UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 2, 2013

or

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

For the transition period from              to             

Commission file number 1-10738

ANN INC.

(Exact name of registrant as specified in its charter)

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

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

(212) 541-3300

(Registrant’s telephone number, including area code)

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  ý    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 (§232.405 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  ý    No  ¨

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.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of November 2, 2013
Common Stock, $.0068 par value	45,920,872

INDEX TO FORM 10-Q

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended November 2, 2013 and October 27, 2012	4
	Condensed Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended November 2, 2013 and October 27, 2012	5
	Condensed Consolidated Balance Sheets at November 2, 2013, February 2, 2013 and October 27, 2012	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 2, 2013 and October 27, 2012	7
	Notes to the Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	27
SIGNATURES		28
EXHIBIT INDEX		29

2

Statement Regarding Forward-Looking Disclosures

Certain sections of this Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements may use the words “expect,” “anticipate,” “plan,” “intend,” “project,” “may,” “believe” and similar expressions. Forward-looking statements also include representations of the expectations or beliefs of ANN INC. (the “Company”) concerning future events that involve risks and uncertainties, including:

• the Company’s ability to anticipate and respond to changing client preferences and fashion trends and provide a balanced assortment of merchandise that satisfies client demands in a timely manner;

• the effectiveness of the Company’s brand awareness and marketing programs, its ability to maintain the value of its brands and engage new and existing clients;

• the effect of competitive pressures from other retailers;

• the Company’s ability to manage inventory levels and changes in merchandise mix;

• the Company’s reliance on key management and its ability to hire, retain and train qualified associates;

• the performance and operation of the Company’s websites and the risks associated with Internet sales;

• the Company’s reliance on third-party manufacturers and key vendors, including operational risks such as reduced production capacity, errors in complying with merchandise specifications, insufficient quality control and failure to meet production deadlines;

• the impact of fluctuations in sourcing costs, in particular, increases in the costs of raw materials, labor, fuel and transportation;

• the Company’s ability to successfully implement its business transformation initiatives and upgrade and maintain its information systems, including adequate system security controls, successful transitioning of certain information technology functions to third parties and the ability to operate in accordance with its business continuity plan in the event of a disruption;

• the Company’s ability to successfully execute brand goals, objectives and new concepts and strategies, including international expansion;

• the Company’s ability to secure and protect trademarks and other intellectual property rights;

• a significant change in the regulatory environment applicable to the Company’s business and the Company’s ability to comply with legal and regulatory requirements;

• the Company’s reliance on foreign sources of production and the associated risks of doing business in foreign markets, including fluctuations in the value of the U.S. dollar against foreign currencies, the imposition of duties or other possible trade law or import restrictions, including legislation relating to import quotas, and financial or political instability in any of the countries in which the Company’s merchandise is manufactured;

• the potential impact of natural disasters and public health concerns, including severe infectious diseases, acts of war or terrorism in the United States or worldwide, particularly on the Company’s foreign sourcing offices and the manufacturing operations of the Company’s vendors;

• the Company’s ability to successfully manage store growth and optimize the productivity and profitability of its store portfolio;

• the impact of a privacy breach and the resulting effect on the Company’s business and reputation;

• the failure by independent manufacturers to comply with the Company’s social compliance program requirements;

• the effect of general economic conditions on consumer spending and the Company’s liquidity and capital resources;

• the Company’s dependence on its Louisville distribution center and third-party distribution facilities and transportation companies, including any significant interruptions due to work stoppages, slowdowns or strikes;

• the Company’s dependence on shopping malls and other retail centers to attract customers and the impact of potential consolidation of commercial and retail landlords on the Company’s ability to negotiate favorable rental terms;

• the impact on the Company’s stock price relating to the Company’s level of sales and earnings growth;

• the Company’s ability to realize its deferred tax assets;

• the effect of external economic factors on the Company’s future funding obligations for its defined benefit pension plan; and

• the impact of climate change and extreme or unseasonable weather conditions on the Company’s business.

Further description of these risks and uncertainties and other important factors are set forth in the Company’s latest Annual Report on Form 10-K, including but not limited to Item 1A – Risk Factors and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations therein, and in the Company’s other filings with the SEC. Although these forward-looking statements reflect the Company’s current expectations concerning future events, actual results may differ materially from current expectations or historical results. The Company does not assume any obligation to publicly update or revise any forward-looking statements at any time for any reason.

3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Quarters and Nine Months EndedNovember 2, 2013 and October 27, 2012

(unaudited)

	Quarter Ended						Nine Months Ended
	November 2, 2013			October 27, 2012			November 2, 2013		October 27, 2012
	(in thousands, except per share amounts)
Net sales	$	657,532		$	612,548		$	1,870,236	$	1,767,831
Cost of sales	291,312			258,149			834,174		763,660
Gross margin	366,220			354,399			1,036,062		1,004,171
Selling, general and administrative expenses	295,813			287,480			871,764		838,954
Operating income	70,407			66,919			164,298		165,217
Interest and investment income/(expense), net	(224		)	9			217		(155		)
Other non-operating income/(expense), net	(140		)	(24		)	57		(24		)
Income before income taxes	70,043			66,904			164,572		165,038
Income tax provision	28,854			26,156			66,822		64,823
Net income	$	41,189		$	40,748		$	97,750	$	100,215
Earnings per share:
Basic earnings per share	$	0.90		$	0.85		$	2.10	$	2.07
Weighted average shares outstanding	44,967			47,422			45,581		47,638
Diluted earnings per share	$	0.89		$	0.84		$	2.08	$	2.05
Weighted average shares outstanding, assuming dilution	45,443			47,973			46,036		48,256

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

4

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Quarters and Nine Months EndedNovember 2, 2013 and October 27, 2012

(unaudited)

	Quarter Ended				Nine Months Ended
	November 2, 2013		October 27, 2012		November 2, 2013			October 27, 2012
	(in thousands)
Net income	$	41,189	$	40,748	$	97,750		$	100,215
Other comprehensive income/(loss):
Foreign currency translation adjustment	31		12		(395		)	12
Net change in employee benefit plans:
Pension settlement charge	—		290		—			290
Amortization of net actuarial loss	158		175		473			525
Other comprehensive income, before tax	189		477		78			827
Income tax expense on other comprehensive income	60		170		181			325
Other comprehensive income/(loss), net of tax	129		307		(103		)	502
Comprehensive income	$	41,318	$	41,055	$	97,647		$	100,717

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

5

ANN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

November 2, 2013, February 2, 2013 and October 27, 2012

(unaudited)

	November 2, 2013			February 2, 2013			October 27, 2012
	(in thousands, except share amounts)
Assets
Current assets
Cash	$	118,692		$	167,011		$	166,532
Accounts receivable	36,612			17,856			30,873
Merchandise inventories	302,395			216,848			270,385
Refundable income taxes	7,365			9,201			10,179
Deferred income taxes	30,638			30,397			34,933
Prepaid expenses and other current assets	67,752			64,716			66,611
Total current assets	563,454			506,029			579,513
Property and equipment, net	445,541			409,703			412,626
Deferred income taxes	2,335			7,841			17,027
Other assets	22,308			18,632			15,073
Total assets	$	1,033,638		$	942,205		$	1,024,239
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	123,257		$	105,691		$	120,303
Accrued salaries and bonus	20,837			23,969			25,862
Current portion of long-term performance compensation	19,945			34,233			32,069
Accrued tenancy	40,529			38,647			46,419
Gift certificates and merchandise credits redeemable	35,890			47,268			34,147
Accrued expenses and other current liabilities	117,334			86,946			101,071
Total current liabilities	357,792			336,754			359,871
Deferred lease costs	170,221			162,620			162,092
Deferred income taxes	3,361			228			402
Long-term performance compensation, less current portion	14,295			26,368			24,777
Other liabilities	38,648			31,125			28,669
Commitments and contingencies
Stockholders’ equity
Common stock, $.0068 par value; 200,000,000 shares authorized; 82,563,516 shares issued	561			561			561
Additional paid-in capital	750,934			768,215			776,388
Retained earnings	774,592			676,842			674,473
Accumulated other comprehensive loss	(4,600		)	(4,497		)	(4,816		)
Treasury stock, 36,642,644; 35,958,318 and 34,192,540 shares, respectively, at cost	(1,072,166		)	(1,056,011		)	(998,178		)
Total stockholders’ equity	449,321			385,110			448,428
Total liabilities and stockholders’ equity	$	1,033,638		$	942,205		$	1,024,239

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

6

ANN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months EndedNovember 2, 2013 and October 27, 2012

(unaudited)

	Nine Months Ended
	November 2, 2013			October 27, 2012
	(in thousands)
Operating activities:
Net income	$	97,750		$	100,215
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes	8,217			17,232
Depreciation and amortization	78,690			70,659
Recognition of gift card and merchandise credit breakage	(454		)	(6,223		)
Loss on disposal and write-down of property and equipment	3,584			2,358
Stock-based compensation	11,621			12,324
Non-cash interest and other non-cash items	(16		)	357
Tax benefit from exercise/vesting of stock awards	1,601			8,788
Changes in assets and liabilities:
Accounts receivable	(18,799		)	(11,693		)
Merchandise inventories	(85,547		)	(56,938		)
Prepaid expenses and other current assets	(1,352		)	(12,860		)
Refundable income taxes	1,836			1,786
Other non-current assets and liabilities, net	13,869			7,422
Accounts payable, accrued expenses and other current liabilities	(6,210		)	26,522
Net cash provided by operating activities	104,790			159,949
Investing activities:
Purchases of marketable securities	(3,215		)	(1,901		)
Sales of marketable securities	574			158
Purchases of property and equipment	(103,607		)	(111,185		)
Other, net	813			(649		)
Net cash used for investing activities	(105,435		)	(113,577		)
Financing activities:
Proceeds from the issuance of common stock pursuant to Associate Discount Stock Purchase Plan	1,660			1,602
Proceeds from exercise of stock options	5,536			34,309
Excess tax benefits from stock-based compensation	1,860			11,925
Repurchases of common and restricted stock	(53,854		)	(79,123		)
Repayments on fixed asset financing and capital lease obligations	(1,565		)	(1,089		)
Proceeds from fixed asset financing and capital leases	4,317			—
Change in trade payable program obligation, net	(5,296		)	2,357
Net cash used for financing activities	(47,342		)	(30,019		)
Effect of exchange rate changes on cash	(332		)	(29		)
Net increase/(decrease) in cash	(48,319		)	16,324
Cash, beginning of period	167,011			150,208
Cash, end of period	$	118,692		$	166,532
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	793		$	951
Cash paid during the period for income taxes	$	38,664		$	37,683
Accrual for purchases of property and equipment	$	32,455		$	31,566
Property and equipment acquired through capital lease	$	2,444		$	—

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

7

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation

Interim Financial Information

The Condensed Consolidated Financial Statements are unaudited but, in the opinion of management, contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All intercompany accounts and transactions have been eliminated.

The results of operations for the 2013 interim periods presented in the Condensed Consolidated Financial Statements are not necessarily indicative of results to be expected for Fiscal 2013.

The February 2, 2013 Condensed Consolidated Balance Sheet has been derived from the audited Consolidated Balance Sheets of ANN INC. (the “Company”) included in its Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission. As such, the financial information set forth herein should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2013. The Company believes that the disclosures made are adequate to prevent the interim financial statements from being misleading.

Immaterial Corrections to Condensed Consolidated Financial Statements

As previously disclosed in Note 1 to the Company’s Consolidated Financial Statements in its Fiscal 2012 Annual Report on Form 10-K, the Company made an immaterial correction to previously reported balance sheet amounts related to shares issued out of Treasury Stock in connection with the exercise of stock options, the issuance of restricted stock grants and the vesting, in shares, of restricted unit grants. The cumulative impact of this correction had the effect of reducing both Treasury Stock and Additional Paid-in Capital by $51.7 million as of October 27, 2012. In addition, as disclosed in Note 1 to the Company’s Condensed Consolidated Financial Statements for the quarter ended October 27, 2012, the Company recognized $6.2 million in revenue for a portion of the unredeemed value of gift cards and merchandise credits during the third quarter of Fiscal 2012.  The Company has determined that this amount was incorrectly reported in the Changes in assets and liabilities section of the Condensed Consolidated Statement of Cash Flows and should have been separately presented as a direct adjustment to reconcile Net income to Net cash provided by operating activities.  This correction had no impact on Net cash provided by operating activities.  The Company has restated the previously presented Condensed Consolidated Statement of Cash Flows for the nine months ended October 27, 2012 to present Recognition of gift card and merchandise credit breakage as a separate line item and properly state the change in Accounts payable, accrued expenses and other current liabilities as $26.5 million (previously reported as $20.3 million).  

2. Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“AOCI”), which sets forth additional disclosure requirements for items reclassified out of AOCI and into net income, and is effective for annual and interim reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 in the first quarter of Fiscal 2013 by presenting amounts reclassified out of AOCI as a separate disclosure in the Notes to the Condensed Consolidated Financial Statements. Amounts reclassified out of AOCI are related to the amortization of net actuarial loss associated with the Company's pension plan.

8

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

2. Recent Accounting Pronouncements (Continued)

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. ASU 2013-11 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. ASU 2013-11 should be applied prospectively to all unrecognized tax benefits that exist at the effective date, however retrospective application is permitted. The Company plans to adopt ASU 2013-11 in the first quarter of Fiscal 2014 and does not expect it will have any impact on its Consolidated Financial Statements.

3. Fair Value Measurements

The Company follows a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company maintains a self-directed, non-qualified deferred compensation plan structured as a rabbi trust for certain executives at the vice-president level and above. Certain of the investment assets of the rabbi trust are valued based on quoted market prices, which are considered Level 1 inputs, with the remainder based on the net asset value determined by the value of the underlying assets, which are considered Level 2 inputs. The following tables segregate the rabbi trust assets that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine fair value at each of the stated measurement dates:

	November 2, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets:
Equity securities	$	4,091	$	4,091	$	—	$	—
Fixed income funds	777		—		777		—
Equity funds	6,648		—		6,648		—
Total assets	$	11,516	$	4,091	$	7,425	$	—
	February 2, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets:
Equity securities	$	3,868	$	3,868	$	—	$	—
Fixed income funds	572		—		572		—
Equity funds	3,683		—		3,683		—
Total assets	$	8,123	$	3,868	$	4,255	$	—

9

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

3. Fair Value Measurements (Continued)

	October 27, 2012		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Non-qualified deferred compensation plan assets:
Equity securities	$	2,578	$	2,578	$	—	$	—
Fixed income funds	514		—		514		—
Equity funds	3,371		—		3,371		—
Total assets	$	6,463	$	2,578	$	3,885	$	—

As of the dates presented, the Company believes that the carrying value of cash, receivables and payables approximates fair value, due to the short maturity of these financial instruments. As of the dates presented, the Company had no cash equivalents.

4. Earnings Per Share

The following table presents a reconciliation of basic and diluted earnings per share for the quarters and nine months endedNovember 2, 2013 and October 27, 2012:

	Quarter Ended
	November 2, 2013					October 27, 2012
	(in thousands, except per share amounts)
Basic Earnings per Share:	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Net income	$	41,189				$	40,748
Less net income associated with participating securities	824					562
Basic earnings per share	$	40,365	44,967	$	0.90	$	40,186	47,422	$	0.85
Diluted Earnings per Share:
Net income	$	41,189				$	40,748
Less net income associated with participating securities	816					555
Effect of dilutive securities			476					551
Diluted earnings per share	$	40,373	45,443	$	0.89	$	40,193	47,973	$	0.84

10

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

4. Earnings Per Share (Continued)

	Nine Months Ended
	November 2, 2013					October 27, 2012
	(in thousands, except per share amounts)
Basic Earnings per Share:	Net Income		Shares	Per Share Amount		Net Income		Shares	Per Share Amount
Net income	$	97,750				$	100,215
Less net income associated with participating securities	1,892					1,454
Basic earnings per share	$	95,858	45,581	$	2.10	$	98,761	47,638	$	2.07
Diluted Earnings per Share:
Net income	$	97,750				$	100,215
Less net income associated with participating securities	1,874					1,436
Effect of dilutive securities			455					618
Diluted earnings per share	$	95,876	46,036	$	2.08	$	98,779	48,256	$	2.05

For the quarter and nine months endedNovember 2, 2013, non-participating securities (stock options) representing 585,250 and 698,040 shares of common stock, respectively, were excluded from the computation of weighted average shares for diluted earnings per share due to their antidilutive effect, since their exercise prices exceeded the average market price of the common shares during those periods.

For the quarter and nine months endedOctober 27, 2012, non-participating securities (stock options) representing 616,175 and 1,637,275 shares of common stock, respectively, were excluded from the computation of weighted average shares for diluted earnings per share due to their antidilutive effect, since their exercise prices exceeded the average market price of the common shares during those periods. In addition, for the quarter and nine months endedOctober 27, 2012, non-participating securities (performance-based restricted units) representing 23,003 and 15,890 shares of common stock, respectively, were excluded from the computation of weighted average shares for diluted earnings per share due to the fact that they are contingently issuable securities whose contingency was not met at certain dates during those periods. No such shares were excluded from the computation of weighted average shares for diluted earnings per share for the nine months endedNovember 2, 2013. In addition, no such shares were outstanding during the quarter ended November 2, 2013, as all outstanding performance-based restricted units vested in shares during the first quarter of Fiscal 2013.

5. Equity and Incentive Compensation Plans

Repurchase Program

On August 21, 2013, the Company’s Board of Directors approved a new $250 million securities repurchase program (the "Repurchase Program"). The Repurchase Program will expire when the Company has repurchased all securities authorized for repurchase thereunder, unless terminated earlier by the Company’s Board of Directors. There were no repurchases made under the Repurchase Program during the quarter ended November 2, 2013.

During the nine months ended November 2, 2013 and October 27, 2012, under its then existing $600 million securities repurchase program, the Company repurchased 1.5 million and 3.1 million shares of its common stock, respectively, through open market purchases at a cost of $49.1 million and $75.0 million, respectively. There were no repurchases made under the Company's former $600 million securities repurchase program during the quarter ended October 27, 2012. As of November 2, 2013, there were no amounts remaining for additional share repurchases under the Company's former $600 million securities repurchase program, as the Company exhausted that share repurchase authorization during the second quarter of Fiscal 2013.

11

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

5. Equity and Incentive Compensation Plans (Continued)

Stock Incentive Plans

During the quarter and nine months endedNovember 2, 2013, the Company recognized approximately $4.0 million and $11.6 million, respectively, in stock-based compensation expense. During the quarter and nine months endedOctober 27, 2012, the Company recognized approximately $4.8 million and $12.3 million, respectively, in stock-based compensation expense. As of November 2, 2013, there was $4.3 million and $14.9 million of unrecognized compensation cost related to unvested stock options and unvested restricted stock awards, respectively, which is expected to be recognized over a remaining weighted average vesting period of 1.6 years and 1.7 years, respectively. Restricted stock award grants, restricted unit award vestings and shares underlying stock option exercises during the nine months endedNovember 2, 2013 were issued out of treasury stock. In addition, restricted stock awards forfeited, as well as shares returned to cover employee tax withholding obligations related to stock option exercises and restricted stock vestings, were returned to treasury stock.

On May 30, 2013, the Company’s shareholders approved certain amendments to the Company's 2003 Equity Incentive Plan, including increasing the total authorized shares reserved for issuance from 11.75 million to 13.4 million common shares.

Stock Options

The following table summarizes stock option activity for the nine months endedNovember 2, 2013:

	Shares		Weighted  Average Exercise Price
Options outstanding at beginning of period	2,785,102		$	25.61
Granted (1)	101,400		30.73
Exercised	(269,314	)	20.56
Forfeited or expired	(104,100	)	29.67
Options outstanding at end of period	2,513,088		$	26.19
Vested and exercisable at November 2, 2013	2,007,739		$	25.60
Options expected to vest in the future as of November 2, 2013	437,422		$	28.59

(1) Awards vest annually over a three-year period and expire ten years after the grant date.

The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted as of the grant date. For the quarters and nine months endedNovember 2, 2013 and October 27, 2012, the fair value of options granted was estimated using the following weighted average assumptions:

	Quarter Ended				Nine Months Ended
	November 2, 2013		October 27, 2012		November 2, 2013		October 27, 2012
Expected volatility	—	%	53.4	%	52.9	%	54.6	%
Risk-free interest rate	—	%	0.6	%	0.9	%	0.9	%
Expected life (years)	—		4.4		5.0		4.4
Dividend yield	—		—		—		—

There were no options granted during the quarter ended November 2, 2013. The weighted average fair value of options granted during the quarter ended October 27, 2012 was $16.60 per share. The weighted average fair value of options granted during the nine months endedNovember 2, 2013 and October 27, 2012 was $14.09 and $12.44 per share, respectively. The Company estimates the volatility of its common stock on the date of grant based on an average of its historical common stock volatility and the implied volatility of publicly traded options on its common stock.

12

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

5. Equity and Incentive Compensation Plans (Continued)

Restricted Stock

The following table summarizes restricted stock activity for the nine months endedNovember 2, 2013:

	Time - Based					Performance - Based
	Number of Shares			Weighted  Average Grant Date Fair Value		Number of Shares			Weighted  Average Grant Date Fair Value
Restricted stock awards at February 2, 2013	461,396			$	27.96	203,671			$	27.81
Granted	401,228		(1)	30.82		184,699		(2)	30.86
Vested	(187,942	)		27.50		(82,633	)		27.92
Forfeited	(59,917	)		29.06		(11,300	)		30.73
Restricted stock awards at November 2, 2013	614,765			$	29.86	294,437			$	29.58

(1) Of this amount, 181,500 shares vest in equal installments in each of March 2014, 2015 and 2016; 179,100 shares vest in March 2016; 27,628 shares vest in May 2014; and 13,000 shares vest in equal installments in each of June 2014, 2015 and 2016.

(2) Of this amount, 175,500 of these shares vest over a three-year period based on achievement of performance targets set bi-annually for each tranche of the grant. Based on Company performance, grantees may earn 50% to 150% of the shares granted with respect to each tranche. If the Company does not achieve the minimum threshold goal associated with such shares, grantees will not earn any shares with respect to that tranche. In addition, 3,138 of these shares relate to over achievement of the Spring 2012 tranche and vested in March 2013 and 6,061 of these shares relate to the over achievement of the Spring 2013 tranche and will vest in March 2014.

Restricted Units

The following table summarizes restricted unit activity for the nine months endedNovember 2, 2013:

	Time - Based				Performance - Based
	Number of Shares		Weighted  Average Grant Date Fair Value		Number of Shares		Weighted  Average Grant Date Fair Value
Restricted unit awards at February 2, 2013	75,016		$	19.58	46,003		$	19.58
Vested (1)	(75,016	)	19.58		(46,003	)	19.58
Restricted unit awards at November 2, 2013	—		$	—	—		$	—

(1) All restricted unit awards vested in shares during the first quarter of Fiscal 2013.

Long-Term Performance Compensation

The Company maintains a long-term cash incentive program, the Restricted Cash Program (“RCP”) for vice-presidents and above. During the quarters ended November 2, 2013 and October 27, 2012, the Company recognized $2.6 million and $6.5 million, respectively, in compensation expense under the RCP inclusive of the effect of changes in estimates. During the nine months endedNovember 2, 2013 and October 27, 2012, the Company recognized $9.4 million and $14.7 million, respectively, in compensation expense under the RCP inclusive of the effect of changes in estimates. As of November 2, 2013, there was $30.2 million of unrecognized compensation cost under the RCP, which is expected to be recognized over a remaining weighted average deferral period of 2.7 years.

13

ANN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(unaudited)

6. Revolving Credit Facility

On December 19, 2012, the Company’s wholly-owned subsidiary, AnnTaylor, Inc., and certain of its subsidiaries, entered into a Fourth Amended and Restated $250 million senior secured revolving credit facility with Bank of America, N.A. and a syndicate of lenders (the “Credit Facility”), which amended the existing senior secured revolving credit facility due to expire in April 2013. The Credit Facility provides the Company with a $75 million sub-facility solely for loans and letters of credit to be provided to ANN Canada Inc., a wholly-owned subsidiary of AnnTaylor, Inc., and an option to increase the total facility and the aggregate commitments thereunder up to $400 million, subject to the lenders’ agreement to increase their commitment for the requested amount. The Credit Facility expires on December 19, 2017 and may be used for working capital, letters of credit and other corporate purposes, and contains an acceleration clause which, upon the occurrence of an Event of Default, including but not limited to, a Material Adverse Effect, each as defined in the Credit Facility, may cause any outstanding borrowings to become immediately due and payable.

The maximum availability for loans and letters of credit under the Credit Facility is governed by a quarterly borrowing base, determined by the application of specified percentages of certain eligible assets, primarily accounts receivable and inventory. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $11.6 million, $14.1 million and $16.3 million as of November 2, 2013, February 2, 2013 and October 27, 2012, respectively, leaving a remaining available balance for loans and letters of credit of $238.4 million, $150.8 million and $228.8 million, respectively. There were no borrowings outstanding under the Credit Facility at November 2, 2013, February 2, 2013, October 27, 2012 or as of November 22, 2013, the date of this filing.

The lenders have been granted a security interest in the inventory and accounts receivable of AnnTaylor, Inc. and certain of its subsidiaries, as collateral for the obligations under the Credit Facility. The Credit Facility contains financial and other covenants, including limitations on indebtedness and liens, and a fixed charge coverage ratio covenant that is triggered if certain liquidity thresholds are not met.

7. Employee Benefits

The following table summarizes the components of net periodic pension cost for the Company:

	Quarter Ended						Nine Months Ended
	November 2, 2013			October 27, 2012			November 2, 2013			October 27, 2012
	(in thousands)
Net periodic pension cost:
Interest cost	$	360		$	437		$	1,080		$	1,312
Expected return on plan assets	(323		)	(377		)	(968		)	(1,132		)
Amortization of actuarial loss	158			175			473			525
Settlement loss recognized	—			290			—			290
Net periodic pension cost	$	195		$	525		$	585		$	995

The Company froze its noncontributory defined benefit pension plan (the "Pension Plan") in October 2007. The Company was neither required to, nor did it make, any contributions to its Pension Plan during the quarters or nine months endedNovember 2, 2013 and October 27, 2012.

14

8. Accumulated Other Comprehensive Loss

The following table summarizes the components of accumulated other comprehensive loss ("AOCL") for the nine months endedNovember 2, 2013:

	Foreign Currency Translation			Unrecognized Pension Benefit Costs			Total
	(in thousands)
Balance at February 2, 2013	$	19		$	(4,516	)	$	(4,497	)
Other comprehensive income/(loss) before reclassifications:
Foreign currency translation adjustment	(395		)	—			(395		)
Amounts reclassified from AOCL:
Amortization of net actuarial loss (1)	—			473			473
Amounts reclassified from AOCL, before tax (2)	—			473			473
Income tax expense (3)	—			181			181
Net current period other comprehensive income/(loss), net of tax	(395		)	292			(103		)
Balance at November 2, 2013	$	(376	)	$	(4,224	)	$	(4,600	)

(1) Amount is included in net periodic pension cost, which is presented in “Selling, general and administrative expenses” on the Company's Condensed Consolidated Statements of Operations. See Note 7, “Employee Benefits,” for further details.

(2) During the quarter and nine months ended November 2, 2013, the Company reclassified income of $0.2 million ($0.1 million net of tax) and $0.5 million ($0.3 million net of tax), respectively, from AOCL related to the Company's employee benefit plan.

(3) Relates to amounts reclassified from AOCL to income tax expense.

9. Legal Proceedings

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

15

Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

ANN INC., through its wholly-owned subsidiaries, is a leading national specialty retailer of women's apparel, shoes and accessories, sold primarily under the “Ann Taylor” and “LOFT” brands. We were incorporated in the State of Delaware in 1988 and changed our name to ANN INC. in March 2011. For more than half a century, we have evolved with the needs of real women who live full, active lives.

Our rich heritage dates back to 1954, when we opened our first Ann Taylor store in New Haven, Connecticut. Back then, “Ann Taylor” represented a best-selling dress style that embodied the well-dressed woman. Today, we operate 1,027 retail stores in 47 states, the District of Columbia, Puerto Rico and Canada. In addition to our stores, our clients can shop online at www.anntaylor.com and www.LOFT.com (together, our “Online Stores”) or by phone at 1-800-DIAL-ANN and 1-888-LOFT-444.

We are committed to and driven by a simple but important mission - “to inspire and connect with our clients to put their best selves forward every day.” This is evident in our strong brands as well as in our commitment to operate our business responsibly and thoughtfully. This commitment means that our clients can look and feel great about the clothes that they wear, and that as a business, we are holding ourselves to high standards. It means forging strong partnerships with our suppliers so that our products are made ethically. It means investing in new programs and innovation to minimize our impact on the environment. And it means making meaningful contributions to our communities.

Unless the context indicates otherwise, all references to “we,” “our,” “us,” and “the Company” refer to ANN INC. and its wholly-owned subsidiaries.

Management Overview

During the third quarter of Fiscal 2013, we achieved record diluted earnings per share of $0.89, reflecting higher net sales, positive comparable sales at both brands, solid gross margin rate performance and continued disciplined management of expenses, as well as the benefit of share repurchase activity.  Our focus on providing our clients with fashionable, versatile product, excellent value and an engaging shopping experience helped both brands perform well in a very competitive and promotional retail environment. We responded with more promotions in all channels of our business in order to remain competitive, which resulted in lower overall gross margin rate performance compared to last year. We closed the quarter in a clean inventory position.

 At the Ann Taylor brand, overall comparable sales increased 0.6% during the third quarter of Fiscal 2013. At Ann Taylor, which includes Ann Taylor stores and anntaylor.com, comparable sales increased 4.4%, while at Ann Taylor Factory, comparable sales declined 6.9%. Results at Ann Taylor continued to benefit from our strategy to offer clients a broader assortment of fashion in all stores and online, as well as strong performance across multiple apparel categories and our accessories collections. As a result, Ann Taylor delivered higher merchandise gross margin rate performance compared to the third quarter of Fiscal 2012.  At Ann Taylor Factory, softer traffic patterns in factory outlet centers continued to impact sales during the third quarter.  Overall, the Ann Taylor brand achieved its sixth consecutive quarter of positive comparable sales performance and we believe the brand is well-positioned to continue this momentum in the fourth quarter of Fiscal 2013.

At the LOFT brand, overall comparable sales increased 5.6% during the third quarter of Fiscal 2013, reflecting increases of 6.3% at LOFT, which includes LOFT stores and LOFT.com, and 1.8% at LOFT Outlet.  LOFT's third quarter merchandise offerings were received positively by clients, and our expanded offerings in tops, pants, denim, jackets and LOFT Lounge, in particular, resonated very well.  At LOFT Outlet, the comparable sales increase reflected the benefit of slightly higher inventory levels as compared to the third quarter of Fiscal 2012, as well as an effective promotional strategy during the quarter. Looking ahead, we believe that the LOFT brand is well-positioned to continue to deliver profitable growth during the fourth quarter of Fiscal 2013.

From a real estate perspective, we continued to focus on our brands' objective to enhance the overall productivity and profitability of our store fleet in the United States and Canada. In support of this, we opened 20 new stores during the third quarter of Fiscal 2013 and updated several additional stores. At Ann Taylor, we continued to roll-out our new format stores, opening one new store and right-sizing and remodeling three existing stores during the quarter. At LOFT, we continued to expand the fleet, primarily in small- and mid-markets, with the addition of 12 new stores during the quarter. We also continued expansion in the factory/outlet channel, adding one new Ann Taylor Factory store and six new LOFT Outlet stores. At the end of the third quarter, our 1,027 store fleet was comprised of 276 Ann Taylor stores, 537 LOFT stores, 106 Ann Taylor Factory stores and 108 LOFT Outlet stores.

16

 In summary, our record third quarter diluted earnings per share results reflect that our product at both brands resonated with our clients and that our strategic initiatives continued to gain traction. We expect that, as we execute and build on these strategies, they will create further opportunities for ANN INC. over the long-term.  Both Ann Taylor and LOFT are strong brands that offer great fashion, service, quality, value and personalization, along with an engaging client experience across all channels.  Our Ann Taylor and LOFT brands are strong, and we remain highly committed to maximizing the profitable and consistent growth of our brands and our business.

Key Performance Indicators

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

• Comparable sales – Comparable sales ("comps") provide a measure of existing store sales performance. A store is included in comparable sales in its thirteenth month of operation. A store with a square footage change of greater than 15% is treated as a new store for the first year following its reopening. Sales from our Online Stores are also included in comparable sales.

• Gross margin and merchandise gross margin – Gross margin measures our ability to control the direct costs of merchandise sold during the period.  Merchandise gross margin represents the difference between net merchandise sales and merchandise cost.   Merchandise cost includes the cost paid to our third-party suppliers for merchandise sold during the period and the cost to transport that merchandise from our suppliers to our distribution center, including customs costs.  Gross margin includes merchandise gross margin, as well as revenue and/or expenses related to:  our sourcing operations; fulfillment and shipment of online and multi-channel sales; depreciation related to merchandise management systems; sample product development; and direct costs of our credit card loyalty program. Buying and occupancy costs are excluded from cost of sales and gross margin.

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

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

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

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

17

Results of Operations

The following table sets forth data from our Condensed Consolidated Statements of Operations expressed as a percentage of net sales:

	Quarter Ended				Nine Months Ended
	November 2, 2013		October 27, 2012		November 2, 2013		October 27, 2012
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	44.3	%	42.1	%	44.6	%	43.2	%
Gross margin	55.7	%	57.9	%	55.4	%	56.8	%
Selling, general and administrative expenses	45.0	%	46.9	%	46.6	%	47.5	%
Operating income	10.7	%	11.0	%	8.8	%	9.3	%
Interest and investment income/(expense), net	—	%	—	%	—	%	—	%
Other non-operating income/(expense), net	—	%	—	%	—	%	—	%
Income before income taxes	10.7	%	11.0	%	8.8	%	9.3	%
Income tax provision	4.4	%	4.3	%	3.6	%	3.7	%
Net income	6.3	%	6.7	%	5.2	%	5.6	%

The following table sets forth selected data from our Condensed Consolidated Statements of Operations expressed as a percentage change from the comparable prior period:

	Quarter Ended				Nine Months Ended
	November 2, 2013		October 27, 2012		November 2, 2013		October 27, 2012
	increase/(decrease)
Net sales	7.3	%	8.6	%	5.8	%	7.4	%
Gross margin	3.3	%	9.3	%	3.2	%	7.9	%
Operating income	5.2	%	22.2	%	(0.6	)%	16.1	%
Net income	1.1	%	26.2	%	(2.5	)%	18.8	%

Sales and Sales-Related Metrics

The following tables set forth certain sales and sales-related metrics:

	Quarter Ended
	November 2, 2013				October 27, 2012
	Sales		Comp %		Sales		Comp %
Sales and Comparable Sales	($ in thousands)
Ann Taylor brand
Ann Taylor (1)	$	172,172	4.4	%	$	165,906	5.6	%
Ann Taylor Factory	77,003		(6.9	)%	78,649		1.7	%
Total Ann Taylor brand	$	249,175	0.6	%	$	244,555	4.3	%
LOFT brand
LOFT (2)	$	336,874	6.3	%	$	307,736	8.0	%
LOFT Outlet	71,483		1.8	%	60,257		(3.0	)%
Total LOFT brand	$	408,357	5.6	%	$	367,993	6.2	%
Total Company	$	657,532	3.7	%	$	612,548	5.5	%

(footnotes on following page)

18

Sales and Sales-Related Metrics (Continued)

	Nine Months Ended
	November 2, 2013				October 27, 2012
	Sales		Comp %		Sales		Comp %
Sales and Comparable Sales	($ in thousands)
Ann Taylor brand
Ann Taylor (1)	$	488,762	6.6	%	$	459,806	0.6	%
Ann Taylor Factory	224,843		(6.7	)%	230,400		1.5	%
Total Ann Taylor brand	$	713,605	1.9	%	$	690,206	0.9	%
LOFT brand
LOFT (2)	$	955,744	3.1	%	$	907,099	8.2	%
LOFT Outlet	200,887		(2.8	)%	170,526		0.4	%
Total LOFT brand	$	1,156,631	2.1	%	$	1,077,625	7.1	%
Total Company	$	1,870,236	2.0	%	$	1,767,831	4.7	%

	Quarter Ended				Nine Months Ended
	November 2, 2013		October 27, 2012		November 2, 2013		October 27, 2012
Sales-Related Metrics
Average Dollars Per Transaction ("DPT")
Ann Taylor brand	$	78.86	$	81.88	$	76.46	$	80.35
LOFT brand	65.98		64.74		62.18		63.28
Average Units Per Transaction ("UPT")
Ann Taylor brand	2.51		2.47		2.48		2.40
LOFT brand	2.73		2.57		2.68		2.63
Average Unit Retail ("AUR")
Ann Taylor brand	$	31.42	$	33.15	$	30.83	$	33.48
LOFT brand	24.17		25.19		23.20		24.06

(1) Includes sales at Ann Taylor stores and anntaylor.com.

(2) Includes sales at LOFT stores and LOFT.com.

19

Store Data

The following tables set forth certain store data:

	Quarter Ended
	November 2, 2013			October 27, 2012
	Stores	Square Feet		Stores		Square Feet
	(square feet in thousands)
Stores and Square Footage
Ann Taylor brand
Ann Taylor	276	1,371		278		1,414
Ann Taylor Factory	106	721		101		697
Total Ann Taylor brand	382	2,092		379		2,111
LOFT brand
LOFT	537	3,073		510		2,948
LOFT Outlet	108	719		92		627
Total LOFT brand	645	3,792		602		3,575
Total Company	1,027	5,884		981		5,686
Number of:
Stores open at beginning of period	1,007	5,788		962		5,594
New stores (1)	20	104		25		134
Downsized/expanded stores, net (2)	—	(8	)	—		(13	)
Closed stores	—	—		(6	)	(29	)
Stores open at end of period	1,027	5,884		981		5,686

	Nine Months Ended
	November 2, 2013				October 27, 2012
	Stores		Square Feet		Stores		Square Feet
	(square feet in thousands)
Number of:
Stores open at beginning of period	984		5,685		953		5,584
New stores (3)	54		281		49		267
Downsized/expanded stores, net (4)	—		(22	)	—		(54	)
Closed stores	(11	)	(60	)	(21	)	(111	)
Stores open at end of period	1,027		5,884		981		5,686

(1) During the quarter ended November 2, 2013, we opened one new Ann Taylor store, one new Ann Taylor Factory store, 12 new LOFT stores and six new LOFT Outlet stores. During the quarter ended October 27, 2012, we opened four new Ann Taylor stores, one new Ann Taylor Factory store, eight new LOFT stores and 12 new LOFT Outlet stores.

(2) During the quarter ended November 2, 2013, we downsized three Ann Taylor stores, three LOFT stores and expanded one LOFT store. During the quarter ended October 27, 2012, we downsized five Ann Taylor stores and three LOFT stores and expanded one Ann Taylor store and one LOFT store.

(3) During the nine months endedNovember 2, 2013, we opened five new Ann Taylor stores, five new Ann Taylor Factory stores, 32 new LOFT stores and 12 new LOFT Outlet stores. During the nine months endedOctober 27, 2012, we opened nine new Ann Taylor stores, two new Ann Taylor Factory stores, 19 new LOFT stores and 19 new LOFT Outlet stores.

(4) During the nine months endedNovember 2, 2013, we downsized nine Ann Taylor stores, one Ann Taylor Factory store and five LOFT stores and expanded two LOFT stores. During the nine months endedOctober 27, 2012, we downsized 14 Ann Taylor stores, four Ann Taylor Factory stores, four LOFT stores and one LOFT Outlet store and expanded two Ann Taylor stores and one LOFT store.

20

Net sales for the quarter and nine months ended November 2, 2013 increased 7.3% and 5.8%, respectively, over the comparable 2012 periods, with comparable sales up 3.7% and 2.0%, respectively. These results were on top of the 5.5% and 4.7% comparable sales increases achieved during the quarter and nine months ended October 27, 2012. The overall sales increase for both the quarter and nine-month periods was driven by increases in traffic and transactions at Ann Taylor and LOFT, reflecting the continued benefit of our multi-channel initiative, our strategy to offer clients a broader assortment of fashion in-store and online and net store growth over the comparable prior-year periods. This was partially offset by the impact of softer traffic in the factory/outlet channel.

By brand, Ann Taylor's net sales for the quarter and nine months ended November 2, 2013 increased $4.6 million, or 1.9%, and $23.4 million, or 3.4%, respectively, over the comparable prior-year periods, with comparable sales up 0.6% and 1.9%, respectively. At Ann Taylor, which includes Ann Taylor stores and anntaylor.com, comparable sales increased 4.4% and 6.6% for the quarter and nine-month periods, respectively, as a result of the continued success of our versatile wear-to-work offering and for the third-quarter period, our new shoe and jewelry collections, which contributed to higher full price sell-through and increases in traffic, transactions and units per transaction. At Ann Taylor Factory, sales continued to be impacted by softer traffic patterns in a highly promotional factory/outlet environment, which impacted AUR and DPT and also contributed to comparable sales decreases of 6.9% and 6.7% for the quarter and nine-month periods, respectively.

At LOFT, net sales increased $40.4 million, or 11.0%, and $79.0 million, or 7.3%, during the quarter and nine months ended November 2, 2013, respectively, with comparable sales up 5.6% and 2.1% for the quarter and nine-month periods, respectively. At LOFT, which includes LOFT stores and LOFT.com, the overall increase in net sales was due, in part, to higher traffic, UPTs and DPTs, which contributed to comparable sales increases of 6.3% and 3.1% for the quarter and nine-month periods, respectively, as well as the impact of incremental store growth. At LOFT Outlet, net sales increased 18.6% and 17.8% for the quarter and nine months ended November 2, 2013, respectively, primarily as a result of continued store growth. Comparable sales increased 1.8% for the quarter ended November 2, 2013 as a result of increased conversion and transactions, but decreased 2.8% for the nine-month period, due to continued traffic challenges at factory/outlet centers.

Cost of Sales and Gross Margin

The following table presents cost of sales and gross margin in dollars and gross margin as a percentage of net sales:

	Quarter Ended						Nine Months Ended
	November 2, 2013			October 27, 2012			November 2, 2013			October 27, 2012
	(dollars in thousands)
Cost of sales	$	291,312		$	258,149		$	834,174		$	763,660
Gross margin	$	366,220		$	354,399		$	1,036,062		$	1,004,171
Percentage of net sales	55.7		%	57.9		%	55.4		%	56.8		%

Gross margin as a percentage of net sales for the quarter ended November 2, 2013 was 55.7% versus 57.9% in the comparable 2012 period. We experienced a year-over-year decrease in merchandise gross margin rate performance, primarily due to the highly competitive retail environment, which required us to be more promotional than planned at both brands in order to clear through inventory and maintain our share of wallet. In addition, our overall gross margin rate performance for the quarter as compared to the prior year was impacted by the one-time $6.2 million, 50 basis point, benefit in the prior year period associated with initial recognition of gift card and merchandise credit breakage.

For the nine months endedNovember 2, 2013, gross margin as a percentage of net sales decreased to 55.4% from 56.8% in the comparable 2012 period. While we experienced higher margins on multi-channel sales, our merchandise gross margin rate decreased slightly from the comparable prior-year period primarily due to the impact of the more promotional retail environment, particularly during the third quarter. In addition, our overall gross margin rate was negatively impacted by the effect of higher levels of client shipping associated with multi-channel sales.

21

Selling, General and Administrative Expenses

The following table presents selling, general and administrative expenses in dollars and as a percentage of net sales:

	Quarter Ended						Nine Months Ended
	November 2, 2013			October 27, 2012			November 2, 2013			October 27, 2012
	(dollars in thousands)
Selling, general and administrative expenses	$	295,813		$	287,480		$	871,764		$	838,954
Percentage of net sales	45.0		%	46.9		%	46.6		%	47.5		%

The increase in selling, general and administrative expenses for the third quarter and nine months ended November 2, 2013 versus the comparable prior-year periods was primarily due to increases in variable costs associated with higher net sales and higher payroll and occupancy costs related to store growth and other expenses supporting the expansion of our business. These increases were partially offset by an overall decrease in performance-based compensation expense.

As a percentage of net sales, the decrease in selling, general and administrative expenses for the quarter and nine months endedNovember 2, 2013 versus the comparable prior-year periods reflects the benefit of increased fixed cost leverage as a result of higher net sales and lower performance-based compensation expense. These decreases were partially offset by an increase in payroll, occupancy and other variable expenses related to store growth, as well as other expenses supporting the expansion of our business.

Income Taxes

The following table presents our income tax provision and effective income tax rate:

	Quarter Ended						Nine Months Ended
	November 2, 2013			October 27, 2012			November 2, 2013			October 27, 2012
	(dollars in thousands)
Income tax provision	$	28,854		$	26,156		$	66,822		$	64,823
Effective income tax rate	41.2		%	39.1		%	40.6		%	39.3		%

The effective income tax rate of 41.2% for the quarter ended November 2, 2013 increased over the comparable period primarily due to the benefit of tax positions that were considered effectively settled during the quarter ended October 27, 2012. 

The increase in our effective income tax rate for the nine months endedNovember 2, 2013 over the comparable 2012 period is primarily due to the benefit in the prior-year period of tax positions that were considered effectively settled, as well as changes in the mix of earnings in various state taxing jurisdictions. We expect our full year effective income tax rate to be approximately 41%.

Liquidity and Capital Resources

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

	November 2, 2013		February 2, 2013		October 27, 2012
	(dollars in thousands)
Working capital	$	205,662	$	169,275	$	219,642
Current ratio	1.57:1		1.50:1		1.61:1

Operating Activities

Cash provided by operating activities was $104.8 million for the nine months ended November 2, 2013, compared with $159.9 million for the nine months ended October 27, 2012. The year-over-year decrease is primarily the result of increases in cash used for the purchase of merchandise inventories, payments related to our incentive compensation plans, and the timing of payment of accounts payable and other accrued expenses.

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Merchandise inventories increased approximately $32.0 million, or 11.8%, at November 2, 2013 compared to October 27, 2012. On a per-square-foot basis, merchandise inventories at November 2, 2013 increased 8% as compared to October 27, 2012, reflecting increases of 1% at Ann Taylor, 14% at LOFT and 10% in the factory/outlet channel. The increases at LOFT and the factory/outlet channel reflect the impact of timing shifts in the receipt of merchandise as compared to last year.

Investing Activities

Cash used for investing activities was $105.4 million for the nine months ended November 2, 2013, compared with $113.6 million for the nine months ended October 27, 2012. Cash used for investing activities was primarily driven by capital expenditures related to our store expansion and refurbishment projects during both periods.

Financing Activities

Cash used for financing activities was $47.3 million for the nine months ended November 2, 2013, compared with $30.0 million for the nine months ended October 27, 2012. Cash used for financing activities was primarily for the repurchase of common stock under our share repurchase program during both periods. During the prior-year period, this was more significantly offset by cash inflows related to the exercise of stock options and related tax benefits realized.

Repurchase Program

On August 21, 2013, our Board of Directors approved a new $250 million securities repurchase program (the "Repurchase Program"). The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors. There were no repurchases made under the Repurchase Program during the quarter ended November 2, 2013.

During the nine months ended November 2, 2013 and October 27, 2012, under our then existing $600 million securities repurchase program, we repurchased 1.5 million and 3.1 million shares of common stock, respectively, through open market purchases at a cost of $49.1 million and $75.0 million, respectively. There were no repurchases made under our former $600 million securities repurchase program during the quarter ended October 27, 2012. As of November 2, 2013, there were no amounts remaining for additional share repurchases under our former $600 million securities repurchase program, as we exhausted that share repurchase authorization during the second quarter of Fiscal 2013.

Revolving Credit Facility

On December 19, 2012, our wholly-owned subsidiary, AnnTaylor, Inc., and certain of its subsidiaries, entered into a Fourth Amended and Restated $250 million senior secured revolving credit facility with Bank of America, N.A. and a syndicate of lenders (the “Credit Facility”), which amended the existing senior secured revolving credit facility due to expire in April 2013. The maximum availability for loans and letters of credit under the Credit Facility is governed by a quarterly borrowing base, determined by the application of specified percentages of certain eligible assets, primarily accounts receivable and inventory. Commercial and standby letters of credit outstanding under the Credit Facility totaled approximately $11.6 million, $14.1 million and $16.3 million as of November 2, 2013, February 2, 2013 and October 27, 2012, respectively, leaving a remaining available balance for loans and letters of credit of $238.4 million, $150.8 million and $228.8 million as of November 2, 2013, February 2, 2013 and October 27, 2012, respectively. There were no borrowings outstanding under the Credit Facility at November 2, 2013, February 2, 2013, October 27, 2012 or as of November 22, 2013, the date of this filing.

The Credit Facility contains financial and other covenants, including limitations on indebtedness and liens, and a fixed charge coverage ratio covenant that is triggered if certain liquidity thresholds are not met.  As of November 2, 2013 and November 22, 2013, the date of this filing, the Company was in compliance with all such covenants. For additional information, see Note 6, “Revolving Credit Facility,” in the Notes to the Condensed Consolidated Financial Statements.

Other

We have significant amounts of cash on deposit at FDIC-insured financial institutions that are currently in excess of federally insured limits, therefore, we cannot be assured that we will not experience losses with respect to those deposits. We continually evaluate our deposit investment options in accordance with our corporate investment policy and certain restrictions on permitted investments in our Credit Facility.

Foreign cash balances at November 2, 2013 were $2.9 million, the majority of which was held in Canadian dollars. As of February 2, 2013 and October 27, 2012, we had foreign cash balances of $3.0 million and $4.5 million, respectively.

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We recognized $0.1 million and $6.2 million in revenue during the quarters ended November 2, 2013 and October 27, 2012, respectively, for a portion of the unredeemed value of gift cards and merchandise credits where we have determined that, under applicable state unclaimed property laws, there is no legal obligation to escheat these amounts to such states and the likelihood of redemption is considered remote. The third quarter of Fiscal 2012 was the first period during which we recognized gift card and merchandise credit “breakage,” and therefore included the breakage income related to gift cards sold and merchandise credits issued since inception of these programs. Such gift card and merchandise credit “breakage” is estimated based upon an analysis of actual historical redemption patterns and is included in Net sales.

We have a credit card program which offers eligible clients the choice of a private label or co-branded credit card. All new cardholders are automatically enrolled in our exclusive rewards program, which is designed to recognize and promote client loyalty. We provide the sponsoring bank with marketing support of the program and use our sales force to process credit card applications for both the private label and co-branded credit cards. As part of the program, which began in October 2008 and has a six and one-half year term, we received an upfront signing bonus from the sponsoring bank. We also receive ongoing payments for new accounts activated as well as a share of finance charges collected by the sponsoring bank. These revenue streams are accounted for as a single unit of accounting and accordingly, are recognized as revenue ratably based on the total projected revenues over the term of the agreement.

Certain judgments and estimates underlie our projected revenues and related expenses under the program, including projected future store counts, the number of applications processed, our projected sales growth and points breakage, among other things. During the quarters ended November 2, 2013 and October 27, 2012, we recognized approximately $11.4 million and $11.3 million of revenue related to the credit card program, respectively. During the nine months ended November 2, 2013 and October 27, 2012, we recognized approximately $16.2 million and $15.5 million of revenue related to the credit card program, respectively. At November 2, 2013, February 2, 2013 and October 27, 2012, approximately $2.0 million, $3.0 million and $3.3 million, respectively, of deferred credit card income is included in "Accrued expenses and other current liabilities" on our Condensed Consolidated Balance Sheets. Partially offsetting the income from the credit card program are costs, net of points breakage, related to the customer loyalty program. These costs are included in either Cost of sales or in Net sales as a Sales discount, as appropriate. The Cost of sales impact, net of points breakage, was approximately $1.7 million and $1.5 million and the Sales discount impact was approximately $1.7 million and $1.7 million for the quarters ended November 2, 2013 and October 27, 2012, respectively. The Cost of sales impact, net of points breakage, was approximately $4.0 million and $4.7 million and the Sales discount impact was approximately $4.6 million and $4.9 million for the nine months ended November 2, 2013 and October 27, 2012, respectively.

On October 1, 2007, we froze our noncontributory defined benefit pension plan (the “Pension Plan”). Our Pension Plan is invested in readily liquid investments, primarily equity and debt securities. Although we were not required to make a contribution to the Pension Plan in Fiscal 2012 or Fiscal 2011, any deterioration in the financial markets or changes in discount rates may require us to make a contribution to our Pension Plan in Fiscal 2013.

We are self-insured for expenses related to our employee medical plan, our workers' compensation plan, general liability plan and for short-term and long-term disability, up to certain thresholds.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and capital resources are based on the Condensed Consolidated Financial Statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes, including revenue, expenses, assets and liabilities, and the disclosure of contingent assets and liabilities. Management has determined that our most critical accounting estimates are those related to merchandise inventory valuation, asset impairment, income taxes and stock and incentive-based compensation. Actual results in these areas could differ from management’s estimates. We continue to monitor our accounting policies to ensure proper application of current rules and regulations. There have been no significant changes in the information concerning our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

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Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“AOCI”), which sets forth additional disclosure requirements for items reclassified out of AOCI and into net income, and is effective for annual and interim reporting periods beginning after December 15, 2012. We adopted ASU 2013-02 in the first quarter of Fiscal 2013, by presenting amounts reclassified out of AOCI as a separate disclosure in the Notes to the Condensed Consolidated Financial Statements. Amounts reclassified out of AOCI are related to the amortization of net actuarial loss associated with our pension plan.

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. ASU 2013-11 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. ASU 2013-11 should be applied prospectively to all unrecognized tax benefits that exist at the effective date, however retrospective application is permitted. We plan to adopt ASU 2013-11 in the first quarter of Fiscal 2014 and do not expect it will have any impact on our Consolidated Financial Statements.

Item 3.        Quantitative and Qualitative Disclosures About Market Risk.

We have significant amounts of cash on deposit at FDIC-insured financial institutions that are currently in excess of federally insured limits, therefore, we cannot be assured that we will not experience losses with respect to those deposits. We continually evaluate our deposit investment options in accordance with our corporate investment policy and certain restrictions on permitted investments in our Credit Facility.

We are exposed to limited market risk, primarily related to foreign currency exchange. We have exchange rate exposure primarily with respect to certain revenues and expenses denominated in the Canadian dollar. As of November 2, 2013, our monetary assets and liabilities subject to this exposure are immaterial; therefore, the potential immediate loss to us that would result from a hypothetical 10% change in foreign currency exchange rates would not have a material impact on our earnings or cash flows.

Our Credit Facility allows for investments in financial instruments with original maturity dates of up to 360 days. As of November 2, 2013, we did not hold any investments that did not qualify as cash.

Item 4.         Controls and Procedures.

The Company conducted an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its 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), as of the end of the period covered by this filing. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this filing.

During the third quarter of Fiscal 2013, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds.

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

	Total Number of Shares Purchased (1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under Publicly Announced Program
					(in thousands)
August 4, 2013 to August 31, 2013	—	$	—	—	$	250,000
September 1, 2013 to October 5, 2013	616	35.92		—	250,000
October 6, 2013 to November 2, 2013	—	—		—	250,000
	616			—

(1) Represents shares of restricted stock purchased in connection with employee tax withholding obligations under the employee equity compensation plans, which are not purchases under the Company’s publicly announced program.

(2) On August 21, 2013, our Board of Directors approved a new $250 million securities repurchase program (the "Repurchase Program"). There were no repurchases made under the Repurchase Program during the quarter ended November 2, 2013. The Repurchase Program will expire when we have repurchased all securities authorized for repurchase thereunder, unless terminated earlier by our Board of Directors.

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Item 6. Exhibits

Exhibit Number	Description
10.1*†	Amended and Restated ANN INC. Management Performance Compensation Plan as amended through March 7, 2012, and the Amendment to the ANN INC. Management Performance Compensation Plan, dated November 19, 2013.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1°	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

* Filed electronically herewith.

° Furnished electronically herewith.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		ANN INC.
Date:	November 22, 2013	By:	/s/    Kay Krill
			Kay Krill
			President and Chief Executive Officer
			(Principal Executive Officer)

Date:	November 22, 2013	By:	/s/    Michael J. Nicholson
			Michael J. Nicholson
			Executive Vice President, Chief Operating Officer,
			Chief Financial Officer, and Treasurer
			(Principal Financial Officer)

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Exhibit Index

Exhibit Number	Description
10.1*†	Amended and Restated ANN INC. Management Performance Compensation Plan as amended through March 7, 2012, and the Amendment to the ANN INC. Management Performance Compensation Plan, dated November 19, 2013.
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1°	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation
101.DEF	XBRL Taxonomy Extension Definition
101.LAB	XBRL Taxonomy Extension Labels
101.PRE	XBRL Taxonomy Extension Presentation

* Filed electronically herewith.

° Furnished electronically herewith.

† Management contract or compensatory plan or arrangement.

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