UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
      the fiscal year endedJuly 25, 2009
              Commission
      file number 0-11736





THE
DRESS BARN, INC.


(Exact
name of registrant as specified in its charter)





Connecticut
              06-0812960(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      No.)30
      Dunnigan Drive, Suffern, New York
              10901(Address
      of principal executive offices)
              (Zip
      Code)





(845)
369-4500


(Registrant's
telephone number, including area code)


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





Title of Each Class
              
              Name of Each Exchange on Which
      RegisteredCommon
      Stock, $0.05 par value
              
              The
      NASDAQ Stock Market LLC





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





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





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





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§
229.405 of this chapter) during the preceding 12  months (or for such
shorter period that the registrant was required to submit and post such
files).       Yes  ̈  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 the definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  x





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





Large
      accelerated filer  ̈
                Accelerated
      filer x
                Non-accelerated
      filer  ̈
                  (Do
      not check if a smaller
                  reporting
      company)
                Smaller
      reporting company  ̈





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





The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 24, 2009 was approximately $399 million, based on the
last reported sales price on the NASDAQ Global Select Market on that
date.  As of September 10, 2009, 60,696,347 shares of voting common
shares were outstanding.  The registrant does not have any authorized,
issued or outstanding non-voting common stock.





DOCUMENTS
INCORPORATED BY REFERENCE


Portions
of the registrant's Proxy Statement for the Annual Meeting of Shareholders to be
held on December 9, 2009 are incorporated into Part III of this Form
10-K.





THE
DRESS BARN, INC.


FORM
10-K


FISCAL
YEAR ENDED JULY 25, 2009


TABLE
OF CONTENTS





PAGEPART
      IItem
      1
                                                  
                                                  Business
                                                  
                                                  3General
                                                  
                                                  3Locations
      and Properties
                                                  
                                                  4Advertising
      and Marketing
                                                  
                                                  5Trademarks
                                                  
                                                  5Employees
                                                  
                                                  5Seasonality
                                                  
                                                  5Competition
                                                  
                                                  5Merchandise
      Vendors
                                                  
                                                  5Available
      Information
                                                  
                                                  5Item
      1A
                                                  
                                                  Risk
      Factors
                                                  
                                                  6Item
      1B
                                                  
                                                  Unresolved
      Staff Comments
                                                  
                                                  11Item
      2
                                                  
                                                  Properties
                                                  
                                                  11Item
      3
                                                  
                                                  Legal
      Proceedings
                                                  
                                                  11Item
      4
                                                  
                                                  Submission
      of Matters to a Vote of Security Holders
                                                  
                                                  11Executive
      Officers of the Registrant
                                                  
                                                  12PART
      IIItem
      5
                                                  
                                                  Market
      for Registrant’s Common Equity, Related Stockholder Matters
      andIssuer
      Purchases of Equity Securities
                                                  
                                                  13Item
      6
                                                  
                                                  Selected
      Financial Data
                                                  
                                                  16Item
      7
                                                  
                                                  Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                                                  
                                                  17Item
      7A
                                                  
                                                  Quantitative
      and Qualitative Disclosures About Market Risk
                                                  
                                                  36Item
      8
                                                  
                                                  Financial
      Statements and Supplementary Data
                                                  
                                                  36Item
      9
                                                  
                                                  Changes
      in and Disagreements with Accountantson
      Accounting and Financial Disclosure
                                                  
                                                  37Item
      9A
                                                  
                                                  Controls
      and Procedures
                                                  
                                                  37Item
      9B
                                                  
                                                  Other
      Information
                                                  
                                                  39PART
      IIIItem
      10
                                                  
                                                  Directors,
      Executive Officers and Corporate Governance
                                                  
                                                  39Item
      11
                                                  
                                                  Executive
      Compensation
                                                  
                                                  39Item
      12
                                                  
                                                  Security
      Ownership of Certain Beneficial Ownersand
      Management and Related Stockholder Matters
                                                  
                                                  39Item
      13
                                                  
                                                  Certain
      Relationships and Related Transactions, and Director
      Independence
                                                  
                                                  39Item
      14
                                                  
                                                  Principal
      Accountant Fees and Services
                                                  
                                                  39PART
      IVItem
      15
                                                  
                                                  Exhibits,
      Financial Statement Schedules
                                                  
                                                  40




2


This
Annual Report on Form 10-K, including the section labeled Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements that should be read in conjunction with the
consolidated financial statements and notes to consolidated financial statements
and risk factors that we have included elsewhere in this
report.  These forward-looking statements are based on our current
expectations, assumptions, estimates and projections about our business and our
industry, and involve known and unknown risks, uncertainties and other factors
that may cause our results, level of activity, performance or achievements to be
materially different from any future results, level of activity, performance or
achievements expressed or implied in, or contemplated by, the forward-looking
statements.  We generally identify these statements by words or
phrases such as “believe”, “anticipate”, “expect”, “intend”, “plan”, “may”,
“should”, “estimate”, “predict”, “potential”, “continue” or the negative of such
terms or other similar expressions.  Our actual results may differ
significantly from the results discussed in the forward-looking
statements.  Factors that might cause such a difference include those
discussed below under Item 1A. RISK FACTORS, and other factors discussed in this
Annual Report on Form 10-K and other reports we file with the Securities and
Exchange Commission.  We disclaim any intent or obligation to update
or revise any forward-looking statements as a result of developments occurring
after the period covered by this report.





dressbarn®, dressbarn womanâ, mauricesâ, Studio Yâ and YVOSâ are our
trademarks.  Fiscal 2009 refers to the 52-week period ended July 25,
2009, fiscal 2008 refers to the 52-week period ended July 26, 2008, fiscal 2007
refers to the 52-week period ended July 28, 2007.  Fiscal 2010 refers
to our 53-week period that will end on July 31, 2010.





References
to “we”, “us”, “our” or “our company” or other similar terms in this report are
to The Dress Barn, Inc. and its subsidiaries.





PART
I


ITEM
1.  BUSINESS





General





We operate women’s apparel specialty
stores, principally under the names “dressbarn”, “dressbarn woman” and “maurices”.  Since
our retail business began in 1962, we have established, marketed and expanded
our business as a source of fashion and value.  We offer a
lifestyle-oriented, stylish, value-priced assortment of career and casual
fashions tailored to our customers’ needs.  As of July 25, 2009, we
operated 1,559 stores in 48 states and the District of Columbia, including 684
dressbarn Combo stores
(a combination of our dressbarn and dressbarn woman brands), 721
maurices stores, 120
dressbarn stores and 34
dressbarn woman
stores.





Our dressbarn stores are typically
operated as Combo stores, offering both dressbarn and larger-sized
dressbarn woman
merchandise.  We also operate stand-alone dressbarn and dressbarn woman stores in
certain markets.  Our dressbarn segment caters to
35- to 55-year-old women, sizes 4 to 24.  Our dressbarn stores offer
in-season, moderate to better quality career and casual fashion at value prices,
and are located primarily in convenient strip shopping centers in major trading
and high-density markets and surrounding suburban areas.  Our
centrally managed merchandise selection is changed and augmented frequently to
keep our merchandise presentation fresh and exciting.  Carefully
edited, coordinated merchandise is featured in a comfortable, easy-to-shop
environment, staffed by friendly, service-oriented salespeople.





Our maurices stores cater to the
apparel and accessory needs of 17- to 34-year-old women and are typically
located in small markets with populations of approximately 25,000 to
100,000.  Our maurices stores offer
moderately priced, up-to-date fashions, sizes 4 to 24, designed to appeal to a
younger female customer than our dressbarn
brands.  maurices merchandise is
primarily sold under two brands, maurices and Studio
Y.  The maurices brand encompasses
women’s casual clothing, career wear and accessories.  Studio Y
represents women’s dressy apparel.  Our maurices stores are typically
located near large discount and department stores to capitalize on the traffic
those retailers generate.  We seek to differentiate maurices from those retailers
by offering a wider selection of style, color and current fashion and by the
shopping experience we offer, which emphasizes a visually stimulating
environment with a helpful staff.  While our maurices stores offer a core
merchandise assortment, individual maurices stores vary and
augment their merchandise assortment to reflect individual store demands and
local market preferences.





All of our stores are directly operated
by us.  Virtually all of our stores are open seven days a week and
most evenings.  We utilize creative incentive programs and
comprehensive training programs to ensure that our customers receive friendly
and helpful service.




3




Since the merger of maurices in 2005, we have
sought appropriate opportunities to generate synergies through leveraging
certain centralized functions, such as taxes, purchasing, lease administration,
imports and loss prevention.  We believe our synergies have improved
both dressbarn’s and
maurices’
performance.





On June 24, 2009, we entered into an
agreement pursuant to which one of our subsidiaries will merge with Tween
Brands, Inc. in a stock-for-stock transaction. Under the terms of the merger
agreement, each share of Tween Brands common stock will be exchanged for 0.47
shares of our common stock. Based on our stock price of $13.24 as of June 24,
2009 (the date of the agreement), this consideration would be equal to an
aggregate equity value of $157 million. In addition, Tween Brands, Inc.’s
outstanding bank debt will be repaid. This transaction, unanimously approved by
each of Dress Barn, Inc.’s and Tween Brands, Inc.’s Board of Directors, is
expected to close in the fourth quarter of calendar year 2009 and is subject to
Tween Brands, Inc. stockholder approval and other customary closing conditions.
Tween Brands, Inc. stock is listed on the NYSE as “TWB”.





Locations and
Properties





As of July 25, 2009, we operated 1,559
stores in 48 states and the District of Columbia, of which 1,001 of the
stores were located in strip centers and 233 stores were located in outlet
centers.  During fiscal 2009, no store accounted for as much as 1% of
our total sales.  The table below indicates the type of shopping
facility in which the stores were located:





Type of Facility
                
                dressbarn
                    Stores
                
                
                dressbarn
                  woman
                  Stores
                
                
                dressbarn
                  and
                  dressbarn
                  woman
                  Combo
                  Stores
                
                
                maurices
                  Stores
                
                
                TotalStrip
      Shopping Centers
                
                
                76
                
                
                
                15
                
                
                
                499
                
                
                
                411
                
                
                
                1,001Outlet
      Malls and Outlet Strip Centers
                
                
                29
                
                
                
                16
                
                
                
                158
                
                
                
                30
                
                
                
                233Free
      Standing, Downtown and Enclosed Malls
                
                
                15
                
                
                
                3
                
                
                
                27
                
                
                
                280
                
                
                
                325Total
                
                
                120
                
                
                
                34
                
                
                
                684
                
                
                
                721
                
                
                
                1,559





As of
July 25, 2009, dressbarn
had 6.4 million total square feet in all its stores and maurices had 3.5 million total
square feet.  All of our store locations are leased.  Our
leases typically contain renewal options and also provide an option to terminate
at little or no cost, particularly in the early years of a lease, if specified
sales volumes are not achieved.  Our dressbarn stores are more
concentrated in the northeast while our mauricesstores are more
concentrated in the midwest.





During
fiscal 2009, we opened 31 dressbarn Combo stores, and
converted six existing stores to Combo stores.  We opened 49 maurices stores during fiscal
2009.  We evaluate store-level performance and seek to close or
relocate underperforming stores.  During fiscal 2009, we closed 24
locations, including 19 dressbarn stores and 5 maurices stores.  We
expect to open approximately 50 new stores in fiscal 2010, comprised of
approximately 15 dressbarn locations (almost
all of which will be Combo stores) and approximately 35 maurices
locations.  Net of store closings, we currently plan dressbarn square footage to be
flat and increase our aggregate mauricessquare footage by
approximately 4%  for a net increase of approximately 2% in fiscal
2010.





We own an approximately 900,000
square-foot distribution/office facility and 16 acres of adjacent land in
Suffern, New York, which houses, in approximately 510,000 square feet, our
corporate offices and our dressbarn distribution center,
with the remainder of the facility leased to two third parties.  We
own maurices’ corporate
headquarters in downtown Duluth, Minnesota, which is composed of three office
buildings totaling approximately 151,000 square feet. We also own an
approximately 360,000 square-foot distribution center and approximately 9 acres
of adjacent land in Des Moines, Iowa, which houses our maurices warehousing and
distribution operations.


4


Advertising and
Marketing





We rely on direct mail, national print
advertising in lifestyle magazines for our dressbarn brand, compelling
window and in-store marketing materials, our website and email to communicate
our fashion and promotional message.  We utilize a customer
relationship management system to track customer transactions and determine
strategic decisions for our direct mail initiatives.  We pursue a
public relations strategy to garner editorial exposure.





We participate in national
cause-related marketing initiatives that resonate with our customers, creating
brand affinity.  Our current key partners in these programs include
The American Cancer Society and Dress for Success.  We believe these
programs, which are conducted at the local level, reinforce that our stores are
important members of their communities.





Trademarks





We have U.S. Certificates of
Registration of Trademark and trademark applications pending for the operating
names of our stores and our major private label merchandise
brands.  We believe our dressbarn, dressbarn woman, maurices, Studio Y and YVOS
trademarks are material to the continued success of our business.  We
also believe that our rights to these trademarks are adequately
protected.





Employees





As of July 25, 2009, we had
approximately 14,100 employees, approximately 8,600 of whom worked
part-time.  We typically add temporary employees during peak selling
periods.  None of our employees are covered by any collective
bargaining agreement.  We consider our employee relations to be
good.





Seasonality





We have historically experienced
substantially lower earnings in our second fiscal quarter ending in January,
reflecting the intense promotional atmosphere that has characterized the holiday
shopping season in recent years.  In addition, our quarterly results
of operations may fluctuate materially depending on, among other things, adverse
weather conditions, shifts in timing of certain holidays, the number and timing
of new store openings and closings, net sales contributed by new stores and
changes in our merchandise mix.





Competition





The retail apparel industry is highly
competitive and fragmented, with numerous competitors, including department
stores, off-price retailers, specialty stores, discount stores, mass
merchandisers and Internet-based retailers, many of which have substantially
greater financial, marketing and other resources than us.  Many of our
competitors are able to engage in aggressive promotions, reducing their selling
prices.  Some of our competitors include JCPenney, Kohl’s, Old Navy,
Target and Sears.  Other competitors may move into the markets that we
serve.  Our business is vulnerable to demand and pricing shifts, and
to changes in customer tastes and preferences.  If we fail to compete
successfully, we could face lower net sales and may need to offer greater
discounts to our customers, which could result in decreased
profitability.  We believe that we have established and reinforced our
image as a source of fashion and value by focusing on our target customers, and
by offering superior customer service and convienence.





Merchandise
Vendors





We purchase our merchandise from many
domestic and foreign suppliers.  We have no long-term purchase
commitment or arrangements with any of our suppliers, and believe that we are
not dependent on any one supplier.  We have good working relationships
with our suppliers. No single supplier is more than 10% of our
business.





Available
Information





We maintain our corporate Internet
website at www.dressbarn.com.  The
information on our Internet website is not incorporated by reference into this
report.  We make available, free of charge through publication on our
Internet website, a copy of our Annual Reports on Form 10-K, our quarterly
reports on Form 10-Q and our current reports on Form 8-K, including any
amendments to those reports, as filed with or furnished to the Securities and
Exchange Commission, or SEC, as soon as reasonably practicable after they have
been so filed or furnished.


5


ITEM
1A.  RISK
FACTORS




A
slowdown in the United States economy, an uncertain economic outlook and
escalating energy costs may continue to affect consumer demand for our apparel
and accessories.




Consumer
spending habits, including spending for our apparel and accessories, are
affected by, among other things, prevailing economic conditions, levels of
employment, fuel prices, salaries, wage rates, the availability of consumer
credit, consumer confidence and consumer perception of economic
conditions.  A general slowdown in the United States economy and an
uncertain economic outlook may adversely affect consumer spending habits and
customer traffic, which may result in lower net sales.  A prolonged
economic downturn could have a material adverse effect on our business,
financial condition, and results of operations.




Our
business is dependent upon our ability to predict accurately fashion trends,
customer preferences and other fashion-related factors.




Customer
tastes and fashion trends are volatile and tend to change rapidly, particularly
for women’s apparel.  Our success depends in part upon our ability to
anticipate and respond to changing merchandise trends and consumer preferences
in a timely manner.  Accordingly, any failure by us to anticipate,
identify and respond to changing fashion trends could adversely affect consumer
acceptance of the merchandise in our stores, which in turn could adversely
affect our business and our image with our customers.  If we
miscalculate either the market for our merchandise or our customers’ tastes or
purchasing habits, we may be required to sell a significant amount of unsold
inventory at below average markups over cost, or below cost, which would have an
adverse effect on our margins and results of operations.




We
depend on strip shopping center and mall traffic and our ability to identify
suitable store locations.




Our sales
are dependent in part on a high volume of strip shopping center and mall
traffic.  Strip shopping center and mall traffic may be adversely
affected by, among other things, economic downturns, the closing of anchor
stores or changes in customer shopping preferences.  A decline in the
popularity of strip shopping center or mall shopping among our target customers
could have a material adverse effect on customer traffic and reduce our sales
and net earnings.




To take
advantage of customer traffic and the shopping preferences of our customers, we
need to maintain or acquire stores in desirable locations where competition for
suitable store locations is intense.




We
rely on foreign sources of production.




We
purchase a significant portion of our apparel directly in foreign markets,
including Asia, the Middle East and Africa, and indirectly through domestic
vendors with foreign sources.  We face a variety of risks generally
associated with doing business in foreign markets and importing merchandise from
abroad, including:




·
            political
      instability;




·
            increased
      security requirements applicable to imported
  goods;




·
            imposition
      or increases of duties, taxes and other charges on
  imports;




·
            imposition
      of quotas on imported merchandise;




·
            currency
      and exchange risks;




·
            delays
      in shipping; and




·
            increased
      costs of transportation.




New
initiatives may be proposed that may have an impact on the trading status of
certain countries and may include retaliatory duties or other trade sanctions
that, if enacted, could increase the cost of products purchased from suppliers
in such countries or restrict the importation of products from such
countries.  The future performance of our business depends on foreign
suppliers and may be adversely affected by the factors listed above, all of
which are beyond our control.  This may result in our inability to
obtain sufficient quantities of merchandise or increase our cost, thereby
negatively impacting sales, gross profit and net earnings.


6


We
face challenges to grow our business and to manage our growth.




Our
growth is dependent, in large part, upon our ability to successfully add new
stores.  In addition, on a routine basis, we close underperforming
stores, which may result in write-offs.  The success of our growth
strategy depends upon a number of factors, including the identification of
suitable markets and sites for new stores, negotiation of leases on acceptable
terms, construction or renovation of sites in a timely manner at acceptable
costs and maintenance of the productivity of our existing store
base.  We must be able to hire, train and retain competent managers
and personnel and manage the systems and operational components of our
growth.  Our failure to open new stores on a timely basis, obtain
acceptance in markets in which we currently have limited or no presence, attract
qualified management and personnel or appropriately adjust operational systems
and procedures would have an adverse effect on our growth
prospects.




Our
management information systems may fail and cause disruptions in our
business.




We rely
on our existing management information systems in operating and monitoring all
major aspects of our business, including sales, warehousing, distribution,
purchasing, inventory control, merchandise planning and replenishment, as well
as various financial systems.  Any disruption in the operation of our
management information systems, or our failure to continue to upgrade, integrate
or expend capital on such systems as our business expands, would have a material
adverse effect on our business.




We
utilize the Oracle Retail Merchandising System for both our  dressbarn
segment  and our maurices
segment.  The purpose of the Oracle Retail Merchandising system is to
expand our capability to identify and analyze sales trends and consumer data,
and achieve planning and inventory management improvements.




Our
business would be severely disrupted if our distribution centers were to shut
down.




The
distribution of our dressbarn products is
centralized in one distribution center in Suffern, New York and the distribution
of our maurices products
is centralized in one distribution center in Des Moines, Iowa.  Most
of the merchandise we purchase is shipped directly to our distribution centers,
where it is prepared for shipment to the appropriate stores.  If
either of these distribution centers were to shut down or lose significant
capacity for any reason, our operations would likely be seriously
disrupted.  As a result, we could incur significantly higher costs and
longer lead times associated with distributing our products to our stores during
the time it takes for us to reopen or replace either distribution
center.




Our
business could suffer as a result of a manufacturer’s inability to produce goods
for us on time and to our specifications.




We do not
own or operate any manufacturing facilities and therefore depend upon
independent third parties for the manufacture of all of the goods that we
sell.  Both domestic and international manufacturers produce these
goods.  The inability of a manufacturer to ship orders in a timely
manner or to meet our standards could have a material adverse impact on our
business.




Our
business could suffer if we need to replace manufacturers.




We
compete with other companies for the production capacity of our manufacturers
and import quota capacity.  Many of our competitors have greater
financial and other resources than we have and thus may have an advantage in the
competition for production capacity.  If we experience a significant
increase in demand, or if an existing manufacturer of the goods that we sell
must be replaced, we may have to increase purchases from our third-party
manufacturers and we cannot guarantee we will be able to do so at all or on
terms that are acceptable to us.  This may negatively affect our sales
and net earnings.  We enter into a number of purchase order
commitments each season specifying a time for delivery, method of payment,
design and quality specifications and other standard industry provisions, but we
do not have long-term contracts with any manufacturer.  None of the
manufacturers we use produces products for us exclusively.




Our
business could suffer if one of the manufacturers of the goods that we sell
fails to use acceptable labor practices.




We
require manufacturers of the goods that we sell to operate in compliance with
applicable laws and regulations.  While our internal and vendor
operating guidelines promote ethical business practices and our staff and our
agents periodically visit and monitor the operations of our independent
manufacturers, we do not control these manufacturers or their labor
practices.  The violation of labor or other laws by an independent
manufacturer used by us, or the divergence of an independent manufacturer’s
labor practices from those generally accepted as ethical in the United States,
could interrupt, or otherwise disrupt the shipment of products to us or damage
our reputation, which may result in a decrease in customer traffic to our stores
and adversely affect our sales and net earnings.


7





Existing
and increased competition in the women’s retail apparel industry may reduce our
net revenues, profits and market share.




The
women’s retail apparel industry is highly competitive.  We compete
primarily with department stores, off-price retailers, specialty stores,
discount stores, mass merchandisers and Internet-based retailers, many of which
have substantially greater financial, marketing and other resources than we
have.  Many department stores offer a broader selection of merchandise
than we offer.  In addition, many department stores continue to be
promotional and reduce their selling prices, and in some cases are expanding
into markets in which we have a significant market presence.  As a
result of this competition, including close-out sales and going-out-of-business
sales by other women’s apparel retailers, we may experience pricing pressures,
increased marketing expenditures and loss of market share, which could have a
material adverse effect on our business, financial condition and results of
operations.




We
depend on key personnel in order to support our existing business and future
expansion and may not be able to retain or replace these employees or recruit
additional qualified personnel.




Our
success and our ability to execute our business strategy depends largely on the
efforts of our management.  The loss of the services of one or more of
our key personnel could have a material adverse effect on our business, as we
may not be able to find suitable management personnel to replace departing
executives on a timely basis.  We do not have key man life insurance
on our key personnel. We compete for experienced personnel with companies which
have greater financial resources than we do.  If we fail to attract,
motivate and retain qualified personnel, it could harm our business and limit
our ability to expand.




Covenants
in our revolving credit facility agreement may impose operating
restrictions.




Our
revolving credit facility agreement has financial covenants with respect to
consolidated net worth, as well as other financial ratios.  If we fail
to meet these covenants or obtain appropriate waivers, our lender may terminate
the revolving credit facility.





Our
business may be affected by regulatory and litigation developments.




Various aspects of our operations are
subject to federal, state or local laws, rules and regulations, any of which may
change from time to time.  Additionally, we are regularly involved in
various litigation matters that arise in the ordinary course of our
business.




Natural
disasters, war and acts of terrorism on the United States or international
economies may adversely impact our business.




A significant act of terrorism or a
natural disaster event in the United States or elsewhere could have an adverse
impact on the delivery of imports or domestic products to us, or by disrupting
production of our goods or interfering with our distribution or information
systems. Additionally, any of these events could result in higher costs of doing
business, lower client traffic and reduced consumer confidence and spending
resulting in a material adverse effect on our business, financial condition and
results of operations.




The
recent downturn in the financial markets could have an adverse effect on our
ability to access our cash and investment securities.





We have
significant amounts of cash and cash equivalents at financial institutions that
are in excess of federally insured limits.  With the current financial
environment and the instability of financial institutions we cannot be assured
that we will not experience losses on our deposits.





Funds
associated with the auction rate securities held by us that we have
traditionally held as short-term investments may not be liquid or readily
available.





Our
investment in securities currently consists partially of auction rate securities
that are not currently liquid or readily available to convert to cash and,
therefore, we have reclassified such auction rate securities as long-term
investment securities. We do not believe that the current liquidity issues
related to our auction rate securities will impact our ability to fund our
ongoing business operations. However, if the global credit crisis persists or
intensifies, it is possible that we will be required to further adjust the fair
value of our auction rate securities. If we determine that the decline in the
fair value of our auction rate securities is other-than-temporary, it would
result in an impairment charge being recognized on our Consolidated Statement of
Operations which could be material and which could adversely affect our
financial results.


8


Our
stock price may be volatile.





Our stock price may fluctuate
substantially as a result of quarter to quarter variations  in our
actual or anticipated financial results, the results of other companies in the
retail industry, or the markets we serve. In addition, the stock market has
experienced price and volume fluctuations that have affected the market price of
many retail and other stocks and that have often been unrelated or
disproportionate to the operating performance of these companies.





We
could be required to repurchase our 2.5% Convertible Senior Notes due in 2024
for cash prior to maturity of the notes.





During fiscal 2005, we issued $115.0
million principal amount of 2.5% Convertible Senior Notes due in 2024, or
Convertible Senior Notes, in a private offering for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of
1933.  The Convertible Senior Notes were subsequently registered with
the SEC. The holders of the Convertible Senior Notes could require us to
repurchase the principal amount of the notes for cash before maturity of the
notes under certain circumstances (see  “Item 8. Financial Statements
and Supplementary Data; Notes to Consolidated Financial Statements; Note 6.
Debt” below).  Such a repurchase would require significant amounts of
cash and could adversely affect our financial condition.





New
accounting rules or regulations or changes in existing rules or regulations
could adversely impact our reported results of operations.





Changes to existing accounting rules
or the adoption of new rules could have an adverse effect on our reported
results of operations.  In May 2008, the Financial Accounting
Standards Board (“FASB”) issued  FASB Staff Position (“FSP”) APB 14-1,
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion, which applies to any convertible debt instrument that may be settled
in whole or in part with cash upon conversion, which would include our 2.5%
Convertible Senior Notes. We are required to adopt the FSP at the beginning
of our fiscal year 2010, with retroactive application to financial statements
for periods prior to the date of adoption.





Recent
and future economic conditions, including turmoil in the financial and credit
markets, may adversely affect our business.





Recent
economic conditions may adversely affect our business, including the potential
impact on the apparel industry, our customers, our financing and other
contractual arrangements. In addition, conditions may remain depressed in the
future or may be subject to further deterioration.  Recent or future
developments in the U.S. and global economies may lead to a reduction in
consumer spending overall, which could have an adverse impact on sales of our
products.





Tightening of the credit markets and
recent or future turmoil in the financial markets could also make it more
difficult for us to refinance our existing indebtedness (if necessary), to enter
into agreements for new indebtedness or to obtain funding through the issuance
of the Company’s securities.  Worsening economic conditions could also
result in difficulties for financial institutions (including bank failures) and
other parties that we may do business with, which could potentially, impair our
ability to access financing under existing arrangements or to otherwise recover
amounts as they become due under our other contractual
arrangements.





As
described in Note 5 to our consolidated financial statements included elsewhere
herein, we have significant goodwill and other intangible assets related to our
acquisition of maurices
in January 2005. Current and future economic conditions may adversely impact
maurices’ ability to
attract new customers, retain existing customers, maintain sales volumes, and
maintain margins.  These events could materially reduce maurices’ profitability and
cash flow which could, in turn, lead to an impairment of maurices’
goodwill.  Furthermore, if customer attrition were to accelerate
significantly, the value of maurices’ customer
relationships, trade names and proprietary technology could be impaired or
subject to accelerated amortization.





As described in Note 5 to our
consolidated financial statements included elsewhere herein, we continuously
evaluate the recoverability of our long-lived assets. As economic conditions
change we perform tests to evaluate the profitability and cash flow of our
individual stores. Based on these evaluations it may be determined that a
store’s assets are impaired and, therefore, we would record an asset impairment
charge.


9





Failure
to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could negatively
impact our business, the price of our common stock and market confidence in our
reported financial information.





We must
continue to document, test, monitor and enhance our internal controls over
financial reporting in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002.  We cannot be assured that our disclosure
controls and procedures and our internal controls over financial reporting
required under Section 404 of the Sarbanes-Oxley Act will prove to be adequate
in the future.  Any failure to maintain the effectiveness of internal
controls over financial reporting or to comply with the requirements of the
Sarbanes-Oxley Act could have a material adverse impact on our business, our
financial condition and the price of our common stock.





Risks
associated with the pending Tween Brands, Inc. merger.





The pending merger of our subsidiary
and Tween Brands, Inc. is subject to Tween Brands’ stockholder approval and
other conditions, which are beyond our control.  Accordingly, we cannot
assure you that the merger will be consummated.  Even if the merger is
consummated, the transaction involves risks, including the
following:





·
            The merger may not be accretive
      and may cause dilution to our earnings per share, which may negatively
      affect the market price of our common
  stock.





We
currently anticipate that the merger will be accretive to earnings per share
during the second full year after the merger. This expectation is based on
preliminary estimates which may materially change. We could also encounter
additional transaction and integration-related costs or other factors such as
the failure to realize all of the benefits anticipated in the merger. All of
these factors could cause dilution to our earnings per share or decrease or
delay the expected accretive effect of the merger and cause a decrease in the
price of our common stock.





·
            The merger may present
      significant challenges.





The
success of the merger will depend on our ability to manage both our operations
and Tween Brands’ operations, to realize opportunities for revenue growth and,
to some degree, to eliminate redundant and excess costs. Achieving the
anticipated benefits of the merger may present a number of significant risks and
considerations, including, but not limited to:





·
            demands
      on management related to the increase in the size of the Company after the
      acquisition;


·
            the
      diversion of management’s attention from the management of daily
      operations to the integration of
operations;


·
            expected
      cost savings not being achieved in full, or taking longer or requiring
      greater investment to achieve;


·
            achieving
      transition and new store growth
potential;


·
            potential
      attrition of key employees following the consummation of the merger;
      and


·
            difficulties
      in maintaining uniform standards and controls, including internal control
      over financial reporting, required by the Sarbanes-Oxley Act of 2002 and
      related procedures and policies.





·
            Dress Barn may be unable to
      retain Tween Brands’ key employees, the loss of which could adversely
      affect Dress Barn.





The
success of the combined operations after the merger will depend in part upon our
ability to retain key employees of Tween Brands. Key employees of Tween Brands
may depart because of issues relating to post-transaction differences, including
the different corporate cultures and our compensation structure that may differ
from the current structure in place for Tween Brands employees. Accordingly, no
assurance can be given that we will be able to retain key employees of Tween
Brands. The loss of these key employees could adversely impact our
business.





·
            Legal proceedings in connection
      with the merger could delay or prevent the completion of the
      merger.





Purported
class action lawsuits have been filed by third parties challenging the proposed
merger and seeking, among other things, to enjoin the consummation of the
merger. One of the conditions to the closing of the merger is that no
governmental entity of competent jurisdiction has permanently enjoined the
consummation of the merger or the transactions contemplated by the merger
agreement. If a plaintiff is successful in obtaining an injunction prohibiting
consummation of the merger, then the injunction may delay the merger or prevent
the merger from being completed.


10


ITEM
1B.  UNRESOLVED STAFF
COMMENTS




None.




ITEM
2.  PROPERTIES





We lease
all of our stores.  Store leases generally have an initial term
ranging from 5 to 10 years with one or more options to extend the
lease.  The table below, covering all open store locations leased by
us on July 25, 2009, indicates the number of leases expiring during the period
indicated and the number of expiring leases with and without renewal
options:





Fiscal Years
                    
                    Leases Expiring
                    
                    Number with
                      Renewal Options
                    
                    Number Without
                      Renewal Options2010
                    
                    324
                    
                    173
                    
                    1512011
                    
                    274
                    
                    201
                    
                    732012
                    
                    284
                    
                    218
                    
                    662013
                    
                    211
                    
                    179
                    
                    322014
                    
                    182
                    
                    150
                    
                    322015
      and thereafter
                    
                    284
                    
                    188
                    
                    96Total
                    
                    1,559
                    
                    1,109
                    
                    450





New store leases generally
provide for an
averagebase
rent ofapproximately$15 to$25per square foot per annum.
Certain of our leases have formulas requiring the payment of a percentage of
sales as additional rent, generally when sales reach specified
levels.  Our aggregate minimum rentals under operating leases
in effect at July 25, 2009 and excluding locations acquired after July 25, 2009,
for fiscal 2010, are approximately $145.8 million.  In addition, we
are also typically responsible under our store leases for our pro rata share of
maintenance expenses and common charges in strip and outlet
centers.





Most of the store leases give us the
right to terminate the lease at little or no cost if certain specified sales
volumes are not achieved.  This affords us greater flexibility to
close underperforming stores.  Usually these provisions are operative
only during the first few years of a lease.





Our investment in new stores consists
primarily of inventory, leasehold improvements, fixtures and
equipment.  We often receive tenant improvement allowances from
landlords to offset these initial investments in leasehold
improvements.





We own an approximately 900,000
square-foot distribution/office facility and 16 acres of adjacent land in
Suffern, New York, which houses, in approximately 510,000 square feet, our
corporate offices and our dressbarn distribution
center.  The remainder of the rentable square footage is 100% leased
through 2011.  The purchase of the Suffern facility was financed with
a mortgage that is collateralized by a mortgage lien on the Suffern
facility.  Payments of principal and interest on the mortgage, which
is a 20-year fully amortizing loan with a fixed interest rate of 5.33%, are due
monthly through July 2023.  We receive rental income and reimbursement
for taxes and common area maintenance charges from two tenants that occupy the
Suffern facility that are not affiliated with us.  The rental income
from the other tenants is shown as “other income” on our Consolidated Statements
of Operations.  We own maurices’ corporate
headquarters in downtown Duluth, Minnesota, which is composed of three office
buildings totaling approximately 151,000 square feet.  We also own
maurices’ distribution
center, which has 360,000 square feet of space and approximately 9 acres of
adjacent land which is located in Des Moines, Iowa.





ITEM
3.  LEGAL
PROCEEDINGS





We are
subject to ordinary routine litigation incidental to our
business.  Although the outcome of such items cannot be determined
with certainty, in our opinion, dispositions of these matters are not expected
to have a material adverse affect on our financial position, results of
operations or cash flows.


ITEM
4.  SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year.




11




EXECUTIVE OFFICERS OF THE
REGISTRANT





The following table sets forth the
name, age and position with our company of our Executive Officers:





Name
                    
                    Age
                    
                    PositionsElliot
      S. Jaffe
                    
                    83
                    
                    Chairman
      of the Board
                      and
      Co-FounderDavid
      R. Jaffe
                    
                    50
                    
                    President,
      Chief Executive Officer
                      and
      DirectorVivian
      Behrens
                    
                    56
                    
                    Senior
      Vice President,
                      Chief
      Marketing OfficerArmand
      Correia
                    
                    63
                    
                    Senior
      Vice President,
                      Chief
      Financial OfficerGene
      Wexler
                    
                    54
                    
                    Senior
      Vice President, General Counsel
                      and
      Assistant SecretaryReid
      Hackney
                    
                    51
                    
                    Vice
      President, Finance
                      and
      Corporate
Controller





Mr. Elliot S. Jaffe,our
co-founder and Chairman of the Board, was Chief Executive Officer of our company
from 1966 until 2002.





Mr. David R. Jaffebecame
President and Chief Executive Officer in 2002.  Previously he had been
Vice Chairman, Chief Operating Officer and a member of the Board of Directors
since 2001.  He joined us in 1992 as Vice President-Business
Development and became Senior Vice President in 1995 and Executive Vice
President in 1996.  Mr. Jaffe is the son of Elliot S. and Roslyn S.
Jaffe. Mrs. Jaffe serves as Secretary and Treasurer of our company.





Ms. Vivian Behrens has been
employed by our company since 2002 as Senior Vice President and Chief Marketing
Officer.  She was a member of our Board of Directors from 2001 to
2002. Previously, Ms. Behrens held senior marketing positions at Posh &
Sticks, Ltd., a consumer products multi-channel retailer, the Foot Locker
Division of Venator, Inc., Charming Shoppes, Inc., Estee Lauder, Limited Inc.
and Avon Products, Inc.





Mr. Armand Correiahas been
Senior Vice President and Chief Financial Officer of our company since
1991.




Mr. Gene Wexlerhas been
Senior Vice President, General Counsel and Assistant Secretary of our company
since 2005.  He previously served as Vice President, General Counsel
and Secretary for Del Laboratories from 1999 until 2005.




Mr. Reid Hackney became Vice
President - Finance and Corporate Controller in 2005.  Prior to that
date, he was Vice President – Finance and Controller.  He has been
employed at our company since 1983.


12


PART
II





ITEM 5.
            MARKET FOR
      REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY
SECURITIES





Market Prices of Common
Stock





The Common Stock of The Dress Barn,
Inc. is quoted on the NASDAQ Global Select Market under the symbol
DBRN.





The table
below sets forth the high and low prices as reported on the NASDAQ Global Select
Market for the last eight fiscal quarters.





Fiscal
      2009
                    
                    
                    Fiscal 2008Fiscal
                    
                    High
                    
                    
                    Low
                    
                    
                    High
                    
                    
                    LowFirst
      Quarter
                    
                    $
                    17.93
                    
                    
                    $
                    7.76
                    
                    
                    $
                    19.32
                    
                    
                    $
                    15.02Second
      Quarter
                    
                    $
                    11.40
                    
                    
                    $
                    6.16
                    
                    
                    $
                    16.55
                    
                    
                    $
                    9.35Third
      Quarter
                    
                    $
                    15.61
                    
                    
                    $
                    8.44
                    
                    
                    $
                    14.88
                    
                    
                    $
                    11.00Fourth
      Quarter
                    
                    $
                    16.81
                    
                    
                    $
                    13.09
                    
                    
                    $
                    16.28
                    
                    
                    $
                    12.31





Number of Holders of
Record





As of September 11, 2009, we had
approximately 201 holders of record of our common stock.





Dividend
Policy





We have never declared or paid cash
dividends on our common stock.  We currently intend to retain our
future earnings and available cash to fund the growth of our business and do not
expect to pay dividends in the foreseeable future. However, payment of dividends
is within the discretion of our Board of Directors.  Payments of
dividends are limited in any one year by our revolving credit
facility.


13





Performance
Graph





The following graph illustrates, for
the period from July 31, 2004 through July 25, 2009, the cumulative total
shareholder return of $100 invested (assuming that all dividends, if any, were
reinvested) in (1) our common stock, (2) the S&P Composite-500 Stock Index,
and (3) the S&P Specialty Apparel Retailers Index.





The comparisons in this table are
required by the rules of the Securities and Exchange Commission and, therefore,
are not intended to forecast or be indicative of possible future performance of
our common stock.








14


Securities Authorized for
Issuance Under Equity Compensation Plans





The following table summarizes our
equity compensation plans as of July 25, 2009.





Plan Category
                
                Number of
                  securities to be
                  issued upon
                  exercise of
                  outstanding
                  options
                
                
                Weighted
                  average
                  exercise price
                  of outstanding
                  options
                
                
                Number of
                  securities
                  remaining
                  available for
                  future issuance
                  under equity
                  compensation
                  plans (excluding
                  securities reflected
                  in column (a))(a)
                
                
                (b)
                
                
                (c)Equity
      compensation plans approved by security holders
                
                
                7,192,103
                
                
                $
                12.20
                
                
                
                4,086,894Equity
      compensation plans not approved by security holders
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                
                7,192,103
                
                
                $
                12.20
                
                
                
                4,086,894





Issuer Purchases of Equity
Securities


Quarter
Ended July 25, 2009





We did
not purchase any securities in the quarter ending July 25, 2009.





In September 2007, our Board of
Directors authorized an additional $100 million stock buyback program (the
“Program”). The purchases are authorized to be made by us from time to time when
market conditions warrant.  The Program authorizes the purchase of
Dress Barn Common Stock through open market purchases and/or privately
negotiated transactions and will be subject to applicable SEC rules. The Program
has no expiration date.  The purchase of our shares are limited
to $100 million in any one year by our revolving credit facility. No purchases were made under the
Program during the quarter ended July 25, 2009.





The
maximum number of shares that may yet be purchased under the Program is
6,163,072, based on the closing price of $15.47 on July 24, 2009, and the
remaining authorized balance is approximately $95.3 million.


15


ITEM 6.  SELECTED FINANCIAL
DATA




The
following selected financial data is derived from our consolidated
financial statements and should be read in conjunction with the consolidated
financial statements and related notes, Management’s Discussion and Analysis and
Quantitative and Qualitative Disclosures About Market Risk included in this Form
10-K.




In
      thousands, except earnings per share
                                                              
                                                              Fiscal Year Endedand
      store operating data
                                                              
                                                              July 25,
                                                                2009
                                                              
                                                              
                                                              July 26,
                                                                2008
                                                              
                                                              
                                                              July 28,
                                                                2007
                                                              
                                                              
                                                              July 29,
                                                                2006
                                                              
                                                              
                                                              July 30,
                                                                2005Net
      sales
                                                              
                                                              $
                                                              1,494,236
                                                              
                                                              
                                                              $
                                                              1,444,165
                                                              
                                                              
                                                              $
                                                              1,426,607
                                                              
                                                              
                                                              $
                                                              1,300,277
                                                              
                                                              
                                                              $
                                                              1,000,264Cost
      of sales, including occupancy and buying costs (excluding
      depreciation)
                                                              
                                                              
                                                              918,350
                                                              
                                                              
                                                              
                                                              885,927
                                                              
                                                              
                                                              
                                                              842,192
                                                              
                                                              
                                                              
                                                              773,631
                                                              
                                                              
                                                              
                                                              621,656Selling,
      general andadministrative
      expenses
                                                              
                                                              
                                                              422,372
                                                              
                                                              
                                                              
                                                              397,424
                                                              
                                                              
                                                              
                                                              383,652
                                                              
                                                              
                                                              
                                                              353,031
                                                              
                                                              
                                                              
                                                              286,751Depreciation
      and amortization
                                                              
                                                              
                                                              48,535
                                                              
                                                              
                                                              
                                                              48,200
                                                              
                                                              
                                                              
                                                              45,791
                                                              
                                                              
                                                              
                                                              41,679
                                                              
                                                              
                                                              
                                                              34,457Litigation
      (2)
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              —
                                                              
                                                              
                                                              
                                                              (35,329
                                                              )Operating
      income
                                                              
                                                              
                                                              104,979
                                                              
                                                              
                                                              
                                                              112,614
                                                              
                                                              
                                                              
                                                              154,972
                                                              
                                                              
                                                              
                                                              131,936
                                                              
                                                              
                                                              
                                                              92,729Interest
      income
                                                              
                                                              
                                                              5,394
                                                              
                                                              
                                                              
                                                              7,817
                                                              
                                                              
                                                              
                                                              7,051
                                                              
                                                              
                                                              
                                                              2,656
                                                              
                                                              
                                                              
                                                              1,735Interest
      expense
                                                              
                                                              
                                                              (4,795
                                                              )
                                                              
                                                              
                                                              (4,825
                                                              )
                                                              
                                                              
                                                              (4,883
                                                              )
                                                              
                                                              
                                                              (5,364
                                                              )
                                                              
                                                              
                                                              (10,230
                                                              )Other
      income
                                                              
                                                              
                                                              1,062
                                                              
                                                              
                                                              
                                                              512
                                                              
                                                              
                                                              
                                                              1,382
                                                              
                                                              
                                                              
                                                              1,526
                                                              
                                                              
                                                              
                                                              1,526Earnings
      before income taxes
                                                              
                                                              
                                                              106,640
                                                              
                                                              
                                                              
                                                              116,118
                                                              
                                                              
                                                              
                                                              158,522
                                                              
                                                              
                                                              
                                                              130,754
                                                              
                                                              
                                                              
                                                              85,760Income
      taxes
                                                              
                                                              
                                                              36,952
                                                              
                                                              
                                                              
                                                              42,030
                                                              
                                                              
                                                              
                                                              57,340
                                                              
                                                              
                                                              
                                                              51,800
                                                              
                                                              
                                                              
                                                              33,200Net
      earnings
                                                              
                                                              $
                                                              69,688
                                                              
                                                              
                                                              $
                                                              74,088
                                                              
                                                              
                                                              $
                                                              101,182
                                                              
                                                              
                                                              $
                                                              78,954
                                                              
                                                              
                                                              $
                                                              52,560Earnings
      per share – basic (1)
                                                              
                                                              $
                                                              1.16
                                                              
                                                              
                                                              $
                                                              1.23
                                                              
                                                              
                                                              $
                                                              1.63
                                                              
                                                              
                                                              $
                                                              1.29
                                                              
                                                              
                                                              $
                                                              0.88Earnings
      per share – diluted (1)
                                                              
                                                              $
                                                              1.11
                                                              
                                                              
                                                              $
                                                              1.15
                                                              
                                                              
                                                              $
                                                              1.45
                                                              
                                                              
                                                              $
                                                              1.15
                                                              
                                                              
                                                              $
                                                              0.86Balance
      sheet data (at end of period):Working
      capital
                                                              
                                                              $
                                                              204,496
                                                              
                                                              
                                                              $
                                                              100,300
                                                              
                                                              
                                                              $
                                                              104,332
                                                              
                                                              
                                                              $
                                                              15,880
                                                              
                                                              
                                                              $
                                                              40,756Total
      assets
                                                              
                                                              $
                                                              1,131,821
                                                              
                                                              
                                                              $
                                                              1,024,459
                                                              
                                                              
                                                              $
                                                              981,325
                                                              
                                                              
                                                              $
                                                              842,697
                                                              
                                                              
                                                              $
                                                              716,245Total
      debt
                                                              
                                                              $
                                                              142,409
                                                              
                                                              
                                                              $
                                                              143,540
                                                              
                                                              
                                                              $
                                                              144,751
                                                              
                                                              
                                                              $
                                                              145,899
                                                              
                                                              
                                                              $
                                                              156,989Shareholders'
      equity
                                                              
                                                              $
                                                              626,080
                                                              
                                                              
                                                              $
                                                              556,082
                                                              
                                                              
                                                              $
                                                              509,401
                                                              
                                                              
                                                              $
                                                              409,147
                                                              
                                                              
                                                              $
                                                              313,128Percent
      of net sales:Cost
      of sales, including occupancy and buying costs, excluding depreciation and
      amortization
                                                              
                                                              
                                                              61.5
                                                              %
                                                              
                                                              
                                                              61.3
                                                              %
                                                              
                                                              
                                                              59.0
                                                              %
                                                              
                                                              
                                                              59.5
                                                              %
                                                              
                                                              
                                                              62.1
                                                              %Selling,
      general and administrative expenses
                                                              
                                                              
                                                              28.3
                                                              %
                                                              
                                                              
                                                              27.5
                                                              %
                                                              
                                                              
                                                              26.9
                                                              %
                                                              
                                                              
                                                              27.2
                                                              %
                                                              
                                                              
                                                              28.7
                                                              %Litigation
                                                              
                                                              
                                                              0.0
                                                              %
                                                              
                                                              
                                                              0.0
                                                              %
                                                              
                                                              
                                                              0.0
                                                              %
                                                              
                                                              
                                                              0.0
                                                              %
                                                              
                                                              
                                                              (3.5
                                                              )%Operating
      income
                                                              
                                                              
                                                              7.0
                                                              %
                                                              
                                                              
                                                              7.8
                                                              %
                                                              
                                                              
                                                              10.9
                                                              %
                                                              
                                                              
                                                              10.1
                                                              %
                                                              
                                                              
                                                              9.3
                                                              %Net
      earnings
                                                              
                                                              
                                                              4.7
                                                              %
                                                              
                                                              
                                                              5.1
                                                              %
                                                              
                                                              
                                                              7.1
                                                              %
                                                              
                                                              
                                                              6.1
                                                              %
                                                              
                                                              
                                                              5.3
                                                              %





(1) All
earnings per share amounts reflect the 2-for-1 stock split, effective April 3,
2006.




(2) In
2003, after a trial in the Superior Court of Connecticut, Waterbury District, a
jury returned a verdict of $30 million of compensatory damages against us. 
The court then entered a judgment of approximately $32 million in compensatory
damages and expenses, which was subject to post-judgment interest.  In
addition to the original litigation charge of $32 million recorded in fiscal
2003, we accrued interest and other amounts of approximately $3.3 million in the
consolidated statement of operations in fiscal 2004.  In July 2005, the
Supreme Court of Connecticut's decision to reverse the judgment against us
became final. Upon the Supreme Court of Connecticut's decision reversing the
judgment described above, approximately $35.3 million of previously recognized
litigation charges were reversed in the consolidated statement of operations in
fiscal 2005 and amounts held in the escrow account established in connection
with our appeal were released.


16


ITEM
7.      MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS





The following discussion should be read
in conjunction with our consolidated financial statements and related notes
thereto included in this Annual Report on Form 10-K.  Fiscal 2009
refers to the 52-week period ended July 25, 2009, fiscal 2008 refers to the
52-week period ended July 26, 2008, and fiscal 2007 refers to the 52-week period
ended July 28, 2007.  Fiscal 2010 refers to our 53-week period that
will end on July 31, 2010.





Overview





This
Management Overview section of Management’s Discussion and Analysis of Financial
Condition and Results of Operations provides a high-level summary of the more
detailed information elsewhere in this annual report and an overview to put this
information into context. This section is also an introduction to the discussion
and analysis that follows. Accordingly, it omits details that appear elsewhere
in this annual report.  It should not be relied upon separately from
the balance of this annual report.





We
operate a chain of women’s apparel specialty stores, operating principally under
the names “dressbarn”
and “dressbarn woman” and, since our January
2005 acquisition of Maurices Incorporated, “maurices.”  Our
dressbarn stores are
operated mostly in a combination of dressbarn and dressbarn woman stores, or Combo stores,
which carry dressbarn
and larger-sized dressbarn woman merchandise, as well as
freestanding dressbarn
and dressbarn woman stores.  These
stores offer in-season, moderate to better quality career and casual fashion at
value prices.  Our maurices stores are
concentrated in small markets in the United States and their product offerings
are designed to appeal to the apparel and accessory needs of the 17- to
34-year-old woman.





The
retail environment remains very competitive and is subject to macroeconomic
conditions. We expect to continue our strategy of opening new stores while
closing underperforming locations.  We expect to continue store
expansion focusing on both expanding in our major trading markets and developing
and expanding into new domestic markets.  For fiscal 2010, we are
currently projecting net square footage growth in the low single-digit
percentage range.





Customer
tastes and fashion trends are volatile and can change rapidly.  Our
success depends in part on our ability to effectively predict and respond to
changing fashion trends and consumer demands, and to translate market trends
into appropriate, saleable product offerings.  If we are unable to
successfully predict or respond to changing styles or trends and misjudge the
market for our products or any new product lines, our sales will be lower and we
may be faced with a substantial amount of unsold inventory.  In
response, we may be forced to rely on additional markdowns or promotional sales
to dispose of excess or slow-moving inventory, which may have a material adverse
effect on our financial condition or results of operations.





We
consider comparable store sales to be an important indicator of our current
performance.  Comparable store sales results are important in
leveraging our costs, including store payroll, rent and other operating
costs.  Positive comparable store sales contribute to greater
leveraging of costs.  Comparable store sales also have a direct impact
on our total net sales, operating income and working capital.





We
calculate comparable store sales based on the sales of stores open throughout
the full period and throughout the full prior period (including stores relocated
within the same shopping center and stores with minor square footage
additions).  If a single-format store is converted into a Combo store,
the additional sales from the incremental format are not included in the
calculation of same store sales.  The determination of which stores
are included in the comparable store sales calculation only changes at the
beginning of each fiscal year except for stores that close during the fiscal
year which are excluded from comparable store sales beginning with the fiscal
month the store actually closes.


17





Management
uses a number of key indicators of financial condition and operating performance
to evaluate the performance of our business, including the
following:





Fiscal Year EndedJuly
      25, 2009
                                                
                                                
                                                July
      26, 2008
                                                
                                                
                                                July
      28, 2007Net
      sales growth
                                                
                                                
                                                3.5
                                                %
                                                
                                                
                                                1.2
                                                %
                                                
                                                
                                                9.7
                                                %dressbarn comparable
      store sales
                                                
                                                
                                                0.1
                                                %
                                                
                                                
                                                (6.6
                                                )%
                                                
                                                
                                                3.8
                                                %maurices comparable
      store sales
                                                
                                                
                                                (1.3
                                                )%
                                                
                                                
                                                4.3
                                                %
                                                
                                                
                                                6.9
                                                %Total
      comparable store sales growth
                                                
                                                
                                                (0.4
                                                )%
                                                
                                                
                                                (2.9
                                                )%
                                                
                                                
                                                4.8
                                                %Cost
      of sales, including occupancy and buying costs, excluding
      depreciation
                                                
                                                
                                                61.5
                                                %
                                                
                                                
                                                61.3
                                                %
                                                
                                                
                                                59.0
                                                %SG&A
      as a percentage of sales
                                                
                                                
                                                28.3
                                                %
                                                
                                                
                                                27.5
                                                %
                                                
                                                
                                                26.9
                                                %Square
      footage growth
                                                
                                                
                                                3.9
                                                %
                                                
                                                
                                                5.2
                                                %
                                                
                                                
                                                5.0
                                                %Total
      store count
                                                
                                                
                                                1,559
                                                
                                                
                                                
                                                1,503
                                                
                                                
                                                
                                                1,428Diluted
      earnings per share
                                                
                                                $
                                                1.11
                                                
                                                
                                                $
                                                1.15
                                                
                                                
                                                $
                                                1.45Capital
      expenditures (in millions)
                                                
                                                $
                                                58.4
                                                
                                                
                                                $
                                                66.1
                                                
                                                
                                                $
                                                63.0





We include in our cost of sales
line item all costs of merchandise (net of purchase discounts and vendor
allowances), freight on inbound, outbound and internally transferred
merchandise, merchandise acquisition costs (primarily commissions and import
fees), occupancy costs (excluding utilities and depreciation), and all costs
associated with the buying and distribution functions.  Our cost of
sales may not be comparable to those of other entities, since some entities
include all costs related to their distribution network including depreciation
and all buying and occupancy costs in their cost of sales, while other entities,
including us, exclude a portion of these expenses from cost of sales and include
them in selling, general and administrative expenses or depreciation. We include
depreciation related to the distribution network in depreciation and
amortization, and utilities and insurance expenses, among other expenses, in
selling, general and administrative expenses on the consolidated statements of
operations.





Highlights





The dressbarn and maurices customers have both
been negatively impacted by the continued slowdown in consumer spending in
fiscal 2009. This has led to the implementation of significant inventory
controls during the year to reduce the need for markdowns to control inventory
levels. The dressbarn
business improved in the second half of the fiscal year with trend-right
merchandise and effective marketing programs. The maurices business was softer
than expected as the macroeconomic slowdown affected our previously more
resilient younger maurices
customers.





During
fiscal 2009, we continued three key strategic initiatives to help improve the
dressbarn customer
experience.  The first was the Oracle Retail (Retek) merchandising
system, which we began utilizing during the first quarter of fiscal 2008, for
merchandising, the retail stock ledger and data warehousing (Phase I). This
initiative is currently in Phase II, which enhances merchandise financial
planning, allocation and invoice matching. The second initiative was Global
Store, a new POS application, giving our stores greater functionality. This was
piloted in stores in fiscal 2009, with a complete rollout expected to be
completed during fiscal 2010. The third initiative was the implementation of an
upgrade to our CRM system that will improve data analysis and  the
efficiency of our marketing efforts for both brands.





During
fiscal 2009, we undertook four key strategic initiatives to help improve the
maurices customer
experience.  The first was the rollout of our new décor developed in
partnership with a third party design firm for new stores and remodels. 
The new décor was utilized as we continued our new store expansion with the
opening of 49 locations to allow us to continue to grow our market share. The
second initiative was Global Store, a new POS application, providing our stores
greater functionality. This was piloted in stores in fiscal 2009, with a
complete rollout targeted during fiscal 2010.  The third initiative was
investing in our DC packing area to allow us to support our store growth and
significantly improve labor productivity.  The fourth initiative was
focused on continuing the maturation of our 14-24 (Plus Sizes)
department.


18





In fiscal
2008, we introduced a new line of coordinates called YVOS (“Your Very Own
Style”). Our YVOS brand is designed to be very stylish and fresh and it creates
a bold fashion statement for work and play at an affordable
price.  This merchandise is priced 20% to 25% higher than current
dressbarn merchandise
due to more expensive fabrics, yarns, designs and trims.  Our
competitors offer similar styles that are 35% to 40% higher in price than YVOS.
The YVOS line of coordinates is now in approximately 50% of our
stores.





On June
24, 2009, we entered into an agreement pursuant to which one of our subsidiaries
will merge with Tween Brands, Inc. in a stock-for-stock transaction. Under the
terms of the merger agreement, each share of Tween Brands common stock will be
exchanged for 0.47 shares of our common stock. Based on our stock price of
$13.24 as of June 24, 2009 (the date of the agreement), this consideration would
be equal to an aggregate equity value of $157 million. In addition, Tween
Brands, Inc.’s outstanding bank debt will be repaid. This transaction,
unanimously approved by each of Dress Barn, Inc.’s and Tween Brands, Inc.’s
Board of Directors, is expected to close in the fourth quarter of calendar year
2009 and is subject to Tween Brands, Inc. stockholder approval and other
customary closing conditions.





Results of
Operations





We have
two reportable segments, dressbarn (which consists of
the dressbarn and dressbarn woman brands) and
maurices. We believe
that maurices is a
reportable segment due to management’s review of maurices’ separately available
operating results and other financial information used to regularly assess their
performance for decision-making purposes.  maurices is discussed
separately in the following Management’s Discussion and Analysis, as
appropriate.





Fiscal
2009 Compared to Fiscal 2008





Net
Sales:


Fifty-Two Weeks Ended(Amounts in millions, except for % change amounts)
                                
                                July 25,
                                  2009
                                
                                
                                % of Sales
                                
                                
                                July 26,
                                  2008
                                
                                
                                % of Sales
                                
                                
                                % Changedressbarn
                                
                                $
                                906.2
                                
                                
                                
                                60.6
                                %
                                
                                $
                                887.6
                                
                                
                                
                                61.5
                                %
                                
                                
                                2.1
                                %maurices
                                
                                
                                588.0
                                
                                
                                
                                39.4
                                %
                                
                                
                                556.6
                                
                                
                                
                                38.5
                                %
                                
                                
                                5.6
                                %Consolidated
      net sales
                                
                                $
                                1,494.2
                                
                                
                                
                                
                                
                                
                                $
                                1,444.2
                                
                                
                                
                                
                                
                                
                                
                                3.5
                                %





Net sales
for the fifty-two weeks ended July 25, 2009 increased 3.5% to $1,494.2 million
from $1,444.2  million in the prior year.   This
increase was mainly driven by a 3.9% square footage increase offset by a
comparable store sales decrease of 0.4%.  The same store sales
decrease was the result of several factors including decreased customer traffic
to our stores and fewer customer transactions.  We believe the
decrease in the number of customer transactions was the result of  the
continuing economic challenges that are affecting a significant number of our
customers.





During
fiscal 2009, the dressbarn brand continued to
be impacted by the slowdown in consumer spending, however, the dressbarn brand still managed
to have positive comparable sales.  The strongest comparable store
sales for the fifty-two week period were in the midwest, mid-atlantic and
northeast regions. The regions with the weakest comparable store sales were the
northwest and southeast. The best performing departments were suit separates,
outerwear, shoes and accessories.  The weakest departmental performers
were coordinates and casual bottoms.





For the maurices brand, fiscal 2009
comparable sales were down slightly in a very challenging retail environment.
The two regions with comparable sales increases were the mid-atlantic and the
midwest regions. The regions with the weakest comparable store sales were the
southeast, northeast and northwest regions. Strong sales trends were noted for
casual tops within the core women’s collections and within the dressier “Wear @
Work” assortment dressy tops performed well. The weakest results came from the
dressier club assortment, shoes and a general softening in sales trends of
bottoms. For the year, the Plus size collection produced an 18% comparable sales
increase.   The growth in the Plus size collection represented
approximately two percentage points of the comparable store sales results for
fiscal 2009. Knit tops and Denim continue to be the key drivers within the Plus
collection.




Revenue
also includes income from the non-redemption of a portion of gift cards and gift
certificates sold, and merchandise credits issued (gift card breakage). We
recognize income on unredeemed gift cards when it can be determined that the
likelihood of the remaining balances being redeemed are remote and that there
are no legal obligations to remit the remaining balances to relevant
jurisdictions.  During fiscal 2009, we recognized $1.8 million of
breakage income related to unredeemed gift cards which included $1.3 million for
dressbarn and $0.5
million for maurices.  During
fiscal 2008, we recognized $2.2 million of breakage income related to unredeemed
gift cards which included $1.8 million for dressbarn and $0.4 million for
maurices.


19


Cost
of sales, including occupancy and buying costs, excluding
depreciation:


(Amounts in millions, except for % amounts)
                          
                          July 25,
                            2009
                          
                          
                          July 26,
                            2008
                          
                          
                          $ Change
                          
                          
                          % ChangeFiscal
      year ended
                          
                          $
                          918.4
                          
                          
                          $
                          885.9
                          
                          
                          $
                          32.5
                          
                          
                          
                          3.7
                          %As
      a percentage of sales
                          
                          
                          61.5
                          %
                          
                          
                          61.3
                          %





Cost of
sales increased by 20 basis points to 61.5% of net sales in the current year
period from 61.3% of net sales in the prior year period.  For the
dressbarn brand, cost of
sales was $568.7 million or 62.7% of net sales, a decrease of 70 basis points as
compared to $562.3 million or 63.4% from the same period last
year.  This decrease was the result of higher merchandise margins from
last year mainly due to lower markdowns.  maurices cost of sales for
fiscal 2009 was $349.7 million or 59.5% of net sales as compared to $323.6
million or 58.1% of net sales in fiscal 2008.  The increase in cost of
sales as a percentage of sales was primarily the result of higher markdowns and
the deleveraging of occupancy costs due to the comparable store sales
decline.





SG&A
expenses:


(Amounts in millions, except for % amounts)
                                                  
                                                  
                                                  July 25,
                                                    2009
                                                  
                                                  
                                                  July 26,
                                                    2008
                                                  
                                                  $ Change
                                                  
                                                  % ChangeFiscal
      year ended
                                                  
                                                  $
                                                  422.4
                                                  
                                                  
                                                  $
                                                  397.4
                                                  
                                                  $
                                                  25.0
                                                  
                                                  6.3
                                                  %As
      a percentage of sales
                                                  
                                                  
                                                  28.3
                                                  %
                                                  
                                                  
                                                  27.5
                                                  %





As a
percentage of sales, selling, general and administrative expenses (“SG&A”)
increased 80 basis points to 28.3% of net sales versus 27.5% last
year.  dressbarn SG&A increased
50 basis points to 29.2% of net sales versus 28.7% last year due to increased
professional fees relating to the pending Tween Brand, Inc. merger and store
impairment charges.  Excluding the professional fees related to the
Tween Brands, Inc. merger, SG&A expenses would have been 28.8% of net sales.
maurices SG&A was
$157.5 million or 26.8% of net sales for fiscal 2009 as compared to $142.7
million or 25.6% of net sales for fiscal 2008.  The increase was
primarily attributable to a de-leveraging of payroll and benefits due to the
comparable sales decrease coupled with a trade name impairment (described in
Note 5 to the Financial Statements). Excluding the trade name impairment
SG&A would have been 26.4% of net sales.





Depreciation
and amortization:


(Amounts in millions, except for % amounts)
                            
                            July 25,
                              2009
                            
                            
                            July 26,
                              2008
                            
                            
                            $ Change
                            
                            
                            % ChangeFiscal
      year ended
                            
                            $
                            48.5
                            
                            
                            $
                            48.2
                            
                            
                            $
                            0.3
                            
                            
                            
                            0.6
                            %As
      a percentage of sales
                            
                            
                            3.2
                            %
                            
                            
                            3.3
                            %





Depreciation expense increased 0.6% in
fiscal 2009 as compared to last year primarily from the net opening of 56
stores, store remodels and relocations, and investment in
technology.




Operating
income:


(Amounts in millions, except for % amounts)
                            
                            July 25,
                              2009
                            
                            
                            July 26,
                              2008
                            
                            
                            $ Change
                            
                            
                            % ChangeFiscal
      year ended
                            
                            $
                            105.0
                            
                            
                            $
                            112.6
                            
                            
                            $
                            (7.6
                            )
                            
                            
                            (6.7
                            )%As
      a percentage of sales
                            
                            
                            7.0
                            %
                            
                            
                            7.8
                            %





As a
result of the above factors, operating income as a percent of net sales was 7.0%
for fiscal 2009 compared to 7.8% for fiscal 2008. For the dressbarn brand, operating
income as a percent of sales increased to 5.0% versus 4.8% fiscal 2008. For the
maurices brand,
operating income as a percent of sales decreased to 10.3% versus 12.6% last
fiscal year.


20


Interest
income:


(Amounts in millions, except for % amounts)
                    
                    July 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    $ Change
                    
                    
                    % ChangeFiscal
      year ended
                    
                    $
                    5.4
                    
                    
                    $
                    7.8
                    
                    
                    $
                    (2.4
                    )
                    
                    
                    (30.8
                    )%As
      a percentage of sales
                    
                    
                    0.4
                    %
                    
                    
                    0.5
                    %





Interest
income for the fifty-two week period was $5.4 million as compared to interest
income of $7.8 million in fiscal 2008 due to lower interest rate yields in the
current year. During fiscal 2009 we adopted a more conservative strategy with
investments in higher grade securities with shorter term maturities for greater
security and liquidity.





Interest
expense:


(Amounts in millions, except for % amounts)
                    
                    July 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    $ Change
                    
                    
                    % ChangeFiscal
      year ended
                    
                    $
                    (4.8
                    )
                    
                    $
                    (4.8
                    )
                    
                    $
                    0.0
                    
                    
                    
                    0.0
                    %As
      a percentage of sales
                    
                    
                    (0.3
                    )%
                    
                    
                    (0.3
                    )%





Interest
expense for the fiscal year, primarily on our Convertible Senior Notes and the
mortgage on our Suffern, NY facilities, remained consistent with the prior
fiscal year.





Other
income (expense):


(Amounts in millions, except for % amounts)
                    
                    July 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    $ Change
                    
                    
                    % ChangeFiscal
      year ended
                    
                    $
                    1.1
                    
                    
                    $
                    0.5
                    
                    
                    $
                    0.6
                    
                    
                    
                    120.0
                    %As
      a percentage of sales
                    
                    
                    0.1
                    %
                    
                    
                    0.0
                    %





Other
income (expense) for the fiscal year was $1.1 million as compared to $0.5
million last year.  The majority of this amount represents rental
income from the two tenants currently occupying space in our corporate
headquarters property in Suffern, New York. Fiscal 2008 included approximately
$1.1 million of a cost basis investment impairment.





Income
taxes:





(Amounts in millions, except for % amounts)
                    
                    July 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    $ Change
                    
                    
                    % ChangeFiscal
      year ended
                    
                    $
                    37.0
                    
                    
                    $
                    42.0
                    
                    
                    $
                    (5.0
                    )
                    
                    
                    (11.9
                    )%As
      a percentage of sales
                    
                    
                    2.5
                    %
                    
                    
                    2.9
                    %





The
effective tax rate for fiscal 2009 was 34.7% as compared to 36.2% effective tax
rate reported for fiscal 2008.  Refer to Note 11 to the consolidated
financial statements for additional details.


21




Fiscal
2008 Compared to Fiscal 2007





Net
Sales:


Fifty-Two Weeks Ended(Amounts in millions, except for % change amounts)
                              
                              July 26,2008
                              
                              
                              % of Sales
                              
                              
                              July 28,2007
                              
                              
                              % of Sales
                              
                              
                              % Changedressbarn
                              
                              $
                              887.6
                              
                              
                              
                              61.5
                              %
                              
                              $
                              934.8
                              
                              
                              
                              65.5
                              %
                              
                              
                              (5.0
                              )%maurices
                              
                              
                              556.6
                              
                              
                              
                              38.5
                              %
                              
                              
                              491.8
                              
                              
                              
                              34.5
                              %
                              
                              
                              13.2
                              %Consolidated
      net sales
                              
                              $
                              1,444.2
                              
                              
                              
                              
                              
                              
                              $
                              1,426.6
                              
                              
                              
                              
                              
                              
                              
                              1.2
                              %





Net sales
for the fifty-two weeks ended July 26, 2008 increased 1.2% to $1,444.2 million
from $1,426.6 million in the prior year.   This increase was
mainly driven by a 5.2% square footage increase offset by a comparable store
sales decrease of 2.9%.  The same store sales decrease was the result
of several factors including decreased customer traffic to our stores and fewer
customer transactions.  We believe the decrease in the number of
customer transactions was the result of the continuing economic challenges that
are affecting a significant number of our customers.





During
fiscal 2008, the dressbarn brand was negatively
impacted by the slowdown in consumer spending.  All regions posted
decreased comparable store sales for the fifty-two week period.  The
best performing departments were leather and outerwear, blazers and social
occasion dresses.  The weakest departmental performers were career
bottoms and sweaters.





For the maurices brand, fiscal 2008
was a solid year. All six regions had comparable sales increases with the
Midwest and the Northwest leading regional performance.  Strong sales
trends were noted for the dressier “Wear @ Work” assortment with additionally
strong results from outerwear, knit tops, denim and lounge apparel. The
strategic decision to exit the men’s product line and replace it with plus size
women’s apparel was implemented in the fourth quarter of fiscal 2007. 
While we fell short of our sales and margin targets during the fall season, both
sales and margin fell in line with expectations as the year progressed. 
For the year, the Plus size apparel was 23% more productive on a square footage
basis than the prior men’s concept.  The Plus size apparel is represented
in approximately 75% of our current store locations, and will be placed in most
future stores.




Revenue
also includes income from the non-redemption of a portion of gift cards and gift
certificates sold, and merchandise credits issued (gift card breakage). We
recognize income on unredeemed gift cards when it can be determined that the
likelihood of the remaining balances being redeemed are remote and that there
are no legal obligations to remit the remaining balances to relevant
jurisdictions.  Prior to fiscal 2007, we were unable to reliably
estimate such gift card breakage and therefore recorded no such income in fiscal
2006, or prior years.  During the fourth quarter of fiscal 2007, we
accumulated a sufficient level of historical data to determine an estimate of
gift card breakage for the first time. During fiscal 2008, we recognized $2.2
million of breakage income related to unredeemed gift cards which included $1.8
million for dressbarn
and $0.4 million for maurices. During fiscal 2007,
we recognized $3.7 million of breakage income related to unredeemed gift cards
which included $2.6 million for dressbarn and $1.1 million for
maurices.


22


Cost
of sales, including occupancy and buying costs, excluding
depreciation:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    885.9
                    
                    
                    $
                    842.2
                    
                    
                    $
                    43.7
                    
                    
                    
                    5.2
                    %As
      a percentage of sales
                    
                    
                    61.3
                    %
                    
                    
                    59.0
                    %





Cost of
sales increased by 230 basis points to 61.3% of net sales in the current year
period from 59.0% of net sales in the prior year period.  For the
dressbarn brand, cost of
sales was $562.3 million or 63.4% of net sales, an increase of 410 basis points
as compared to $554.5 million or 59.3% from the same period last
year.  This increase was the result of lower merchandise margins from
last year mainly due to increased markdowns and the de-leveraging of store
occupancy costs.  maurices cost of sales for
fiscal 2008 was $323.6 million or 58.1% of net sales as compared to $287.7
million or 58.5% of net sales in fiscal 2007.  The decrease in cost of
sales as a percentage of sales was primarily the result of higher initial
markons.





SG&A
expenses:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    397.4
                    
                    
                    $
                    383.7
                    
                    
                    $
                    13.7
                    
                    
                    
                    3.6
                    %As
      a percentage of sales
                    
                    
                    27.5
                    %
                    
                    
                    26.9
                    %





As a
percentage of sales, selling, general and administrative expenses (“SG&A”)
increased 60 basis points to 27.5% of net sales versus 26.9% last
year.  dressbarn SG&A increased
120 basis points to 28.7% of net sales versus 27.5% last year due primarily to
the de-leveraging of payroll related expenses as a result of our comparable
store sales decrease and increased marketing, utilities and professional
fees.  maurices SG&A was $142.7
million or 25.6% of net sales for the fiscal 2008 as compared to $126.1 million
or 25.6% in fiscal 2007.   Increased marketing investments were
partially offset by lower health insurance and workers compensation claims and
improved leveraging from the increase in comparable store sales.





Depreciation
and amortization:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    48.2
                    
                    
                    $
                    45.8
                    
                    
                    $
                    2.4
                    
                    
                    
                    5.2
                    %As
      a percentage of sales
                    
                    
                    3.3
                    %
                    
                    
                    3.2
                    %





Depreciation expense increased 5.2% in
fiscal 2008 as compared to last year primarily from the opening of 107 stores,
store remodels and relocations, and investment in technology.




Operating
income:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    112.6
                    
                    
                    $
                    155.0
                    
                    
                    $
                    (42.4
                    )
                    
                    
                    (27.4
                    )%As
      a percentage of sales
                    
                    
                    7.8
                    %
                    
                    
                    10.9
                    %





As a
result of the above factors, operating income as a percent of net sales was 7.8%
for fiscal 2008 compared to 10.9% for fiscal 2007. For the dressbarn brand, operating
income as a percent of sales decreased to 4.8% versus 10.1% fiscal 2007. For the
maurices brand,
operating income as a percent of sales increased to 12.6% versus 12.3% last
fiscal year.




23


Interest
income:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    7.8
                    
                    
                    $
                    7.1
                    
                    
                    $
                    0.7
                    
                    
                    
                    9.9
                    %As
      a percentage of sales
                    
                    
                    0.5
                    %
                    
                    
                    0.5
                    %





Interest
income for the fifty-two week period was $7.8 million as compared to interest
income of $7.1 million in fiscal 2007 due to higher investment balances combined
with investments with higher interest rates.





Interest
expense:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    (4.8
                    )
                    
                    $
                    (4.9
                    )
                    
                    $
                    0.1
                    
                    
                    
                    (2.0
                    )%As
      a percentage of sales
                    
                    
                    (0.3
                    )%
                    
                    
                    (0.3
                    )%





Interest
expense for the fiscal year decreased to $4.8 million from $4.9 million due to
slightly lower average debt levels over the comparable prior year
period.





Other
income (expense):


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    0.5
                    
                    
                    $
                    1.4
                    
                    
                    $
                    (0.9
                    )
                    
                    
                    (64.3
                    )%As
      a percentage of sales
                    
                    
                    0.0
                    %
                    
                    
                    0.1
                    %





Other
income (expense) for the fiscal year was $0.5 million as compared to $1.4
million last year.  The majority of this amount represents the
recording of approximately $1.1 million of a cost basis investment impairment
offset by rental income from the two tenants currently occupying space in our
corporate headquarters property in Suffern, New York.





Income
taxes:


(Amounts
      in millions, except for % amounts)
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007
                    
                    
                    $
      Change
                    
                    
                    %
      ChangeFiscal
      year ended
                    
                    $
                    42.0
                    
                    
                    $
                    57.3
                    
                    
                    $
                    (15.3
                    )
                    
                    
                    (26.7
                    )%As
      a percentage of sales
                    
                    
                    2.9
                    %
                    
                    
                    4.0
                    %





The
effective tax rate for fiscal 2008 did not change from the 36.2% rate reported
for fiscal 2007.  Refer to Note 11 to the consolidated financial
statements for additional details.


24




Liquidity and Capital
Resources





Cash generated from operating
activities provides the primary resources to support current operations, growth
initiatives, seasonal funding requirements and capital
expenditures.  Our uses of cash are generally for working capital, the
construction of new stores and remodeling of existing stores, information
technology upgrades and the purchase of short-term investments.  We
use lines of credit on our $100 million revolving credit facility to facilitate
imports of our products.





On June 24, 2009, we entered into an
agreement pursuant to which one of our subsidiaries will merge with Tween
Brands, Inc. in a stock-for-stock transaction. Under the terms of the merger
agreement, this consideration would be equal to an aggregate equity value of
$157 million. In addition, Tween Brands, Inc.’s outstanding bank debt will be
repaid. This transaction, unanimously approved by each of Dress Barn, Inc.’s and
Tween Brands, Inc.’s Board of Directors, is expected to close in the fourth
quarter of calendar year 2009 and is subject to Tween Brands, Inc. stockholder
approval and other customary closing conditions.





At July
25, 2009, we had cash, cash equivalents, investment securities and long-term
investments of $384.6 million as compared to $278.3 million as of July 26,
2008.  The increase was due primarily to the cash generated by
operations of $172.7 million offset by treasury stock purchases of $4.7 million
and capital expenditures of $58.4 million.





Net cash provided by operations was
$172.7 million for the fifty-two weeks ended July 25, 2009 compared with $145.5
million during last year’s comparable period.  The increase of $27.2
million was primarily driven by the higher level of accounts payable and income
taxes payable offset by an increase of merchandise inventories due to earlier
shipments of fall merchandise compared to the prior year decrease of inventories
due to improved inventory management and aggressive promotions.





Merchandise inventories were $194.0
million at July 25, 2009 compared to $187.0 million at July 26, 2008. The
increase is a result of the opening of new stores in fiscal 2009 and the earlier
receipt of fall inventory in the dressbarn brand.  We
believe current inventory levels are appropriate, based on sales trends and the
industry environment.





As of
July 25, 2009, $61.7 million was available under a $100.0 million revolving
credit facility. The $38.3 million balance of our revolving credit facility
consists of $4.2 million of outstanding standby letters of credit, primarily
relating to insurance policies, and $34.1 million of trade letters of credit
relating to the importation of merchandise. We believe this revolving credit
facility gives us ample capacity to fund any short-term working capital needs
that may arise in the operation of our business.


Net cash used in investing activities
for the fifty-two weeks ended July 25, 2009 was $57.0 million consisting
primarily of $58.4 million of property and equipment mainly for new store
openings, store remodels and renovations and costs associated with information
system implementations and upgrades during fiscal 2009. Net cash used in
investing activities for the fifty-two weeks ended July 26, 2008 was $46.2
million consisting primarily of  $66.1 million of property and
equipment mainly for new store openings, store remodels and renovations and
costs associated with information system implementations and upgrades during
fiscal 2008. The impact of these reductions was partially offset by net sales of
$22.5 million in marketable securities and investments during fiscal
2008.





Our
investments are comprised primarily of municipal bonds and a small amount of
auction rate securities (“ARS”).  Our ARS are all AAA/Aaa rated with
the vast majority collateralized by student loans guaranteed by the U.S.
government under the Federal Family Education Loan Program with the remaining
securities backed by monoline insurance companies.  Until February
2008, the auction rate securities market was highly liquid.  During
the week of February 11, 2008, a substantial number of auctions “failed,”
meaning that there was not enough demand to sell the entire issue at auction.
The immediate effect of a failed auction is that holders could not sell the
securities and the interest or dividend rate on the security generally resets to
a “penalty” rate.  In the case of a failed auction, the auction rate
security is deemed not currently liquid and in the event we need to access these
funds, we may not be able to do so without a potential loss of principal, unless
a future auction on these investments is successful or they are redeemed by the
seller.  We believe that the current lack of liquidity relating to our
ARS investments will not have an impact on our ability to fund our ongoing
operations and growth initiatives; for that reason, we have the ability and
intent to hold these ARS investments until a recovery of the auction process,
redemption by the seller or until maturity.





As of
July 25, 2009, we had approximately $30.8 million of long-term marketable
security investments which consisted of $39.9 million of ARS at cost, less a
valuation allowance of $9.1 million to reflect our estimate of fair value given
the current lack of liquidity of these investments while taking into account the
current credit quality of the underlying securities.  If market
conditions deteriorate further, or a recovery in market values does not occur,
we may be required to record additional unrealized or realized losses in future
quarters.


25





In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, and therefore, recorded interest income and
recorded a corresponding other asset. Simultaneously, we transferred these long
term auction rate securities from available-for-sale to trading investment
securities at market value on our consolidated balance sheets.





We have
no reason to believe that any of the underlying issuers of our ARS are presently
at risk of default.  Although we continue to receive interest payments on
these securities in accordance with their stated terms, we expect the interest
payments to significantly decrease in accordance with the terms of these
securities.  In addition, we believe that we will not be able to access
funds if needed from these securities until future auctions for these ARS are
successful, we sell the securities in a secondary market which is currently
limited or they are redeemed by the seller.  As a result, we may be unable
to liquidate our investment in these ARS without incurring significant
losses.  We may have to hold these securities until final maturity in order
to redeem them without incurring any losses.  For these reasons, we believe
the recovery period for these investments is likely to be longer than 12 months.
Based on our expected operating cash flows and our other sources of cash, we do
not anticipate the lack of liquidity on these investments will affect our
ability to execute our current business plan.





In January 2003, Dunnigan Realty, LLC,
our wholly-owned consolidated subsidiary, purchased the Suffern facility, of
which the major portion is our corporate offices and dressbarn distribution center,
for approximately $45.3 million utilizing internally generated
funds.  In July 2003, Dunnigan Realty, LLC borrowed $34.0 million with
a 5.33% rate mortgage loan.  The mortgage has a twenty-year term with
annual payments of $2.8 million including principal and interest and is secured
by a first mortgage lien on the Suffern facility.  Dunnigan Realty,
LLC receives rental income and reimbursement for taxes and common area
maintenance charges from two tenants that occupy the Suffern facility that are
not affiliated with us.  These unaffiliated rental payments are used
to offset the mortgage payments and planned capital and maintenance expenditures
for the Suffern facility.





Net cash used by financing activities
was $2.2 million during fiscal 2009 while net cash used by financing activities
was $39.1 million during fiscal 2008.  Our use of cash was primarily
related to the purchases of $4.7 million of treasury stock slightly offset by
the exercise of stock options and the related excess tax benefits.





In
September 2007, our Board of Directors authorized a $100 million stock buyback
program. Purchases of shares of our common stock will be made at our discretion
from time to time, subject to market conditions and prevailing market
prices.





We
anticipate that total capital expenditures for fiscal 2010 will be approximately
$55 million.  Of this amount, approximately $48 million is for new
store openings, renovations and remodels, and information system upgrades. We
plan to open approximately 50 additional stores in the upcoming fiscal
year.





We do not have any undisclosed material
transactions or commitments involving related persons or entities.  We
held no material options or other derivative instruments at July 25,
2009.  We do not have any off-balance sheet arrangements or
transactions with unconsolidated, limited purpose entities.  In the
normal course of business, we enter into operating leases for our store
locations and utilize letters of credit principally for the importation of
merchandise.





We
believe that our cash, cash equivalents, short-term investments and cash flow
from operations, along with the credit agreement mentioned above, will be
adequate to fund our planned merger with Tween Brands, Inc., capital
expenditures and all other operating requirements, including those of Tween
Brands, Inc.,  and other proposed or contemplated expenditures for at
least the next 12 months.


26





Contractual Obligations and
Commercial Commitments





The estimated significant contractual
cash obligations and other commercial commitments at July 25, 2009 are
summarized in the following table:





Payments Due by Period(Amounts in
      thousands)Contractual Obligations
                
                Totals
                
                
                Fiscal
                  2010
                
                
                Fiscal 2011-
                  2012
                
                
                Fiscal 2013-
                  2014
                
                
                Fiscal 2015
                  AndBeyondOperating
      lease obligations
                
                $
                589,547
                
                
                $
                145,797
                
                
                $
                219,706
                
                
                $
                121,225
                
                
                $
                102,819Mortgage
      principal
                
                
                27,263
                
                
                
                1,347
                
                
                
                2,919
                
                
                
                3,246
                
                
                
                19,751Mortgage
      interest
                
                
                11,483
                
                
                
                1,421
                
                
                
                2,616
                
                
                
                2,289
                
                
                
                5,157Convertible
      Senior Notes (1)
                
                
                115,000
                
                
                
                115,000
                
                
                
                —
                
                
                
                —
                
                
                
                —Convertible
      Senior Notes interest (1)
                
                
                44,563
                
                
                
                2,875
                
                
                
                5,750
                
                
                
                5,750
                
                
                
                30,188Total
                
                $
                787,856
                
                
                $
                266,440
                
                
                $
                230,991
                
                
                $
                132,510
                
                
                $
                157,915





(1)
Holders of the Convertible Senior Notes may convert their notes into cash and
shares of our common stock at a conversion rate of 95.1430 shares per $1,000
principal amount of Convertible Senior Notes (equal to a conversion price of
approximately $10.51 per share), during specified periods, if the price of our
common stock reaches, or the trading price of the convertible notes falls below,
specified thresholds, or upon the event of certain transactions.  As
of July 27, 2009 and continuing through October 23, 2009, the holders of the
Convertible Senior Notes may convert their notes as described above because our
stock price closed at or above $12.61 per share for 20 trading days within the
30-trading-day period ending on July 24, 2009.  Upon conversion, we
would deliver cash to the extent of the aggregate principal amount of
Convertible Senior Notes to be converted and our conversion
obligation.  The excess, if any, of the price of our common stock
above $10.51 per share would be payable in common shares.  Therefore
as holders of the Convertible Senior Notes elect to convert their notes, the
principal amount of the notes would be currently payable and subsequent
associated interest payments would be relinquished. The interest on the
Convertible Senior Notes assumes no exercise of the conversion put by the
holders. Our Convertible Senior Notes are due in 2024.  We may redeem
some or all of the Convertible Senior Notes for cash at any time on or after
December 22, 2011 at a redemption price equal to 100% of the principal amount of
the notes plus accrued interest.





The
operating lease obligations represent future minimum lease payments under
non-cancelable operating leases as of July 25, 2009.  The minimum
lease payments do not include common area maintenance (“CAM”) charges or real
estate taxes, which are also required contractual obligations under our
operating leases.  In the majority of our operating leases, CAM
charges are not fixed and can fluctuate from year to year.  Total CAM
charges and real estate taxes for fiscal 2009, 2008, and fiscal 2007 were $44.7
million, $41.8 million, and $38.0 million, respectively.





Amount of Commitment Expiration Period(Amounts in
      thousands)Other Commercial Commitments
      (2)
                  
                  Totals
                  
                  
                  Fiscal
                    2010
                  
                  
                  Fiscal 2011-
                    2012
                  
                  
                  Fiscal 2013-
                    2014
                  
                  
                  Fiscal 2015
                    And BeyondTrade
      letters of credit
                  
                  $
                  34,107
                  
                  
                  $
                  34,107
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —Standby
      letters of credit
                  
                  
                  4,188
                  
                  
                  
                  4,188
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Firm
      purchase orders (1)
                  
                  
                  6,011
                  
                  
                  
                  6,011
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  $
                  44,306
                  
                  
                  $
                  44,306
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —




27





1.
            In
      addition to the commitments represented in the above table, we enter into
      a number of cancelable and non-cancelable commitments during the
      year.  Typically, these commitments are for less than a year in
      duration and are principally focused on the construction of new retail
      stores and the procurement of inventory.  We do not maintain any
      long-term or exclusive commitments or arrangements to purchase merchandise
      from any single supplier.  Preliminary commitments with our
      private label merchandise vendors typically are made five to seven months
      in advance of planned receipt date.  Substantially all of our
      merchandise purchase commitments are cancelable up to 30 days prior to the
      vendor’s scheduled shipment date.





2.
            At
      July 25, 2009, the liability recorded for uncertain tax positions,
      including the associated interest and penalties, was approximately $23
      million pursuant to FASB Interpretation No. 48, Accounting for Uncertainty
      in Income Taxes-an Interpretation of Financial Accounting Standards Board
      Statement No. 109 (“FIN 48”).  In the 12 months succeeding
      July 25, 2009, audit resolutions could potentially reduce total
      unrecognized tax benefits by up to $7.5 million. Since the ultimate amount
      and timing of further cash settlements cannot be predicted with reasonable
      certainty, liabilities for uncertain tax positions are excluded from the
      contractual obligation table (See Note 11 to the consolidated financial
      statements).





Recent Accounting
Pronouncements


(Recently
Adopted)




In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard was effective
for fiscal years beginning after November 15, 2007 (our fiscal 2009).  In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (“FSP 157-1”) and 157-2,
Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP157-1 amends
SFAS No. 157 to exclude FASB Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements of leases from
the provisions of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No.
157 for most nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008 (our fiscal 2010).  As a result, the
application of the definition of fair value and related disclosures of SFAS
No. 157 (as impacted by these FSPs) was effective for our Company beginning
with the first quarter of fiscal 2009.  This adoption did not have a
material impact on our consolidated results of operations or financial condition
for the first quarter of our fiscal 2009.  We have not completed our
evaluation of the potential impact, if any, from the remaining aspects of SFAS
No. 157 for which the effective date was deferred under FSP 157-2, on our
consolidated financial position, results of operations and cash flows.  On
October 10, 2008, the FASB issued FSP 157-3, Fair Value Measurements (“FSP
157-3”), which clarifies the application of SFAS No. 157 in an inactive
market and provides an example to demonstrate how the fair value of a financial
asset is determined when the market for that financial asset is inactive. FSP
157-3 was effective upon issuance, including prior periods for which financial
statements had not been issued. The adoption of this standard as of
October 25, 2008 did not have a material impact on our results of
operations, cash flows or financial positions.  Please refer to Note 3 to
our consolidated financial statements included elsewhere herein for disclosures
related to our initial adoption of SFAS No. 157.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (“SFAS No. 159”).  SFAS
No. 159 permits an entity to choose, at specified election dates, to
measure eligible financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. An entity reports
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  Upfront costs and
fees related to items for which the fair value option is elected are recognized
in earnings as incurred and not deferred.  SFAS No. 159 also
established presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities.  As a result, the application of
the fair value option for financial assets and financial liabilities of SFAS No.
159 was effective for our Company beginning with the first quarter of fiscal
2009.  At the effective date, an entity could elect the fair value option
for eligible items that existed at that date and is required to report the
effect of the first remeasurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. We chose not to elect
the fair value option for our financial assets and liabilities existing on July
27, 2008, and did not elect the fair value option for any financial assets and
liabilities transacted during the twelve months ended July 25, 2009, except for
a put option related to our auction rate securities that was recorded in
conjunction with a settlement agreement with one of our investment firms, as
more fully described in Note 2 to our consolidated financial statements included
elsewhere herein.


28




In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FSP
FAS 157-4”).  This FSP clarifies the application of SFAS No.
157 when there is no active market or where the price inputs being used
represent distressed sales.  Additional guidance is provided regarding
estimating the fair value of an asset or liability (financial and nonfinancial)
when the volume and level of activity for the asset or liability have
significantly decreased and identifying transactions that are not orderly. FSP
FAS 157-4 is effective for interim and annual periods ending after June 15,
2009.  The adoption of SFAS 157-4 did not impact our results of
operations, cash flows or financial positions.




In April
2009, the FASB issued FSP No. FAS 115-2, Recognition and Presentation of
Other-Than-Temporary Impairments (“FSP FAS 115-2”). This FSP provides additional
guidance to provide greater clarity about the credit and noncredit component of
an other-than-temporary impairment event and to more effectively communicate
when an other-than-temporary impairment event has occurred.  This FSP
applies to debt securities.  FSP FAS 115-2 will be effective for
interim and annual periods ending after June 15, 2009.  The
adoption of FSP FAS 115-2 did not impact our results of operations, cash flows
or financial positions.




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB
28-1”).  This FSP amends FASB Statement No. 107, Disclosures about
Fair Value of Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial
statements.  This FSP also amends APB Opinion No. 28, Interim
Financial Reporting, to require those disclosures in all interim financial
statements.  FSP FAS 107-1 and APB 28-1 is effective for interim
and annual periods ending after June 15, 2009.  The adoption of
FSP FAS 107-1 and APB 28-1 did not impact our results of operations,
cash flows or financial positions.





In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No.
165”). SFAS No. 165 was issued in order to establish principles and
requirements for reviewing and reporting subsequent events and requires
disclosure of the date through which subsequent events are evaluated and whether
the date corresponds with the time at which the financial statements were
available for issue (as defined) or were issued. SFAS No. 165 is effective
for interim reporting periods ending after June 15, 2009. The adoption of
SFAS No. 165 did not impact our results of operations, cash flows or
financial positions. We have evaluated events and transactions that occurred
after July 25, 2009 through September 21, 2009, the date we issued these
financial statements. During this period, we did not have any material
recognizable subsequent events.





Recently
Issued





In
December 2007, the FASB issued SFAS No. 141R (revised 2007),Business Combinations
(“SFAS No. 141R”), which replaces SFAS No. 141, Business
Combinations.  SFAS No. 141R was issued to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects.  In April 2009, the FASB issued FSP No. 141R-1,Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies (“FSP 141 R-1”). FSP 141 R-1 was issued to deal with the initial
recognition and measurement of an asset acquired or a liability assumed in a
business combination that arises from a contingency provided the asset or
liability’s fair value on the date of acquisition can be determined. This
Statement is effective as of the beginning of an entity’s fiscal year that
begins after December 15, 2008 (our fiscal 2010) and will be applied to the
pending Tween Brands, Inc. merger, if consummated.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated.  The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS
No.160 is effective as of the beginning of an entity’s fiscal year that begins
after December 15, 2008 (our fiscal 2010). The adoption of SFAS No. 160 will not
have a material impact on our consolidated financial statements.




29





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No.
161”).  SFAS No. 161 amends and expands the disclosure requirements of
SFAS No. 133 with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  This Statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 (our fiscal 2010), with early application
encouraged.  The adoption of SFAS No. 161 will not have a material
impact on our consolidated financial statements.





In April
2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible
Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS No. 142”). The objective of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R, and other generally accepted accounting
principles in the United States (“GAAP”).  FSP 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise, and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008 (our fiscal 2010), and interim periods within those
fiscal years and should be applied prospectively to intangible assets acquired
after the effective date. Early adoption is prohibited. We are in the process of
evaluating FSP 142-3 and do not expect it to have a significant impact on our
consolidated financial statements.





In May
2008, the FASB issued Staff Position (“FSP”) Accounting Principles Board (“APB”)
No.14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB
14-1”). FSP APB 14-1 clarifies that convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.” Additionally,
FSP APB 14-1 specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect
the entity’s nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008 (our Fiscal 2010), and
interim periods within those fiscal years. We will adopt the provisions of FSP
APB 14-1 on July 26, 2009 and will be required to retroactively apply its
provisions. The adoption of FSP APB 14-1 is expected to result in approximately
$33.4 million of the carrying value of the 2.5% Convertible Senior Notes to be
reclassified to equity as of the December 2004 issuance date. This amount
represents the equity component of the proceeds from the notes calculated
assuming an 8.0% non-convertible borrowing rate. The discount will be accreted
to interest expense over the 7 year period to the first put date of the notes in
2011. Accordingly, beginning in fiscal year 2010, we will revise our
consolidated statements of operations to reflect the additional pre-tax non-cash
interest expense of approximately $5.2 million, $4.8 million, $4.4 million, $4.0
million, and $2.2 million for 2009, 2008, 2007, 2006, and 2005,
respectively.




In
June 2009, the FASB issued SFAS No. 166,Accounting for
Transfers of Financial Assets — an amendment of FASB Statement No. 140 (“SFAS
No. 166”)..  SFAS No. 166 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets, the effects of a transfer on its financial position, financial
performance, and cash flows, and a transferor’s continuing involvement, if any,
in transferred financial assets.  Additionally, SFAS No. 166 removes
the concept of a qualifying special-purpose entity from Statement 140,“Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”,  and removes the
exception from applying FASB Interpretation No. 46 (revised
December 2003),“Consolidation of
Variable Interest Entities”,  to qualifying special-purpose
entities.  SFAS No. 166 is effective for financial statements issued
for interim and annual periods beginning after November 15, 2009 (our
fiscal 2011). We have not completed our evaluation of the potential impact,
if any, of the adoption of SFAS No. 166 on our consolidated financial
statements.





In
June 2009, the FASB issued SFAS No. 167,Amendmentsto FASB Interpretation
No. 46(R)(“SFAS
No. 167”). This
statement amends Interpretation 46(R) to require an enterprise to perform
an analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. 
SFAS No. 167 is effective for financial statements issued for interim and
annual periods beginning after November 15, 2009 (our fiscal 2011). 
Earlier application is prohibited. We have not completed our evaluation of
the potential impact, if any, of the adoption of SFAS No. 167 on our
consolidated financial statements.




30





In
June 2009, the FASB issued SFAS No. 168,The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162 (“SFAS
No. 168”). SFAS
No. 168 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP.
TheFASB
Accounting Standards Codification (the “Codification”) will become the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this statement, the Codification will
supersede all then-existing non-SEC accounting and reporting standards. With
limited exceptions, non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS No. 168 will be effective in
the first quarter of fiscal 2010.





Seasonality





The dressbarn and maurices brands have
historically experienced substantially lower earnings in our second fiscal
quarter ending in January, reflecting the intense promotional atmosphere that
has characterized the holiday shopping season in recent years.  In
addition, our quarterly results of operations may fluctuate materially depending
on, among other things, adverse weather conditions, shifts in timing of certain
holidays, the number and timing of new store openings and closings, net sales
contributed by new stores and changes in our merchandise mix.





Critical Accounting Policies
and Estimates





Our accounting policies are more fully
described in Note 1 to the Consolidated Financial
Statements.  Management’s discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with GAAP.  The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, income taxes and related disclosures of contingent assets and
liabilities.  On an ongoing basis, we evaluate estimates, including
those related primarily to merchandise inventories, marketable security
investments, long-lived assets, goodwill, insurance reserves,  income
taxes and  stock-based employee compensation.  We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources.  Actual results may
differ from these estimates under different assumptions or conditions.
Management believes the following accounting principles are the most critical
because they involve the most significant judgments, assumptions and estimates
used in preparation of our financial statements.





Revenue
Recognition





While our recognition of revenue does
not involve significant judgment, revenue recognition represents an important
accounting policy of ours.  As discussed in Note 1 to the Consolidated
Financial Statements, we recognize sales at the point of purchase when the
customer takes possession of the merchandise and pays for the purchase,
generally with cash or credit card.  We have reserved for estimated
product returns when sales are recorded based on historical return trends and
adjusted for known events, as applicable.




Sales
from purchases made with gift cards and gift certificates or by layaway sales
are recorded when the customer takes possession of the
merchandise.  Gift cards, gift certificates and merchandise credits
(collectively “gift cards”) do not have expiration dates.  We
recognize income on unredeemed gift cards (“gift card breakage”) when it can be
determined that the likelihood of the remaining balances being redeemed are
remote and that there are no legal obligations to remit the remaining balances
to relevant jurisdictions.  Prior to fiscal 2007, we were unable to
reliably estimate such gift card breakage and therefore recorded no such income
in prior years.  During the fourth quarter of fiscal 2007, we
accumulated a sufficient level of historical data to determine an estimate of
gift card breakage for the first time. Gift card breakage is included in net
sales in the Consolidated Statement of Operations.





Cash
and Cash Equivalents





We consider our highly liquid
investments with maturities of three months or less when purchased to be cash
equivalents.  These amounts are stated at cost, which approximates
market value.  We also consider receivables related to credit card
purchases to be equivalent to cash.  The majority of our money market
funds at July 25, 2009 were maintained with one financial
institution.  We maintain cash deposits and cash equivalents with
well-known and stable financial institutions.  However, we have
significant amounts of cash and cash equivalents at these financial institutions
that are in excess of federally insured limits.  This represents a
concentration of credit risk.  We have not experienced any losses on
our deposits of cash and cash equivalents to date.


31





Investment
Securities





We have categorized our current and
long-term marketable security investments as available for sale and trading
securities which are stated at market value.  The unrealized holding
gains and losses are included in other comprehensive income, a component of
shareholders’ equity, until realized.  The amortized cost is adjusted
for amortization of premiums and discounts to maturity, with the net
amortization included in interest income. During the third quarter of fiscal
2008, we classified our auction rate securities (“ARS”) as
long-term.  We have classified our investment in ARS to long-term
because of our inability to determine when our investments in ARS would settle.
We believe this classification is still appropriate for our fiscal 2009
Consolidated Balance Sheet based on our belief that the market for these
instruments may take in excess of twelve months to fully recover due to the
current disruptions in the credit markets.  Additionally, we have
recognized a $5.4 million temporary unrealized loss in fair value of our ARS,
with an offsetting entry to accumulated other comprehensive (loss) income. We
currently believe that this temporary decline in fair value is due entirely to
liquidity issues, because the underlying assets for the vast majority of ARS are
backed by the U.S. government.  Management believes that our available
working capital, excluding the funds held in ARS, will be sufficient to meet our
cash requirements for at least the next 12 months.





In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, and therefore, recorded interest income and
recorded a corresponding other asset. Simultaneously, we transferred these long
term auction rate securities from available-for-sale to trading investment
securities at market value on our consolidated balance sheets.  See
Note 2 to our consolidated financial statements included elsewhere herein for
further detail.





Merchandise
Inventories





Our inventory is valued using the
retail method of accounting and is stated at the lower of cost, on a First In,
First Out (“FIFO”) basis, or market. Under the retail inventory method, the
valuation of inventory at cost and resulting gross margin are calculated by
applying a calculated cost to retail ratio to the retail value of
inventory.  The retail inventory method is an averaging method that
has been widely used in the retail industry due to its
practicality.  We include in the cost of sales line item all costs of
merchandise (net of purchase discounts and vendor allowances), freight on
inbound, outbound and internally transferred merchandise, merchandise
acquisition costs, primarily commissions and import fees, all occupancy costs,
excluding depreciation, and all costs associated with our buying and
distribution functions.  Inherent in the retail method are certain
significant management judgments and estimates including, among others, initial
merchandise markup, markdowns and shrinkage, which significantly impact the
ending inventory valuation at cost as well as the resulting gross
margins.  Physical inventories are conducted in the third and fourth
quarters to calculate actual shrinkage and inventory on
hand.  Estimates are used to charge inventory shrinkage for the
remaining quarters of the fiscal year.  We continuously review our
inventory levels to identify slow-moving merchandise and broken assortments,
using markdowns to clear merchandise, which reduces the cost of inventories to
its estimated net realizable value.  Consideration is given to a
number of quantitative factors, including anticipated subsequent markdowns and
aging of inventories. To the extent that actual markdowns are higher or lower
than estimated, our gross margins could increase or decrease and, accordingly,
affect our financial position and results of operations.  A
significant variation between the estimated provision and actual results could
have a substantial impact on our results of operations.





Impairment
of Long-Lived Assets





We primarily invest in property and
equipment in connection with the opening and remodeling of
stores.  When facts and circumstances indicate that the carrying
values of such long-lived assets may be impaired, an evaluation of
recoverability is performed by comparing the carrying values of the assets to
projected future cash flows, in addition to other quantitative and qualitative
analyses.  Upon indication that the carrying values of such assets may
not be recoverable, we recognize an impairment loss as a charge against current
operations.  Property and equipment assets are grouped at the lowest
level for which there is identifiable cash flows when assessing impairment,
which is the individual store level.  Judgments made by us related to
the expected useful lives of long-lived assets and our ability to realize
undiscounted cash flows in excess of the carrying amounts of such assets are
affected by factors such as the ongoing maintenance and improvements of the
assets, changes in economic conditions and changes in operating
performance.  In addition, we regularly evaluate our computer-related
and other assets for impairment and revise the depreciation over the estimated
useful life if the asset is no longer in use or has limited future
value.




32


Insurance
Reserves





We use a combination of insurance and
self-insurance mechanisms to provide for the potential liabilities for workers’
compensation and employee healthcare benefits. Liabilities associated with the
risks that are retained by us are estimated, in part, by considering historical
claims experience, demographic factors, severity factors and other actuarial
assumptions.  Such liabilities are capped through the use of stop loss
contracts with insurance companies.  The estimated accruals for these
liabilities could be significantly affected if future occurrences and claims
differ from these assumptions and historical trends.  As of July 25,
2009 and July 26, 2008, these reserves were $10.4 million and $9.3
million, respectively.  We are subject to various claims and
contingencies related to insurance and other matters arising out of the normal
course of business.  We are self-insured for expenses related to our
employee medical and dental plans, and our workers’ compensation plan, 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.  We have stop-loss insurance coverage for individual claims in
excess of $250,000.  We believe our accruals for claims and
contingencies are adequate based on information currently
available.  However, it is possible that actual results could
significantly differ from the recorded accruals for claims and
contingencies.





Goodwill
and Other Intangible Assets





Goodwill represents the excess of the
purchase price over the fair values of net identifiable assets
acquired.  In accordance with Statement of Financial Accounting
Standards No. 142, Goodwill
and Other Intangible Assets (“SFAS No. 142”), we do not amortize goodwill
or intangible assets with indefinite lives but, rather, we are required to
evaluate goodwill and intangible assets with indefinite lives annually or
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable.  The conditions that could trigger an
impairment of goodwill or intangible assets with indefinite lives include a
significant, sustained negative trend in maurices’ operating results or
cash flows, a decrease in demand for maurices products, a change in
the competitive environment or other industry and economic
factors.  Goodwill and intangible assets with indefinite lives are
evaluated for impairment annually under the provisions of SFAS No.
142.  Our annual assessment date is on or about June 30th.





We completed our annual impairment
test of indefinite-lived intangible assets as of June 30, 2009 and concluded our
Studio Y trade name had an estimated fair value which was less than the book
value. We recorded a non-cash impairment charge in the amount of $2.0 million
during the fourth quarter of fiscal 2009 relating to this trade name impairment.
The results of the goodwill impairment testing as of June 30, 2009 concluded
that the goodwill acquired in 2005 had an estimated fair value that
significantly exceeded the book value at June 30, 2009.





Operating
Leases





We lease retail stores under operating
leases.  Most lease agreements contain construction allowances, rent
holidays, lease premiums, rent escalation clauses and/or contingent rent
provisions.  For purposes of recognizing incentives, premiums and
minimum rental expenses on a straight-line basis over the terms of the leases,
we use the date of initial possession to begin amortization, which is generally
when we enter the space and begin to make improvements in preparation of
intended use.





For construction allowances, we record
a deferred rent liability in “Other accrued expenses” and “Deferred rent and
lease incentives” on the Consolidated Balance Sheets and amortize the deferred
rent over the terms of the leases as reductions to “Cost of sales including
occupancy and buying costs” on the Consolidated Statements of
Operations.





Certain leases provide for contingent
rents, which are determined as a percentage of gross sales in excess of
specified levels. We record a contingent rent liability in “Other accrued
expenses” on our Consolidated Balance Sheets and the corresponding rent expense
when specified levels have been achieved or when management determines that
achieving the specified levels during the fiscal year is probable.





Leases
with Related Parties





We lease two stores from our Chairman
or related trusts.  Future minimum rentals under leases with such
related parties which extend beyond July 25, 2009 are approximately $312,000
annually and in the aggregate of $0.5 million.  The leases also
contain provisions for cost escalations and additional rent based on net sales
in excess of stipulated amounts.  Rent expense for fiscal years 2009,
2008, and 2007 under these leases amounted to approximately $337,000, $332,000,
and $389,000, respectively.




33


Stock
Based Compensation





Effective July 31, 2005, we adopted
SFAS No. 123(R) using the modified prospective method. The calculation of
stock-based compensation expense requires the input of highly subjective
assumptions, including the expected term of the stock-based awards, stock price
volatility, and pre-vesting forfeitures. We estimate the expected life of shares
granted in connection with stock-based awards based on historical exercise
patterns, which we believe are representative of future behavior. We estimate
the volatility of our common stock at the date of grant based on an average of
our historical volatility and the implied volatility of publicly traded options
on our common stock. The assumptions used in calculating the fair value of
stock-based awards represent our best estimates, but these estimates involve
inherent uncertainties and the application of management judgment. As a result,
if factors change and we were to use different assumptions, our stock-based
compensation expense could be materially different in the future. In addition,
we are required to estimate the expected forfeiture rate and only recognize
expense for those shares expected to vest. We estimate the forfeiture rate based
on historical experience of stock-based awards granted, exercised and cancelled,
as well as considering future expected behavior. If the actual forfeiture rate
is materially different from our estimate, stock-based compensation expense
could be different from what we have recorded in the current period. See Note 13
to our consolidated financial statements included elsewhere herein, “Stock-
Based Compensation Plans,” for additional information.





Fair
Value of Financial Instruments





Concentration of Credit
Risk - Financial Instruments, which potentially subjects us to concentrations of
credit risk, are principally bank deposits and short-term security
investments.  Cash and cash equivalents are deposited with high credit
quality financial institutions.  Short-term investments principally
consist of “triple A” or “double A” rated 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 July 25, 2009 and July 26, 2008 our
financial instruments consisted primarily of cash, cash equivalents, current
marketable security investments, and payables.  We believe that the
carrying value of these assets and liabilities are representative of their
respective fair values because of the short maturity of these financial
instruments. The Convertible Senior Notes are carried on the cost basis. The
market value of the Senior Notes on July 24, 2009 was $176.1 million as valued
on PORTAL (Private Offering Resale and Trading through Automated
Linkage).





As of July 25, 2009, we had
approximately $30.8 million of  long-term marketable security
investments which consisted of $39.9 million of ARS at cost, less a valuation
allowance of $9.1 million to reflect our estimate of fair value given the
current lack of liquidity of these investments while taking into account the
current credit quality of the underlying securities. See Note 2 “Investment
Securities” for additional information.





In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, and therefore, recorded interest income and
recorded a corresponding other asset. Simultaneously, we transferred these long
term auction rate securities from available-for-sale to trading investment
securities at market value on our consolidated balance sheets.  See
Note 2 to our consolidated financial statements included elsewhere herein for
further detail.


34


Income
Taxes





We do business in various jurisdictions
that impose income taxes.  Management determines the aggregate amount
of income tax expense to accrue and the amount currently payable based upon the
tax statutes of each jurisdiction.  This process involves adjusting
income determined using generally accepted accounting principles for items that
are treated differently by the applicable taxing
authorities.  Deferred taxes are provided using the asset and
liability method, whereby deferred income taxes result from temporary
differences between the reported amounts in the financial statements and the tax
basis of assets and liabilities, as measured by current tax rates.  We
establish valuation allowances against deferred tax assets when it is more
likely than not that the realization of those deferred tax assets will not
occur.





We
adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement
No. 109, on July 29, 2007, the first day of fiscal 2008.  FIN 48 seeks
to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes.  FIN 48
prescribes a recognition threshold and measurement requirement for the financial
statement recognition of a tax position that has been taken or is expected to be
taken on a tax return and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.  Under FIN 48 we may only recognize tax
positions that meet a “more likely than not” threshold.





We recorded the cumulative effect of
applying FIN 48 of $4.9 million as an adjustment to the opening balance of
retained earnings on July 29, 2007, the first day of our fiscal 2008. See Note
11 to our consolidated financial statements included elsewhere herein, “Income
Taxes,” for additional information.


35


ITEM
      7A.
            QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





The market risk inherent in our
financial instruments and in our financial position represents the potential
loss arising from adverse changes in interest rates and disruptions caused by
financial market conditions.  Cash and cash equivalents are deposited with
high credit quality financial institutions. However, we have significant amounts
of cash and cash equivalents at these financial institutions that are in excess
of federally insured limits. This represents a concentration of credit risk. The
carrying amounts of cash, cash equivalents, short-term investments and accounts
payable approximate fair value because of the short-term nature and maturity of
such instruments.  Our results of operations could be negatively
impacted by decreases in interest rates on our investments, including our
investments in ARS.  Please see Note 2 to the Consolidated Financial
Statements for further information regarding the Company’s investments in
ARS.





Our
outstanding long-term liabilities as of July 25, 2009 included $25.9 million of
our 5.33% mortgage loan due July 1, 2023.  As the mortgage loan bears
interest at a fixed rate, our results of operations would not be affected by
interest rate changes.





On
December 15, 2004, we issued $115 million of convertible senior
notes.  As the Convertible Senior Notes bear interest at a fixed rate,
our results of operations would not be affected by interest rate
changes. On July 24, 2009, the market value of the Convertible Senior Notes
was $176.1 million as valued on PORTAL (Private Offering Resale and Trading
through Automated Linkage).





We also
entered into a $100 million senior credit facility with a group of banks in
December, 2005.  Under that senior credit facility, we have available
a revolving credit facility with borrowings of up to $100 million at a variable
rate.  At July 25, 2009, we had no outstanding borrowings under the
revolving credit facility.  As of July 25, 2009, we had used $38.3
million of the $100.0 million revolving credit facility for outstanding letters
of credit leaving a net available balance of $61.7 million.





We held
no material options or other derivative instruments at July 25,
2009.





Accordingly,
we do not believe that there is any material market risk exposure with respect
to derivative or other financial instruments that would require disclosure under
this item.





ITEM
      8.
            FINANCIAL STATEMENTS
      AND SUPPLEMENTARY DATA





The consolidated financial statements
of The Dress Barn, Inc. and subsidiaries are filed together with this
report:  See Index to Financial
Statements, Item 15.




36





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




None.




ITEM
      9A.
            CONTROLS
      AND PROCEDURES






(a) Evaluation of Disclosure
Controls and Procedures




We
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 July 25,
2009. 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. Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
control objectives. Based on such evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were effective at the reasonable assurance level as of the end of the period
covered and in ensuring that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Commission’s rules and
forms and is accumulated and communicated to our management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.





(b) Management’s
Assessment of Internal Control over Financial Reporting





Management 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.  Our internal control system over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  Because of inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





As of
July 26, 2008,  management concluded that a material weakness
pertaining to our internal control over financial reporting was not effective.
Management developed a remediation plan to strengthen our internal control over
financial reporting relating to accounting for income taxes. The following plan
was implemented during fiscal 2009 to remediate the material
weakness:





·
            In
      April 2008 we hired an Assistant Vice President of Tax, who has experience
      in accounting for income taxes.  In fiscal 2009 we filled the
      remaining open positions in the tax department with professionals trained
      and experienced in income taxes.


·
            We
      improved the documentation and instituted a more formalized review of tax
      positions taken, with senior management and external experts, to ensure
      proper evaluation and accounting treatment of complex tax
      issues;


·
            We
      evaluated and supplemented the resources provided by our external expert;
      and


·
            We
      accelerated the timing of certain tax review activities during the
      financial statement closing.





Management
has assessed the effectiveness of our internal control over financial reporting
as of July 25, 2009.  In making this assessment, management used the
criteria established in Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  Based on the assessment and those
criteria, management believes that we maintained effective internal control over
financial reporting as of July 25, 2009.  Our independent registered
public accounting firm has issued an attestation report on our internal control
over financial reporting. The report appears herein below.





(c) Changes in Internal
Control Over Financial Reporting





Except as
identified above, there was no change in our internal control over financial
reporting during the quarterly period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.


37




(d) Report of Independent
Registered Public Accounting Firm on Internal Control Over Financial
Reporting




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Shareholders of


The Dress
Barn, Inc.


Suffern,
New York




We have
audited the internal control over financial reporting of Dress Barn, Inc. and
subsidiaries (the "Company") as of July 25, 2009, based on criteria established
in Internal Control —
Integrated Frameworkissued 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,
included in the accompanying Management’s Assessment of Internal Control Over
Financial Reporting.  Our responsibility is to express an opinion on 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, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on that risk, and performing such other procedures as
we considered necessary in the circumstances.  We believe that our audit
provides a reasonable basis for our opinion.




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




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




In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of July 25, 2009, based on the criteria
established in Internal
Control — Integrated Frameworkissued 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 July 25, 2009 of the Company and our report dated September
21, 2009expressed
an unqualified opinion on those financial statements.




/s/
DELOITTE & TOUCHE LLP




New York,
NY


September
21, 2009




38





ITEM
      9B.
            OTHER
      INFORMATION





None.





PART
III





ITEM
      10.
            DIRECTORS, EXECUTIVE
      OFFICERS AND CORPORATE
GOVERNANCE





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC within 120 days after the end of our fiscal
year.We have adopted a Code of Ethics for the Chief Executive Officer and Senior
Financial Officers.  The Code of Ethics for the Chief Executive
Officer and Senior Financial Officers is posted on our website, www.dressbarn.com,
then “Investor Relations”, then under the Investors Relations pull-down menu,
click on “Code of Ethics”.  We intend to satisfy the disclosure
requirement regarding any amendment to, or a waiver of, a provision of the Code
of Ethics by posting such information on our website.  We undertake to
provide to any person a copy of this Code of Ethics upon request to our
Secretary at our principal executive offices, 30 Dunnigan Drive, Suffern, NY
10901.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC within 120 days after the end of our fiscal
year.





ITEM
      12.
            SECURITY OWNERSHIP OF
      CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED   STOCKHOLDER
  MATTERS





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC within 120 days after the end of our fiscal
year.





ITEM
      13.
            CERTAIN RELATIONSHIPS
      AND RELATED TRANSACTIONS, AND DIRECTOR
  INDEPENDENCE





Information
with respect to this item is incorporated by reference from our definitive Proxy
Statement to be filed with the SEC within 120 days after the end of our fiscal
year.




ITEM 14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




The
information with respect to this item is incorporated by reference from our
definitive Proxy Statement to be filed with the SEC within 120 days after the
end of our fiscal year.




39





PART
IV





ITEM
      15.
            EXHIBITS, FINANCIAL
      STATEMENT SCHEDULES





ITEM 15.  (a) (1)  FINANCIAL
      STATEMENTS
                  
                  PAGE NUMBERReport
      of Independent Registered Public Accounting Firm
                  
                  F-1Consolidated
      Balance Sheets
                  
                  F-2Consolidated
      Statements of Operations
                  
                  F-4Consolidated
      Statements of Shareholders' Equity and Comprehensive
Income
                  
                  F-5Consolidated
      Statements of Cash Flows
                  
                  F-6Notes
      to Consolidated Financial Statements
                  
                  F-8





ITEM 15. (a) (2) FINANCIAL
STATEMENT SCHEDULES





All
schedules are omitted because they are not applicable, or not required because
the required information is included in the consolidated financial statements or
notes thereto.





ITEM
15.  (b)  LIST OF EXHIBITS





The
following exhibits are filed as part of this Report and except Exhibits 10.9,
21, 23, 31.1, 31.2, 32.1 and 32.2 are all incorporated by reference from the
sources shown.





Exhibit
                          Number
                        
                        Description
                        
                        Incorporated By
                          Reference From2.1
                        
                        Agreement
      and Plan of Merger, dated as of June 24, 2009, among The Dress Barn, Inc.,
      Thailand Acquisition Corp. and Tween Brands, Inc.
                        
                        (1)3.1
                        
                        Amended
      and Restated Certificate of Incorporation, as approved by shareholders at
      December 10, 2008 Annual Meeting of Shareholders
                        
                        (2)3.2
                        
                        Amended
      and Restated By-Laws (as amended through September 18,
    2008)
                        
                        (3)4
                        
                        Specimen
      Common Stock Certificate
                        
                        (4)10.1
                        
                        Purchase
      and Sale Agreement, dated January 28, 2003,
                          Between
      Rockland Warehouse Center Corporation, as seller,
                          and
      Dunnigan Realty, LLC, as buyer with respect to
                          30
      Dunnigan Drive, Suffern, NY
                        
                        (5)10.2
                        
                        $34,000,000
      mortgage loan from John Hancock Life Insurance Company
                          to
      Dunnigan Realty, secured by mortgage on 30 Dunnigan Drive, Suffern,
      NY
                        
                        (6)




40




10.3
                  
                  Leases
      of Company premises of which the lessor is Elliot S. Jaffe
                    or
      members of his family or related trusts:10.6.1   Danbury,
      CT store
                  
                  (4)10.6.2   Norwalk,
      CT dressbarn/dressbarn Woman
      store
                  
                  (7)10.4
                  
                  Amended
      and Restated Lease between Dunnigan Realty, LLC, as landlord,
                    and
      The Dress Barn, Inc., as tenant, dated June 24, 2003 for
      office
                    and
      distribution space in Suffern, New York
                  
                  (6)10.5
                  
                  The
      Dress Barn, Inc. 1993 Incentive Stock Option Plan
                  
                  (8)
      *10.6
                  
                  The
      Dress Barn, Inc. 1995 Stock Option Plan
                  
                  (9)
      *10.7
                  
                  The
      Dress Barn, Inc. 2001 Stock Incentive Plan (amended and restated effective
      September 29, 2005)
                  
                  (10)
      *10.8
                  
                  The
      Dress Barn, Inc. 162(m) Executive Bonus Plan
                  
                  (10)10.9
                  
                  Amendment
      Number One to 162(m) Executive Bonus Plan, filed herewith10.10
                  
                  Employment
      Agreement with Elliot S. Jaffe dated May 2, 2002
                  
                  (11)
      *10.11
                  
                  Amendment
      dated July 10, 2006 to Employment Agreement
                    dated
      May 2, 2002 with Elliot S. Jaffe
                  
                  (12)
      *10.12
                  
                  Employment
      Agreement dated May 2, 2002 with David R. Jaffe
                  
                  (11)
      *10.13
                  
                  Employment
      Agreement dated August 28, 2002 with Vivian Behrens
                  
                  (13)
      *10.14
                  
                  Employment
      Agreement dated July 26, 2005 with Gene Wexler
                  
                  (14)
      *10.15
                  
                  Supplemental
      Retirement Benefit Agreement with Mrs. Roslyn Jaffe dated August 29,
      2006
                  
                  (15)
      *10.16
                  
                  Consulting
      Agreement dated July 18, 2006 with Burt Steinberg Retail Consulting
      Ltd.
                  
                  (16)
      *10.17
                  
                  The
      Dress Barn Inc. 2.5% Convertible Senior Notes due 2024
                  
                  (17)10.18
                  
                  Credit
      Agreement dated as of December 21, 2005
                  
                  (18)10.19
                  
                  First
      Amendment to Credit Agreement dated as of October 25, 2007
                  
                  (19)14
                  
                  Code
      of Ethics for the Chief Executive Officer and Senior Financial
      Officers
                  
                  (6)21
                  
                  Subsidiaries
      of the Registrant, filed herewith23
                  
                  Consent
      of Independent Registered Public Accounting Firm, filed
      herewith31.1
                  
                  Section
      302 Certification of President and Chief Executive Officer, filed
      herewith31.2
                  
                  Section
      302 Certification of Chief Financial Officer, filed
    herewith32.1
                  
                  Section
      906 Certification of President and Chief Executive Officer, filed
      herewith




41





32.2
                
                Section
      906 Certification of Chief Financial Officer, filed
    herewith





References
      as follows:(1)
              The
      Company’s Report on Form 8-K filed June 25, 2009. Excludes schedules,
      exhibits and certain annexes, which the Company agrees to furnish
      supplementally to the Securities and Exchange Commission upon
      request.(2)
              Annex
      A to the Company’s Proxy Statement, filed November 5,
  2008.(3)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 26,
      2008 (Exhibit 3.4).(4)
              The
      Company's Registration Statement on Form S-1 under the Securities Act of
      1933 (Registration No. 2-82916) declared effective May 4, 1983 (Exhibits 4
      and 10(l)).(5)
              The
      Company’s Quarterly Report on Form 10-Q for the quarter ended January 25,
      2003.(6)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 26,
      2003 (Exhibits 10(xx), 10(mm) and 14).(7)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 25,
      1992 (Exhibit 10(h)(h)).(8)
              The
      Company's Registration Statement on Form S-8 under the
                Securities
      Act of 1933 (Registration No. 33-60196) filed on March 25, 1993 (Exhibit
      28).(9)
              The
      Company's Annual Report on Form 10-K for the fiscal year ended July 27,
      1996 (Exhibit 10(nn)).(10)
              The
      Company's Proxy Statement, filed October 31, 2005 (Annex A and Annex
      B).(11)
              The
      Company's Annual Report on Form 10-K for the fiscal year ended July 27,
      2002 (Exhibits 10(t)(t) and 10(u)(u)).(12)
              The
      Company’s Report on Form 8-K filed July 13, 2006 (Exhibit
      99.1).(13)
              The
      Company's Quarterly Report on Form 10-Q for the quarter ended October 26,
      2002 (Exhibit 10(w)(w)).(14)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 30,
      2005 (Exhibit 10.25).(15)
              The
      Company’s Report on Form 8-K filed August 30, 2006 (Exhibit
      99.1).(16)
              The
      Company’s Report on Form 8-K filed July 19, 2006 (Exhibit
      99.1).(17)
              The
      Company's Registration Statement on Form S-1 under the
                Securities
      Act of 1933 (Registration No. 333-124512) filed on May 2,
      2005.(18)
              The
      Company’s Report on Form 8-K filed December 23, 2005 (Exhibit
      10.1).(19)
              The
      Company’s Report on Form 8-K filed November 1, 2007 (Exhibit
      99.1).





*Each of
these exhibits constitute a management contract, compensatory plan or
arrangement required to be filed as an exhibit pursuant to Item 15 (b) of this
report.





ITEM
15.  (c)  FINANCIAL STATEMENT SCHEDULES





None




42





SIGNATURES





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




The
      Dress Barn, Inc.Date:  September
      21, 2009
              
              by
              /s/ DAVID R. JAFFEDavid
      R. JaffePresident
      and Chief Executive Officer





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





Signature
                    
                    Title
                    
                    Date/s/ ELLIOT S. JAFFEElliot
      S. Jaffe
                    
                    Chairman
      of the Board
                    
                    September
      21, 2009/s/ DAVID R. JAFFEDavid
      R. Jaffe
                    
                    Director,
      President and
                    
                    September
      21, 2009Chief
      Executive Officer(Principal
      Executive Officer)/s/ BURT STEINBERGBurt
      Steinberg
                    
                    Director
      and Executive Director
                    
                    September
      21, 2009/s/ KLAUS EPPLERKlaus
      Eppler
                    
                    Director
                    
                    September
      21, 2009/s/ RANDY L. PEARCERandy
      L. Pearce
                    
                    Director
                    
                    September
      21, 2009/s/ JOHN USDANJohn
      Usdan
                    
                    Director
                    
                    September
      21, 2009/s/ KATE BUGGELNKate
      Buggeln
                    
                    Director
                    
                    September
      21, 2009/s/ ARMAND CORREIAArmand
      Correia
                    
                    Chief
      Financial Officer
                    
                    September
      21, 2009(Principal
      Financial and Accounting Officer)




43





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Shareholders of


The Dress
Barn, Inc.


Suffern,
New York




We have
audited the accompanying consolidated balance sheets of The Dress Barn, Inc. and
subsidiaries (the "Company") as of July 25, 2009 and July 26, 2008, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the three fiscal years in the
period ended July 25, 2009. These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
the 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 as of July 25,
2009 and July 26, 2008, and the results of their operations and their cash flows
for each of the three fiscal years in the period ended July 25, 2009, in
conformity with accounting principles generally accepted in the United States of
America.




As
discussed in Note 1 to the consolidated financial statements, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109”,
effective July 29, 2007.




We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Company's internal control over financial
reporting as of July 25, 2009, 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 September 21, 2009 expressed an
unqualified opinion on the Company's internal control over financial
reporting.




/s/
DELOITTE & TOUCHE LLP




New York,
New York


September
21, 2009


F -
1




The Dress
Barn, Inc. and Subsidiaries


Consolidated
Balance Sheets


Amounts
      in thousands, except share and per share data
                
                July 25, 2009
                
                
                July 26, 2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                240,763
                
                
                $
                127,226Investment
      securities (see Note 2)
                
                
                112,998
                
                
                
                92,697Merchandise
      inventories
                
                
                193,979
                
                
                
                186,983Prepaid
      expenses and other current assets
                
                
                17,874
                
                
                
                24,882Total
      Current Assets
                
                
                565,614
                
                
                
                431,788Property
      and Equipment, net (see Note 4)
                
                
                277,913
                
                
                
                274,279Other
      Intangible Assets, net (see Note 5)
                
                
                104,932
                
                
                
                107,802Goodwill
      (see Note 5)
                
                
                131,368
                
                
                
                130,656Investment
      Securities (see Note 2)
                
                
                30,813
                
                
                
                58,404Deferred
      Income Tax Assets
                
                
                3,091
                
                
                
                —Other
      Assets
                
                
                18,090
                
                
                
                21,530TOTAL
      ASSETS
                
                $
                1,131,821
                
                
                $
                1,024,459





See notes
to consolidated financial statements





(continued)


F -
2





The Dress
Barn, Inc. and Subsidiaries


Consolidated
Balance Sheets


Amounts
      in thousands, except share and per share data
                            
                            July 25, 2009
                            
                            
                            July 26, 2008LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
                            
                            $
                            138,940
                            
                            
                            $
                            121,084Accrued
      salaries, wages and related expenses
                            
                            
                            32,116
                            
                            
                            
                            27,934Other
      accrued expenses
                            
                            
                            49,450
                            
                            
                            
                            50,970Customer
      credits
                            
                            
                            13,999
                            
                            
                            
                            14,822Income
      taxes payable
                            
                            
                            7,491
                            
                            
                            
                            —Current
      portion of deferred income tax liabilities (see Note 11)
                            
                            
                            2,775
                            
                            
                            
                            401Current
      portion of long-term debt (see Note 6)
                            
                            
                            1,347
                            
                            
                            
                            1,277Convertible
      Senior Notes (see Note 6)
                            
                            
                            115,000
                            
                            
                            
                            115,000Total
      Current Liabilities
                            
                            
                            361,118
                            
                            
                            
                            331,488Long-term
      debt (see Note 6)
                            
                            
                            26,062
                            
                            
                            
                            27,263Deferred
      rent and lease incentives
                            
                            
                            67,772
                            
                            
                            
                            62,003Deferred
      compensation and other long-term liabilities
                            
                            
                            50,789
                            
                            
                            
                            44,391Deferred
      income tax liabilities (see Note 11)
                            
                            
                            —
                            
                            
                            
                            3,232Total
      Liabilities
                            
                            
                            505,741
                            
                            
                            
                            468,377Commitments
      and Contingencies (see Note 12)Shareholders'
      Equity:Preferred
      stock, par value $0.05 per share:Authorized-
      100,000 shares, Issued and Outstanding- none
                            
                            
                            —
                            
                            
                            
                            —Common
      stock, par value $0.05 per share: Authorized- 165,000,000
      sharesIssued-
      60,237,797 and 60,359,617 shares, respectively
                              Outstanding-
      60,237,797 and 60,359,617 shares, respectively
                            
                            
                            3,012
                            
                            
                            
                            3,018Additional
      paid-in capital
                            
                            
                            125,790
                            
                            
                            
                            115,476Retained
      earnings
                            
                            
                            505,685
                            
                            
                            
                            440,627Accumulated
      other comprehensive (loss) income
                            
                            
                            (8,407
                            )
                            
                            
                            (3,039
                            )Total
      Shareholders’ Equity
                            
                            
                            626,080
                            
                            
                            
                            556,082TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                            
                            $
                            1,131,821
                            
                            
                            $
                            1,024,459


See notes
to consolidated financial statements


F -
3





The Dress
Barn, Inc. and Subsidiaries


Consolidated
Statements of Operations


Amounts
in thousands, except per share data


Fiscal Year EndedJuly 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    July 28,
                      2007Net
      sales
                    
                    $
                    1,494,236
                    
                    
                    $
                    1,444,165
                    
                    
                    $
                    1,426,607Cost
      of sales, including occupancy and buying costs(excluding
      depreciation which is shown separately below)
                    
                    
                    918,350
                    
                    
                    
                    885,927
                    
                    
                    
                    842,192Selling,
      general and administrative expenses
                    
                    
                    422,372
                    
                    
                    
                    397,424
                    
                    
                    
                    383,652Depreciation
      and amortization
                    
                    
                    48,535
                    
                    
                    
                    48,200
                    
                    
                    
                    45,791Operating
      income
                    
                    
                    104,979
                    
                    
                    
                    112,614
                    
                    
                    
                    154,972Interest
      income
                    
                    
                    5,394
                    
                    
                    
                    7,817
                    
                    
                    
                    7,051Interest
      expense
                    
                    
                    (4,795
                    )
                    
                    
                    (4,825
                    )
                    
                    
                    (4,883
                    )Other
      income
                    
                    
                    1,062
                    
                    
                    
                    512
                    
                    
                    
                    1,382Earnings
      before provision for income taxes
                    
                    
                    106,640
                    
                    
                    
                    116,118
                    
                    
                    
                    158,522Provision
      for income taxes
                    
                    
                    36,952
                    
                    
                    
                    42,030
                    
                    
                    
                    57,340Net
      earnings
                    
                    $
                    69,688
                    
                    
                    $
                    74,088
                    
                    
                    $
                    101,182Earnings
      per share:Basic
                    
                    $
                    1.16
                    
                    
                    $
                    1.23
                    
                    
                    $
                    1.63Diluted
                    
                    $
                    1.11
                    
                    
                    $
                    1.15
                    
                    
                    $
                    1.45Weighted
      average shares outstanding:Basic
                    
                    
                    60,044
                    
                    
                    
                    60,102
                    
                    
                    
                    62,020Diluted
                    
                    
                    62,990
                    
                    
                    
                    64,467
                    
                    
                    
                    70,022





See notes
to consolidated financial statements


F -
4





The Dress
Barn, Inc. and Subsidiaries


Consolidated
Statements of Shareholders’ Equity and Comprehensive Income


(Amounts and shares in thousands)
                                                          
                                                          CommonStockShares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Additional
                                                            Paid-In
                                                            Capital
                                                          
                                                          
                                                          Retained
                                                            Earnings
                                                          
                                                          
                                                          Treasury
                                                            Stock
                                                          
                                                          
                                                          Accumulated
                                                            Other
                                                            Comprehensive
                                                            Income(Loss)
                                                          
                                                          
                                                          Total
                                                            Shareholders’
                                                            EquityBalance,
      July 29, 2006
                                                          
                                                          
                                                          61,716
                                                          
                                                          
                                                          $
                                                          3,086
                                                          
                                                          
                                                          $
                                                          87,673
                                                          
                                                          
                                                          $
                                                          318,380
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          8
                                                          
                                                          
                                                          $
                                                          409,147Net
      earnings
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          101,182
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          101,182Unrealized
      gain on investment securities
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          31
                                                          
                                                          
                                                          
                                                          31Total
      comprehensive income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          101,213Issuance
      of restricted stock
                                                          
                                                          
                                                          39
                                                          
                                                          
                                                          
                                                          2
                                                          
                                                          
                                                          
                                                          (2
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -Restricted
      stock compensation expense
                                                          
                                                          
                                                          (5
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,091
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,091Tax
      benefit from exercise of stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,863
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,863Employee
      Stock Purchase Plan activity
                                                          
                                                          
                                                          15
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          298
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          299Shares
      issued pursuant to exercise of stock options
                                                          
                                                          
                                                          939
                                                          
                                                          
                                                          
                                                          46
                                                          
                                                          
                                                          
                                                          6,465
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          6,511Share
      based compensation – stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,216
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,216Purchase
      of treasury stock
                                                          
                                                          
                                                          (1,010
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (19,939
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (19,939
                                                          )Retirement
      of treasury stock
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (20
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (8,070
                                                          )
                                                          
                                                          
                                                          8,090
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          —Balance,
      July 28, 2007
                                                          
                                                          
                                                          61,694
                                                          
                                                          
                                                          
                                                          3,115
                                                          
                                                          
                                                          
                                                          106,604
                                                          
                                                          
                                                          
                                                          411,492
                                                          
                                                          
                                                          
                                                          (11,849
                                                          )
                                                          
                                                          
                                                          39
                                                          
                                                          
                                                          
                                                          509,401Net
      earnings
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          74,088
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          74,088Unrealized
      (loss) on investment securities
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (3,078
                                                          )
                                                          
                                                          
                                                          (3,078
                                                          )Total
      comprehensive income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          71,010Adoption
      of FIN 48
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (4,886
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (4,886
                                                          )Issuance
      of restricted stock
                                                          
                                                          
                                                          54
                                                          
                                                          
                                                          
                                                          3
                                                          
                                                          
                                                          
                                                          (3
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -Restricted
      stock compensation expense
                                                          
                                                          
                                                          (2
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,345
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,345Tax
      benefit from exercise of stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          383
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          383Employee
      Stock Purchase Plan activity
                                                          
                                                          
                                                          23
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          307
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          308Shares
      issued pursuant to exercise of stock options
                                                          
                                                          
                                                          225
                                                          
                                                          
                                                          
                                                          11
                                                          
                                                          
                                                          
                                                          1,604
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,615Share
      based compensation – stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,236
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          5,236Purchase
      of treasury stock
                                                          
                                                          
                                                          (1,634
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (28,330
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (28,330
                                                          )Retirement
      of treasury stock
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (112
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (40,067
                                                          )
                                                          
                                                          
                                                          40,179
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          —Balance,
      July 26, 2008
                                                          
                                                          
                                                          60,360
                                                          
                                                          
                                                          
                                                          3,018
                                                          
                                                          
                                                          
                                                          115,476
                                                          
                                                          
                                                          
                                                          440,627
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          (3,039
                                                          )
                                                          
                                                          
                                                          556,082Net
      earnings
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          69,688
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          69,688Unrealized
      (loss) on investment securities
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (5,368
                                                          )
                                                          
                                                          
                                                          (5,368
                                                          )Total
      comprehensive income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          64,320Issuance
      of restricted stock
                                                          
                                                          
                                                          26
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          (1
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          —Restricted
      stock compensation expense
                                                          
                                                          
                                                          (3
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          304
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          304Tax
      benefit from exercise of stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          863
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          863Employee
      Stock Purchase Plan activity
                                                          
                                                          
                                                          21
                                                          
                                                          
                                                          
                                                          1
                                                          
                                                          
                                                          
                                                          237
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          238Shares
      issued pursuant to exercise of stock options
                                                          
                                                          
                                                          380
                                                          
                                                          
                                                          
                                                          19
                                                          
                                                          
                                                          
                                                          2,638
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2,657Share
      based compensation – stock options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          6,273
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          6,273Purchase
      of treasury stock
                                                          
                                                          
                                                          (546
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (4,657
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (4,657
                                                          )Retirement
      of treasury stock
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (27
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (4,630
                                                          )
                                                          
                                                          
                                                          4,657
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          —Balance,
      July 25, 2009
                                                          
                                                          
                                                          60,238
                                                          
                                                          
                                                          $
                                                          3,012
                                                          
                                                          
                                                          $
                                                          125,790
                                                          
                                                          
                                                          $
                                                          505,685
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          (8,407
                                                          )
                                                          
                                                          $
                                                          626,080





See notes
to consolidated financial statements





F -
5





The Dress
Barn, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Amounts in thousands
                  
                  Fiscal Year EndedJuly 25,
                    2009
                  
                  
                  July 26,
                    2008
                  
                  
                  July 28,
                    2007Operating
      Activities:Net
      earnings
                  
                  $
                  69,688
                  
                  
                  $
                  74,088
                  
                  
                  $
                  101,182Adjustments
      to reconcile net earnings to net cashprovided
      by operating activities:Depreciation
      and amortization
                  
                  
                  48,535
                  
                  
                  
                  48,200
                  
                  
                  
                  45,791Impairments
      and asset disposals
                  
                  
                  8,291
                  
                  
                  
                  4,110
                  
                  
                  
                  2,363Deferred
      taxes
                  
                  
                  2,981
                  
                  
                  
                  9,999
                  
                  
                  
                  (1,533
                  )Deferred
      rent and other occupancy costs
                  
                  
                  (4,120
                  )
                  
                  
                  (4,606
                  )
                  
                  
                  (4,520
                  )Share
      based compensation
                  
                  
                  6,577
                  
                  
                  
                  6,612
                  
                  
                  
                  6,307Tax
      benefit on exercise of unqualified stock options
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  5,863Excess
      tax benefits from stock-based compensation
                  
                  
                  (863
                  )
                  
                  
                  (383
                  )
                  
                  
                  (5,721
                  )Amortization
      of debt issuance cost
                  
                  
                  353
                  
                  
                  
                  366
                  
                  
                  
                  372Amortization
      of bond premium cost
                  
                  
                  624
                  
                  
                  
                  415
                  
                  
                  
                  108Change
      in cash surrender value of life insurance
                  
                  
                  907
                  
                  
                  
                  732
                  
                  
                  
                  (441
                  )Realized
      loss on sales of securities
                  
                  
                  153
                  
                  
                  
                  304
                  
                  
                  
                  215Gift
      card breakage
                  
                  
                  (1,788
                  )
                  
                  
                  (2,184
                  )
                  
                  
                  (3,724
                  )Other
                  
                  
                  18
                  
                  
                  
                  1,307
                  
                  
                  
                  (354
                  )Changes
      in assets and liabilities:Merchandise
      inventories
                  
                  
                  (6,574
                  )
                  
                  
                  10,160
                  
                  
                  
                  (26,656
                  )Prepaid
      expenses and other current assets
                  
                  
                  1,782
                  
                  
                  
                  (7,084
                  )
                  
                  
                  2,171Other
      assets
                  
                  
                  (313
                  )
                  
                  
                  378
                  
                  
                  
                  450Accounts
      payable
                  
                  
                  17,856
                  
                  
                  
                  (12,718
                  )
                  
                  
                  12,604Accrued
      salaries, wages and related expenses
                  
                  
                  4,182
                  
                  
                  
                  (2,128
                  )
                  
                  
                  4,358Other
      accrued expenses
                  
                  
                  227
                  
                  
                  
                  (96
                  )
                  
                  
                  7,313Customer
      credits
                  
                  
                  965
                  
                  
                  
                  1,865
                  
                  
                  
                  2,605Income
      taxes payable
                  
                  
                  13,785
                  
                  
                  
                  1,642
                  
                  
                  
                  (8,839
                  )Deferred
      rent and lease incentives
                  
                  
                  9,901
                  
                  
                  
                  13,157
                  
                  
                  
                  10,028Deferred
      compensation and other long-term liabilities
                  
                  
                  (476
                  )
                  
                  
                  1,319
                  
                  
                  
                  5,290Total
      adjustments
                  
                  
                  103,003
                  
                  
                  
                  71,367
                  
                  
                  
                  54,050Net
      cash provided by operating activities
                  
                  
                  172,691
                  
                  
                  
                  145,455
                  
                  
                  
                  155,232





See notes
to consolidated financial statements





(continued)





F -
6




The Dress
Barn, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Amounts
in thousands


Fiscal
      Year EndedJuly 25,
                      2009
                    
                    
                    July 26,
                      2008
                    
                    
                    July 28,
                      2007Investing
      Activities:Purchases
      of property and equipment
                    
                    $
                    (58,428
                    )
                    
                    $
                    (66,097
                    )
                    
                    $
                    (62,986
                    )Return
      of restricted cash
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    100Sales
      and maturities of investment securities
                    
                    
                    96,342
                    
                    
                    
                    307,902
                    
                    
                    
                    344,097Purchases
      of investment securities
                    
                    
                    (95,427
                    )
                    
                    
                    (285,354
                    )
                    
                    
                    (403,090
                    )Investment
      in life insurance policies
                    
                    
                    (177
                    )
                    
                    
                    (2,108
                    )
                    
                    
                    (3,279
                    )Purchases
      of long-term investments
                    
                    
                    —
                    
                    
                    
                    (590
                    )
                    
                    
                    (2,312
                    )Proceeds
      from an insurance settlement
                    
                    
                    733
                    
                    
                    
                    —
                    
                    
                    
                    —Reimbursement
      related to acquisition of Maurices Incorporated
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,910Net
      cash used in investing activities
                    
                    
                    (56,957
                    )
                    
                    
                    (46,247
                    )
                    
                    
                    (125,560
                    )Financing
      Activities:Payment
      of long-term debt
                    
                    
                    (1,298
                    )
                    
                    
                    (1,211
                    )
                    
                    
                    (1,148
                    )Purchase
      of treasury stock
                    
                    
                    (4,657
                    )
                    
                    
                    (40,179
                    )
                    
                    
                    (8,090
                    )Proceeds
      from Employee Stock Purchase Plan
                    
                    
                    238
                    
                    
                    
                    277
                    
                    
                    
                    299Excess
      tax benefits from stock-based compensation
                    
                    
                    863
                    
                    
                    
                    383
                    
                    
                    
                    5,721Proceeds
      from stock options exercised
                    
                    
                    2,657
                    
                    
                    
                    1,615
                    
                    
                    
                    6,511Net
      cash (used in) provided by financing activities
                    
                    
                    (2,197
                    )
                    
                    
                    (39,115
                    )
                    
                    
                    3,293Net
      increase in cash and cash equivalents
                    
                    
                    113,537
                    
                    
                    
                    60,093
                    
                    
                    
                    32,965Cash
      and cash equivalents- beginning of year
                    
                    
                    127,226
                    
                    
                    
                    67,133
                    
                    
                    
                    34,168Cash
      and cash equivalents- end of year
                    
                    $
                    240,763
                    
                    
                    $
                    127,226
                    
                    
                    $
                    67,133Supplemental
      Disclosure of Cash Flow Information:Cash
      paid for income taxes
                    
                    $
                    20,016
                    
                    
                    $
                    37,506
                    
                    
                    $
                    61,906Cash
      paid for interest
                    
                    $
                    4,365
                    
                    
                    $
                    4,431
                    
                    
                    $
                    4,494Capital
      expenditures incurred but not yet paid
                    
                    $
                    5,718
                    
                    
                    $
                    7,781
                    
                    
                    $
                    2,290Treasury
      shares purchased not settled
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    11,849





See notes
to consolidated financial statements


F -
7


The
Dress Barn, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





1. Summary of Significant Accounting
Policies





Business





The Dress Barn, Inc. and its
wholly-owned subsidiaries (the “Company,” “we,” “our,” or similar terms) operate
a chain of women's apparel specialty stores.  The stores operate
principally under the names "dressbarn" and “dressbarn woman” and, since our January
2005 acquisition of Maurices Incorporated, “maurices.”  Our dressbarn stores are operated
mostly in a combination of dressbarn and dressbarn woman stores, or Combo stores,
which carry dressbarn
and larger-sized dressbarn woman merchandise, as well as
freestanding dressbarn
and dressbarn woman stores.  These
stores offer in-season, moderate to better quality career and casual fashion to
the working woman at value prices.  The dressbarn brands primarily
attract female consumers in the mid 30’s to mid 50’s age range.  The maurices stores are
concentrated in small markets (having populations of approximately 25,000 to
100,000) in the United States and offer moderately priced, up-to-date fashions
designed to appeal to maurices’ target customers,
the 17 to 34 year-old female. During third quarter of fiscal 2007 maurices began transitioning
out of the men’s product line in order to introduce female plus-sizes in the
fourth quarter of fiscal 2007.





Basis
of Financial Statement Presentation





Our
accounting and reporting policies conform to the generally accepted accounting
principles in the United States of America (US GAAP).





Principles
of Consolidation





The consolidated financial statements
include the accounts of the Company and our subsidiaries.  All intercompany
balances and transactions are eliminated in consolidation.  We report on a
52-53 week fiscal year ending on the last Saturday in July.  Fiscal years
2009, 2008 and 2007 consisted of 52 weeks.





Dunnigan Realty, LLC, our wholly-owned
subsidiary, was formed in fiscal 2003 to purchase, own and operate a
distribution/office facility in Suffern, New York (the “Suffern facility”), of
which the major portion is our corporate offices and dressbarn’s distribution
center.  Dunnigan Realty, LLC receives rental income and reimbursement for
taxes and common area maintenance charges from us and two additional tenants
that occupy the Suffern facility that are not affiliated with us.  The
rental income from the unaffiliated tenants is shown as “other income” on our
Consolidated Statements of Operations.  Intercompany rentals between us and
Dunnigan Realty, LLC are eliminated in consolidation.





Revenue
Recognition





Revenues from retail sales, net of
estimated returns, are recognized at the point of purchase upon delivery of the
merchandise to the customer and exclude sales taxes. The maurices segment charges its
customers a small fee to offset shipping costs to move product from store to
store for special order transactions.  Amounts related to shipping and
handling, billed to customers as part of a sales transaction, are classified as
revenue.  We record a reserve for estimated product returns when sales are
recorded based on historical return trends and is adjusted for known events, as
applicable.  The changes in the sales return reserve are summarized
below:





(amounts in thousands)
                    
                    Fiscal Year EndedJuly 25, 2009
                    
                    
                    July 26, 2008
                    
                    
                    July 28, 2007Balance
      at beginning of period
                    
                    $
                    1,714
                    
                    
                    $
                    1,571
                    
                    
                    $
                    1,550Additions
      – charge to income
                    
                    
                    7,762
                    
                    
                    
                    7,694
                    
                    
                    
                    6,760Adjustments
      and/or deductions
                    
                    
                    (7,620
                    )
                    
                    
                    (7,551
                    )
                    
                    
                    (6,739
                    )Balance
      at end of period
                    
                    $
                    1,856
                    
                    
                    $
                    1,714
                    
                    
                    $
                    1,571




Sales
from purchases made with gift cards and gift certificates or by layaway are
recorded when the customer takes possession of the merchandise.  Gift
cards, gift certificates and merchandise credits (collectively “gift cards”) do
not have expiration dates.  We recognize income on unredeemed gift cards
(“gift card breakage”) when it can be determined that the likelihood of the
remaining balances being redeemed are remote and that there are no legal
obligations to remit the remaining balances to relevant jurisdictions. 
Prior to fiscal 2007, we were unable to reliably estimate such gift card
breakage and therefore recorded no such income in fiscal 2006, or prior
years.  During the fourth quarter of fiscal 2007, we accumulated a
sufficient level of historical data to determine an estimate of gift card
breakage for the first time. Gift card breakage is included in net sales in the
Consolidated Statements of Operations.


F -
8




Cost
of Sales, Including Certain Buying, Occupancy and Warehousing Expenses,
excluding depreciation




Cost of sales consists of net
merchandise costs, including design, sourcing, importing and inbound freight
costs, as well as markdowns, shrinkage and promotional costs.  Buying,
occupancy and warehousing costs consist of compensation and travel expenses for
our buyers and certain senior merchandising executives; rent related to our
stores, corporate headquarters, distribution centers and other office space;
freight from our distribution centers to the stores; and compensation and
supplies for our distribution centers, including purchasing, receiving and
inspection costs. Our cost of sales may not be comparable to those of other
entities, since some entities include all costs related to their distribution
network including depreciation and all buying and occupancy costs in their cost
of sales, while other entities, including us, exclude a portion of these
expenses from cost of sales and include them in selling, general and
administrative expenses or depreciation. We include depreciation related to the
distribution network in depreciation and amortization, and utilities and
insurance expenses, among other expenses, in selling, general and administrative
expenses in the Consolidated Statements of Operations.





Selling,
General and Administrative Expenses





Selling,
general and administrative expenses consist of compensation and employee benefit
expenses, other than for our design and sourcing teams, our buyers and our
distribution centers personnel.  Such compensation and employee benefit
expenses include salaries, incentives, share based compensation and related
benefits associated with our stores and corporate headquarters, except as
previously noted.  Selling, general and administrative expenses also
include advertising costs, supplies for our stores and home office,
communication costs, travel and entertainment, leasing costs and services
purchased.





Segments





Our
reportable segments are the dressbarn brands, which are
used in 684 Combo stores (a combination of dressbarn and dressbarn woman stores), 120 dressbarn stores, and 34 dressbarn woman stores in 47 states as
of July 25, 2009 and the maurices brand, which is used
in 721 stores in 44 states as of July 25, 2009.





Our dressbarn stores are operated
mostly in a combination of dressbarn and dressbarn woman stores, or Combo stores,
which carry dressbarn
and larger-sized dressbarn woman merchandise, as well as
freestanding dressbarn
and dressbarn woman stores.  The dressbarn brands primarily
attract female consumers in the mid 30’s to mid 50’s age range, while maurices’ fashions are
designed to appeal to the 17 to 34 year-old-female.  During the third
quarter of fiscal 2007 maurices began transitioning
out of the men’s product line in order to introduce female plus-sizes in the
fourth quarter of fiscal 2007. Our maurices stores are
concentrated in small markets in the United States, while our dressbarn and dressbarn woman stores tend to be in
larger population markets.  Additionally, maurices distributes goods to
its stores through a separate distribution center.  maurices also has separate
financial reporting systems from dressbarn.  We believe
that maurices is
currently a reportable segment due to management’s review of maurices’ separately available
operating results and other financial information to regularly assess its
performance for decision-making purposes.





Cash
and Cash Equivalents





We consider highly liquid investments
with maturities of three months or less when purchased to be cash
equivalents.  These amounts are stated at cost, which approximates market
value.  We also consider receivables related to credit card purchases to be
equivalent to cash.  The majority of our money market funds at July 25,
2009 were maintained with one financial institution.  We maintain our cash
deposits and cash equivalents with well-known and stable financial
institutions.  However, we have significant amounts of cash and cash
equivalents at these financial institutions that are in excess of federally
insured limits. This represents a concentration of credit risk.  With the
current financial environment and the instability of financial institutions we
cannot be assured that we will not experience losses on our deposits, however,
we have not experienced any losses on our deposits of cash and cash equivalents
to date.


F -
9





Investment
securities





We have categorized our auction rate
securities as available for sale and trading securities, stated at market
value.  The unrealized holding gains and losses are included in other
comprehensive income, a component of shareholders’ equity, until realized. 
The amortized cost is adjusted by the amortization of premiums and discounts to
maturity, with the net amortization included in interest income.  During
third quarter of fiscal 2008, we classified our auction rate securities (“ARS”)
as long-term. We believe this classification is still appropriate for our fiscal
2009 Consolidated Balance Sheet based on our belief that the market for these
instruments may take in excess of 12 months to fully recover due to the current
disruptions in the credit markets.  Additionally, in fiscal 2009, we have
recognized a $5.8 million temporary unrealized loss in fair value of our ARS,
with an offsetting entry to accumulated other comprehensive (loss) income. We
currently believe that this temporary decline in fair value is due entirely to
liquidity issues, because the underlying assets for the vast majority of ARS are
backed by the U.S. government.  Management believes that our available
working capital, excluding the funds held in ARS, will be sufficient to meet our
cash requirements for at least the next 12 months.





In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (“SFAS No. 159”), and therefore, recorded interest income
and recorded a corresponding other asset. Simultaneously, we transferred these
long term auction rate securities from available-for-sale to trading investment
securities at market value on our Consolidated Balance Sheets.  See Note 2
for further detail.





Merchandise
Inventories





We value
our merchandise inventories at the lower of cost, on a First In First Out (FIFO)
basis, or market, as determined by the retail inventory method.  Under the
retail inventory method, the valuation of inventory at cost and resulting gross
margin are calculated by applying a calculated cost to retail ratio to the
retail value of inventory.  Physical inventories are conducted in the third
and fourth quarters to calculate actual shrinkage and inventory on hand. 
Estimates are used to charge inventory shrinkage for the remaining quarters of
the fiscal year.





Property
and Equipment





Property and equipment are carried at
cost less accumulated depreciation. Depreciation is calculated using the
straight-line method over the estimated useful lives. The depreciable lives for
buildings is 25 years, furniture and fixtures and machinery and equipment is 10
years, data processing equipment is 7 years, automobiles are 5 years and
software is approximately 5 years.  Leasehold improvements are amortized
over the shorter of their estimated useful lives or the related lease life,
generally 10 years.  For leases with renewal periods at our option, we
generally use the original lease term, excluding renewal option periods to
determine estimated useful lives; if failure to exercise a renewal option
imposes an economic penalty to us, management determines at the inception of the
lease that renewal is reasonably assured and includes the renewal option period
in the determination of appropriate estimated useful lives.  The costs of
repairs and maintenance are expensed when incurred, while expenditures for
refurbishments and improvements that significantly add to the productive
capacity or extend the useful life of an asset are capitalized.





Impairment
of Long-Lived Assets





We primarily invest in property and
equipment in connection with the opening and remodeling of stores.  When
facts and circumstances indicate that the carrying values of such long-lived
assets may be impaired, an evaluation of recoverability is performed by
comparing the carrying values of the assets to projected future cash flows, in
addition to other quantitative and qualitative analyses.  Upon indication
that the carrying values of such assets may not be recoverable, we recognize an
impairment loss as a charge against current operations.  Property and
equipment assets are grouped at the lowest level for which there is identifiable
cash flows when assessing impairment, which is the individual store level. 
Judgments made by us related to the expected useful lives of long-lived assets
and our ability to realize undiscounted cash flows in excess of the carrying
amounts of such assets are affected by factors such as the ongoing maintenance
and improvements of the assets, changes in economic conditions and changes in
operating performance.  In addition, we regularly evaluate our
computer-related and other assets for recoverability.  Based on the review
of certain under performing stores, we recorded impairment charges and store
closings expenses that are included in selling, general and administrative
expenses of $5.1 million in fiscal 2009, $3.5 million in fiscal 2008,and $1.7
million in fiscal 2007.  These impairment losses reflect the amount of book
value over estimated fair market value of store related assets.


F -
10





Costs
of Computer Software





We capitalize certain costs associated
with computer software developed or obtained for internal use in accordance with
the provisions of Statement of Position No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use (SOP 98-1), issued by the
American Institute of Certified Public Accountants (AICPA).  We capitalize
those costs from the acquisition of external materials and services associated
with developing or obtaining internal use computer software.  We capitalize
certain payroll costs for employees that are directly associated with internal
use computer software projects once specific criteria of SOP 98-1 are met. 
We expense those costs that are associated with preliminary stage activities,
training, maintenance, and all other post-implementation stage activities as
they are incurred.  We amortize all costs capitalized in connection with
internal use computer software projects on a straight-line basis over the useful
life of the asset, beginning when the software is ready for its intended
use.





Insurance
Reserves





We use a combination of insurance and
self-insurance mechanisms to provide for the potential liabilities associated
with workers’ compensation and employee healthcare benefit claims. Liabilities
associated with the risks that are retained by us are estimated, in part, by
considering historical claims experience, demographic factors, severity factors
and other actuarial assumptions. Such liabilities are capped through the use of
stop loss contracts with insurance companies.  The estimated accruals for
these liabilities could be significantly affected if future occurrences and
claims differ from these assumptions and historical trends. As of July 25, 2009
and July 26, 2008 these reserves were $10.4 million and
$9.3 million, respectively.





Income
Taxes





We account for income taxes in
accordance with SFAS No. 109,Accounting for Income
Taxes(SFAS No.
109), which requires the use of the asset and 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. We establish valuation allowances against deferred tax
assets when it is more likely than not that the realization of those deferred
tax assets will not occur.




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. We file a
consolidated Federal income tax return.




Additionally,
we adopted Financial Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in
Income Taxes – An Interpretation of FASB Statement No. 109,  or (FIN
48), on July 29, 2007, the first day of fiscal 2008.  FIN 48 seeks to
reduce the diversity in practice associated with certain aspects of measurement
and recognition in accounting for income taxes.  FIN 48 prescribes a
recognition threshold and measurement requirement for the financial statement
recognition of a tax position that has been taken or is expected to be taken on
a tax return and also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.  Under FIN 48 we may only recognize tax positions that meet a
“more likely than not” threshold. We recorded the cumulative effect of applying
FIN 48 of $4.9 million as an adjustment to the opening balance of retained
earnings on July 29, 2007, the first day of our fiscal 2008. See Note 11,
“Income Taxes,” for additional information.





Goodwill
and Other Intangible Assets





Goodwill represents the excess of the
purchase price over the fair values of net identifiable assets acquired. 
In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, we test our goodwill for impairment using a fair value approach
on an annual basis, or more frequently if events or circumstances occur that
would more likely than not reduce the fair value below the carrying value. We
have elected the June 30th of each
fiscal year as our measurement date.





The
goodwill impairment test is a two-step impairment test. In the first step, we
compare the fair value to the carrying value. If the fair value exceeds the
carrying value of the net assets, goodwill is not impaired and we are not
required to perform further testing. If the carrying value of the net assets
exceeds the fair value, we must perform the second step in order to determine
the implied fair value of the goodwill and compare it to the carrying value of
the goodwill. The activities in the second step include valuing the tangible and
intangible assets and liabilities based on their fair value and determining the
fair value of the impaired goodwill based upon the residual of the summed
identified tangible and intangible assets and liabilities.


F -
11





In
performing our impairment tests related to goodwill, we determine the fair value
of our reporting units using a combination of a discounted cash flow approach
and a market value approach. The discounted cash flow approach uses projections
of estimated operating results and cash flows and applies a weighted-average
cost of capital that reflects current market conditions. A key assumption in our
fair value estimate is the weighted average cost of capital used for discounting
our cash flow projections. We believe the rate we used is consistent with the
risks inherent in our business and with the retail industry. The market value
approach estimates fair value by applying cash flow multiples to the operating
performance. The multiples are derived from comparable publicly traded companies
with similar operating characteristics. The evaluation of goodwill requires us
to use significant judgments and estimates, including but not limited to market
multiples, projected future revenues and expenses, changes in gross margins,
cash flows, and estimates of future capital expenditures. Our estimates may
differ from actual results due to, among other things, economic conditions,
changes to our business model, or changes in operating performance. Significant
differences between these estimates and actual results could result in future
impairment charges and could materially affect our future financial results. See
Note 5 “Goodwill and Other Intangible Assets,” for additional
information.





We have
performed a sensitivity analysis on our significant assumptions and determined
that a negative change in our assumptions,
as follows, would not have resulted in a change in conclusion in 2009: 1%
increase in the discount rate, 10% decrease in the
market approach multiple, 10% decrease in forecasted net income. Trademarks that
have been determined to have indefinite lives are also not subject to
amortization and are reviewed at least annually for potential impairment, as
mentioned above. The fair value of our trademarks are estimated and compared to
their carrying value. We estimate the fair value of these intangible assets
based on an income approach using the relief-from-royalty method. This
methodology assumes that, in lieu of ownership, a third party would be willing
to pay a royalty in order to exploit the related benefits of these types of
assets. This approach is dependent on a number of factors, including estimates
of future sales, royalty rates in the category of intellectual property,
discount rates, and other variables. Significant differences between these
estimates and actual results could materially affect our future financial
results. See Note 5 “Goodwill and Other Intangible Assets,” for additional
information.





As the
retail industry continues to be materially impacted by the deterioration of the
U.S. economic environment, we may be required to perform additional interim
tests of impairment on our goodwill and intangible assets which may result in
significant charges.





Store
Preopening Costs





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





Marketing
and Advertising Costs





Marketing and advertising costs are
included in selling, general and administrative expenses and are expensed the
first time the advertising campaign takes place.  Marketing and advertising
expenses were $24.5 million for fiscal 2009, $25.1 million for fiscal 2008, and
$21.3 million for fiscal 2007.





Operating
Leases





We lease retail stores under operating
leases.  Most lease agreements contain construction allowances and rent
escalations.  For purposes of recognizing incentives and minimum rental
expenses on a straight-line basis over the terms of the leases, we use the date
of initial possession to begin amortization, which is generally when we enter
the space and begin to make improvements in preparation of intended
use.





For construction allowances, we record
a deferred rent liability in “Other accrued expenses” and “Deferred rent and
lease incentives” on the Consolidated Balance Sheets and amortize the deferred
rent over the term of the respective lease as reductions to “Cost of sales,
including occupancy and buying costs” on the Consolidated Statements of
Operations.





For
scheduled rent escalation clauses during the lease terms or for rental payments
commencing at a date other than the date of initial occupancy, we record minimum
rental expenses on a straight-line basis over the terms of the
leases.


F -
12





Certain leases provide for contingent
rents, which are determined as a percentage of gross sales in excess of
specified levels. We record a contingent rent liability in “Other accrued
expenses” on our Consolidated Balance Sheets and the corresponding rent expense
on the Consolidated Statements of Operations when specified levels have been
achieved or when management determines that achieving the specified levels
during the fiscal year is probable.





Use
of Estimates





The preparation of the financial
statements in conformity with US GAAP requires us to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes.  The more significant items subject to
such estimates and assumptions include fair value of our equity securities,
investment securities, carrying amount of property and equipment, goodwill,
other intangible assets, obligations related to employee benefits, inventory
valuation, insurance reserves, and accounting for income taxes.  Actual
results could differ from those estimates.





Comprehensive
Income





Comprehensive (loss)/income is
calculated in accordance with SFAS No. 130, Reporting Comprehensive
Income, and includes our net earnings and unrealized gains and losses on
both current and long-term available-for-sale investment securities. 
Cumulative unrealized gains and losses on available-for-sale investment
securities are reflected as accumulated other comprehensive (loss) income in
shareholders’ equity.  We have recognized $5.8 million and $3.3 million
during the fifty-two weeks ended July 25, 2009 and July 26, 2008, respectively,
of a temporary unrealized loss in fair value of our ARS, with an offsetting
entry to accumulated other comprehensive (loss) income.





Share-Based
Compensation





Effective July 31, 2005, we began
recording compensation expense associated with stock options and other forms of
equity compensation in accordance with SFAS No. 123R, Share-Based Payment, (“SFAS
No. 123R”) as interpreted by SEC Staff Accounting Bulletin No. 107, Valuation of share-based payment
arrangements for public companies, (SAB 107).  Prior to
July 31, 2005, we had accounted for stock options according to the
provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, and therefore no related
compensation expense was recorded for awards granted with no intrinsic
value.  We adopted the modified prospective transition method provided
under SFAS No. 123R, and, consequently, have not retroactively adjusted results
from prior periods.  Under this transition method, compensation cost
associated with stock options recognized in the fiscal year ended July 29, 2006
(“fiscal 2006”) includes: 1) amortization related to the remaining unvested
portion of all stock option awards granted prior to July 31, 2005, based on
the grant date fair value estimated in accordance with the original provisions
of SFAS No. 123; and 2) amortization related to all stock option awards
granted subsequent to July 31, 2005, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123R.





During the fifty-two weeks
ended July 25, 2009, July 26, 2008, and July 28,2007 we recognized
approximately $6.3 million, $5.3 million, and $5.2 million,
respectively, in share-based compensation expense related to stock options.
During the fifty-two weeks ended July 25, 2009,July 26, 2008,andJuly 28, 2007 we recognizedapproximately$0.3 million,
$1.3million and $1.1million, respectively, in
share-based compensation expense related to restricted stock.





The fair values of the options granted
under our fixed stock option plans were estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:





Fiscal Year EndedJuly 25,
                    2009
                  
                  
                  July 26,
                    2008
                  
                  
                  July 28,
                    2007Weighted
      average risk-free interest rate
                  
                  
                  2.6
                  %
                  
                  
                  4.1
                  %
                  
                  
                  4.5
                  %Weighted
      average expected life (years)
                  
                  
                  4.9
                  
                  
                  
                  4.8
                  
                  
                  
                  4.7Expected
      volatility of the market price of our common stock
                  
                  
                  40.5
                  %
                  
                  
                  39.5
                  %
                  
                  
                  39.5
                  %Expected
      dividend yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %
                  
                  
                  0
                  %


F -
13





The
Black-Scholes option pricing model was developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable.  The expected life of options represents the period of time
the options are expected to be outstanding and is based on historical
trends.  We compiled historical data on an employee-by-employee basis from
the grant date through the settlement date.  The results showed that there
were four distinct populations of optionees, the Executives & Officers
Group, the Outside Directors group, the Store Managers group and the All Others
Group.  Thus, we will use different expected term assumptions for these
four groups in estimating fair value, as this approach is more precise and
yielded a more accurate estimate of fair value than using one term assumption
for all groups.  The risk-free rate is based on the yield of a US Treasury
strip rate with a maturity date corresponding to the expected term of the option
granted.  The expected volatility assumption is based on the historical
volatility of our stock over a term equal to the expected term of the option
granted.  All option valuation models require input of highly subjective
assumptions.  Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, the
actual value realized at the time the options are exercised may differ from the
estimated values computed above.  SFAS No. 123R also requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.





Fair
Value of Financial Instruments





Concentration of Credit
Risk - Financial Instruments, which potentially subjects us to concentrations of
credit risk, are principally bank deposits and short-term security
investments.  Cash and cash equivalents are deposited with high credit
quality financial institutions.  Short-term investments principally consist
of “triple A” or “double A” rated 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 July 25, 2009 and July 26, 2008, our
financial instruments consisted primarily of cash, cash equivalents, current
marketable security investments, and payables.  We believe that the
carrying value of these assets and liabilities are representative of their
respective fair values because of the short maturity of these financial
instruments. The Convertible Senior Notes are carried on the cost basis. The
market value of the Senior Notes on July 24, 2009 was $176.1 million as valued
on PORTAL (Private Offering Resale and Trading through Automated
Linkage).





As of July 25, 2009, we had
approximately $30.8 million of  long-term marketable security investments
which consisted of $39.9 million of ARS at cost, less a valuation allowance of
$9.1 million to reflect our estimate of fair value given the current lack of
liquidity of these investments while taking into account the current credit
quality of the underlying securities. See Note 2 “Investment Securities”
for additional information.





In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, and therefore, recorded interest income and
recorded a corresponding other asset. Simultaneously, we transferred these long
term auction rate securities from available-for-sale to trading investment
securities at market value on our Consolidated Balance Sheets.  See Note 2
for further detail.





Treasury
(Reacquired) Shares





Shares repurchased are retired and
treated as authorized but unissued shares, with the cost of the reacquired
shares recorded in retained earnings and the par value recorded in common
stock.


F -
14





Recent
Accounting Pronouncements


(Recently
Adopted)




In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard was effective
for fiscal years beginning after November 15, 2007 (our fiscal 2009).  In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (“FSP 157-1”) and 157-2,
Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP157-1 amends
SFAS No. 157 to exclude FASB Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements of leases from
the provisions of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No.
157 for most nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008 (our fiscal 2010).  As a result, the
application of the definition of fair value and related disclosures of SFAS
No. 157 (as impacted by these FSPs) was effective for our Company beginning
with the first quarter of fiscal 2009.  This adoption did not have a
material impact on our consolidated results of operations or financial condition
for the first quarter of our fiscal 2009.  We have not completed our
evaluation of the potential impact, if any, from the remaining aspects of SFAS
No. 157 for which the effective date was deferred under FSP 157-2, on our
consolidated financial position, results of operations and cash flows.  On
October 10, 2008, the FASB issued FSP 157-3, Fair Value Measurements (“FSP
157-3”), which clarifies the application of SFAS No. 157 in an inactive
market and provides an example to demonstrate how the fair value of a financial
asset is determined when the market for that financial asset is inactive. FSP
157-3 was effective upon issuance, including prior periods for which financial
statements had not been issued. The adoption of this standard as of
October 25, 2008 did not have a material impact on our results of
operations, cash flows or financial positions.  Please refer to Note 3 to
our consolidated financial statements included elsewhere herein for disclosures
related to our initial adoption of SFAS No. 157.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (“SFAS No. 159”).  SFAS
No. 159 permits an entity to choose, at specified election dates, to
measure eligible financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. An entity reports
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  Upfront costs and
fees related to items for which the fair value option is elected are recognized
in earnings as incurred and not deferred.  SFAS No. 159 also
established presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities.  As a result, the application of
the fair value option for financial assets and financial liabilities of SFAS No.
159 was effective for our Company beginning with the first quarter of fiscal
2009.  At the effective date, an entity could elect the fair value option
for eligible items that existed at that date and is required to report the
effect of the first remeasurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. We chose not to elect
the fair value option for our financial assets and liabilities existing on July
27, 2008, and did not elect the fair value option for any financial assets and
liabilities transacted during the twelve months ended July 25, 2009, except for
a put option related to our auction rate securities that was recorded in
conjunction with a settlement agreement with one of our investment firms, as
more fully described in Note 2 to our consolidated financial statements included
elsewhere herein.




In April
2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FSP
FAS 157-4”).  This FSP clarifies the application of SFAS No. 157
when there is no active market or where the price inputs being used represent
distressed sales.  Additional guidance is provided regarding estimating the
fair value of an asset or liability (financial and nonfinancial) when the volume
and level of activity for the asset or liability have significantly decreased
and identifying transactions that are not orderly. FSP FAS 157-4 is effective
for interim and annual periods ending after June 15, 2009.  The
adoption of SFAS 157-4 did not impact our results of operations, cash flows or
financial positions.




In April
2009, the FASB issued FSP No. FAS 115-2, Recognition and Presentation of
Other-Than-Temporary Impairments (“FSP FAS 115-2”). This FSP provides additional
guidance to provide greater clarity about the credit and noncredit component of
an other-than-temporary impairment event and to more effectively communicate
when an other-than-temporary impairment event has occurred.  This FSP
applies to debt securities.  FSP FAS 115-2 will be effective for interim
and annual periods ending after June 15, 2009.  The adoption of FSP
FAS 115-2 did not impact our results of operations, cash flows or financial
positions.




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB
28-1”).  This FSP amends FASB Statement No. 107, Disclosures about
Fair Value of Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial
statements.  This FSP also amends APB Opinion No. 28, Interim
Financial Reporting, to require those disclosures in all interim financial
statements.  FSP FAS 107-1 and APB 28-1 is effective for interim and
annual periods ending after June 15, 2009.  The adoption of FSP
FAS 107-1 and APB 28-1 did not impact our results of operations, cash
flows or financial positions.


F -
15





In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No.
165”). SFAS No. 165 was issued in order to establish principles and
requirements for reviewing and reporting subsequent events and requires
disclosure of the date through which subsequent events are evaluated and whether
the date corresponds with the time at which the financial statements were
available for issue (as defined) or were issued. SFAS No. 165 is effective
for interim reporting periods ending after June 15, 2009. The adoption of
SFAS No. 165 did not impact our results of operations, cash flows or
financial positions. We have evaluated events and transactions that occurred
after July 25, 2009 through September 21, 2009, the date we issued these
financial statements. During this period, we did not have any material
recognizable subsequent events.





Recently
Issued





In
December 2007, the FASB issued SFAS No. 141R (revised 2007),Business Combinations
(“SFAS No. 141R”), which replaces SFAS No. 141, Business Combinations. 
SFAS No. 141R was issued to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects.  In April 2009, the FASB issued FSP No. 141R-1,Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies (“FSP 141 R-1”). FSP 141 R-1 was issued to deal with the initial
recognition and measurement of an asset acquired or a liability assumed in a
business combination that arises from a contingency provided the asset or
liability’s fair value on the date of acquisition can be determined. This
Statement is effective as of the beginning of an entity’s fiscal year that
begins after December 15, 2008 (our fiscal 2010) and will be applied to the
pending Tween Brands, Inc. merger, if consummated.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated.  The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS
No.160 is effective as of the beginning of an entity’s fiscal year that begins
after December 15, 2008 (our fiscal 2010). The adoption of SFAS No. 160 will not
have a material impact on our consolidated financial statements.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No.
161”).  SFAS No. 161 amends and expands the disclosure requirements of SFAS
No. 133 with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  This Statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 (our fiscal 2010), with early application
encouraged.  The adoption of SFAS No. 161 will not have a material impact
on our consolidated financial statements.





In April
2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible
Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS No. 142”). The objective of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R, and other generally accepted accounting
principles in the United States (“GAAP”).  FSP 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise, and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008 (our fiscal 2010), and interim periods within those
fiscal years and should be applied prospectively to intangible assets acquired
after the effective date. Early adoption is prohibited. We are in the process of
evaluating FSP 142-3 and do not expect it to have a significant impact on our
consolidated financial statements.


F -
16





In May
2008, the FASB issued Staff Position (“FSP”) Accounting Principles Board (“APB”)
No.14-1, “Accounting for Convertible Debt Instruments That May Be Settled in
Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB
14-1”). FSP APB 14-1 clarifies that convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants.” Additionally,
FSP APB 14-1 specifies that issuers of such instruments should separately
account for the liability and equity components in a manner that will reflect
the entity’s nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods. FSP APB 14-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008 (our Fiscal 2010), and
interim periods within those fiscal years. We will adopt the provisions of FSP
APB 14-1 on July 26, 2009 and will be required to retroactively apply its
provisions. The adoption of FSP APB 14-1 is expected to result in approximately
$33.4 million of the carrying value of the 2.5% Convertible Senior Notes to be
reclassified to equity as of the December 2004 issuance date. This amount
represents the equity component of the proceeds from the notes calculated
assuming an 8.0% non-convertible borrowing rate. The discount will be accreted
to interest expense over the 7 year period to the first put date of the notes in
2011. Accordingly, beginning in fiscal year 2010, we will revise our
consolidated statements of operations to reflect the additional pre-tax non-cash
interest expense of approximately $5.2 million, $4.8 million, $4.4 million, $4.0
million, and $2.2 million for 2009, 2008, 2007, 2006, and 2005,
respectively.




In
June 2009, the FASB issued SFAS No. 166,Accounting for
Transfers of Financial Assets — an amendment of FASB Statement No. 140(“SFAS
No. 166”). SFAS No. 166 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets, the
effects of a transfer on its financial position, financial performance, and cash
flows, and a transferor’s continuing involvement, if any, in transferred
financial assets.  Additionally, SFAS No. 166 removes the concept of a
qualifying special-purpose entity from Statement 140,“Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”,  and
removes the exception from applying FASB Interpretation No. 46 (revised
December 2003),“Consolidation of
Variable Interest Entities”,  to qualifying special-purpose entities. 
SFAS No. 166 is effective for financial statements issued for interim and
annual periods beginning after November 15, 2009 (our fiscal
2011). We have not completed our evaluation of the potential impact, if
any, of the adoption of SFAS No. 166 on our consolidated financial
statements.





In
June 2009, the FASB issued SFAS No. 167,Amendmentsto FASB Interpretation
No. 46(R)(“SFAS
No. 167”). This
statement amends Interpretation 46(R) to require an enterprise to perform
an analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. 
SFAS No. 167 is effective for financial statements issued for interim and
annual periods beginning after November 15, 2009 (our fiscal 2011). 
Earlier application is prohibited. We have not completed our evaluation of
the potential impact, if any, of the adoption of SFAS No. 167 on our
consolidated financial statements.





In
June 2009, the FASB issued SFAS No. 168,The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162 (“SFAS
No. 168”). SFAS
No. 168 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP.
TheFASB
Accounting Standards Codification (the “Codification”) will become the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this statement, the Codification will
supersede all then-existing non-SEC accounting and reporting standards. With
limited exceptions, non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS No. 168 will be effective in
the first quarter of fiscal 2010.


F -
17





2.
            Investment
      Securities





The
following is a summary of our investment securities as of July 25, 2009 and July
26, 2008:


(Amounts in thousands)
                  
                  July25,2009
                  
                  
                  July26,2008Estimated
                    FairValue
                  
                  
                  Amortized
                    Cost
                  
                  
                  Estimated
                    FairValue
                  
                  
                  Amortized
                    CostAvailable-for-sale
      securities short term:Municipal
      bonds
                  
                  $
                  101,655
                  
                  
                  $
                  100,975
                  
                  
                  $
                  92,642
                  
                  
                  $
                  92,365Auction
      rate securities
                  
                  
                  4,545
                  
                  
                  
                  4,545
                  
                  
                  
                  55
                  
                  
                  
                  55Trading
      securities:Auction
      rate securities
                  
                  
                  6,798
                  
                  
                  
                  6,798
                  
                  
                  
                  —
                  
                  
                  
                  —Total
      short term Investment Securities
                  
                  
                  112,998
                  
                  
                  
                  112,318
                  
                  
                  
                  92,697
                  
                  
                  
                  92,420Available-for-sale
      securities long term:Auction
      rate securities
                  
                  
                  30,813
                  
                  
                  
                  39,900
                  
                  
                  
                  58,404
                  
                  
                  
                  61,720Total
      long term Investment Securities
                  
                  
                  30,813
                  
                  
                  
                  39,900
                  
                  
                  
                  58,404
                  
                  
                  
                  61,720Total
      Investment Securities
                  
                  $
                  143,811
                  
                  
                  $
                  152,218
                  
                  
                  $
                  151,101
                  
                  
                  $
                  154,140





Our
available-for-sale investment securities are comprised of municipal bonds and
auction rate securities.  The primary objective of our short term
investments securities is to preserve our capital for the purpose of funding
operations.  We do not enter into short term investments for trading or
speculative purposes.  The fair value for the municipal bonds is based on
unadjusted quoted market prices for the municipal bonds in active markets with
sufficient volume and frequency.  Auction rate securities (“ARS”) are
variable-rate debt securities. ARS have a long-term maturity with the interest
rate being reset through Dutch auctions that are typically held every 7, 28 or
35 days. Interest is paid at the end of each auction period.  The vast
majority of our auction rate securities are  AAA/Aaa rated with the
majority collateralized by student loans guaranteed by the U.S. government under
the Federal Family Education Loan Program and the remaining securities backed by
monoline insurance companies.  The cost of securities sold is based on the
specific identification method.





Disruptions
in the credit markets have adversely affected the auction market for ARS. We
classify our net $30.8 million investment in available-for-sale ARS as long-term
assets on our Consolidated Balance Sheets because of our inability to determine
when our investments in ARS would sell. While failures in the auction process
have affected our ability to access these funds in the near term, we do not
believe that the underlying securities or collateral have been permanently
affected. We determined that the $9.1 million valuation adjustment for the
quarter ended July 25, 2009 was not other-than-temporary, and therefore was
recorded within the other comprehensive (loss) income component of shareholders’
equity and did not affect our earnings. If the current market conditions
deteriorate further, or a recovery in market values does not occur, we may be
required to record additional unrealized or realized losses in future periods.
Management believes that the working capital available, excluding the funds held
in ARS, will be sufficient to meet our cash requirements for at least the next
12 months.





F -
18




In
November 2008, we accepted a settlement offer whereby UBS would purchase
eligible ARS it sold to us prior to February 13, 2008 (“Settlement Agreement”).
Under the terms of the Settlement Agreement, at our option, UBS will purchase
eligible ARS from us at par value during the period June 30, 2010 through July
2, 2012. UBS has offered to also provide us with access to “no net cost” loans
up to 75% of the par value of eligible ARS until June 30, 2010. We held
approximately $7.2 million, at par value, of eligible ARS with UBS as of
November 2008. By entering into the Settlement Agreement, we (1) received
the right (“Put Option”) to sell these auction rate securities back to the
investment firm at par, at our sole discretion, anytime during the period from
June 30, 2010 through July 2, 2012, and (2) gave the investment
firm the right to purchase these auction rate securities or sell them on our
behalf at par anytime after the execution of the Settlement Agreement through
July 2, 2012. We elected to measure the Put Option under the fair value
option of SFAS No. 159, and therefore, recorded interest income and
recorded a corresponding long term other asset. Simultaneously, we transferred
these long term auction rate securities from available-for-sale to trading
investment securities at market value on our consolidated balance sheets. 
The net effect of the initial transaction resulted in an other-than-temporary
pre-tax loss of $0.2 million.





At July
25, 2009, the fair value of the auction rate securities and the put option was
estimated at $6.8 million and $0.2 million, respectively.  As a result, we
recorded a net pre-tax loss of approximately $0.1 million for the fiscal year
ended July 25, 2009.  As of July 25, 2009, we classified these trading
auction rate securities as short-term securities on our Consolidated Balance
Sheets due to the expected timing of when these securities will be redeemed at
par value by our broker.  We anticipate that any future changes in the fair
value of the Put Option will be offset by the changes in the fair value of the
related auction rate securities with no material net impact to our consolidated
statements of operations.





We review
our impairments in accordance with SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities, (“SFAS No. 115”), and related
guidance issued by the FASB and the Securities and Exchange Commission (“SEC”)
in order to determine if the classification of the impairment is
“other-than-temporary”.  An other-than-temporary impairment charge results
in a realized loss being recorded in the statements of operations. 
Otherwise, the unrealized loss is recorded as a component of other comprehensive
(loss) income in shareholders’ equity.  Such an unrealized loss does not
affect net income for the applicable accounting period.  To determine the
fair value of the ARS, we used the discounted cash flow model, and considered
factors such as the fact that historically, these securities had identical par
and fair value, and the fact that rating agencies see a majority of these as
AAA/Aaa.  If the cost of an investment exceeds its fair value, in making
the judgment of whether there has been an other-than-temporary impairment, we
consider available quantitative and qualitative evidence, including, among other
factors, our intent and ability to hold the investment to maturity, the duration
and extent to which the fair value is less than cost, specific adverse
conditions related to the financial health of and business outlook for the
investee and rating agency actions.





We
periodically review our investment portfolio to determine if there is an
impairment that is other-than-temporary, and to date have not experienced any
impairment in our investments that were other-than-temporary with the exception
of the UBS ARS described above.  In evaluating whether the individual
investments in the investment portfolio are not other-than-temporarily impaired,
we considered the credit rating of the individual securities, the cause of the
impairment of the individual securities, and the severity of the impairment of
the individual securities.





We
purchase investments and investment securities that have been designated as
“available-for-sale” as required by SFAS No. 115. Available-for-sale securities
are carried at fair value with the unrealized gains and losses reported in
shareholders’ equity under the caption “Accumulated Other Comprehensive (Loss)
Income.”  The cost of securities sold is based on the specific
identification method.





The
estimated fair value and amortized cost of our available-for-sale investment
securities and investments by contractual maturities at July 25, 2009 is as
follows:





(Amounts
in thousands)


Due In
                      
                      Estimated
                        Fair Value
                      
                      
                      Amortized
                        CostOne
      year or less
                      
                      $
                      64,136
                      
                      
                      $
                      63,799One
      year through five years
                      
                      
                      30,833
                      
                      
                      
                      30,518Over
      five years through ten years
                      
                      
                      2,682
                      
                      
                      
                      2,665Over
      ten years
                      
                      
                      46,160
                      
                      
                      
                      55,236Total
                      
                      $
                      143,811
                      
                      
                      $
                      152,218


F -
19





3. 
Measurement of Fair Value





Effective
July 27, 2008, we adopted SFAS No. 157, which provides a framework for
measuring fair value under GAAP.  As defined in SFAS No. 157, fair value is
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price).  In determining fair value in accordance
with SFAS No. 157, we utilize market data or assumptions that we believe market
participants would use in pricing the asset or liability that maximize the use
of observable inputs and minimize the use of unobservable inputs to the extent
possible, including assumptions about risk and the risks inherent in the inputs
to the valuation technique.  Classification of the financial asset or
liability within the hierarchy is determined based on the lowest level input
that is significant to the fair value measurement.





SFAS No.
157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement).  The three levels of the fair value hierarchy defined by SFAS
No. 157 are as follows:





Level 1
            Quoted
      prices are available in active markets for identical assets or liabilities
      as of the reporting date.  Active markets are those in which
      transactions for the asset or liability occur in sufficient frequency and
      volume to provide pricing information on an ongoing
  basis.





Level 2
            Financial
      instruments lacking unadjusted, quoted prices from active market
      exchanges, including over-the-counter traded financial
      instruments. The prices for the financial instruments are determined
      using prices for recently traded financial instruments with similar
      underlying terms as well as directly or indirectly observable inputs, such
      as interest rates and yield curves that are observable at commonly quoted
      intervals.





Level 3
            Financial
      instruments that are not actively traded on a market exchange. This
      category includes situations where there is little, if any, market
      activity for the financial instrument. The prices are determined using
      significant unobservable inputs or valuation
  techniques.





As of July 25, 2009, our financial
assets utilizing Level 1 are our short term investment securities in municipal
bonds.  The fair value is based on unadjusted quoted market prices for the
municipal bonds in active markets with sufficient volume and frequency.  We
did not have any financial assets utilizing Level 2 inputs.  Financial
assets utilizing Level 3 inputs included long term investments in auction rate
securities consisting of securities collateralized primarily by student loans,
and a related put option (see Note 2 for further detail).  The fair value
measurements for items in Level 3 have been estimated using an income-approach
model.  The model considers factors that reflect assumptions market
participants would use in pricing, including, among others: the
collateralization underlying the investments; the creditworthiness of the
counterparty; expected future cash flows, including the next time the security
is expected to have a successful auction; and risks associated with the
uncertainties in the current market.





The table
below provides our disclosure of all financial assets and liabilities as of July
25, 2009 that are measured at fair value on a recurring basis (at least
annually) into the most appropriate level within the fair value hierarchy based
on the inputs used to determine the fair value at the measurement date. 
These financial assets are carried at fair value in accordance with SFAS No. 159
following the requirements of SFAS No. 157.





Fair
Value Measurements as of July 25, 2009


(Amounts
in thousands)


Description
                
                Level 1
                
                
                Level 2
                
                
                Level 3
                
                
                Assets at Fair
                  Market ValueAvailable-for-sale
      securities
                
                $
                101,655
                
                
                $
                —
                
                
                $
                35,358
                
                
                $
                137,013Trading
      securities
                
                
                —
                
                
                
                —
                
                
                
                6,798
                
                
                
                6,798Subtotal
      investment securities
                
                
                101,655
                
                
                
                —
                
                
                
                42,156
                
                
                
                143,811Put
      option
                
                
                —
                
                
                
                —
                
                
                
                230
                
                
                
                230Total
                
                $
                101,655
                
                
                $
                —
                
                
                $
                42,386
                
                
                $
                144,041


F -
20





The
following table provides a reconciliation of the beginning and ending balances
of the investment securities measured at fair value using significant
unobservable inputs (Level 3):




Level
      3 (Unobservable inputs)
                    (Amounts
      in thousands)
                  
                  As of
                    July 25, 2009Balance
      at beginning of period, July 27, 2008
                  
                  $
                  58,459Realized/Unrealized
      loss included in earnings *
                  
                  
                  (352
                  )Change
      in temporary valuation adjustment included in other comprehensive
      loss
                  
                  
                  (5,771
                  )Recognition
      of Put Option
                  
                  
                  230Redemptions
      at par
                  
                  
                  (10,180
                  )Balance
      as of July 25, 2009
                  
                  $
                  42,386





*
            Settlement
      Agreement-  See Note 2 for further detail. Represents
      the amount of total losses for the period included in earnings relating to
      assets still held on July 25,
2009.





4.
Property and Equipment





Property
and equipment consisted of the following:


(Amounts in thousands)
                  
                  July25,
                    2009
                  
                  
                  July26,
                    2008Property
      and Equipment:Land
                  
                  $
                  6,131
                  
                  
                  $
                  6,131Buildings
                  
                  
                  53,625
                  
                  
                  
                  53,332Leasehold
      Improvements
                  
                  
                  174,772
                  
                  
                  
                  163,216Fixtures
      and Equipment
                  
                  
                  215,350
                  
                  
                  
                  203,782Information
      Technology
                  
                  
                  88,222
                  
                  
                  
                  80,715Construction
      in Progress
                  
                  
                  17,985
                  
                  
                  
                  18,429556,085
                  
                  
                  
                  525,605Less
      accumulated depreciation and amortization
                  
                  
                  (278,172
                  )
                  
                  
                  (251,326
                  )Property
      and equipment, net
                  
                  $
                  277,913
                  
                  
                  $
                  274,279





We
continuously evaluate the recoverability of our long-lived assets. As a result
of this evaluation and the closing of certain stores, we recorded an asset
impairment and disposal charge of $6.3 million during the fifty-two weeks ended
July 25, 2009 in our Consolidated Statements of Operations.


F -
21




5.
Goodwill and Other Intangible Assets





In January 2005, we acquired 100% of
the outstanding stock of Maurices Incorporated.  The total purchase price
was $328.3 million, net of cash acquired.  We accounted for the acquisition
as a purchase using the accounting standards established in SFAS No. 141,
Business Combinations, and, accordingly, the excess purchase price over the fair
market value of the underlying net assets acquired, or $130.7 million, was
allocated to goodwill.Goodwill amortization is deductible for tax purposes. We became a
majority owner of an equity investment, therefore, we began consolidating the
subsidiary’s financial results with our financials in the first quarter of
fiscal 2009. This resulted in the recognition of goodwill in the amount of $0.7
million.





In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, amortization of goodwill and indefinite life intangible assets is
replaced with annual impairment tests.  We perform an impairment test at
least annually on or about June 30th or whenever we identify certain triggering
events that may indicate as impairment. We assess the fair value of our
indefinite-lived intangible assets using a discounted cash flow model based on
royalties estimated to be derived in the future use of the asset were we to
license the use of the assets. An impairment charge for indefinite-lived
intangible assets is recorded if the carrying amount of an indefinite-lived
intangible asset exceeds the estimated fair value on the measurement date. We
considered whether specific impairment indicators were present, such as plans to
abandon or significantly reduce the use of a trade name (for which there were no
such plans). We completed our annual impairment test of indefinite-lived
intangible assets as of June 30, 2009 and concluded our Studio Y trade name had
an estimated fair value which was less than the book value. We recorded a
non-cash impairment charge in the amount of $2.0 million in selling, general and
administrative expenses during the fourth quarter of fiscal 2009 relating to
this trade name impairment. The results of the goodwill impairment testing as of
June 30, 2009 concluded that the goodwill acquired in 2005 had an estimated fair
value that significantly exceeded the book value at June 30,
2009.





Other
identifiable intangible assets consist of trade names, customer relationships
and proprietary technology.  Trade names have an indefinite life and
therefore are not amortized.  Customer relationships and proprietary
technology constitute our identifiable intangible assets subject to
amortization, which are amortized on a straight-line basis over their useful
lives.





Other
intangible assets were comprised of the following:


(Amounts
in thousands)


Description
                        
                        Expected Life
                        
                        
                        July 25,
                          2009
                        
                        
                        
                        July 26,
                          2008Customer
      Relationship
                        
                        7
      years
                        
                        $
                        2,200
                        
                        
                        $
                        2,200Proprietary
      Technology
                        
                        5
      years
                        
                        
                        3,298
                        
                        
                        
                        3,298Trade
      Names
                        
                        Indefinite
                        
                        
                        104,000
                        
                        
                        
                        106,000Total
      intangible assets
                        
                        
                        
                        
                        109,498
                        
                        
                        
                        111,498Less
      accumulated amortization
                        
                        
                        
                        
                        (4,566
                        )
                        
                        
                        (3,696
                        )Intangible
      assets, net
                        
                        
                        
                        $
                        104,932
                        
                        
                        $
                        107,802




Based on
our customer relationship and proprietary technology balances as of July 25,
2009, we expect the related amortization expense for the remainder of the three
succeeding fiscal years to be approximately $0.5 million in 2010, $0.3
million in 2011 and $0.1 million in 2012.





6.
Debt




Our 2.50%
Convertible Senior Notes (“Convertible Senior Notes”), which have an aggregate
principal amount of $115 million, are due 2024.  We may redeem some or all
of the Convertible Senior Notes for cash at any time on or after December 22,
2011 at a redemption price equal to 100% of the principal amount of the notes
plus accrued interest.  Each holder of the Convertible Senior Notes
has the right to require us to repurchase their notes for cash equal to 100% of
the principal amount plus any accrued and unpaid interest on December 15, 2011,
December 15, 2014 and December 15, 2019.  Holders may also convert
their notes into cash and shares of our common stock, if any, at a conversion
rate of 95.1430 shares per $1,000 principal amount of Convertible Senior Notes
(equal to a conversion price of approximately $10.51 per share), during
specified periods.  Upon conversion, we would deliver cash for the
aggregate principal amount of Convertible Senior Notes to be
converted.  The excess, if any, of the price of our common stock above
$10.51 per share would be payable in common shares.  If the market
price of the common stock exceeds the conversion price, we are required to use
the treasury stock method in calculating diluted earnings per share for the
number of shares to be issued for the excess value.  As of July 27,
2009 and continuing through October 23, 2009, the holders of the Convertible
Senior Notes may convert their notes as described above because our stock price
closed at or above $12.61 per share for 20 trading days within the
30-trading-day period ended on July 24, 2009. As a result of the conversion
criteria being met as of July 25, 2009 and July 26, 2008, combined with the
ability of the holders, at their option, to convert their notes, the Company has
classified the ConvertibleSenior Notes as current
liabilities in the accompanying Consolidated Balance
Sheets.On July 24, 2009, the market
value of the Convertible Senior Notes was $176.1 million as
valued on PORTAL (Private Offering Resale and Trading through Automated
Linkage).


F -
22


On
December 21, 2005, we entered into a credit agreement with several lenders (the
“Credit Agreement”). Our credit agreement provides a senior secured revolving
credit facility that provides for borrowings and issuance of letters of credit
for up to $100 million, which we may request be increased up to $150
million.  The Credit Agreement will terminate on December 21, 2010 or
earlier under certain conditions.  Borrowings under the Credit
Agreement are based on either LIBOR or the higher of the prime rate of JPMorgan
Chase Bank, N.A. or the Federal Funds Effective Rate plus 0.50%.  The
interest rates under the Credit Agreement vary depending upon our adjusted
leverage ratio.  The Credit Agreement contains affirmative, negative
and financial covenants, the most restrictive of which include a fixed charge
coverage ratio and a limit on capital expenditures in any fiscal
year.  The Credit Agreement is collateralized by substantially all of
our assets exclusive of the Dunnigan Realty, LLC assets, and Maurices
Incorporated assets, and none of our subsidiaries have guaranteed the Credit
Agreement.  As of July 25, 2009, $61.7 million was available under the
Credit Agreement, which represents the $100.0 million from our senior secured
revolving credit facility less $38.3 million of outstanding letters of credit at
July 25, 2009.





In
connection with the issuance of the Convertible Senior Notes and the Senior
Credit Facility, we incurred approximately $4.0 million in underwriting costs
and $4.1 million in professional fees.  Such fees were deferred and
included in “Other assets” on the accompanying Consolidated Balance
Sheets.





In
connection with the purchase of the Suffern facility, Dunnigan Realty, LLC
(“Dunnigan”), in July 2003, borrowed $34 million under a 5.33% rate mortgage
loan.  The Dunnigan mortgage loan (the “Mortgage”) is collateralized
by a mortgage lien on the Suffern facility, of which the major portion is our
corporate offices and dressbarn’s distribution
center.  Payments of principal and interest on the mortgage, a 20-year
fully amortizing loan, are due monthly through July 2023.  In
connection with the mortgage, we paid approximately $1.7 million in debt
issuance costs.  These costs were deferred and included in “Other
assets” on our Consolidated Balance Sheets and are being amortized to interest
expense over the life of the Mortgage.





Debt consists of the
following:





Debt
      consists of the following:July
      25,
                    
                    
                    
                    July
      26,(Amounts
      in thousands)
                    
                    
                    2009
                    
                    
                    
                    2008Dunnigan
      Mortgage
                    
                    $
                    27,263
                    
                    
                    $
                    28,540Convertible
      Senior Notes
                    
                    
                    115,000
                    
                    
                    
                    115,000Other
                    
                    
                    146
                    
                    
                    
                    —$
                    142,409
                    
                    
                    $
                    143,540Less:
      current portion
                    
                    
                    (116,347
                    )
                    
                    
                    (116,277
                    )Total long-term
      debt
                    
                    $
                    26,062
                    
                    
                    $
                    27,263





Scheduled
principal payments of the above debt for each of the next five fiscal years and
beyond, excluding the Convertible Senior Notes which are payable on demand, is
as follows: $1.3 million, $1.4 million, $1.5 million, $1.6 million, $1.7 million
and $19.8 million, respectively. Currently, the $115.0 million of Convertible
Senior Notes is not a scheduled payment.





Interest
expense relating to the above debt was approximately $4.4 million for the fiscal
year ended July 25, 2009, $4.4 million for the fiscal year ended July 26, 2008,
and $4.5 million for the fiscal year ended July 28, 2007  Fees related
to the Credit Agreement and the Senior Credit Facility totaled $0.2 million for
the fiscal year ended July 25, 2009, $0.3 million for the fiscal year ended July
26, 2008, and $0.3 million for the fiscal year ended July 28,
2007.


F -
23




7.  Comprehensive Income
(Loss)





Comprehensive income is calculated in
accordance with SFAS No. 130, Reporting Comprehensive Income, and includes our net
earnings and unrealized gains and losses on available-for-sale investment
securities.  Cumulative unrealized gains and losses on
available-for-sale investment securities are reflected as accumulated other
comprehensive (loss) income in shareholders’ equity.  We have
recognized a $5.8 million temporary unrealized loss in fair value of our ARS,
partially offset by an unrealized gain of $0.4 million from our short term
investments which is reflected in our accumulated other comprehensive (loss)
income.  See Note 2 “Investments Securities” for additional
information.  Comprehensive income for all periods presented is
comprised of the following:





Fiscal
      Year Ended(Amounts
      in thousands)
                  
                  July
      25, 2009
                  
                  
                  July
      26, 2008
                  
                  
                  July
      28, 2007Net
      earnings
                  
                  $
                  69,688
                  
                  
                  $
                  74,088
                  
                  
                  $
                  101,182Unrealized
      (loss) gain on investments securities, net of taxes
                  
                  
                  (5,368
                  )
                  
                  
                  (3,078
                  )
                  
                  
                  31Other
      Comprehensive income
                  
                  $
                  64,320
                  
                  
                  $
                  71,010
                  
                  
                  $
                  101,213





8.
Stock Repurchase Program





On
September 20, 2007, our Board of Directors authorized a $100 million share
repurchase program (the “2007 Program”).  Under the 2007 Program
purchases of shares of our common stock may be made at our discretion from time
to time, subject to market conditions and at prevailing market prices, through
open market purchases or in privately negotiated transactions and will be
subject to applicable SEC rules.  The 2007 Program has no expiration
date.





The total
purchases for the fiscal year ended July 25, 2009 were 546,000 shares at an
aggregate purchase price of approximately $4.7 million, resulting in a remaining
authorized balance of $95.3 million.  Treasury (reacquired) shares are
retired and treated as authorized but unissued shares.





During
the first quarter of fiscal 2008, we completed our $75 million share repurchase
program, which was originally announced on April 5, 2001.  The
remaining authorized amount for this share repurchase program was $28.3 million
with which we purchased 1,634,060 shares at an average price of $17.34 in August
2007.  During the first quarter of fiscal 2008, 610,000 shares which
were reacquired but not retired during the fourth quarter of fiscal 2007 were
retired for $11.9 million. Treasury (reacquired) shares are retired and treated
as authorized but unissued shares.





9. Earnings Per
Share




Basic and
diluted earnings per share are calculated by dividing net earnings by the
weighted-average number of common shares outstanding during each
period.  Diluted earnings per share reflects the potential dilution
using the treasury stock method that could occur if outstanding stock options,
or other equity awards from our share-based compensation plans were exercised
and converted into common stock that would then participate in net
earnings.  Also included in diluted earnings per share is the
conversion obligation of the Convertible Senior Notes to the extent
dilutive. See Note 6 “Debt” for additional information.


F -
24





Components
of basic and diluted earnings per share were as follows:


Fiscal
      Year Ended(Amounts
      in thousands, except earnings per share)
                                
                                July
      25,
                                  2009
                                
                                
                                July
      26,
                                  2008
                                
                                
                                July
      28,
                                  2007Net
      earnings
                                
                                $
                                69,688
                                
                                
                                $
                                74,088
                                
                                
                                $
                                101,182Weighted-average
      shares outstanding during period on which basic earnings per share is
      calculated
                                
                                
                                60,044
                                
                                
                                
                                60,102
                                
                                
                                
                                62,020Net
      effect of dilutive stock options, other equity awards, and convertible
      securities based on the treasury stock method using the average market
      price
                                
                                
                                2,946
                                
                                
                                
                                4,365
                                
                                
                                
                                8,002Weighted-average
      shares outstanding during period on which diluted earnings per share is
      calculated
                                
                                
                                62,990
                                
                                
                                
                                64,467
                                
                                
                                
                                70,022Earnings
      per share:Basic
                                
                                $
                                1.16
                                
                                
                                $
                                1.23
                                
                                
                                $
                                1.63Diluted
                                
                                $
                                1.11
                                
                                
                                $
                                1.15
                                
                                
                                $
                                1.45





The
Convertible Senior Notes were dilutive at July 25, 2009, July 26, 2008 and July
28, 2007 as the average price of our stock was more than the conversion price of
the Convertible Senior Notes for the year, in accordance with EITF Issue No.
04-8, The Effect of
Contingently Convertible Debt on Diluted Earnings Per
Share.  The number of additional shares related to the dilutive
effect of the Convertible Senior Notes was approximately 1,660,000 shares for
fiscal 2009, approximately 2,866,000 shares for fiscal 2008, and approximately
5,565,000 shares for fiscal 2007.  The dilutive effect of the
Convertible Senior Notes in fiscal 2009 was lower since it is directly related
to the lower average market price of fiscal 2009.





The
following shares attributable to outstanding stock options were excluded from
the calculation of diluted earnings per share because their inclusion would have
been anti-dilutive:





Fiscal
      Year Ended(Amounts
      in thousands)
                      
                      July
      25,
                        2009
                      
                      
                      July
      26,
                        2008
                      
                      
                      July
      28,
                        2007Shares
      excluded from calculation of diluted earnings per share
                      
                      
                      3,088
                      
                      
                      
                      1,761
                      
                      
                      
                      561





10.
Employee Benefit Plans





We sponsor a defined contribution
retirement savings plan (401(k)) covering all eligible employees.  We
also sponsor an Executive Retirement Plan for certain officers and key
executives. Both plans allow participants to defer a portion of their annual
compensation and receive a matching employer contribution on a portion of that
deferral.  During fiscal 2009, 2008 and 2007, we incurred expenses of
approximately $2,231,000, $2,925,000 and $3,794,000, respectively, relating to
the contributions to and administration of the above plans.  These
expenses are allocated to cost of sales and selling, general and administrative
expenses in accordance with our accounting policies described in Note
1.  We also sponsor an Employee Stock Purchase Plan, which allows
employees to purchase shares of our stock during each quarterly offering period
at a 10% discount through weekly payroll deductions.  We do not
provide any additional postretirement benefits.


F -
25





11.
Income Taxes





The
components of the provision for income taxes were as follows:




Fiscal
      Year Ended(Amounts
      in thousands)
                                            
                                            July
      25,
                                              2009
                                            
                                            
                                            July
      26,
                                              2008
                                            
                                            
                                            July
      28,
                                              2007Federal:Current
                                            
                                            $
                                            28,166
                                            
                                            
                                            $
                                            26,407
                                            
                                            
                                            $
                                            48,513Deferred
                                            
                                            
                                            1,644
                                            
                                            
                                            
                                            12,083
                                            
                                            
                                            
                                            (1,366
                                            )29,810
                                            
                                            
                                            
                                            38,490
                                            
                                            
                                            
                                            47,147State:Current
                                            
                                            
                                            5,807
                                            
                                            
                                            
                                            5,625
                                            
                                            
                                            
                                            10,360Deferred
                                            
                                            
                                            1,335
                                            
                                            
                                            
                                            (2,085
                                            )
                                            
                                            
                                            (167
                                            )7,142
                                            
                                            
                                            
                                            3,540
                                            
                                            
                                            
                                            10,193Provision
      for income taxes
                                            
                                            $
                                            36,952
                                            
                                            
                                            $
                                            42,030
                                            
                                            
                                            $
                                            57,340


Significant components of our deferred
tax assets and liabilities were as follows:





(Amounts
      in thousands)
                    
                    July
      25,
                      2009
                    
                    
                    July
      26,
                      2008Deferred
      tax assets:Inventory
      capitalization and inventory-related items
                    
                    $
                    5,558
                    
                    
                    $
                    5,022Capital
      loss carryover and unrealized losses
                    
                    
                    4,680
                    
                    
                    
                    998Accrued
      payroll & benefits
                    
                    
                    17,159
                    
                    
                    
                    14,090Share
      based compensation
                    
                    
                    6,873
                    
                    
                    
                    5,341Straight-line
      rent
                    
                    
                    10,706
                    
                    
                    
                    10,068Federal
      benefit of uncertain tax positions
                    
                    
                    9,818
                    
                    
                    
                    5,580Other
      items
                    
                    
                    6,231
                    
                    
                    
                    8,083Total deferred tax
      assets
                    
                    
                    61,025
                    
                    
                    
                    49,182Deferred
      tax liabilities:Depreciation
                    
                    
                    10,798
                    
                    
                    
                    13,372Intangibles
                    
                    
                    26,788
                    
                    
                    
                    22,348Interest
                    
                    
                    11,570
                    
                    
                    
                    9,056Other
      items
                    
                    
                    6,089
                    
                    
                    
                    5,511Total deferred tax
      liabilities
                    
                    
                    55,245
                    
                    
                    
                    50,287Valuation
      allowance
                    
                    
                    (5,464
                    )
                    
                    
                    (2,528
                    )Net deferred tax assets
      (liabilities)
                    
                    $
                    316
                    
                    
                    $
                    (3,633
                    )





The fiscal 2009 total net deferred tax
liability is presented on our Consolidated Balance Sheet as a long term asset of
$3.1 million and as a current liability of $2.8 million.  The fiscal
2008 total net deferred tax liability is presented on our Consolidated Balance
Sheet as a long term liability of $3.2 million and as a current liability of
$0.4 million.





The Company assessed the ability to
utilize its capital loss carryovers, as well as ability to realize the benefit
of unrealized losses sustained in the current period, and concluded that a
valuation allowance is required against the related tax assets. The Company
established a valuation allowance of approximately $3.0 million during the year
that relates to net operating loss carryovers, and unrealized losses on
investments. The valuation allowance had a balance of $5.5 million at July 25,
2009 and $2.5 million at July 26, 2008.


F -
26





The
classification of deferred tax assets and deferred tax liabilities were as
follows:





(Amounts
      in thousands)
                  
                  July
      25,
                    2009
                  
                  
                  July
      26,
                    2008Total
      current deferred tax assets
                  
                  $
                  14,884
                  
                  
                  $
                  13,804Total
      non-current deferred tax assets
                  
                  
                  40,677
                  
                  
                  
                  32,850Total
      deferred tax assets
                  
                  $
                  55,561
                  
                  
                  $
                  46,654Total
      current deferred tax liabilities
                  
                  $
                  17,659
                  
                  
                  $
                  14,205Total
      non-current deferred tax liabilities
                  
                  
                  37,586
                  
                  
                  
                  36,082Total
      deferred tax liabilities
                  
                  $
                  55,245
                  
                  
                  $
                  50,287





Following is a reconciliation of the
statutory Federal income tax rate and the effective income tax rate applicable
to earnings before income taxes:


Fiscal
      Year EndedJuly
      25, 2009
                                  
                                  
                                  July
      26, 2008
                                  
                                  
                                  July
      28, 2007Statutory
      tax rate
                                  
                                  
                                  35.0
                                  %
                                  
                                  
                                  35.0
                                  %
                                  
                                  
                                  35.0
                                  %State
      taxes – net of federal benefit
                                  
                                  
                                  4.4
                                  %
                                  
                                  
                                  4.3
                                  %
                                  
                                  
                                  4.3
                                  %Tax-exempt
      interest
                                  
                                  
                                  (1.2
                                  )%
                                  
                                  
                                  (2.0
                                  )%
                                  
                                  
                                  (1.5
                                  %Net
      change in the Fin 48 Reserve
                                  
                                  
                                  (4.8
                                  )%
                                  
                                  
                                  (4.2
                                  )%
                                  
                                  
                                  —
                                  %Valuation
      allowance – capital losses
                                  
                                  
                                  0.7
                                  %
                                  
                                  
                                  0.9
                                  %
                                  
                                  
                                  —
                                  %Non-deductible
      acquisition costs
                                  
                                  
                                  0.4
                                  %
                                  
                                  
                                  —
                                  %
                                  
                                  
                                  —
                                  %Other
      – net
                                  
                                  
                                  0.2
                                  %
                                  
                                  
                                  2.2
                                  %
                                  
                                  
                                  (1.6
                                  )%Effective
      tax rate
                                  
                                  
                                  34.7
                                  %
                                  
                                  
                                  36.2
                                  %
                                  
                                  
                                  36.2
                                  %





We
adopted FIN 48 on July 29, 2007 and as of the adoption date, we had recorded
unrecognized tax benefits of $27.2 million, of which $19.4 million, if
recognized, would affect the effective tax rate. At July 25, 2009, the liability
for income taxes associated with uncertain tax positions was $23.3 million, of
which $13.5 million, if recognized, would affect the effective tax
rate.





We
recognized interest and penalties related to unrecognized tax benefits as a
component of income tax expense. Our gross liability as of July 26, 2008 of
$18.1 million includes accrued interest of $3.6 million and penalties of $0.5
million. The liability as of July 25, 2009 of $23.3 million includes accrued
interest of $3.5 million and penalties of $1.7 million. During the year ended
July 25, 2009, we recognized a tax benefit of $0.1 million attributable to
interest and tax expense of $1.2 million attributable to penalties for a total
expense of $1.1 million related to increases in its liability for uncertain tax
positions.





A
recent event caused the Company to change its settlement posture in regard to an
uncertain tax position which led to a release of tax reserves of $3.3 million
and a transfer to current taxes of $3.2 million; these amounts make up a
significant portion of the $6.9 million decrease in prior years taxes included
in the tabular disclosure.





A
reconciliation of the beginning and ending balances of the total amounts of
gross unrecognized tax liability excluding interest and penalties is as
follows:




TotalGross
      liability for unrecognized tax benefit at July 26,
    2008
                  
                  $
                  14.0Increases
      related to tax positions in prior years
                  
                  
                  11.9Decreases
      related to tax positions in prior years
                  
                  
                  (6.9
                  )Decreases
      related to settlements
                  
                  
                  (0.2
                  )Decreases
      related to lapse in statute of limitations
                  
                  
                  (2.2
                  )Increases
      related to current year tax positions
                  
                  
                  1.5Gross
      liability for unrecognized tax benefit at July 25,
    2009
                  
                  $
                  18.1




We
believe it is reasonably possible that there will be a $7.5 million decrease in
the gross tax liability for uncertain tax positions within the next 12 months
based upon potential settlements and the expiration of statutes of limitations
in various tax jurisdictions. We file income tax returns in the U.S. federal
jurisdiction and various tax jurisdictions. Federal periods that remain subject
to examination include fiscal 2006 to fiscal 2008 and state jurisdictions that
remain subject to examination range from fiscal 2004 to 2008, with few
exceptions.


F -
27





12.
Commitments and Contingencies





Lease
commitments





We lease all of our
stores.  Certain leases provide for additional rents based on
percentages of net sales, charges for real estate taxes, insurance and other
occupancy costs.  Store leases generally have an initial term of
approximately 10 years with one or more 5-year options to extend the
lease.  Some of these leases have provisions for rent escalations
during the initial term.  We receive rental income and reimbursement
for taxes and common area maintenance charges primarily from two tenants that
occupy a portion of the Suffern facility that are not affiliated with
us.  The rental income from the other tenants is shown as “other
income” on our Consolidated Statements of Operations.  In addition,
the operating leases have been reduced by our sublease revenue annually by $1.8
million through fiscal 2012.





A summary of occupancy costs
follows:


Fiscal
      Year Ended(Amounts
      in thousands)
                    
                    July
      25,
                      2009
                    
                    
                    July
      26,
                      2008
                    
                    
                    July
      28,
                      2007Base
      rentals
                    
                    $
                    143,697
                    
                    
                    $
                    137,398
                    
                    
                    $
                    126,275Percentage
      rentals
                    
                    
                    3,465
                    
                    
                    
                    3,260
                    
                    
                    
                    4,113Other
      occupancy costs
                    
                    
                    49,131
                    
                    
                    
                    46,174
                    
                    
                    
                    41,909196,293
                    
                    
                    
                    186,832
                    
                    
                    
                    172,297Less:
      Rental income from third parties
                    
                    
                    (1,813
                    )
                    
                    
                    (1,821
                    )
                    
                    
                    (1,659
                    )Total
                    
                    $
                    194,480
                    
                    
                    $
                    185,011
                    
                    
                    $
                    170,638





The
      following is a schedule of future minimum rentals under noncancelable
      operating leases as of July 25,
2009,


(amounts in thousands):





Fiscal
      Year
                  
                  Total2010
                  
                  $
                  145,7972011
                  
                  
                  122,3522012
                  
                  
                  97,3542013
                  
                  
                  71,4742014
                  
                  
                  49,750Subsequent
      years
                  
                  
                  102,820Total future minimum
      rentals
                  
                  $
                  589,547





Although we have the ability to cancel
certain leases if specified sales levels are not achieved, future minimum
rentals under such leases have been included in the above table.





Leases
with related parties





We lease two stores from our Chairman
or related trusts.  Future minimum rentals under leases with such
related parties which extend beyond July 25, 2009, included in the above
schedule, are approximately $312,000 annually and in the aggregate $0.5
million.  The leases also contain provisions for cost escalations and
additional rent based on net sales in excess of stipulated
amounts.  Rent expense for fiscal years 2009, 2008 and 2007 under
these leases amounted to approximately $337,000, $332,000, and $389,000,
respectively.





Contractual
obligations and commercial commitments





In addition to the lease commitments
represented in the above table, we enter into a number of cancelable and
non-cancelable commitments during the year.  Typically, these
commitments are for less than a year in duration and are principally focused on
the construction of new retail stores and the procurement of
inventory.  We do not maintain any long-term or exclusive commitments
or arrangements to purchase merchandise from any single
supplier.  Preliminary commitments with our private label merchandise
vendors typically are made five to seven months in advance of planned receipt
date.  Substantially all of our merchandise purchase commitments are
cancelable up to 30 days prior to the vendor’s scheduled shipment
date.





Legal
Preceedings





We are subject to ordinary routine
litigation incidental to our business.  Although the outcome of such
items cannot be determined with certainty, in our opinion, dispositions of these
matters are not expected to have a material adverse affect on our financial
position, results of operations or cash flows.


F -
28





13.
Stock-Based Compensation Plans




Our 2001
Stock Incentive Plan provides for the granting of either ISO’s or non-qualified
options to purchase shares of common stock, as well as the award of shares of
restricted stock.  At the November 30, 2005 Annual Shareholders
Meeting, shareholders approved a total of 6 million shares to be available for
issuance (for a total of 12 million, after giving effect to a 2 for 1 stock
split payable March 31, 2006) under the 2001 Stock Incentive Plan.  As
of July 25, 2009, there were approximately 4.1 million shares under the 2001
plan available for future grant.  All of our prior stock option plans
have expired as to the ability to grant new options.  We issue new
shares of common stock when stock option awards are exercised.  Refer
to the Consolidated Statements of Shareholders’ Equity and Comprehensive (Loss)
Income for new shares of common stock issued in fiscal 2009, fiscal 2008 and
fiscal 2007.





Stock
option awards outstanding under our current plans have generally been granted at
exercise prices which are equal to the market value of our stock on the date of
grant, generally vest over five years and expire no later than ten years after
the grant date.  Effective July 31, 2005, we recognize compensation
expense ratably over the vesting period, net of estimated
forfeitures.  As of July 25, 2009, there was $16.1 million of total
unrecognized compensation cost related to nonvested options, which is expected
to be recognized over a remaining weighted-average vesting period of
3.2 years. The total intrinsic value of options exercised during fiscal
2009 was approximately $3.2 million, fiscal 2008 was approximately $1.6 million,
and during fiscal 2007 was approximately $14.8 million.  The total
fair value of options that vested during fiscal 2009, fiscal 2008 and fiscal
2007, was approximately $5.0 million, $5.4 million, and $5.5 million,
respectively.





The following table summarizes the
activities in all Stock Option Plans and changes during fiscal
2009:




WeightedAverageExerciseOptions
                          
                          
                          PriceOptions
      outstanding – beginning of year
                          
                          
                          5,850,968
                          
                          
                          $
                          11.05Granted
                          
                          
                          1,807,505
                          
                          
                          
                          14.98Cancelled
                          
                          
                          (85,950
                          )
                          
                          
                          15.73Exercised
                          
                          
                          (380,420
                          )
                          
                          
                          6.98Outstanding
      end of year
                          
                          
                          7,192,103
                          
                          
                          $
                          12.20Options
      exercisable
                            at
      year-end
                          
                          
                          3,647,636
                          
                          
                          $
                          9.68Weighted-average
      fairvalue
      of options grantedduring
      the year
                          
                          
                          
                          
                          
                          $
                          5.73
  At July 25, 2009, we had 6,867,663
options vested and expected to vest with an aggregate intrinsic value of $28.0
million and a weighted-average remaining contractual term of 6.1
years.  At July 26, 2008, we had 5,609,267 options vested and expected
to vest with an aggregate intrinsic value of $28.2 million and a
weighted-average remaining contractual term of 6.1 years.  At July 28,
2007, we had 5,354,865 options vested and expected to vest with an aggregate
intrinsic value of $46.2 million and a weighted-average remaining contractual
term of 7.2 years.





The following table summarizes
information about stock options outstanding at July 25, 2009:





Range
      of Exercise
                            Prices
                          
                          
                          Number
                            Outstanding as of
                            July
      25, 2009
                          
                          Weighted
                            Average
                            Remaining Life
                          
                          Weighted
                            Average
                            Exercise
      Price
                          
                          
                          Number
                            Exercisable as
      of
                            July
      25, 2009
                          
                          
                          Weighted
                            Average
                            Exercise
      Price$2.85
      – $5.19
                          
                          
                          
                          541,775
                          
                          0.5
      years
                          
                          $
                          3.93
                          
                          
                          
                          541,775
                          
                          
                          $
                          3.93$5.20
      – $8.19
                          
                          
                          
                          1,535,079
                          
                          3.8
      years
                          
                          
                          7.09
                          
                          
                          
                          1,436,379
                          
                          
                          
                          7.01$8.20
      – $12.93
                          
                          
                          
                          2,134,628
                          
                          6.2
      years
                          
                          
                          11.58
                          
                          
                          
                          1,217,428
                          
                          
                          
                          11.51$12.94
      – $23.30
                          
                          
                          
                          2,980,621
                          
                          8.6
      years
                          
                          
                          16.78
                          
                          
                          
                          452,054
                          
                          
                          
                          20.10$2.85
      - $23.30
                          
                          
                          
                          7,192,103
                          
                          6.2
      years
                          
                          $
                          12.20
                          
                          
                          
                          3,647,636
                          
                          
                          $
                          9.68


F -
29


The options exercisable at July 25,
2009, have an aggregate intrinsic value of $23.3 million and a weighted average
contractual term of 4.5 years.





The 2001
Stock Incentive Plan also allows for the issuance of restricted
shares.  Prior to January 2005, restricted shares did not count
against the 2001 Stock Incentive Plan.  Effective January 2005, any
shares of restricted stock are counted against the shares available for future
grant limit as three shares for every one restricted share
granted.  In general, if options are cancelled for any reason or
expire, the shares covered by such options again become available for grant. If
a share of restricted stock is forfeited for any reason, three shares
become available for grant.




In
accordance with SFAS No. 123R, the fair value of restricted stock awards is
estimated on the date of grant based on the market price of our stock and is
amortized to compensation expense on a graded basis over the related vesting
periods, which are generally five years.  As of July 25, 2009, there
was $0.6 million of total unrecognized compensation cost related to nonvested
restricted stock awards, which is expected to be recognized over a remaining
weighted-average vesting period of 2.8 years.  The total fair
value of the restricted stock awards recognized as compensation expense during
the fifty-two weeks ended July 25, 2009, July 26, 2008, and July 28, 2007 was $
0.3 million, $1.3 million, and $1.1million, respectively.





Following
is a summary of the changes in the shares of restricted stock outstanding during
fiscal 2009:





Number
      of Shares
                      
                      
                      Weighted
      Average
                        Grant Date Fair
                        Value
      Per ShareRestricted
      stock awards at July 26, 2008
                      
                      
                      140,524
                      
                      
                      $
                      16.12Granted
                      
                      
                      26,000
                      
                      
                      
                      14.12Vested
                      
                      
                      (51,943
                      )
                      
                      
                      14.34Forfeited
                      
                      
                      (3,000
                      )
                      
                      
                      14.39Restricted
      stock awards at July 25, 2009
                      
                      
                      111,581
                      
                      
                      $
                      16.53





Our
Employee Stock Purchase Plan allows eligible full-time employees to purchase a
limited number of shares of our common stock during each quarterly offering
period at a 10% discount through weekly payroll deductions.  During
the fifty-two weeks ended July 25, 2009, we sold approximately 21,000 shares to
employees at an average discount of $1.29 per share under the Employee Stock
Purchase Plan.  The compensation expense recognized for the discount
given under the Employee Stock Purchase Plan was approximately $27,000 for the
fifty-two weeks ended July 25, 2009.





Prior to
the adoption of SFAS No. 123R, we presented all tax benefits resulting from
the exercise of stock options as operating cash flows in the Consolidated
Statement of Cash Flows.  SFAS No. 123R requires that cash flows
resulting from tax deductions in excess of the cumulative compensation cost
recognized for options exercised (“excess tax benefits”) be classified as
financing cash flows.  For the 52 weeks ended July 25, 2009, excess
tax benefits realized from the exercise of stock options was $0.9
million.





14.
Acquisition of Tween Brands, Inc.





On June 24, 2009, we entered into an
agreement pursuant to which one of our subsidiaries will merge with Tween
Brands, Inc. in a stock-for-stock transaction. Under the terms of the merger
agreement, each share of Tween Brands common stock will be exchanged for 0.47
shares of our common stock. Based on our stock price of $13.24 as of June 24,
2009 (the date of the agreement), this consideration would be equal to an
aggregate equity value of $157 million. In addition, Tween Brands, Inc.’s
outstanding bank debt will be repaid. This transaction, unanimously approved by
each of Dress Barn, Inc.’s and Tween Brands, Inc.’s Board of Directors, is
expected to close in the fourth quarter of calendar year 2009 and is subject to
Tween Brands, Inc. stockholder approval and other customary closing
conditions.


F -
30





15.
Segments





Our
reportable segments are the dressbarn segment, which are
used in 684 Combo stores (a combination of dressbarn and dressbarn woman stores), 120 dressbarn stores and 34 dressbarn woman stores in 47 states as
of July 25, 2009 and the maurices segment, which is
used in 721 stores in 44 states as of July 25, 2009.  We completed the
acquisition of Maurices Incorporated in January 2005.





Our dressbarn stores are operated
mostly in a combination of dressbarn and dressbarn woman stores, or Combo stores,
which carry dressbarn
and larger-sized dressbarn woman merchandise, as well as
freestanding dressbarn
and dressbarn woman stores.  The
dressbarn brands
primarily attract female consumers in the mid 30’s to mid 50’s age range, while
maurices’ fashions are
designed to appeal to the 17 to 34 year-old-female.  During third
quarter of fiscal 2007 maurices began transitioning
out of the men’s product line in order to introduce female Plus-sizes in the
fourth quarter of fiscal 2007. Our maurices stores are
concentrated in small markets in the United States, while our dressbarn and dressbarn woman stores tend to be in
larger population markets.  Substantially all of maurices’ management team
prior to the acquisition continues to manage the daily operations of maurices.  Additionally,
maurices  distributes
goods to its stores through a separate distribution center.  maurices also has separate
financial reporting systems from dressbarn.  We
believe that maurices is
currently a reportable segment due to management’s review of maurices’ separately available
operating results and other financial information to regularly assess its
performance for decision-making purposes. Income tax information by segment has
not been included as taxes are calculated at a company-wide level and are not
allocated to each segment.





Information
on the dressbarn and
maurices net sales and
the reconciliation to operating earnings, are as follows:





(Amounts
      in millions)
                  
                  Fiscal
      2009
                  
                  
                  Fiscal
      2008
                  
                  
                  Fiscal
      2007Net
      salesdressbarn
                  
                  $
                  906.2
                  
                  
                  $
                  887.6
                  
                  
                  $
                  934.8maurices
                  
                  
                  588.0
                  
                  
                  
                  556.6
                  
                  
                  
                  491.8Consolidated
      net sales
                  
                  $
                  1,494.2
                  
                  
                  $
                  1,444.2
                  
                  
                  $
                  1,426.6Operating
      incomedressbarn
                  
                  $
                  44.9
                  
                  
                  $
                  42.8
                  
                  
                  $
                  94.9maurices
                  
                  
                  60.1
                  
                  
                  
                  69.8
                  
                  
                  
                  60.1Consolidated
      operating income
                  
                  
                  105.0
                  
                  
                  
                  112.6
                  
                  
                  
                  155.0Interest
      income
                  
                  
                  5.4
                  
                  
                  
                  7.8
                  
                  
                  
                  7.0Interest
      expense
                  
                  
                  (4.8
                  )
                  
                  
                  (4.8
                  )
                  
                  
                  (4.9
                  )Other
      income
                  
                  
                  1.0
                  
                  
                  
                  0.5
                  
                  
                  
                  1.4Earnings
      before provision for income taxes
                  
                  $
                  106.6
                  
                  
                  $
                  116.1
                  
                  
                  $
                  158.5Depreciation
      and amortizationdressbarn
                  
                  $
                  28.0
                  
                  
                  $
                  27.8
                  
                  
                  $
                  28.1maurices
                  
                  
                  20.5
                  
                  
                  
                  20.4
                  
                  
                  
                  17.7Consolidated
      depreciation and amortization
                  
                  $
                  48.5
                  
                  
                  $
                  48.2
                  
                  
                  $
                  45.8Capital
      expendituresdressbarn
                  
                  $
                  27.3
                  
                  
                  $
                  34.4
                  
                  
                  $
                  37.7maurices
                  
                  
                  31.1
                  
                  
                  
                  31.7
                  
                  
                  
                  25.3Consolidated
      capital expenditures
                  
                  $
                  58.4
                  
                  
                  $
                  66.1
                  
                  
                  $
                  63.0





(Amounts
      in millions)
                  
                  July
      25, 2009
                  
                  
                  July
      26, 2008Total
      assetsdressbarn
                  
                  $
                  949.1
                  
                  
                  $
                  850.0maurices
                  
                  
                  182.7
                  
                  
                  
                  174.5Total
      assets
                  
                  $
                  1,131.8
                  
                  
                  $
                  1,024.5Merchandise
      inventoriesdressbarn
                  
                  $
                  126.1
                  
                  
                  $
                  117.9maurices
                  
                  
                  67.9
                  
                  
                  
                  69.1Total
      merchandise inventories
                  
                  $
                  194.0
                  
                  
                  $
                  187.0


F -
31





16.
Quarterly Results of Operations (UNAUDITED)





(Amounts
in thousands, except per share data)


Fiscal
      Year Ended July 25, 2009
                    
                    Fourth
                      Quarter
                    
                    
                    Third
                      Quarter
                    
                    
                    Second
                      Quarter
                    
                    
                    First
                      QuarterNet
      sales
                    
                    $
                    398,928
                    
                    
                    $
                    375,709
                    
                    
                    $
                    343,201
                    
                    
                    $
                    376,398Cost
      of sales, including occupancy and buying costs(excluding
      depreciation)
                    
                    
                    237,994
                    
                    
                    
                    220,642
                    
                    
                    
                    230,516
                    
                    
                    
                    229,198Income
      tax expense/ (benefit) (1)
                    
                    
                    8,570
                    
                    
                    
                    15,986
                    
                    
                    
                    (657
                    )
                    
                    
                    13,053Net
      earnings/ (loss)
                    
                    $
                    26,421
                    
                    
                    $
                    23,851
                    
                    
                    $
                    (1,068
                    )
                    
                    $
                    20,484Earnings
      per shareBasic
                    
                    $
                    0.44
                    
                    
                    $
                    0.40
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.34Diluted
                    
                    $
                    0.41
                    
                    
                    $
                    0.39
                    
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.32





Fiscal
      Year Ended July 26, 2008
                    
                    Fourth
                      Quarter
                    
                    
                    Third
                      Quarter
                    
                    
                    Second
                      Quarter
                    
                    
                    First
                      QuarterNet
      sales
                    
                    $
                    382,303
                    
                    
                    $
                    352,570
                    
                    
                    $
                    345,568
                    
                    
                    $
                    363,724Cost
      of sales, including occupancy and buying costs(excluding
      depreciation)
                    
                    
                    231,309
                    
                    
                    
                    206,571
                    
                    
                    
                    223,832
                    
                    
                    
                    224,215Income
      taxes (2)
                    
                    
                    14,515
                    
                    
                    
                    12,712
                    
                    
                    
                    2,529
                    
                    
                    
                    12,274Net
      earnings
                    
                    $
                    22,114
                    
                    
                    $
                    24,937
                    
                    
                    $
                    7,414
                    
                    
                    $
                    19,623Earnings
      per shareBasic
                    
                    $
                    0.37
                    
                    
                    $
                    0.41
                    
                    
                    $
                    0.12
                    
                    
                    $
                    0.33Diluted
                    
                    $
                    0.34
                    
                    
                    $
                    0.39
                    
                    
                    $
                    0.12
                    
                    
                    $
                    0.30





(1)
            The
      income tax provision for the fourth quarter of fiscal 2009 was favorably
      impacted by the tax benefit of prior year’s tax positions in the amount of
      $5.1 million.


(2)
            The
      income tax provision for the second quarter of fiscal 2008 was favorably
      impacted by the reversal of  $1.9 million of uncertain tax
      positions following a state administrative ruling that reduced our
      potential exposure for taxes and interest in that
  state.




F -
32




EXHIBIT
      INDEXExhibit
                Number
              Description
              Incorporated
      By
                Reference From2.1
              Agreement
      and Plan of Merger, dated as of June 24, 2009, among The Dress Barn, Inc.,
      Thailand Acquisition Corp. and Tween Brands, Inc.
              (1)3.1
              Amended
      and Restated Certificate of Incorporation, as approved by shareholders at
      December 10, 2008 Annual Meeting of Shareholders
              (2)3.2
              Amended
      and Restated By-Laws (as amended through September 18,
    2008)
              (3)4
              Specimen
      Common Stock Certificate
              (4)10.1
              Purchase
      and Sale Agreement, dated January 28, 2003,
                Between
      Rockland Warehouse Center Corporation, as seller,
                and
      Dunnigan Realty, LLC, as buyer with respect to
                30
      Dunnigan Drive, Suffern, NY
              (5)10.2
              $34,000,000
      mortgage loan from John Hancock Life Insurance Company
                to
      Dunnigan Realty, secured by mortgage on 30 Dunnigan Drive, Suffern,
      NY
              (6)10.3
              Leases
      of Company premises of which the lessor is Elliot S. Jaffe
                or
      members of his family or related trusts:10.6.1   Danbury,
      CT store
              (4)10.6.2   Norwalk,
      CT dressbarn/dressbarn Woman
      store
              (7)10.4
              Amended
      and Restated Lease between Dunnigan Realty, LLC, as landlord,
                and
      The Dress Barn, Inc., as tenant, dated June 24, 2003 for
      office
                and
      distribution space in Suffern, New York
              (6)10.5
              The
      Dress Barn, Inc. 1993 Incentive Stock Option Plan
              (8)
      *10.6
              The
      Dress Barn, Inc. 1995 Stock Option Plan
              (9)
      *10.7
              The
      Dress Barn, Inc. 2001 Stock Incentive Plan (amended and restated effective
      September 29, 2005)
              (10)
      *10.8
              The
      Dress Barn, Inc. 162(m) Executive Bonus Plan
              (10)
  
  10.9
              Amendment
      Number One to 162(m) Executive Bonus Plan, filed herewith10.10
              Employment
      Agreement with Elliot S. Jaffe dated May 2, 2002
              (11)
      *10.11
              Amendment
      dated July 10, 2006 to Employment Agreement
                dated
      May 2, 2002 with Elliot S. Jaffe
              (12)
      *10.12
              Employment
      Agreement dated May 2, 2002 with David R. Jaffe
              (11)
      *10.13
              Employment
      Agreement dated August 28, 2002 with Vivian Behrens
              (13)
      *10.14
              Employment
      Agreement dated July 26, 2005 with Gene Wexler
              (14)
      *10.15
              Supplemental
      Retirement Benefit Agreement with Mrs. Roslyn Jaffe dated August 29,
      2006
              (15)
      *10.16
              Consulting
      Agreement dated July 18, 2006 with Burt Steinberg Retail Consulting
      Ltd.
              (16)
      *10.17
              The
      Dress Barn Inc. 2.5% Convertible Senior Notes due 2024
              (17)10.18
              Credit
      Agreement dated as of December 21, 2005
              (18)10.19
              First
      Amendment to Credit Agreement dated as of October 25, 2007
              (19)14
              Code
      of Ethics for the Chief Executive Officer and Senior Financial
      Officers
              (6)21
              Subsidiaries
      of the Registrant, filed herewith23
              Consent
      of Independent Registered Public Accounting Firm, filed
      herewith31.1
              Section
      302 Certification of President and Chief Executive Officer, filed
      herewith31.2
              Section
      302 Certification of Chief Financial Officer, filed
    herewith32.1
              Section
      906 Certification of President and Chief Executive Officer, filed
      herewith32.2
              Section
      906 Certification of Chief Financial Officer, filed
    herewith
 
 
  References
      as follows:(1)
              The
      Company’s Report on Form 8-K filed June 25, 2009. Excludes schedules,
      exhibits and certain annexes, which the Company agrees to furnish
      supplementally to the Securities and Exchange Commission upon
      request.(2)
              Annex
      A to the Company’s Proxy Statement, filed November 5,
  2008.(3)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 26,
      2008 (Exhibit 3.4).(4)
              The
      Company's Registration Statement on Form S-1 under the Securities Act of
      1933 (Registration No. 2-82916) declared effective May 4, 1983 (Exhibits 4
      and 10(l)).(5)
              The
      Company’s Quarterly Report on Form 10-Q for the quarter ended January 25,
      2003.(6)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 26,
      2003 (Exhibits 10(xx), 10(mm) and 14).(7)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 25,
      1992 (Exhibit 10(h)(h)).(8)
              The
      Company's Registration Statement on Form S-8 under the
                Securities
      Act of 1933 (Registration No. 33-60196) filed on March 25, 1993 (Exhibit
      28).(9)
              The
      Company's Annual Report on Form 10-K for the fiscal year ended July 27,
      1996 (Exhibit 10(nn)).(10)
              The
      Company's Proxy Statement, filed October 31, 2005 (Annex A and Annex
      B).(11)
              The
      Company's Annual Report on Form 10-K for the fiscal year ended July 27,
      2002 (Exhibits 10(t)(t) and 10(u)(u)).(12)
              The
      Company’s Report on Form 8-K filed July 13, 2006 (Exhibit
      99.1).(13)
              The
      Company's Quarterly Report on Form 10-Q for the quarter ended October 26,
      2002 (Exhibit 10(w)(w)).(14)
              The
      Company’s Annual Report on Form 10-K for the fiscal year ended July 30,
      2005 (Exhibit 10.25).(15)
              The
      Company’s Report on Form 8-K filed August 30, 2006 (Exhibit
      99.1).(16)
              The
      Company’s Report on Form 8-K filed July 19, 2006 (Exhibit
      99.1).(17)
              The
      Company's Registration Statement on Form S-1 under the
                Securities
      Act of 1933 (Registration No. 333-124512) filed on May 2,
      2005.(18)
              The
      Company’s Report on Form 8-K filed December 23, 2005 (Exhibit
      10.1).(19)
              The
      Company’s Report on Form 8-K filed November 1, 2007 (Exhibit
      99.1).