditures (f)                                             |  | $                                                                      | 174,895   |   |                 | $ | 152,483   |                 |  | $ | 97,300          |   |  | $               | 63,119    |    |  | $ | 105,210   |   
|Depreciation and amortization including goodwill (a)                 |  |                                                                        | 93,786    |   |                 | $ | 78,657    |                 |  | $ | 66,798          |   |  | $               | 61,201    |    |  | $ | 66,200    |   
|Working capital turnover (g)                                         |  |                                                                        | 5.4x      |   |                 |   | 5.0x      |                 |  |   | 4.6x            |   |  |                 | 6.0x      |    |  |   | 7.8x      |   
|Inventory turnover (h)                                               |  |                                                                        | 4.7x      |   |                 |   | 4.5x      |                 |  |   | 4.1x            |   |  |                 | 3.5x      |    |  |   | 3.7x      |   
|Consolidated Balance Sheet Information:                              |  |                                                                        |           |   |                 |   |           |                 |  |   |                 |   |  |                 |           |    |  |   |           |   
|Working capital (i)                                                  |  | $                                                                      | 418,626   |   |                 | $ | 343,568   |                 |  | $ | 400,298         |   |  | $               | 286,337   |    |  | $ | 174,691   |   
|Goodwill, net (a)                                                    |  |                                                                        | 286,579   |   |                 |   | 286,579   |                 |  |   | 286,579         |   |  |                 | 286,579   |    |  |   | 286,579   |   
|Total assets                                                         |  |                                                                        | 1,492,906 |   |                 |   | 1,327,338 |                 |  |   | 1,256,397       |   |  |                 | 1,095,351 |    |  |   | 965,293   |   
|Total debt                                                           |  |                                                                        |          |   |                 |   |          |                 |  |   | 125,152         |   |  |                 | 121,652   |    |  |   | 119,530   |   
|Stockholders equity                                                 |  |                                                                        | 1,034,482 |   |                 |   | 926,744   |                 |  |   | 818,856         |   |  |                 | 702,853   |    |  |   | 600,691   |   

(Footnotes on following page)



13



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##### Table of Contents

(Footnotes for preceding page)



|(a) | We adopted Statement of Financial Accounting Standards (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 test goodwill for impairment annually, during February, and determined that the carrying value of our goodwill at January 28,
2006, January 29, 2005, January 31, 2004 and February 1, 2003 was not impaired.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Includes non-cash interest expense of approximately $0.8 million, $1.9 million, $4.3 million, $4.3 million and $4.1 million, in Fiscal 2005, 2004, 2003, 2002 and 2001, respectively,
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.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | In 2004 and 2002, we effected 3-for-2 splits of our common stock, in the form of stock dividends. All share and per share amounts in the financial information have been restated to
reflect the splits.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(e) | Net sales per 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Capital expenditures are accounted for on the accrual basis and include net noncash transactions totaling $12.7 million, $15.3 million, $7.6 million, $402,000 and $8.6 million in
Fiscal 2005, 2004, 2003, 2002 and 2001, respectively. The noncash transactions are comprised primarily of the purchase of property and equipment on account.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



|(i) | Includes current portion of long-term debt of approximately $1.25 million at the end of Fiscal 2001.
|--- | ----------------------------------------------------------------------------------------------------



14



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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

Though we faced some challenges as we entered Fiscal 2005, we ended the year on a more positive note and have entered Fiscal 2006 as a stronger, healthier company. Product design, merchandising and inventory
management all improved as we moved through Fiscal 2005, which resulted in increased sales and gross margin. We also focused efforts on controlling selling, general and administrative expenses in order to better leverage these costs as a percent to
sales. Net sales increased 11.8% to $2.1 billion and operating income increased 24.8% to $131.0 million for Fiscal 2005 as compared to Fiscal 2004.

Both Ann Taylor and LOFT fell short of our expectations in the first half of Fiscal 2005. At Ann Taylor, the fashion misses encountered in the latter part of Fiscal 2004 carried into the first half of 2005, and contributed to a 5.5%
decrease in comparable store sales for the Spring 2005 period. Business improved in the second half of Fiscal 2005, as the efforts of the Ann Taylor design and merchandising teams under new leadership resulted in improved merchandise design and
quality. The result was a 6.9% increase in comparable store sales for the second half of Fiscal 2005.

At LOFT, our Spring 2005 merchandise
did not offer the balance of color, fashion or novelty that our client has come to expect. In addition, we planned our business aggressively and sales did not fall in line with these expectations. The result was a 2.4% decrease in comparable store
sales for the six month period. In the second half of Fiscal 2005, we offered clients a more balanced assortment with a more appropriate lifestyle focus, which resulted in a 1.6% increase in comparable store sales for the Fall 2005 season.

Ann Taylor Factory stores continued to evolve in Fiscal 2005, offering clients a larger selection of Factory-label merchandise in addition
to Ann Taylor and LOFT clearance product. We opened 15 new Ann Taylor Factory stores in Fiscal 2005. Our plans are to further grow this brand from both a product and stores perspective in Fiscal 2006.

As a result of an overall increase in sales, higher comparable store sales and improved gross margin rates in the Fall 2005 season and lower expenses as
a percent of sales, Fiscal 2005 operating income increased to 6.3% of net sales, compared to 5.6% of net sales in Fiscal 2004. Fiscal 2005 net income rose 29.4% to $81.9 million, or $1.13 per diluted share, from $63.3 million, or $0.88 per diluted
share in Fiscal 2004.

We opened 97 new stores in Fiscal 2005 and at Ann Taylor, began the most extensive store refurbishment effort in our
history. We believe that measured store growth and reinvestment in our existing store base are important ingredients to maintaining brand identity, satisfying existing clients and attracting new clients. Our Fiscal 2006 store renovation and
expansion programs, which we plan to fund with cash flow from operations, will further build on this premise.

We remain clearly focused on
continuing efforts to restore financial performance at Ann Taylor and continuing the growth at LOFT. As we move forward, our emphasis on satisfying client fashion preferences, as well as continued focus on inventory management, ongoing efforts to
leverage selling, general and administrative costs and measured store growth are each critical in enabling us to achieve these objectives. Our ability to achieve these objectives is further dependent on factors such as those outlined in Risk
Factors.

Key Performance Indicators

In order to monitor the Companys success, the Companys senior management monitors certain key performance indicators, including:

Comparable store sales  Comparable store sales provide a measure of existing store sales performance. Comparable store sales for Fiscal 2005 increased 0.1%, as compared to a 3.6% increase in Fiscal 2004.

Gross margin  Gross margin measures our ability to control direct costs associated with the manufacturing and selling of our products. Gross margin is the
difference between the 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.



15



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##### Table of Contents

Operating income  Operating income allows us to benchmark our performance relative to other retailers. Operating
income is a measure of our earning power from ongoing operations and is measured as our earnings before interest and income taxes.

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

Inventory turnover  Inventory turnover measures a companys ability to sell its products and how many times it is replaced over time. This ratio is
important for determining the need for markdowns, purchasing of inventory, and product effectiveness.

Quality of merchandise offerings  To monitor
and maintain the acceptance of our merchandise offerings, we monitor sell-through levels, inventory turnover, gross margins, returns and markdown rates on a class and style level. This analysis helps identify comfort, fit and other 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:



|                                             |  |                    |   |  |                 |   |  |                 |  
|-------------------------------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                                             |  | Fiscal Years Ended |  
|                                             |  | January 28,2006    |   |  | January 29,2005 |   |  | January 31,2004 |  
|Net sales                                    |  | 100.0              | % |  | 100.0           | % |  | 100.0           | %
|Cost of sales                                |  | 49.1               |   |  | 48.9            |   |  | 45.5            |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Gross margin                                 |  | 50.9               |   |  | 51.1            |   |  | 54.5            |  
|Selling, general and administrative expenses |  | 44.6               |   |  | 45.5            |   |  | 43.7            |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Operating income                             |  | 6.3                |   |  | 5.6             |   |  | 10.8            |  
|Interest income                              |  | 0.4                |   |  | 0.3             |   |  | 0.2             |  
|Interest expense                             |  | 0.1                |   |  | 0.2             |   |  | 0.4             |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Income before income taxes                   |  | 6.6                |   |  | 5.7             |   |  | 10.6            |  
|Income tax provision                         |  | 2.7                |   |  | 2.3             |   |  | 4.2             |  
|                                             |  |                    |   |  |                 |   |  |                 |  
|Net income                                   |  | 3.9                | % |  | 3.4             | % |  | 6.4             | %
|                                             |  |                    |   |  |                 |   |  |                 |  

The following table sets forth selected consolidated income statement data expressed as a
percentage change from the prior period:



|                 |  |                     |   |  |                  |    |  |                  |  
|---------------- |  | ------------------- | - |  | ---------------- | -- |  | ---------------- | -
|                 |  | Fiscal Years Ended  |  
|                 |  | January 28, 2006    |   |  | January 29, 2005 |    |  | January 31, 2004 |  
|                 |  |                    
|                 |  | Increase (decrease) |  
|Net sales        |  | 11.8                | % |  | 16.7             | %  |  | 15.0             | %
|Operating income |  | 24.8                | % |  | (38.7            | )% |  | 27.1             | %
|Net income       |  | 29.4                | % |  | (37.2            | )% |  | 25.9             | %

Sales and Store Data

The following table sets forth certain sales and store data:



|                                                         |  |                    |           |    |                 |   |           |                 |  |   |           |  
|-------------------------------------------------------- |  | ------------------ | --------- | -- | --------------- | - | --------- | --------------- |  | - | --------- | -
|                                                         |  | Fiscal Years Ended |          
|                                                         |  | January 28,2006    |           |    | January 29,2005 |   |           | January 31,2004 | 
|Net sales (in thousands)                                 |  |                    |           |    |                 |   |           |                 |  |   |           |  
|Total Company                                            |  | $                  | 2,073,146 |    |                 | $ | 1,853,583 |                 |  | $ | 1,587,708 |  
|Ann Taylor                                               |  |                    | 873,886   |    |                 |   | 854,865   |                 |  |   | 867,855   |  
|LOFT                                                     |  |                    | 991,940   |    |                 |   | 826,556   |                 |  |   | 588,801   |  
|Other                                                    |  |                    | 207,320   |    |                 |   | 172,162   |                 |  |   | 131,052   |  
|Comparable store sales percentage increase(decrease) (a) |  |                    |           |    |                 |   |           |                 |  |   |           |  
|Total Company                                            |  |                    | 0.1       | %  |                 |   | 3.6       | %               |  |   | 5.3       | %
|Ann Taylor                                               |  |                    | 0.6       | %  |                 |   | (2.7      | )%              |  |   | 3.2       | %
|LOFT                                                     |  |                    | (0.3      | )% |                 |   | 12.8      | %               |  |   | 9.4       | %



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##### Table of Contents

|                                                               |  |                    |       |                 |   |                 |  |   |      
|-------------------------------------------------------------- |  | ------------------ | ----- | --------------- | - | --------------- |  | - | -----
|                                                               |  | Fiscal Years Ended
|                                                               |  | January 28,2006    |       | January 29,2005 |   | January 31,2004
|Net sales per average gross square foot (b)                    |  | $                  | 461   |                 | $ | 471             |  | $ | 456  
|Total store square footage at end of period (in thousands) (b) |  |                    | 4,801 |                 |   | 4,202           |  |   | 3,662
|Number of:                                                     |  |                    |       |                 |   |                 |  |   |      
|Total stores open at beginning of period                       |  |                    | 738   |                 |   | 648             |  |   | 584  
|New stores                                                     |  |                    | 97    |                 |   | 95              |  |   | 70   
|Expanded stores                                                |  |                    | 12    |                 |   | 6               |  |   | 8    
|Closed stores                                                  |  |                    | 11    |                 |   | 5               |  |   | 6    
|Total stores open at end of period                             |  |                    | 824   |                 |   | 738             |  |   | 648  

---

|(a) | A store is included in comparable store sales in its thirteenth month of operation. A store that is expanded by more than 15% is treated as a new store for the first year
following the opening of the expanded store.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(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 $219.6 million, or 11.8% in Fiscal 2005 from Fiscal 2004. The increase in net sales was primarily due to the opening of new stores. The Companys net sales increased approximately $265.9 million, or 16.7% in Fiscal 2004
from Fiscal 2003. The increase in net sales was due to the combined effect of the opening of new stores, and an increase in comparable store sales at Ann Taylor Loft.

Our net sales do not show significant seasonal variation, although net sales in the fourth quarter have historically been higher than in the other quarters. As a result, we have not had significant overhead and other
costs generally associated with large seasonal variations.

Cost of Sales

Cost of sales 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. Cost of sales as a percentage of net sales increased to 49.1% in Fiscal 2005 from 48.9% in Fiscal 2004. Cost of sales as a percentage of net sales increased to 48.9% in
Fiscal 2004 from 45.5% in Fiscal 2003.

Gross Margin

Our gross margin may not be comparable to that of other retailers, as some retailers include all costs related to their distribution network as well as store tenancy and design costs in cost of sales. Other retailers
may exclude a portion of these costs from cost of sales, including them in a line item such as selling, general and administrative expenses.

Gross margin as a percentage of net sales decreased to 50.9% in Fiscal 2005 from 51.1% in Fiscal 2004.

Gross margin as a
percentage of sales decreased to 51.1% in Fiscal 2004 from 54.5% in Fiscal 2003. The decrease in gross margin as a percentage of net sales was primarily due to lower full price sales and gross margin rates, particularly at Ann Taylor.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of net sales decreased to 44.6% in Fiscal 2005 from 45.5% in Fiscal 2004. The decrease was primarily due to lower marketing and severance costs and a decrease in the provision for
management bonus partially offset by the costs associated with the relocation of our corporate headquarters and a one-time charge related to a legal settlement.

Selling, general and administrative expenses as a percentage of net sales increased 1.8% in Fiscal 2004 over Fiscal 2003. The increase was primarily due to an increase in marketing expenditures and severance costs,
partially offset by a decrease in the provision for management performance bonuses.



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##### Table of Contents

Depreciation and Amortization

The following table shows depreciation and amortization in dollars and as a percentage of total net sales for Fiscal 2005, 2004 and 2003:



|                              |  |                        |        |   |                 |   |        |                 |  |   |        |  
|----------------------------- |  | ---------------------- | ------ | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                              |  | Fiscal Years Ended     |       
|                              |  | January 28,2006        |        |   | January 29,2005 |   |        | January 31,2004 | 
|                              |  | (dollars in thousands) |       
|Depreciation and amortization |  | $                      | 93,786 |   |                 | $ | 78,657 |                 |  | $ | 66,798 |  
|Percentage of total net sales |  |                        | 4.5    | % |                 |   | 4.2    | %               |  |   | 4.2    | %

The increase in depreciation and amortization expense from Fiscal 2004 to Fiscal 2005 was
primarily due to capital expenditures related to new, remodeled and expanded stores, as well as the new corporate offices and information systems. The increase in depreciation and amortization expense from Fiscal 2003 to Fiscal 2004 was due to
capital expenditures related to new, remodeled and expanded stores. Depreciation and amortization as a percentage of total net sales for Fiscal 2004 was comparable to the prior year.

Interest Income

Interest income increased to approximately $9.3 million in Fiscal 2005 from
approximately $5.0 million in Fiscal 2004. The increase was primarily attributable to more favorable interest rates during Fiscal 2005 as compared to Fiscal 2004.

Interest income increased $1.7 million from 2003 to 2004, which was due to higher cash balances and more favorable interest rates.

Interest Expense

Interest expense decreased to approximately $2.1 million in Fiscal 2005 from approximately $3.6 million in
Fiscal 2004. This decrease was primarily due to the conversion of the outstanding Convertible Debentures in the second quarter of Fiscal 2004, as discussed more fully below in Liquidity and Capital Resources and Note 3, Long-Term
Debt in the Notes to the Consolidated Financial Statements.

Interest expense decreased to $3.6 million in Fiscal 2004 from $6.7
million in Fiscal 2003. This decrease was also due to the conversion of the outstanding Convertible Debentures in the second quarter of Fiscal 2004.

As a result of the redemption of our outstanding Convertible Debentures, we had no outstanding debt at January 28, 2006 or January 29, 2005. The weighted average interest rate on our outstanding indebtedness
at January 31, 2004 was 3.75%. Interest expense also includes various other charges, the largest of which are fees related to our revolving credit facility. See Liquidity and Capital Resources and Note 3, Long-Term Debt
in the Notes to the Consolidated Financial Statements for further discussion of our revolving credit facility.

Income Taxes

Our effective income tax rates were 40.8%, 40.5% and 40.0% of net income in Fiscal 2005, Fiscal 2004 and Fiscal 2003, respectively.

The increases in our effective income tax rates in Fiscal 2005 and Fiscal 2004 were due to higher state income taxes.



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##### Table of Contents

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    
|                                      |  | January 28,2006        |         | January 29,2005 |   | January 31,2004
|                                      |  | (dollars in thousands)
|Cash provided by operating activities |  | $                      | 311,323 |                 | $ | 153,927         |  | $ | 207,785
|Working capital                       |  | $                      | 418,626 |                 | $ | 343,568         |  | $ | 400,298
|Current ratio                         |  |                        | 2.63:1  |                 |   | 2.41:1          |  |   | 3.20:1 
|Debt to equity ratio                  |  |                        | 0:1     |                 |   | 0.1             |  |   | .15:1  

As a result of the sales and gross margin gains experienced in the second half of Fiscal 2005 and
tighter controls over inventory and spending, operating cash flows increased significantly in Fiscal 2005. The result was a $125.8 million increase in cash and cash equivalents in Fiscal 2005 over Fiscal 2004, net of proceeds from the
sale of short-term investments.

As presented in our Consolidated Statements of Cash Flows, cash provided by operating activities in each
of the fiscal years presented primarily resulted from net earnings before non-cash expenses such as depreciation and amortization. Cash used for investing activities in each of the fiscal years presented includes capital expenditures and investments
in and maturities of short-term investments. Cash provided by financing activities in each of the fiscal years presented includes proceeds from the exercise of stock options and other employee stock based compensation programs, offset by repurchases
of shares of our common stock.

Our short-term investments have consisted of auction rate securities which represent funds available for
current operations. 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. In accordance with the SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities, these short-term investments are classified as available-for-sale and are carried at cost, or par value which approximates the fair market value. We sold our
short-term investments in the first quarter of Fiscal 2005 and did not have any short-term investments as of January 28, 2006.

Merchandise inventories decreased approximately $24.7 million, or 10.8% in Fiscal 2005 from Fiscal 2004. The decrease was primarily due to the Companys management efforts to reduce inventory levels. Merchandise inventory on a
per-square-foot basis was approximately $43 at the end of Fiscal 2005 compared to $55 at the end of Fiscal 2004. Inventory turned 4.7 times in Fiscal 2005 compared to 4.5 times in Fiscal 2004.

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 and is used by Ann Taylor, Inc. and certain of its subsidiaries for letters of credit and other general corporate purposes. The Credit Facility permits the payment of cash dividends by the Company (and
dividends by certain subsidiaries 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 2005 or as of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled
approximately $136.5 million and $149.8 million as of January 28, 2006 and January 29, 2005, respectively leaving a remaining available balance for loans and letters of credit of $38.5 million and $25.2 million as of January 28, 2006
and January 29, 2005, respectively. See Note 3 to the Consolidated Financial Statements for further discussion of the Credit Facility.



19



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##### Table of Contents

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



|                               |  |                    |         |                 |   |                 |  |   |       
|------------------------------ |  | ------------------ | ------- | --------------- | - | --------------- |  | - | ------
|                               |  | Fiscal Years Ended
|                               |  | January 28,2006    |         | January 29,2005 |   | January 31,2004
|New store construction         |  | $                  | 96,857  |                 | $ | 94,932          |  | $ | 62,153
|Store renovation/refurbishment |  |                    | 19,016  |                 |   | 16,429          |  |   | 15,292
|Information systems            |  |                    | 21,212  |                 |   | 23,920          |  |   | 16,022
|Corporate offices              |  |                    | 35,704  |                 |   | 13,453          |  |   | 672   
|Other                          |  |                    | 2,106   |                 |   | 3,749           |  |   | 3,161 
|                               |  |                    |         |                 |   |                 |  |   |       
|Total                          |  | $                  | 174,895 |                 | $ | 152,483         |  | $ | 97,300
|                               |  |                    |         |                 |   |                 |  |   |       

We expect our total capital expenditure requirements in Fiscal 2006 will be approximately $155 to
$160 million. Approximately $82 to $85 million will be spent on new store construction, store expansion and relocation, for a planned square footage increase of approximately 432,000 square feet, or 9.0%. Another approximately $38 to $40 million is
planned for store renovation and refurbishment programs. Approximately $27 million will be spent to support continued investments in information systems, and approximately $8 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 and Fiscal 2004 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 is scheduled to expire in September 2006.

In order 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 our ongoing cash needs for our business, as presently conducted, for the foreseeable future.

In Fiscal 1999, we issued an aggregate of $199.1 million principal amount at maturity Convertible Subordinated Debentures due 2019 (the Convertible Debentures). In May 2004, we notified the holders that we would
redeem these Convertible Debentures. The holders had the option to convert their Convertible Debentures into common stock of the Company prior to redemption, and in June 2004, all the Convertible Debentures were converted for an aggregate total
of 5.4 million shares of common stock. The conversion of the Convertible Debentures had no effect on diluted earnings per share.

On August 18, 2005, our Board of Directors approved a new $100 million securities repurchase program which replaced the $100 million securities repurchase program approved by our Board of Directors in August 2004. Under the new
program, purchases of shares of our 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
will become treasury shares available for general corporate and other purposes. During Fiscal 2005, we repurchased 1,700,000 shares of our common stock at a cost of approximately $45.1 million, of which 1,025,000 shares, or approximately $28.3
million, were repurchased under the August 2005 plan.

Substantially all associates of the Company who complete 1,000 hours of
service are covered under a noncontributory defined benefit pension plan. Our funding obligations and liability under the terms of the 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 5.55%. A one
percent decrease in the assumed discount rate would increase total net periodic pension expense for Fiscal 2006 by $2.5 million and would increase the projected benefit obligation at January 28, 2006 by $7.9 million. A one percent increase in
the assumed discount rate would decrease these amounts by $2.2 million and $6.6 million, respectively.



20



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##### Table of Contents

Plan assets as of January 28, 2006 were allocated 67% in equities, 32% in bond related funds and 1%
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% for
equities and bond-related funds, 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 will increase pension expense. Our expected long-term rate of return on plan assets was 7.25% for both Fiscal 2005 and 2004. A one percent change in the long-term rate
of return assumption would impact Fiscal 2006 pension expense by approximately $0.3 million. We contributed $5 million and $7.2 million to the pension plan in Fiscal 2005 and Fiscal 2004, respectively.

Based on review of our projected benefit obligation and discussion with our Pension Plan administrator, we recorded a cumulative $2.7 million adjustment
to pension expense in Fiscal 2004. Approximately $2.2 million represented prior service and interest costs of the Plan, the impact of which was not considered material to any of the affected periods. See Note 8, Retirement Plans in the
Notes to Consolidated Financial Statements for further discussion.

In April 2004, our Board of Directors approved a 3-for-2 split of our
common stock, in the form of a stock dividend. One additional share of common stock for every two shares owned was distributed on May 26, 2004 to stockholders of record at the close of business on May 11, 2004. See the Consolidated
Statements of Stockholders Equity for adjusted shares and per share data reflecting the issuance of additional shares in connection with the stock split.

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 split 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 2005.

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, historical analysis, and other relevant data. Management believes that it has taken reasonable steps to ensure that we are adequately accrued for costs incurred related to these
programs at January 28, 2006.

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 January 28, 2006 (in thousands):



|                           |  |       |           |                 |   |           |  |           |         |                  |   |         |  |   |        
|-------------------------- |  | ----- | --------- | --------------- | - | --------- |  | --------- | ------- | ---------------- | - | ------- |  | - | -------
|                           |  | Total |           | Less than1 Year |   | 1-3 Years |  | 4-5 Years |         | More than5 Years
|Operating leases (a)       |  | $     | 1,290,570 |                 | $ | 168,467   |  | $         | 319,947 |                  | $ | 272,757 |  | $ | 529,399
|Purchase obligations:      |  |       |           |                 |   |           |  |           |         |                  |   |         |  |   |        
|Merchandise (b)            |  |       | 165,337   |                 |   | 165,337   |  |           |        |                  |   |        |  |   |       
|New store construction (c) |  |       | 4,194     |                 |   | 4,194     |  |           |        |                  |   |        |  |   |       
|Information systems (d)    |  |       | 7,382     |                 |   | 2,325     |  |           | 3,557   |                  |   | 1,500   |  |   |       
|Employment agreements      |  |       | 7,027     |                 |   | 2,357     |  |           | 4,348   |                  |   | 322     |  |   |       
|Other (e)                  |  |       | 7,731     |                 |   | 4,702     |  |           | 3,029   |                  |   |        |  |   |       
|                           |  |       |           |                 |   |           |  |           |         |                  |   |         |  |   |        
|Total                      |  | $     | 1,482,241 |                 | $ | 347,382   |  | $         | 330,881 |                  | $ | 274,579 |  | $ | 529,399
|                           |  |       |           |                 |   |           |  |           |         |                  |   |         |  |   |        

(Footnotes on following page)



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(Footnotes for preceding page)



|(a) | Represents future minimum lease payments under non-cancelable operating leases as of January 28, 2006. 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 2005 were $63.3 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(c) | Represents commitments for Fiscal 2006 store construction not recorded on our Consolidated Balance Sheet.
|--- | ---------------------------------------------------------------------------------------------------------



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



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

Recent Accounting Pronouncements

In December 2004,
the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R) (revised 2004), Share-Based Payment (SFAS No. 123(R)) which revised SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). This statement supercedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25). For a public company
that does not file as a small business issuer, SFAS No. 123(R) must be adopted as of the beginning of its first fiscal year that begins after June 15, 2005. As permitted by SFAS No. 123, we currently account for share-based payments
to employees using the intrinsic value method under APB No. 25 and, as such, generally recognize no compensation cost for employee stock options or stock issuances under the Associate Discount Stock Purchase Plan.

SFAS No. 123(R) permits public companies to choose between the following two adoption methods:



| | 1. | A modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for
all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date,
or
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | A modified retrospective method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have elected to utilize the modified prospective application method for transition under SFAS No. 123(R). The pro-forma disclosure under SFAS
No. 123 in the footnotes to our consolidated financial statements under Stock-Based Compensation for periods prior to Fiscal 2006 is not necessarily indicative of the potential impact of recognizing compensation cost for share-based payments
under SFAS No. 123(R) in future periods. We estimate that the Fiscal 2006 impact to diluted earnings per share resulting from recording compensation expense related to stock options and our Associate Discount Stock Purchase Plan will be
approximately $0.06. The potential impact of adopting SFAS No. 123(R) on our Fiscal 2006 results of operations and earnings per share is dependent on several factors including the number of options granted in Fiscal 2006, the fair value of
those options which will be determined at the date of grant, the level of participation in our Associate Discount Stock Purchase Plan, the related income tax benefits recorded and the diluted shares outstanding. This estimate is based on certain
assumptions as to these factors and the actual impact may differ if actual results vary from the assumptions.

FASB Staff Position
No. 123(R)-4 (FSP No. 123(R)-4), Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event was issued in February
2006. FSP No. 123(R)-4 addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. The guidance in this FSP amends paragraphs 32 and
A229 of SFAS No. 123(R) to incorporate the concept articulated in footnote 16 of that Statement. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control
does not meet the condition in paragraphs 32 and A229 until it becomes probable that the event will occur. We have evaluated the impact of FSP No. 123(R)-4 and do not expect it will impact our accounting under SFAS No. 123(R).



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FASB Interpretation No. 47 (FIN No. 47), Accounting for Conditional Asset
Retirement Obligations (an interpretation of FASB Statement No. 143) was issued in March 2005. FIN No. 47 provides clarification with respect to the timing of liability recognition for legal obligations associated with the retirement
of tangible long-lived assets when the timing and/or method of settlement of the obligation are conditional on a future event. We adopted FIN 47 in the fourth quarter of Fiscal 2005 and the effect on our consolidated financial statements was not
material.

SFAS No. 153, Exchanges of Nonmonetary Assets (an amendment of APB Opinion No. 29) (SFAS
No. 153) was issued in December 2004 and is effective for nonmonetary exchanges occurring after June 15, 2005 with prospective application. SFAS No. 153 replaces the exception to using fair value for nonmonetary exchanges of
similar productive assets, with a general exception for exchanges of nonmonetary assets that do not have commercial substance. We have analyzed the potential effect of SFAS No. 153 and do not believe it will have any impact on our consolidated
financial statements.

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 to our 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.

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

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 shortages between the date of the previous physical inventory count and the balance sheet date.

Asset Impairment - We follow SFAS No. 142, Goodwill and Other Intangible Assets, which requires that amortization of goodwill and indefinite life intangible assets be replaced with annual
impairment tests. Intangible assets with finite lives will continue to be amortized over their useful lives. We perform impairment testing annually, or more frequently if conditions warrant, to determine whether an impairment charge related to the
carrying value of recorded goodwill is necessary. The most recent impairment tests 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 - We follow 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 $1.4 million in Fiscal 2005.



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##### Table of Contents

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

We currently maintain all of our cash and cash equivalents in financial instruments with original maturity dates of three months or less. Our Credit Facility allows for investments in financial instruments with original maturity dates of up
to 12 months. We sold our short-term investments in auction rate securities during the first quarter of Fiscal 2005 and did not have any short-term investments as of January 28, 2006. Generally, for Fiscal 2004 and prior, over 60% of these
financial instruments had a fixed rate of return and were therefore subject to interest rate risk. These fixed rate investments (auction rate securities) would have declined in value if interest rates increased.

Since our Convertible Debentures were redeemed in June 2004, our consolidated results of operations would only be affected by interest rate changes to
the extent that fluctuating rate loans are outstanding under the Credit Facility. As of January 28, 2006, we had no such amounts outstanding. The effect of interest rate changes on our financial results would depend on the amount of
indebtedness outstanding at the time and the amount of such change.



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

The following consolidated financial statements of the Company for the years ended January 28, 2006, January 29, 2005 and January 31, 2004 are included as part of this Report (See Item 15):



|                                                                                                                                    |  | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | 
|                                                                                                                                    | 
|Consolidated Statements of Income for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004.               |  | 
|                                                                                                                                    | 
|Consolidated Balance Sheets as of January 28, 2006 and January 29, 2005.                                                            |  | 
|                                                                                                                                    | 
|Consolidated Statements of Stockholders Equity for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004. |  | 
|                                                                                                                                    | 
|Consolidated Statements of Cash Flows for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004.           |  | 
|                                                                                                                                    | 
|Notes to Consolidated Financial Statements.                                                                                         |  | 



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

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.

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.



24



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##### Table of Contents

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
January 28, 2006. 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 January 28, 2006. The Companys independent registered public accounting firm has issued an
attestation report on managements assessment of our internal control over financial reporting. That report appears herein on page 26.

Changes in
Internal Control over Financial Reporting

During our fourth fiscal quarter, there was no change in the Companys internal control
over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



25



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ANNTAYLOR STORES CORPORATION:

We have audited managements assessment, included in the accompanying Managements Report on Internal Control over Financial Reporting, that AnnTaylor Stores Corporation and subsidiaries (the Company), maintained
effective internal control over financial reporting as of January 28, 2006 based on the 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 maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides 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, managements assessment that the Company maintained effective internal control over financial reporting as of January 28, 2006, is fairly stated, in all material respects, based on the
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of January 28, 2006, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended January 28, 2006 of the Company and our report dated March 13, 2006 expressed an unqualified opinion on those financial statements.

|                        
|------------------------
|                        
|/s/DELOITTE & TOUCHE LLP
|                        
|New York, NY            
|March 13, 2006          



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

None.



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##### Table of Contents

PART III



|ITEM 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------

The information required by this item is incorporated herein by reference to the Sections entitled Election of Class III Directors, Executive Officers and Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys Proxy Statement for its 2006 Annual Meeting of Stockholders.

The Company has Business Conduct
Guidelines that apply to all Ann Taylor associates, including its chief executive officer and chief financial officer/principal accounting officer, as well as members of the Companys Board of Directors. A copy of the Business Conduct
Guidelines is available on the Companys Investor Relations website at http://investor.anntaylor.com, and is available in print free of charge to any shareholder upon request. Any future 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 http://investor.anntaylor.com.



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

The information required by
this item is incorporated herein by reference to the Sections entitled Compensation of Directors and Related Matters, Compensation Committee Interlocks and Insider Participation in Compensation Decisions and Executive
Compensation in the Companys Proxy Statement for its 2006 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 Sections entitled Beneficial Ownership of Common Stock and
Equity Compensation Plan Information in the Companys Proxy Statement for its 2006 Annual Meeting of Stockholders.



|ITEM 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

The
information required by this item is incorporated herein by reference to the Section entitled Compensation Committee Interlocks and Insider Participation in Compensation Decisions in the Companys Proxy Statement for its 2006 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 Engagement of Independent Auditors in the Companys Proxy Statement for its 2006 Annual Meeting of Stockholders.



27



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##### Table of Contents

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 January 28,
2006, January 29, 2005 and January 31, 2004; Consolidated Balance Sheets as of January 28, 2006 and January 29, 2005; Consolidated Statements of Stockholders Equity for the Fiscal Years Ended January 28,
2006, January 29, 2005, and January 31, 2004; Consolidated Statements of Cash Flows for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004; 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.
| | --- | ---------------



28



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##### Table of Contents

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 CORPORATIONBy:

/s/ Kay KrillKay KrillPresident and Chief Executive Officer


Date: March 13, 2006

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  Kay Krill                     |  | President, Chief Executive Officer and Director (Principal Executive Officer)                                                  |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ James M. Smith  James M. Smith           |  | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer) |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Ronald W. Hovsepian  Ronald W. Hovsepian |  | Non-Executive Chairman of the Board and Director                                                                               |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ James J. Burke, Jr.  James J. Burke, Jr. |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Wesley E. Cantrell  Wesley E. Cantrell   |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Robert C. Grayson  Robert C. Grayson     |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Dale W. Hilpert  Dale W. Hilpert         |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Linda A. Huett  Linda A. Huett           |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Michael W. Trapp  Michael W. Trapp       |  | Director                                                                                                                       |  | March 13, 2006 Date
|                                             |  |                                                                                                                               
|/s/ Barbara A. Turf  Barbara A. Turf         |  | Director                                                                                                                       |  | March 13, 2006 Date



29



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A
NNTAYLOR STORES CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                                   |  |         
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------
|                                                                                                                                   |  | Page No.
|Report of Independent Registered Public Accounting Firm                                                                            |  | 31      
|                                                                                                                                   | 
|Consolidated Financial Statements:                                                                                                 |  |         
|                                                                                                                                   | 
|Consolidated Statements of Income for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004               |  | 32      
|                                                                                                                                   | 
|Consolidated Balance Sheets as of January 28, 2006 and January 29, 2005                                                            |  | 33      
|                                                                                                                                   | 
|Consolidated Statements of Stockholders Equity for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004 |  | 34      
|                                                                                                                                   | 
|Consolidated Statements of Cash Flows for the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004           |  | 35      
|                                                                                                                                   | 
|Notes to Consolidated Financial Statements                                                                                         |  | 36      



30



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of

ANNTAYLOR STORES CORPORATION:

We have audited the accompanying consolidated balance sheets of AnnTaylor Stores Corporation and subsidiaries (the Company) as of
January 28, 2006 and January 29, 2005, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years ended January 28, 2006, January 29, 2005, and January 31,
2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
the Company and subsidiaries at January 28, 2006 and January 29, 2005, and the results of their operations and their cash flows for each of the three years ended January 28, 2006, January 29, 2005, and January 31, 2004,
in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of January 28, 2006, based on the criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 13, 2006, expressed an unqualified opinion on managements assessment of the effectiveness of the
Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.

|                         
|-------------------------
|                         
|/s/ DELOITTE & TOUCHE LLP
|                         
|New York, NY             
|March 13, 2006           



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

For the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004



|                                                       |  |                                          |           |                  |   |                  |  |   |          
|------------------------------------------------------ |  | ---------------------------------------- | --------- | ---------------- | - | ---------------- |  | - | ---------
|                                                       |  | Fiscal Years Ended                      
|                                                       |  | January 28, 2006                         |           | January 29, 2005 |   | January 31, 2004
|                                                       |  | (in thousands, except per share amounts)
|Net sales                                              |  | $                                        | 2,073,146 |                  | $ | 1,853,583        |  | $ | 1,587,708
|Cost of sales                                          |  |                                          | 1,017,122 |                  |   | 906,035          |  |   | 721,463  
|                                                       |  |                                          |           |                  |   |                  |  |   |          
|Gross margin                                           |  |                                          | 1,056,024 |                  |   | 947,548          |  |   | 866,245  
|Selling, general and administrative expenses           |  |                                          | 924,998   |                  |   | 842,590          |  |   | 694,958  
|                                                       |  |                                          |           |                  |   |                  |  |   |          
|Operating income                                       |  |                                          | 131,026   |                  |   | 104,958          |  |   | 171,287  
|Interest income                                        |  |                                          | 9,318     |                  |   | 5,037            |  |   | 3,298    
|Interest expense                                       |  |                                          | 2,083     |                  |   | 3,641            |  |   | 6,665    
|                                                       |  |                                          |           |                  |   |                  |  |   |          
|Income before income taxes                             |  |                                          | 138,261   |                  |   | 106,354          |  |   | 167,920  
|Income tax provision                                   |  |                                          | 56,389    |                  |   | 43,078           |  |   | 67,193   
|                                                       |  |                                          |           |                  |   |                  |  |   |          
|Net income                                             |  | $                                        | 81,872    |                  | $ | 63,276           |  | $ | 100,727  
|                                                       |  |                                          |           |                  |   |                  |  |   |          
|Basic earnings per share                               |  | $                                        | 1.14      |                  | $ | 0.91             |  | $ | 1.51     
|Weighted average shares outstanding                    |  |                                          | 71,554    |                  |   | 69,607           |  |   | 66,614   
|Diluted earnings per share                             |  | $                                        | 1.13      |                  | $ | 0.88             |  | $ | 1.42     
|Weighted average shares outstanding, assuming dilution |  |                                          | 72,270    |                  |   | 72,933           |  |   | 73,145   

See accompanying Notes to Consolidated Financial Statements.



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ANNTAYLOR STORES CORPORATION

CONSOLIDATED BALANCE SHEETS

January 28, 2006 and January 29, 2005



|                                                                                                                     |  |                 |           |   |                 |   |           |  
|-------------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | - | --------------- | - | --------- | -
|                                                                                                                     |  | January 28,2006 |           |   | January 29,2005 |  
|                                                                                                                     |  | (in thousands)  |          
|ASSETS                                                                                                               |  |                 |           |   |                 |   |           |  
|Current assets                                                                                                       |  |                 |           |   |                 |   |           |  
|Cash and cash equivalents                                                                                            |  | $               | 380,654   |   |                 | $ | 62,412    |  
|Short-term investments                                                                                               |  |                 |          |   |                 |   | 192,400   |  
|Accounts receivable                                                                                                  |  |                 | 17,091    |   |                 |   | 12,573    |  
|Merchandise inventories                                                                                              |  |                 | 204,503   |   |                 |   | 229,218   |  
|Prepaid expenses and other current assets                                                                            |  |                 | 73,964    |   |                 |   | 90,711    |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total current assets                                                                                                 |  |                 | 676,212   |   |                 |   | 587,314   |  
|Property and equipment, net                                                                                          |  |                 | 512,765   |   |                 |   | 434,328   |  
|Goodwill                                                                                                             |  |                 | 286,579   |   |                 |   | 286,579   |  
|Deferred financing costs, net                                                                                        |  |                 | 1,017     |   |                 |   | 1,382     |  
|Other assets                                                                                                         |  |                 | 16,333    |   |                 |   | 17,735    |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total assets                                                                                                         |  | $               | 1,492,906 |   |                 | $ | 1,327,338 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                 |  |                 |           |   |                 |   |           |  
|Current liabilities                                                                                                  |  |                 |           |   |                 |   |           |  
|Accounts payable                                                                                                     |  | $               | 97,398    |   |                 | $ | 88,340    |  
|Accrued salaries and bonus                                                                                           |  |                 | 8,633     |   |                 |   | 21,617    |  
|Accrued tenancy                                                                                                      |  |                 | 44,036    |   |                 |   | 32,264    |  
|Gift certificates and merchandise credits redeemable                                                                 |  |                 | 45,916    |   |                 |   | 38,892    |  
|Accrued expenses                                                                                                     |  |                 | 61,603    |   |                 |   | 62,633    |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total current liabilities                                                                                            |  |                 | 257,586   |   |                 |   | 243,746   |  
|Deferred lease costs                                                                                                 |  |                 | 198,714   |   |                 |   | 147,984   |  
|Other liabilities                                                                                                    |  |                 | 2,124     |   |                 |   | 8,864     |  
|Commitments and contingencies (see note 4)                                                                           |  |                 |           |   |                 |   |           |  
|Stockholders equity                                                                                                 |  |                 |           |   |                 |   |           |  
|Common stock, $.0068 par value; 120,000,000 shares authorized; 81,998,648 and 80,085,690 shares issued, respectively |  |                 | 558       |   |                 |   | 545       |  
|Additional paid-in capital                                                                                           |  |                 | 723,230   |   |                 |   | 669,128   |  
|Retained earnings                                                                                                    |  |                 | 527,325   |   |                 |   | 445,410   |  
|Deferred compensation on restricted stock                                                                            |  |                 | (12,006   | ) |                 |   | (11,746   | )
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|                                                                                                                     |  |                 | 1,239,107 |   |                 |   | 1,103,337 |  
|Treasury stock, 9,507,361 and 9,453,242 shares respectively, at cost                                                 |  |                 | (204,625  | ) |                 |   | (176,593  | )
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total stockholders equity                                                                                           |  |                 | 1,034,482 |   |                 |   | 926,744   |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  
|Total liabilities and stockholders equity                                                                           |  | $               | 1,492,906 |   |                 | $ | 1,327,338 |  
|                                                                                                                     |  |                 |           |   |                 |   |           |  

See accompanying Notes to Consolidated Financial Statements.



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ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

For the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004

(in thousands)



|                                                                            |  |              |   |                          |        |     |                  |   |         |                       |  |   |         |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|--------------------------------------------------------------------------- |  | ------------ | - | ------------------------ | ------ | --- | ---------------- | - | ------- | --------------------- |  | - | ------- | - |  | ----- | ------- | - |  | ------ | - |  | - | -------- | - |  | - | --------- | -
|                                                                            |  |              |   | AdditionalPaid-inCapital |        |     | RetainedEarnings |   |         | RestrictedStockAwards |  |   |         |   |  |       |        
|                                                                            |  | Common Stock |   |                          |        |     | Treasury         |   |         |                       | 
|                                                                            |  | Shares       |   |                          | Amount |     |                  |   |         | Shares                |  |   | Amount  |   |  | Total |        
|Balance at February 1, 2003                                                 |  | 73,400       |   |                          | $      | 498 |                  | $ | 499,895 |                       |  | $ | 284,548 |   |  | $     | (3,968  | ) |  | 6,077  |   |  | $ | (78,120  | ) |  | $ | 702,853   |  
|Net income                                                                  |  |             |   |                          |        |    |                  |   |        |                       |  |   | 100,727 |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 100,727   |  
|Exercise of stock options and related tax benefit                           |  | 650          |   |                          |        | 5   |                  |   | 13,905  |                       |  |   | (2,701  | ) |  |       |        |   |  | (772   | ) |  |   | 13,212   |   |  |   | 24,421    |  
|Amortization of restricted stock                                            |  |             |   |                          |        |    |                  |   |        |                       |  |   |        |   |  |       | 3,678   |   |  |       |   |  |   |         |   |  |   | 3,678     |  
|Issuance of restricted stock                                                |  |             |   |                          |        |    |                  |   | 1,052   |                       |  |   | (387    | ) |  |       | (6,433  | ) |  | (337   | ) |  |   | 5,768    |   |  |   |          |  
|Forfeiture of restricted stock                                              |  | (5           | ) |                          |        |    |                  |   | (54     | )                     |  |   | (41     | ) |  |       | 575     |   |  | 30     |   |  |   | (480     | ) |  |   |          |  
|Repurchase of common and restricted stock                                   |  |             |   |                          |        |    |                  |   |        |                       |  |   |        |   |  |       |        |   |  | 1,133  |   |  |   | (14,682  | ) |  |   | (14,682   | )
|Issuance of common stock pursuant to Associate Discount Stock Purchase Plan |  | 153          |   |                          |        | 2   |                  |   | 1,857   |                       |  |   |        |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 1,859     |  
|                                                                            |  |              |   |                          |        |     |                  |   |         |                       |  |   |         |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|Balance at January 31, 2004                                                 |  | 74,198       |   |                          |        | 505 |                  |   | 516,655 |                       |  |   | 382,146 |   |  |       | (6,148  | ) |  | 6,131  |   |  |   | (74,302  | ) |  |   | 818,856   |  
|Net income                                                                  |  |             |   |                          |        |    |                  |   |        |                       |  |   | 63,276  |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 63,276    |  
|Exercise of stock options and related tax benefit                           |  | 358          |   |                          |        | 2   |                  |   | 20,097  |                       |  |   |        |   |  |       |        |   |  | (987   | ) |  |   | 12,385   |   |  |   | 32,484    |  
|Amortization of restricted stock                                            |  |             |   |                          |        |    |                  |   |        |                       |  |   |        |   |  |       | 7,392   |   |  |       |   |  |   |         |   |  |   | 7,392     |  
|Issuance of restricted stock                                                |  |             |   |                          |        |    |                  |   | 7,482   |                       |  |   |        |   |  |       | (16,605 | ) |  | (614   | ) |  |   | 9,123    |   |  |   |          |  
|Forfeiture of restricted stock                                              |  | (20          | ) |                          |        |    |                  |   | (1,502  | )                     |  |   | (12     | ) |  |       | 3,615   |   |  | 123    |   |  |   | (2,101   | ) |  |   |          |  
|Repurchase of common and restricted stock                                   |  |             |   |                          |        |    |                  |   |        |                       |  |   |        |   |  |       |        |   |  | 4,800  |   |  |   | (121,698 | ) |  |   | (121,698  | )
|Conversion of sub debentures                                                |  | 5,410        |   |                          |        | 37  |                  |   | 123,447 |                       |  |   |        |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 123,484   |  
|Issuance of common stock pursuant to Associate Discount Stock Purchase Plan |  | 140          |   |                          |        | 1   |                  |   | 2,949   |                       |  |   |        |   |  |       |        |   |  |       |   |  |   |         |   |  |   | 2,950     |  
|                                                                            |  |              |   |                          |        |     |                  |   |         |                       |  |   |         |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  
|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                                                |  |             |   |                          |        |    |                  |   | 7,441   |                       |  |   |        |   |  |       | (13,573 | ) |  | (521   | ) |  |   | 6,132    |   |  |   |          |  
|Forfeiture of restricted stock                                              |  | 8            |   |                          |        |    |                  |   | (1,105  | )                     |  |   | 43      |   |  |       | 2,945   |   |  | 137    |   |  |   | (1,883   | ) |  |   |          |  
|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 |  
|                                                                            |  |              |   |                          |        |     |                  |   |         |                       |  |   |         |   |  |       |         |   |  |        |   |  |   |          |   |  |   |           |  

See accompanying Notes to Consolidated Financial Statements.



34



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended January 28, 2006, January 29, 2005 and January 31, 2004



|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|--------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | --------------- | - | -------- | --------------- |  | - | -------- | -
|                                                                                                    |  | Fiscal Years Ended |         
|                                                                                                    |  | January 28,2006    |          |   | January 29,2005 |   |          | January 31,2004 | 
|                                                                                                    |  | (in thousands)     |         
|Operating activities:                                                                               |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net income                                                                                          |  | $                  | 81,872   |   |                 | $ | 63,276   |                 |  | $ | 100,727  |  
|Adjustments to reconcile net income to net cash provided by operating activities                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Amortization of stock awards                                                                        |  |                    | 10,400   |   |                 |   | 7,392    |                 |  |   | 3,678    |  
|Deferred income taxes                                                                               |  |                    | (15,421  | ) |                 |   | (5,022   | )               |  |   | 3,618    |  
|Depreciation and amortization                                                                       |  |                    | 93,786   |   |                 |   | 78,657   |                 |  |   | 66,798   |  
|Loss on disposal and write-down of property and equipment                                           |  |                    | 3,497    |   |                 |   | 1,301    |                 |  |   | 1,315    |  
|Non-cash interest                                                                                   |  |                    | 789      |   |                 |   | 1,858    |                 |  |   | 4,318    |  
|Tax benefit from exercise of stock options                                                          |  |                    | 12,566   |   |                 |   | 7,262    |                 |  |   | 4,050    |  
|Non-cash compensation expense                                                                       |  |                    | 770      |   |                 |   | 5,350    |                 |  |   |         |  
|Changes in assets and liabilities:                                                                  |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Accounts receivable                                                                                 |  |                    | (5,024   | ) |                 |   | 39       |                 |  |   | (2,065   | )
|Merchandise inventories                                                                             |  |                    | 24,715   |   |                 |   | (57,159  | )               |  |   | 10,926   |  
|Prepaid expenses and other current assets                                                           |  |                    | 24,678   |   |                 |   | (28,621  | )               |  |   | (6,725   | )
|Other non-current assets and liabilities, net                                                       |  |                    | 50,510   |   |                 |   | 32,713   |                 |  |   | 13,203   |  
|Accounts payable and accrued expenses                                                               |  |                    | 28,185   |   |                 |   | 46,881   |                 |  |   | 7,942    |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash provided by operating activities                                                           |  |                    | 311,323  |   |                 |   | 153,927  |                 |  |   | 207,785  |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Investing activities:                                                                               |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Purchases of available-for-sale securities                                                          |  |                    | (20,600  | ) |                 |   | (414,150 | )               |  |   | (430,450 | )
|Sales of available-for-sale securities                                                              |  |                    | 213,000  |   |                 |   | 532,125  |                 |  |   | 285,175  |  
|Purchases of property and equipment                                                                 |  |                    | (187,613 | ) |                 |   | (137,168 | )               |  |   | (89,687  | )
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash provided by (used in) investing activities                                                 |  |                    | 4,787    |   |                 |   | (19,193  | )               |  |   | (234,962 | )
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Financing activities:                                                                               |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Issuance of common stock pursuant to Associate                                                      |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Discount Stock Purchase Plan                                                                        |  |                    | 3,006    |   |                 |   | 2,950    |                 |  |   | 1,859    |  
|Proceeds from exercise of stock options                                                             |  |                    | 47,279   |   |                 |   | 19,889   |                 |  |   | 20,472   |  
|Payment of financing costs                                                                          |  |                    |         |   |                 |   | (22      | )               |  |   | (1,536   | )
|Repurchases of common and restricted stock                                                          |  |                    | (48,153  | ) |                 |   | (121,698 | )               |  |   | (14,682  | )
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net cash provided by (used in) financing activities                                                 |  |                    | 2,132    |   |                 |   | (98,881  | )               |  |   | 6,113    |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Net increase (decrease) in cash                                                                     |  |                    | 318,242  |   |                 |   | 35,853   |                 |  |   | (21,064  | )
|Cash and cash equivalents, beginning of year                                                        |  |                    | 62,412   |   |                 |   | 26,559   |                 |  |   | 47,623   |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Cash and cash equivalents, end of year                                                              |  | $                  | 380,654  |   |                 | $ | 62,412   |                 |  | $ | 26,559   |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Supplemental disclosures of cash flow information:                                                  |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Cash paid during the year for:                                                                      |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Interest                                                                                            |  | $                  | 1,293    |   |                 | $ | 1,770    |                 |  | $ | 2,202    |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Income taxes                                                                                        |  | $                  | 47,030   |   |                 | $ | 58,226   |                 |  | $ | 56,147   |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Conversion of Convertible Debentures into common stock, net of unamortized deferred financing costs |  | $                  |         |   |                 | $ | 123,484  |                 |  | $ |         |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  
|Accrual for purchases of property and equipment                                                     |  | $                  | 17,157   |   |                 | $ | 31,502   |                 |  | $ | 16,187   |  
|                                                                                                    |  |                    |          |   |                 |   |          |                 |  |   |          |  

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).

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.

In 2004, the Company effected a 3-for-2 split of its common stock in the form of a stock dividend. All per share amounts and shares outstanding,
including all common stock equivalents (stock options and restricted stock), have been retroactively restated in the Consolidated Financial Statements and in the Notes to Consolidated Financial Statements for all periods presented to reflect the
stock spilt.

The Company has determined that acquisitions of property and equipment on account, which were previously reported as a
component of changes in operating assets and liabilities and purchases of property and equipment, should not have been reported in the statements of cash flows. The Companys financial statements for the fiscal years ended January 29, 2005
and January 31, 2004 have been revised to reflect a decrease in cash flows from operating activities with a corresponding increase in cash flows from investing activities of $15.3 million and $7.6 million, respectively, which represents the
change in the accrual year over year. Purchases of property and equipment acquired on account are now presented as supplemental disclosure of non-cash items. This revision has no effect on net income or the amount of cash and cash equivalents
reported.

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. All fiscal years presented in this report include 52 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 is to record revenue as the certificates are redeemed for merchandise. Prior to their redemption, the certificates are recorded as a liability.
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 goods sold. A reserve for estimated
returns is established when sales are recorded.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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.

Short-Term Investments

The Companys short-term investments have consisted of auction rate securities which represent funds available for current operations. 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. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, these short-term investments are classified as available-for-sale and are carried at cost, or par value which approximates the fair market value. The Company sold its short-term investments in
the first quarter of Fiscal 2005 and did not have any short-term investments as of January 28, 2006.

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 shortages between the date of the previous physical inventory count and the balance sheet date.

Cost of Sales

Cost of sales is
comprised of direct inventory costs for merchandise sold, including all costs to transport merchandise from third party suppliers to the Companys distribution center. Buying and occupancy costs are excluded from cost of sales.

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 lease term, beginning on the date of initial possession, which
is generally when the Company enters the space and begins construction build-out. 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 occupancy 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 January 28, 2006 and
January 29, 2005 was approximately $4.9 million and $4.5 million respectively. Amortization expense recognized was approximately $365,000, $441,000 and $820,000 in Fiscal 2005, 2004 and 2003, respectively. Approximately $77,000 and $203,000 in
Fiscal 2004 and 2003, respectively, is related to the amortization of deferred financing costs on the Companys Convertible Subordinated Debentures, which were redeemed in June 2004 (See Note 3  Long-Term Debt). As a result of
the redemption, deferred financing costs of approximately $3.1 million were charged to the carrying value of the Companys Convertible Subordinated Debentures.

Goodwill and Other Long-Lived Assets

The Company 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. 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 necessary for Fiscal 2005, 2004 or 2003. This will be 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, 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. As a result of this testing, there were no material impairment losses recorded for Fiscal 2005, 2004 or 2003.

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 $55.6 million, $62.3 million and $39.0 million in Fiscal 2005, 2004 and 2003, respectively.



38



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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

The Company accounts for stock-based awards and employees purchase rights under the Associate Discount Stock Purchase Plan using the intrinsic value-based method of accounting in accordance with Accounting
Principles Board Opinion No. 25 (APB No. 25), under which no compensation cost is recognized for stock option awards granted at fair market value and employees purchase rights under the Associate Discount Stock Purchase
Plan. Had compensation costs of option awards and employees purchase rights 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 employees purchase rights, and record such amount in the consolidated financial statements as compensation
expense. Pro forma stock-based employee compensation costs, net income and earnings per share, as they would have been recognized if the fair value method had been applied to all awards, are presented in the table below. The Company is currently
evaluating the provisions of SFAS No. 123(R), Share-Based Payment, and plans to adopt its provisions in Fiscal 2006.



|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | --------------- | - | ------- | --------------- |  | - | ------- | -
|                                                                                                                                            |  | Fiscal Years Ended                    |        
|                                                                                                                                            |  | January 28,2006                       |         |   | January 29,2005 |   |         | January 31,2004 | 
|                                                                                                                                            |  | (in thousands, except per share data) |        
|Net income:                                                                                                                                 |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|As reported                                                                                                                                 |  | $                                     | 81,872  |   |                 | $ | 63,276  |                 |  | $ | 100,727 |  
|Add: Stock-based employee compensation expense included in net income, net of related tax effects                                           |  |                                       | 6,613   |   |                 |   | 7,581   |                 |  |   | 2,207   |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                       | (10,162 | ) |                 |   | (13,487 | )               |  |   | (5,724  | )
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|Pro forma                                                                                                                                   |  | $                                     | 78,323  |   |                 | $ | 57,370  |                 |  | $ | 97,210  |  
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|Basic earnings per share:                                                                                                                   |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|As reported                                                                                                                                 |  | $                                     | 1.14    |   |                 | $ | 0.91    |                 |  | $ | 1.51    |  
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|Pro forma                                                                                                                                   |  | $                                     | 1.09    |   |                 | $ | 0.82    |                 |  | $ | 1.46    |  
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|Diluted earnings per share:                                                                                                                 |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|As reported                                                                                                                                 |  | $                                     | 1.13    |   |                 | $ | 0.88    |                 |  | $ | 1.42    |  
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  
|Pro forma                                                                                                                                   |  | $                                     | 1.08    |   |                 | $ | 0.80    |                 |  | $ | 1.37    |  
|                                                                                                                                            |  |                                       |         |   |                 |   |         |                 |  |   |         |  

Deferred Compensation

Restricted stock awards result in the recognition of deferred compensation. Deferred compensation is shown as a reduction of stockholders equity and is amortized to operating expenses over the vesting period of
the stock award using the accelerated attribution method under FASB Interpretation (FIN) No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

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.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



Income Taxes (Continued)

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.

Segments

The Company has aggregated its Ann Taylor and LOFT 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 process, similar clients, and similar methods of distribution.

Ann Taylor and LOFT have similar economic
characteristics and similar operating, financial and competitive risks. Ann Taylor and LOFT are similar in nature of product, as they both offer womens apparel, shoes and accessories. The merchandise inventory for both Ann Taylor and LOFT is
sourced from the same countries and some of the same vendors, using similar production processes. Ann Taylor and LOFT clients have similar characteristics, based on independent market research. Ann Taylor and LOFT merchandise is distributed to
retail stores in a similar manner, through the Companys Louisville Distribution Center. In addition, both Ann Taylor and LOFT are distributed to clients in a similar manner, through the Companys retail stores located primarily in malls
and downtown areas.

Comprehensive Income

SFAS No. 130, Comprehensive Income, requires the presentation of comprehensive income, in addition to the existing income statement. Comprehensive income is defined as the change in equity during a
period from transactions and other events, excluding changes resulting from investments by owners and distributions to owners. For all years presented, there are no material items requiring separate disclosure in accordance with this statement.

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
January 28, 2006 and January 29, 2005, management believes that the carrying amounts of cash, 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 employee medical, dental, workers compensation benefits and short-term disability. 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 of future claims from historical
trends could cause actual results to differ from the accrued liability.



40



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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

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R) (revised 2004), Share-Based Payment
(SFAS No. 123(R)) which revised SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). This statement supercedes APB No. 25, Accounting for Stock Issued to Employees.
For a public company that does not file as a small business issuer, SFAS No. 123(R) must be adopted as of the beginning of its first fiscal year that begins after June 15, 2005. As permitted by SFAS No. 123, the Company currently
accounts for share-based payments to employees using the intrinsic value method under APB No. 25 and, as such, generally recognizes no compensation cost for employee stock options or stock issuances under the Associate Discount Stock Purchase
Plan.

SFAS No. 123(R) permits public companies to choose between the following two adoption methods:



| | 1. | A modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for
all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date,
or
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | A modified retrospective method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has elected to utilize the modified prospective application method for transition under SFAS No. 123(R). The pro forma disclosure under
SFAS No. 123 in the footnotes to the Companys consolidated financial statements under Stock-Based Compensation for periods prior to Fiscal 2006 is not necessarily indicative of the potential impact of recognizing compensation cost for
share-based payments under SFAS No. 123(R) in future periods. The Company has evaluated the requirements of SFAS No. 123(R) and has determined that its adoption will result in Fiscal 2006 compensation costs of approximately $5.4 million on
a pre-tax basis relating to awards outstanding as of January 28, 2006. Future levels of compensation cost recognized related to stock-based compensation awards will be impacted by new awards and/or modifications, repurchases and cancellations
of existing awards after the adoption of SFAS No. 123(R).

FASB Staff Position No. 123(R)-4 (FSP No. 123(R)-4),
Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event was issued in February 2006. FSP No. 123(R)-4 addresses the classification of
options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. The guidance in this FSP amends paragraphs 32 and A229 of SFAS No. 123(R) to incorporate the concept
articulated in footnote 16 of that Statement. That is, a cash settlement feature that can be exercised only upon the occurrence of a contingent event that is outside the employees control does not meet the condition in paragraphs 32 and A229
until it becomes probable that the event will occur. The Company has evaluated the impact of FSP No. 123(R)-4 and does not expect it will have any impact on our accounting under SFAS No. 123(R).

FIN No. 47, Accounting for Conditional Asset Retirement Obligations (an interpretation of FASB Statement No. 143) was issued in
March 2005. FIN No. 47 provides clarification with respect to the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived assets when the timing and/or method of settlement of the obligation
are conditional on a future event. FIN No. 47 was adopted for the year ended January 28, 2006 and such adoption did not have a material impact on our financial position or results of operations.



41



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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)

SFAS No. 153 (SFAS No. 153), Exchanges of Nonmonetary Assets (an amendment of APB Opinion No. 29) was issued in
December 2004 and is effective for nonmonetary exchanges occurring after June 15, 2005 with prospective application. SFAS No. 153 replaces the exception to using fair value for nonmonetary exchanges of similar productive assets, with a
general exception for exchanges of nonmonetary assets that do not have commercial substance. The Company has analyzed the potential effect of SFAS No. 153 and has determined there to be no significant impact to its consolidated financial
statements.



|2. | Property and Equipment
|-- | ----------------------

Property and equipment
consists of the following:



|                                               |  |                    |         |                 |   |        
|---------------------------------------------- |  | ------------------ | ------- | --------------- | - | -------
|                                               |  | Fiscal Years Ended
|                                               |  | January 28,2006    |         | January 29,2005
|                                               |  | (in thousands)    
|Land and building                              |  | $                  | 10,419  |                 | $ | 10,040 
|Leasehold improvements                         |  |                    | 516,727 |                 |   | 412,920
|Furniture, fixtures, equipment and software    |  |                    | 422,228 |                 |   | 361,856
|Construction in progress                       |  |                    | 46,523  |                 |   | 68,954 
|                                               |  |                    |         |                 |   |        
|                                               |  |                    | 995,897 |                 |   | 853,770
|Less accumulated depreciation and amortization |  |                    | 483,132 |                 |   | 419,442
|                                               |  |                    |         |                 |   |        
|Net property and equipment                     |  | $                  | 512,765 |                 | $ | 434,328
|                                               |  |                    |         |                 |   |        

Depreciation and amortization expense was approximately $93.8 million, $78.7 million and $66.8
million in Fiscal 2005, 2004 and 2003, respectively.



|3. | Long-Term Debt
|-- | --------------

In Fiscal 1999, the Company issued
an aggregate of $199.1 million principal amount at maturity Convertible Subordinated Debentures due 2019 (the Convertible Debentures). In May 2004, the Company notified the holders that it would redeem these Convertible
Debentures. The holders had the option to convert their Convertible Debentures into common stock of the Company prior to redemption, and, in June 2004, all the Convertible Debentures were converted for an aggregate total of 5.4 million
shares of common stock. The conversion of Convertible Debentures had no effect on diluted earnings per share.

In November 2003, Ann
Taylor, Inc. and certain of its subsidiaries entered into a Second Amended and Restated $175.0 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 Companys option, provides for an increase in the total facility and the aggregate commitments thereunder up to $250.0 million, matures on November 14, 2008 and is used by Ann Taylor, Inc. and certain of its
subsidiaries for 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 2005 or as
of the date of this filing. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $136.5 million and $149.8 million as of January 28, 2006 and January 29, 2005, respectively leaving a
remaining available balance for loans and letters of credit of $38.5 million and $25.2 million as of January 28, 2006 and January 29, 2005, respectively.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|3. | Long-Term Debt (Continued)
|-- | --------------------------



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.

The Credit Facility permits the payment of cash dividends by the Company (and dividends
by certain of its subsidiaries 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.

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.



|4. | 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 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 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 January 28, 2006 are as follows:



|                    |  |   |           |                | 
|------------------- |  | - | --------- | -------------- | 
|Fiscal Year         |  |   |           | (in thousands)
|2006                |  | $ | 168,467  
|2007                |  |   | 165,020  
|2008                |  |   | 154,927  
|2009                |  |   | 142,652  
|2010                |  |   | 130,105  
|2011 and thereafter |  |   | 529,399  
|                    |  |   |           |                | 
|Total               |  | $ | 1,290,570
|                    |  |   |           |                | 

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 2005
were $63.3 million.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|4. | Commitments and Contingencies (Continued)
|-- | -----------------------------------------



Leases (Continued)

Rent expense for the fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004 was as follows:



|                |  |                    |         |                 |   |                 |  |   |        
|--------------- |  | ------------------ | ------- | --------------- | - | --------------- |  | - | -------
|                |  | Fiscal Years Ended
|                |  | January 28,2006    |         | January 29,2005 |   | January 31,2004
|                |  | (in thousands)    
|Minimum rent    |  | $                  | 186,522 |                 | $ | 138,744         |  | $ | 118,869
|Percentage rent |  |                    | 2,809   |                 |   | 2,464           |  |   | 1,575  
|                |  |                    |         |                 |   |                 |  |   |        
|Total           |  | $                  | 189,331 |                 | $ | 141,208         |  | $ | 120,444
|                |  |                    |         |                 |   |                 |  |   |        

The Company recorded a one-time write off in the second quarter of Fiscal 2005 of approximately
$9.5 million for lease costs related to its former corporate offices at 142 West 57thStreet in New York City upon
cessation of use. The amount is included in selling, general and administrative expenses in the accompanying consolidated statements of income. The related lease is scheduled to expire in September 2006.

Other

During Fiscal 2005, the Company was
served with three putative class action lawsuits in California relating to how it classified certain of its employees under California overtime laws. These actions are similar to numerous suits that have been filed against retailers and others with
operations in California.

On February 15, 2005, two former managers of the Companys California stores filed a putative class
action against AnnTaylor Retail, Inc. in Los Angeles County Superior Court alleging that it misclassified its store managers and senior assistant and assistant store managers as exempt from California overtime wage and hour laws, thereby depriving
them of overtime pay and adequate meal breaks. On May 5, 2005, a second putative class action was filed against the Company in San Francisco County Superior Court by a former senior assistant manager of one of its stores in California alleging
violations of California labor laws with respect to overtime pay as well as adequate meal and rest periods. On December 12, 2005, another former senior assistant manager of one of the Companys California stores filed a third putative
class action in Los Angeles Superior Court against the Company, AnnTaylor Retail, Inc. and AnnTaylor, Inc. alleging the misclassification of senior assistant and assistant managers as exempt from California overtime laws, thereby denying them
overtime pay and required meal and rest periods.

The plaintiffs in these three actions seek recovery in an unstated dollar amount for
alleged unpaid wages, statutory penalties, interest, attorneys fees and costs and injunctive relief. In addition, in the third putative class action, the plaintiff seeks punitive damages. As of this date, there has been no decision by the
court on whether a class will be certified or on the merits of the plaintiffs misclassification claim.

On February 28, 2006,
the Company reached a tentative agreement to settle the first two of these putative class action lawsuits. While the Company denies the allegations underlying the lawsuits, it has agreed to the tentative settlement to avoid significant legal fees,
other expenses and management time that would have to be devoted to protracted litigation. The tentative settlement agreement, which is subject to final documentation and court approval, provides for a settlement payment of approximately $6.5
million. The proposed settlement class covers the Companys store managers, senior assistant managers and assistant managers employed in California during the period from February 15, 2001 to the date of final approval of the settlement.
Since the first two lawsuits cover the same employees and the same claims as those covered in the third lawsuit, if the settlement is approved, it is expected to dispose of the class claims in all three lawsuits, including penalties, interest and
attorneys fees. While the first two cases are awaiting court approval of the settlement, the Company has asked the court to dismiss portions of and/or stay the third putative class action. That motion is pending.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|4. | Commitments and Contingencies (Continued)
|-- | -----------------------------------------



Other (Continued)

In accordance with SFAS No. 5 Accounting for Contingencies, the Company recorded a $6.5 million charge in the fourth quarter of Fiscal 2005 in connection with this tentative settlement. The amount is
included in selling, general and administrative expenses in the accompanying consolidated statements of income. The settlement payment is expected to be made in Fiscal 2006.

On October 3, 2005, a former employee of one of the Companys California stores served AnnTaylor Retail, Inc. with a putative class action
lawsuit in Santa Clara County Superior Court alleging that it denies California employees earned vacation pay through its allegedly unlawful policies related to vacation, personal days and holidays. The putative class members seek recovery in an
unstated dollar amount for alleged unpaid vacation wages for former and current associates, waiting time penalties, prejudgment interest and injunctive relief. A non-binding mediation with respect to this action is scheduled to take place in May
2006. This action is at a preliminary stage and, accordingly, it is too early to evaluate the outcome.

The Company is also a party to
routine litigation incidental to its business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the opinion of the Company, any such liability will not have a material adverse
effect on the consolidated financial position, consolidated results of operations, or liquidity of the Company. In addition, 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.



|5. | 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, vesting of unvested restricted stock, and for Fiscal 2004 and Fiscal 2003, conversion of all outstanding convertible securities, if the effect is dilutive.

In Fiscal 2004, the Company effected a 3-for-2 split of its common stock, in the form of a stock dividend. Shares outstanding, as well as basic and diluted earnings per share (adjusted for the effect of the stock
split) follow:



|                                        |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     
|--------------------------------------- |  | ---------------------------------------- | ------ | ---------------- | ------ | ---------------- | - | ------ |  | ------ | ------ | -------------- | ------ | ------ | - | ------ |  | -------------- | ------- |  | ------ |  | - | ----
|                                        |  | Fiscal Years Ended                      
|                                        |  | January 28, 2006                         |        | January 29, 2005 |        | January 31, 2004
|                                        |  | (in thousands, except per share amounts)
|                                        |  | Income                                   |        | Shares           |        | PerShareAmount   |   | Income |  | Shares |        | PerShareAmount |        | Income |   | Shares |  | PerShareAmount
|Basic Earnings per Share                |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     
|Income available to common stockholders |  | $                                        | 81,872 |                  | 71,554 |                  | $ | 1.14   |  | $      | 63,276 |                | 69,607 |        | $ | 0.91   |  | $              | 100,727 |  | 66,614 |  | $ | 1.51
|Effect of Dilutive Securities           |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     
|Stock options and Restricted stock      |  |                                          |       |                  | 716    |                  |   |        |  |        |       |                | 1,275  |        |   |        |  |                |        |  | 1,122  |  |   |     
|Convertible Debentures                  |  |                                          |       |                  |       |                  |   |        |  |        | 1,113  |                | 2,051  |        |   |        |  |                | 2,895   |  | 5,409  |  |   |     
|                                        |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     
|Diluted Earnings per Share              |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     
|Income available to common stockholders |  | $                                        | 81,872 |                  | 72,270 |                  | $ | 1.13   |  | $      | 64,389 |                | 72,933 |        | $ | 0.88   |  | $              | 103,622 |  | 73,145 |  | $ | 1.42
|                                        |  |                                          |        |                  |        |                  |   |        |  |        |        |                |        |        |   |        |  |                |         |  |        |  |   |     

Options to purchase 1,508,726, 1,554,025 and 399,375 shares of common stock were excluded from the
above computations of weighted average shares for diluted earnings per share for Fiscal 2005, 2004 and 2003, 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.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Other Equity and Stock Incentive Plans
|-- | --------------------------------------

Preferred Stock

At January 28, 2006, January 29, 2005 and January 31, 2004, there were 2 million shares of preferred
stock, par value $0.01, authorized and unissued.

Repurchase Program

On August 18, 2005, the Companys Board of Directors approved a new $100 million securities repurchase program which replaced the $100 million
securities repurchase program approved by the Companys Board of Directors in August 2004. Under the new 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. During Fiscal 2005, the Company repurchased 1,700,000 shares of its common stock at a cost of approximately $45.1 million of which 1,025,000
shares, or approximately $28.3 million, were repurchased under the August 2005 plan.

Associate Discount Stock Purchase Plan

In Fiscal 1999, the Company established an Associate Discount Stock Purchase Plan (the Stock Purchase Plan) and
reserved 562,500 shares for issuance under the Stock Purchase Plan. In Fiscal 2002, an additional 900,000 shares of the Companys common stock were reserved for issuance under the Stock Purchase Plan. Under the terms of the Stock Purchase Plan,
which was revised during Fiscal 2003, eligible employees may purchase shares of the Companys common stock quarterly, at a price equal to the lower of 85% of the closing price of the Companys common stock on the grant date or the purchase
date 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 2005, Fiscal
2004, and Fiscal 2003, 146,868, 139,804 and 153,196 shares respectively were issued pursuant to the Stock Purchase Plan, at an average price per share of $20.46, $21.33 and $12.13, respectively. At January 28, 2006, there were 429,854 shares
available for future issuance under the Stock Purchase Plan. Beginning in Fiscal 2006, SFAS No. 123(R) will require that compensation cost be recorded for the entire amount of the discount.

Stock Incentive Plans

The Company has
established four stock incentive plans, which are summarized below:



|                |  |             |  |                                                            |  |                     |  |                 |  |                                                |  |                               
|--------------- |  | ----------- |  | ---------------------------------------------------------- |  | ------------------- |  | --------------- |  | ---------------------------------------------- |  | ------------------------------
|                |  |             |  |                                                            |  |                     |  |                 |  | Shares Reservedfor Issuance atJanuary 28, 2006 |  | SharesAvailableFor FutureGrant
|                |  |             |  |                                                            |  | Shares Reserved     |  |                
|YearEstablished |  | DefinedName |  | Plan Name                                                  |  | RestrictedStock (a) |  | TotalAuthorized |  |                                               
|1992            |  | 1992 Plan   |  | 1992 Stock Option and Restricted Stock and Unit Award Plan |  | 713,250             |  | 7,200,000       |  | 228,936                                        |  |                              
|2000            |  | 2000 Plan   |  | 2000 Stock Option and Restricted Stock Award Plan          |  | 562,500             |  | 2,250,000       |  | 307,473                                        |  | 181,775                       
|2001            |  | 2002 Plan   |  | 2002 Stock Option and Restricted Stock and Unit Award Plan |  | 787,500             |  | 4,500,000       |  | 2,134,250                                      |  | 433,405                       
|2003            |  | 2003 Plan   |  | 2003 Equity Incentive Plan                                 |  | 660,000             |  | 3,300,000       |  | 2,563,703                                      |  | 55,133                        

---

|(a) | 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Not included in the above table are options to purchase
175,000 shares of common stock and 75,000 shares of restricted common stock granted to Laura Weil, Chief Operating Officer, in 2005 using the employment inducement award exemption under the New York Stock Exchange
rules.



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Other Equity and Stock Incentive Plans (Continued)
|-- | --------------------------------------------------



Stock Incentive Plans (Continued)

Each of the Plans described above also includes an acceleration clause by which all options not exercisable by their terms will, upon the occurrence of
certain events, become exercisable. Under the terms of all Plans, the exercise price of any option may not be less than 100% of the fair market value of the common stock on the date of grant.

Stock options generally vest either (i) over a four year period, with 25% becoming exercisable on each of the first four anniversaries of the grant;
or (ii) over a three year period, with 33.33% becoming exercisable on each of the first three anniversaries of the grant. In general, stock options granted under all of the plans expire ten years from the date of grant.

The following table summarizes stock option transactions for the fiscal years ended January 28, 2006, January 29, 2005 and
January 31, 2004:



|                                        |  |               |                |                       |   |                 |  |            |  
|--------------------------------------- |  | ------------- | -------------- | --------------------- | - | --------------- |  | ---------- | -
|                                        |  | Option Prices |                | WeightedAverage Price |   | Number ofShares | 
|Options outstanding at February 1, 2003 |  |               | $5.11 - $21.19 |                       | $ | 15.13           |  | 6,692,130  |  
|Granted                                 |  | $             | 12.71 - $26.49 |                       | $ | 15.39           |  | 1,979,250  |  
|Exercised                               |  | $             | 6.89 - $21.19  |                       | $ | 14.33           |  | (1,422,056 | )
|Canceled                                |  | $             | 10.36 - $19.67 |                       | $ | 15.81           |  | (437,774   | )
|                                        |  |               |                |                       |   |                 |  |            |  
|Options outstanding at January 31, 2004 |  |               | $6.44 - $26.49 |                       | $ | 15.33           |  | 6,811,550  |  
|Granted                                 |  | $             | 20.59 - $30.12 |                       | $ | 28.23           |  | 1,997,542  |  
|Exercised                               |  | $             | 6.89 - $20.39  |                       | $ | 14.77           |  | (1,345,218 | )
|Canceled                                |  | $             | 11.16 - $30.12 |                       | $ | 20.67           |  | (829,438   | )
|                                        |  |               |                |                       |   |                 |  |            |  
|Options outstanding at January 29, 2005 |  |               | $6.44 - $30.12 |                       | $ | 18.71           |  | 6,634,436  |  
|Granted                                 |  | $             | 22.01 - $32.96 |                       | $ | 25.61           |  | 2,012,100  |  
|Exercised                               |  | $             | 6.44 - $30.12  |                       | $ | 15.13           |  | (3,144,325 | )
|Canceled                                |  | $             | 12.01 - $30.12 |                       | $ | 22.58           |  | (763,162   | )
|                                        |  |               |                |                       |   |                 |  |            |  
|Options outstanding at January 28, 2006 |  |               | $7.61 - $32.96 |                       | $ | 23.39           |  | 4,739,049  |  
|                                        |  |               |                |                       |   |                 |  |            |  

Options for 1,223,834, 3,247,326 and 2,850,404 shares were exercisable as of January 28,
2006, January 29, 2005 and January 31, 2004, respectively, and had a weighted average exercise price of $20.92, $15.53 and $15.60 per share, respectively.

The following table summarizes information concerning options outstanding and exercisable at January 28, 2006:



|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      
|------------------------ |  | ------------------- |  | ----------------------------------------------- |  | ---------------------------- | ----- | ----------------- | --------- | ---------------------------- | - | -----
|                         |  | Options Outstanding |  | Options Exercisable                            
|Range of Exercise Prices |  | NumberOutstanding   |  | WeightedAverageRemainingContractualLife (years) |  | WeightedAverageExercisePrice |       | NumberExercisable |           | WeightedAverageExercisePrice
|$  6.59 - $ 9.89         |  | 45,935              |  | 2.5                                             |  | $                            | 9.38  |                   | 45,935    |                              | $ | 9.38 
|$  9.89 - $13.18         |  | 580,459             |  | 6.6                                             |  | $                            | 12.56 |                   | 195,575   |                              | $ | 12.27
|$13.18 - $16.48          |  | 156,563             |  | 6.0                                             |  | $                            | 14.56 |                   | 112,688   |                              | $ | 14.12
|$16.48 - $19.78          |  | 478,691             |  | 5.5                                             |  | $                            | 17.08 |                   | 221,180   |                              | $ | 17.23
|$19.78 - $23.07          |  | 483,375             |  | 8.5                                             |  | $                            | 22.22 |                   | 146,937   |                              | $ | 22.10
|$23.07 - $26.37          |  | 1,241,550           |  | 8.9                                             |  | $                            | 25.52 |                   | 24,750    |                              | $ | 25.61
|$26.37 - $29.66          |  | 886,450             |  | 7.6                                             |  | $                            | 27.18 |                   | 270,300   |                              | $ | 26.89
|$29.66 - $32.96          |  | 866,026             |  | 7.9                                             |  | $                            | 30.17 |                   | 206,469   |                              | $ | 30.12
|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      
|$  6.59 - $32.96         |  | 4,739,049           |  | 7.7                                             |  | $                            | 23.39 |                   | 1,223,834 |                              | $ | 20.92
|                         |  |                     |  |                                                 |  |                              |       |                   |           |                              |   |      



47



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Other Equity and Stock Incentive Plans (Continued)
|-- | --------------------------------------------------



Stock Incentive Plans (Continued)

During Fiscal 2004, the Company amended each of its 1992, 2000, 2002 and 2003 Plans to provide certain separated associates additional time to exercise
vested stock options subsequent to termination. As a result of this amendment, the Company recorded $770,000 and $3.9 million in compensation cost in Fiscal 2005 and 2004, respectively.

The weighted average fair values of options on their grant date during Fiscal 2005, 2004 and 2003, where the exercise price equaled the market price on
the date of grant, were $7.26, $7.91 and $6.05, respectively. The estimated fair value of each option grant is calculated using the Black-Scholes option-pricing model, with the following weighted average assumptions:



|                        |  |                    |   |  |                 |   |  |                 |  
|----------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                        |  | Fiscal Years Ended |  
|                        |  | January 28,2006    |   |  | January 29,2005 |   |  | January 31,2004 |  
|Expected volatility     |  | 30.7               | % |  | 33.5            | % |  | 51.4            | %
|Risk-free interest rate |  | 3.0                | % |  | 1.2             | % |  | 1.2             | %
|Expected life (years)   |  | 4.1                |   |  | 4.0             |   |  | 4.0             |  
|Dividend yield          |  |                   |   |  |                |   |  |                |  

All the plans allow for restricted stock awards, and the 2002 Plan and 2003 Plan also include
restricted unit awards. A unit represents the right to receive the cash value of a share of common stock on the date the restrictions on the 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. In the event a grantee terminates employment with the Company, any restricted stock or restricted units remaining subject to restrictions are forfeited.
During Fiscal 2005, 2004 and 2003 certain executives were awarded time and/or performance vesting restricted common stock. The resulting unearned compensation expense, based upon the market value on the date of grant, was charged to
stockholders equity and is being amortized over the vesting period or for performance grants, over the period which the performance targets are met. The weighted average fair values of restricted stock awards on their grant date during Fiscal
2005, 2004 and 2003, were $25.33, $22.32 and $18.53, respectively.

The following table summarizes restricted stock activity and its impact
on net income for the years ended January 28, 2006, January 29, 2005 and January 31, 2004.



|                                         |  |                        |          |   |                 |   |          |                 |  |   |          |  
|---------------------------------------- |  | ---------------------- | -------- | - | --------------- | - | -------- | --------------- |  | - | -------- | -
|                                         |  | Fiscal Years Ended     |         
|                                         |  | January 28,2006        |          |   | January 29,2005 |   |          | January 31,2004 | 
|                                         |  | (dollars in thousands) |         
|Shares outstanding  beginning of period |  |                        | 824,180  |   |                 |   | 654,607  |                 |  |   | 607,913  |  
|Shares granted                           |  |                        | 520,740  |   |                 |   | 614,150  |                 |  |   | 336,750  |  
|Shares vested                            |  |                        | (282,772 | ) |                 |   | (300,776 | )               |  |   | (255,743 | )
|Shares forfeited                         |  |                        | (129,246 | ) |                 |   | (143,801 | )               |  |   | (34,313  | )
|                                         |  |                        |          |   |                 |   |          |                 |  |   |          |  
|Shares outstanding  end of period       |  |                        | 932,902  |   |                 |   | 824,180  |                 |  |   | 654,607  |  
|                                         |  |                        |          |   |                 |   |          |                 |  |   |          |  
|Compensation expense                     |  | $                      | 10,368   |   |                 | $ | 7,392    |                 |  | $ | 3,678    |  
|                                         |  |                        |          |   |                 |   |          |                 |  |   |          |  

The table above does not include a grant made to Kay Krill, Chief Executive Officer, of 400,000
shares of restricted common stock on November 17, 2005; 200,000 of such restricted shares generally shall vest over time with one-third vesting on each of October 1, 2006, October 1, 2007 and October 1, 2008; and the
remaining 200,000 restricted shares generally shall be eligible to vest pro rata on the 15thof March following the
end of each of the Companys 2006, 2007 and 2008 fiscal years based upon the attainment of certain performance goals as determined by the Compensation Committee and approved by the Board (in each case, subject to Ms. Krills continued
employment with the Company). This grant is subject to shareholder approval of an amendment of the Companys 2003 Plan to increase the number of shares available for grant under that Plan.



48



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|6. | Other Equity and Stock Incentive Plans (Continued)
|-- | --------------------------------------------------



Stockholder Rights Plan

In May 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 May 2004 and May 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 2005.



|7. | Income Taxes
|-- | ------------

The provision for income taxes for
the fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004 consists of the following:



|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|--------------------- |  | ------------------ | ------- | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                      |  | Fiscal Years Ended |        
|                      |  | January 28,2006    |         |   | January 29,2005 |   |        | January 31,2004 | 
|                      |  | (in thousands)     |        
|Federal:              |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Current               |  | $                  | 58,024  |   |                 | $ | 36,654 |                 |  | $ | 48,595 |  
|Deferred              |  |                    | (13,632 | ) |                 |   | (3,469 | )               |  |   | 4,818  |  
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Total federal         |  |                    | 44,392  |   |                 |   | 33,185 |                 |  |   | 53,413 |  
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|State and local:      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Current               |  |                    | 12,661  |   |                 |   | 9,821  |                 |  |   | 14,291 |  
|Deferred              |  |                    | (1,731  | ) |                 |   | (1,472 | )               |  |   | (1,115 | )
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Total state and local |  |                    | 10,930  |   |                 |   | 8,349  |                 |  |   | 13,176 |  
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Foreign:              |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Current               |  |                    | 1,075   |   |                 |   | 1,632  |                 |  |   | 691    |  
|Deferred              |  |                    | (8      | ) |                 |   | (88    | )               |  |   | (87    | )
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Total foreign         |  |                    | 1,067   |   |                 |   | 1,544  |                 |  |   | 604    |  
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  
|Total                 |  | $                  | 56,389  |   |                 | $ | 43,078 |                 |  | $ | 67,193 |  
|                      |  |                    |         |   |                 |   |        |                 |  |   |        |  

The reconciliation between the provision for income taxes and the provision for income taxes at
the federal statutory rate for the fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004 is as follows:



|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|--------------------------------------------------------------- |  | ---------------------------------- | ------- | - | --------------- | - | ------- | --------------- |  | - | ------- | -
|                                                                |  | Fiscal Years Ended                 |        
|                                                                |  | January 28,2006                    |         |   | January 29,2005 |   |         | January 31,2004 | 
|                                                                |  | (in thousands, except percentages) |        
|Income before income taxes                                      |  | $                                  | 138,261 |   |                 | $ | 106,354 |                 |  | $ | 167,920 |  
|Federal statutory rate                                          |  |                                    | 35      | % |                 |   | 35      | %               |  |   | 35      | %
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|Provision for income taxes at federal statutory rate            |  |                                    | 48,391  |   |                 |   | 37,224  |                 |  |   | 58,772  |  
|State and local income taxes, net of federal income tax benefit |  |                                    | 7,108   |   |                 |   | 5,431   |                 |  |   | 6,959   |  
|Earnings (losses) of foreign subsidiaries                       |  |                                    | 60      |   |                 |   | 191     |                 |  |   | 263     |  
|Other                                                           |  |                                    | 830     |   |                 |   | 232     |                 |  |   | 1,199   |  
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  
|Provision for income taxes                                      |  | $                                  | 56,389  |   |                 | $ | 43,078  |                 |  | $ | 67,193  |  
|                                                                |  |                                    |         |   |                 |   |         |                 |  |   |         |  



49



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|7. | Income Taxes (Continued)
|-- | ------------------------



The tax effects of significant items comprising the Companys deferred tax assets and
(liabilities) as of January 28, 2006 and January 29, 2005 are as follows:



|                              |  |                 |         |   |                 |   |         |  
|----------------------------- |  | --------------- | ------- | - | --------------- | - | ------- | -
|                              |  | January 28,2006 |         |   | January 29,2005 |  
|                              |  | (in thousands)  |        
|Current:                      |  |                 |         |   |                 |   |         |  
|Inventory                     |  | $               | 7,005   |   |                 | $ | 8,096   |  
|Accrued expenses              |  |                 | 7,498   |   |                 |   | 3,184   |  
|Real estate                   |  |                 | 9,354   |   |                 |   | 4,646   |  
|                              |  |                 |         |   |                 |   |         |  
|Total current                 |  | $               | 23,857  |   |                 | $ | 15,926  |  
|                              |  |                 |         |   |                 |   |         |  
|Non-current:                  |  |                 |         |   |                 |   |         |  
|Accrued expenses              |  | $               | 880     |   |                 | $ | 2,054   |  
|Depreciation and amortization |  |                 | (80,540 | ) |                 |   | (67,379 | )
|Rent expense                  |  |                 | 80,931  |   |                 |   | 61,649  |  
|Other                         |  |                 | 2,529   |   |                 |   | 36      |  
|                              |  |                 |         |   |                 |   |         |  
|Total non-current             |  | $               | 3,800   |   |                 | $ | (3,640  | )
|                              |  |                 |         |   |                 |   |         |  

Income taxes provided reflect 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 January 28, 2006
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 $2.1 million.

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 year. At this time, the Company has made a
determination that it does not expect to elect to apply the provision to any distributions occurring in either of these taxable years.



|8. | Retirement Plans
|-- | ----------------

Savings Plan

The Company maintains a defined contribution 401(K) savings plan for substantially all full-time employees of Ann Taylor and its subsidiaries.
Participants may contribute to the plan an aggregate of up to 10% of their annual earnings. The Company makes a matching contribution of 50% with respect to the first 3% of each participants annual earnings contributed to the plan, up to a
maximum of $3,150 for Fiscal 2005. The Companys contributions to the plan for Fiscal 2005, Fiscal 2004 and Fiscal 2003 were approximately $1.3 million, $1.3 million and $1.4 million, respectively.



50



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##### Table of Contents

ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Retirement Plans (Continued)
|-- | ----------------------------



Pension Plan

Substantially all associates of the Company who complete 1,000 hours of service are covered under a noncontributory defined benefit pension plan. The plan calculates benefits based on a career average formula.

The following table provides information for the pension plan at January 28, 2006 and January 29, 2005:



|                                                                  |  |                    |        |   |                 |   |        |  
|----------------------------------------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | -
|                                                                  |  | Fiscal Years Ended |       
|                                                                  |  | January 28,2006    |        |   | January 29,2005 |  
|                                                                  |  | (in thousands)     |       
|Change in benefit obligation:                                     |  |                    |        |   |                 |   |        |  
|Projected benefit obligation at beginning of year                 |  | $                  | 30,034 |   |                 | $ | 21,037 |  
|Prior service and interest cost                                   |  |                    | 226    |   |                 |   | 2,215  |  
|Service cost                                                      |  |                    | 4,973  |   |                 |   | 4,024  |  
|Interest cost                                                     |  |                    | 1,730  |   |                 |   | 1,359  |  
|Amendment                                                         |  |                    |       |   |                 |   | 481    |  
|Actuarial loss                                                    |  |                    | 3,616  |   |                 |   | 2,991  |  
|Benefits paid                                                     |  |                    | (2,972 | ) |                 |   | (2,073 | )
|                                                                  |  |                    |        |   |                 |   |        |  
|Projected benefit obligation at end of year                       |  | $                  | 37,607 |   |                 | $ | 30,034 |  
|                                                                  |  |                    |        |   |                 |   |        |  
|Change in plan assets:                                            |  |                    |        |   |                 |   |        |  
|Fair value of plan assets at beginning of year                    |  | $                  | 28,146 |   |                 | $ | 21,885 |  
|Actual return on plan assets                                      |  |                    | 2,989  |   |                 |   | 1,134  |  
|Employer contribution                                             |  |                    | 5,000  |   |                 |   | 7,200  |  
|Benefits paid                                                     |  |                    | (2,972 | ) |                 |   | (2,073 | )
|                                                                  |  |                    |        |   |                 |   |        |  
|Fair value of plan assets at end of year                          |  | $                  | 33,163 |   |                 | $ | 28,146 |  
|                                                                  |  |                    |        |   |                 |   |        |  
|Funded status (fair value of plan assets less benefit obligation) |  | $                  | (4,443 | ) |                 | $ | (1,888 | )
|Unrecognized net actuarial loss                                   |  |                    | 13,487 |   |                 |   | 12,319 |  
|Unrecognized prior service cost                                   |  |                    | 348    |   |                 |   | 434    |  
|                                                                  |  |                    |        |   |                 |   |        |  
|Net amount included in other assets                               |  | $                  | 9,392  |   |                 | $ | 10,865 |  
|                                                                  |  |                    |        |   |                 |   |        |  

The accumulated benefit obligation for the Companys defined benefit pension plan was
approximately $32.8 million, $27.8 million and $21.0 million at January 28, 2006, January 29, 2005 and January 31, 2004, respectively.

The following table summarizes the components of Net Periodic Pension Cost:



|                                   |  |                    |        |   |                 |   |        |                 |  |   |        |  
|---------------------------------- |  | ------------------ | ------ | - | --------------- | - | ------ | --------------- |  | - | ------ | -
|                                   |  | Fiscal Years Ended |       
|                                   |  | January 28,2006    |        |   | January 29,2005 |   |        | January 31,2004 | 
|                                   |  | (in thousands)     |       
|Service cost                       |  | $                  | 4,973  |   |                 | $ | 4,024  |                 |  | $ | 3,005  |  
|Interest cost                      |  |                    | 1,730  |   |                 |   | 1,359  |                 |  |   | 967    |  
|Prior service and interest cost    |  |                    | 226    |   |                 |   | 2,215  |                 |  |   |       |  
|Expected return on plan assets     |  |                    | (2,098 | ) |                 |   | (1,502 | )               |  |   | (1,268 | )
|Amortization of prior service cost |  |                    | 86     |   |                 |   | 86     |                 |  |   | 6      |  
|Amortization of net loss           |  |                    | 1,557  |   |                 |   | 1,073  |                 |  |   | 660    |  
|                                   |  |                    |        |   |                 |   |        |                 |  |   |        |  
|Net periodic pension cost          |  | $                  | 6,474  |   |                 | $ | 7,255  |                 |  | $ | 3,370  |  
|                                   |  |                    |        |   |                 |   |        |                 |  |   |        |  



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Retirement Plans (Continued)
|-- | ----------------------------



Pension Plan (Continued)

For the fiscal years ended January 28, 2006 and January 29, 2005 the following weighted-average assumptions were used to determine benefit obligations at the end of the fiscal years:



|                                        |  |                    |   |  |                 |  
|--------------------------------------- |  | ------------------ | - |  | --------------- | -
|                                        |  | Fiscal Years Ended |  
|                                        |  | January 28,2006    |   |  | January 29,2005 |  
|Discount rate                           |  | 5.55               | % |  | 5.75            | %
|Rate of increase in future compensation |  | 4.00               | % |  | 4.00            | %

For the fiscal years ended January 28, 2006, January 29, 2005 and January 31,
2004 the following weighted-average assumptions were used to determine net periodic benefit cost for the fiscal years shown:



|                                        |  |                    |   |  |                 |   |  |                 |  
|--------------------------------------- |  | ------------------ | - |  | --------------- | - |  | --------------- | -
|                                        |  | Fiscal Years Ended |  
|                                        |  | January 28,2006    |   |  | January 29,2005 |   |  | January 31,2004 |  
|Discount rate                           |  | 5.75               | % |  | 6.00            | % |  | 6.75            | %
|Long-term rate of return on assets      |  | 7.25               | % |  | 7.25            | % |  | 8.50            | %
|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s pension plan weighted-average asset allocation at the end of the fiscal year, by asset category, are as follows:



|                  |  |                    |   |  |                 |  
|----------------- |  | ------------------ | - |  | --------------- | -
|                  |  | Fiscal Years Ended |  
|                  |  | January 28,2006    |   |  | January 29,2005 |  
|Asset Category    |  |                    |   |  |                 |  
|Equity securities |  | 67                 | % |  | 48              | %
|Debt securities   |  | 32                 | % |  | 26              | %
|Other             |  | 1                  | % |  | 26              | %
|                  |  |                    |   |  |                 |  
|Total             |  | 100                | % |  | 100             | %
|                  |  |                    |   |  |                 |  

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. On January 28, 2005, the Company contributed $7.2 million to its pension plan, which was included in other assets on
January 29, 2005. These funds were subsequently reallocated in accordance with the Companys investment policy. Equity securities do not include any of the Companys common stock. Plan assets consist primarily of equity and fixed
income funds or cash and equivalents. 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, maximize the investment return within plan guidelines and within set risk tolerance levels, and broadly
diversify the plan investments against any negative impact within any one given market. The plans 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.



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ANNTAYLOR STORES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|8. | Retirement Plans (Continued)
|-- | ----------------------------



Pension Plan (Continued)

The benefits expected to be paid under the pension plan as of January 28, 2006 are as follows:



|            |  |                |       
|----------- |  | -------------- | ------
|            |  | (in thousands)
|Fiscal Year |  |                |       
|2006        |  | $              | 3,647 
|2007        |  |                | 4,192 
|2008        |  |                | 4,870 
|2009        |  |                | 4,967 
|2010        |  |                | 4,954 
|2011  2105 |  |                | 25,734

The Company contributed $5 million and $7.2 million to its pension plan in Fiscal 2005 and Fiscal
2004, respectively.



|9. | Selected Quarterly Financial Data  Unaudited
|-- | ---------------------------------------------



|                           |  |                                          |         |        |   |         |  |        |         |  |   |        
|-------------------------- |  | ---------------------------------------- | ------- | ------ | - | ------- |  | ------ | ------- |  | - | -------
|                           |  | Quarter                                 
|                           |  | First                                    |         | Second |   | Third   |  | Fourth
|                           |  | (in thousands, except per share amounts)
|Fiscal 2005                |  |                                          |         |        |   |         |  |        |         |  |   |        
|Net sales                  |  | $                                        | 476,446 |        | $ | 508,684 |  | $      | 513,976 |  | $ | 574,040
|Gross margin               |  | $                                        | 243,143 |        | $ | 241,527 |  | $      | 278,632 |  | $ | 292,722
|Net income                 |  | $                                        | 16,971  |        | $ | 7,139   |  | $      | 30,346  |  | $ | 27,416 
|Basic earnings per share   |  | $                                        | 0.24    |        | $ | 0.10    |  | $      | 0.42    |  | $ | 0.38   
|Diluted earnings per share |  | $                                        | 0.24    |        | $ | 0.10    |  | $      | 0.42    |  | $ | 0.38   

During the Fourth quarter of Fiscal 2005, the Company recorded a $6.5 million pre-tax charge in
connection with the tentative agreement to settle two California overtime class action lawsuits.



|                           |  |                                          |         |        |   |         |  |        |         |  |   |         |  
|-------------------------- |  | ---------------------------------------- | ------- | ------ | - | ------- |  | ------ | ------- |  | - | ------- | -
|                           |  | Quarter                                  |        
|                           |  | First                                    |         | Second |   | Third   |  | Fourth |        
|                           |  | (in thousands, except per share amounts) |        
|Fiscal 2004                |  |                                          |         |        |   |         |  |        |         |  |   |         |  
|Net sales                  |  | $                                        | 433,246 |        | $ | 472,634 |  | $      | 460,365 |  | $ | 487,338 |  
|Gross margin               |  | $                                        | 252,903 |        | $ | 250,295 |  | $      | 235,006 |  | $ | 209,344 |  
|Net income (loss)          |  | $                                        | 31,746  |        | $ | 30,087  |  | $      | 13,912  |  | $ | (12,469 | )
|Basic earnings per share   |  | $                                        | 0.47    |        | $ | 0.43    |  | $      | 0.20    |  | $ | (0.18   | )
|Diluted earnings per share |  | $                                        | 0.43    |        | $ | 0.41    |  | $      | 0.19    |  | $ | (0.18   | )

During the fourth quarter of Fiscal 2004, the Company made some organizational changes to improve
performance. As a result of these actions, the Company recorded a severance charge of approximately $3.0 million in the fourth quarter of Fiscal 2004. In addition, the Company recognized a net non-cash charge of approximately $3.9 million of
compensation expense in the fourth quarter of Fiscal 2004 associated with the above-mentioned terminations.

The Company entered into a
lease agreement for corporate office space at Times Square Tower in New York City. In connection with this, the Company recorded rent expense of approximately $7.0 million in the fourth quarter of Fiscal 2004.

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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ANNTAYLOR STORES CORPORATION

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                                                   
|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 May 1, 1999 filed on June 11, 1999.                                                                                          
|               | 
|3.1.1          |  | Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, dated May 18, 1999. Incorporated by
reference to Exhibit 3.1 to the Form 10-Q of the Company for the Quarter ended May 1, 1999 filed on June 11, 1999.                          
|               | 
|3.2            |  | By-laws of the Company, as amended through August 18, 2005. Incorporated by reference to Exhibit 3.1 to the Form 8-K of the Company filed
on August 24, 2005.                                                                                                                     
|               | 
|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           |  | Lease, dated as of March 17, 1989, between Carven Associates and Ann Taylor concerning the West 57th Street headquarters. Incorporated by
reference to Exhibit 10.21 to the Registration Statement of the Company and Ann Taylor filed on May 3, 1989 (Registration No. 33-28522).
|               | 
|10.1.1         |  | First Amendment to Lease, dated as of November 14, 1990, between Carven Associates and Ann Taylor. Incorporated by reference to Exhibit
10.17.1 to the Registration Statement of the Company filed on April 11, 1991 (Registration No. 33-39905).                                 
|               | 
|10.1.2         |  | Second Amendment to Lease, dated as of February 28, 1993, between Carven Associates and Ann Taylor. Incorporated by reference to Exhibit
10.17.2 to the Form 10-K of the Company filed on April 29, 1993.                                                                         
|               | 
|10.1.3         |  | Extension and Amendment to Lease dated as of October 1, 1993, between Carven Associates and Ann Taylor. Incorporated by reference to
Exhibit 10.11 to the Form 10-Q of Ann Taylor for the Quarter ended October 30, 1993 filed on November 26, 1993.                              
|               | 
|10.1.4         |  | Modification of Amendment and Extension to Lease, dated as of April 14, 1994 between Carven Associates and Ann Taylor. Incorporated by
reference to Exhibit 10.15.4 to the Form 10-K of the Company filed on April 28, 1995.                                                      
|               | 
|10.1.5         |  | Fifth Amendment to Lease, dated as of March 14, 1995, between Carven Associates and Ann Taylor. Incorporated by reference to Exhibit
10.15.5 to the Form 10-K of the Company filed on April 28, 1995.                                                                             
|               | 
|10.1.6         |  | Sixth Amendment to Lease, dated as of January 5, 1996, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference
to Exhibit 10.8.6 to the Form 10-K of the Company filed on April 30, 1998.                                                              
|               | 
|10.1.7         |  | Seventh Amendment to Lease, dated as of June 5, 1996, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference to
Exhibit 10.8.7 to the Form 10-K of the Company filed on April 30, 1998.                                                               
|               | 
|10.1.8         |  | Eighth Amendment to Lease, undated, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference to Exhibit 10.8.8 to
the Form 10-K of the Company filed on April 30, 1998.                                                                                 



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|               |  |                                                                                                                                                                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                              
|10.1.9         |  | Ninth Amendment to Lease, dated as of May 13, 1997, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference to
Exhibit 10.8.9 to the Form 10-K of the Company filed on April 30, 1998.                                            
|               | 
|10.1.10        |  | Tenth Amendment to Lease, dated as of May 21, 1997, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference to
Exhibit 10.8.10 to the Form 10-K of the Company filed on April 30, 1998.                                           
|               | 
|10.1.11        |  | Eleventh Amendment to Lease, dated as of May 15, 1998, between Pacific Metropolitan Corporation and Ann Taylor. Incorporated by reference
to Exhibit 10.3.11 to the Form 10-K of the Company filed on March 29, 1999.                                        
|               | 
|10.1.12        |  | Sublease Agreement, dated as of February 23, 1999, between Societe Air France formerly known as Compagnie Nationale Air France) and Ann
Taylor. Incorporated by reference to Exhibit 10.2.12 to the Form 10-K of the Company filed on April 18, 2000.        
|               | 
|10.2           |  | 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.                                            
|               | 
|10.3           |  | 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.                                            
|               | 
|10.4          |  | 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.
|               | 
|10.4.1        |  | 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.                                     
|               | 
|10.4.2        |  | 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.                                                                                                     
|               | 
|10.4.3        |  | 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.                                                                
|               | 
|10.4.4        |  | 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.                                                                                                  
|               | 
|10.4.5        |  | 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.                                                                                               
|               | 
|10.4.6        |  | 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.                                                                                             
|               | 
|10.4.7        |  | 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.                                                                             



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|               |  |                                                                                                                                                                                                               
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                               
|*10.4.8       |  | Amendment to the 1992 Plan, effective as of January 26, 2006.                                                                                                                                                 
|               | 
|10.5          |  | 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.       
|               | 
|10.5.1        |  | 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.                                               
|               | 
|10.5.2        |  | 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.                                        
|               | 
|10.5.3        |  | 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.                                   
|               | 
|10.5.4        |  | 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.                       
|               | 
|*10.5.5       |  | Third Amendment to the 2000 Plan, effective as of January 26, 2006.                                                                                                                                           
|               | 
|10.6          |  | 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.  
|               | 
|10.6.1        |  | 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.         
|               | 
|10.6.2        |  | 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.                                        
|               | 
|10.6.3        |  | 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.                                   
|               | 
|10.6.4        |  | 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.                       
|               | 
|*10.6.5       |  | Third Amendment to the 2002 Plan, effective as of January 26, 2006.                                                                                                                                           
|               | 
|10.7          |  | AnnTaylor Stores Corporation 2003 Equity Incentive Plan (the 2003 Plan). Incorporated by reference to Exhibit 10.3 to the Form
10-Q of the Company for the Quarter ended May 3, 2003 filed on June 13, 2003.
|               | 
|10.7.1        |  | First Amendment to the 2003 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.6.1 to the Form 10-K of the
Company filed on March 25, 2004.                                         



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|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.7.2        |  | Restated First Amendment to the 2003 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.4 to the Form 10-Q of the
Company filed on June 4, 2004.                                                                                                                                                                                                                                                                
|               | 
|10.7.3        |  | Second Restated First Amendment to the 2003 Plan, effective as of March 9, 2004. Incorporated by reference to Exhibit 10.4 to the Form 10-Q
of the Company filed on September 8, 2004.                                                                                                                                                                                                                                                    
|               | 
|*10.7.4       |  | Second Amendment to the 2003 Plan, effective as of January 26, 2006.                                                                                                                                                                                                                                                                                                                                                                      
|               | 
|10.8          |  | AnnTaylor Stores Corporation Amended and Restated Management Performance Compensation Plan. Incorporated by reference to Exhibit A to the
Proxy Statement of the Company filed on April 4, 2002.                                                                                                                                                                                                                                          
|               | 
|10.9          |  | 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.                                                                                                                                                                                                                                           
|               | 
|10.10          |  | 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.          
|               | 
|10.11          |  | 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.
|               | 
|10.12          |  | 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.                                                                                                      
|               | 
|10.13         |  | AnnTaylor Stores Corporation Long-Term Cash Incentive Compensation Plan. Incorporated by reference to Exhibit A to the Proxy Statement
filed on April 1, 2003.                                                                                                                                                                                                                                                                            
|               | 
|10.14         |  | 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.                                                                                                                                                                                                                                                                    
|               | 
|10.15         |  | 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.                                                                                                                                                                                                                                                      
|               | 
|10.16         |  | 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.                                                                                                                                                                                             
|               | 
|10.17         |  | Employment Agreement, dated as of January 29, 2002, between the Company and J. Patrick Spainhour. Incorporated by reference to Exhibit 10.5
to the Form 10-K of the Company filed on April 4, 2002.                                                                                                                                                                                                                                       



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|               |  |                                                                                                                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                             
|10.18         |  | 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.                                                                     
|               | 
|10.19         |  | 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.                                                                   
|               | 
|10.20         |  | Employment Agreement, dated as of January 29, 2004, between the Company and Katherine Lawther Krill. Incorporated by reference to Exhibit
10.19 to the Form 10-K of the Company filed on March 25, 2004.                                                    
|               | 
|10.20.1       |  | Amendment No. 1, dated as of September 22, 2004, to Employment Agreement between the Company and Katherine Lawther Krill, dated as of
January 29, 2004. Incorporated by reference to Exhibit 10.9 to the Form 10-Q of the Company filed on December 6, 2004.
|               | 
|10.21         |  | 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.                                                  
|               | 
|10.22         |  | Employment Agreement, dated as of March 28, 2003, between the Company and Jerome Jessup. Incorporated by reference to Exhibit 10.2 to the
Form 10-Q of the Company for the Quarter ended May 3, 2003 filed on June 13, 2003.                                
|               | 
|10.23         |  | Letter Agreement, dated May 12, 2005, between the Company and James M. Smith. Incorporated by reference to Exhibit 10.1 to the Form 10-Q of
the Company filed on May 27, 2005.                                                                              
|               | 
|10.24         |  | 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.                                                                            
|               | 
|10.25         |  | Form of Director Non-Qualified Stock Option Agreement under the 2002 Stock Option and Restricted Stock and Unit Award Plan, as amended.
Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company filed on October 29, 2004.                 
|               | 
|10.26         |  | Form of Director Non-Statutory Stock Option Agreement under the 2003 Equity Incentive Plan, as amended. Incorporated by reference to
Exhibit 10.2 to the Form 8-K of the Company filed on October 29, 2004.                                                 
|               | 
|10.27         |  | Form of 2002 Stock Option and Restricted Stock and Unit Award Plan Non-Qualified Stock Option Agreement. Incorporated by reference to
Exhibit 10.25 to the Form 10-K of the Company filed on April 1, 2005.                                                 
|               | 
|10.28         |  | Form of 2003 Equity Incentive Plan Non-Statutory Stock Option Agreement. Incorporated by reference to Exhibit 10.26 to the Form 10-K of the
Company filed on April 1, 2005.                                                                                 
|               | 
|10.29         |  | Form of 2002 Stock Option and Restricted Stock and Unit Award Plan Restricted Stock Award Agreement. Incorporated by reference to Exhibit
10.27 to the Form 10-K of the Company filed on April 1, 2005.                                                     
|               | 
|10.30         |  | Form of 2003 Equity Incentive Plan Restricted Stock Award Agreement. Incorporated by reference to Exhibit 10.28 to the Form 10-K of the
Company filed on April 1, 2005.                                                                                     



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|               |  |                                                                                                                                                                                                                                    
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                    
|10.31         |  | Form of 2002 Stock Option and Restricted Stock and Unit Award 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.      
|               | 
|10.32         |  | Form of 2003 Equity Incentive 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.                                      
|               | 
|10.33         |  | Summary of Compensation Arrangements for Non-Employee Directors. Incorporated by reference to Exhibit 10.1 to the Form 8-K of the Company
filed on May 3, 2005.                                                                    
|               | 
|10.34         |  | Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.2 to the Form 8-K of the Company filed on August 24,
2005.                                                                                              
|               | 
|10.35          |  | 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.
|               | 
|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.
|- | --------------------------------------------------------



59